COLLEGE OF POST GRADUATE

DEPARTMENT OF ACCOUNTING
AND FINANCE
ADVANCED COST & MANAGERIAL
GROUP ASSIGNMENT FOR THE PARTIAL FULFILLMENT OF THE
COURSE ADVANCED COST & MANAGERIAL

PREPARED BY: ------------------------------------------------- ID NO

WONDE SHIFERAW: --------------------------------------WM 01 103/15-01
YIRGALEM WORKU: -------------------------------------WM 01 105/15-01
LEMLEM TSEGAYE: ------------------------------------WM 01 188/15-01
ASMAMAW GIZAW: ------------------------------------- WM01 13/15-01
DEREBE ARAGAW----------------------------------------WM01 02/52-01
MUNA AYUBE---------------------------------------------

Submitted to: Hayelom Abrha (Ass.prof)

ASSOSA ETHIOPIA
JUN 2023
1. ABC Company is a metal- and woodcutting manufacturer selling products to the home
construction market. Consider the following data for 2022: Self-Study.

Sandpaper Birr 2,000

Materials-handling costs 70,000
Lubricants and coolants 5,000
Miscellaneous indirect manufacturing labor 40,000
Direct manufacturing labor 300,000
Direct materials inventory Jan. 1, 2022 40,000
Direct materials inventory Dec. 31, 2022 50,000
Finished goods inventory Jan. 1, 2022 100,000
Finished goods inventory Dec. 31, 2022 150,000
Work-in-process inventory Jan. 1, 2022 10,000
Work-in-process inventory Dec. 31, 2022 14,000
Plant-leasing costs 54,000
Depreciation—plant equipment 36,000
Property taxes on plant equipment 4,000
Fire insurance on plant equipment 3,000
Direct materials purchased 460,000
Revenues 1,360,000
Marketing promotions 60,000
Marketing salaries 100,000
Distribution costs 70,000
Customer-service costs 100,000

Based on the above information,

A. Prepare an income statement with a separate supporting schedule of the cost of goods
manufactured.

B. Suppose that both the direct material costs and the plant-leasing costs are for the
production of 900,000 units. What is the direct material cost of each unit produced?
What is the plant-leasing cost per unit? Assume that the plant-leasing cost is fixed.

C. Suppose ABC Company manufactures 1,000,000 units next year. Repeat the
Computation in requirement 2 for direct materials and plant-leasing costs. Assume
the implied cost-behavior patterns persist.

D. As a management consultant, explain concisely to the company president why the

unit cost for direct materials did not change in requirements B and C but the unit cost
for plant-leasing costs did change.
A. Prepare an income statement with a separate supporting schedule of the cost of goods
manufactured.

Raw Materials used Schedule

Beginning direct materials Inventory 40,000.00

Add: Total cost of direct material purchased

Direct Materials purchased 460,000.00

Direct material available for use 500,000.00

Deduct: Ending direct material inventory (50,000.00)

Cost of Direct materials used 450,000.00

Cost of goods Manufactured

Beginning work in process 10,000.00

Add: Cost of direct material used 450,000.00
Direct labor cost 300,000.00
Manufacturing overhead cost
Miscellaneous indirect manufacturing labor 40,000.00
Materials-handling costs 70,000.00
Lubricants and coolants 5,000.00
Depreciation—plant equipment: 36,000.00
Property taxes on plant equipment 4,000.00

Fire insurance on plant equipment 3,000.00

Plant-leasing costs 54,000.00
Sandpaper 2,000.00
Total manufacturing overhead 214,000.00
Cost incurred in current period 964,000.00
Total cost incurred to date 974,000.00

Ending work in process (14,000.00)

Cost of goods manufactured 960,000.00
 Cost of goods sold

Finished Goods Beginning 100,000.00

Add: Cost of goods manufactured 960,000.00

Cost of goods available for sale 1,060,000.00
Finished Goods Ending (150,000.00)

Cost of Goods sold 910,000.00

ABC Furniture Factory

Income Statement
For the year ended June 30, 2019

Sales revenue 1,360,000.00

Cost of Goods sold ( 910,000.00)
Gross profit 450,000.00
Operating expenses
Marketing promotions: 60,000.00
Marketing salaries 100,000.00
Distribution costs 70,000.00
Customer-service costs 100,000.00
Total Operating expenses 330,000.00
Operating Income 120,000.00

B. Suppose that both the direct material costs and the plant-leasing costs are for the production
of 900,000 units. What is the direct material cost of each unit produced? What is the plant-
leasing cost per unit? Assume that the plant-leasing cost is fixed.

