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FAMA '22 Solution

1) The document shows sales and contribution figures for a product in 2021 and 2022, with price drops leading to lower contribution. Total contribution decreased from 2021 to 2022 despite higher sales volumes. 2) It also contains cost data for 3 products/processes (P, Q, R) including material, labor, machine hours and total costs. Cost per unit increases with smaller production volumes. 3) Overhead costs are allocated using activity-based costing, assigning costs to products based on consumption of resources like set-up hours, machine time, and inspections needed.

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Rushil Joshi
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70 views4 pages

FAMA '22 Solution

1) The document shows sales and contribution figures for a product in 2021 and 2022, with price drops leading to lower contribution. Total contribution decreased from 2021 to 2022 despite higher sales volumes. 2) It also contains cost data for 3 products/processes (P, Q, R) including material, labor, machine hours and total costs. Cost per unit increases with smaller production volumes. 3) Overhead costs are allocated using activity-based costing, assigning costs to products based on consumption of resources like set-up hours, machine time, and inspections needed.

Uploaded by

Rushil Joshi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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2021 2022

Existing Existing Price Drop 1 Price Drop 2 Change in


Particulars 210,000 230,000 290,000 330,000 process
230,000
Sale Price 3,000 3,000 2,600 2,400 3,000
Variable Cost 2,200 2,200 2,200 2,200 2,000
Sales Incentive 180
Contribution per unit 800 800 400 200 820
Total Contribution 1,680.00 1,840.00 1,160.00 660.00 1,886.00
Fixed Cost 360.00
Profit 1,680.00 1,840.00 1,160.00 660.00 1,526.00
2,200.00
Break even point 268292.6829 248,780.49
Particulars P Q R
Volume 750 1,250 7,000
Material cost per unit 20.00 12.00 25.00
Total Material Cost 15,000 15,000 175,000 205,000

Labour hour per unit 0.50 1.50 1.00


Total Labour Hours 375 1,875 7,000
Total Labour Cost 2,250 11,250 42,000 55,500
Labour cost per unit @ INR 6 / h 3.00 9.00 6.00

Machine hour per unit 1.50 1.00 3.00


Total Machine Hours 1,125 1,250 21,000
Total Machine Cost 31,500 35,000 588,000 654,500
Machine cost per unit @ INR 28 42.00 28.00 84.00
Cost per unit 65.00 49.00 115.00

Total Cost 48,750 61,250 805,000 915,000

Particulars Allocation of Cost Driver Total Cost Cost per unit of


Set Up Cost
229,075 No. of Set-up Driver Unit
670 Cost Driver
341.90
Machine Usage 130,900 Machine Hours 23,375 5.60
Materials Handling 98,175 No. of Handling 120 818.13
Inspection 196,350 No. of Inspection 1,000 196.35
654,500

Particulars P Q R
Total Material Cost 15,000 15,000 175,000 205,000
Total Labour Cost 2,250 11,250 42,000 55,500
Production Overheads Driver Units
Set Up 75 115 480 670
Machine Usage 1,125 1,250 21,000 23,375
Materials Handling 12 21 87 120
Inspection 150 180 670 1,000

Production Overheads
Set Up 25,643 39,319 164,113 229,075
Machine Usage 6,300 7,000 117,600 130,900
Materials Handling 9,818 17,181 71,177 98,175
Inspection 29,453 35,343 131,555 196,350

88,463 125,092 701,445 915,000

Comparision
Typically, ABC provides a
more accurate representation of
costs
Commentbecauseon itdifference
allocates
overheads based
The traditional methodon actual
might
activities rather than
oversimplify the overhead just one
allocation
allocation, base (like machine
Suggestion:which can lead to
hours
some in the traditional method).
If the products
differences being overcosted
in costs
and others
between thebeing undercosted.
two methods are
ABC,
significant, it mighthand,
on the other be worth
attempts
adopting to thetrace
ABCoverheads
method,
more
especially if the company based
directly to products has
on the actual
diverse productsactivities that
that consume
cause those
resources at overheads.
different rates.
However, ABC can be more
time-consuming and expensive
to implement. If the benefits (in
terms of more accurate costing
and better decision-making)
outweigh the costs, then ABC
should be adopted. Otherwise, if
the products are relatively
similar in their consumption of
overhead resources, the
traditional method might
suffice.
Juice 960
Sugar 300
Boiler 560
Processing 140
Factory OHs 140
Variable Selling OHs 60
2,160
8,000
17,280,000
Fixed Selling OHs 6,912,000
Total Cost 24,192,000
Profit 6,048,000
Total Sales 30,240,000
3,780

Opening 2,500
8,500 51,000
8,000 25,500
Closing 3,000

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