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## 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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