Cost Accounting Assignment Help

It is the branch of accounting in which all the costs incurred during an activity or to accomplish an aim are collected, classified and recorded. This information is then processed and summarized to analyze the cost incurred in different processes and to arrive at a selling price and also to determine the areas where cost saving measures can be taken to improve efficiency and save cost.

Some of the important uses of cost accounting are:

Cost control

One of the major objectives of cost accounting is to control cost. Every business wants to control costs on inputs and to charge more for its outputs, this can be achieved through cost accounting, as it would help in finding out inefficiencies in the production process which would further enable the management to take necessary action to improve the efficiency of such a process and lead to higher profits in the long term.

Ascertain price of product or service

Cost accounting also equips the businesses to ascertain the selling price of products. The selling price can only be decided upon after taking into account all costs and then deciding how much profit a firm wants to earn and thus it can decide the selling price accordingly.

Profit ascertainment

Cost accounting helps in ascertaining profits and also helps to see the profitability of a certain product and how that particular profit figure is reached upon. Thus the firm also knows what all it can do to maximize profits and minimize costs as cause and effect relationship can be made, which will enable the firm generate maximum value as well as profits.

Assisting management in decisions:

It is an important tool that helps the management make cost decisions and thus take the best route to profitability.

This concept can be illustrated with the following example of a sandwich seller:

A sandwich seller was found to have the following costs to sell sandwiches in a day:

Raw materials (Bread, vegetables etc.)	$250
Food truck rent	$50
Petrol expenses	$50
Wages to helper	$50
Other expenses	$100

He expects to sell 100 sandwiches in a day and wants to earn 30% of profit on costs. Now he has to decide the cost of each sandwich so as to earn desired profit.

He first adds all the expenses i.e. = $500

Now he wants to earn a profit of 30% on cost thus he finds out that he has to makes sales worth $500 to break even and thus, he has to sell sandwiches worth $650 to earn desired profits.

As he expects to sell 100 sandwiches in a day he decides to price each of his sandwiches at $6.5.

The following example can be further extended to include many variations like how competitors price their sandwiches.

To further illustrate the point consider the previous example the only change being that the other sandwich sellers in the area sell their sandwich at $6.

Now the sandwich seller either has to decrease his profit margin or the cost incurred. Cost accounting helps him find the areas where he can reduce costs so as to attain desired levels of profits. After accounting for different areas where he find that he can reduce the other expenses that he incurs on selling the sandwiches by $30 and can negotiate a reduction of $10 on renting of truck thus saving $40 as expenses which reduces the cost to $460 thus to get his desired profit margin he has to sell $598 worth of sandwiches which allows him to price his sandwiches at $5.98. He thus has a little edge over his competitors and this may help him sell 10 more sandwiches each day thus helping him sell more and in turn earn more.

Cost accounting even with its numerous advantages has certain limitations:

It is often considered as unnecessary by the organizations as most of the costing figures are already included in the financial accounts of the company.
It is not applicable in all industries and if it is applicable in some industries it does not give the desired results, which makes it unattractive to use and is considered as one of the major deterrents to universal adoption of cost accounting.
Failure of costing system, in many cases cost accounting fails, which makes it seem defective, and thus many consider it the failure of the system of cost accounting.
Cost accounting is considered expensive by many, as the business needs to keep additional books for recording and analyzing at the beginning stage; also it is considered as uneconomical for small businesses.
It is also considered as inaccurate as many believe it is based on estimation as pre-determined data is used to come up with figures and thus many businesses believe that the results determined from cost accounting are mere estimates and far from the truth.

Coast accounting questions with answers

Question 1: Management accounting information for resource management

You have just been appointed as the management accountant for Close Up and Personal (CUP), a company that sells pottery items, jewellery and cool clothing, featuring personal digital photos. This company employs a team of 12 designers who design the pottery items, jewellery and clothing. These products are manufactured by independent companies. CUP then prints the customer ordered photos onto the products and sells them to customers through six sales outlets located in shopping malls.

Required:

1. Identify the specific types of management accounting information that may be needed by the following employees, on a monthly basis, to help them control operations:

(a) Manager of each retail outlet.
(b) Manager of the design team.
(c) Marketing manager responsible for planning advertising campaigns and identifying customer needs.
(d) manager who manages and renegotiates contracts with the outside manufacturers.

2. The managing director of CUP is interested in developing more sophisticated planning systems but has some doubts over the value of undertaking strategic planning. Prepare a report outlining the importance of planning systems. In your report, consider the interrelationships between the objectives of the company, its strategies and short-term planning systems. Explain how management accounting information may assist in improving the planning function of the company.

