Question 1

Under absorption occurs when more than expected overhead costs are actualized, were the difference
is charged to expenses in the current period, hence reducing the profits.

While over absorption occurs when actual overhead costs are less than the expected, this results in
more cost being applied to cost objects than what actually incurred. Meaning the recognition of expense
is reduced in the current period and profits increase.

Question 2

Question 3 (A)

a.

Breakeven point for Pricing Plan 1 in Sales unit

Data

Sp = K30

VC = K17, and

FC = K200, 000

At BEP:

Sp(x) = FC + VC(x)

30x =200, 000 + 17x:

x = 200, 000 ÷ (30 − 17)

= 200, 000 ÷ 13

= 15,384.62 units

BEP in Sales = K30 × 15,384.62 = K461,538.46

Breakeven point for Pricing Plan 2 in Sales unit

p = K21

VC = K17, and

FC = K200, 000

At BEP
S(x) = FC + VC(x)

21x =200, 000 + 17x

x = 200, 000 ÷ (21 − 17)

= 200, 000 ÷ 4

= 50, 000 units

BEP in Sales = K21 × 50, 000 = K1,050,000

b. Number of visits required to make a profit of K60,000

Plan 1:

FC + Profit
x=
(Sp − VC)

K200, 000 + K60,000

x=
(30 − 17)

260,000
x=
13

x = 𝟐𝟎, 𝟎𝟎𝟎 𝐯𝐢𝐬𝐢𝐭𝐬

Plan 2:

FC + Profit
x=
(Sp − VC)

K200, 000 + K60,000

x=
(21 − 17)

260,000
x=
4

x = 𝟔𝟓, 𝟎𝟎𝟎 𝐯𝐢𝐬𝐢𝐭𝐬

(b) Contribution Margin (CMR) for both pricing plans

Plan 1:

CMR= Contribution margin per unit/ Sales price per unit

CMR= (30- 17)/30 = 0.433

Plan 2:

CMR= (K21- K17)/21= 0.19

(c) Contribution Margin ratio

The contribution margin ratio (CMR) represents the marginal benefit of producing one more unit. it is
expressed as a percentage by which the selling price per unit exceeds the variable costs per unit. It can
also be determined by expressing the contribution margin as a percentage of revenue.

(d)

The

Therefore, we can say that the CMR and the number of breakeven units are connected when
considering the effects of volume and profit and also give some clarity on risk assessment.

Question 3(B)

a)

b)

c)

Question 4 (a)

Process 1 A/c

Units Amount Units Amount

Material 10000 20000 Normal loss 1000 20000
Labour 5000 Transfer to process 2 8500 17000
Variable Overheads 7000 Abnormal loss 500 1000
Fixed Production Overheads 6000
10000 38000 10000 38000

Normal loss A/c

Process 1 20000
Process 2 32000
Abnormal loss A/c

Process 1 1000

Process 2 A/c

Units Amount Units Amount

Input from process 1 8500 17000
Material 7500 15000 Normal loss 1600 32000
Labour 4000 Output 15000 26032
Variable Overheads 4800
Fixed Production Overheads 15000
Abnormal gain 600 2232
16600 58032 16600 58032

Abnormal gain A/c

Process 2 2232

Joint products are more than one product that can be realised from the utilization of the same raw
materials and same process operations. These products are produced intentionally and have almost
equal economic importance. The best example is in the oil refinery crude oil produces petrol, kerosene,
diesel and lubricating oil.

Question 5

A)

(a) Economic Order Quantity (EOQ)

D= 5000*12= 60000 units
F=K20
C= [(60000*10)/12]*12%= (50000)*12%= 6000

2𝐹𝐷
EOQ = √
𝐶
 2(20)(60000)
EOQ = √
6000

2400000
EOQ = √
6000
EOQ = √400

𝐄𝐎𝐐 = 𝟐𝟎

(b) Total Inventory Cost (TIC)

𝑄 𝐷
TIC = 𝐶 ( ) + 𝐹
2 𝑄
20 60000
TIC = 6000 ( ) + 20
2 20
TIC = 60000 + 60000
𝐓𝐈𝐂 = 𝑲𝟏𝟐𝟎, 𝟎𝟎𝟎

(B) Using the high low method

Variable cost per unit= (Total cost at highest quantity- Total cost at lowest quantity)/ (highest quantity-
lowest quantity)

a) Variable cost per unit= (490000-280000)/ (3000-1500)

= 210000/1500

= K140/ unit.

b) Variable cost for producing 3000 chairs = 3000*140

= K420,000
c) Total fixed cost per year (2010) = Total cost – variable costs
= 490000-420000
=K 70,000

Question 6

Pineapple cocktail Mangomix Banana Total

Budgeted units 6000 4000 5000 15000
Sales 102000 56000 55000 213000
Variable Overheads 6000 4000 5000 15000
Direct material 24000 4000 15000 43000
Direct labour 16000 8000 24000 48000
Total contribution 107000
Fixed Cost (60%) 64200

WACM per unit = total contribution/total units

= 107000/15000

= 7.13x

Break