LEADSTAR UNIVERSITY

COLLEGE
Faculty of Business and Leadership

Graduate Department of Business Administration

Assignment
For Managerial Accounting
MBAC – 503

Assignment DONE BY: - BELAYNESH AWGTENEW

ID NO: - 1753/08/04

Submitted to lead star university College of Management and

Leadership department of managerial accounting

March, 2017
Addis Ababa

0
1. Gafat Engineering EthioPlc manufactures two types of TV sets – LCD and CRT – both having only
one model. The LCD and CRT television sets sell for Br 9,000 and Br5,000, respectively. The
company sells its products through its own stores and other outlets. Total fixed expenses are Br15,
000,000 per month. Variable expenses and monthly sales data are given below:

LCD CRT
Variable expenses Br5, 000 Br2,000
Monthly sales in units 2,000 3,000
Required: (unless stated figures should be computed for one month)
a) Determine breakeven total volume of sales and sales volume for each product.
b) Determine sales volume and sales revenue for the company to earn Br500, 000 profit after 30% profit tax.
c) The company has planned to incur Br 200,000 monthly selling (promotional) expenses to increase sales
volume for its LCD TV sets to 4,000. If the plan materializes and other things remain constant, determine
breakeven sales volume and sales revenue for the company.
d) The company has planned to buy new and improved technology that reduces variable production expenses for
its LCD TV set to Br4,000 while increasing its monthly fixed production costs by Br500,000. If the plan
materializes and other things remain constant, determine breakeven sales volume and sales revenue for the
company.
e) If the company is guaranteed with total sales volume of 10,000 TV sets in a given month, should it go for
option “c” or “d” above given that sales mix remained constant as provided in each of the two options? Why?
What if the guaranteed total sales volume of 7,000 instead of 10,000? Why? What should be the guaranteed total
sales volume for the two options to provide equal profit to the company?

Solution:-
Given:-

Selling Price LCD= Br. 9,000

Variable Expense LCD=Br. 5,000

Monthly sales in units LCD= 2,000

Selling Price CRT=Br. 5,000

Variable Expense CRT= Br. 2,000

1
 Monthly sales in units CRT= 3,000

Fixed Expense= Br 15,000,000

A. Determine break even total volume of sales and sales volume for each product.
Break Even Total Volume of Sales for Each Product

Break-even volume Total fixed costs

Units =
Weighted average unit contribution margin
Unit contribution margin= unit selling price-unit variable cost

TV Set Sellin Variable unit Number %age from Weighted Weighted Weighted
g cost contribution of TV total contributi Selling average Cont.
Price margin sets on units Price margin Ratio
  A B C=A-B D E=D/TOTAL F= C*E G=E*A F/G
LCD 9,000 5,000 4,000 2,000 40% 1,600 3,600
CRT 5,000 2,000 3,000 3,000 60% 1,800 3,000
TOTAL 5,000 100% 3,400 6,600 0.52

I. Break Even Total sales Volume= Total Fixed cost

Weighted average Contribution margin

=15,000,000/3,400 =4,412 units

II) A. Break Even Sales Volume LCD = Break even total sales volume X % of LCD sales mix

=4412*40%=1,765 units

II) B. Break EvenSales Volume CRT = Break even Total sales Volume X % of CRT sales mix

=4412*60%=2,647 Units

B. Determine sales volume and sales revenue for the company to earn Br500,000 profit after 30% profit tax.

2
 After tax target Target profit
Profit
==
I. Target volume (Unit) 1-tax rate Total fixed costs +After Tax Target profit
(units Weighted average unit contribution margin
After tax target profit = 500,000/ (1-0.3) =714,285 Br

Sales Volume= (15,000,000+714,285)/3,400

=4,622 units

II. Target sales Revenue= Total fixed costs +After Tax Target profit
Weighted average unit contribution margin ratio

= (15,000,000+714,285)/.52

= Br 30,504,174 Exact excel calculation use

Total sale revenue =total sale revenue of LCD TV + Total sale revenue of CRT TV
= (4,622*40%*9000) + (4622*60%*5000)
=16,639,200+13,866,000
Total sale revenue=Br 30,504,201.68Exact excel calculation used

C. A company has planned incur Br 200,000 monthly selling (promotional) expenses to increase sale volume for its
LCD TV sets to 4,000.If the plan materialize and other things are main constant determine break even volume and
sale revenue for the company.
Fixed expense = 15,000,000+ 200,000(additional selling Expense) =15,200,000

