Accounting Assignment Help With Costing Process

Costing Process

Costing process starts with raw materials input and ends with finding cost of sales ( see figure 1.1)

Raw materials consumption

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+

Direct wages

+

Direct expenses

=

Prime cost

Manufacturing overhead

=

Factory cost

+

Opening Work-in-progress

-

Closing Work-in-progress

=

Cost of production

+

Opening Stock of finished goods

-

Closing Stock of finished goods

=

Cost of goods sold

+

Administrative Overhead

+

Selling & distribution overhead

+

Amortised potion of R&D overhead

=

Cost of sales

5.1: Cost Determination Process

Let us take an example

A factory purchased 100000 units of raw materials @ $10. it incurs wages $6,75,000 and factory overheads $3,00,000. its stock option position is as follows:

Opening stock Closing stock
Units $ Units $
Raw Material 4000 38000 5000 ?
W-I-P 2000 30000 100 ?
Finished Goods 1000 18000 1500 ?

Other overheads:

Administrative overheads $ 2,50,000

Selling & Distribution overheads $ 1,00,000

Find out cost of sales per unit.

Follow FIFO for valuation of raw material stock and average cost for W-i-P and finished goods.

Solution.

Units $ $

Opening stock> 4,000 38,000
Purchases 1,00,000 10,00,000
1,04,000 10,38,000
Less closing stock 5,000 50,000
99,000 9,88,000
Direct Wages 6,75,000
Prime cost 16,63,000
Add Factory overheads 3,00,000
Factory Cost 19,63,000
Add opening WIP 2,000 30,000
Less Closing WIP (1,000) (19,733)
1,00,000 19,73,267
Add opening stock of finished goods 1,000 18,000
Less closing stock of finished goods (1,500) (29,573)
Cost of goods sold 99,500 > 19,61,694
Add Admn. overheads 2,50,000
Add S&D Overheads 1,00,000

Cost of Sales

99,500 23,11,694

Cost of sales per unit is $23.23

Notes: Valuation of closing stock

1. Closing stock of raw materials

By FIFO assumption items used first are issued first. So closing stock is valued @$10 which is the latest purchase price.

2. Closing Stock of WIP

This is valued on average basis.

Total units including opening WIP 1,01,000

Total cost including value of opening WIP ($19,63,000 + $30,000) = $ 19,93,000

Cost of WIP 1000 units = 19,93,000/1,01,000*1000 = $ 19,733

3. Closing stock of finished goods on average cost basis.

Total units including opening cost 1,01,000

Total Cost including value of opening stock $ 19,91,267

Cost of finished goods = 19,91,267/1,01,000*1500 = $ 29,573

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