UNIT CODE: DAF1201 UNIT TITLE: COST ACCOUNTING

(i) Economic Order Quantity

EOQ=
√2 DC
H

Where D= Annual demand (unit)

C= Ordering costs

H= Holding costa

D=480,000 units

C= 1,500

H= 8

1 packet = Sh. 480 = Sh. 20

24

24 pens

EOQ=
√2 X 480,000 X 1500
8

=13,416 pens

(ii) Total cost

Total cost= holding +ordering + purchase

Cost cost cost

Total cost=QH+ DC+ (P x D)

2 Q

Q= EOQ

H= holding cost

C= Ordering cost

P= Price per unit

D= Annual demand

TC= (13,416 x 8) + (480,000 x 1500) + 20 x 480,000)

2 13,416

TC= 53,664 + 53667 +9,600,000

TC= 9,707,331

(iii) EOQ= 72,000

Price = 20-(10% x 20) = 18

TC= QH+ DC+ (P x D)

2 Q

TC = (72,000 x 8) + (480,000 x 1500) + (18 x 480,000)

2 72,000

TC= 288,000 + 100,000 +8,840,000

TC= 9,028,000

Advice 9,707,331

(9,028,000)

Saving on cost 679,331

The company should take advantage of the discount because there is a saving of 679,331
 (i) Regression method

period No of welding job Total cost (y) x2 xy

assessment (x) '000'

Sep-18 280 700 78,400 196,000,000

Oct-18 800 860 640,000 688,000,000
Nov-18 1,240 110 1,537,600 136,400,000
Dec-18 1,000 960 1,000,000 960,000,000
Jan-19 600 720 360,000 432,000,000
Feb-19 920 910 846,400 837,200,000
Mar-19 860 880 739,600 756,800,000
Apr-19 1,200 260 1,440,000 312,000,000

∑x= 6,900 ∑y=540,000 ∑x2= 6,642,000 ∑xy= 4,318,400,000

b= n∑xy-∑x∑y
n∑x2-(∑x) 2

b= (8 X 4,318,400,000) – (6,900 X 540,000)

(8 X 6,642,000) – (6,900)2

b= Sh.-490.915

a= ∑y- b∑x
n
a= 540,000 – (-490.915 (6,900)

(ii) High-low method

y= a+bx
y= total cost
a= fixed cost
b=variable cost per unit
x= no of units

b= change in y
change in x

960,000- 110,000=850,000
1,000- 1,240 -240

b=Sh. -3,542

y=a+bx

960,000= a+ (-3,542(1000)
960,000=a -3542000

a= 960,000+3542000

a= Sh.4, 502,000

y=4, 502,000 + -3,542x

y=4, 502,000 + (-3,542 X 1256)

y=4, 502,000 -4,448,752)

y= Sh. 53,248

QUESTION TWO

a) Price and usage variance for each raw material

Material price variance=(standard price-actual price)actual quantity

Tallons=(10-12)10,800=21,600A

Caustic soda=(16-15)13,200=13,200F

Material usage variance=(standard quantity-actual quantity)standard price

Tallons=[(15x1200)-10800]10=72,000F

Caustic soda=[(10x1200)-13200]16=19,200A

b) Labour rate and efficiency variance

Labour rate variance=(standard price-actual price)actual hours

=(5-5.5)26400=13,200A

Labour efficiency variance=(standard hours-actual hours)standard rate

=[(20x1200)-26,400]5=12,000A

c) Sales price and sales volume variance

Sales price variance=(standard price-actual price)actual quantity

=[(25x20)-460]x1200=48,000A

Sales volume variance=(budgeted quantity-actual quantity)budgeted contribution

=(1000-1200)x(500-410)=18,000F

d) Overhead expenditure variance=budgeted fixed overhead-actual fixed overhead

=40,000-42,000=2,000A