Case let No-1
Mobile Tech manufactures mobile modems. It manufactures its own mobile modem circuit boards
(MMCB), an important part of the mobile modem. It reports the following cost information about the
costs of making MMCBs in 2011and the expected costs in 2012:
Current costs in 2011 Expected costs in 2012
Variable manufacturing costs
Direct material cost per MMCB
Direct manufacturing labor cost per MMCB
$180
$170
50
45
1600
1500
Variable manufacturing cost per batch for set-up,
Materials handling and quality control
Fixed manufacturing cost
Fixed manufacturing overhead costs that can be avoided
If MMCBs are made
320000
320000
800000
800000
Fixed manufacturing overhead costs of plant
Depreciation, insurance and administration that
Cannot be avoided even if MMCBs are not made
Mobile Tech manufactured 8000 NNCBs in 2011 in 40 batches of 200 each. In 2012, Mobile Tech
anticipates needing 10000 MMCBs. The MMCBs would be produced in 80 batches of 125 each.
Cellparts Ltd has approached Mobile Tech about supplying MMCBs to Mobile Tech in 2012 at $300 per
MMCB on whatever delivery schedule Mobile Tech wants.
Required:
1. Calculate the total expected manufacturing cost per unit of making MMCBs in 2012.
2. Suppose the capacity currently used to make MMCBs will become idle if Mobile Tech
purchase MMBCBs from Cellparts. On the basis of financial considerations alone, should
Mobile Tech make MMCBs or buy them form Cellparts? Show your calculations.
3. Now suppose that if Mobile Tech purchases MMCBs from Cellparts, its best alternative use
of the capacity currently used for MMCBs is to make and sell special circuit boards (Cb3s) to
Chan Ltd. Mobile Tech estimates the following incremental revenues and costs from CB3s:
Total expected incremental future revenues
$2000000
Total expected incremental futures costs
$2150000
On the basis of financial considerations alone, should Mobile Tech make MMCBs or buy them from
Cellparts? Show your calculations.
Case let No. 2
Shahre Naw Ltd. is working at full production capacity producing 10000 units of a product, Football.
Manufacturing cost per unit for Football is as follows:
Direct Materials
$2
Direct manufacturing labor
3
Manufacturing overhead
5
Total manufacturing cost
10
Manufacturing overhead cost per unit is based on variable cost per unit of $2 and fixed costs of $ 30000
(at full capacity of 10000 units). Marketing cost per unit, all variable is $ 4 and the selling price is $ 20.
A customer, Mazar Sports Ltd. has asked Share Naw Ltd. to produce 2000 units of Volleyballs, a
modification of Football. Volleyballs would require the same manufacturing processes as Football.
Mazar Sports Ltd has offered to pay Shahre Naw Ltd $ 15 for a unit of Volleyball plus half of the
marketing cost per unit.
Required:
1. What is the opportunity cost of Shahre Naw Ltd of producing the 2000 Volleyballs?
2. Zabul Sports Ltd has offered to produce 2000 units of Football for Shahre Naw Ltd so that it may
accept Mazar Sports Ltd offer. That is, if Share Naw Ltd accepts Zabul Ltd offer, Shahre Naw Ltd
would manufacture 8000 units of Football and 2000 units of Volleyballs and purchase 2000 units of
Football from Zabul Lt. Zabul Ltd would charge Share Naw Ltd $ 14 per unit to manufacture
Footballs. On the basis of financial considerations alone, should Shahre Naw Ltd accept Zabul Ltd’s
offer? Show you calculations.
3. Suppose Shahre Naw Ltd had been working at less than full capacity, producing 8000 units of
Football at the time the Mazar Sports Ltd offer was made. Calculate the minimum price Shahre
Naw Ltd should accept for Volleyballs under these conditions. (Ignore the previous $15 selling
price)
Case let No. 3
Make versus Buy, Activity-Based Costing, Opportunity Costs.
