Course: Cost Accounting (462)

Semester: Autumn, 2020

ASSIGNMENT No. 2
Q.1 The record of Good-Fit Garments Industry indicates that the average daily requirement of cloth is
500 Meters. The maximum monthly requirement of cloth is 2,500 Meters while the minimum
requirement during any month is not likely to fall below 1,000 Meters. The lead time is 15 days. The
Economic Order Quantity is 1,200 Meters. The lead time for emergency supply is 3 days.
Required: Compute the following cloth inventories which should be maintained:-
Daily = 500
Maximum = 2500
Minimum = 1000
Lead time = 15 days
EOQ = 1200
Emergency lead time = 3 days
a) Ordering level
2500 * 15 / 30 = 1250 meters
b) Minimum level
1250-(500*15) = -6250 meters
c) Maximum level
1250 – (1000/30)*15 + 1200 = 1950 meters
d) Danger level
500 * 3 = 1500 meters
Q.2 The Kids Toy Company received an order for manufacturing and supply of 500 toys from a retailer.
The company spent the following costs for execution of the said order:
Material used Rs. 20,000
Labour cost Rs. 15,000
FOH Applied 60% of labour cost
On final inspection, it was found that 20 toys were spoiled which could be sold as ‘seconds’ at a
price of Rs. 50 each.
Required: Record necessary accounting entries under the following cases:
a) When the loss on spoiled toys is charged to the relevant job.
b) When the loss on spoiled toys is charged to the overall production.
 Mat = 20 * 40 = 800
Lab = 20 * 30 = 600
FOH = 20 * 18 = 360
----------
1760
Less 20 * 50 1000
----------
Cost of spoilge 760

Q.3 Margala Pharmaceutical Company has employed three workers and are paid wages under
Merrick’s Differential Piece Rate Incentive Plan. Their basic piece rate is guaranteed below the
standard performance. The workers get 110% of basic piece rate between 100% to 120% efficiency
and 120% of the basic piece rate above 120% efficiency. Their basic rate of wages and production is
as under.
a) Basic price rate Rs. 5.00 per piece
Output = 1920 per month units
b) Production of workers.
Worker A – 2,000 units per month
Efficiency = 2000 / 1920 * 100 = 104%
Earning = 110 + 110 / 100 * 0.05 = 6.05
Worker B – 1,800 units per month

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Efficiency = 1800 / 1920 * 100 = 93.75%
Earning = (93.75 * 0.05) = 4.6875
Worker C – 2,400 units per month
Efficiency = 2400 / 1920 * 100 = 125%
Earning = 125 * 120 / 100 * 0.05 = 75
c) Standard production 1,920 units per month
Basic price rate Rs. 5.00 per piece = 1920 * 5 = 9600
Q.4 The Normal annual capacity of Toyota Motor Company is 60,000 vehicles with production being
constant throughout the year. The March budget shows fixed factory overheads of Rs. 2,500,000 and
variable factory overhead rate of Rs. 2,500 per vehicle. During March, actual output was 4,800 vehicles
with a total factory overheads cost of Rs. 15,500,000.
Unit-8 Factory Overheads – Actual, Applied and Variance Analysis 234
Required:
a) Compute the under or over applied factory overheads cost.
b) Work out the Spending Variance.
c) Determine the idle Capacity Variance.

a) Compute the under or over applied factory overheads cost.

FOH = 15500000
Less = 12200000
------------
3300000
b) Work out the Spending Variance.
FOH = 15500000

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Fixed 2500000
Variable 12000000 14500000
------------
1000000
c) Determine the idle Capacity Variance.
Applied FOH 12200000
Less: FOH 14500000
------------
2300000
Q.5 The Paradise Production Company operates with two producing departments, P-1, and P-2 and two
service departments, S-1, and S-2. Actual factory overheads before distribution of servicing
departments cost together with the usage of services from the servicing departments are as under:

Departments Actual FOS before proration Services utilized

S –1 S–2
P–1 Rs. 200,000 40% 20%
P–2 Rs. 238,000 50% 40%
S–1 Rs. 72,000 -- 40%
S–2 Rs. 90,000 10% --
Total Rs. 600,000 100% 100%
Required:
1. Determine the total overheads cost of the Production Departments after proration of the
overhead cost of Servicing Departments using the Step method.
Prorate the Servicing Departments overhead costs over the Producing Departments using the
Algebraic method and compute total overhead costs of each Producing Departments.

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Thus
X = 72000 + 40% of Y……………………………..i
Y = 90000 +10% of X………………………………ii
Put ii in I we get,
X = 112500
And putting X = 112500 in ii
Y = 101250