Pricing – NBC Institute

PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

Question

Chukwukah Nigeria Limited manufactures three products, JEL, JET and JAL. Demand for
products JEL and JET is relatively elastic whilst demand for product JAL is relatively
inelastic. Each product uses the same materials and the same type of direct labour but
in different quantities. For many years, the company has been using full absorption
costing and absorbing overheads on the basis of direct labour hours. Selling prices are
then determined using cost plus pricing. This is common in the company‟s industry with
most competitors applying a standard mark-up.
Budgeted production and sales volumes for JEL, JET and JAL for the next year are
25,000, 20,000 and 27,600 units respectively.
The budgeted direct costs of the three products are shown below:

In the coming year, Chukwukah also expects to incur indirect production costs of
N6,887,000, which are analysed as follows:

The following additional data relates to each product:

The management of Chukwukah Nigeria Limited wants to boost sales revenue in order to
increase profits but its capacity to do this is limited because of its use of cost plus
pricing and the application of standard mark-up. The management accountant has
suggested using activity based costing (ABC) instead of full absorption costing, since
this will alter the cost of the products and may therefore enable a different price to be
charged.

Required:
a. Calculate the budgeted full production cost per unit of each product using absorption costing, rounded to two decimal places. (6 Marks)

b. Calculate the budgeted full production cost per unit of each product using activity-based costing (ABC), rounded to two decimal places. (8 Marks)

c. Discuss the impact on selling prices and sales volumes of each product that could result from changing to activity-based costing. (6 Marks)

Answer

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Tags: Absorption Costing, Activity-Based Costing, Direct Costs, Elasticity of Demand, Pricing
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2021

FA – May 2012 – L1 – SA – Q16 – Accounting Concepts

Determining correct statements regarding margin and mark-up.

Question

If goods that cost N900,000 were sold for N1,200,000, which of the following statements are correct?

(i) Mark-up is 25%
(ii) Margin is 331/3%
(iii) Margin is 25%
(iv) Mark-up is 331/3%

A. (i) and (ii)
B. (i) and (iii)
C. (ii) and (iii)
D. (iii) and (iv)
E. (ii) and (iv)

Answer

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Tags: Margin, Mark-Up, Pricing
Level: Level 1

Topic: Accounting Concepts
Series: MAY 2012

FA – Nov 2011 – L1 – SB – Q2c – Regulatory Environment of Accounting

This question asks about the different types of construction contract pricing.

Question

Write short notes on the different types of construction contract pricing

Answer

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Tags: Construction Contracts, Pricing
Level: Level 1

Topic: Regulatory Environment of Accounting
Series: NOV 2011

PM – Nov 2021 – L2 – Q2 – Decision-Making Techniques

Determine whether to outsource production, calculate indifference price, and evaluate non-financial factors for internal production.

Question

Divine Grace (DG) Limited currently produces “Part-2011” internally but has received an offer from KK Plc to outsource the production. The offer is for 1,000 units at N100 per unit for the next five years. The cost accountant provides the following cost breakdown for internal production of 1,000 units:

Cost Components	Amount (₦)
Direct materials	44,000
Direct production labour	22,000
Variable production overhead	14,000
Depreciation on machine	20,000
Product and process engineering	8,000
Rent	4,000
General overheads	10,000
Total	122,000

Additional information:

The machine used exclusively for “Part 2011” was acquired last year for ₦120,000 and has a useful life of six years with no residual value.
The machine could be sold today for ₦30,000.
Product and process engineering costs will cease after one year if outsourced.
Rent savings from storage use if “Part-2011” production stops is ₦2,000.
General overheads are fixed and not allocated to “Part-2011” if outsourced.
Assume a required rate of return of 12%.

Required:
a. Should DG Limited outsource “Part 2011”? (10 Marks)
b. What maximum price should KK Plc quote for 1,000 units to make DG indifferent between outsourcing and internal production? (5 Marks)
c. What non-financial factors would favor internal production over outsourcing? (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Fixed Costs, Make or buy decision, Non-Financial Factors, Outsourcing, Penalty, Pricing, Variable Costs
Level: Level 2

Topic: Decision-making techniques
Series: NOV 2021

SCS – May 2021 – L3 – Q3b – Competitive forces

Draw and explain the Strategic Clock with five broad business strategies that can help SBL gain a competitive advantage.

Question

Draw a strategic clock and explain using the FIVE (5) broad groups of business strategy to help SBL gain a competitive advantage. (7 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business Strategy, Competitive Advantage, Perceived Benefits, Pricing, Strategic Clock
Level: Level 3

Topic: Competitive forces
Series: MAY 2021

MA – Nov 2016 – L2 – Q2a – Budgetary control

Calculate the overhead absorption rates and determine the total costs and selling price of a specific job in a manufacturing company.

