HOMEWORK A.1. a) Overhead Absorption Rate per Machine Hour TotalOverhead TotalMachineHours 63,000 20,000 15,000 10,000 2,592 18 (720 4) (600 3) (480 2) (504 1) Statement showing Total under TACT Direct Material 42 45 40 48 Direct Labour 10 9 7 8 Production Overheads (Mach hrs pu x 18) 72 54 36 18 Total p.u. 124 108 83 74 ( ) units produced 720 600 480 504 Total 89,280 64,800 39,840 37,296 b) i) Statement showing -wise Production Overhead Particulars Amount 4 48,000 Set-up 20 3 36,000 Store Receiving 15 2 24,000 Inspection 10 Material Handling & Dispatch 2,592 1,10,592 ii) iii) Statement showing Product-wise & Total drivers for various activities Total units produced 720 600 480 504 - Production per run 24 24 24 24 - production runs 30 25 20 21 96 requisitions raised 50 50 50 50 200 orders/batch 12 12 12 12 - orders executed 60 50 40 42 192 Statement showing cost per driver for the various activities Related Set Up 48000 production runs 96 500 Receiving 36,000 requisition raised 200 180 Inspection 24,000 production runs 96 250 Material 2,592 orders executed 192 13.5 1
Statement showing cost per unit of three products under ABC Approach Direct Material 30,240 27,000 19,200 24,192 Direct Labour 7,200 5,400 3,360 4,032 Production Overhead Set Up 15,000 12,500 10,000 10,500 Receiving 9,000 9,000 9,000 9,000 Inspection 7,500 6,250 5,000 5,250 Material 810 675 540 567 Total 69,750 60,825 47,100 53,541 ( ) Units produced 720 600 480 504 unit 96.886 101.38 98.13 106.23 c) Statement showing the differences disclosed between the overheads traced by the two systems CPU under TACT 124 108 83 74 CPU under ABC 96.88 101.38 98.13 106.23 Difference 27.12 6.62 (15.13) (32.23) Comment: From the above difference statement, it can be concluded that by using the TACT, the customers of Products A & B are getting overcharged & customers of Products C & D are getting undercharged. If the company uses ABC approach, this discrimination will get avoided. A.2. 1) Statement showing 2016 profitability of the Customer X, Y, Z. Premier A/c of ABC Bank Particulars X Y Z I] Total Revenue Interest Income (3% of Average Balance) 1,650 1,200 37,500 Service Fees ( 1,000 12 months) - 12,000 - [I] 1,650 13,200 37,500 II] Total Deposit/withdrawal with teller 5,000 6,250 625 ( transactions 125) Deposit/withdrawal with ATM 400 800 640 ( transactions 40) Deposit/withdrawal on prearranged monthly basis - 300 1,500 ( transactions 25) Bank cheques written 3,600 1,200 800 ( transactions 400) Foreign Currency Drafts 3,000 600 3,600 ( transactions 600) Inquiries about account balance 750 1,350 675 ( transactions 75) [II] 12,750 10,500 7,840 [III] Profit/Loss [I II] (11,100) 2,700 29,660 2
2) From the above table, the evidence of cross-subsidization is clearly visible, as it can be seen that Customer Z maintained a very high balance but did not use the facilities according to the balance maintained whereas Customer X has maintained a balance just above 50,000 & has used the facilities more than justified according to the balance maintained. Due to this bank has earned good profit with Customer Z & has gone into losses with Customer X. ABC Bank needs to worry about this cross subsidization even though overall result is positive because (i) If Customer Z starts using the facilities abnormally or reduces the balance drastically, the bank will make losses with Customer Z also. (ii) If Customer Y increases the balance to 50,000 then the bank will lose the service fees of 12,000 which again can give a loss with Customer Y also. 3) Recommendations for ABC Bank s Premier A/c i) Minimum balance of 50,000 for use of unlimited service should be increased considerably. ii) free transactions should be kept limited beyond which some nominal charges should be levied with every additional transaction. iii) The no. of services/free transactions can be linked with the amount of deposit maintained i.e. higher the balance more will be the no. of services offered & vice-aversa. iv) The service fees of 12,000 (1,000 12) should be increased. v) The customers should be encouraged to use more of ATM facilities rather than Teller facilities. A.3. i) Statement showing Gross Margin % of the three distribution channels & RST Ltd. Operating Income for January 2017 Particulars GSM Chain DS Chain Chemists RST Ltd. Shop Sales 2,80,41,750 2,38,21,875 1,49,73,750 66,83,737 (Revenue/Delivery Deliveries) (-) COGS (2,72,25,000) (2,26,87,500) (1,36,12,500) (6,35,25,000) (COGS/Delivery No. of Deliveries) Gross Profit 8,16,750 11,34,375 13,61,250 33,12,375 (-) Operating - - - (8,27,970) Operating Income - - - 24,84,405 GP Margin (%) 2.91% 4.76% 9.09% - ii) Statement showing cost per driver for various activities a) Customer purchase order processing 2,20,000 Related Purchase orders by customers 5,500 b) Line-item ordering 1,75,560 Line-items ordered 58,520 3 c) Store delivery 1,95,250 Stores Deliveries 3,905 50 d) Cartons dispatched to stores 2,09,000 Cartons dispatched 2,09,000 1 e) Shelf-stocking at customer stocking 28,160 Shelf-stocking 1,760 16 40 3
iii) PRIME VISION / C.A. FINAL / ADVANCED MANAGEMENT ACCOUNTING / Statement showing operating income of each distribution channel using ABC Approach Particulars General Supermarket Chain Drugstore Chain IV] Profit % on Sales 12.86% 9.84% 3.19% V] Based on Profit Ranking 1 2 3 4 Chemists Shop Sales 2,80,41,750 2,38,21,875 1,49,73,750 (-) COGS (2,72,25,000) (2,26,87,500) (1,36,12,500) Gross Profit 8,16,750 11,34,375 13,61,250 (-) Related Purchase order processing (15,400) (39,600) (1,65,000) Line item ordering (16,170) (35,640) (1,23,750) Store Delivery (16,500) (41,250) (1,37,500) Cartons dispatched to stores (99,000) (66,000) (44,000) Shelf-stocking at stores (15,840) (7,920) (4,400) Net Operating Income 6,53,840 9,43,965 8,86,600 % of NOI to Sales 2.33% 3.96% 5.92% Comments: 1) The activity cost % on sales for General Supermarket Chains (2.91% - 2.33%) 0.58% Drugstore Chains (4.76% - 3.95%) 0.80% Chemists Shops (9.09% - 5.92%) 3.17% 2) utilised for chemist shops are abnormally higher as compared to other two chains & hence the company should give an attempt to reduce the drivers utilised for chemist shop so as to increase the overall profitability. A.4. i) Traditional Absorption ing System Calculation of Gross Production in respect of three products A, B & C Gross production per production run (a) 2,520 2,810 3,010 (-) Defectives (20) (10) (10) Net production per production run (b) 2,500 2,800 3,000 Total net production (c) 25,000 56,000 27,000 production runs (c/b) (d) 10 20 9 Total Gross Production (a d) 25,200 56,200 27,090 Overhead Absorption Rate per unit sold TotalOverhead Rs.3,87,250 3.59 Total UnitsSold 1,08,000Units Statement showing product-wise profitability & their ranking under TACT system I] Sales (Units sold CPU) 4,50,000 7,84,000 3,24,000 II] Total Prime 3,02,400 5,05,800 2,16,720 (Gross Production /Unit) Overheads (Units sold 3.59) 89,750 2,01,040 96,930 3,92,150 7,06,840 3,13,650 III] Profit (I II) 57,850 77,160 10,350
ii) a) Statement showing product-wise & total no. of drivers for the various activities Total production runs 10 20 9 - Inspection Hrs./Production run 3 4 4 - Total Inspection Hours 30 80 36 146 Machine Hrs./Production run 20 12 30 - Total Machine Hours 200 240 270 710 b) Statement showing cost per driver for various activities Related Inspection 73,000 Inspection Hours 146 500 Machine Repair & maintenance 1,42,000 Machine Hours 710 200 c) Statement showing product-wise profitability using ABC Approach I] Sales 4,50,000 7,84,000 3,24,000 II] Total Prime 3,02,400 5,05,800 2,16,720 Production Overheads Inspection 15,000 40,000 18,000 Repairs & Maintenance 40,000 48,000 54,000 Dye 2,000 6,000 2,250 Selling Overheads: Advt. - 56,000 27,000 Packaging - 54,000 - Other Selling OHs 5,787 12,963 6,250 Total 3,65,187 7,22,763 3,24,220 III] Profit [I II] 84,813 61,237 (220) IV] Profit % on Sales 18.85% 7.81% - V] Ranking Based on % Profit 1 2-5