Cost Accounting and Control Homework Assignment - Finance Module

This assignment solution addresses various aspects of cost accounting and control, including revenue budgeting for Resort Island University with forecasted student growth and fee increases, and explores other budgets such as those related to campus maintenance and canteen operations. It delves into flexible overhead budgets, standard costing, and activity-based costing, calculating overhead costs using different methods and analyzing the reasons for discrepancies. The solution also examines the unit cost of special orders and provides recommendations to management regarding decisions on whether to sell or further process banolide, with financial analysis to support the decision. Furthermore, the assignment presents income statements using both absorption and variable costing methods, compares operating profits, analyzes closing inventory costs, and recommends the appropriate costing method for the company, along with references to relevant literature.

Cost and Cost Accounting Control

Table of Contents
Answer 1..........................................................................................................................................4
Revenue Budget...........................................................................................................................4
Number of staff required to cover classes...................................................................................4
Actions which can be taken in order to accommodate the growing student number..................5
Other budgets...............................................................................................................................5
Answer 2..........................................................................................................................................6
No. of standard clerical hours allowed........................................................................................6
Reason behind formation of Flexible based on number of clerical hours allowed.....................6
Flexible Overhead Budget...........................................................................................................6
Memorandum...............................................................................................................................7
Answer 3..........................................................................................................................................7
Part 1: Total Overhead Cost........................................................................................................7
Part 2: Overhead cost per box......................................................................................................8
Part 3: of overhead rate based on Machine Hours.......................................................................8
Part 4: Calculation of Overhead cost in total and per box of chemical as per requirement three8
Part 5: Reasons of the difference between two methods.............................................................8
Part 6: Calculation of unit cost of special order..........................................................................9
Answer 4..........................................................................................................................................9
Recommendation to management................................................................................................9
Letter to the management of Cool Pool Ltd..............................................................................10
Answer 5........................................................................................................................................11
Operating profit in both costing method....................................................................................12
Closing Inventory cost...............................................................................................................12
Recommendation to management of company..........................................................................12

References......................................................................................................................................13

Answer 1
Revenue Budget
Details and figures
Existing no. of students 15000
Forecasted growth % in no. of
students 5%
Increase in fees per subject 3500
Average student per class 80
No of semester 2
Subjects per semester 4
Staff Salary 120000
Statement presenting revenue budget for upcoming academic year for Resort Island
University
Particulars Amount
Number of Students 15000
Annual Growth 5%
Fee per subject 3500
Total Subject in two semester 8
Total Revenue 441000000
Less Reward (Scholarship) 4410000
Net Revenue 436590000
It has been provided that 150 students will be provided scholarship i.e. 1% of total available
students receiving reward.
Number of staff required to cover classes
Total no. of students = 15000
Number of students in average class = 80 per student
Average class = 15000/80
= 187.5 Class

No. of subject in one semester = 4 Subject
Total subject = 187.5*4
= 750
One staff cover equivalent of three subjects, therefore number of staff required to cover the class
is: 750/3 i.e. 250 teachers
Actions which can be taken in order to accommodate the growing student number
 Providing additional facilities such as sports as well as other hobbies to students.
 Provided online lectures to students.
 Wi-Fi- Facility in campus.
 Extra-classes for weak students (Thaker and etal. 2016).
 Cash-prize or other rewards to students attaining high score.
Other budgets
It is expected that in order to maintain the premises an expenditure of $40000000 will be
incurred. Moreover canteen operations will also be outsourced in order to provide facility to
students as well as enhance the profits. It is expected that approximately $1000000 will be
earned from specified source. Moreover, approximately $3500000 will be incurred for
maintenance of library and $41000000 will be incurred for other general and administrative
overheads.
Statement presenting budgeted profit or loss for Resort Island University
Particular Amount in $
Revenue from Students 436590000
Revenue from canteen 10000000
Less
Salary to staff 30000000
Maintenance of library 35000000
Maintenance of premises 40000000
Other general and administrative overhead 41000000
Net Profit 300590000

Answer 2
No. of standard clerical hours allowed
Statement presenting Number of Standard Clerical Hours Allowed in
April
Particulars Health Lif
e Automobile Renter Homeowne
r
Standard Hours to be evaluated to
be provided for processing
Application
1 1.5 2 2 5
No. of Insurance Application
processed in the month of April 375 300 150 600 300
Number of Standard Hours Taken 375 200 75 300 60
Total Standard Hours 1010
Reason behind formation of Flexible based on number of clerical hours allowed
Flexible budget of the company should not be based on application processed and formed on the
basis of actual working hours allowed instead because the efficiency of the employees of the
organization can be ascertained through assessing the quantum of application processed by
employee within working hour. Further, through developing budget on the basis of clerical hours
allowed to the employees’ one can ascertain the variance between standard hours required and
actual hours used by the employee (Raulinajtys-Grzybek and ŚWIDERSKA, 2016).
Flexible Overhead Budget
Statement presenting Flexible Overhead Budget For the company
Particulars Amount
Variable Overhead Cost 10100.00
Fixed Overhead Cost 6000.00
Total Overhead Cost 16100.00

Memorandum
DATE: 13.05.2019
TO: The management of Good Health Insurance Company
FROM:
SUBJECT: Benefits of Standard Costing
Respected Sir
Standard costing can be referred as practice of replacing budget cost for actual cost in accounting
records (Nielsen, Mitchell and Nørreklit, 2015). Further, variance ascertained from same are
recorded in order to ascertain the difference between actual and expected cost. The main
advantages which can be attained through implementation of standard cost is improved cost
control, possible decrease in production cost, reasonable as well as easy inventory measurement.
It is also useful for managerial planning as well as decision making for the management.
Answer 3
Part 1: Total Overhead Cost
Statement presenting calculation of total overhead for cost for Pix Photographic supply ltd.
Particulars Amount in $
Machine Set up 12000
(4*30000)
Raw Material 30000
(10*3000)
Hazardous material 15000
(2000*7.5)
Inspection Expenses 1125
(10*112.5)
Machine Hours 7500
(500*15)
Total Cost 65625

