Questions and Answers of Management Cost Accounting

Gym Bunnies (GB) is a health club. It currently has 6000 members, with each member paying a subscription fee of $720 per annum. The club is comprised of a gym, a swimming pool and a small exercise
The Equine Management Academy (EMA) which was founded in 1990 is a privately owned organization located in Hartland, a developing country which has a large agricultural sector and where much
Mackerel Contracting (Mackerel) is a listed defence contractor working mainly for its domestic government in Zedland. At present, Mackerel is considering tendering for a contract to design and
Gam Co sells electronic equipment and is about to launch a new product onto the market. It needs to prepare its budget for the coming year and is trying to decide whether to launch the product at a
XY has developed two new products, Product X and Product Y, but has insufficient resources to launch both products. The success of the products will depend on the extent of competitor reaction. There
A company uses a third party delivery service to deliver goods to customers. The current average cost per delivery is $12.50. The company is trying to decide whether to establish an in-house delivery
A company has to decide which of three machines to purchase to manufacture a product. Each machine has the same purchase price but the operating costs of the machines differ. Machine A has low fixed
A company has to decide which of three mutually exclusive projects to invest in next year. The directors believe that the success of the projects will vary depending on economic conditions. There is
A marketing manager is deciding which of four potential selling prices to charge for a new product. The market for the product is uncertain and reaction from competitors may be strong, medium or
A company is planning to launch a new product. The price at which it will sell the product will be determined by the level of competition in the market which is currently uncertain. The possible
A company uses decision tree analysis to evaluate potential options. The management accountant for the company has established the following: What would be the cost of the upgrade that would make
Darwin uses decision tree analysis in order to evaluate potential projects. The company has been looking at the launch of a new product which it believes has a 70 percent probability of success. The
How does diversification impact on measuring risk?
Distinguish between maximin, maximax and regret criteria. When might it be appropriate to apply these criteria?
What is the expected value of perfect information and how can it be determined?
What is a decision tree and what purpose does it serve?
What are the disadvantages of the standard deviation as a measure of risk?
Distinguish between the standard deviation and the coefficient of variation.
Distinguish between expected value and the single most likely estimate.
How do subjective probabilities differ from objective probabilities?
Distinguish between risk and uncertainty.
GMB Co. designs, produces and sells a number of products. Functions are recognized from design through to the distribution of products. Within each function, a number of activities may be
WTL manufactures and sells four products: W, X, Y, and Z from a single factory. Each of the products is manufactured in batches of 100 units using a just-in-time manufacturing process and
Abkaber plc assembles three types of motorcycle at the same factory: the 50cc Sunshine; the 250cc Roadster and the 1000cc Fireball. It sells the motorcycles throughout the world. In response to
Robust Laptops Co. (RL) make laptop computers for use in dangerous environments.The company?s main customers are organizations like oil companies and the military that require a laptop that can
Explain how time-driven ABC differs from traditional ABC.
Explain the circumstances in which ABC is likely to be preferred to traditional costing systems.
Distinguish between the cost of resources supplied, the cost of resources used and the cost of unused capacity.
What is an ABC resource consumption model?
Describe the ABC profitability analysis hierarchy.
Describe the ABC manufacturing cost hierarchy.
Distinguish between transaction and duration cost drivers.
Distinguish between resource cost drivers and activity cost drivers.
Describe each of the four stages involved in designing ABC systems.
What is meant by ‘product diversity’ and why is it important for product costing?
Explain how low volume products can be under-costed and high volume products over-costed when traditional costing systems are used.
Describe the circumstances when traditional costing systems are likely to report distorted costs.
Distinguish between volume-based and non-volume-based cost drivers.
What factors led to the emergence of ABC systems?
Define activities and cost drivers.
What are the fundamental differences between a traditional and an ABC system?
Describe the three different types of cost system that can be used to assign costs to cost objects.
Explain why a cost accumulation system is required for generating relevant cost information for decision-making.
ML is an engineering company that specializes in providing engineering facilities to businesses that cannot justify operating their own facilities in-house. ML employs a number of engineers who are
A company has carried out extensive product research and as a result has just launched a new innovative product unlike anything else that is currently available on the market. The company has
ALG Co is launching a new, innovative product on to the market and is trying to decide on the right launch price for the product. The product?s expected life is three years. Given the high level of
PPP is a theme park. The following information is available for the forthcoming month:Forecast daily ticket sales and prices The theme park will be open for 30 days in the month.CostsVariable costs
DLW is a company that builds innovative, environmentally friendly housing. DLW’s houses use high quality materials and the unique patented energy saving technology used in the houses has been the
ST is a distribution company that buys a product in bulk from manufacturers, repackages the product into smaller packs and then sells the packs to retail customers. ST?s customers vary in size and
Albany has recently spent some time on researching and developing a new product for which they are trying to establish a suitable price. Previously they have used cost-plus 20 percent to set the
A company manufactures a single product, product Y. It has documented levels of demand at certain selling prices for this product as follows: Required:Using a tabular approach, calculate the
Why is customer profitability analysis important?
