ACCT 322 Managerial Accounting
Assignment Question(s): (Marks 15)
Q1. Assume yourself to be a cost manager of ARAMCO and you are in the task of Cost Classifications. Explain how the following costs would help you as cost manager to make decision. (2 Marks)
1. Product Vs Period Cost
2. Prime Vs Conversion Cost
3. Committed Vs Discretionary Cost
Answer:
Q2: A fresh graduate employed as an accountant of a manufacturing company and is working on over applied and under applied overheads.
Explain how you would assist him/her in computing over applied and under applied overheads. Give numerical examples (2 Marks)
Answer:
Q3.a. Latif Company has two products: A and B. The company uses activity-based costing. The estimated total cost and expected activity for each of the company’s three activity cost pools are as follows:
Required:
1. Compute POHR per activity (Round off to two decimal places)
2. Calculate the overhead cost per unit, if the company produces 1,000 units of product A and 500 units of product B. (5 MARKS)
Answer:
Q4. Explain Equivalent Units of Production and its computation using weighted average method and FIFO method. (2 Marks)
Answer
Q5a. ‘Cost Structure and Profit Stability’ is one of the most import strategy of a corporations. Explain how managers, maintain cost structure for stability in profit during both good and bad years. (2 Marks)
Answer:
Q5b.The following is Allison Corporation’s contribution format income statement for last month:
Account title Amount in SR
Sales 850,000
Variable Cost 250,000
Contribution Margin 600,000
Fixed Expenses 450,000
Net operating Income 150,000
The company has no beginning or ending inventories. The company produced and sold 15,000 units last month.
Required: (2 Marks)
i. Compute Margin of Safety.
ii. What is the company’s degree of operating leverage?
Answer:
Q1. Cost Classifications
Product Vs Period Cost:
Product costs are those costs that are directly related to the production of goods or services. These costs are incurred when a company purchases raw materials, converts them into finished goods, and then sells those goods to customers. Examples of product costs include direct materials, direct labor, and factory overhead.
Period costs, on the other hand, are costs that are not directly related to the production of goods or services. These costs are incurred over a specific period of time, such as a month or a year. Examples of period costs include rent, salaries, and marketing expenses.
As a cost manager, understanding the difference between product and period costs is important because it helps to accurately determine the cost of goods sold, which is necessary for making pricing decisions and determining profitability.
Prime Vs Conversion Cost:
Prime costs are the direct costs of producing a product or service, such as direct materials and direct labor. Conversion costs, on the other hand, are the indirect costs of producing a product or service, such as factory overhead and indirect labor.
As a cost manager, understanding the difference between prime and conversion costs is important because it helps to identify areas where costs can be reduced. For example, if the conversion costs for a particular product are higher than expected, a cost manager might investigate ways to reduce overhead costs in order to improve profitability.
Committed Vs Discretionary Cost:
Committed costs are those costs that cannot be easily changed in the short term, such as the cost of long-term leases or salaries for permanent employees. Discretionary costs, on the other hand, are costs that can be easily adjusted in the short term, such as advertising expenses or travel costs.
As a cost manager, understanding the difference between committed and discretionary costs is important because it helps to identify areas where costs can be reduced in the short term. For example, if a company is experiencing a temporary downturn in sales, a cost manager might recommend reducing discretionary costs in order to maintain profitability.
Q2: Over applied and Under applied Overheads
Over applied overhead occurs when the actual overhead cost incurred is less than the amount of overhead allocated to production. Under applied overhead occurs when the actual overhead cost incurred is greater than the amount of overhead allocated to production.
To compute over applied and under applied overhead, the following formula can be used:
Actual overhead cost incurred – Overhead allocated to production = Over applied or under applied overhead
For example, if the actual overhead cost incurred is SR 20,000 and the overhead allocated to production is SR 18,000, then the company has over applied overhead by SR 2,000.
To assist the fresh graduate in computing over applied and under applied overhead, I would recommend reviewing the company’s accounting records to determine the actual overhead costs incurred and comparing this to the amount of overhead allocated to production. The difference between these two figures will determine whether the company has over applied or under applied overhead.
Q3.a. Activity-Based Costing
POHR per activity:
Activity Cost pool total cost Expected Activity POHR
Activity 1 SR 100,000 10,000 machine-hours SR 10.00 per machine-hour
Activity 2 SR 200,000 20,000 setups SR 10.00 per setup
Activity 3 SR 300,000 30,000 testing-hours SR 10.00 per testing-hour
Overhead cost per unit:
Product A:
Activity Activity Rate Activity required per unit Total Activity
Activity 1 SR 10.00/MH 2 MH 2,000 MH
Activity 2
