Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
CMA Professional Level –I
102: Cost Accounting
Class
No. 11
102.08
Cost Accumulation
System
Cost accumulation – a collection of
cost data in an organized manner.
-Objective of Cost Accumulation;
-Cost
Cost Accumulation Periodic vs. Perpetual;
-Cost Accumulation-Actual
Actual vs. Standard;
-Periodic
Periodic an Perpetual Cost Accounting System;
-The Factory Ledger.
Objective of Cost Accumulation
Cost accumulation refers
to the recognition and
recording of costs.
Source documents can
be designed to supply
information that can be
used for multiple
purposes.
Collection of costs in an
organized fashion by means
of a cost accounting system.
There are two primary
approaches to cost
accumulation: job order and
process costing .
Under a job order system,
the three basic elements of
manufacturing costs-direct
materials, direct labor, and
factory overhead-are
accumulated according to
assigned job numbers.
Cost Accumulation-As
the partially finished
goods move through the
factory, the total value
of these goods continues
to increase, because
more work and
overhead are being
used on them.
Relationship of Cost Accumulation, Cost Measurement, and Cost Assignment
Under a process cost
system, manufacturing costs
are accumulated according
to processing department or
cost center.
Cost Accumulation Methods
Cost accumulation refers to the manner in which costs are collected and identified with specific
customers,
omers, jobs, batches, orders, departments and processes. The center of attention for cost
accumulation can be individual customers, batches of products that may involve several
customers, the products produced within individual segments during a period, or the products
Page -149
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
produced by the entire plant during a period. The company’s cost accumulation method, or
methods are influenced by the type of production operation and the extent to which detailed
cost accounting information is needed by management.
Methods- Direct
Costing
Concepts
- Job
- Process
- Activity
- Absorption
- Direct
There are 4 accumulation methods as discussed below:
Actual Costs
Knowledge of actual
costs, after the fact,
may not be useful for
planning and
decision making.
Estimated Costs
Managers use
estimated costs to
make decisions
about the future.
Backflush accounting is a cost accounting
system which focuses on the output of an
organization and then works backwards to
attributed costs to stock and cost of sales.
Type
Type of
ofCost
CostUsed
UsedFor:
For:
Costing
CostingSystem
System
Direct
DirectMaterials
Materials
Direct
DirectLabor
Labor
Factory
FactoryOverhead
Overhead
Actual
Actual Costing
Costing
Actual
Actual Cost
Cost
Actual
Actual Cost
Cost
Actual
Actual Cost
Cost
Normal
Normal Costing
Costing
Actual
Actual Cost
Cost
Actual
Actual Cost
Cost
Applied
AppliedOverhead
OverheadCost
Cost
Standard
StandardCosting
Costing
Standard
StandardCost
Cost
Standard
StandardCost
Cost
Standard
StandardCost
Cost
Relevant, Timely
Normal costing is used to value manufactured products with the actual materials costs,
the actual direct labor costs, and manufacturing overhead based on a predetermined
manufacturing overhead rate. These three costs are referred to as product costs and are
Page -150
used for the cost of goods sold and for inventory valuation.
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Job Order :In job order costing,
costs are accumulated by jobs,
orders, contracts, or lots. The key is
that the work is done to the
customer's specifications. As a
result, each job tends to be
different. For example, job order
costing is used for construction
projects, government contracts,
shipbuilding, automobile repair, job
printing, textbooks, toys, wood
furniture, office machines, caskets,
machine tools, and luggage.
Accumulating the cost of
professional services (e.g., lawyers,
doctors and CA's) also fall into this
category.
Process :In process costing, costs
are accumulated by departments,
operations, or processes. The work
performed on each unit is
standardized, or uniform where a
continuous mass production or
assembly operation is involved. For
example, process costing is used by
companies that produce
appliances, alcoholic beverages,
tires, sugar, breakfast cereals,
leather, paint, coal, textiles, lumber,
candy, coke, plastics, rubber,
cigarettes, shoes, typewriters,
cement, gasoline, steel, baby
foods, flour, glass, men's suits,
pharmaceuticals and automobiles.
