SUGGESTED ANSWER MAF451 – JANUARY 2018

QUESTION 1
A.

a. (i) Direct cost: Direct cost are costs that can be directly traced to individual cost objects.
√√
(ii) Indirect cost: Indirect cost are costs that cannot be directly traced to individual cost
objects. √√
(iii) Conversion cost: Conversion costs are costs other than material cost. Labour costs
and manufacturing overhead are needed to convert raw materials into finished goods. √√

(6√ X ½ mark = 3 marks)

b.
RM RM
(a) Prime Costs per month
Direct materials :
Flour (20 bags x RM55 per bag) 1,100√√
Sugar (15 bags x RM70 per bag) 1,050√√
Other direct materials 1,500√ 3,650
Direct labour :
The wages of production workers (1,200 x 5) 6,000√√
PRIME COST 9,650√

(b) Fixed costs per month

Direct wages 6,000√
Supervisor salary 1,700√
Depreciation expense of machinery (RM2,400 ÷ 12 month) 200√√
Administrative expenses 1,500√
TOTAL FIXED COSTS PER MONTH 9,400√

(14√ X ½ mark = 7 marks)

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SUGGESTED ANSWER MAF451 – JANUARY 2018

B.
(a) Traditional overhead absorption rate (OAR)
= RM890,000√ .
(4,000 x 3) √√ + (2,900 x 2) √ √
= RM50 per direct labour hour√
(6√ × ½ mark = 3 marks)

(b) Calculate the manufacturing cost of each product if the company uses:
i. Traditional Costing method

SP-100 SP-200
RM RM
Direct material 200√ 300√
Direct labour 60√ 40√
Manufacturing overhead (RM50 x 3hrs) 150√√ (RM50 x 2 hrs) 100√√
Total Production Cost 410√ 440√

(10√ × ½ mark = 5 marks)

ii. Activity-Based Costing method

Cost driver rate

Estimated Estimated
Activity Overhead cost driver Cost Driver Rate/Activity
Cost (RM) activities
Machine set-ups 140,000 50 RM2,800/set-up√
Order processing 250,000 20,000 RM12.50/ customer order√
Quality inspections 100,000 1,000 RM100/inspection hour√
Packaging and shipping 400,000 10,000 RM40/unit shipped√

Overhead cost per unit

SP-100 SP-200
Cost Cost
Activity Cost Driver Rate Driver Driver
RM RM
Rate/ Rate/
Activity Activity
Machine set-ups RM2,800/set-up 20 56,000√ 30 84,000√
RM12.50/ customer
Order processing 8,000 100,000√ 12,000 150,000√
order
Quality RM100/inspection
550 55,000√ 450 45,000√
inspections hour
Packaging and
RM40/unit shipped 4,000 160,000√ 6,000 240,000√
shipping
Total Overhead cost allocated 371,000 519,000
371,000/4,000 519,000/3,000
Overhead cost per unit of each product
= 92.75√ = 173√

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SUGGESTED ANSWER MAF451 – JANUARY 2018

Product cost per unit:

SP-100 SP-200
RM RM
Direct material 200√ 300√
Direct labour 60√ 40√
Manufacturing overhead 92.75 173
Total Product Cost 352.75√ 513√

(20√ × ½ marks = 10 marks)

(c) Comment the differences between the production cost per unit under both accounting
system based on the result based in (b) above.

SP-100 SP-200
(RM) (RM)
Traditional costing method 410 440
ABC costing method 352.75 513

57.25√ 73√
Overstated Understated

By using traditional costing method, the production cost per unit for SP-100 is overstated
whereas the production cost per unit of SP-200 is understated√ when comparing with the
ABC costing system.

This is due to the traditional costing method uses single driver √ to absorb the overhead cost
whereas the ABC costing system uses multiple cost driver √ to absorb the overhead cost.
(4√x ½ marks = 2 marks)

(d) State 3 advantages

1. Improved pricing decisions√√
2. Better control as cost pools are distinguished√√
3. Better links to behavior and understanding towards costs not only driven by volume.
√√

State 2 limitations
1. Classification of overhead is subjective√√
2. Cost driver basis is just arbitrary and may not be accurate√√
3. Costly to implement as change takes place from the traditional method of charging
overheads

(10√x ½ marks = 5 marks)

(Total: 35 marks)

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SUGGESTED ANSWER MAF451 – JANUARY 2018

