FOREWORD

Managerial Accounting is a very crucial subject. The students will be introduced into a
deeper and broader level of accounting concepts, learn how to manage risks and implement
strategy through planning, budgeting and forecasting, and decision support.

This course helps students to become more actively involved by independent problem
solving and understand the financial and operational sides of the business.

This module has been compiled in a way that these purposes might be achieved. It contains
the key elements of each chapter, followed by specific comprehensive exercises to be solved
and discussed each meeting with a lab assistant.

After accomplishing this course, we hope that students are able to apply and analyze the
concepts in Managerial Accounting.

May God bless all of you and grant you wisdom throughout the journey.

“The fear of the LORD is the beginning of knowledge, but fools despise wisdom and
instruction.” (Proverbs 1:7)

Sincerely,
Lab Assistant Team

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 CONTENTS
FOREWORD 1

CONTENTS 2

INTRODUCTION 3

OUTLINE OF THE INSTRUCTION PROGRAM (SAP) 6

MODULE 1 - INTRODUCTION TO MANAGERIAL ACCOUNTING, BASIC MANAGERIAL

ACCOUNTING CONCEPT, AND COST BEHAVIOR 7

MODULE 2 - JOB ORDER COSTING 10

MODULE 3 - PROCESS COSTING 13

MODULE 4 - ACTIVITY-BASED COSTING AND MANAGEMENT 16

MODULE 5 - BUDGETARY PLANNING 19

MODULE 6 - STANDARD COSTING : A MANAGERIAL CONTROL TOOL 22

MODULE 7 - FLEXIBLE BUDGETS AND OVERHEAD ANALYSIS 25

MODULE 8 - COST VOLUME PROFIT ANALYSIS: A MANAGERIAL

PLANNING TOOL 28

MODULE 9 - BUDGETARY CONTROL & RESPONSIBILITY ACCOUNTING 31

MODULE 10 - INCREMENTAL ANALYSIS 33

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 INTRODUCTION

A. Description
Laboratory subject is related to the main subject (Theory), which cannot be separated.
The purpose of laboratory subject is to make the student be able to understand the
concept of the subject by exercising themselves in problems and cases. All laboratory
subjects are 0 credit but the duration of the class is 100 minutes which is equivalent to 2
credits.

B. General Purpose Instruction

After involving in this class and doing all of the materials, students are expected to be
able to do identification/ explaining/ calculating/ analyzing the concept about:
1. Introduction to Managerial Accounting

2. Basic Managerial Accounting Concepts

3. Cost Behavior
4. Job Order Costing
5. Process Costing
6. Activity Based Costing and Management
7. Absorptions and Variable Costing, and Inventory Management
8. Cost-Volume-Profit Analysis: A Managerial Planning Tool
9. Profit Planning
10. Standard Costing: A Managerial Control Tool
11. Flexible Budgets and Overhead Analysis
12. Performance Evaluation and Decentralization
13. Short-Run Decision Making: Relevant Costing

C. Lecture Activities
The students are directed to involve actively in the class learning process.
1. To facilitate the learning process, the students must read the chapter on the reference
book that is related to the class material. Students are also be able to read the brief
theory that provide in each module
2. The questions that are provided in this module are only the materials that partially

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 have been taught in the theory subject. Students must do the questions on the module
individually based on the instruction of the laboratory assistant, do quizzes that will
be held, follow the laboratory mid-exam and final exam based on the given schedule

D. Class Rules
1. Attendance
At least attend 5 sessions from 6 sessions or equal to 85% attendance.
2. Lateness
>15 Minutes regarded as absent
3. Permission Exception
1. Formal permission from university or faculty

2. Hospitalized (maximum 2 weeks)

3. Sudden pass away of a core family member (with supported documents).

E. Grading Composition
The final grade is the sum of the student’s theory and lab score with a composition of 85%
theory class and 15% lab course.
Below are the components of the lab course grading:
Mid-Test : 35% Absence : 10%
Final-Test : 35% KAT : 10%
Quiz : 10%

KETERANGAN:
• KAT adalah tugas yang diberikan oleh Aslab pada saat pertemuan tatap muka
• Absensi dilakukan dengan cara memastikan mahasiswa memberikan tanggapan terhadap materi
yang disampaikan pada pertemuan tatap muka.

