ANSWER PSPM AA025 2018/2019

Answers Scheme PSPM AA025 (2018/2019)

SECTION A

QUESTION 1

a. P, C or DM

i. P
ii. P
iii. C
iv. C
v. DM
vi. DM

b. Product Cost VS Period Cost

Product Cost Period Cost

1. Cost involved in the process of Cost involved in the process of

making products selling products and

administrating the whole

company

2. Calculated as a cost in the Considered as expenses in the

calculation of inventory current year

3. Shown in the Statement of Reported in the Statement of

Financial Position as inventory Profit or Loss as operational

expenses

4. The cost driver for variable The cost driver for variable

product cost is the unit period cost is the unit sold

produced

5. Inventoriable Non-inventoriable
6.
Also known as manufacturing Also known as non-
Example of cost manufacturing cost
cost
Direct material Advertising, Commission,
Direct labour Freight Out, Director’s Salaries
Manufacturing overhead

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c. Explain (i) n (ii)

(i) Opportunity Cost
Opportunity cost is the benefit of something that must be given up in order to acquire
or to achieve something else.

(ii) 1 characteristic of relevant cost
- Future cost
- Different between alternatives (differential)
- Avoidable cost (can be avoided)

QUESTION 2

a. Explain the following terms with 1 example.

(i) Fixed Cost
Fixed cost is the cost that does not change with an increase or decrease in the level of
production output. It is always constant in the relevant range (optional). While fixed cost
per unit is not constant.
Example – Depreciation of factory equipment.

(ii) Variable Cost
Variable cost is the cost that changes in proportion with the level of production
output. Variable costs increase or decrease depending on a company's production
volume. While variable cost per unit will remain constant although activity level
changed.
Example – Direct materials cost

(iii) Mixed Cost
Mixed costs is the cost that consist of a fixed cost component and a variable cost
component.
Example – Factory utilities cost

b. Four usage of Cost-Volume-Profit analysis.
- determine the level of sales at break-even point.
- determine the level of sales to achieve profit target.
- determine selling price of the product in order to achieve profit target.
- make a forecast of the profit that will be achieved in certain constraints.
- any other logical answers

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c. Answer True (T) or False(F) to these statements: -

(i) F
(ii) T
(iii) F
(iv) T
(v) T

QUESTION 3

a. Two bases used for calculating pre-determine overhead rate.

1. Direct labour hours
2. Machine hours
3. Direct material cost
4. Direct labour cost or
5. Production unit

b. Explain the following terms: -

(i) Under-applied overhead
Under-applied overhead is the situation where applied overhead cost is less
than actual overhead cost.

(ii) Over-applied overhead
Over-applied overhead is the situation where applied overhead cost is greater
than actual overhead cost.

c. Complete the table below: - Job Order Costing Process Costing
Characteristics

1. Product type Heterogeneous Homogeneous

2. Cost accumulation Cost accumulate based on Cost accumulate based on

job/orders processing department

3. Example of product Custom made cabinets or Batteries, or canned food,
custom made furniture etc. etc.

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d. Briefly explain: -

i. Ideal Standard

Ideal standard is the standard cost that can be achieved only with the highest
efficiency and performance usually under perfect conditions. OR
Represent optimum levels of performance under perfect operating conditions and
is considered high and difficult or impossible to achieve. Developed under the
assumption that no obstacles encountered to the production process.

ii. Normal Standard

Normal standard is the standard cost that can be achieved under normal or
expected conditions. OR

Represent efficient levels of performance that are attainable under expected
operating conditions. Developed under the assumption that there will be
occasional problems in the production process such as equipment failure, labor
turnover and materials defects.

SECTION B

QUESTION 1
(a)

(i) Predetermined MOH rate = RM364,000/10,000 hrs
(machine hours) = RM36.40 per hour
= RM364,000/20,000hrs
(ii) Predetermined MOH rate = RM18.20 per hour
(direct labour hours) = RM364,000/(RM14 x 20,000hrs)
= 130%
(iii) Predetermined MOH rate
(direct labour cost)

(b) = RM400,400
(i) machine hours = 320,000
= RM80,400
Applied MOH (RM36.40 x 11,000hrs)
Actual MOH
Over-applied MOH

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(ii) direct labour hours = RM327,600
= 320,000
Applied MOH (RM18.20 x 18,000hrs) = RM7,600
Actual MOH
Over-applied MOH

(iii) direct labour cost

Applied MOH [130% x (RM15 x 18,000hrs)] = RM351,000
320,000
Actual MOH =
RM31,000
Over-applied MOH =

(c) Sungai Lembing Enterprise

Predetermined MOH = RM60,000/12,000 hrs

rate (machine hours) = RM5.00 per hour

(i) Job cost table

BWIP Job X Job Y Job Z Total
Direct material 4,600 3,300 2,000 9,900
Direct labour 2,200 1,700 1,400 5,300
Manufacturing overhead (applied) 1,500 1,200 1,000 3,700
Total cost 1,250 1,000 3,150
9,550 7,200 900 22,020
5,300

(ii) Over/underapplied MOH

Applied MOH (1,250 + 1,000 + 900) = RM3,150

Actual MOH = 3,700

Under-applied MOH = RM550

(iii) Journal entry

Date Particulars dr cr

Feb 28 Cost of goods sold 550
Manufacturing Overhead 550

(to record the adjustment of under-applied
manufacturing overhead cost)

