| Cost and Management Accounting |
| For BS/ Sir M.Faseeh Khan |
| Federal Urdu Art and |
Cost and Management Accounting 
Lecture + Assignment
™
Topic Including:
· Job Order Costing
· Manufacturing Account
· Process Accounting
· Standard Costing
|
Meaning and Scope of Cost Accountancy
The term cost accountancy is wider than the term cost accounting. According to the Terminology of Management and Financial Accountancy Published by the Chartered Institute of Management Accountants,
“the application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control. It includes the presentation of information derived there from for the purpose of managerial decision making.”
Cost Accounting
Cost accounting is the process of accounting for costs. It embraces the accounting procedures relating to recording of all income and expenditure and the preparation of periodical statements and reports with the object of ascertaining and controlling costs. It is thus the formal mechanism by means of which costs of products or services are ascertained and controlled.
Costing
Costing is “the technique and process of ascertaining costs.” Cost accounting is different from costing in the sense that the former provides only the basis and information for ascertainment of cost. Once the information is made available the costing can be carried out arithmetically by means of memorandum statements or by method of integral accounting.
Cost Control
According to the Institute of Cost and Works Accountants of India, cost control means “The act of power of controlling or regulating or dominating or commanding costs through the application of management tools and techniques to the performance of any operation to most predetermined objectives of quality, quantity, value and time oat an optimum outlay”.
Objectives of Cost Accounting
The main objectives of cost accounting can be summarized as follows:-
1. Ascertaining Costs: - The first and foremost objective of cost accounting is to find out cost of a product, process or service. The other objectives which have been mentioned hereafter scan be achieved only when the costs have been ascertained.
2. Determining Selling Price: - Business enterprises are run on a profit – making basis. It is thus necessary that the revenue should be greater than the costs incurred in producing goods and services from which the revenue is to be derived. Cost accounting provides information regarding the cost to make and sell such products or services.
3. Measuring and Increasing Efficiency: - Cost accounting involvers a study of the various operations used in manufacturing a product or providing a services. The study facilitates measuring of the efficiency of the organization as a whole as well as of the departments besides devising means of increasing the efficiency.
4. Cost Control and Cost Reduction: - Cost accounting assists in cost control it uses techniques such as budgetary control, standard costing etc. for controlling costs. Budgets are prepared will in advance. The standards for each item of cost are determined, the actual costs are compared with the standard costs and variances are found out as to their causes. This greatly increases the operating efficiency of the enterprise. Besides it, cost is required to be reduced also constant research and development activities help in reduction of costs without compromising with the quality of goods or services.
5. Cost Management: - The term ‘Cost Management’ includes the activities of managers in short-run and long-run planning and control of costs. Cost management has a broad focus. It includes both cost control and lost reduction. As a matter of fact cost management is often invariably linked with revenue and profit planning. For instance, to enhance revenue and profits, the management often deliberately incurs additional costs for advertising and product modifications.
6. Ascertaining Profits: - Cost accounting also aims at ascertaining the profits of each and every activity. It produces statements at such intervals as the management may require. The financial statements prepared under financial accounting, generally once a year or half – year, are spaced too far apart in time to meet the needs of the management. In order to operate the business at a high level of efficiency, it is essential for the management to have a frequent review of production, sales and operating results. Cost accounting provides daily, weekly or monthly volumes of units produced, accumulated costs together with appropriate analysis so that quantum of profit and profitability is known.
7. Providing Basis for Managerial Decision – Making: - Costs accounting helps the management in formulation operative policies. These policies may relate to any of the following matters:-
(i) Determination of cost – volume – profit relationship.
(ii) Shutting down or operating at a loss.
(iii) Making or buying from outside supplies.
(iv) Continuing with the existing plant and machinery or replacing them by improved and economical means.
Cost Accounting versus Financial Accounting
Accounting may broadly be classified into two categories:-
(a) Financial Accounting and
(b) Management Accounting
Financial Accounting is concerned with recording, classifying and summarizing financial transactions and preparing statements relating to the business in accordance with generally accepted accounting concepts and conventions. It is mainly meant to serve all parties external to the operating responsibility of the firm such as shareholders and creditors of the firm besides providing information about the overall operational results of the business while Cost Accounting is concerned with accounting information which is useful for the management it is the presentation of accounting information in such as way as to assist “the management in the creation of policy and day to day operation of the undertaking.
IMPORTANCE OF COST ACCOUNTING
1. Costing helps in periods of trade depression and trade competition:-
In periods of trade depression the business cannot afford to have leakages which pass unchecked. The management should know where economies may be sought, waste eliminated and efficiency increased. The business has to wage a wax for its survival. The management should know the actual cost of their products before embarking on any scheme of reducing the prices on giving tenders. Adequate costing facilitates this.
2. Aids in price fixation:-
Though economic law & supply and demand and activities of the competitors, to a great extent, determine the price of the article, cost to the producer does play an important part. The producer can take necessary guidance from his costing records.
