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Internal
Assignment Applicable for April 2018 Examination
Cost & Management Accounting
1. The board of
directors of your company is concerned about certain recent issues in the company.
Recently the company has been losing bids in tenders it thought were low, while
it has won a few bids it thought were high. The company has lately diversified into
new markets and introduced new product lines. Goods have become complex, requiring
many inputs and processes. The operations of the company have changed
significantly, but the costing system has not changed. The Board has approached
you to look into the above issues. Critically analyze the issues at hand, and
suggest a suitable roadmap for the company to revamp its costing system.
2. A company has capacity
to produce 100000 units of a product in a year, but due to lack of adequate
demand, it is producing only 80000 units / year. The product sells at Rs. 50
per unit. The following details are available regarding the unit costs of the
product:
Direct Material –
Rs. 20
Direct Wages – Rs.
12
Fixed Factory
Overhead – Rs. 2
Variable Factory
Overhead – Rs. 2
Administrative
Expenses – Rs. 3
Fixed selling and
distribution overheads – Rs. 1
Variable selling
and distribution overheads – Rs. 2
The company has
recently received a special onetime order from a foreign client. The order size
is 15000 units, and the client will pay Rs. 40 per unit. Should the company
accept the order? Would your opinion change if the order had come from a
regular domestic distributor of the product?
3 a) A company uses a
pre-determined overhead rate for production orders on a labour cost basis of
Department I and machine hour basis for the Department II. At the beginning of
2016, the company made the following estimates:
Department I
Department II
Direct Labour Cost
(Rs.)
5000
2500
Factory Overheads
(Rs.)
7500
12500
Direct Labour Hours
4000
1250
Machine Hours
250
5000 Job order no XYZ
shows the following details of cost incurred during 2016 in its completion.
Department I
Department II
Materials Required
(Rs.)
2
10
Direct Labour Cost
(Rs.)
5
7
Direct Labour Hours
4
5
Machine Hours
1
13
Assuming that the job
No. XYZ consists of 16 units of the finished product; calculate the unit cost
of the job.
3 b) For the above
company, it was found that at the end of 2016 actual factory overhead cost
amounted to Rs.8000 for Department I and Rs. 12200 for Department II. Calculate
under or over-absorbed overheads.
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