FINAL TERM ASSESSMENT SUMMER 2021

Student’s Name_____________________ Registration Number _________________

Program: BBA/BSAF/MBA-72 Class/Section: 4A/3A/3A

Course Name: Cost Accounting/Cost and Course Code BA2408/AF2302/BA5411

Management Accounting
Instructor’s Name: Mr. Zuhaib Khokhar Instructor’s email [email protected]

Total Marks: 40 Marks Obtained:

Comment: (This Section is for Faculty Use)

Mention Date & 25/08/2021 Mention 25/08/2021

Time of Sharing: 08:30AM Submission Date:

Mention (08:30AM – 11:00AM)

Submission Time:

File Type Allowed for submission: (MS Word, MS Excel, pdf, Images, Hand written)

IMPORTANT instructions:
 Read all the questions carefully and then solve in this file, if needed.
 Marks of each question are mentioned at the end of each question. Faculty Signature

 Solved Assignment must be emailed to the respective faculty by the due date and time, Late Receiving
will be marked Absent and Zero in Recap Sheet.
 The answer file must be attached in the email.
 Regardless of file type (image or document), email must include attachment for faculty to check.
 Non-submissions of the assignments will be considered as absent for the Final Term and will be marked “0”
on ZABDESK Recap Sheet.
 While checking of the Assignment, SZABIST Plagiarism policy is to be followed.
 Group assignments are not allowed.
_____________________________________________________________________________
Note: Attempt all questions.

Question 01: (5+5+5+5 = 20 Marks)

The Megan Corporation is a company that manufactures automobiles and it is using a profound
activity-based costing (ABC) system that it uses for internal decision making purpose.
It has four (4) overhead departments whose costs are listed as below:
Overhead Costs
Production Overhead $800,000
Assembling Overhead $600,000
Administrative Overhead $400,000
Marketing & Selling Overhead $200,000
Total Overhead Costs $2,000,000

The Megan Corporation has the following activity pools:

 Activity Cost Pools
Activity Cost Pool Activity Measure
Customer Orders Number of Customer Orders
Product Designs Number of Product Designs
Customer Relations Number of Active Customers
Other Not Applicable

The Megan Corporation distributes the costs of production overhead, assembling overhead,
administrative overhead and marketing & selling overhead to the activity cost pools based on
interviews with employees as reported below:
Customer Product Customer Other Total
Orders Designs Relations
Production Overhead 55% 28% 15% 2% 100%
Assembling Overhead 70% 20% 5% 5% 100%
Administrative Overhead 45% 35% 16% 4% 100%
Marketing & Selling Overhead 60% 20% 14% 6% 100%
Total Activity 1,000 orders 2,000 designs 500 customers
Required:
(i) Prepare a report showing the first-stage allocations of overhead costs to the activity cost
pools.

Answer
Product Customer
  Customer Orders Other Total
Designs Relations
Production
Rs 440,000.00 Rs 224,000.00 Rs 120,000.00 Rs 16,000.00 Rs 800,000.00
Overhead
Assembling
Rs 420,000.00 Rs 120,000.00 Rs 30,000.00 Rs 30,000.00 Rs 600,000.00
Overhead
Administrative
Rs 180,000.00 Rs 140,000.00 Rs 64,000.00 Rs 16,000.00 Rs 400,000.00
Overhead
Marketing &
Selling Rs 120,000.00 Rs 40,000.00 Rs 28,000.00 Rs 12,000.00 Rs 200,000.00
Overhead

(ii) Compute the activity rates for the activity cost pools.
Answer
 Customer Orders Product Designs Customer Relations
 
Total Cost Rs 1,160,000.00 Rs 524,000.00 Rs 242,000.00
Activity 10000 2000 500
Rate Rs 116.00 Rs 262.00 Rs 484.00

(iii) The Megan Corporation found that 800 new product designs are required each year to
serve the company’s current customers and a total of 900 customer orders per year were
received. In addition, total of 1,000 active customers were entertained as well. Assign
Overhead Costs to Cost Objects Using the Activity Rates and Activity Measures.

Answer
Customer Product Customer
Total
  Orders Designs Relations
Activity Level 900 800 1000  
Rs Rs Rs
Rate 116.00 262.00 484.00  
Rs Rs Rs
Total cost 104,400.00 209,600.00 484,000.00 Rs 798,000.00

(iv) The selling price of an automobile is worth $20,000 and the total number of automobile
units sold are 900. The cost of direct materials is $250 per automobile, and direct labor
is $90 per automobile. What is the product margin as per Activity-Based Costing
(ABC)?

