College of Administration and Finance SciencesAssignment (2)
Deadline: Saturday 04/05/2024 @ 23:59
Course Name: Cost Accounting
Student’s Name:
Course Code: ACCT 301
Student’s ID Number:
Semester: Second
CRN:
Academic Year: 1445 H
For Instructor’s Use only
Instructor’s Name:Rabab Farrash
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
College of Administration and Finance Sciences
Assignment Question(s):
(Marks 15)
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
30
40
200
100
Number of employees
14
18
35
30
Number of service requests
28
18
35
25
Number of computers
15
20
24
28
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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
T1
45,000
SAR 15
T2
26,000
SAR 14
T3
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:
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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
Required:
You are required to prepare a flexible budget for 1,000, 1,100, 1,200 and 1,300 units.
Answer:
College of Administration and Finance Sciences
Assignment (2)
Deadline: Saturday 04/05/2024 @ 23:59
Course Name: Cost Accounting
Student’s Name:
Course Code: ACCT 301
Student’s ID Number:
Semester: Second
CRN:
Academic Year: 1445 H
For Instructor’s Use only
Instructor’s Name: Dr. Shahid Husain
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be reduced for poor
presentation. This includes filling your information on the cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or other resources
without proper referencing will result in ZERO marks. No exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced) font. No pictures
containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
Assignment Question(s):
(Marks 15)
College of Administration and Finance Sciences
Q1. What is the process of identifying activities in an organization 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:
The ABC cost hierarchy includes the following activities:
♣
♣
♣
♣
♣
♣
organization-sustaining – associated with overall organization.
facility-sustaining – associated with single manufacturing plant or service facility.
customer-sustaining – associated with a single customer.
product-sustaining – associated with product lien or single product.
batch-level – associated with each batch of product.
unit-level – associated with each unit produced.
Process is used to assign costs in an ABC system: ♣
♣
♣
♣
♣
♣
Identify the relevant cost object.
Identify activities and group homogeneous activities.
Assign costs to the activity cost pools.
Choose a cost driver for each activity cost pool.
Calculate an allocation rate for each activity cost pool.
Allocate activity costs to the final cost object.
Example: Alphabet Co. makes products A & B. Product A is a low-volume specialty item and B is a high-volume item. Estimated
factory- wide overhead is $800,000, and the number of DL hours for the year is estimated to be 50,000 hours. DL costs
are $10/hour. Each product uses 2 DL hours. Products A & B use $25 and $10 in direct materials, respectively. Alphabet
Co. is implementing an ABC system. It estimated the costs and activity levels for the upcoming year shown below.
Machine set-ups
Inspections
Materials handling
Machining dep’t
Quality control dep’t
Estimated Activity Levels
Estimated
Costs
Prod. A Prod. B
Total
$200,000
3,000
2,000
5,000
140,000
500
300
800
80,000
400
400
800
320,000
12,000
28,000
40,000
60,000
600
150
750
$800,000
Cost Driver
# set-ups
# inspections
# mat’l requistions
# machine hours
# tests
Alphabet recently completed a batch of 100 as and a batch of 100 Bs. Direct material and labor costs were as budgeted.
Information about each batch’s use of the cost drivers is below. Then the overhead allocated to each unit of A and B.
Machine set-ups allocation rate = Machine set-ups estimated cost / Estimated # set-ups = $200,000 / 5,000 = $40
Machine set-ups allocated cost on100 As = Machine set-ups allocation rate* batch’s use of the cost driver = $40*60 =
$2,400
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Machine set-ups
Inspections
Materials handling
Machining dep’t
Quality control dep’t
100 As 100 Bs
10
60
10
2
4
2
240
120
3
1
Overhead allocated:
Machine set-ups
Inspections
Materials handling
Machining dep’t
Quality control dep’t
Overhead for batch
100 As
$2,400
1,750
400
1,920
240
$6,710
100 Bs
$400
350
200
960
80
$1,990
Overhead per unit
$67.10
$19.90
Overhead per unit = Overhead of batch / number of units on batch = $6,710 / 100 = $67.10
DL cost of each product = $10/hour * 2 (Each product uses 2 DL hours) = $20
The total cost of each product: –
Direct material
Direct labor
Overhead
Total
Prod A Prod B
$25.00 $10.00
20.00 20.00
67.10 19.90
$112.10 $49.90
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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
30
40
200
100
Number of employees
14
18
35
30
Number of service requests
28
18
35
25
Number of computers
15
20
24
28
You are required to allocate variable and fixed costs using the direct method.
