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PROGRAMME: CORPORATE MASTER IN BUSINESS ADMINISTRATION

COURSE: ACCOUNTING FOR MANAGER


(EBA/EBB 6113)
2017 2018 SEM 1

PROBLEM BASED CASE TOPICS (ABSRORPTION AND MARGINAL COSTING,


COST VOLUME PROFIT ANALYSIS AND ACTIVITY BASED COSTING)

Question1
MexianProductproducesfastmovingmeals,whichitsellsforRM9each.Thecompany
uses the FIFO inventory costing method, and it computes a new monthly fixed
manufacturingoverheadratebasedontheactualnumberofmealsproducedthatmonth.
Allcostsandproductionlevelsareexactlyas planned. Thefollowingdataarefromthe
companysfirsttwomonthsinbusiness:

DETAILS January February


SellingPrice RM9.00 R9.00
Sales 1400meals 1600meals
Production 2000meals 1400meals
Variablemanufacturingexpensespermeal RM4 RM4
Salescommissionexpensepermeal RM1 RM1
Totalfixedmanufacturingoverhead RM700 RM700
Totalfixedmarketing&administrative RM400 RM400
expenses

Requirements
1. Computetheproductcostpermealproducedunderabsorptioncostingandunder
variablecostingforJanuaryandFebruary.

2. PrepareseparatemonthlyincomestatementforJanuaryandFebruaryunderboth
absorptionandvariablecostingapproach.
3. IsoperatingincomehigherunderabsorptioncostingorvariablecostinginJanuary?
InFebruary?Explainthepatternofdifferencesinoperatingincomebasedon
absorptioncostingversusvariablecosting?

Question2

A industry manufactures and sells a single product. The controller has prepared the
followingincomestatementforthemostrecentyear:
AnIndustryIncomeStatementunderAbsorptioncosting,fortheyearendedDecember31.

SalesRevenue RM1,050,000
Less:CostofGoodsSold RM675,000
GrossProfit RM375,000
Less:OperatingExpenses RM260,000
OperatingIncome RM115,000

Thecompanyproduced20,000unitsandsold15,000unitsduringtheearendingDec31.
Fixedmanufacturingoverhead(MOH)fortheyearwasRM240,000,whilefixedoperating
expenses were RM200,000. Assume per unit cost of Direct Material and direct labor is
RM20andRM8respectively.Thecompanyhadnobeginninginventory.

Requirements
1. Willthecompanysoperatingincomeundervariablecostingbehigher,lowerorthe
sameasoperatingincomeunderabsorptioncosting?Why?

2. Projectthecompanysoperatingincomeundervariablecostingwithoutpreparinga
variablecostingincomestatement

3. Prepareavariablecostingincomestatementfortheyear

Question3
Zulultdmakesandsellsthreeproductswiththefollowingsellingpricesandvariablecost:

ProductAlloy ProductBron ProductCopper


(RM/unit) (RM/unit) (RM/unit)

SellingPrice 3.00 2.45 4.00


MarginalCost 1.20 1.67 2.60

ThecompanyisconsideringexpenditureonadvertisingandpromotionofProductAlloy
Itishopedthatsuchexpenditure,togetherwithareductioninthesellingpriceoftheproduct,would
increasesales.
Existingannualsalesvolumeofthethreeproductsis:

ProductAlloy 460,000units
ProductBronz 1.0millionunits
ProductCopper 380,000units

IfRM60,000perannumwastobeinvestedinadvertisingandsalespromotion,salesofProductAlloy
atreducedsellingpricewouldbeexpectedtobe:
590,000unitsatRM2.75perunit.
OR650,000unitsatRM2.55perunit

AnnualfixedcostarecurrentlyatRM1.71millionperannum.

Required:
(a)Calculatethecurrentbreakevensalesrevenueofthebusiness. (8mk)

(b)AdvisethemanagementofZulultdastowhethertheexpenditureonadvertisingandpromotion,
togetherwiththesellingpricereduction,shouldbeintroducedonProductAlloy
(6mk)
(c)CalculatetherequiredunitssalesofProductA,atasellingpriceofRM2.75perunitinorderto
justifytheexpenditureonadvertisingandpromotion. (5mk)

(d)ExplainthetermmarginofsafetywithparticularreferencetothecircumstancesofZulultd.
(6mk)

Question4

KotaXYZBhdmakes3productswhichhavethefollowingrevenueandcost(RMperunit)

Product1 Product2 Product3


RM RM RM
SellingPrice 2.92 1.35 2.83
Variablecost 1.61 0.72 0.96
FixedCost
ProductSpecific 0.49 0.35 0.62
General 0.46 0.46 0.46

UnitFixedcostarebaseduponthefollowingannualsalesandproduction(000units)

Product1 Product2 product3


98.2 42.1 111.8

Required:
(a) Calculate:
(i) ThebreakevenpointsinUnitsofKotaXYZBhdbasedonthecurrentproductionmix.
(8marks)
(ii) ThebreakeveninRMofKotaXYZBhdbasedonthecurrentproductionmix
(6mk)
(iii) ThenumberofunitsofProduct2atthebreakeven pointdeterminedin(i)above.
(3mk)

(b) CommentontheviabilityofProduct2. (8mk)

Question5
UniSamaBerhadisacompanyengagedsolelyinthemanufactureofphotoalbum
whichareboughtmainlyforschoolfunctionactivities.Presentsalesaredirectto
retailers,butinrecentyearstherehasbeenasteadydeclineinoutputbecauseof
increased competition. In the last trading year (2014) the accounting report
indicatedthatthecompanyproducedthelowestprofitfor10years.Theforecastfor
2015 indicates that the resent deterioration in profits is likely to continue. The
company considers that a profit of RM80,000 should be achieved to provide an
adequatereturnoncapital.Themanagingdirectorhasaskedthatareviewbemade
of the present pricing and marketing policies. The marketing manager has
completed this review, and passes the proposals on to you for evaluation and
recommendation, together with the profit and loss account for year ending 31
December2016.