3. Helps in estimate:-
Adequate costing records provide a reliable basis upon which tenders and estimates may be prepared. The chances of losing a contract on account of over – rating or losing in the execution of a contract due to under – rating can be minimized. Thus, “ascertained costs provide a measure for estimates, a guide to policy, and a control over current production”.
4. Helps in channeling production on right lines:-
Costing makes possible for the management to distinguish between profitable and non-profitable activities profit can be maximized by concentrating on profitable operations and eliminating non-profitable ones.
5. Wastages are eliminated:-
As it is possible to know the cost of the article at every stage, it becomes possible to chock various forms of waste, such as time, expenses etc. or in the use of machine, equipment and tools.
6. Costing makes comparison possible:-
If the costing records are regularly kept, comparative cost data for different periods and various volumes of production will be available. It will help the management in forming future lines of action.
7. Provides data for periodical profit and loss accounts:-
Adequate costing records supply to the management such data as may be necessary for preparation of profit and loss account and balance sheet, at such intervals as may be desired by the management.
It also explains in detail the sources of profit or loss revealed by the financial accounts thus helps in presentation of better information before the management.
8. Aids in determining and enhancing efficiency:-
Losses due to wastage of material, idle time of workers, poor supervision etc., will be disclosed if the various operations involved in manufacturing a product are studied by a cost accountant. The efficiency can be measured and costs controlled and through it various devices can be framed to increase the efficiency.
9. Helps in inventory control:-
Costing furnishes control which management requires in respect of stock of materials, work-in-progress and finished goods. (This has been explained in detail under the chapter “Materials”)
10. Helps in cost reduction:-
Costs can be reduced in the long run when alternatives are tried. This is particularly important ion the present day context of global competition cost accounting has assumed special significance beyond cost control this way.
11. Assists in increasing productivity
Productivity of material and labour is required to be increased to have growth and more profitability in the organisation costing renders great assistance in measuring productivity and suggesting ways to improve it.
ELEMENTS OF COST
There are three broad elements of cost:-
(a) Material
(b) Labour
(c) Expenses/F.O.H
(a) Material: - The substance from which the product is made is known as material. It may be in a raw or a manufactured state. It can be direct as well as indirect.
Direct Material: - All material which becomes an integral part of the finished product and which can be conveniently assigned to specific physical units is termed as “Direct Material”.
Following are some of the examples of direct material:-
(i) All material or components specifically purchased produced or requisitioned from stores.
(ii) Primary packing material (e.g. – cartoon, wrapping, cardboard, boxes etc.)
(iii) Purchased or partly produced components.
Direct material is also described as raw-material, process material, prime material, production material, stores material, constructional material etc.
Indirect Material: - All material which is used for purposes ancillary to the business and which cannot be conveniently assigned to specific physical units is termed as “Indirect Material”.
Consumable stores, oil and waste, printing and stationery etc. are a few examples of indirect material
Indirect material may be used in the factory the office or the selling and distribution division.
(b) Labour: - For conversion of materials into finished goods, human effort is needed such human effort is called labour. Labour can be direct as well as indirect.
Direct labour: - Labour which takes an active and direct part in the production of a particular commodity is called labour. Direct labour costs are, therefore specially and conveniently traceable to specific products.
Direct labour is also described as process labour, productive labour, operating labour, manufacturing labour, direct wages etc.
Indirect labour:- labour employed for the purpose of carrying out tasks incidental to goods or services provided, is indirect labour such labour does not alter the construction, composition or condition of the product. It cannot be practically traced to specific units of output wages of store – keepers, foreman, time – keepers, directors, fees, salaries of salesmen, etc. are all examples of indirect labour costs.
Indirect labour may relate to the factory the office or the selling and distribution division.
(c) Expenses: - Expenses may be direct or indirect.
Direct expenses: - These are expenses which can be directly, conveniently and wholly allocated to specific cost centers or cost units. Examples of such expenses are: hire of some special machinery required for a particular contract, cost of defective work incurred in connection with a particular job or contract etc.
Direct expenses are sometimes also described as “chargeable expenses”.
Indirect expenses:- these are expenses which cannot be directly, conveniently and wholly allocated to cost centers or cost units.
OVERHEADS:- It is to be noted that the term overheads has a wider meaning than the term indirect expenses overheads include the cost of indirect material, indirect labour besides indirect expenses.
Indirect expenses may be classified under the following three categories:-
(a) Manufacturing (works, factory or production) expenses:-
Such indirect expenses which are incurred in the factory and concerned with the running of the factory or plant are known as manufacturing expenses. Expenses relating to production management and administration are included there in. Following are a few items of such expenses:
Rent, rates and insurance of factory premises, power used in factory building, plant and machinery etc.
(b) Office and Administrative expenses
These expenses are not related to factory but they pertain to the management and administration of business such expenses are incurred on the direction and control of an undertaking example are :- office rent, lighting and heating, postage and telegrams, telephones and other charges; depreciation of office building, furniture and equipment, bank charges, legal charges, audit fee etc.
(c) Selling and Distribution Expenses:-
Expenses incurred for marketing of a commodity, for securing orders for the articles, dispatching goods sold, and for making efforts to find and retain customers are called selling and distribution expenses examples are:-
Advertisement expenses cost of preparing tenders, traveling expenses, bad debts, collection charges etc.
Warehouse charges packing and loading charges, carriage outwards, etc.
The above classification of different elements of cost can be presented in the form of the following chart:
Items excluded from cost accounts
There are certain items which are included in financial accounts but not in cost accounts. These items fall into three categories:-
Appropriation of profits
(i) appropriation to sinking funds.
(ii) Dividends paid
(iii) Taxes on income and profits
(iv) Transfers to general reserves
(v) Excess provision for depreciation of buildings, plant etc. and for bad debts
(vi) Amount written off – goodwill, preliminary expenses, underwriting commission, discount on debentures issued; expenses of capital issue etc.
(vii) Capital expenditures specifically charged to revenue
(viii) Charitable donation
Matters of pure finance
(a) Purely financial charges:-
(i) Losses on sale of investments, buildings, etc.
(ii) Expenses on transfer of company’s office
(iii) Interest on bank loan, debentures, mortgages, etc.
(iv) Damages payable
(v) Penalties and fines
(vi) Losses due to scrapping of machinery
(vii) Remuneration paid to the proprietor in excess of a fair reward for services rendered.
(b) Purely financial incomes:-
(i) Interest received on bank deposits
(ii) Profits made on the sale of investments, fixed assets, etc.
(iii) Transfer fees received
(iv) Rent receivable
(v) Interest, dividends, etc. received on investments.
(vi) Brokerage received
(vii) Discount, commission received
Abnormal gains and losses:-
(i) Losses or gains on sale of fixed assets.
(ii) Loss to business property on account of theft, fire or other natural calamities.
In addition to above abnormal items (gain and losses) may also be excluded from cost accounts. Alternatively, these may be taken to costing profit and loss account.
Components of total cost
Prime cost: - It consists of costs of direct material, direct labour and direct expenses. It is also known as basic, first or flat cost.
Factory cost:- It comprises of prime cost and in addition works of factory overheads which includes costs of indirect material, indirect labour and indirect expenses of the factory. The cost is also known as works cost, production or manufacturing cost.
Office cost: - If office and administrative overheads are added to factory cost office cost is arrived at this is also termed as administrative cost or the total cost of production.
Total cost:- Office cost or total cost of production selling and distribution overheads are added to the total cost of production to get the total cost or the cost of sales.
Cost of sales or total cost. The various components of total cost can be depicted through the help of the following chart:-
Process Cost System
DEFINITION:
The costing system that collects department wise data of quantities produced and product costs incurred during the costing period and reports and average unit cost of output, in a situation, where there is mass production of homogeneous articles by the performance of uniform manufacturing operations.
CHARACTERISTICS OF PROCESS COST SYSTEM:
Process costing system is employed by industries possessing following characteristics:
1. There is mass production of a single product or two or more products in successive runs of scheduled duration e.g. vegetable canning or fruit juice bottling.
2. All units of output are exactly similar and are produced by the same manufacturing process.
3. Entire Manufacturing process is divided into departments or processes, each performing a specific set of operations.
4. Completed output of each department, except the last one, is the raw materials for the next department.
5. Manufacturing operations may result in production of joint products or by products.
6. Production is not in response to customer’s orders but in anticipation of demand.
EXAMPLES OF INDUSTRIES USING PROCESS COSTING INCLUDE:
Bottling Cement
Coal Distilleries
Electricity Ice
Paint Pharmaceuticals
Soap Sugar
Natural Gas Petroleum Products
Rubber Textile
BASICS TERMINOLOGIES OF PROCESS COSTING
The basics and most important terminologies of process costing are such that:
1. EQUIVALENT
The concept of equivalent production is the basis to process costing. In most case, not all units are completed during the production period. All units must be expressed in respect of completed jobs in order to determine unit cost. Equivalent production equals total units completed plus incomplete units restated in terms of completed units.
Equivalent full units are a measure of the work done in a given accounting period. The work accomplished by a manufacturing department during a given accounting period may include.
a) Completing units which were already in process at the beginning of the period
b) Working on units started and completed during the current period;
c) Working on units, which are still in process at the end of the current period.
2.
Costs to account for schedule or cost per unit report shows costs which were accumulated by the department unit costs broken down by elements is called cost per unit.
FORMULAE OF COST PER UNIT:
Cost per unit =
3. COSTS ACCOUNTED FOR
This schedule of the cost of production report illustrated the distribution of accumulated costs to units completed and transferred to next department or to finished goods inventory. Now additional computations are required to determined ending work-in-process inventory. To determine cost of ending inventory of work in precess degree of completion is expressed in terms of completed units as to material and conversion costs or equivalent production. The equivalent production is than multiplied by the unit cost for each cost element. The total cost to account for section must equal the total costs accounted for section.
4. GOODS /
The inventory of partially completed goods in the process of manufacture as determined by a physical count at the end of the year or a specific date.
Assignment # 1
Problems of Job order Costing System
Q.1: Margoob Company uses job order cost accounting system. The following information appears in the goods in process controlling account for the month of June 1993, and company uses FIFO method.
