Arab Open University BE310 - Cost Accounting TMA – First Semester 2015 - 2016 Cut-Off Date: 18th December 2015 About TMA: The TMA covers the cost accounting concepts and practices in the businesses. It is marked out of 100 and is worth 20% of the ov

Arab Open University
BE310 - Cost Accounting
TMA – First Semester 2015 - 2016
Cut-Off Date: 18th December 2015
About TMA:
The TMA covers the cost accounting concepts and practices in the businesses. It is marked out of 100 and is worth 20% of the overall assessment component. It is intended to assess students’ understanding of some of the learning points within chapters 1 to 5. This TMA requires you to apply the course concepts. The TMA is intended to:
 Assess students’ understanding of key learning points within chapters 1 to 5.
 Increase the students’ knowledge about the reality of the cost and management accounting as a profession.
 Develop students’ communication skills, such as essay writing, analysis and presentation of material.
 Develop the ability to understand and interact with the nature of the managerial accounting tools in reality.

The TMA:
The TMA requires you to:
1- Review various study chapters of ’Cost Accounting’ Book and apply some of the concepts within it.
2- Conduct a simple information search using the internet.
3- Present your findings in not more than 1,200 words (900 words for Part A and 300 words for Part B). The word count excludes headings, references, title page, and diagrams.
4- You should use a Microsoft Office Word and Times New Roman Font of 12 points.
5- You should read and follow the instructions below carefully. Each part of the process will carry marks for the assignment.

Criteria for Grade Distribution:
Criteria Content Referencing Structure and Presentation of ideas Total marks
Part A Part B
Value chain & Supply chain of PSA Ltd Job Costing for KLM Ltd.
Marks 60 40 (5) (5) 100







The TMA Questions

Part A
Value Chain & Supply Chain of PSA Ltd.


PSA Manufacturing Company has been in Gulf Countries since 2004. They manufacture electric cables and other allied electrical related product. The company has been making good amount of profits over the years. The key success factors for them are technology they use and the manpower they have. The company has been adding value to the products and services rendered by carefully analyzing each and every business activity carefully about its impact on the customer satisfaction. To achieve this, they are into value chain technique. The value chain of this company is given below:



Inventory & Cost & Sales Details of PSA Ltd

The inventory, cost & sales details of PSA Ltd for the year 2014 are given below:

Information Beginning of the year End of the year Cost for the current period
Direct Materials purchased 70,000
Stock of Materials 13,000 6,000
Work in Process 8,000 9,000
Finished Goods 20,000 14,000
Direct Labour cost 77,000
Overheads
Indirect Labour 3,300
Factory Insurance 2,500
Depreciation on Machinery 2,300
Machinery Repairs 1,500
Factory Utilities 1,650
Miscellaneous manufacturing overheads 1,250
Sales 199,000
Selling Expenses 7,725
Administrative Expenses 4,780



Supply Chain Analysis of PSA Ltd

The parts of the value chain associated with producing and delivering a product or service is referred to as the supply chain. PSA Ltd has always been feeling proud that their value chain and supply chain analyses and making action plans accordingly really bring competitive advantage to them. The CEO of PSA Ltd argues that successful strategy implementation requires more than value-chain and supply-chain analysis and execution of key success factors. The following diagram clearly indicates the activities of PSA Ltd that come under the umbrella of supply chain management.



Required

Horngren (2012) argues that customers want companies to use the value chain and supply chain to deliver every improving levels of performance.

In light of the above,

(1). Discuss the meaning of supply chain management and value chain analysis and explain how such analysis help organizations like PSA Ltd to add value in their products.
(20 marks)

(2). Using the Inventory, Cost and Sales details of PSA Ltd.

(a) Construct the schedule of cost of goods manufactured (15 marks)
(b) Prepare an Income Statement for PSA Ltd. (15 marks)

(3) For the first quarter ending in the year 2015, the PSA Ltd achieved the following sales and spent the following costs:

Information Variable ($) Fixed ($) Total Amount ($)
Sales 100,000
Manufacturing Costs 25,000 16,000
Non-Manufacturing Costs 27,000 13,800

Calculate the operating income based on the given information above using (a) contribution approach and (b) Normal Accounting approach (showing gross and net profit) (10 marks)




Part B

Job Costing at KLM Ltd

KLM Ltd manufactures a single product A. It has two production departments (cost centers) namely Department A and Department B. Information about the overheads allocated to these two departments (A&B) is given below:

Information Department A Department B
Total Manufacturing overheads $ 71,327 $ 50,756
Total Machine hours (estimated) 27,200 800
Total Direct Labour Hours (estimated) 6,800 18,000

KLM Ltd executes a job no. 847. The cost and output details of Job No.847 are given below:
Information Costs/hours details for Job No. 847
Direct Materials $ 487
Direct Labour $ 317
Number of machine hours used in Department A for Job no. 847 195 hours
Direct labour hours used in Department B for Job No. 847 102 hours

Production Department (A & B) overheads allocation to Job No. 847 will be as follows:

(a) Production Department A overheads will be allocated based on machine hours
(b) Production Department B overheads will be allocated using direct labour hours


Required

(1) Calculate overhead absorption rate for Production Department A and Production Department B allocation bases given above (10 marks)

(2) Ascertain the total cost of Job No. 847 (10 marks)

(3) If the actual overheads incurred on Production Department A and Production Department B amount to $ 70, 483 and $ 52, 874 and the overheads absorbed based on pre-determined rates (as calculated in question 1) on actual hours worked amount to $ 73,098 and $ 51,606 respectively, will there be any over –allocation of overheads or under-allocation of overheads? Show the calculations clearly here (10 marks)
(4) Explain briefly why under or over absorption of overheads occur? (10 marks)



END OF TMA QUESTIONS