Topic: Costing Systems and Techniques

Search 500 + past questions and counting.
  • Filter by Professional Bodies

  • Filter by Subject

  • Filter by Series

  • Filter by Topics

  • Filter by Levels

PM – May 2015 – L2 – SB – Q6 – Costing Systems and Techniques-

Determine the most profitable product mix for Markus Limited, and prepare a profitability statement for the optimal product mix.

Markus Limited manufactures three products and operates a marginal costing system.

The following information has been extracted from the company’s records:

Products X Y Z
Units budgeted to be produced and sold 3,600 6,000 3,400
Selling Price (₦) 120 110 100
Requirement per Unit:
Direct Material (kg) 5 3 4
Direct Labour (Hours) 4 3 2
Direct Labour Hour rate (₦) 4 4 4
Direct Material Cost per Kg (₦) 8 8 8
Variable Overheads (₦) 14 26 16
Fixed Overheads (₦) 20 20 20
Maximum possible sales (units) 8,000 10,000 3,000

All the three products are produced from the same direct material using the same types of machine and labour. Direct labour, which is the key factor, is limited to 37,200 hours.

Required: a. Determine the most profitable product mix. (6 Marks)
b. Prepare a statement of profitability for the product mix. (9 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – May 2015 – L2 – SB – Q6 – Costing Systems and Techniques-"

PM – May 2015 – L2 – SB – Q4 – Costing Systems and Techniques

Analyze the pricing policy and budget position for Badegy Limited, considering competitor price changes and cost inflation.

BADEGY Limited is a medium-sized company. The company is in the process of deciding its pricing policy for the next period.

The following information is available from its records:

Previous Period:

  • Revenue: ₦13,000,000
  • Units Sold: 100,000 at ₦130
  • Costs: ₦10,000,000
  • Profit: ₦3,000,000

Current Period:

  • Revenue: ₦13,780,000
  • Units Sold: 106,000 at ₦130
  • Costs: ₦10,774,000
  • Profit: ₦3,006,000

It was discovered that between the previous and current periods, there was a 4% general cost inflation, and it is forecast that costs will rise further by 6% in the next period. As a matter of policy, the company did not increase the selling price in the current period, although competitors raised their prices by 4% to allow for the increased costs.

A survey by a team of management consultants found that the demand for the product is elastic with an estimated price elasticity of demand of 1.5. This means that volume falls by 1.5 times the rate of real price increase. Various options are to be considered by the Board.

Required: a. Show the budgeted position of the company if it maintains the ₦130 selling price for the next period when it is expected that competitors will increase their prices by 6%. (15 Marks)
b. What would the budgeted position be if the company also raises its price by 6%? (5 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – May 2015 – L2 – SB – Q4 – Costing Systems and Techniques"

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.

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)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

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

PM – May 2021 – L2 – Q1 – Costing Systems and Techniques

Analyze linear programming application in production and pricing strategy for maximizing scarce resources.

The Managing Director of NTAMS Manufacturing Company Limited, located in Lagos, attended a seminar titled “Optimizing scarce resource utility in a manufacturing setting with particular reference to linear programming.” Upon his return, he initiated a management meeting to discuss key insights, prompted by the board’s decision to prioritize two primary products.

The following are cost data for the anticipated products “Biggi” and “Smalli”:

Costs Biggi (₦) Smalli (₦)
Material Costs (5kg @ ₦50/kg) 250 (3kg @ ₦50/kg) 150
Labour Costs:
Machining Time (4 hours @ ₦15/hr) 60 (2 hours @ ₦15/hr) 30
Processing Time (4 hours @ ₦10/hr) 40 (5 hours @ ₦10/hr) 50

The company adheres to a pricing policy where total cost of production is marked up by 20%. Annual overhead is ₦10,000,000, allocated on a 3:2 basis between Biggi and Smalli, with a projected production of 200,000 Biggis and 100,000 Smallis.

