A

Question 1

CVP question

Laila company has provided the following information about the company

REQUIRED

1. Calculate the net income using contribution approach

2. Calculate Net income using the absorption method [ Financial Accounting method]

3. Find CM per unit and the Contribution Margin Ratio

4. Determine the breakeven sales in units and dollars

5. Draw a graph to show the profit and lost and breakeven point for this company [BE graph]

6. Calculate margin of safety in dollars and in percentage . Explain what this concept means to a cost accountant.

7. The sales manager believes that a project of the company could increase sales by 25% but variable cost will also decrease by $5,000 and fixed cost will increase by $ 85,000. Should the company accept the project or reject ?

8. Determine the sales revenue necessary to generate before tax profit if the after tax is$75,000. The tax rate is 18%

9. Determine sales revenue necessary to generate after-tax profit of $85,000 .

10. Calculate degree of leverage [DOL] and if sales increases by 25%, what will be the increase or decrease in net income in $ of this company? What will be the total net income if the project is accepted

[use original data in the beginning]

QUESTION 2

ABC problem

Company LSD LTD has 4 types of overhead . The four categories and expected costs for each category for next year are listed below

Estimates for the proposed job [Job #23] are as follows

The company has been asked to submit a bid for a proposed job. The plant manager thinks getting this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 30%.

In the past , full manufacturing cost has been calculated by allocating overhead using volume based cost driver [[DLH]. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers.

Expected activity for the four activity based cost drivers that would be used are :

Required :

Part 1

1. Calculate the predetermined rates using the Functional based costing .

2. Determine the amount of overhead that would be applied to the proposed project if Functional based costing method is used

3. Determine the total cost of the proposed job using ABC

4. Calculate the unit cost using FBC

5. What bid price is the company going to use according to its FBC policy?

Part 2

1 Calculate the predetermined rates using the activity based costing .

2 Determine the amount of overhead that would be applied to the proposed project if activity based drivers are used

3 Determine the total cost of the proposed job using ABC .

4 Calculate the unit cost using ABC.

5 What bid price is the company going to use according to its policy?

6 Has the company over-applied or under-applied using FBC and ABC? How did you come to this conclusion?

Question 3.

Theory Questions

A. Differentiate between Functional based Costing and Activity based costing

B. What are the weaknesses of Functional based costing ?

C. Give two examples of unit level drivers and two examples of non-unit level drivers and give a brief explanation for each.

D. Mention three assumptions of CVP analysis

E. Explain what the following measures indicate to the managers:

i. Margin of Satety

ii. Degree of Operating Leverage

ALL Questions on this exam carry equal marks

Questions should be submitted on due time and date [Penalty : -30% of total marks]

All answers Hand written