MANAGEMENT ACCOUNTING – HANDBOOK OF PROBLEMS

I – Introduction to management accounting

PROBLEM 1

COGM = Manufacturing Costs + Opening WIP – Closing WIP

Manufacturing Costs = Direct Labor + Direct Materials + Manufacturing Overhead Costs

Opening DM + Purchases = DM used + Closing DM

COGS = COGM + Opening FG – Closing FG

Unit COGM = COGM / Production

1. COGM and COGS (FIFO)

Direct Labor= 420 000€

Direct Materials =12 000 units: 10 000*20€ +2000*25€ = 250 000€

Manufacturing Overheads = 70 000 + 50 000 + 30 000 + 250 000 = 400 000€

No WIP means COGM = Manufacturing Costs

COGM = 420 000 + 250 000 + 400 000 + 0 = 1 070 000

Opening FG = 1000 * 200€ = 200 000

Closing FG = 2000 * Unit COGM = 2000 * (1 070 000 / 5000) = 2000 * 214€ = 428 000

COGS = 1 070 000 +200 000 – 428 000 = 842 000€

2. COGM and COGS (LIFO)

COGM = 420 000 + 400 000 + DM used

DM used = 12 000 units = 5 000 * 25€ + 7 000 * 20€ = 265 000

COGM= 1 085 000 €

COGS = 1 085 000 + 1000*200€ - Closing FG=1285000 – 1000 * (1085000/5000) – 1000*200€

= 868 000€

3. COGM and COGS (WAC)

COGM = 420000+400000+DM used

DM used = 12000 units =12000 * ((10 000*20 + 5 000*25)/15 000)= 12 000 * 21.6 = 260 000

COGM = 1 080 000 € per unit = 216 €

COGS = 1 080 000 + 1000 * 200€ - Closing FG =1 280 000 – ((1000*200 + 5000*216)/6000) * 2000

=853 333
PROBLEM 2

a) COGM, PBT, Closing FG

Production = 40 000 units

Manufacturing Costs = 550 000 €

COGM = 550 000 + 13 000 – 9000 = 554 000€ (per unit = 13.85€)

Closing Inventories FG = 20 000 units * 13.85€ = 277 000

PBT = Sales – COGS – Selling Costs – Gen. and Admin. Costs + Financial Revenues- Financial Costs

=30 000 * 18€ -139 000€ - 20 000 * 13.85€ -50 000€ - 42 500€ +25 000€ -22 500€

=34 000€

b) P&L (Financial Accounting)

Δ Inventories = Manufacturing Costs – COGS
= (Closing WIP + Closing FG)- (Opening WIP + Opening FG)

Sales 30 000*18€ = 540 000€

COMU DM used = 100 000€
Δ Inventories 550 000 - 139 000 – 20 000*13.85€ = 134 000
Miscellaneous Costs 162 500€
Personnel Costs 230 000€
EBITDA 181 500€
Depreciation Costs 150 000€
EBIT 31 500€
Financial Revenues 25 000€
Financial Costs 22 500€
EBT 34 000€

PROBLEM 3

A. FIFO
1. COGM

COGM = Manufacturing Costs + Opening WIP – Closing WIP =1 011 000+26 500-27 500= 1 010 000

COGM per unit = 1 010 000 / 500 000 = 2.02€

 2. P&L (by function)

Sales 1 320 000

COGS 150 000*2 + 370 000 *2.02 = (1 047 400)
Gross Profit 272 600
Selling Costs (108 000)
Gen. and Administrative Costs (85 500)
Financial Revenues 39 000
Financial Costs (63 000)
PBT 55 100

3. P&L (Financial Accounting)

Sales 1 320 000

CMSMU -325 000
Δ Inventories 1 011 000-1 047 400 = -36 400
Gross Profit 958 600
Miscellaneous Costs -285 000
Personnel Costs -438 500
O.O. Expenses -3 500
EBITDA 231 600
Depreciation Expenses -152 500
EBIT 79 100
Financial Revenues +39 000
Financial Costs -63 000
EBT 55 100

B. Weighted Average Cost (WAC)

1. Closing Inventory of F.G.

Closing Inventories = 130 000 units

Opening FG + Production = COGS + Closing FG

Unit COGS = (300000+500000*2.02)/650000=2.01538

Closing Inventories = 130 000 * 2.01538 = 262 000

2. P&L (Financial Accounting and By function)

Sales 1 320 000

COGS 2.015*520 000 = 1 047 800
Gross Profit 272 000
Selling Costs (108 000)
Gen. and Administrative Costs (85 500)
Financial Revenues 39 000
Financial Costs (63 000)
PBT 54 500
PROBLEM 4

A.
1. COGM

COGM = Manufacturing Cost + Opening WIP – Closing WIP

Opening WIP = 1 100€

Closing WIP = 1 0000€

Manufacturing Costs = 5 000 + 50 000 + 2 500 + 4000 + 7 000 + 225 000 + 85 000 + 70 000 + COST
OF MATERIALS USED

Cost of materials used: 1000 + 2800 = USED + 800 - Used = 3000 units

Company uses FIFO so Used = 1000*50+2000*53 = 156 000

Manufacturing Costs = 604 500

COGM = 604 500 +1 100 – 1000 = 604 600

COGM per unit = 604 600 / 5000 = 120.92

THERE WAS NO INFORMATION ABOUT COST OF MATERIALS USED, WE MUST CALCULATE IT

2.COST of the NON MANUFACTURING AREAS

Selling Costs = 111 750

Administrative Costs = 94850

Financial Costs = 0

B.
1. P&L (by function)

COGS = COGM + Open FG – Closing FG

Sales 230€ * 3500 = 805 000

COGS 604 600 +1000 * 120 – 2500 * 120.92 = (422 300)
Gross Profit 382 700
Selling Costs (111 750)
Gen. and Administrative Costs (94 850)
Financial Costs 0
PBT 176 100
 2. P&L (Financial Accounting)

