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    MI

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    my trà
    This document provides information on various costing and budgeting concepts: 1. It defines direct costs, indirect costs, and how a cost can be direct or indirect depending on the cost object. It also discusses how direct costs may vary each period. 2. It defines cost units, cost elements, and cost objects. It notes that an overhead is another term for an indirect cost. 3. It provides examples of variable costs and notes they tend to increase with output levels. 4. It provides examples of cost objects. 5. It discusses the impact of using different inventory costing methods like LIFO versus FIFO when prices are rising. 6. It discusses overhead absorption rates

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    MI

    Uploaded by

    my trà
    18 views18 pages
    This document provides information on various costing and budgeting concepts: 1. It defines direct costs, indirect costs, and how a cost can be direct or indirect depending on the cost object. It also discusses how direct costs may vary each period. 2. It defines cost units, cost elements, and cost objects. It notes that an overhead is another term for an indirect cost. 3. It provides examples of variable costs and notes they tend to increase with output levels. 4. It provides examples of cost objects. 5. It discusses the impact of using different inventory costing methods like LIFO versus FIFO when prices are rising. 6. It discusses overhead absorption rates

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    This document provides information on various costing and budgeting concepts: 1. It defines direct costs, indirect costs, and how a cost can be direct or indirect depending on the cost object. It also discusses how direct costs may vary each period. 2. It defines cost units, cost elements, and cost objects. It notes that an overhead is another term for an indirect cost. 3. It provides examples of variable costs and notes they tend to increase with output levels. 4. It provides examples of cost objects. 5. It discusses the impact of using different inventory costing methods like LIFO versus FIFO when prices are rising. 6. It discusses overhead absorption rates

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    18 views18 pages

    MI

    Uploaded by

    my trà
    This document provides information on various costing and budgeting concepts: 1. It defines direct costs, indirect costs, and how a cost can be direct or indirect depending on the cost object. It also discusses how direct costs may vary each period. 2. It defines cost units, cost elements, and cost objects. It notes that an overhead is another term for an indirect cost. 3. It provides examples of variable costs and notes they tend to increase with output levels. 4. It provides examples of cost objects. 5. It discusses the impact of using different inventory costing methods like LIFO versus FIFO when prices are rising. 6. It discusses overhead absorption rates

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    © All Rights Reserved
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    of 18

    1.

    - A direct cost can be traced in full to the product, service or department that is being costed
    - A particular cost can be a direct cost or an indirect cost, depending on what is being costed
    - Expenditure on direct costs will probably vary every period
    2.
    - A cost unit is a unit of product that has costs attached.
    - Cost can be divided into 3 elements: materials, labour and expenses.
    - A cost object is anything for which we are trying to ascertain the cost, it could be a unit of
    product or service or other items.
    - An overhead is another name for an indirect cost.
    3. Variable costs: a royalty payment for each unit produced, direct materials for production.
    These are likely to increase in line with output levels
    4. Cost objects: a packing machine, the factory canteen
    5. A retailer currently uses the LIFO, if they decide instead to use the FIFO in a period of
    rising prices: the closing inventory value will be higher and the gross profit will be higher
    6. Overhead abssorption rate is used to charged overheads to products
    7.

    Bugeted machine hours: Machining = 7600 = 6x800+4x700


    Finishing = 2300 = 2x800+1x700
    Production overhead absorption rate per machine hour:
    Machining = 38000/7600 = 5
    Finishing = 10350/2300 = 4.5
    Production overhead per unit of Bubble = 6x5+2x4,5=39
    8. Actual overheads were 257500 Absorbed overheads: 6.25 x 44848 = 280300
    257500 – 280300 = -22800 => over absorbed
    9.

    Overhead absorbed = actual overhead + under absorbed overheads = 659075


    = consulting hours x budgeted absorption rate
     Budgeted absorption rate = 20.5
    10.
    - Cost pools in an ABC system are equivalent to cost centres used in traditional absorption
    costing
    - A cost driver is the factor that influences the cost of an activity
    - Process costing is the most appropriate costing method when a continuous flow of identical
    units is produced
    - In process costing the cost per unit is derived using an averaging calculation
    - The aim of target costing is to reduce life cycle costs of new products in order to achieve a
    cost that will produce the target profit
    - JIT purchasing requires small, frequent deliveries from suppliers as near as possible to the
    time the raw materials and parts are needed
    11. Marginal cost = variable materials + variable labour + variable production overhead = 70
    12.

