?1. Plant-Wide rate (simple method) (2 marks) 2. Departmental rate method (3 marks) 3. Activity-based method (5 marks)

Canadian University of Dubai
School of Business Administration
ACT 310 Management Accounting
Assessment Instrument
Assignment 2 (15 marks)
Due Date: April 12, 2016

This assignment deals with the following course learning outcomes:
CLO
3 Determine production /service costs under Job-Costing System and
Process-Costing System.
4 Apply activity-based costing in different organizational settings
Total

PLO Question Marks
4
B
5
7

A

10
15

ACT 310 Management Accounting
Assignment # 2
Due Date April 12, 2016
(A) Dill Company has two production lines and uses a simple method of allocating overhead costs to the
products that uses machine hours as the allocation base. The following estimates were made at the
beginning of the year 2016 for all cost elements:

Number of units to be produced
Direct material cost
Direct labor cost
Overhead costs
Direct labor hours
Machine hours

Production line A
120,000
20,000
10,000
220,000
10,000
50,000

Production Line B
60,000
30,000
40,000
300,000
60,000
10,000

A discussion among top management revealed different points of view regarding the allocation method
used and its accuracy. Some members are calling for using departmental rates to obtain accurate costing
while others are calling for the application of activity-based costing. The controller indicated that a
preliminary analysis of activities was done in late November 2015 to identify the activities and the cost
drivers. The following table shows the results:
Activity
Cost Driver
Production Line A Production Line B Total
Machine set ups
Number of set ups
10
4
14
Production
Number of production runs
200
100
300
Inspection
Number of inspections
70
50
120
Assembly
Number of direct labor costs
10,000
60,000
70,000
Material handling Number of material moves
300
200
500
The controller added that estimated costs per activities were as follows:
Activity
Machine set ups
Production
Inspection
Assembly
Material handling
Total

Costs
70,000
90,000
120,000
140,000
100,000
520,000

The Company plans to produce during the month of April 10,000 units out of Production Line A and
5,000 units out of production Line B. The general manager (Mrs. Solana) has asked you to prepare an
analysis that shows expected total manufacturing costs of a unit out of each production line under the
following three allocation methods:
1. Plant-Wide rate (simple method) (2 marks)
2. Departmental rate method (3 marks)
3. Activity-based method (5 marks)

(B) West Company produces two products through its single joint process. The products are called Prime
and Special.
The joint costs of the process amounted to AED 800,000 for the month of March 2016. The volume of
the output was 80,000 units of Prime and 40,000 units of Special. The sale prices of each unit of the two
products at the split-off point are AED 20 and AED 50, respectively.
Management believes that the two products could be processed further to enhance the selling price of
each product. The following information is available about processing the products further:
Product
Separable costs
New sale price per unit
Prime

AED 400,000

AED 30

Special

AED 200,000

AED 60

Required:
1. Prepare an analysis that shows the allocation of the joint costs to the two products using the
physical measures method and the net realizable value method (2 marks).
2. Should the company process each of the two products further or not? Support your answer by
determining the possible effect on the company?s net income (1 marks)
3. If the company sells 60% of the units produced of each product, what would be the amount of the
gross profit of the company under:
a. The physical measures of joint cost allocation(1 mark)
b. The sales value of the products at the split-off point (1 mark)