JUBAIL UNIVERSITY COLLEGE
DEPARTMENT OF BUSINESS ADMINISTRATION
SEMESTER- 332 (2013)
BUS 224: Cost Accounting
Assignment 2
Submission Date: 26th April 2013 (Week 12 Wednesday)
Submitted to: Mrs. Zakiya Abdul Samad
Submitted by:
1. ____________________________
2. ____________________________
Page 2 of 12
1. Joy Land and Snow Company provides the following ABC costing information:
Activities
Labor hours
Gas
Invoices
Total costs
Total Costs
SR320,000
SR36,000
SR40,000
SR396,000
Activity-cost drivers
8,000 hours
6,000 gallons
2,500 invoices
The above activities used by their three departments are:
Labor hours
Gas
Invoices
Lawn Department Bush Department Plowing Department
2,500 hours
1,200 hours
4,300 hours
1,500 gallons
800 gallons
3,700 gallons
1,600 invoices
400 invoices
500 invoices
a) How much of the labor cost will be assigned to the Lawn Department?
SR 100,000
b) How much of the gas cost will be assigned to the Plowing Department?
SR 22,200
c) How much of invoice cost will be assigned to the Bush Department?
SR. 6,400
d) How much of the gas cost will be assigned to the Lawn Department?
SR. 9,000
e) How much of the total cost will be assigned to the Plowing Department?
SR. 202,200
f) How much of the total costs will be assigned to the Lawn Department?
SR 134,600
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2. Janadriya Printers has contracts to complete weekly supplements required by forty-six
customers. For the year 2010, manufacturing overhead cost estimates total SR840,000 for
an annual production capacity of 12 million pages.
For 2010 Janadriya Printers has decided to evaluate the use of additional cost pools. After
analyzing manufacturing overhead costs, it was determined that number of design changes,
setups, and inspections are the primary manufacturing overhead cost drivers. The following
information was gathered during the analysis:
Cost pool
Manufacturing overhead costs
Activity level
Design changes
SR 120,000 300 design changes
Setups
640,000
5,000 setups
Inspections
80,000 8,000 inspections
Total manufacturing overhead costs
SR840,000
During 2010, two customers, Money Managers and Hospital Systems, are expected to use the
following printing services:
Activity
Pages
Design changes
Setups
Inspections
Money Managers Hospital Systems
60,000
76,000
10
0
20
10
30
38
a) Assuming activity-cost pools are used, what are the activity-cost driver rates for design
changes, setups, and inspections cost pools?
SR 400 per Design
SR. 128 per Set up
SR. 10/ inspection
b) Using the three cost pools to allocate overhead costs, what is the total manufacturing overhead
cost estimate for Money Managers during 2010?
Explanation:
SR. 6,860
Page 4 of 12
3. Wadha Company manufactures two models of grooming stations, a standard and a deluxe
model. The following activity and cost information has been compiled:
Product
Standard
Deluxe
Overhead costs
Number of
Setups
3
7
Number of
Components
30
50
SR40,000
SR120,000
Number of
Direct Labor Hours
650
150
Assume a traditional costing system applies the SR160,000 of overhead costs based on direct
labor hours.
a. What is the total amount of overhead costs assigned to the standard model?
SR 130,000
b. What is the total amount of overhead costs assigned to the deluxe model?
SR. 30,000
Assume an activity-based costing system is used and that the number of setups and the number
of components are identified as the activity-cost drivers for overhead.
c. What is the total amount of overhead costs assigned to the standard model?
SR. 57,000
d. What is the total amount of overhead costs assigned to the deluxe model?
SR 103,000
e. Explain the difference between the costs obtained from the traditional costing system and
the ABC system. Which system provides a better estimate of costs? Why?
Page 5 of 12
4. Hobbie’s produce and sells a luxury pillow for SR80.00 per unit. In the first month of
operation, 3,000 units were produced and 2,250 units were sold. Actual fixed costs are
the same as the amount budgeted for the month. Other information for the month
includes:
Variable manufacturing costs
Variable marketing costs
Fixed manufacturing costs
Administrative expenses, all fixed
Ending inventories:
Direct materials
WIP
Finished goods
SR38 per unit
SR 2 per unit
SR60,000 per month
SR12,000 per month
-0-0750 units
a) What is cost of goods sold per unit when using absorption costing?
