DPA30073 pg. 50 Edited :PKBI/JPPKS/DAT REVIEW QUESTION 1. BenQ Bhd is a company which selling and repairing computer which operating through three main selling branches located in The Spring, Wisma Saberkas and Parkson. The company also has two services departments located in Satok and Matang. Selling Department is main department and Repairing Department is service department. The following are the budgeted overhead for the company for the year ended 2022 : Overhead Selling Department Repairing Department The Spring Wisma Saberkas Parkson Satok Matang Indirect material 20,000 50,000 10,000 2,000 3,000 Indirect labour wages 25,000 35,000 10,000 2,500 5,000 Computer maintenance RM25,000 Rates RM5,000 Rent RM50,000 Salesmans’ Commission RM10,000 Insurance for workers RM7,500 Additional information : i) The following basis of apportionments are available : Basis Selling Department Repairing Department The Spring Wisma Saberkas Parkson Satok Matang Unit sold 10,000 25,000 5,000 Floor space (sq. metre) 500 350 150 50 100 Number of employees 20 30 5 6 9 Labour hour 3,000 3,500 2,500 400 600 An evaluation committed against second distribution from Repairing Department where Satok branch responsible to Wisma Saberkas only and Matang branch responsible to The Spring and Parkson. Matang branch 's distribution made based on sales unit under his responsibility. You are required to prepare Overhead Analysis Statement for BenQ for the year ended 31st December 2022. 2. Mirza Furnishing Manufacturing has three production departments and two service departments. Overhead costs incurred for the month just ended are as follows: RM Machine insurance 8,000
DPA30073 pg. 51 Edited :PKBI/JPPKS/DAT Rent rates 21,000 Indirect materials 5,000 Heating and lighting 10,000 Telephone expenses 2,000 Depreciation 24,000 Supervisors’ salaries 6,000 76,000 The three production department, A, B, and C and two service departments X, and Y are housed in the same premises, the details of which, together with other statistics and information, are given below : Departments A B C X Y Floor area occupied (sq. metres) 3,000 1,500 1,500 600 400 Direct labour hours 2,000 1,200 1,800 - - Labour rates per hour RM4 RM3 RM2 - - Machine value (RM’000) 30 20 10 - - Value of materials issued (RM’000) 100 50 30 Allocated overheads : Specific to each department 2,900 3,000 4,000 1,500 1,000 Service department X’s cost apportioned 50% 25% 25% - - Service department Y’s cost apportioned 20% 30% 50% - - You are required to: a) Prepare a statement showing the overhead cost for each department, showing the basis of apportionment used. b) Calculate suitable overhead absorption rates based on direct labour hour. 3. The BBB company has two production departments, Machining and Finishing and two service department, Materials Handing and Maintenance. The overhead budgets per hour week period are RM9,000 for the Machining department and RM7,500 for the finishing department. The Machining Department overhead is absorbed on a machine hour basis (300 per period ) and Finishing Department overhead is absorbed on the basis of direct labour hours (3000 per period). In establishing the overhead budgets of the production departments, service department costs have been dealt with as follows: Maintenance Dept.: 60% to Machining Dept.; 30% to Finishing Dept.; and 10% to Materials Handling. Materials Handling: 30% to Machining Dept.; 50% to Finishing Dept.; and 20% to Maintenance Department During period, the Machining Dept. was in operation for 292 hours and the number of direct labours worked by finishing Dept. personel was 3,100.
DPA30073 pg. 52 Edited :PKBI/JPPKS/DAT Overhead incurred during the period was as follows: Machining Finishing Maintenance Materials Handling Materials 2,000 3,000 1,000 200 Labour 3,000 900 2,000 3,000 Other allocated costs 600 400 800 300 You are required to: a) Write up the overhead accounts for each of the production departments for the period showing the disposition of any under/over absorption; b) State the factors which gave rise to the under/over absorption; c) Analyse the under/over absorption under the headings you have stated in your answers to (b). 4. Avril Ltd. operates 3 production departments X, Y and Z and two service departments A and B. During the last financial year the department overhead absorption rates used were : X 70% on departmental direct labour costs Y RM1.50 per machine hour Z RM0.60 per direct labour hour Allowance is made in the rates for apportionment of the costs of the two service departments. The overhead costs for the year were as follows : RM RM Indirect wages and supervision X 3,600 Y 6,000 Z 1,800 A 4,800 B 2,400 18,600 Repairs and maintenance X 960 Y 2,160 Z 360 A 240 B 120 3,840 Indirect material X 1,800 Y 2,760 Z 1,320 A 1,080 B 1,800 8,760 Power 900 Rent and rates 9,600
DPA30073 pg. 53 Edited :PKBI/JPPKS/DAT Lighting and heating 6,000 Depreciation – plant 12,000 - fittings 300 Insurance – plant 2,400 - buildings 600 The following data is available : Productive Capacity Department Effective h.p Area occupied (sq. ft.) Value of Direct hours Labour cost Machine Plant Fittings hours X 80 4,000 12,500 2,000 28,800 41,000 24,000 Y 180 8,000 30,000 1,000 41,000 60,600 43,200 Z 30 6,000 3,750 4,000 40,400 48,400 4,000 A 10 1,000 3,750 2,000 - - - B - 1,000 - 1,000 - - - The cost of service departments A and B are allocated to other departments on percentage basis : X Y Z A B A 20 50 20 - 10 B 20 60 10 10 - You are required to : a) prepare an overhead analysis sheet showing the distribution of overhead costs to the departments ; b) show the over / under absorption of overheads during the year ; and 5. Suu Kyi Ltd., an engineering company, has five cost centres : three production departments – machine shop, welding shop and assembly shop and two service departments – maintenance and power house. It is the practice of the business to use the following department rates : Machine shop RM2 per machine hour Welding shop 100% of direct labour cost Assembly shop RM1 per direct labour hour The following are the allocated costs : Machine Welding Assembly Maintenance Power House RM RM RM RM RM Indirect wages 400 800 300 250 250 Indirect material 800 1,200 500 300 200 Repairs and maintenance 3,000 2,500 1,500 2,000 1,000
DPA30073 pg. 54 Edited :PKBI/JPPKS/DAT Other costs : RM Rent 10,000 Power 2,000 Lighting 5,000 Depreciation on equipment 10,000 Insurance on equipment 1,000 The following basis of apportionments are available : Direct labour cost Machine hours Floor area sq. feet Direct labour hours Effective horse power Number of employees Equipment value RM RM Machine shop 21,000 7,000 200 8,000 40 20 30,000 Welding shop 19,000 6,000 400 11,500 30 10 20,000 Assembly shop 10,000 5,000 300 10,500 20 30 20,000 Maintenance - - 50 - 5 20 15,000 Power house - - 50 - 5 20 15,000 50,000 18,000 1,000 30,000 100 100 100,000 It is decided that the cost of the service cost centres should be apportioned as follows : Machine Welding Assembly Maintenance Power House Maintenance (%) 20 50 20 - 10 Power house (%) 20 60 10 10 - You are required to : a) prepare an analysis of the overheads using the basis provided ; b) using the repeated distribution method apportion the service cost centre costs among the production cost centres and service cost centres ; and c) show the under or over recovery of overheads in each department. 6. The information given below relates to the forthcoming period for Puncak Alam Factory operation. There are four cost centres of which two are involved in production and two are service cost centres. Total Production departments Service departments A B Canteen Stores RM RM RM RM RM Allocated costs 70,022 21,328 29,928 8,437 10,329 Other costs : Rent and rates 4,641 Building insurance 3,713 Electricity and gas 6,800 Plant depreciation 28,390 Plant insurance 8,517
DPA30073 pg. 55 Edited :PKBI/JPPKS/DAT Department A B Canteen Store Area occupied (sq. metre) 7,735 6,188 1,547 3,094 Plant at cost (RM) 1,845 852 142 Number of employees 600 300 Machine hours 27,200 800 Direct labour hours 6,800 18,000 Number of store requisitions 27,400 3,400 During the period Job 847 was produced. Information relating to Job 847 is as follows : Direct material costs RM487 Direct labour cost RM317 Machine hour in department A 195 hours Direct labour department B 102 hours At the end of the period the actual results have been gathered as follows : Department A Department B Overhead incurred (RM) 70,483 52,874 Direct labour hours 6,740 18,300 Machine hours 27,900 850 Requied : a) prepare a statement showing apportionment of overheads. Calculate production overhead absorption rates for department A and B using appropriate basis. b) calculate total overhead absorbed to Job 847 (using overhead absorption rate in (a)) c) calculate the over or under absorption of overhead for each department. 7. A manufacturing company has two service cost centres and two production cost centres. Maintenance Department and Canteen Department are the service cost centres, while the Assembly Department and the Machining Department are the production cost centres. The budgeted overhead costs for period 2 are as follows : Maintenance RM90,000 Canteen 171,000 Assembly 378,000 Machining 328,000 The following additional information for period 2 is also available : Assembly Machining Maintenance Canteen Direct labour hours 80,000 40,000 - - Floor space occupied 40% 30% 10% 20% Machine hours 25,000 50,000 - - Number of employees 200 150 50 20 The overhead costs are re-apportioned to production cost centres using machine hours for Maintenance Department and number of employees for Canteen Department.