Debits to Account Credit to account
Balance
Direct materials 20,000 Goods Inventory account ?
Direct Labour 12,000 Balance
Manufacturing overhead
incurred on account 14,000
Total debits 54,000 Total Credit 54,000
Over applied Factory overhead Rs. 400 and used Factory overhead rate based on Direct Labour Cost. 90% completed units sold on account for Rs. 50,000.
Q.2 : Sheikh Sons uses a job order cost accounting system.
Factory overhead is charged to individual jobs through the use of a predetermined overhead rate based on direct labour cost.The following information appears in the company’s Goods-in-Process Inventory cost for the month of June.
Debit to account
Balance, June 1 Rs. 8,300
Raw Materials 12,000
Direct labour 9,000
Factory overhead (applied to jobs as
percentage of direct cost) 11,700
Rs. 41,000
Credit to account
Transferred to Finished goods inventory
account 32,000
Balance, June 30 Rs. 9,000
REQUIRED:
a) Compute the predetermined overhead application rate used by the Company.
b) Assuming that the direct labour charged to the jobs still in process at June 30, amounts to Rs. 2,400, compute the amount of factory overhead and the amount of raw materials which have been charged to these jobs as of June 30.
c) Prepare general journal entries to summarize:
1. The manufacturing costs (materials, labour and overhead) charged to production during June.
2. The transfer of production completed during June to the Finished Goods inventory account.
3. The Cash sales of 90% of the merchandise completed during June, at a total sales price of Rs. 46,500. Show the related cost of goods sold in a separate journal entry
Q.3: The Sindh Manufacturing Co. uses job order cost system.
The transactions for the month of March, 1996 are given below:
i) Purchased Raw Material costing 95,000 on account.
ii) The Raw Material account show a debit balance of Rs. 15,000 on
iii) Direct labour cost incurred Rs. 120,000.
iv) Factory overhead rate is applied 90% of direct labour cost.
v) The completed jobs were shipped to customer at a billed price Rs. 350,000
Note: Raw Material Rs. 10,000 and direct labour Rs. 7,000 are included in the goods in process on
REQUIRED:
i) Record the above transactions in the general journal and setup work I process account.
ii) Compare the cost of goods in process inventory
Q.4: Sunshine Co. uses a job order cost accounting system. The following information was provided for the month of March.
a) Purchases of direct materials during the month amounted to Rs. 59,700/= on account.
b) Materials requisitions issued by the production department during the month total to Rs. 56,200/=
c) Time cards of direct workers show 2000 hours worked on various jobs during the month, for total direct labour cost of Rs. 30,000/=
d) Direct workers were paid Rs. 26,300/= in March.
e) Actual overhead costs for the month amounted to 34,900/=
f) Overhead is applied to jobs at a rate of Rs. 18/= per direct labour hour.
g) Jobs with total accumulated cost of Rs. 1,16,000/= were completed during the month.
h) On March 31, finished goods inventory was valued at Rs. 22,000/=
i) During March finished goods were sold for Rs. 1,28,000/= on account.
REQUIRED:
Prepare general journal entries for each of the above transactions (including cost of goods sold and closing of factory overhead account.
Q.5: MUSTAFA JATOI MANUFACTRUING COMPANY Use Job Order Cost System. Manufacturing Operations for JAN-DEC. 1990 were as under:
a) Purchased Materials on account Rs. 2,15,000
b) Defective Materials were returned 10,000
c) Direct Materials were issued to JOBS 15,000
d) Direct Labour Cost incurred was 30,000
e) Direct Labour Cost incurred was 5,000
f) Indirect Labour Cost incurred was 4,000
g) The Applied Factory overhead Cost amounted 10,000
h) Factory overhead Cost on account was 10,000
i) Factory Depreciation cost was estimated at 90,000
j) The Jobs were completed for 5,60,00.
k) Finished Goods Costing were Sold 20,000
l) The finished Goods were sold on account for 88,000
REQUIRED:
Prepare Entries in the general Journal showing All Computation:
Q.6: The following data relate to Khurram Farooqui Manufacturing Co. for the month of December 1991.
a) Purchase Raw Materials on account.
b) Raw Materials accounts show a debit balance of Rs. 20,000 on
c) Direct Labour Cost. Rs. 1,00,000
d) Factory Overhead incurred and applied. Rs. 80,000
e) The completed jobs were shipped to customers at
a billed price of Rs. 3,00,000
Note: Raw Materials of Rs. 5,900 and Direct Labour Cost of Rs. 4,500 are included in the goods in process on
(Factory Overhead is applied on the basis of Direct Labour Cost).
Required:
1) Record the above transactions in the General Journal
2) Compute the Cost of Goods in Process on December 31, 19913.
3) Prepare a Condensed Income Statement for December, 1991
Problems of Manufacturing Accounting
Q.1: Maroof Manufacturing Company showed beginning and ending inventories balances for 1992:
Inventory accounts 1992
Material Rs. 30,000 Rs. 26,000
Goods in process 9,000 12,000
Finished goods 35,000 39,000
The amount debited and credited during the year to the accounts used in recording manufacturing costs are summarized below:
Account Debit Entries Credit Entries
Merchandise Inventory 200,000 19,8000
Direct Labour 60,000 68,000
Manufacturing overhead 85,000 85,000
Goods in process inventory ? ?