Available resources for the upcoming year:

  • Materials: 1,800,000 kg
  • Machine Time: 800,000 hours
  • Other Processing Time: 1,400,000 hours

Required:

As the management accountant:

  1. Explain briefly the concept of linear programming and its usefulness.
    (5 Marks)
  2. Compute the Prices for Biggi and Smalli using the company’s pricing policy.
    (5 Marks)
  3. Advise the company on the output levels needed to maximize total profit, with full financial analysis support.
    (10 Marks)
  4. Explain the meaning and limitations of “shadow prices” and calculate them for constraints.
    (12 Marks)
  5. Assuming consistent conditions for three years with an investment cost of ₦45,000,000 and a 15% cost of capital:
    • Determine if this venture is justified.
      (4 Marks)
    • Find the breakeven discount factor for this project.
      (4 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – May 2021 – L2 – Q1 – Costing Systems and Techniques"

PM – Nov 2014 – L2 – Q4 – Costing Systems and Techniques

Evaluate profitability for kettles and cooking pots under material and labour constraints for Paly Limited.

Paly Limited, a cottage manufacturer of aluminium products, specialises in producing kettles and cooking pots with annual sales value of N960,000 and N1,440,000 respectively.

Given below are the cost data of each of the products:

  • The company allows for annual 50 weeks of operation at 40 hours per week with the following employees currently engaged in each department:
Department Number of Employees
1 30
2 16
3 18

Required:

(a) Which product would give the maximum profit, and what are the associated problems that could arise? (10 Marks)

(b) Determine which product should be made and the annual profit if the product uses the same direct materials but with a maximum supply limit of N3,000,000 per annum. (5 Marks)

(c) Which product should be made, and what is the annual profit, assuming there is a shortage of skilled employees for Department 2? (5 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – Nov 2014 – L2 – Q4 – Costing Systems and Techniques"

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

Sadet Nigeria Limited assembles three types of motorcycles at the same factory: the 50cc Prelude, the 100cc Roadmaster, and the 150cc Roadstar. Sadet has invested in manufacturing technology to reduce labor costs in response to market demands.

Historically, Sadet used direct labor hours to allocate overhead costs. Now, they are considering activity-based costing (ABC).

Motorcycle Data:

Requirements:

a. Calculate the total profit for each of Sadet’s three motorcycle types, using:

  • i. The existing overhead allocation method based on labor hours.
  • ii. Activity-Based Costing (ABC).
    (14 Marks)

b. Write a report for Sadet’s directors as a Management Accountant, evaluating the labor hours versus activity-based costing methods in Sadet’s circumstances.
(6 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques"

PM – Nov 2015 – L2 – Q3 – Costing Systems and Techniques

Prepare profit or loss statement for each product W, X, Y, and Z, and evaluate impact of discontinuing additional processing.

Casko Limited manufactures four products from a single chemical process and a single
raw material. The production director is considering proposals to discontinue certain
production process and has provided the following information:
(i) The cost of raw materials for the year just ended was N1,320,000.
(ii) The initial processing costs amounted to N2,564,600.
(iii) All the four products W, X, Y and Z are produced simultaneously at a single split-off point.
(iv) Product Y is sold immediately without further processing.
(v) The other three products are subjected to further processing before being sold.
(vi) It is the company‟s policy to apportion the cost prior to split-off point on a suitable
sales value basis.
(vii) The output, sales and the additional processing costs for the past year were as
follows:

Product Output (units) Sales (N) Additional Processing Costs (N)
W 400,000 3,840,000 800,000
X 89,230 1,160,000 640,000
Y 5,000 160,000
Z 9,000 1,200,000 40,000

The proposal being considered by the management is to sell the products to other
processors immediately after the split-off point without any of the present additional
processing. The additional processing costs of products W,X and Z would either no
longer be incurred or be charged to an alternative profitable use. The prices per unit to
be obtained from the other processors would be: W: N6.40, X: N8, Y: N32, and Z: N100.

You are required to prepare a statement of:
a. i. The profit or loss on each of the four products. (10 Marks)
ii. The change in the profit or loss given in your solution to
(i) above, if the proposals being considered were adopted. (8 Marks)
b. Identify TWO long-run pricing decision approaches that are relevant
to a price setting firm. (2 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – Nov 2015 – L2 – Q3 – Costing Systems and Techniques"

PM – May 2024 – L2 – SB – Q2 – Costing Systems and Techniques

The impact of lean manufacturing on variance analysis and the transition from traditional costing to lean accounting.

Kenny Katuma (KK) manufactures standard engine components. It operates a costing system based on absorption costing and standard costs, and the management control system is based on monthly variance analysis reports.
KK has recently appointed a new CEO, who has begun to introduce changes to the manufacturing systems. He believes in lean manufacturing principles and has begun to establish a just-in-time manufacturing system, with a focus on reducing inventories and production cycle times, and eliminating waste. Discussions are in progress with major suppliers to introduce just-in-time purchasing arrangements.
The CEO has informed the management accountant that changes will be needed to the company’s internal accounting systems. He has also indicated that KK will need a lean management accounting system to support its lean manufacturing system. The CEO is dissatisfied with many features of the current management accounting system. There are many errors in data capture for the cost accounting system, and monthly variance reports are not produced until two weeks after the end of each month. He also considers that wrong information is being reported.

Required:
a. Explain the main principles of a lean information system. (6 Marks)
b. Discuss the reasons why KK’s current cost and management accounting systems do not fulfill the requirements of lean information systems. (7 Marks)
c. Identify the changes that should be made to KK’s management accounting system in order to turn it into a lean information system. (7 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – May 2024 – L2 – SB – Q2 – Costing Systems and Techniques"

PM – May 2024 – L2 – SA – Q1 – Costing Systems and Techniques

Calculation of machine utilization rates, identification of bottlenecks, and application of throughput accounting.

Tani Kamac (TK) makes three products A, B, and C. All three products must be offered for sale each month to provide a complete market service. The products are fragile, and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machines and worked on by a single grade of direct labor. Five direct employees are paid ₦80 per hour for a guaranteed minimum of 160 hours each per month. All products are first molded on machine type 1 and then finished and sealed on machine type 2. The machine hours required for each product are as follows:

Product A (hrs/unit) Product B (hrs/unit) Product C (hrs/unit)
Machine 1 1.5 4.5 3.0
Machine 2 1.0 2.5 2.0

The capacity of machine type 1 is 600 hours per month, and machine type 2 is 500 hours per month.

Additional details:

Product A Product B Product C
Selling Price (₦) 910 1,740 1,400
Component Cost (₦) 220 190 160
Other Direct Material Cost (₦) 230 110 140
Direct Labor Cost at ₦80/hr 60 480 360
Overheads (₦) 240 620 520
Profit (₦) 160 340 220
Maximum Monthly Demand (units) 120 70 60

TK uses marginal costing and contribution analysis for decision-making, while profits are reported using absorption costing.

Required:
a. Calculate the machine utilization rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 Marks)
b. Using the current system of marginal and contribution analysis, calculate the profit-maximizing monthly output of the three products. (4 Marks)
c. Explain why throughput accounting might provide more relevant information in TK’s circumstances. (6 Marks)
d. Using a throughput approach, calculate the throughput-maximizing monthly output of the three products. (5 Marks)
e. Explain the throughput accounting approach to optimizing inventory and its valuation. Contrast this approach to the current system used by TK. (5 Marks)
f. Explain the importance of identifying scarce resources when preparing budgets and the use of linear programming to determine the optimum use of resources. (6 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – May 2024 – L2 – SA – Q1 – Costing Systems and Techniques"

PM – Nov 2016 – L2 – Q3 – Costing Systems and Techniques

Question tests understanding of Activity Based Costing features and benefits, along with organizational performance measurement through financial and non-financial indicators.

Adelab Nigeria Limited is a manufacturer of industrial gear. Over the years, the company has collected, allocated and absorbed overhead cost based on the traditional absorption costing technique.

The current economic recession in the country and stiff competition in the market are seriously affecting the company’s performance and market share as its competitors have in recent times, introduced discounts to their customers. The customers of Adelab have therefore been putting pressure on the company to follow suit and few of these customers have started patronising the company’s competitors who offer discounts on every purchase.

