Solution 1:
1: Equation to represent the relationship total cost (TC), variable cost per unit (VC), Volume (x), and fixed cost (FC) is as under:
y = mx + b
Where, y: total cost
m= variable cost per unit
x = Volume
b = fixed cost
2. A Scatter graph is the simplest method to calculate the fixed and variable components of the mixed cost. This graph shows the total cost in relation to the volume or activity level. In order to estimate the fixed and variable cost components from the total cost it is essential to fit the line to the plotted points in order to frame the cost relationship equation. Using the simple algebra equation both fixed and variable cost can be calculated.
3. (i) :High-Low Method to estimate the fixed and variable cost of the admitting costs:
Highest level of activity: 1900 and cost $15200
Lowest level of activity: 1100 and cost $12800
Variable cost per patient: Change in total cost /Change in activity
= 15200-12800/1900-1100
= 3 $ per patient
Fixed Cost per patient = $15200 – ($3 *1900) = $9500
3 (ii): Cost formula for admitting cost:
Total admitting cost (Y) = $ 9500 + ($3*number of patients)
3 (iii): All the three methods of estimation for variable and fixed cost from total cost uses different method of combination of data points in order to gain the cost equation of the desired activity. All these three methods do not provide correct estimation as they are only estimations. Among these methods regression provides the best estimation as it provides the line of best fit for all the data. So I prefer regression method to estimate the variable and fixed cost.
4: The concept of relevant range refers to specific revenue or cost levels estimated by business organizations to occur. The revenues and expenses occurring outside of the concept of relevant range are likely to differ from the expected amount. On the other hand, step costs are fixed for short range of activities and all the steps indicate the total costs at each level of activity. The total fixed costs remains uniform in relevant range and variable costs tend to increase with the increase in total activity levels.
|
Job |
Direct Labour Cost |
Labour Cost per hr |
Labour hours |
|
93 |
$ 2,160.00 |
$ 18.00 |
120 |
|
94 |
$ 5,400.00 |
$ 18.00 |
300 |
|
95 |
$ 2,610.00 |
$ 18.00 |
145 |
|
96 |
$ 900.00 |
$ 18.00 |
50 |
2:
|
Job |
Labour hours |
Overhead Rate |
Overhead Cost |
|
93 |
120 |
$ 8.00 |
$ 960.00 |
|
94 |
300 |
$ 8.00 |
$ 2,400.00 |
|
95 |
145 |
$ 8.00 |
$ 1,160.00 |
|
96 |
50 |
$ 8.00 |
$ 400.00 |
3:
|
Job 93 |
Amount |
|
Beginning Balance |
$ 8,750.00 |
|
Work Done in August |
|
|
Direct Materials |
$ 950.00 |
|
Direct Labour |
$ 2,160.00 |
|
Closing Balance as on 17 August |
$ 11,860.00 |
|
Job 94 |
Amount |
|
Beginning Balance |
$ 7,300.00 |
|
Work Done in August |
|
|
Direct Materials |
$ 4,500.00 |
|
Direct Labour |
$ 5,400.00 |
|
Closing Balance as on 17 August |
$ 17,200.00 |
|
Job 95 |
Amount |
|
Beginning Balance |
$ – |
|
Work Done in August |
|
|
Direct Materials |
$ 3,300.00 |
|
Direct Labour |
$ 2,610.00 |
|
Closing Balance as on 17 August |
$ 5,910.00 |
|
Job 96 |
Amount |
|
Beginning Balance |
$ – |
|
Work Done in August |
|
|
Direct Materials |
$ 1,300.00 |
|
Direct Labour |
$ 900.00 |
|
Closing Balance as on 17 August |
$ 2,200.00 |
4:
|
Job |
