College of Administration and Finance Sciences

Assignment (2)
Deadline: Saturday 04/05/2024 @ 23:59

Course Name: Cost Accounting Student’s Name:

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

For Instructor’s Use only

Instructor’s Name: Dr. Shahid Husain
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. What is the process of identifying activities in an organization and assigning costs under
the Activity Based Costing (ABC) system? Elucidate. You will need to include the right
numerical examples to support your answer. (2 Marks)
(Chapter 7, Week 7)

Answer:

1. Identify the Relevant Cost Object  Ascertain which particular good,

service, or client expenses must be
allocated.
 For instance, the cost object would be
the widget, if the business wanted to
know how much it would cost to
produce that particular widget.
2. Identify Activities  Divide the operations of the company
into discrete, resource- and money-
consuming tasks.
 For instance, a company that
manufactures cars may list tasks like
designing, assembling, and painting.
3. Assign (Trace and Allocate) Costs to  Link direct expenses to specific tasks.
Activity-Based Cost Pools Assign engineering salary directly to the
design activity, for instance.
 Utilizing a sensible cost driver, allocate
indirect expenses to the various
operations. Assign utility expenses to
activities, for example, according to the
square footage that they occupy.
4. Choose a Cost Driver for Each ABC  Choose the metric that most accurately
Cost Pool captures the amount of resources used in
each action.
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 For instance, the quantity of drawings or

labor hours could be the primary cause
of cost in the design activity.
5. Calculate an Allocation Rate for Each  Allocation Rate = Activity Cost /
ABC Cost Pool Volume of Cost Driver
 For instance, the allocation rate would
be $25 per labor hour if the design
activity had a $50,000 cost and the labor
hours accounted for 2,000 hours of the
overall cost.
6. Allocate Activity Costs to the Cost  Allocation = Allocation Rate × Actual
Object Volume of Activity.
 For instance, $250 would be the cost
assigned to a particular widget if it took
10 labor hours to complete the design
task ($25 x 10 hours).

For instance, Company ABZ uses direct labor to support the production of toys.

10,000 hours of labor were used in the manufacture, and $500,000 was allotted for overhead costs.
Four thousand direct hours were actually used in the manufacture of five thousand hours.

Cost driver is $50 per work hour ($500,000 / 10,000).

$250,000 is the total cost of overhead (50 labor hours * 5,000).

Each overhead unit costs $250,000 divided by 4,000, or $62.5.

Q2. PPLC Company has two support departments, SD1 and SD2, and two operating
departments, OD1 and OD2. The company decided to use the direct method and allocate
variable SD1 dept. costs based on the number of transactions and fixed SD1 dept. costs based
on the number of employees. SD2 dept. variable costs will be allocated based on the number of
service requests, and fixed costs will be allocated based on the number of computers. The
following information is provided: (4 Marks) (Chapter 8, Week
10)
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Support Departments Operating Departments

SD1 SD2 OD1 OD2

Total Department variable costs 18,000 19,000 51,000 35,000

Total department fixed costs 20,000 24,000 56,000 30,000

Number of transactions 30 40 200 100

Number of employees 14 18 35 30

Number of service requests 28 18 35 25

Number of computers 15 20 24 28

You are required to allocate variable and fixed costs using direct method.
Answer:
Total 18,000 19,000 51,000 35,000
Department
variable costs
SD1 (18,000) 12,000 6,000.00
SD2 (19,000) 11,083.33 7,116.67
Total 0 0 74,083.33 48,916.67

Total 20,000 24,000 56,000 30,000

department
Fixed cost
SD2 (20,000) 10,769.23 9,230.77
SD2 (24,000) 11,076.92 12,923.07
Total 0 0 77,846.15 52,153.84

Q3. What are an organization's “outsourcing decisions” and “constrained resource decisions?”
Provide a suitable numerical example of these decisions and explain how quantitative and
qualitative considerations support a company's decision-making process.
 College of Administration and Finance Sciences

(2 Marks) (Chapter 4, Week

9)

Note: Your answer must include suitable numerical examples. You are required to assume values
of your own, and they should not be copied from any sources.

Answer:

Part 1

a) Outsourcing Decisions
Decisions to enter into contracts with external suppliers for services or products that were
previously produced or handled internally.
i) Make or buy

Decisions about what to buy or create are based on the purchase price and the overall cost of
production. As an illustration, ABZ produces 50,000 parts that go into making a washing
machine. The product has a fixed cost of $32,500 and a variable cost of 6.9. To eliminate the
fixed cost, an outside supplier is willing to offer the parts at a cost of $8 each.

