Chapter # 4
Cost accounting
Cost concept uses and classification (to find out total cost and classification cost)
For find out the
1.
2.
3.
4.
P.C = (Prime cost)
T.C = (Total cost)
M.C = (MFG cost)
C.G.S = (Cost of goods sold)
We use different formulas.
Question # 1:
Bid calculation the shipper company is to submit a bid on the production of (10,000af) unit it is
estimated that the cost of material will be (7500af) & D. labor cost is (10100af) F.O.H is to be applied at
Rate of (5af) per Direct labor House in the {Molding Department} and F.O.H is to be applied at (120%) of
D. labor in the {Finishing Department} it is estimated that (800af) House will be on {Molding
Department} and (4300af) of D. labor cost will be on {Finishing Department} the company wishes a bid
price consisting charge of (40%) Mark up total production cost.
Requirement:
1.
2.
3.
4.
Total cost?
Prime cost?
Conversion cost?
Bid price?
Prepared by Eraj afshar
REQ 1: for finding out the Total cost we need for (D. labor/D. material/ F.O.H cost) in question we
have the D. labor and D. material cost so we need to find the F.O.H cost.
In this question we have two departments {Molding Department} and {Finishing Department} so we
have to find out the both departments F.O.H costs then we plus them. Then we have the real F.O.H cost.
4300 × 120 ÷100 = (5160af finishing department)
800 × 5 = (4000af Molding department)
NOTE: Now we can find out the total cost because we have the (F.O.H , D. labor, D. material costs)
D. material cost = (7500af)
D. labor cost
= (10100af)
F.O.H cost =
M= (4000af)
F = (5160af)
TOTAL COST = (26760af)
REQ 2: for finding out the Prime cost we use a formula.
(P. cost = D.M + D.L)
NOTE: Combinations of D. labor and D. material is equal to prime cost.
D. material = (7500af)
D. labor =
(10100af)
Prime cost = (17600af)
Prepared by Eraj afshar
REQ 3: Conversion cost for finding out the conversion cost we use a formula which is.
{Conversion cost = D. labor + F.O.H cost}
NOTE: Conversion cost is the combination of (D. labor + F.O.H cost)
D. labor cost = (10100af)
F.O.H cost =
(9160af)
Conversion cost =(19260af)
REQ 4: Bid price for finding out this we need for two things (total cost + Mark up) so we have the
Total cost but we have to finding out the Mark up(bank charges) so we use a formula for this.
{Mark up = Total cost × percentage of charges ÷ 100}
{Mark up = 26760 × 40 ÷ 100 = 10704af}
NOTE: now we can find out the Bid price because we have both the total cost and Mark up so we
plus them.
Total cost = (26760af)
Mark up = (10704af)
Bid price = (37464af)
Question # 2: The Florida company has the following inventory on October 1, material =
(24000af) W.I.P = (12000af) F. goods = (36000af) During the month material purchases = (56000af)
D. labor cost = (40,000af) at the Rate of (6.40af) per house, MKT and Admin Expenses (10%) of sells
October 31, inventory material = (20,000af) W.I.P = (8000af) and F. goods = (40,000af) net sells for
October (200,000af) F.O.H is applied on the basis of (8af) per Direct labor House.
Prepared by Eraj afshar
Requirements:
1.
2.
3.
4.
5.
Prime cost?
Conversion cost?
Cost of goods MFG?
C.G.S?
Net income?
REQ 1: prime cost = (D. labor + D. material)
C.G.S format:
Opening R. material
Add purchases
56000
80,000
Material Available
Less ending R. material
20,000
20,000
60,000
Material consume
Add D. labor cost
24000
56000
40,000
40,000
100,000
Prime cost this is requirement 1
REQ 2:
Conversion cost = (D. labor + F.O.H cost)
NOTE: in her we have the D. labor but we have to find out the F.O.H cost for finding out F.O.H cost
we use a formula.