Describe the different kinds of pricing policy that an organization can apply.
Why is cost-plus pricing frequently used in practice?
What are the limitations of cost-plus pricing?
Describe the alternative cost bases that can be used with cost-plus pricing.
What role does cost information play in price-taking firms?
Describe the four stages involved with target costing.
Distinguish between cost-plus pricing and target costing.
What is meant by cost-plus pricing?
What is meant by the term ‘full cost’?
What costs are likely to be relevant for (a) A short-run pricing decision,(b) A long-run pricing decision?
Distinguish between a price taker and a price setter.
Solar Systems Co (S Co) makes two types of solar panels at its manufacturing plant: large panels for commercial customers and small panels for domestic customers. All panels are produced using the
Robber Co. manufactures control panels for burglar alarms, a very profitable product. Every product comes with a one year warranty offering free repairs if any faults arise in this period. It
The Telephone Co. (T Co.) is a company specializing in the provision of telephone systems for commercial clients. There are two parts to the business:– Installing telephone systems in businesses,
A company has three shops (R, S and T) to which the following budgeted information relates: Sixty percent of the total fixed costs are general company overheads. These are apportioned to the shops
All of a company?s skilled labour, which is paid ?8 per hour, is fully employed manufacturing a product to which the following data refer: The company is evaluating a contract which requires 90
A company has the following production planned for the next four weeks. The figures reflect the full capacity level of operations. Planned output is equal to the maximum demand per product. The
Describe throughput accounting and explain how it can be used to determine the optimum use of a bottleneck activity.
Describe the five steps involved in applying the theory of constraints.
Why does the relevant cost of labour differ depending on the circumstances?
Explain the circumstances when the original purchase price of materials are irrelevant for decision-making.
Explain the importance of opportunity costs for decision-making.
Why is the written-down value and depreciation of an asset being considered for replacement irrelevant when making replacement decisions?
How should a company determine its optimal product mix when a limiting factor exists?
Define limiting factors.
Describe the dangers involved in focusing excessively on a short-run decision-making time horizon.
Describe the important factors that must be taken into account when making special pricing decisions.
Explain what is meant by special pricing decisions.
What underlying principle should be followed in determining relevant costs for decision-making?
Why is it important to recognize qualitative factors when presenting information for decision-making? Provide examples of qualitative factors.
Tweed Ltd is a company engaged solely in the manufacture of sweaters, which are bought mainly for sporting activities. Present sales are direct to retailers, but in recent years there has been a
Z plc operates a single retail outlet selling direct to the public. Profit statements for August and September are as follows: Required:(a) Use the high?low method to identify the behaviour of:(i)
ZED plc manufactures one standard product, which sells at ?10. You are required to:(a) Prepare from the data given below, a break-even and profit?volume graph showing the results for the six months
A break-even chart is shown below for Windhurst Ltd. You are required:(i) To identify the components of the break-even chart labelled p, q, r, s, t, u, v, w, x and y;(ii) To suggest what events are
Z plc currently sells products Aye, Bee and Cee in equal quantities and at the same selling price per unit. The contribution to sales ratio for product Aye is 40 percent; for product Bee it is 50
A company manufactures a single product.Budget and standard cost details for next year include:Selling price per unit ................................$24.00Variable production cost per unit
A company’s budget for the next period shows that it would break even at sales revenue of $800 000 and fixed costs of $320 000.The sales revenue needed to achieve a profit of $200 000 in the next
Bittern Ltd manufactures and sells a single product at a unit selling price of ?25 in constant price level terms. Its cost structure is as follows: Variable costs:Production materials
A newly formed company has drawn up the following budgets for its first two accounting periods: The following budgeted information applies to both
The following details have been extracted from KL?s budget:Selling price per unit ..................................$140Variable production costs per unit ...............$45Fixed production costs per
A company manufactures and sells a single product.In two consecutive months the following levels of production and sales (in units) occurred: The opening inventory for Month 1 was 400 units. Profits
A company uses standard absorption costing to value inventory. Its fixed overhead absorption rate is $12 per labour hour and each unit of production should take four labour hours. In a recent period
A company has the following budgeted costs and revenues:............................................................$ per unitSales price .............................................50Variable
Rayman Company produces three chemical products, J1X, J2Y and B1Z. Raw materials are processed in a single plant to produce two intermediate products, J1 and J2, in fixed proportions. There is no
Luiz Ltd operates several manufacturing processes in which stocks of work in progress are never held. In process K, joint products (P1 and P2) are created in the ratio 2:1 by volume from the raw
Explain why the break-even point changes when there is a change in sales mix.
How can a company with multiple products use cost–volume–profit analysis?
Describe and distinguish between the three different approaches to presenting cost–volume–profit relationships in graphical format.

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