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Cost Accounting

Q1. What is the process of identifying activities in an organisation and assigning costs under the Activity Based Costing (ABC) system? Elucidate. You will need to include the right numerical examples to support your answer. (2 Marks) (Chapter 7, Week 7)

Answer:

Q2. PPLC Company has two support departments, SD1 and SD2, and two operating departments, OD1 and OD2. The company decided to use the direct method and allocate variable SD1 dept. costs based on the number of transactions and fixed SD1 dept. costs based on the number of employees. SD2 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 information is provided: (4 Marks) (Chapter 8, Week 10)

Support Departments

Operating Departments

SD1

SD2

OD1

OD2

Total Department variable costs

18,000

19,000

51,000

35,000

Total department fixed costs

20,000

24,000

56,000

30,000

Number of transactions

200

100

Number of employees

Number of service requests

Number of computers

You are required to allocate variable and fixed costs using direct method.

Answer:

Q3. What are an organization's outsourcing decisions and constrained resource decisions? Provide a suitable numerical example of these decisions and explain how quantitative and qualitative considerations support a company's decision-making process.

(2 Marks) (Chapter 4, Week 9)

Note: Your answer must include suitable numerical examples. You are required to assume values of your own, and they should not be copied from any sources.

Answer:

Q4. VBN plastic industry makes three plastic toys: T1, T2, and T3. The joint costs of the three products in 2017 were SAR 120,000. The total number of units for each product and the selling price per unit is given below:(3 Marks) (Chapter 9, Week 11)

Product

Units

Selling Price per unit

45,000

SAR 15

26,000

SAR 14

18,000

SAR 10

You are required to allocate the joint costs to each product using the physical volume method and sales value at the split-off method.

Answer:

Q5. MN&M Corporation is preparing a budget for 2018. The company provides you with the following details which will help you to prepare the budget:

(4 Marks) (Chapter 10, Week 12)

Budgeted selling price per unit = SAR 500 per unit

Total fixed costs = SAR 150,000

Variable costs = SAR 100 per unit

Full Answer Section

Quantitative Considerations:

Cost comparison:
- In-house production cost per unit: $5 (variable) + ($10,000 fixed cost / 2,000 units) = $7.50
- Outsourced cost per unit: $4.50 In this case, outsourcing appears cheaper by $3 per unit.

Qualitative Considerations:

Quality Control:Can the quality of the outsourced keyboards be maintained?
Lead Time:Will the supplier be able to deliver keyboards on time to meet production needs?
Intellectual Property:Does outsourcing the keyboard design pose a risk of losing control over intellectual property?

Based on the cost comparison alone, outsourcing seems favorable. However, the qualitative factors need to be weighed as well. If maintaining high-quality standards is crucial, and there are concerns about the supplier's reliability, the company might decide to keep keyboard production in-house despite the higher cost. Constrained Resource Decisions: These involve making optimal use of limited resources within a company. This can involve deciding how to allocate resources (like labor or equipment) among different products or projects to maximize profit or output. Numerical Example: A bakery has two ovens with different baking times. Oven A takes 30 minutes to bake a loaf of bread, while Oven B takes 45 minutes. The bakery receives an order for 100 loaves of bread with a deadline of 2 hours. Quantitative Considerations:

Production Capacity:How many loaves can be baked in each oven within the time constraint?

Qualitative Considerations:

Energy Efficiency:Which oven is more energy-efficient for baking large quantities?
Maintenance Needs:Is one oven more prone to breakdowns that could disrupt production?

In this scenario, the bakery needs to determine how to allocate the bread order between the ovens to meet the deadline. While Oven A has a faster baking time, it might not have the capacity to handle the entire order. Factors like energy efficiency and maintenance needs could also influence the decision. Conclusion: Both outsourcing decisions and constrained resource decisions require analyzing quantitative and qualitative factors to make optimal choices for a company's needs.

Sample Answer

Outsourcing Decisions vs. Constrained Resource Decisions

Outsourcing Decisions:

These involve determining whether a company should produce a good or service internally (in-house) or acquire it from an external provider (outsource it). The decision hinges on a cost-benefit analysis that considers both quantitative and qualitative factors.

Numerical Example:

A company manufactures computer parts. They are considering outsourcing the production of their keyboards. Currently, the variable cost to produce a keyboard in-house is $5 per unit, and the fixed cost associated with keyboard production is $10,000 per month. An external supplier has offered to produce the keyboards for $4.50 per unit. The company expects to produce 2,000 keyboards per month.

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Cost Accounting

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Outsourcing Decisions vs. Constrained Resource Decisions

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