# 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

Test 2

ACC 320

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Costing Accounting

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) \$ Selling cost 45,000 Administration Cost 35,000 Manufacturing  overhead cost 108,000 Utilities cost [store] 12,000 Cost Drivers: 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 materials \$4200 \$2600 Direct Labor  Hour Rate \$10.50 \$16.50 Units completed 150 200 DLH (hours) 560 420 Machine hours 660 240 Actual Cost \$ 3200 42100

REQUIRED

1. Calculate the Predetermined Rate [PR] for product X using machine hours and product Y using direct labour hours
2. What is the applied cost assigned to product X and product Y?
3. Calculate the total product cost using FBC for both products
4. Calculate the unit cost for each product
5. 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 ?
6. 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

[30 marks]

Question 2

Project Selection

Dragon  Products Company is considering two projects. The projects’ cash flows are as follows:

 EXPECTED NET CASH FLOWS YEAR PROJECT A PROJECT B 0 (\$10300) (12,500) 1 1700 2870 2 1930 2450 3 2500 4700 4 2800 4575 5 4200 3450 Discount Rate   for both pojects =  6.8%

REQUIRED

1. Find the Payback Period [PBP] of both projects

1. What is the Discounted PBP of both projects ?

1. Calculate the Net Present Value of the two projects and decide which one is better?

1. What is the profitability index of both products ? What is the function of PI in project selection?

1. What are the IRR of the projects ? Which of the projects is the best using IRR as a criteria? Why?

1. Why is sunk cost not considered when deciding about selecting a project? Which cost is considered and why?

[40 marks]

QUESTION 3

The G0-Magic company uses job-order costing system. The following data relate to the first quarter  of the company’s fiscal year

1. Materials requisitioned for production cost \$250,000 [ direct materials and indirect materials are proportioned by 6:2].
2. Repairs costs incurred are \$75,000
3. Raw Materials purchased on cash \$150,000

 Salaries \$ Direct Labour 125,000 Supervisors salaries [factory 50,000 Marketing cost 45,000 Admin Salaries 80,000

1. Selling commission cost incurred is \$60,000
2. Insurance for factory  \$70,000. Admin insurance is 40% of the factory insurance
3. Rent expense for the factory is \$50,000 and the rent for the shop is \$45,000
4. Supplies expense for the factory incurred during the month is \$15,000 [on account]
5. Use the information below to find the Predetermined Rate using machine hours as the cost driver
 \$ Estimated  Overhead 76,000 Budgeted machine hours 21,000 hours Actual machine hours 30,000 hours Actual overhead 142,000

1. Journalize the applied cost used in section (i)
2. Sold goods costing \$400,000 for \$650,000
3. Depreciation for equipment of factory for the period was \$16700
4. Depreciation for the building [store] was \$8,500
5. \$45,000 Cash was paid for the suppliers

REQUIRED

1. Prepare Journal entries for the quarter

1. Is production cost underallpied or overapplied?

[Marks  30 ]