Costing And Accounting Questions

Part-1
Solution-1

(a)	Calculation of overhead rate using traditional approach

	Predetermined overhead rate	=	Total Overheads/Total direct labor costs
		=	$960,000/($180,000+$420,000)
		=	1.60


	Allocation of overheads to products

	Particulars		VegieGrow	Flower Food
	Diret labor costs	=	1,80,000	4,20,000
	Predetermined overhead rate	=	1.6	1.6
	Allocated overheads	=	2,88,000	6,72,000


(b)	Calculation of overhead rate & allocation of costs to products using ABC approach


	Cost Pool	Overhead costs	Cost drivers	Volume of cost drivers	Cost per driver	Allocation of cost
	VegieGrow	Flower Food	Total	VegieGrow	Flower Food	Total
	Processing	6,40,000	No. of kilograms	1,92,000	3,20,000	5,12,000	1.25	2,40,000	4,00,000	6,40,000
	Packaging	3,20,000	No. of units packaged	90,000	1,10,000	2,00,000	1.60	1,44,000	1,76,000	3,20,000
	Total	9,60,000						3,84,000	5,76,000	9,60,000

Part-1
Solution-2

(a)	Calculation of overhead rate & allocation of costs to products using ABC approach

	Cost Pool	Overhead costs	Cost drivers	Volume of cost drivers	Cost per driver	Allocation of cost
	Commercial	Residential	Total	Commercial	Residential	Total
	Scheduling & travel	85,000	Hours of travel	750	500	1,250	68.00	51,000	34,000	85,000
	Setup time	90,000	No. of setups	350	250	600	150.00	52,500	37,500	90,000
	Supervision	60,000	Direct labor costs	1,00,000	3,00,000	4,00,000	0.15	15,000	45,000	60,000
	Total	2,35,000						1,18,500	1,16,500	2,35,000


(b)	Calculation of Operating Income (using ABC)

	Particulars	Commercial	Residential
	Revenues		$ 3,00,000	$ 4,80,000
	Direct Material Costs	$ 30,000	$ 50,000
	Direct Labor Costs	$ 1,00,000	$ 3,00,000
	Overhead costs	$ 1,18,500	$ 1,16,500
	Operating Income / (loss)	$ 51,500	$ 13,500

(c)	The finance controller should adopt ABC approach as both the lines are profitable. This is because of incorrect allocation of overheads, that Residential line is seems to be non-profitable.

	Part-2
	Solution-1

(a)	Calculation of net income for Oceanic Ltd.

	Particulars	Spotter	Snooker	Stunner	Total
	Sales	3,00,000	5,00,000	2,00,000	10,00,000
	Variable expenses	1,50,000	2,00,000	1,45,000	4,95,000
	Contribution margin	1,50,000	3,00,000	55,000	5,05,000
	Common Fixed expenses	90,000	1,50,000	60,000	3,00,000
	Additional fixed costs	30,000	80,000	35,000	1,45,000
	Net income	30,000	70,000	(40,000)	60,000


(b)	Calculation of net income for Oceanic Ltd. if the company discontinues the Stunner product line

	Particulars	Spotter	Snooker	Total
	Sales	3,00,000	5,00,000	8,00,000
	Variable expenses	1,50,000	2,00,000	3,50,000
	Contribution margin	1,50,000	3,00,000	4,50,000
	Common Fixed expenses	1,12,500	1,87,500	3,00,000
	Additional fixed costs	30,000	80,000	1,10,000
	Net income	7,500	32,500	40,000


(c)	The company should not discontinue the Stunner Line as the total profit is higher by $20,000 if stunner is continued.

	Part-2
	Solution-2

(a)	Equivalent Units of Production

	Units accounted for as follows:
	Transferred Out	900
	Work in process, ending	600
	Total units accounted for	1,500

	Equivalent Units:	Materials	Conversion
	Transferred Out	900	900
	Work in process, ending (40%)	600	240
	Total	1,500	1,140


	Units cost of production

	CostsFor Equivalent Units:	Materials	Conversion	Total
	Work in process, beginning	$750	$600	$1,350
	Cost added by the department	$2,400	$2,820	$5,220
	Total Cost to Account For	$3,150	$3,420	$6,570

	Cost per Equivalent Unit	$2.10	$3.00


	Assignment of costs to products

	Cost accounted for as follows:	Materials	Conversion	Total
	Cost of Units Completed and Transferred Out	$1,890	$2,700	$4,590
	Work in process, ending:	$1,260	$720	$1,980
	Total Costs Accounted For	$3,150	$3,420	$6,570



(b)	Production Cost Report for the month of July
	Units to be accounted for:
	Work in process, beginning	500
	Started into production	1,000
	Total units to be accounted for	1,500


	Units accounted for as follows:
	Transferred Out	900
	Work in process, ending	600
	Total units accounted for	1,500

	Equivalent Units:	Materials	Conversion
	Transferred Out	900	900
	Work in process, ending	600	240
	Total	1,500	1,140


	CostsFor Equivalent Units:	Materials	Conversion	Total
	Work in process, beginning	$750	$600	$1,350
	Cost added by the department	$2,400	$2,820	$5,220
	Total Cost to Account For	$3,150	$3,420	$6,570

	Cost per Equivalent Unit	$2.10	$3.00

	Cost accounted for as follows:	Materials	Conversion	Total
	Cost of Units Completed and Transferred Out	$1,890	$2,700	$4,590
	Work in process, ending:	$1,260	$720	$1,980
	Total Costs Accounted For	$3,150	$3,420	$6,570

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