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F. Grading Scale
Score Grade
90 - 100 A
85 – 89.99 A-
80 – 84.99 B+
75 – 79.99 B
70 – 74.99 B-
65 – 69.99 C+
60 – 64.99 C
55 – 59.99 C-
40 – 54.99 D
0 – 39.99 E

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 OUTLINE OF THE INSTRUCTION PROGRAM (SAP)

Week Module Material Type REFERENCE

1 Class Introduction
Introduction to Managerial
Accounting, Basic Managerial,
2 1 Chapter 1,5
Accounting Concept, And Cost
Behavior
3 2 Job-Order Costing Chapter 2
4 3 Process Costing Tatap Muka Chapter 3

5 3 Process Costing Chapter 3

Activity Based Costing and

6 4 Chapter 4
Management
Activity Based Costing and
7 4 Chapter 4
Management
MID EXAM
9 5 Budgetary Planning Chapter 9
10 5 Budgetary Planning Chapter 9

Standard Costing: A Managerial

11 6 Chapter 11
Control Tool

Flexible Budgets and Overhead

12 7 Tatap Muka Chapter 10
Analysis
Cost Volume Profit Analysis: A
13 8 Chapter 6
Managerial Planning Tool
Budgetary Control &
14 9 Chapter 10
Responsibility Accounting

15 10 Incremental Analysis Chapter 7

FINAL EXAM

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 MODULE 1
INTRODUCTION TO MANAGERIAL ACCOUNTING, BASIC
MANAGERIAL ACCOUNTING CONCEPT, AND COST BEHAVIOR

Problem 1 – 1
Basic Managerial Accounting Concept
Puppy Company produces puppies purses. The following total costs consist of:
2022 2023
Unit Produced 10,000 unit 10,000 unit

Direct Materials $250,000 $200,000

Direct Labor $200,000 $300,000

Overhead $160,000 $180,000
Selling Expenses $55,000 $68,000
Administrative Expenses $35,000 $42,000

During 2022, Puppy Company sold 5,000 units for $70 each. Beginning finished
goods inventory consisted of 3,500 units with a total cost of $210,000. There was no
beginning or ending inventories of work in process. During 2023, Puppy Company
sold 70% from Cost of Good Available for Sale (COGAS) for $50 each. The
beginning inventory consisted of 3,000 units with a total cost $150,000. Also, there
was no beginning or ending inventories of work in process. Puppy Company is using
FIFO Method.

Required:
1. Calculate per unit cost each year for the following: Prime Cost and Conversion Cost.
2. Calculate each year Cost of Goods Manufactured and Cost of Goods Sold.

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Problem 1 – 2
Basic Managerial Accounting Concept
Kitty Co. produced 200,000 goods during 2023. These goods sell for $165/ each.
Kitty had 15,000 goods in finished goods inventory at the beginning of the year. At
the end of the year, there were 7,000 goods in the finished goods inventory. Kitty
accounting records provide the following information:

Purchase of Raw Materials $2,500,000 Salary, Sales Supervisor 730,000

Beginning Materials Inventory 1,200,000 Commissions, Salesperson 228,000
Ending Material Inventory 1,050,000 General Administration 196,000
Direct Labor 2,130,000 Beginning WIP Inventory 280,000
Indirect Labor 890,000 Ending WIP Inventory 150,000
Rent, Factory Building 670,000 Beginning Finished 390,000
Goods
Depreciation & Utilities, 300,000 Ending Finished Goods 145,000
Factory

Required:
1. Prepare a statement of Cost of Goods Manufactured.
2. Prepare a statement of Cost of Goods Sold.
3. Prepare an absorption Income Statement

Problem 1 – 3
Basic Managerial Accounting Concept
Cost Behaviour: High-Low Method
Month Maintenance Cost ($) Machine Hours (hrs)
January 29,700 283
February 40,200 490
March 30,200 450
April 21,650 300
May 29,000 365
June 28,700 290
July 35,200 455
August 32,500 270

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Dolphin Company makes printed puzzles. The company controller wants to calculate
the fixed and variable costs associated with maintenance of the printing machine.
Data for the past eight months were collected:

Required:

1. Using a high-low method, calculate the fixed cost of maintenance, calculate the
variable rate (round off to cents) per machine hour, and construct the cost
formula for total maintenance cost.
2. Using the cost formula, predict the total cost of maintenance for September if
710 machine hours are budgeted for the month of September

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 MODULE 2
JOB ORDER COSTING

Problem 2-1
Job Order Costing
At the beginning of December 2022, Mochi Company had two jobs in process (Job A and Job B)
with the following accumulated cost information:

Job A Job B
Direct Materials 6,600 7,000
Direct Labor 4,500 4,300
Applied Overhead 6,300 6,020
Balance, December 1 10,200 12,400

During December, one more job, Job C, was started. The following direct materials and direct
labor costs were added to the three jobs during the month of December:

Job A Job B Job C

Direct Materials 7,800 5,790 4,980
Direct Labor 3,600 3,150 3,000

At the end of December, Jobs A and B were completed, Only Job C was sold. On
December 1, 2022 the balance in Finished Goods was zero.