Direct Material Cost per Unit = (Direct Materials Purchased + Beginning Direct Materials
Inventory - Ending Direct Materials Inventory) / Number of Units Produced
= (460,000 + 40,000 - 50,000) / 900,000
= 0.50

Plant-Leasing Cost per Unit = Plant-Leasing Costs / Number of Units Produced

= 54,000 / 900,000
= 0.06
C. Suppose ABC Company manufactures 1,000,000 units next year. Repeat the Computation in
requirement 2 for direct materials and plant-leasing costs. Assume the implied cost-behavior
patterns persist.

Direct material cost per unit = Direct materials cost / Units produced
Direct materials cost = Beginning inventory + Purchases – Ending inventory
= 40,000 + 460,000 – 50,000
= 450,000
Units produced = 1,000,000
Direct material cost per unit = 450,000 / 1,000,000

= 0.45
Plant-leasing cost per unit = Total plant-leasing cost / Units produced
Total plant-leasing cost = 54,000
Units produced = 1,000,000
= 54,000 / 1,000,000

=0.054
D. D. As a management consultant, explain concisely to the company president why the
unit cost for direct materials did not change in requirements B and C but the unit cost
for plant-leasing costs did change.

The unit cost for direct materials did not change because it is a variable cost that is directly
proportional to the number of units produced. On the other hand, the plant-leasing cost per unit
changed because it is a fixed cost that is spread over the number of units produced. As the
number of units produced increases, the fixed cost per unit decreases. Therefore, the decrease in
plant-leasing cost per unit in requirement C is due to the increase in units produced.

A. Equation Method:
Breakeven point (BEP) using the equation approach as follows,
(Br50X Q) – (Br30 X Q) – Br50, 000 = 0
Br20Q = Br 50,000
Q= 2,500
Breakeven point in Birr= BEQ x SP
= 25,00 x Br50
= Br125,000
Breakeven using contribution margin method can be
Q = FC/CMU
Q= Br50, 000/Br20
Q= 2,500 units
 Break even sales amount (Birr) for Sebastopol Cinema = FC/CM%
Contribution margin ratio = (Price per unit - Variable cost per unit) / Price per unit
= (Birr 50 - Birr 30) / Birr 50
= 0.4 or 40%
Break-even revenue = Total fixed cost / Contribution margin ratio
= Birr 50,000 / 0.4
= Birr 125,000
= 50,000/0.40
= Br 125,000

B. Target operating income before tax

Equation Method to Determine (Target sales unit) Contribution Margin Approach (Target sales unit)

(SP x Q) - (VCU x Q) –FC Q = FC +TOI/ CMU

= TOI (50 x Q) – (30 x Q) - 50,000 Q = (50,000 + 10,000)/20
= 10,000 20Q Q= 3,000
= 60,000 Therefore
Q= 3,000
Equation Method to Determine (Target sales in birr) Contribution Margin Approach (Target sales in birr)

TR= SP x Q =50 x 3,000 = Br 150,000 Target Sales in Birr = (FC + TOI)/CM% = (50,000 + 10,000)/ 40%

= Birr 150,000
 C. After Tax profit
After Tax income = Before Tax Income – Income Taxes
NIAT = NIBT- (NIBT x t)
= NIBT x (1-t)
Dividing both sides by (1-t) you can get:
NIAT/ (1-t) = NIBT
NIBT = NIAT/ (1-t)
=Br 10,000/ (1-0.4)
= Br 16,666.7
Equation Method to Determine (Target sales unit) Contribution Margin Approach (Target sales unit)
(SP x Q) - (VCU x Q) –FC Q = FC +TOI/ CMU
= TOIBT (50 x Q) – (30 x Q) - 50,000 Q = (50,000 + 16,666.7)/20
= 16,666.7 Q= 3,333.33
20Q= 66,666.7 Therefore
Q= 3,333.33
Equation Method to Determine (Target sales in Contribution Margin Approach (Target sales in birr)
birr)
TR= SP x Q =50 x 3,333.33 Target Sales in Birr = (FC + TOI)/CM% = (50,000 +
= Br 166,666.7 16,666.7)/40%
= Birr 166,666.7
D. Sensitivity analysis
(1) (2) (3) = (2)-(1)
Existing Plan Proposed Plan Difference