Answer:
Department SD1 variable costs allocated to the Department OD1 =
18,000 (Department SD1 variable costs) * (200 / 300) = 12,000
200 (Number of transactions of department OD1)
300 (Number of transactions of department OD1 200 + Number of transactions of department OD2 100)
Department SD1 variable costs allocated to the Department OD2 =
18,000 (Department SD1 variable costs) * (100 / 300) = 6,000
100 (Number of transactions of department OD2)
300 (Number of transactions of department OD1 200 + Number of transactions of department OD2 100)
Department SD1 Fixed costs allocated to the Department OD1 =
20,000 (Department SD1 Fixed costs) * (35 / 65) = 10,769.23
35 (Number of employees of department OD1)
65 (Number of employees of department OD1 35 + Number of employees of department OD2 30)
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Department SD1 Fixed costs allocated to the Department OD2 =
20,000 (Department SD1 Fixed costs) * (30 / 65) = 9,230.77
30 (Number of employees of department OD2)
65 (Number of employees of department OD1 35 + Number of employees of department OD2 30)
Department S2 variable costs allocated to the Department OD1 =
19,000 (Department SD2 variable costs) * (35 / 60) = 11,083.33
35 (Number of service requests of department OD1)
60 (Number of service requests of department OD1 35 + Number of service requests of department OD2 25)
Department SD2 variable costs allocated to the Department OD2 =
19,000 (Department SD2 variable costs) * (25 / 60) = 7,916.67
25 (Number of service requests of department OD2)
60 (Number of service requests of department OD1 35 + Number of service requests of department OD2 25)
Department SD2 Fixed costs allocated to the Department OD1 =
24,000 (Department SD2 Fixed costs) * (24 / 52) = 11,076.92
24 (Number of computers of department OD1)
52 (Number of service requests of department OD1 24 + Number of computers of department OD2 28)
Department SD2 Fixed costs allocated to the Department OD2 =
24,000 (Department SD2 Fixed costs) * (28 / 52) = 12,923.08
28 (Number of computers of department OD2)
52 (Number of computers of department OD1 24 + Number of computers of department OD2 28)
College of Administration and Finance Sciences
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:
Make (Insource) or Buy (Outsource) Decision
Managers often must determine whether to
➢ Make or buy a production input.
➢ Keep a business activity in house or outsource the activity.
The general rule for make or buy decisions is:
• Choose the alternative with the lowest relevant (incremental cost), subject to qualitative considerations.
➢ If the decision will affect other aspects of operations, these costs (or lost revenues) must be included in the analysis.
Given the following information from ABC company about a part (X) of its main product: 1- ABC company makes and uses 40,000 of part (X) per year.
2- An outside supplier was offered to supply ABC 40,000 per year at SAR 5 each.
3- Fixed production costs of SAR 20,000 associated with ABC are unavoidable.
4- The production costs per unit for manufacturing a part (X) are: A. Direct materials
SAR 1.25
B. Direct labor
SAR 1.50
C. Variable manufacturing overhead
SAR
2
D. Fixed manufacturing overhead (20,000/40,000=0.5)
SAR
0.5
SAR 5.25
First: – Relevant costs are (Direct materials, direct labor, and variable manufacturing overhead) = (1.25+1.50+2=4.75)
Second: – Since the costs of make (Insource = SAR 4.75) less than costs of buy (Outsource = SAR 5) so our decision
will make not buy from outside supplier.
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Third: – Advantage of makeover buy = (5 – 4.75) * 40,000 = SAR 10,000
Finally: – The quantitative analysis indicates that ABC should continue to make the component.
And the following are qualitative issues should ABC consider before finalizing its decision: •
Is the quality of the manufactured component superior to the quality of the purchased component?
•
Will purchasing the component result in more timely availability of the component?
•
Would a relationship with the potential supplier benefit the company in any way?
•
Are there any worker productivity issues that affect this decision?
Constrained Resource Decisions (Two Products; One Scarce Resource)
❖ Company makes two types of cars, regular and premium. Suppose there is unlimited customer demand for each
product. The selling prices and variable costs of each product are listed below.
Item
Regular
Premium
Selling price per unit
50
150
(-) Variable cost per unit
(30)
(70)
Contribution margin per unit
20
80
Contribution margin ratio
40%
53%
Required machine hours/unit
0.5
3
Company has only 200,000 machine hours available per year
❖ In this case, the sole scarce resource was machine hours, so the company should make only the product with the
highest contribution margin per machine hour.
o Regular: CM / Machine Hour = 20 / 0.5 = 40 / Machine Hour
o Premium: CM / Machine Hour = 80 / 3 = 26.67 / Machine Hour
❖ The general rule for constrained resource decisions with one scarce resource is to first make only the product with the
highest contribution margin per unit of the constrained resource.
❖ Notice that the total contribution margin from making all Regular cars is 40 / Machine Hour x 200,000 machine hours
to be used producing Regular cars = SAR 8 million.
❖ Qualitative issues should company consider before finalizing its decision: • The assumption that customer demand is unlimited is unlikely; can this be investigated further?
• Are there any long-term strategic implications of minimizing production of the premium cars?
• What would be the effects of attempting to relax the machine hour or DL hour constraints?
• Are there any worker productivity issues that affect this decision?
College of Administration and Finance Sciences
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
T1
45,000
SAR 15
T2
26,000
SAR 14
T3
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 splitoff method.
Answer:
Physical Volume Method
Product
Units
Relative Weight
Allocated joint costs.
T1
45,000
45,000/89,000
60,674.16
T2
26,000
26,000/89,000
35,056.18
T3
18,000
18,000/89,000
24,269.66
89,000
89,000/89,000=1
120,000
Allocated joint costs for each product = Relative weight for each product * Joint costs (120,000)
Sales Value at Split-Off Method
Product
Units * Sales Value = Total Sales Value
Relative Weight
Allocated joint costs
T1
45,000
15
675,000
675,000 / 1,219,000
66,294.91
T2
26,000
14
364,000
364,000 / 1,219,000
35,832.65
T3
18,000
10
180,000
180,000 / 1,219,000
17,719.44
1,219,000
1,219,000 / 1,219,000=1
120,000
Allocated joint costs for each product = Relative weight for each product * Joint costs (120,000)
College of Administration and Finance Sciences
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
Required:
You are required to prepare a flexible budget for 1,000, 1,100, 1,200 and 1,300 units.
Answer:
Item
Sales in units
1,000
1,100
1,200
1,300
Revenues
500* 1,000 = 500,000
500* 1,100 = 550,000
500* 1,200 = 600,000
500* 1,300 = 650,000
(-) Variable Costs
100* 1,000 = (100,000)
100* 1,100 = (110,000)
100* 1,200 = (120,000)
100*1,300 = (130,000)
Contribution Margin
400,000
440,000
480,000
520,000
(-) Fixed Costs
(150,000)
(150,000)
(150,000)
(150,000)
Operating Income
250,000
290,000
330,000
370,000
College of Administration and Finance Sciences
Assignment (2)
Deadline: Saturday 04/05/2024 @ 23:59
Course Name: Cost Accounting
Student’s Name:
Course Code: ACCT 301
Student’s ID Number:
Semester: Second
CRN:
Academic Year: 1445 H
For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
College of Administration and Finance Sciences
Assignment Question(s):
(Marks 15)
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:
The term activity-based costing (ABC) refers to a method by which a company’s internal processes
are defined and the expenses incurred by various goods and services are distributed according to
actual consumption. In order to facilitate the creation of more effective management decisions, this
method seeks to enhance the accuracy of cost data on the production of certain goods or services.
