Maximum Possible Production

Details
Total working days in a month (5days x 4 weeks)
Total working hours in a day ( 4 labors x 12 hours)

Maximum units of FG produced in a day (4units x 4 workers)

Maximum units of FG produced in a month (16units x 20 days)

Direct Materials Cost

Details
Wood
Jar
Fairy lights
Burnish paint
Rope
Hook
Direct Material Cost per unit

Direct Labor Cost

Details
Total working hours in a day ( 4 labors x 12 hours)
Total working hours in a month ( 48 hours x 20 days)
Total units
Total monthly wage ( 960 hours x 50)
Wage rate per unit (48000taka /320 units)

Manufacturing Overhead Cost

Details
Indirect Labor
Room Rent
Utility Costs
Total MOH cost
Total units
MOH cost per unit (10000 /320units)

Manufacturing Cost per unit

Details
Direct material cost per unit
Direct labor cost per unit
MOH cost per unit
Manufacturing cost per unit

Support Cost
Details
Administration and Maintenance
Telephone and internet services
Total support cost

Selling Cost
Details
Advertising (in newspapers, magazines)
Delivery costs (van, fuel, driver)
Total selling cost

Simple Costing System

Budgeted Total MOH cost
Budgeted Total quantity of Allocation Base (DLH)
POHR

Actual quantity of Allocation Base (DLH)

MOH (Allocated)

Unit cost using the simple costing system

Details
Direct material cost per unit
Direct labor cost per unit
MOH cost per unit
Manufacturing cost per unit

Breakdown of Support Cost

Direct Method
Details

Costs
Allocation of Admin and Maintenance cost
Allocation of Telephone and internet services
Allocation of supporting department costs to operating departments

Step down method (Allocate Admin and maintenance first)

Details
Costs
Allocation of Admin and Maintenance cost (10%, 60%, 30%)
Allocation of Telephone and internet services (20%, 5%, 75%)
Allocation of supporting department costs to operating departments

Step down method (Allocate Telephone and internet services first)

Details

Costs
Allocation of Telephone and internet services (20%, 5%, 75%)
Allocation of Admin and Maintenance cost (10%, 60%, 30%)
Allocation of supporting department costs to operating departments

Reciprocal method
Details

Costs
1st Allocation of Admin and Maintenance cost (10%, 60%, 30%)
1st Allocation of Telephone and internet services (20%, 5%, 75%)
2nd Allocation of Admin and Maintenance cost (10%, 60%, 30%)
2nd Allocation of Telephone and internet services (20%, 5%, 75%)
3rd Allocation of Admin and Maintenance cost (10%, 60%, 30%)
3rd Allocation of Telephone and internet services (20%, 5%, 75%)
Allocation of supporting department costs to operating departments
Amount
20 days
48hours

16 units

320 units

Amount (in taka)

300
220
370
100
10
100
1100

Amount
48
960
320
48000
150

Amount (in taka)

3000
5000
2000
10000
320
31.25

Amount(in taka)
 1100
150
31.25
1281.25

Amount(in taka)
5000
2000
7000

Amount(in taka)
2000
5000
7000

10000
960
10.4166666666667

960
10000

Amount(in taka)
1100
150
31.25
1281.25

Supporting Department Operating Department

Admin and Maintenance Telephone and internet services Manufacturing
5000 2000
-5000 - 3333.3
- -2000 125
0 0 3458.3

Supporting Department Operating Department

Admin and Maintenance Telephone and internet services Manufacturing
 5000 2000
-5000 500 3000
- -2500 156.25
0 0 3156.25

Supporting Department Operating Department

Admin and Maintenance Telephone and internet services Manufacturing
5000 2000
400 -2000 100
-5400 - 3600
0 0 3700

Supporting Department Operating Department

Admin and Maintenance Telephone and internet services Manufacturing
5000 2000
-5000 500 3000
500 -2500 125
-500 50 300
10 -50 2.5
-10 1 6
0 -1 0
0 0 3433.5
Packaging

