Course: Cost Accounting (462)
Q. 1a Define Cost Accounting. State the merits of cost accounting.
B Describe
the elements of Manufacturing Cost. Describe the classification of Costs with
reference to recording in Financial Statements.
**1a. Definition of Cost Accounting:**
Cost
accounting is a branch of accounting that deals with the systematic recording,
analysis, and allocation of costs associated with the production of goods or
services within an organization. The primary objective of cost accounting is to
provide detailed information about costs, helping management make informed
decisions, control expenses, and improve the overall efficiency and
profitability of the business.
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**Merits of Cost Accounting:**
1. **Cost Control:** Cost
accounting allows organizations to monitor and control costs effectively by
providing detailed information about different cost elements. This helps in
identifying areas where costs can be reduced without compromising the quality
of products or services.
2. **Decision Making:** Cost
accounting provides valuable information for decision-making processes.
Managers can use cost data to evaluate the profitability of different products,
make pricing decisions, and determine the most cost-effective production methods.
3. **Performance Evaluation:** It
helps in evaluating the performance of various departments, products, or
processes by comparing actual costs with standard or budgeted costs. This aids
in identifying areas that need improvement.
4. **Optimum Resource Utilization:** Cost
accounting helps in identifying and eliminating wastages, ensuring optimal
utilization of resources. This leads to improved efficiency and
cost-effectiveness in production processes.
5. **Profit Planning:** It
assists in profit planning by providing insights into cost structures.
Organizations can set realistic profit targets based on a thorough
understanding of costs and revenue projections.
6. **Facilitates Budgeting:** Cost
accounting is instrumental in the budgeting process. It aids in the preparation
of realistic budgets by providing accurate cost information, enabling
organizations to allocate resources efficiently.
7. **Price Fixation:**
Businesses can determine appropriate pricing strategies by considering all
costs associated with production. This ensures that prices are set to cover
costs and generate a reasonable profit margin.
8. **Cost Reduction:** Cost
accounting identifies areas where costs can be reduced, helping organizations
maintain competitiveness in the market. Continuous cost reduction efforts
contribute to long-term sustainability.
**1b. Elements of Manufacturing Cost:**
The manufacturing cost consists of three
main elements:
1. **Direct Materials:** The
cost of raw materials that can be directly traced to the finished product. This
includes the cost of the materials themselves and any other costs associated
with their acquisition.
2. **Direct Labor:** The
cost of labor directly involved in the production process. It includes wages
and benefits for workers directly engaged in manufacturing.
3. **Manufacturing Overhead:** This
includes indirect manufacturing costs that cannot be easily traced to specific
units of production. It encompasses costs such as utilities, depreciation of
machinery, and factory supervision.
**1c. Classification of Costs for
Recording in Financial Statements:**
Costs can be classified into various
categories for recording in financial statements:
1. **Fixed Costs:** Costs
that do not vary with the level of production or sales. Examples include rent,
salaries of permanent staff, and insurance.
2. **Variable Costs:** Costs
that vary proportionally with the level of production or sales. Examples
include direct materials, direct labor, and some utilities.
3. **Direct Costs:** Costs
that can be directly attributed to a specific product or service. Direct
materials and direct labor are examples of direct costs.
4. **Indirect Costs (Overhead):** Costs
that cannot be directly traced to a specific product or service. Indirect
materials, indirect labor, and factory overhead are examples of indirect costs.
5. **Product Costs:** Costs
associated with the production of goods. It includes direct materials, direct
labor, and manufacturing overhead.
6. **Period Costs:** Costs
that are not directly tied to the production of goods but are incurred over a
specific period. Examples include selling and administrative expenses.
Understanding
these classifications is crucial for accurate financial reporting and
decision-making within an organization.