Finished goods inventory ? ?
Required:
a) Compute the amounts for 1992:
1) Direct Material purchased, 2) Direct Materials used, 3) Direct Labour Payroll paid during the year 4) Direct Labour costs total to units manufactured, 5) The year end liability for Direct Wages Payable, 6) The overhead application rate, assuming that overhead costs are applied to units manufactured in proportion to Direct – Labour cost, 7) Total Manufacturing cost debited to goods in process inventory, 9) Cost of goods sold.
b) Prepare Statement of Cost of Goods sold for 1992
Q.2: The Accounting Records of Alladen Mfg. Co. include the following information relating to the year ended
December 31 January 1
Materials inventory 60,000 47,500
Goods in Process Inventory 18,750 20,000
Finished goods inventory
Jan. 1 (5,000 units) 108,000 95,000
Raw Materials purchases 142,500
Direct Labour cost 97,500
Factory overhead cost 221,250
The company manufactured a single product during 1996, 22,500 units were manufactured and 20,000 units were sold.
Required:
a) Prepare a statement of cost of finished goods manufactured for 1996.
b) Compute the cost of goods sold during 1996, assuming that the FIFO inventory costing is used.
d) Compute the cost of the Inventory of finished goods at
Q.3: The Book of JAM MANU
1-1-1990
Raw Materials 30,000 40,000
Goods in Process 50,000 75,000
Finished Goods 70,000 90,000
Purchases of Raw Material 2,15,000
Purchase Discount 10,000
Freight Inward 15,000
Heat, Light and Power 30,000
Factory Machine Repairs 5,000
Factory Insurance 4,000
Indirect Labour 10,000
Indirect Material 10,000
Direct Labour 90,000
Sales 5,60,000
Sales Returns and Allowances 20,000
Selling and Administrative Expenses 88,000
REQUIRED:
1. Statement of cost Goods Manufactured.
2. Income and Administrative Expenses
Q.4: The following balance have been taken from the general ledger for Fano Manufacturing Company:
Raw Materials Inventory (
Raw Materials Purchases 1,89,600
Raw Materials Returns 8,800
Carriage Inwards 15,700
Direct Labour 2,54,400
Indirect Labour 59,250
Depreciation (Machinery) 30,850
Heat, Light and Power 25,400
Factory Rent & Taxes 31,450
Factory Repair Expense 19,350
Foreman’s Salary 24,500
Raw Materials Inventory (
Word in Process Inventory (
The foreman estimates that Rs. 31, 800 of Raw Materials and Rs. 24,800 of Direct Labour are to be allocated to the unfinished goods in process on
REQUIRED:
1) Determine the factory overhead rate bases on direct labour cost.
2) Compute the cost of
3) Prepare a Statement of Cost of Goods Manufactured for December 91.
Q.5: The following data appeared in the books of ALI IND
Sales 203,000
Raw Material Inventory, Mach 1, 10,000
Raw Material Returned to Supplier 5,000
Goods in process Inventory March 1 5,000
Raw Material Purchased 130,000
Direct Labour 45,000
Cost of Goods Manufactured 185,000
Gross profit on sales 25,000
Raw Material Consumed 118,750
Indirect Manufacturing Cost 29,250
Transportation-in 1,250
Finished Goods Inventory, March 1, 22,500
Required:
a) Determine the Closing Inventory of:
i) Raw Material ii) Goods in Process
iii) Finished Goods
Assignment # 2
Problems of Process Accounting
PROBLEM NO – 1:
Information relating to goods in process in the upper department of BATA COMPANY during the month of Aug.1991
Beginning Inventory (Goods-In-Process) Rs.25,000
Material Used Rs.62,000
Direct Labour Rs.90,000
Overhead Applied Rs.60,000
PRODUCTION REPORT FOR AUGUST:-
Units in process aug.1,
(100% complete as to material and 50%complete as to labour and overhead) 6,000
Units put into process during August. 32,000
38,000
Units completed & transferred to lower department units in process August 31, 28,000
(90% complete as to material & 50% complete as to labour and overhead). 10,000
38,000
REQUIRED:
(a) COMPUTE EQUIVALENT PRODUCTION UNITS FOR AUGUST.
(b)COMPUTE THE COST OF ONE UNIT (
(c)
(d)THE AMOUNT OF GOODS IN PROCESS ON
PROBLEM NO – 2:
Information relating to goods in process in the wheel department of TM MANUFACTURING COMPANY during the month of July, 1991.
Beginning Inventory (Goods-In-Process) Rs. 5,000
Material Used Rs.38,000
Labour Cost Rs.74,000
Overhead Applied Rs.55,500
PRODUCTION REPORT FOR JULY.
Units in process July.1, (100% complete as to material and 50%complete as to labour
and overhead) 100
Units put into process during July 1,900
Units to be accounted for 2,000
Units are completed & transferred to frame Department. 1,800
Units in process July 31 (100% complete as to material & 50%
complete as to labour and overhead). 2,00
2,000
REQUIRED:
(a) EQUIVALENT PRODUCTION UNITS FOR JULY.
