SUGGESTED ANSWERS FALL. 2010 EXAMINATIONS told TOST AND MANAGEMENT ACCOUTING PERFORMANCE APPRAISAL STAGE 7 2. (a) Calculation of production cost for inventory valuation: Rs. Malerial 50 Labour 10 Praduction Cost for Marginal Casting 60 ‘Add: Fix Overhead (Rs125,000/ 2.500) 50 Prod, Cost for Absorption Cesting 110 ‘Add: Selling & Distibution Cost 5 Total Cast 115 tb) income Statement under marginal costing ‘Siivabons Months jscember January Sales in uns 12503000 ‘Sales @ Rs. 125 par unit 156.250 375.000 Opening inventory @ Ra. 60 par unit 75.G00 15000 90,000 Add: Production @ Rs. 60 per unit 10,000 150,000 _ 150.000 ‘Avainble fr sale 766,000 165.900 240.000 Less: Closing inventory @ Rs.60 per ine 15,000 90,000__60,000 Cost of Sales @ Rs. 60 per unt 450,000 75,000 180.000. Gross Margin @ Rs. 65 par unit 162,500 81,250 195,000 Seling Dist. Costs @Re 5 per voldunt 12500 6250___15,000 Gonirbuton Margin 750.000 75.900 160.000 Fixed Labour Costs 62,500 62,500 62,500 Feed Overhead Ceste 6250062500 62.500 Total Fed Cost 725,000 125000 125.000 Nat Profi 25.000 (60,000) 65.000 @ 7 CD Loong Statement under absorption costing Amount in Bs tuations ul 2) Months Constant December January Sales in uns 25001250 __3000 Sales @ Rs.125 per unit 312,500 156,250 375,000 Opening inventory @ Rs.110 perunit 27,500 27,500 185,000 ‘Add: Production @ RS. 110 per unit, 275,000 275,000 275,000 Available for sale 32,800 302,500 440,000 Less: Closingimventory @Rst10 per unt __27,500__165,000__110,000 Cost of Sales @ Rs.110 per unit 275,000 137,500 390,000 Gross Profi @ Rs. 15 per unit 37.500 18.780 46,000 Seling ADst Costs @Rs Spersold unt __12.500_—6,250__—15,000 Net Profit @ Rs. 10 par unit 25,000 12500 30,000 a es Qa (a) Throughput ims ready for sala. Iti the total time from when the production of a product starts until itis the sum of process time, inspection jime, time spent in transit and time wailing fo be removed or worked in, Ilis also called as "Cycle Time”, 8 8SUGORSTED ANSWERS FALL 2010 EXAMINATIONS Dold (COST AND MANAGEMENT ACCOUTING PERIORMANCE APPRAISAL “STAGE 3 pay (6) i) Throughput tine: 02 Throughpul fime= Process time + Inepastion finte + Move lime + Queue time 2.00 +0,50+0 50+5.00 = 8.00 days (@) Manufacturing Cycle Efficiency 02 MCE = Vaive added time / Throughput time = 200/8.00 = 0250r25% (Gi) Percentage (%) of nan vaive added time 02 ‘h cf non value added time = 100% - MCE % = 100%) - 25% =75% Gv) Delivery Cycte time 02 DCT = Waittime + Threupnput time 1700+ 8.00 25.00 cays Q.4 (a) Basic standards represent constant standart thal are lel unchanged aver long pericds. «1 Ideal standards represent pedact perornance. They represent the minimuct cost thal are possible under the most efficient. rs 1 ‘Currently attainable standards sapvestnt those costs that shauld be incurred under efficient operating conditions. These cieridaras are difficult but possible to actiewe, 1 ‘Currently atlzinable standars are normally recommended for standard casting, 1 (b) (i) Total material mis variance Standard Variance Standard Variance joo bP Bl 40%= 205.2 32.8 10 “328 UF 1 e0%=4028 308 12 3835 F 1 0 055 F 1 {G) Total material yield variance Expected Output 73810 = 738 Units Actual Output 72 Units 1 Standard Cosi per unitof output edd eT2 Re 112 Yield Variance (23.8-T2unils) x a. 112 1 s18unisx R512 = 5201.60 UF 1 (c) Sales