Mgt402 Assignment No. 1 solution
Wednesday, April 20, 2011 Posted In MGT Edit ThisCost and Management Accounting Spring 2011
Virtual University of Pakistan
Spring Semester 2011
Assignment # 1 Marks: 20
Question # 1: (Marks: 15)
ABC manufacturing company submits the following information on March 31, 2011:
Material used Rs.440,000
Direct labor 290,000
Indirect labor 46,000
Light & power 4,260
Depreciation 4,700
Repairs to machinery 5,800
Miscellaneous factory overhead 29,000
WIP inventory, April 1, 2010 41,200
Finished goods inventory, April 1, 2010 34,300
WIP inventory, March 31, 2011 42,500
Finished goods inventory, March 31, 2011 31,500
The company applies factory overhead on the basis of 30% of direct labor cost.
Required:
The amount of over/under applied factory overhead cost
Adjustment of over/under applied FOH cost in the entire production
Question # 2: (Marks: 5)
Calculate economic order quantity from the given information and also describe its effect if ordering cost and carrying cost is reduced by 2%. (Hint: increase, decrease, no effect)
Annual consumption 120,000 units
Cost to place one order Rs.1,500
Cost per unit Rs.60
Carrying cost 6% of unit cost
Note:
2. You have to do you assignment in that file according to the given format
3. Only answers are required in table,
4. All supporting
5. Ignoring these points will reduce your mark
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Solution:
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Solution:
Question # 1
Over/under applied FOH Rs.2,760 Under Applied
Adjustment on entire production:
Work in process cost 42,631
Finished goods cost 31,598
Cost of goods sold 821,031
Question # 2
Economic order quantity 10,000
Effect of cost reduction on EOQ 9,997 (No Effect)
Working:
Over/under applied FOH:
Applied FOH = Rs.290,000 x 30% of Direct Labor
= Rs.87,000
Actual FOH = Indirect Labor + Depreciation + Light & Power + Repair to Machinery + Misc. FOH
= 46,000 + 4,700 + 4,260 + 5,800 + 29,000
= Rs.89,760
Over/under applied FOH = 87,000 - 89,760
= Rs.2,760 Under Applied
Cost of Goods Sold Statement
Direct Material Consumed 440,000
Add: Direct Labor 290,000
Add: FOH Cost (290,000* 30%) 87,000
Total Factory Cost 817,000
Add: Opening W.I.P 41,200
Less: Ending W.I.P (42,500)
Add: Opening Finished Goods 34,300
Less: Closing Finished Goods (31,500)
Cost of Goods Sold (At Normal) 818,500
Adjustment on entire production:
Work in process cost (42500 + 131) 42,631
Finished goods cost (31,500 + 98) 31,598
Cost of goods sold (818,500 + 2,531) 821,031
2- EOQ = √2 x RU x OC / UC x CC%
= √2 x 120,000 x 1,500 / 60 x 6%
= 10,000
Effect of cost reduction By 2% on EOQ
EOQ = √2 x RU x OC / UC x CC%
= √2 x 120,000 x 1,470 / 60 x 5.88%
= 9,997
Question # 1
Over/under applied FOH Rs.2,760 Under Applied
Adjustment on entire production:
Work in process cost 42,631
Finished goods cost 31,598
Cost of goods sold 821,031
Question # 2
Economic order quantity 10,000
Effect of cost reduction on EOQ 9,997 (No Effect)
Working:
Over/under applied FOH:
Applied FOH = Rs.290,000 x 30% of Direct Labor
= Rs.87,000
Actual FOH = Indirect Labor + Depreciation + Light & Power + Repair to Machinery + Misc. FOH
= 46,000 + 4,700 + 4,260 + 5,800 + 29,000
= Rs.89,760
Over/under applied FOH = 87,000 - 89,760
= Rs.2,760 Under Applied
Cost of Goods Sold Statement
Direct Material Consumed 440,000
Add: Direct Labor 290,000
Add: FOH Cost (290,000* 30%) 87,000
Total Factory Cost 817,000
Add: Opening W.I.P 41,200
Less: Ending W.I.P (42,500)
Add: Opening Finished Goods 34,300
Less: Closing Finished Goods (31,500)
Cost of Goods Sold (At Normal) 818,500
Adjustment on entire production:
Work in process cost (42500 + 131) 42,631
Finished goods cost (31,500 + 98) 31,598
Cost of goods sold (818,500 + 2,531) 821,031
2- EOQ = √2 x RU x OC / UC x CC%
= √2 x 120,000 x 1,500 / 60 x 6%
= 10,000
Effect of cost reduction By 2% on EOQ
EOQ = √2 x RU x OC / UC x CC%
= √2 x 120,000 x 1,470 / 60 x 5.88%
= 9,997