Sales 805 000

CMSMU (156 000)
Δ 604 500 – 422 300 = 182 200
Inventories
Gross 831 200
Profit
Miscellane 5000+1300+500+550+50000+10000+5000+5000+20000+12500+2500+4000+1200
ous Costs +600+600+7000+1200 = (128 200)
Personnel 12400+225000+1250+85000+40000+32000+50000 = (444 400)
Costs
EBITDA 258 600
Depreciati 70 000 + 10 000 + 2500 = (82 500)
on
Expenses
EBT 176 100

PROBLEM 5

1. P&L (by Financial Accounting)

Sales 200 000€ - 10 000€ = 190 000€

Δ Inventories 56 750 +DM Used – COGS =87 750 -85 750 = 2000
Total Revenues 192 000
CMSMU (31 000)
Miscellaneous (5000)
Costs
Personnel Costs (61 875)
EBITDA 94 125
Depreciation (75 000)
Expenses
EBIT 19 125
Financial Costs (3000)
Financial 0
Revenues
EBT 16 125

DM Used = 4100+33250-2625+2125-5850 = 31 000

Manufacturing Costs = 87 750

COGM = 87 750 +500 – 2000 = 86 250

COGS = 86 250 + 6500 – 7 000 = 85 750

 2. P&L ( by function)

Sales 190 000€

COGS 85 750€
Gross Profit 104 250
Theoretical Social Charges Man. (14 375)
Selling Costs (37 000 + 8050)
Gen. and Administrative Costs (36 250 + 6325)
Financial Costs (3000)
PBT -750

Social Security Charges:

Theoretical Social Charges Manufacturing = 25 000 * 0.575 =14 375

Theoretical Social Charges Selling = 14 000 * 0.575 = 8050

Theoretical Social Charges Administrative = 11 000* 0.575 = 6325

3. Difference in profits

Difference in Profits = 16 875

Difference in Social Charges = 50 000 * 0.575 – 11 875 = 16 875

The difference in profits is explained by the fact that Financial Accounting uses real social charges
and Management Accounting uses theoretical social charges. (If we did the P&L for the whole year
the profits would be equal.)

PROBLEM 6

1. COGM

COGM = Manufacturing Costs + Open WIP – Closing WIP

COGM = DM used + DL + Manufacturing Overheads +100

DM used = 3000+15000-1500= 16 500

DL = 9900/1.2375 *1.6= 12 800

Man. Overheads = 8000+5000= 13000

COGM = 16500 +12800 +13000+100 = 42 400 €

COGM per unit = 42400/5000 = 8.48

 2. P&L (by function and by financial accounting)

Sales 63 000
COGS 4500*8.48€ = (38 160)
Gross Profit 24 840
Selling Costs 2000+4000*1.6 + 3000
Gen. and Administrative Costs 1500 + 4000*1.6 +3000
Financial revenues 1900
Financial Costs 2200
PBT 2240

Base Wages:

Manufacturing = 9900/1.2375 = 8000

Selling = 4950 / 1.2375 = 4000

Administration = 4950 / 1.2375 = 4000

Sales 63 000
Δ Inventories 600 + 500*8.48 -0-700 = 4140
Total Revenues 67140
CMSMU 16500
Miscellaneous 8500
Costs
Personnel Costs 19800
EBITDA 22340
Depreciation 14000
Expenses
EBIT 8340
Financial Costs 2200
Financial 1900
Revenues
EBT 8040

Difference in Profit = 8040 – 2240 = 5800

Difference in Social Charges = (1.6-1.2375)*(8000+4000+4000) = 5800

CHANGE IN INVENTORIES = (CLOSING WIP + CLOSING FG – OPENING WIP + OPENING FG)

PROBLEM 7

1. COST of DM used

C.M.S.M.U = 46390

COGS of the commodity = C.M.S = 13890

Cost of Materials Used = 46390-13890 = 32500

2. Opening Inventory of F.G.

2000 Units * x€

Company uses LIFO so Closing Inventory = 1600 units * x€ (from opening inventory)

Sales = 96 000

Selling Price = 15€

Units Sold = 6400 = 6000 from production + 400 from opening inventories

Opening + Production = COGS + Closing

Change in Inventories = Closing FG – Opening FG

1600x-2000x = -3000 (Change in Inventories – There is no WIP)

-400x = -3000 x=7.5 per unit

Opening Inventory = 2000*7.5 = 15000

3. Differences in EBT in the two P&Ls

Difference in profit = 19535-12110 = 7425

Difference in social charges = 18000 * (1.65-1.2375) = 7425

PROBLEM 8

1. Single Overhead Rate

Conversion Costs= DL + Manufacturing Overheads = 10000*0.6 + 100000*0.65 + 5000*0.5 + 9800

= 83 300

Single overhead rate = 83300/(DM used) = 83300/ (68000+102000) = 0.49

DM used product A = 32000+56000-20000= 68000

DM used product B = 48000+84000-30000= 102000

 2. COGM = Manufacturing Costs ( NO WIP)

COGM Product A = Manufacturing Costs = DM + DL + Man. Overheads

=68000 + 0.49*68000=101320

COGM Product B = 102000+0.49*102000= 151980

MANUFACTURING COSTS = DM + CONVERSION COSTS = DM DL + MANUFACTURING COSTS

PROBLEM 9

1. P&L ( by function)

ZODIAC NOVELLE Total

Sales 4 640 000 20 020 000 24 660 000
COGS 3 232 000 13 024 000 16 256 000
Gross Profit 1 408 000 6 996 000 8 404 000
Over-Recovery of 692 300
overheads
Non-Manufacturing 0.3*4 640 000= 0.3*20 020 000= 7 398 000
Overheads 1 392 000 6 006 000
Operating Profit 1698300