1666.7
1875
3541.7

Packaging
 1500
2343.75
3843.75

Packaging

1500
1800
3300

Packaging

1500
1875
150
37.5
3
1
3566.5
Prime Cost, Conversion Cost, Full Cost
Direct materials 1100
Direct labor 150
MOH 31.25
Prime Cost 1250
Conversion Cost 181.25

Total units 320

Total manufacturing cost per unit 1281.25
Total manufacturing cost 410000
Supporting costs 7000
Selling costs 7000
Full Cost 424000
Full Cost per unit 1325

Activity Based Costing System

Cost Pool Cost
Indirect Labor 3000
Room Rent 5000
Utility costs 2000
Admin and maintenance 5000
Telephone and internet services 2000
Advertisement 2000
Delivery Costs 5000

Unit Cost using the Activity Based Costing System

Details
Direct Materials
Direct Labor
Total direct cost per unit
Cost Allocation Rate
Indirect Labor 3.125 taka per hour
Room Rent 5 taka per Square feet
Utility costs 2.08 taka per hour
Admin and maintenance 5.208 taka per hour
Telephone and internet services 2 taka per minute
Advertisement 8 taka per unit
Delivery Costs 20 taka per unit
Total indirect cost per unit
Manufacturing cost per unit

Product line profitability under simple and activity based costing

Simple costing system
Revenue (1500 x 250 units) 375000
Less Cost of Goods Sold (1281.25 x 250 units) 320312.5
Gross Margin 54687.5
Less Expenses (7000 + 7000) 14000
Operating Income 40687.5
Operating Income as a % of revenue 10.85%

Activity based costing

Revenue(1500 x 250 units) 375000
Less Direct Costs (1100 +150) x(250) 312500
Less Indirect Costs(81.114 x 250) 20278.5
Operating income 42221.5
Operating Income as a % of revenue 11.25%
Allocation Base or cost drivers Quantity of Allocation Base or cost drivers
Number of hours worked 960
Square feet 1000
Number of hours worked 960
Number of hours worked 960
Number of minutes telephone and internet services used 1000
Number of units sold 250
Number of units sold 250

Cost Per Unit

1100
150
1250
Cost per unit calculation
3.125 taka x 3 hours 9.375
(5 x 1000)/320 15.625
2.08 taka x 3 hours 6.24
5.208 taka x 3 hours 15.624
(2 x 1000)/320 6.25
8
20
81.114
1331.114
Cost Allocation Rate
3.125
5
2.08333333333333
5.20833333333333
2
8
20
Revenue Budget
Details Amount
Budgeted Sales (in units) 250
Selling Price per unit (in taka) 1500
Budgeted Sales (in total) 375,000

Production Budget
Details Amount
Budgeted Sales (in units) 250
Target Ending Finished Goods Inventory (10% times 250) 25
Total Requirements 275
Beginning Finished Goods Inventory 0
Units of Finished Goods to be produced 275

Direct Materials Usage Budget

Details Wood
Physical units budget
Wood (275 units x 1 board 60cm by 45cm) 275 boards
Jar (275 units x 1 jar)
Fairy lights (275 units x 1 string light of 220 feet)
Burnish paint ( 275 units x 1 bottle of 100ml)
Rope (275 ropes each of 120cm)
Hook (275 units x 1hook)
Total quantity of DM to be used 275 wood boards

Cost Budget
Available from beginning DM inventory 0
DM to be used in this period- 275 boards x 300= 82500

Direct Materials Purchase Budget

Details Wood
Physical units budget
Total quantity of DM to be used 275 boards
Target ending DM inventory (15%) 42
Total requirements
Beginning DM inventory 0
DM to be purchased 317 boards

Cost Budget
Wood
Jar
Fairy lights
Burnish paint
Rope
Hook
DM to be purchased in this month