Required:

1. Calculate the overhead rate based on direct labor cost (Job A and Job B).
2. Prepare a brief job-order cost sheet for the three jobs. Show the balance as of
December 1 as well as direct materials and direct labor added in December. Apply
overhead to the three jobs for the month of December, and show the ending
balances.
3. Calculate the ending balances of Work in Process and Finished Goods as of December 31.
4. Calculate Cost of Goods Sold for December 2021.
5. Journal entries the sale of Job C at cost plus 30 percent.
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 6. Schedule of cost of goods manufactured and Statement of Cost of Goods Sold of Mochi
Company as of December 31, 2021.

Problem 2-2
Predetermined Overhead

Rochi Company uses a normal job-order costing system. It processes most jobs through two
departments. Selected budgeted and actual data for the past year follow. Data for one of
several jobs completed during the year also follow.
Department A Department B
Budgeted Overhead $330,000 $580,000
Actual Overhead 310,000 620,000
Expected Activity (Direct Labor 20,000 8,000
Hours)
Expected Machine Hours 25,000 50,000

Job 189
Direct Materials $90,000
Direct Labor Cost:
Dept. A (7,000 hrs @ $4 per hr.) 28,000
Dept. B (4,500 hrs @ $2,50 per hr.) 11,250
Machine Hours Used:
Dept. A 300
Dept. B 750
Unit Produced 25,000

Rochi Company uses a plant-wide predetermined overhead rate based on direct labor hours
(DLH) to assign overhead to jobs.

Required:

1. Compute the predetermined overhead rate.

2. Using the predetermined rate, compute the per-unit manufacturing cost for Job 189.
3. Recalculate the unit manufacturing cost for Job 189 using departmental overhead rates.
Use direct labor hours for Department A and machine hours for Department B.

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 Problem 2-3

Direct and Sequential Methods

Tochi Company has 2 departments, support department and producing department. Using
the departmental data below, assign the support department costs to the producing
department.
Support department Producing department

Power Maintenance Grinding Assembly

Direct overhead cost 420,000 310,000 250,000 220,000

Expected activity:

Kilowatt-hours - 200,000 500,000 350,000

Maintenance hours 1,000 - 4,000 6,000

Required:
1. Direct Method.

2. Sequential Method.

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 MODULE 3
PROCESS COSTING – WEIGHTED AVERAGE METHOD

Problem 3-1
Weighted-Average, Equivalent Units
Elris Corporation manufactures a product that passes through two processes: Mixing and
Baking. The following information was obtained for the Mixing Department for June:
a. All materials are added at the beginning of the process.
b. Beginning work in process had 80,000 units, 80 percent complete with respect to
conversion costs.
c. Ending work in process had 25,000 units, 55 percent complete with respect to
conversion costs.
d. Started in process, 30,000 units.

Required:
1. Prepare a Physical Flow schedule.

2. Compute Equivalent Units using Weighted Average method.

Problem 3-2
Weighted-Average, Transferred-in Costs
Orient Express Ltd. is a manufacturing company, which makes isotonic beverages and is
located in China. Orient Express Ltd. uses the Weighted Average method of process costing.
Summary data for July 2023 are as follow:
Physical Units Ref.
Work in Process, beginning inventory 32,000 (a)
Started in July 60,000
Completed and Transferred Out in July ???
Work in Process, ending inventory 12,000 (b)

Notes:
(a) Degree of completion: direct materials, 100%; conversion cost , 40%

(b) Degree of completion: direct materials, 100%; conversion cost , 50%

Below is given the summary forOrient Express Ltd’s
Costs: Total cost of beginning work in
process:
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 Direct materials $ 120,000
Conversion cost $ 90,000
Cost added during July:
Direct materials $ 360,000
Conversion cost $ 200,000

Required:
1. Summarize the flow of physical units of output.

2. Compute output in terms of equivalent units.

3. Compute total cost to account for.

4. Compute cost per equivalent unit.

5. Assign total costs to units completed and to units in ending work in process.

6. Summarize total costs accounted for.

Homework
Weighted-Average, Transferred-in Costs

Arthur Company, using the weighted average method, produces a product that passes
through 2 departments: Molding and Assembly. In the Molding department, all materials are
added at the beginning of the process. All other manufacturing inputs are added uniformly.
The following information pertains to the molding department for March:
➢ Beginning WIP, 1st March: 25,000 pounds, 30 percent complete with respect to conversion
cost. The cost assigned to this work are as
follows: Materials $45,000
Labor $25,000
Overhead $15,000

➢ Ending WIP, 31st March: 12,000 pounds, 55 percent complete with respect to conversion
cost.

➢ Units completed and transferred out: 33,000 pounds. The following cost are added
during the month:
Materials $87,000
Labor $60,000
Overhead $35,000

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Required:
1. Summarize the flow of physical units of output.
2. Compute output in terms of equivalent units.
3. Compute cost per equivalent unit.
4. Assign total costs to units completed and to units in ending work in process.
5. Summarize total costs to account for.

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 MODULE 4
ACTIVITY-BASED COSTING AND MANAGEMENT

Problem 4-1
ABC & Traditional Costing : Plant-wide and Activity Cost Rates
Greek Corp. produces two types of products, Chairs and Tables. In 2023, the company
planned to switch from functional (traditional) based costing which allocated the overhead
costing using direct labor hours to activity based costing. Information related with the
production are below:

The activities related to produce both of the product consists of:

Required:

1. Compute the overhead rate using the traditional (plant-wide) approach, and overhead
cost assigned to each product.
2. Compute the overhead rates using the Activity-Based Costing approach, and overhead
cost assigned to each product.
3. Determine the difference in allocation between the two approaches.
4. Calculate gross profit for Chairs and Tables using functional based costing and
activity based costing. Assumed all products are sold in 2023 and the selling price for
Chairs is $600/unit and for Tables is $900/unit.

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 Problem 4-2
ABC & Traditional Costing : Unit-Cost Comparison
Ru Ben Corporation manufactures Product X and Product Y. As part of its annual
budgeting process, Ru Ben is analyzing the profitability of its two products. Part of this
analysis involves estimating the amount of overhead to be allocated to each product line.
The following information relates to overhead.

Required:
1. The total estimated manufacturing overhead was $4,000,000. Under traditional costing
(which assigns overhead on the basis of direct-labor hours), what amount of
manufacturing overhead costs are assigned to:
(a) One Product X?
(b) One Product Y?
2. The total estimated manufacturing overhead of $4,000,000 was comprised of $3,000,000 for
material-handling costs and $1,000,000 for purchasing activity costs. Under activity- based
costing (ABC):
a. What amount of material handling costs are assigned to:
· One Product X?
· One Product Y?

b. What amount of purchasing activity costs are assigned to:

· One Product X?
· One Product Y?
3. Compare the amount of overhead allocated to one Product X and to one Product Y under the
traditional costing approach versus under ABC.

Homework
ABC & Traditional Costing: Ratio
Astro Company produces greeting cards: Regular and Special. At the moment, Astro
Company uses functional (traditional) costing based on production cost per unit to define the
price of each product. Information related with the production are below :

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 Description Regular Special
Direct Material Cost per Unit $ 10 $ 40
Direct Labor Cost per Unit 2 Hour 5 Hour
Direct Labor Cost per Hour $ 10 $ 10

Activities:
Setup 100 times 500 times
Managerial Handling 200 moves 1,000 moves
Design Changes 50 times 150 times

Manufacturing Overhead Cost

Setup Cost $ 300,00
Material Handling Cost $ 150,000
Design Changes Cost $ 320,000
Other Overhead $ 150,000
Total $920,000

Other Information
a. Total Sales $ 4,000,000 $ 750,000
b. Selling Price per Unit $ 50 $ 300
c. Unit Beginning Finished 5,000 units 500 units
Goods
d. Unit Ending Finished Goods 4,000 units 300 units

Required:
1. Calculate production cost per unit using functional (traditional) based costing.
Manufacturing overhead is allocated using direct labor hours.
2. Calculated production cost per unit using activity-based costing. Other manufacturing
overhead allocated is based on direct labor hours.
3. What is your suggestion for each item’s selling price by using activity-based costing
method (use the cost to sales ratio)

