Unit: Management accounting
13 Questions| Sh. | Sh. | |
| Sales (1,200 units at Sh.18,000 per unit) | 21,600,000 | |
| Less: Cost of sales: | ||
| Less:.Production (1,800 units at Sh.10,000 per unit) | 18,000,000 | |
| Less: Closing inventory (600 units at Sh.10,000 per unit) | (6,000,000) | (12,000,000) |
| Gross profit | 9,600,000 | |
| Less: Variable selling expenses (10% of sales) | (2,160,000) | |
| Less:.Fixed selling and distribution costs | (1,705,000) | |
| Net profit | 5,735,000 |
Required:
Using high-low method, calculate:
(i) The variable production cost per unit.
(ii) The total monthly fixed production cost.
| Overhead cost | Sh.“million” | Basis of apportionment |
| Depreciation | 660 | Net book value of equipment |
| Indirect labour | 900 | Direct labour hours |
| Repairs and maintenance | 110 | 30% to T, 50% to Q and 20% to M |
| Heating and lightning | 90 | Floor area |
| Consumable supplies | 30 | Direct labour hours |
| General overheads | 20% of direct wages cost of each department |
| Production department | T | Q | M |
| Direct labour hours | 5,000 | 3,000 | 2,000 |
| Direct wages cost (Sh. Million) | 150 | 210 | 100 |
| Number of employees | 25 | 15 | 10 |
| Floor area in square metres (\(M^2\)) | 5,000 | 4,000 | 1,000 |
| Net book value of equipment (Sh. Million) | 80 | 50 | 90 |
| (i) | The primary allocation of production overhead costs to the three departments. |
| (ii) | Calculate the overhead absorption rate (OAR) for each department based on direct labour hours. |
| (iii) | A quotation for a job made as batch BQ23 has the following estimated information: |
| (iii) | Direct material cost | Sh.140,000,000 |
| Direct labour hours | 550 hours in department T | |
| 890 hours in department Q | ||
| 160 hours in department M |
| (iii) | Required: Using the OAR computed in (b) (ii) above, compute the total cost of job batch BQ23. |
| Ticket class | Individual Sh. | Family Sh. | Total Sh. |
| Selling price per ticket | 2,400 | 3,000 | |
| Variable cost per ticket: | |||
| Cost of meal | (740) | (800) | |
| Direct labour | (600) | (600) | |
| Variable cost of beverages | (240) | (250) | |
| Swimming cost | (220) | (250) | |
| Contribution margin | 600 | 1,100 | |
| Apportioned annual fixed costs (Sh.) | 3,375,000 | 4,125,000 | 7,500,000 |
| Expected tickets to be sold | 6,000 | 4,000 | 10,000 |
| 1 | All the assumptions of cost volume profit (CVP) analysis are valid. |
| 2 | Total sales mix is currently generated by the two type of tickets in the following proportions:
|
| Current system | Proposed system | |
| Purchase cost per unit (Sh.) | 400 | 400 |
| Ordering cost per order (Sh.) | 80,000 | 20,000 |
| Inventory holding cost | 12% | - |
| 1 | Opening work-in-progress 4,000 units Degree of completion and cost: |
| Sh.“000” | |||
| 1 | Materials | 100% | 240,000 |
| Labour | 60% | 144,000 | |
| Overheads | 60% | 72,000 |
| 2 | Units received from process P were 40,000 at a cost of Sh.1,700,550,000 |
| 3 | Additional cost during the period in process Q: Sh.“000” Materials 759,000 Labour 1,355,760 Overheads 640,220 |
| 4 | Closing work-in-progress was 3,000 units with the following degree of completion: Materials 100% Labour.and.overheads.50%. |
| 5 | Units scrapped were 4,000 having the following degree of completion: Materials 100% Labour.and.overheads.80%.. |
| 6 | Normal process loss was 5% of the expected production. |
| 7 | Spoiled units realised Sh.15,000 for each unit. |
| 8 | The company uses FIFO method of valuation for the opening work-in-progress. |
| Actual | Budgeted | |
| Selling price per unit (Sh.) | 2,600 | 3,100 |
| Variable cost per unit (Sh.) | 1,000 | 1,000 |
| Output and sales (units) | 8,200 | 8,700 |
| Total fixed overheads (Sh.) | 4,510,000 | 5,220,000 |
| Wages Sh.“000” | Materials purchased Sh.“000” | Overhead cost Sh.“000” | Sales Sh.“000” | |
| January | 18,000 | 60,000 | 30,000 | 90,000 |
| February | 24,000 | 90,000 | 36,000 | 120,000 |
| March | 30,000 | 75,000 | 48,000 | 180,000 |
| April | 27,000 | 105,000 | 42,000 | 150,000 |
| May | 36,000 | 90,000 | 54,000 | 210,000 |
| June | 30,000 | 75,000 | 48,000 | 180,000 |
| July | 27,000 | 75,000 | 42,000 | 150,000 |
| August | 27,000 | 90,000 | 42,000 | 150,000 |
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