HI5017 Managerial Accounting
Unit Code: HI5017
Unit Name: Managerial Accounting
Question 2, (Week 3):
Part a:
manufacturing cost for Job no X10 | |||
Particulars |
unit |
per Unit cost |
Total |
material |
$ 22,800.00 | ||
Labour |
600 |
$ 16.00 |
$ 9,600.00 |
Overheads |
400 |
$ 30.00 |
$ 12,000.00 |
Manufacturing job cost |
$ 44,400.00 |
The total cost of manufacturing Job No X10 is $44400.
Part b:
Total Manufacturing Job cost (X10) |
$ 44,400.00 |
Number of units produced |
150 |
Cost per Unit ( Total cost/number of units produced) |
$ 296.00 |
In the given case, the cost per unit manufacturing is amounting to be $296.
Part c:
Per unit cost information is very important in any decision making process. It helps to determine the overall cost and decision about price positioning is also taken after analysis of per unit cost. It is also used for determining the breakeven point.
Question 2 (week 5):
Part 1:
Activity rates for each overhead Item | ||||
Activity cost Pool |
Cost Driver |
Estimated overhead |
Expected Use of Cost Driver |
Cost per Activity |
Purchasing |
Number of orders |
$ 12,00,000.00 |
40000 |
$ 30.00 |
Machine Setups |
Number of Setups |
$ 9,00,000.00 |
18000 |
$ 50.00 |
Machining |
machine Hours |
$ 48,00,000.00 |
120000 |
$ 40.00 |
Quality Control |
Number of inspection |
$ 7,00,000.00 |
28000 |
$ 25.00 |
One should estimate or know about the total cost and number of activities for the purpose of calculating the cost of an activity. It can be known through preparation of a cost sheet.
Part 2:
Cost Drivers |
TRI-X product |
Unit cost |
Total |
Purchase order |
17000 |
$ 30.00 |
$ 5,10,000.00 |
machine Setups |
5000 |
$ 50.00 |
$ 2,50,000.00 |
Machine Hours |
75000 |
$ 40.00 |
$ 30,00,000.00 |
Inspection |
11000 |
$ 25.00 |
$ 2,75,000.00 |
Total overhead cost |
$ 40,35,000.00 | ||
Units produced |
26000 | ||
Overheads cost |
$ 155.19 |
The total overhead cost of the activity amounts to $4035000. The cost is $4035000 when the activity consumes a certain amount of machine hour, setup and inspections. The amount of these factors used by the activity is mentioned in the table. Overhead cost is $155.19 when a total of 26000 units are manufactured by the plant.
Part 3:
Cost allocation as per ABC costing |
Unit |
per unit cost |
Total |
Direct materials |
$ 700.00 | ||
Direct labour |
6 |
20 |
$ 120.00 |
Manufacturing overhead |
$ 155.19 | ||
Total cost per Unit |
$ 975.19 |
The profit earned by the company is more than what it has targeted. The amount of profit earned is $625(1600-975). The rate of manufacturing overhead is reduced to $155.19. There is no change in the rate of consumption of labor and material in the production process. The cost which was estimated by the traditional overhead costing method was more than the actual cost. The cost is $975.19 which is lower than the estimated cost.
Question 3, week 6:
Part a:
Cash Receipts Budget Schedule | |||
Month |
July |
August |
September |
Immediately ( 15% of the Total sales) |
$ 20,160.00 |
$ 30,240.00 |
$ 40,320.00 |
One month later (25% ) |
$ 35,000.00 |
$ 52,500.00 | |
Two Months later (40%) |
$ 56,000.00 | ||
Three months later 20% | |||
Total Monthly Receipts |
$ 20,160.00 |
$ 65,240.00 |
$ 1,48,820.00 |
The sales forecast is attached in Appendix 1:
Part b:
Cash payments Budget Schedule | |||
Month |
July |
August |
September |
Payments For material Purchase |
$ 1,06,800.00 |
$ 1,04,640.00 |
$ 1,31,280.00 |
Material purchase requirement in attached in appendix 2
Part c:
Cash Budget for the Month Of July | |
Cash Receipts |
Amount |
Contribution of owner |
250000 |
Collection from sales |
$ 20,160.00 |
Total cash available |
$ 2,70,160.00 |
less: payments | |
payments for Direct material |
$ 1,06,800.00 |
payments for labour cost |
$ 14,500.00 |
Payments for variable cost (65% paid in the Month incurred) |
$ 18,850.00 |
Fixed overhead cost ( 60 % paid in the month incurred) |
$ 42,000.00 |
Total payments |
$ 1,82,150.00 |
Closing cash ( Total cash avilable - payments ) |
$ 88,010.00 |
Workings:
Annual overhead cost |
840000 |
Monthly cost ( Annual cost / 12) |
70000 |
Question 2- Week 8:
Part a:
Variable production cost for minimum transfer pricing is taken into consideration only if the plant has enough capability to meet both internal and external product need. In the given case the minimum transfer price that is considered is $3. It is also the cost of producing.
Part b
In a case where the company has the ability to meet only one need that is either external or internal, transfer pricing will consider the higher price amongst the both. Transfer price will consider the higher price to increase the profit for the department. Here the market price is greater than the internal price. Hence, the product will be recorded at $4 when it is bought by the perfume department from bottling department.
