ACC 203 Assignment .

This assignment covers topics like costing of products, variance analysis, financial analysis, and analysis with constraint financial resources. It includes calculations, journal entries, and financial analysis for decision making.

ACC 203 ASSIGNMENT

Contents
Problem 1 – Costing of products.................................................................................................................2
Problem 2 – Variance analysis.....................................................................................................................4
Problem 3 – Financial Analysis.....................................................................................................................6
Problem 4 –Analysis with constraint financial resources.............................................................................8

Problem 1 – Costing of products
Problem 1 deals with costing. It includes calculating the cost per bottle and further journalizing
the transactions relating to production costs in the work in process inventory account. The
calculation of correct cost per unit produced is an important factor in the accounting, as the
selling price and profit margin are largely dependent on the cost of unit.
In the given case, Cool Brew Ltd has started producing breweries named “Cool Bay Draught” by
packaging them in bottles containing 300 milliliters. The company consists of two departments
named, mixing and bottling and has respective costs. During the period the company produced
48000 litres of product and bottled them.
The first requirement is to calculate the cost per bottle of Cool Bay Drought. For calculation of
cost per bottle, the total cost of both the departments is computed, which is $192,000 ($160,000
for mixing department + $32,000 for bottling department). The bifurcation of said cost is as
below:
Particulars Mixing Bottling
Direct materials $113,000 $17,000
Direct labour $15,000 $6,000
Manufacturing overhead $32,000 $9,000
Total $160,000 $32,000
Hence, the cost per bottle is total cost divided by number of bottles produced, which comes at
$1.20
Total cost / number of bottles
= 192000 / 160000
= $1.20
Hence, the cost of producing one bottle is $1.20.
The second requirement asks us to journalize the transactions. The journal entries are as below:
Particulars Dr./Cr.
Debit
Amount
Credit
Amount
WIP Inventory Dr. $130,000
Accounts payable A/c $130,000
(Direct materials charged to production)
WIP Inventory Dr. $21,000
Wages payable A/c $21,000
(Direct labour cost charged to production)

WIP Inventory Dr. $41,000
Manufacturing O/H payable A/c $41,000
(Overhead cost charged to production)

Problem 2 – Variance analysis
Variance analysis is the investigation of the differences between actual and budgeted values.
This analysis is important in controlling and maintaining the costs. As it helps in evaluating and
understanding the reasons of differences between actual and budgeted data and hence helps the
management in taking decisions for eliminating and controlling the irrelevant costs.
In the given case, the data has been given regarding actual and budgeted production of the output
and the question demands for calculation of variances.
The first variance is Direct Material Price Variance which reflects the variation between the
actual rate and standard rate.
Direct material price variance = (Standard price - Actual price) x Actual quantity
= (7.20 - 7.40) x 4200
= -$840 Unfavorable
Since, the actual price is more than the standard price, hence the direct material price variance is
unfavorable, which means that the company has procured the material at a higher cost than
budgeted.
Another variance is Direct Material Usage Variance which shows the variation between the
actual quantity used for producing one unit of product versus the budgeted quantity required for
production of one unit of product.
Direct material usage variances = (Standard quantity - Actual quantity) x Standard
price
= (4000 - 4200) x 7.20
= -$1,440 Unfavorable
From above, we found that the company has budgeted to consume 4000 kgs of material for
producing 2000 units whereas in actual the company has consumed 4200 kgs of material for
producing the 2000 units. Hence, the above variance is also unfavorable for the company.
The other variance is Direct Labor Rate variance which reflects the variation between the actual
rate paid to labor and the budgeted rate.
Direct labor rate variance = (Standard rate - Actual rate) x Actual hours worked
= (18 - 18.30) x 6450
= -$1,935 Unfavourable

From above, we found that the company has budgeted to pay $18 per hour whereas in actual the
company has paid $18.30 per hour. Since, the company has paid more than the budgeted, hence
the said variance is unfavorable.
The last variance is Direct Labor Efficiency variance which reflects the variation between hours
taken by labor for producing one unit of product versus budgeted hours for producing one unit of
material.
Direct labor efficiency variance = (Standard hours - Actual hours) x Standard rate
= (7000 - 6450) x 18
= $9,900 Favorable
In the above variance, the actual hours taken is lower than the budgeted hours and hence the
variance is favorable.

