Cost and Management Accounting

Solution Paper 1
Q. No. 1
(1)

Concept Group
Cost of Goods Sold Statement
For the year ended March 31, 2001
Details

Material used
Direct Labor
Factory overhead:
Indirect Labor
Light and power
Depreciation
Repairs to machinery
Miscellaneous factory overhead
Total Manufacturing Cost
Add work in process opening inventory
Cost of goods available for manufacturing
Less work in process closing inventory
Cost of goods Manufactured
Add finished goods opening inventory
Cost of goods available for sale
Less finished goods closing inventory
Cost of goods sold

Rs.

46,000
4,260
4,700
5,800
29,000

Rs.
440,000
290,000

89,760
819,760
41,200
860,960
42,500
818,460
34,300
852,760
31,500
821,260

(2)
Cost per unit Manufactured = 818,460/18,000= Rs. 45.47 per unit
(3)
Actual factory overhead Rs. 89,760
Applied factory overhead Rs. 87,000
Under applied factory overhead
Rs. 2,760
Q. No. 2
(1)
The following table shows the effect of the proposed change in monthly advertising
budget.

Sales
Less variable expenses
Contribution margin
Less fixed expenses
Net operating income

Current
sales
Rs.
180,000
126,000
54,000
30,000
24,000

With advertising
budget
Rs.
189,000
132,300
56,700
35,000
21,700

Differe
nce
Rs.
9,000
6,300
2,700
5,000
(2,300)

Assuming no other important factors need to be considered, the increase in the

advertising budget should not be approved because it would lead to a decrease in
net operating income of Rs. 2,300.

(2)
Expected total contribution margin with the higher quality components
2,200 units*25 per
unit.Rs. 55,000
Present total Contribution margin
2,000units * 27 per
unit. 54,000
Change in the contribution
margin. Rs. 1,000
Assuming no change in fixed costs and all other factors remain the same, the higher
quality components should be used.
Q. No. 3
Carola Chemicals
Department 2
Cost of production Report
For the month ended of
Quantity schedule:
Units received from preceding department
55,000
Units transferred to next department.
39,500
Units still in process (1/3 converted)
10,500
Units lost in process..
5,00055,000
Cost charged to Department:
cost

Total cost

Unit

RS.
Rs.
Cost from preceding department
99,000
1.80
Cost added by department:
Labor [39,500+ (10,500*1/3]= 43,000 units.
27,250
0.64
Factory overhead.
15,480
0.36
Total cost added
43,000
1.00
Adjustment for lost units (1.98-1.80)
0.18

Total cost to be accounted for.

142,000
2.98
Cost accounted for as follows:
Transferred to next department (39,500*2.98)
Rs. 117,710
Work in process ending inventory
Cost from preceding department (10,500*1.98)
Rs.
20,790
Labor (10,500*1/3*.64)
2,240
Factory overhead.. (10500*1/3*.36)
1,260
24,290
Total cost accounted for.
142,000

Q. No. 4
(1)
Economic order quantity=

2AROC
CC

units
(2)

EOQ=

210,000200
100CC %age

100 units=

4 , 000 , 000
100CC age

By taking square root of both sides

10,000= 4,000,000/100*CC %age
1,000,000 * CC %age= 4,000,000

210,000200
10025

= 400

CC %age = 4,000,000/1,000,000
CC %age = 4 or 400% carrying cost.
Q. No. 5
(1)
The predetermined overhead rate based on normal capacity
Fixed expenses Rs. 36,000
Add variable expenses (Rs. 54,000/72,000)= Rs. .75 per hour
(90,000* .75)..
67,500
Total overhead at normal capacityRs.103,500
Rs. 103,500/90,000 = Rs. 1.15 per direct labor hour
(2)
The predetermined overhead rate based on expected actual capacity
Fixed expenses Rs. 36,000
Add variable expenses ..
54,000
Total overhead at expected actual capacity..Rs.90,000
Rs. 90,000/72,000 = Rs. 1.25 per direct labor hour
(3)
=75,000*1.15= Rs. 86,250
(4)
= 75,000* 1.25= Rs. 93,750
(5)
Overhead estimated for capacity attained:
Fixed expenses.. Rs. 36,000
Variable expenses (75,000*.75)
56,250
Rs. 92,250
Overhead applied during the period
86,250
Idle capacity variance.. Rs. 6,000
unfav.
(6)
Overhead estimated for capacity attained:
Fixed expenses.. Rs. 36,000
Variable expenses (75,000*.75)
56,250
Rs. 92,250
Overhead applied during the period
93,750
Idle capacity variance.. Rs. 1,500
fav.

Q. No. 6
High Speed Printers:
20% of 25,000 printers..5,000
Sales representative forecast.. 6,000
Total.. 11,000 printers/2 = 5,500 printers
Apportionment as follows:
Lahore (20%).. 1,100 printers* Rs. 1,800 = Rs.
1,980,000
Karachi (50%). 2,750 printers*
1,800 =
4,950,000
Islamabad (30%).. 1,650 printers*
1,800 =
2,970,000
Total 5,500 Printers
Rs.
9,900,000
Electronic Typewriters:
10% of 90,000 Electronic Typewriters ...9,000
Sales representative forecast.. 8,000
Total.... 17,000 Electronic
Typewriters /2 = 8,500 typewriters
Apportionment as follows:
Lahore (25%).. 2125 Electronic Typewriters* Rs. 500
= Rs. 1,062,500
Karachi (50%). 4250 Electronic Typewriters*
500
=
2,125,000
Islamabad (25%).. 2125 Electronic
Typewriters *
500 =
1,062,500
Total 5,500 Electronic Typewriters
Rs. 4,250,000
Total sales by product:

5,500 printers Rs. 9,900,000

8,500 Typewriters..
4,250,000
Total Sales Rs. 14,150,000