Afghan Ltd produces bicycles. This year’s expected production is 10000 units. Currently, Afghan Ltd makes
the chains for its bicycles. Afghan Ltd’s management accountant reports the following costs for making the
10000 bicycles chains:
Cost per unit:
Costs for 10000 units
Direct Materials:
4.000
40000
Direct Manufacturing labour:
2.00
20000
Variable mfg. Overhead (Power and utilities):
1.50
15000
Inspection, set-up, materials handling:
2000
Machine rent:
3000
Allocated fixed costs of plant administration, taxes and insurance:
30000
Total costs:
110000
Afghan Ltd has received an offer from an outside vendor to supply any number of chains Afghan Ltd requires
at 8.20 per chain. The following additional information is available:
a.
Inspection, set-up and materials-handling costs vary with the number of batches in which the chains are
produced. Afghan Ltd produces chains in batch sized of 1000 units. Afghan Ltd will produce the 10000 units
in 10 batches.
b. Afghan Ltd rents the machine used to make the chains. If Afghan Ltd buys all of its chains from the outside
vendor, it does not need to pay rent on this machine.
Required
1. Assume that if Afghan Ltd purchases the chains from the outside vendor the facility where the chains are
currently made will remain idle,. On the basis of financial considerations alone, should Afghan Ltd accept the
outside vendor’s offer tat the anticipated production (and sales) volume of 10000 units?
Show your
calculations.
2. For this question, assume that if the chains are purchase outside, the facilities where the chains are currently
made will b e used to upgrade the bicycles by adding mud flaps and reflectors. As a consequence, the selling
price of bicycles will be raised by 20. The variable cost per unit of the upgrade would be 18, and additional
tooling cost of 16000 would be incurred. On the basis of financial consideration, alone, should Afghan Ltd
make or buy the chains, assuming that 10000 units are produced (and sold)? Show your calculations.
3. The sales manager at Afghan Ltd is concerned that the estimate of 10000 units may be high and believes that
only 6200 units will be sold. Production will be cut back, freeing up work space. This space can be used to
add the mud flaps and reflectors whether Afghan Ltd buys the chains or makes them in-house. At this lower
output; Afghan Ltd will produce the chains in 8 batches of 775 units each.
On the basis of financial
considerations alone, should Afghan td purchase the chains form the outside vendor? Show your calculations.
Case let No. 4
Department no.2 of Kabul Corporation has reported the following production data for January
2014.
Transferred in from Department 1
55000 litters
Transferred out to Department 3
39500 litters
Units in Process at end of December (with 1/3 labor and FOH)
10500 litters
All materials were put into process in Department 1.
The Cost data are as followed:
Unit cost for units transferred in from Department 1
1.80
Labor cost in Department 2
27520
Applied factory overhead
15480
Required:
Cost of Production Report for Department 2 for January 2014.
Case let No. 5
B & M Ltd Company uses a process cost system. The costs of department 2 for the month were as
follows:
Cost from the preceding dept.
20000
Cost added by the department:2
Materials
21816
Labour
07776
Factory overhead
04104
33696
The following information were obtained from the department’s quantity schedule:
Units received
5000
Units transferred out 4000
Units in process
1000
In the in process units only 320 units are completed as for as material, labour and factory
overhead is concerned.
Required:
Prepare the process cost sheet of department 2.
Case let No. 6
The controller of Best Corporation has predicted the following costs at various levels of Juice
output.
Juice Output (0.75-Liter Bottles)
10000 Bottles
15000 Bottles
20000 Bottles
Variable production costs……$ 35000
$ 52500
$ 70000
Fixed production costs……… 100000
100000
100000
Variable selling and adm. costs…2000
3000
4000
Fixed selling and adm. costs… .40000
40000
40000
Total………………………….177000
195500
214000
The company’s marketing manager has predicted the following prices for the firm’s fine juices at
various levels of sales.
Juice sales
10000 Bottles
Sales price per 0.75-liter bottle………….$ 18
15000 Bottles
$ 15
20000 Bottles
$12
Required:
1. Calculate the unit costs of juice production and sales at each level of output. At what level
of output is the unit cost minimized?
2. Calculate the company’s profit at each level of production. Assume that the company will
sell all of its output. At what production level is profit maximized?
