Question 2 – Week 3 (7 marks)
- Total manufacturing cost for 150 Coffee table
|Job No. X10|
|Direct materials used||22,800|
|Direct Labour used (600 *16)||9,600|
|Applied Factory Overhead (30*400)||12,000|
|Total manufacturing cost for Job No. X10||44,400|
- b) Calculate the cost per coffee table for Job No. X10?
|Total manufacturing cost for Job No. X10 (A )||44,400|
|Number of Coffee Table ( B )||150|
|Cost Per Coffee Table (A/B)||296|
- c) List two uses of this unit cost information to the managers at Tik Tok Company.
- Company can determine break even point and level of profit.
- Per unit cost helps in determining key cost drivers which increase overall cost of production.
Question 2 – Week 5
- Calculations for activity rates for each of the overhead items
|Activity Cost Pools||Cost Drivers||Estimated Overhead (A )||Expected Use of Cost Drivers ( B )||Activity Rate (A/B)|
|Purchasing||Number of orders||1,200,000||40,000||30||Per Order|
|Machine setups||Number of setups||900,000||18,000||50||Per Setup|
|Machining||Machine hours||4,800,000||120,000||40||Per Machine Hour|
|Quality Control||Number of inspections||700,000||28,000||25||Per Inspection|
Here is the calculations showing activity rates for overhead items. For purchasing activity the rate is $30 per order, For Machine setups and Machining $50 per set up and $40 per Machine hours respectively. Quality control costs $25 per inspection.
- Using the rates in (1) determine the unit cost for TRI-X.
|Calculation of Overheads applied|
|Activity Cost Pools||Activity Rate (A )||TRI-X Product ( B )||Applied Overheads (A*B)|
|Total Overheads applied (A )||4,035,000|
|Number of Units manufactured ( B)||26,000|
|Overhead Unit Cost (A/B)||155.19|
|Direct Labour ($20/hour)||120.00|
|Total Unit Cost of TRI-X||975.19|
- Calculate the Gross Profit on the Product TRI-X
|Selling Price Per Unit||1600.00|
|Less Unit Cost||975.19|
|Gross Profit Per Unit||624.81|
The selling price of TRI-X in the market is $1600 per unit , as per the cost drivers and activity costs the total unit cost will be $975.19 which means gross profit from the sale of goods will be $624.8.
Question 3 – Week 6
- Cash receipt budget schedule , include total receipts per month
|Cash Receipt Budget|
|Total Sales (A)||140,000||210,000||280,000||630,000|
|Immediately Collected ( A *15% ) =( B )||21,000||31,500||42,000||94,500|
|Less Cash Discount (B* 4%)||840||1,260||1,680||3,780|
|Cash Collected from Immediate (B – C ) =(D )||20,160||30,240||40,320||90,720|
|One month later (A *25%) = ( E )||35,000||52,500||87,500|
|Two months later ( A *40%) = ( F )||56,000||56,000|
|Total Receipts (D +E +F)||20,160||65,240||148,820||234,220|
|Number of Units Sold||1,000||1,500||2,000||4,500|
|Selling Price Per Unit||140||140||140||140|
- Prepare a material purchases budget schedule for each of the first three
|Material Purchases Budget|
|Add Ending Inventory @20% of next month||330||424||492||492|
|Less Beginning Inventory||–||330||424||–|
|Number of Units to be Purchased||1,780||1,744||2,188||5,712|
|Direct Material Cost Per Unit||60||60||60||60|
|Total Direct Material purchased||106,800||104,640||131,280||342,720|
|Schedule of Payment of Material Budget|
|Total Direct Material purchased||106,800||104,640||131,280||342,720|
|Payment made in the following month||106,800||104,640||211,440|
|Total Payments made for Purchases||–||106,800||104,640||211,440|
- a cash budget for the month of July. Include the owners’ cash
|Total Cash Available ( A )||270,160||260,050||201,470||484,220|
|Total Payments ( B )||75,350||207,400||217,450||500,200|
|Ending Balance (A -B)||194,810||52,650||-15,980||-15,980|
Question 2 – Week 8
- a) Using the general rule, determine the minimum transfer price.
When any manufacturing concerns are having factory outlets in more than one places then they can transfer goods from one outlet to another at transfer pricing. That transfer pricing is the sum of variable manufacturing costs and shipping cost and opportunity costs associated to the product. The calculation of transfer pricing are as follows:
= $3.00 + $0.20 + $0.50 ($4.00-$3.50)
= $ 3.70
- b) Assume the Bottle Division has no excess capacity and can sell everything produced externally. Would the transfer price change?
When Bottle division consume everything from the external sources then transfer pricing would change as goods generated internally and goods purchased from external channels have different costs and vary a lot.
- c) Assume the Bottle Division has no excess capacity and can sell everything produced externally. What is the maximum amount Perfume Division would be willing to pay for the bottles?
If Perfume division is going to purchase goods from bottle division which sells products externally produced then Perfume division has to pay $4.00 per unit. As it is consuming goods which is produced externally not within same organisation.
- d) When is it more appropriate to use market-based transfer price rather than cost-based transfer price?
If there are two options cost based transfer price and market based transfer price, then market based transfer pricing is most simplest and elegant method. Company can earn highest possible profit rather than abnormal profit as per the regular or mandate pricing schemes.
Question 3 – Week 10
|Selling Price Per Unit||250||400||1500|
|(-) Variable cost Per Unit||80||200||800|
|Contribution margin per unit||170||200||700|
|a.||Weighted average contribution Margin||232|
|c.||Margin of safety||24999|
Contribution Margin = Total contribution margin of Sales mix/ Number of sales units
|Break Even Point||Fixed cost/Contribution Margin per unit|
|Margin of Safety||Actual Sales- Break Even / Actual sales|
|Total Annual Fixed Costs||5,000,000|
Question 3 – Week 11
|Particulars||80000 units||For overseas selling Price (10000 units)||90000 units|
|Variable Manufacturing Overhead||16||16|
|Fixed Manufacturing Overhead||30||30|
|Variable Selling and Administrative Costs||10.2||19.2|
|Fixed Selling and Administrative Cost||27||27|
|Import and Other Duties Cost||4.2|
|Total Unit Cost||200.2||213.4|
Estimation of profit on the basis of 80000 units produced
Profit Percentage = 20
Profit For 10000 units = 42.68
- (b) Cost for selling damaged goods
There are 200 units of finished goods remaining as inventory with the company from last two months. The goods are now damaged due to environment and natural conditions, now if the company wants to sale them in market. Now, these goods are considered as damaged goods. The feasible approach for deciding the selling price of the goods is the price offered by market or cost of manufacturing whichever is high.
- (c) “All future costs are relevant in decision making.” Do you agree? Explain.
Future costs are pre decided costs for transactions in present time period. Yes, these costs are relevant for decision making. If any contract between parties are formed related to future transactions then it is good if in the contract future costs should involved because costs are changing with the pass of time and if future contracts are based on traditional pricing then no party will gain profit. For recovery of cost and generating profit , it is good for making contracts on the basis of future cost.
Accounting Tools. (2020). Transfer Pricing. Accountingtools.com [online]. Available at: https://www.accountingtools.com/articles/2017/5/16/transfer-pricing. [Accessed on 06.10.2020].