ACTIVITY BASED COSTING 1.Following date relates to Beta Manufacturing Company which currently produces two products; X and Y. Product X Units produced p.a Material cost per unit Direct Labour per unit Direct labour time per unit Direct of set ups p.a Number of purchase orders Overhead costs: Set Up Purchasing Labour supervision 45,000 $ 1.50 $ 7.00 1Hr 30 70 $ 20,000 16,000 23,750 Product Y 5,000 $ 4.00 $ 3.50 30 Min 10 10 Required: Calculate the unit cost of products X and Y using Activity Based Costing. 2. Plant Y produces about one hundred products. Its largest selling product is Product A; its smallest is Product B. Relevant data is given below. Product X Units Produced p.a Material cost per unit Direct labour per unit Machine time per unit Number of set ups p.a Number of purchase order Number of times material handled Direct labour cost per hour Overhead costs: Set up Purchasing Material handling Machines 50,000 $ 1.00 15 min 1 hr. 24 36 200 $ 1.00 15 min 1 hr. 2 6 15 Product Y 1,000 Total Proucts 500,000 500 2.800 12,000 $5 $ 280,000 145,000 130,000 660,000 1,215,000 Total machine hours are 600,000 hours. Required: (a) Calculate the unit cost of Product A and B using Absorption costing based on machine hours. (b) Calculate the unit cost of Product A and B using Activity Based Costing. 3. The following information provides details of the costs. Volume and transaction cost drivers for a period in respect of XYZ Ltd. Products A Sales and production (Units) Raw materials usage (units Direct materials cost ( ) Direct Labour hours Machine hours Direct labour cost ( ) Number of production runs Number of deliveries Number of receipts 90,000 10 30 2.5 5 20 5 18 50 7 70 30 10 50 700 40 3 3 10 50 B 30,000 7 15 1.5 7.5 C 15,000 14 Total 135,000 1,320,000 4,125,000 337,500 652,500 2,850,000 65 75 820 A by-product Z is produced. Opening Stock Cost of Production Main product P.50 per unit 26. During November 20X3.000 Division 2 120. and output had a net sales value of 1.000 kgs (selling price 6. 3. Three joint products are manufactured in a common process.50/kg) C-2.000 Sales . Splatter Ltd recorded the following results. Output from process 1 is transferred to process 2.926 incurred in the manufacture of.10/kg) B-53. DIVISIONAL PERFORMANCE MEASUREMENT 1.200 kgs (selling price 7.80/kg) Product Required: Calculate the cost per kg (to 3 decimal places) of product A and B in the period. Required: Calculate the profit for November using the four methods of accounting for by products. Sales revenue from the main product during November 20X2 was 150. and 10 % of production was held as closing stock at 30 November. Required: (a) Prepare the process 1 account (b) Prepare the process 2 account using the sales value method of apportionment (c) Prepare a profit statement for the joint products 2.000 units of Nil 6. and by product C.000 units of Bumpsy daisy Opening & closing stock Direct material (30.000 of this output 700 was sold during the month. and output from process 2 consists of three joint products. using market values to apportion joint costs. 20 per unit of Nil and 30 per unit of Bumpsydaisy.000 76. Process 1 None 60. Data for period 2 of 20x6 are as follows. Hans. A company compares results of its two divisions as follows: Division 1 160.000. Nil By product Z.000 units Process 2 None 226.000 Sale of main product amounted to 90% of output during the period . and 00 was still in stock at 30 November. Manufacturing costs for a period total 272.200 10% of input 2 per unit 10. A company operates a manufacturing process which produces joint products A and B. which consists of two consecutive stages.000 units of Han 7. All joint products are sold as soon as they are produced. Nils and Bumps daisies. A-16.JOINT PRODUCTS & By-PRODUCTS COSTING 1. Nil 120.500 10% of input 0.770 kgs (selling price 0.000 units @ 2 per unit) Conversion costs Normal loss Scrap value of normal loss Output Selling price are 18 per unit of Han. (ii) State whether the manager of Division S would recommend the sale o the asset.000 and asset that current earns Rs. DIVISIONAL PERFORMANCE MEASUREMENT 1. (ii) State whether the manager of Division S would recommend that the investment be undertaken. 300.000 after depreciation. 24. (b) Division S has the opportunity of selling.000 A Sales 100.000 At the end of 2010.000 Division 2 120. The group’s cost of capital I 15%.000 and yielding an annual profit of Rs. The company has a risk adjusted weighted average cost of capital of 12% per annum and is paying interest at 9% per annum on a substantial long term loan.000 105. Division S (part of a group) had a book value of non-current assets of Rs.000 Net profit before tax was Rs.000 which are depreciate to zero over 5 years on a straight-line basis. The non-current assets of Division S consist of five separate items each costing Rs.000 5.a (i) Calculate its now ROI and Residual Income (On net book value) if the asset was sold. 4.000 35. Required: Calculate the investment centre’s EVA for the period.000.000. A division with capital employed of $ 400. Calculate the residual income before and after the investment.000 42. (i) Calculate its new ROI and Residual Income (on net book value) if the investment was undertaken.000 Capital employed 50. except. 60. Because of technological advances. where otherwise stated. 60.000 Profit 5. A company compares results of its two divisions as follows: Division 1 160. The investment centre’s non-current set value is Rs. at a price equal to its written-down book value of Rs. 4 million for the development and launch costs of a new product that is expected to generate profit for four years. B 100. 40.000 40.000 Calculate the ROI of two divisions and comment.000 25.000 144. 20.900 p. 64. deal with the following separate situations: (a) Division S has the opportunity of an investment costing Rs. 3. An investment centre has reported operating profit of Rs. 3. The average net profit from this investment would be $ 12.000 20. 10. 64 million. Following data is available for two divisions of a company.000 22.000 and net current assets of Rs. the asset manufacturer has been able to keep his prices constant over time. The division cost of capital is 14%. 50 million and the net current assets have a value of Rs.000 30.Cost of Sales Direct material Direct labour Production overhead Marketing overhead 40.000 for a 5-year life with nil residual value. 21 million. Required: Assuming that. For each of the past five years on 31 December it has brought a replacement for the asset that has just been withdrawn and it proposes to continue this policy.000 Evaluate the performance of the two divisions 2.000 Sales Cost of sales . there are no changes in the above data. 5. Taxation is paid at the rate of 25% of the operating profits. This was after charging Rs.000 Profit 16. A And B. 22 million the replacement cost of the non-current assets is estimated to be Rs.000 currently earns a ROI of 22% it can make an additional investment of $ 50.000 15. Division S (pat of a group) had a book value of non-current assets of Rs. 50 million and the not current assets have a value of Rs. 60.000 30. The investment centre’s non-current asset value is Rs. (i) Calculate its new ROI and Residual Income (on net book value) if the investment was undertaken.000 and yielding and annual profit of Rs.000. An investment centre has reported operating profit of Rs. (b) Division S has the opportunity of selling.000 an asset that currently earns Rs. The group’s cost of capital is 15%. Net profit before tax was Rs.000.3. 22 million.000 42. 24. Because of technological advances.000 5.000 20. 300.000 Capital Employed 50. Required: Assuming that. Taxation is paid at the rate of 25% of the operating profits. (ii) State whether the manager of Division S would recommend that the investment be undertaken. This was after charging Rs. A division with capital employed of $400.000 40.000 Profit 16. 10. At the end of 2010.000 currently earns a ROI of 22% it can make an additional investment of $50.000 5.000 22. Calculate the residual income before and after the investment. A and B. Required: Calculate the investment centre’s EVA for the period.000 Evaluate the performance of the two divisions. there are no changes in the above data. The company has a risk adjusted weighted average cost of capital of 2% per annum and is paying interest at 9% per annum on a substantial long term loan. 4. (i) Calculate its new ROI and Residual Income (On net book value) if the asset was sold. The non-current assets of Division S consist of five separate items each costing Rs.a. 5. The division cost of capital is 14%. (ii) State whether the manager of Division S would recommend the sale of the asset.000 105. 60.000 Calculate the FOI of two divisions and comment. 21 million.000 144.000 which are depreciate to zero over 5 years on a straight-line basis. deal with the following separate situations: (a) Division S has the opportunity of an investment costing Rs.000 and net current assets of Rs. 3. 