DPA30073 pg. 56 Edited :PKBI/JPPKS/DAT The actual production overhead incurred and activities for period 2 are as follows : Assembly Machining Production overhead (RM) 400,000 425,000 Direct labour hours 52,000 25,000 Machine hours 15,000 48,000 Required : a) calculate predetermined overhead absorption rates (to two decimal places) for Assembly Department and Machining Department using direct labour hours and machine hours respectively. b) calculate any over or under absorbed of the overhead for period 2. 8. Rempahku Sdn Bhd produces two types of processed mixed spices namely RempahBif and RempahYam. The mixed spices are processed in two (2) production departments namely the Grinding department and Mixing department. They are packed in special five-kilogram packets and are sold to both the domestic and export markets. The following budgeted and actual data relates to the first quarter of year 2008 : Departments Grinding Dept. Mixing Dept. Budgeted overhead RM350,000 RM420,000 Budgeted machine hours 100,000 140,000 Budgeted direct wages RM232,000 RM560,000 Actual overhead incurred RM330,000 RM393,000 Machine hours worked 94,000 145,000 Direct wages incurred RM250,000 RM525,000 Overhead absorption basis Machine hours Percentage of direct wages Additional information : RempahBif RempahYam Production (packets) 2,100 2,400 Cost per packet : Direct material (RM) Direct labour – Grinding (RM) Direct labour – Mixing (RM) 30 15 24 25 20 26 Machine hours per packet : Grinding Department Mixing Department 4 3 5 4 Profit 40% on cost 30% on selling price Required : a) calculate the pre-determined absorption rate for the Grinding Department and Mixing Department b) determine the over or under absorption of overhead for each department
DPA30073 pg. 57 Edited :PKBI/JPPKS/DAT c) calculate the production cost and selling price of one packet of RempahBif and RempahYam 9. Syarikat MYBABY, a manufacturing company, has five cost centres : three production departments – A, B and C and two service departments – X and Y. The following are the budgeted costs for the month of July 2022 : DEPARTMENT / EXPENSES Total (RM) A B C X Y Indirect materials 280,000 10,000 200,000 40,000 20,000 10,000 Indirect labour 180,000 50,000 20,000 80,000 10,000 20,000 Machine maintenance 1,400 Insurance of emplyees 4,200 Canteen administration expenses 5,400 Rates 12,600 Depreciation - machine 6,500 Other information : Department A B C X Y Floor space occupied (sq. metre) 400 350 200 50 100 Number of employees 40 30 30 8 2 Value of machine 150,000 120,000 130,000 40,000 0 Machine hours 7,500 4,500 5,500 0 0 It is decided that the cost of the service cost centres should be apportioned as follows : Department A B C X Y Department X 45% 15% 30% 0% 10% Department Y 60% 35% 5% 0% 0% You are requied to : a) prepare a statement showing apportionment of overheads to all departments. b) using the repeated distribution method apportion the service cost centre costs among the production cost centres and service cost centres. c) Give is the meaning of primary distribution and secondary distribution.
DPA30073 pg. 58 Edited :PKBI/JPPKS/DAT 10. Nilam Purnama produced silk in Kota Marudu, generate 3 departments to distribute their overhead namely Sutera Idaman, Sutera Harapan and Sutera Gemilang. The following are the allocated costs : Sutera Idaman Sutera Harapan Sutera Gemilang Materials RM40,000 RM30,000 RM25,000 Labour RM120,000 RM60,000 RM75,000 Depreciation - machine RM10,000 RM8,000 RM15,000 Other costs to be apportioned to departments based on appropriate basis : Rent RM120,000 Insurance of machine 20,000 Canteen expenditures 32,000 Electricity and power 15,000 Additional information : Sutera Idaman Sutera Harapan Sutera Gemilang Floor space 1,500 sq. metre 2,200 sq. metre 2,800 sq. metre Net book value of machine RM30,000 RM28,000 RM35,000 Number of employees 30 20 25 Labour hours 106,000 hours 84,000 hours 72,000 hours Rate per hour RM3.50 RM3.50 RM3.00 Required : a) prepare Overhead Cost Statement. b) calculate overhead absorption rate per hour based on labour hour.
DPA30073 pg. 59 Edited :PKBI/JPPKS/DAT 11.Syarikat Edenlife Sdn. Bhd has five cost centre – three production departments and two service departments. Budgeted manufacturing overhead for the company beginning 1 January 2003 is as follows: Indirect Materials RM’000 Indirect Labour RM’000 Allocated overhead : (P1) Machine no. 1 274 750 (P2) Machine no. 2 326 900 (P3) Installation 170 380 (S1) Material Service 38 230 (S2) Labour Service 22 130 830 2,390 Overhead to be apportioned : RM’000 Insurance (building) 60 Insurance (machine) 180 Depreciation (machine) 900 Rent and rates 300 Power 120 Electricity 120 1,680 It is decided that the overheads should be apportioned to cost centres by percentage as follows : Cost Centre P1 P2 P3 S1 S2 Net book value of machine 35 45 15 5 - Floor space (sq. feet) 25 30 20 15 10 Store production value 40 50 10 - - Power used 40 45 10 5 - Number of employees 35 45 20 - - Budgeted production capacity : Machine hour (‘000) 600 800 - Labour hour (‘000) - - 450 You are required to : a) prepare Overhead Analysis Statement to 5 cost centres.
