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• Internal Code :
• Subject Code : HI5017
• University : Holmes Institute
• 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 –
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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