Particulars Make Buy

Buying price @8 450,000

Variable costs @6.9 345,000

Fixed cost 32,500 0

Total cost 377,500 450,000

Cost per item $7.55 $9

Since manufacturing components is less expensive than purchasing them, the company
should proceed and make the product.

b) Constrained Resource Decisions

Constrained resource decisions, which happens when a company doesn't have enough
resources to meet its demands for output. For instance, the variable costs and total direct
 College of Administration and Finance Sciences

labor hours (60,000 hours) for the two items X and Y that the organization manufactures are
displayed as follows.

Particulars X Y

Selling price 70 90

VC per unit 38 34

CM 26 50

CMR 40% 60%

Director labor per hour 0.6 1.8

0.6X + 1.8Y = ≤ 60,000

X≤ 60,000/0.6

X= 100,000

Total contribution margin =

100,000 * 26 = $2.6 million

0.6X + 1.8Y = ≤ 60,000

Y≤ 60,000/1.8

Y = 33, 333.33

Total contribution Margin

= 33, 333.33* 50 = 1.6 million

With a larger contribution margin, product X is what the company should produce.

Part 2

Both qualitative and quantitative factors must be taken into account when making decisions
as a business. Qualitative research delivers subjective insights and human viewpoints,
whereas quantitative research offers objectivity and quantifiable data. Combining these two
viewpoints provides a more accurate and stakeholder-aligned picture that is balanced. Reports
that combine quantitative and qualitative data also enhance communication and increase the
comprehensibility and implementation of decisions. To sum up, integrating these abilities can
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result in a thorough comprehension of a circumstance, well-informed choices, and higher

odds of success.

Q4. VBN plastic industry makes three plastic toys: T1, T2, and T3. The joint costs of the three
products in 2017 were SAR 120,000. The total number of units for each product and the selling
price per unit is given below: (3 Marks) (Chapter 9, Week
11)

Product Units Selling Price per unit

T1 45,000 SAR 15
T2 26,000 SAR 14
T3 18,000 SAR 10

You are required to allocate the joint costs to each product using the physical volume method and
sales value at the split-off method.
Answer:
Sales Value at
Split-Off
Method
Product Units produced Selling price Total Sales At Relative Allocated
per unit Split-Off Weight Joint Costs
T1 45,000 SAR 15 SAR 675,000 50.57% SAR 60,684
T2 26,000 SAR 14 SAR 364,000 29.21% SAR 35,052
T3 18,000 SAR 10 SAR 180,000 20.22% SAR 24,264
TOTAL 89,000 $1, 219,000 100.00% SAR 120,000

Sales Value At
Split-Off
Method
Product Units produced Selling price Total Sales At Relative Allocated
per unit Split-Off Weight Joint Costs
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T1 45,000 SAR 15 SAR 675,000 55.37% SAR 66,448

T2 26,000 SAR 14 SAR 364,000 29.86% SAR 35,833
T3 18,000 SAR 10 SAR 180,000 14.77% SAR 17,719
TOTAL 89,000 SAR 1, 219,000 100.00% SAR 120,000

Q5. MN&M Corporation is preparing a budget for 2018. The company provides you with the
following details which will help you to prepare the budget:

(4 Marks) (Chapter 10, Week

12)

Budgeted selling price per unit = SAR 500 per unit

Total fixed costs = SAR 150,000

Variable costs = SAR 100 per unit

Required:

You are required to prepare a flexible budget for 1,000, 1,100, 1,200 and 1,300 units.

Answer:

Sales in Units 1,000 1,100 1,200 1,300

Revenues SAR 500,000 SAR 550,000 SAR 600,000 SAR 650,000
Variable costs SAR 100,000 SAR 110,000 SAR 120,000 SAR 130,000
Contribution SAR 400,000 SAR 440,000 SAR 480,000 SAR 520,000
margin
Fixed costs SAR 150,000 SAR 150,000 SAR 150,000 SAR 150,000
Operating income SAR 250,000 SAR 290,000 SAR 330,000 SAR 370,000
 College of Administration and Finance Sciences

Reference
Leslie and Susan. Cost Management Measuring, Monitoring, and Motivating Performance. Second
Edition.