NMIMS MBA Cost & Management Accounting Solved Answer Assignment
15
Oct
2024
Cost & Management Accounting
Question 1:
Office Products Ltd provides the Sales and the cost data for 60,000 units as given below. At full capacity the plant can produce 100,000 units
Prepare the Income statement under marginal costing for production at 80,000 units. (10 marks)
Introduction:
When discussing economics, the word “marginal cost” refers to the change in total manufacturing cost that results from adding one additional unit to the production process. To calculate marginal cost, divide the change in manufacturing expenses by the variation in the number of units.
Concept and application:
The expense of producing one additional product unit is referred to as the marginal cost. It is an essential method of cost accounting because it assists in determining the amount of production that is the most cost-effective for a given manufacturing process. It is evaluated by determining what additional administrative costs are incurred even if only one other item is manufactured.
Conclusion:
During manufacturing, an organization might become more or less efficient depending on the number of units it creates. This idea of competence achieved through production is replicated in the concept of marginal cost, which refers to the escalating costs associated with a production unit.
Question 2:
Nikson Ltd provides the following information relating to the activities of a production department for the month of January 2023
Material Used Rs. 72,000
Direct wages Rs. 60,000
Machine hours 20,000 hours
Labour hours 24,000 hours
Overhead chargeable to the department Rs. 48,000
1) Direct labour hours
2) Percentage of direct wages
3) Machine hour rate (10 marks)
Introduction:
The technique of overhead distribution to the manufacturer for a specific period is referred to as the “absorption of overhead.” The only expenses incurred by the production departments are those associated with minor distribution. Checking into an appropriate secondary distribution base must be done so that each task or item gets its fair share of overhead when it moves through a particular division.
Concept and Application:
The term “overhead absorption” refers to a rate assigned to a cost unit to account for the overhead expenses associated with a particular activity level. A product or service’s overhead costs can be calculated based on the number of direct labor hours, natural works costs, or machine hours. If the quantity of goods is to be used as a foundation for defining the overhead rate, then the following formula should be used.
Overhead Rate = Amount of Overhead for the period / Total number of units to be produced for the period
Multiplying the overhead rate by the total number of units generated during the period will calculate the absorbed overhead.
Purpose and Objectives:
The following goals should be considered when determining the overhead absorption rate.
Conclusion:
“Indirect costs” refers to expenditures that cannot be traced directly to a specific activity or object. The value of indirect or subsidiary expenses allotted to cost items is called “absorption of overhead.” whether a company uses GAAP or IFRS accounting standards, overhead absorption is an essential component of the prerequisite that must be met to contain overhead costs in the amount of stock that is shown in the company’s financial reports.
Question 3a
Samsung Ltd. are the manufacturers of Television. The following are the details of a Product during the year 2022.
Ordering Cost Rs.50 per order
Inventory carrying cost 10% per annum
Cost of Product A is Rs. 500 per unit
Annual consumption of Product A is 5000 units.
Compute the Economic order quantity. What if the inventory maintained by the company is 200 units? (5 marks)
Introduction:
The economic order quantity, also known as the EOQ, refers to the optimal number of units a business should purchase to meet demand while maintaining control over inventory costs such as keeping or collecting fees, deficiency costs, and order costs. The Economic Order Quantity (EOQ) formula is essential when demand, gathering, and holding costs continuously continue.
Concept and Application:
The primary purpose of the EOQ formula is to determine the optimal number of pieces of a product to place an order for. A business can lower the costs of purchasing, distributing, and holding the units if it makes this possible. The EOQ algorithm can be altered to control various production levels or order breaks, and businesses that receive massive supply orders and have highly variable prices implement a control system for EOQ into their own proprietary computer software.
Conclusion:
The Economic Order Quantity is a point that makes calculations to support businesses in reducing the cost of gathering and holding stock. The end recognizes that the cost of assembling decreases with the rise in order quantity due to acquiring economies of scale. On the other hand, the expense of holding inventory rises proportionally with the proportions of a stock’s increase. EOQ is the specific point that results in a reduction in both of these expenses that are inversely linked to one another.
Question 3 (b)
New Corp Ltd. incurs fixed costs of Rs. 5, 00,000 per annum. The company produces a single product with annual sales budgeted to be 70,000 units at a sales price of Rs.300 per unit. Variable costs are Rs.280 per unit.
You are required to determine the break-even point and explain the significance of break-even point. (5 marks)
Introduction:
The two main components of a break-even analysis are the calculation and evaluation of an organization’s safety margin based on the returns obtained and the costs of allied activities. Put another way, and it illustrates the number of sales necessary to support the costs of operating a business. BEP performs an analysis of the multiple pricing levels related to the different phases of demand.
Concept and Application:
The break-even analysis is essential to defining the stage of manufacture or a specific necessary sales combination. The calculation for the point at which production is profitable again involves splitting the total fixed production costs by the price per individual unit after deducting the variable production costs.
Conclusion:
BEP analysis is a standard economic instrument that is utilized by businesses, as well as by stock and options traders. Industries need to define the minimum amount of sales to cover their accumulated costs and achieve a break-even point. It assists trades concerning pricing policies, management of costs, and decision-making procedures.
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