Indian Institute of Management Kashipur

PGP 2017-19, Term II

Management Accounting
Quiz1
Maximum Marks: 20 Time: 30 Minutes.
Name..................... Roll No.....................

Simpson Company was organized on March 01, 2017. After five months of start-up losses management had expected to
earn a profit during August. Management was disappointed, however, when the income statement for August also
showed a loss. August’s income instatement follows:

Simpson Company
Income Statement For the Month Ended August 31, 2017

Sales 450000
Less Operating Expenses
Indirect Labour 12,000
Utilities 15,000
Direct Labour 70,000
Depreciation, Factory Equipments 21,000
Raw Material Purchased 165,000
Depreciation, Sales Vehicles 18,000
Insurance 4,000
Rent 50,000
Selling and Administrative Salaries 32,000
Advertising 75,000 462,000
Net Operating Losses (12,000)

After seeing the loss of $ 12,000 for august, Simpson’s president stated, “I was sure we would be profitable with in six
months, but our six months are up and this loss for August is even worse than July’s. I think it is time to starts looking
someone to buy out the company’s assets – if we don’t, with in a few months there will be no asset to sell. By the way, I
don’t see any reason to look for new controller. We will just limp along with Sam for the time being.”

The company’s controller resigned a month ago. Sam, an assistant in the controller’s office, prepared the income statement
above. Sam has a little experience in manufacturing operations. Additional information about the company is as follows:

a) Some 60% of utilities cost and 75% of insurance apply to factory operations. The remaining amounts apply to
selling and administrative activities.
b) Inventory balances at the beginning and end of August were:

1-Aug 31-Aug
Raw Material 8,000 10,000
WIP 16,000 21,000
Finished Goods 40,000 60,000

c) Only 80% of rent on facilities applies to factory operations. Remaining applies to selling and administrative
activities.
The president has asked to check over the income statement and make a recommendation as to whether the
company should look for a buyer for its assets.

Indian Institute of Management Kashipur

 PGP 2017-19, Term II
Management Accounting
Quiz1
Maximum Marks: 20 Time: 30 Minutes.
Name..................... Roll No.....................

Question 1: Calculate the prime cost of the company. (4)

Calculation:

Answer:
Question 2: Calculate cost of goods manufactured. (4)
Calculation:

Answer:
Question 3: Calculate the Cost of Goods Sold. (4)
Calculation:

Answer:
Question 4: Calculate the net profit or loss of the overall company by making suitable accounting adjustment. (4)
Calculation:

Answer:
Question 5: Should company look for the selloff of its assets? What is your suggestion and why you are suggesting so? (4)
Answer: