Online Exam (Management and Cost Accounting)

This document is an online exam for Management and Cost Accounting. It includes questions and calculations related to activity rates, overhead costs allocation, unit manufacturing cost, variance analysis, and sales targets. The document provides a comprehensive understanding of the subject and is suitable for students studying Management and Cost Accounting.

Online Exam (Management and Cost Accounting)

Contents
Main body...................................................................................................................................................3
Question 1...............................................................................................................................................3
Question 2...............................................................................................................................................8
Question 3...............................................................................................................................................9
Question 4.............................................................................................................................................11
Question 5.............................................................................................................................................13
REFERENCES..........................................................................................................................................17

Main body
Question 1
(a) Calculate the activity rates.
Activity rates- By attaching administrative costs to a cost object, grouping the costs
contained in that cost object forward an activity-based expense value is set, and splitting
the cost object sum by the cost carrier (Ren, Weber and Walsh, 2016).
Activity Rates:
Setup 1008000 / 80 * 50 1008000 / 80 * 30
Cost 630000 378000
Units 8000 15000
Activity Rate 78.75 (630000/8000) 25.2 (378000/15000)
Machine
Processing
2772000/38500*1600
0
2772000/38500*22500
Cost 1152000 1620000
Units 8000 15000
Activity Rate 144 (1152000/8000) 108 (1620000/15000)
Product
Shipping
840000/175*100 840000/175*75
Cost 480000 360000
Units 8000 15000

Activity Rate 60 (480000/8000) 24 (360000/15000)
(b) Calculate the total overhead costs allocated:
Deluxe Executive
Direct material cost 52.5 90
Direct labor cost 30 30
Total cost 82.5
(52.5+30)
120
(90+30)
Budgeted volume (units) 8000 15000
Total costs 660000
(8000*82.5)
1800000
(15000*120)
Ratio 0.27 0.73
Total Setup overhead costs
apportioned
270439 737561
Setups 50 30
Rate per setup activity 5408.78
(270439/50)
24585.37
(737561/30)
Machine Processing costs
apportioned
743707.3 2028293
Machine Hours 16000 22500

Rate of machine processing 46.48
(743707.3/16000)
90.14
(2028293/22500)
Product Shipping
apportioned
225365.9 614634.1
Outgoing Shipment 100 75
Rate of product shipment
activity
2253.659
(225365.9/100)
8195.122
(614634.1/75)
(c) Calculate the overhead costs allocated to one Deluxe cabinet and one Executive cabinet
by using activity-based costing:
Overhead cost- Overhead relates to the continued costs of operating a business, but
includes the actual expenses of producing a product or service.
Total overhead costs 4620000
Allocation based on ratio of 27: 73
Deluxe Executive
Machine Processing costs
apportioned
743707.3 2028293
Product Shipping
apportioned
225365.9 614634.1
Total Setup overhead costs
apportioned
270439 737561
Total 1239512 3380488

(d) Calculate the unit manufacturing cost of Deluxe and Executive cabinets by using activity
based costing.
Manufacturing cost- The cost of production is the amount of the cost of all energy used in
the course of producing a commodity. The cost of production is categorized into three
parts: total cost of products, direct cost of labor and expenses of production.
Activity based costing- Activity-based costing is an accounting approach that defines an
organization and attributes all goods & resources to the expense of each task within each
individual's real use (Haroun, 2015). Compared to traditional costs, this model thus
attributes more indirect costs to actual costs.
Deluxe Executive
Direct material
cost
52.5 90
Direct labor
cost
30 30
Total cost 82.5 120
Budgeted
volume (units)
8000 15000
Total costs
(Units*Total
cost)
660000
(8000*82.5)
1800000
(15000*120)
Total
Overheads
allocated
1239512 3380488
Total
Manufacturing
Costs
1899512
(660000+1239512)
5180488
(1800000+3380488)

Units 8000 15000
Unit
manufacturing
cost
237.44
(1899512/8000)
345.37
(5180488/15000)
(e) Assume that the current selling price of a deluxe cabinet is $390 and the marketing
manager is contemplating a $45 discount to stimulate sales. Is this discount advisable?
Briefly discuss
Deluxe
unit manufacturing cost 237.44
Selling Price 390
Profit (390-237.44) 152.56
Discount 45
Net profit after discount 107.56
In accordance of above analysis, this can be stated that if Pristine Ltd will offer discount
of $45 than there is profit of $107.56. Hence, above company should give discount to
customers because it is advisable.
The value of profit is measured by deducting manufacturing cost from selling price which
is of $152.76. As well as value of net profit has been measured by deducting discount
value ($45) from amount o profit that is of $152.56.

