Overview
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Assignment 1 covers the following CLO.
1.1 Discuss cost concepts, classifications, behavior, and cost flows used in different cost accounting systems.
2.1 Analyze cost behavior and estimate cost functions for managerial decision-making.
2.2 Apply cost-volume-profit (CVP) analysis to assess the effects of changes in volume, costs, and prices on profitability.
NOTE : Each question has 3 marks
Assignment Questions
QI. Decision processes need to differentiate between relevant information and irrelevant information; discuss the criteria used to classify costs and cash flows into relevant and irrelevant .
Answer
Q 2. A manufacturing company has the following information on its general ledger.
Expense | Variable | Fixed |
Direct Materials | 300,000 | |
Direct Labor | 200,000 | |
Rent | 10,000 | |
Insurance | 5,000 | |
Commissions | 100,000 | |
Property Tax | 10,000 | |
Telephone | 5,000 | |
Depreciation | 50,000 | |
Power & Light | 20,000 | |
Admin Salaries | 50,000 | |
Total | 600,000 | 150,000 |
The total production units are 5000 units.
Required
a) write the cost function for the company using the above information .
b) solve the cost function if the number of units for the coming year is 5500 units.
Answer
Q 3. You are given the following regression results to evaluate each model and choose the best one.
Model | Intercept | Cost driver-Slope | T test | ||
Parameter | P value | Parameter | P value | ||
Model 1 Adjusted R square 70% | 2500 | 0.000 | 4.2 | 0.14 | 40 |
Model 2 Adjusted R square 60% | 3000 | 0.15 | 5. 2 | 0.03 | 30 |
Model 3 Adjusted R square 50% | 4000 | 0.03 | 6.3 | 0.08 | 15 |
Model 4 Adjusted R square 90% | 5,000 | 0.000 | 5.5 | 0.000 | 30 |
Model 5 Adjusted R square 90% | -7000 | 0.000 | 5.8 | 0.000 | 12 |
Answer
4. Ibrahim’s Company makes high quality cases for laptops that sell for SAR 300. The variable costs per briefcase are SAR 150, and the total fixed costs are SAR 350,000.
Required:
a) Calculate the contribution margin.
b) Calculate the contribution margin ratio.
c) Calculate the break even in units.
d) Calculate the break even in SAR .
Answer:
5. Ibrahim’s Manufacturing company makes road paving equipment. At the beginning of the year, overhead costs were estimated to be SAR 500,000. However, actual overhead was SAR 510,000. Chausse uses direct labor hours as the cost allocation base. At the beginning of the year, total direct labor hours were estimated at 15,000 hours, but actual direct labor hours for the year totaled 13,000 hours.
Required:
a) Compute The Actual Overhead Rate.
b) The Estimated Overhead Rate.