University Cost Accounting Assignment: UGB 106 Homework

This document presents a comprehensive solution to a cost accounting assignment, addressing key concepts such as contribution margin, breakeven analysis, and variance analysis. The solution begins with a detailed calculation of contribution, followed by the determination of breakeven points under different scenarios. The assignment further explores profit calculations based on varying sales volumes and selling prices. It then delves into overhead cost allocation, calculating overhead cost rates for different departments and analyzing the total production costs. The solution also examines standard costing, including the calculation of various variances, such as purchase price variance, material yield variance, labor rate variance, and labor efficiency variance. Finally, it provides an evaluation of a strategic decision and a columnar statement of budgets and variances. The document offers a complete guide to understanding and solving cost accounting problems, with references to relevant academic sources.

UGB 106

TABLE OF CONTENTS
MAIN BODY..................................................................................................................................3
QUESTION 2..................................................................................................................................3
(a).................................................................................................................................................3
(b).................................................................................................................................................3
(c).................................................................................................................................................3
(d).................................................................................................................................................3
(e).................................................................................................................................................4
(f).................................................................................................................................................4
QUESTION 3..................................................................................................................................5
(a).................................................................................................................................................5
(b).................................................................................................................................................6
(c).................................................................................................................................................6
QUESTION 4..................................................................................................................................7
(a) Columnar statement of budgets and variances.......................................................................7
(b).................................................................................................................................................7
(c).................................................................................................................................................8
REFERENCES................................................................................................................................9