    - Marginal cost = variable material + variable labour = 7.5 => INV valuation = (23000-
    21000) x 7.5 = 15000
    - Absorption cost = marginal cost + fixed production OH = 11 => INV valuation = 11 x 2000
    = 22000
    13.

    Number of hours to produce each item in Luxury: 21/6 = 3.5


    Standard: 9/6 = 1.5
    Luxury = 120400 / ((3500x3.5) + (3500x1.5)) = 7
    AC of luxury = 7 x 3.5 x 290 + 13630 = 20735
    Standard tuong tu
    14.

    Fixed manufacturing cost per unit 91000/26000 = 3.5


    Sales revenue = 24500 x 40 = 980000
    Manufacturing cost = 24500 x (18.5+3.5) = 539000
    Gross profit = sales – cost = 441000
    Selling and administration cost: Variable = 24500 x 9.2 = 225400
    Fixed = 49000
    Absorption costing net profit = 441000 – (49000+225400) = 166600
    Short-cut method:
    40 – 18.5 – 9.2 – 91000/26000 = 8.8 = sales price
    8.8 x 24500 = 215600
    215600 – 49000 = 166600
    Absorption costing net profit – difference in profits = marginal costing = 166600 – 1500x3.5
    = 161350
    Short-cut method:
    Marginal costing = 24500 x (40-18.5-9.2) = 301350
    MC – fixed cost (91000+49000) = 161350
    15.

    Difference in profit = (8500-6750) x 3 = 5250


    Absorption costing profit = 62100 – 5250 = 56850
    16.
    MC is simple to operate, there is no under or over absorption of overheads, fixed costs are
    the same regardless of activity levels and info from MC more useful for decision making
    17.
    - If INV levels increase, AC profit is higher than MC profit because the fixed overhead
    carried forward in INV
    - If INV levels decrease, AC profit is lower than MC profit because the fixed overhead
    released from INV
    - If INV levels remain the same, AC profit is the same as MC profit
    18.

    Absorbed fixed production overhead = 42000+6000 = 48000


    Absorption rate per unit = 48000/6 = 8 INV decrease = 7100-6000=1100
    MC profit = 36000 + 1100x8 = 44800
    19.

    Fixed cost per unit = 16/4 = 4


    Units in closing INV = 17500 – 15000 = 2500
    Profit difference = INV increase x fixed overhead per unit = 2500 x 4 = 10000
    INV increase => carried forward fixed overhead => profit higher than MC => greater
    20.

    INV increased by 3000 units and AC is 955500 – 850500 = 105000 higher


    Fixed production cost included in INV = 105000/3000 = 35
    Budgeted fixed cost/ fixed cost per unit = 1837500/35 = 52500
    21.

    Labour hours per unit = 42/14 = 3


    Fixed production OH absorption rate = 60000/25000 = 2.4
    Variable production OH = 3x4 = 12 Fixed production OH = 3x2.4 = 7.2
    Total production cost = 8+42+12+7.2 = 69.2 Other OH at 5% = 69.2x5% = 3.46
    Full cost = 69.2 + 3.46 = 72.66 Mark up at 50% = 72.66 x 50% = 36.33
    Selling price = 72.66 + 36.33 = 108.99
    22.

    Full cost = 100% MC = 70% => AC = 30%


    Mark up 40% => Selling price = 140%
    Required mark up on MC = (30+40)/70 x 100% = 100%
    23.

    Mark up = (16-10)/10 x 100% = 60%


    Margin = (16-10)/16 x 100% = 37.5%
    24.

    Required annual return = 90000 x 20% = 18000


    Total cost = 36000 x 5 = 180000
    Required % mark up = (18000/180000) x 100% = 10%
    Product F selling price = 5 x 10% = 5.5
    Profit margin = 0.5/5.5 x 100% = 9.1%
    25.
    - Goods transfer from A to B a charge is made to B at variable cost. Each quarter B is also
    charged with a lump-sum as a share of A’s fixed cost => 2-part transfer pricing system
    - A marginal cost-plus system would involve adding a % to MC => provide selling division
    with a contribution
    - Dual pricing system operates by charging the buying division for transfers at MC and
    crediting the selling division with market value and cost-plus transfer price
    - Standard cost transfer pricing system is imprecise because it does not specify whether
    marginal or full cost is used
    26. It is simple to use and the % mark up can be varied are 2 advantages of marginal cost-
    plus pricing
    27.

