1.
Name:Muhammad Zohaib Father Name:Muhammad Khalid
ID:08NAD00543 Roll No:408103067
Program:B.Com Course Code:462/5410
Semester : Spring 2022 Assignment No:02
Contact No:00966590356020 Email:abbasimz@live.com
Country : Saudi Arabia City:Riyadh
Question No 1 Solution
Alpha Manufacturing company
If company accept this offer
EOQ=√𝐴𝑅𝑋2𝑋𝑂𝐶
CC
EOQ=√18000unitsX2X50
285X16%
=√1,800,000
45.6
=√39,474
=199units
And if Alpha Manufacturing company purchase material on EOQ basis.
EOQ=√ARX2XOC
CC
EOQ=√18000unitsX2X600
300X16%
=√21,600,000
48
=√450,000
671units
Note:Requirement No 2 can’t completed due to the in-completed Data.
Question no 2 Answer
First in First Out (FIFO) Method
This method is based on the assumption that materials which are purchased first are
issued first. It uses the price of the first lot of material purchased for all issues of units
until the lot is fully exhausted. Then the issue of material from the next lot is taken up
and accordingly the cost from the second lot is adopted for assigning the cost to the
material so issued and this principle remains in practice continuously. In other words, the
materials are issued at the oldest cost listed in the store ledger card and the material left in
the store is valued at the price of latest purchase.
The following advantages are claimed from the application of FIFO method
a) It is based on the natural flow assumption because the materials are issued in the
sequence of receipts.
b) The issued materials are charged to the production at actual cost thus no unrealized
profit/loss arises from application of this method.
c) Valuation of ending inventory is mostly equal at the prevailing cost of inventories.
d) This method is easy to understand and simple to operate.
FIFO costing method disadvantages
a) As the oldest cost is charged to the production, therefore, the production cost may
lag behind the current economic values.
b) The lower cost of production may indicate higher profitability and greater amount
of tax liability.

2.
c) When the prices of materials are fluctuating, this method involves cumbersome
calculations to assign the cost to the material consumed and the material available
in the ending inventory.
Last in first out (LIFO) Costing Method
This method operates just in reverse sequence of FIFO method. The LIFO method is
based on the assumption that the material purchased through last lot (most recent) are the
First material issued to production. Thus the cost of the last lot of materials purchased is
used first for all issuance until all the units from this lot have been exhausted. Thereafter,
the cost of the previous lot of material purchased is used for issuance of materials if in the
mean time no fresh lot of material is purchased. This results in leaving the old items of
material inventory in stock.
The LIFO method of application may have the following advantages
a) The cost of material is charged to production at the most recent cost. Thus during
rising costs of material, the product costs will be matching to the current prices and
the residual profit will be more realistic. Conversely in case of falling costs of
materials, the profitability would be greater if no change in the sale price is
effected.
b) This method also does not result into any unrealized profit likewise FIFO method
as the relevant costs of material are charged to the product cost and selling prices
are then fixed.
c) The LIFO method is also quite simple to operate particularly when prices are fairly
steady.
d) This method is often favoured from tax consideration as in view of material cost
escalation, which is a usual phenomenon in our country, the resultant profit may be
declining and lower liability of tax is assumed.
The LIFO costing method may also have certain disadvantages as enumerated below:-
a) This method is not realistic as it does not conform to the physical flow of materials.
b) The ending inventories are valued at old prices, usually, lower than current prices,
in view of price escalation trend. Therefore, this method does not represent the
current economic values of inventories in the balance sheet.
c) Likewise FIFO costing method, the LIFO costing method may also indicate
different costs of material for similar jobs being carried out simultaneously because
Mate rials were issued from different lots and at different costs. Thus cost
comparison of jobs renders it difficult
Question 3 Solution
Millat Tractors Company
Group Bonus
Days Hours
worke
-d
Productio-
n in units
Standard
Producti
-on
Excess
Productio-
n
Percentag
-e
increase
Percentage
to Decimal
Hourly
Bonus
Rate
Each
day
Weekly Weekly
Earning
Monday 80 4450 4000 450 11% 0.11 14.85 1188 8316 9504
Tuesday 74 4050 3700 350 9% 0.09 12.15 899 6294 7193
Wednes
day
80 4510 4000 510 13% 0.13 17.55 1404 9828 11232
Thursda
y
76 4370 3800 570 15% 0.15 20.25 1539 10773 12312
Friday 72 4180 3600 580 16% 0.16 21.6 1555 10886 12442

3.
Question 04 Solution
Basharat Production Industries
For the year of 2014
Budgeted factory overhead Rs. 5000,00 Predetermined Rate=Estimated foh/Estimate capacity level 40%
Actual Factory Overheads Rs. 455,000 Applied Overhead Cost=Actual Capacity X Overhead Rate
4,800
Budgeted Machine Hours 12,500 Hours Over/Under Absorbed FOH=Budgeted FOH - Actual FOH
45,000 (over Applied FOH because Budget is
grater than Actual)
Actual Machine Hours 12,000 Hours
Journal Entries
Debit Credit
A) Factory Overhead 4,800
Voucher Payable 4,800
B) Work in process A/C 4,800
FOH Applied A/C 4,800
C) FOH Over Applied A/c 45,000
CGS A/C 45,000
Question 05 Solution
Petiwal Production Company
Proration of Service Departments Overheads Using the Step Method
Particulars Total Producing
Department
P1
P2
Servicing Departments
S1 S2
FOH before distribution of
servicing Department
Rs.600,000 200,000 238,000 72,000 90,000
Distribution of S1
Department
28,800 36,000 (72,000) 7200
Distribution of S2
Department
32,400 64,800 - 97,200
Total Rs.
600,000
261,200 338,800 - -

4.
Proration of Service Departments Overheads Using the Algebraic Method
Particulars Total Producing
Department
P1 P2
Servicing Departments
S1 S2
FOH before distribution of
servicing Department
Rs.600,000 200,000 238,000 72,000 90,000
Distribution of S1
Department
45,000 56250 (112,500) 11,250
Distribution of S2
Department
20,250 40,500 40,500 101250
Total Rs.
600,000
265,250 334,750 - -