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
+
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