Question 2
(a) calculate the overhead allocation rate
Overhead allocation rate- It is an expense assigned to a good or service's production. In
order to distribute overhead costs, by distributing or assigning production expenses
depending on particular steps, an overhead rate is added to direct costs related to output
(Chen Natarajan and Shattil, 2015).
Overhead
allocation rate
using direct
labor hours
3*12 =
36
4*12 =
48
(b) calculate the total overhead cost allocated to Standard
Overhead
Allocation rate
36 48
Direct material
cost
25 40
Total Cost 61 88
Estimated product
volume
3000 4000
Total overhead
cost allocated
183000
(3000*61)
352000
(4000*88)

(c) Determine total over-applied or under-applied overhead
If not all of the expenses involved in the output expenses account are added throughout
the year, expenses is under applied. If more cost is added to the workers than has already
been expended, expense is over-applied (Wang, Ooi and Chan, 2016).
Total overhead
cost allocated
183000 352000
Actual
Overheads Costs
292500 498200
Over Applied 109500
(292500-
183000)
146200
(498200-
352000)
In the aspect of above case, overheads are over applied because actual expenses are more
than cost allocated.
(d) journal entries required to adjust the cost of sales of Standard and Enhanced products
separately
Particulars Debit Credit
Adjusted Enhanced Cost a/c Dr 352000
Cost of Sales a/c Dr 183000
To Profit and loss account ac/c 535000
Question 3
(a) direct material price variance and direct material efficiency variance

Direct material price variance: It varies between the surplus cash expended on direct sales
of merchandise over a specific time and the sum expended if the product had been bought
at the normal price (Filipović, Gourier and Mancini, 2016).
Actual quantity of material purchased at actual price- Actual quantity of material
purchased at budgeted price
= 240000*0.62-240000*0.60
= 148800-144000
=$ 4800 Favorable
Direct material efficiency variance: In the measurement of variance, the discrepancy
between the typical amount of products that can then be used for the amount of units
currently manufactured versus the real amount of products used, priced at the average
unit cost of product, is the direct expenses utilization (effectiveness, volume) variance.
(Actual quantity – standard quantity)*Standard cost
= (210000-4)*0.60
= 125,997.6 Favorable
(b) Direct labor rate variance and direct labor efficiency variance:
Direct labor rate variance: Unless the wage paid is more than much less than the regular
rate is calculated by the direct labor rate difference. The direct difference in labor time
defines if the real hours utilized are more than which is less than the criteria that would
otherwise be used.
Actual hour (Actual rate-Standard rate)
= 13000(23-22)
= 13000 Favorable
Labor efficiency variance: The discrepancy in labor productivity is the change in the total
amount of direct working hours employed and the expected direct working hours that
could have been performed on the basis of expectations (Yao, 2015).
Actual hours*Standard rate-Standard hour*standard rate

= 13000*22-0.25*22
= 286000-5.5
= 285,994.5 Favorable
(c) Reasons for variation in material use include the procurement of effective quality goods
than the norm (this will be reflected in a favorable material price variance). Application
of unskilled labor. Boost of material wastage due to machinery and equipment depletion.
(d) Reason for variance:
 Recruitment of more skilled labor than required in the Norm.
 Inefficient recruitment by the department of HR.
 Successful negotiations by trade unions
Question 4
(a) Total number of units that must be sold to achieve the targeted after-tax profit of $100
000:
Step one: In order to find out number of units to achieve targeted profit of 100000, first
we need to find out exact value of desired profit that is as follows:
Desired profit: It is defined as a form of profit which a company wants to achieve from
selling of different units or services (Baral, 2016). In relation to above aspect, calculation
of desired profit is done below:
= $100000*100/70
= $142,857.14
Step two: After measuring desired profit, next part is to find out contribution per unit
which is computed in combined manner for different products.