7398000/ (4 640 000 + 20 020 000) = 0.3

2. Real Manufacturing Overheads

=Budgeted Overheads – Over Recovery

• Product Zodiac = 26€ * 4 = 104 (per unit) = 104*4200=436 800

• Product Novelle = 26€ * 8 =208 (per unit) =208*25000=5 200 000

COGM per unit:

• Zodiac = 655+49+104= 808

• Novelle = 363+21+208=592

Units Sold:

• Zodiac=3232000/808=4000
• Novelle= 13024000/592=22000

Units Produced:
 • Zodiac=4000+200=4200
• Novelle= 22000+3000=25000

Real Man. Overheads = 436 800 + 5 200 000 - 692 300 = 4 944 500

PROBLEM 10

1.
a) COGM each product

Price Raw Material W= 1 488 000/(124 000) = 12€

Price Raw Material Z= 240 000/(2500) = 96€

Single Overhead Rate = 31 775 000 /(7 500 000+250 000) = 4.1

Product A – 1 000 000 units Product B – 25 000 units

Direct Materials:
W 12 * 120 000 12 * 4000
Z 2500 * 96
Direct Labor 7 500 000 250 000
Manufacturing Overheads 4.1*7 500 000 4.1 * 250 000
COGM 39 690 000 1 563 000
COGM per unit 39.69 62.52

b) P&L (by function)

Product A Product B Total

Sales 87 000 000 3 325 000 90 325 000
COGS 39 690 000 1 563 000 41 253 000
Operating Profit 47 310 000 1 762 000 49 072 000

c) COGM and P&L (budgeted overhead rate)

Product A – 1 000 000 units Product B – 25 000 units

Direct Materials:
W 12 * 120 000 12 * 4000
Z 2500 * 96
Direct Labor 7 500 000 250 000
Manufacturing Overheads 4*7 500 000 4*250 000
COGM 38 940 000 1 538 000
COGM per unit 38.94 61.52
 Product A Product B Total
Sales 87 000 000 3 325 000 90 325 000
COGS 38 940 000 1 538 000 40 478 000
Under-Recovery of 775 000
Overheads
Operating Profit 49 072 000

Under- Recovery of Overheads = 3 775 000 – 4*7 500 000 -4*250 000 = 775 000

2.
a) COGM

Department 1 – DL hour price = 19 220 000 / 310 000 = 62€

Department 2 – Machine Hour price = 12 555 000 / 251 100 = 50€

Product A – 1 000 000 units Product B – 25 000 units

Direct Materials:
W 12 * 120 000 12 * 4000
Z 2500 * 96
Direct Labor 7 500 000 250 000
Manufacturing Overheads
Department 1 62*300 000 = 18 600 000 62 * 10 000= 620 000
Department 2 50 * 200 000 = 10 000 000 50 * 51 100 = 2 555 000
COGM 37 540 000 3 713 000
COGM per unit 37.54 148.52

b) P&L

Product A Product B Total

Sales 87 000 000 3 325 000 90 325 000
COGS 37 540 000 3 713 000 41 253 000
Operating Profit 49 072 000
PROBLEM 11

A) Direct Method
1. Map of Costs

Machining Assembly Factory Admin. Maintenance Total

(10 000 Mh) (10 000DLH) (70 employees) (8000 Main.H)
Direct Costs 400 000 300 000 100 000 200 000 1 000 000
Reallocation:
1. Factory 10*1429 60*1429 10030
Admin
2. Maintenance 7000*25 1000*25 200 000
Total 589 290 410 740 100 000 200 000
Unit Cost 58.929€ 41.074 1429€ 25€

2.JOB 781

3 Machine Hours 3*58.929

5 Direct Labor Hours 5*41.074
DM and DL 450€
COST 832.157
Selling Price 1081.8

B) Sequential Method

Factory Admin. 10/80= 12.5%

Maintenance 2000/10000= 20%

Machining Assembly Factory Admin. Maintenance Total

(10 000 Mh) (10 000DLH) (70 employees) (10000 Main.H)
Direct Costs 400 000 300 000 100 000 200 000 1 000 000
Reallocation:
3. Factory 10*2000 60*2000 140 000
Admin
4. Maintenance 7000*20 1000*20 2000*20 200 000
Total 560 000 440 000 140 000 200 000
Unit Cost 56€ 44€ 2000€ 20€

JOB 781

3 Machine Hours 3*56

5 Direct Labor Hours 5*44
DM and DL 450€
COST 838€
Selling Price 1089.4
 C) Simultaneous Equation Method

Machining Assembly Factory Admin. Maintenance Total

(10 000 Mh) (10 000DLH) (80 employees) (10000 Main.H)
Direct Costs 400 000 300 000 100 000 200 000 1 000
000
Reallocation:
5. Factory 10*1794.875 60*1794.875 10*1794.875
Admin
6. Maintenance 7000*21.795 1000*21.795 2000*21.795
Total 570513.75 429487.5 143 590 217 950
Unit Cost 57.05 42.95 1794.875 21.795

Factory Admin. – 80x = 100 000 +2000y

Maintenance – 10 000y = 200 000 + 10x 80 000y = 1 600 000 + 80x

80 000y = 1 600 000 + 100 000 + 2000y 78 000 y =1700 000

Y=21.795

JOB 781

3 Machine Hours 3*57.05

5 Direct Labor Hours 5*42.95
DM and DL 450€
COST 835.9
Selling Price 1086.67

PROBLEM 12

1. Map with Costs (Sequential Method)

Cutting Assembly Maintenance Cleaning Total

(240 Mh) (2 300 Lh) (500 Mh) (950Lh)
Direct Costs 2 625 9 125 1 125 5 775 18 650
Reallocation:
Maintenance 300 * 2.25 100 * 2.25 100 * 2.25
Cleaning 450*6.316 500*6.316
Total 6142.2 12508 1 125 6000
Unit Cost 25.5925 5.438 2.25 6.316
 2. COST of each order

