Which costs are relevant and which are not relevant in the choice between these two alternatives?

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Assignment Question(s):                                                    (Marks 15)

Q1. Define in Your words
a. Cost Centre                                                                                                                          [0.5 mark]
b. Profit Centre                                                                                                                        [0.5 mark]
c. Investment Centre                                                                                                                [0.5 mark]

Answer:

Q2. Hamed Company is preparing budgets for the quarter ending June 30, 2019.

Budgeted sales in units for the next five months are:

Required:

15. Prepare Sales budget for April, May & June assuming selling price per unit is SR 15.

[2 marks]

1. Prepare production budget for April, May & June if the company wishes ending inventory as

10 % of next month sales units.                                                                                       [2 marks]

Answer:

Q3. Karim Corporation is considering two alternatives that are code-named A and B. Costs associated with the alternatives are listed below:

Required:
a. Which costs are relevant and which are not relevant in the choice between these two alternatives?                                                                                                                                                                                   [2 Mark]
b. What is the differential cost between the two alternatives?                                          [2 Marks]

Answer

Q.4 Karim Industries is a division of a major corporation. Last year the division had total sales of SAR 43,380,000, net operating income of SAR 4,828,980, and average operating assets of SAR 9,000,000. The company’s minimum required rate of return is 12%.
Required:
a. What is the division’s margin?                                                                                        [1 mark]
b. What is the division’s turnover?                                                                                      [1 mark]
c. What is the division’s return on investment (ROI)?                                                        [1 mark]
Answer

Q5. Karim Corporation is considering investing in a new piece of equipment for SAR 100,000 that will provide annual cash flows of SAR 20,000 per year for seven years. Calculate the cash payback period.                                                                                                                                 [2.5 marks]

Answer