Assessment Instructions, Questions, And Answers On Cost Accounting System

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:
1. Evaluation of performance.
2. Optimum utilization of resources.
3. Minimizing cost of productions.
Three sources to gather information are as following:
1. Historic financial statements.
2. Board of directors’ report.
3. 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:
1. Raw materials.
2. Direct labor.
3. 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 ($) Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Amount ($)
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.

Turn in your highest-quality paper
Get a qualified writer to help you with

“ Assessment Instructions, Questions, And Answers On Cost Accounting System ”

Get high-quality paper

NEW! AI matching with writer