DPA30073 pg. 60 Edited :PKBI/JPPKS/DAT b) distribute the service cost centre costs among the production cost centres and service cost centres. c) calculate the overhead absorption rate for 3 production departments 1. Mila and Milna has three production departments, Stamping, Machining and Finishing and one service department which is responsible for maintenance. The following actual data was recorded for month of July: Overhead expenses Stamping (RM) Machining (RM) Finishing (RM) Maintenance (RM) Indirect material 2,700 2,300 2,470 2,100 Indirect wages 3,400 2,500 3,250 3,100 Maintenance wages 3,500 2,100 1,400 1,000 Depreciation 2,100 3,400 1,300 1,400 Rent and rates 1,200 1,100 900 800 Supervision 3,500 2,800 4,000 2,200 Light and heat 600 580 400 480 Actual machine hour 1,450 hours 2,080 hours 1,960 hours - At the end of each month, maintenance department overhead is apportioned to production departments on the basis of maintenance wages incurred in those departments. All production cost centre overhead is absorbed on a machine hour basis. The following budgeted data had been prepared for month of July: Stamping Machining Finishing Budgeted Overhead RM22,500 RM18,000 RM15,200 Budgeted Machine Hours 1,500 hours 2,000 hours 1,900 hours You are required: a) Calculate the budgeted overhead absorption rates for each production departments. b) Prepare a statement to show the actual overhead incurred by each production department inclusive of the charge from the maintenance department. c) Calculate the amount of overhead over or under-absorbed by each production department for the month of July.
DPA30073 pg. 61 Edited :PKBI/JPPKS/DAT 2.4 Activity based Costing (ABC) 2.4.1 Describe Activity Based Costing (ABC) ❖ ABC is a Costing Method whereby overhead costs are assigned to activities, instead of assigning them to products and services. ❖ ABC is a technique that allocates overheads based on the activities that drives the costs. ❖ ABC is based on the concept that products consume activities. ❖ Activities may also known as processes, tasks or functions undertaken for certain period of time and for production purposes. ❖ These activities consume resources to produce goods or provide services. ❖ These resources ❖ An ABC system assigns overheads to each major activity where each activity is treated as a cost pool. ❖ A cost pool is the pooling of overhead cost into individual activities which include both productions and support activities. In other word, cost pools refer to the classification of overhead. ❖ The cost from each activity is charged to the product through the use of cost drivers. 2.4.2 Identify appropriate cost drivers under ABC ✓ Is an activity which generates cost ✓ Each activity has a cost driver which is used as a basis of charging overheads to cost units Volume based cost drivers ✓ Direct labour hours ✓ Machine hours ✓ Material processed Transaction based cost drivers ✓ Cost drivers usually used for support activities ✓ Examples: Cost Activity Cost Driver Order costs No of orderes placed Set-up costs No of production runs Inspection costs No of inspections 2.4.3 Calculate costs per driver and per unit using ABC The basics of the ABC system are as follows:
DPA30073 pg. 62 Edited :PKBI/JPPKS/DAT i) Recognizing a few classifications of major activities and pooling their cost. - Cost pools are the groups of overhead costs of various categories in which the costs can be associated with the activities. For example; inspection costs, machining costs and setting up costs. ii) Establishing the cost drivers - Cost driver or activity driver is the unit of an activity that causes the change of an activity cost. A cost driver rate is the rate of overheads expressed in terms of units of activities that will be charged to the products and services. iii) Cost driver rate is a predetermined rate for each cost pool that must be calculated as follows: Cost driver rate = Cost pool ---------------------- Basis of activity driver iv) Application of costs to products and services - Once the cost driver rate is calculated, it is multiplied by the consumption rate of the cost driver. v) The total derived as above will then be divided by the volume of products or services, in order to get the overhead rate per unit for the particular cost driver. Figure 2.4.3.1 Steps for designing ABC 2.4.4 Compare ABC and traditional methods of overhead absorption based on production units, labour hours or machine hours Traditional Methods ABC Method ⚫ Identify overhead cost ⚫ Identify acitvities that cause costs ⚫ Allocate and apportion cost to cost centres using suitable basis of apportionment ⚫ Identify appropriate cost drivers ⚫ Measure using volume related sources ⚫ Group similar cost drivers to cost pools ⚫ Identify relationship between overhead and the volume related resources and absorb to cost units ⚫ Include the cost of activties to cost units according to the product’s consumption of each activity 2.4.5 Explain the advantages, limitations and benefits of implementing ABC system Advantages Disadvantages ⚫ Where the production processes are far more complex, ABC applies multiple cost drivers to ascertain more reliable product costs ⚫ Difficulties in ascertaining the most appropriate cost driver Identify activities and cost classification Trace costs to the pools Relate activities to the cost drivers and then to the rate Total up the costs and show new costs under the new classification
DPA30073 pg. 63 Edited :PKBI/JPPKS/DAT ⚫ ABC has provided an opportunity to trace the costs to activities that cause the costs ⚫ Grouping of costs into cost pools associated to a particular driver ⚫ Where the cost plus pricing decisions are used, ABC provides a more reliable cost data ⚫ Implementation involves expertise and high costs ⚫ ABC use large amount of historic data and may restrict future decision REVIEW QUESTION 1. Awesome Water Sdn Bhd is involved in manufacturing two drinking water dispenser products. The company’s production plant is located in Sri Aman, Sarawak. It has been adopting a traditional method in allocating overhead costs to each product by using a machine hour basis. Recently, the company is facing intense competition from its competitors. In order to overcome the problem, the management is planning to adopt the Activity-based Costing. The following information is gathered to enable the implementation of the new costing method. Awesome Healthy Water (AHW) Awesome Clear Water (ACW) Annual production 60,000 20,000 Direct material cost per unit (RM) 250 280 Direct labour cost per unit (RM) 60 50 Machine hours per unit 2 hours 1 hours Direct labour hours per unit 4 hours 5 hours Number of production runs 400 200 Number of deliveries 300 100 Number of quality inspections 60 40 Activity Cost Driver Amount of overheads (RM) Machine set-up Number of production runs 84,000 Machining Machine hours 1,400,000 Packaging Number of deliveries 120,000 Quality Control Number of quality inspections 35,000 Total overhead costs 1,639,000
DPA30073 pg. 64 Edited :PKBI/JPPKS/DAT Required: a) Compute the cost driver rate for each activity using the Activity-based Costing (ABC) system. b) Under the Activity-based costing method, calculate the product cost per unit for Awesome Healthy Water (AHW). c) Evaluate the cost per unit of Awesome Healthy Water (AHW) product under the traditional costing system and ABC system. d) Suggest TWO (2) limitations of ABC system. 2. The budgeted manufacturing overhead costs of B-Best Factory for the year 2019 are as follows: Overhead cost pools RM Cost drivers Total usage of drivers Usage of drivers for Product M Purchasing 570,000 No. of orders 300 150 Setting up machine 95,000 No of set-ups 950 400 Quality control 230,000 No of checks 2,000 1,200 Total 895,000 In the last five years, the business used the basis of direct labour hours to charge overhead. In the year 2018, the budgeted direct labour hours are 100,000 and the budgeted production of Product M is 10,000 units. Required: a) Calculate the appropriate absorption rates using traditional and ABC method. b) What is the product cost per unit if the direct material cost is RM50 per unit and direct labour is 2 hours per unit at RM15 per unit, under traditional and ABC methods? 3. The Karkee Co produces three product A, B and C, all mad from the same material. Until now, it has used traditional absorption costing to allocate overhead to its products. The company is now considering an activity based costing system in the hope that it will improve profitability. Information for the three products for the last year is an follows: A B C Production and sales volumes (units) 15,000 12,000 18,000 Selling price per unit RM 7.50 RM 12.00 RM 13.00 Raw material usage (kg) per unit 2 3 4
