Solution MAF451 JUN 2018

Question 1: Solution

A. (i) Define production costs and non-production costs. Give 2 examples:

Production costs are the costs incurred from the time of materials
acquisition until delivery of finished goods to the warehouse. 
Examples: direct materials, direct labour , direct expenses and
production overheads.

Non – production costs (period cost) are those costs that are not incurred to
manufacture a product or are not charged to a product. 
Examples: selling cost, distribution cost , administrative cost and finance
cost.
(8  x ½ = 4 marks)

(ii) Tan Boong Sdn Bhd

a. Prime Costs
Direct materials:
Cement 350,000 
Direct Labour:
Production Specialists 295,000 
Direct costs:
Special machine depreciation 10,000 
655,000

b. Production Overhead
Factory rental 75,000 
Utilities (Factory 80%) (60,000 x 80%)48,000 
123,000

c. Period costs
Utilities (60,000 x 20%) 12,000 
Administrative expenses 35,000 
47,000 
(12  x ½ = 6 marks)

B.
(i) Current method or traditional system
a. OAR = Budgeted manufacturing overhead
Total Direct Labour Hours
= __ RM3,800,000_____
(1 x 12,000)  + (2 x 28,500)

= RM55.07 DLH 

Therefore, manufacturing cost per unit is:

Grade A Grade B
RM RM
Direct material 55.00  60.00 
Direct labour 8.00  16.00 
Manufacturing OH 55.07  110.14 
118.07 186.14

(10  x ½ = 5 marks)

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 Solution MAF451 JUN 2018

b. ABC method
Cost Driver rate:
Activity cost/Volume Cost Driver Rate
Machine processing RM1,500,000/50,000 RM30 per machine processing 
Quality control RM840,000/600 RM1,400 per inspection 
Shipments RM760,000/380 RM2,000 per shipment 
Machine setups RM700,000/100 RM7,000 per set up 

Calculation of manufacturing OH cost:

Grade A Grade B
RM RM
Direct Material 55  60 
Direct labour 8 16 
Manufacturing OH:
Machine processing RM30 x 15,000 450,000 
RM30 x 35,000 1,050,000 
Quality control RM1,400 x 200 280,000 
RM1,400 x 400 560,000 
Shipments RM2,000 x 240 480,000 
RM2,000 x 140 280,000 
Machine setups RM7,000 x 70 490,000 
RM7,000 x 30 210,000 
Total OH 1,700,000 2,100,000
Volume 12,000  28,500 
OH per unit 141.67 73.68

Total manufacturing cost 204.67  149.68 

(24  x ½ = 12 marks)

(ii) a. ABC results in improved costing accuracy for two reasons:

- A company that uses ABC is not limited  to a single cost driver when
allocating cost to activities and products. ABC allows users to select non
unit level cost drivers  to assign OH costs.
- Resource consumption ratios  often differ greatly among activities. No
single cost driver will accurately  assign costs for all activities in this
situation.
(8  x ½ = 4 marks)

b. Grade A, the low volume product is under costed  while Grade B, the high
volume product, is over costed  under the existing traditional overhead costing
system. This is due to the use of a single cost driver (DLH)   in applying OH
which ignores   the differences in consumption of resources   between the
two products.
(8  x ½ = 4 marks)

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 Solution MAF451 JUN 2018

QUESTION 2 - Solution
a.
Process 1 Account
Unit RM Unit RM
Material 100,000 46,000 Normal loss 5,000  500
[5% x 100,000]
Others materials 25,000 To Process 2 98,000 102,900
Labour 14,000
Direct expenses 15,250
Abnormal gain 3,000 3,150
103,000 103,400 103,000 103,400

CPU = RM100,250 – RM500 = RM1.05

100,000  – 5,000 
(14  x ½ = 7 marks)

b.
Process 2 Account

unit RM unit RM
From P1 98,000 102,900 Normal loss 2,000 [2,000 x RM0.20]
[2% x 100,000] 400
OWIP 2,000 38,185 Finish good 173,500
[17,100 + 9,760 Tuna Flake 60,000
+ 6,300 + Tuna Chunk 32,000
5,025]
Material add 10,000 Closing WIP 6,000 10,185
Direct labour 33,000

100,000 184,085 100,000 184,085

Statement Of Equivalent Units

Output % From % Materials % Conversion

Unit Process 1 added Cost
Finish goods 92,000 100 92,000 100 92,000 100 92,000
Normal loss 2,000 100 2,000 100 2,000 100 2,000
CWIP 6,000 100 6,000 80 4,800 75 4,500
100,000 100,000 98,800 98,500

Statement of Costs

From Process 1 Materials added Conversion cost

RM RM RM
OWIP 17,100 9,760 11,325
Cost incur in the period 102,900 10,000 33,000
Total Cost 120,000 19,760 44,325
Equivalent units ÷ 100,000 units ÷ 98,800 units ÷ 98,5000 units
Cost per E.U = RM1.85 1.20 0.20 0.45

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 Solution MAF451 JUN 2018

Statement of evaluation

From Process 1 Materials Conversion cost Total (RM)

