Answer 1:- Cost of two different unit costs for each of the Cable Service

Divisions projects is as under:-

Particulars
Production Cost-Directly
Traced
Direct Labour Cost- Driver
Traced
Allocated Cost
Total Product Cost

Production Cost
Bas Enhanc Premi
ic
ed
um
2.10

3.50

4.90

1.40

2.80

4.20

7.00
10.
50

9.10

10.50

15.40

19.60

Marketing &
Customer Service
Cost
Bas Enhanc Premiu
ic
ed
m
0.9
0
1.50
2.10
0.6
0
1.20
1.80
3.0
0
3.90
4.50
4.5
0
6.60
8.40

The management objective served by these units costs is that the management
is able to understand the behavior of cost of products to provide a particular
service of Cable Service division in each of its product and also that the cost
required as a after sale service or selling the product is identifiable.

Answer 2:- Meaning of each cost of Cable Service Division is as under:1. Direct tracing cost: - Its the cost which is directly relatable to the
product and easy to identify as per unit cost, i.e., the cost incurred which
is directly attributable to the cost for providing the service.
2. Driver Traced Cost: - This means that this cost is allocated as per
Activity Based Costing i.e., the cost is allocated over the product on the
basis of cost driver, cost driver means that the rate of absorption of
Overheads on the basis of Activity most used in the cost, as in the
question the Direct labor cost is drive by direct labor Hours.
3. Allocated Cost: - This is the cost or overhead cost which we are unable
to identify on per unit basis as well as the driver of this cost is not
identified due to this the cost is absorbed to the product on the basis of a
blanket overhead absorption rate or functional based costing method.
Cable service division uses a functional based approach for other
overhead or allocated overhead as in Activity based costing each and
every cost or overhead is distributed among the product on the basis of a
relatable cost driver, but this approach is not opted for the allocation of
overhead cost or allocated cost and functional based costing method is
used. But for the direct labor cost absorption of cost is on the basis of
activity of direct labor hours. However, for other overhead cost is allocated
on the basis of functional based costing method and therefore, the cost
are assigned on the by using functional based costing method.

The other differences exist between Functional based and activity based
cost accounting systems are as under:1. Activity based costing is more accurate because it takes into account
the important factors before assigning a cost to a product, on the other
hand the functional based or traditional costing is much easier way of
determining the cost of product as it relies solely on assigning average
overhead rates.
2. Activity based costing is complicated and time consuming method as
compare to functional based costing method.
3. Activity based costing also consider non manufacturing expenses such
as administrative and managerial cost, but on the other hand
Functional based costing method does not factor non manufacturing
expense or determine which overhead cost actually effect specific
product.
Answer 3:- The main difference between the product of cable service division
and product of phone division is that the cost in cable service division and the
product of phone division is that the cost in the cable service division is
attributable to its product on the basis of direct labor cost on labor hours cost
drivers and the amount of cost directly attributable to the product. On the other
hand, the overhead cost and labor cost of telephone division is distributed on the
basis of blanket overhead absorption costing or functional overhead costing
method. The result given by the cable division product is more reliable and
realistic as compare to the result of telephone division.

Answer4: - Income Statement of Cable Service Division for the Month of March
is as under:-

Particulars
Sales (Units)
Price / Unit (A)
Less:- Production Cost

Basic

Income Statement
Enhanced
Premium

Total

50,000
500,000
300,000
850,000
16.00
30.00
40.00

Production

2.10

3.50

4.90

Direct Labour Cost

1.40

2.80

4.20

9.10

10.50

Allocated Cost
7.00
Less:- Marketing & Customer Service
Cost
Production

0.90

1.50

2.10

Direct Labour Cost

0.60

1.20

1.80

Allocated Cost

3.00

3.90

4.50

Total Cost (B)

15.00

22.00

28.00

Net Operating Income / Unit

(A-B)

1.00

8.00

12.00

Net Operating Income

50,000

4,000,000

3,600,000

7,650,0
00

Answer 5: - Income Statement for Phone Division and cost of goods

manufactured statement:Cost of goods manufactured statement:Particulars

Amount $

Opening Stock of Materials, March 1

23,000

Opening Stock of Work in process, March 1

130,000

Opening Stock of Finished goods, March 1

480,000

Total Value of Opening Stock (A)

