Mgt402 Assignment solution

Solution:

Question # 1
Over/under applied FOH Rs.2,760 Under Applied
Adjustment on entire production:
Work in process cost 42,631
Finished goods cost 31,598
Cost of goods sold 821,031
Question # 2
Economic order quantity 10,000
Effect of cost reduction on EOQ 9,997 (No Effect)

Working:

Over/under applied FOH:

Applied FOH = Rs.290,000 x 30% of Direct Labor
= Rs.87,000
Actual FOH = Indirect Labor + Depreciation + Light & Power + Repair to Machinery + Misc. FOH
= 46,000 + 4,700 + 4,260 + 5,800 + 29,000
= Rs.89,760

Over/under applied FOH = 87,000 - 89,760
= Rs.2,760 Under Applied


Cost of Goods Sold Statement

Direct Material Consumed 440,000
Add: Direct Labor 290,000
Add: FOH Cost (290,000* 30%) 87,000
Total Factory Cost 817,000
Add: Opening W.I.P 41,200
Less: Ending W.I.P (42,500)
Add: Opening Finished Goods 34,300
Less: Closing Finished Goods (31,500)
Cost of Goods Sold (At Normal) 818,500


Adjustment on entire production:

Work in process cost (42500 + 131) 42,631

Finished goods cost (31,500 + 98) 31,598

Cost of goods sold (818,500 + 2,531) 821,031


2- EOQ = √2 x RU x OC / UC x CC%

= √2 x 120,000 x 1,500 / 60 x 6%
= 10,000

Effect of cost reduction By 2% on EOQ

EOQ = √2 x RU x OC / UC x CC%

= √2 x 120,000 x 1,470 / 60 x 5.88%
= 9,997