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What are the various methods of estimating cost functions? Explain each method with suitable numerical examples.

Accounting

ASSIGNMENT

Q1 Differentiate with suitable examples the relevant cash flows and irrelevant cash flows. What relevant role do these cash flows provide in management decision-making? Provide a suitable example in context to an organization to support your answer.

Note: Your answer must include suitable examples of relevant and irrelevant cash flows for management decision-making.

Q2 What are the various methods of estimating cost functions? Explain each method with suitable numerical examples.

Note: You are required to assume values for numerical examples of your own, and they should not be copied from any sources.

Q3 ALC ltd. manufactures a product ‘X’ for which the selling price per unit, variables cost per unit, and fixed costs are as follows:

Selling price per unit      SAR 750

Variable cost per unit     SAR 225

Total Fixed Costs SAR 425,000

Answer the following questions using cost volume profit analysis:

1. a) Determine the break-even point in units.
2. b) Determine the break-even point in sales SAR.
3. c) What will be the pretax profit if the company sells 1,400 units of the product?
4. d) How many units the company will be required to sell to reach a target pretax profit of SAR 200,000?
5. e) The margin of safety in units if the company’s estimated next year budgeted sales are 1,500 units.

Q4 KCC Ltd. uses a process costing system for its sole processing department. There were 35,000 units in the beginning WIP inventory for June and 325,000 units were started in June. The beginning WIP units were 50% complete and the 30,000 units in the ending WIP were 40% complete. All materials are added at the start of processing.

You are required to:

1. a) Compute the no. of units started & completed.
2. b) Compute the EUP for DM and CC using FIFO and WA methods.
3. c) Calculate total manufacturing cost/EUP under both methods with the following details:

FIFO.          WA

Direct Material Cost:      SAR 850,000   ||  SAR 1,000,000

Conversion Cost:    SAR 1,025,000              ||  SAR 1,350,000