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 MODULE 5
BUDGETARY PLANNING

Problem 5-1
Preparing a Production & Direct Material Purchases Budget
Fruitcake Co. produces strawberry spread. The strawberry spread is sold in 10-ounce jars. The
sales budget for the first quarter of the year is as follows:

Month Unit Sales

January 20,000
February 30,000
March 35,000
April 30,000
May 30,000

Company policy requires that ending inventories for each month should be 10% of next
month’s sales. At the beginning of January, the inventory of hazelnut spread was 5,000 jars.
Each jar of strawberry spread needs two raw materials: 20 ounces of strawberry and two jars.
Company policy requires that ending inventories of raw materials for each month should be
10% of the next month’s production needs. There’s no ending inventory of raw material at the
end of the year. At the end of the quarter, the desired ending inventory is 6,000 ounces of
strawberry. The price of each jar is $2.

Required:

1. Prepare a production budget for the first three months. Show the number of jars that
should be produced each month as well as for the quarter in total.
2. Prepare separate direct materials purchases budgets for jars each month as well as for the
first three months.

Problem 5-2
Preparing a Direct Labor and Overhead Budget
The Grove Company produces healthy foods. The production budget for Grove’s most
popular foods is shown in the following quarter
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 First Secon Third Fourth
d
Units 5,500 5,000 6,500 5,000

Each unit produces requires on average 0.50 direct labor hours. Average cost of direct labor is $12
per hour. The variable overhead rate is $5.00 per direct labor hours. Fixed overhead is budgeted at
$6,000 for the first quarter and increases 10% every quarter.

Required:

1. Prepare a direct labor budget for the year, showing the hours needed and the direct labor
cost for each quarter in total.
2. Prepare an overhead budget for the year as well as the total for all quarters. Calculate the
predetermined overhead rate.

Problem 5-3
Preparing a Cost of Goods Sold Budget
Paramount Comp. manufactures office equipment. Each equipment takes $600 of direct
materials and uses 5 direct labor hours each unit at $50 per direct labor hour. The variable
overhead rate is 6.0 per direct labor hour and the fixed overhead $20,000. Paramount Comp.
expects to produce 3,500 units next year and expects to have 500 units in the ending inventory.
There is no beginning inventory for the office equipment.

Required:
Prepare a cost of goods sold budget for Paramount Comp.!

Problem 5-4
Preparing a Cash Budget
The following data has been gathered from Bamboo Co. to assist in the preparation of a
cash budget for the fourth quarter of 2020.
i. The projected sales and the projected direct material purchases.
Sales Purchase
Month
(in dollar amount) (in kgs)

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 August 22,000 3,000
Septembe 22,800 3,200
r October 25,600 3,400
November
26,000 3,800
December
28,400 4,000

ii. Each month, 30% of sales are for cash and the remaining are on credit. The collection
pattern for credit sales is 40% in the month of sale, 35% in the following month, and
20% in the second month following the sale. The company records bad debt expenses
every month.
iii. The company purchased direct materials on account. The purchase price per kg is $7.
Company pays 70% of accounts payable in the month of purchase and gets a 5%
discount. The remaining is paid for in the following month.
iv. The company borrowed $80,000 from the bank since January 1, 2018. The borrowing
period was 5 years. The annual interest rate was 10%. The company paid interest
expenses quarterly.
v. On October 30, new supplies will be purchased for $8,000 in cash.
vi. The cash balance on September 30 is $25,000.

vii. A minimum cash balance is required for the end of each quarter of $25,000. Money
can be borrowed $10,000 on the next beginning of the quarter, interest is 10% per year
and paid annually.

Required:
Prepare a cash budget for the fourth quarter of 2023. Give a supporting schedule that details the
cash collections from sales and the cash payment for direct materials purchase.

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 MODULE 6
STANDARD COSTING – A MANAGERIAL CONTROL TOOL

Problem 6-1
Material Variance and Labor Variance
For a product the following data are given:
Standards per unit of product:
Direct materials 28kg. @$28 per kg.
Direct labor 13.5 hours @ $9 per hour

Actual details for given financial period:

Output produced (units): 10,500

Direct materials:
Purchased: 330,000 kg for $8,250,000
Ending Inventory: 5,000 kg

Direct labor: 85,000 hours worked for $1,275,000

There was no work-in-progress at the beginning or end of the period.

