Question 1 CVP question Laila company has provided the following information about the company Sales $225,000 Sales Discount $20,000 Overhead cost (Fixed) $ 35,000 Overhead (Variable) $ 20,000 Sales Return /Allowance $2,500 Selling commission [variable ] $ 39,600 Supplies $2,600 Selling commission [fixed] $ 15,000 Prepaid expense $11,000 Variable admin expenses $ 24500 Accrued cost $7900 Fixed admin expenses $ 20,000 Tax 25% Interest expenses $5,420 Capacity of production 4,000 units Units sold 3,500 Units produced 3,500 Hint : all selling and admin costs are operating expenses REQUIRED 1. Calculate the net income using contribution approach 2. Calculate Net income using the absorption method [ Financial Accounting method] 3. Find CM per unit and the Contribution Margin Ratio 4. Determine the breakeven sales in units and dollars 5. Draw a graph to show the profit and lost and breakeven point for this company [BE graph] 6. Calculate margin of safety in dollars and in percentage . Explain what this concept means to a cost accountant. 7. The sales manager believes that a project of the company could increase sales by 25% but variable cost will also decrease by $5,000 and fixed cost will increase by $ 85,000. Should the company accept the project or reject ? 8. Determine the sales revenue necessary to generate before tax profit if the after tax is$75,000. The tax rate is 18% 9. Determine sales revenue necessary to generate after-tax profit of $85,000 . 10.Calculate degree of leverage [DOL] and if sales increases by 25%, what will be the increase or decrease in net income in $ of this company? What will be the total net income if the project is accepted [use original data in the beginning] QUESTION 2 ABC problem Company LSD LTD has 4 types of overhead . The four categories and expected costs for each category for next year are listed below Company LSD LTD Activity cost Setups cost $150,000 Inspection cost $90,000 Maintenance cost $120,000 Material Handling cost $ 82,000 Actual overhead Cost $30,000 Estimates for the proposed job [Job #23] are as follows Direct Materials $6,000 DL (1000 hours) $10,000 Machine Hours [maintenance cost] 500 # of material moves 12 # of setups 5 # of inspections 10 Units produced 240 The company has been asked to submit a bid for a proposed job. The plant manager thinks getting this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 30%. In the past , full manufacturing cost has been calculated by allocating overhead using volume based cost driver [[DLH]. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers. Expected activity for the four activity based cost drivers that would be used are : Cost Drivers Machine Hours 15,000 Material Moves 4,600 Setups 3,500 Quality Inspections 5,000 Required : Part 1 1. Calculate the predetermined rates using the Functional based costing . 2. Determine the amount of overhead that would be applied to the proposed project if Functional based costing method is used 3. Determine the total cost of the proposed job using ABC 4. Calculate the unit cost using FBC 5. What bid price is the company going to use according to its FBC policy? Part 2 1 Calculate the predetermined rates using the activity based costing . 2 Determine the amount of overhead that would be applied to the proposed project if activity based drivers are used 3 Determine the total cost of the proposed job using ABC . 4 Calculate the unit cost using ABC. 5 What bid price is the company going to use according to its policy? 6 Has the company over-applied or under-applied using FBC and ABC? How did you come to this conclusion? Question 3. Theory Questions A. Differentiate between Functional based Costing and Activity based costing B. What are the weaknesses of Functional based costing ? C. Give two examples of unit level drivers and two examples of non-unit level drivers and give a brief explanation for each. D. Mention three assumptions of CVP analysis E. Explain what the following measures indicate to the managers: i. Margin of Satety ii. Degree of Operating Leverage

ACC 320

Question 1

CVP question

Laila company has provided the following information about the company

Sales $225,000

Sales Discount $20,000

Overhead cost (Fixed) $ 35,000

Overhead (Variable) $ 20,000

Sales Return /Allowance $2,500

Selling commission [variable ] $ 39,600

Supplies $2,600

Selling commission [fixed] $ 15,000

Prepaid expense $11,000

Variable admin expenses $ 24500

Accrued cost $7900

Fixed admin expenses $ 20,000

Tax 25%

Interest expenses $5,420

Capacity of production 4,000 units

Units sold 3,500

Units produced 3,500

Hint : all selling and admin costs are operating expenses

REQUIRED

1. Calculate the net income using contribution approach

2. Calculate Net income using the absorption method [ Financial

Accounting method]

3. Find CM per unit and the Contribution Margin Ratio

4. Determine the breakeven sales in units and dollars

5. Draw a graph to show the profit and lost and breakeven point for this

company [BE graph]

6. Calculate margin of safety in dollars and in percentage . Explain what

this concept means to a cost accountant.

7. The sales manager believes that a project of the company could

increase sales by 25% but variable cost will also decrease by $5,000

and fixed cost will increase by $ 85,000. Should the company accept

the project or reject ?

8. Determine the sales revenue necessary to generate before tax profit

if the after tax is$75,000. The tax rate is 18%

9. Determine sales revenue necessary to generate after-tax profit of

$85,000 .

10.Calculate degree of leverage [DOL] and if sales increases by 25%,

what will be the increase or decrease in net income in $ of this

company? What will be the total net income if the project is

accepted

[use original data in the beginning]

QUESTION 2

ABC problem

Company LSD LTD has 4 types of overhead . The four categories and

expected costs for each category for next year are listed below

Company LSD LTD

Activity cost

Setups cost $150,000

Inspection cost $90,000

Maintenance cost $120,000

Material Handling cost $ 82,000

Actual overhead Cost $30,000

Estimates for the proposed job [Job #23] are as follows

Direct Materials $6,000

DL (1000 hours) $10,000

Machine Hours [maintenance cost] 500

# of material moves 12

# of setups 5

# of inspections 10

Units produced 240

The company has been asked to submit a bid for a proposed job. The plant

manager thinks getting this job would result in new business in future

years. Usually bids are based upon full manufacturing cost plus 30%.

In the past , full manufacturing cost has been calculated by allocating

overhead using volume based cost driver [[DLH]. The plant manager has

heard of a new way of applying overhead that uses cost pools and cost

drivers.

Expected activity for the four activity based cost drivers that would be used

are :

Cost Drivers

Machine Hours 15,000

Material Moves 4,600

Setups 3,500

Quality Inspections 5,000

Required :

Part 1

1. Calculate the predetermined rates using the Functional based costing

. 2. Determine the amount of overhead that would be applied to the

proposed project if Functional based costing method is used

3. Determine the total cost of the proposed job using ABC

4. Calculate the unit cost using FBC

5. What bid price is the company going to use according to its FBC

policy?

Part 2

1 Calculate the predetermined rates using the activity based costing .

2 Determine the amount of overhead that would be applied to the

proposed project if activity based drivers are used

3 Determine the total cost of the proposed job using ABC .

4 Calculate the unit cost using ABC.

5 What bid price is the company going to use according to its policy?

6 Has the company over-applied or under-applied using FBC and ABC?

How did you come to this conclusion?

Question 3.

Theory Questions

A. Differentiate between Functional based Costing and Activity

based costing

B. What are the weaknesses of Functional based costing ?

C. Give two examples of unit level drivers and two examples of

non-unit level drivers and give a brief explanation for each.

D. Mention three assumptions of CVP analysis

E. Explain what the following measures indicate to the managers:

i. Margin of Satety

ii. Degree of Operating Leverage