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Accounting Assignment: Workplace For Costing Products And Services Using Tools

Question

Task: The purpose of Assessment item 1 is to establish the skills needed in the workplace for costing products and services using the appropriate processes and tools and applying analytical processes to construct accounting systems and models using workplace tools. Each question uses realistic data and the professional practices similar to that found in workplaces.

Your assignment consists of different question styles including discussion questions, reports, exercises, problem questions and spreadsheet questions. It assesses learning outcomes as listed in the assignment rationale below.

Question 1: Value Chains (20 marks)
Prepare a report which describes and explains the value chain of the organisation in which you work or for a business or organisation of which you have a deep understanding. Include in your report an evaluation of the value chain's ability to provide a suitable framework for considering management accounting issues within your organisation. Ensure that you have identified the key management accounting issues that are relevant to your organisation. Information on report writing is in the Resources section of this subject site. (500 words)

Question 2 Cost of Manufacturing Statement (20 Marks)
The following data refer to Portland Precision Engineering Co Ltd for the year ended 31 December 2018.

Sales Revenue

$1,400,000

Raw material inventory, 1 January

67,200

Purchases of raw materials

194,600

Freight Inwards

2,800

Raw material inventory, 31 December

71,500

Direct labour costs incurred

490,000

Selling and Administrative expenses

22,880

Indirect labour costs incurred

77,200

Council rates

90,000

Depreciation on factory machinery

10,750

Income tax expense

32,400

Indirect material used

8,726

Depreciation on factory fittings

6,400

Factory rent expense

39,270

Advertising expense

20,800

Other manufacturing expenses

5,600

Insurance on factory and equipment 

22,120

Interest expense

3,080

Sales salaries expense

121,520

Electricity for factory

58,800

Work in process inventory, 1 January

49,000

Work in process inventory, 31 December

50,700

Finished goods inventory, 1 January

210,000

Finished goods inventory, 31 December

201,500

Required:
1. Prepare a cost of goods manufactured statement for the year ended 31 December 2018. This must be prepared in Excel and cut and pasted into your Word document.
2. What was the company’s cost of sales for the year ended 31 December 2018?
3. What was the company’s gross profit for the year ended 31 December 2018?
4. What was the company's net profit for the year ended 31 December 2018?

Question 3 Cost Allocation (20 Marks)
Bezos Ltd is developing departmental overhead rates based on machine hours for its moulding department and direct labour hours for its assembly department. The moulding department has 20 machines that each run for 2,000 hours per year. The assembly department employs 80 people, who each work 2,000 hours per year. The production related overhead costs distributed to the moulding and assembly departments are budgeted at $500,000 and $740,000 respectively. Two support departments, repairs and engineering, directly support the two production departments, moulding and assembly. These support departments have budgeted costs of $100,000 an $580,000 respectively. The production departments' overhead rate cannot by determined until the support department costs are allocated. The following schedule reflects use of the output of the repairs and engineering departments by the various departments.

Support Departments

Repairs

Engineering

Moulding

Assembly

Repairs (repair hours)

0

2,000

3,000

15,000

Engineering (kilowatt hours)

250,000

0

850,000

150,000

 

Required
1. Calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department. Use the direct method to allocate support department costs.
2. Estimate the overhead cost of a thingamebob, which is produced using 3 machine hours in the moulding department and 5 labour hours in the assembly department.
3. Using the step-down method to allocate support department costs, calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department. Allocate the repairs department costs first.
4. Now estimate the cost of the thingamebob using the overhead rates estimated in part 3.
5. Using the reciprocal services method to allocate support department costs, calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department.
6. Now estimate the cost of the thingamebob using the overhead rates estimated in part 5.
7. Prepare a short memo to the Chief Financial Officer of Bezos Ltd, explaining which of the three methods of support department cost allocation results in the most accurate overhead rates and product costs. Explain why this is the most accurate method and why accuracy is important.

Question 4 Job Costing (20 Marks)
Collaroy Products Ltd uses a job order costing system to control costs in its two production departments. Factory overhead is applied on the basis of machine hours to the Preparation Department and on the basis of direct labour cost in the Finishing Department.