Question

Smooth Sailing Ltd is a medium-sized company that specializes in the construction of iron gates for clients. It has three production departments through which all jobs are processed: Assembling, Welding, and Finishing. The following data relates to the year ended 30 September 2015:

Budgeted Data:

	Assembling	Welding	Finishing
Overheads (GH¢)	64,050	108,900	83,520
Direct labour hours	–	–	14,400
Machine hours	5,250	6,600	–

Job CA2 was undertaken during the last month of the year recording the following:

Direct materials:

From stores: GH¢16,500
Bought-in: GH¢12,600

Direct labour:

Assembling: 450 hours @ GH¢8/hr
Welding: 535 hours @ GH¢8/hr
Finishing: 1,235 hours @ GH¢6/hr

Machine hours:

Assembling: 425
Welding: 532
Finishing: –

Trials and testing cost of GH¢5,400 is incurred on each job.

It is company policy to make a mark-up of 50% of profit on each job.

Required:

i) Calculate an appropriate overhead absorption rate for each department for the year ended 30 September 2015. (5 marks)

ii) Determine the total costs, and hence, the price of Job CA2. (10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Calculation, Job Costing, Labour Hours, Machine Hours, Overhead Absorption Rate, Pricing
Level: Level 2

Topic: Budgetary control
Series: NOV 2016

PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

Question

In the coming year, Chukwukah also expects to incur indirect production costs of
N6,887,000, which are analysed as follows:

The following additional data relates to each product:

Required:
a. Calculate the budgeted full production cost per unit of each product using absorption costing, rounded to two decimal places. (6 Marks)

b. Calculate the budgeted full production cost per unit of each product using activity-based costing (ABC), rounded to two decimal places. (8 Marks)

c. Discuss the impact on selling prices and sales volumes of each product that could result from changing to activity-based costing. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Absorption Costing, Activity-Based Costing, Direct Costs, Elasticity of Demand, Pricing
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2021

FA – May 2012 – L1 – SA – Q16 – Accounting Concepts

Determining correct statements regarding margin and mark-up.

Question

If goods that cost N900,000 were sold for N1,200,000, which of the following statements are correct?

(i) Mark-up is 25%
(ii) Margin is 331/3%
(iii) Margin is 25%
(iv) Mark-up is 331/3%

A. (i) and (ii)
B. (i) and (iii)
C. (ii) and (iii)
D. (iii) and (iv)
E. (ii) and (iv)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Margin, Mark-Up, Pricing
Level: Level 1

Topic: Accounting Concepts
Series: MAY 2012

FA – Nov 2011 – L1 – SB – Q2c – Regulatory Environment of Accounting

This question asks about the different types of construction contract pricing.

Question

Write short notes on the different types of construction contract pricing

Answer

Find Related Questions by Tags, levels, etc.

Tags: Construction Contracts, Pricing
Level: Level 1

Topic: Regulatory Environment of Accounting
Series: NOV 2011

PM – Nov 2021 – L2 – Q2 – Decision-Making Techniques

Determine whether to outsource production, calculate indifference price, and evaluate non-financial factors for internal production.

Question

Cost Components	Amount (₦)
Direct materials	44,000
Direct production labour	22,000
Variable production overhead	14,000
Depreciation on machine	20,000
Product and process engineering	8,000
Rent	4,000
General overheads	10,000
Total	122,000

Additional information:

The machine used exclusively for “Part 2011” was acquired last year for ₦120,000 and has a useful life of six years with no residual value.
The machine could be sold today for ₦30,000.
Product and process engineering costs will cease after one year if outsourced.
Rent savings from storage use if “Part-2011” production stops is ₦2,000.
General overheads are fixed and not allocated to “Part-2011” if outsourced.
Assume a required rate of return of 12%.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Fixed Costs, Make or buy decision, Non-Financial Factors, Outsourcing, Penalty, Pricing, Variable Costs
Level: Level 2

Topic: Decision-making techniques
Series: NOV 2021

SCS – May 2021 – L3 – Q3b – Competitive forces

Draw and explain the Strategic Clock with five broad business strategies that can help SBL gain a competitive advantage.

Question

Draw a strategic clock and explain using the FIVE (5) broad groups of business strategy to help SBL gain a competitive advantage. (7 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business Strategy, Competitive Advantage, Perceived Benefits, Pricing, Strategic Clock
Level: Level 3

Topic: Competitive forces
Series: MAY 2021

MA – Nov 2016 – L2 – Q2a – Budgetary control

Calculate the overhead absorption rates and determine the total costs and selling price of a specific job in a manufacturing company.