Initial DM DL Cutting Assembly Total WIP/COGM

Cost 25.5925 5.438
Order 4000 8 750 3000 70 1000 22 979.475 COGM
076
Order 0 7 500 2450 80 800 16 347.8 COGM
081
Order 0 4 750 4100 90 500 13872.325 WIP
082

3. P&L

Order 076 Order 081 Total

Sales 34000 28000 62 000
COGS 22980 16348 39328
Gross Profit 11020 11652 22672
Non Man. Costs 3100
BPT 19 572

PROBLEM 13

1. Map with Costs (Simultaneous Equation Method and Total Full Costing)

Preparation (Vol. Milling Packing Power Generator General Total

wheat) (Mh) (Nº Bags) (155000kw) Overheads
Direct Costs 484 500 783 500 204 500 179 500 154 000 1
806
000
Reallocation:
Power 50 000*1.275 65 000*1.275 30 000*1.275 10 000*1.275
Generator
General 484500*0.100938 783500*0.100938 204500*0.100938 179500*0.100938
Overheads
Total 597154 945460 263392 197618 166750
Unit Cost 1.275 0.100938

Power: 155000x=179500+179500y

General: 1652000y = 154000+10000x (1652000=484500+783500+204500+179500)

y = 0.1009
 2. COGM and COGM per tonne and per bag (Weighted Average Cost)

a) Bulk Flour

COGM = Manufacturing Costs (No WIP)

COGM = DM + DL + Man. Overheads

DM unit = Wheat Used = (2500*11.30 +18.500*15.5)/21000 * 1.2 = 15*1.2= 18

DL=0

Man Overheads = Preparation Costs + Milling Costs =597154+945460 = 1542614

Production Bulk Flour: 3625000+217500*50=14 500 000 kg = 14 500 tonnes

COGM per tonne = 15*1.2 + 1542614/(14500-1500) = 136.66

b) Flour for domestic use

COGM =Manufacturing Costs

1kg Bulk Flour + 1 bag -Packing Material

Unit Cost Bulk Flour (1500 * 140€ + 13000* 136.66) /14500 = 137€ per tonne / per kg =0.137

Unit Cost Bag = 0.05€

Man Overheads = 263392/(3625000+217500)=0.0685

COGM 1 bag= 0.2555

c) Flour for Industrial Use

COGM = Manufacturing Costs

50kg Bulk Flour + 1 bag + Man. Overheads

Unit Cost 50kg bulk flour = 6.85

Unit Cost of bags = 1.75

Man Overheads per unit = 0.0685

COGM 1 bag = 8.6685

 3. P&L (by function)

Flour – Domestic Use Flour – Industrial Use Total

Sales 0.4€ * 3 550 000=1 420 000 13€ * 218 000=2 834 000 4 254 000
COGS 900 457.5 1 870 787.71 2 771 245.21
Gross Profit 1 482 754.79
Non. Man. Costs 347 800
PBT 1 134 954.79

COGS Flour for domestic use: (0.2555*3625000+125000*0.2)/(3625000 + 125 000) *3 550 000=
900 457,5

COGS Flour for industrial use: (8.6685*217 500 + 8*32 500)/(217 500 + 32 500)*218 000=
1 870 787.71

PROBLEM 14

1. Map with Costs

OC1 OC2 SC1 SC2 SC3 Total

(5000 Lh) (11375Lh) (1000 Lh) (50 Mh)
Direct Costs 11 000 9 000 7 175 2 000 1 000 30 175
Reallocation:
SC1 6 000€ =800Lh 100 Lh = 750€ 100Lh= 750€
SC2 20Mh*65 25Mh*65 5Mh*65
SC3 500€ 500€
Total 18 800€ 11 375€ 7500€ 3250€ 1000€
Unit Cost 2.5€ 1€ 7.5€ 65€

2. COGM of product A

Each unit of work of OC2 is 2€

COGM = Manufacturing Costs + Open WIP – Closing WIP

Manufacturing Costs = 7500 +5000*2.5+9375*2= 38750

Open WIP – Closing WIP =4750-15000=-10250

COGM = 38750 – 10250 = 28500

 PROBLEM 15

1. Characterize the production process

The company uses process costing – they always produce the same product, in the end of the
period there can be WIP and F.G.

2. Map with Costs (Sequential and Simultaneous Equation)

a) Sequential Method

Maintenance: 45/580=7.7%

General: 28/308=9% - Start with GENERAL

Mixer Drying Packing Maintenance General Man. Total

(974Mh) (1000) (500Mh) (535Lh) Overheads (308Lh)
Direct Costs 21 000 10 000 9 000 4 000 3 080 47 080
Reallocation:
• Maintenance 235 Lh*8 100Lh *8 200 Lh * 8
• Gen. Man. 147 Lh * 10 70 Lh * 10 63 Lh * 10 28 Lh * 10
Overheads
Total 24 350€ 11 500€ 11 230€ 4280€ 3080€
Unit Cost 25€ 11.5€ 22.46€ 8€ 10€

b) Simultaneous Equation

Mixer Drying Packing Maintenance General Man. Total

(974Mh) (1000) (500Mh) (580Lh) Overheads (308Lh)
Direct Costs 21 000 10 000 9 000 4 000 3 080 47 080
Reallocation:
• Maintenance 235 Lh*7.4 100Lh *7.4 200 Lh *7.4 45Lh *7.4
• Gen. Man. 147 Lh *11.08 70 Lh *11.08 63 Lh *11.08 28 Lh * 11.08
Overheads
Total 24368 11516 11 178 4310 3413
Unit Cost 25 11.5 22.36 7.4 11.08

