Students are required to criticize traditional methods and explain how is ABC being applied to a manufacturing company? What are the disadvantages of the ABC method? 

Assignment Question(s):  (Marks 15)

Q1.  What is the difference between the product cost and period cost? Give some examples for each type                                [2 marks]

Q 2. What do you mean by Variable and Absorption Costing? Explain both with suitable example.                                             [2 marks]

Q3. In cost accounting, direct costs are easily and economically traced to cost object. On the other hand, overheads cannot be economically traced to cost object. Therefore, allocating overheads is considered as the main problem in cost accounting, whereas traditional methods such as Single plantwide factory overhead rate method and Multiple production department factory overhead rate method have been used. In addition, developed methods such as Activity based costing method (ABC) has been used to enhance the allocation of overheads to cost object.

Students are required to criticize traditional methods and explain how is ABC being applied to a manufacturing company? What are the disadvantages of the ABC method?  [2 marks]

Q4.   The AMS Manufacturing Company uses a job costing system with machine hours as the allocation base for overhead.  The company uses normal costing to develop the overhead allocation rate.  The following data are available for the latest accounting period:

Estimated fixed factory overhead cost              SAR 160,000

Estimated machine-hours                                          100,000

Actual fixed factory overhead cost incurred     SAR 170,000

Actual machine-hours used                                       110,000

Jobs worked on:

Job No.                         Machine Hours Used

1020                                   12,000

1030                                   18,000

1040                                   15,000

1050                                   10,000

Compute the overhead allocation rate.           [1 mark]

Determine the overhead allocated to job 1040.           [1 mark]

Answer:

Q5.   Karim Surf Boards makes custom boards for professional surfers.  The boards vary according to the types of materials requested by customers and the amount of direct labor required for the finishing process.

The following costs are estimated for 2021:

Number of surf boards                           3,000

Direct labor hours                                45,000

Direct material cost                   SAR 175,000

Direct labor cost                        SAR 900,000

Overhead cost                           SAR 675,000

During 2021 actual costs were:

Number of surfboards                            3,300

Direct labor hours                                46,300

Direct materials                         SAR 185,000

Direct labor                               SAR 850,000

Overhead                                   SAR 664,000

Explain why job costing, and not process costing, should be used for this organization.    [1 mark]

Karim uses a normal costing system. Overheard is allocated on the basis of direct labor hours.  Calculate the manufacturing cost of a surfboard that takes SAR 150 of direct materials and 36 hours of direct labor.  [1 mark]

Answer:

Q6. Abdulkrim Company manufactures a product A.  The company estimates the cost function for the total costs. The cost driver is number of units.  The following  information were collected:

Month                     Units                                              Total Costs

January                     3,560                                      SAR 242,400

February                   3,800                                      SAR 252,000

March                       4,000                                      SAR 260,000

April                         3,600                                      SAR 244,000

May                          3,200                                      SAR 228,000

June                          3,040                                      SAR 221,600

Compute a cost function using the high-low method.                                                         [2 marks]

Q7. Ayob Company’s projected profit for the coming year is as follows:

Sales SAR 200,000 with Price per unit SAR 20, Total Variable cost SAR 120,000 with Variable cost per unit SAR 12 and fixed expenses are SAR 64,000

Compute the break-even point in units. [1.5 marks]

How many units must be sold to earn a profit of SAR 30,000? [1.5 marks]

Students are required to criticize traditional methods and explain how is ABC being applied to a manufacturing company? What are the disadvantages of the ABC method?