FEEDBACK TUTORIAL LETTER

Transcription

1 FEEDBACK TUTORIAL LETTER 1 st SEMESTER 2017 ASSIGNMENT 1 S 1

2 COURSE: Cost and Management Accounting 201 COURSE CODE: S TUTORIAL LETTER: 01/2017 DATE: 03/ 2017 Dear Student Thank you for submitting your first assignment on time. It was our pleasure to mark it. If your marks are good, I hope this will motivate you to work even harder. If you are disappointed with your marks, please do not give up now. Remember you still have one assignment to try and make up for this. At the same time we would like to remind you that by doing your assignment on your own, and not copying it from another will only be to your benefit in the coming exams. Remember to read thoroughly through the questions before answering, especially the multiple-choice questions. Always try to answer as completely as possible, provide all the facts. Don t simply write down the answer, but show all your calculations. Avoid making unnecessary calculation mistakes and always write down the initial formula for any calculation. Use this opportunity to revise the questions in Assignment 1 with the memorandum in hand. Give attention to the remarks of the marker-tutor in your assignment book. If there is anything that you are still unsure of, do not hesitate to contact a market-tutor. We hope to see you at the vacation school and we are looking forward to your next assignment. Regards, Sheehama, G. Tel gsheehama@nust.na 1

3 ASSIGNMENT 1 QUESTION 1 (22 marks) 1.1 Calculation of cost driver rates N$ Medical supplies = 150 patient-years = N$2 000 per patient-year Rent and clinic maintenance Administrative costs Laboratory services N$ = square metres = N$6 per square metres N$ = patient-years = N$4 000 per patient-years N$ = laboratory tests = N$40 per laboratory test 1.2 Total cost per program Alcohol Drug After care Details N$ N$ N$ Professional salaries: Physicians Psychologists Nurses Overheads: Medical supplies Rent and clinic Maintenance Administrative costs Laboratory services Total costs Total number of patient-years Cost per patient-year N$ N$ N$ Advantages (benefits) which Medicare could obtain by implementing an ABC system: 1. Medicare can gain a more detailed understanding of costs and cost drivers. This is useful from a cost management perspective. 2. ABC will help Medicare identifying which programs are the most costly to operate. 3. ABC will help Medicare in setting prices for the programs that more accurately reflect the cost of each program. 4. An ABC system more accurately allocates costs because it identifies better cost drivers. 2

4 QUESTION 2 (24 marks) 2.1 (8 marks) Additional units sold (20% x units) units x Contribution per unit N$15 [N$35 (N$18 + N$2)] x N$15 = Total additional contribution = N$ Less increase in fixed selling expenses (N$ x 1 /3) Less N$ = Increase in profit = N$ Thus, the increase in fixed selling expenses would be justifiable because the overall net income will increase by N$ (8 marks) Note: The break-even point is reached when the total income equals the total costs. Therefore, in order to compute the break-even selling price (i.e. the income), we must calculate the total cost (per unit). This is done as follows: Variable production costs per unit N$18,00 + Import duties, foreign permits, etc. (N$ units) N$ 0,90 + Shipping cost per unit N$ 3,50 = Total cost per unit N$22,40 Therefore, in order to break even, the company should sell the product at N$22,40 per unit. 2.3 Maximum price to be paid (8 marks) If the company buys the product from the outside supplier, the following costs will be avoided: Variable production costs per unit N$18,00 + Fixed overheads (N$ x 60%) units N$ 3,00 + Variable expenses per unit (N$2 x 75%) N$ 1,50 = Total cost per unit that will be avoided N$22,50 Thus, if the company buys the product from the outside supplier, an amount of N$22,50 will be avoided. Therefore, the company should be willing to pay a maximum price of N$22,50 per unit. If the outside supplier s price is more than N$22,50, the company should not accept the offer. However, in order to make an additional profit, the company should try to negotiate a price lower than N$22,50. 3

5 We can also do this question as follows: If product is produced If product is bought Variable production costs per unit N$18, Fixed overheads per unit N$ 5,00 N$2,00 + Variable expenses per unit N$ 2,00 N$0,50 = Total cost per unit N$25,00 N$2,50 Thus: if the company produces the product, the total cost per unit will be N$25,00. However, if it buys the product from an outside supplier, N$2,50 of the costs will continue. Therefore, the company should be willing to pay a maximum amount of N$22,50 (N$25,00 N$2,50) per unit. QUESTION 3 (24 marks) 3.1 (21 marks) 3.1 INCOME STATEMENT ABSORPTION COSTING METHOD Details N$ N$ Sales Less: Manufacturing cost of goods sold: Opening inventory {5 000 units x N$24 (N$21 + N$3²)} Variable manufacturing costs ( units x N$21) Fixed manuf. overheads absorbed ( units x N$3) - Closing inventory (6 000 units x N$24 per unit) Less: over-absorbed ( ) (16 000) ( ) = Gross income Less: Selling and administrative costs Variable selling costs Fixed selling & administrative costs (40 000) = Net income ² Fixed overhead absorption rate = N$6 x.5 = N$3 3.2 (3 marks) (a) 3.2 Reconciliation of profits N$ Net income - Direct costing method Fixed overheads included in inventory (1 000 units x N$3 per unit) = Net income - Absorption costing method TOTAL MARK 70 4