Accounting Question

College of Administration and Finance SciencesAssignment (1)
Deadline: Saturday 02/03/2024 @ 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:
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. Explain the role of accounting information in strategic management. How does accounting
information assist in the formulation and implementation of organizational strategies? Support
your answer by providing an example of one Saudi Company in this regard.
(2 Marks)
Note: Your answer must include a suitable example showing the role of accounting information in
strategic management of an organization.
(Chapter 1, Week 1)
Answer:
Q2. What do you mean by cost function and for what purpose does it serve for? What are the
various methods used to estimate cost functions? Explain each method with suitable numerical
examples.
(3 Marks) (Chapter 2, Week 2)
Answer:
Q3. TTL Corporation is in the manufacturer of several plastic products. TTL sells its one of the
plastic product for SAR 500. The variable costs per unit are SAR 200, and the total fixed costs
are SAR 510,000. Based on cost-volume profit analysis, calculate:
(4 Marks)
a) Contribution margin per unit and contribution margin ratio.
b) Break-even point in units and sales SAR.
c) Pretax profit if the company sells 2,200 units.
d) Profit/loss if the company sells 1,500 units.
e) Units needed to reach target pretax profit of SAR 180,000.
f) Sales SAR needed to reach the target pretax profit of SAR 180,000. (Chapter 3, Week 3)
Answer:
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Q4. “Job costing is a method of cost accounting used by companies to find out the cost of specific
jobs or projects.” Comment on this statement and examine how actual allocation rates and
estimated allocation rates are analyzed by the companies? Support your answer with an example
of one Saudi company that use job costing.
(2 Marks) (Chapter 5, week 4 )
Answer:
Q5. A company uses a process costing system for its sole processing department. There were
4,000 units in beginning WIP inventory for June and 36,000 units were started in June. The
beginning WIP units were 60% complete and the 3,250 units in ending WIP were 40% complete.
All materials are added at the start of processing.
(4 Marks) (Chapter 6 Part 1, Week 5)
Required:
a) Compute the no. of units started & completed.
b) Compute the EUP for DM and CC using FIFO and WA methods.
Answer:
College of Administration and Finance Sciences
Assignment (1)
Deadline: Saturday 02/03/2024 @ 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:
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. Explain the role of accounting information in strategic management. How does accounting
information assist in the formulation and implementation of organizational strategies? Support
your answer by providing an example of one Saudi Company in this regard.
(2 Marks)
Note: Your answer must include a suitable example showing the role of accounting information in
strategic management of an organization.
(Chapter 1, Week 1)
Answer:
Accounting information is utilized for performance evaluation, which gives it an essential
role in strategic management. Accounting information facilitates the assessment of an organization’s
financial performance through the provision of essential metrics including profitability, liquidity, and
efficiency. This information is of the utmost importance for managers, as it empowers them to assess
the present strategies of the organization efficiently and, as a result, to formulate informed decisions
regarding future strategic planning. Accounting information plays a pivotal role in cost analysis by
facilitating cost managers in the examination of various costs linked to distinct organizational
activities. Managers can identify areas for cost reduction and optimization with the assistance of a
comprehensive comprehension of the cost structure; this knowledge is crucial for the development of
cost-effective strategies (Hansen, 2009).
Accounting information is utilized by SABIC Corporation for budgeting and forecasting,
establishing capital expenditures, modifying projected operating expenses, and establishing revenue
objectives. The SABIC accounting department require accounting information data to efficiently
allocate resources and oversee the financial performance of any strategic goals. Accounting
information is also utilized by SABIC to assess invested decisions, such as determining the cost of an
investment option, the return on investment, and cash flow projections. This enables the organization
to make well-informed decisions that are in line with its long-term growth strategy (Hansen, 2009).
College of Administration and Finance Sciences
Q2. What do you mean by cost function and for what purpose does it serve for? What are the
various methods used to estimate cost functions? Explain each method with suitable numerical
examples.
(3 Marks) (Chapter 2, Week 2)
Answer:
A cost function is a formula that predicts the costs that will be incurred at a specific
activity level. It depicts the relationship between cost-related elements such as production level,
worker hours, and material consumed. The cost function is normally used to understand how costs
will change with changes in production or other variables, allowing cost managers to make wellinformed decisions about pricing, production levels, and resource allocations. The purpose of the
cost function is to forecast and analyze costs under various situations, allowing businesses to
optimize their operations and increase profitability (Hansen, 2009).
Account Analysis
The account analysis method of estimating cost function entails identifying cost items,
categorizing each cost as constant or variable, and adding all variable and fixed costs. To calculate
variable cost per unit, all identified variable costs are added together and the sum is then divided by
the measure of activity. For example, Saudi Small Sparkling Drink had a total of 200,000 variable
costs and 100,000 fixed costs incurred to manage the business after categorizing and calculating all
fixed and variable costs, with approximately 20,000 units produced each year. Therefore, the cost
function = FC + VC/Unit × Qty.
Cost function = 100,000 + (200,000÷ 20,000)
Cost function = 100,000 + $10Q
1. High low method
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Another cost function method is the high-low method, which often estimates cost using
historical data from multiple reporting periods. For example, Ibrahim Retail Company had a high
activity level of 8,500 units in August with a cost of 95,000, while the lowest activity was reported
in January with 3,500 units and a cost of 45,000. The following will determine the cost function for
the Ibrahim Retail Company.
The first step is to determine variable costs
So rise/ run = 95,000 – 45,000 ÷ Units (8,500 – 3500) = 50,000 ÷ 5,000 = 10 per unit.
Using TC = F + V×Q so to determine F
45,000 = F + (10 × 3,500 Unit)
Therefore F = 45,000 – 35,000 = 10,000
Therefore, cost function = 10,000 + 10Q
2. Scatter graph method
Another way for estimating costs is the scatter graph method, which often takes into account all
data points rather than simply the highest and lowest levels of activity. The goal is to create an
approximation of fixed and variable states in the equation form y=f+vx. This strategy requires
reviewing data points and analyzing them to uncover trends and patterns that aid in calculating the
relationship between costs and activity level.
Q3. TTL Corporation is a manufacturer of several plastic products. TTL sells one of the plastic
products for SAR 500. The variable costs per unit are SAR 200, and the total fixed costs are SAR
510,000. Based on cost-volume-profit analysis, calculate:
a) Contribution margin per unit and contribution margin ratio.
b) Break-even point in units and sales SAR.
c) Pretax profits if the company sells 2,200 units.
d) Profit/loss if the company sells 1,500 units.
e) Units needed to reach target pretax profit of SAR 180,000.
(4 Marks)
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f) Sales SAR needed to reach the target pretax profit of SAR 180,000. (Chapter 3, Week 3)
Answer:
Selling Price per Unit (S.P) = SAR 500
Variable Cost per Unit (V.C) = SAR 200
Total Fixed Cost = SAR 510,000
a).
Contribution Margin (CM) = S.P –V.C
C.M= SAR (500 – 200) = SAR 300
Contribution Margin Ratio (CMR) = (S.P – C.M) ÷ S.P
CMR = (S.P – V.C) ÷ S.P
CMR = CM/S.P = (300 ÷ 500) = 0.6 or 60%
b).
Break-even in point in Units (B.E.P) = Fixed Cost ÷ CM
B.E.P = SAR (510,000 ÷ 300) = 1,700 units
Break-even point in Sales (B.E.P) = Fixed Cost ÷ CMR×
B.E.P in sales = SAR (510,000 ÷ 60) = SAR 850,000
c).
Pretax profit = CM × Units sold – F.C
Profit at 2,200 units = (SAR 300 × 2,200) – SAR 510,000
Profit at 2,200 units = SAR 150,000
d).
Profit/Loss = (1500 × SAR 300) – SAR 510,000
Loss = SAR 60,000
College of Administration and Finance Sciences
The units sold off around 1500 is less than 1700 break-even point in units when profit or loss is equal
to zero. Units less than 1,700 will cause loss and any units above 1,700 will lead to profit.
e).
Units needed to reach target pretax profit = (F.C + Profit) ÷ CM
Unit needed to reach target pretax = SAR (510,000 +180,000) ÷ SAR 300
The unit needed to reach the target pretax = SAR (690,000 ÷ 300) = 2,300 Units.
f).