Question 2: Schedules of cost of goods manufactured and sold; income statement

The following data refer to Flintoff Fashions for the current year:

Sales revenue	$570 000
Work in process inventory, 31 December	18 000
Work in process inventory, 1 January	24 000
Selling and administrative expenses	90 000
Income tax expense	54 000
Purchases of raw materials	108 000
Raw material inventory, 31 December	15 000
Raw material inventory, 1 January	24 000
Direct labour	120 000
Electricity: plant	24 000
Depreciation: plant and equipment	36 000
Finished goods inventory, 31 December	30 000
Finished goods inventory, 1 January	12 000
Indirect material	6 000
Indirect labour	9 000
Other manufacturing overhead	48 000

Required:

1. Prepare the schedule of cost of goods manufactured for Flintoff Fashions.

Answer:

Particulars	Details	Amount
Opening stock of Raw Materials	24000
Add: Purchase of Raw materials	108000
Less: Closing stock of Raw Materials	15000
RAW MATERIAL CONSUMED		117000
Add: Direct Labour		120000
PRIME COST		237000
Add: Manufacturing Overheads
Electricity of plant	24000
Depreciation	36000
Indirect materials	6000
Indirect Labour	9000
Other Overheads	48000	123000
GROSS FACTORY COST		360000
Add: Opening WIP		24000
less: Closing WIP		18000
NET FACTORY COST/COST OF PRODUCTION		366000

2. Prepare the schedule of cost of goods sold for Flintoff Fashions.

Answer:

Particulars	Details	Amount
Opening stock of Raw Materials	24000
Add: Purchase of Raw materials	108000
Less: Closing stock of Raw Materials	15000
RAW MATERIAL CONSUMED		117000
Add: Direct Labour		120000
PRIME COST		237000
Add: Manufacturing Overheads
Electricity of plant	24000
Depreciation	36000
Indirect materials	6000
Indirect Labour	9000
Other Overheads	48000	123000
GROSS FACTORY COST		360000
Add: Opening WIP		24000
less: Closing WIP		18000
NET FACTORY COST/COST OF PRODUCTION		366000
Add:Opening stock of finished goods		12000
Less:Closing stock of finished goods		30000
COST OF GOODS SOLD		348000

3. Prepare the income statement for Flintoff Fashions.

Answer:

Particulars	Amount
Sales	570000
Less:Cost of goods sold	348000
Less:Selling and administrative expenses	90000
OPERATING PROFIT	132000
Less:Income tax expense	54000
NET PROFIT	78000

W. 4. Construct an Excel® spreadsheet to solve all the preceding requirements. Include formulas in your spreadsheet wherever possible. Show how both cost schedules and the income statement will change if:

4. (a) raw material purchases amounted to $110 400.

Answer:

Particulars	Amount(original)	Amount(After change)
Opening stock of Raw Materials	24000	24000
Add:Purchase of Raw materials	108000	110400
Less:Closing stock of Raw Materials	15000	15000
RAW MATERIAL CONSUMED	117000	119400
Add:Direct Labour	120000	120000
PRIME COST	237000	239400
Add:Manufacturing overheads
Electricity of plant	24000	24000
Depreciation	36000	36000
Indirect materials	6000	6000
Indirect Labour	9000	9000
Other Overheads	48000	48000
GROSS FACTORY COST	360000	362400
Add:Opening WIP	24000	24000
Less:Closing WIP	18000	18000
NET FACTORY COST/COST OF PRODUCTION	366000	368400
Add:Opening stock of finished goods	12000	12000
Less:Closing stock of finished goods	30000	30000
COST OF GOODS SOLD	348000	350400

Particulars	Amount	Amount(After change)

INCOME STATEMENT
Sales	570000	570000
Less:Cost of goods sold	348000	350400
Less:Selling and administrative expenses	348000	350400
OPERATING PROFIT	132000	129600
Less:Income tax expense	54000	54000
NET PROFIT	78000	75600

4. (a) indirect labour was $9600.

Answer:

Particulars	Amount(original)	Amount(After change)
Opening stock of Raw Materials	24000	24000
Add:Purchase of Raw materials	108000	108000
Less:Closing stock of Raw Materials	15000	15000
RAW MATERIAL CONSUMED	117000	117000
Add:Direct Labour	120000	120000
PRIME COST	237000	237000
Add:Manufacturing overheads
Electricity of plant	24000	24000
Depreciation	36000	36000
Indirect materials	6000	6000
Indirect Labour	9000	9600
Other Overheads	48000	48000
GROSS FACTORY COST	360000	360600
Add:Opening WIP	24000	24000
Less:Closing WIP	18000	18000
NET FACTORY COST/COST OF PRODUCTION	366000	366600
Add:Opening stock of finished goods	12000	12000
Less:Closing stock of finished goods	30000	30000
COST OF GOODS SOLD	348000	348600

Particulars	Amount	Amount(After change)

Sales	570000	570000
Less:Cost of goods sold	348000	348600
Less:Selling and administrative expenses	90000	90000
OPERATING PROFIT	132000	131400
Less:Income tax expense	54000	54000
NET PROFIT	78000	77400

Question 3: Cost behavior; engineered cost; committed and discretionary costs: manufacturer

HappyDaze T-shirts manufactures and prints customised designs on T-shirts. Below is a list of some of their major costs.