Required:

· Calculate Material Price and Usage Variances

· Calculate Labor Rate and Efficiency Variances
(*Note: State whether the variance is favorable or unfavorable)

Problem 6-2
Variable Overhead Variance and Fixed Overhead Variance
Taurus Company had planned to produce 200,000 units. However, 250,000 units were
produced. The company uses direct labor hours to assign overhead to products. Each unit
requires 1.3 standard hours of labor for completion. The fixed overhead rate was $30 per
direct labor hour and the variable overhead rate was $9 per direct labor hour. Actual results for
the year are:

Actual production (units) 250,000 units

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 Actual direct labor hours 230,000
(AH) hours

Actual fixed overhead $ 6,500,000

Actual variable overhead $ 1,610,000

Required:

· Calculate Variable Overhead Spending and Efficiency Variance

· Calculate Fixed Overhead Spending and Volume
Variance (*Note: State whether the variance is favorable or
unfavorable)

Problem 6-3
Variance Analysis
At the beginning of the year Diamond Company had the following standard cost sheet for one
of its products:

Direct Materials (0.4 grams x $2,2) $ 0.88

Direct Labor (0.01 hours x $23) $ 0.23

Variable Overhead (0.01 hours x $ 0.23

$23)

Fixed Overhead (0.01 hours x $27) $ 0.27

Standard Cost Per Unit $ 1.61

Fixed Overhead rate is based on practical capacity of 250,000 units. For the year 2022, the
company has produced 160,000 units, with the following actual data:

· Direct Material purchased 33,000 grams at total cost $198,000

· Ending inventory of direct materials was 2,000 grams
· Direct labor used was 4,400 hours for $79,200
· Variable OH cost was $70,400

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 · Fixed OH cost was $65,000

Required:

· Material Price and Usage Variance (Assuming no beginning inventory of Direct Material)
· Labor Rate and Efficiency Variance
· Variable Overhead Spending and Efficiency Variance
· Fixed Overhead Spending and Volume Variance (*Note:
State whether the variance is favorable or unfavorable)

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 MODULE 7
FLEXIBLE BUDGETS AND OVERHEAD ANALYSIS

Problem 7-1
Different Activity-Based Budget Report
Miracle Company provided information on the following three overhead activities.

Activity Driver Fixed Cost Variable Rate

Engineering Engineering $270,000 $3.45

Hours

Setup Setup Hours $250,000 $2.40

Receiving Receiving $280,000 $6.30

Orders

Miracle has found that the following driver levels are associated with two different levels of production:

Driver 150,000 180,000

units units

Engineering 870 1,520

Hours

Setup Hours 125,000 140,000

Receiving 22,000 25,000

Orders

Required:
Prepare an activity-based flexible budget for the two levels of activities for Miracle Company.

Problem 7-2
Direct Labor and Overhead Budget Under Different Level of Activities

Exist Corporation produces two types of chocolates, they are Dark Chocolates and White Chocolates.
The tablets use common raw material in different proportions. The company expects

25
to produce 185,000 units of Dark Chocolates and 165,000 units of White Chocolates during the
coming year. Dark Chocolates requires 1.35 direct labor hours per chocolates and White
Chocolates requires 1.50 direct labor hours per chocolates. Exist Corporation has developed the
following fixed and variable costs for each of the five overhead items:
Overhead Items Fixed Variable Rate (per
Costs DLH)
Maintenance $170,000 $1.35
Power - $3.00
Indirect Labor $90,000 $0.65
Rent $85,000 -
Other $25,000 $0.35

Required:
1. Calculate the direct labor hours required for production at expected level, 15 percent
higher than expected, and 15 percent lower than expected (Show the comparison).
2. Prepare an overhead budget that reflects production at expected level, 15 percent higher
than expected, and 15 percent lower than expected (Round to 2 decimals and show the
comparison).

Problem 7-3
Identifying Activity-Based Cost Formula
Quarterly budgeted overhead costs for two different levels of activity follow. The 5,000 level
was the expected level from the master budget. The actual activity level was 2,750 hours.

Cost Formula ($) Direct Labor Hours

Fixed Variabl 5,000 9,000
e hours hours
Maintenance ? ? $135,000 $175,000
Depreciation ? - 7,500 7,500
Supervision ? - 18,000 18,000
Supplies - ? 20,500 28,500
Power - ? 500 700
Other ? ? 25,000 30,000

26
Required:

1. Suppose that all of the formulas for each item are missing. You only have the budgeted
costs for each level of activity. Show how you can obtain the formulas for each item by
using the information given for the budgeted costs for the two levels.
2. Prepare a flexible budget for an activity level of 4,000 direct labor hour.

