SOLUTION FOR DEC 2019

QUESTION 1

A. (i) Students are required to explain on any two (2) of the following major differences:

1) Primary users
2) Reporting requirements
3) Reporting entity
4) Reporting frequency
5) Degree of Precision
6) Time frame

(ii)
i. Fixed costs/Selling and Distribution cost
ii. Variable cost/Production cost
iii. Variable costs/Administration cost
iv. Variable cost/Selling and distribution cost
v. Fixed cost/Administration costs
vi. Variable cost/Production cost
QUESTION 2

a i) Traditional Costing method OAR = RM756,000/28,000 DLH

= RM27/DLH

WD 3.0L WD 2.0L
RM RM
Direct material 40.00 35.00
Direct labour 20.00 17.00
Prime cost 60.00 52.00
Overhead (RM27 x 2 hours) (RM27 x 1 hour)
54.00 27.00
Product cost per unit 114.00 79.00

ii) Activity Based Costing method

Cost Pool Total cost/Cost driver volume Cost Pool rate

Assembly 350,000/28,000DLH RM12.50 per DLH
Machining 310,000/31,000MH RM10.00 per MH
Order Processing 66,000/1,100 cust.order RM60.00 per customer order
Purchasing 30,000/400 mat.order RM75.00 per material order

Total overhead
Cost Pool WD 3.0L WD 2.0L
Assembly (20,000 x RM12.50) (8,000 x RM12.50)
250,000 100,000
Machining (15,000 x RM10) (16,000 x RM10)
150,000 160,000
Order Processing (800 x RM60) (300 x RM60)
48,000 18,000
Purchasing (270 x RM75) (130 x RM75)
20,250 9,750
Total overhead RM468,250 RM287,750
Number of units 10,000 8,000
OH per unit RM46.83 RM35.97

Cost statement:
WD 3.0L WD 2.0L
RM RM
Direct material 40.00 35.00
Direct labour 20.00 17.00
Prime cost 60.00 52.00
Overhead 46.83 35.97
Product cost per unit 106.83 87.97
b. Comment

WD 3.0L WD 2.0L
RM RM
Product cost Traditional 114.00OF 79.00OF
Product cost ABC 106.83OF 87.97OF
Difference (i) 7.17 8.97
(ii) (overstated) (understated)

c. State 2 disadvantages
1. Limited accuracy. Many businesses shun traditional costing because its lack of
detailed calculations distorts actual overhead expenses.
2. Business owners and managers often prefer activity-based costing because it
helps them reduce waste by showing them every indirect cost for each specific
product or service. Traditional costing doesn’t provide that ability because it looks
at overhead costs in general.
3. Traditional costing typically doesn’t factor in unexpected expenses. This means it
could cost a company more to produce a product than it projected.
(Any relevant answer can be accepted)
QUESTION 3
a)
Colouring Process a/c
Qty RM Qty RM
OWIP 2,400 28,800 Finished goods:
Transfer fr Mixing 48,000 432,000 Lazat Juice 24,000 474,618
Material added 8,000 8,400 Enak Juice 22,200 296,339
Conversion costs 354,500 Sedap Juice 6,300 12,600
NL (56,000x5%) 2,800 5,600
AL 100 1,422
CWIP 3,000 33,119
58,400 823,700 58,400 823,698

Statement of Equivalent Unit (Using FIFO method)

Transfer in Material Conversion
Input Output % Unit % Unit % Unit
OWIP: 2,400 OWIP : 2,400 0 - 0 - 55 1,320
Trans-in: 48,000 CPDP: 50,100 100 50,100 100 50,100 100 50,100
Mtrl: 8,000 CWIP: 3,000 100 3,000 100 3,000 50 1,500
NL: 2,800 100 2,800 100 2,800 100 2,800
AL: 100 100 100 100 100 100 100
58,400 58,400 56,000 56,000 55,820

Statement of Cost
Transfer fr Material Conversion
Mixing
Current cost 432,000 8,400 354,500
Cost/ Eq units 432,000/56,000 8,400/56,000 354,500/55,820
Total Cost / Eq units = RM7.714 = RM0.15 = RM6.351
= RM14.215 (OF)

Statement of Evaluation
Transfer fr Mixing Material Conversion Total
OWIP current - - 1,320 x RM6.351
= 8,383.32 8,383
CPDP 50,100 x RM7.714 50,100 x RM0.15 50,100 x RM6.351
= 386,471.40 = 7,515 = 318,185.10 712,172
Normal Loss 2,800 x RM7.714 2800 x RM0.15 2,800 x RM6.351
= 21,599.20 = 420 = 17,782.80 = 39,802 - 5,600
= 34,202
CWIP 3,000 x RM7.714 3,000 x RM0.15 1,500 x RM6.351
= 23,142 = 450 = 9,526.50 33,119
Abnormal Loss 100 x RM7.714 100 x RM0.15 100 x RM6.351
= 771.4 = 15 =635.1 1,422

Finished goods costs = OWIP b/d + OWIP current + CPDP + Net Normal Loss
= 28,800 + 8,383 + 712,172 + 34,202 = 783,557
Joint cost to be apportioned
RM RM
As per evaluation 783,557
Less: By-product value
Sales value (RM5 x 6,300 litres) 31,500
Less: Further cost (RM3 x 6,300litres) 18,900 (12,600)
Net joint cost 770,957