Here is how it works, with numerical examples to help understand the idea.
1. Identify and Classify Activities
In the ABC system, the initial stage involves the identification of all organisational activities that
contribute to the production of a product or service. Next, these activities are categorised into distinct
pools. Typical tasks encompass the acquisition of materials, establishment of machinery, execution
of production runs, and implementation of quality control measures.
Example: Assuming a toy manufacturing corporation delineates three primary operations:
procurement of raw materials, assembly of toys, and implementation of quality assurance measures.
2. Assign Costs to Activity Cost Pools
After identifying the activities, the subsequent phase involves allocating expenses to each activity
cost pool. This entails the systematic tracking of various expenses, including labour, materials, and
overhead, that are linked to each individual activity.
Example: For the toy company, costs might be allocated as follows:
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Purchasing raw materials: $50,000
Assembling toys: $70,000
Quality checks: $30,000
3. Determine Activity Cost Drivers
Once the expenses have been allocated to each activity pool, it becomes necessary for the
organisation to ascertain the cost driver associated with each activity. A cost driver refers to a
specific factor that has an impact on or contributes to the financial expenditure of particular company
activities. Put simply, it is the factor that leads to an increase or decrease in the cost of an activity.
Example: Potential cost drivers for our toy company might be:
Number of purchase orders for purchasing raw materials.
Number of hours spent on assembling toys.
Number of toys inspected for quality checks.
4. Calculate the Activity-Based Costing Rate
The calculation of the ABC rate for each activity involves dividing the aggregate cost within each
activity pool by the cumulative cost drivers linked to that particular activity. This metric facilitates
the allocation of activity costs to products according to their consumption levels.
Example: If the toy company issues 500 purchase orders, spends 2,000 hours assembling, and
inspects 5,000 toys, the ABC rates would be:
Purchasing raw materials: $50,000 / 500 orders = $100 per order
Assembling toys: $70,000 / 2,000 hours = $35 per hour
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Quality checks: $30,000 / 5,000 toys = $6 per toy
5. Assign Costs to Products
Ultimately, the allocation of expenses to products is determined by their utilisation of each respective
activity. This procedure entails the multiplication of the ABC rate by the quantity of cost drivers
associated with each product.
Example: Let’s say a batch of 100 toy cars requires 50 purchase orders, 400 hours of assembly, and
500 quality checks. The cost assigned to this batch would be:
Purchasing raw materials: 50 orders * $100/order = $5,000
Assembling toys: 400 hours * $35/hour = $14,000
Quality checks: 500 toys * $6/toy = $3,000
Total cost of the batch = $22,000
Therefore, the cost per toy car in this batch would be $22,000 / 100 cars = $220 per car.
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:
Total Department variable costs
(4 Marks) (Chapter 8, Week 10)
Support Departments
Operating Departments
SD1
SD2
OD1
OD2
18,000
19,000
51,000
35,000
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Total department fixed costs
20,000
24,000
56,000
30,000
Number of transactions
30
40
200
100
Number of employees
14
18
35
30
Number of service requests
28
18
35
25
Number of computers
15
20
24
28
You are required to allocate variable and fixed costs using direct method.
Answer:
Support
Depts.
Operating
Department
SS1
SS2
OD1
OD2
Total
Total department Variable
Cost
18,000
19,000
51,000
35,000
123,000
Total Fixed Cost
20,000
24,000
56,000
55,000
30,000
Number of transactions
30
40
200
100
370
Number of employees
14
18
35
30
97
Number of service requests
28
18
35
25
106
Number of Computers
15
20
24
28
87
12,000
6,000
11,083
7,917
23,083
13,917
10,769
9,231
11,077
12,923
21,846
22,154
Allocate Cost Variables
SS1
18,000
SS2
19,000
Total
37,000
Allocate Fixed Cost
SS1
SS2
Total
20,000
24,000
44,000
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Total
44,929
36,071
81,000
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:
Outsourcing Decisions
The process of outsourcing decisions entails the evaluation of whether a corporation should
internally execute a task or activity or delegate it to an external provider. The determination of this
choice commonly relies on economic comparisons, however qualitative aspects also exert a
substantial influence.