UniSamaBerhadInomestatementforyearending31December2016
RM RM RM

Salesrevenue(100,000unitsat 1.0million
RM10)

Manufacturingcostofgoods
sold

Directmaterials 100,000

DirectLabor 350,000

Variablemfgoverheads 60,000

Fixedmfgoverheads 220,000
Administrativeoverheads 140,000
(Fixed)

Sellinganddistribution
overheads

Salescommission(2%of 20,000
sales)

Deliverycost(variable) 50,000

Fixedcosts 40,000

Totalcost 980,000

OperatingIncome 20,000

Theinformationtobesubmittedtothemanagingmanagerincludesthefollowing
threeproposals:

(i)Toproceedonthebasisofanalysesofmarketresearchstudieswhichindicate
thatthedemandforthephotoalbumissuchthat10%reductioninsellingprices
wouldincreasedemandby40%.

(ii)Toproceedwithanenquirythatthemarketingdirectorhashadfromamail
ordercompanyaboutthepossibilityofpurchasing50,000unitsannuallyifthe
sellingpriceisright.Themailordercompanywouldtransportthephotoalbum
fromUniSamaSdnBerhadtoitswarehouse,andnosalescommissionwouldbe
paidonthesesalesbyUniSamaSdnBerhad.However,ifanacceptablepricecanbe
negotiated,TabuanSBhdwouldbeexpectedtocontributeRM60,000perannum
towardsthecostofproducingthemailordercatalogue.Itwouldbenecessaryfor
UniSamaSdnBerhadtoprovidespecialadditionalpackagingatacostofRM0.50
perphotoalbum.Themarketingmanagerconsidersthatin2015thesalesfrom
existingbusinesswouldremainunchangedat100,000units,basedonsellingprice
ofRM10ifthemailordercontractisundertaken.

(iii)Toproceedonthebasisofaviewbythemarketingmanagerthata10%price
reduction,togetherwithanationaladvertisingcampaigncostingRM30,000may
increasesalestothemaximumcapacityof160,000unitsofphotoalbum.

YouareRequired:
(a)ThecalculationofbreakEvensalesvaluebasedonthe2016accounts
(b)Afinancialevaluationofproposal(i)andacalculationofthenumberofunits
UniSamaSdnBerhadwouldrequiretosellatRM9.00eachtoearnthetargetprofit
ofRM80,000.
(c)Acalculationoftheminimumpricesthatwouldhavetobequotedtothemail
ordercompany,first,toensurethatUniSamaSdnBerhadwould,atleast,break
evenonthemailordercontract,secondly,toensurethatthesameoverallprofitis
earnedasproposal(i)and,thirdly,toensurethattheoveralltargetprofitisearned.
(d)Afinancialevaluationofproposal(iii)

Question 6
CJD ltd makes plastic components for the car industry. The following budgeted information is
available for three of their key plastic components:

Product W Product X Product Y


RM per unit RM per unit RM per unit
Selling price 200 183 175
Direct Material 50 40 35
Direct Labor 30 35 30
Units produced and 10,000 15,000 18,000
sold

The total number of activities for each of the three products for the period is as follows:
No. of inspection in hours 1200 1800 2000
No. of set up 240 260 300

Overhead costs have been analysed as follows:

Receiving/ inspecting quality assurance RM1,400,000


Production scheduling/ machine set up RM1,200,000

Required:
1.Calculate the budgeted profit per unit for each of the three products using ABC budgeting.
2. If the budgeting has been traditionally calculated on the basis of direct labor cost, calculate the
budgeted profit per unit for each of the three products.

Question 7 (ABC )
Details of information regarding the four products belonging to ABC Berhad are given below for
one period:
PRODUCT A B C D

Output in units 120 100 80 120


Cost per unit:
Direct Materials (RM) 40 50 30 60

Direct Labor 28 21 14 21

Machine hour per unit 4 3 2 3

The four products are similar and are usually produced in productions run of 20 units and sold in
batches of 10 units

The production overhead is currently absorbed by using a machine hour rate, and the total of the
production overhead for the period has been analysed as follows:

DETAILS OF COSTS RM

Machine department cost (which include rent,


business rates, depreciation and supervision) 10,430

Set up costs 5,250

3,600
Stores receiving
2,100
Inspection/Quality Control
Materials handling and dispatch 4,620

Total RM26,000

You have ascertained that the cost drivers to be used are as listed below for the overhead costs
shown:
COST COST DRIVER

Set up costs Number of production runs

Inspection/Quality control No of Requisition raised

Stores Receiving No of Requisition raised


Materials handling and despatch Orders executed

The number of requisitions raised on the stores was 20 for each product and the number of orders
executed was 42, each order being for a batch of 10 of a product.

You are required:


(a) To calculate the costs per unit for each product if all overheads costs are absorbed on a
machine hour basis;

(b) To calculate the costs per unit for each product, using activity based costing

(c) To compare the unit product cost from your figures in (a) and (b) above, to show the
differences and to comments briefly on any conclusions which may be drawn which could
have pricing and profit implication.