MAIN BODY
QUESTION 2
(a)
Contribution:
Total sales of 10,000 hand bags sold at £ 6 per unit = 10000 * £ 6 = £ 60000
- Variable cost at £ 0.45 per unit = 10000 * 4.5 = (£ 4500)
Contribution = £ 60000 - £ 4500 = £ 55500
(b)
Number of selling units required to achieve breakeven at sales price of £ 6:
Break even units = Fixed costs / (Sales price per unit – variable costs per unit)
= £ 27800 + £ 21000 / (£ 6 - £ 0.45)
= £ 48800 / £ 5.55
= £ 8793 units approximately
(c)
Sales from the 20000 units sold = 20000 * £ 6 = £ 120000
Particulars Per unit amount Total revenue
Sales 20000 * £ 6 £ 120000
Variable cost 20000 * £ 0.45 £ 9000
Contribution 20000 * £ 5.55 £ 111000
Total Fixed cost £ 48800
Profit £ 62200
Hence the profit if 20000 units of handbags are sold at the rate of £ 6 per unit then the total profit
earned would be £ 62200.
(d)
If company wants to earn a profit of £ 30000, then the number of bags that they need to sell at
the price of £ 6 per unit are:
Targeted units = Fixed cost + Targeted income / contribution margin per unit (i.e. sales -
variable cost)
Targeted units = ( £ 48800 + £ 30000) / (£ 6 - £ 0.45)
Targeted units = ( £ 48800 + £ 30000) / £ 5.55
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Targeted units = £ 78800 / £ 5.55
Targeted units = 14198 units approximately needs to be sold in order to gain £ 30000 as the
profit level.
(e)
Targeted amount and units are given but targeted sales price needs to be determined. The target
units are 17000 handbags and the target sale amount is £ 30000. The selling price in such case
should be:
17000 = £ 48800 + £ 30000 / ( x - £ 0.45)
17000 = £ 78800 / x - £ 0.45
X – 0.45 = £ 78800 / 17000 units
X - 0.45 = 4.64
X = £ 5.09 i.e. the selling price should be quoted at £ 5.09 in order to earn the amount of £ 30000
by selling 17000 units.
(f)
The strategy can be evaluated in following manner:
Particulars Per unit amount Total revenue
Sales 10800 * £ 6.18 66744
Variable cost 10800 * £ 0.45 4860
Contribution 10800 * £ 5.73 61884
Total Fixed cost 48800
Advertising 11000
Profit 2084
The original profits that the company was earning at the sale of 10000 units at the rate of £ 6
every year:
Particulars Per unit amount Total revenue
Sales 10000 * £ 6 £ 60000
Variable cost 10000 * £ 0.45 £ 4500
Contribution 10000 * £ 5.55 £ 55500
Total Fixed cost £ 48800
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Profit £ 6700
The analysis above helps in clearly understanding that the additional incurrence of the
advertising costs and the increase in the total sales s well as the sales per unit will only lead to
sever downfall in the profits ultimately and hence, it can be said that this decision of the
management is not very wise (Kumar, 2019). They should stick to the current strategy and try to
increase the total sales or the sales per unit by other measures rather than increasing the cost
along with it.
QUESTION 3
(a)
The calculation of the overhead cost rate can be ascertained in following manner for the John
Lee Plc:
Particulars Total Assembly Dept. Joinery Dept. Canteen
Indirect Labour 28000 13440 11200 3360
Indirect Material 22000 14960 7040
Heating and
Lighting
13000 4875 6500 1625
Rent Rates 14000 5250 7000 1750
Depreciation 19000 10215 8172 613
Supervision 15000 7200 6000 1800
Power 9000 4500 3900 600
Total 120000 60440 49812 9748
The overhead cost rate for both the departments has been identified in the table above where it
has been identified that for the assembly department the cost incurred is 60440 and for the
joinery department it is 49812. Now the overhead cost can be allocated in the basis of labour
hours. This can be done in following manner:
Overhead cost rate based on labour rate = Overhead costs/ labour rate * 100
For assembly department: 60440 / 2100 * 100 = 28% approx
For the joinery department: 49812 / 1400 * 100 = 36% approx
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(b)
In order to produce the one unit of Unique stool, there are 4 hours required from the assembly
department is 4 hours and that form the joinery department is 6 hours. Now the total production
cost of the 10 unique stools can be identified as follows:
In Assembly department: Labour costing / labour hours * number of hours worked = 28000 /
3500 * 4 = £ 32 cost in assembly department for every unit.
In Joinery department: 28000 / 3500 * 6 = £ 48 in joinery department
The total cost therefore on every product is £ 32 + £ 48 + £ 85 = £ 165 per unit.
Then the total cost of producing 10 units f the unique stool would be £ 165 * 10 i.e. £ 1650.
(c)
It is elementary in the costing of the products and services that are being produced so that
the operational mangers are aware of the different standards that have been set based on the
different activities that are to be performed in the organisation (Kristensen, 2020). In order to
complete this task effectively, there are certain measures that can be taken by the organisation
collectively where the creation of responsible centres is one such evident tactic that can be used
by the organizations and they can hence the costs that are being incurred. The responsibility
centres are basically different segments of the overall business which are responsible for some
particular activities or different costs that are incurred and are kept segregated from each other so
that the individual field of costing that is being utilised in the manufacturing of the product
collectively can be identified separately (Paul, 2020).
Expense centre is one such centre where the company identifies only those fields on which
expense has been made i.e. the maintenance department, the accounting department or the
production department can set expense as one of their responsibility centre.
The profit centre is the one where the manager are responsible for bridging up the different
between the cost and revenue incurred and ascertain the overall profit levels that the company is
able to target has been achieved. This is solely related to the objective of profit maximisation.
The next and the third aspect is the investment centre (Pagare, 2020). Setting this
responsibly centre helps in the better source of revenue generation for the company so that the
overall income and returns can be increased. These are solely focused in ascertain the reaction of
external and internal investors that the company should encourage and engage in. thus helps the
company in managing their finances in a better manner.
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QUESTION 4
(a) Columnar statement of budgets and variances
Particulars Original Flexed Actual Variance
Favorable/
Unfavorable
Total production 10000 9000 9000
Direct Material 600000 540000 579500 (39500) Unfavorable
Direct Labour 450000 405000 451400 (46400) Unfavorable
Variable
manufacturing
overhead 120000 108000 106000 2000 Favorable
fixed manufacturing
overhead 200000 200000 202000 (2000) Unfavorable
Total 1370000 1253000 1338900
(b)
The two major variances above i.e. the labour and the material variance can be further broken
down into some very specific categories of these variances (Nathwani, 2020).
The material variance can be further categorised as:
Purchase Price variance: The purchase price variance indicates the difference that occurs
between the standard price of purchase of material that was set earlier and the actual cost per unit
that is in actually incurred by the company.
Standard price – actual price * actual quantity
£ 3 - £ 3.05 * 9000 = 450 = Favorable
Material Yield Variance: This variance indicates the variance or difference that arises between
the usages of the material i.e. the quantity that was estimated to be used and the quantity that was
actually used in the production (Cooper, 2017). The variance in context of Krishphil Limited can
be identified as:
Standard quantity – actual Quantity * standard price
200000 – 190000 * 3 = 30000 = Favourable
Then comes the labour variance aspect of variance calculation and this can be further categorised
into:
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Labour rate variance: The labour rate variance signifies the difference that occurred in the
standard rate that has been set for the labour that will be working in the organisation and the
actual workplace as well (Kumar, 2019). This can be ascertained as:
Standard rate – Actual Rate * actual hours where the employee worked.
£ 15 – £ 14.8 * 30500 = 6100 = Favorable
Labour Efficiency rate: The labour efficiency variance is basically the analysis of the
productivity ad the output of the employees by aiming towards the minimisation of the labour
houses requested. This can be done in following manner:
Standard rate * Standard hours – actual hours:
£ 15 * 30000 – 30500 = (7500) = Adverse
(c)
The purpose of standard costing is to ascertain the cists that will be incurred and the
revenue that can be generated in prior to their actual incurrence (Tsai, Lan and Huang, 2019).
This helps in setting up the standards for the different practices of the employees that can be used
in order to generate the maximum performance and the increased efficiency of the different
activities that are undertaken but without compromising on the quality levels and also avoiding
incurrence of any wastage in the resources.
The benefits of the standard costing include the various numbers of aspects that are undertaken
into consideration such as:
 Improvement in the overall cost control
 The collection of more reasonable and better inventory measurements.
 Easy basis of comparison that is provides between the actual and the standard.
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REFERENCES
Books and Journals
Cooper, R., 2017. Target costing and value engineering. Routledge.
Kristensen, T.B., 2020. Enabling use of standard variable costing in lean production. Production
Planning & Control, pp.1-16.
Kumar, A., 2019. Standard Costing and Labour Cost Variance. The Management Accountant
Journal. 54(10). pp.65-73.
Kumar, A., 2019. Standard Costing And Material Cost Variance. The Management Accountant
Journal. 54(1). pp.82-85.
Nathwani, D., 2020. Standard Costing.
Pagare, S., 2020. Standard Costing.
Paul, D.D., 2020. STANDARD COSTING AND ABC: A COEXISTENCE. Strategic
Finance. 101(11). pp.32-39.
Tsai, W.H., Lan, S.H. and Huang, C.T., 2019. Activity-Based Standard Costing Product-Mix
Decision in the Future Digital Era: Green Recycling Steel-Scrap Material for Steel
Industry. Sustainability. 11(3). p.899.
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