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Q1: The board of directors of your company is concerned about certain recent issues in the company. Recently the company has been losing bids in tenders it thought were low, while it has won a few bids it thought were high. The company has lately diversified into new markets and introduced new product lines. Goods have become complex, requiring many inputs and processes. The operations of the company have changed significantly, but the costing system has not changed. The Board has approached you to look into the above issues. Critically analyze the issues at hand, and suggest a suitable roadmap for the company to revamp its costing system. (10 Marks)
Q2: 2. A company has capacity to produce 100000 units of a product in a year, but due to lack of adequate demand, it is producing only 80000 units / year. The product sells at Rs. 50 per unit. The following details are available regarding the unit costs of the product:
Direct Material – Rs. 20
Direct Wages – Rs. 12
Fixed Factory Overhead – Rs. 2
Variable Factory Overhead – Rs. 2
Administrative Expenses – Rs. 3
Fixed selling and distribution overheads – Rs. 1
Variable selling and distribution overheads – Rs. 2
The company has recently received a special onetime order from a foreign client. The order size is 15000 units, and the client will pay Rs. 40 per unit. Should the company accept the order? Would your opinion change if the order had come from a regular domestic distributor of the product? (10 Marks)
Q3a: A company uses a pre-determined overhead rate for production orders on a labour cost basis of Department I and machine hour basis for the Department II. At the beginning of 2016, the company made the following estimates:
|Department I||Department II|
|Direct Labour Cost (Rs.)||5000||2500|
|Factory Overheads (Rs.)||7500||12500|
|Direct Labour Hours||4000||1250|
Job order no XYZ shows the following details of cost incurred during 2016 in its completion.
|Department I||epartment II|
|Materials Required (Rs.)||2||10|
|Direct Labour Cost (Rs.)||5||7|
|Direct Labour Hours||4||5|
Assuming that the job No. XYZ consists of 16 units of the finished product; calculate the unit cost of the job. (5 Marks)
Q3b: For the above company, it was found that at the end of 2016 actual factory overhead cost amounted to Rs.8000 for Department I and Rs. 12200 for Department II. Calculate under or over-absorbed overheads. (5 Marks)