27
 MODULE 8
COST-VOLUME PROFIT ANALYSIS : A MANAGERIAL
PLANNING TOOL

Problem 8-1
Cost-Volume-Profit Relationships
Suppose that Hustle Company sells a product for $28. Unit costs are as follows:

Direct materials $ 4.00

Direct labor $ 2.50
Variable factory overhead $ 1.20
Variable selling and administrative expense $ 2.80

Total fixed factory overhead is $20,000 per year and total fixed selling and administrative expense
is $15,000.
Required:
1. Calculate the variable cost per unit and the contribution margin per unit.
2. Calculate the variable cost ratio and the contribution margin ratio.
3. Calculate the break-even units.
4. Calculate the break-even in sales dollars.
5. How many units must be sold to earn a profit of $190,000?
6. Using the contribution margin ratio computed in requirement 2, compute the additional
profit that Hustle Company would earn if sales were $75,000 more than expected.

Problem 8-2
Cost-Volume-Profit Analysis in a Multiple Product Setting
Dal Monte Company produces two types of pasta: Cannelloni and Cavatelli. The projected income
for the coming year, segmented by product line, is as follows:

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In ($) Cannelloni Cavatelli Total

Sales 3,500,000 3,000,000 6,500,000

Total Variable Costs (2,600,000) (1,800,000) (4,400,000)

Contribution margins 900,000 1,200,000 2,100,000

Direct fixed cost (500,000) (200,000) (700,000)
Product margin 400,000 1,000,000 1,400,000
Common fixed cost (224,000)
Operating Income 1,176,000

The selling prices are $35 for Cannelloni and $60 for Cavatelli. (Round break-even packages
and break-even pasta to the nearest whole Pasta)

Required:
1. Compute the number of pasta of each product that must be sold for Dal Monte to break-even.
2. Assume that the marketing manager changes the sales mix of the two products so that the
ratio is three Cannelloni to two Cavatelli. Repeat Requirement 1.
3. Refer to the original data. Suppose that Dal Monte can increase the sales of Cavatelli Pasta
with increased advertising. The extra advertising would cost an additional $200,000, and
some of the potential purchasers of Cannelloni would switch to Cavatelli. In total, sales of
Cavatelli Pasta would increase by 15,000 plates, and sales of Cannelloni Pasta would
decrease by 8,000 plates. Would Dal Monte be better off with this strategy?

Problem 8-3
Contribution Margin & DOL
D’Paris Company’s projected profit for the coming year is as follows:

Total Per Unit

Sales $280,000 $30
Total Variable Cost (150,000) 16
Contribution Margin $130,000 $14
Total fixed cost (40,000)
Operating Income $90,000

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Required
1. Using the contribution margin ratio computed in requirement 1, compute the additional
profit that D’Paris would earn if sales were $80,000 more than expected.
2. Calculate the degree of operating leverage. Now suppose that D’Paris Comp. revises the
forecast to show a 50% increase in sales over the original forecast. What is the percent
change in operating income expected for the revised forecast? What is the total operating
income expected by Surya after revising the sales forecast?

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 MODULE 9
BUDGETARY CONTROL & RESPONSIBILITY ACCOUNTING
Problem 9-1
Undertaken or Not Undertaken Project
Calum, a division manager of Summer Company, was debating the merits of a new
product – “Lemonade”. The budgeted income of the division was $1,500,000 with
average operating assets of $8,000,000. The proposed investment would add income of
$1,000,000 and would require an additional investment in equipment of $5,500,000. The
minimum required return on investment for the company is 5 percent. Their actual cost of
capital is 10 percent. The income tax rate in the country is 25%. Round all numbers to
two decimal places.
Required:

1. Compute the ROI of the

a. Division if the Lemonade project is not undertaken.
b. Lemonade project alone.
c. Division if the Lemonade project is undertaken.
2. Compute the residual income of the:
a. Division if the Lemonade project is not undertaken.
b. Lemonade project alone.
c. Division if the Lemonade project is undertaken.
3. Calculate the EVA for Summer Company if the Lemonade project is
undertaken and if the Lemonade project is not undertaken.
4. Do you suppose that Calum will decide to invest in the new Lemonade? Why or
why not?