mix variance: Feluclsaes Actual Seles Te piapateg Variance Standard Variance Product {Units) Mix (Units) (Litres) Price/ Rs. (Rs a 216 0h 18re 184 50 0 F 1 B 300 «Whe 284 36 25 ao OF 1 c Maz 50% 4940-52 18 936 __UF 1 388 988 0 a2 1st TOSTAND NIN ESTED ANSWERS. ALL. 1010 EXAMINATIONS Bota SS EE (2) (planning variance: Planning Variance = (Original standard price - Market price) x Quantily purchased = 2 (FRs.20.50 - Rs.22 50) x (5Kg x 1,000 units) = (Rs.2.00)x 5,000 = Rs.10,000 UF 2 (i) Material usage variance Material usage variance = (Standard quantily - Aclual quantity) x Markel price 2 = (6000 kgs -5500Kgs)x Rs 22.50 (600) xs 22.60 = Rs. 11,250UF 2 QS (@} — _Cash Budget for first 6 months of 2011 nx Res. 00 Months: Jen Feb Mar Agr May June Total Opening Balance 40 270 6M (ro) 12 286 140 2 Reosinis Gollections from sale —-396_—702_1,087 1.318 828 G66 4,965 a Total Availabilty 536 972 1500 1110 840 952 5108, 2 Pawnents Malerial& Labour Costs 180 252 1,764 612 468 924 3,600 2 Administrative Salaries = «6D BBO 2 Lease Payments 2m 2 2 20 2 w 12 2 Misc. expenses 6 6 6 8 6 6 % 2 ‘Advance Income Taz 50 50 100 1 Capital exnendi 400 400 1 Total Payne 260 338 1.900 1098 S58 460 4010) 2 Surplus (Detiat) 270634 (204) (12~—«28G BO 2 Zi Collections from sale es 000" Months; Jan Feb Mar Ape May June Total Tst wanth T2108 147272 1B 486 2nd Month 270 540 BID 1,080 540 BHO 3,780 Sed Morith 5454108 162-216 = 108702 Total Collections 396 702 1062 1318 828 666 4908 (b) The cash budgel indicales that the company wil have surplus funds available during Jan., Feb., May & June 2911. During the month of March 2011 the company will need borrowing of approx Rs 345,000 1 The company must invest surplus fund in Jan & Feb for 1 or 2 months in short tem deposits in good raling banks) to reduce defiel in March 2011. The surplus that accrues again in May & June 2011 will erable the company to repay ils borrovring from the bark. 1 The company should go on a cash sale policy the company should review ils minimum cash requirements 1 PTOSUGGESTED ANSWERS FALL 2010 EXAMINATIONS sea COST AND MANAOEMENT ACCOUTING PERTORMANCE APTRATSAL STAGE 7 O68 o) () Transfer price for Produat X: MOS Rate (Rs) Rs. 008 Sales 40 300 72,000 Div. Costs: Variable 8 04,800 Fixed = 100 154.500, 9.300 Div. BCosts: Variable 40 3 ado ne) 100 3.800 9.500 Profit 2.100 Product X share of Profit would be Total cost of 80,000 units of Product X= Transfer Price for Product X (@) Divisional Profits $9000 Rate Amount Division A: Sales lo Division B 80 95455 7.636 Cost: Variable aa 60.00 [4.200 Fixe 100 15.00 |_1.s00 Total cost 6.300, Prof 1336 a 40 300.00 12,000 Dx. A Cast aa s5.as5 [7.636 Div, B Casts = Variable 4a 36.00 | 1,440 Fixed 4a 54.00 |_2.160 Total cost Profit Total Profi (@- in case of nen-existence of a markel price, the most suitable basis ta calculate a transfer price vould ba one related to ratum on investment Product X should be transferred to Division B at market price. Justification: The market prica is tha mast objective eriterian for measurement in this type of Situation, It reflects what Division 8 would have to pay if it bought Ihe product from a supplier aulside the company. Therefore, any profit resuliing from its actviies can be trealed at par with what would have happened if ithad been eperating independently of the company ‘THE END i