64. For each of the past five years on 31 December it has brought a replacement for the asset that has just been withdrawn and it proposes to continue this policy.000 35.000 after depreciation. .4 million for the development and launch costs of a new product that is expected to generate profit for four years.900 p. except where otherwise stated. The average net profit from this investment would be $ 12. the asset manufacturer has been able to keep his prices constant over time.000 15. at a price equal to its written-down book value or Fs.Direct material Direct labour Production overhead Marketing overhead 40.000 Profit 5.000 100. A B Sales 100.000 Following date is available for two divisions of a company. 40. 20.000. 64 million. 2. The replacement cost of the non-current assets is estimated to be Rs.000 for a 5-year life with nil residual value. 250 1. and that results in process 2 for April 2003 were as follows.000 units. process 3. normal loss in 10% and units srapped sell for $ 2 each.080 Conversion cost ……………………………………………….000 units at a cost of $ 4.720 Output is transferred into the next process.000 units Costs of input: Material from process 1 ……………………………………………….000 units at a cost or $ 4. $ 1. Required: 1. period 4. for August 2002: 100% 50% 30% .800 Required: Prepare the following cost accounts (a) Process 1 (b) Process 2 (c) Abnormal loss (d) Abnormal gain (e) Scrap 5.900 Labour and overheads 10. Prepare the process account and abnormal loss or gain account for each period. There were no units of opening or closing stock. During a four-week period.750 Material form process 1 1.100 Process2 Units $ Input materials Transferred to process 2 1. costs of input were again $ 29. period 3. During the next period. Normal loss is 10% and there are no opening or closing stocks. 7.070. Output from process I is transferred to process 2: output from process 2 is finished output ready for sale. Actual output was 860 units an loss units had to be disposed of at a cost of $ 0. costs of input to a process were $ 29. Required: Show the process account and the scarp account.000 units. 6. 4. Input to a process was 1.500.370.000 8. Nan Ltd has a factory which operates two production processes.PROCESS COSTING Input to a process is 1. Process1 Units $ 2. Input to a process costs $ 1. 100 units are input and 90 units output. Required: Prepare the process and abnormal loss account.90 per unit.070. but output was 950 units. $ 6.000 22.000 Output to finished goods 2. Relevant information about costs for period 5 are as follows.500. $ 1. complete as to: Process 1 material ………………………………………………… Added material ………………………………………………… Conversion costs ………………………………………………… Required: Prepare the account for process 2 for April 2003. Normal spoilage in each process is 10% and scrapped units out of process I sells for 50p per unit whereas scrapped units out of process 2 sell for $ 3. 3. Information relating to process 1 of a two-stage production process is as follows.000 Added material in process 2 ………………………………………………. Opening stock ……………………………………………… Nil Material input form process 1 ……………………………………………… 4. Closing work in process amounted to 800 units. Normal loss is 10% and there are no opening and closing stocks. Input was again 1. Determine the accounting entries for the cost of output and the cost of the loss if actual output were as follows: (a) 860 units (so that actual loss is 140 units) (b) 920 units (so that actual loss is 80 units) 2. Input was 1. Columbine Ltd is a manufacturer of processed goods. Output was 850 units and normal loss is 10%.750 Added material 1. 000 6.700 600 1.000 units were transferred from process 1 at a valuation of $ 18.100.900 100% 90% 80% 80% In January 2004. 60% $ 2.800 $ 13. 9.400 1.600 and direct labour to $ 3. Added materials mounted to $ 6. Production overhead is absorbed at the rate of 150% of direct labour cost.270.800 units were transferred form process 2 at a valuation of $ 27.800.400 80% Required: Prepare the process 1 account for August 2002 using FIFO method.000.600 and conversion costs were $ 11. 