Apportioned the net joint cost based on the net realizable value method

Output Net realizable Weightage Joint cost

value apportioned
Lazat Juice RM20 x 24,000 litres 480,000 x 770,957
= RM480,000 779,700 474,618

Enak Juice (RM15 - RM1.50) x 22,200 litres 299,700 x 770,957

= RM 299,700 779,700 296,339

Total 779,700 770,957

b)
Abnormal loss is losses that are not inherent in the production and can be avoided and
eliminated.
These losses cannot be expected and it won’t occur under efficient operating conditions.
Examples are accidents due to carelessness and negligence, plant breakdown etc.

Abnormal loss a/c

Qty RM Qty RM
Colouring process a/c 100 1422 Cash 100 200
P&L 1,222
100 1,422 100 1,422

c)
Scraps are those that cannot be used for its original purposes such as rejected wood and off
cut.
The differences between scraps and by-products:
i) By-products have greater sale value than scrap.
ii) By-products are often processed further to make it saleable while scrap is
usually sold on ‘as is where is’ basis.
QUESTION 4
a. i) Product cost per unit:
MC (RM) AC (RM)
Direct Material 20 20
Direct labour 5 5
VPOH 2 2
FPOH 3
27 30

ii) Marginal Costing Approach Profit Statement for the Month of Dec 2019
RM RM
Sales (45 x 5,200) 234,000
(-) VCOGS:
O/S (100 x 27) 2,700
(+) prod. (5,500 x 27) 148,500
(-) C/S (100 + 5,500 - 5,200) x 27 (10,800) (140,400)
Gross Margin 93,600
(-) Other VC- selling (2 x 5,200) (10,400)
Contribution 83,200
(-) Fixed costs: Production (180,000/12) (15,000)
Admin (60,000/12) (5,000)
Net profit 63,200

Absorption Costing Approach Profit Statement for the Month of Dec 2019
RM RM
Sales (45 x 5,200) 234,000
(-) VCOGS:
O/S (100 x 30) 3,000
(+) prod. (5,500 x 30) 165,000
(-) C/S (400 x 30) (12,000) (156,000)
Gross profit 78,000
(-) variable selling OH (2 x 5,200) (10,400)
Fixed Admin (60,000/12) (5,000)
Unadjusted net profit 62,600
+ over absorbed 1,500
Adjusted net profit 64,100
Working: OAR fixed admin=180,000/60,000 = 3
OH incurred (180,000/12) 15,000
(-) OH absorbed 16,500
Over absorbed 1,500

b. Advantages of MC approach:
a. Separation of fixed and variable costs helps to provide relevant information about
costs for making production decisions. Relevant costs are required for variety of short-
term decisions.
b. MC approach avoids fixed production overhead being capitalized in unsold stocks.
QUESTION 5
A. (a)
SP = RM17
V.C = RM7 (RM2.8 + RM2.20 + RM2)
Other F.C = RM40,000 (2/3 x 60,000) Other VC = 60,000 – 40,000 = 2.00
10,000
BEP(unit) = RM40,000 / (RM17-RM7) = 4,000 units

BEP (RM) = 4,000 x RM17 =RM68,000

MOS(unit) = 7,000 - 4,000 = 3,000 units

MOS(RM) = 3,000 x RM17 = RM51,000

The break even point indicates that the company needs to produce 4,000 units in order to
cover all the cost.
The margin of safety units indicates that the company is in a safety zone where it will only
get loss if the sales drop by 3,000 units.
Company’s profit =(RM17- RM7) 7,000 – RM40,000
=RM30,000

(b)
New SP = RM20.00
New VC = RM9 (RM7+RM2)
New Sale Volume = 6,500 (7,000-500)
New FC = RM45,000

Sales (RM20x6500) 130000

(-) VC (RM9x6500) 58500
CM 71500
FC 45000
Profit 26500

Original profit =RM30,000

There is decrease in profit of RM3 500. (30,000 – 26,500)

c)
NONAMA
BEP = RM60,000 MOS
(RM17-RM5) = 7,000 – 5,000 = 2,000
= 5,000 units

ARAMAX's bep = 4,000 units MOS = 3,000 units

Explanation: Aramex has a lower break even units and higher margin of safety units
compare to NONAMA. Thus, ARAMAX is operating at a lower risk compare to
NONAMA.
B.
Product CM/unit Sales mix WACM
Gas Oven 1,850 - 1,100 = 750 ¼ = 0.25 750 x 0.25 =187.5
Electric Oven 1,650 - 650 = 1,000 ¾ = 0.75 1,000 x 0.75 =750
1.0 937.50

i) BEP (u) = TFC Gas Oven = 0.25 x 1,600

WACM = 400 units
= 1,500,000 Electric Oven =0.75 x 1,600
937.50OF = 1,200 units
= 1,600 units

BEP (RM) = Gas Oven = 400 x RM1,850 = RM740,000

Electric Oven = 1,200 x RM1,650 = RM1,980,000