DPA30073 pg. 65 Edited :PKBI/JPPKS/DAT Direct labour hours per unit 0.1 0.15 0.20 Machine hours per unit 0.5 0.7 0.9 Number of production runs per annum 16 12 8 Number of purchase order per annum 24 28 42 Number of deliveries to retailers per annum 48 30 62 The price for raw materials remained constant throughout the year at RM1.20 per kg. Similarity, the direct labour cost for the whole workforce was RM14.80 per hour. The annual overhead costs were as follows: Machine set up costs RM 26,550 Machine running costs RM 66,400 Procurement costs RM 48,000 Delivery costs RM 54,320 Required; a) Calculate the full cost per unit for products A, B and C under traditional absorption costing, using direct labour hours as the basis for apportionment. b) Calculate the full cost per unit of each product using activity based costing. c) Using your calculation from (a) and (b) above, explain how activity based costing may help The Karkee Co improve the profitability of each product. 4. Batu Bata Co (BBC) is a building business that provides a range of building services to the public. Recently they have been asked to quote for garage conversions (GC) and extension to properties (EX) and have found that they are winning fewer GC contracts than expected. BBC has a policy to price all jobs at budgeted total cost plus 50%. Overhead are currently absorbed on a labour hour basis. BBC thinks that a switch to activity based costing (ABC) to absorb overhead would reduce the cost associated to GC and hence make them more competitive. Information provided as follows: Annual overhead (RM) Supervisors 90,000 Planners 70,000 Property related 240,000 Total 400,000 Activity driver: Total number of activities per year Site visits 500 Planning documents 250
DPA30073 pg. 66 Edited :PKBI/JPPKS/DAT Labour hours 40,000 A typical GC cost RM3,500 in materials and takes 300 labour hours to complete. A GC requires only one site visit by a supervisor and needs only one planning document to be raised. The typical EX costs RM8,000 in materials and takes 500 hours to complete. An EX requires six site visit and five planning documents. In all cases labour is paid RM15 per hour. Required: a) Calculate the cost and quoted price of a GC and of an EX using labour hours to absorb the overheads. b) Calculate the cost and quoted price of a GC and of an EX using ABC to absorb the overheads. 5. Bracho Company, which manufacturers ceramic containers is divided into three (3) production department: A, B and C. The information below has been extracted from the actual cost for 31 December 2022. Basic of Apportionment A B C Area (sq. feet) 2,000 1,500 500 Number of direct workers 100 50 50 Actual usage (KW hours) 50,000 40,000 10,000 Hours spent 20,000 20,000 10,000 Cost of machinery (RM) 20,000 20,000 10,000 Overhead Total Cost (RM) Repair and maintenance 1,500 Rental 2,000 Depreciation 5,000 Supervisor salary 1,000 Electricity 2,000 (i) You are required to calculate the total overhead costs for each production department (ii) Activity-based costing (ABC) is a methodology for allocating overhead costs by assigning them to activities. Write THREE (3) advantages of ABC. 6. The budgeted manufacturing overhead costs of Farm Bestary factory for the year 2022 are as follows. Overhead cost pools RM Cost Driver Total usage of drivers Usage of drivers for product Micky Purchasing 580,000 No of order 320 160 Setting up machine 100,000 No of set-ups 1,000 450 Quality control 250,000 No of checks 2,000 1,500 Total 930,000
DPA30073 pg. 67 Edited :PKBI/JPPKS/DAT In the last five years, the business used the basis of direct labour hours to charge overhead. In the year 2022, the budgeted direct labour hours is 120,000 hours and the budgeted production of Product Micky is 12,000 units. You are required to: (i) Calculate the appropriate absorption rates using Traditional and Activity Based Costing Methods (ii) Compute product cost per unit if the direct materials cost is RM60 per unit and direct labour is 2 hours per unit at RM12 per hour, under traditional and Activity Based Costing (ABC) method.
DPA30073 pg. 68 Edited :PKBI/JPPKS/DAT CHAPTER 3: COSTING METHODS 3.0 Introduction As stated earlier, the term ‛costing’ refers to the techniques and processes of determining cost of a product manufactured or service rendered. Different methods are applied in business enterprises to ascertain cost depending upon the nature of the product, production method and specific business conditions. The following are some of the principal methods of costing. 3.1 Job and Batch Costing 3.1.1 Define Job and Batch Costing The CIMA defines the method as ‛the category of basic costing methods applicable where work consists of separate contracts, jobs or batches, each of which is authorized by a special order or contract’. Within this category falls: a) Job Costing This method is used when work is done according to customer’s order. Each job is often of a short duration. Work must be planned and scheduled because there is no predetermine pattern of work. This method is popular among enterprises that are engaged in house building, ships-building, machinery production and repair. In job costing all cost of directly charge to the specific job of the product. Examples: repair and maintenance work b) Batch costing Batch costing is based on the concept of contract costing. This method is used to determine the cost of a group of identical or similar products. The batch consisting of similar products refers to the unit and not the single item within the batch. This method can be usefully applied for the production of nuts and bolts, components and other items which are manufactured in distinct batches. Applicable to furniture, manufacturing, clothing and components 3.1.2 Explain the features and steps involved in job and batch costing. After you have understand the definition of job costing, now we move to characteristics of job order costing. The following special features using the job order costing. a) Work is undertaken based on a customer’s own specification. b) Production is for customer order and not for maintaining stock. c) Under the job costing systems, direct material and direct labour costs are identified with and charged to specific jobs on which they are incurred.
DPA30073 pg. 69 Edited :PKBI/JPPKS/DAT Indirect manufacturing cost which cannot be traced to specific jobs are apportioned among the jobs worked on during the period through a predetermined overhead rate. d) Unit cost is computed by dividing total manufacturing costs per job order by the number of good units produced. Cost of a units can be a job order, an individual unit or even a batch of a product. e) Job cost sheets can be used to control efficiency and estimate future work. f) Each job cost sheets have a number of the job. Steps involved in Job Order Costing A job order costing involves the following process: Figure 3.1.2.1 Steps involved in Job Order Costing 3.1.3 Identify source documents used in the job costing The focal point of a job order cost system is the cost sheet on which charges for direct materials, direct labour, and indirect manufacturing costs can be accumulated as work on a job order progresses. 1. The potential customer makes a request for a job to be done indicating clearly all the requirements 2. The specific details of the job order, such as the quantity, quality, size, colour, date of delivery and any other special requirements are discussed with the customer and agreed upon. The production planning department prepares an appropriate design for the job as 3. The production planning department then decides on the series of operations to carry out the job and assigns the job to the relevant machines or departments. 4. The estimated job cost is calculated based on the expected usage of materials, labour, overhead costs and any other specific cost for job. 5. The job starts once the customer agrees to the quoted selling price. 6. All relevant costs related to the job are included in a specific job cost card (job cost sheet) bearing the job order number.
