Costing System Analysis Assignment Sample

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

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

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

An order for total 150 coffee tables

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

Two uses of information regarding unit cost to the management of the company are as follows –

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.
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 –

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

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

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

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

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

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

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.

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

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.
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.

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