Answer
Rs
Sales   18,000,000.00
Less cost of Sale    
Rs
  Material 225,000.00
Rs
  Direct Labour 81,000.00
 Rs
  Overhead Cost 798,000.00
Rs
Total Cost   1,104,000.00
Rs
Gross profit   16,896,000.00
Question 02: (5+5 = 10 Marks)
Prepare the absorption costing income statement and variable costing income statement from the
following data:
Per Unit Cost:
Direct Material $15
Direct Labor 10
Variable Manufacturing Overhead 5
Variable Selling and Administrative Expenses 2
Fixed Cost Per Year:
Fixed Manufacturing Overhead 500,000
Fixed Selling and Administrative Expenses 30,000
Total Number of Units Produced in a Year 50,000

Units in Beginning Inventory 0

Units in Ending Inventory 5,000
Units Produced 70,000
Units Sold 65,000
Selling Price Per Unit $50

Answer
Absorption cost income Statement

Sales   Rs 3,250,000.00
Less Cost of Sales    
  Opening Rs -

  Production Rs 2,800,000.00
  Closing Rs 200,000.00
Gross profit   Rs 650,000.00
Less Fixed Cost    
Fixed Selling and
  Administrative Expenses Rs 30,000.00
Variable Selling and
  Administrative Expenses 130000
Total Fixed Cost   Rs 160,000.00
Net Profit   Rs 490,000.00

Working

Direct Material
Rs 750,000.00
 Direct Labor Rs 500,000.00

Variable Manufacturing
Overhead
Rs 250,000.00

Fixed Manufacturing Overhead

Rs 500,000.00
Total Rs 2,000,000.00
Per unit Rs 40.00

Variable cost income Statement

Sales   Rs 3,250,000.00
Less Cost of Sales    

  Opening Rs -

  Production Rs 2,282,000.00
  Closing Rs 163,000.00
Gross profit   Rs 1,131,000.00
Less Fixed Cost    
Fixed Selling and Administrative
  Expenses Rs 30,000.00

  Fixed Manufacturing Overhead 500,000

Total Fixed Cost   Rs 530,000.00
Net Profit   Rs 601,000.00

Working

Direct Material
Rs 750,000.00
Direct Labor Rs 500,000.00
Variable Manufacturing
Overhead Rs 250,000.00
Variable Selling and
Administrative Expenses Rs 130,000.00
Total Rs 1,630,000.00
Per unit Rs 32.60

Question 03: (5+5 = 10 Marks)

A company manufactures a product and its standard costs are given as below:
Direct Material: 15 ounces at $3 per ounce $45
Direct Labor: 2.5 hours at $14 per hour 35
Variable Manufacturing Overhead: 2 hours at $5 per hour 10
Total Standard Variable Cost Per Unit $90

During that period, 1,000 units were produced. The actual costs for the company is given as below:
Materials Purchased: 1,500 ounces at $7.00 per ounce $10,500
Direct Labor: 500 hours at $70 per hour 35,000
Variable Manufacturing Overhead Costs Incurred 20,000
Required:
Compute the Direct Materials Variance and Direct Labor Variance.
Answer
Direct Materials Variance
Direct Material Variance    
Formula    
Actual Quantity*(Standard Rate-Actual Price)    
     
Actual Quantity 1500  
Standard Rate 3  
Actual Price 7  
Rs
Variance (6,000.00) Un Favorable
     
Direct Material usage Variance    
Formula    
standard price*(Standard Quantity-Actual
Quantity    
     
Standard Price 3  
Standard Qty (15*1000) 15000  
Actual Qty (given) 1500  
Variance 40500 Favorable
Rs
Total Variance 34,500.00  

Direct Labor Variance

Direct Labor Rate Variance    
Formula    
Actual Hour*(Standard Rate-Actual Price)    
     
Actual Hour 500  
Standard Rate 70  
Actual rate 14  
Variance Rs 28,000.00 Favorable
     
Direct Labor efficiency Variance    
Formula    
SR*(AH-SHA)    
     
SR 14  
AH 500  
SHA 2500  
Variance -28000 Favorable
Total Variance Rs -