(a) Cost of daily radio advertising on the local community radio station.
(b) Cost of the fabric used to make the T-shirts.
(c) Cost of the ink used in the designs.
(d) Salary of the managing director.
(e) Wages of the production employees who sew and print the T-shirts.
(f) Cost of movie tickets provided for the Employee of the Month award each month.
(g) Depreciation of the sewing machines, calculated on a units of production basis.
(h) Cost of electricity used in the factory building.
(i) Rent of the building.
(j) Wages of the staff who package the T-shirts.
(k) Cost of sewing machine maintenance.
(l) Cost of the new advertising sign at the front of the factory.
(m) Cost of the company car used by the managing director.

Required:

For each cost:

Indicate whether it is fixed or variable.
If the cost is variable, indicate whether it is an engineered cost. Explain why.
If the cost is fixed, indicate whether it is committed or discretionary. Explain why.

Answer:

S.No.	Particulars	Type	Sub-type	Reason
(a)	Cost of daily radio advertising on the local community radio station.	Fixed	Discretionary	The cost doesn't vary with production and is under control , whether it is to be incurred or not.
(b)	Cost of the fabric used to make the T-shirts.	Variable	Engineered	Varies with the production and can be directly linked with per unit of output.
(c)	Cost of the ink used in the designs.	Variable	Non-engineered	Varies with the production and cannot be directly linked with per unit of output.
(d)	Salary of the managing director.	Fixed	Commited	Doesn’t vary with the production level and is incurred whether there is any production activity or not.
(e)	Wages of the production employees who sew and print the T-shirts.	Variable	Engineered	Varies with the production and can be directly linked with per unit of output.
(f)	Cost of movie tickets provided for the Employee of the Month award each month.	Fixed	Commited	Doesn’t vary with the production level and is incurred whether there is any production activity or not.
(g)	Depreciation of the sewing machines calculated on a unit of production basis	Variable	Non-engineered	Varies with the production and cannot be directly linked with per unit of output.
(h)	Cost of electricity used in the factory building.	Variable	Non-engineered	Varies with the production and cannot be directly linked with per unit of output.
(i)	Rent of the building.	Fixed	Commited	Doesn’t vary with the production level and is incurred whether there is any production activity or not.
(j)	Wages of the staff who package the T-shirts.	Variable	Non-engineered	Varies with the production and cannot be directly linked with per unit of output.
(k)	Cost of sewing machine maintenance.	Fixed	Discretionary	The cost doesn't vary with production and is under control , whether it is to be incurred or not.
(l)	Cost of the new advertising sign at the front of the factory.	Fixed	Commited	Doesn’t vary with the production level and is incurred whether there is any production activity or not.
(m)	Cost of the company car used by the managing director.	Fixed	Commited	Doesn’t vary with the production level and is incurred whether there is any production activity or not.

Question 4: Cost of goods manufactured; overapplied or underapplied overhead; journal entries

Cool Cooking Tools Ltd, manufacturer of gourmet cooking utensils, uses job costing. Manufacturing overhead is applied to production at a predetermined overhead rate of 150 per cent of direct labour cost. Any overapplied or underapplied manufacturing overhead is closed to cost of goods sold at the end of each month. Additional information:

Job SR22, consisting of ceramic spoon rests, was the only job in process on 31 January, with accumulated costs as follows:

Direct material	$4000
Direct labour	2000
Applied manufacturing overhead	3000
Total	$9000

Jobs BS67, TR29 and GT108 were started during February.
Direct materials requisitions during February totalled $26 000.
Direct labour cost of $20 000 was incurred during February.
Manufacturing overhead incurred in February was $32 000.

The only job still in process on 28 February was job number GT108, with costs of $2800 for direct material and $1800 for direct labour.

Required:

Q4(a). Calculate the cost of goods manufactured for February.

Answer:

Particulars	Amount
Direct material	26000
Add:Direct labour	20000
Add:Overheads(150% of Direct Labour)	30000
Cost of goods manufactured	76000

Q4(b). Calculate the amount of overapplied or underapplied overhead to be closed to cost of goods sold on 28 February.

Answer:

Overheads incurred	32000
Overheads absorbed	30000
Underabsorbed overheads	2000

Q4(c). Prepare journal entries to record the events described in requirements 1 and 2.

Answer:

JOURNAL

Particulars	Dr Amount	Cr Amount
Stores Ledger Control A/c Dr	26000
To General Ledger Control A/c		26000
(Being Direct Material Purchased)

Wages Control A/c Dr	20000
To General Ledger Control A/c		20000
(Being direct wages paid)

Manufacturing Overheads Control A/c Dr	32000
To General Ledger Control A/c		32000
(Being overheads incurred)

Respective Job WIP A/c Dr	76000
To Stores Ledger Control A/c		26000
To Wages Control A/c		20000
To Manufacturing Overheads Control A/c		30000
(Being amounts transferred to jobs)

Cost of sales A/c(See WN1) Dr	77700
To Respective Job WIP A/c		77700
(Being amount transferred to cost of sales)

Cost of sales A/c Dr	2000
To Manufacturing Overheads Control A/c		2000
(Being underabsorbed Overheads absorbed)
TOTAL	233700	233700

Working Notes

1	Calculation of amount transferred to Cost of sales		
	Cost of goods Manufactured in February		76000
Add	Opening WIP		9000
Less	Closing WIP		7300
			77700
2	"The entries are made assuming
 non-integrated system of accounting."