SR. 58 / unit
b) What is gross margin when using absorption costing?
SR. 49,500
c) What is operating income when using absorption costing?
SR. 33,000
5. Colu Company sells its products for SR33 each. The current production level is 50,000
units, although only 40,000 units are anticipated to be sold.
Unit manufacturing costs are:
Direct materials
Direct manufacturing labor
Variable manufacturing costs
Total fixed manufacturing costs
Marketing expenses
SR6.00
SR9.00
SR4.50
SR180,000
SR3.00 per unit, plus SR60,000 per year
Page 6 of 12
Required:
a. Prepare an income statement using absorption costing.
Operating Income
SR. 216,000
b. Prepare an income statement using variable costing.
Operating Income
SR. 180,000
Page 7 of 12
6. Smart Enterprises produces a specialty statue item. The following information has been
provided by management:
Actual sales
Budgeted production
Selling price
Direct manufacturing costs
Fixed manufacturing costs
Variable manufacturing costs
Variable administrative costs
300,000 units
320,000 units
SR34 per unit
SR9 per unit
SR5 per unit
SR4 per unit
SR2 per unit
Required:
a. What is the cost per statue if absorption costing is used?
SR. 18 per statue
b. What is the cost per statue if "super-variable costing" is used?
SR. 9 per Statue
c. What is the total throughput contribution?
SR. 7,500,000
Page 8 of 12
7. Clothes, Inc., has an average annual demand for red, medium polo shirts of 25,000 units.
The cost of placing an order is SR80 and the cost of carrying one unit in inventory for
one year is SR25.
Required:
a. Use the economic-order-quantity model to determine the optimal order size.
400 units
b. Determine the reorder point assuming a lead time of 10 days and a work year of 250
days.
1,000 units
c. Determine the safety stock required to prevent stockouts assuming the maximum lead
time is 20 days and the maximum daily demand is 125 units.
1500 units
Page 9 of 12
8. An inventory item of XYZ Manufacturing has an average daily demand of 10 units with a
maximum daily demand of 12 units. The economic order quantity is 200 units. Without
safety stocks, the reorder point is 50 units. Safety stocks are set at 94 units.
Required:
a. Determine the reorder point with safety stocks.
144 units
b. Determine the maximum inventory level.
294 units
c. Determine the average lead time.
5 days
d. Determine the maximum lead time.
12 days
Page 10 of 12
9. For supply item ABC, Zenith Company has been ordering 125 units based on the
recommendation of the salesperson who calls on the company monthly. A new
purchasing agent has been hired by the company who wants to start using the economicorder-quantity method and its supporting decision elements. She has gathered the
following information:
Annual demand in units
Days used per year
Lead time, in days
Ordering costs
Annual unit carrying costs
250
250
10
SR100
SR20
Required:
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point,
annual ordering costs, and annual carrying costs.
EOQ – 50 Units
Average Inventory – 25 Units
Orders per Year – 5 Orders
Average Daily Demand – 1 Unit
Reorder Point – 10 Units
Annual Ordering Costs - SR. 500
Annual Carrying Costs – SR. 500
Page 11 of 12
10. Short Grass co., is a distributor of golf balls. Dana's Golf Supplies is a local retail outlet
which sells golf balls. Dana's purchases the golf balls from Short Grass co. at SR0.75 per
ball; the golf balls are shipped in cartons of 72. Short Grass co. pays all incoming freight,
and Dana's Golf Supplies does not inspect the balls due to Short Grass' reputation for
high quality. Annual demand is 155,520 golf balls at a rate of 2,991 balls per week.
Dana's Golf Supplies earns 12% on its cash investments. The purchase-order lead time is
one week. The following cost data are available:
Relevant ordering costs per purchase order
Carrying costs per carton per year:
Relevant insurance, materials handling,
breakage, etc., per year
SR125.00
SR 0.77
a) If Dana's makes an order (1/12 of annual demand) once per month, what are the relevant
total costs?
SR. 2152.5
b) What is the economic order quantity?
273 Cartons
c) Purchasing at the EOQ recommended level, how many deliveries will be made during
each time period?
7.91 orders
d) Purchasing at the EOQ recommended level, what are the relevant total costs?
SR. 1978.6
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