Cost Assignment

Cost Assignment-1
Budgeted profit and loss statement for the year ending 31 December (£) (£) Sales Cost: Direct materials Direct wages Prime cost Fixed production overhead Production cost Selling, distribution and administration cost 750 000 100 000 50 000 ––––––– 150 000 300 000 ––––––– 450 000 160 000 ––––––– Profit Budgeted data: Labour hours for the year Machine hours for the year Number of jobs for the year 610 000 –––––––– £140 000 –––––––– –––––––– 25 000 15 000 300 An enquiry has been received, and the production department has produced estimates of the prime cost involved and of the hours required to complete job A57.

Budgeted profit and loss statement for the year ending 31 December (£) (£) Sales Cost: Direct materials Direct wages Prime cost Fixed production overhead Production cost Selling, distribution and administration cost 750 000 100 000 50 000 ––––––– 150 000 300 000 ––––––– 450 000 160 000 ––––––– Profit Budgeted data: Labour hours for the year Machine hours for the year Number of jobs for the year 610 000 –––––––– £140 000 –––––––– –––––––– 25 000 15 000 300 An enquiry has been received, and the production department has produced estimates of the prime cost involved and of the hours required to complete job A57.

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(6 marks) (b) Outline the reasons for calculating a pre-determined overhead absorption rate.

(2 marks) (c) Select the overhead absorption rate that you think the organization should use giving reasons for your decision.

Required: (a) Calculate appropriate pre-determined absorption rates for the year ended 31 December (4 marks) COST ASSIGNMENT 9 (b) (i) Calculate the under/over absorption of overhead for each department of the company for March; (4 marks) (ii) Comment on the problems of using predetermined absorption rates based on the arbitrary apportionment of overhead costs, with regard to comparisons of actual/target performance; (4 marks) (c) State the reasons why absorption costing is used by companies.

(3 marks) (Total 15 marks) CIMA Stage 1 Accounting Question IM 3.9 Intermediate: Various overhead absorption rates AC Limited is a small company which undertakes a variety of jobs for its customers.

Department C is expected to produce 148 000 units of final product in the budget period.

The company will operate for 48 weeks in the budget period.It has the following factory costs which are expected to be incurred in the year to 31 December: (£) Direct wages Machining Assembly Finishing Indirect wages and salaries Machining Assembly Finishing 234 980 345 900 134 525 £ 120 354 238 970 89 700 Question IM 3.5 Intermediate: Overhead analysis sheet and calculation of overhead absorption rates £ Factory rent Business rates Heat and lighting Machinery power Depreciation Canteen subsidy 12 685 500 3 450 900 985 350 2 890 600 600 000 256 000 Other information is available as follows: Machining Number of employees Floor space occupied (m2) Horse power of machinery Value of machinery (£000) Number of labour hours Number of machine hours 50 1 800 13 000 250 100 000 200 000 Assembly Finishing 60 1 400 500 30 140 000 36 000 18 800 6 500 120 35 000 90 000 You are required (a) to prepare the company’s overhead analysis sheet for the year to 31 December; (9 marks) (b) to calculate appropriate overhead absorption rates (to two decimal places) for each department.(6 marks) (Total: 15 marks) CIMA Stage 1 Accounting COST ASSIGNMENT 7 Required: (a) Prepare pre-determined overhead absorption rates for production overheads based upon the three different bases for absorption mentioned above.The costs and activity are expected to arise evenly throughout the year, and the budget has been used as the basis of calculating the company’s absorption rates.During March the monthly profit statement reported (i) that the actual hours worked in each department were Machining Hand finishing 6000 hours 9600 hours (ii) that the actual overhead costs incurred were Machining Hand finishing Fixed £ Variable £ 48 500 33 600 36 000 33 500 (iii) that the actual production was 15 000 units.(9 marks) (b) Calculate the manufacturing overhead cost per unit of finished product in a batch of 100 units which take 9 direct labour hours in department A and three machine hours in department B to produce.(3 marks) (12 marks) ACCA Foundation Paper 3 PTS Limited is a manufacturing company which uses three production departments to make its product.(3 marks) (d) The company has been asked to price job AX, this job requires the following: Direct material Direct labour Direct expenses Machine hours Labour hours £3788 £1100 £422 120 220 Compute the price for this job using the absorption rate selected in (c) above, given that the company profit margin is equal to 10% of the price.(6 marks) (e) The company previously paid its direct labour workers upon a time basis but is now contemplating moving over to an incentive scheme. If the standard cost assignment in one of these infotypes is maintained, this cost assignment is used instead of the assignment in the Organizational Assignment (0001) and Cost Distribution L'affectation de cots standard gre dans un de ces infotypes remplace l'affectation des cots dfinie dans les infotypes Affectation (0001) et Ventilation des cots (0027); cette dernire aurait t utilise si les comptes The cost assignment specification per miles/kilometers (per trip segment) makes it possible for you to specify, for a trip segment, a percentage cost assignment that differs from the travel expenses assignment guideline.Cost assignment Question IM 3.1 Intermediate (a) Explain why predetermined overhead absorption rates are preferred to overhead absorption rates calculated from factual information after the end of a financial period.

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