3. Which of the three output levels is best for the company?
4. Why does the unit cost of juice decrease as the output level increases? Why might sales
price per bottle decline as sales volume increases?
Case let No-7
Mr. Rahman is a successful Afghanistan’s orchard man who has formed his own company to
produce and package applesauce. Apples can be stored for several months in cold storage, so
applesauce production is relatively uniform throughout the year. The recently hired controller for
the firm is about to apply the high-low method in estimating the company’s energy cost behaviour.
The following costs were incurred during the past 12 moths:
Month
Pints of Applesauce Produced
Energy Cost ($)
January
35000
23400
February
21000
22100
March
22000
22000
April
24000
22450
May
30000
22900
June
32000
23350
July
40000
28000
August
30000
22800
September
30000
23000
October
28000
22700
November
41000
24100
December
39000
24950
Required:
1. Use the high-low method to estimate the company’s energy cost behavior and express it in
equation form.
2. Predict the energy cost for a month in which 26000 pints of applesauce are produced.
Case let-8
Maiwand Travels & Tours has incurred the following bus maintenance costs during the recent
tourist season.
Month
Miles Travelled
Cost
By Tour Buses
November
8500
11400 Afs.
December
10600
11600
January
12700
11700
February
15000
12000
March
20000
12500
April
8000
11000
Required:
1. Use the high-low method to estimate the variable cost per tour mile travelled and the fixed
cost per month.
2. Develop a formula to express the cost behavior exhibited by the company’s maintenance
cost.
3. Predict the level of maintenance cost that would be incurred during a month when 22000
tour miles and driven.
4. Build a spreadsheet: Construct an Excel spreadsheet to solve all the preceding
requirements. Show how the solution will change if the following information changes: in
March there were 21000 miles travelled and the cost was 12430 Afs.
Case let No. 9
Disk City, Inc. is a retailer for digital video disks. The projected net income for the current year is
200000 based on a sales volume of 200000 video disks. Disk City has been selling the disks for
16 each. The variable costs consist of the 10 unit purchase price of the disks and a handling cost
of 2 per disk. Disk City’s annual fixed costs are 600000.
Management is planning for the coming year, when it expects that the unit purchase price of the
video disks will increase 30 percent.
Required:
1. Calculate Disk city’s break-even point for the current year in number of video disks.
2. What will be the company’s net income for the current year if there is a 10 percent
increase in projected unit sales volume?
3. What volume of sales must Disk City achieve in the coming year to maintain the same net
income as projected for the current year if the unit selling price remains at 16?
4. In order to cover a 30 percent increase in the disk’s purchase price for the coming year and
still maintain the current contribution margin ratio, what selling price per disk must Disk
City establish for the coming year?
5. Build a spreadsheet: Construct an Excel spreadsheet to solve requirements 1, 2, 3, above.
Show how the solution will change if the following information changes: the selling price
is 17 and the annual fixed costs are 640000?
Case let No-10
CPC Company produced and sold 60000 backpacks ruing the year just ended at an average
price of 20 per unit. Variable manufacturing costs were 8 per unit and variable marketing cost
were 4 per unit sold. Fixed costs amounted to 180000 for manufacturing and 72000 for
marketing. There was no year end work in process inventory.
Required:
1. Compute the CPC Company’s break even point in sales dollars for the year.
2. Compute the number of sales units required to earn a net income of 180000 during the
year.
3. The Company’s variable manufacturing costs are expected to increase by 10 percent in the
coming year. Compute the firm’s break even point in sales dollars for the coming year.
4. If the company’s variable manufacturing cost do increase by 10 percent, compute the
selling price that would yield the same contribution margin ratio in the coming year.
Case let No-11
Silver Screen, Inc. owns and operates a nationwide chain of movie theatres. The 500
properties in the company vary from low-volume, small-town, single-screen theatres to highvolume, urban multi-screen theatres. The firm’s management is considering installing
popcorn machines, which would allow the theatres to sell freshly popped corn rather than prepopped corn. This new feature would be advertised to increase patronage at the company’s
theatres. The fresh popcorn will be sold for 1.75 per tub. The annual rental costs and the
operating costs vary with the size of the popcorn machines. The machine capacities and costs
are shown below:
Popper Model
Economy
Annual capacity….