Beginning |
August work |
Status |
WIP |
|
93 |
$ 8,750.00 |
$ 3,110.00 |
Completed |
$ – |
|
94 |
$ 7,300.00 |
$ 9,900.00 |
Ongoing |
$ 17,200.00 |
|
95 |
$ – |
$ 5,910.00 |
Ongoing |
$ 5,910.00 |
|
96 |
$ – |
$ 2,200.00 |
Ongoing |
$ 2,200.00 |
5:
|
Statement of Price for Job 93 |
Amount |
|
Total cost for Job 93 |
$ 11,860.00 |
|
Mark up value @ cost plus 25^% |
$ 2,965.00 |
|
Price |
$ 14,825.00 |
1: Physical Flow of Units:
Beginning WIP + Units Started = Units Transferred out + Ending WIP 10000 + 100000 = 80000 +30000
2: Equivalent Units (Direct Material) = Units Transferred out + Ending WIP *Percentage of completion of conversion 80000 + (30000*100= 110000 units)
Equivalent Units (Conversion) = Units Transferred out + Ending WIP *Percentage of completion of = 80000 + (30000*33.33= 90000 units)
3: Units Cost under Weight age Average= (Beginning cost + Current Cost)/Equivalent Units Direct Material =(22000+198000/110000 units = 2 per unit
Conversion Cost = (4500+158400)/90000 units = 1.81 per unit
4: Total Cost
Direct Material
Units Transferred out = 80000 *2 = 160000
Ending WIP = 30000*2 = 60000
Total Cost = 220000
Conversion Cost
Units Transferred out = 80000 *1.81 = 144800
Ending WIP = 30000 * 1.81 = 54300
Total = 199100
5: When Data Changes
The April 1 work-in-process costs were $66,000 for direct material and $18000 for conversion
a. Physical Flow of Units
Beginning WIP + Units Started = Units Transferred out + Ending WIP10000 + 100000 = 80000 +30000
2: Equivalent Units (Direct Material) = Units Transferred out + Ending WIP *Percentage of completion of = 80000 + (30000*100%) = 110000 units.
Equivalent Units (Conversion) = Units Transferred out + Ending WIP *Percentage of completion of = 80000 + (30000*33.33%) = 90000 units.
3: Units Cost under Weight age Average=(Beginning cost + Current Cost)/Equivalent Units
Direct Material = ( 66000+198000/110000 units = 2.4 per unit
Conversion Cost = (18000+158400)/90000 unit = 1.96 per unit
4: Total Cost
Direct Material
Units Transferred out = 80000 *2.4 = 192000
Ending WIP = 30000*2.4 = 72000
Total Cost = 264000
Conversion Cost
Units Transferred out = 80000 *1.96 = 156800
Ending WIP = 30000 * 1.96 = 58800
Total = 199100
1:
|
Calculation the factors to apportion service department overheads |
|||
|
Department |
Sum of percentage |
Music |
Art |
|
A and HR |
40+50 = 90 |
40/90 |
50/90 |
|
M |
40+55= 95 |
40/95 |
55/95 |
|
Department |
Music |
Art |
A and HR |
M |
|
Allocated overheads |
$ – |
$ – |
$ 342,000.00 |
$ 171,000.00 |
|
A and HR Reallocation |
$ 152,000.00 |
$ 190,000.00 |
$ -342,000.00 |
|
|
M Reallocation |
$ 72,000.00 |
$ 99,000.00 |
$ -171,000.00 |
|
|
Total |
$ 224,000.00 |
$ 289,000.00 |
$ – |
$ – |
2:
|
Department |
Music |
Art |
A and HR |
M |
|
Allocated overheads |
$ – |
$ – |
$ 342,000.00 |
$ 171,000.00 |
|
A and HR Reallocation |
$ 136,800.00 |
$ 171,000.00 |
$ -342,000.00 |
$ 34,200.00 |
|
Total |
$ 136,800.00 |
$ 171,000.00 |
$ – |
$ 205,200.00 |
|
M Reallocation |
$ 86,400.00 |
$ 118,800.00 |
$ -205,200.00 |
|
|
Total |
$ 223,200.00 |
$ 289,800.00 |
$ – |
$ – |
3: Managerial accountant allocate the cost of service department first that has incurred highest cost and so on. In order to handle ties no cost is allocated to the department that has been reallocated already.
