Faculty: Trisha Ahmed (TsA)

ACT 202: Introduction to Managerial Accounting

Project topic: Determining The Cost of a Product

Group members: 5
Submission date: 14th December 2016
Requirements:
1) Select one local manufacturing company and one of their products.
2) Describe the cost involved in manufacturing one product and classify the cost into:
a) Production: Direct material, direct labour, direct expenses
b) Fixed Overheads by function.
Present this classification in a table.
3) Identify a price for the product (you will use this in the calculations).
Assume that the company you selected makes more than one product and that it produces management
accounts, including a costing profit and loss account per product each month using both variable and absorption
costing. They are worried about the cost per unit of one product- product A (the one you selected in part (1).
In both February and March, 50,000 units of the product were produced each month. This is the sell capacity.
Selling price is determined using cost plus % profit. At this moment, the policy is 20% profit per unit.
Based on per unit cost, the production cost in both months is:
Direct material
20%
Direct labour

30%

Fixed overheads

30%

Cost
Profit per unit
Total

80%
20%
100%

Calculate the total cost and cost per unit based on the price you selected in part (4 for product A.
There were no opening stocks at the start of February. In February all production was sold but in March only
37,500 units were sold.
1) What is the cost per unit using absorption costing?
2) What is the cost per unit using variable costing?
3) What is the profit for the period for each month in both methods?

Fall 2016

Faculty: Trisha Ahmed (TsA)

4) Calculate the break-even point in units, BEP in sale revenues, BEP as % of capacity and the level of
capacity to achieve 15% more profits for the period based on February profit and loss account.
At a recent board meeting in the company you selected, there was a heated discussion on the need to improve
financial performance. Some current shareholders are unaware of terminology of costing methods and requested
that a paper be prepared to help them understand the technique so they could make an informed decision at the
following board meeting.
Task:
a) Prepare a description of the companys manufacturing structure and product cost (for product A).
b) Discuss the differences in profits for the period between both marginal and absorption costing for
product A. You should use figures to support your discussion
c) Explain the BEP analysis.

Fall 2016