Assessment Instructions, Questions, And Answers On Cost Accounting System
- December 22, 2023/ Uncategorized
- The data in a cost accounting system must be stored properly from the source document such as suppliers invoice bills and other supporting documents by a professional adequately qualified for the job. Access to the cost accounting system should be restricted. Only the accountant should be allowed access to the system.
- Information about manufacturing and product costs are necessary to ascertain the cost of production properly and take informed decision about the business.
- The manufacturing entities in Australia are under compulsion to follow the standard in maintaining and managing accounting information.
- The financial systems generally have inbuilt system to check and compare the invoices and purchase orders. In case of discrepancies, the financial system outlines those discrepancies.
- In case based system GSTs are reconciled to determine the net GST liability (payable) or net GST asset (receivable) as the case may be. In case of accrual basis of accounting adjustments are made to determine GST payable and GST receivable both to make payment accordingly.
- Variance analysis helps the management to identify the possible area of lack of efficiency in the production or manufacturing process. Necessary changes shall be made in these areas by the management to improve the efficiency of the overall production process.
- The reliability of variance analysis techniques would be improved significantly if the integrity in the costing system is intact. The data recorded in costing system if correctly processed without any manipulation then the resultant information will reflect the actual costing of a manufacturing and production organization. Thus the variance analysis will also be improved as the data will be authentic and correct (Dekker, 2016).
- Budgets are prepared to achieve organization objectives. Comparison of actual financial performance of an organization with its budgeted performance further helps the management to evaluate the efficiency of an organization in achieving its objectives.
- Three objectives of budgets are as following:
- Evaluation of performance.
- Optimum utilization of resources.
- Minimizing cost of productions.
- Three sources to gather information are as following:
- Historic financial statements.
- Board of directors’ report.
- Proposed agreement documents.
- The principle of double entry system of accounting is that there would be equal liabilities and assets after each financial transaction as there is always compensating effects on wealth and liabilities for the double entry system of accounting of each and every financial transaction.
Accrual based accounting is on the basis of earning and incurred concept rather than receipts and payments. Thus, revenue is recognized when earned even if not received and expenditures are recognized when incurred even if not paid (Otley, 2016).
- The following is on the basis of actual components:
- Raw materials.
- Direct labor.
- Factory overhead both fixed and variable.
However, there are the following which can also be referred to as components of finished products:
- Upstream of raw materials.
- Raw materials.
- Secondary products.
- Intermediate products (Fullerton, Kennedy & Widener, 2014).
Question 1:
|
Particulars |
Amount ($) |
Amount ($) |
|
Cost of goods manufactured |
||
|
Opening balance of direct materials |
49,000.00 |
|
|
Opening WIP |
28,000.00 |
|
|
Purchases during the year |
198,000.00 |
|
|
Direct labour costs incurred |
205,000.00 |
|
|
Manufacturing overhead |
173,000.00 |
|
|
653,000.00 |
||
|
Less: |
||
|
Closing balance of direct materials |
42,000.00 |
|
|
Closing balance of WIP |
30,000.00 |
|
|
72,000.00 |
||
|
Cost of goods manufactured |
581,000.00 |
|
|
|
||
|
Cost of goods sold |
|
|
|
Cost of goods manufactured |
581,000.00 |
|
|
Add: Opening finished goods |
80,000.00 |
|
|
501,000.00 |
||
|
Less: Closing finished goods |
76,000.00 |
|
|
Cost of goods sold |
425,000.00 |
Question 2:
|
Manufacturing statement |
||
|
Particulars |
$ |
$ |
|
Opening direct materials |
7,000.00 |
|
|
Opening WIP |
9,600.00 |
|
|
Purchases |
42,300.00 |
|
|
Direct labour costs |
10,000.00 |
|
|
Manufacturing overheads |
15,000.00 |
|
|
83,900.00 |
||
|
Less: |
||
|
Closing direct materials |
7,400.00 |
|
|
Closing WIP |
13,000.00 |
|
|
20,400.00 |
||
|
Manufacturing costs |
63,500.00 |
|
Trading statement |
||
|
Particulars |
$ |
$ |
|
Sales |
82,000.00 |
|
|
Less: Cost of goods sold |
61,000.00 |
|
|
Gross profit |
21,000.00 |
|
Profit and loss account |
||
|
Particulars |
$ |
$ |
|
Sales |
82,000.00 |
|
|
Less: Cost of goods sold |
61,000.00 |
|
|
Gross profit |
21,000.00 |
|
|
Less: Expenditures |
||
|
Selling expenses |
4,100.00 |
|
|
General and administratuve expenses |
2,900.00 |
|
|
7,000.00 |
||
|
Profit before tax |
14,000.00 |
|
|
Less: Tax @30% |
4,200.00 |
|
|
Net profit |
9,800.00 |
Question 3:
FIFO:
|
Periodic System |
$ |
|
|
Opening stock: raw material at beginning |
200 |
1440 |
|
Add: purchases |
160 |
1184 |
|
Total material available |
360 |
2624 |
|
Less: closing stock – raw material at end |
220 |
1760 |
|
Raw material used |
140 |
864 |
|
Calculation of closing stock: |
220 |
1760 |
Weighted average cost under a perpetual system:
|
i) Perpetual inventory system |
||||||||||
|
|
|
In |
|
|
Out |
|
Balance |
|||
|
|
|
Cost |
|
|
Cost |
|
|
Cost |
|
|
|
Details |
Units |
Per |
Total |
Units |
per |
Total |
Units |
per |
Total |
|
|
|
Unit |
|
|
unit |
|
|
unit |
|
||
|
$ |
$ |
$ |
$ |
$ |
$ |
|
||||
|
Balance |
200 |
7.2 |
1440 |
200 |
7.2 |
1440 |
||||
|
Purchases |
160 |
7.4 |
1184 |
360 |
7.2888889 |
2624 |
||||
|
Issues |
290 |
7.2889 |
2113.7778 |
70 |
7.2888889 |
510.222222 |
||||
|
Purchases |
260 |
8 |
2080 |
330 |
7.8491582 |
2590.22222 |
||||
|
Issues |
110 |
7.8492 |
863.40741 |
220 |
7.8491582 |
1726.81481 |
||||
|
1726.8 |
Question 4:
|
Date |
Account titles |
Debit ($) |
Credit ($) |
|
Purchases (Inventories) |
450.00 |
||
|
Accounts payable- Reliable Ltd |
450.00 |
||
|
(Being purchases made on credit) |
|||
|
Cost of productions |
170.00 |
||
|
Purchases (Inventories) |
170.00 |
||
|
(Being goods issued for production) |
|||
|
Accounts payable- Reliable Ltd |
30.00 |
||
|
Purchases (Inventories) |
30.00 |
||
|
(Being faulty goods returned) |
|||
|
Purchases (Inventories) |
15.00 |
||
|
Cost of productions |
15.00 |
||
|
(Being goods returned to store from production) |
Question 5:
|
i) Perpetual inventory system (FIFO) |
||||||||||
|
|
|
In |
|
|
Out |
|
Balance |
|||
|
|
|
Cost |
|
|
Cost |
|
|
Cost |
|
|
|
Details |
Units |
Per |
Total |
Units |
per |
Total |
Units |
per |
Total |
|
|
|
Unit |
|
|
unit |
|
|
unit |
|
||
|
$ |
$ |
$ |
$ |
$ |
$ |
|
||||
|
Balance |
50 |
12 |
600 |
50 |
12 |
600 |
||||
|
Purchases |
100 |
12.4 |
1240 |
150 |
1840 |
|||||
|
Issues |
80 |
12 |
960 |
70 |
12.4 |
868 |
||||
|
Return |
20 |
12.4 |
248 |
50 |
12.4 |
620 |
||||
|
Purchases |
100 |
12.2 |
1220 |
150 |
1840 |
|||||
|
Issues |
120 |
0 |
1474 |
30 |
12.2 |
366 |
||||
|
Return to store |
20 |
12.2 |
244 |
50 |
12.2 |
610 |
Journal entries:
|
Date |
Account titles |
Debit ($) |
Credit ($) |
|
Jan-14 |
Accounts payable |
248.00 |
|
|
Purchases (inventories) |
248.00 |
||
|
(Being goods returned to supplier) |
|||
|
Jan-30 |
Purchases (inventories) |
244.00 |
|
|
Cost of production |
244.00 |
||
|
(Being goods returned to store from production) |
|
Date |
Account titles |
Debit ($) |
Credit ($) |
|
Jan-31 |
Loss of goods |
61.00 |
|
|
Purchases (inventories) |
61.00 |
||
|
(Being goods short in stock taking) |
|||
|
Trading & PL account |
61.00 |
||
|
Loss of goods |
61.00 |
||
|
(Being loss of goods transferred to PL account) |
Question 6:
|
Hours in week |
Hourly rate |
No of weeks annuallly |
Annual |
||
|
Basic wages |
40 |
12 |
480 |
52 |
24,960.00 |
|
Compensation insurance |
3,744.00 |
||||
|
Payroll taxes |
1,310.40 |
||||
|
Contribution to superannuation funds |
2,246.40 |
||||
|
Total annual cost to worker |
32,260.80 |
||||
|
Number of hours actually worked by a worker (52 x 40) – (4+1+2) x 40} |
1,800.00 |
||||
|
Hourly rate (32260.80 / 1800) |
$17.92 |
Hourly composite charge out rate to recover all labor costs is calculated below:
|
Hourly rate (32260.80 / 2080) |
$15.51 |
Question 7:
|
Manufacturing overheads |
|||
|
Production activity levels |
90% |
100% |
110% |
|
Indirect materials |
27,000.00 |
30,000.00 |
33,000.00 |
|
factory rent |
30,000.00 |
30,000.00 |
30,000.00 |
|
Factory managers salary |
55,000.00 |
55,000.00 |
55,000.00 |
|
Maintenance of machinery |
9,000.00 |
10,000.00 |
11,000.00 |
|