The company budgeted the following for last year:

 

Preparation

Finishing

Direct materials requisitioned

$1,300

$1,420

Direct labour cost

$ 1,640

$1,800

Direct labour hours

90

100

Machine hours

40

50

Required
1. Calculate the predetermined overhead rate for each department
2. Calculate the total cost of Job 842.
3. If the actual direct labour cost in the Finishing Department was $375,800 and the actual factory overhead was $682,500 was the overhead over-applied or under-applied?

Question 5 Process Costing (20 Marks)
Pure Cotton Ltd manufactures organic cotton fabrics for the clothing industry. The following data relate to the weaving department for March:

 

Weighted Average

FIFO

Total equivalent units of direct material

60,000

40,000

Total equivalent units of conversion

52,000

44,000

Units completed and transferred out during December

50,000

50,000

 

There were 20,000 units in process in the weaving department on 1 March (100% complete as to direct material and 40% complete as to conversion).

Required
1. Prepare a spreadsheet to calculate each of the following amounts using weighted average process costing:
o cost of goods completed and transferred out of the weaving department during March
o cost of the 31 March work in process inventory in the weaving department.
2. Repeat requirement 1 using the FIFO method.
3. Cut and paste your spreadsheet solution into your the word document for your assignment.

Answer

Ethics and principles are the most important tools that are required to run a business. The concept of value chain analysis is a very important part of the business process which can be easily understood by your owner of a successfully running business organization which manufactures garments and products and is in the same industry. It is very hard for a business organization to you understand the needs of business and perform the cost-cutting analysis. This process is observed to be very slow in nature but once all establishment starts working properly, the classification and analysis of cost will be very helpful for taking important business decisions and father will help to generate revenue using least resources (Smith et. al, 2010)

Value chain analysis generally refers to a series of analytical steps that can help them to classify cost into primary and secondary divisions. These costs are generally termed on the basis of their direct contribution to the final product and later they are analyzed and measured so as to find ways to reduce the cost. Value chain also refers to the internal processes that take place inside an organization for converting the inputs into outputs by various methods (Charles, 2014).

For a garment manufacturing organization, the prime costs are labor cost and direct material cost whereas other kinds of material like the fabric, buttons, threads are referred to be direct materials send a part of primary costs that are directly added to the product. Labor is one of the most important costs for proper management. Cost of building a furnished infrastructure and warehouse will also be considered as an important cost element because they are directly being added to the value of the product.

All these costs should be analyzed carefully so that any scope of cost reduction can be utilized for generating more revenue. The secondary cost like sales, marketing, and logistics is also very important because they are the components which can be altered for reducing the final cost of the product. Products with new technologies, new ways of production, operations, sales, marketing, and logistics can help an organization to who makes innovative changes in their cost which can further help them for proper value chain analysis by improvised goods with good quality that is being sold at premium prices (Balakrishnan et. al 2014).

There are various competitive advantages that can be found out using the value chain analysis. Self-learning and training are also very important for a proper value chain approach because every weak link can be identified and eliminated if a detailed analysis is provided. Therefore this concept is considered to be a very important and cost-effective method that can be used to reduce the cost and improvise the balance sheet of the organization by increasing its revenue. This method of evaluation would also help the business to find ways for reduction of cost eventually e by finding of the wastage of material, leave because of logistics cost and other indirect materials that increase the price of the product and also affect the sales cycle by performing a proper value chain analysis.