45000 tubs
Regular
Super
90000 tubs
140000 tubs
Costs:
Annual machine rental
Popcorn cost per tub
Other cost per tub
Cost of each tub
8000
11000
20000
.13
.13
.13
1.22
1.14
1.05
.08
.08
.08
Required:
1. Calculate each theatre’s break even sales volume (measured in tubs of popcorn) for each
model of popcorn popper.
2. Calculate the volume at which he Economy Popper and the Regular Popper earn the same
profit or loss in each movie theatre.
Case let No-12
Jupiter Game Company sold 25000 games @ $ 25 each. Total costs amounted to $ 525000, of
which 150000 were fixed cost.
In an attempt to improve its product, the company is considering replacing a component part that
has a cost of $ 2.50 with a new and better part costing $ 4.50 per unit in the coming year. A new
machine also would be needed to increase plant capacity. The machine would cost $ 18000 with a
useful life of six years and no salvage value. The company uses straight line depreciation on all
plant assets.
Required:
1. What was Jupiter’s break even point in number of units?
2. How many units of product would the company have had to sell to earn $140000?
3. If management holds the sales price constant and makes the suggested changes, how many
units of product must be sold in the coming year to break even?
4. If the firm holds the sales price constant and makes the suggested changes how may units
of product will company have to sell to make the same net income as last year?
5. If Jupiter wishes to maintain the same contribution margin ratio, what selling price per unit
of product must it charge next year to cover the increase direct material cost?
Case let No-13
Condensed monthly income data for Watan Book Store are presented in the following table for
May-2014.
Mall Store
Downtown Store
Total
Sales
80000
120000
200000
Less: Variable expenses
32000
84000
116000
Contribution Margin
48000
36000
84000
Less: Fixed Costs
20000
40000
60000
Operating income
28000
(4000)
24000
Additional Information:



Management estimates that closing the downtown store would result in a 10 percent
decrease in mall store sales, while closing the mall store would not affect downtowns store
sales.
One-fourth of each store’s fixed expenses would continue through June 30, 2014, if either
store were closed.
The operating results for May 2014 are representative of all months.
Required:
1. Calculate the increase or decrease in the company’s monthly operating income during
2014 if the downtown store is closed.
2. The management of the company is considering a promotional campaign at the downtown
store that would not affect the mall store. Annual promotional expenses at the downtown
store would be increased by 60000 in order to increase downtown store sales by 10
percent. What would be the effect of this promotional campaign on the company’s
monthly operating income during 2014?
3. One-half of the downtown store’s dollar sales are from items sold at their variable cost to
attract customers to the store. The management is considering the deletion of these items,
a move that would reduce the downtown store’s direct fixed expenses by 15 percent and
result in the loss of 20 percent of the remaining downtown stores’ sales volume. This
change would not affect the mall store. What would be the effect on Watan’s monthly
operating income if the items sold at their variable cost are eliminated?
4. Construct an excel spreadsheet to solve all of the preceding requirements. Show how the
solution will change if the following information changes: the downtown store‘s sales
amounted to 126000 and its variable expenses were 86000.
Case let No-14
Empire Chemical Company produces three products using three different continuous processes.
The products are Alpha, Beta and Delta. Projected sales in gallons for the three products for the
year 2013 & 2014 are as follows:
2013
2014
Alpha
60000
65000
Beta
40000
35000
Delta
25000
30000



Inventories are planned for each product so that the projected finished goods inventory at
the beginning of each year is equal to 8 percent of that year’s projected sales.
Because of the continuous nature of Empire’s processes, work in process inventory for
each of the products remains constant throughout the year.
The raw material requirements of the three products are shown in the following chart.
Raw Material
Units
Unit Price
Alpha
A
pounds
8.00
B
pounds
C
D

Beta
Delta
0.2
0.4
-
6.00
0.4
-
0.5
gallons
5.00
1.0
0.7
0.5
gallons
10.00
-
0.3
0.5
Raw material inventories are planned so that each raw material’s projected inventory at
the beginning of a year is equal to 10 percent of the previous year’s usage of that raw
material.