Sales in SAR required to reach target pretax profit = (F.C + Target pretax Profit) ÷ CMR
Sales in SAR required to reach target pretax profit = SAR (510,000 + 180,000) ÷ 60%
Sales in SAR required to reach target pretax profit = SAR 690,000 ÷ 60% = SAR 1,150,000
Q4. “Job costing is a method of cost accounting used by companies to find out the cost of specific
jobs or projects.” Comment on this statement and examine how actual allocation rates and estimated
allocation rates are analyzed by the companies. Support your answer with an example of one Saudi
company that uses job costing.
(2 Marks) (Chapter 5, week 4 )
Answer:
Job costing is a method for calculating the cost of specific jobs and is used to account for all
costs connected with supplying services or products. Costs are given to a single work or project
based on the actual resources consumed or used in that job, allowing businesses to precisely track
each job’s costs and make smart pricing, resource allocation, and profitability decisions (Banker et
al., 2018). Companies usually compare actual rates to expected allocation rates to ensure the
accuracy of their cost forecasts and discover any variances that may arise. Actual allocation refers to
the actual cost incurred in completing a job, whereas estimated allocation rates are predetermined
rates used to distribute costs to jobs before they are completed.
College of Administration and Finance Sciences
Companies usually utilize these rates to compare the estimated cost to the actual cost incurred
throughout the job. The study allows the organization to trace any disparities and have a better
understanding of the reasons for each adjustment made for future job costs. SABIC, a chemical
manufacturing corporation, employs job costing to allocate costs such as indirect labor costs,
including work given by supervisors, and factory materials required for production, such as packing
material, and labels. Factory insurance, depreciation of production equipment, and commissions paid
to employees who promote SABIC products are some of the indirect overhead cost. SABIC
calculates the allocation rates for each supervisor’s salary, marketing commission, and cost of
supplies such as package labels by dividing the estimated overhead cost dividend by the allocation
base’s estimated quantity. The same formula is used to calculate the actual allocation rate. SABIC
uses this method to maintain effective cost control and accurate planning for future projects.
Q5. A company uses a process costing system for its sole processing department. There were
4,000 units in the beginning WIP inventory for June and 36,000 units were started in June. The
beginning WIP units were 60% complete and the 3,250 units in the ending WIP were 40%
complete. All materials are added at the start of processing.
1, Week 5)
Required:
a) Compute the no. of units started & completed.
b) Compute the EUP for DM and CC using FIFO and WA methods.
Answer:
a).
Units Started & Completed = Units Started – Ending WIP
Therefore, Unit started & Completed = 36,000 – 3,250 = 32,750
b).
(4 Marks) (Chapter 6 Part
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The equivalent Unit of Production (EUP) for DM =
Physical
Equivalent
Unit Summary
Units
Units(DM)
Beginning WIP
4,000
4,000
This period work
Complete Beginning WIP
4,000
Start & Complete
32,750
32,750
Ending WIP
3,250
3,250
FIFO Equivalent Units
40,000
36,000
WA Equivalent Units(With Beg
WIP)
40,000
Equivalent
Units(CC)
100%
2,400
60%
0%
100%
100%
40%
100%
40%
1,600
32,750
1,300
35,650
38,050
i).
The equivalent units (EUP) for DM using the FIFO method = Start & Complete units + Ending
WIP
So, EUP for DM using the FIFO method = 32,750 + 3,250 = 36,000
EUP for DM using WA method = FIFO Equivalent + Beginning WIP
So, EUP for DM using the WA method = 36,000 + 4,000 = 40,000
ii).
The equivalent units EUP for CC = Complete Beginning WIP + Complete & Beginning WIP ×
1- (Percent of completion) + Ending WIP × Percentage of completion
So, EUP for CC using FIFO method = 4,000 × (1-60%) + 32,750 + 3,250 × 40% = 35,650
EUP for CC using WA method = FIFO Equivalent + Beginning WIP
So, EUP for CC using the WA method = 35,650 + (4000 × 60%) =38,050.
College of Administration and Finance Sciences
References
Banker, R. D., Byzalov, D., Fang, S., & Liang, Y. (2018). Cost management research. Journal of
Management Accounting Research, 30(3), 187-209.
Hansen, D. R. (2009). Cost management accounting and control. South-Western.