633,000

Add:- Purchases made during the Month of March (B)

312,000

Less: Value of Closing Stock

Closing Stock of Materials, March 31

40,000

Closing Stock of Work in process, March 31

45,000

Closing Stock of Finished goods, March 31

375,000

Total Value of Closing Stock ('C)

460,000

Cost of Goods Manufactured = A+B-C

485,000

Income Statement of Phone Division is as under:Particulars

Sales Revenue
Less:Cost of Goods Manufactured
Direct Labour
Plant & Equipment Depreciation
Material Handling

Amount $
1170000
485000
117000
50000
85000

Inspections
Scheduling
Power
Plant-Supervision
Manufacturing Engineering
Sales, Commissions
Salary, Sales supervisor
Supplies
Warranty Work
Rework

60000
30000
30000
12000
21000
120000
10000
17000
40000
30000

Net Operating Income

63000

Answer 6:- Cost system doesnt become outdated overnight. It gradually

outlives its usefulness as the systems fail to adapt new changes and give various
indications. Reasons for cost accounting systems are outmoded:1. As the profit margins of telephone division is hard to explain, i.e., they
have best technologies and also best and establish product and still
unable to explain the profit margins.
2. A cost accounting system is outmoded because of change in
manufacturing process or manufacturing environment.
3. A cost accounting system is outmoded because of introduction of new
product line or addition of more process in existing product line.
Factors determine when a new cost accounting system is warranted are as
under:1. When the competitors prices are unrealistically low, i.e. when new
companies charge low price for the same product then the existence
company is required to evaluate its existing costing system or introduction
of new accounting system.
2. The results are hard to explain.
3. When customers dont mind for price increase.
4. When vendors bid lower than the expected.
5. Hard to make product show high profits.
Answer 7:- Calculation of Overhead cost per unit for each phone model using
direct labour cost to assign all overhead costs to the products is as under:Particulars

Regular
Model

Deluxe
Model

Total

Labour Cost

875,000.00

375,000.00

1,250,000.00

Other Activities

1,400,000.00

600,000.00

2,000,000.00

Moving Materials

630,000.00

270,000.00

900,000.00

Distribution of Cost

Inspecting

504,000.00

216,000.00

720,000.00

Reworking

266,000.00

114,000.00

380,000.00

Total Overhead Cost

2,800,000.00

1,200,000.00

4,000,000.00

No. of Units Produced

Per unit Cost

100,000.00
$28.00

40,000.00
$30.00

Answer 8:- Overhead Cost per Unit by using Activities based costing:-

Reworking

Amou
nt of
Cost
20000
00
90000
0
72000
0
38000
0

Total

40000
00

Cost
Other
Activities
Moving
Material
Inspecting

Name of
Cost Driver
Direct Labour
Cost
Number of
Moves
Inspection
Hours
Rework Hours

Cost
Driver
of
Regula
r Model

Total
Allocat
ed Cost
of
Regular
Model

875000

1400000

375000

600000

18000

7200

360000

10800

540000

24000

6000

180000

18000

540000

3800

1900

190000

1900

190000

Cost
Driver
Capaci
ty
125000
0

Cost
driver
of
Deluxe
Model

213000
0

Per Unit Cost of Regular Model

= Total Allocated Cost / No. of Units Completed

=2130000/100000
= 21.30
Per Unit Cost of Deluxe Model =Total Allocated Cost / No. of Units Completed

Total
Allocat
ed
Cost of
Deluxe
Model

18700
00

=1870000 / 40000
= 46.75
If we are Kim we will inclined the ABC System as its show that the cost as per
Regular model is $ 21.30 and Deluxe model is $ 46.75, But in traditional
approach the cost of regular model is $ 28 & Deluxe model is $ 30, By traditional
approach we think that the cost are more accurate, but ABC shows that the
burden of cost of Deluxe model is on regular model as shown by traditional
approach, and we will have more profits in regular model and less in deluxe
model this will help us to reschedule our prices in the competitive market.