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Program Name: BBA Batch: 18

Test paper set: A Mid Term
Campus: ONL Exam Type: Online
Subject: Cost Accounting Faculty Name: Dinakar Bhotta
Duration (Minutes): 120 Max. Marks: 60

Instructions / Guidelines

 This is an Open Book exam.

 Soft Copy Submission (Mettl) / Any other test platform (to be included) / pen and paper.
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are allowed.
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clearly and proceed. Please DO NOT debate with the invigilator
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do so after submission on Mettl. Do not tamper with the file to be uploaded after
submitting on Mettl. Doing so may disqualify you.
 All other guidelines specified in the examination policy document are applicable.
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Q1. Value Chain Cost Analysis (10 marks)
General Motors incurs the following costs on Chevrolet Camaro (Car). Classify each of the cost
items into one of the business functions of the value chain: Research and development; Design
of products and processes; Production; Marketing and sales; Distribution; Customer service.
After classifying the cost identify an appropriate cost driver for each of the cost item.
a. Electricity costs for the plant assembling the Chevrolet Camaro. Production
b. Transportation costs for shipping the Camaro to dealers. Distribution
c. Payment to Shelby Designs for the design of the Camaro. Design
d. Salary of an engineer working on the next generation of Camaros to be launched in
future. R&D
e. Cost of GM employees' visit to an auto show to demonstrate the Camaro. Marketing
f. Cost of Testing each one of the Camaro produced at the GM track. Production
g. Payment to television network for running Camaro advertisements. Marketing
h. Cost of brake pads purchased from outside supplier to be installed on the Camaro.
Production
i. Cost of the team handling the customer complaints, queries and issues. Customer
Service
j. Cost of the steel used in making the car. Production
5 marks for identifying the Business Function and 5 marks for an appropriate cost driver

Q2. Cost Terminology (10 Marks)

The following are costs of Harley-Davidson, a manufacturer of Motorcycles. Categorize each
cost as 1. Product or Period, 2. Direct Material (DM), Direct Labour (DL), Manufacturing
Overhead (MOH), or Expenses 3. Variable or Fixed.
a. 1200 cc engine used in each motorcycle – DM, V, P
b. Company CEO’s Salary - Exp F, PR
c. Sales commission paid on each motorcycle sold – Exp V,PR
d. Depreciation of the plant equipment – MOH F, P
e. Salary of the team checking for any blemishes on the finished motorcycles– MOH F, P
f. Cleaning material used in the daily clean-up of the plant – MOH V, P
g. 2 tyres used for each motorcycle – DM V, P
h. Product plant supervisor salary – MOH F, P
i. Production plant assembly line worker wages – DL V, P
j. Depreciation on marketing manager’s car – EXP F PR

Q3. Cost Flow Analysis (10 Marks)

The following data are for Marvin Department Store. The account balances (in thousands) are
for 2017.
 Marketing and distribution costs $ 14,000
  Customer-service costs $ 37,000
 Merchandise inventory, January 1, 2017 $ 27,000
 Store Utilities $ 17,000
 General and administrative costs $ 43,000
 Merchandise inventory, December 31, 2017 $ 34,000
 Merchandise Purchases $ 160,000
 Miscellaneous Purchase costs $ 4,000
 Transportation-in $ 7,000
 Purchase returns and allowances $ 4,000
 Purchase discounts $ 6,000
 Revenues $ 300,000
Required:
a. Compute the cost of goods purchased (2 mark)
= 160,000 + 4,000 + 7,000 – 4,000 – 6,000 = $161,000
b. Compute (a) the cost of goods sold (3 marks)
= 27,000 + 161,000 – 34,000 = $154,000
c. Calculate the expenses for 2017. (1 mark)
= 14,000 + 37,000 + 17,000 + 43,000 = $111,000
d. Calculate the net income for 2017 if the tax rate is 25%. (2 marks)
= 300,000 – 154,000 – 111,000 = 25,000 – 8750 = $26,250
e. Explain how the cost flow of Marvin Department Store is different from a firm that
would manufacture and sell the product. (2 marks)

Q4. CVP Analysis (15 Marks)

