Financial Accounting Sample Assignment

Question 1.


units produced


units sold


units remaining




direct material cost

 $           2,300

direct material cost per unit

 $           0.219

direct labor cost

 $           3,300

direct labor cost per unit

 $           0.314

variable manufacturing overhead

 $           2,800

variable manufacturing overhead per unit

 $           0.267

fixed manufacturing overhead

 $           8,250

fixed manufacturing overhead per unit

 $           0.786



direct material cost per unit

 $           0.219

direct labor cost per unit

 $           0.314

variable manufacturing overhead per unit

 $           0.267

total variable cost per unit

 $           0.800



ending inventory using variable costing

 $              880



direct material cost per unit

 $           0.219

direct labor cost per unit

 $           0.314

variable manufacturing overhead per unit

 $           0.267

fixed manufacturing overhead

 $           0.786

total absorption cost per unit

 $           1.586



ending inventory using absorption costing

 $     1,744.29




INCOME STATEMENT( variable costing)

for the year ended



 $          32,900

less: cost of goods sold



opening inventory

 $                 -  


variable cost of production

 $           8,400


closing inventory

 $             (880)

 $           (7,520)



 $          25,380

variable selling cost


 $              (940)

contribution margin


 $          24,440

less: fixed costs



manufacturing overhead


 $           (8,250)

selling overhead


 $        (14,560)

net operating  income


 $            1,630




INCOME STATEMENT( absorption costing)

for the year ended



 $          32,900

less: cost of goods sold



opening inventory

 $                 -  


full production cost

 $         16,650


closing inventory

 $         (1,744)

 $          14,906




under/over absorption


 $                   -  

gross profit


 $          17,994

less: non production cost



variable selling overheads


 $              (940)

fixed selling overhead


 $        (14,560)

net operating income


 $            2,494


c) Absorption costing is one kind of managerial accounting method. It is used by companies to capture all the costs that are associated with producing a product. The various kinds of expenses like direct material cost, direct labour cost, fixed overhead, selling overhead all are taken into consideration (Gersil and Kayal, 2016). The difference between the absorption costing method and the marginal costing method is that the absorption costing method allocates the fixed overhead costs for each unit of a product. As absorption costing is known to allocate fixed overhead cost to inventory and cost of goods sold. So absorption costing reflects higher inventory cost than variable costing.

Yes, the result is always the same in every case. There ought to be a fixed cost for every company in the production of a product (Reynolds, Fourie and Erasmus, 2018).

d) Breakeven is calculated with the formula fixed cost divided by contribution per unit. There is no difference in calculating contribution per unit while calculating in absorption or variable costing (Rout et al. 2017). Therefore we can conclude the breakeven doesn’t get affected under both absorption and variable costing.

Question 2


units produced


the time required for each unit ( minutes)


direct cost per unit


no of workers working


no of hours ( each worker)


total no of hours


Cost per hour


total direct labour cost




The total cost of producing Beta



direct material


direct labor


indirect labor




rates and insurance




total cost


cost per unit




Total cost if purchased( Beta A)



purchase cost

 $      576,000

delivery cost

 $         57,600

part time employee

 $         17,000


 $      650,600

cost savings


storage cost for finished product

 $         14,400



total cost

 $      636,200

For producing the product BetaA the total cost is $596000, whereas the total cost when buying the product is $650600. But as given in the question we should also take into consideration the cost savings that has occurred due to the outsourcing of the product, this leads to storage cost savings which are $14400. Therefore we should also take into consideration the cost savings and should be deducted from the cost. Therefore the cost of buying the product is $636200.

Therefore we can conclude that it is better to make the product than buy one.

b) One of the paramount decisions that a manager needs to make is whether to buy or make a product that is required for the production of the final product. The qualitative factors that need to be considered are the reliability and reputation of the suppliers. The manager should also think about the longer-term outlook.

c) Relevant costs are considered to be those cost that helps to determine the different alternatives. No routine decisions mean accepting or rejecting a special order, make or buy a product component, sell or process further, add or drop a segment or product line, product combination in maximizing scarce resources. Therefore when the above decisions affect and have a better alternative the cost is considered to be relevant costing.

Question 3


cost of new machine


sell price of the old machine


initial outflow


annual cash savings


total estimated life( years)















initial outflow







cost savings








 $    (940,000.00)

 $ 267,857.14


 $ 803,571.43

 $ 1,071,428.57

 $ 1,339,285.71


 $ 3,077,857.14







b) Payback period = initial investment / cost savings per year = 1000000/300000 = 3.33 years


Advantages of NPV:

  1. NPV (net present value) takes into consideration the time value of money.
  2. Cash flows are considered while calculating NPV
  3. The risk and profitability of the projects are taken in consideration.
  4. NPV maximizes the firm’s value

Disadvantages of NPV

  1. It is difficult to interpret
  2. It does not help to make an accurate decision.
  3. Difficulty in the calculation of the appropriate rates
  4. If the life of the project or machine is different it doesn’t give correct decision-making criteria.


d) As the forecasting is made for 20 years, the value after depreciation will be very less. As NPV calculation takes cash flow into consideration and the discount rate is period apportioned, therefore error in estimation won't affect much

Question 4

average operating assets


net operating income


the minimum required rate of return








Residual Income



c) ROI (return on investment) is disliked by most of the managers as it can lead to unfavorable decision making for a division or can be very beneficial for a particular division. Residual income is the amount of division operating profit over the division cost of acquiring capital to purchase operating assets. As ROI is a percentage it can lead to vague decision making as it doesn’t give the actual figure.

d) In transfer pricing 2 related parties trade which artificially distort prices. Transfer pricing requires a lot of professionals which is costly for the company. As transfer pricing is a new domain and there is a lack of supply of experienced professionals, it becomes very hard for the company to hire good professionals. It is also time-consuming as the methods of recording are different.

After the consolidation of the entities accounts the allocation of the cost all is eliminated. Thus all the cost that is incurred for the transfer pricing department goes in vain and is considered a waste of resources.

e) Cost allocation has no impact as the cost at which the product will be transferred from one department to another depends on the company as the departments decide the price. It is also kept in mind that the decisions are not taken unanimously and are consulted with all the relevant departments. So the cost allocation has no impact on the transfer price set.

Question 5

a) Customer Profitability Analysis is a method that determines the profitability of a segment or customer by segregating or attributing costs and profits to each separately.

We can explain the process of customer profitability analysis and discuss the steps to improve the performance of a service organization:

In the example, we are taking a 5-star hotel. At first, we need to obtain the financial statement of the company and should study in detail. The controls and processes should be understood from the audit report. Then the revenue and profits should be segregated into different verticals.

Observations: the company’s cost structure is the same year on year and it depicted consistency. The guest transportation cost was very high. 30% of the total revenue was staff-related which is considered to be on the higher range. The desk attendants were responsible for marketing which they were not able to fulfil. The stores and purchases were handled by 1 person. The delay in order is one of the big problems which leads to customer dissatisfaction. The purchase cost was not uniform and the foods were wasted. Feedback was not received in a formal process. The gross margin was very low due to low occupancy

Changes suggested: the guest transportation should be kept in check which will reduce the administration cost and will affect the bottom line positively. Staff should be more efficient and the % of the cost should be reduced. A separate dedicated team should be prepared for marketing. Different persons should be kept in stores and purchase. Formal feedback should be taken and the mistakes should be rectified. The wastage of foods should be kept in check.

b) (i) Advantages of the balanced scorecard are:

  1. It provides a visual picture of strategy
  2. Works as a base for the discussion
  3. Easier data collection
  4. Easier strategy reporting
  5. Easy to get trained in the concept

Disadvantages of the balanced scorecard are:

  1. Balanced scorecard term is misleading
  2. Won’t work without a cultural shift
  3. Strategy map are hard to maintain
  4. Unidirectional bottom-up cause and effect logic

(ii) One potential measure for each scorecard perspective appropriate for CARE house.

Financial: how do the NPO receive more funding to help more needy people out there in society?

Customer: How to increase the accommodation capacity?

Internal perspective: the wastage in space should be mitigated and the volunteers should work more efficiently

Learning and growth perspective: the preparation of the budget should be done properly and the directors should work efficiently for raising funds for the NPO.

(iii) Strategy maps are used in describing how the company can be efficient in performing work. The strategy maps are useful as it gives a visual picture of how a job can be done. This can be helpful in motivating the employees and also helps in explaining the long term target of the company.

Question 6.  Number of employees

Question 7.  A span of activity where both total fixed cost and variable cost per unit of activity remain constant

Question 8. Cost object

Question 9. $5.39

budgeted total overhead


machine hours


pre determined indirect cost rate



Question 10. 3230 units

units for breakeven = fixed cost / weighted average contribution






weighted average contribution



fixed cost



units for breakeven




Question 11. 12402 units

sales price


variable cost


variable selling cost




fixed cost- manufacturing


fixed cost- selling cost




breakeven units




post tax profit


tax (20%)


sales revenue




units required to reach 156250 sales




total no of units



Question 12. Rewards are linked to meeting budget targets

Question 13. $121250



cash sales


credit sales


50% in the month following sale






anticipated cash receipts



Question 14. Variable costing

Question 15. Direct material, direct labour, variable and fixed overhead

Question 16. Primary cost element

Question 17. 2500F

budgeted price



actual price



labour hours



labour price variance




Question 18. Relevant

Question 19.Direct labour

Question 20. Multiple products and opportunity cost

Question 21. $1597

facility rent

area occupied



area occupied


computer equipment

no of students



no of swim teachers


life savings

no of classes












Question 22. Cost driver

Question 23. Assessment

Question 24. A dollar received today will be worth more than a dollar received in the future

Question 25. NPV equal to Zero

Question 26.None of the options listed

Question 27. $7.5

selling price


profit margin




target cost



Question 28. $400

operating profit


required rate of return


average operating assets




residual income



Question 29. 32%

required rate of return


net profit


residual income


average operating assets







Question 30. The tracing factor is used to allocate the cost


Gersil, A. and Kayal, C., 2016. A Comparative Analysis of Normal Costing Method with Full Costing and Variable Costing in Internal Reporting. International Journal of Management, 7(3).

Reynolds, A., Fourie, H. and Erasmus, L., 2018. A framework for time-driven activity-based costing implementation at small and medium enterprises. The Southern African Journal of Entrepreneurship and Small Business Management, 10(1), pp.1-11.

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