Full Costing – NBC Institute

MA – May 2016 – L2 – Q3 – Transfer Pricing, Divisional Performance, Relevant Cost and Revenue, Decision Making Techniques

Calculate profitability under different costing methods and evaluate an outsourcing offer, including additional decision factors.

Question

Anim Shoes Ltd produces and sells Ghana-made shoes with two main departments: production/sales and repairs departments. The production and sales department produces and sells 10,000 pairs of shoes each year. Due to the low quality of raw materials available in the country, the company includes an additional GH¢11 in the cost of a pair of shoes sold to cater for one-year after-sales repairs. On average, it is expected that a quarter of the total pairs of shoes sold would come back for repairs a year after sale. Repair works on a pair of shoes take 2 labour hours, and it is estimated that total repair cost on the quarter of shoes will be GH¢27,500.

In addition to providing repair services to the production and sales department, the repair department sometimes picks up offers from outside the company. Such external offers are billed at full cost and a margin on sales of 20%. The following is the breakdown of the average repair cost of a pair of shoes:

Cost Item	Cost (GH¢)
Material	2.50
Labour (1.5 per hour)	3.00
Variable Overheads	1.00
Fixed Overheads	2.30

Required:

i) Calculate the individual profits of the Production/Sales department, Repairs department, and Anim Ventures if repairs are done by the repairs department of Anim Ventures at either full cost plus 20% margin on sales or at marginal cost.
(8 marks)

ii) Pee Shoe Repairs has offered to repair each pair of shoes for Anim Ventures at GH¢10.00, a price which is cheaper than what the repairs department is offering. Should Anim Ventures accept this offer?
(5 marks)

iii) Identify THREE other factors Anim Ventures should consider in finalizing the decision in (ii) above.
(3 marks)

iv) Explain TWO principles of a good transfer pricing method.
(4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Full Costing, Marginal Costing, Outsourcing, Profitability, Transfer Pricing
Level: Level 2

Topic: Decision making techniques, Divisional Performance, Relevant Cost and Revenue, Transfer Pricing
Series: MAY 2016

IMAC – DEC 2022 – L1 – Q3 – Scope of Management Accounting | Standard Costing and Variance Analysis

Explanation of responsibility accounting classifications, reasons for full costing, and calculation of material, labour, and overhead variances.

Question

a) Responsibility Accounting is a system of accounting in which costs are identified with persons who are primarily responsible for making decisions about the costs in question. Responsibility Accounting classifies cost under two main headings.

Required:
Explain the TWO (2) classifications of cost under Responsibility Accounting. (2 marks)

b) Full costing is an accounting method used to determine the complete end-to-end cost of producing products or services. Accountants use the term full cost to mean more than a product’s manufacturing or production costs (including fixed manufacturing overhead).

Required:
Explain FOUR (4) reasons full cost of a product or service may be calculated. (8 marks)

c) Afram Ltd has just introduced a standard marginal costing system to assist in the planning and control of the production activities for its single product, Amino. The system became operational on 1 January 2022. The Functional Director responsible for cost and management accounting had a discussion with the Production Manager, and both have agreed on the following standard cost information to manufacture one unit of product, Amino.

Budgeted cost:

Direct materials: 4kg @ GH¢1.75 per kg
Direct labour: 2 hours @ GH¢10 per hour
Variable overhead: 2 hours @ GH¢8.25 per hour.

Actual Results:
The actual results for January 2022 are as follows:

Sales: 22,000 units yielding a total revenue of GH¢1,276,000
Production: 23,000 units
Direct Materials: 90,000 kgs at a cost of GH¢162,000
Direct labour: 48,000 hours at a cost of GH¢576,000
Variable overhead: GH¢350,000

The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.

Required:
Calculate the following variances:
i) Direct Material Price
ii) Direct Material Usage
iii) Direct Labour Rate
iv) Direct Labour Efficiency
v) Variable Overhead Efficiency (10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Full Costing, Labour Variance, Material Variance, Overhead Variance, Responsibility Accounting, Variances
Level: Level 1

Topic: Scope of Management Accounting, Standard Costing and Variance Analysis
Series: DEC 2022

MA – May 2016 – L2 – Q3 – Transfer Pricing, Divisional Performance, Relevant Cost and Revenue, Decision Making Techniques

Calculate profitability under different costing methods and evaluate an outsourcing offer, including additional decision factors.