DPA30073 pg. 70 Edited :PKBI/JPPKS/DAT i) Production Order Each order received is given a production or work order number by the production control department. Instructions will be issued to the factory by means of a production order to complete the job or other according to the job specification prepared by the production control department. The production orders may be oral instructions (as in small business) or detailed written instructions. The instructions may contain the date the order was prepared, job other number, number of units to be made and their description, date to start and complete work, materials required, sequence of production operation and authorized signature (see figure 3.1.1). The production order number is a means of identifying costs relating to an order. PRODUCTION ORDER Order No : Date to commence: Machine No : Date promised: Account No : Date completed: Operation No : Quantity required: Department No : Material Required Parts Labour Quantity Name Number Hours Work Detail Estimate RM Material………… Labour………….. Overhead……….. Description Inspected Total……………. Signature Date Figure 3.1.1 : Production Order ii) During Production Process During a production order, a cost sheet identified by a job number is set up in the accounting department. It is in summary form. It also records the job number and other specifications and descriptive information as given in the production order.
DPA30073 pg. 71 Edited :PKBI/JPPKS/DAT The cost sheet that has been designed to record and summarize cost is grouped under three major headings: material costs, labor costs and applied manufacturing overhead costs. A job cost account is prepared by the cost office. The job cost account will record the materials and wages incurred. Figure 3.1.2 presents a specimen of a job cost sheet. Date Ref. Dept Material Labour Overhea d RM Misc. RM Total cost Remark Qty RM Hrs RM s Estimate Summary Material xx Labour xx Overhead xx Misc. xx Total cost xx Price xx Profit xx Actual xx xx xx xx xx xx xx Signature: Date: Figure 3.1.2 : Job Cost Card iii) Production Completed When the job is, a finished goods note should be prepared by the production department. Work is usually inspected by an inspector. Thee finished job is sent to the store. The finished goods note is sent to the cost office. The job cost account will then be closed. The cost is then transferred to the cost of sales account. The job must absorb the production, administration, selling and distributions overhead. The profit or loss on the job is then calculated
DPA30073 pg. 72 Edited :PKBI/JPPKS/DAT 3.1.4 Determine of unit cost and pricing under both method Job Cost Card From the information below, we will determine the selling price to be charged by using job cost card. Example 3.1.4 Andrew Manufacturing Co, Ltd. produces grinding machines. A customer has asked Andrew Manufacturing Co, Ltd to quote a price for making the machine. The following estimates were available : Direct material cost RM500 Direct wages: Machining 300 hours at 50 cents. Assembling 200 hours at 25 cents. Overhead is absorbed at 20 cents per direct labour hour. Selling and distribution overhead is 25% of production cost Profit is 25% of total cost. Prepare the job cost card indicating to be quoted. Solution to example 3.1.4 : JOB COST CARD Name of customer: Commenced: Particulars: Completed: Order No: RM Direct material cost 500 Dire ct wages : Machining 300 hours × RM0.50 = RM 150 Assembling 200 hours × RM0.25 = RM 50 500 hours RM200 200 Production overhead : 500 hours at RM0.20 100 Production cost 800 Selling and distribution overhead: 25% × RM800 _200 Total cost 1,000 Profit 25% × RM1,00 0 250 Selling price 1,250
DPA30073 pg. 73 Edited :PKBI/JPPKS/DAT Illustration of Batch Costing A printing firm is purposing offering a leaflet advertising service to local traders. The following costs have been estimated for a batch of 10,000 leaflets: Setting up machine 8 hours at RM8 per hour Artwork RM22 per batch Paper RM2 per 100 sheets Other printing materials RM110 Direct labour costs 10 hours at RM12 per hour Fixed overhead allocated is RM2,000 per annum and recovered on the basis of order received, which are expected to be 2 per week for 50 weeksin a year The management requires 15% profit on selling price Required: (a) The individual cost per leaflet at the various batch quantities (b) A price to be quoted for 1,000 leaflets: for batches of 2000, 5000, 10000 and 20000 leaflets. Solution: Batches of Leaflet 2,000 5,000 10,000 20,000 Setting up machine 64 64 64 64 Artwork 22 22 22 22 Paper 40 100 200 400 Other printing materials 22 55 110 220 Direct labour costs 24 60 120 240 Fixed overhead 20 20 20 20 Total costs 192 321 536 966 Profit 15% on sales 33.88 56.64 94.59 170.47 Sales 225.88 377.64 630.59 1,136.47 (a) Cost per leaflet RM0.096 RM0.064 RM0.054 RM0.048 (b) Price per 1000 leaflet 112.94 75.53 63.06 56.82 Working for Fixed Overhead = RM2000 / 100 orders = RM20/order Number of Order = 2 orders per week X 50 weeks = 100 orders
DPA30073 pg. 74 Edited :PKBI/JPPKS/DAT TEACHING AND LEARNING ACTIVITY: PRACTICAL SESSION 1. Top Ten Group manufactures equipments for the local market. The data for the period ended 30 September 2006 is as follows : Machining Department Finishing Department Budgeted overhead RM130,000 RM100,000 Actual direct labour hours 10,000 hours 12,000 hours Budgeted direct labour hours 10,500 hours 12,500 hours Actual machine hours 13,800 hours 9,500 hours Budgeted machine hours 13,000 hours 9,000 hours Basis of overhead absorption rate Machine hours Direct labour hours During the first quarter of year 2006, the company received two orders for Job no 68 and Job no 69. The following data relates to the two jobs : Job no 68 Job no 69 Direct material : A110 B120 RM3,000 RM4,200 RM3,200 RM4,400 Direct labour : Machining (RM2.50/hour) Finishing (RM3.20/hour) 1,000 hours 900 hours 1,100 hours 1,030 hours Hire of special machine RM2,400 - Administrative expenses 15% of factory cost 20% of factory cost Machine hours : Machining Finishing 642 hours 500 hours 728 hours 515 hours Profit 20% on selling price 25% on total cost You are required to prepare job cost sheet showing the prime cost, total cost and selling price for Job no 68 and Job no 69. 2. Annie Tailor is a company which directly involve in a tailoring business. The business has 3 departments consist of measuring, cutting and sewing. Budgeted production overhead for the year 2008 is as follows : Departments Measuring Cutting Sewing Overhead RM5,940 RM7,700 RM14,000 Overhead Absorption 1,800 labour hour 2,200 labour hour 2,800 machine hour There are also fixed expenses which are considered as administrative overhead and need to be paid every month: Salary for supervisor RM1,100 Rental 500
