Question 2

Grand Flower Company, a manufacturer of valves, produces and sells two types of valves: Gas Safety Valves (GSV) and MSC Valves (MSC). Friends Company has the following data for the two products:

	GSV	MSC
Production volume	10,000	5,000
Unit selling price	$ 78	$ 130

In addition, Friends Company has identified the following activities, costs, and activity consumption cost drivers:

Activity	Budgeted Cost	Cost Driver
Machine set-ups	$100,000	Number of set-ups
Machine running	$400,000	Machine-hours
Inspection	$70,000	Inspection-hours
Packing	$30,000	Number of packing-orders
Total overhead	$600,000

Friends Company also collected the following activity data for each product:

Cost Driver	GSV	MSC	Total
Number of set-ups	80	260	340
Machine-hours	18,000	36,000	54,000
Inspection-hours	3,000	4,000	7,000
Number of packing-orders	2,100	3,500	5,600

Required

(i) Calculate Overhead Absorption Rate for products GSV and MSC (10 marks)

(ii) Calculate the Overhead cost per unit for Products GSV and MSC respectively using Activity Based costing technique (15 marks)

(10 + 15 = 25 marks)

Question 3

(a) XYZ Cement Industries has developed a new product called A12. The full cost of making that product comes to $ 2,400. The company desires a 28 % mark up on the full cost. If the company adopts cost plus pricing method for fixing selling prices, what will be the selling price of A12? (5 marks)

(b) Delighted Industries wants to launch a new product (D15) in the market. The product is still in final stages of design. The company expects 25% margin on selling price. The current market price of the similar product is $ 400. The production cost of this product (D15) currently comes around $ 330 per unit.

Required

Calculate the reduction required in cost to meet the target cost per unit (5 marks)

(c) Reliable Refinery produces two productsT and M by a joint process.

Information	T	M	Total
Joint Costs			240,000
Output (units)	10,000	15,000
Selling price	$ 22 per unit	$ 44 per unit
Separable processing costs	$ 120,000	$ 360,000

Required

(i) How much of the joint costs per batch will be allocated to T and to M assuming that joint costs are allocated based on the number of units at split off point? (6 marks)

(ii) If joint costs are allocated on an NRV basis, how much of the joint costs will be allocated to T and to M? (9 marks)

(5 + 5 + 6 + 9 = 25 marks)

Question 4

(a) Distinguish between joint costs and separable costs (Marks 8)

(b) State the distinction between by-product and joint product (8 marks)

(c) Discuss the three major influences on pricing decisions. (9 marks)

(8 + 8 + 9 = 25 marks)

End of Assessment