two problems on Costing allocation and Planning&Budgeting

ISE304.01 Principles of Industrial Costing Second Semester 2013-14 (132)

Dr. Mojahid F. Saeed Osman/ISE304.01/Term132/HW6/May 8, 2014 1

Homework Assignment 6 (Optional) Due on Wednesday May 15, 2014

Submission Instructions:

• Make sure your name is listed on a cover sheet as the first page of the document.

• Each question should be numbered. • Hand written homework will be accepted. However, you will have a credit of 5% of the total

possible points for typing the entire homework in MS word.

Read Chapter 11 in your textbook

1. a) A manufacturing firm has two service departments (S1 and S2) and three production departments

(P1, P2, P3 and P4). The following table shows the costs incurred at the two service departments, as

well as the proportion of services provided by the two service departments to the other departments.

Proportion of services provided to:

Costs

incurred

Service

department

S1

S2

P1

P2

P3

P4

4,500,000SR S1 - 15% 20% 25% 30% 10%

1,160,000 S2 20% - 10% 30% 15% 25%

Allocate the service department costs to the production departments using the following techniques:

(i) Direct Method (5 points) (ii) Step Method (5 points) (iii) Reciprocal (5 points)

b) A company produces three products in a joint production process. For the month of April 2014, 130,000SR of materials, and 210,000SR labor and overhead were added to produce the three main

products: X, Y, and Z. The sale values were available right after the split-off point. The following

diagram shows the process.

X

Sale value 160,000SR

12,000 units

Joint costs

Y

Sale value 240,000SR

16,000 units

Z

Sale value 320,000SR

19,200 units

i) Allocate the joint costs to the products using the net realizable value method. (5 points) ii) Allocate the joint costs to the products using the physical quantities method. (4 points) iii) If products X, Y and Z needed further processing with additional costs of 36,000SR, 24,000SR, and

30,000SR respectively before they could be marketable for 220,000SR, 280,000SR , and 365,000SR

respectively. Allocate the joint costs to the products using the estimated net realizable value

method. (6 points)

ISE304.01 Principles of Industrial Costing Second Semester 2013-14 (132)

Dr. Mojahid F. Saeed Osman/ISE304.01/Term132/HW6/May 8, 2014 2

Read Chapter 13 in your textbook

A manufacturing company expects to sell 15,000 units of its new product next year at a price of 200SR. The

management estimates that the beginning and ending inventory will be 6,000 units and 7,200 units,

respectively.

Each unit of product can be produced in 15 minutes of direct labor time. Direct labor is paid at the rate of

30SR per hour. Each unit produced requires three major components (X, Y and Z). The following information

is available:

Component X Component Y Component Y Components per unit 4 1 2

Cost per component 15 40 25

Expected beginning inventory 5,000 15,000 3,000

Expected ending inventory 2,400 6,000 1,100

The fixed manufacturing overhead for the year is estimated at 50,400SR and the variable manufacturing

overhead varies at the rate of 2SR per direct labor hour. For the next year, prepare the following:

(A) a production budget. (3 points) (B) a materials purchases. (9 points) (C) a labor cost budget. (3 points) (D) a budget for manufacturing overhead. (3 points)

(E) an expected gross margin. (2 points)

Total Possible Points: 50