To address these problems and other strategic and operational issues affecting the company, the Board of Directors of Adelab decided recently to appoint a seasoned management expert as Business Process Executive (BPE). The BPE recently advised the Board to organise a management retreat. The focus of the retreat is strategic management, cost control and performance management. During the course of the retreat, new costing techniques such as activity based management, life cycle costing, target costing, Kaizen costing, throughput accounting, backflush accounting, just in time approach to inventory management, etc., were discussed by the BPE. The need to also consider both financial and non-financial performance measurements was also discussed. The BPE further highlighted the need for the company to link its Key Performance Indicators (KPIs) to its strategic and operational Critical Success Factors (CSF), to achieve a better focus and improve its financial performance.

In a board meeting after the retreat, the following discussions took place:
Technical Director: “To improve our financial performance I think I will have to agree
with the BPE‟s submission at the retreat that we replace absorption costing approach
with an Activity Based Costing (ABC) system. I believe this will help us to put a tap on
cost and thus improve cost control and increase profit margins. We can then pass
some of these costs reduction to our customers in form of discounts”.
Managing Director: “Yes, I agree with your opinion but I also think we need to
monitor our performance in both financial and non-financial terms. For example, loss
of sales could be due to charging a higher price than our competitors and as well as
producing bad quality product. I therefore think that, while we should consider
introducing activity based costing, we should also consider ways in which the
company could monitor and assess performance on a wider basis”.

You are required to:

a. Describe FIVE key features of Activity Based Costing (ABC) and provide SIX advantages and FOUR disadvantages of adopting Activity Based Costing (ABC) approach to cost accumulation. (10 Marks)

b. Explain the need for the measurement of organisational and managerial performance giving examples of the range of financial and non-financial performance measures that might be used. (10 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – Nov 2016 – L2 – Q3 – Costing Systems and Techniques"

PM – May 2022 – L2 – SA – Q4 – Costing Systems and Techniques

Analysis of activity-based costing applications and challenges in large service organizations.

Large service organisations, such as banks and hospitals, used to be noted for their lack of management accounting techniques and their relatively unsophisticated budgeting and control systems compared with large manufacturing organisations. But this is changing and many large service organisations are now revising their use of management accounting techniques, especially as it relates to activity-based approaches.

Required:
a. Explain which features of large-scale service organisations encourage the application of activity-based approaches to the analysis of cost information. (5 Marks)

b. Explain which features of service organisations may create problems for the application of activity-based costing. (5 Marks)

c. Explain the uses for activity-based cost information in service industries. (5 Marks)

d. Many large service organisations were at one time state-owned, but have been privatised. Examples in some countries include electricity supply and telecommunications. They are often regulated. Similar systems of regulation of prices by an independent authority exist in many countries and are designed to act as a surrogate for market competition in industries where it is difficult to ensure a genuinely competitive market. Explain which aspects of cost information and systems in service organisations would particularly interest a regulator, and why these features would be of interest. (5 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – May 2022 – L2 – SA – Q4 – Costing Systems and Techniques"

PM – May 2022 – L2 – SA – Q1C – Costing Systems and Techniques

Explain the concepts

Explain the following concepts:
i. Incremental cost;
ii. Differential cost;
iii. Committed cost;
iv. Sunk cost;
v. Opportunity cost.

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – May 2022 – L2 – SA – Q1C – Costing Systems and Techniques"

PM – May 2022 – L2 – SA – Q1B – Costing Systems and Techniques

Appraisal of a one-off order outside normal operations with relevant cost considerations.

The company is considering the viability of investing in a one-off order outside its normal budgeted routine operation. The Management Accountant is requested to appraise the procurement and sale of some useful medical equipment. The following cost estimate has been prepared by a junior accountant:

  1. The steel is regularly used and has a current stock value of N50 per square meter. There are currently 400 square meters in stock. The steel is readily available at a price of N55 per square meter.
  2. The brass fittings would have to be bought specifically for the job. A supplier has quoted N800 for the fittings required.
  3. The skilled labor is currently employed by the company and paid at the rate of N80 per hour. If this job were undertaken, it will be necessary to either work 100 hours overtime which would be paid at time plus one half (N120 per hour), or hire additional labor at N100 per hour.
  4. The company has sufficient unused capacity in terms of general fixed overheads. The junior accountant has made no allocation for fixed overheads.
  5. The company’s policy is to add 20% to the production cost as an allowance against administrative costs associated with the jobs accepted.
  6. The standard profit added by the company as part of its pricing strategy is N150.

Required:

  1. Prepare, on a relevant cost basis, the lowest cost estimate that could be used as the basis for a quotation. Explain briefly your reasons for using each of the values in your estimates. (6 Marks)
  2. There may be a possibility of repeat orders from your company which would occupy part of the normal production capacity. What factors need to be considered before quoting for this order? (4 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – May 2022 – L2 – SA – Q1B – Costing Systems and Techniques"

PM – May 2022 – L2 – SA – Q1A – Costing Systems and Techniques

Budgeted contribution, effect of product discontinuation, and sales to cover extra costs.

You are the Management Accountant of Dankoli Nigeria Limited, which specializes in the production of three products: Product 1, Product 2, and Product 3.

The following information is available for the first quarter of 2021:

Particulars Product 1 Product 2 Product 3
Sales units (’000) 225 376 190
Selling Price per unit N15.00 N13.00 N10.00
Variable costs per unit N7.80 N6.00 N5.00
Attributable fixed costs N275,000 N337,000 N296,000

General fixed overhead is apportioned on the basis of sales value. The budgeted general fixed overhead is N1,668,000.

Required:

  1. Calculate the budgeted contribution and profit of the Products and Company. (5 Marks)
  2. Calculate the budgeted profits assuming that Product 3 is discontinued with no effect on sales of the other products. (5 Marks)
  3. Calculate the extra sales in units and value required to cover the additional cost of advertising of N80,000 if such cost is treated as general fixed overhead. (5 Marks)

 

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – May 2022 – L2 – SA – Q1A – Costing Systems and Techniques"

PM – Nov 2019 – L2 – Q2 – Costing Systems and Techniques

Calculate the reduction in cost per unit of three products using Activity-Based Costing (ABC) and direct labour hour allocation.

Lunda Limited manufactures a range of products, many of which have short product lifecycles. Research and development staff recently designed three new products which would be manufactured in a single production cell of the company’s factory. The combined monthly manufacturing overhead costs of the three products are summarized as follows:

Activity Costs (₦)
Production set-ups (10 per month) 200,000
Material movements (400 per month) 1,800,000
Repairs (4,000 per month) 3,000,000
Total manufacturing overheads per month ₦5,000,000

The following information is available concerning the three new products:

The company’s target costing task group expressed the view that the new products
would not be profitable, given the likely market prices and the cost of
manufacturing the products using the proposed design. In response, the product
designers indicated that no design changes were possible in relation to Product A
or B, but that changes in the design of Product C would bring about the following
reductions in the amount of monthly activity involved in manufacturing that
product without compromising either the quality or quantity of output:

Calculate the reduction in the cost per unit of each of the three products
which would occur as a result of the design changes to Product C, in each of
the following circumstances:
• If manufacturing overheads are allocated to products using activitybased costing (ABC);
• If manufacturing overheads are allocated to products on a direct labour
hour basis. (10 Marks)
b. Discuss the view that an ABC system is essential for the implementation of
target costing. Use the case of Lunda Limited to illustrate your answer.
(5 Marks)
c. The following data relates to another product of Lunda

Comment on the trends in this data set. (5 Marks)

 

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – Nov 2019 – L2 – Q2 – Costing Systems and Techniques"

PM – Nov 2020 – L2 – Q2 – Costing Systems and Techniques

Analyze the profit-maximizing output using marginal costing and throughput accounting for two products, and compare both methods.

