JINKA UNIVERSITY

POST GRADUATE STUDIES

MSc. IN ACCOUNTING AND FINANCE
COST AND MANAGEMENT ASSIGNMENT

PART I: DISCUSSION QUESTIONS

1. If one of your friends from other department asks you about the difference between Financial
Accounting, Cost Accounting & Management accounting how could you respond to him/her?
2. Do you think that the Management Accountant has the roles in a Modern Organization? If Yes
what are those roles?
3. State the difference between cost and Expenses and give a supportive example.
4. Define and classify the cost base on:
a. Natural/elements/ analytical
b. By function/operation/purposes
c. Based on their traceability to a particular cost object
d. Based on their behavior pattern (show the graph for each cost).
e. Based on timing they are charged against revenue
5. Define the cost-volume-profit analysis, and show the quantitative relationship of the items.
6. Describe the assumptions underlying CVP analysis.
7. Distinguish between operating income and net income.
8. Define contribution margin, contribution margin per unit, and contribution margin percentage.
9. Describe three methods that can be used to express CVP relationships.
10. Explain the difference between the contribution margin ratio and contribution margin per unit.
11. How does an increase in the income tax rate affect the breakeven point?
12. Describe sensitivity analysis. How has the advent of the electronic spreadsheet affected the use
of sensitivity analysis?
13. Give an example of how a manager can decrease variable costs while increasing fixed costs.
14. What is operating leverage? How is knowing the degree of operating leverage helpful to
managers?
15. How can a company with multiple products compute its breakeven point?
16. When preparing accounting summaries, accountants classify responsibility centers in to one of
4 types. Discuss the four types of responsibility centers.
17. How do management accountants support strategic decisions?

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COST AND MANAGEMENT ASSIGNMENT
 18. How control is used by the organization to achieve organizational objectives? And how it can
be classified? Give a practical example.
19. What are three different types of inventories that manufacturing companies hold?
20. Distinguish between inventoriable costs and period costs.
21. Define the following: direct material costs, direct manufacturing-labor costs, manufacturing
overhead costs, prime costs, and conversion costs.
22. Describe the overtime-premium and idle-time categories of indirect labor.
23. Define product cost. Describe three different purposes for computing product costs.
24. Classify each of the following as a variable or fixed cost with respect to a unit of product that
is sold:
a. Commissions paid to sales e. Depreciation of a shipping truck.
personnel. f. Protective packaging for each unit
b. Advertising expenses. of product.
c. Salaries of staff processing orders. g. Insurance for corporate
d. Salary of the chief executive headquarters.
officer. h. Gasoline used to deliver products

PART II: WORKOUT QUESTIONS

Q1. Florida Favorites Company produces toy alligators and toy dolphins. Fixed costs are $1,290,000
per year. Sales revenue and variable costs per unit are as follow:

ALLIGATORS DOLPHINS
Sales price $20 $25
Variable costs 8 10
Required

a. Suppose the company currently sells 140,000 alligators per year and 60,000 dolphins per year.
Assuming the sales mix stays constant, how many alligators and dolphins must the company sell to
break even per year?
b. Suppose the company currently sells 60,000 alligators per year and 140,000 dolphins per year.
Assuming the sales mix stays constant, how many alligators and dolphins must the company sell to
break even per year?
c. Explain why the total number of toys needed to break even in part a is the same as or different from
the number in part b.
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COST AND MANAGEMENT ASSIGNMENT
 Q2. Zoom Company manufactures and sells a telephone answering machine. The company’s
income statement for the most recent year is given below:

Sales (20,000 units) Br.1,200,000

Variable expenses 900,000

Contribution Margin Br. 300,000

Fixed Expenses 240,000

Net Income 60,000

Required: Based on the above data, answer the following questions.

a. Compute the company’s CM ratio and variable expense ratio.

b. Compute the company’s break-even point in both units and sales birrs. Use Equation, Contribution
Margin and Graphic Method to compute the break-even point.
c. Assume that sales increase by Br. 400,000 next year. If cost behavior patterns remain unchanged, by
how much will the company’s net income increase?