(b)
(c)
(d) THE AMOUNT OF GOODS IN PROCESS ON
PROBLEM NO – 3:
SAJID COMPANY produces a line of metal filing cabinets. The company has been divided in to a number of departments, one of which is the lock assembly department. The company uses a process cost system. The following information pertains to the goods in process in the lock assembly department during the month of September 1991.
Beginning Inventory (Goods-In-Process) Rs. 22,000
Material Used Rs. 79,000
Direct Labour Rs. 155,000
Applied Factory Overhead (80% of Direct Labour Cost) Rs. 124,000
TOTAL
PRODUCTION REPORT FOR SEPTEMBER
Units in process Sept.1 (100% complete as to materials and 75%complete as to labour and factory overhead). Rs. 3,000
Units put into process during Sep. Rs.40,000
Total units accounted for Rs.43,000
Units transferred to the painting deptt: units in process Sept, 30,
(90% complete as to material & 60% 38,000
complete as to labour and factory overhead). 5,000
The total units accounted for 43,000
REQUIRED:
(a) 1. COMPUTE THE
2. COMPUTE THE
3. COMPUTE THE COST OF UNIT TRANSFERRED TO PAINTING DEPARTMENT.
4. COMPUTE THE INVENTORY OF WORK IN PROCESS SEPT. 30,1991.
(b) MAKE THE JOURNAL ENTRY TO TRANSFER THE PRODUCT FROM THE LOCK ASSEMBLY DEPARTMENT TO THE PAINTING DEPARTMENT FOR THE MONTH OF SEPTEMBER.
PROBLEM NO – 4:
The following information was taken from the books of KASHIF STEELWORKS for the month of October 1991.
Cost of units in process at the beginning of October Rs.20, 000
Cost of materials placed in production Rs.91, 600
Cost of direct labour incurred Rs.56, 000
Factory overhead cost capital Rs.67, 200
The data – extracted from the production report relating to above process are as follows: -
Units in prices at beginning of cost . (40% complete as to material and 60% complete as to converse in cost) 2000 units.
Units placed in production during October. 11,000 Units.
Units in process at end of Oct. transferred 10000 Units.
(75% complete as to materials and 80% complete as to conversion cost 3000 units.
REQUIRED:
(a) EQUIVALENT PRODUCTION UNITS, THE UNITS COST, THE TOTAL COST UNITS TRANSFERRED (ASSUME FIFO FLOW OF COST) AND THE TOTAL COST OF UNITS IN PROCESS ON OCTOBER.31, 1991.
(b) GIVE THE NECESSARY JOURNAL ENTRIES TO RECORD THE ABOVE DATA ON OCTOBER.31, 1991.
PROBLEM NO – 5:
Given below are the production data for DEPARTMENT NO – 1 for the first month of operation: -
INPUTS TO DEPARTMENT
Materials – 1000 Units (units put into process) Rs.10,000
Direct Labour Rs.19,000
Factory Overhead Rs.14,250
During the month 800 units were completed and the remaining 200 units are 100% complete as to material and 75% completed as to conversion costs.
REQUIRED:
(a) EQUIVALENT
(b) UNITS
(c)
(d)
PROBLEM NO – 6:
The B.T.
(1) Raw Materials Requisitioned Rs. 57,500
(2) Direct Labour Costs Incurred Rs. 92,000
(3) Factory Overhead Costs Incurred Rs. 69,000
(4) The Unit Completed 175,000 were Sold for Rs.231,250
The data extracted from the production report relating to the above process are as follows: -
Units placed in production 237,500
Units completed 200,000
Units in process at the end 80% complete as to material and conversion cost. 37,500
REQUIRED:
(a) COMPUTE THE EQUIVALENT PRODUCTION UNITS, THE
(b) GIVE THE NECESSARY JOURNAL ENTRIES IN PROPER FORM TO RECORD THE ABOVE DATA.
PROBLEM NO – 7:
The following information pertains to the goods in process in the FOURTH PROCESS during the month of July 1990:
Beginning of goods in process inventory (1.7.1990) Rs.487,000
Cost of units transferred in the form the third process during the July Rs.350,000
Manufacturing cost incurred in July:
Raw Material Used Rs.140,000
Direct Labour Rs.280,000
Factory Overhead Rs.210,000 .
TOTAL
PRODUCTION REPORT OF FOURTH PROCESS FOR JULY,1990 UNITS
Units in process July 1990, (100% complete as to material 75% complete
as to labour and factory overhead) 40,000
Units transferred in from the third process during July 70,000
Units completed and transferred to finished goods store 90,000
Units in process,
complete as to labour and factory overhead) 20,000
REQUIRED: -
(a) EQUIVALENT PRODUCTION UNITS.
