College of Administrative and Financial Sciences
Assignment 3
Deadline: 21/11/2020 @ 23:59
| Course Name: Cost accounting | Student’s Name: |
| Course Code: ACCT 301 | Student’s ID Number: |
| Semester: 1 | CRN: |
| Academic Year: 1441/1442 H | |
For Instructor’s Use only.
| Instructor’s Name: | |
| Students’ Grade: Marks Obtained/Out of | Level of Marks: High/Middle/Low |
Instructions
- The Assignment must be submitted on Blackboard (WORD format only) via the allocated folder.
- Assignments submitted through email will not be accepted.
- Students are advised to make their work clear and well presented; marks may be reduced for poor presentation. This includes filling in your information on the cover page.
- Students must mention the question number clearly in their answer.
- Late submission will NOT be accepted.
- Avoid plagiarism. The work should be in your own words. Copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
- All answered must be typed using Times New Roman (size 12, double-spaced) No pictures containing text will be accepted and will be considered plagiarism).
- Submissions without this cover page will NOT be accepted.
Q 1 Provide a numerical example of assigning support department cost and discuss the purpose of assigning support department costs (Week 10: Chapter 8, Measuring and Assigning Support Department Costs).
(2 marks)
| Service distribution % | Support Department | Operating Department | |||
| Maintenance | Personnel | A | B | Total | |
| Maintained hours | 15% | 50% | 35% | 100% | |
| Number of employees | 20% | 35% | 45% | 100% | |
| Direct method Allocation | Support Department | Operating Department | ||
| Maintenance | Personnel | A | B | |
| Departmental costs | $115,000 | $175,000 | $450,000 | $550,000 |
| Allocation | ||||
| Maintenance | ($115,000) | $67,647 | $47,353 | |
| Personnel | ($175,000) | $76,563 | $98,438 | |
| Total overhead | $0 | $0 | $594,210 | $695,790 |
| Step Method of allocation | Support Department | Operating Department | ||
| Maintenance | Personnel | A | B | |
| Department cost | $115,000 | $175,000 | $450,000 | $550,000 |
| Allocation | ||||
| Maintenance | ($115,000) | $17,250 | $57,500 | $40,250 |
| Personnel | ($192,250) | $82,393 | $109,857 | |
| Total overhead | $0 | $0 | $589,893 | $700,107 |
Purpose of assigning support department costs
The purpose of the overhead allocation is to ensure that costs are accurately allocated to other departments, minimize product costing errors, help in the pricing of products and enhance various strategy and operational decisions.
Q 2 LMN Company produces three products K, L and M. During the year, the joint costs
of processing, the three products were $480,000.
Production and sales value information was as follows:
Sales Value
Product Units at Split-Off Separable Costs Selling Price
K 500,000 $13 per unit $6.00 per unit $40 per unit
L 300,000 $12 per unit $4.00 per unit $37 per unit
M 200,000 $8 per unit $3.00 per unit $28 per unit
Allocate the joint costs using the physical output method.
(Week 11: Chapter 9, Joint product and – Product costing)
(1.5 marks)
| Product | K | L | M | Total |
| Units | 500,000 | 300,000 | 200,000 | 1,000,000 |
| Weightage of units | 50% | 30% | 20% | 100% |
| Joint cost allocation | $240,000 | $144,000 | $96,000 | $480,000 |
Q 3 Provide numerical examples of static and flexible budgets and discuss how these budgets could be used to evaluate the managers’ performance (Week 12: Static and flexible budgets).
(1.5 marks)
| XYZ Company | ||||||||
| Flexible Budget | ||||||||
| Amount per unit | Actual | Flexible Budget Variance | Flexible Budget | Sales Volume Variance | Static Budget | |||
| Units | 10,000 | 10,000 | 8,500 | |||||
| Sales revenue | $26 | $282,000 | $22,000 | F | $260,000 | $39,000 | F | $221,000 |
| Variable expense | $15 | $159,200 | $9,200 | U | $150,000 | $22,500 | U | $127,500 |
| Contribution margin | $122,800 | $12,800 | F | $110,000 | $16,500 | F | $93,500 | |
| Fixed expense | $55,000 | $1,000 | U | $54,000 | $0 | F | $54,000 | |
| Operating Income | $67,800 | $11,800 | F | $56,000 | $16,500 | F | $39,500 | |
| Flexible Budget Variance | $11,800 | F | ||||||
| Sales Volume Variance | $16,500 | F | ||||||
| Total Static Budget Variance | $28,300 | F | ||||||
Budgets can be used to evaluate the performance of a company in so many ways. First, a static budget is prepared for a fixed level of activity in an organization. It is prepared differently depending on different levels of activity. A flexible budget is a tool widely used for panning purposes because it is adaptive to the organizational conditions. A budget is best for us to set targets and make employee appraisals in an organization.