Question

Cost Item	Cost (GH¢)
Material	2.50
Labour (1.5 per hour)	3.00
Variable Overheads	1.00
Fixed Overheads	2.30

Required:

iii) Identify THREE other factors Anim Ventures should consider in finalizing the decision in (ii) above.
(3 marks)

iv) Explain TWO principles of a good transfer pricing method.
(4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Full Costing, Marginal Costing, Outsourcing, Profitability, Transfer Pricing
Level: Level 2

Topic: Decision making techniques, Divisional Performance, Relevant Cost and Revenue, Transfer Pricing
Series: MAY 2016

IMAC – DEC 2022 – L1 – Q3 – Scope of Management Accounting | Standard Costing and Variance Analysis

Explanation of responsibility accounting classifications, reasons for full costing, and calculation of material, labour, and overhead variances.

Question

Required:
Explain the TWO (2) classifications of cost under Responsibility Accounting. (2 marks)

Required:
Explain FOUR (4) reasons full cost of a product or service may be calculated. (8 marks)

Budgeted cost:

Direct materials: 4kg @ GH¢1.75 per kg
Direct labour: 2 hours @ GH¢10 per hour
Variable overhead: 2 hours @ GH¢8.25 per hour.

Actual Results:
The actual results for January 2022 are as follows:

Sales: 22,000 units yielding a total revenue of GH¢1,276,000
Production: 23,000 units
Direct Materials: 90,000 kgs at a cost of GH¢162,000
Direct labour: 48,000 hours at a cost of GH¢576,000
Variable overhead: GH¢350,000

The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.

Required:
Calculate the following variances:
i) Direct Material Price
ii) Direct Material Usage
iii) Direct Labour Rate
iv) Direct Labour Efficiency
v) Variable Overhead Efficiency (10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Full Costing, Labour Variance, Material Variance, Overhead Variance, Responsibility Accounting, Variances
Level: Level 1

Topic: Scope of Management Accounting, Standard Costing and Variance Analysis
Series: DEC 2022

Question Tag: Full Costing

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MA – May 2016 – L2 – Q3 – Transfer Pricing, Divisional Performance, Relevant Cost and Revenue, Decision Making Techniques

Calculate profitability under different costing methods and evaluate an outsourcing offer, including additional decision factors.

IMAC – DEC 2022 – L1 – Q3 – Scope of Management Accounting | Standard Costing and Variance Analysis

Explanation of responsibility accounting classifications, reasons for full costing, and calculation of material, labour, and overhead variances.

MA – May 2016 – L2 – Q3 – Transfer Pricing, Divisional Performance, Relevant Cost and Revenue, Decision Making Techniques

Calculate profitability under different costing methods and evaluate an outsourcing offer, including additional decision factors.

IMAC – DEC 2022 – L1 – Q3 – Scope of Management Accounting | Standard Costing and Variance Analysis

Explanation of responsibility accounting classifications, reasons for full costing, and calculation of material, labour, and overhead variances.

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MA – May 2016 – L2 – Q3 – Transfer Pricing, Divisional Performance, Relevant Cost and Revenue, Decision Making Techniques

Calculate profitability under different costing methods and evaluate an outsourcing offer, including additional decision factors.

You're reporting an error for "MA – May 2016 – L2 – Q3 – Transfer Pricing, Divisional Performance, Relevant Cost and Revenue, Decision Making Techniques"

IMAC – DEC 2022 – L1 – Q3 – Scope of Management Accounting | Standard Costing and Variance Analysis

Explanation of responsibility accounting classifications, reasons for full costing, and calculation of material, labour, and overhead variances.

You're reporting an error for "IMAC – DEC 2022 – L1 – Q3 – Scope of Management Accounting | Standard Costing and Variance Analysis"

MA – May 2016 – L2 – Q3 – Transfer Pricing, Divisional Performance, Relevant Cost and Revenue, Decision Making Techniques

Calculate profitability under different costing methods and evaluate an outsourcing offer, including additional decision factors.

You're reporting an error for "MA – May 2016 – L2 – Q3 – Transfer Pricing, Divisional Performance, Relevant Cost and Revenue, Decision Making Techniques"

IMAC – DEC 2022 – L1 – Q3 – Scope of Management Accounting | Standard Costing and Variance Analysis

Explanation of responsibility accounting classifications, reasons for full costing, and calculation of material, labour, and overhead variances.

You're reporting an error for "IMAC – DEC 2022 – L1 – Q3 – Scope of Management Accounting | Standard Costing and Variance Analysis"

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