Finish goods (OF) 92,000 x RM1.85 170,200
Normal loss (OF) 2,000 x RM1.85 3,700
CWIP 6,000 x RM1.20 4,800 x RM0.20 4,500 x RM0.45 10,185
(OF)  = 7,200 (OF) = 960 (OF)  = 2,025
184,085

Transfer To Finish good = 170,200 + (3,700 - 400)

= 173,500
(34√ x ½ = 17 marks)

Tuna Flake
RM
Sales 60,000 kg x RM4.50 270,000
Joint costs RM173,500 x [60,000kg ÷ 92,000kg] (113,152) 
Packaging cost RM0.50 x 60,000 kg (30,000) 
Gross profit 126,848

Tuna Chunk
RM
Sales 32,000 kg x RM4.80 153,600
Joint costs RM173,500 x [32,000kg ÷ 92,000kg] (60,348) 
Packaging cost RM0.60 x 32,000 kg (19,200) 
Gross profit 74,052

(8√ x ½ = 4 marks)

d.
Normal loss : explanation + example 
Abnormal loss : explanation + example 
(4√ x ½ = 2 marks)

QUESTION 3

a.
MC (RM) AC (RM)
Direct material 5.80 5.80
Direct labour 3.00 3.00
Variable manufacturing OH 3.50 3.50
Fixed manufacturing OH - 0.50 (RM210,000/420,000)
Total 12.30 12.80

Choc Island Sdn Bhd

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 Solution MAF451 JUN 2018

Marginal costing income statement for the month of November 2017

RM RM
Sales (33,000 x RM20) 660,000 
Less Variable cost of sales
:
Production cost (34,500 x RM12.30)  424,350
Less: Closing stock (1,500 x RM12.30)  (18,450) 405,900

Gross margin 254,100

Less Variable non-production overhead
:
Delivery costs (33,000 x RM2.50) 82,500 
Selling expenses (33,000 x RM1.20) 39,600  (122,100)
Contribution Margin  132,000

Less: Fixed costs

Fixed production overhead (RM210,000/12) 17,500 
Fixed non-production overhead (RM84,000/12) 7,000  (24,500)
Net Profit 107,500

Choc Island Sdn Bhd

Absorption costing income statement for the month of November 2017

RM RM
Sales (33,000 x RM20) 660,000

Less: Variable cost of sales
Production cost (34,500 x RM12.80)  441,600
Less: Closing stock (1,500 x RM12.80)  (19,200) 422,400

Gross profit 237,600

Less: Operating expenses:
Delivery costs (33,000 x RM2.50) 82,500 
Selling expenses (33,000 x RM1.20) 39,600 
Fixed non-production overhead (RM84,000/12) 7,000  (129,100)
Unadjusted Net Profit 108,500

Less: Under absorption of overhead

Fixed production overhead absorbed
(RM0.50 x 34,500) 17,250 
Fixed production overhead incurred (RM210,000/12)
17,500  (250)
Net Profit 108,250

(20  x ½ = 10 marks)

b. The two situation where the income will be the same for both methods is when
the unit of production  is equal  to the sales units. And when there is no
existence of opening stock and closing stock.
(5  x 1 = 5 marks)
QUESTION 4

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 Solution MAF451 JUN 2018

A. i. BEP = RM240,000/
---------------- = 16,000 spare parts/
RM40/ – RM25/

MOS = 25,000/ – 16,000/ = 9,000 spare parts/

RM
Sales (RM40 * 20,000) 800,000//
- Cost (RM25 * 20,000) 500,000//
-----------
300,000
- Fixed costs 240,000/
------------
Net profit 60,000
------------
(/12 * 0.5 = 6 marks)

ii. Sales = RM10,000/ + RM240,000/

--------------------------------
RM40 /– (RM25 + RM2)/

= 19,231 spare parts

(/4 * 0.5 = 2 marks)

iii. New fixed costs = RM240,000 + RM20,000 = RM260,000/

New selling price = RM40 * 1.12 = RM44.80/

BEP = RM260,000/
------------------
RM44.80/ – RM25/

= 13,131 spare parts/

(/6 * 0.5 = 3 marks)

B.
(i)
Products Hoodie Crop Top
RM RM
Selling Price 10/ 12/
Variable costs: Production & Selling 5/ 10/
Contribution 5/ 2/
Sales Ratio 4/ 3/
Total contribution 20/ 6/

Average contribution p.u = (RM20 + RM6)/7

= RM3.714

BEP = RM561,600 / RM3.714

= 151, 212 units //
(/12*0.5=6 marks)

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 Solution MAF451 JUN 2018

(ii) Hoodie = 250,000* 4/7 = 142,857

Crop Top = 250,000 * 3/7 = 107,143

Net profit = Total contribution – fixed costs

[(142,857 * RM5) + (107143 * 2)] – RM561,600 /////
= (RM714,285 + RM214,286) – RM561,600
= RM928,571 - – RM561,600
= RM366,971 /
(/6 * 0.5 = 3 marks)

END OF SOLUTION