ACCT 301 SEU Cost Accounting Questions

College of Administration and Finance SciencesAssignment (2)
Deadline: Saturday 11/11/2023 @ 23:59
Course Name: Cost Accounting
Student’s Name:
Course Code: ACCT 301
Student’s ID Number:
Semester: 1st
CRN: 14496
Academic Year: 1445 H
For Instructor’s Use only
Instructor’s Name: Dr. Samreen Akhtar
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.
College of Administration and Finance Sciences
Assignment Question(s):
(Marks 15)
Q1. Discuss with suitable examples why activity-based costing (ABC) is better than the
traditional costing system. Provide a suitable numerical example of ABC in the manufacturing
sector and show all the necessary calculations required under the ABC system.
(3 Marks)
Note: Your answer must include suitable numerical examples showing all the calculations of the
ABC system. You are required to assume values of numerical examples of your own and they should
not be copied from any sources.
(Chapter 7)
Answer:
Q2. “A non-routine decision is one that is taken in response to a non-repetitive, operational
scenario.” Comment on this statement and explain with suitable examples the various types of
non-routine operating decisions that a company makes under such a scenario. Support your
answer with numerical examples along with qualitative considerations involved in making such
decisions.
(4 Marks)
Note: Your answer must include suitable numerical examples for various types of non-routine
operating decisions. You are required to assume values of numerical examples of your own and they
should not be copied from any sources.
Answer:
(Chapter 4)
College of Administration and Finance Sciences
Q3. ADLG Company has two support departments, SS1 and SS2, and two operating
departments, OD1 and OD2. The company has decided to use the direct method and allocate
variable SS1 dept. costs based on the number of transactions and fixed SS1 dept. costs based on
the number of employees. SS2 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 values have been extracted for the allocation:
(4 Marks)
Support Departments
Operating Departments
SS1
SS2
OD1
OD2
Total Department variable costs
16,000
19,000
105,000
68,000
Total department fixed costs
19,500
34,000
120,000
55,000
Number of transactions
50
55
250
140
Number of employees
18
24
47
38
Number of service requests
37
22
26
32
Number of computers
20
25
31
37
You are required to allocate variable and fixed costs.
(Chapter 8)
Answer:
Q4. JKL Company processes a direct material and produces three products: P1, P2, and P3. The
joint costs of the three products in 2018 were SAR 120,000. The total number of units for each
product and the selling price per unit is given below:
(4 Marks)
Product
Units
Selling Price per unit
P1
55,000
SAR 70
College of Administration and Finance Sciences
P2
34,500
SAR 58
P3
10,500
SAR 44
You are required to use the physical volume method and sales value at the split-off method to
allocate the joint costs to each product.
Answer:
(Chapter 9)
SEU ELITE
Assignment Question(s):
(Marks 15)
Q1. Discuss with suitable examples why activity-based costing (ABC) is better than the
traditional costing system. Provide a suitable numerical example of ABC in the manufacturing
sector and show all the necessary calculations required under the ABC system.
(3 Marks)
Note: Your answer must include suitable numerical examples showing all the calculations of the
ABC system. You are required to assume values of numerical examples of your own and they should
not be copied from any sources.
(Chapter 7)
Answer:
Both methods are similar when it comes to direct costs; as each production cost (DM and DL) are easily
traced and assigned to each individual product\service. There’s one main difference between traditional
costing systems and ABC systems that revolves around allocation of indirect costs; in a traditional
costing system overhead (indirect) costs are allocated to each individual product via what is called a
“two-stage process” in which costs are grouped into one or more cost pools, and then they are allocated
to the product\service according to an allocation base (such as direct labor hours)
For example, a firm is calculating the cost of its main product, direct materials are easily traceable, direct
labor costs are calculated easily based on the number of hours needed for that product. And for overhead
costs, the firm decided to use direct labor hours as an allocation base, and divided the total of fixed costs
based on that amount, then compiled these costs to get to total cost per unit of the product.