Part 2: Overhead cost per box
Overhead cost per box of chemical 65.625
(Total no. of boxes/ Total cost)
Part 3: of overhead rate based on Machine Hours
Rate per hour on the basis of machine hours
Total Overhead / Machine Hours 46.875
Part 4: Calculation of Overhead cost in total and per box of chemical as per
requirement three
Overhead to be assigned in total
23437.
5
Overhead to be assigned per box of chemical
23.437
5
Part 5: Reasons of the difference between two methods
Activity based costing system allocates expenses on the bases of activity for instance, inspection
cost, machine setup etc.; on the contrary in case of traditional costing system expenses are
allocated on the basis of rate ascertained on the basis of machine hours (Myrodia, Kristjansdottir
and Hvam, 2017). Thus, the main reason behind difference in cost of two methods is the basis or
the base applied for allocation of expenses. It is recommended that company should adopt
activity based costing as it leads to ascertainment and allocation of cost on the basis of specific
overhead activity. Thus, the same bifurcates the cost more appropriately.

Part 6: Calculation of unit cost of special order
Statement presenting unit cost of production for 100 special coated plates used in film
development
Particulars Amount
Direct Material Cost 18000
Direct Labour Cost 6000
Machine Set up 6000
Raw Material (800*3) 2400
Hazardous Material (300*7.5) 2250
Inspection Expenditure (3*112.5) 337.5
Machine Hours (50*15) 750
Total Cost of Production 35737.5
Unit Cost 357.375
Answer 4
Recommendation to management
The main issue in present case is to make decision relating to banolide i.e. whether to sale at split
or to move on for further processing. The decision can be taken on the basis of comparison of
profit attained by company at split off point as well as in case banolide is further processed (Li,
2015). Lastly the company should take decision relating to further processing only in case higher
profit is incurred in comparison to additional cost for further processing. The same analysis have
been provided below:
Computation of the profit or loss at the spilt off point in case of banolide
Particulars Amount in $
Revenue at spilt off point 5000
Total cost 12000
Loss (Revenue - Cost) 7000

Statement presenting the profit or loss after further processing of Banolide
Particulars Amount in $
Revenue after further processing 20000
Additional Processing Cost 26200
Loss (Revenue - Cost) (Stadler and Nobes, 2018) 6200
From above analysis it can be concluded that no profit is attained in both the scenarios.
Letter to the management of Cool Pool Ltd
To
The Management of Cool Pool Ltd
Subject – Assessment with respect to whether banolide should be sold at spilt off or processed
further along with adequate recommendation to the issues.
Respected Sir
From the present survey it has been observed that losses were suffered by the banolide in both
conditions. Therefore in the discussion, it is suggested by the observers that company must make
a sale of such products at spilt off point as well as make use of resources within other products.
However which will increase its productivity and income of the company. Furthermore, for
making decisions of outsourcing, some major issues which should be considered by the
management are described as follows:
 At the time of making decisions regarding outsourcing authority must consider the saving
in cost (Kothari, 2019).
 Comparison must be made between the vendors by the company. It is not important that
company should purchase from the vendor who sales its products in low prices, instead of
just consider cost, quality of the product must also be considered
 While making the decisions regarding outsourcing significant aspect of Technology and
resources should also be considered by organization

 For completing the tasks at appropriate time company must also assess the potential of
vendor (Christ and Burritt, 2015)
However it is important to consider all the issues given above by organization at the time of
making the outsourcing decision about the purchasing of vacuum cleaners.
Thanks.
Answer 5
Income Statement for Slumber world for current year using absorption costing
Particulars Amount $
Total Sales 810000
(13500units *$60)
Less - Cost of goods manufactured
Direct material applied 120000
(120000/13500 i.e. $ 8 per unit)
Direct Labour Cost incurred 60000
Variable Manufacturing Overhead 36000
Fixed manufacturing overhead 75000
Less- Closing Inventory 29100
Variable Selling and administrative Expenses 13500
Fixed selling and administrative Expenses 90000
Net Profit 386400
Income Statement for Slumber world for current year using variable costing
Particular Amount in $
Total Sales 810000
(13500units *$60)
Less - variable cost
Direct material 120000
(120000/13500 i.e. $ 8 per unit)
Direct Labour Cost 60000
Variable Manufacturing Overhead 36000
Less - Closing Inventory 21600
Less -Variable Selling and administrative overhead 13500
Contribution 558900
Less-Fixed Cost
Fixed manufacturing expenses 75000

Fixed selling and administrative expenses 90000
Net Income 393900
Operating profit in both costing method
It can be concluded from above assessment that in case variable costing method is applied by the
organization than higher profit is recorded in comparison to absorption costing method. The
reason behind same is that in case of absorption costing method fixed manufacturing cost is
considered while evaluating closing stock high which eventually reduces the operating profit. On
the contrary in case of variable costing method fixed manufacturing overhead is not considered
for valuing the closing stock which increases the overall profit (Schaltegger and Zvezdov, 2015).
Closing Inventory cost
Particulars Per unit Total Amount in $
Closing Inventory (Absorption
costing)
19.4 29100
Closing Inventory (Marginal
costing )
14.4 21600
Recommendation to management of company
The company is recommended to adopt variable costing instead of absorption costing. Through
implementing variable costing method there will be no fluctuation in inventory level which will
assist management in evaluating cost-volume profit analysis as well as breakeven point (Kaplan
and Atkinson, 2015).