Answer 2:
1. Cost of Manufacturing Statement
for the year ended 31 December 2018

Sl No

Particulars

Note

Amount ($)

Amount ($)

 

 

 

 

 

A

Raw materials

1

193,100

 

B

Direct Labor cost

 

490,000

 

C

PRIME COST = (A+B)

 

 

683,100

D

Expenses (Indirect labor)

 

77,200

 

E

factory machine (Depreciation)

 

10,750

 

F

Usage of Indirect Material

 

8,726

 

G

factory fittings Depreciation

 

6,400

 

H

Expense Factory rent

 

39,270

 

I

factory and equipment insurance

 

22,120

 

J

Factory Electricity

 

58,800

 

K

Manufacturing expenses (other)

 

5,600

 

L

Gross Factory Cost computation (C+D+E+F+G+H+I+J+K)

 

 

911,966

 

Add: opening Work in progress

 

 

49,000

 

Less: closing Work in progress

 

 

50,700

M

Factory Cos or Cost of goods manufactured

 

 

910,266

 

2. COS for the year ended 31 December 2018= $1,173,966 :

Sl No

Particulars

Note

Amount ($)

Amount ($)

 

 

 

 

 

A

Raw materials

1

193,100

 

B

Direct Labor cost

 

490,000

 

C

PRIME COST = (A+B)

 

 

683,100

D

Expenses (Indirect labor)

 

77,200

 

E

factory machine (Depreciation)

 

10,750

 

F

Usage of Indirect Material

 

8,726

 

G

factory fittings Depreciation

 

6,400

 

H

Expense Factory rent

 

39,270

 

I

factory and equipment insurance

 

22,120

 

J

Factory Electricity

 

58,800

 

K

Manufacturing expenses (other)

 

5,600

 

L

Gross Factory Cost computation (C+D+E+F+G+H+I+J+K)

 

 

911,966

 

Add: opening Work in progress

 

 

49,000

 

Less: closing Work in progress

 

 

50,700

M

Factory Cos or Cost of goods manufactured

 

 

910,266

N

Council rates

 

90,000

 

O

Cost Of Production (M+N+O+P)

 

 

1,000,266

 

Add: Opening stock of finished goods

 

 

210,000

 

Goods available for sale

 

 

1,210,266

 

Less: Closing stock of finished goods

 

 

201,500

P

Cost of Goods sold

 

 

1,008,766

Q

Selling and Administrative

 

22,880

 

R

Expenses  of Advertising

 

20,800

 

S

Expenses  of Sales salaries

 

121,520

 

T

Cost of Sales (R+S+T+U)

 

 

1,173,966

 

3. Computation of gross profit (December 2018) = $226,034

Sl No

Particulars

Note

Amount ($)

Amount ($)

 

 

 

 

 

A

Raw materials

1

193,100

 

B

Direct Labor cost

 

490,000

 

C

PRIME COST = (A+B)

 

 

683,100

D

Expenses (Indirect labor)

 

77,200

 

E

factory machine (Depreciation)

 

10,750

 

F

Usage of Indirect Material

 

8,726

 

G

factory fittings Depreciation

 

6,400

 

H

Expense Factory rent

 

39,270

 

I

factory and equipment insurance

 

22,120

 

J

Factory Electricity

 

58,800

 

K

Manufacturing expenses (other)

 

5,600

 

L

Gross Factory Cost computation (C+D+E+F+G+H+I+J+K)

 

 

911,966

 

Add: opening Work in progress

 

 

49,000

 

Less: closing Work in progress

 

 

50,700

M

Factory Cos or Cost of goods manufactured

 

 

910,266

N

Council rates

 

90,000

 

O

Cost Of Production (M+N+O+P)

 

 

1,000,266

 

Add: Opening stock of finished goods

 

 

210,000

 

Goods available for sale

 

 

1,210,266

 

Less: Closing stock of finished goods

 

 

201,500

P

Cost of Goods sold

 

 

1,008,766

Q

Selling and Administrative

 

22,880

 

R

Expenses  of Advertising

 

20,800

 

S

Expenses  of Sales salaries

 

121,520

 

T

Cost of Sales (R+S+T+U)

 

 

1,173,966

U

Gross Profit (X-V)

 

 

226,034

V

Sales Revenue

 

 

1,400,000

W

Interest expense

 

3,080

 

X

 expense  of Income tax

 

32,400

 

Y

Net Profit (U-W-X)

 

 

190,554

 

 

 

 

 

 

