Arab Open University BE310 - Cost Accounting TMA – Second Semester 2015 - 2016 Cut-Off Date: 3rd May 2016 (Week 11) 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

Arab Open University
BE310 - Cost Accounting
TMA – Second Semester 2015 - 2016
Cut-Off Date: 3rd May 2016 (Week 11)
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
KSF & Cost Analysis for Global Electronics Costing methods for Sky Blue Metals Ltd
Marks 60 40 (5) (5) 100



Part A

Key Success Factors & Cost Analysis for Global Electronics Ltd.

Global Electronics is one of the leading electronic products manufacturing and supplying company in Gulf region. The company has been manufacturing and supplying certain important electronic products needed for individuals and corporates. The company has been investing heavily on Research and Development for the last couple of years in order to gain competitive edge in the market. The company is now is possession of good human power, advanced technology and good capital base. The top level management of this company has identified that as a result of technology, manpower and the capital base they have, they are able to enjoy cost leadership, distinct quality in products and ability to innovate at faster rate. They want to keep up those key success factors in order to have synergizing effects. Organizations allocate huge amount of resources for implementing strategies that make their key success factors strong and permanent.

Key Success Factors for Global Electronics Ltd

The key success factors for Global Electronics Ltd can be summarized as below:


The top level management of Global Electronics strongly believes that management accounting department they have is playing a vital role in strengthening key success factors and developing appropriate strategies for them.

Units and Costs Details for Product “M” (Estimations)

The company has estimated the variable cost per unit, fixed costs and the number of units to be produced for the next four years as below:

Period Expected units to be produced (units) Variable cost per unit ($) Total Fixed Costs ($)
First year 50,000 30 500,000
Second year 100,000 30 500,000
Third year 250,000 30 500,000
Fourth year 400,000 30 500,000

Units and Cost Details for Product “N” - Promote or not to promote decision

The company has been seriously thinking how to improve the sale of product “N” in the market. Company is serious thinking about providing extra promotional activities like advertising in order to promote the sale of product N. It provides cost and other details of N as below:

Information Existing situation After promotional activities undertaken
Number of products produced and sold 1200 units 1500 units
Variable cost per unit $ 48 $ 48
Fixed Costs $ 40000 $ 50000
Selling Price per unit $ 200 $ 200

The company has been seriously thinking whether it needs to go additional promotional aspects like advertising or not. The company has estimated that it will get certain benefits out of sales but at the additional fixed costs (as given above)

Required

(1). Global Electronics is enjoying the benefits of having certain key success factors such as technology, manpower and capital based. Similarly, organizations can use its quality and differentiation in product, cost leadership and ability to innovate as their key success factors.

In light of the above,

(1) Discuss the role of management accounting in sustaining and strengthening the key success factors of an organization like Global Electronics Ltd. (15 marks)

(2). Using the information given above for Product M, ascertain the following:

(i) Total Cost for the respective output levels of Product M in different years (5 marks)
(ii) Total Cost per unit for those levels of output (5 marks)

(3) Calculate operating income for the two options for product “N” (giving additional promotion or keeping the existing situation) and advice the company accordingly.
(15 marks)

(4) Calculate the following for Product “N” (note: taking existing situation data only)

(a) BEP and show the proof (10 marks)

(b) Operating leverage for product “N” for two levels of activity i.e. 1200 units and 1500 units respectively (note: assuming existing situation condition prevailing (or) taking existing situation data) (10 marks)










Part B

Costing Methods at Sky Blue Metals Ltd

Sky Blue Metals makes and sells two products X and Y. Data pertaining to production and sales each month is as follows:

Product X Product Y
Sales demand 2000 units 4000 units
Direct Material/unit $ 10 $ 5
Direct Labour hours/unit 0.1 hour 0.2 hours
Direct labour cost/unit $ 2 $ 4

Production overheads are $ 250,000 each month and these are absorbed on a direct labour hour basis.

An analysis of overhead costs suggests that there are four main activities that cause overhead expenditure. The details are as given below:

Activity Total cost Cost driver Total number Product X Product Y
$
Batch setup 50,000 No. of set-ups 20 10 10
Order handling 100,000 No. of orders 40 24 16
Machining 60,000 Machine hours 15,000 6,000 9,000
Quality control 40,000 No. of checks 32 18 14
250,000


Required

1. Calculate the full production costs for Product X and Product Y, using

(a) Traditional absorption costing (10 marks)

(b) Activity Based Costing (20 marks)

(2) Explain why the costs reported under traditional costing and activity based costing differ from one another? (10 marks)





END OF TMA QUESTIONS