580x = 4000+28y y=7.4

308y = 3080 + 45x

 3. COGM (Sequential Method) (NO WIP)

COGM = Manufacturing Costs

Pasta: DM + DL + Man. Overheads

DM= 21+200-26= 195 units

Company uses FIFO, DM used = 21*250+174*275= 53 100

DL = 3000€

Man. Overheads = Mixer + Drying = 24 350 + 11 500 = 35 850

COGM = 53100 + 3000 +35 850 = 91 950

COGM per unit = 91 950 /100 = 919.5 per tonne

Paccking Pasta: DM + DL + Man. Overheads

DM = Pasta + Plastic = 84 642.5

Pasta Used =25+100-35= 90 units = 25*875 +65*919.5 =81 642.5

Plastic Used = 2000*1.5=3000

DL = 9000€

Man Overheads = 11 230

COGM = 104 872.5

PROBLEM 16

The method recommended should be the simultaneous equation method.

Corporate Consumer Human Information Total

(Employees) (Processing
time)
Direct Costs 900 000 500 000 70 000 250 000 47 080
Reallocation:
• Human 40*969.4 40*969.4 20*969.4 100
• Information 2000*67.347 1600*67.347 400*67.347 4000
Total 1 073 470 646 531 96 939 369 388
Unit Cost 969.4 67.347

100x = 70 000 + 400y

4000y = 250 000 + 20x x=969.4

 PROBLEM 17

a) Map of Costs (Simultaneous Equation Method)

Grinding Mixer Maintenance Power Total

(200Mh) (180 Mh) (400 Lh) (20 000kw)
Direct Costs 3 317 4 235.30 1 460 2 142.50 11 154.8
Reallocation:
• Maintenance 180*5.15 170*5.15 50*5.15
• Power 8000*0.12 7000*0.12 5000*0.12
Total 5204 5950.8 2060 2400
Unit Cost 26.02 33.06€ 5.15 0.12

400x = 1460 +5000y x=5.15

20000y= 2142.5+50x

b) COGM (Type I and Type II) (Weighted Average Cost)

COGM = Manufacturing Costs + Open WIP – Closing WIP

TYPE I

Manufacturing Costs = DM + DL + Man. Overheads

DM= 270*25+30*5 = 6900

DL = 3000

Man. Overheads = 80*26.02+50*33.06=3734.6

COGM = 6900 + 3000 + 3734.6+1200-1270 = 13564.6

TYPE II

DM = 280*15+150*20+70*10 =7900

DL = 5000

Man. Overheads =120*26.02+130*33.06=7420.2

COGM = 7900+5000+7420.2+1500-830=20990.2
 c) P&L (by function)

Diet Type I Diet Type II Total

Sales 250*50=12500 500*48=24000 36500
COGS 42.4115*250=10602.875 40.404*500=20202 30804.875
Gross Profit 5 695.125
Non. Man. Costs
Variable 2.5%*12500=312.5 2.5%*24000=600 912.5
Fixed 6000
PBT -217.375

COGS (WAC)

Type I

COGS per unit =(100*34+13564.6)/400 =42.4115

Type II

COGS per unit = (80*30.55+20990.2)/580=40.404

PROBLEM 18

1. Map with Costs (Simultaneous Equation Method)

Preparation Transformation Power Gen. Cleaning Gen. Total

(2180 Mh) (1800 Mh) (20000kw) (500Lh) Overheads
Direct Costs 30 000 27 780 4150 3010 2340 67280
Reallocation:
• Power 8500*0.24 10500*0.24 1000*0.24
• Cleaning 250*6.5 150*6.5 100*6.5
• General 1215 1125
Total 34880 32400 66650 3250 2340
Unit Cost 16€ 18€ 0.24 6.5

20000x=4150+100y x=0.24

500=3010+1000x
 2. Manufacturing Costs (LIFO)

DM + DL + Man. Costs

Syrup Peach

DM = 105 peach +790000 cans +104300€

105 tonnes peach :105*260=27300

790000cans: 750000*0.25+40000*0.23=196700

DL =7800

Man. Overheads = 950*16+850*18 =30500

Man. Costs = 366 600

Peach Juice

DM = 520 peach + 1 150 000 bottles +27 420€

520 tonnes peach: 520*260€ =135200

1150000 bottles: 1150000*0.2=230000

DL=11300

Man. Overheads = 1230*16+950*18= 36780

Man. Costs = 440700

3. P&L (by function)

Syrup Peach Peach Juice Total

Sales 800000*0.9=720 000 1120000*0.75=840 000 1 560 000
COGS 375 600 436 800 812 400
Gross Profit 747 600
Non. Man. Costs
Variable 0.10*800000=80000 0.2*1120000=224000 304000
Fixed 67 750 94 850 162 600
PBT 281 000

COGS Syrup Peach= 366 600+20000*0.45=375600

COGS Peach Juice = 440700/1130000*1120000=436800

Allocation of Fixed Costs: 162 600/(800000+1120000) =0.0846875

 PROBLEM 19

1. Map of Costs (Simultaneous Equation Method)

Painting Oven Cleaning Maintenance General Total

(2000 Lh) (1000 Lh) (800 Lh) (500 Lh)
Direct Costs 6600 5500 2368 3000 1750
Reallocation:
• Cleaning 400*4.296 200*4.296 200*4.296
• Maintenance 150*8.32 250*8.32 100*
• General 661.21 551.01 237.23 300.55
Total 10228 8990 4160 1750
Unit Cost 5.11 9 4.296 8.32
0.100183192

800x = 2368+100y+237.23 x=4.296

500y= 3000 + 200x + 300.55

2. Cost of Each Order

Order No. 3276 Order No. 4001 Order No. 4002

Initial Cost 6658
DM 3300 5200 2800
DL 1000 3500 1100
Man. Overheads 400*5.11+200*9 1000*5.11+500*9 600*5.11+300*9
Total 14802 18310 9666
COGM/WIP COGM COGM WIP

