BE310: TMA – 1st Semester 2014-2015

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BE310: TMA – 1st Semester 2014-2015

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Arab Open University
BE310: TMA – 1st Semester 2014-2015
Cut-Off Date: 26th November 2014

About TMA:
The TMA covers the cost accounting concepts and practices in the businesses. It is marked out of 100 and is worth 20% of the overall assessment component. It is intended to assess students’ understanding of some of the learning points within chapters 1 to 5. This TMA requires you to apply the course concepts. The TMA is intended to:
 Assess students’ understanding of key learning points within chapters 1 to 5.
 Increase the students’ knowledge about the reality of the cost and management accounting as a profession.
 Develop students’ communication skills, such as essay writing, analysis and presentation of material.
 Develop the ability to understand and interact with the nature of the managerial accounting tools in reality.

The TMA:
The TMA requires you to:
1- Review various study chapters of ’Cost Accounting’ Book and apply some of the concepts within it.
2- Conduct a simple information search using the internet.
3- Present your findings in not more than 1,200 words (900 words for Part A and 300 words for Part B). The word count excludes headings, references, title page, and diagrams.
4- You should use a Microsoft Office Word and Times New Roman Font of 12 points.
5- You should read and follow the instructions below carefully. Each part of the process will carry marks for the assignment.

Criteria for Grade Distribution:
Criteria Content Referencing Structure and Presentation of ideas Total marks
Part A Part B
Value chain, Decision making & CVP for Kuwait Tyres Job Costing for Alpha Machines
Marks 60 40 (5) (5) 100

The TMA Questions

Part A

Value chain, Decision Making & CVP for Kuwait Tyres

Kuwait Tyres is a tyre manufacturing company in Kuwait. It operates its manufacturing unit in Kuwait and supplies its products to other GCC countries. The company has been facing increasing cost issue since 2010 and it tries to solve this issue by trying various management accounting techniques. The company wants to study about its operations thoroughly and find out the ways and means of improving its performance. The CEO (Chief Executive Officer) of Kuwait Tyres wants to carry out value chain analysis in order to get an insight of the activities being performed by Kuwait Tyres. Kuwait tyres is committed to deliver world class products manufactured to international quality standards at optimum cost and in accordance with the highest expectations of our customers.

Operational Activities

The operational activities of Kuwait Tyres have been summarized as below:

Organization procures materials and manufactures products. Once the products are manufactured, they are checked for its quality and then distributed to the retailers and consumers. Any issues concerning the quality of the products reported by the consumers are directly reported to the retailers and necessary arrangements have been made through retailers to replace the tyres. The CEO wants to expand this value chain and consider including research, design, marketing and customer service functions in its value chain.

Cost & Inventory Information

Kuwait Tyres cost details are as follows:

Cost Cost incurred for the year ended 31st Dec 2013 ($) Beginning Inventory
(as on 1st January 2013 ($) Closing inventory
(as on 31st January 2013) ($)
Direct Materials purchased 1000000 80000 100000
Direct Labor 30% of direct material purchased

Indirect Manufacturing overheads
Materials handling costs 140000
Lubricants 10000
Indirect manufacturing labour 80000
Depreciation on plant & equipment 72000
Property taxes and insurance on equipment 14000
Work – in progress 20000 28000
Finished Goods 200000 300000
Operating Costs
Marketing promotions 132,000
Distribution costs 130,000
Customer service costs 120,000
Sales Information
Number of Units sold

Selling price per unit $ 40 per unit

Estimations for the next 3 months

The company has estimated its sales and production cost for one of its products for the next three months as below:

Particulars October November December
Units expected to be sold 10000 20% more than October sales units 40% more than October sales units
Selling Price per unit ($) 40 45 50
Variable cost per unit ($) 15 per unit 15 per unit 15 per unit
Fixed Cost for this period 100000

Strategy Implementation

One of the biggest issues that Kuwait Tyres face is taking longer time duration in making decisions. Organizations have to react so faster in the market in order to sustain its market position and to continue to earn profits. It wants to formulate and re-structure the decision making process.


1. As the CEO wants to include three more operations in its existing value chain, in this context, explain the meaning of value chain and draw the value chain for this company (including the new changes) and explain briefly each component of value chain of Kuwait Tyres. (15 marks) (250 words)

2. Using the information given above, ascertain the following:
(i) Cost of goods manufactured
(ii) Cost of goods sold
(iii) Gross Profit and Operating income (15 marks) (150 words)

3. Explain briefly about nature of variable and fixed costs and estimate the operating income of Kuwait Tyres using contribution margin approach for the next three months using the estimated figures given above. (15 marks) (200 words)

4. As the company wants to re-structure the strategy implementation process, explain how it can improve the decision making process highlighting the five – step decision making approach. (15 marks) (300 words)

Part B

Job Costing in Alpha Machines

Alpha Machines manufactures single product (Product A1). The products were manufactured in two of the cost centres. The details are as follows:

Information Machining Department Finishing Department
Estimated/Budget Data
Production overheads $ 680,000 $ 240,000
Machine Hours 340,000 8400
Direct Labour Hours 33,000 80,000
Actual Results
Production Overhead incurred $ 720,000 $ 258,800
Machine hours 300,000 7,800
Direct Labour hours 37, 840 88,200

A machine hour rate is used to absorb overhead in the machining department. The finishing department is more labour intensive therefore a labour rate is used. The direct costs for A1 are as follows:


(1) Calculate the production overhead rate for machining and finishing department using normal costing approach. (50 words) (10 marks)

(2) If the company absorbs production overheads to products using budgeted rates then will there be any over/under absorption of overheads? If yes, calculate the over/under absorption of overheads for both the departments. (50 words) (15 marks)

(3) Explain briefly why over/under absorption of overheads occur?
(200 words) (15 marks)


خدمات مجانية – حلول واجبات الجامعة - كل الجامعات
لجميع تخصصات الجامعة ولجميع فروع الجامعة
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متوفرمدرسين ومدرسات لجميع المواد والتخصصات
قسم خاص لواجبات التربية لجميع التخصصات ولجميع المستويات


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