Process costing is also used in meat
packing and for public utility
services such as water, gas and
electricity.
Back Flush :Back flush costing is a simplified cost accumulation method that
is sometimes used by companies that adopt just-in-time (JIT) production
systems. However, JIT is not just a technique, or collection of techniques.
Just-in-time is a very broad philosophy, that emphasizes simplification and
continuously reducing waste in all areas of business activity. JIT systems were
developed in Japan and depend on the communitarian concepts of
teamwork and continuous improvement. In fact, many of the assumptions,
attitudes and practices of communitarian capitalism are included in the JIT
philosophy.
Hybrid, or Mixed Methods: Hybrid or mixed systems are used in situations where more than one
cost accumulation method is required. For example, in some cases process costing is used for
direct materials and job order costing is used for conversion costs, (i.e., direct labor and factory
overhead). In other cases, job order costing might be used for direct materials, and process
costing for conversion costs. The different departments or operations within a company might
require different cost accumulation methods. For this reason, hybrid or mixed cost accumulation
methods are sometime referred to as operational costing methods.
Page -151
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Cost Accumulation Periodic vs. Perpetual
Periodic Cost Accumulation Systems:
Systems The first step
in comprehending a periodic cost accumulation system
is to understand the flow of costs as goods pass
through the various stages of production. The flow of
costs in a manufacturing company, under a periodic
cost accumulation system, is shown in Figure. The cost
of goods put into production (direct materials + direct
labor + factory overhead) plus the cost of work-inwork
process inventory at the beginning of the period equals
the cost of goods in process during the period. In order
to determine the cost of goods manufactured, the cost
of ending work-in-process inventory
ventory is subtracted from
the cost of goods in process during the period. The cost
of goods manufactured plus beginning finished goods
inventory equals the cost of goods available for sale.
When the ending finished goods inventory is deducted
from this figure,
gure, the cost of goods sold results. The total
operating costs can now be computed by adding
selling, general, and administrative expenses to the
cost of goods sold.
Page -152
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
5 types of special journals
•Sales Journal
•Cash Receipts Journal
•Purchases Journal
•Cash Payments Journal
•Payroll Journal
5 types of subsidiary ledgers
•Accounts receivable subledger
•Accounts payable sub-ledger
•Fixed assets sub-ledger
•Project cost sub-ledger (to
track cost on a project by
project basis)
•Factory overhead sub-ledger
(to track individual factory
overheads like factory rent and
factory insurance)
Example:
Materials cost:
Direct …………………………………………………………………………….. Tk. 60,000
Indirect …………………………………………………………………………….. 20,000
Labor cost:
Direct ……………………………………………………………………….. Tk.18,000
Indirect …………………………………………………………………….. 17,000
Other indirect manufacturing costs:
Power and heat ………………………………………………………… 30,000
Power and heat …………………….……………………………………………. 10,000
Inventories (in taka): *
Beginning
Work-in-process ………………………………………………………. 2,000
Finished goods ……………..…………………………………………. 15,000
Ending
Work-in-process.……………………………………………………….
8,000
Finished goods …………………………..…………………………….
20,000
Tk. 80,000
35,000
*Assume no beginning or ending raw materials inventory
Page -153
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Solution under Periodic Cost Accumulation Systems:
Cost Assignment Approaches are showing bellow:
Actual Costing System
Normal Costing System
Standard Costing System
Direct Materials
Actual
Actual
Standard
Manufacturing Costs
Direct Labor
Actual
Actual
Standard
Overhead
Actual
Budgeted
Standard
Page -154
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Perpetual Cost Accumulation System
Perpetual cost accumulation systems are designed to provide relevant information to management on a
timely basis to aid in planning and control decisions. The major objective in such systems, as was the case
with periodic cost accumulation systems, is the accumulation of total costs and the computation of unit
costs. In a perpetual cost accumulation system, the cost of direct materials, direct labor, and factory
overhead must first flow through work-in-process inventory in order to reach finished goods inventory. The
total costs transferred from work-in-process inventory to finished goods inventory during the period equal to
cost of goods manufactured. The ending work-in-process inventory is the balance of un-finished production
at the end of the period. As goods are sold, the cost of the goods sold is transferred from the asset account
Finished Goods Inventory to the expense account Cost of Goods Sold. The ending finished inventory is the
balance of unsold production at the end of the period. The total expenses equal the cost of goods sold
plus selling, general, and administrative expenses.