Electricity |
4,500.00 |
5,000.00 |
5,500.00 |
|
Depreciation- Machinery |
7,000.00 |
7,000.00 |
7,000.00 |
|
Workers’ compensation insurance |
2,700.00 |
3,000.00 |
3,300.00 |
|
Insurance machinery |
900.00 |
900.00 |
900.00 |
|
Depreciation- building |
2,500.00 |
2,500.00 |
2,500.00 |
|
Total manufacturing overheads |
138,600.00 |
143,400.00 |
148,200.00 |
Question 8:
|
Production budget |
|
|
Sales in units |
35,000.00 |
|
Add: 50% of October sales (15000 x 50%) |
7,500.00 |
|
42,500.00 |
|
|
Less: Opening finished stock (July 01) |
7,000.00 |
|
Production in units for the quarter ending in September |
35,500.00 |
|
Cost of direct materials (Refer to direct material budget) |
213,000.00 |
|
Cost of direct labour (Refer to direct labour budget) |
426,000.00 |
|
Factory overhead (35500 x 10) |
355,000.00 |
|
Cost of production |
994,000.00 |
|
Direct materials budget |
|
|
Production units for the Quarter |
35,500.00 |
|
Direct materials required for each unit |
3 Kg |
|
Total direct materials needed for production (35500 x 3) |
106,500.00 |
|
Cost of direct materials (106500 x 2) |
213,000.00 |
|
Direct labour budget |
|
|
Production in units |
35,500.00 |
|
Direct labour hour |
1 hour per unit |
|
Total labour hour required (35000 x 1) |
35,500.00 |
|
Direct labour costs (35500 x 12) |
426,000.00 |
Question 9:
|
Particulars |
$ |
|
Direct materials (15 x 25) |
375.00 |
|
Direct labour (16 x 15) |
240.00 |
|
Variable factory overhead (16 x 4) |
64.00 |
|
Fixed factory overhead (16 x 2) |
32.00 |
|
Standard manufacturing cost of a door |
711.00 |
Question 10:
|
Particulars |
Amount ($) |
|
Budgeted factory overhead |
|
|
{(39650 x 1.5) x 1.05} |
62,448.75 |
|
Actual factory overhead |
60,468.00 |
|
Variance |
(1,980.75) |
|
Variance is favourable |
Question 11:
|
Selling price |
$40 |
|
Less: Variable cost |
$15 |
|
Contribution per unit |
$25 |
|
Break-even point |
|
|
Fixed costs |
$425000 |
|
Contribution per unit |
$25 |
|
Break-even point in units (425000 / 25) |
17000 |
|
Break-even point in sales (17000 x 40) |
680000 |
Question 12:
|
Variable costs |
|
|
Particulars |
$ |
|
Commission on each shoe |
7.00 |
|
Shoe service supplies |
0.60 |
|
Utilities |
0.40 |
|
Total variable cost per shoe |
8.00 |
|
Fixed costs per month |
|
|
Salaries of four shoe technicians (3000 x 4 +1200) |
13,200.00 |
|
Advertisements |
900.00 |
|
Rent |
1,500.00 |
|
Shoe service utilities |
250.00 |
|
Rent of decorative plant |
150.00 |
|
Plant insurance |
2,400.00 |
|
Total fixed costs per month |
18,400.00 |
|
Contribution per shoe |
|
|
Standard fee per shoe |
20 |
|
Less: Variable cost per shoe |
8 |
|
Contribution per shoe |
12 |
|
Breakeven point (BEP) |
|
|
Total fixed costs |
$18,400.00 |
|
Contribution per unit |
$12 |
|
BEP in units (18400/12) |
1534 shoe services |
|
BEP in $ (1534 x 20) |
$30,680 |
Question 13:
Before getting into any discussion about the variance in the quarter of January to March it would be beneficial to calculate the variances. The table below shows variances in different expenditures
|
|
January to March |
||
|
Expense details |
Actual |
Budget |
Variance |
|
$ |
$ |
$ |
|
|
Rent |
16,000.00 |
15,000.00 |
1,000.00 |
|
Advertising |
220,000.00 |
250,000.00 |
(30,000.00) |
|
Office salaries |
550,000.00 |
500,000.00 |
50,000.00 |
|
Promotion |
150,000.00 |
140,000.00 |
10,000.00 |
|
Totals |
936,000.00 |
905,000.00 |
31,000.00 |
As can be seen in the table above that except advertisement expenditure all other variances are unfavorable to the organization i.e. the actual expenditures have exceeded the budgeted expenditures. The reason for such increase in expenditures must be evaluated by the management and necessary steps shall be taken to ensure that in the future such expenditure reduces (Messner, 2016).
References:
Dekker, H. C. (2016). On the boundaries between intrafirm and interfirm management accounting research. Management Accounting Research, 31, 86-99.
Fullerton, R. R., Kennedy, F. A., & Widener, S. K. (2014). Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices. Journal of Operations Management, 32(7-8), 414-428.
Messner, M. (2016). Does industry matter? How industry context shapes management accounting practice. Management Accounting Research, 31, 103-111.
Otley, D. (2016). The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, 45-62.