Q. 2 The
following data pertains to Yellow Corporation for the period ended on 31st
October 2018:
|
Inventories: |
31-Oct-18 |
1-Nov-17 |
|
Direct Material |
237,500 |
225,000 |
|
Work in Process |
200,000 |
175,000 |
|
Finished Goods |
237,500 |
275,000 |
|
Cost Incurred During the Period: |
|
|
|
Direct Material Used |
482,500 |
|
|
Cost of Goods Available for Sales |
1,710,000 |
|
|
Factory Overheads |
417,500 |
|
|
Total Manufacturing Cost |
1,460,000 |
|
Required:
Prepare Cost of Goods Manufacturing and Sold Statement
To prepare the Cost of Goods Manufactured
(COGM) and Cost of Goods Sold (COGS) statements, we'll use the following
formulas:
\[
\text{COGM} = \text{Direct Material Used} + \text{Direct Labor} + \text{Factory
Overheads} \]
\[
\text{COGS} = \text{Opening Finished Goods Inventory} + \text{COGM} -
\text{Closing Finished Goods Inventory} \]
Given data:
\[
\text{Direct Material Used} = \$482,500 \]
\[
\text{Factory Overheads} = \$417,500 \]
\[
\text{Opening Finished Goods Inventory} (1-Nov-17) = \$275,000 \]
\[
\text{Closing Finished Goods Inventory} (31-Oct-18) = \$237,500 \]
1. **Calculate Direct Labor:**
\[ \text{Direct Labor} = \text{Total
Manufacturing Cost} - \text{Direct Material Used} - \text{Factory Overheads} \]
\[
\text{Direct Labor} = \$1,460,000 - \$482,500 - \$417,500 = \$560,000 \]
2. **Calculate COGM:**
\[ \text{COGM} = \text{Direct Material Used}
+ \text{Direct Labor} + \text{Factory Overheads} \]
\[ \text{COGM} = \$482,500 + \$560,000 +
\$417,500 = \$1,460,000 \]
3. **Calculate COGS:**
\[ \text{COGS} = \text{Opening Finished
Goods Inventory} + \text{COGM} - \text{Closing Finished Goods Inventory} \]
\[ \text{COGS} = \$275,000 + \$1,460,000 -
\$237,500 = \$1,497,500 \]
**Cost of Goods Manufactured (COGM)
Statement:**
\begin{align*}
\text{Direct
Material Used} & : \$482,500 \\
\text{Direct
Labor} & : \$560,000 \\
\text{Factory
Overheads} & : \$417,500 \\
\text{Total
Manufacturing Cost (COGM)} & : \$1,460,000 \\
\end{align*}
**Cost of Goods Sold (COGS) Statement:**
\begin{align*}
\text{Opening
Finished Goods Inventory} & : \$275,000 \\
\text{COGM}
& : \$1,460,000 \\
\text{Closing
Finished Goods Inventory} & : -\$237,500 \\
\text{Cost
of Goods Sold (COGS)} & : \$1,497,500 \\
\end{align*}
These
statements provide an overview of the manufacturing costs incurred during the
period and the cost of goods sold. The figures can be used for financial
analysis and decision-making.
Q. 3 Venus
manufacturing concern had two jobs in process and on March 1,2015 their value
was as:
Elements of Cost Job No.15 Job No.18
Direct Material consumed Rs. 80,000 Rs. 20,000
Wages Rs. 40,000 Rs. 15,000
Applied
O/H Rs. 30,000 Rs. 10,000
Job No 15 was duly completed during the
month and job No.18 was incomplete job at the end of month and balances of work
in process inventories in this job at the end of month were as:
W-I-P Material Rs. 8,000 Labour Rs. 5,000 and FOH
Rs. 3,000.
Requires: Pass
necessary journal Entries and Prepare Ledger Accounts.
To
account for the manufacturing process and the completion of Job No. 15 and the
status of Job No. 18 at the end of the month, we need to pass journal entries and
prepare ledger accounts.
**1. Journal Entries:**
**a. Direct Material Consumed:**
```plaintext
Work
in Process (Job No. 15) Rs. 80,000
Work
in Process (Job No. 18) Rs. 20,000
Raw Material Inventory Rs. 100,000
```
**b. Wages:**
```plaintext
Work
in Process (Job No. 15) Rs. 40,000
Work
in Process (Job No. 18) Rs. 15,000
Wages Payable Rs. 55,000
```
**c. Applied Overheads:**
```plaintext
Work
in Process (Job No. 15) Rs. 30,000
Work
in Process (Job No. 18) Rs. 10,000
Factory Overhead Applied Rs. 40,000
**d. Completion of Job No. 15:**
```plaintext
Work
in Process (Job No. 15) Rs.
(80,000 + 40,000 + 30,000)
Finished Goods Inventory Rs. (150,000)
**e. Incomplete Job No. 18 at the end of
the month:**
```plaintext
Work
in Process (Job No. 18) - Material
Rs. 8,000
Work
in Process (Job No. 18) - Labour
Rs. 5,000
Work
in Process (Job No. 18) - FOH
Rs. 3,000
Work in Process Inventory Rs. (16,000)
**2. Ledger Accounts:**
**a. Raw Material Inventory:**
|
Date | Particulars | Debit (Rs.) | Credit (Rs.) |
|------------|-----------------------|-------------|--------------|
|
01-Mar-15 | Direct Material Used | 100,000
| |
**b. Wages Payable:**
|
Date | Particulars | Debit (Rs.) | Credit (Rs.) |
|------------|----------------|-------------|--------------|
|
01-Mar-15 | Wages | 55,000 |
|
**c. Factory Overhead Applied:**
|
Date | Particulars | Debit (Rs.) | Credit (Rs.) |
|------------|----------------|-------------|--------------|
|
01-Mar-15 | Applied O/H | 40,000 | |
**d. Work in Process Inventory:**
|
Date | Particulars | Debit (Rs.) | Credit (Rs.) |
|------------|------------------------|-------------|--------------|
|
01-Mar-15 | By Raw Material | | 100,000 |
|
01-Mar-15 | By Wages |
| 55,000 |
|
01-Mar-15 | By Applied O/H | | 40,000 |
|
01-Mar-15 | Completion of Job No.15 |
150,000 | |
|
31-Mar-15 | Incomplete Job No.18 | 16,000 | |
**e. Finished Goods Inventory:**
|
Date | Particulars | Debit (Rs.) | Credit (Rs.) |
|------------|-------------------------|-------------|--------------|
|
01-Mar-15 | Completion of Job No.15
| | 150,000 |
These
journal entries and ledger accounts reflect the transactions related to the
manufacturing process, completion of jobs, and the status of the work in
process at the end of the month.
Q. 4 From
the given cost information of Paradise Electronics of the job No. 450,
find the cost of job by preparing job cost
sheet and calculate selling price to give profit of 20%
Material Rs. 5050
Wages: Department A 70 hours@ Rs. 3 per
hour
Department B 50 hours @ Rs. 2 per hour
Department C Rs. 15,000, labor hours
worked: 30 hours
Factory Overheads:
Fixed
Cost rate Rs. 4 per labour hour in each department
Variable
cost rate Rs. 1,1Rs. 2, Rs. 3 in Department A, B and C Respectively.
To
find the cost of Job No. 450 and calculate the selling price to achieve a
profit of 20%, we will prepare a job cost sheet.
**1. Job Cost Sheet for Job No. 450:**
```plaintext
-------------------------------------------------------------------------------------
| Particulars |
Amount in Rs. | Amount in Rs. |
Total (Rs.) |
-------------------------------------------------------------------------------------
| Direct Material |
5050 | - | 5050 |
| Direct Labor: | | | |
| Department A (70 hours @ Rs. 3/hr) |
210 | - | 210 |
| Department B (50 hours @ Rs. 2/hr) |
100 | - | 100 |
| Department C (30 hours @ Rs. 500/hr)
| - | 15000
| 15000 |
| Factory Overheads: | | | |
| Fixed Cost (70 hours @ Rs. 4/hr) |
280 | - | 280 |
| Variable Cost - A (70 hours @ Rs.
1/hr)| 70 | - | 70 |
| Variable Cost - B (50 hours @ Rs.
2/hr)| 100 | - | 100 |
| Variable Cost - C (30 hours @ Rs. 3/hr)| - | 90 |
90 |
| | | | |
| Total Cost | - | - | 18500
|
**2. Calculating Selling Price to Achieve
a 20% Profit:**
\[
\text{Selling Price} = \text{Total Cost} + (\text{Total Cost} \times
\text{Profit Percentage}) \]
\[
\text{Selling Price} = 18500 + (18500 \times 0.20) \]
\[
\text{Selling Price} = 18500 + 3700 \]
\[
\text{Selling Price} = 22200 \]
Therefore,
the selling price to achieve a 20% profit for Job No. 450 is Rs. 22,200.
Q. 5 Department 2 of Zia Int’ 1 cost for
May,2014 were extracted from the cost accounting record as under:
Cost
from Department 1. Rs. 32,640
Cost incurred by Department2.
Materials
Rs. 86,830
Lab
our Rs. 112,200
Factory
overheads Rs. 58,575
The
record shows that 12,000 units were received during the month from Department
1.
The
Department 2 transferred 7,000 units to the Finished Goods Warehouse. The work
in Process at the end of May were 5,000 units which were 100% complete as to
the material Cost but only 25% were complete as to the conversion cost.
Required:
Prepare a cost of production report for department 2.
To
prepare a cost of production report for Department 2, we need to calculate the
equivalent units of production and the cost per equivalent unit for both
materials and conversion costs.
**1. Equivalent Units of Production:**
- **Materials:**
- Units transferred to Finished Goods
Warehouse: 7,000 units
- Units in ending Work in Process (100%
complete for materials): 5,000 units
- Equivalent units of production for
materials: \(7,000 + 5,000 = 12,000\) units
- **Conversion Costs:**
- Units in ending Work in Process (25%
complete for conversion costs): \(5,000 \times 0.25 = 1,250\) units
- Equivalent units of production for
conversion costs: \(7,000 + 1,250 = 8,250\) units
**2. Cost per Equivalent Unit:**
- **Materials:**
- Cost incurred by Department 2 for
materials: Rs. 86,830
- Equivalent units of production for
materials: 12,000 units
- Cost per equivalent unit for materials:
\(\frac{Rs. 86,830}{12,000} = Rs. 7.24\)
- **Conversion Costs:**
- Cost incurred by Department 2 for
conversion costs (Labor + Factory Overheads): Rs. (112,200 + 58,575) = Rs.
170,775
- Equivalent units of production for
conversion costs: 8,250 units
- Cost per equivalent unit for conversion
costs: \(\frac{Rs. 170,775}{8,250} = Rs. 20.70\)
**3. Cost of Production Report:**
```plaintext
-----------------------------------------------------------------------------
| Particulars | Units
| Cost per Equivalent Unit |
Total Cost |
-----------------------------------------------------------------------------
| Materials | Started |
Rs. 7.24 | Rs. 86,880
|
| | &
| | |
| | Completed| | Rs. 86,880
|
| | and
| | |
| | transferred| | |
| Conversion Costs | Started |
Rs. 20.70 | Rs. 170,775
|
| | &
| | |
| | Completed| | Rs. 170,775
|
| | and
| | |
| | transferred| | |
|----------------------------------------------------------------------------|
| Total Cost | | | Rs. 257,655
|
----------------------------------------------------------------------------
This
cost of production report provides a summary of the units started, completed,
and transferred for both materials and conversion costs, along with the
associated costs. It helps in analyzing the production process and the cost per
unit for each element.
Dear Student,
Ye sample assignment h. Ye bilkul
copy paste h jo dusre student k pass b available h. Agr ap ne university
assignment send krni h to UNIQUE assignment
hasil krne k lye ham c contact kren:
0313-6483019
0334-6483019
0343-6244948
University c related har news c
update rehne k lye hamra channel subscribe kren: