Cost Accounting

2. Group member
Name ID
Mostafa Nur Masud 1411061030
Shoebul Islam 1410184030
Sm Sanjil Nooroze 1330142630
Akil Arafat 1330767630
Md. Al- Noman Sarkar 1330721030

3. Product Industry Analysis
Pencil holders belong to the handicraft industry.
As domestically demand for pencil holder has increased, pencil holders
manufacturing industry is flourishing.
Round shape pencil holder and box shape holder are attractive and students use
them to keep their pencil , pen and scale safe.
the industry is expected to face challenges and risks such as competitive
substitutes like pencil box, branded pencil holder, pencil bag etc to use in same
purposes.

4. Competitor Analysis
Direct competitors are other manufacturers of pencil holders, like Aarong, 1 to
99 and other handicraft shops.
Even though we use online media to sell our products, we take other shops who
sell importers pencil holders like Archies, Hallmark, Shapna other online pages
and some stationary shop etc as our competitors.

5. Product Types
Round Shape Pencil Holder Box Shape Pencil Holder

6. Manufacturing Process
 We are producing 2 different types of pencil
holders: Round Shape (R) and Box Shape (B). Our
common materials for all the pencil holders are
carton, wrapping paper, straw and ribbon.
 We use some additional materials for some of the
products, like color, glue etc.
 At first we use two hard papers and give them
both round and box shape. After that we cut
wrapping paper for both round and box shape.
We use glue on the hard papers to cover with
wrapping paper ..

7. • We use different quantity of straw for both shapes which
is showed in our cost estimations.
•We apply just one color (green) only for round shape. At
final stage we use ribbon to both round and box shape.
•We usually work on all the different types of pencil
holders simultaneously as after we are done with one,
we start with the next type while it is setting.

8. Maximum Number of Units Produced in a Month
 Available labor 5
 23weekdays in a month
 Total production 920 holders in a month
Product Available
labor
Weekdays Per day
production
Total
production
Round shape 5 23 3 345
Box shape 5 23 5 575

9. Direct material
Product Materials Taka
Round shape (R)  Carton 5
 Straw 6
 Glue 3.5
 Ribbon 10
 Wrapping 5
 Color 5
Total 34.5
Box shape (B)  Carton 5
 Straw 3
 Glue 3.5
 Ribbon 10
 Wrapping 5
Total 26.5

10. Direct Labor
Product Rate per
hour
Person Hour
required
Days Total cost
Taka
Round shape 15 5 1.5 hours 23 days 2587.5
Box shape 15 5 1 hours 23 days 1725

11. Manufacturing overhead
Cost incurred Total
Depreciation on scissors {(40/(2*12)} 1.7
Electricity bill 1500
Water 400
Rent 4000
total 5901.7
Manufacturing overhead rate = 6.41 per unit

12. Support & Selling cost
Support Department IT Department
Internet Bill 600
Telephone Bill 500
Total 1100
As we are selling online through our IT department which is our support department, we do not have any extra
selling cost as orders are taking through telephone and internet and then customers come by our premises and pick
up their goods.

13. Analysis of Costs
Direct material Variable cost, Direct cost
Direct labor Variable cost, Direct cost
scissors depreciation Fixed cost, Indirect cost
Electricity bill Fixed cost, Indirect cost (assuming labor hour is fixed)
Water Fixed cost, Indirect cost.
Internet bill Fixed cost, Indirect cost
Telephone bill Variable, Indirect cost
Rent Fixed cost, Indirect cost

14. Analysis of Costs (cont.)
Prime cost = Direct material + direct labor
= (34.5*345+ 26.5*575) +4312.5
= 31452.5
Conversion cost = direct labor + manufacture overhead
= 4312.5+5901.7
=10214

15. Full cost
Product Direct
material
Direct labour Manufacturin
g overhead
Total
Round shape 34.5 7.5 6.41 48.41
Box shape 26.5 3 6.41 35.91
Total 84.32

16. Proper allocation base
 Indirect cost rate = total indirect cost
total allocation base
= TK 6.41/unit
Cost Cost Driver
Electricity bill Number of design
scissors Number of holder unit
Water bill Number of design
Rent Number of design

17. Total cost under simple costing
Round Box
Cost of supply 34.5 26.5
Direct manufacturing
cost
7.5 3
Indirect cost allocation
to each job
2211.45 3685.75
Total 2253.45 3715.25

18. Allocation of Support Costs
Support Department Production
Department
Cost 1100 37354.2
Allocation (1100) 38454.2
Total cost allocation 0 38454.2
Total Cost of Production Department= (34.5*345) + (26.5*575) + 2587.5 + 1725 + 5901.7 = 37354.2

19. Allocation of Indirect cost for ABC system
Activity Cost driver Quantity of cost driver
consumed in one month
Total cost Activity rate
Round Shape Box Shape
Depreciation
on scissors
(1.5*115, 1*115)
Number of direct
labor hour
172.5 115 40 0.14/DLH
Rent Square footage 90 70 4000 25/ sq. footing
Water bill Number of DLH 172.5 115 400 1.59/DLH
Internet bill Number of DLH 172.5 115 600 2.07/DLH
Telephone bill Number of calls 70 75 500 3.45/order
Electricity bill Number of DLH 172.5 115 1500 5.23/DLH

20. Allocation of Indirect cost for ABC system
(cont.)
R B
Cost of supplies(34.5*345,26.5*575) 11902.5 15237.5
Direct manufacturing labor cost 2587.5 1725
Allocation of Indirect cost
Rent (90*25;70*25;) 2250 1750
Water bill (172.5*1.59, 115*1.59 ) 274.27 182.85
Internet bill(172.5*2.07,115*2.07) 357.07 238.05
Electricity bill(172.5*5.23,115*5.23) 902.17 601.45
Telephone bill(70*3.45,75*3.45) 241.5 258.75
Total cost 18515.01 19993.6
/Number of unit 345 575
Cost per unit 53.67 34.77

21. Reason behind choosing the cost drivers
Activity Cost Driver Reason behind
Factory rent Square feet Because it is the most relevant term.
Water bill Direct labor hour Water bill increases with number of
labor hour.
Internet bill Direct labor hour Internet bill depends on direct labor
hour.
Telephone bill No. Of call telephone cost increases with the no. of
orders.
Electricity bill Direct labor hour Electricity cost increases with the no.
of labor hour
Depreciation cost Direct labor hour Cost determined by direct labor hour.

22. Allocation of Indirect cost for ABC system (cont.)
Round shape Box shape Total
Revenue
(75*276,60*432)
20700 25920 46620
(-) Costs of goods sold
(34.5*276,26.5*432)
14812.92 15020.64 29833.56
Operating income 5887.08 10899.36 16786.49
Profit margin ratio 28.44% 42.05% 36%

23. Allocation of Indirect cost for ABC system (cont.)
Round Shape Box Shape Total
Revenue 44.40% 55.60% 100%
Costs of
goods sold
49.65% 50.35 100%
Internet 60% 40% 100%
Telephone 48.30% 51.70% 100%

24. Product line profitability under ABC system
Round Shape Box Shape
Revenue 20700 25920
(-) COGS 14812.92 15020.64
Internet Bill 357.07 238.05
Telephone bill 241.5 258.75
Total cost 5288.51 10402.56
Operating income 25.55% 40.15%
Profit margin ratio 20700 25920

25. Pricing Strategy
We are using product line pricing strategy under product mix pricing strategy. Here, the
price is set for two different products based on
a) the cost differences between products
b) customer demand of different features and
c) competitors prices. We have priced our products at the following prices:
Round Shape–75taka
Box Shape – 60 taka
Our prices are very reasonable compared to our competitors

26. Sales Budget
Product Unit Selling price Total
Round shape 345 75 25875
Box shape 575 60 34500
total 60375

27. Production budget
Budget unit sale = 920
Add: Desired Finished Goods Ending Inventory 92
Total needs 1012
Less: Beginning Finished Goods Inventory 0
Units to be produced 1012

28. Direct material usage Budget (3a)
Round
Shape
Box Shape total
Physical units Budget:
round shape
Box shape
345
575
Cost budget
Available from Beg. Inventory
Available from purchase:
Round (34.5*345)
box (26.5*575)
Total
0
12247.5
12247.5
0
15812.5
15812.5 28060

29. Direct material purchase budget (3b)
Round
shape
Box shape
Direct
material
345 575
+( Desired
E.I)
51.75 86.25
Total needs
Less: Beg.
Inventory
Units to be
purchased
396.75
0
396.75
661.25
0
661.25
Cost budget
Round (396.75*34.5)
Box(661.25*26.5)
13687.88
17523.13
Total= 31211.01

30. Direct labor
Product Output DML hour
per unit
Total DML
hours
Wage rate Total
Round shape 345 1.5 517.5 15 7762.5
Box shape 575 01 575 15 8625
Total 16387.5

31. Cost Total
Round shape 34.5+7.5+6.41 48.41
Box shape 26.5+7.5+6.41 35.91
Manufacturing overhead
At the level of 1012 number of units
Fixed MOH(6.41*1012) 6486.92
Total 6486.92
Manufacturing cost
Total 84.32

32. Quantit
y
Cost per
unit
Total
Round
shape
51.75 48.41 2505.21
Box
shape
86.25 35.91 3097.23
Quantity Cost per
unit
Total
Round shape 34.5 48.41 1670.14
Box Shape 57.5 35.91 2064.82
Ending inventory Finished good
Total 5602.44 Total 3734.96

33. Beginning inventory 0
(+) COGS :
Direct material cost (a)
Direct labor cost (b)
MOH cost (c)
28060
16387.5
84.32
Total COGS available for sale 44531.82
Less: Ending Inventory (9337.4)
Total 35194.42
COGS Budget

34. Traditional Income Statement Contribution Margin Format
Sale 60375
(-) COGS 35194.42
Gross margin 25180.58
(-)Selling, General and Administrative expenses
Variable non-manufacturing cost 500
Fixed non-manufacturing cost 600
Operating Income 24080.58
Sale 60375
Less: Variable cost
Variable COGS 29292.72
Variable non-manufacturing cost (500)
Contribution margin 30582.28
Less: Fixed cost (6501.7)
Operating income 24080.58

35. Break Even Point in Unit Sales and in Revenue
We use weight average method to calculate Break Even Point for both pencil holders .Sales
of round shape and box shape holders are 345 and 575 units .
Round Shape Box Shape Total
Sales 345 575 920
Percentage 37.5% 62.5% 100%
CM per unit 118 71 189
WACM Per unit =
118 x 345 + (71 x 575)
920
= 88.625
Fixed cost = 1.7 + 1500 + 400 + 4000 + 600
= 6501.7
Break Even Point (unit) =
Fixed Cost
WACM per unit
=
6501.7
88.625
= 73.36 unit

36. Breakeven point in unit:
 Round Shape => 73.36 units x 37.5% = 28
 Box Shape => 73.36 units x 62.5% = 46
Total = 74
Break Even Revenue:
Round Shape => 28 units x 75 = 2100
Box Shape => 46 units x 60 = 2760
Total = 4860

37. Margin of safety
Margin of safety (in units )for Round Shape :
= Budgeted sales (units) - break even sales (units)
= 345 - 28
= 317
Margin of safety ( in units ) for (Box Shape Pencil
Holders):
= Budgeted sales (units ) - break even sales (units)
= 575 - 46
= 529
Total Margin of safety ( in units ) = Budgeted sales (units) - break even sales (units)
= 920 - 74
= 846
The higher the amount the lower risk

38. MOS and Degree of Operating Leverage
Margin of safety = budgeted revenues - breakeven
revenues
= (345 x 75) + (575 x 60) - 4860
= 55515
Margin Of Safety Percentage =
Margin of safety in dollars
Budgeted revenue
=
55515
60375
= 92%
Degree of operating leverage =
Contribution Margin
Operating Income
=
40546
24080.58
= 1.7 %

39. Sensitivity Analysis
Key Assumption
Units Sold Selling Price Direct Materials Budgeted Operating Income
What if
scenario
R B R B R B
Taka
Change From
Master Budget
Master Budget 345 575 75 60 34.5 26.5 24080.58
Scenario 1 345 575 75 60 38.64 29.68 (23368) 10% Decrease
Scenario 2 311 518 75 60 34.5 26.5 (5970) 24.8% Decrease
Scenario 3 397 661 75 60 34.5 26.5 9060 37.6% Increase