Numerical Example:
Consider Company X, which manufactures electronic gadgets. It must determine whether to
manufacture a critical component in-house or outsource it.
In-house production cost: $10 per component, including $6 for materials and $4 for labor.
Outsourced production cost: $8 per component.
Quantitative Considerations:
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The straightforward comparison suggests outsourcing saves $2 per component.
If Company X needs 10,000 components, outsourcing would save $20,000.
Quality Control: In-house production might offer better control over quality.
Supply Chain Risks: Outsourcing might introduce risks related to supply chain reliability.
Intellectual Property: Keeping production in-house might better protect proprietary technology.
If cost savings are the primary objective and the vendor is dependable, outsourcing may be the best
alternative. However, if quality control and intellectual property are critical, in-house production
may be acceptable, despite the increased expense.
Constrained Resource Decisions
Constrained resource decisions include identifying the best use of restricted resources, such as
labour, materials, and machines, in order to maximise profit or minimise costs. These decisions
frequently involve techniques such as linear programming, but they can also be tackled using simpler
computations.
Numerical Example:
Company Y makes two products: A and B. Both items require the same machine for production,
however the machine only has 2,400 hours available each year. Product A has a profit margin of $50
per unit and needs two hours of machine time. Product B has a profit margin of $40 per unit and
takes one hour of machine time.
To maximize profit, Company Y needs to decide how many units of each product to produce within
the constraint of 2,400 machine hours.
Maximum units of A: 2,400 hours / 2 hours = 1,200 units
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Maximum units of B: 2,400 hours / 1 hour = 2,400 units
Scenario 1: Allocate all hours to Product A: 1,200 units * $50
= $60,000 profits.
Scenario 2: Allocate all hours to Product B: 2,400 units * $40
= $96,000 profits.
Scenario 3: A mix of both products considering other constraints like market demand.
Qualitative Considerations:
Market Demand: The demand for each product influences the decision.
Strategic Positioning: Company Y may prioritize one product for strategic reasons, such as market
positioning or long-term growth.
Decision: While Scenario 2 offers the highest theoretical profit, the final decision should consider
both quantitative and qualitative factors, like market demand and strategic goals.
Integration of Quantitative and Qualitative Considerations in Decision Making
The utilisation of quantitative analysis establishes a robust basis for decision-making by emphasising
the financial consequences and possible profitability. Nevertheless, qualitative factors guarantee that
decisions are in accordance with the company’s strategic goals, market standing, and risk mitigation
methods. In the context of outsourcing decisions, it is imperative to take into account qualitative issues
such as quality control and supply chain concerns, even if quantitative analysis supports outsourcing
as a means of achieving cost savings. Likewise, when faced with limited resources, the corporation
must prioritise profit maximisation while still taking into account market demands and strategic
positioning.
College of Administration and Finance Sciences
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
T1
45,000
SAR 15
T2
26,000
SAR 14
T3
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:
i). Physical volume method
Allocated
Product
Units of
Selling Price
Total Sales at
Relative
Joint Costs
Products
per Unit (SAR) Split-Off(SAR)
Weight
(SAR)
T1
45,000
15
675000
51%
60674.157
T2
26,000
14
364000
29%
35056.18
T3
18,000
10
180000
20%
24269.663
1219000
100%
120,000
89,000
ii). Sales value at the split-off method
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Allocated
Product
Units of
Selling Price
Total Sales at
Relative
Joint Costs
Products
per Unit (SAR) Split-Off(SAR)
Weight
(SAR)
P1
45,000
15
675000
55%
66448
P2
26,000
14
364000
30%
35833
P3
18,000
10
180000
15%
17719
1219000
100%
120,000
89,000
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
Required:
You are required to prepare a flexible budget for 1,000, 1,100, 1,200 and 1,300 units.