3. P&L (by function)

Order No. 3276 Order No. 4001 MetalDouro246 Total

Sales 25 000 30 000 6880 61 880
COGS 14802 18310 200*5+600*5.5 37412
Gross Profit 24 468
Selling Costs 2500
Administrative 5000
Financial 1500
PBT 15 468

4. Homogeneous Cost Pool Method Advantages

PROBLEM 20

Question 1

1. Manufacturing Costs (Traditional Costing)

Single Overhead Rate = 100 000/(20*10000+30*500) =0.465116

Product A: 10*10000+20*10000+0.465116*20*10000=393023.2

Product B: 20*500+30*500+0.465116*30*500=31976.74

2. Gross Profit (Product A and Product B)

Product A: 50*10000-393023.2=106976.8

Poduct B: 100*500-31976.74=18023.26

Question 2

1. Manufacturing Costs (ABC)

Man. Costs =DM + DL + Man. Overheads

Activity Cost Driver Total Costs Unit Costs

Materials Handling Parts 12000 6
Setting-up Set-up time 21000 52.5
Operating machines Machine Hours 45000 30
Inspection Inspection Hours 22000 4.4

Product A: 10*10000+20*10000+1800*6+5*52.5*10+1000*30+4000*4.4= 361025

Product B: 20*500+30*500+200*6+7*50*52.5+500*30+1000*4.4=63975

(Roundings)

2. Gross Profit (Product A and Product B)

Product A: 50*10 000-361025= 138975

Product B:100*500-63975=-13975
PROBLEM 21

1. Operating Profit (Each Product) (COGS as Allocation Base)

Allocation Rate= 360000/(240 000+600 000+360 000) =0.3

Soft Drinks = 317400-240000-0.3*240000=5400

Fresh Products =840 240 -600 000-0.3*600 000=60240

Package Food=483960-360000-0.3*360000=15960

2. Operating Profit (ABC)

Soft Drinks Fresh Products Packaged Food

Sales 317 400 840 240 483960
COGS 240000 600000 360000
Man.Overheads Costs
• Bottle’s Return 4800
• Orders Made 100*144 100*336 100*144
• Deliveries 80*120 80*876 80*264
Received
• Replenishment 20*216 20*2160 20*1080
• Customer Service 0.2*50400 0.2*441600 0.2*122400
Total Man. Overheads 43200 235200 81600
Operating Profit 34200 5040 42360

Activity Cost Driver Total Costs Unit Cost

Bottle’s Return All to SOFT 4800
624 Purchase Orders 62 400 100
1260 Deliveries 100800 80
3456 hours 69120 20
614400 products 122800 0.2
sold

3. Advantages of ABC

More accurate allocation of overheads to products, closer relation between the costs and what
causes them, a lot of cost drivers.
PROBLEM 22

1. Cost per patient (ABC)

Alcohol Drugs After Care Total

Doctors Nº 4*140000 560000
Pshycologists Nº 6*70000 4*70000 8*70000 1260000
Nurses Nº 4*30000 6*30000 10*30000 600000
Medicines Nº patients 40*2000 50*2000 60*2000 300 000
Rent Space Used 9000*9 9000*9 12000*9 270000
Laundry Nº patients 40*6000 50*6000 60*6000 900000
Laboratory Nº Lab Test 400*60 1400*60 700*60 150000
Total Cost 965 000 1585000 1490000 4040000
Unit Cost 24125 31700 24833

2. Advantages of ABC

PROBLEM 23

1. Manufacturing Costs

Puzzle 101 Puzzle 102 Puzzle 103

Wood 1.5*6
PVC 0.5*18 3*18
Other DM 15 10 20
Drawing NO YES NO
Nº of pieces 100 170 70
Man. Overheads 50 42 300
Total 74 69 374

Allocation Rate = 400/(1.5*6+0.5*15+3*18) =5.555

2. Manufacturing Costs (ABC)

Activity Cost Driver Total Costs Unit Cost

Preparing Draws Nº Lh 105 105
Painting Area 50 10
Cutting Pieces Nº Pieces 170 0.5
Packing Nº Puzzles 75 25
Puzzle 101 =114 Selling Price=74*1.25=92.5
Puzzle 102=239 Selling Price =86.25
Puzzle 103=164 Selling Price=467.5
 No, I don’t agree because the price is being calculated on the basis of D.M used and its cost. The
complexity of producing each puzzle, which can be measured by the activity rather than DM
consumption, is not taken into consideration when pricing the puzzles. ABC should be used to set
up the price of each puzzle. (Job costing)

3. Single overhead rate advice

Allocation base recommended should be the number of pieces because it takes into consideration
the complexity of producing each puzzle. Puzzle 101 and 102 are more complex and activity
consuming that 103, although the latter is larger.

PROBLEM 24
Almeida Barbosa Cardoso
2% Spread 2% * 1200 2%*800 2%*25000
Monthly fee 10*15
Deposits Bank 1.8*40 1.8*30 1.8*5
Deposits Machine 0.6*10 0.6*20 0.6*30
Chequebooks 6*12 6*4 6*2
Foreign Currency 9*6 9 9*14
Information 0.75*12 0.75*24 0.75*8
Profit -189 49 329

PROBLEM 25

Cost of Activity “Improving the manufacturing processes”

