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Cost Assignment

This document contains 4 questions regarding cost accounting concepts. Question 1 provides information on variable and fixed costs for Fletcher Company over two years and asks to calculate unit product costs, income statements, and explain differences between variable and absorption costing. Question 2 provides budgeted information for two months and asks to calculate profit/loss and stock valuation using marginal and absorption costing. Question 3 provides data for a company's camp lantern product and asks to calculate break-even point, consider effects of variable cost changes, and prepare income statements with proposed price changes. Question 4 provides contribution format income statement data and asks various questions regarding ratios, break-even point, effects of sales increases, and recommendations based on proposed quality and sales changes.

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SYED MUHAMMAD MOOSA RAZA
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123 views4 pages

Cost Assignment

This document contains 4 questions regarding cost accounting concepts. Question 1 provides information on variable and fixed costs for Fletcher Company over two years and asks to calculate unit product costs, income statements, and explain differences between variable and absorption costing. Question 2 provides budgeted information for two months and asks to calculate profit/loss and stock valuation using marginal and absorption costing. Question 3 provides data for a company's camp lantern product and asks to calculate break-even point, consider effects of variable cost changes, and prepare income statements with proposed price changes. Question 4 provides contribution format income statement data and asks various questions regarding ratios, break-even point, effects of sales increases, and recommendations based on proposed quality and sales changes.

Uploaded by

SYED MUHAMMAD MOOSA RAZA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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Assignment Cost Accounting Submission Date = 1st Feb, 2023

Q No 1: Fletcher Company manufactures and sells one product. The following


information pertains to each of the company’s first two years of operations:
Variable costs per unit:
Manufacturing:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rs. 20
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rs. 12
Variable manufacturing overhead . . . . . . . . . . . . . . Rs. 4
Variable selling and administrative . . . . . . . . . . . . . . . Rs. 3
Fixed costs per year:
Fixed manufacturing overhead . . . . . . . . . . . . . . . . . . Rs. 200,000
Fixed selling and administrative expenses . . . . . . . . . Rs. 80,000

During its first year of operations, Fletcher produced 50,000 units and sold 40,000 units.

During its second year of operations, it produced 40,000 units and sold 50,000 units.

The selling price of the company’s product is Rs. 50 per unit.

Required: 1. Assume the company uses variable costing:

a. Compute the unit product cost for year 1 and year 2.

b. Prepare an income statement for year 1 and year 2.

2. Assume the company uses absorption costing:

a. Compute the unit product cost for year 1 and year 2.

b. Prepare an income statement for year 1 and year 2.

3. Explain the difference between variable costing and absorption costing net operating
income in year 1. Also, explain why the two net operating incomes differ in year 2.

Q No 2:
The following budgeted information relates to a company that sells one product.
JAN 2002 FEB 2002
Sales 18000 units 32000 units
Production 25000 units 25000 units
Selling price per unit Rs. 16
Cost per unit material 5
Direct labor 3
Variable overhead 2
Fixed production costs Rs. 75000 per month.
There is no opening stock and company policy is to absorb fixed overheads on the basis
of direct labor cost.
Calculate: Profit or loss of Jan and Feb under:
(a) Marginal costing
(b) Absorption costing
Calculate the stock valuation at the end of Jan and Feb under each method

Q No 3: Reveen Products sells camping equipment. One of the company’s products, a


camp lantern, sells for Rs. 90 per unit. Variable expenses are Rs. 63 per lantern, and fixed
expenses associated with the lantern total Rs. 135,000 per month.
Required:
1. Compute the company’s break-even point in number of lanterns and in total sales
dollars.
2. If the variable expenses per lantern increase as a percentage of the selling price, will it
result in a higher or a lower break-even point? Why? (Assume that the fixed expenses
remain unchanged.)
3. At present, the company is selling 8,000 lanterns per month. The sales manager is
convinced that a 10% reduction in the selling price will result in a 25% increase in the
number of lanterns sold each month. Prepare two contribution format income statements,
one under present operating conditions, and one as operations would appear after the
proposed changes. Show both total and per unit data on your statements.
4. Refer to the data in (3) above. How many lanterns would have to be sold at the new
selling price to yield a minimum net operating income of Rs. 72,000 per month?
Q No 4: Voltar Company manufactures and sells a specialized cordless telephone for
high electromagnetic radiation environments. The company’s contribution format income
statement for the most recent year is given below:
Total (Rs.) Per unit Percent of sale
Sale (20000 units) 1,200,000 60 100%
Variable cost 900,000 45 ?
Contribution Margin 300,000 15 ?
Fixed cost 240,000
Net operating income 60,000

Management is anxious to increase the company’s profit and has asked for an analysis of
a number of items.
Required: 1. Compute the company’s CM ratio and variable expense ratio.
2. Compute the company’s break-even point in both units and sales dollars. Use the
equation method.
3. Assume that sales increase by Rs. 400,000 next year. If cost behavior patterns remain
unchanged, by how much will the company’s net operating income increase? Use the CM
ratio to compute your answer.
4. Refer to the original data. Assume that next year management wants the company to
earn a profit of at least Rs. 90,000. How many units will have to be sold to meet this
target profit?
5. Refer to the original data. Compute the company’s margin of safety in both dollar and
percentage form.
6. a. Compute the company’s degree of operating leverage at the present level of sales.
b. Assume that through a more intense effort by the sales staff, the company’s sales
increase by 8% next year. By what percentage would you expect net operating income to
increase? Use the degree of operating leverage to obtain your answer.
c. Verify your answer to ( b ) by preparing a new contribution format income statement
showing an 8% increase in sales.
7. In an effort to increase sales and profits, management is considering the use of a
higher-quality speaker. The higher-quality speaker would increase variable costs by Rs. 3
per unit, but management could eliminate one quality inspector who is paid a salary of
Rs. 30,000 per year. The sales manager estimates that the higher-quality speaker would
increase annual sales by at least 20%.
a. Assuming that changes are made as described above, prepare a projected contribution
format income statement for next year. Show data on a total, per unit, and percentage
basis.
b. Compute the company’s new break-even point in both units and dollars of sales. Use
the formula method.
c. Would you recommend that the changes be made?

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