Sales Revenue Br 166,666.7 176,666.67

10,000
Variable cost (3,333.33x 30; 3533.33 x Br 30) 100,000 106,000 6,000
Contribution Margin 66,666.7 70,666.7
4,000
Fixed Cost 50,000 56,000
6,000
Operating Income 16,666.7 14,666.7 -
2,000

Therefor the decision of manager is not correct because the proposed cost incurred the loss of
-2,000 Birr

E. Margin of Safety
= Actual or Budgeted Sales - Breakeven Sales
Margin of safety in unit = 500 units (3,000unite -2,500)
 Margin of safety in birr = Birr 25,000 (Birr 150,000- Birr125, 000)
Margin of Safety (%) = Margin of safety in Birr Sales
For XYZ Cinema the margin of safety percentage is,
22,500/142,500
= 16.7%

3. ABC Company produces three types of products, namely, product 1, product 2, and product 3.
The following data is available:
Product 1 Product 2 Product 3
Share in physical volume sold, % 30% 30% 40%
Selling price per unit, Birr 10 8 5
Variable cost per unit, Birr 7 6 3
Contribution per unit, Birr 3 2 2
Contribution margin ratio 0.3 0.25 0.4
Fixed costs total, Birr Birr11,500
Based on the above data, determine:
A. Break-even quantity and revenue
B. Quantity and revenue if before tax target operating income is 2,300
C. Quantity and revenue if target income after tax is 2,070 and tax rate is 40%
D. The margin of safety at a sales unit of 6,500
E. Break-even quantity and revenue if the percentage share of sales for product 1, product
2, and product 3 is 45%, 30%, and 25%, respectively.

A. Break even quantity and revenue

Break-even Point (in units) = Fixed Costs
Weighted Average Contribution Margin per Unit

Weighted average CM /unit = (30% x Birr3) + (30% x Birr2) + (40% x Br2)

=2.3 Birr
Break-even Point (in units) = 11,500 = 5.000 Unit
2.3
Product 1 5,000 units x 30% = 1,500 units
Product 2 5,000 units x 30% = 1,500 units
Product 3 5,000 units x 40% = 2,000 units

Break-even Point (in Birr) = Fixed Costs

Weighted Average Contribution Margin Ratio
 Weighted average CM /unit = (30% x 0.3) + (30% x 0.25) + (40% x 0.4)
= 0.325
Break-even Point (in Birr) = 11,500 = 35,385 Birr
0.325

Product 1 35,385 Birr x 30% = 10,615 Birr

Product 2 35,385 Birr x 30% = 10,615 Birr
Product 3 35,385 Birr x 40% = 14,154 Birr

B. Quantity and revenue if before tax target operating income is 2,300

Quantity = Fixed Costs + Target profit
Weighted Average Contribution Margin per Unit

Weighted average CM /unit = (30% x Birr3) + (30% x Birr2) + (40% x Br2)

= Birr 2.3
Quantity = 11,500 +2,300 = 6000 unit
2.3
Product 1 6,000 units x 30% = 1,800 units
Product 2 6,000 units x 30% = 1,800 units
Product 3 6,000 units x 40% = 2,400 units

Revenue = Fixed Costs + Target profit

Weighted Average Contribution Margin Ratio
Weighted average CM /unit = (30% x 0.3) + (30% x 0.25) + (40% x 0.4) = 0.325

= 11,500 + 2,300 = 42,462 Birr

0.325

Product 1 42,462 Birr x 30% = 12,738.5 Birr

Product 2 42,462 Birr x 30% = 12,738.5 Birr
Product 3 42,462 Birr x 40% = 16,985 Birr

C. Quantity and revenue if target income after tax is 2,070 and tax rate is 40%
After Tax income = Before Tax Income – Income Taxes
NIBT = NIAT/ (1-t)
=Br 2,070/ (1-0.4)
=2,070/0.6 BIRR
 = Br 3,450
Quantity = Fixed Costs + Target profit
Weighted Average Contribution Margin per Unit
Weighted average CM /unit = (30% x Birr3) + (30% x Birr2) + (40% x Br2) = Birr 2.3
Quantity = 11,500 +3,450 Birr = 6,500 unit
2.3
Product 1 6,500 units x 30% = 1,950units
Product 2 6,500 units x 30% = 1,950 units
Product 3 6,500 units x 40% = 2,600 units