Question

Budgeted Data:

	Assembling	Welding	Finishing
Overheads (GH¢)	64,050	108,900	83,520
Direct labour hours	–	–	14,400
Machine hours	5,250	6,600	–

Job CA2 was undertaken during the last month of the year recording the following:

Direct materials:

From stores: GH¢16,500
Bought-in: GH¢12,600

Direct labour:

Assembling: 450 hours @ GH¢8/hr
Welding: 535 hours @ GH¢8/hr
Finishing: 1,235 hours @ GH¢6/hr

Machine hours:

Assembling: 425
Welding: 532
Finishing: –

Trials and testing cost of GH¢5,400 is incurred on each job.

It is company policy to make a mark-up of 50% of profit on each job.

Required:

i) Calculate an appropriate overhead absorption rate for each department for the year ended 30 September 2015. (5 marks)

ii) Determine the total costs, and hence, the price of Job CA2. (10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Calculation, Job Costing, Labour Hours, Machine Hours, Overhead Absorption Rate, Pricing
Level: Level 2

Topic: Budgetary control
Series: NOV 2016

Question Tag: Pricing

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PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

FA – May 2012 – L1 – SA – Q16 – Accounting Concepts

Determining correct statements regarding margin and mark-up.

FA – Nov 2011 – L1 – SB – Q2c – Regulatory Environment of Accounting

This question asks about the different types of construction contract pricing.

PM – Nov 2021 – L2 – Q2 – Decision-Making Techniques

Determine whether to outsource production, calculate indifference price, and evaluate non-financial factors for internal production.

SCS – May 2021 – L3 – Q3b – Competitive forces

Draw and explain the Strategic Clock with five broad business strategies that can help SBL gain a competitive advantage.

MA – Nov 2016 – L2 – Q2a – Budgetary control

Calculate the overhead absorption rates and determine the total costs and selling price of a specific job in a manufacturing company.

PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

FA – May 2012 – L1 – SA – Q16 – Accounting Concepts

Determining correct statements regarding margin and mark-up.

FA – Nov 2011 – L1 – SB – Q2c – Regulatory Environment of Accounting

This question asks about the different types of construction contract pricing.

PM – Nov 2021 – L2 – Q2 – Decision-Making Techniques

Determine whether to outsource production, calculate indifference price, and evaluate non-financial factors for internal production.

SCS – May 2021 – L3 – Q3b – Competitive forces

Draw and explain the Strategic Clock with five broad business strategies that can help SBL gain a competitive advantage.

MA – Nov 2016 – L2 – Q2a – Budgetary control

Calculate the overhead absorption rates and determine the total costs and selling price of a specific job in a manufacturing company.

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PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

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FA – May 2012 – L1 – SA – Q16 – Accounting Concepts

Determining correct statements regarding margin and mark-up.

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FA – Nov 2011 – L1 – SB – Q2c – Regulatory Environment of Accounting

This question asks about the different types of construction contract pricing.

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PM – Nov 2021 – L2 – Q2 – Decision-Making Techniques

Determine whether to outsource production, calculate indifference price, and evaluate non-financial factors for internal production.

You're reporting an error for "PM – Nov 2021 – L2 – Q2 – Decision-Making Techniques"

SCS – May 2021 – L3 – Q3b – Competitive forces

Draw and explain the Strategic Clock with five broad business strategies that can help SBL gain a competitive advantage.

You're reporting an error for "SCS – May 2021 – L3 – Q3b – Competitive forces"

MA – Nov 2016 – L2 – Q2a – Budgetary control

Calculate the overhead absorption rates and determine the total costs and selling price of a specific job in a manufacturing company.

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PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

You're reporting an error for "PM – May 2021 – L2 – Q6 – Costing Systems and Techniques"

FA – May 2012 – L1 – SA – Q16 – Accounting Concepts

Determining correct statements regarding margin and mark-up.

You're reporting an error for "FA – May 2012 – L1 – SA – Q16 – Accounting Concepts"

FA – Nov 2011 – L1 – SB – Q2c – Regulatory Environment of Accounting

This question asks about the different types of construction contract pricing.

You're reporting an error for "FA – Nov 2011 – L1 – SB – Q2c – Regulatory Environment of Accounting"

PM – Nov 2021 – L2 – Q2 – Decision-Making Techniques

Determine whether to outsource production, calculate indifference price, and evaluate non-financial factors for internal production.

You're reporting an error for "PM – Nov 2021 – L2 – Q2 – Decision-Making Techniques"

SCS – May 2021 – L3 – Q3b – Competitive forces

Draw and explain the Strategic Clock with five broad business strategies that can help SBL gain a competitive advantage.

You're reporting an error for "SCS – May 2021 – L3 – Q3b – Competitive forces"

MA – Nov 2016 – L2 – Q2a – Budgetary control

Calculate the overhead absorption rates and determine the total costs and selling price of a specific job in a manufacturing company.

You're reporting an error for "MA – Nov 2016 – L2 – Q2a – Budgetary control"

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