Solution under Perpetual Cost Accumulation Systems:
Cost Accumulation-Actual vs. Standard
Collection of actual costs in an organized way by means of actual cost accounting system.
There are two primary approaches to cost accumulation: Job Order and Process Costing. Under
Page -155
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
a job order system, the three basic elements of manufacturing costs
costs-direct
direct materials, direct
labor, and factory overhead-are
are accumulated according to assigned job numbers. Under a
process cost system, manufacturing costs a
are
re accumulated according to processing
department or cost center.
Standard Cost accumulation represent methods used to accrue costs as predetermined. There
are two types: job costing and process costing. These methods depend on the type of
production. Standard costing is a product costing system when a company measures all costs –
direct materials, direct labor, and factory overhead – using standard quantities and costs. It is
often used to measure performance, determine target costs, and improve production
productio process.
rpetual Cost Accounting System
Periodic and Perpetual
System It is the
Periodic (yearly) verification is otherwise known as Periodic Cost Accounting System.
system of records maintained by the controlling department which not reflects the physical
movement off stocks and their current balance.
Perpetual (regularly)verification
verification is otherwise known as Perpetual Cost Accounting System.
S
It is the
system of records maintained by the controlling department which reflects the physical
movement of stocks and their cur
current balance.
Periodic system relies upon an
occasional physical count of the
inventory to determine the ending
inventory balance and the cost of
goods sold.
Perpetual
erpetual system keeps
continual track of
inventory balances.
Page -156
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
FIFO is a contraction of the term "first in, first out," and
means that the goods first added to inventory are assumed
to be the first goods remov
removed from inventory for sale.
Income tax payment
LIFO is a contraction of the term "last in, first out," and mea
means
ns that the goods last added to
inventory are assumed to be the first goods removed from inventory for sale.
The Factory Ledger
Group of accounts used to record factory
factory-related
related transactions and to keep track of various
manufacturing costs such as direct materials, direct labor, and factory overhead costs. It is a
record kept by a factory.
It is often practical for a manufacturing concern to
include a factory ledger in its accounting system.
Generally, this procedure is followed when
manufacturing operations are far-flung
flung from the main
office, or when the nature of such operations rrequires
a large number of accounts. Some accounts relating
to manufacturing are kept in factory office books
while other are kept in general office books. What
accounts and other records be kept in the factory
journal and ledger and what accounts and recor
records
be maintained in the general journal and ledger
would depend on various factors and the nature of
manufacturing concerns. However, there are certain
accounts which are usually kept on the factory books.
These are accounts concerned with manufacturing
costs
sts and include stores or materials accounts, labor
or payroll accounts, factory overhead accounts,
general ledger, is also included on the factory books.
Inventory
Materials
WIP
Finished Goods
Accounts maintained at Factory:
Only 5 accounts are maintained in the Factory
ledger and alll other account are kept in
General Ledger.
1. Material
2. Factory Payroll
3. Factory Overhead Applied and Control
4. Work –In-Progress (WIP)
5. Finished Goods.
Most organizations maintain cash and other
factory assets on the general office records.
Thuss the general ledger includes such
Page -157
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
accounts as sales, cost of goods sold, factory
plant and machinery, accumulated
depreciation and liabilities etc. It also includes
the control account, factory ledger.
The need for segregating factory accounts from other accounting data also arises due to the
following factors:
When the general or administrative offices and the factory offices are not located
at the same place or in the same premises or under the same roof.
When the decentralization policy is to be followed in numerous production plants
each having its own management and administration.
