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Final Exam (Take Home) Spring - 2020
Subject: Cost & Management Accounting Submission Day: Wednesday
Instructor: Muhammad Naeem Submission Date: 10 June 2020
Program: MBA Max. Marks: 30
Department of Business Administration
Please follow the instructions carefully:

1. Write your answers on Paper, scan it and prepare Word or Pdf file and upload the file before the due date
on VLE.
2. Name your Word or Pdf file in the following format:
(StudentID_Student’sName_Coursename_Instructor’sname_ Spring2020)
3. Follow the requirements of the word limit and the marking criteria while writing your answers.
4. Provide relevant, original and conceptual answers, as this exam aims to test your ability to examine,
explain, modify or develop concepts discussed in class.
5. Do not copy answers from the internet or other sources. The plagiarism of your answers will be
checked through Turnitin software.
6. Recheck your answers before the submission on VLE to correct any content or language related errors.
Instructions:
Attempt all questions, write down solutions on paper, scan it and prepare a word or pdf file.
Question: -01 (10 Marks)
Exon Company distributes a single product. The company’s accounts data for last month follows
Table: Income Statement of Exon Company
Total Cost Per Unit

Sales $225,000 $15
Variable Expense $90,000 $6
Contribution Margin $135,000 $9
Fixed Expense $108,000
Net Operating Income $27,000
Required:
a. What is the monthly break-even point in units sold and in sales dollars?
b. Assume that next year company wants to earn a profit of at least $ 80,000. How many units will have
to be sold to meet this target profit?
c. Assume that through a more intense effort by the sales staff, the company’s sales increase by 8% next
year. By what percentage would you expect net operating income to increase? Use the degree of
operating leverage to show your calculations. Explain your answer in your own words.
Question 02. (10 Marks)
GSK pharmaceutical company produces homogenous products in bulk quantity, accounting department shared
historic information with cost accounting department as below
Per Unit Total

Selling Price $85
Direct Material $12
Direct Labor $5
Variable Manufacturing Overhead $10
Fixed manufacturing overhead per year $160,000
Selling & Administrative expenses
Variable per unit cost $10
Fixed Cost per year $70,000
Year 1 Year 2
Units in beginning Inventory 0 2,000
Units Produced during the year 15,000 10,000
Units Sold during the year 13,000 12,000
Units in Ending Inventory 2,000 0
Required
a. Prepare an Income Statement under Absorption Costing and Direct Costing.

b. Prepare Reconciliation Statement, evaluate ending inventory and also explain difference in Net Income
/ Loss in absorption and direct costing in your own words.
Question 03 (10 Marks)
Macro Enterprises has a capacity to produce 800,000 phone cases per year. The company is currently producing
and selling 640,000 cases per year at a selling price of Rs 80 per case. The cost of producing and selling one case
follows:
Rs
Variable Manufacturing Costs 32
Fixed Manufacturing Costs 08
Variable Selling and Administrative Costs 16
Fixed Selling and Administrative Costs 04
Total Cost 60
The company has received a special order for 40,000 cases at a price of Rs 50 per case because it does not have
to pay a sales commission on the special order, the variable selling and administrative costs would be only Rs 10
per case. The special order would have no effect on total fixed costs. The company has rejected the offer based
on the following computations:
Rs
Selling price per case 50
Variable manufacturing costs 32
Fixed manufacturing costs 8
Variable selling and administrative costs 10
Fixed selling and administrative costs. 4
Net loss per case -4
Required
1. If Macro Enterprise accepts the special order what would be its impact on profit for the year show
computations to explain your answer.
2. Do you agree with the decision to reject the special order? Explain in detail.

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Final Exam (Take Home) Spring - 2020

Subject: Cost & Management Accounting Submission Day: Wednesday

Instructor: Muhammad Naeem Submission Date: 10 June 2020

Program: MBA Max. Marks: 30

Department of Business Administration

Please follow the instructions carefully:

Question: -01 (10 Marks)

Table: Income Statement of Exon Company

Total Cost Per Unit

Per Unit Total

a. Prepare an Income Statement under Absorption Costing and Direct Costing.

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