40000*0.35 + 50000*0.6+ 25000*0.2 + 10 000*0.2=51000

PROBLEM 26
DM Production Normal Abnormal Scrap COGM O.O O.O Operating Profit
(Units) (Units) Losses Losses Value Expenses Revenues
(Units) (Units) (€/liters)
A 10000 10000 0 0 0 100 000€/10000 0 0 30*10000-
=10 100 000=200000
B 10000 8000 2000 0 0 100 000/8000 0 0 30*8000-
=12.5 12.8*8000=140000
C 10000 7000 2000 1000 0 100000/8000 1000*12.5 0 30*7000-
=12.5 =12500 12.8*7000-12500
=110000
D 10000 8000 2000 0 5 100000/8000 5*2000 30*8000-
=12.5 =10000 12.8*8000+10000
=150000
E 10000 7000 2000 1000 5 100000/8000 1000*12.5 5*3000 30000*7000-
=12.5 =15000 12.5*7000-
12.5*1000+3000*5
=125000
 COGM per unit= COGM/Expected Production
Expected Production = Real Production + Abnormal Losses
Abnormal Losses go to P&L as O.O. Expenses
Scrap Value goes to P&L as O.O.Revenue

PROBLEM 27

1. Identify each P&L (Total Full Costing and Full Costing Based on Practical Capacity)
Man. Fixed Costs = 532000

Total Full Costing Unit MFC= 532000/1520000=0.35

Practical Capacity Unit MFC = 532000/1900000=0.28

COGS TFC unit =1140000/1520000+0.35=0.75+0.35=1.1

COGS= 1.1*1500000=1 650 000

B = Total Full Costing

A= Full Costing Based on Practical Capacity

2. Difference in Profits
Difference in Profits=1400€
Man. Fixed Costs included in goods in P&L:
• TFC:0.38*1500000=525 000
• FCBPC:0.28*1500000=420000
Under Recovery PC = 0.28*(1900000-1520000)=106 400
Difference = 420000+106400-525000=1400

3. PBT (Variable Costing)

Difference in Profit VC vs TFC = Q Assets * (Man. Fixed Costs/Real Production) = 20 000*0.35=

7000

Profit Variable Costing =610 000 – 7000= 603 000

Profits are different because the way we treat the manufacturing fixed costs is different.

4. Budgeted Activity =1600000

COGM = 0.3325*1520000+1140000=1645400
COGM per unit =1645400/1520000=1.0825
COGS =1.0825*1500000=1623750
Under Recovery =80 000 * 0.3325 =26600
Profit = 3000000-1623750-26600-150000-300000-140000-760000-150000=609650
 PROBLEM 28
A) PBT
i) Total Full Costing (Simultaneous Equation)

Preparation Assembly Quality Control Maintenance Cleaning Total

(200 Mh) (1500 Lh) (40 Lh) (50 Lh) (100 Lh)
Direct Costs 35 000 50 000 7000 4000 4000 100000
Reallocation:
• Quality 20*212.5 20*212.5
• Maintenance 10*100 20*100 10*100 10*100
• Cleaning 40*50 30*50 10*50 20*50
Total 42250 57750 8500 5000 5000
Unit Cost 211.25 38.5 212.5 100 50

50x= 4000 + 20y y=50

100y=4000+10x

COGM Liquid Fertilizer =37500+ 4200 + 100*211.25+400*38.5=78225

COGS = 0.9 * COGM =70402.5
COGM Fertilizer in Grains = 42250+3300 + 100*211.25 + 1100*38.5=109025
COGS=98122.5

Liquid Fertilizer Fertilizer in Grains Total

Sales 0.5*0.9*420 000 =189 000 0.6*0.9*388 800=209952 398 952
COGS 70402.5 98122.5 168525
Gross Profit=PBT 118597.5 111829.5 230 427

ii) Variable Costing

Preparation Assembly Quality Control Maintenance Total

(200 Mh) (1500 Lh) (40 Lh) (50 Lh)
Direct Costs 20000 30000 2000 1000 53000
Reallocation:
• Quality 20*55 20*55
• Maintenance 10*20 20*20 10*20
Total 21300 31500 2200 1000€
Unit Cost 106.5 21 55 20

COGM Liquid Fertilizer =37500+ 4200 + 100*106.5+400*21=60750

COGS = 0.9 * COGM =54675
COGM Fertilizer in Grains = 42250+3300 + 100*106.5 + 1100*21= 79300
COGS=71370
 Liquid Fertilizer Fertilizer in Grains Total
Sales 0.5*0.9*420 000 =189 000 0.6*0.9*388 800=209952 398 952
COGS 54675 71370 126045
Under Recovery 47000
Gross Profit=PBT 225907

B) Difference in Profit
Arises because we treat fixed costs differently in each system.
Fixed Costs in VC = Under Recovery = 47 000
Fixed Costs in TFC =Only part of them included in COGS

PROBLEM 29

1. Operating Profit Full Costing Based on Practical Capacity

Man. Fixed Costs = 450 000
Practical Capacity = 15 000
Unit MFC = 450 000/15 000= 30
Qt. Sold = 885000/75=11800
Unit COGM = 265500/11800+30=22.5+30=52.5
COGS = 11800 * 52.5=619500

Operating Profit = 885000-619500-15000-35400-15000- 30*3000=110 100

2. Difference in Profit (PC vs VC)

Difference in Profits = 110100-104100= 6000€

Profits are different due to fixed costs which are treated differently by the two costing systems.
COGM only has Variable Costs in V.C.
In Full Costing based on Practical Capacity part of the fixed costs is allocated to products and goes
to the P&L when we sell them and part goes directly to P&L as under-recovery due to inefficiency.

3. Operating Profit TFC and COGS

Difference in COGS
Unit COGS TFC = 22.5 + Unit MFC = 60€
Unit MFC = 450000/12 000=37.5
(60-22.5)*11800=442500
COGS= 265500 +442500=708000

Difference in profit = 200* 37.5=7500

Profit = 104100 +7500 =111600
 4. Break- Even Point and Safety Margin
Qo = FC/ (Unit Selling Price – Unit variable Costs)= (450000+15000+15000)/(75-22.5-35400/11800)
=480000/49.5 =9697

SM1 =(Qs-Q0)/Q0 = (11800-9697)/11800=22%

The company is selling 22% above the break-even point.