The conversion requirements in hours per gallon for the three products are Alpha: 0.07
hour, Beta 0.10 hour and Delta 0.16 hour. The conversion cost of 20$ per hour is
considered 100 percent variable.
Required:
1. Determine Empire Chemical Company’s production budget (in gallons) for the three
products for 2013.
2. Determine the conversion cost budget for 2013.
3. Assuming the 2012 usage of Raw Material ‘C’ is 100000 gallons; determine the
company’s raw material purchases budget (in dollars) for C in 2013.
Case let No-15
Vista Electronics manufactures two different types of coils used in electric motors. In the spring
of current year, Ahmad Tamim, the controller, compiled the following data.

Sales forecast for 2014 (all units to be shipped in 2014):
Products
Units
Price
Light coil
60000
65
Heavy coil
40000
95

Raw material prices and inventory levels:
Expected Inventories
Desired Inventories
Anticipated
Raw Material
January, 1 2014
Sheet metal
32000 lb.
36000 lb.
8
Copper wire
29000 lb.
32000 lb.
5
Platforms
6000 units
7000 units
3

December 31, 2014
Purchase price
Use of raw material:
Amount Used Per Unit
Raw Material
Light Coil
Sheet metal
4 lb.
5 lb
Copper wire
2 lb
3 lb.
Platforms
-
1 unit

Product
Heavy Coil
Direct-labor requirements and rates:
Hours per Unit
Rate per Hour
Light coil
2
15
Heavy coil
3
20

Finished-goods inventories (in units):
Expected
Product
Desired
January 1, 2014
December 31, 2014
Light coil
20000
25000
Heavy coil
8000
9000

Manufacturing overheads:
Overhead Cost Item
Activity-Based Budget Rate
Purchasing and material handling………0.25 per pound of sheet metal and copper wire purchased
Depreciation, utilities and inspection…………………4.00 per coil produced (either type)
Shipping……………………………………………….1.00 per coil shipped (either type)
General manufacturing overhead……………………..3.00 per direct labor hour
Required:
1.
2.
3.
4.
5.
6.
Prepare the following budgets for 2014.
Sales budget (in dollars).
Production budget (in units).
Raw-material purchases budget (in quantities).
Raw-material purchases budget (in dollars).
Direct-labor budget (in dollars).
Manufacturing-overhead budget (in dollars).
Case let No-16
New Jersey Valve Company manufactured 7800 units during January of a control valve used by
milk processors in its Camden plant. Records indicated the following:
Direct labor…………………………………………………………40100 hr. at 14.60 per hr.
Direct material purchased…………………………………………25000 lb. at 2.60 per lb.
Direct material used……………………………………………………………23100 lb.
The control valve has the following standard prime cost:
Direct material………………………………………..3 lb at 2.50 per lb………….7.50
Direct labor……………………………………………..5 hr. at 15.00 per hr…….75.00
Standard prime cost per unit……………………………………………………....82.50
Required:
1. Prepare a schedule of standard production costs for January, based on actual productions
of 7800 units.
2. For the moth of January, compute the following variances, indicating whether each is
favourable or unfavourable.
a. Direct-material price variance
b. Direct-material quantity variance.
c. Direct-labor rate variance.
d. Direct-labor efficiency variance.
Case let No-17
Rocky Mountain Camping Equipment has established the following direct material standards for
its two products.
Standard Quantity
Standard camping tent
Deluxe backpacking tent
12 pounds
6 pounds
Standard Price
$ 6 per pound
$ 8 per pound
During March, the company purchased 2100 pounds of tent fabric for its standard model at a cost
of 13440. The actual March production of the standard tent was 100 tents, and 1250 pounds of
fabric were used. Also during March, the company purchased 800 pounds of tent fabric of its
deluxe backpacking tent at a cost of 6320. The firm used 720 pounds of the fabric during March
in the production of 120 deluxe tents.
