Date of Examination: 24.10.

21

AHSANULLAH UNIVERSITY OF SCIENCE AND TECHNOLOGY

School of Business
Program: Bachelor of Business Administration (BBA)
Semester Final Examination: Fall 2020
Year: 3rd Semester: 1st
Course Number: BBA 311
Course Name: Cost and Management Accounting
Time: 02 (Two) Hours Total Marks: 50

Use single answer script

Instructions:

i. Answer script should be hand written and should be written in A4 white paper. You must submit
the hard copy of this answer script to the Department when the university reopens.
ii. You must write the following information at the top page of each answer script:
Department: Program:
Course no: Course Title:
Examination: Semester (Session):
Student ID: Signature and Date:
iii. Write down Student ID, Course number and put your signature on top of every single page
of the answer script.
iv. Write down page number at the bottom of every page of the answer script.
v. Upload the scan copy of your answer script in PDF format through provided google form at
the respective course site (i.e., google classroom) using institutional email within the allocated
time. Uploading clear and readable scan copy (uncorrupted) is your responsibility and must
cover the full page of your answer script. However, for clear and readable scan copy of the
answer script student should use only one side of a page for answering the questions.
vi. You must avoid plagiarism, maintain academic integrity, and ethics. You are not allowed to
take any help from another individual and if taken so can result in stern disciplinary actions
from the university authority.
vii. Marks allotted are indicated in the right margin.
viii. Necessary charts/tables are attached at the end of the question paper. You may use graph
papers where necessary.
ix. Assume any reasonable data if needed.
x. Symbols and characters have their usual meaning.
xi. Before uploading rename the PDF file as CourseNo_StudentID.pdf
For example, BBA 311_180202001.pdf
xii. The answer script (one single pdf file) must be uploaded at designated location in the provided
google form link available in the google classroom.

Page 1 of 7
 There are 6 (Six) questions. Answer any 4 (Four) questions.

1. a. AAA Ltd. acquired its factory building 10 years ago. For a few years, the company has 6
rented out a small annex attached to the rear of the building for $30,000 per year. The
renter’s lease will expire soon, and rather than renewing the lease, the company has
decided to use the annex to manufacture a new product.
Direct materials cost for the new product will total $80 per unit. To have a place to
store its finished goods, the company will rent a small warehouse for $500 per month. In
addition, the company must rent equipment for $4,000 per month to produce the new
product. Direct laborers will be hired and paid $60 per unit to manufacture the new
product. As in prior years, the space in the annex will continue to be depreciated at $8,000
per year.
The annual advertising cost for the new product will be $50,000. A supervisor will be
hired and paid $3,500 per month to oversee production. Electricity for operating machines
will be $1.20 per unit. The cost of shipping the new product to customers will be $9 per
unit.
To provide funds to purchase materials, meet payrolls, and so forth, the company will
have to liquidate some temporary investments. These investments are presently yielding
a return of $3,000 per year.
Required:
Using the table shown below, describe each of the costs associated with the new product
decision in four ways.
Cost Classifications for:
Cost Variable Direct material / Direct Product Cost Opportunity
Items / Fixed Labor/ Manufacturing / Period Cost Cost / Sunk cost
Overhead

b. The Babul enterprise, is a large retailer of snow skis. The company assembled the 6.5
information shown below for the quarter ended March 31:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$150,000
Selling price per pair of skis . . . . . . . . . . . . . . . . . . . $750
Variable selling expense per pair of skis . . . . . . . . . .$50
Variable administrative expense per pair of skis . . . $10
Total fixed selling expense . . . . . . . . . . . . . . . . . . . . $20,000
Total fixed administrative expense . . . . . . . . . . . . . . $20,000
Beginning merchandise inventory . . . . . . . . . . . . . . .$30,000
Ending merchandise inventory . . . . . . . . . . . . . . . . . $40,000
Merchandise purchases . . . . . . . . . . . . . . . . . . . . . . . $100,000
Required:
i. Prepare a traditional income statement for the quarter ended March 31.
ii. Prepare a contribution format income statement for the quarter ended March 31.
iii. What was the contribution margin per unit

