Cost Accounting Assignment 1 - ACCT 301, College of Admin

This document presents a complete solution to a cost accounting assignment, covering key concepts such as relevant and irrelevant cash flows, cost-volume-profit (CVP) analysis, and cost functions. It includes examples from Saudi Arabian companies, like Saudi Aramco, demonstrating the application of these concepts in a real-world context. The assignment also explores the two-point method for estimating cost functions and differentiates between job costing and process costing, providing examples of Saudi companies utilizing each method. Furthermore, the solution analyzes the variance between actual and estimated costs and provides numerical examples to illustrate CVP analysis and cost function calculations, making it a comprehensive resource for students studying cost accounting.

College of Administrative and Financial Sciences
Assignment 1
Deadline: 29/02/2020 @ 23:59
Course Name: Cost accounting Student’s Name:
Course Code: ACCT 301 Student’s ID Number:
Semester: 2 CRN:
Academic Year: 1440/1441 H
For Instructor’s Use only
Instructor’s Name:
Students’ Grade: Marks Obtained/Out of Level of Marks: High/Middle/Low
Instructions – PLEASE
READ THEM CAREFULLY
 The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
 Assignments submitted through email will not be accepted.
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 Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.
 Students must mention question number clearly in their answer.
 Late submission will NOT be accepted.
 Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
 All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
 Submissions without this cover page will NOT be accepted.
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Q1. Analyze some examples of relevant and irrelevant Cash Flows for one Saudi Company?
Answer:
Irrelevant cost (negative or positive) is considered as cost that will not be influenced by the
decision of management. The fixed cost as well as sunk cost is considered as irrelevant cost. These
costs are ignored at the time of taking decision (Bragg, 2016). On the other hand, the relevant cost is
considered as managerial accounting expression that defines avoidable cost that is occurred only at
the time of taking particular decision of business. The relevant cost concept is utilized unnecessary
data that could obscure the procedure of making decision. In this way, the relevant cost is a cost
influenced by the decision of management. From the annual report of Saudi Aramco, it is found that
the examples of irrelevant cost are depreciation and amortization cost. The examples of relevant
cost are interest and other financial cost (Moshashai, Leber & Savage, 2018).
Q 2 a - Discuss why managers estimate a cost function and use Cost volume Profit analysis?
Give numerical example of cost function and Cost Volume Profit Analysis and analyze how it
will be used by managers?
Answer:
The managers utilize cost volume profit analysis and cost function for various reasons
(Datar & Rajan, 2018). The CVP analysis is helpful for management because it gives insight in the
effect and inter-connection of the factors that affect profits of the company (Ouda, et. al, 2017). The
relation between volume, profit as well as cost makes up a profit structure of the company. It can be
understand from below example –
Example: ABC wants to have annual profit of $ 100000 from the sale of applications.
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Following are the details of manufacturing as well as per annum capacity-
FC = $ 50000
VC per unit = $ 50
Production capacity = 15000 units
Find the number in Cost Volume Profit Analysis ?
Solution:
15000*p = (15000*50) + 50000+100000
15000p = 750000 + 50000+100000
15000p = 225000
P = 225000/15000
P = $ 15
Therefore, price per unit is $ 15.
In addition, the manager use cost function in the budget process (Al-Aidaroos, et. al, 2017).
The reason is that manager can be able to understand cost behavior of products with the help of cost
functions. It can be understand from below example –
Example: The management of Sportz Company (producer of toy), has asked for new cost
study for improving budget forecast of upcoming period (Hall, 2016). It pays average $ 30 per
month for electricity and $300 per month for rent. The plastic cost is $ 5 and cloth cost is $2.
A. what is the cost to manufacture 1400 toys per annum?
B. what is the cost to manufacture 1700 toys per annum?
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Solution:
(A) At 1400 –
C(x) = FC + V (x)
C (1400) = 3960 + 1400 (5+2)
C (1400) = 3960 + 9800
= $ 13760
Hence, it will take $ 12760 to make 1400 toys in a year.
(B) At 1700 –
C(x) = FC + V (x)
C (1700) = 3960 + 1700 (5+2)
C (1400) = 3960 + 11900
= $ 15860
Hence, it will take $ 14860 to make 1700 toys in a year.
b- Suppose actual costs are higher than estimated cost. Analyze why you may have this
difference between actual and estimated costs?
Answer:
According to the basic definition, the estimated cost is considered as type of prediction when
actual cost is a cost ready to be charged to the customers. On the other hand, the actual cost is
considered as realized cost. The actual cost is not depended on the estimate of the similar. To have
the estimation, it is required to subtract actual cost from estimated cost. The difference between
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actual cost and estimated cost is known as variance. When the actual cost is more than estimated
cost then it creates the unfavorable variance.
Q 3 Altawfik Corporation is estimating the cost function for total cost of production of
product A using the two points method. The data collected for the past year is as
following:
Number of units Total
Quarter produced Costs
1 4,000 $ 1,000
2 5,400 1,280
3 7,000 1,600
4 9,000 2,000
Using the two points methods, choose two points with which you estimate the cost
function.
Answer:
As per the Two Points method, the two points will be –
a. 9000 units (total cost $2000) -
b. 4000 units (total cost $1000)
Q 4 Give one example of Saudi companies using job costing and one example of Saudi
companies using process costing and discuss the difference between them?
Answer:
A.G. Enterprises is Saudi company that uses job costing in Saudi Arabia (Vizgunov &
Trifonov, 2017). On the other hand, AI Hoty Co LTD is Saudi Company that uses process costing
in Saudi Arabia. There are some differences between job costing followed by A.G. Enterprises and
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process costing adopted by AI Hoty Co LTD. A.G. Enterprises tracks the cost along with revenue
by job. It also enables standardized reporting of effectiveness by the job. On the other hand, AI
Hoty Co LTD uses process costing while nearly identical units are mass manufactured.
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References
Al-Aidaroos, A. Y., Standaert, B., Meszaros, K., & Shibl, A. M. (2017). Economic
assessment of rotavirus vaccination in Saudi Arabia. Journal of infection and public
health, 10(5), 564-571.
Bragg, S. M. (2016). Cost accounting fundamentals. Colorado, CO: Accounting Tools
Datar, S. M., & Rajan, M. (2018). Horngren's Cost Accounting: A Managerial Emphasis.
Hadidi, L. A., & Omer, M. M. (2017). A financial feasibility model of gasification and
anaerobic digestion waste-to-energy (WTE) plants in Saudi Arabia. Waste
management, 59, 90-101
Hall, C. (2016). Cost Accounting: Why Do We Do It This Way?. Grower talks, 80(8), 64-
65.
Moshashai, D., Leber, A. M., & Savage, J. D. (2018). Saudi Arabia plans for its economic
future: Vision 2030, the National Transformation Plan and Saudi fiscal
reform. British Journal of Middle Eastern Studies, 1-21.
Ouda, O. K., Raza, S. A., Nizami, A. S., Rehan, M., Al-Waked, R., & Korres, N. E. (2016).
Waste to energy potential: a case study of Saudi Arabia. Renewable and Sustainable
Energy Reviews, 61, 328-340.
Vizgunov, A. N., & Trifonov, Y. V. (2017). Management of corporate business process
cost performance based on key costs data. International Journal of Economics and
Financial Issues, 7(2), 1-6.
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