What is the difference between the product cost and period cost? Give some examples for each type. What do you mean by Variable and Absorption Costing? Explain both with suitable example.

Cost accounting

Q1. What is the difference between the product cost and period cost? Give some examples for each type [2 marks]
Answer:

Q 2. What do you mean by Variable and Absorption Costing? Explain both with suitable example. [2 marks]
Answer:

Q3. In cost accounting, direct costs are easily and economically traced to cost object. On the other hand, overheads cannot be economically traced to cost object. Therefore, allocating overheads is considered as the main problem in cost accounting, whereas traditional methods such as Single plantwide factory overhead rate method and Multiple production department factory overhead rate method have been used. In addition, developed methods such as Activity based costing method (ABC) has been used to enhance the allocation of overheads to cost object.
Students are required to criticize traditional methods and explain how is ABC being applied to a manufacturing company? What are the disadvantages of the ABC method? [2 marks]

Q4. The AMS Manufacturing Company uses a job costing system with machine hours as the allocation base for overhead. The company uses normal costing to develop the overhead allocation rate. The following data are available for the latest accounting period:
Estimated fixed factory overhead cost SAR 160,000
Estimated machine-hours 100,000
Actual fixed factory overhead cost incurred SAR 170,000
Actual machine-hours used 110,000
Jobs worked on:
Job No. Machine Hours Used
1020 12,000
1030 18,000
1040 15,000
1050 10,000
Compute the overhead allocation rate. [1 mark]
Determine the overhead allocated to job 1040. [1 mark]
Answer:

Q5. Karim Surf Boards makes custom boards for professional surfers. The boards vary according to the types of materials requested by customers and the amount of direct labor required for the finishing process.
The following costs are estimated for 2021:
Number of surf boards 3,000
Direct labor hours 45,000
Direct material cost SAR 175,000
Direct labor cost SAR 900,000
Overhead cost SAR 675,000

During 2021 actual costs were:
Number of surfboards 3,300
Direct labor hours 46,300
Direct materials SAR 185,000
Direct labor SAR 850,000
Overhead SAR 664,000

Explain why job costing, and not process costing, should be used for this organization. [1 mark]
Karim uses a normal costing system. Overheard is allocated on the basis of direct labor hours. Calculate the manufacturing cost of a surfboard that takes SAR 150 of direct materials and 36 hours of direct labor. [1 mark]
Answer:

Q6. Abdulkrim Company manufactures a product A. The company estimates the cost function for the total costs. The cost driver is number of units. The following information were collected:
Month Units Total Costs
January 3,560 SAR 242,400
February 3,800 SAR 252,000
March 4,000 SAR 260,000
April 3,600 SAR 244,000
May 3,200 SAR 228,000
June 3,040 SAR 221,600
Compute a cost function using the high-low method. [2 marks]
Answer:

Q7. Ayob Company’s projected profit for the coming year is as follows:
Sales SAR 200,000 with Price per unit SAR 20, Total Variable cost SAR 120,000 with Variable cost per unit SAR 12 and fixed expenses are SAR 64,000
Compute the break-even point in units. [1.5 marks]
How many units must be sold to earn a profit of SAR 30,000? [1.5 marks]
Answer: