Practical Set 1,2,3

This document contains solved assignments and essays for Practical Set 1,2,3. It includes calculations and analysis related to costing methods, material variances, and budgeting techniques. The document also discusses the advantages and disadvantages of different budgeting methods. The subject, course code, and college/university information are not mentioned.

PRACTICAL SET 1,2,3

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................3
A..................................................................................................................................................3
B..................................................................................................................................................4
C..................................................................................................................................................5
D..................................................................................................................................................5
QUESTION 2...................................................................................................................................5
A..................................................................................................................................................5
B..................................................................................................................................................7
QUESTION 3...................................................................................................................................7
REFERENCES................................................................................................................................9

QUESTION 1
A.
Lipstick Lip-balm Lip-gloss
Units 30000 35000 3000
Sales 660000 910000 72000
Material Cost 150000 350000 30000
Labor Cost 450000 350000 30000
Overhead Costs 124698.795 96987.952 8313.253
(Based on Labor Hours)
724698.795
796987.95
2 68313.253
Net Profit/ Loss -64698.795
113012.04
8 3686.747
Cost per unit 24.16 22.77 22.77
Total Cost per unit Lipstick Lip-balm Lip-gloss
Selling Price 22 26 24
Cost per unit 24.16 22.77 22.77
Profit/Loss per unit -2.16 3.23 1.23
Calculation of Absorption rate based on labor
hours
Setup Costs 120000
Receiving Costs 30000
Dispatch 15000
Machining 65000
Total 230000
1.38554216
9
Total Labor Hours 166000
Overhead Cost 230000
Overhead Absorption Rate
230000/16600
0
(Based on Labor Hours) 1.3855
Lipstick Lip-balm Lip-gloss
Total Labor Hours 90000 70000 6000

Absorption Rate 1.3855 1.3855 1.3855
Overhead Costs 124698.80 96987.95 8313.25
B
Cost per unit using the ABC
Costing
Cost Drivers
Cost Pools Cost Drivers
Setup Costs 120000 25 Production runs (10+14+1)
Receiving Costs 30000 22 purchase costs (10+10+2)
Dispatch 15000 50 deliveries (20+20+10)
Machining 65000
272000 machine
hours
(120000+140000+120
00)
Total 230000
Cost per set up 4800
Cost per receiving
1363.6
4
Cost per delivery 300
Cost per machine hour 0.2390
Allocation of overheads to each
product
Lipstic
k Lip-balm Lip-gloss
Units 30000 35000 3000
Setup Costs 48000 67200 4800
Receiving Costs
13636.
36 13636.36 2727.27
Dispatch 6000 6000 3000
Machining
28676.
47 33455.88 2867.65
Total
96312.
83 120292.25 13394.92
Overhead Cost per unit 3.210 3.437 4.465

Total Cost per unit
Lipstic
k Lip-balm Lip-gloss
Material Cost 5 10 10
Labor Cost 15 10 10
Overheads 3.210 3.437 4.465
Cost 23.21 23.44 24.46
Total Cost per unit
Lipstic
k Lip-balm Lip-gloss
Selling Price 22 26 24
Material Cost 5 10 10
Labor Cost 15 10 10
Overheads 3.210 3.437 4.465
Profit/Loss per unit -1.210 2.563 -0.465
Lipstick Lip-balm Lip-gloss
Cost as per Absorption costing labour
hours 24.16 22.77 22.77
Cost as per ABC costing 23.210 23.437 24.465
Difference 0.946 -0.666 -1.694
C.
With the analysis of above calculation, it can be stated that costing as per Activity based
costing is better as compared to absorption costing. The major reason for this is that in ABC the
cost is being allocated to all the cost drivers and not to a single cost driver. Hence, the final cost
figure on basis of ABC is much accurate and reliable as compared to the absorption costing
(Activity based costing for small business, 2018).
D.
Sensitivity analysis is a method which is used by the company in order to determine how
the target variable are changes which respect to changes in other input variable. In other terms
this sensitivity analysis assists in analysing the impact of independent variable affecting the
dependent variable pertaining to some certain condition (VanderWeele and Ding, 2017). This
sensitivity analysis is being used and assist the manager in coping uncertainties. This is