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QUESTION 2 35,000 *(30,000 + 80,000 – 35,000)
75,000*
a. Physical units for Mac 2019 110,000
80,000
Physical flow table: 30,000
Work in process, Mac 1 110,000
Unit started
Total units
Unit completed
Work in process, Mac 31
Total units

b. Equivalent units Direct Materials Conversion Costs *(40% x 30,000)
80,000 80,000
Unit completed 30,000 *12,000
Work in process, Mac 31 110,000 92,000

c. Unit cost of production Direct Materials Conversion Costs Total
RM39,000 RM22,900 RM61,900
Work in process, Mac 1 185,000 132,000
Cost incurred 224,000 154,900 317,000
378,900
Unit cost of production 224,000/110,000 154,900/92,000
RM3.72
= RM2.04 = RM1.68

d. Cost units transferred (80,000 units) = RM3.72 x 80,000 = RM297,600

Cost Work in Process, July 31

Materials = RM2.04 x 30,000 = RM61,200
= 20,160
Conversion Costs = RM1.68 x 12,000 = RM81,360

Total

QUESTION 3

(a) POR fixed manufacturing overhead rate

Predetermined F. MOH = RM14,000/35,000 units
rate (unit) = RM0.40 per unit

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(b) Product cost per unit Absorption Marginal
Costing (RM) Costing (RM)
Direct product cost
Direct labour cost 1.80 1.80
Variable overhead cost 1.50 1.50
Fixed overhead cost 1.00 1.00
Total product cost per unit 0.40
-
4.70
4.30

Over/underapplied MOH = RM50,400
= 48,000
Applied MOH (1 x 36,000) + (0.40 x 36,000) =
Actual MOH (1 x 36,000) + 12,000 RM2,400*
Over-applied MOH

(c) (i) – Statement of Profit or Loss – Absorption Costing

Baram Sdn. Bhd. RM180,000
Statement of Profit or Loss – Absorption Costing

For the year ended 31 December 2018

Sales (30,000 x RM6.00)

(-) Cost of goods sold:

Beginning inventory 0

(+) Cost of goods manufactured (36,000 x RM4.70) 169,200

Goods available for sale 169,200

(-) Ending inventory (6,000 x RM4.70) (28,200)

Cost of goods sold 141,000

(-) Over-applied manufacturing overhead (2,400)*

Adjusted Cost of goods sold (138,600)

Gross margin 41,400

(-) Operational expenses:

Variable sales & administration expenses 8,200

Fixed sales & administration expenses 3,600

Total fixed costs (11,800)

Net Profit 29,600

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(ii) – Statement of Profit or Loss – Marginal Costing

Baram Sdn. Bhd. RM180,000
Statement of Profit or Loss – Marginal Costing

For the year ended 31 December 2018

Sales (30,000 x RM6.00)

(-) Variable costs:

Beginning inventory 0

(+) Cost of goods manufactured (36,000 x RM4.30) 154,800

Goods available for sale 154,800

(-) Ending inventory (6,000 x RM4.30) (25,800)

Variable cost of goods sold 129,000

(-) Variable Sales & administeration expenses 8,200

Total variable costs (137,200)

Contribution margin 42,800

(-) Fixed costs:

Manufacturing overhead 12,000

Sales & administration expenses 3,600

Total fixed costs (15,600)

Net Profit 27,200

(d) Analysis Variance = RM1.40 per kg
= 40,000kg
(i) Variance analysis for direct material cost: = RM1.50 per kg

SP = RM70,000/50,000kg
SQ = (50,000kg/25,000 unit) x 20,000 unit
AP = RM67,500/45,000 kg
AQ = 45,000 kg (bought and used)

a) Price variance = AQ(SP - AP)
= 45,000kg(RM1.40 – RM1.50 )

= RM4,500 UF

b) Quantity variance = SP(SQ - AQ)
= RM1.40(40,000 kg – 45,000 kg )

= RM7,000 UF

c) Total Direct Materials Variance
= RM4,500 UF + RM7,000 UF
= RM11,500 UF

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(ii) Variance analysis for direct labour cost:

SR = RM200,000/100,000 hrs = RM2.00 per hr

SH = (100,000hrs/25,000 units) x 20,000 units = 80,000 hrs

AR = RM300,000/120,000 hrs = RM2.50

AH = 120,000 hrs

a) Labour rate variance = AH(SR - AR)
= 120,000 hrs(RM2.00 – RM2.50 )

= RM60,000 UF

b) Labour efficiency variance = SR(SH - AH)
= RM2.00(80,000 hrs – 120,000 hrs )

= RM80,000 UF

c) Total Direct Materials Variance
= RM60,000 UF + RM80,000 UF
= RM140,000 UF

QUESTION 4

a. The make or buy decision

Cost Cost of 20,000 units Difference*
per or
unit (RM)
(RM) increase/(decrease)
25 Make Buy in profit
9 (500,000)
Purchased price 5 180,000 500,000 180,000
Direct materials 1 100,000 500,000 100,000
Direct labour 2 20,000
Variable MOH 20,000 40,000
Supervisor’s salaries 40,000 (160,000)
340,000
Total cost

b. Padas Sdn. Bhd. should make the parts instead of accepting the supplier’s offer because
the analysis showed profit will decrease by RM160,000 if they accepted the offer. Cost of
buying the parts is greater than the cost of making.

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