A) i:
|
Activity |
Overheads |
labour hours |
Overhead rate / LH |
|
Setup |
$ 256,000.00 |
$ 50,000.00 |
$ 5.12 |
|
Materials purchasing |
$ 110,000.00 |
$ 50,000.00 |
$ 2.20 |
|
Machining/ fabricating |
$ 136,000.00 |
$ 50,000.00 |
$ 2.72 |
ii:
|
Activity |
Overheads |
Overhead rate |
Classic |
Premium |
|
Labour hour Ratio |
30000 |
20000 |
||
|
Setup |
$ 256,000.00 |
$ 5.12 |
$ 153,600.00 |
$ 102,400.00 |
|
Materials purchasing |
$ 110,000.00 |
$ 2.20 |
$ 66,000.00 |
$ 44,000.00 |
|
Machining/ fabricating |
$ 136,000.00 |
$ 2.72 |
$ 81,600.00 |
$ 54,400.00 |
iii:
|
Products |
Classic |
Premium |
|
Total Allocated Overheads |
$ 301,200.00 |
$ 200,800.00 |
|
Number of Products |
40000 |
10000 |
|
Overhead per unit |
$ 7.53 |
$ 20.08 |
iv)
|
Statement of unit product cost |
||
|
Particulars |
Classic |
Premium |
|
Units Produced |
40000 |
10000 |
|
Direct Material Cost |
$ 600,000.00 |
$ 300,000.00 |
|
Direct Labour Cost |
$ 210,000.00 |
$ 140,000.00 |
|
Overhead Allocation |
$ 301,200.00 |
$ 200,800.00 |
|
Total Cost |
$ 1,111,200.00 |
$ 640,800.00 |
|
Unit Cost |
$ 27.78 |
$ 64.08 |
B) (i)
|
Statement of Activity Rates |
||||
|
Activity |
Overheads |
Activity Driver |
Number |
Activity Rate |
|
Setup |
$ 256,000.00 |
Set ups |
3200 |
$ 80.00 |
|
Materials purchasing |
$ 110,000.00 |
purchase orders |
2750 |
$ 40.00 |
|
Machining/ fabricating |
$ 136,000.00 |
Machine Hours |
27200 |
$ 5.00 |
ii)
|
Statement of overhead allocation to products |
|||
|
Particulars |
Classic |
Premium |
Total |
|
Setup |
$ 32,000.00 |
$ 224,000.00 |
$ 256,000.00 |
|
Materials purchasing |
$ 82,800.00 |
$ 27,200.00 |
$ 110,000.00 |
|
Machining/ fabricating |
$ 40,000.00 |
$ 96,000.00 |
$ 136,000.00 |
iii)
|
Statement of overhead cost per unit |
||
|
Products |
Classic |
Premium |
|
Total Allocated Overheads |
$ 154,800.00 |
$ 347,200.00 |
|
Number of Products |
40000 |
10000 |
|
Overhead per unit |
$ 3.87 |
$ 34.72 |
iv)
|
Statement of unit product cost |
||
|
Particulars |
Classic |
Premium |
|
Units Produced |
40000 |
10000 |
|
Direct Material Cost |
$ 600,000.00 |
$ 300,000.00 |
|
Direct Labour Cost |
$ 210,000.00 |
$ 140,000.00 |
|
Overhead Allocation |
$ 154,800.00 |
$ 347,200.00 |
|
Total Cost |
$ 964,800.00 |
$ 787,200.00 |
|
Unit Cost |
$ 24.12 |
$ 78.72 |
1. C) The difference in unit product cost under traditional allocation and ABC allocation method is because traditional method uses only labor hour as the base to allocate the overhead cost while ABC costing uses specific cost pool to divide the overhead cost to the particular products.