Note – 1 How to derive at the figure of material consumed
= Opening stock+ purchases+ freight inward- closing stock
= $67,200+ $194,600+$2,800-$71,500
= $193,100

Answer – 3 Allocation of cost
Subpart 1
Computation of overhead rates

Subpart 1

Computation  of overhead rates

   

SL NO

Particulars

Moulding

Assembly

 

 

 

 

A

Overhead Production related ($)

500,000

740,000

B

Costs of Support department ($)

409,400

144,600

C

Total cost (A+B)

909,400

884,600

D

Machine hours

40,000

0

E

Direct labor hours

0

160,000

F

Overhead rate calculation

Total cost/Machine hour

Total cost/Direct labor hour

G

Overhead rate ($)

22.735

5.52875

 

Working note – 1
Computation of Cost allocation

Working note – 1

       
 

Computation of Cost allocation

SL NO

Support Departments

Repairs

Engineering

Moulding

Assembly

A

Repairs in terms of repair hours

0

2000

3000

15000

B

Cost of Repairs

 

$10,000

$15,000

$75,000

C

Engineering (kilowatt hours)

250000

0

850000

150000

D

Cost  of Engineering

$116,000

0

$394,400

$69,600

E

Total costs  of Support department (B+D)

$116,000

$10,000

$409,400

$144,600

 

Working note 2
The cost of repairs will be allocated to the departments in terms of repair hours that is used by every department. The overall repair hour stands at 20,000

Repair cost used by the following:

Working note 2

 

The cost of repairs will be allocated to the departments in terms of repair hours that is used by every department. The overall repair hour stands at 20,000

 

Repair cost used by the following:

 

engineering department

 = $100,000*2000/20000

 

 = $10,000

moulding department

 = $100,000*3000/20000

 

 = $15,000

assembly department

 = $100,000*15000/20000

 

 = $75,000

 

Engineering will be allocated to the departments in terms of repair hours that is used by every department. The overall repair hour stands at is 20,000 kilowatt hour

 

Engineering cost used by:

 

repairs department

 = $580,000*250,000/1,250,000

 

 = $116,000

moulding department

 = $580,000*850,000/1,250,000

 

 = $394,400

used by assembly department

 = $580,000*150,000/1,250,000

 

 = $69,600

 

Engineering will be allocated to the departments in terms of repair hours that is used by every department. The overall repair hour stands at is 20,000 kilowatt hour

Engineering cost used by:

Working note 3

 

Total machine hours

 = 20 machines x 2,000 hours per year

 

  = 40,000 hours

Total direct labor hours

  = 80 people x 2,000 hours per year

 

  = 160,000 hours

 

Answer to 4

Part 1

 

 

 

 

 

Details

Action

Finishing

 overhead Manufacturing

285600

684000

Machine hours

6800

9000

Direct labor hours

13000

24000

Predetermined overhead rate

 $42 per machine hours

 $28.5 per direct labor hours

 

Part 2

 

 

 

 

 

Computation of total cost of Job 842

 

 

 

Details

Action department ($)

Finishing department ($)

Requisition of direct material

1300

1420

Direct labour cost

1640

1800

Direct Overheads (Refer WN-2)

1680

2850

 

Part 3

 

 

 

 

 

Total labour cost that pertains to finishing department

 

 =$375,800

Budgeted labour hours

 

  =24,000

 overhead rate

 

 = $375,800/24,000

 

 

 = $15.66 per labor hour

It needs to be noted that there has been an under application of the actual overhead

 

 

 

 

 

 

 

 

Preparation department - Total Factory overhead

 

 =$682,500

Budgeted machine hours

 

 = 6,800

 overhead rate

 

  = $682,500/6,800

 

 

  =$100.37 per machine hour

Over application of the actual overhead

 

 

 

WN- 2**

 

 

 

Sl No

Details

Preparation department ($)

Finishing department ($)

 

Overhead absorption rate

 $42 per machine hours

 $28.5 per direct labor hours

1

Machine hours

40

50

2

Direct labor cost

90

100

3

Overhead

1680

2850

 