While in a Activity Based Costing system; overhead costs are first assigned to specific activity cost
pools reflecting each activity performed in the production or delivery of a product or service (such as
customer support) then the cost of these various activities are used to compose the total cost for cost
objects\products, and allocated using an activity cost driver.
For example; a firm defined customer service as an activity, the costs of the information system used, call
center personnel are traced directly to the activity as direct labor and direct material costs, while
other costs like salaries, phone bills, rent and such can be allocated to a number of different activity cost
pools (perhaps CS personnel also work in another department, so their salary contributes to more than
customer service, or the facility they work in is also utilized by HR) and then these cost pools are allocated
or traced to the product using a cost driver such as # of calls answered in the case of customer service.
This way costs are allocated more precisely
ABC in manufacturing:
Sunny.co produces two main products; sunglasses, and eyeglasses, direct labor costs are 50$\hour and
each product requires 2 hours of labor. Eyeglasses use 78$ in direct materials, and sunglasses need 35$
in direct materials. The following table shows the estimated costs and activity levels:
SEU ELITE
Activities
Estimated costs
Estimated activity levels
Cost driver
Eyeglasses
Sunglasses
Total
Machine set ups
300,000
3,000
3,000
6,000
# of set ups
Inspection
200,000
1,000
600
1,600
# of inspections
Material handling
100,000
230
270
500
# of material moves
Quality control
50,000
420
380
800
# of tests
Machine dept.
300,000
750
250
1,000
# of machine hours
Customer service
50,000
300
200
500
# of calls
1,000,000
The estimated overhead rate for activity:
Activities
Machine set ups
Inspection
Material handling
Quality control
Machine dept.
Customer service
Estimated costs
300,000
200,000
100,000
50,000
300,000
50,000
1,000,000
Estimated activity levels
6,000 set ups
1,600 inspections
500 material moves
800 quality tests
1,000 machine hours
500 calls
Overhead rate
50$\set up
125$\inspection
200$\material move
62.5$\test
300$\machine hour
100$\call
Recently, Sunny.co completed a batch of 200 eyeglasses, and a batch of 200 sunglasses, the following
table details each product’s use of the cost drivers. DM and DL costs were as budgeted
Machine set ups
Inspection
Material
handling
Quality control
Machine dept.
Customer service
200 eyeglasses
65
10
2
200 sunglasses
15
5
1
4
150
3
1
75
2
Thus the allocated overhead for these 200 batches are as follows:
Overhead allocated:
Machine set ups
Inspection
Material handling
Quality control
Machine dept.
Customer service
200 eyeglasses
3,250
1,250
400
250
45,000
300
200 sunglasses
750
625
200
62.5
22,500
200
SEU ELITE
Overhead\batch
Overhead\unit
50,450
252.25
24,337.5
121.68
Now we can compile the total cost for each product:
Direct materials
Direct labor
Overhead
Total
Eyeglasses
100$
78$
252.25$
430.25$
Sunglasses
100$
35$
121.68$
256.68$
Q2. “A non-routine decision is one that is taken in response to a non-repetitive, operational
scenario.” Comment on this statement and explain with suitable examples the various types of
non-routine operating decisions that a company makes under such a scenario. Support your
answer with numerical examples along with qualitative considerations involved in making such
decisions.
(4 Marks)
Note: Your answer must include suitable numerical examples for various types of non-routine
operating decisions. You are required to assume values of numerical examples of your own and they
should not be copied from any sources.
(Chapter 4)
Answer:
The statement that a non-routine decision is one taken in response to a non-repetitive,
operational scenario is accurate. Non-routine decisions are those that are not part of the regular
operations of a company and require unique solutions. These decisions are often made in response
to unexpected events or changes in the business environment. non-routine operating decisions are
made to address specific situations within the organization to meet a particular customer or group
of customers. Examples of non-routine operational decisions are keep-or-drop decisions and special
orders.
