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  • Subject Name : Accounting and Finance

Managerial Accounting - Question 2 – Week 3

Solution –

Direct materials = $22800

Direct labour hours = 600

Direct labour rate per hour = $16

Direct labour cost = 600 * $16 = $9600

Machine hours used = 400

Applied factory overhead rate per machine hour = $30

Total factory overhead = 400 * $30 = $12000

  1. Total manufacturing cost for Job No. X10 = Direct labour cost + Direct materials cost + factory overhead

Total manufacturing cost = $22800 + $9600 + $12000 = $44400

  1. An order for total 150 coffee tables

Cost per coffee table for Job No. X10 = $44400 / 150 = $296

  1. Two uses of information regarding unit cost to the management of the company are as follows –
  1. Unit cost of a product acts as an essential measure to undertake the operational analysis of the company by specifying variable and fixed expenses charged to the product.
  2. This type of information helps in determining and analysing the production efficiency of the company and also helps in setting the selling price of the product to achieve desired amount of profits.

Managerial Accounting - Question 2 – Week 5

Solution –

  1. Activity rates for every overhead items using four cost drivers

Activity cost pools

Cost drivers

Estimated overhead

Use of cost drivers

Activity rates for overhead items

Purchasing

Number of orders

$1200000

40000

$1200000/40000 = $30

Machine set ups

Number of set ups

$900000

18000

$900000/18000 = $50

Machining

Machine hours

$4800000

120000

$4800000/120000 = $40

Quality control

Number of inspections

$700000

28000

$700000/28000 = $25

  1. Calculation of unit cost using the activity rates

Particulars

Amount ($)

Direct materials (260000*$700)

18200000

Direct labour (26000 * $120)

3120000

Overhead:

 

Purchase activity (17000 * $30)

510000

Set up cost (5000 * $50)

250000

Machining (75000 * $40)

3000000

Inspection (11000 * $25)

275000

Total cost of production

25355000

Cost per unit ($25355000 / 26000)

975.19

  1. Calculation of gross profit

Particulars

Amount ($)

Selling price per TRI-X

1600

Cost per TRI-X as per ABC

975.19

Gross profit per TRI-X

624.81

As this method of costing would help the firm in reaching its target profit $600 per model, therefore, it is recommended that the organization must start applying this costing system. ABC costing system helps in evaluating the exact cost of production on the basis of activities performed. Using traditional costing method, total unit cost has been calculated as $1048 but using ABC costing system, unit cost arrived at $975.19. Thus, ABC costing system must be continued for accurately costing the product.

Managerial Accounting - Question 2 – Week 6

  1. Cash receipts budget schedule

Cash receipts budget schedule

(Amounts in $)

July

August

September

Sales (units)

1000

1500

2000

Sales revenue

140000

210000

280000

Receipts:

     

15% immediate less 4% discount

20160

30240

40320

25% one month later

 

35000

52500

40% two months later

   

56000

Total receipts

20160

65240

148820

  1. Material purchases budget schedule

Material purchases budget schedule

(Amounts in $)

July

August

September

October

Material used

87000

99000

127200

147600

Add: closing material

19800

25440

29520

 

Less: Opening inventory

 

19800

25440

 

Purchases

106800

104640

131280

 

Paid

 

106800

104640

 
  1. Cash budget for the month of July

Cash Budget for July

Particulars

Amount ($)

Material

 

Labour

14500

Variable overheads

18850

Fixed overheads

42000

Total payments

75350

Receipts

20160

Net cash flow

-55190

Opening balance

250000

Closing balance

194810

The payment for the materials has been made in the following month. Therefore, the payment for the material used in July has been paid in August.

Managerial Accounting - Question 2 – Week 8

  1. Calculation of minimum transfer price

Variable cost per unit = $3

Shipping cost = $0.20

External selling price = $4

Contribution from external market = $4 - $3 - $0.20 = $0.80

As the Bottle division has enough capacity to fulfil both external demands and demands of the Perfume Division, transfer price will be computed with the help of variable cost only and no opportunity cost will be added.

Transfer price = Variable cost per unit incurred as goods are transferred

Transfer price = $3

Here, transfer must occur as the perfume division is getting similar bottles from the external market at the rate of $3.50 which is higher than the transfer price of $3 offered by the Bottle Division.

  1. After undertaking into assumption that the Bottle Division do not have excess capacity and can sell entire produce externally. Then the transfer price would change as in its calculation, all relevant costs like variable cost, opportunity cost, etc. have to be included.

New transfer price = Variable cost per unit + Opportunity cost foregone

New transfer price = $3 + $0.80 = $3.80

  1. The Perfume Division would be willing to pay the amount of $3.50 for the bottles and not more than that as it has the opportunity to get these bottles at the rate of $3.50 from the external market.
  2. Transfer price is regarded as the major component of management system of control that help the company in accomplishing its objectives comprising of tax minimisation and profit maximisation. It is considered suitable for the company to undertake market based pricing when it wants to achieve simplicity and transparency. This method makes effective contribution to the evaluation of economic viability. On the other hand, cost based transfer prices must be used when there is absence of market price.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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