PAF – Karachi Institute of Economics and Technology City Campus
Course: Managerial Accounting
Faculty: Humayun Fareed Uddin
Class ID: 106689
Examination: Final SPRING 2021
Date: 09-05-2021
Total Marks: 25
Max. Time: 3 Hours (10 M TO 1 PM)
Q1
RELAVENT COST DM
Sunbelt Company produces 100,000 automatic blenders per month, which is 80 percent of plant capacity.
Variable manufacturing costs are $8 per unit. Fixed manufacturing costs are $400,000, or $4 per unit. The
blenders are normally sold directly to retailers at $20 each. Sunbelt has an offer from Mexico Co. (a
foreign wholesaler) to purchase an additional 2,000 blenders at $11 per unit. Acceptance of the offer
would not affect normal sales of the product, and the additional units can be manufactured without
increasing plant capacity. What should management do?
(Marks -3)
Q2
TARGET COST
KRC Phones, Inc. is considering introducing a fashion cover for its phones. Market research indicates that
200,000 units can be sold if the price is no more than $20. If Fine Line decides to produce the covers, it
will need to invest $1,000,000 in new production equipment. Fine Line requires a minimum rate of return
of 25% on all investments. Determine the target cost per unit for the cover?
(Marks -3)
Q3
Comparison of traditional product costing with ABC
Having knowledge and attended managerial accounting topic on activity based costing (ABC) you decide
to experiment by applying the principles of ABC to the four products currently made and sold by your
company. Details of the four products and relevant information are given below for one period.
Product
A
B
C
D
Output in units
Cost per unit
120
Rs.
100
Rs.
80
Rs.
120
Rs.
Direct Material
Direct Labour
Machine hours (per Unit)
40
28
4
50
21
3
30
14
2
60
21
3
The four products are similar and are usually produced in production runs of 20 units and sold in batches
of 10 units.
The production overhead is currently absorbed by using a machine hour rate, and the total of the
production overhead for the period has been analysed as followed.
________________________________________________________
RS_____
Machine department cost (rent, business rates, depreciation
And supervision)
Set-up cost
Stores receiving
Inspection / Quality control
Material handling and dispatch
10,430
5,250
3,600
2,100
4,620
You have ascertained that the “cost drivers” to be used are as listed below for the overhead cost shown.
Cost
Set up cost
Stores receiving
Inspection / Quality control
Material handling and dispatch
Cost Drivers
Number of production runs
Requisitions raised
Number of production runs
Orders executed
The number of requisitions raised on the stores was 20 for each product and the number of orders
executed was 42, each order being for a batch of 10 of a product.
Required.
(a) To calculate the total cost for each product if all overhead cost are absorbed on a machine hour
basis.
(b) To calculate the total cost for each product, using activity-based costing.
(c) To calculate and list the unit product cost from your figures in (a) and (b) above, to show the
differences and to comment briefly on your conclusions.
(Marks -6)
CVP ANANLYSIS / BREAK EVEN POINT / COGS & MANAGEMETN DEICISION.
Q4
Battonkill Company, operating at full capacity, sold 112,800 units at a price of $150 per unit during 2019.
Its income statement for 2019 is as follows:
Sales . . . . . . . . . . . . . . . . . . . ……. . . . $16,920,000
Cost of goods sold . . . . . . . . . . . . .
6,000,000
Gross profit . . . . . . . . . . . . …... . . . . . $10,920,000
Expenses:
Selling expenses . . . . . ……….. . . . . . . $3,000,000
Administrative expenses . . . . . . .
1,800,000
Total expenses . . . . . . . . . . . .
4,800,000
Income from operations . . . . . . . . . $6,120,000
The division of costs between fixed and variable is as follows:
Fixed
Variable
Cost of sales
40%
60%
Selling expenses
50%
50%
Administrative expenses
70%
30%
Management is considering a plant expansion program that will permit an increase of $1,500,000 in
yearly sales. The expansion will increase fixed costs by $200,000, but will not affect the relationship
between sales and variable costs.
Required:
a. Do you think the income statement presented above helps Battonkill Company to answer the
following requirements if no how this income statement shall be presented
b. Compute the break-even sales (units) for 2019.
c. Compute the break-even sales (units) under the (proposed) program.
d. Determine the amount of sales (amount) that would be necessary under the proposed
program to realize the $6,120,000 of income from operations that was earned in 2019.
e. Determine the maximum income from operations possible with the expanded plant.
f. If the proposal is accepted and sales remain at the 2019 level, what will the income?
or loss from operations is for 2020?
(Marks -7)
DM PROFIT OPIMIZATION
LIMITING FACTOR
Q5
(Marks -6)
XYZ Corporation produces and sells three products: tablets, mobiles and watches. Data related to three
products is as follows:
Tablets
Mobiles
Watches
Sales (Units)
800
200
200
Price per unit
$100.00
$50.00
$40.00
Variable cost per unit
60.00
20.00
30.00
Machine hours per unit
10 Hours
5 Hours
4 Hours
Labor hours per unit
15 Hours
10 Hours
5 Hours
XYZ Corporation is available with 8,000 machine hours and 16000 hours of labor to meet the demand
of all products. Fixed cost for the period is $ 45,000. Determine the best sales mix for XYZ Corporation
by identifying the limiting factor and find out the profit.
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