Answer:
Sale Price per Unit
500
Variables Cost Per Unit
100
Sales Volumes
Sales Units
1000
1,100
1200
1300
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Revenue
500,000
550,000
600,000 650,000
Variable Cost
100,000
110,000
120,000 130,000
Contribution Margin
400,000
440,000
480,000 520,000
Fixed Cost
150,000
150,000
150,000 150,000
Operating Income
250,000
290,000
330,000 370,000
College of Administration and Finance Sciences
References
Quesado, P., & Silva, R. (2021). Activity-based costing (ABC) and its implication for open
innovation. Journal of Open Innovation: Technology, Market, and Complexity, 7(1), 41.
Al-Dhubaibi, A. (2021). Optimizing the value of activity based costing system: The role of successful
implementation. Management Science Letters, 11(1), 179-186.
Jiménez, V., Afonso, P., & Fernandes, G. (2020). Using agile project management in the design and
implementation of activity-based costing systems. Sustainability, 12(24), 10352.
Zamrud, N. F., & Abu, M. Y. (2020). Comparative study: activity based costing and time driven
activity based costing in electronic industry. Journal of Modern Manufacturing Systems and
Technology, 4(1), 68-81.
Hudáková Stašová, L. (2020). Statistical analysis of suitability of the activity based costing method in
agricultural enterprises. Agricultural and Resource Economics: International Scientific EJournal, 6(4), 20-42.
College of Administration and Finance Sciences
Assignment (2)
Deadline: Saturday 04/05/2024 @ 23:59
Course Name: Cost Accounting
Student’s Name: SEU ELITE
Course Code: ACCT 301
Student’s ID Number:
Semester: Second
CRN: 23744
Academic Year: 1445 H
For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
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Assignment Question(s):
(Marks 15)
Q1. What is the process of identifying activities in an organization 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:
1. Identify the Relevant Cost Object
Determine the specific product, service, or customer for which costs need to be assigned.
For example, if the company wants to know the cost of producing a specific widget, the widget is
the cost object.
2. Identify Activities
Break down the organization’s operations into distinct activities that consume resources and
generate costs.
For example, an auto manufacturing company may identify activities such as design, assembly,
and painting.
3. Assign (Trace and Allocate) Costs to Activity-Based Cost Pools
Trace direct costs to activities. For example, allocate engineering salaries directly to the design
activity.
Allocate indirect costs to activities using a reasonable cost driver. For instance, assign utility
costs to activities based on the square footage they occupy.
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4. Choose a Cost Driver for Each ABC Cost Pool
Identify a measure that best represents the consumption of resources for each activity.
For example, for the design activity, the cost driver could be labor hours or number of drawings.
5. Calculate an Allocation Rate for Each ABC Cost Pool
Allocation Rate = Activity Cost / Volume of Cost Driver
For example, if the design activity has a cost of $50,000 and the cost driver is labor hours with a
total of 2,000 hours, the allocation rate would be $25 per labor hour.
6. Allocate Activity Costs to the Cost Object
Allocation = Allocation Rate × Actual Volume of Activity
For example, if a specific widget requires 10 labor hours in the design activity, the cost allocated
to the widget would be $250 ($25 x 10 hours).
For example, Company ABZ produces toys that relies on direct labor to support the process.
The overhead costs allocation for the production was $500,000, and the labor hors for the production
is 10,000 hours. The actual direct hours used in the production of 5,000 hours was 4,000
Cost driver = $500,000/ 10,000 = $50 per labor hour
Overhead costs = $50 per labor hour* 5,000 = $250,000
The overhead cost per unit = $250,000/ 4,000 = $62.5
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College of Administration and Finance Sciences
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
30
40
200
100
Number of employees
14
18
35
30
Number of service requests
28
18
35
25
Number of computers
15
20
24
28
You are required to allocate variable and fixed costs using direct method.