particularly because of the reason that when sensitivity analysis the manager is in condition to
manage the impact of changes in independent factors over the dependent factor.
QUESTION 2
A.
Standard Qty (100 units) Actual Qty (4600 units) Standard Qty (4600 units)
Input SQ SP STC AQ AP ATC SQ SP STC
Alpha 40 2 80 2200 1.8 3960 1840 2 3680
Beta 60 5 300 2500 6 15000 2760 5 13800
Gamma 20 1 20 920 1 920 920 1 920
120 400 5620 19880 5520 18400
(i) Material Usage Variance
(Standard Quantity for Actual Output-Actual Quantity) x Standard Price
Alpha (1840-2200) x 2 -720
Beta (2760-2500) x 5 1300
Gamma (920-920) x 1 0
580 (F)
(ii) Material Mix Variance(MMV)
(Revised Standard Quantity – Actual Quantity) * Standard Price
RSQ = Standard Quantity of one material x Total of actual Quantities of all Material
Total of Standard Quantities of all Materials
Material Alpha = 5620/5520 x 1840 = 1873.33
Material Beta = 5620/5520 x 2760 = 2810

Material Gamma = 5620/5520 x 920 = 936.67
Input (RSQ – AQ)x Standard Price Amount
Alpha 1873.33-2200 x 2 -653.34
Beta 2810-2500 x 5 1550
Gamma 936.67- 920 x 1 16.67
931.33 (F)
(iii) Material Yield Variance
(Actual Yield - Standard Yield) x standard material cost per unit of output
Standard Yield= Actual usage of materials
Standard usage per unit of output
Input SQ Standard
yield
Differences Standard
material cost
MYV
Alpha 1840 1873.33 -33.33 2 -66.66
Beta 2760 2810 -50 5 -250
Gamma 920 936.67 -16.67 1 -16.67
5520 5620 -333.33 (A)
B.
The major problem with the current system of calculating and reporting the variance in
order to assess the performance of the production manager is the prices of raw material. This is a
major problem as the prices of raw material are not in hands of the production manager and
hence, the performance cannot be assessed of manager. This is particularly because of the fact
that when the manager calculates the variance then it is based on the prices of raw material and it
can be changes from any time. Thus for this production manager cannot be responsible and this
affects working of company to a great extent.

QUESTION 3
The zero based budgeting is a tool which assist in making the budget without the use of
any past data or records (Hijal-Moghrabi, 2019). In contrast to this the incremental budgeting is a
tool which keeps some base the record of past year. Both the methods of budgeting are different
from one another as one technique involves the use of the past year performance and budget and
the other one does not makes the use of this.
As per the views of Hughes (2020) the ZBB does not provide a toll for planning and
proper coordination as this does not make the use of past records and old budget for making a
new budget. On the other side Kenno and et.al., (2020) argues that the IB is the method which
keeps the previous budget as a base for making of new budget. This is particularly because of the
reason that it might not be possible that the past information and figures are same in the future as
well. Hence, both these method of budgeting does not provide a toll for planning and
coordination and this affects the making of budget to a great extent. In addition to this both these
methods do not provide the actual or perfect budget as the future cannot be predicted in both the
methods of budgeting. Hence, this is the major drawback of both the methods with which the use
of budgeting is not proper and appropriate.

REFERENCES
Books and Journals
Hijal-Moghrabi, I., 2019. Why Is it So Hard to Rationalize the Budgetary Process? A Behavioral
Analysis of Performance-Based Budgeting. Public Organization Review, 19(3), pp.387-
406.
Hughes, P., 2020. Discover the power of zero-based budgeting. Farmer’s Weekly, 2020(20032),
pp.30-30.
Kenno, S., and et.al., 2020. Budgeting, strategic planning and institutional diversity in higher
education. Studies in Higher Education, pp. 1-15.
VanderWeele, T.J. and Ding, P., 2017. Sensitivity analysis in observational research: introducing
the E-value. Annals of internal medicine. 167(4). pp. 268-274.
Online
Activity based costing for small business. 2018. [Online]. Available through:
<https://www.patriotsoftware.com/blog/accounting/activity-based-costing-small-business/
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