SM2 = (Qs-1q0)/Qs = 18%

If the sales decrease more than 18% the company will have losses.

5. Expected Profit ( Sales = 13000)

∏= (Qs-Q0)*Contribution Margin =(13000-9697)*49.5=163498.5

PROBLEM 30
a) COGM per unit (three costing systems)

P1 P2
Variable Costing 12 12
Total Full Costing 12+300/120=14.5 12+300/130=14.31
FCBPC 12+300/150=14 12+300/150=14

b) Higher Profit in P1 and P2

P1 P2
COGS Under- Total COGS Under Total
Recovery Recovery
Variable Costing 12*100 300 1500 12*150 300 2100
Total Full Costing 14.5*100 0 1450 14.5*20+130*14.31 0 2150.3
FCBPC 14*100 30*2 1460 14*150 2*20 2140

P1: Total Full Costing

P2: Variable Costing

c) Profit in P3
Full Costing Based on Practical Capacity will have a higher profit

P3
Sales COGS Under Total Profit
Recovery
Non Man
Variable 20*130=2600 12*130 300 +100 1960 640
Costing
Total Full 20*130=2600 12*130+300/160*130 100 1903.75 696.25
Costing
FCBPC 20*130=2600 12*130+2*130 100-10*2 1900 700
PROBLEM 31
1. Profit TFC vs Profit VC
Manufacturing Fixed Costs= 7500

Difference in Profit = 100* (7500/2000)=375

Profit TFC = 17190+375= 17565

2. COGM and Operating Profit FCBPC

Unit Manufacturing Fixed Costs = 7500/2500=3€
COGM per unit=19760/1900 + 3 = 13.4€
COGM=2000*13.4=26800
COGS=1900*13.4=25460
Under-Recovery = 500*3=1500

Difference in Profit = 100*7500/2500=100*3=300

Profit FCBPC=17190+300=17490

3. P&L budgeted activity ( 1950 l)

Sales 53200
COGS (10.4+7500/1950)*1900=27067.69
Over- Recovery 50*7500/1950=192.31
Non Man VC 33440
Non. Man. FC 8000
PBT 17575

4. Break-even Point

∏=0 Qo = FC/Unit Contribution Margin =(7500+8000)/(53200/1900-19760/1900-750/1900)=

=15500/(28-10.4-0.394736842) =900

5. Safety Margin
SM1 = (Qs-Qo)/Qo =1.111 = 111.1% Operating 111.1% above BEP

SM2 = (Qs-Qo)/Qs =0.526 =52.6% Sales could decrease 52.6% before the company has
losses

6. Expected Profit (Sales=2400)

∏=(Qs-Qo)*Contribution Margin = (2400-900.89)*((53200-1976-750)/1900)) =25792.58

Contribution Margin = (Sales – Variable Costs) / Units Sold initially

PROBLEM 32
1. P&L (Variable Costing)
Product A Product B
Sales 17.5*1200 15*950 35250
COGS 10500/1500*1200= 4500/1000*950= 12 675
Under-Recovery 7500
Non Man. Variable 2400 2375 4775
Non Man. Fixed 5250
PBT 5050

2. Break-Even Point
∏=0

17.5*x-7x-2x + 15y-4.5y-2.5y -5250-7500=0

8.5x+8y=12750

X=860 Product A= 17.5*860=15050

Y=680 Product B= 15*680=10200

Total Sales=25250

PROBLEM 33
1. Difference in Profit VC vs FCBPC
Production = -1000+90000/15+2500=7500
Practical Capacity = 7500/0.75= 10 000

Assets= (7500-6000)*Unit MFC =1500*3=4500

x/10000*7500=22500 x=30000= Fixed Costs

Profit FCBPC= 16700+4500=242000

2. Expected Profit (Sales =12000)

Man. Fixed Costs =22500
MVC unit = 3€

Qo= (22500+31000)/(15-3-1800/6000)=4573

∏= (Qs-Qo)* 11.7 =(12000-4573)*11.7 =86896

PROBLEM 34
a) Difference in Profits (TFC vs FCPC)
b) Real Production
Qassets* (FC/Real production – FC/Practical Capacity)

Man- Fixed Costs= 60 000

Real Production= Practical Capacity – 2000

Q assets = 10000-6000=4000
Sales = 6000 units
Under Recovery= FC/Practical Capacity*2000=10000
FC/Practical Capacity = 5
Practical Capacity = 12 000
Real Production = 10000
Difference in Profit= 4000*(6-5) = 4 000

PROBLEM 35
1. P&L (FCBPC)

ABAFADINHO MOSCATEL Total

Sales 120 960 130 200 251 160
COGS 54000+36000=90000 62000+29760=91760 181760
Gross Profit 69400
Under Recovery 7680 7680
Non Man. Variable 5760 3410 9170
Non Man. Fixed 22 000
PBT 30550

Total Full Costing

Unit COGM = Unit MVC + Unit MFC
Abafadinho=1.25
Unit MVC=54000/72000=0.75
Unit MFC = 0.5 = Unit MFC (FCBPC)
Fixed Costs Abafadinho= 0.5*72000=36000
Fixed Costs Included in Goods =36000 (PC = Real Production)

Moscatel=3.20
Unit MVC =62000/31000=2
Unit MFC = 1.2
Fixed Costs=1.2*32000=38400
Unit MFC FCBPC = 38400/40000=0.96
Fixed Costs Included in Goods Sold = 0.96*31000=29760
Under recovery= 0.96*8000=7680
 2. Difference in Profits (VC vs FCBPC)
Difference in Profits= 30550-29590=960
In VC all MFC go to the P&L:36000+38400
In FCBPC MFC included in COGM go to P&L when we sell: 36000+29760
And as under recovery: 7680

36000+38400-36000-29760-7680=960