TV Selling Variable unit Number %age Weighted Weighted Weighted

Set Price cost contributio of TV from total contributio Selling average contr.
n margin sets sales mix n margin Price Margin Ratio
  A B C=A-B D E F= C*E G=E*A F/G
LCD 9,000 5,000 4,000 4,000 57.14% 2,286 5,143
CRT 5,000 2,000 3,000 3,000 42.86% 1,286 2,143
  7,000 100% 3,571 7,286 0.49

Increase sales Volume

Break Even Total sales Volume= Total Fixed cost

Weighted average contribution margin

3
 =15,200,000/3571

=4,256 units

Break Even Total sales revenue = Fixed Expense/ Weighted Average cont. margin ratio

=Br 15,200,000/0.49

=Br 31,008,000.00

Or

Break even sale revenue= total sale revenue of LCD TV + Total sale revenue of CRT TV

= (4256*57%)*9000 + (4256*43%)*5000
=21,888,000.00 +9,120,000.00
=Br.31, 008,000.00

D. The company planned to buy new and improved technology that reduce variable production expense for its LCD
TV set to 4,000 while increasing its monthly fixed cost birr 500,000.If the plan materialize and other things are
remain constant determine breakeven sale volume and sales revenue for the company.
Total Fixed cost= 15,000,000+500,000(Production Cost) =Br. 15,500,000

TV Selling Variable unit Number of %age Weighted Weighted Weighted

Set Price cost contr. TV sets from cont. margin Selling average
margin total Price contr. Margin
Ratio
  A B C=A-B D E F= C*E G=E*A F/G
LCD 9,000 4,000 5,000 2,000 40.00% 2,000 3,600
CRT 5,000 2,000 3,000 3,000 60.00% 1,800 3,000
5,000 100% 3,800 6,600 0.576
Reduced Variable cost

Break Even Total sales Volume= Fixed cost/weighted average Contribution margin

=15,500,000/3,800

=4,079 units

Break Even Total sales revenue = Fixed Expense/ Weighted Average cont. margin ratio
4
 =Br 15,500,000/0.576

=Br 26,921,052.63 or

Break even sale revenue= Total sale revenue of LCD TV + Total sale revenue of CRT TV

= (4,079*40%)*9000 + (4,079*60%)*5000
=14,684,210.53+12,236,842.11
=Br26, 921,052.63

E. If the company is guaranteed with total sales volume of 10,000 TV sets in a given month, should it go for option
“c” or “d” above given that sales mix remained constant as provided in each of the two options? Why? What if the
guaranteed total sales volume of 7,000 instead of 10,000? Why? What should be the guaranteed total sales volume
for the two options to provide equal profit to the company?
I) When Q=10,000 units
Variable
TV set Selling Price(A) Cost(B) Units Sold(C) % of sales
Option C LCD 9,000.00 5,000.00 5,714 0.57
CRT 5,000.00 2,000.00 4,286 0.43
14,000.00 7,000.00 10,000 1.00
FC 15,200,000.00
TV Set TR =(AXC ) TVC=(BXC) TFC TC=TVC+TFC
LCD 51,428,571.43 28,571,428.57
CRT 21,428,571.43 8,571,428.57 15,200,000.00
TOTAL 72,857,142.86 37,142,857.14 15,200,000.00 52,342,857.14

Total Profit =Total Revenue – Total cost

= 72,857,142.86 – 52,342,857.14
= Br 20,514285.71

Option D TV set Selling Price(A) Variable Cost(B) Units Sold/C/ % of sales

LCD 9,000.00 4,000.00 4,000 0.40
CRT 5,000.00 2,000.00 6,000 0.60
14,000.00 6,000.00 10,000 1.00
FC 15,200,000.00
TV Set TR =(AXC ) TVC=(BXC) TFC TC=TVC+TFC
LCD 36,000,000.00 16,000,000.00
CRT 30,000,000.00 12,000,000.00 15,200,000.00
TOTAL 66,000,000.00 28,000,000.00 15,200,000.00 43,200,000.00
Total Profit =Total Revenue – Total cost
= 66,000,000.00 – 43,200,000.00
5
 = Br 22,800,000.00
 Therefore Option D is preferable method for the Company since it generates Total Profit greater than Option
C.