Part c:
The company can directly purchase the product from the market at a price of $3.5. When the market price is $3.5, then the maximum price that can be reimbursed by the presume department can be $3.5.
Part d:
Production capacity of a manufacturing plant helps in determination of the cost based transfer price and market based transfer price. Market based transfer price will be applied in the case where the ability of the manufacturing plant is limited. Cost based transfer price is used in the case where the company has enough capacity to meet both internal and external needs for the products.
Question 3 (Week 10)
- Based on the problem given in the assignment, the weighted average unit of contribution margin is as follows:
Particulars |
Alpha |
Beta |
Gamma |
Sales Mix (a) |
50% |
40% |
10% |
Selling Price per Unit (b) |
250 |
400 |
1500 |
Variable cost per unit © |
80 |
200 |
800 |
Contribution margin per unit (d= b-c) |
170 |
200 |
700 |
Weights assigned to each product (a*d) |
85 |
80 |
70 |
weighted average contribution Margin per Unit |
235 |
A margin of $235 will be used in respect to produce one single unit of a product. $235 is the amount of weighted average contribution margin. All these information can be known and understood from the table given above. The table gives information about weighted average contribution margin per unit.
- The break-even sales in Unit = Total fixed cost / Average Contribution Margin
= $5,000,000 / 235 = 21,277 units
Breakeven point for printer
Alpha = 21,277 * 50% = 10,638 units
Beta = 21,277 * 40% = 8511 units
Gamma = 21,277 *10% = 2128 units
IPM should sell 8511 units of beta, 21277 units of alpha and 2128 units of gamma as per the calculation. Production of these units is necessary to achieve the breakeven point by the business.
- Projected sales = 25,000 units
Breakeven point sales = 21,277 units
Margin of Safety = 25,000 – 21,277 = 3723 units
Question 3 (Week 11)
Minimum Acceptable Price Per Unit | ||
Relevant Costs |
Amount per Unit |
Total Cost |
Direct Materials |
$ 57.00 |
$ 570,000.00 |
Direct labor |
$ 60.00 |
$ 600,000.00 |
Variable Manufacturing Overhead |
$ 16.80 |
$ 168,000.00 |
Shipping Cost |
$ 9.00 |
$ 90,000.00 |
Import Duties and other special Costs |
$ 42,000.00 | |
Total Relevant Cost |
$ 1,470,000.00 | |
Total Units |
$ 10,000.00 | |
Minimum Acceptable Price Per Unit |
$ 147.00 |
GEM would incur a total cost of $1,470,000 as per the table and information provided. GEM has a capability to sell 10,000 units. Through the use of this information the minimum acceptable price is calculated. The minimum acceptable price stands at $147. The minimum acceptable price is considered as the price in which a product should be sold to gain some amount of profit.
The products in this case have blemishes because of which it is not possible to sell them at normal price. So it would be relevant to consider administration and variable cost which stands at $10.20. The company should sell the products at a minimum price of $10.20 in order to cover the minimum cost. A cost of $12.20 covers both administration and variable cost.
A consistent or similar future cost over the year has no use. They even do not play a significant role in decision making process. If incremental fixed cost changes then the future cost changes. Future cost plays an important role for making decisions related to future expenses but it is not used in all kinds of decision making.
References:
Juranek, S., Schindler, D. and Schjelderup, G., 2018. Transfer pricing regulation and taxation of royalty payments. Journal of Public Economic Theory, 20(1), pp.67-84.
HOOZÉE, S. and HANSEN, S.C., 2018. A Comparison of Activity-Based Costing and Time-Driven Activity-Based Costing. Journal of Management Accounting Research, 30(1), pp.
Asongu, S.A., Uduji, J.I. and Okolo-Obasi, E.N., 2019. Transfer pricing and corporate social responsibility: Arguments, views and agenda. Mineral Economics, 32(3), pp.353-363.
Rossing, C.P., Cools, M. and Rohde, C., 2017. International transfer pricing in multinational enterprises. Journal of Accounting Education, 39, pp.55-67.
Juranek, S., Schindler, D. and Schjelderup, G., 2018. Transfer pricing regulation and taxation of royalty payments. Journal of Public Economic Theory, 20(1), pp.67-84.
Appendix 1
Month |
July |
August |
September |
October |
Budgeted production volume |
1450 |
1650 |
2120 |
2460 |
Closing stock in hand (20% of the next month’s sale) |
330 |
424 |
492 | |
Less: Stock in hand |
330 |
424 |
492 | |
Total production requirement ( In units) |
1780 |
1744 |
2188 |
1968 |
material cost per Month @60 per unit |
$ 1,06,800.00 |
$ 1,04,640.00 |
$ 1,31,280.00 | |
Direct Labor cost per Month @10 per unit |
$ 14,500.00 |
$ 16,500.00 |
$ 21,200.00 | |
Variable Production cost @20 per unit |
$ 29,000.00 |
$ 33,000.00 |
$ 42,400.00 |
Appendix 2:
Month |
July |
August |
September |
October |
November |
Sales Unit |
1000 |
1500 |
2000 |
2400 |
2600 |
Selling Price |
$ 140.00 |
$ 140.00 |
$ 140.00 |
$ 140.00 |
$ 140.00 |
Total sales |
$ 1,40,000.00 |
$ 2,10,000.00 |
$ 2,80,000.00 |
$ 3,36,000.00 |
$ 3,64,000.00 |
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