SOLUTION: ACCT 301 SEU Cost Accounting Cost Allocation & Production Departments Discussion

College of Administrative and Financial Sciences
Assignment 3
Deadline: 21/11/2020 @ 23:59
Course Name: Cost accounting
Student’s Name:
Course Code: ACCT 301
Student’s ID Number:
Semester: 1
CRN:
Academic Year: 1441/1442 H
For Instructor’s Use only
Instructor’s Name:
Students’ Grade: Marks Obtained/Out of
Level of Marks: High/Middle/Low
Instructions

The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.

Assignments submitted through email will not be accepted.

Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.

Students must mention question number clearly in their answer.

Late submission will NOT be accepted.

Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.

All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).

Submissions without this cover page will NOT be accepted.
Page 1 of 5
Q 1 Provide numerical example of assigning support department cost and discuss the
purpose of assigning support department costs (Week 10: Chapter 8, Measuring and
Assigning Support Department Costs).
(2 marks)
The costs of support departments are common to all producing departments and must be
allocated to them to satisfy many important objectives.
1. To obtain a mutually agreeable price.
Accurate cost allocation helps a firm create meaningful and competitive bids.
2. To compute product-line profitability.
Reliable product cost information helps a firm ensure that all products are profitable.
3. To predict the economic effects of planning and control.
Accurate cost allocation helps a firm assess the profitability of various support
services and determine the appropriate mix of support services offered by the firm.
4. To value inventory.
All manufacturing costs, direct and indirect, must be assigned to the products
produced to meet GAAP requirements.
5. To motivate managers.
Allocation of support department costs:
◼ Helps each producing department select the appropriate level of support service
consumption.
◼ Encourages support department managers to be more sensitive to the needs of the
producing departments.
Page 2 of 5
As Numerical example Assume the following
KSA Company has two support departments (Administration and Janitorial) and three
producing departments (Fabricating, Assembly, and Finishing). Costs and activities are as
follows:
Administration Janitorial Fabricating Assembly Finishing
Direct costs ……………. $50,000
$30,000
$40,000
$50,000
$25,000
Number of employees
10
30
40
20
Square feet ……………..
2,000
10,000
28,000
15,000
Direct labor hours ……
5,000
6,000
2,000
Administrative services are allocated based on the number of employees; janitorial services
are allocated based on square footage. Overhead rates for the three producing departments
are based on direct labor hours.
The allocation of Support department costs uing the step down method assuming
adminstration costs are allocated first will be as follows:
Direct Costs
Allocate Admin. Costs
Admin.
50,000
(50,000)
Janitorial
30,000
5,000
50,000×10/100
Total
Allocated Janitorial Costs
0
35,000
(35,000)
Total Cost
0
0
Fabricating
40,000
15,000
50,000×30/100
55,000
6,604
35,000×10/53
Page 3 of 5
61,604
Assembly
50,000
20,000
50,000×40/100
70,000
18,491
35,000×28/53
88,491
Finishing
25,000
10,000
50,000×20/100
35,000
9,906
35,000×15/53
44,906
Q 2 LMN Compagny produces three products K, L and M. During the year, the joint costs
of processing the three products were $480,000.
Production and sales value information were as follows:
Sales Value
Product
Units
at Split-Off
Separable Costs
Selling Price
K
500,000
$13 per unit
$6.00 per unit
$40 per unit
L
300,000
$12 per unit
$4.00 per unit
$37 per unit
M
200,000
$8 per unit
$3.00 per unit
$28 per unit
Allocate the joint costs using the physical output method.
(Week 11: Chapter 9, Joint product and by – Product costing)
(1.5 marks)
Physical output Method
Relative
Product
Units
Weight
K
500,000
50%
L
300,000
30%
M
200,000
20%
1,000,000
Allocated Cost
480,000 × 50% = 240,000
480,000 × 30% = 144,000
480,000 × 20% = 96,000
480,000
Page 4 of 5
Q 3 Provide numerical examples of static and flexible budget and discuss how these
budgets could be used to evaluate the performance of the managers (Week 12: Static and
flexible budgets).
(1.5 marks)
Assume that KSA Company is preparing its Static budget for 2019, using the following
budgeted amounts, budgeted selling price per unit is $10, budget units to be sold is 1000
units, and total fixed costs for 2019 are estimated to be $5,000. Variable costs are budgeted
at $3/unit. At end of 2019, the company actually produce and seel 1,100 units at $12 per unit
and variable cost of $4 Per unit anf fixed cost of $6,000.
Units
Sales Revenue
Variable Expenses
Contribution margin
Fixed expenses
Operating Income
Flexible
Actual Budget
Results Variance
1100
13200 2200 F
4400 1100 U
8800 1100 F
6000 1000 U
2800
100 F
Sales
Flexible
Volume
Budget Variance
1100
11000 1000 F
3300
300 U
7700
700 F
5000
0 Non
2700
700 F
Static
Budget
1000
10000
3000
7000
5000
2000
Total Static Budget Variance = 800 F
A static Budget is prepared at beginning of each accounting period for the following
reasons:

It allows the company to plan its output and input. It, in turn, assists the company in
managing its cash flows, income, and expenses.
▪ This budget acts as a blueprint. Thus, it allows the company to monitor the
departments’ day-to-day work, as well as long-term plans.
▪ Almost every stakeholder can use this budget to ensure monetary controls.
▪ It serves as a tool to prevent overspending, as well as match the spending with the
revenues
A flexible budget is a budget prepared using the ACTUAL level of production instead
of the budgeted activity. The difference between actual costs incurred and the flexible
budget amount for that same level of operations is called a flexible budget variance.
A flexible Budget variances can indicate a department’s or company’s degree of
efficiency, since they emerge from a comparison of what was with what should have
been. The performance report shows the budget variance for each line item.
Page 5 of 5
College of Administrative and Financial Sciences
Assignment 3
Deadline: 21/11/2020 @ 23:59
Course Name: Cost accounting
Student’s Name:
Course Code: ACCT 301
Student’s ID Number:
Semester: 1
CRN:
Academic Year: 1441/1442 H
For Instructor’s Use only
Instructor’s Name:
Students’ Grade: Marks Obtained/Out of
Level of Marks: High/Middle/Low
Instructions

The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.

Assignments submitted through email will not be accepted.

Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.

Students must mention question number clearly in their answer.

Late submission will NOT be accepted.

Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.

All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).

Submissions without this cover page will NOT be accepted.
Page 1 of 2
Q 1 Provide numerical example of assigning support department cost and discuss the
purpose of assigning support department costs (Week 10: Chapter 8, Measuring and
Assigning Support Department Costs).
(2 marks)
Q 2 LMN Compagny produces three products K, L and M. During the year, the joint costs
of processing the three products were $480,000.
Production and sales value information were as follows:
Sales Value
Product
Units
at Split-Off
Separable Costs
Selling Price
K
500,000
$13 per unit
$6.00 per unit
$40 per unit
L
300,000
$12 per unit
$4.00 per unit
$37 per unit
M
200,000
$8 per unit
$3.00 per unit
$28 per unit
Allocate the joint costs using the physical output method.
(Week 11: Chapter 9, Joint product and by – Product costing)
(1.5 marks)
Q 3 Provide numerical examples of static and flexible budget and discuss how these
budgets could be used to evaluate the performance of the managers (Week 12: Static and
flexible budgets).
(1.5 marks)
.
Page 2 of 2

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