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2. a. RR Fashoin (RRF) uses a job-order costing system. The company’s direct materials 6
consist of cloths, thread, and design accessories that are directly used in a customer’s
order and its direct labor consists of the tailors’ hourly wages. RRF’s overhead costs
include various items, such as the designer’s salary, depreciation of sewing equipment,
utilities, insurance, and magazine subscriptions and refreshments. The company applies
all of its overhead costs to jobs based on machine hours. At the beginning of the year, it
made the following estimates:
Machine-hours required to support estimated output . . . . . 20,000
Fixed overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$350,000
Variable overhead cost per machine-hour . . . . . . . . . . . . . .$2.00
Tailors’ wage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25 per hour
Required:
i. Compute the predetermined overhead rate
ii. During the year, Ms. Evangeline brought in her order for a designer costume. The
following information was available with respect to her job:
Royal Blue Satin Cloth $300
Thread $100
Laces, Charms and designer’s yoke $190
Hours to complete the order 5 hour
Compute Ms. Evangeline’s total job cost.
iii. If RRF establishes its selling prices using a markup percentage of 40% of its total
job cost, then how much would it have charged Ms. Evangeline?
b. The carpenter’s co., wooden birdcage producer, uses a job-order costing system in which 6.5
overhead is applied to job on the basis of machine-hours. At the beginning of the year, it
was estimated that the total manufacturing overhead cost would be $ 4800,000 at an
activity level of 240,000 machine-hours. Inventory balances were-
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,000
During the first month of the year, the following events were occurred:
a) Raw material purchased on account, $325,000.
b) Raw material requisitioned for use in production, $290,000 (80% direct materials
and 20% indirect materials).
c) Labor Cost incurred in the factory, $180,000 (one-third direct labor and two-thirds
indirect labor).
d) Rent for the year was $18,000 ($13,000 of this related to factory operations and the
remainder related to selling and administrative activities)
e) Depreciation recorded on factory equipment, $75,000
f) Manufacturing overhead cost was applied to job on the basis of 15,000 machine-
hours actually worked.
g) The completed job of 16,000 units was moved into the finished goods warehouse at
the end of the month.

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 Required:
i. Prepare journal entries to record the transactions for the month.
ii. Compute the ending balance of work in process and finished goods inventory by
preparing T-accounts. Is manufacturing overhead under-applied or over-applied for
the year? Pass a journal entry to write off under-applied or over-applied overhead, if
any.

3. a. Under what conditions would it be appropriate to use a process costing system? In what 2.5
ways are job-order and process costing similar?
b. Spotless Ltd. manufactures an industrial cleaning compound that goes through three 10
processing departments—Grinding, Mixing, and Cooking. All raw materials are
introduced at the start of work in the Grinding Department. The Work in Process T-
account for the Grinding Department for May is given below:
Work in Process-Grinding Department
Inventory, May 1 21,800 Completed and Transferred to ?
the Mixing Department
Material 133,400
Conversion 255,500
Inventory, May 31 ?
The May 1 work in process inventory consisted of 18,000 pounds with $17,100 in
materials cost and $7,500 in conversion cost. The May 1 work in process inventory was
100% complete with respect to materials and 40% complete with respect to conversion.
During May, 167,000 pounds were started into production. The May 31 inventory
consisted of 20,000 pounds that were 100% complete with respect to materials and 70%
complete with respect to conversion. The company uses the weighted-average method in
its process costing system.
Required:
i. Compute the Grinding Department’s equivalent units of production for materials and
conversion in May.
ii. Compute the Grinding Department’s costs per equivalent unit for materials and
conversion for May.
iii. Compute the Grinding Department’s cost of ending work in process inventory for
materials, conversion, and in total for May.
iv. Compute the Grinding Department’s cost of units transferred out to the Mixing
Department for materials, conversion, and in total for May.

4. a. “The higher the margin of safety, the greater the risk of not breaking even and incurring 2.5
a loss.” Do you agree? Explain your opinion.

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b. Ms. Silvana has recently opened The Sandal Shop in Brisbane, Australia, a store that 8
specializes in fashionable sandals. In time, she hopes to open a chain of sandal shops. As
a first step, she has gathered the following data for her new store:
Sales price per pair of sandals $30
Variable expenses per pair of sandals 21
Contribution margin per pair of sandals $9
Fixed expenses per year:
Building rental $20,000
Equipment depreciation 16,500
Selling 23,500
Administrative 30,000
Total fixed expenses $90,000
Required:
i. What is the break-even point in unit sales and dollar sales?
ii. Ms. Silvana has decided that she must earn a profit of $50,000 the first year to justify her
time and effort. How many pairs of sandals must be sold to attain this target profit?
iii. Ms. Silvana now has two salespersons working in the store—one full time and one part
time. It will cost her an additional $6,000 per year to convert the part-time position to a
full-time position. Angie believes that the change would increase annual sales by $25,000.
Should she convert the position?
iv. Refer to the original data. During the first year, the store sold only 15,000 pairs of sandals.
a) What is the store’s degree of operating leverage?
b) Angie is confident that with a more intense sales effort and with a more creative
advertising program she can increase sales by 50% next year. Using the degree of
operating leverage, what would be the expected percentage increase in net operating
income if Angie is able to increase sales by 50%?
c. A CVP graph such as the one shown below is a useful technique for showing relationships 2
among an organization’s costs, volume, and profits.

Required: Identify the numbered components in the CVP graph.

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5. a. At present the ‘self-imposed budgets’ is considered the most effective method of budget 2.5
preparation. Why? Is there any limitations of such type of budgets?
b. Waterhouse Company is a wholesale distributor of premium European chocolates. The 10
company’s balance sheet as of April 30 is given below:
Balance Sheet
April 30
Assets:
Cash $9,000
Account Receivable 54,000
Inventory 30,000
Buildings and equipment, net of depreciation 207,000
Total Asset $300,000
Liabilities and Stockholders’ Equity:
Accounts payable $63,000
Note payable 14,500
Common stock 180,000
Retained earnings 42,500
Total liabilities and stockholders’ equity $300,000
The company is in the process of preparing a budget for May and has assembled the
following data:
a. Sales are budgeted at $200,000 for May. Of these sales, one-fourth will be for cash;
the remainder will be credit sales. One-half of a month’s credit sales are collected in
the month the sales are made, and the remainder is collected in the following two
months equally. All of the April 30 accounts receivable will be collected in May and
June respectively.
b. Purchases of inventory are expected to total $120,000 during May. These purchases
will all be on account. 60% of all purchases are paid for in the month of purchase; the
remainder are paid in the following month. All of the April 30 accounts payable to
suppliers will be paid during May.
c. The May 31 inventory balance is budgeted at $40,000.
d. Selling and administrative expenses for May are budgeted at $30,000, exclusive of
depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000
for the month.
e. The note payable on the April 30 balance sheet will be paid during May, with 12%
interest due for the month of May.
f. New refrigerating equipment costing $6,500 will be purchased for cash during May.
g. During May, the company may borrow any amount with an increment of $1000 from
its local bank by giving a new note payable to maintain minimum cash balance of
$5,000. The new note also will be due in one year.

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 Required:
i. Calculate the expected cash collections for May.
ii. Calculate the expected cash disbursements for merchandise purchases for May.
iii. Prepare a cash budget for May.
iv. Prepare a budgeted income statement for May.
v. Prepare a budgeted balance sheet as of May 31.

6. a. What effect, if any, would you expect poor-quality materials to have on direct labor 2.5
variances?
b. Suppose, all of the workers are contractual in your factory. Therefore, there is no question 2
about the labor cost fluctuation. Would you still expect a labor rate variance in the result?
c. Denovans Inc., produces different agricultural chemical solutions. One mixture, called 8
Blurex, is prepared using an elaborate distilling process. The company has developed
standard costs for one unit of Blurex, as follows:
Standard Standard Price
Quantity or Rate
Direct materials 3 ounces $5.50 per ounce
Direct labor 0.5 hours $10.50 per hour
Variable Manufacturing Overhead 0.5 hours $3.50 per hour

During November, the following activity was recorded related to the production of
Blurex:
a. Materials purchased, 8,700 ounces at a cost of $49,590.
b. There was no beginning inventory of materials; however, at the end of the month, 2,500
ounces of material remained in ending inventory.
c. The company employs 23 lab technicians to work on the production of Blurex. During
November, they each worked an average of 40 hours at an average pay rate of $10.70
per hour.
d. Variable manufacturing overhead is assigned to Blurex on the basis of direct labor-
hours. Variable manufacturing overhead costs during November totaled $3,680.
e. During November, 2,200 good units of Blurex were produced.
Required:
i. For direct materials, compute the price and quantity variances
ii. For direct labor, compute the rate and efficiency variances.
iii. Compute the variable overhead rate and efficiency variances.
What relation can you see between this efficiency variance and the labor efficiency
variance?
iv. Prepare a brief explanation of the possible causes of each variance.

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