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 –
  2. The information about the per unit cost of the product helps in undertaking effective operational analysis of the firm as it helps in specifying fixed and variable cost that are included in the product cost.
  3. Price mechanism can be improved after determining the actual cost of the product as the firm cannot charge very high price or very low price. This may affect the overall profitability of the firm.

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

It is highly recommended that the firm must adopt activity based pricing as it will help the firm in earning profit of more than $600 per model. This model is effective in determining the accurate cost of the product after identifying the major activities concerned with the product. Under traditional costing, the product cost has been found as $1048 but using ABC method of costing, cost has been determined as $975.19. ABC method of costing is effective method to find out the cost of 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

Transfer price will be estimated on the basis of variable cost only as the Bottle Division has sufficient capacity to meet demand of units raised by Perfume Division as well as from external market.

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

Transfer price = $3

Here, it would be considered beneficial for Perfume Division to initiate transfer of bottles as it can buy these bottles at the rate of $3.50 from external market.

  1. If it is being assumed that Bottle Division has limited capacity and can sell off the entire produce in the external market, then transfer price would change as both variable cost and opportunity will be included in its computation.

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

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

  1. The maximum amount for the bottles that can be paid by the Perfume Division is $3.50 as this is the price at which it can buy them from external market.
  2. Transfer price is considered as the key component of control system exercised by the management of the firm helping the firm in grabbing major objectives of minimisation of cost and maximization of profits. Easiness and transparency in operations can be better accomplished using the market based transfer pricing. Economic capability of the firm can be easily evaluated using such pricing. When the market price of any particular product is missing then cost based transfer prices can be used.

Managerial Accounting - Question 2 - Week 10

Solution –

  1. Calculation of weighted average unit contribution margin
 

Alpha

Beta

Gamma

Total

Sales mix

50%

40%

10%

100%

Selling price per unit

$250

$400

$1500

 

Variable cost per unit

$80

$200

$800

 

Contribution margin per unit

$170

$200

$700

 

Unit sales

12000

6000

2000

20000

Contribution margins

$2040000

$1200000

$1400000

$4640000

Weighted average unit contribution margin = $4640000 / 20000 = $232

  1. Calculation of break even point

Annual fixed cost = $5000000

Break even point = $5000000/ $232 = 21552 units

Break even units of Alpha printer = 21552 * (12000/20000) = 12931 units

Break even units of Beta printer = 21552 * (6000/20000) = 6466 units

Break even units of Gamma printer = 21552 * (2000/20000) = 2155 units

i) Margin of safety indicates the units of sales that are beyond the break even point. This shows the amount by which the sales of the company might reduce before the firm will have no profits.

ii) Calculation of margin of safety

Given projected sales as 25000 units

Break even units = 21552 units

Margin of safety = 25000 – 21552 units = 3448 units

Managerial Accounting - Question 2 - Week 11

Solution –

  1. Calculation of minimum acceptable unit price

Particulars

Amount ($)

Selling price

240

Cost price

201

Profit per unit

39

Costs:

 

Direct material

570000

Direct labour

600000

Variable manufacturing overhead

168000

Fixed manufacturing overhead

2400000

Special costs

42000

Shipping cost

90000

Total cost

3870000

Cost per unit

387

Profit per unit required

39

Minimum acceptable price

426

Minimum acceptable price would be $426 per unit as lower than this price would fetch losses to the firm.

  1. While setting the minimum price, variable selling and administrative charges and fixed selling and administrative costs are considered as relevant as company wants to sell the units through regular sales channels.
  2. Not all future costs can be considered as relevant in decision making. Future costs alone cannot be taken as single consideration. Only those future costs that differ among the alternatives taken into consideration are regarded as relevant. Decision making process can be significantly affected by the relevant costs. The future costs that alters as per the particular alternative are considered as relevant in the decision making process.

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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