National Training, Sydney recently started a business providing training events for corporations.
In order to better understand the profitability of the business, the owners asked you for an
analysis of costs for each training session. You have the following cost information:
 Trainer: $5,000 per session
 Venue: $5,000 per session plus $10 per attendee
 Materials: $2,500 per session plus $35 per attendee
 Catering Costs (subcontracted):
o Food: $75 per attendee
o Setup/cleanup: $25 per attendee
o Fixed fee: $5,000 per training session
National Training is pleased with the service they use for the catering and have allowed them to
place brochures on each dinner table as a form of advertising. In exchange, the caterer gives
National Training a $1,000 discount per session. When the Training is offered outside Sydney,
the Trainer Cost increases by additional $2,500 and the material cost also increases by $15 per
attendee.
Required:
a. Identify the cost object and an appropriate cost driver for National Training (2 mark)
Training Event & No of attendees
b. Compute the FC for Sydney and outside Sydney training event (2 Mark)
Sydney = $16,500 & Outside Sydney = $19,000
c. Calculate the VC per attendee for training events in Sydney and outside Sydney (2
marks)
Sydney = $145 & Outside Sydney = $160
d. If the attendee is required to pay $400 to attend the training event held in Sydney,
calculate the Break-Even Quantity and Break-Even Revenue for training event organised
in Sydney. (3 marks)
BEQ = 16500 / (400 – 145) = 64.7 ~ 65 attendees
BER = 65 * 400 = $26,000
e. If the attendee is required to pay $500 to attend the training event held outside Sydney,
calculate the Quantity and Revenue to obtain a net profit of $5000 for training event
organised outside Sydney (20% Tax Rate). (3 marks)
TOP = 5000/ 0.8 = $6250
TNP Q = 19000 + 6250 / (500 – 160) = 74.3 ~ 75 attendees
TNP R = 75 * 500 = $37,500
f. Determine the quantity of ticket sales at which the net profit is equal to 20% of the sales
revenue for an event organised outside Sydney. (3 marks)
Let the Qty be X, then revenue = 500X
Then Net profit = 100X
Target Operating Profit = 125X
Using TNP Q formula,

X = 19000 + 125X/ (500 – 160)

340X – 125X = 19000
X = 19000 /215 = 88.4 ~ 89 attendees.

Q5. Absorption Costing & Variable Costing (15 Marks)

Jarvis Golf Company sells a special putter for $50 each. In March, it sold 28,000 putters while
manufacturing 30,000. There was 1000 special putter inventory on March 1. Production
information for March was:

Direct manufacturing labor per unit 15 minutes

Fixed selling and administrative costs $ 40,000
Fixed manufacturing overhead actual $ 132,000
Direct materials cost per unit $ 20
 Direct manufacturing labor per hour $ 24
Variable manufacturing overhead per unit $ 4
Variable selling expenses per unit $2

Jarvis uses labour hour as denominator level and estimated labour hours per year is 72,000
hours and estimated fixed manufacturing overhead is $120 000 per month.

Required:
a. Calculate the FMOH application rate per unit. (2 mark)
FMOH App Rate = 120000/6000 = 20 per labour hour.
Each unit requires 15 minutes, hence FMOH application rate per unit = $5
b. Calculate the total cost per unit manufactured under absorption costing approach. (1
mark)
TMC pu = DM + DL + VMOH + FMOH App Rate = 20 + 6 + 4 + 5 = $35
c. Calculate the unadjusted COGS under absorption costing approach. (3 marks)
Op FG = 1000 * 35 = 35,000
COGM = TMC = V TMC + FMOH Applied = 30,000*30 + 30,000*5 = 900,000 + 150,000
Cl FG = 3000* 35 = 105,000
Un adj COGS = 35,000 + 900,000 + 150,000 – 105,000 = 980,000
d. Calculate the adjustment to COGS under absorption costing approach. (1 mark)
Adj to COGS = 132,000 – 150,000 = -18,000
e. Calculate the gross margin & operating Income under absorption costing approach. (2
mark)
Revenue = 28,000 * 50 = $1,400,000
Adj COGS = 980,000 – 18,000 = $962,000
Gross margin = $438,000
Fixed Expenses = $40,000
Variable Expenses = $2 * 28000 = $56,000
Operating Income = $342,000
f. Calculate the variable COGS. (3 mark)
Op FG = 1000 * 30 = 30,000
COGM = V TMC = 30,000*30 = 900,000
Cl FG = 3000* 30 = 90,000
V COGS = 30,000 + 900,000– 90,000 = 840,000
g. Calculate the contribution margin and operating Income under VC approach. (2 mark)
Revenue = 28,000 * 50 = $1,400,000
V COGS = 30,000 + 900,000– 90,000 = 840,000
Variable Expenses = $2 * 28000 = $56,000
CM = $504,000
 FMOH Actual = $132,000
Fixed Expenses = $40,000
Operating Income = $332,000
h. Reconcile the AC operating income and VC operating income. (1 mark)
AC OI = $342,000
FMOH in OP FG = 1000*5 = $5,000
FMOH in Cl FG = 3000*5 = $15,000
VC OI = $342,000 + $5,000 – $15,000 = $332,000