Direct Labor Budget

Details Amount
Units of FG to be produced 275
Hours taken by labors to complete each 3
Total hours 825
Hourly wage rate 50
Budgeted direct labor cost 41250

Manufacturing Overhead Budget

Details Amount
Variable costs – indirect labor 3000
Fixed costs - Room rent 5000
Utility costs 2000
Budgeted Manufacturing overhead costs 10000

Ending Inventory Budget

Details Amount
unit cost 1286
Units 25
FG ( 25units x unit cost 1286 taka) 32150

Cost of goods sold Budget

Details Amount
Beginning FG inventory 0
DM used 302500
DL 41250
MOH 10000
Ending FG inventory (25 units x 1286) 32150
Budgeted Cost of goods sold 321600

Budgeted Income Statement (Traditional format)

Details Unit
Revenue 250
COGS 250
Gross Profit
Less Operating Income
Administration
Tel. and internet bills
Advertisement
Delivery costs
Total operating expense
Net operating income

Budgeted Income Statement (Contribution format)

Details Unit
Revenue 250
Less Variable costs:DM
DL
Indirect labor
Total variable cost
Less Fixed Costs: Room Rent
Utility Costs
Administration
Tel. and internet bills
Advertisement
Delivery costs
Total fixed cost
Total Expense
Net operating income
Jar Fairy lights Burnish Paint

275 jars
275 strings
275 bottles

275 jars 275 strings 275 bottles

0 0 0
275 jars x 220 =60500 275 strings x 370= 101750 275 bottles x 100 = 27500

Jar Fairy lights Burnish paint

275 jars 275 strings 275 bottles

42 42 42

0 0 0
317 jars 317 strings 317 bottles
Per unit Total basis
 1500 375000
1286 321600
214 53400

5000
2000
2000
5000
14000
39400

Per unit Total basis

1500 375000
1100 275000
150 37500
3000
315500
5000
2000
5000
2000
2000
5000
21000
336500
38500
Ropes Hook

275 ropes
275 hooks
275 ropes 275 hooks

0 0
275 ropes x 10 = 2750 275 hooks x 100 = 27500

Rope Hook

275 ropes 275hooks

42 42

0 0
317 ropes 317 hooks
 95100
69740
117290
31700
3170
31700
348700
Break-even point Analysis
  Fixed Cost =10000 + 7000 +7000 24000
Variable Cost per unit=1100 + 150 1250
Selling price per unit= 1500 taka 1500
CM per unit = 1500 – 1250 250
CM ratio =250/1500 250/1500
Sales in units 250

Break-even point (in units) 96

Break-even point (in taka) 144000
Margin of safety (in units) 154
Margin of safety ratio 0.616

Sensitivity Analysis
Scenario 1: 12% increase of direct material cost
Old DM cost per unit 1100
New DM Cost per unit 1232
Old Variable Cost per unit= 1250 taka 1250
New Variable Cost per unit = 1232 taka + 150 taka 1382
Fixed Cost= 24000taka 24000

Details Amount in old scenario

Revenue 375000
Variable Cost 312500
Fixed Cost 24000
Operating Income 38500
BEP in units 96
BEP in sales taka 144000
MOS 154

Scenario 2:10% decrease in demand of our product

Old Units Sold = 250
New Units Sold = 225
Details Amount in old scenario
Revenue 375000
Variable Cost 312500
Fixed Cost 24000
Operating Income 38500
BEP in units 96
BEP in sales taka 144000
MOS 154
Scenario 3:15% increase in demand of our product
Old Units Sold = 250
New Units Sold =287.5
Details Amount in old scenario
Revenue 375000
Variable Cost 312500
Fixed Cost 24000
Operating Income 38500
BEP in units 96
BEP in sales taka 144000
MOS 154
Amount in new scenario
375000
345500
24000
5500
203.3
305084
46.7

Amount in new scenario

337500
281250
24000
32250
96
144000
129
Amount in new scenario
431250
359375
24000
47875
96
144000
191.5