Contribution per unit: This can be defined as a variation between selling price per unit
and variable expense (McDonald and Wilson, 2016). In order to compute this, there is a
formula that is as follows:
Selling price-variable expense per unit
Product 101 Product 102 Product 103 Product 104 Total
Selling price
per unit
$100 $150 $80 $250 $580
Variable cost
per unit
$60 $100 $60 $150 $370
Contribution per unit
$210
Number of units which need to sold: Desired profit/contribution per unit
= $142,857.14/$210
= 680 Units
Hence, Snooz Trading Company will need to sell 680 units in order to meet desired profit
of $142,857.14.
(b) Amount of revenue needed to achieve the targeted after-tax profit of $100 000:
In general, amount of revenue is measured by multiplying number of units with selling
price. In the aspect of above question, amount of revenue need to be computed and it is
measured by multiplying number of units to sold (From part a) and selling price
(Combined selling price of four products)

Formula= Number of units need to sold*selling price
= 680*580
= $394400
(c) Number of each type of product required to sell to achieve the after-tax profit of $100
000:
Product 101 Product 102 Product 103 Product 104
Sales mix 25000 15000 50000 10000
Ratio 5 3 10 2
Number of
each type of
product to
sell
170 Units
(680*5/20)
102 Units
(680*3/20)
340 Units
(680*10/20)
68 Units
(680*2/20)
The number of units which is of 680 has been allocated in a ratio of sales mix which is
25000:15000:50000:10000 or 5:3:10:2.
(d) Revenues from each product sold to achieve the after-tax profit of $100 000:
Product 101 Product 102 Product 103 Product 104
Sales mix 25000 15000 50000 10000
Ratio 5 3 10 2
Revenues
from each
product
$98600
(394400*5/20)
$59160
(394400*3/20)
$197200
(394400*10/20)
$39440
(394400*2/20)
The revenue amount of $394400 has been allocated in a ratio of sales mix which is
25000:15000:50000:10000 or 5:3:10:2.
Question 5
(a) Debtor schedule:

A corporation requires a stringent debtor collection strategy such that loan transactions
are translated into cash within a fair time span (Smirat, 2016). It is vital for the company.
The calendar of budget collections by debtors is a significant figure in the cash budget.
September October
Credit Sales 420000 520000
Less: Collection from Debtors
60% in the month of sale 252000 312000
30% in month following the sales
Sep. 126000
Aug 90600
10% in second month following the sale
Aug 30200
July 26600
Total Receipt from debtors 50800 51800
(b) Cash budget for September and October
Cash budget- A cash budget is a budget or arrangement for planned cash receipts and
payments over the year. The items which included are the taxes collected, charges
charged and receipts and fees for credits and debts (Oral and CenkAkkaya, 2015). In
other terms, a projected cash budget includes an estimation of the potential cash situation
of the organization. In the aspect of above company, calculation of cash budget is done
below:

Particulars
Septembe
r October
Proceeds from sale of Old Equipment 41000
Cash sales 369200 468200
Cash balance 15000
Total cash receipts 384200 509200
Payments
Direct material purchases 182000 172000
Loan payment 60000
Manufacturing overhead 31250 31750
marketing and administration
expenses 45800 42800
Direct Labor 55000 65200
Cash Payment for new IT Equipment 20000 10000
Total cash payments 334050 381750
Cash flow (Total cash receipts-total
cash payment) 50150 127450
Working Note:

Total cash sales-
June
July August
Septembe
r
Octobe
r
177000 88500 29500 26600 30200
159600 79800 90600 126000
181200 252000 312000
17700
0 248100 369200 369200 468200
(c) Yes it seems feasible, this is so because in month of October there is net cash inflow of
$127450 and for new project there is need of cash of $100000. Hence, company has enough
amounts of cash for new project.

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