Answer:
Total
department
variable cost
SD1
SD2
Total
18,000
19,000
51,000
35,000
(19,000)
0
12,000.00
11,083.33
74,083.33
6000.00
7916.67
48,916.67
(18,000)
0
Total department
Fixed cost
20,000
24,000
SD2
SD2
Total
(20,000)
10,769.23 9230.77
(24,000) 11,076.92 12923.07
0
77,846.15 52,153.84
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0
56,000
30,000
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College of Administration and Finance Sciences
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:
AOutsourcing Decisions
Decisions to contract with external suppliers for goods or services that were previously produced or
performed internally.
i) Make or buy
the buy or make decisions which depend on the total cost of production and the buying price. For
example, ABZ manufactures 45,000 components which are used in the manufacture of a washing
machine. The variable cost for the product is 5.9 and the fixed cost is $31,500. An outside suppler is
willing to supply the components at $7 each to elimination the fixed cost.
Details
Make
Buy
Purchase price @7
315,000
Variable costs @5.9
265,500
Fixed cost
31,500
0
Total cost
297,000
315,000
Cost per item
$6.6
$79
The organization should make its components since it is cheaper than buying.
constrained resource decision which occurs when an organization insufficient resource to meet its
production needs. An organization manufactures two products A and B and the variable costs and
total direct labor hours are 50,000 hours are shows as follows.
Details
SEU ELITE
A
B
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Selling price
60
80
VC per unit
36
32
CM
24
48
CMR
40%
60%
Direct labor per hour
0.5
1.6
0.5A + 1.6B ≤50,000
A ≤50,000/0.5
A = 100,000
Total contribution margin = 100,000*24 = $2.4 million
0.5A + 1.6B ≤50,000
B ≤50,000/1.6
B = 31,250
Total contribution margin = 31,250*48 = $1.5million
The organization should produce product A since it has a higher contribution margin.
BQuantitative and qualitative considerations are essential for a company’s decision-making
process. Quantitative provides objectivity and quantifiable evidence, while qualitative offers
subjective insights and human perspectives. Combining these two perspectives offers a balanced
view, increasing accuracy and ensuring stakeholder alignment. Additionally, reporting that includes
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College of Administration and Finance Sciences
both quantitative and qualitative data improves communication, making decisions more
understandable and actionable. In conclusion, combining these strengths can lead to a comprehensive
understanding of a situation, informed decisions, and increased chances of success.
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
T1
45,000
SAR 15
T2
26,000
SAR 14
T3
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.
Physical Volume Method
Product Pounds Produced
Selling Price per
T1
T2
T3
15
14
10
45,000
26,000
18,000
89,000
SEU ELITE
Total Sales Value at
Relative W Allocated
Split-Off
$675,000
$364,000
$180,000
$1,219,000
eight
50.57%
29.21%
20.22%
100.00%
Joint Costs
$60,684
$35,052
$24,264
$120,000
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Sales Value at
Split-Off
Method
Product
Pounds
Produced
Selling Price
per
Split-Off
Relative W
eight
Allocated Joint
Costs
T1
T2
T3
45,000
26,000
18,000
15
14
10
$675,000
$364,000
$180,000
55.37%
29.86%
14.77%
$66,448
$35,833
$17,719
$1,219,000
100.00%
$120,000
89,000
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
Required:
You are required to prepare a flexible budget for 1,000, 1,100, 1,200 and 1,300 units.
Answer:
Volume Levels
Sales in units
Revenues
Variable costs
Contribution
margin
Fixed costs
Operating income
SEU ELITE
1000
SAR 500,000.00
SAR 100,000.00
1100
SAR 550,000.00
SAR 110,000.00
1200
SAR 600,000.00
SAR 120,000.00
1300
SAR 650,000.00
SAR 130,000.00
SAR 400,000.00
SAR 440,000.00
SAR 480,000.00
SAR 520,000.00
SAR 150,000.00
SAR 250,000.00
SAR 150,000.00
SAR 290,000.00
SAR 150,000.00
SAR 330,000.00
SAR 150,000.00
SAR 370,000.00
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