Note: You Have to Answer Four Questions of the Following

Cost accounting / final exam 2008/2009 / Islamic university – Gaza
Sunday 11/01/2009 / / College of commerce
Accounting department

Name: …………………………………………………………………………………………

Id: ………………………………………………. Class: ………………………………...

Note: you have to answer four questions of the following.

Question 1(15 marks): Jerusalem is a Palestinian pharmaceutical company that produces a single drug _SSS_ for the treatment of hair loss in men. Jerusalem began commercial production of SSS on January 1, 2009. patient use three bills per day (365 days a year).

Jerusalem marketing analysts estimate 100,000 patients will use SSS in 2009. Production in 2009 is 109,500,000 units (bills). However only 89,600 patients are described SSS during 2009. The average selling price is $ 2.4 per bills. Jerusalem actual costs are as follows:

# / Variable cost per unit :
1 / Manufacturing cost per unit produced :
Direct material / $ 0.1
Direct manufacturing labor / $0.08
Manufacturing overhead / $ 0.22
2 / Marketing cost per bill sold / $ 0.14
Fixed cost :
Manufacturing cost / $ 14,716,800
R&D / $ 9,811,200
Marketing / $ 39,244,800

REQUIRED :Prepare income statement under absorption costing for Jerusalem company for the year ended December 31,2009 .the allocation base for fixed manufacturing cost under absorption costing is $ 0.30 per unit (bill)produced. All under – or over absorbed fixed cost are written off to cost of goods sold.

Question 2(15 marks):M. ALASHI consulting provides out sourcing services and advice to both government and corporate clients. For costing purposes, M.ALASHI classifies its support departments into three: legal, administrative/ human resources and information system .first Quarter of 2009 M.ALASHI incurs the following costs in five departments:-

Legal / $ 1,200,000
Administrative/ human resource(A/H) / 600,000
Information system(IS) / 2,400,000
Government client (GOVT) / 8,750,000
Corporate client (CORP) / 12,452,000

The actual level of support relation ship among the five departments for

the first quarter of 2009 was :

sUPPLIES BY / legal / A/H / IS / GOVT / CORP
A/H / 10% / ------/ 15% / 30% / 45%
IS / 20% / 25% / ------/ 20% / 35%
LEGAL / ------/ 30% / 35% / 10% / 25%

The administrative/ human resources support percentages are based on head count. The information systems support percentages are based on actual computer time used and legal support percentage are based on professional hours.

Required: Allocate support department costs to operating departments using Step-down method

LEGAL / a/h / is / govt / corp / total
Budget overhead cost before any interdepartmental cost allocation / 1,200,000 / 600,000 / 2,400,000 / 8,750,000 / 12,452,000
Total budget overhead of operating department

Question 3(15 marks): AL ASHI COMPANY uses a job order costing system at its plant. The plant has a mix department and a bottling department. ALASHI uses normal costing with two direct cost categories ( direct material and direct labor ) and two manufacturing overhead cost pools ( the mix department with machine hour as the allocation base , and the bottling department ,with manufacturing labor cost as the allocation base ). The 2009 budgeted for the plant as follows:

# / Mix department / Bottling department
Manufacturing overhead / 20,000,000 / 16,000,000
Direct manufacturing labor cost / 1,800,000 / 8,000,000
Direct manufacturing labor – hour / 60,000 / 320,000
Machine hour / 400,000 / 66,000

During the month of January, ALASHI began producing a new product, the job cost record for job 500(produce a new product) shows the following:

# / Mix department / Bottling department
Direct material used / 28,000 / 6,000
Direct manufacturing labor cost / ? / 2,500 $
Direct manufacturing labor needs to manufacturing first unit / 200 hours / -
Direct manufacturing labor – hour / 60 $ / 100 $
Machine hours / 260 / 20

Required: assuming that job 500 consisted of 4 units of product. Using job order costing system what is the cost of job 500?

Note: ALASHI uses an 85% cumulative average – time learning model as a basis for calculate direct manufacturing labor hours for mix department

Solution:

Job cost record job order no. 500

Cost item / Mix department / Bottling department / TOTAL
Direct material
Direct labor
Manufactured overhead
TOTAL

Calculations: direct labor cost at mix dep. Calculations: manufacturing overhead cost

Question 4(15 marks): AL ASHI is going into business as a pet transporter. He is on a tight budget and must choose between the following van rental plans:

Plan 1: pay 22 dollars per mile of driving.

Plan 2: pay a fixed monthly fee of $20,000 for up to 1,500 miles, and 17 dollars per mile thereafter (if he uses fewer than 1,500 mile in any month, he still pays $20,000 for month).

Plan 3: pay a fixed monthly fee of $25,000 for up to 2,000 miles and 15 dollars per mile thereafter (if he uses fewer than 2,000 mile in any month, he still pays $25,000 for month).

Required:

1. Draw a graph of the total monthly costs of three plans for different levels of monthly driving.

2. Which plan should AL ASHI choose if he expect to do 1,500 mile of driving? Why?

Plan 1 plan 2 plan 3

Question 5(15 marks): answer the following:

1. As a new controller, reply this comment by a plant manager." As I see it, our accountants may be needed to keep records for shareholders and government. But I do not want them sticking their noses in my day to day operations. I do the best I know how. No bean counter knows enough about my responsibility to be of any use to me."

……………………………………………………………………………………………………………

…………………………………………………………………………………………………………….

2. What are the features of cost accounting and cost management?

……………………………………………………………………………………………………………

…………………………………………………………………………………………………………….

3. What is the relevant range? What role does the relevant range concept play in explaining how cost behaves?

……………………………………………………………………………………………………………

…………………………………………………………………………………………………………….

4. Describe how the dual rate method is useful to division manager in decision making .

……………………………………………………………………………………………………………

…………………………………………………………………………………………………………….

With best wishes

Mohammad Marwan Al Ashi