Case Study on Standard Cost per Unit of Finished Products

a)      Prepare Process Q account and calculate the total cost of producing the product.

Thus the total cost is 214615 for the production and processing of goods to produce final products in the selected time duration.

b)     Estimate the selling price of the final product as per the company’s policy and prepare a brief report on the production process to the Management.

·         Selling Price:

According to the company's policy, at least a 20% profit margin is required between the selling price and overall cost of production. Thus, the selling price for the finished goods would be the following:

The per unit selling price can be calculated by dividing this determining selling price by the total number of units.

·         Report on Production Process:

The production process of the company is quite slow therefore the company had a greater ratio of work in process inventory. Analysis and process account development suggest that the company's management need to pay attention to material utilization and labour performance. A greater percentage of incomplete inventory was representing the failure of labour to work on those goods. For instance, in opening stock of work in process products units were 100% complete as to materials while labour work was only completed by 70%. Thus, such a situation indicate inefficiency of labour to complete work within the allocated time duration.

Case Study 4

1.      Meanwhile, the Management of the company appointed you as a consultant to estimate the total cost of the four products under each method of distributing the joint cost.

Average Cost Method:

Physical unit method:

Survey method:

The points used in the survey method are  1,2,2,1 for all four products.

Sales Value Method:

Net Realizable Value method:

2.      Also, advise the management of the company which method is best suitable.

Following the above analysis and literature review, it can be said that the most appropriate and suitable method for cost calculation is the physical unit method and survey based method. The survey based cost allocation method is a suitable option when managers have to plan about future business operations as it enables them to use genius guess and their experience. However, the physical unit method is also appropriate because it does not require rough estimation from average cost.

Case Study 5

a)      Analyse the profitability of each job in the month of April 2020 by preparing T accounts.

The following t-accounts are developed for four major jobs included in the business operations of the company. At the end of each t-account, a statement of profit and loss is attached which will be used for profitability analysis.

Job: 1

Job: 2

Job: 3

Job: 4

Considering the above t-accounts and profit analysis table, it is clear that only job 2 is producing a profit. While the job 1 and 3 are totally in the loss.

b)     Advise the firm, how much price should be charged to each job in the next month assuming the material costs are expected to increase by 10% and assuming the firm needs a mark-up of 20%. (Round off the Job price to the nearest hundreds)

In case, material cost increases by 10%, the company would have more challenges and difficulties to generate profit by covering all cost and expenditures. It would increase the total direct material cost for all jobs. In such a situation, achieving the targeted mark-up of 20% is more challenging. Although, the company can achieve this target for job 1 if the company generate at least 50% additional sales revenue. A 30% increase in revenue is required for job 2. Somehow, job 3 will hardly meet this target of 20% profit if sales are increased by at least 60%. The job 4 requires 40% more sales revenue to meet this target of 20% profit.

c)      Prepare a report to assist the owners of the business to make a decision.

Profitability analysis of four jobs in Al Wathba Services indicates inefficient business management and planning. Current business operations are not enough profit for the company. From 4 jobs only two jobs are capable to meet the basic cost and expenses for the relevant month. While expecting an increase in cost and expenses will also generate a negative impact on the business outcomes. In such a situation, business need changes. Improvement in employee performance and resources utilization efficiency are required to control increasing cost and expand profit margin. Although, an increase in sales revenue is also required to cover the cost and generate profit.