MANAGEMENT ACCOUNTING Weight age : 10%

Submission date : 11-Oct-2010

Problem 1
A manufacturer finds that an increase in the cost of production has taken place and that, whereas
formerly his goods cost – Raw materials 30%, Wages 20%, Rent & rates 5%, Fuel 10%, General
expenses 15%. Now there has been an increase of 50% in fuel, 30% in materials and 25% in
wages and 20% in Rent and rates. He consults you as to what percentage he must add to the
selling price in order to obtain the same profit. What would be the result of your calculation?

Problem 2
The books and records of Alpha Manufacturing Co., present the following data for the month of
September.

Direct Labour Cost (160% of factory overhead) 16,000

Cost of Goods Sold 50,000

Inventory accounts showed these opening and closing balances

September 1 September 30

Raw Material 8,000 8,600

Work-in-progress 8,000 12,000
Finished goods 14,000 18,000

Other data
Selling expenses 3,400
General & admin expenses 2,600
Sales for the month 75,000

You are required to prepare and statement showing cost of goods manufactured and sold,
and profit earned.

Problem 3
Your factory buys and uses a component for production at Rs.10 per unit. Annual
requirement is 2000 units. Carrying cost of inventory is 10 per cent p.a and the ordering
cost is Rs.40 per order. The purchase manager agrees that as the ordering cost is high, it
is advantageous to place a single order for the entire annual requirement. He also says
that if we order 2000 units at a time, we can get 3 percent discount from the supplier.
Evaluate his proposal and make your recommendation.

Problem 4
A company manufactures a product from a raw material, which is purchased at Rs.60 per
kg. The company incurs a handling cost of Rs.360 plus freight of Rs.390 per order. The
incremental carrying cost of inventory of raw material is Re.0.50 per kg, per month. In
addition, the cost of working capital finance on the investment in inventory or raw
material is Rs.9 per kg. per annum. The annual production of the product is 1,00,000
units and 2.5 units are obtained fro one kg of raw material.
MANAGEMENT ACCOUNTING Weight age : 10%
Submission date : 11-Oct-2010

i) Calculate the economic order quantity of raw material

ii) Advise, how frequently should orders for procurement be placed.

Problem 5
There are three production departments in a factory – Turning, Milling and Grinding. The
factory also keeps four service departments – Stores, Planning, Canteen and Time Office.
Departmental overheads for the month of August 2010 are as under:

Production Department Service Departments

Turning Rs.48,000 Stores Rs.18,000
Milling Rs.52,000 Planning Rs.24,000
Grinding Rs.72,000 Canteen Rs.30,000
Time Office Rs.12,000

The overheads of Stores are to be apportioned on a percentage basis that is 20%, 40% and
40% to Turning, Milling and Grinding respectively.
The expenses of Planning are to be apportioned on the basis on machine hours worked
(Turning 5,000 hours, Milling 8,000 hours and Grinding 11,000 hours). The expenses of
Canteen and Time Office are to be apportioned according to number of workers
employed in each department, i.e 22:32:46

Prepare a statement showing the apportionment of overheads of service departments to

the production departments.

Problem 6
A factory has three production departments and two service departments. The following
information relates to overheads:

Production departments Rs. Service Departments Rs.

X 690 A 315
Y 1,095 B 255
Z 645

Expenses of service departments are apportioned as under:

X Y Z A B
A 30% 40% 20% - 10%
B 10% 20% 50% 20% -

Apportion the overheads of Service Departments to Production Departments using

i) Direct redistribution method
ii) Step distribution method