1:
|
Statement of Sales Budget |
||||||
|
Particulars |
Year 2 |
Year 3 |
||||
|
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
|
|
Budgeted Sales |
40000 |
60000 |
100000 |
50000 |
70000 |
80000 |
|
Units sale Price |
$ 9.00 |
$ 9.00 |
$ 9.00 |
$ 9.00 |
$ 9.00 |
$ 9.00 |
|
Total Sales revenue |
$ 360,000.00 |
$ 540,000.00 |
$ 900,000.00 |
$ 450,000.00 |
$ 630,000.00 |
$ 720,000.00 |
|
Statement of Expected Cash Collections |
||||||
|
Particulars |
Year 2 |
Year 3 |
||||
|
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
|
|
Beginning Balance |
$ 65,000.00 |
$ 90,000.00 |
$ 135,000.00 |
$ 225,000.00 |
$ 112,500.00 |
$ 157,500.00 |
|
Collected in Quarter |
$ 270,000.00 |
$ 405,000.00 |
$ 675,000.00 |
$ 337,500.00 |
$ 472,500.00 |
$ 540,000.00 |
|
Collected in next Quarter |
$ 90,000.00 |
$ 135,000.00 |
$ 225,000.00 |
$ 112,500.00 |
$ 157,500.00 |
$ 180,000.00 |
|
Total Collection Made |
$ 335,000.00 |
$ 495,000.00 |
$ 810,000.00 |
$ 562,500.00 |
$ 585,000.00 |
$ 697,500.00 |
2:
|
Statement of Production Budget |
||||||
|
Particulars |
Year 2 |
Year 3 |
||||
|
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
|
|
Beginning inventory |
12000 |
18000 |
30000 |
15000 |
21000 |
24000 |
|
Quantity Required |
40000 |
60000 |
100000 |
50000 |
70000 |
80000 |
|
Closing Inventory |
18000 |
30000 |
15000 |
21000 |
24000 |
45000 |
|
Total Unit to Produce |
46000 |
72000 |
85000 |
56000 |
73000 |
101000 |
|
Expected Sales Assumed in Q3 of year 3 will be 150000 |
3:
|
Statement of Direct Material Budget |
||||||
|
Particulars |
Year 2 |
Year 3 |
||||
|
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
|
|
Beginning RM |
23000 |
36000 |
42500 |
28000 |
36500 |
50500 |
|
Quantity Required |
230000 |
360000 |
425000 |
280000 |
365000 |
505000 |
|
Closing RM |
36000 |
42500 |
28000 |
36500 |
50500 |
63000 |
|
Total |
243000 |
366500 |
410500 |
288500 |
379000 |
517500 |
|
Expected Sales Assumed in Q3 and Q4 of year 3 will be 150000 and 70000 |
|
Statement of cash payments of Direct Material |
||||||
|
Particulars |
Year 2 |
Year 3 |
||||
|
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
|
|
Beginning Balance |
$ 81,500.00 |
$ 77,760.00 |
$ 117,280.00 |
$ 131,360.00 |
$ 92,320.00 |
$ 121,280.00 |
|
Paid in same quarter |
$ 116,640.00 |
$ 175,920.00 |
$ 197,040.00 |
$ 138,480.00 |
$ 181,920.00 |
$ 248,400.00 |
|
paid in next quarter |
$ 77,760.00 |
$ 117,280.00 |
$ 131,360.00 |
$ 92,320.00 |
$ 121,280.00 |
$ 165,600.00 |
|
Total Cash paid |
$ 198,140.00 |
$ 253,680.00 |
$ 314,320.00 |
$ 269,840.00 |
$ 274,240.00 |
$ 369,680.00 |
|
Variable Overhead Spending Variance |
(SR*AU)-(AR*AU) |
|
|
$ -140,000.00 |
unfavourable |
|
|
Variable Overhead Efficiency Variance |
(SH-AH)*SR) |
|
|
$ 40,000.00 |
favourable |
|
|
Fixed Overhead Spending Variance |
Actual FOH-Budgeted FOH |
|
|
$ 150,000.00 |
favourable |
|
|
Fixed Overhead Volume Variance |
(SU-AU)*SR |
|
|
$ 240,000.00 |
Unfavourable |
1:
|
Variable Expenses |
$ 402,950.00 |
|
Sales revenue |
$ 515,000.00 |
|
Variable Cost ratio |
0.78 |
|
Contribution Margin |
$ 112,050.00 |
|
Sales revenue |
$ 515,000.00 |
|
Contribution Margin Ratio |
0.22 |
2:
|
Increase in sales revenue |
$ 35,000.00 |
|
New Sales Revenue |
$ 550,000.00 |
|
Contribution margin |
$ 119,665.05 |
|
Fixed Cost |
$ 64,800.00 |
|
New Operating Income |
$ 54,865.05 |
|
Old Operating Income |
$ 47,250.00 |
|
Increase |
$ 7,615.05 |
3:
|
Sales revenue to achieve the Break Even |
Fixed Cost/Contribution Ratio |
|
$ 297,831.33 |
|
|
Contribution Margin Income Statement |
|
|
Particulars |
Amount |
|
Sales Revenue |
$ 297,831.33 |
|
Variable cost |
$ 233,031.33 |
|
Contribution Margin |
$ 64,800.00 |
4:
|
Expected Margin of Safety |
$ 217,168.67 |
5:
|
Margin of Safety |
$ 82,168.67 |
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