Ideal Nigeria Limited manufactures two products, Light and Medium, on the same machines. Sales demand for the products exceeds the machine capacity of the company’s production department. The potential sales demand in each period is for 10,000 units of Light and 15,000 units of Medium. Sales prices cannot be increased due to competition from other producers in the market. The maximum machine capacity in the production department is 40,000 hours in each period.

The following cost and profitability estimates have been prepared:

Light Medium
Sales price N110 N135
Direct materials N50 N45
Direct labour and variable overhead N30 N55
Contribution per unit N30 N35
Machine hours per unit 1.5 hours 2 hours

Fixed costs in each period are N450,000.

Required:
a. Using marginal costing principles, calculate the profit-maximizing output in each period, and the amount of profit. (4 Marks)
b. Explain how throughput accounting differs from marginal costing in its approach to maximizing profit. (4 Marks)
c. Using throughput accounting, calculate the throughput accounting ratio for Light and Medium. (8 Marks)
d. Using throughput accounting principles, calculate the profit-maximizing output in each period, and the amount of profit. (4 Marks)

 

 

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – Nov 2020 – L2 – Q2 – Costing Systems and Techniques"

PM – Nov 2021 – L2 – Q3 – Costing Systems and Techniques

Calculate profit-maximizing output using both marginal and throughput accounting principles and compare the approaches for Kahkiri Limited.

The following cost and profitability estimates have been prepared:

Product X Y
Sales price 44 54
Direct materials 20 18
Direct Labour 6 11
Variable overhead 6 11
Contribution per unit 12 14
Attributable fixed cost N10,000 N10,000
Machine hours per unit 1.5 hours 2 hours

Fixed costs in each period are N100,000.

Required:
a. Using marginal costing approach, calculate the profit-maximising output for the period, and the associated profit for each product and the company. (4 Marks)
b. What are the advantages of throughput accounting over marginal costing method in profit-maximising decisions? (4 Marks)
c. Calculate the throughput accounting ratio for Product X and for Product Y. (8 Marks)
d. Using throughput accounting principles, calculate the profit-maximising output in each period, and calculate the amount of the profit. (4 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – Nov 2021 – L2 – Q3 – Costing Systems and Techniques"

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

Julmat Limited, a manufacturing company, has developed a new product that requires an initial capital investment of N5m. At the end of the product’s life, the capital equipment is expected to have a value of N3m. Julmat Limited requires an Annual Rate of Return (ARR) of 20% on its average investment on products of this type. The new product has an expected life of one year before it will be replaced by a more advanced product.

Production
The new product will be manufactured in batches of 1,000 units using a just-in-time production system.

The first batch is expected to incur a direct labour cost of N100,000, but a 75% learning curve is expected until the cumulative production equals 30 batches.

Thereafter, each batch is expected to incur the same direct labour cost as that of the 30th batch.

The expected direct materials cost for the first batch is N50,000. However, an experience curve is expected to apply to the first 10 batches produced; thereafter, no further savings in material costs per batch are expected.

Other production costs are expected to be N10,000 per batch.

Sales
Sales of the new product are expected as follows for each of the four stages of the product life cycle:

Stage Units Sold Selling Price per Unit (N)
Introduction 10,000 120
Growth 30,000 100
Maturity 60,000 80
Decline 30,000 50

Required:
a. Prepare calculations to show the total direct labour cost of the product for each of the four stages of the product life cycle. (6 Marks)
b. Assuming that there is no experience curve in relation to the product’s direct material cost, prepare a statement that shows the profitability of the new product for each of the four stages of the product life cycle individually and in total for the product’s life. (5 Marks)
c. Assuming that the direct material experience curve applies, calculate the average direct material cost per batch that must be incurred in order for the company to meet its ARR target over the life cycle of the product. (4 Marks)
d. Discuss the concept of life cycle costing and its effect on product pricing strategies at different stages of the product life cycle. Use the Julmat Limited scenario to illustrate your answer. (5 Marks)

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques"

error: Content is protected !!
Oops!

This feature is only available in selected plans.

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

If you’re not subscribed to a plan, click on the button below to choose a plan