QUESTION 2

a)
Process 1 A/C
Item
units
CPU
Amount
Item
units
CPU
Amount
Material
3,600
100.00
360,000√
Normal loss
450√
15.00
6,750√
Conversion

242,100 √
Output to P2
3,000
189.00
567,000

 
Abnormal loss
150√
189.00
28,350

3,600

602,100

3,600

602,100

Cost per unit =

602,100 - 6,750

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SUGGESTED ANSWER MAF451 – JANUARY 2018

3,600- 450

=
RM189√

(6 √ x ½ mark = 3 marks)

Process 2 A/C
Item
units
CPU
Amount
Item
units
CPU
Amount

OWIP
5,000

1,069,500√
Normal loss (W1)
500√
25.00
12,500√

TFP1
3,000
189.00
567,000
Finished goods
12,000√

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SUGGESTED ANSWER MAF451 – JANUARY 2018

2,689,000

Material
7,500
104.40
979,200√
CWIP
3,000

442,200

Conversion

528,000√

15,500

3,143,700

15,500

3,143,700

W1: Normal loss: 4% (5,000 + 3,000 + 7,500 – 3,000) = 500

Statement of Equivalent unit (FIFO)

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SUGGESTED ANSWER MAF451 – JANUARY 2018

Input Output TFP1 Add.mat Conv.

OWIP 5,000 NL (100%) 500 500 500 500
(100%) (70%) (50%)
TFP1 3,000 CWIP 3,000 3,000√ 2,100√ 1,500√
Material 7,500 Finished Goods:      
(0%) (0%) (60%)
    OWIP 5,000 -√ -√ 3,000√
    CPDP (100%) 7,000 7,000√ 7,000√ 7,000 √
EU 15,500 15,500 10,500 9,600 12,000

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SUGGESTED ANSWER MAF451 – JANUARY 2018

Statement of Cost

  TFP1 Added Material Conversion Total (RM)

Current cost (RM) 567,000 979,200 528,000  
Equivalent unit (EU) 10,500 9,600 12,000  
Cost per EU (RM) 54√ 102√ 44√ = 200

Statement of Evaluation
Output TFP1 Material Conversion Total (RM)

NL after SV (500 x RM200) - RM12,500√ 87,500

CWIP 162,000 214,200 66,000 442,200√

OWIP current - - 132,000 132,000√

CPDP 7,000 x RM200 1,400,000√

Finished goods cost valuation = OWIP b/d + OWIP current + CPDP + NL after SV
= 1,069,500√ + 132,000 + 1,400,000 + 87,500
= RM2,689,000√

(24 √ x ½ mark = 12 marks)

B) (i)
Product Quantity Joint costs apportioned Joint cost per unit
Teapots 1,000 1,000/6,000 x RM300,000 = RM50,000/1000
RM50,000√√ = RM50√√
Cups 5,000 5,000/6,000 x RM300,000 = RM250,000/5,000
RM250,000√√ =RM50√√
6,000√√

(10 √ x ½ mark = 5 marks)

(ii) Selling Price per unit

Product Total cost Net profit per unit Selling price
= joint cost + further process
Teapots =RM50+150 =RM200√√ RM550√√ RM750√
Cups =RM50+25 = RM75√√ RM25√√ RM100√

(10 √ x ½ mark = 5 marks)

(iii) Define the following process terms with an example:

i. Joint product
a group of individual products which is simultaneously produced, and each product has

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SUGGESTED ANSWER MAF451 – JANUARY 2018

a significant relative sales value. Example various grades of meat and hides.

ii. By-product
Products that are part of the simultaneous production process and have minor sales
value when compared to joint product. Example bones, grease and certain offal.

Note:
Definition = 2 marks x 2 item = 4 marks
Exmaple = ½ marks x 2 item = 1 marks
5 marks

QUESTION 3

a. Marginal costing product cost per box:

Raw material AA (RM15 x 2) = 30.00

BB (RM10 x 3) = 30.00
Direct Labour (RM10 x 2) = 20.00
Variable production overhead = 3.00
Total 83.00