Revenue = Fixed Costs + Target profit

Weighted Average Contribution Margin Ratio
Weighted average CM /unit = (30% x 0.3) + (30% x 0.25) + (40% x 0.4) = 0.325

= 11,500 + 3,450 = 46,000 Birr

0.325

Product 1 46,000 Birr x 30% = 13,800 Birr

Product 2 46,000 Birr x 30% = 13,800Birr
Product 3 46,000 Birr x 25% = 18,400 Birr

D. Margin of safety at sales unit of 6,500

Margin of Safety = Sales - Breakeven Sales
Quantity 6,500-5,000 = 1,500 units
Revenue 46,000-35,385 = 10,615 Birr
Quantity Product 1 1,500 units x 30% = 450 units
Product 2 1,500 units x 30% = 450 units
Product 3 1,500 units x 40% = 600 units
Revenue Product 1 10,615 Birr x 30% = 3,184.50 Birr
Product 2 10,615 Birr x 30% = 5,184.50 Birr
Product 3 10,615 Birr x 40% = 4,246 Birr

E. Break even quantity and revenue if percentage share of sales for

product1, product 2 and product 3 is 45%, 30% and 25% respectively.

 Break-even Point (in units) = Fixed Costs
Weighted Average Contribution Margin per Unit
Weighted average CM /unit = (45% x Birr3) + (30% x Birr2) + (25% x Br2)
= 2.45 Birr
Break-even Point (in units) = 11,500 = 4,694 Unit
2.45
Product 1 4,694 units x 45% = 2,112 units
Product 2 4,694 units x 30% = 1,408 units
Product 3 4,694 units x 25% = 1,174 units

Break-even Point (in Birr) = Fixed Costs

Weighted Average Contribution Margin Ratio
Weighted average CM /unit = (45 % x 0.3) + (30% x 0.25) + (25% x 0.4)
= 0.31
Break-even Point (in Birr) = 11,500 = 37,097 Birr
0.31
Product 1 37,097 Birr x 45% = 16,694 Birr
Product 2 37,097 Birr x 30% = 11,129 Birr
Product 3 37,097 Birr x 25% = 9,274 Birr

4. Consider a company with three service departments (A, B, and C) and one production
department (P). Assume also the following direct cost and allocation ratios:
# Direct costs: Department A: 10,000 Department B: 15,000 Department C: 20,000
# Allocation ratios: Department A provides 40% of its services to Department P and 60%
to Department B. Department B provides 30% of its services to Department P and 50%
to Department C. Department C provides 20% of its services to Department P.

Required: Calculate the allocated costs for each department using direct, step-down, and
reciprocal method

Direct Method:
Department A: 10,000 x 40% = 4,000 allocated to P
Department B: 15,000 x 30% = 4,500 allocated to P
Department C: 20,000 x 20% = 4,000 allocated to P

Step-Down Method:
Starting with Department A, allocate its costs to Department B and P:
Department A to B: 10,000 x 60% = 6,000 (total allocated to B)
Department A to P: 10,000 x 40%
= 4,000
Allocate Department B's costs to Department P and C:
Department B to P: (6,000 + 15,000 x 30%)
= 10,500
Department B to C: 15,000 x 50% = 7,500 (total allocated to C)

Finally, allocate Department C's costs to Department P:

Department C to P: 20,000 x 20%
= 4,000

Allocated costs:
Department A: 6,000 (allocated to B)
Department B: 10,500 (allocated to P)
Department C: 7,500 (allocated to P)
Department P: 4,000 (allocated from A) + 10,500 (allocated from B) + 4,000 (allocated from C)
= 18,500
Reciprocal Method:
Set up the following equations and solve simultaneously:
A = 0.4P + 0.6B
B = 0.3P + 0.5C
C = 0.2P
Substitute C into the second equation:
B = 0.3P + 0.5(0.8P)
B = 0.4P
Substitute B into the first equation:
A = 0.4P + 0.6(0.4P)
A = 0.64P
Now solve for P:
P = 1.5625A
P = 2.5B
P = 2.5C
Substitute these relationships into the original equations:
A = 0.4(1.5625A) + 0.6B
B = 0.3(1.5625A) + 0.5C
C = 0.2(1.5625A)
Simplify and solve for A:
A = 12,121.21
B = 7,575.76
C = 2,272.73
P = 30,303.03
Allocated costs:
Department A: 12,121.21
Department B: 7,575.76
Department C: 2,272.73
Department P: 30,303.03
Company 1 2 3 4