DPA30073 pg. 75 Edited :PKBI/JPPKS/DAT In May 2008, the business received special order from a boutique to produce 400 baju kurung and the special order no is BK1510. The information regarding BK1510 is as follows : Departments Measuring Cutting Sewing Direct material - - RM24,000 Direct wages per hour RM3.35 RM3.50 RM5.25 Labour hours 200 400 1,800 Machine hours - - 800 For the order, the business hire special printing sewing machine RM200. Selling and distribution expenses charged based on 5% of prime cost. You are required to: a) calculate the overhead absorb for each department. (3 marks) b) prepare the Cost Statement for job order No. BK1510 (18 marks) c) calculate the selling price for each baju kurung if the required profit margin is 20% over the total cost. (4 marks) 3. Citra Nusa Co. produce glove for local hospital in Klang area. They have two production departments in the production process. Design Department is responsible to produce the glove while Inspection Department is responsible to check whether the glove produced meet the requirement set by their customers. Below is the estimated cost incurred by Citra Nusa Co. for the year 2009. Design Department Inspection Department Direct wages RM72,000 RM160,000 Overhead RM150,000 RM55,000 Labour hours 25,000 31,200 Machine hours 7,800 5,500 Citra Nusa Co. is using overhead absorption rate in order to allocate the cost of overhead for each department. Overhead for Design Department is absorb based on labour hour while overhead for Inspection Department is absorb based on machine hour. In March 2009, Citra Nusa Co. received order from Klang Hospital to produce 500,000 gloves and the following is information regarding the order:
DPA30073 pg. 76 Edited :PKBI/JPPKS/DAT Design Department Inspection Department Direct material RM172,000 RM260,000 Direct wages RM275,000 RM115,000 Labour hours 27,600 30,100 Machine hours 8,700 6,100 You are required to calculate: i) The overhead absorption rate for each department and the overhead absorb for the order received by Citra Nusa Co. in March 2009. (11 marks) ii) The total cost for the order above. (7 marks) iii) If Citra Nusa Co. targeted 20% profit margin from the total cost, calculate the selling price for each unit glove that will be charged to Klang Hospital. (7 marks) 4. Syarikat Andalusia Tsunami Backery manufactures cakes and cookies. The budgeted overhead for year 2005 as follows : Department Budgeted Overhead Overhead Absorption Mixing RM15,000 5,000 labour hours Moulding RM20,000 5,000 labour hours Baking RM24,000 6,000 labour hours Decorating RM8,000 500 labour hours The business received order from a company to produce 1,500 marble cakes and this special order had been numbered as KM 2735. The cost related to the order as follows : Raw materials RM2,250 Labour : 80 hours at Mixing Department @ RM1.50/hour 100 hours at Moulding Department @ RM1.00/hour 200 hours at Baking Department @ RM2.00/hour 50 hours at Decorating Department @ RM0.50/hour The business have to pay RM1,000 for special hire of machine for moulding. Time taken for moulding was 42 machine hours. You are required to calculate : 1. manufacturing cost and total cost 2. cost per unit for the order 3. profit if sales price was RM6.00 per unit (25 marks)
DPA30073 pg. 77 Edited :PKBI/JPPKS/DAT 5. Syarikat Indahtulisan produced stationeries. The company has 3 production departments and 2 service departments. The following is the budgeted expenses for the production : Item PRODUCTION DEPARTMENT SERVICE DEPARTMENT I II III A B Indirect materials RM7,000 RM5,000 RM8,500 RM1,500 RM2,000 Indirect labour RM5,000 RM2,500 RM6,500 RM2,500 RM3,000 Materials RM13,500 RM14,000 RM12,500 Direct labour RM15,000 RM9,500 RM19,000 Depreciation RM2,000 RM3,900 RM2,000 RM700 RM1,000 Direct labour hour 4,000 hours 4,000 hours 4,000 hours Maintenance RM1,500 RM1,000 RM2,000 RM800 RM1,000 Overhead cost at service departments distribute to production departments as follows : PRODUCTION DEPARTMENT SERVICE DEPARTMENT I II III A B Production Department A 45% 15% 30% - 10% Production Department B 20% 35% 25% 20% - The company used step method for re-distribute the overhead cost from service department. Overhead for Production Department absorbed based on percentage of labour cost. You are required to : a) determined production overhead cost after re-distribute the overhead cost from Service Department. (11 marks) b) determined overhead absorbed for each Production Department. (4 marks) c) calculate the total cost for order no. KR678 based on the following data : Raw materials Production Department I RM3,500 Production Department II 4,000 Production Department III 2,500 Direct Labour Production Department I 5,000 Production Department II 3,000 Production Department III 6,000 Carriage cost 1,500 (8½ marks) d) calculate the selling price for order no. KR678 if profit targeted was 20% (1½ marks)
DPA30073 pg. 78 Edited :PKBI/JPPKS/DAT 6. Sporty Wear Co. sold and received order for sport wears. The company has 2 production departments responsible for all orders. The following are the budget for year 2005 : Department A Department B Manufacturing overhead RM80,000 RM100,000 Direct labour RM120,000 RM150,000 Direct labour hour 20,000 hours 40,000 hours Machine hour 16,000 hours 25,000 hours The company used overhead absorption rate to absorb department overhead for all job orders. Overhead for Department A absorbed based on machine hour and direct labour hour for Department B. The company received an order no. K 812. The following related to the order : Department A Department B Raw materials RM6,200 RM4,500 Labour RM8,000 RM7,500 Direct labour hour 80 hours 200 hours Machine hour 300 hours 120 hours Calculate : a) overhead absorption rate for each department and overhead absorbed for order no. K 812. b) total cost for job K 812. c) selling price for order K 812 if profit targeted was 30% from the total cost. (25 marks) 7. Joe Jambul Enterprise produced wood furniture. In the month of June, the company received a special order and it was numbered as 777. The following cost related to the job: Raw materials : Department A RM2,400 Department B RM240 Department C RM60 Direct labour : Department A 30 hours at RM24 per hour Department B 25 hours at RM20 per hour
DPA30073 pg. 79 Edited :PKBI/JPPKS/DAT Department C 10 hours at RM16 per hour Machine hour : Department A 40 hours Department B 30 hours Department C 20 hours Production Overhead Absorption rate Department A RM10 per machine hour Department B RM20 per direct labour hour Department C 20% from Prime Cost Additional information : i. The company hired a well known carpenter for his design and he was paid RM1,600. ii. Administrative, sales and distribution expenses was charged by 20% from manufacturing cost. iii. The profit maintained at 25% from sales price. You are required to prepare Cost Statement and calculate sales price for job order no. 777. (25 marks) 8. Rising Connection Manufacturing Co. uses the basis below to absorb its overhead costs to each job : Department A - Machine hours Department B - Direct labour hours Department c - Direct material costs The company estimates the costs below for the year ended December 2009 : Department A Department B Department C Production overhead (RM) 16,000 22,000 10,000 Direct labour (RM) 7,250 9,200 4,500 Direct material (RM) 6,000 9,500 3,250 Direct labour hours 8,500 10,500 5,000 Machine hours 4,000 6,295 900
DPA30073 pg. 80 Edited :PKBI/JPPKS/DAT Information for Job No. 260 per unit is as follows : Department A Department B Department C Direct material (RM) 4.75 6.25 2.00 Direct labour (RM) 7.50 11.00 4.50 Direct labour hours 5 7 3 Machine hours 3 2 0.5 You are required to : (a) Calculate overhead absorption rate for each department. (b) Calculate total overhead absorbed from each department. (c) Calculate total costs if 50 units are produced. (d) Determine the selling price if profit is 15% on total costs. (25 marks) 9. .Syarikat Assy Raya obtains order to produce item TY07. The company use pre-determine overhead rate to calculate overhead in job order No. TY07-3201. Department MM use labour hour while Department NN use machine hour as a basic overhead absorption rate. The budgeted for both departments is as follow: Department MM Department NN Direct Labour Cost RM180,000 RM60,000 Factory Overhead RM96,000 RM24,000 Direct Labour Hour 24,000 hours 16,000 hours Machine Hour 12,000 hours 12,000 hours Record of job costing for ordering job No. TY07-3201 is: Department MM Department NN Direct Material Cost RM6,000 RM2,000 Direct Labour Cost RM3,600 RM1,200 Direct Labour Hour 120 hours 60 hours Machine Hour 80 hours 40 hours Based on the above information you are required to calculate: a. Overhead rate for each department. (4M) b. Absorption overhead for work No. TY07-3201. (4M) c. Cost per unit if 15 units are produced. (17M)