    The order is acceptable from the company’s point of view and the manager of division V will
    make a sub-optimal decision
    28.

    Cost savings with internal transfer = 10% x VC


    Cost savings with internal transfer = 10% x (30 x 60%) = 1.8
    Optimum transfer price = external market price – cost savings with internal transfer = 50-
    1.8=48.2
    29. The budget committee is not responsible for preparing functional budgets
    30.
    Contribution from external sales + contribution from sales to R = 340000 + 48000 = 388000
    Profit = 388000 – fixed cost = 48000
    The group will be paying 50-36 = 14
    Reducing C profit by 3000x14 = 42000 => 550000 – 42000 = 508000
    31.

    50% of sales are made on credit => 50% x 165000 = 82500


    32. The selling overhead budget is unlikely to be containced in a budget manual
    33.

    Material S required for production:


    Product P: 6000 x 3 x 100/75 = 24000
    Product Q: 8100 x 5 x 100/75 = 54000
    Total material S required = 78000 + CI = 83000
    Budgeted material purchases in litres = 83000 – OI = 63000
    Budgeted material purchases in pounds = 63000 x 1.6 = 100800
    34.

    Dec
    Sales in Jan = 1500000 + 250000 = 1750000
    COS = 1750000 x 100/125 = 1400000
    End of Dec INV = 1400000 x 30% = 420000
    Jan
    Sales in Feb = 1700000 + 350000 = 2050000
    COS = 2050000 x 100/125 = 1640000
    End of Jan INV = 1640000 x 30% = 492000
    COGS + budgeted CI = 1400000 + 492000 = 1892000
    Budgeted purchases = 1892000 – budgeted OI = 1472000
    35.
    The coefficient of determination (r^2) = (0.97^2) = 0.9409 => 94% of the variation in the
    value of ticket sales (y) can be explained by a linear rela with x (adver expenditures). There
    is a fairly high degree of positive correlation between adver exp and ticket sales ( r is close to
    1)
    36.

    Total cost incurred in P8 = 50000 x 1.3 = 65000 P7 = 30000 x 1.9 = 57000


    VC of miles travelled = 50000 – 30000 = 20000
    VC of total cost incurred = 65000 – 57000 = 8000 VC per mile = 8000/20000 = 0.4
    FC = 65000 – (50000 x 0.4) = 45000
    Forecast maintenance cost for 38000 miles = VC + FC = 38000 x 0.4 + 45000 = 60200
    37. Bottom-up/ participative budgets might not be effective in centralised. Imposed/ top-
    down budgeting is likely to be most effective
    38.
    Cash sales = (5% x 10000) x 95% = 475 Feb sales = (17000 x 95%) x 75% = 12112.5
    Jan sales = (13000 x 95%) x 23% = 2840.5
     The amount budgeted to be received in March = 15428
    39. Selling prices increase may increase receivables (the amount of working capital)
    40.

    Monthly COS = 20000 x 62.5% = 12500


    Existing INV level = 1.5 x 12500 = 18750 New INV level 1 x 12500 = (12500)
     Change in INV level = 18750 – 12500 = 6250
    Existing payable = 1 x 12500 = 12500 New payables = 1.3 x 12500 = 16250
     Change in payables = 12500 – 16250 = 3750
     Total change in working capital = 10000
    41.

    COS for month = 450000 x 70% = 315000


    Budgeted payment to TP = 315000 + Decrease in TP + Increase in INV = 343000
    42.
    Average INV = 650000 INV period = (650 x 365) / 6000 = 39.54 days
    Average receivables = 850000 Receivables period = (850 x 365) / 10000 = 31.03
    Purchases = COGS + increase in INV = 6m + 100000 = 6.1m
    Avarage payables = 225000 Payables period = (225 x 365)/ 6100 = 13.46 days
     Cash operating cycle = 39.54 + 31.03 – 13.46 = 57

    43.

    Receivables days = (0.9/14.6) x 365 = 22.5


    Payables days = (0.6/(14.6/1.25)) x 365 = (18.8)
    INV days = (2/(14.6/1.25)) x 365 = 62.5
     Cash operating cycle = 66 days
    44. A company sells INV at a profit to a customer on credit => the currnt ratio and liquidity
    ratio will increase
    45.
    46.

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