When the above conditions are present, it is advisable and advantageous to keep some books
at the factory offices and some at the general offices. The general offices usually maintains: All
vouchers payable or account payable accounts, cash and accounts receivable accounts,
selling and administrative accounts etc. The manufacturing accounts relating with materials or
stores, work in process, finished goods, labor and factory overhead are kept at factory offices.
When both the offices are involved, the reciprocal entry is passed in the books.
Partly Journal Entry for
Factory Ledger
Purchase of
Materials
Materials Return to
Supplier
The Materials Issued
for Production
Materials Return
from Factory
Recording of
Payroll
Payment
Distribution of
Payroll
Employer’s
Contributions
Factory Overhead
Applied to
Production
Basic Entry
Dr. Materials
Cr. Accounts Payable
Dr. Accounts Payable
Cr. Materials
Dr. Factory Overhead Control
A/C
Dr. WIP
Cr. Materials
Dr. Materials
Cr. Factory Overhead Control
A/C
Cr. WIP
Dr. Payroll (Selling & Admin)
Dr. Payroll (Direct & Indirect)
Cr. Deduction
Cr. Accrued Payroll
Dr. Accrued Payroll
Cr. Cash
Dr. W-I-P
Dr. Factory Control A/C
Dr. Selling Expenses
Dr. Admin Expenses
Cr. Payroll
Dr. Factory Control A/C
Dr. Selling Expenses
Dr. Admin Expenses
Cr. Fund A/C
Dr. W-I-P
Cr. Factory Overhead Applied
Factory Ledger
Dr. Materials
Cr. General Ledger
Dr. General Ledger
Cr. Materials
Dr. Factory Overhead Control A/C
Dr. WIP
Cr. Materials
General Ledger
Dr. Factory Ledger
Cr. Accounts Payable
Dr. Accounts Payable
Cr. Factory Ledger
----
Dr. Materials
Cr. Factory Overhead Control A/C
Cr. WIP
Dr. Factory Payroll (Direct &
Indirect)
Cr. General Ledger
-------Dr. W-I-P
Dr. Factory Control A/C
Cr. Factory Payroll
Dr. Factory Control A/C
Cr. General Ledger
Dr. W-I-P
Cr. Factory Overhead Applied
----
Dr. Payroll (Selling & Admin)
Dr. Factory Ledger
Cr. Deduction
Cr. Accrued Payroll
Dr. Accrued Payroll
Cr. Cash
Dr. Selling Expenses
Dr. Admin Expenses
Cr. Payroll
Dr. Factory Ledger
Dr. Selling Expenses
Dr. Admin Expenses
Cr. Fund A/C
----
Page -158
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Problem -61
For Cost Accumulation FARHANA Manufacturing Company uses a job order cost accounting
system and keeps perpetual inventory records. Prepare journal entries to record the following
transactions during the month of October.
Oct
1
8
Purchased raw materials for Tk.25,000 on account.
Raw materials requisitioned by production:
Direct materials
Tk.6,000
Indirect materials
1,000
15
25
Paid factory utilities, Tk.2,100 and repairs for factory equipment, Tk.3,000.
Incurred Tk.72,000 of factory labor.
25
Time tickets indicated the following:
Direct Labor (4,000 hrs × Tk.12 per hr) = Tk.48,000
Indirect Labor (3,000 hrs × Tk.8 per hr) =
24,000
Tk.72,000
Applied manufacturing overhead to production based on a predetermined overhead
rate of Tk.9 per direct labor hour worked.
Goods costing Tk.18,000 were completed in the factory and were transferred to
finished goods.
Goods costing Tk.15,000 were sold for Tk.25,000 on account.
25
28
30
Solution of problem no-61
Oct
1
8
15
25
25
25
Raw Materials Inventory ........................................................
Accounts Payable ........................................................
(Purchase of raw materials on account)
25,000
Work In Process Inventory .....................................................
Manufacturing Overhead ....................................................
Raw Materials Inventory ..............................................
(To record materials used)
6,000
1,000
Manufacturing Overhead ....................................................
