Assignment Task: Advanced Managerial Accounting
Assignment - Life Cycle Costing, Throughput Accounting & Make or Buy Decisions.
Problem 1: Racket is a manufacturing company produces a range of products for tennis goods market.
The company is developing a new type of tennis racquet for the middle-east market. The research and development of the product will take one year; The Company is planning to launch the product from the beginning of the 2nd year. The company is expecting that the life cycle of the product will only be two years because of the new technological developments happening in the sports goods market.
The estimated cost of the tennis racquet is as follows
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Year-1
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Year-2
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Year-3
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| |
|
|
Racquets manufactured and sold(Units)
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5,000
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10,000
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Designing cost(OMR)
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400,000
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|
|
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Research cost(OMR)
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80,000
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|
|
|
Production cost:-
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|
|
|
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Variable cost per unit(OMR)
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25
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23
|
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Fixed Production Cost(OMR)
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150,000
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320,000
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|
Distribution Costs:
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|
|
|
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Variable Cost per unit(OMR)
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3
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2.5
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Fixed Distribution Cost(OMR)
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40,000
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32,000
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|
Selling Cost:
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|
|
|
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Variable cost per unit(OMR)
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2
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1.5
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|
Fixed Selling Cost(OMR)
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40,000
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50,000
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|
Marketing Cost(OMR)
|
300,000
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250,000
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400,000
|
|
Administration Cost(OMR)
|
50,000
|
200,000
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400,000
|
Using the data provided above you are required to:
a) Calculate life cycle cost per racquet.
b) 'Life cycle cost assess the profitability over the full life cycle of the product'. In relation to the statement, discuss the benefits of the life cycle costing.
Problem 2: Volga Company is producing three types of products, V1 V2 and V3
All the products are produced in three processes Process1, Process2 and Process 3. Company is facing a tough price competition in the market it operates.
In the production process, the product first goes through process1 then in process 2 and finally completed in process 3. The total factory time available for the year is 22,500 Hours. One hour of labour is needed for each hour of factory time. Labour cost per hour is OMR 19.5.
The following data is available about each process
Product Processing time in hour per unit
. V1 V2 V3
Process 1 0.75 0.75 0.50
Process 2 0.30 0.50 0.30
Process 3 0.50 0.30 0.30
The selling price and cost details are as below:
V1 V2 V3
Material cost per unit (OMR) 6 5 4
Selling Price per unit (OMR) 100 120 50
Fixed cost for the year excluding labour cost is OMR 2025,000
Required:
a) Using the above scenario of Volga Company showing the working clearly, identify which process is bottleneck process and explain why this process is described as bottleneck.
b) Calculate TPAR (Throughput accounting ratio) for each product V1, V2 and V3 and rank the products. Justify your answer by interpreting each Ratio.
Problem 3: Sun Company - Make or Buy
Sun Company produces 3 products SN, MN and ER. The following information is available. It uses one type of material B to produce all the three products.
Product SNMNER
Demand (units) 4,000 2,500 3,000
Variable cost to make ($ per unit) 11 12 14
Buy-in price ($ per unit) 13 16 12
Kg of B required per unit 1kg 1.5kg 2kg
(Included in variable cost)
Required:
a) Which products should the company make and which should it buy?
b) The availability of Material B is limited to 7000 kg. Based on the available material suggest if the material is sufficient to produce all the products. (Calculate surplus or shortfall.)
c) Explain problems involving capacity utilization in make or buy decisions. Support your answer based on the calculation done in part(b) above.
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