Calculate the Predetermined Rate [PR] for product X using machine hours and product Y using direct labour hours What is the applied cost assigned to product X and product Y? Calculate the total product cost using FBC for both products Calculate the unit cost for each product Is the applied cost for product X under or over-applied? What effect this will have on the cost of goods sold and the Net income ? Is the applied cost for product Y under or over-applied? What effect this will have on the cost of goods sold and the Net income
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Answer all questions and show your workings
Question 1 : Function-based costing
JIM Ltd has identified the following overhead costs and cost drivers for next year
|Expenses /cost||Expected ( cost) $|
|Manufacturing overhead cost||108,000|
|Utilities cost [store]||12,000|
|Product X||Machine Hours|
|Product Y||Direct Labour Hours|
|Direct Labour Hours||12,000 hours|
|Machine Hours||18,000 hours|
The following is the cost of 2 products made by the company:
|Product X||Product Y|
|Direct Labor Hour Rate||$10.50||$16.50|
|Actual Cost||$ 3200||42100|
- Calculate the Predetermined Rate [PR] for product X using machine hours and product Y using direct labour hours
- What is the applied cost assigned to product X and product Y?
- Calculate the total product cost using FBC for both products
- Calculate the unit cost for each product
- Is the applied cost for product X under or over-applied? What effect this will have on the cost of goods sold and the Net income ?
- Is the applied cost for product Y under or over-applied? What effect this will have on the cost of goods sold and the Net income
Dragon Products Company is considering two projects. The projects’ cash flows are as follows:
|EXPECTED NET CASH FLOWS|
|YEAR||PROJECT A||PROJECT B|
|Discount Rate for both pojects = 6.8%|
- Find the Payback Period [PBP] of both projects
- What is the Discounted PBP of both projects ?
- Calculate the Net Present Value of the two projects and decide which one is better?
- What is the profitability index of both products ? What is the function of PI in project selection?
- What are the IRR of the projects ? Which of the projects is the best using IRR as a criteria? Why?
- Why is sunk cost not considered when deciding about selecting a project? Which cost is considered and why?
The G0-Magic company uses job-order costing system. The following data relate to the first quarter of the company’s fiscal year
- Materials requisitioned for production cost $250,000 [ direct materials and indirect materials are proportioned by 6:2].
- Repairs costs incurred are $75,000
- Raw Materials purchased on cash $150,000
|Supervisors salaries [factory||50,000|
- Selling commission cost incurred is $60,000
- Insurance for factory $70,000. Admin insurance is 40% of the factory insurance
- Rent expense for the factory is $50,000 and the rent for the shop is $45,000
- Supplies expense for the factory incurred during the month is $15,000 [on account]
- Use the information below to find the Predetermined Rate using machine hours as the cost driver
|Budgeted machine hours||21,000 hours|
|Actual machine hours||30,000 hours|
- Journalize the applied cost used in section (i)
- Sold goods costing $400,000 for $650,000
- Depreciation for equipment of factory for the period was $16700
- Depreciation for the building [store] was $8,500
- $45,000 Cash was paid for the suppliers
- Prepare Journal entries for the quarter
- Is production cost underallpied or overapplied?
[Marks 30 ]