Problem 3 – Financial Analysis
Proper financial analysis is an key aspect for analysis the correct profitability and decision
making as regard to project continuity. In the given case, Sam has an ice cream shop and has
started selling fresh fruit juice as well. However, the Sam has found that the fruit juice business
is an loss making business as he included the fixed and sunk cost to its profitability. The
evaluation of Sam’s financial analysis is as below:
Particulars $ Amount ($)
Sales 67,500.00
Less: Cost of sales 30,000.00
Gross Profit 37,500.00
Less: Operating expenses:
Wages of counter staff 18,000.00
Consumables (e.g. cups and straws) 6,000.00
Utilities (allocated) 4,350.00
Depreciation of counter equipment and furnishings 3,750.00
Depreciation of building (allocated) 6,000.00
Super Scooper manager’s salary (allocated) 4,500.00 42,600.00
Net Profit / (Net Loss) (5,100.00)
Gross profit margin = Gross Profit / Sales
= 37500 / 67500
= 55.56%
Net Profit (loss) margin = Net Profit / Sales
= (5100) / 67500
= -7.56%
The above profit and loss shows that the company has a GP margin of 55.56%. Gross profit ratio
appears to be very high. However, indirect expenses are causing this profit to turn into losses.
We noticed there are some allocated costs which are not relevant for decision making.
The above profit and loss includes some relevant and sunk costs as well. The correct profit &
loss account is as under:
Particulars $ Amount ($)
Sales 67,500
Less: Cost of sales 30,000
Gross Profit 37,500

Less: Operating expenses:
Wages of counter staff 18,000
Consumables (e.g. cups and straws) 6,000
Depreciation of counter equipment and furnishings 3,750 27,750
Net Profit / (Net Loss) 9,750
As per above revised calculation, there is profit of $9750. Therefore, business of fresh fruit juice
counter should be continued.

Problem 4 –Analysis with constraint financial resources
Every business runs for profit and profit maximization is the main aim for any business to run.
Hence, the costing gives emphasizes on maximizing the profit by deciding which and how much
units should be produced when the resources are limited. In such a case, the product having
higher profit should be produced more as compared to one which has low profit margin.
The financial analysis when the machine hours are limited.
Particulars Standard ($) Deluxe ($)
Selling price 70.00 120.00
Direct material (15.00) (22.00)
Direct labour (10.00) (30.00)
Manufacturing overhead (30.00) (60.00)
Profit / unit 15.00 8.00
Add: Fixed costs 20.00 40.00
CM / unit 35.00 48.00
Machine hour required (in hours) 1 2
CM / machine hour 35.00 24.00
If machine hours are limited, product with higher CM per machine hour should be produced first.
Company should first allocate machine hours first towards Standard.
Number of units to be produced to maximize the ABC Ltd’s profitability.
Since maximum demand for Standard is 40,000 units, machine hours should be allocated to these
40,000 units.
Total machine hours available 60,000
Machine hours required for 40000 unit of Standard -40,000
Remaining machine hours for Deluxe 20,000
These remaining machine hours will now be allocated to Deluxe.
Remaining machine hours for Deluxe 20,000
Machine hours required per unit of deluxe 2
Number of units to be produced of Deluxe 10,000
Particulars Standard Deluxe
Contribution margin per unit $35 48
No. of units 40,000 10,000
Total contribution margin $1,400,000 $480,000
Less: Fixed costs $800,000 $400,000
Net Profit $600,000 $80,000

Total profit in this case is $680,000.