(i)
(ii) TOTAL
(iii)
(b) ENTRIES IN G
(i) TRANSFER OF 70,000 UNITS FROM THE THIRD PROCESS IN THE FOURTH PROCESS
(ii) TRANSFER OF 90,000 COM
PROBLEM NO – 8:
SIGMA MANUFACTURING COMPANY processes its good successively in process-A and process-B and then transfer to finished goods go down. Its records show the following information for the month of June 1998: PROCESS-A PROCESS-B
Cost of Goods-In-Process – June 1 Rs.15,000 ------------
Raw Materials Used Rs.63,000 Rs.34,000
Direct Labour Used Rs.54,000 Rs.68,000
Factory Overhead Applied on the Basis of Direct Labour 50% 100%
PRODUCTION REPORTS FOR JUNE PROCESS-A PROCESS-B
Units-In-Process-June 1 (1/3 complete) Rs. 3,000 ------------
Units-Completed and transferred out Rs.10,000 Rs.8,000
Units-In-Process-June 30(1/4 complete) ------------ Rs.2,000
REQUIRED:
(a) EQUIVALENT
(i) PROCESS-A (ii) PROCESS-B
(b) UNITS
(i) PROCESS-A (ii) PROCESS-B
(c)
(i) PROCESS-A (ii) PROCESS-B
PROBLEM NO – 9:
One of the primary products of the SALAM COMPANY is “IRON
DEPARTMENT – F DEPARTMENT – G
Input 20,000 Tons To Department G From Department F To sale warehouse
16,000 units 16,000 units 14,000 units
Departmental manufacturing cost applicable iron safe production for the month of Jan. were as follows:
DEPARTMENT – F DEPARTMENT – G
Raw Material Rs. 7,740 Rs. 1,050
Direct Labour Rs. 4,860 Rs. 4,800
Factory Overhead Rs. 3,600 Rs. 3,159
Rs. 16,200 Rs. 9,000
Un-finished goods in each department at the end of June were on the average 50% complete both with respect to raw materials and conversation cost.
REQUIRED:
(a) DETERMINE THE PRESENT STATUS OF THE 20,000 UNITS PUT INTO PRODUCTION IN DEPARTMENT F DURING JUNE.
(b) DETERMINE THE EQUIVALENT COMPLETE UNITS/PRODUCTION IN DEPARTMENT F AND G DURING JUNE.
(c) COMPUTE
(d) PREPARE THE NECESSARY JOURNAL ENTRIES TO RECORD THE TRANSFER TO PRODUCT OUT OF DEPARTMENT F&G DURING JUNE, 30.
PROBLEM NO – 10:
ABRAR
DEPARTMENT – S DEPARTMENT – T
Direct Labour Rs. 275,000 Rs.960,0000
Factory Overhead Rs. 540,000 Rs. 600,000
Machine Hours Rs. 360,000 Rs. 4,500
Direct Labour Hours Rs. 125,000 Rs. 500,000
Production order no.490 was started in the middle of march and completed two weeks later. The cost records for this job show the following information:
DEPARTMENT – S DEPARTMENT – T
Material Used On Jobs Rs.2,300 Rs.7,600
Direct Labour Cost Rs.2,500 Rs.5,900
Direct Labour Hours Rs.1,200 Rs.1,900
Machine Hours Rs.6,300 Rs. 500
REQUIRED:
(a) DETERMINE THE OVERHEAD RATE THAT SHOULD BE USED IN APPLYING OVERHEAD COSTS TO JOB NO. 490.
(b) WHAT IS THE TOTAL COST OF JOB NO. 490, AND
(C) ASSUME THAT A
PROBLEM NO - 11:
DEWAN MOTORS is engaged in the production of standard type of electric motor. Production costs for
April totaled Rs.66, 000.April 1 inventory appeared as follows: -
Motors in production (80% completed) 2,500 units Rs.32,000
Motors on hand (completed) 1,200 units Rs.19,200
During the month 5,500 units were completed
April 30 inventories were:
Motors in production (50% completed) 1,000 units
Motors on hand (completed) 1,400 units
The company uses the weighted average method for process costing and for the cost for goods sold
REQUIRED:
(a)
(b)
(c) THE COST OF GOODS SOLD.
PROBLEM NO – 12:
The following information pertains top the good in process no.3 for the month on November 1999:
Good in process inventory November 1, (40,000 units 100% complete as to materials 75%
complete as to conversion costs ) Rs. 387,000
Cost of 140,000 units transferred in form process no.2 during November Rs. 700,000
Manufacturing costs added in process no.3 during November
Direct material 280,000
Direct labour 125,000
Factory overhead 375.000
1,867,000
On
REQUIRED:
A. (1) Equivalent units of production
(2) Cost per units
(3) Cost per units transferred to finished goods warehouse and
(4) Cost of units in process, on November 30
B. General journal entries to record:
(1) Transfer of 40,000 units form process no.2 to process no.3
(2) Manufacturing costs added in process no.3 during November.
(3) Transfer of 130,000 units from process no.3 to finished goods warehouse.
PROBLEM NO – 13:
The B & T Company started its operations on
1. Purchases of material Rs. 74,180
2. Material issued
a. Department A Rs. 38,000
b. Department B Rs. 17,980
c. Department C Rs. 8,200
3. Direct labour RS .50,000 and indirect labour Rs. 15,000
4. Miscellaneous manufacturing services acquired Rs. 11,750
5. Payment to creditors Rs.120,000
6. 32,000 unit sold at Rs. 6.50
7. Depreciation to be charged:
Factory Machine Rs. 25,500
Delivery Equipment Rs. 3,750
Office Equipment Rs. 3,000
OTHER INFORMATION:
1. Direct labour attribute as:
Department A: - Rs.11,400
Department B: - Rs. 5,800
Department C: - Rs.32,800
2. Basis of charging factory overhead 110% of direct labour cost.
3. Units produced DEPTT.A DEPTT.B DEPTT.C
Completed and transferred 68,000 44,000 40000
Completed & on hand at end ----- 4,000 ---
In process at end 12,000 20,000 4,000
12000 units 2/3 completed department A.
20000 units ½ completed department B.
4000 units ¼ completed department C.
REQUIRED:
PREPARE GENERAL JOURNAL ENTRIES TO RECORD THE TRANSACTIONS FOR THE PERIOD.
ENTRIES MAY BE MADE WITH OUT EXPLANATIONS BUT NAY NECESSARY SUPPORTING COMPUTATIONS SHOULD BE SHOWN CLEARLY BELOW THE JOURNAL ENTRY TO WHICH THEY REPLY.
Assignment # 3
Problems of Standard Accounting
Q.1: The following data relate to salman manufacturing Ltd.
STANDARD COSTS
Direct Materials 8000 Unit Rs. 6.20
Direct Labour 4000 Hours Rs. 11.50
Factory Overhead 80% of Direct Labour
ACTUAL COSTS
Direct materials 7200 units Rs. 6.30
Direct Labour 5000 Hours Rs. 11.10
Factory overhead Rs. 32,000
All costs are charged to work in process at Standard and separate variance account are established.
Required
a) Compute
i) Material quantity variance and Material price variance
ii) Labour Time variance and labour Rate variance
iii) Overhead variance
b) Given Journal entries to record the above information.
Q.2: The Accountant for Syntax Inc. have developed the following information manufactured in June 1996.
Materials
Standard : 80,000 ounces at Rs. 0.30 per ounce.
Actual : 88,000 ounces at Rs. 0.29 per ounce.
Direct Labour
Standard : 4,000 ounces at Rs. 10.00 per ounce.
Actual : 3,600 ounces at Rs. 10.40 per ounce.
Factory Overhead
Standard : 4,000 ounces at Rs. 10.00 per ounce.
Actual : 3,600 ounces at Rs. 10,40 per ounce.
Factory Overhead
Standard : Rs. 9,000 fixed cost and Rs. 5,000
variable cost for 10,000 units normal
monthly volume.
Actual : Rs. 9,000 fixed cost and Rs. 4,600
variable cost for 8,000 units actually
produced in June
The normal volume is 10,000 units per month, but only 8,000 units were manufactured in June.
Required:
Compute the following cost variances for the month of June.
a) Material price variance and material quantity variance.
b) Labour rate variance and labour usage variance.
c) Controllable factory overhead variance and volume variance
Q.3: TOP PRODU
Following data are taken from its cost accounting records:
STANDARD ACTUAL
Raw material Rate per unit Rs. 6 Total Rate per unit Rs. 6.2.
Cost Rs. 54,000/= Quantity 9,200 units
Direct labour Wage per hour Rs. 11 Wage per hour
Total labour hours 10,000. Rs. 10,50 Total labour
Cost Rs. 11,02,501/=
Factory 80% of direct labour Total Cost
overhead Rs. 90,000/= Cost
REQUIRED:
a) Calculate (i) Materials Price Variance (ii) Materials
Quantity Variance (iii) Labour Wage Variance (iv) Labour Efficiency Variance
(v) FOH Variance
b) Give entries in general journal to record actual and standard costs of direct materials, direct labour and FOH and their variances.
Q.4: The Actual costs and variance for direct materials, direct labour and factory overhead for the month of October are given below:
Actual Cost Unfavorable Favorable
Direct material 7.1.000
Quantity variance 5,000
Price variance 4,000
Direct labour 9,2000
Hours variance 6,000
Rate variance 8,000
Factory overhead 95,000
Factory overhead variance 10,000
Required:
1) Compute the standard costs of direct material, direct labour and factory overhead.
2) Give the entries in general journal to record the actual and standard costs and their variances.
Q.5: Riaz Process Standard and Actual Cost data for the single product they manufacture, for the month of September, 1992, are as following:
Standard
Material 5,000 kgs. @ Rs. 1.60.
Labour 5,000 hours @ Rs. 3.60
Overhead Rs. 2.80 per Labour hour
Actual
Material 4,900 kgs. @ Rs. 1.90
Labour 5,200 kgs. @ Rs. 1.90
Overhead Rs. 14,900.
REQUIRED:
1) Computation Mat. Price Variance, Mat. Quantity Variance. Lab. Wage Variance, Lab. Efficiency Variance, and Overhead Variance.
2) General Journal entries for the above.
3) General Journal entries to close the variance accounts.
