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Accounting and Finance Questions

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Accounting and Finance Assignment questions
Section one: Decision Making & Control
Question 1 solution:
Part a:
Classifying the cost in terms of behaviors is very important In this case, the company will
evaluate the cost for variables, fixed, etc. Analyzing cost behavior helps managers in predicting
future costs. This will help in deciding the price of products. Analyzing cost behavior also helps
managers in the managing product portfolio. It helps in deciding which product requires
expansion and which product to discontinue. In a situation of capacity constraint, cost behavior
analysis helps in the allocation of capacities to products. Cost behavior analysis helps in capital
budgeting decisions for launching new products. Cost behavior analysis helps in deciding
process strategy and make or buy decisions.
Part b:
Breakeven point = 360,000/36 = 10000 units
Breakeven point = 10000*30 = 300000
Margin of safety = 2700000-300000 = 2400000
margin safety
Breakeven point
Part c:
Accounts
Calculations
Results
Total revenue
75000*36
2700000
Less:
Direct material
75000*13
975000
Direct labor
75000*9
675000
Variable selling
75000*5
375000
Other variables
75000*3
225000

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Contribution
450000
Less:
Total fixed cost
360000
Anticipated profit
90000
Part d:
Absorption Costing specifies that all the production costs are absorbed by the units produced.
The cost of a finished unit in inventory includes direct materials, direct labor, variable and fixed
manufacturing overhead, and variable and fixed admin costs. Calculating the full cost under this
absorption costing can be done by the following steps: A variable costing statement shows the
variable costs and fixed cost separately. In a variable costing statement, Sales Minus Variable
Costs give Contribution. This Contribution minus Fixed Costs give Profit. In Absorption Costing
Sales Minus, Direct costs minus Manufacturing overhead minus Admin Overhead minus Selling
costs give Profit. In Absorption Costing costs are not differentiated into Variable and Fixed
Costs. Absorption Costing ignores the difference between fixed costs and variable cost. The
Indirect cost like manufacturing overhead and admin overhead and selling overhead is absorbed
on a basis such as labor hours, machine hours, etc.
Total Cost = Total Direct Cost plus Total Overhead Cost
Total Direct Cost = Direct Material Cost plus Direct Labor
Total Overhead Cost = Variable Overheads plus Fixed Overheads
Part e:
Absorption Method
No. of Unit Sales
75000
Accounts
Per Unit
Sales
36
COGS
Direct material
13
Direct labor
9
Variable Production
3
Factory Rent
0.61
Factory power
0.53
Factory wage
1.6
Storeroom, wages
0.48
Total COGS
Gross Profit

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1 Accounting and Finance Assignment questions Section one: Decision Making & Control Question 1 solution: Part a: Classifying the cost in terms of behaviors is very important In this case, the company will evaluate the cost for variables, fixed, etc. Analyzing cost behavior helps managers in predicting future costs. This will help in deciding the price of products. Analyzing cost behavior also helps managers in the managing product portfolio. It helps in deciding which product requires expansion and which product to discontinue. In a situation of capacity constraint, cost behavior analysis helps in the allocation of capacities to products. Cost behavior analysis helps in capital budgeting decisions for launching new products. Cost behavior analysis helps in deciding process strategy and make or buy decisions. Part b: Breakeven point = 360,000/36 = 10000 units Breakeven point = 10000*30 = 300000 Margin of safety = 2700000-300000 = 2400000 margin safety Breakeven point Part c: Accounts Total revenue Less: Direct material Direct labor Variable selling Other variables Calculations Results 75000*36 2700000 75000*13 75000*9 75000*5 75000*3 975000 675000 375000 225000 2 Contribution Less: Total fixed cost Anticipated profit 450000 360000 90000 Part d: Absorption Costing specifies that all the production costs are absorbed by the units produced. The cost of a finished unit in inventory includes direct materials, direct labor, variable and fixed manufacturing overhead, and v ...
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