Required:
1.
2.
Compute the direct material price variance and quantity variance for March.
Prepare journal entries to record the purchase of material, use of material, and incurrence of
variances in March.
Case let No-18
During May 2014, Jan Fabrics Corporation manufactured 500 units of a special multilayer fabric
with the trade name Stylex. The following information from the Stylex production department
also pertains to May 2014.
Direct Material purchased: 18000 yards at $ 1.38 per yard…….24840
Direct Material used: 9500 yards at $ 1.38 per yard…………….13110
Direct Labor: 2100 hours at $ 9.15 per hour…………………….19215
The standard prime cost for one unit of Stylex are as follows:
Direct Material: 20 yards at $ 1.35 per yard……………………..27
Direct Labor: 4 hours at $ 9.00 per hour…………………………36
Total standard prime cost per unit of output……………………$ 63
Required:
Compute the following variances for the month of May, indicating each variance is
favourable or unfavourable.
a.
b.
c.
d.
Direct material price variance.
Direct material quantity variance.
Direct labor rate variance.
Direct labor efficiency variance.
Case let No-19
Maiwand Company produces paper for photocopiers. The company has developed standard
overhead rates based on a monthly capacity of 180000 direct labor hours as follows:
Standard cost per unit (one box of paper)
Variable overhead (2 hours @ 3 $ per hour……………………………………………..……$ 6
Fixed overhead (2 hours @ $ 5 per hour)……………………………………………….…...$ 10
Total………………………………………………………………………..………….……….16
During April, 90000 units were scheduled for production: however, only 80000 units were
actually produced. The following data relate to April.
1. Actual direct labor cost incurred was $ 1567500 for 165000 actual hours of work.
2. Actual overhead incurred totalled $ 1371500 of which $ 511500 was variable and $
860000 was fixed.
Required:
Prepare two exhibits to show the following variances. State whether each variance is favourable
or unfavourable, where applicable.
1. Variable overhead spending variance.
3. Fixed overhead budget variance.
2- Variable overhead efficiency variance.
4- Fixed overhead volume variance.
Case let No-20
CompTech Inc. manufactures printers for use with home computing systems. The firm currently
manufactures both the electronic components for its printers and the plastic cases in which the
devices are enclosed. Mr. Ahmad, the production manager, recently received a proposal from
Universal Plastics Corporation to manufacture the cases for CompTech’s printers. If the cases are
purchased outside, CompTech will be able to close down its Printer Case Department. To help
decide whether to accept the bid from Universal Plastics Corporation, Ahmad asked CompTech’s
controller to prepare an analysis of the costs that would be saved if the Printer Case Department
were closed. Included in the controller’s list of annual cost savings were the following items:
Building rental (The Printer Case Department occupies one-sixth of the factory building,
which CompTech rents for $ 177000 per year)………………………………$29500
Salary of the Printer Case Department supervisor...........................................$50000
In a lunchtime conversation with the controller, Ahmad learned that CompTech was currently
renting space in a warehouse for $ 39000. The space is used to store completed printers. If the
Printer Case Department were discontinued, the entire storage operation could be moved into the
factory building and occupy the space vacated by the closed department. Ahmad also learned that
the supervisor would be assigned the job of managing the assembly department, whose supervisor
recently gave notice of his retirement. All of CompTech’s department supervisors earn the same
salary.
Required:
1. You have been hired as a consultant by Ahmad to advise him in his decision. Write a memo to
Ahmad commenting on the costs of space and supervisory salaries included I the controller’s
cost analysis. Explain in your memo about the ‘real’ costs of the space occupied by the Printer
Case Department and the supervisor’s salary. What types of costs are these?
2. Independent of your response to requirement (1), suppose that CompTech’s controller had been
approached by his friend Mr. Wasim, the assistant supervisor of the Printer Case Department.
Wasim is worried that he will be laid off if the Printer Case Department is closed down.
Wasim has asked his friend to understate the cost savings from closing the department, in order
to slant the production manger’s decision toward keeping the department in operation.
Comment on the Controller’s ethical responsibilities.