Question # 2
Asad & Company Limited present to you the following facts
concerning the company’s operations for the years 2014.
Beginning inventory (at sales prices) 37,500
Purchases (at cost price) 52,500
Sales (at sales price) 75,000
Ending inventory (at sales price) 50,000
Marketing expenses
16,000
Administrative expenses 6,000
Required: An income statement for the year 2014
Question # 3
AI-Raheem Fabrics, during the month of January 2014,
completed the following transactions.
(a) Materials purchased during January, 2014:
Direct materials Rs. 90,000
Indirect materials Rs. 10,000
(b) Materials issued for use in production:
Direct materials Rs. 80,000
Indirect materials Rs. 5,000
(c) Defective materials returned to supplier:
Direct materials Rs. 4,000
Indirect materials Rs. 2 000
(d) Unused material returned by factory to store room:
Direct materials Rs. 2,000
Indirect materials Rs. 1 000
(e) Payroll data for the month as follows:
Direct materials Rs. 60,000
Indirect materials Rs. 10,000
Salaries of marketing staff Rs. 30,000
Salaries of administration staff Rs. 20,000
Deduction (Less from total) of provident [email protected] 10%
of gross earning Rs. 12,000

Net amount paid Rs.108, 000
Employer also contributes an equal amount towards provident
fund.
(f) Factory overhead cost incurred during the month:
Bilk for utilities Rs. 12,000
Factory rent Rs. 16,000
Depreciation of plant Rs 4,000
Insurance of plant expired Rs. 2,000
(g) Factory overhead is applied to production @ 50% of direct
labor cost.
(h) Cost of finished output during the moth Rs.150, 000.
(i) Finished goods costing Rs. 130,000 were sold for Rs.170,
000. Sales of Rs. 70,000 were for cash and of Rs. 100,000 were
on credit.
Required:
Post entries in general journal form to record the above
transaction.
Question # 4
Production of an order consisting 800 units requires direct
materials of Rs. 350,000 and direct labor or Rs. 250,000.
Factory overhead is applied at the rate of 80% of direct labor
cast. After completion of the order, 16 units are classified as
spoiled which can be sold for Rs. 4,000. Customer takes
delivery of remaining 784 good units and paid in cash the
contracted prices at the rate of Rs. 1,250 per unit. Spoiled units
are sold and Rs. 4,000 received in cash.
Required:
(1) Journal entries, if the loss is charged to the order.
(2) Journal entries, if the loss is changed to factory overhead.
Question # 5
A worker takes 9 hours to complete a job on daily wages and 6
hours on a scheme of payment by results. His day rate is Rs.
7.50 per hour. Materials coast of the product is Rs. 400 and
overheads are recovered at 150% of total direct wages.

Required: Calculate factory cost of the product under:
(1) Piece work Plan.
(2) Halsey Plan.
Question # 6
Annual estimated factory overhead of a company for an
expected of 1, 80,000 pounds of a product was as follows:
Fixed overhead Rs 36,000
Variable overhead 1, 08,000
Output was 10,000 pounds in June and actual overhead expenses
were 7,700.
Required:
(1) The Overhead Rate per unit
(2) Spending Variance.
(3) Idle Capacity Variance.
Question # 7
Following costs were charged to 2nd department of Muddesser
Corporation during the month of September. Cost of units
received from 1 department Rs. 364,000, materials Rs. 327,500,
and labor Rs. 221,970, overhead Rs. 80,360.
During the month 2nd department completed operations on
4,700 units and transferred these units to 3rd department, 200
units were lost during processing, the loss is considered as
unavoidable. At the end of month 300 units were in process,
these units were 2/3 converted. All materials are added in 2nd
department at the beginning of manufacturing operations.
Required: Cost of production report
You are the Operations Manager for a $50,000,000 (sales)
subsidiary of a $750,000,000
corporation. You report to the Divisional Vice President. Your
division produces industrial

products that are used in the construction, maintenance,
transportation, and equipment
manufacturing industries. The other two divisions in your
corporation serve the automotive and
electronics industries. A few products are cross-marketed.
Your division is currently number three in your market place.
The number one firm has about
60% of the market, the number two firm has about 25% of the
market, and you have about 15%
of the market.
Your products are often used in human safety applications, so
product quality is paramount.
Neither you nor your competitors have a competitive quality
advantage, nor a distinct production
cost advantage. Being number three in the market place has
meant that your division must excel
in customer service and delivery reliability.
Over 90% of your sales come through manufacturing
representatives to regional distributors who
hold inventory of your most popular products in limited
quantities. To keep your distributors loyal,
your company works very hard on customer service.
Your division currently has about 4,000 products in your
catalog. About 1,200 items are “in-stock”
(MTS, Make-to-Stock) items. The remaining 2,800 items are
“non-stock” items that can be
considered to be Make-To-Order (MTO). The MTO items are
not stocked but are manufactured
if, and only if, an order for them is received.
Your division promises to ship all “in-stock” items within 24
hours of receiving the order. If the

order is received by noon, the order is shipped that day.
Because most of your orders are small
and are delivered to diverse addresses, UPS is the preferred
shipping mode.
In contrast, your two sister divisions operate on a much longer
lead-time and ship in
comparatively larger quantities. They tend to operate much
more in the MTO mode and do not
offer the fast 24-hour shipping responses that your division
does.
The corporate headquarters are in St. Louis, Missouri, where the
company was founded in the
1910s. You are located in Cape Girardeau, Missouri, where
manufacturing operations were
moved in the 1950s to exploit the lower labor costs. The
corporate North American Warehouse
(NAW) is located in a western suburb of St. Louis to be near the
St. Louis airport. Virtually all
shipments to customers are made from the NAW. Several years
ago, to stay competitive,
production operations started to shift from the Cape Girardeau
location to a plant in Mexico. The
shift to Mexico has been successful overall, but the plant does
not always deliver what is needed
and is sometimes late in delivering parts to the NAW.
The corporation installed SAP several years ago. You have
been far too busy to thoroughly
investigate all of the details, but everyone in the organization
seems to be satisfied at some level
with the system.
Because you are the STO (Senior Technical Officer) of your
division, you also manage the client

support group (located near the St. Louis airport) which
consults with clients on selecting which
products to purchase and offers consulting/project management
services for installing your
products. Your direct reports include the Plant Manager in
Cape Girardeau, the Plant Manager in
Mexico, the Divisional Supply Chain Manager, the Manager of
Product Quality Control, and the
Divisional Customer Support Manager. Your chief peers are the
Director of Marketing and the
Manager of the Divisional Headquarters staff. Order entry
reports to the Director of Marketing.
Purchasing, Accounting, Finance, HR, and IT functions are
handled at the corporate level. The
manager of the NAW formally reports to the VP of the
automotive division, but he is tasked to
serve all three divisions equitably.
Several months ago, a new CEO took the reigns of your parent
company. She is looking to
improve profits, and is tasking all three divisions to reduce
costs. For your division, she is
particularly interested in reducing inventory while maintaining
(improving) current customer
service levels. She also questions whether having the Customer
Support staff centrally located in
St. Louis is really the best way (in terms of cost and service) to
service your customers.
Your boss, the Divisional VP, has asked you to put together an
analysis of your division’s
operations and to produce a plan to improve operations with an
eye to reducing costs.

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