DPA30073 pg. 81 Edited :PKBI/JPPKS/DAT 3.2 SERVICE COSTING 3.2.1 DEFINE SERVICE COSTING Service costing is used especially where services are rendered and articles are not produced. According to the Institute of Cost and Management Accountant (U.K), operating costing is “that form of operation costing where standardised services are provided either by an undertaking or by a service cost centre within an undertaking”. Service industries include transport, hospital, education, canteen and etc. Objectives of service costing are: 1. to determine what cost is most appropriate for each organization. 2. to accumulate costs under suitable headings and to express them in terms of the unit of service rendered. 3. to calculate the cost that will be charged to each department which is using the service rendered. 4. to compare the cost incurred between similar organizations, e.g between various hospitals, between power stations and other similar organizations if a common cost unit is agreed. 3.2.2 CHARACTERISTICS OF SERVICE COSTING The features of service costing are more or less similar with job order costing, except that it only concerned with services not goods (e.g. architect firm, law firm, dental clinic, accounting firm and workshop). The features are: 1. Services rendered according to the customer’s needs. 2. Service costs are usually collected under variable / running costs and fixed / standing costs. 3. The service costs may be collected for different cost units so that the relevance and utility of cost data could be understood. For example, in hotel cost accounting, fixed charges may be apportioned in accordance with the number of available bed days but variable costs may be ascertained in terms of occupied bed days. 3.2.3 ASCERTAINMENT OF COSTS A particular problem posed in service costing is to define a realistic cost unit that represents a suitable measure of the service provided. Quite often, a composite cost unit is deemed to be seen more relevant. Typical cost units used in service costing are shown below. Service Possible Cost Units Transport Hospitals Electricity Hotels Restaurants Colleges Tonne-Mile, Passenger-Mile, Miles traveled Patient-days, no. of operations Kilowatt-hours Occupied bed-days Meals served Full time equivalent student
DPA30073 pg. 82 Edited :PKBI/JPPKS/DAT 3.2.4 ACCUMULATION OF COSTS In accumulation of costs, each organisation will have to determine what cost is the most appropriate for its own purposes. Whatever cost unit is decided upon, the calculation of the cost per unit is done in a similar fashion to output costing. The average costs of the units of service provided are calculated by dividing the total costs by the total amount of service provided. Cost per service unit = Total costs per period . No. of service units supplied in the period Formula 3.4.1 : Cost per service unit Example 3.2.4.1 Mr. Loba runs a bus service company and he gas five buses. In one year period, there are 20,000 passengers and it runs in all 50,000 kilometers. The total cost of operating in a year is RM25,000,000. You are required to compute the cost per passenger per running mile. Solution to Example 3.2.4.1 Cost per passenger per running mile = Total cost of operating Total passenger x Total running mile = RM 25,000,000 (20,000 x 50,000) = RM0.025 Operating and service total costs are usually collected under the following headings: i. Fixed or standing costs ii. Variable or running costs In service industries, fixed costs constitute a major part of the total costs. Classification of costs into those that are fixed and those that are variable will be useful especially when making decisions, like operating an additional route. Example 3.2.4.2 Easy Transport Company supplies the following details in respect of a 5 tonne truck capacity : Cost of truck RM90,000 Estimated life 10 years Diesel, oil, grease RM15 each way Repairs and maintenance RM500 per month Driver’s wages RM500 per month Cleaner’s wages RM250 per month
DPA30073 pg. 83 Edited :PKBI/JPPKS/DAT Insurance RM4,800 per year Tax RM2,400 per year General supervision charges RM4,800 per year The truck carries goods to and from the city covering a distance of 50 km each way. On outward trip freight is available to the extent of full capacity and on return 20% of capacity. Assuming that the truck runs on an average 25 days a month, work out: a) Operating tonne-km. b) Operating cost tonne-km. c) Rate per tonne per km that the company should charge if a profit of 50% on freight is to be earned. Solution to Example 3.2.4.2 a) Operating tonne-km per month. = 6 tonnes * x 50 km x 25 days = 7,500 tonne-km * [5 tonnes on outward trip and one tonne on return trip (20% of capacity)] OR Outward trip tonne-km 5 x 50 x 25 = 6,250 Inward trip tonne-km 1 x 50 x 25 = 1,250 Total 7,500 b) Easy Transport Company Statement Showing Operating Costs per Truck (tonne-km 7,500) Cost Total Per month costs (RM) (RM) Fixed costs : Driver’s wages 500 Cleaner’s wages 250 Insurance 400 Depreciation (RM9000/10 years / 12 mth) 750 Taxes 200 General supervision 400 2,500 Variable costs : Diesel, oil, grease (RM15 x 25days x 2) 750 Repairs and maintenance 500 1,250 Operating costs 3,750 c) Freight rate: Cost per tonne-km = (RM3,750 / 7,500 km) = RM0.50 Profit (50%) = RM0.50 RM1.00 Freight per trip (both ways 300 tonnes km @ RM 1) = RM 300 (Truck makes only one trip a day – tonne-km covered in a trip would be 7,500 / 25)
DPA30073 pg. 84 Edited :PKBI/JPPKS/DAT ACTIVITY 1. Mr. Rahul owns a fleet of taxis and the following information is available from the records maintained by him: Number of taxis 10 Cost of each taxi RM20,000 Salary of manager RM600 per month Salary of clerk RM500 per month Salary of cleaner RM200 per month Salary of mechanic RM400 per month Garage rent RM600 per month Insurance premium 5% per annum Annual tax RM600 per taxi Driver’s salary RM200 per month per taxi Annual repair RM1,000 per taxi Total life of a taxi is about 200,000km. A taxi runs in all 3,000 km in a month of which 30% it runs empty. Petrol consumption is one litre for 10 km @ RM 1.80 per liter. Oil and other sundries are RM5 per 100km. Calculate the cost of running a taxi per kilometer. 2. A 20 HP unit is required to drive a pump for watering an agricultural farm. Two plans A and B for supplying power are under consideration. A B Purchase and installation RM10,000 RM4,000 Lifer in years 4 4 Salvage value RM1,000 - Interest on capital 10% 10% Maintenance: per year RM3,000 - per hour - RM0.50 Operating wages per hour RM0.20 RM0.60 Power per hour RM1.00 - Fuel and oil per hour - RM2.00 Assuming that about 3 million litres of water is to be pumped in a year and that the pump will give out about 1,000 litres in an hour. You are required to calculate the cost per 1,000 litres of water under both plans.
DPA30073 pg. 85 Edited :PKBI/JPPKS/DAT 3. Yamashita Ltd. make deliveries by van, the return journey being unladen. The following information on the month of July is available : Days operated 24 Total trips made 48 Total km covered 960 Total tonnage covered 720 The operating costs for July were as follows : Fuel and lubricant RM36 Wages – Driver 90 Assistant 48 Mechanical 18 Estimated cost for the year (288 operating days) were : Insurance, tax, etc. RM312 Maintenance 180 Administration 420 Depreciation 240 Prepare an operating cost statement for July in respect of the van, making due allowance for an equitable share of the annual costs and showing the following unit costs : a) cost per tonne - kilometre b) cost per kilometre ; and c) cost per day operated 4. Below are the data for a vehicle owed by Sri Harum Bhd. Cost of motor car RM55,000 Salvage value of the car after 10 years 10,000 Maintenance for every 5,000 kilometres 100 Spare/replacement parts for every 5,000 kilometres 200 Road tax per annum 230 Insurance per annum 1,050 Tyre replacement after every 20,000 kilometres (per tyre) 250 Petrol per liter 1.92 (average mileage for one liter is 15 kilometre) Requied : From the data above you are required to calculate the following cost for 40,000 kilometres traivelled per annum. (calculate to the nearest cents) i) total variable cost ii) total fixed cost
DPA30073 pg. 86 Edited :PKBI/JPPKS/DAT iii) total cost iv) variable cost per kilometre v) fixed cost per kilometre vi) total cost per kilometer 5. Maju Transport Co. have a palm oil tanker trucks. Trucks are used to transport oil from the oil refining center to a palm oil factory that distance about 200 km from the center. The refining center has set the payment was RM1,200 for one trip to the oil palm factory. In March 2003, the company has been transporting palm oil by 15 trips. Operating costs for the month are as follows: Fuel RM2,000 Lubricants 500 Maintenance 1,500 Repair 705 Tyres (10 units) 150 per tyre Other costs are composed of fixed costs as follows : Truck insurance RM1,200 per year Road tax 600 per year Truck licence 360 per year Driver’s wages 1,000 per month Driver’s assistant wages 700 per month Garage rent 1,000 per month Other information about the lorries are : Purchase price RM208,000 Useful life 10 years Scrap value RM40,000 You are required to calculate : a) the total cost for one trip for the month of March 2003. b) profit acquired by Maju Transport Co in March 2003. 6. Kuching Transportation Sdn. Bhd. has 3 units of buses that provide service to students around Kuching. A bus load of students is 45 peoples. The following information obtained for the operation of these buses: Driver’s salary (per driver) RM1,160 per month Driver’s assistant salary (per driver) RM700 per month Cleaner’s wages (for 3 buses) RM350 per month Annual licence and road tax RM1,720 per bus Annual insurance RM1,920 per bus Maintenance and repair (per year) RM3,840 per bus Purchase price per bus RM150,000
DPA30073 pg. 87 Edited :PKBI/JPPKS/DAT Scrap value per bus RM30,000 Bus useful life 10 years Diesel expenses per month RM225 per bus Required : i) prepare Operation Cost Statement for a month for the 3 buses ii)calculate the cost will be charged to a student per month 7. Takeshita Sdn. Bhd. is a logistic company which send and fetch operators within Kuching. The company have 10 vans to operate its business. Below is the information for each van for the month of June 2008. Total distance 4,800 km Diesel cost RM1.50 per litre 1 litre diesel for every 20 km Salary for van driver RM1,300 Salary for van attendance RM800 Repair and service RM655 General expenses RM280 Other relevant informations : Cost per van RM70,700 Useful life per van 15 years Scrap value per van RM5,000 Road tax per van RM240 Annual insurance per van RM1,620 Cost per tyre RM150 Each van use 4 tyres and the tyres will be replaces twice in a year which is every 6 months. You are required to prepare Operation Cost Statement for 10 vans for the month of June 2008. 8. A passenger transport company operates four coaches, each with a capacity for 25 passengers. The company operates on two routes with two coaches on each route. Each coach on Route A completes 12 journeys per day and on Route B 10 journeys per day. The coaches operate for six days per week and for 52 weeks per year. The company is analysing performance on each route and has gathered the following route data for the last 52 weeks: Route A Route B Average number of passengers per journey 13 11 Average fare paid per passenger, per journey RM 2.26 RM 2.80 Route length per journey (kilometres) 14 19 Operating cost data for the last 52 week period is as follows:
DPA30073 pg. 88 Edited :PKBI/JPPKS/DAT Drivers’ wages: RM110 per coach per working day Fuel and maintenance : RM0.8932 per kilometre Vehicle tax and insurance : RM3,870 per coach for the period Apportioned fixed costs : RM21,760 per route for the period Required: Calculate, for the 52 week period, the: (a) total cost per coach on each route; (15 marks) (b) cost per kilometre on each route (to four decimal places of RM); (5 marks) (c) profit/loss per kilometre on each route (to four decimal places of RM) (5 marks) 9. A cement production company considering whether to buy trucks with 10 tonnes of payload or 8 tonnes for use to transport milestone as its’ main raw materials from the quarry to the factory. Following information is relevant about the trucks : a) Details 10 tonnes truck 8 tonnes truck Cost of truck (per truck) RM300,000 RM250,000 The number of trucks that will be purchased 20 units 25 units Truck useful life 10 years 10 years Scrap value (per truck) RM40,000 RM35,000 Kilometer per diesel litre 2 km 3 km Diesel cost per litre RM1.50 RM1.50 Maintenance cost (per truck) RM3,500 per year RM2,800 per year Road tax (every quarter of year) RM500 per truck RM450 per truck Interest cost (per truck) 5% per year on cost 5% per year on cost Supervisor’s salary RM18,000 per year RM18,000 per year Tyre cost (per truck) RM4,500 per year RM4,200 per year b) Each truck will move from factory to quarry without a load and will carry full load from the quarry to the factory. It is estimated that the trucks will take limestone 4 times a day. c) The daily trip for a truck distance is 120 kilometers, while the average working time is 24 days per month. d) Trucks drivers will be employed according to the number of trucks purchased. However, drivers’ assistant will be employed for every 5 units of truck. Salary will be paid RM700 per month for a driver. You are required to :
DPA30073 pg. 89 Edited :PKBI/JPPKS/DAT a. calculate the total cost per year for 10 tonnes trucks and 8 tonnes trucks (20 marks) b. calculate the cost per tonne for 10 tonnes trucks and 8 tonnes trucks (4 marks) c. give recommendations whether the company should buy trucks with 10 tonnes of payload or 8 tonnes based on your answer above. (1 mark) 10. Rahim Transport Company Ltd. has a trailer used to transport goods from ports to the city center. The trailer operates 24 days a month. The following information is related to the operational service of the trucks : Cost of trailer RM75,000 Trailer useful life 500,000 km Trailer scrap value RM10,000 Trailer driver’s wages RM2,000 per month Repair and maintenance expenses RM1,500 per month Insurance and road tax RM2,500 per year Trailer licence RM350 per year Weight of goods transported per year 130,000 kg Journey distance per day 300 km Cost of diesel RM1.00 per litre Diesel usage 20 km per litre Cost for one set tyre of trailer RM1,500 Useful life for tyre 15,000 km You are required to calculate : a) the operational service of trailer per year b) the operational service of trailer per kg per year c) the cost per kilometre – kilogram
DPA30073 pg. 90 Edited :PKBI/JPPKS/DAT