8. Magpie Ltd produces as item. . Opening stock 800 units Degree of completion: Process 1 material Added materials Conversion costs 100% 40% 30% $ 4.200 % 6. which as manufactured in two consecutive processes. Closing stock at 30 September 2003 amounted to 1.150 540 810 6.500 units introduced) Production overheads Closing stock 300 units: degree of completion There was no loss in the process.Opening stock 500 units: degree of completion Cost to date Cost incurred in August 2002 Direct materials (2. Information relating to process 2 during September 2003 it as follows.600 $ 26. The following information relates to process 3 of a three-state production process for the month of January 2004. a further 1. Opening stock: 300 units complete as to Material from process 2 Added material Labour Production overheads $ 4.000 units which were 100% complete with respect to process 1 materials and 60% complete with respect to added materials.600 % 6. Conversion cost work was 40% complete. Closing stock at 31 January 2004 amounted to 450 units. complete as to: Process 2 material Added materials Labour and overheads 100% 60% 50% Required: Prepare the process 3 account for January 2004 using FIFO valuation principles.300 During September 2003 3. Added material cost $ 9. 120 $ 2.000 kg 2.20 each. The Company uses weighted average cost method for its processes. There was no opening work in progress. The following information is available for Process 3 in June: Units Cost $ 692 Process 2 Inputs % $ 100 176 100 Degree of Completion Material Added % $ 60 300 70 Opening Stock Closing stock Input Cost: Input From Process 2 Material Added Conversion Cost 100 80 900 Conversion % $ 30 216 55 1600 3294 4190 Normal loss is 10 per cent of input from Process 2. 70 units were scrapped in the month and all scrap units realize $ 0. 12.344 10% of material added in the period The scrapped units were complete in material added but only 50 per cent complete in respect of conversion costs. but 200 kg were in progress at the end of the mount. All scrapped units have a value of $ 2 each.800 kg 400 kg $ 2. Data concerning process 2 last mount was as follows: Transfer form process 1 Material added Conversion costs Output to finished goods Output scrapped Normal loss 400 kg at a cost of 3. Output to the next process was 850 units. The following informationis available for process 2 in October: Units Cost $ 1480 Process 2 Inputs % $ 100 810 100 Degree of Completion Material Added % $ 80 450 90 Opening Stock Closing stock 600 350 Conversion % $ 40 220 30 . at the following stages of completion: 80% complete in materials added 40% complete in conversion costs Required: Prepare the process 2 account. abnormal loss account and scrap account. 11. 10.150 $ 6.Required: Prepare the process 2 account for September 2003. Required : Complete the Process 3 account for June. Required: Complete the account for Process 2 and for the abnormal loss or abnormal gain in October. after processing.445 Labour $ 28. Opening work in process (600 Units) $ % Complete 720 100 500 60 340 50 270 40 Process 1 material Added material Labour Overheads Transfers in from Process 1: 4.950 units.200 Transfers out to Process 3: 3. Scrapped units normally represent 5% of total production output.500 units Added Material Labour Overheads $ 2. 300 units were scrapped in the month. Process 2 receives units from Process 1 and . The scrapped units had reached the following degree of completion: Material added 90% Conversion Cost 60% All scrapped units realized $ 1 each . Output to the next process was 3. 13. of which 420 failed testing and were scrapped. 14. transfers them to Process 3. The follwong data relates to Process 2 for one accounting period.596 10.200 $ 1900 Closing stock 800 units at the following stage of completion Process 1 Material Added Material Labour Overheads 100% complete 100% complete 10% complete 30% complete The normal scrap is 390 units and the scrapped units realized 40p each.100 units valued at $ 5. The following information relates to a manufacturing process for a period Material costs $16. Required: Prepare the Process 2 account using a) b) FIFO method Average cost method.Input Cost: Input From Process 1 Material Added Conversion Cost 4000 6280 3109 4698 Normal loss is 5 per cent of input from Process 1. Testing takes place when production units are 60% .000 units of output were produced by the process in the period.956 $ 2. Required: Prepare the process accounts for the period including those for process scrap and abnormal losses/gains.40 per unit. .complete in terms of labour and overheads. All scrapped units were sold in the period for $ 0. Materials are input at eh beginning of the process. 400 17. 