SEU ELITE
i) Keep or Drop Decisions:
For example, Toyota Company manufactures three types of cars which are Yaris, Camry, and
Corolla. The income statement for the three cars is as follows
Details
Yaris
Camry
Corolla
Total
Sales revenue
$350
$400
$650
$1,400
Variable cost
$150
$180
$300
$630
Contribution margin
$200
$220
$350
$770
Fixed costs
$300
$150
$200
$650
Net income/loss
($100) $70
$150
$120
Dropping Yaris
Details
Camry
Corolla
Total
Sales revenue
$400
$650
$1,050
Variable cost
$180
$300
$480
Contribution margin
$220
$350
$570
Fixed costs
$150
$200
$350
Unavoidable cost
Net income/loss
$150
$70
$150
$70
SEU ELITE
Toyota should not drop Yaris brand because it contributes higher revenue which helps in
booting the net income. The drop of the brand will lower net income from $120 to $70 (Eldenburg &
Wolcott, 2011).
ii) special order
A special order occurs when a person or an organization places a special order to buy a given
product or service at a price below the selling price. The manufacturers consider various factors. For
example, an organization manufactures basketballs for export to multiple countries. The organization
has a production capacity of 50,000 but only produces 40,000. The organization sells the balls at $43
per ball. The variable cost is $23, and the fixed cost is $500,000. A local club requests the organization
to supply 2,500 balls at $35 each.
Details
Without special order
With special order
Revenue
40,000*43 = 1,720,000
40,000*43 = 1,720,000
2,500*35 = 87,500
Total = 1,807,500
Variable cost
40,000*23 = 920,000
42,500*23 = 977,500
Contribution margin
800,000
830,000
The organization should accept the special order because it leads to an increase of contribution
margin by $30,000, while fixed cost is irrelevant. The sale to the local club will not affect the
organization in the international level (Eldenburg & Wolcott, 2011).
Q3. ADLG Company has two support departments, SS1 and SS2, and two operating
departments, OD1 and OD2. The company has decided to use the direct method and allocate
SEU ELITE
variable SS1 dept. costs based on the number of transactions and fixed SS1 dept. costs based on
the number of employees. SS2 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 values have been extracted for the allocation:
(4 Marks)
Support Departments
Operating Departments
SS1
SS2
OD1
OD2
Total Department variable costs
16,000
19,000
105,000
68,000
Total department fixed costs
19,500
34,000
120,000
55,000
Number of transactions
50
55
250
140
Number of employees
18
24
47
38
Number of service requests
37
22
26
32
Number of computers
20
25
31
37
You are required to allocate variable and fixed costs.
(Chapter 8)
Answer:
Total department variable
cost
X1
X2
Total
16,000
19,000
(16,000)
10,256.41 5743.59
(19,000) 8,517.24
10482.76
0
123,773.65 84,226.35
0
Total department fixed
costs
X1
X2
Total
19,500
(19,500)
0
34,000
105,000
120,000
68,000
55,000
10,782.35 8717.65
(34,000) 15,500.00 18500.00
0
146,282.35 82,217.65
SEU ELITE
Q4. JKL Company processes a direct material and produces three products: P1, P2, and P3. The
joint costs of the three products in 2018 were SAR 120,000. The total number of units for each
product and the selling price per unit is given below:
(4 Marks)
Product
Units
Selling Price per unit
P1
55,000
SAR 70
P2
34,500
SAR 58
P3
10,500
SAR 44
You are required to use the physical volume method and sales value at the split-off method to
allocate the joint costs to each product.
(Chapter 9)
Answer:
Physical Volume Method
Total Sales Value at
Product
Pounds Produced
P1
55,000
Selling Price per
70
Split-Off
Relative
W eight
Allocated
Joint Costs
$3,850,000
55.00%
$66,000
SEU ELITE
P2
P3
34,500
10,500
58
44
100,000
$2,001,000
$462,000
34.50%
10.50%
$41,400
$12,600
$6,313,000
100.00%
$120,000
Sales Value at Split-Off Method
Total Sales Value at
Product
Pounds Produced
P1
P2
P3
55,000
34,500
10,500
100,000
Selling Price per
70
58
44
Split-Off
Relative
W eight
Allocated
Joint Costs
$3,850,000
$2,001,000
$462,000
60.99%
31.70%
7.32%
$73,182
$38,036
$8,782
$6,313,000
100.00%
$120,000