Cash ...............................................................................
(To record payment of factory utilities and repairs)
5,100
Factory Labor .........................................................................
Factory Wages Payable ..............................................
(To record factory labor costs)
72,000
Work In Process Inventory .....................................................
Manufacturing Overhead ....................................................
Factory Labor ................................................................
(To assign factory labor to production)
48,000
24,000
Work In Process Inventory .....................................................
Manufacturing Overhead ...........................................
(To apply manufacturing overhead to production)
36,000
25,000
7,000
5,100
72,000
72,000
36,000
Page -159
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
28
30
Finished Goods Inventory ......................................................
Work In Process Inventory ............................................
(To record completion of production)
18,000
Accounts Receivable ............................................................
Cost of Goods Sold ................................................................
Sales ................................................................................
Finished Goods Inventory ............................................
(To record sales of finished goods and its cost)
25,000
15,000
18,000
25,000
15,000
Problem -62
The gross earnings of factory workers for MUTTAKEEN Company during the month of January are
Tk.100,000. The employer's payroll taxes for the factory payroll are Tk.12,000. Of the total
accumulated cost of factory labor, 75% is related to direct labor and 25% is attributable to
indirect labor.
Required:
(a) Prepare the entry to record the factory labor costs for the month of January.
(b) Prepare the entry to assign factory labor to production.
(c) Prepare the entry to assign manufacturing overhead to production, assuming the
predetermined overhead rate is 125% of direct labor cost.
Solution of problem no. 62
(a)
(b)
Factory Labor ...................................................................................
Factory Wages Payable ........................................................
Payroll Taxes Payable ............................................................
112,000
Work in Process Inventory ...............................................................
Manufacturing Overhead ..............................................................
Factory Labor .........................................................................
(Tk.112,000 × 75% = Tk.84,000)
84,000
28,000
100,000
12,000
112,000
(c) Work in Process Inventory ...............................................................
105,000
Manufacturing Overhead ....................................................
105,000
(Tk.84,000 × 125% = Tk.105,000)
Problem -63
YEASMINE Company begins operations on July 1, 2014. Information from job cost sheets shows
the following:
Manufacturing Costs Assigned
Job No.
July
August
September
100
Tk.12,000
Tk.8,800
101
7,800
9,700
Tk.12,000
102
5,000
103
11,800
6,000
104
5,800
7,000
Job 102 was completed in July. Job 100 was completed in August, and Jobs 101 and 103 were
completed in September. Each job was sold for 60% above its cost in the month following
completion.
Page -160
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Required:
(a)
(b)
(c)
Compute the balance in Work in Process Inventory at the end of July.
Compute the balance in Finished Goods Inventory at the end of September.
Compute the gross profit for August.
Solution of problem no. 63
(a)
(c)
Work in Process Inventory
July
Job 100
Job 101
Balance, July 31
Gross Profit
Month
Job Number
August
102
(b)
Tk.12,0000
7,8000
Tk.19,8000
Sales
Tk.8,000
Finished Goods Inventory
Job 101
Job 103
Balance, Sept. 30
COGS
Tk.5,000
Tk.29,5000
17,8000
Tk.47,3000
Gross Profit
Tk.3,000
Problem - 64
MONYEM Manufacturing uses a job order cost accounting system for cost accumulation. On
April 1, the company has Work in Process Inventory of Tk.7,600 and two jobs in process: Job No.
221, Tk.3,600, and Job No. 222, Tk.4,000. During April, a summary of source documents reveals the
following:
For
Materials Requisition Slips
Job No. 221
Tk.1,200
222
1,700
223
2,400
224
2,100
General use
600
Totals
Tk.8,000
Labor Time Tickets
Tk.2,600
1,200
2,900
2,800
400
Tk.9,900
MONYEM applies manufacturing overhead to jobs at an overhead rate of 60% of direct labor
cost. Job No. 221 is completed during the month.
Required:
(a) Prepare summary journal entries to record the raw materials requisitioned, factory labor
used, the assignment of manufacturing overhead to jobs, and the completion of Job No. 221.
(b) Calculate the balance of the Work in Process Inventory account at April 30.
Solution of problem no. 64
(a) April 30 Work in Process Inventory ...............................................
Manufacturing Overhead ..............................................
Raw Materials Inventory ........................................
Work in Process Inventory ...............................................
Manufacturing Overhead ..............................................
Factory Labor ..........................................................
Work in Process Inventory ................................................................
Manufacturing Overhead .....................................
(Tk.9,500 × 60% = Tk.5,700)
7,400
600
8,000
9,500
400
9,900
5,700
5,700
Page -161
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Finished Goods Inventory ...............................................
Work in Process Inventory ......................................
(Tk.3,600 + Tk.1,200 + Tk.2,600 + Tk.1,560 = Tk.8,960)
8,960
8,960
(b) Work in Process Inventory, April 30 = Tk.21,240
Job No. 222 Tk. 7,620
Job No. 223
7,040
Job No. 224
6,580
Tk.21,240
(Tk.4,000 + Tk.1,700 + Tk.1,200 + Tk.720)
(Tk.2,400 + Tk.2,900 + Tk.1,740)
(Tk.2,100 + Tk.2,800 + Tk.1,680)
Problem No. 65 :( Materials, Overhead, Cost of Goods Sold)
MUTTAKEEN LTD. applies manufacturing overhead to jobs using a predetermined overhead rate
based on direct labor cost. The information below has been taken from the cost records of the
Company for the last year:
Direct materials used in production ..................................................... Tk.1,250
Total manufacturing costs charged to production during the year
(includes direct materials, direct labor, and applied factory O/H .....Tk.6,050
Manufacturing overhead applied.......................................................... Tk.2,800
Selling and administrative expenses .................................................... Tk.1,000
Inventories:
Direct materials, January 1............................................................... Tk.130
Direct materials, December 31.......................................................... Tk.80
Work in process, January 1 ............................................................... Tk.250
Work in process, December 31 ......................................................... Tk.400
Finished goods, January 1................................................................. Tk.300
Finished goods, December 31........................................................... Tk.200
Required:
i.
Compute the cost of direct materials purchased during the year.
ii.
Compute the predetermined overhead rate that was used during the past year.
iii.
Compute the Cost of Goods Manufactured for the last year.
iv.
Compute the Cost of Goods Sold for the last year.
Solution of problem no. 65: Materials, Overhead, Cost of Goods Sold)
i.
Cost of raw materials used in production........................................ Tk.1,250
Less: decrease in the raw materials inventory during the year
(Tk.130 - Tk.80) …………........................................................
50
Cost of raw materials purchased during the year ................ Tk.1,200
ii.
Total manufacturing costs ............................................................... Tk.6,050
Less: Direct materials used in production .....................................
1,250
Less: Manufacturing overhead applied .......................................
2,800
Direct labor cost incurred................................................................ Tk.2,000
Page -162
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Predetermined overhead rate = Manufacturing overhead cost ÷ Direct labor cost
= Tk.2,800 ÷ Tk.2,000
= 140% of direct labor cost
iii.
Total manufacturing costs ............................................................... Tk.6,050
Add: Work in process inventory, January 1 ................................
250
6,300
Deduct: Work in process inventory, December 31 .....................
400
Cost of goods manufactured.......................................................... Tk.5,900
iv.
Finished goods inventory, January 1 .................................................. Tk. 300
Add: Cost of goods manufactured................................................... 5,900
Cost of goods available for sale ...................................................... 6,200
Deduct: Finished goods inventory, December 31 ..........................
200
Cost of goods sold ........................................................................... Tk.6,000
Problem No. 66 :( Costing and Control of Manufacturing Overhead)
FARHANA LTD. has developed a costing system where the following manufacturing overhead is
applied to production on the basis of standard machine-hours:
Machine Hours______
21,600
24,000
26,400
Production units ………………………….............
18,000
20,000
22,000
Variable overhead cost ……………………………. Tk.127,440
Tk.141,600 Tk.155,760
Fixed overhead cost .........................................
Tk.171,072
Tk.171,072 Tk.171,072
The company was expecting to produce 22,000 unit last year.
The actual results for the year were as follows:
Number of unit produced ..............................
Machine-hours incurred .................................
Variable overhead cost ...................................
Fixed overhead cost .......................................
21,500
24,940
Tk.145,899
Tk.170,540
Required: Compute all four manufacturing overhead under or over applied for the company.
Solution of problem no. 66 :( Costing and Control of Manufacturing Overhead)
Variable Overhead Spending Variance
= (AH × AR) - (AH × SR)
= Tk.145,899 - [(Tk.155,760/26,400) × 24,940] = Tk.1,247 F
Variable Overhead Efficiency Variance
= (AH × SR) - (SH × SR)
= [24,940 × (Tk.155,760/26,400)] - [21,500 × (26,400/22,000) × (Tk.155,760/26,400)]
= Tk.5,074 F
Fixed Overhead Budget Variance
= Actual fixed overhead cost - Budgeted fixed overhead cost
= Tk.170,540 - Tk.171,072 = Tk.532F
Fixed Overhead Volume Variance
= Fixed portion of the predetermined overhead rate ×
(Denominator hours – Standard hours allowed)
= Tk.171,072 - [(Tk.171,072/26,400) × 21,500 × (26,400/22,000)] = Tk.3,888 U
Page -163
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com
Class note for
CMA Professional Level –I
102:COA (Cost Accounting)
Problem No. 67 :( cost per unit under both absorption and variable costing) Max Marks : 12
MUTTAKEEN Company sells a special putter for $20 each. In March, it sold 28,000 putters while
manufacturing 30,000. There was no beginning inventory on March . Production information for March
was:
Direct manufacturing labor per unit
15 minutes
Fixed selling and administrative costs
$ 40,000
Fixed manufacturing overhead
132,000
Direct materials cost per unit
2
Direct manufacturing labor per hour
24
Variable manufacturing overhead per unit
4
Variable selling expenses per unit
2
Required: a. Compute the cost per unit under both absorption and variable costing .
b. Compute the ending inventories under both absorption and variable costing.
c. Compute operating income under both absorption and variable costing.
Solution of problem mo. 67 :( cost per unit under both absorption and variable costing}
a. Compute the cost per unit under both absorption and variable costing
#
1
2
3
4
ITEM
Direct manufacturing labor ($24/4)
Direct materials
Variable manufacturing overhead
Fixed manufacturing overhead ($132,000/30,000)
TOTAL
ABSORPTION
6.00
2.00
4.00
4.40
16.40
VARIABLE
6.00
2.00
4.00
0
12.00
b. Compute the ending inventories under both absorption and variable costing.
#
1
2
3
4
5
6
7
ITEM
Beginning inventory
Cost of goods manufactured:
30,000 × $16.40 ,,30,000 × $12.00
Cost of goods available for sale
Cost of goods sold:
28,000 × $16.40,,28,000 × $12.00
Total of Ending inventory
ABSORPTION
0
VARIABLE
0
$492,000
$492,000
$360,000
$360,000
$459,200
$ 32,800
$336,000
$ 24,000
ABSORPTION
$560,000
459,200
0
100,800
VARIABLE
$560,000
$336,000
56,000
168,000
$56,000
40,000
$ 4,800
$132,000
40,000
$ (4,000)
c. Compute operating income under both absorption and variable costing.
#
1
2
3
4
5
6
7
ITEM
Sales (28,000 × $20)
Cost of goods sold (28,000 × $16.40),,(28,000 × $12)
Variable selling expenses (28,000 × $2)
Gross margin ,, Contribution margin
Less :
Variable selling and administrative ,, Manufacturing
Fixed selling and administrative,, Selling and administrative
TOTAL
Page -164
Friday, April 17, 2015
Md.Monowar Hossain FCMA,CPA,FCS, ACA
GM & Head of ICC, Agarani Bank Limited.
eMail: md.monowar@gmail.com