D. labor cost ÷ Rate of per house = total F.O.H
40,000 ÷ 6.40 = 6250af
Prepared by Eraj afshar
For finding out the actual F.O.H cost we use (total F.O.H cost × per D. labor house)
F.O.H cost = 6250 × 8 = (50,000af)
Conversion cost =
D. labor cost = (40,000af)
F.O.H cost =
(50,000af)
Conversion or factory cost = (90,000af)
REQ 3:
C.G.S format
Material consumed
Add D. labor cost
Prime cost
40,000
Add F.O.H cost
50,000
60,000
40,000
100,000
50,000
150,000
Total factory cost or conversion cost
Add opening W.I.P
Cost of work put in to process
Less ending W.I.P
12000
8000
12000
162000
8000
154000
COST OF GOODS MFG THIS IS REQUIREMENT # 3
REQ 4:
We have to find out the C.G.S
Add opening F. goods
36000
Cost of goods available for sells
Less ending F. goods
190,000
40,000
40,000
150,000
This is our C.G.S
Prepared by Eraj afshar
REQ 5: NET INCOME
SELLS
Less C.G.S
150,000
G. profit
Less MKT and Admin Expenses
200,000
150,000
50,000
20,000
NET INCOME
20,000
30,000
NOTE: to finding out the admin and MKT expenses we (sells × percentage ÷ 100)
200,000 × 10 ÷ 100 = (20,000 admin and MKT EXP)
Question # 4:
Smith incorporation submits the following data.
Material put in to process (material requisition or issue) (42300af)
Direct labor is paid at the Rate of (7.80af) and (8.40af) per house in Department (A) and Department (B)
Department (A) work (6125af) and Department (B) work (9875af) F.O.H applied at the Rate of (5af) per
house in Department (A) and (4.20) per house in Department (B)
Inventory for the year:
Opening
ending
R. material
15000af
19200af
W.I.P
17300af
19425af
F. goods
11300af
9400af
Prepared by Eraj afshar
Requirement:
With the help of T_ account find the C.G.S?
Answer:
Material
Dr
Cr
Opening inventory (15000af)
Ending inventory (19200af)
M/B (46500af)
Material = (42300af)
61500af
61500af
W.I.P
Dr
Cr
Opening (17300af)
Ending (19425af)
Material (42300af)
Cost of goods MFG (243000af)
D. labor (130725af)
Dr
Prepared by Eraj afshar
F.O.H (72100af)
C/B
262425af
262425af
F. goods
Cr
Beginning (11300af)
Ending (9400af)
F. goods (243000af)
C/B (244900af)
(254300af)
(254300af)
Question # 5:
Steinhardt incorporation sold (50) air condition of (200af) each material cost include (50af) per-unit
D. labor cost include (30af) per-unit F.O.H at (100%) of D. labor cost
{Interest expenses on (8%) of bank loan} we exclusion this line because of requirement we don’t need it.
Effective July(1) material cost will Decreases (5%) and D. labor cost will increases (20%).
Requirement:
1. Gross Profit per-unit?
2. Gross Profit per-unit Assuming that (10%) F.O.H cost is fixed and Remaining is variable?
REQ 1:
Income statement
Sells price
Less C.G.S
Material
D. labor
F.O.H cost
Prepared by Eraj afshar
200
(50)
(30)
(30)
(The D. labor, D. material and F.O.H cost are include
in C.G.S)
110
110
(90)
Gross Profit per-unit
REQ 2:
Material = (50) = 50 × 5 ÷ 100 = (2.5)
50 – 2.5 = (47.5)
D. labor = (30) = 30 × 20 ÷ 100 = (6)
30 + 6 = (36)
F.O.H = (30) = 30 × 20 ÷ 100 = (6)
30 + 6 = (36)
Fixed = 10 , variable = 26
Income statement:
Sells price
Less C.G.S
D. material
D. labor
F.O.H
Fixed cost
Variable cost
200
(47.5)
(36)
(10)
(26)
119.5
G.P.P.U
Prepared by Eraj afshar
119.5
80.5
.
Prepared by Eraj afshar