100 hrs x Rs. 1. In Rs. Labour Efficiency Variance xxx units should have used But did use 15. MATERIAL VARIANCES Total Material Variance Xxx units should cost Actual Cost (Actual units x standard material cost/unit) (Actual units x Actual material cost/unit) Fav Rs.000 17.100 15. Variable Overhead Variances Total Variable overhad Variance xxx units should cost Actual cost (Actual units x Standard variale OH cost/ unit) (Actual units x Actual variable OH cost/unit) Adv.Variance Analysis A. Hours x Actual variable OH rate/hr) 1. Hours x Standard variable OH rate/ hr) (Actual prod.500 xxx hrs should cost But did cost (Actual units x Standard hours/unit) (Actual productive labour hours) Fav in hrs Fav in Rs. 1.500 2.230 . 5/hr 100 3. Idle Time Variance 3. Variable ouverhead expenditure Variance xxx hrs should cost But did cost Rs.230 30 (Actual prod. Labour Variances Total Labour Variance xxx units should cost Actual Cost (Actual units x Standard labour cost/unit) (Actual units x Actual labour cost/unit) Adv.000 98.000 98.500 2.000 hrs 2.600 1400 1. 2. 1.200 1.980 hrs 20 hrs x Rs. Labour Rate Variance (Actual hours x Standard rate/hr) ( Actual hours x Actual rate /hr) Adv.980 hrs Adv in hrs Adv.140 1. 100. Material Price Variance xxx kg should cost But did use (Actual quantity x Standard rate/kg) (Actual quantity x Actual rate/kg) Fav 117.080 hrs 2. 3.600 18. 5/hr 500 Total Labour hours Productive labour house Idle time x Standard labour rate/hr C.400 B. In Rs.500 Volume 1.5 /hr 60 D. 20/ unit 400 (Actual units x Standard Fixed OH cost/unit) (Actual Fixed Overheads) Fav. Variable OH Efficiency Variance xxx units should have used But did use 90 (Actual units x Standard hours/unit) (Actual productive labour hours) Fav in hrs. SALES VARIANCES 1.000 20.000 units 7. Fixed overhead Variance Budgeted units Actual Units x standard Fixed OH/unit Fav. 800 hrs 760 hrs 40hrs x Rs.700 units 300 units x Rs.700 units 300 units x Rs. Fixed Variances Overhead Total fixed overhead Variances Fixed overhad absorbed Fixed overhead incurred 1.600 600 8000 units 7. 1. E. 2. 3/ unit 900 . in Rs. In units Adv. ( Actual units x Standard selling price/unti) (Actual untisx Actual selling price/unit) Fav 30. In Rs. In Rs. 2.000 20.000 300.450 450 8. Sales Volume Profit Variance Budgeted sales volume Actual sales Volume Adv. 100 units x Rs. Fixed Overhead Expenditure Variacne Budgeted fixed overheads Actual Fixed overheads Adv.000 units 1.Adv. Selling Price Variance xxx units should be sold for But did sold for 2. Or 2 Sales Volume Contribution Variance Budgeted sales volume Actual sales volume Adv in units x Standard contribution / unit Adv.100 units Fav. Fav . 22. Ion units. 5/unit 1.450 1550 (Budgeted units x Standdard fixed OH Cost/unit) 20. Bloggs Ltd. Twice as many skilled labour hours as semiskilled labour hours are needed to produce a Joe. four liters of direct material B and three meters fo direct material C are neeed.Standard Costing 1. selling and distribution overheads are added to products at the rate of $10 per units. Skilled labour is paid $10 per hour and semi-skilled $5 per hour. Makes one product. skilled and semiskilled. Direct material A costs $1 per kilograms. direct material B $2 perliter and direct material C $3 per meter.000 units. For the forthcoming accounting period. A mark-up of 25% is made on the joe. four semi-skilled labour hour being needed. Administration.000 and budgeted production of the Joe is 5. The basis of absorption is direct labour (skilled) hours. . Required: Using the above information draw up a standard cost card for the joe. budgeted fixed production overheads are $250. A system of absorption costing is in operation at Bloggs Ltd. Seven kilograms of direct material A. the Joe. A Joe is made of three different direct materials. Variable production overheads are incurred at Bloggs Ltd at the rate of $2. Two types of labour are involved in the production of Joe.50 per direct labour (skilled) hours. with labour being paid $11 per hour. and the direct labour cost of Grade Z labour was $ 8. Actual data for the period was : . 2.500 units of product X were made and the cost of grade Z labour was $ 17.000 hours have been budgeted in the period.700 kilograms of material Y which cost $98. 500 for 3. The standard direct labour cost of Product X is as follows: 2 hours of grade Z labour at $5 per hour = $10 per unit of product X During period 4. using 11. 1.600 Required: Calculate the following variances 1. 3. Each unit of A should required hours to produce.000 units of X were manufactured. During the period. The standard direct labour cost of product X is as follows: 2 hours of grade Z labour at $5 per hour = $10 per unit of product X During period 5. However. there is a shortage of customer orders and 100 hours were recorded as idle time. Product X has a standard direct material cost as follows: 10 Kilograms of material Y at $10 per kilogram = $100 per unit of X During period 4. 1. Is planning to make 100.BASIC VARIANCE ANALYSIS 1.080 hours.000 units of X were made. 000 untis per period of produt AA.300 hours of work Reguired: Calculate the following variances: (a) Direct labour total Variance (b) Direct labour rate variance (c) Direct labour efficiency (productivity ) variance 3.900 for 2. Direct material total variance Direct material price variance Direct material usage variance 2. 1. Growler Ltd. Required: Calculte the following variances (a) Direct labour total Variance (b) Direct labour rate variance (c) Idle Time variance (d) Direct labour efficiency (productivity ) variance 4. Attainable work hours are less than clock hour so 250. 2.000. Because of the high volumes and closely specified recipes and procedures. 5. 1 bun . 4. The variable overhead cost was $1. A company budgets to produce 1. The variable production overhead cost of product X is as follows: 2 hours $1. 400 units of X were made.100 units of product E in 5. The standard fixed overhead cost per unit of product e will therefore be as follows. The alternative Burger chain operates a group of burger restaurants specializing in unusual tastes and flavours. The labour force worked 820 hours . of which 60 hours were recorded as idle tiem. Required: Calc ulate the following variances: 1.000 $3. One of their best-selling lines is the Upside-Down Burger containing kangaroo meat.230. and the budtgeted fixed overhead is $20.000 (b) Direct labour efficiency variance (c) Idle Time variances.220.450.5 per hour = $3 per unit of product X During period 6. ready-to-eat Upside-Down Burger. Contents of a cooked. they are considering the use of standard costing and variance analysis.400 hours of work. 3. The expected time to produce a unti of E is five hours.000 280. 3. 5 hours at $4 per hour = $20 per unti Actual fixed overhead expenditure in Autgust 2003 turns out to be $20. Required: Calculate the following variances 1.000 units of product E during August 2003. The labour force manages to produce 1. Variable overhead total variance Variable production overheads expenditure variance Variable production overhead efficiency variance 6. 5.Units produced Direct labour cost Clock hours Required: Calculate the following variances (a) Direct labour rate Variance 120. 2. Fixed overhead total variance Fixed overheads expenditure variance Fixed overheads volume variance Fixed overhead volume efficiency variance Fixed overhead volume capacity variance 7. 00 per kg $1.2 kgs at $11 per kg 4.7m for 215. Losses due to accidental damage. usage of meat and herb mix was 7.368 kg at a cost of $20.000 clock hours Material A cost $ 1. All direct operatives are paid at the rate of $8 per hour.725 burgers were sold. Attainable work hours are less than clock hours. Per unit 1. 3. Calculate the labour rate variance and a realistic efficiency variance.5 each $2. Anticipated prices for raw materials for the next period are: Buns Meat and herb mix Buffalo cheese Relish 4. Calculate the standard cost for one unit.000 kgs Required: 1. Actual results for the period were: Production 126. 2. Calculate the material price and usage variance .000 kgs Material B cost $ 3.7 kgs at $6 per kg Direct material A Direct material B Direct labour: Operation 1 Operation 2 Operation 3 42 minutes 37 minutes 11 minutes Overheads are absorbed at the rate of $ 30 per labour hour.65m for 150. The following standards have been set. Required: a) Prepare the standard material cost of 1 Upside-Down Burger. so the 500 direct operatives have been budgeted for 400 hours each in the period. There is a 20% loss of meat weight during cooking.000 units Direct labour cost $ 1. b) Calculate the usage variance for the meat and herb mix in the period. 8.000 units per period of new product. dropped burgers etc are estimated to be 3% of completed burgers.262 and 49.80 per kg $4. XYZ Ltd is planning to make 120. There were no opening or closing stocks in the period.6 m for 590.40 per kg During the period.110 grams meat and herb mix 55 grams buffalo cheese 25 grams relish It is a company policy to guarantee the cooked weight of meat to be aminimum of 110 grams.