II) When Q=7000 units

Units
TV set Selling Price(A) Variable Cost(B) Sold/C/ % of sales
Option C LCD 9,000.00 5,000.00 4,000 0.57
CRT 5,000.00 2,000.00 3,000 0.43
14,000.00 7,000.00 7,000 1.00
FC 15,200,000.00

TV set TR =(AXC) TVC=(BXC) TFC TC=TVC+TFC

LCD 36,000,000.00 20,000,000.00
CRT 15,000,000.00 6,000,000.00 15,200,000.00
TOTAL 51,000,000.00 26,000,000.00 15,200,000.00 41,200,000.00

Total Profit =Total Revenue – Total cost

= 51,000,000.00 – 41,200,000.00
= Br 9,800,000.00

Option D When Q=7000 units

Variable
TV set Selling Price(A) Cost(B) Units Sold/C/ % of sales
LCD 9,000.00 4,000.00 2,800 0.40
CRT 5,000.00 2,000.00 4,200 0.60
14,000.00 6,000.00 7,000 1.00
FC 15,200,000.00
TV Set TR =(AXC) TVC=(BXC) TFC TC=TVC+TFC
LCD 25,200,000.00 11,200,000.00
CRT 21,000,000.00 8,400,000.00 15,200,000.00
TOTAL 46,200,000.00 19,600,000.00 15,200,000.00 34,800,000.00
6
 Total Profit =Total Revenue – Total cost
= 42,200,000.00 – 34,800,000.00
= Br 11,400,000.00

 Therefore Option D is preferable method for the Company since it generates Total Profit greater
than Option C.

2 Sino-woodworks Ethiopia Ltd makes office furniture from fine hardwoods. The company uses a
job-order costing system and predetermined overhead rates to apply manufacturing overhead
cost to jobs. The predetermined overhead rate in the Preparation Department is based on
machine-hours, and the rate in the Fabrication Department is based on direct materials cost. At
the beginning of the year, the company’s management made the following estimates for the year:

Job-C was started on April 1 and completed on May 12. The company’s cost records show the following
information concerning the job:
7
Required:
a) Compute the predetermined overhead rate used during the year in the Preparation and Fabrication
Departments.
b) Compute the total overhead cost applied to Job-C.
c) What would be the total cost recorded for Job-C? If the job contained 25 units, what would be the unit
product cost?
d) At the end of the year, the records of the company revealed the following actual cost and operating data
for all jobs worked on during the year:

What was the amount of under-applied or over-applied overhead in each department at the end of the
year?

Solution: -
A/ I) Pre determined overhead for preparation department:
Predetermined = Estimated Total Manufacturing Overhead Cost
Overhead Rate Estimated Total Amount of the Allocation Base
PDOHR = $ 416,000 = $5.20 per machine hour
80,000 machine hours

8
 II) Pre-determined overhead for fabrication department:

Predetermined = Estimated Total Manufacturing Overhead Cost

Overhead Rate Estimated Total Amount of the Allocation Base
PDOHR = $ 720,000 = 180% of material cost
Br 400,000 material cost
B/ The total overhead cost in job” C” is the sum of overhead cost in preparation departments and
fabrication departments:
Overhead cost applied to job c=POHR × Amount of allocation base incurred by the job

1st -POHR for preparation = PDHOC * ACTUAL ALLOCATION BASE

= 5.2 * 350

= 1820

2nd –PHOR for fabrication = PDHOC * ACTUAL ALLOCATION BASE

= 1.8 * 1200

= 2160

TOTAL OH COST APPLIED TO JOB C = 1820 +2160

= 3980 OF OH COST APPLIED FOR JOB C

C/I) Total cost applied to JOB C:

Departments
Preparation Fabrication TOTAL
Direct Material cost $940.00 $1,200.00 $2,140.00
Direct Labor Cost $710.00 $980.00 $1,690.00
Manufacturing Overhead Cost $1,820.00 $2,160.00 $3,980.00
Total cost applied to JOB C $3,470.00 $4,340.00 $7,810.00

9
 II) Unit Product Cost for JOB C:

Average Cost Per Unit = Total Cost Applied to JOB C

Total Units of JOB C Produced
= $7,810.00 = $312.40 per unit
25 Units

D/the Amount of Under-Applied or Over-Applied Overhead in Each Department:

Departments
Preparatio
n Fabrication
Manufacturing Overhead cost incurred (A) $390,000.00 $740,000.00
Manufacturing Overhead cost applied:
73,000 Machine hours X $5.20/machine
hour (B) $379,600.00
$420,000 Direct Material cost X 180% (B) $756,000
Under applied (or Over applied) Overhead (A-B) $10,400.00 ($16,000.00)

Therefore:-
i) The amount of under applied in the preparation department is $(390,000 -379,600) = $10,400 so, the
estimated amount of overhead is greater than the actual overhead it is under applied overhead and
ii) The amount of over applied in the fabricated department is $(740,000-756,000) = $16,000.00 since the
actual use is greater than estimated amount it is over applied overhead.

10
 3 Sino-electronics East-Africa Ltd manufactures electric meters for sale to its African and Middle-East
customers. The product goes through three departments. The following information is available for
the first department during June, 2014.

Required: Assume that the company uses the weighted-average process costing.
a)Determine the equivalent units for June for the first process.
b) Compute the costs per equivalent unit for June for the first process.
c) Determine the total cost of ending work in process inventory and the total cost of units transferred to
the second process in June.
d) Reconcile the total costs assigned to the ending work in process inventory and the units transferred
out with the costs in beginning inventory and costs added during the period.

Solution:-
Given:-

Percent Completed
Units D Material Conversion
WIP Bilging June1 70,000 70% 40%
Units Started in to Production 460,000
Completed and Transfer out 450,000
WIP Ending of June 30 80,000 75% 25%

11
 Direct Material Conversion Cost
WIP Beginning $36,550.00 $13,500.00
Cost Added during June $391,850 $287,300.00

A) Determine the equivalent units for June for the first process:
Equivalent Units = Completed and Transferred out+ Work in process ending Completed

Step 1: Analyze the Physical Flow of Units

INPUTS Physical Units
Work-in-process inventory, June 1…(a) 70,000
Units started during June …………..(b) 460,000
Total units to account for ……..…(a+b) 530,000

OUTPUT Physical Units

Units completed and transferred out during June (a) 450,000
Work-in-process inventory, June 30…(b) 80,000
Total units accounted for ………………… (a+b) 530,000

Step2: Equivalent Units /EU Equivalent Units

Units Completion Direct Conversion
Material Cost
WIP Beginning June1: 70,000
ADD Units started into Production 460,000
= Units to Account for 530,000
LESS Units Completed & transferred out 450,000 450,000 450,000
= WIP Ending of June 30 80,000
Direct material Cost 75% 60,000
Conversion Cost 25% 20,000
Total Eqv. Unit of Production 510,000 470,000

B) Compute the costs per equivalent unit for June for the first process:

Cost per Equivalent Unit= Cost of BWIP + Cost Added During the Period
Equivalent Unit of Production

12
 Step 3: Determine Total Costs
Direct Material Conversion Cost Total Cost

WIP Beginning Cost (a) $36,550.00 $13,500.00 $50,050.00

Cost added during June (b) $391,850 $287,300.00 $679,150.00

Total costs to accounted for = a+b $428,400.00 $300,800.00 $729,200.00

Step 4: Compute Cost per Equivalent Unit

Direct Material Cost Conversion Cost Total Cost

Work-in-process, June 1
$36,550.00 $13,500.00 $50,050.00
Costs added during June
$391,850 $287,300.00 $679,150.00
Total costs to account for (a)
$428,400.00 $300,800.00 $729,200.00
Divide by equivalent units (b)
510,000 470,000 980,000
Cost per Equivalent unit =a/b
$0.84 $0.64 $1.48

C. Total Cost of ending Work in process Inventory and Total Units Transferred Out:

Cost of Ending Work in Process=Work in process Ending percent completed X Cost per equivalent unit
Cost of Units Transferred out=Units completed and transferred out X Cost per equivalent unit

COST OF EWIP INVENTORY = EU of production × cost per EU

= 60,000 × 0.84

= 50,400 for material cost

Cost of EWIP inventory for material cost is $50,400

COST OF EWIP INVENTORY = EU of production × cost per EU

= 20,000 × 0.64

= 12,800 for conversion cost

13
Cost of EWIP inventory for conversion cost is $ 12,800

THE TOTAL COST OF EWIP INVENTORY = 12,800+50,400

= $ 63,200

TC of units completed and transferred = units transferred × cost per EU

For material cost = 450000×0.84

= 378,000 units for material cost

TC of units completed and transferred = units transferred × cost per EU

= 450000×0.64

= 288,000 units for material cost

THE TOTAL COST OF UNITS TRANSFERRED =378000+288000

= $ 666,000

D) Cost Reconciliation

Sino Electronics East Africa Ltd

Cost Reconciliation
Costs to be accounted for:
Cost of beginning work in process inventory (36,550+13,500). . . .. . . $50,050
Costs added to production during the period (391,850+287,300) . .. . $679,150
Total cost to be accounted for . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . $729,200
Costs accounted for as follows:
Cost of ending work in process inventory . . . . . . . . . . . . . . . . . …. . . .$ 63,200
Cost of units transferred out . . . . . . . . . . . . . . . . . . . . . … . . . . . . . $ 666,000
Total cost accounted for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . $729,200
4 Sino-Afro Electronics manufactures different optical switch for networking uses in different industries.
During 2013, the company completed an order for a special optical switch for a new customer, Ethio-
telecom. This customer did not order any other products during the year. Data concerning that order
follow:

Data related to Ethio-telecom order

14
 Selling price $295 per unit

Units ordered 100 units

Direct materials $264 per unit

Direct labor hours 0.50 hrs. per unit

Direct labor rate $25 per direct labor hr.

Currently, the company is concerned whether to accept this special order, thus, contracts your professional
advice. The company traditionally uses direct labor hours to allocate manufacturing overhead costs. Total direct
labor hours was estimated to be 20,000 in 2013. Other operating data for the year 2013 is provided in the
following table. Note that 80% of the overhead costs are related to production while the remaining 20% are
selling and administrative

Required:
a) Shall the company accept the special order if the traditional costing system is in use? Why?
b) Shall the company accept the special order if activity-based costing system is in use? Why?
15
c) Does the costing system affect your advice regarding acceptance of the special order? Why?

Solution:-

Solution:-

A). shall the company accept the special order if the traditional costing system is in use? Why? In order to decide to accept
the order by Traditional Costing System: -
 To accept the order the company shall analyze the profit

Total Sales Revenue=$295 selling price X 100 units

=$29,500

Direct Material = $264*100 units

=$26,400

Direct Labor =0.5 Direct Labor Hours X $ 25 Direct Labor hour * 100 units

=$ 1,250

Manufacturing Over Head= Overhead rate*Allocation base

Overhead rate =production overhead/Direct labor hour

= (550,000*80%)/20,000

=$22 per direct labor hour

Manufacturing overhead Cost =$22 per direct labor hour X labor hour (0.5 *100 units)

=$1,100

Product Margin -Traditional Costing Method

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,500

16
Cost of goods sold:
Direct materials . . . . . . . . . . . . . . . . . . . . . . $ 26,400
Direct labor . . . . . . . . . . . . . . . . . .. . . . . . . . $ 1,250
Manufacturing overhead . . . . . . . . . . . . . . . . .$ 1,100
Total Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,750
Product Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 750

Therefore the company should accept the special order since it has $750 Profit Margin

B) The company has to calculate the product margin to accept the special order

Seles =$29,500
Direct Material =$26,400

Direct Labor =$ 1,250

Over Head Cost

wages and salaries 350,000

Other overhead costs 200,000

Direct labor support

order Customer
  direct labor support Processing Support other
wages and salaries 0.3 0.35 0.25 0.1
Other overhead costs 0.25 0.15 0.2 0.4

Activity cost pool

order Customer
  direct labor support Processing Support other

wages and salaries 105,000 122,500 87,500 35,000

Other overhead costs 50,000 30,000 40,000 80,000

Total 155,000 152,500 127,500 115,000

30%*350,000 = 105,000

Activity Rates
Total
Cost pool Total Cost Activity Activity Activity Rate
17
 direct labor support 155,000 10,000 DLH 15.50 per DLH
No. of
order Processing 152,500 500 order 305 Per order
per
Customer Support 127,500 100 Customer 1,275 customer

other 115,000 Not Applicable Not Applicable

Over Head Cost to products

ABC
Cost Pool Activity Rate Activity Cost

direct labor support 15.5 per DLH 50 775

order Processing 305 Per order 100 30,500

Customer Support 1275 per customer 1 1,275

Product Margin -Traditional Costing Method

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,500
Cost of goods sold:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . $ 26,400
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,250
Direct Labor Support . . . . . . . . . . . . . . . . . . . . . $ 775
Order Processing . . . . . . . . . . . . . . . . . . . . . $ 30,500
Customer Support . . . . . . . . . . . . . . . . . . . . . $ 1,275
Total Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,200
Product Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($ 30,700)

Since the product margin shows 30,700 losses, the company i.e. Sino-Afro Electronics manufactures shall not accept
the special order.

C) Yes the costing system affects my advice for special order acceptance Because, costs are really affected before taking
any action such as, dropping a product or customer or changing the prices of products. Due to this reason action analysis
report shall be constructed to help managers for decisions. An action analysis report provides more detail about costs and
how they might adjust

18
19