Management Accounting and Costing — Summer 2023

Distinguish between cost and management accounting

Are all fixed costs sunk costs? Explain. Show why are sunk costs not relevant in decision making?

Explain clearly the difference between scrap, by-product, and joint products. Give the cost accounting treatment for each

The following information pertaining to a firm are available. ______________________________________________________________ Annual consumption 12000 units (360 days) Cost per unit Rs 1 Cost per order Inventory carrying cost (%) Lead time (maximum, normal and minimum – days) 30-15-5 Daily consumption (maximum, normal and minimum – units) 45-33-15 _______________________________________________________________ Calculate the following: 1. Economic order quantity 2. Re order level 3. Minimum level 4. Maximum level 5. Average stock level

Illustrate benefits and limitation of Activity Based Costing system

The Aeronautical Ltd has production facility specializing in jobs for the aircraft components market. The traditional costing system has two direct cost categories, namely, direct materials and direct manufacturing labour Page 1 of hours. The indirect cost allocation rate would have been Rs 115 direct manufacturing labour-hour. The company has now decided to replace the single indirect cost pool with five indirect cost pools, representing five activity areas each with its own supervising and budget responsibility. The relevant data are as follows: ______________________________________________________________________ Activity area Cost driver used as an allocation base Cost allocation rate ______________________________________________________________________ Material handling Parts Rs.0.40 Lathe work Turns 0.20 Milling Machine Hours 20.00 Grinding Parts 0.80 Testing Units tested 15.00 _____________________________________________________________________ Two representative jobs processed under the new system of the facility at the most recent period had the following features: ______________________________________________________________________ Particulars Job 101 Job 102 ______________________________________________________________________ Direct material costs per job Rs. 9,700 Rs.59,900 Direct manufacturing labour cost per job 750 11,250 Direct manufacturing labour hours per job 25 375 Parts per job 500 2,000 Turns per job 20,000 60,000 Machine hours per job 150 1,050 Units per job 10 200 ______________________________________________________________________ Compute the per unit manufacturing costs of each job under the activity based costing System

Define break even analysis and outline its uses and applications.

From the following details of store receipts and issues of material “Exe” in a manufacturing unit, prepare the store ledger using weighted average method of valuing the issues. ______________________________________________________________________ November 1 Opening stock 2000 units @ Rs 5 each 3 Issued 1500 units to production 4 Received 4500 units @ Rs 6 each 8 Issued 1600 units of production 9 Returned to stores, 100 units of production dept (from the issues of November 3) 16 Received 2400 units @ Rs 6.50 each 19 Returned to supplier, 200 units out of the quantity received on November 20 Received, 1000 units @7.00 each 24 Issued to production, 2100 units 27 Received, 1200 units @ 7.5 each 29 Issued to production 2800 units _____________________________________________________________________

Explain Life Cycle Costing with relevant example

The ABC Ltd makes three products from one common input. Process Iis the joint process and every 100 kgs of input yields: 60 kgs of product A; 30 kgs of product Page 2 of B; and 5 kgs of product Cand the remaining 5 kg is waste product with no market value. Product Arequires further processing in process II at an average cost of Rs 10 per kg. It is then sold at Rs 100 per kg. Product Bis sold at split off point at Rs 50 per kg. Product Cafter further processing in process III (at Rs 2.5 per kg), is sold at Rs 5 per kg. The selling expenses associated with Care negligible, and the Company desires the cost of product Cto be such as to earn a profit of 10% on sales. During the current period, 100000 kgs of input was processed through process I (assume no inventories) and the total operating costs in Process Iwere Rs 5185000. You are required :

To determine the amount of Process Icost assigned to by Product C; ii) To determine the amount of joint costs to be assigned to Aand Busing the relative sales value approach; iii) To determine the amount of joint costs to be assigned to Aand B, using the net realizable value less normal profit approach.

‘If sales forecast is subject to error, then , there is no purpose of budgeting.’ Do you agree? Also explain how a flexible budget can be used by management to help control costs.

Case Study The GEC Ltd manufacturers pumps used in coolers. The firm has developed a forecasting tool that has been successful in predicting sales for the company Sales = 10000 + (0.25 x coolers sold). The coming years cooler sales are Expected to be 2,00,000. The pump contains material costing Rs 50. Direct labour is Rs 60 per unit and variable manufacturing overhead is Rs 40 per pump. Besides the variable manufacturing costs, there are commissions to sales people of 10 per cent of sales amount. The pump sell for Rs 250 per unit. Fixed costs of manufacturing are Rs 10,00,000 per year and fixed selling and administrative expenses are Rs. 5,00,000 per year. Both are incurred evenly over the year. sales are seasonal, and about 75 per cent are in the April – September period which begins from April 1. The sales forecast by months, as percentage of yearly sales, are given below : April May June July August September October November The company has policy of keeping inventory of finished product equal to the budgeted sales for the following two months. Materials are purchased and delivered daily and no inventory is kept. The inventory of finished product on March 31 is expected to be 15,500 units. You are required to prepare

Budgeted income statement for the first six months of the year

Production budget by months for the first six months, in unit Page 3 of

The XYZ ltd operates a chain of toy stores. The store sells 10 different styles of Toys with identical purchase costs and selling prices. The company is trying to Determine the desirability of opening another store, which would have the Following expense and revenue relationships per pair : _____________________________________________________________________ Variable data : Selling price Rs 30.00 Cost of toy 19.50 Salesmen’s commission 1.50 Total variable expenses 21.00 Annual fixed expenses: Rent 60,000 Salaries 2,00,000 Advertising 80,000 Other fixed expenses 20,000 3,60,000

Calculate the annual break – even point in sales amount and in unit sales. If 35,000 toys are sold, calculate what would be the income of the stores?

If the store manager was paid Rs 0.30 per pair commission, what would the annual break – even point be in sales amount and in unit sales? refer the original data, if sales commissions were discontinued in favour of Rs 81,000 increase in fixed salaries, what would the annual break even point be in amount and in unit sales? Page 4 of