Problem 9-2

Measuring the Performance

Below is given the data for the assembly division of Hogwarts Corporation:

Year 1 Year 2

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 Sales $ 50,000,000 $ 80,000,000
Cost of sales $ 25,000,000 $ 30,000,000
Operating expenses $ 15,000,000 $ 20,000,000
Average operating assets $ 250,000,000 $ 380,000,000

Minimum required rate of return 6%

Actual cost of capital 4%
Income tax rate 25%
Required:
1. Compute the margin and turnover ratios for each year.
2. Compute the ROI for the assembly division for each year.
3. Compute the residual income for each year.
4. Compute EVA for Hogwarts Corporation for each year.
(Note: Round all numbers to two decimal places).

Problem 9-3
Transfer Pricing
Synergy Assembly Division has made an offer to purchase 60,000 batteries from the
company’s Electrical Division for $85 per unit. At a normal volume of 400,000 batteries
per year, production costs per battery are as follows:
Direct materials $ 45
Direct manufacturing labor $ 15
Variable factory overhead $ 25
Fixed factory overhead $ 65
Total $ 150
The Electrical Division has been selling 350,000 batteries per year to outside buyers at
$185 each. Capacity is 350,000 batteries per year. The Assembly Division has been
buying batteries from outside sources for $130 each.

Required:
1. Should the Electrical Division manager accept the offer? Explain.
2. From the company's perspective, will the internal sales be of any benefit? Explain!

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 MODULE 10
INCREMENTAL ANALYSIS

Problem 10-1
Keep or Drop Product Segment
Shown below is a segmented income statement for Matthew Juice Company’s flavored
juice product lines:

Avocado Melon Guava Total

Sales revenue $900,000 $750,000 $650,000 $2,300,000

Less: Variable expenses (600,000) (400,000) (550,000) ($1,550,000)

Contribution margin 300,000 350,000 100,000 $750,000

Less: direct fixed expenses:

Machine rent (15,000) (25,000) (50,000) (90,000)
Supervision (35,000) (20,000) (55,000) (110,000)

Depreciation (75,000) (35,000) (35,000) (145,000)

Segment margin 175,000 270,000 (40,000) 405,000

The guava juice line has a contribution margin of $100,000 (sales of $650,000 minus total
variable costs of $550,000). All variable costs are relevant. Relevant fixed costs
associated with this line include $50,000 in machine rent and $55,000 in supervision
salaries.

Required:
1. List the alternatives being considered with respect to the guava juice product line.
2. List the relevant benefits and costs for each alternative.
3. Which alternative is more cost effective and by how much?

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 Problem 10-2
Keep or Drop Product Segment – Subsequent Issues

Refer to question 1 for the details provided, assume that dropping the guava would reduce
sales of avocado by 10% and sales of the melon line by 5%, all other information remains
the same.

Required:
1. If the guava is dropped, what is the contribution margin for the avocado? For the
melon?
2. Which alternative (keep or drop guava) is now more cost effective and by how much?

Problem 10-3
Make or Buy Decision
Golden Manufacturing has always made its components in-house. However, Silver Component Works
had recently offered to supply one component, A6 at a price of $30 each, Silver used to make 10.000
units of Component A6 each year. The cost per unit of this component is as follows:

Direct material $12.00

Direct labor $7
Variable overhead $5
Fixed overhead $35.00
Total $59

The fixed overhead is an allocated expense, none of it would be eliminated if the

production of Component A6 stopped.

Required:
What are the alternatives facing Golden Manufacturing with respect to production of
Component A6 and which alternative is more cost effective and by how much?

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Problem 10-4
Sell at Split-Off or Further Product Processing
Cheryl Inc. manufactures two products from a joint production process. The joint process costs
$350,000 and yields 10,000 pounds of ABC compound and 40,000 pounds of XY
compound. ABC can be sold at split off for $75 per pound. XY can be sold at split off for
$30 per pound. A buyer of XY asked Cheryl Inc. to process XY further into the ZA
compound. If XY were processed further, it would cost $70,000 to turn 50.000 pounds of
XY into 10,000 pounds of ZA. The ZA would sell for $90 per pound.

Required:
1. What is the contribution to income from selling the 40,000 pounds of XY at split off?
2. What is the contribution to income from processing the 50,000 pounds of XY into
10,000 pounds of ZA? Should Cheryl continue to sell the XY at split off or
process it further into ZA?

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