Preparation department - Predetermined overhead rate 

  =$285600/6800

 

 =  $42 per machine hour

 

 

Finishing department - Predetermined overhead rate

  = $684000/24000

 

  =$28.5 per direct labor hour

 

Answer to 5

Details

Qty

Amt

Details

Qty

Amt

TO

Opening WIP

20000

276000

BY

Closing WIP

10000

110369.2

TO

Direct Material

40000

328000

BY

Completed Units - Transferred out

50000

1039231

TO

Conversion cost

 

545600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60000

1149600

 

 

 

60000

1149600

 

Statement presenting calculation of Equivalent Units

 

 

 

 

 

 

 

 

INPUT

Details

 

 

Output

MATERIAL

CONVERSION COST

 

 

 

 

 

%

UNITS

%

UNITS

60000

Completed Units

 

 

50000

100

50000

100

50000

 

Closing WIP

 

 

10000

100

10000

20

2000

60000

TOTAL

 

 

60000

 

60000

 

52000

 

Statement projecting cost per equivalent unit (on weighted average basis)

 

 

 

 

 

Details

Amt

Equivalent units

cpu

 

Material

 

516000

60000

8.6

 

Conversion cost

 

633600

52000

12.18461538

 

 

 

 

 

 

 

Statement projecting value of completed units and closing WIP

 

 

 

 

 

PARTICULARS

 

DETAILS

 

 

AMOUNT

 

 

 

 

 

 

Completed Units

 

(50000*8.6)+(50000*12.18462)

 

 

1039231

Closing WIP

 

(10000*8.6)+(2000*12.18462)

 

 

110369.2

 

 

 

 

 

1149600

 

Part – 2
Pure Cotton Limited
Process A/c - Weaving Department
Done as per FIFO basis

Details

Qty

Amt

Details

Qty

Amt

TO

Opening WIP

20000

276000

BY

Closing WIP

10000

157800

TO

Direct Material

40000

328000

BY

Completed Units - Transferred out

50000

991800

TO

Conversion cost

 

545600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60000

1149600

 

 

 

60000

1149600

 

Statement projecting calculation of Equivalent Units

 

 

 

 

 

 

 

 

INPUT

PARTICULARS

 

 

OUTPUT

MATERIAL

CONVERSION COST

 

 

 

 

 

%

UNITS

%

UNITS

60000

Completed Units

 

 

 

 

 

 

 

 

>> Out of opening WIP

 

 

20000

0

0

60

12000

 

>> Out of new material introduced

 

 

30000

100

30000

100

30000

 

 

 

 

 

 

 

 

 

 

Closing WIP

 

 

10000

100

10000

20

2000

60000

TOTAL

 

 

60000

 

40000

 

44000

 

 

 

 

 

 

 

 

 

 

Statement projecting cost per equivalent unit (FIFO basis)

 

 

 

 

Details

 

Amt

Equivalent units

COST PER EQ UNIT

Material

 

516000

40000

12.9

Conversion cost

 

633600

44000

14.4

 

Statement projecting value of completed units and closing WIP

 

 

 

 

 

particulars

 

Details

 

 

Amt

 

 

 

 

 

 

Completed Units

 

(30000*12.9)+(42000*14.4)

 

 

991800

Closing WIP

 

(10000*12.9)+(2000*14.4)

 

 

157800

 

 

 

 

 

1149600

 

References
Balakrishnan, R., E. Labro, and Soderstrom, S. (2014) Cost structure and sticky costs. Journal of Management Accounting Research. 26 (2), p. 91–116. Available from: http://bs4e.auinstallation32.cs.au.dk/fileadmin/site_files/filer_oekonomi/subsites/DCAF/konferencer/Labro.pdf [Accessed 7 April 2019]

Charles, T.S. (2014) Cost Accounting: A Managerial Emphasis. Pearson Education

Smith, W.K., Binns, A and Tushman, M.L (2010). Complex business models: Managing strategic paradoxes simultaneously, Long range planning 43, 448-461. DOI: 10.1016/j.lrp.2009.12.003

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