Syarikat Molly Beauty Berhad

Marginal Costing Income Statement for the month of July 2017

RM RM
Sales (5,200 boxes x RM150) 780,000√
Less: Variable Costs of Sales
Opening stocks (500 boxes x RM83) 41,500√
Production Costs (5,000 boxes x RM83) 415,000√
456,500
Less: Closing stocks (300 boxes x RM83) (24,900) √ (431,600)
Gross Margin 348,400
Less: Variable non-production overheads
Variable selling costs (RM2 x 5,200 boxes) (10,400) √
Contribution Margin √ 338,000
Less: Fixed costs
Fixed production OH (RM5 x 4,000 boxes) 20,000√√
General administration costs 30,000√
Marketing & promotion cost 50,000√ (100,000)

Net Profit 238,000

(10√ x ½ mark = 5 marks)

Absorption costing product cost per unit:

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SUGGESTED ANSWER MAF451 – JANUARY 2018

Raw material AA (RM15 x 2) = 30.00

BB (RM10 x 3) = 30.00
Direct Labour (RM10 x 2) = 20.00
Variable production overhead = 3.00
Fixed production overhead = 5.00
Total 88.00

Syarikat Molley Beauty Berhad

Absorption Costing Income Statement for the month of July 2017

RM RM
Sales (5,200 boxes x RM150) 780,000√
Less: Costs of Goods Sold
Opening stocks (500 boxes x RM88) 44,000√
Production Costs (5,000 boxes x RM88) 440,000√
484,000
Less: Closing stocks (300 boxes x RM88) (26,400) √ (457,600)
Gross Profit 322,400
Less: Other Costs:

Variable selling costs (RM2 x 5,200 boxes) 10,400√

General administration costs 30,000√
Marketing & promotion cost 50,000√ (90,400)

Unadjusted Net Profit 232,000

FPOH absorbed (RM5 x 5,000) 25,000√
FPOH incurred (RM5 x 4,000) (20,000) √
Add: Over absorbed √ 5,000
Adjusted net profit 237,000

(10 √ x ½ = 5 marks)

b. Situation where profit reported under MC and AC differ:

Summary of effect on net income under both costing methods

If (Situation) Effects on net income
Production units > sales units√√ AC > MC √√
Production units = sales units√ AC = MC√
Production units < sales units√√ AC < MC √√

(10 √ x ½ = 5 marks)
(Total: 15 marks)

QUESTION 4

A. (a)

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SUGGESTED ANSWER MAF451 – JANUARY 2018

Working 1

Variable Cost Fixed Cost

Direct Cost (RM20.40 – RM1.50) 18.90√√ -
Manufacturing Overhead 2√√ 250,000√√ (350,000 – 100,000)
Selling Overhead 2.5√√ 95,000√√ (220,000 – 125,000)
General Overhead 1.60√√ 170,000√√ (250,000 – 80,000)
Total 25 515,000

Manufacturing Overhead : (RM100,000/50,000 = RM2)

Selling Overhead : [(5% x 50 x 50,000)=125,000/50,000 = RM2.50]
General Overhead : (RM80,000/50,000 = RM1.60)

Working 2

Cont. Margin = SP – VC
= RM50 √ - RM25
= RM25

i) BEP (Units) = FC/Cont.Margin/Unit

= RM515,000 ÷ RM25.00
= 20,600 units. √

BEP (RM) = BEP (units) x SP

= 20,600 x RM50√

= RM1,030,000 √

ii) MOS (Units) = Sales - BEP

= 50,000 (120%)√√ – 20,600 (of)√
= 39,400 units. √

iii) Profit at 49,375 units

Profit = (Qty Sold x CM) –TFC
= (49,375√ x RM25√) - RM515,000√
= RM719,375√

iv) Target sales = (FC+ Targeted Net profit)/CM/Unit

= (RM515,000√ + RM520,000√) ÷ RM25√
= 41,400 units√

(30√ x ½ mark = 15 marks)

B. (i)
Calculation of breakeven

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SUGGESTED ANSWER MAF451 – JANUARY 2018

Quantity of Ruby 70,000 units

Quantity of Topaz 30,000 units
Hence, the sales mix = 70% : 30%

Product CM/Unit Sales mix Total CM

Ruby RM80 √ 70% √ 56.00√
Topaz RM40√ 30% √ 12.00√
68.00

Breakeven for total packages = F.Cost/WACM

= RM136,000 √ ÷ RM68
= 2,000 units√

Ruby = 0.7 x 2,000 = 1,400√

Topaz = 0.3 x 2,000 = 600√

(10√ x ½ mark = 5 marks)

END OF SOLUTION

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