College of Administration and Finance Sciences

Assignment (2)
Deadline: Saturday 27/07/2024 @ 23:59

Course Name: Cost Accounting Student’s Name:

Course Code: ACCT 301 Student’s ID Number:
Semester: Summer CRN:
Academic Year: 1445 H

For Instructor’s Use only

Instructor’s Name:
Students’ Grade: /15 Level of Marks: High/Middle/Low

Instructions – PLEASE READ THEM CAREFULLY

 The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
 Assignments submitted through email will not be accepted.
 Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
 Students must mention question number clearly in their answer.
 Late submission will NOT be accepted.
 Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No
exceptions.
 All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
 Submissions without this cover page will NOT be accepted.
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Assignment Question(s): (Marks 15)

Q1. Give example of company using ABC costing and explain the process used in this company to
assign costs in an ABC system? (3 marks)

Answer:

Activity based costing (ABC) is a method for all the more exactly designating overhead expenses by assigning
them to activities. Whenever costs are relegated to activities, the expenses can be allocated to the expense
protests that utilization those activities. Activity based costing (ABC) is a framework you can use to observe
manufacturing costs. It separates overhead expenses between manufacturing related activities.

The steps that go into ABC (activity-based costing):

1. Identify all the activities that go into creating a product (if you spend money on it, add it in!)
2. Separate each activity into groups (e.g., product line)
3. Find the total overhead for each cost pool
4. Assign activity cost drivers (units, hours, parts, etc. that control changes in costs) to each
group
5. Divide the total overhead in each group by the total activity cost drivers to get your cost
driver rate
6. Multiply the cost driver rate by the amount of activity cost drivers

For example : Saudi Aramco, officially the Saudi Arabian Oil Group allocate $10,000 in overhead to
setting up 4,000 machines (your cost drivers). Your cost driver rate would be $2.50 ($10,000 /
4,000). Now, you want to know how much goes toward Product XYZ. Two hundred of the machines
you set up were Product XYZ. Your overhead costs for Product XYZ were $500 ($2.50 X 200).

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Q2. Kadhim Co. manufactures product B which is a part of its main product. Kadhim Co makes
50,000 units of product B per year. The production costs are detailed below. An outside supplier has
offered to supply 50,000 units of product B per year at SAR 2.45 each. Should Kadhim Co make or
buy the product B? (3 marks)

The production cost per unit for manufacturing a unit of product B are:

Direct Materials 0.85

Direct Labor 0.65
Variable Manufacturing Overhead 0.40
Answer:

Make Buy

Direct material (50,000*0.85) 42,500

Direct labor (50,000 * 0.65) 32,500

Variable overhead (50,000*0.4) 20,000

Purchase price (50,000*2.45) 122,500

Total cost 95,000 122,500

Kadhim should make the product because it will save 27,500

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Q 3. LMN Compagny produces three products K, L and M. During the year, the joint costs of

processing the three products were SAR 480,000.

Production and sales value information were as follows:

Sales Value

Product Units at Split-Off Separable Costs Selling Price

K 500,000 13 per unit 6.00 per unit 40 per unit

L 300,000 12 per unit 4.00 per unit 37 per unit

M 200,000 8 per unit 3.00 per unit 28 per unit

Allocate the joint costs using the physical output method. (3 marks)
Answer:

Product Units produced % Joint cost Joint cost allocated

K 500,000 50% 480,000 240,000
L 300,000 30% 480,000 144,000
M 200,000 20% 480,000 96,000
Total 1,000,000 480,000

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Q4. A company uses a process costing system for its sole processing department. There were 4,000
units in beginning WIP inventory for June and 36,000 units were started in June. The beginning WIP
units were 60% complete and the 3,250 units in ending WIP were 40% complete. All materials are
added at the start of processing. (6 Marks)

Required:

a) Compute the no. of units started & completed.

b) Compute the EUP for DM and CC using FIFO and WA methods.

Answer:

a) Units started and completed = Units completed – beginning W.I.P

= 36,750 – 4,000 = 32,750

b)
WA method :-
Units Direct material Conversion cost
Completed 36,750 36,750 36,750
W.I.P. ending 3,250 3,250 1,300
Equivalent units 40,000 38,050

FIFO method :-
Units Direct material Conversion cost
Completed from beginning 4,000 0 1,600
Completed from started 32,750 32,750 32,750
W.I.P. ending 3,250 3,250 1,300
Equivalent units 36,000 35,650

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