Sales 300,000 (D) 276,000 390,000 660,000

Direct material Beginning 27,000 30,000 21,000 (J) 70,000

Direct material purchased 42,000 45,000 48,000 63,000

Direct material ending (A) 33,000 24,000 27,000 24,000
Direct labor 75,000 (E) 27,000 51,000 95,500
MOH cost 60,000 54,000 76,500 95,500
WIP beginning 57,000 18,000 (G) 85,500 36,000
WIP ending 48,000 24,000 45,000 30,000
Finished good beginning 60,000 (F) 39,000 51,000 48,000
Finished good ending 69,000 33,000 (H) 33,000 54,000
Cost of goods manufactured (B) 180,000 126,000 210,000 (K)306,000
Cost of goods sold (C) 171,0000 132,000 (I) 228,000 300,000
Gross margin 129,000 144,000 162,000 (L)360,000
To calculate missing values:
For Company 1:
Direct Material Used =Direct Material Beginning + Direct Material Purchased – Direct Material
Ending
27,000 + 42,000 – 33,000
= 36,000
Direct Material Used + Direct Labor + MOH Cost = Total Manufacturing Costs
36,000 + 75,000 + 60,000
= 171,000
Cost of Goods Manufactured = WIP Beginning + Total Manufacturing Costs – WIP Ending
57,000 + 171,000 – 48,000
= 180,000
Cost of Goods Sold = Cost of Goods Manufactured + Beginning Finished Goods – Ending
Finished Goods
180,000 + 60,000 – 69,000
= 171,000
Gross Margin = Sales – Cost of Goods Sold
300,000 – 171,000
= 129,000

For Company 2:
D (Sales) = 276,000
Direct Material Used = Direct Material Beginning + Direct Material Purchased – Direct Material
Ending
30,000 + 45,000 – 24,000
= 51,000
Total Manufacturing Costs = Direct Material Used + Direct Labor + MOH Cost
51,000 + 27,000 + 54,000
= 152,000
Cost of Goods Manufactured = WIP Beginning + Total Manufacturing Costs – WIP Ending
18,000 + 152,000 – 24,000
=126,000
Cost of Goods Sold = Cost of Goods Manufactured + Beginning Finished Goods – Ending
Finished Goods 126,000 + 39,000 – 33,000
= 132,000
Gross Margin = Sales – Cost of Goods Sold
276,000 – 132,000
= 144,000
For Company 3:
Direct Material Used = Direct Material Beginning + Direct Material Purchased – Direct Material
Ending
21,000 + 48,000 – 27,000
= 42,000
Total Manufacturing Costs = Direct Material Used + Direct Labor + MOH Cost
42,000 + 51,000 + 76,500
= 169,500
Cost of Goods Manufactured = WIP Beginning + Total Manufacturing Costs –WIP Ending
=169,500 +85,500 – 45,000
= 210,000
Cost of Goods Sold = Cost of Goods Manufactured + Beginning Finished Goods – Ending
Finished Goods
= 210,000 + 51,000 – 33,000
= 228,000
Gross Margin = Sales – Cost of Goods Sold
=390,000 – 228,000
= 162,000

For Company 4:
= Direct Material Used = Direct Material Beginning + Direct Material Purchased – Direct
Material Ending
70,000 + 63,000 – 24,000
= 109,000
Total Manufacturing Costs = Direct Material Used + Direct Labor + MOH Cost
109,000 + 95,500 + 95,500
= 300,000
Cost of Goods Manufactured = WIP Beginning + Total Manufacturing Costs – WIP Ending =
300,000 + 36,000 - 30,000
= 306,000
Cost of Goods Sold = Cost of Goods Manufactured + Beginning Finished Goods – Ending
Finished Goods
= 306,000 + 48,000 – 54,000
= 300,000
Gross Margin = Sales – Cost of Goods Sold
= 660,000 – 300,000
= 360,000
A = 33,000 G = 85,000
B = 180,000 H = 33,000
C = 171,000 I = 228,000
D = 276,000 J = 70,000
E = 27,0000 K = 306,000
F = 39,0000 L = 360,000
Thank You!!!!!!!!