Q3. Aramis Aromatics Company produces and sells its product AA100 to well-known cosmetics companies for
$940 per ton. The marketing manager is considering the possibility of refining AA100 further into finer perfumes
before selling them to the cosmetics companies. Product AA101 is expected to command a price of $1,500 per ton
and AA102 a price of $1,700 per ton. The maximum expected demand is 400 tons for AA101 and 100 tons for
AA102. The annual plant capacity of 2,400 hours is fully utilized at present to manufacture 600 tons of AA100. The
marketing manager proposed that Aramis sell 300 tons of AA100, 100 tons of AA101, and 75 tons of AA102 in the
next year. It requires 4 hours of capacity to make 1 ton of AA100, 2 hours to refine 1 ton of AA100 further into
AA101, and 4 hours to refine 1 ton of AA100 into AA102 instead.

The plant accountant has prepared the following information for the three products

COSTS PER TON

COST ITEM AA100 AA101 AA102
Direct materials:
Chemicals and fragrance $560 $400 $470
AA100 0 800 800
Direct labor 60 30 60
Manufacturing overhead:
Variable 60 30 60
Fixed 120 60 120
Total manufacturing costs $800 $1,320 $1,510
Selling costs:
Variable 20 30 30
Fixed 10 10 10
Total cost $830 $1,360 $1,550
Proposed sales level 300 tons 100 tons 75 tons
Maximum demand 600 tons 400 tons 100 tons

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COST AND MANAGEMENT ASSIGNMENT
Required
a. Determine the contribution margin for each product.

b. Determine the production levels for the three products under the present constraint on plant
capacity that will maximize total contribution.

c. Suppose a customer, Cosmos Cosmetics Company, is very interested in the new product AA101.
It has offered to sign a long-term contract for 400 tons of AA101. It is also willing to pay a higher
price if the entire plant capacity is dedicated to the production of AA101. What is the price for
AA101 at which Aramis is indifferent between its current production of AA100 and dedicating its
entire capacity to the production of AA101 for Cosmos?

d. Suppose, instead, that the price of AA101 is $1,500 per ton and that the capacity can be
increased temporarily by 600 hours if the plant is operated overtime. Overtime premium
payments to workers and supervisors will increase direct labor and variable
manufacturing overhead costs by 50% for all products. All other costs will remain
unchanged. Is it worthwhile operating the plant overtime? If the plant is operated
overtime for 600 hours, what are the optimal production levels for the three products?

Q4. PP Company manufactures a product in RR and DD models. Overhead is assigned on the basis of
direct labor hours. Budgeted overhead for the current year is $2,000,000. Additional data is given below.

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DD RR
Model Model

Direct Material $ 150 $ 112

Direct Labor Cost 16 8
1.6 0.8
Direct Labor Time hours hours
Expected Volume (units) 5,000 40,000

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COST AND MANAGEMENT ASSIGNMENT
 Overhead
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[[
Units of
[[[[[

Activity Cost Cost for Activity

Center Driver Activity DD RR
$
Purchasing Orders 84,000 400 800
Scrap
Rework Orders 216,000 300 600

Testing Tests 450,000 4,000 11,000

Machine
Related Hours 1,250,000 20,000 30,000
Total
Overhead $2,000,000
Required:

1. Determine the unit cost of the two products

A. Using Traditional costing Method
B. Using activity-based costing Method

Q5. EMU electronics co. has sales of $46 million, total assets of $30 million and total debt of $12
million. It the profit margin is 14 percent.

Required:

a. Determine the company’s net income.

b. Calculate the Return on Asset of the company
c. What is the company’s Return on Equity?

NOTE
1. From Part I; all odd numbers are individual assignment
2. From Part II; question No. 2 and 5 are Individual Assignment
3. The rest of the questions are group assignment
4. Copying from a given material (PPt)is not acceptable.

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COST AND MANAGEMENT ASSIGNMENT