Chapter 2_ Cost Concepts, Information Systems

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Cost Concepts, Information System
E-1
1- Identify the conversion cost per unit
Conversion cost =DL+FOH
= 20 + (15+6) = 41 /- units
2- Identify the prime cost
Prime cost=DM+DL
= 32 + 20 = 52 /-units
3- Determine the estimated total variable cost per unit
= 32+20+15+3 = $70
4- Total cost for production 12,000 units:
TOTAL COST
Rs × Unit
Rs
Direct Material 32 × 12000
=384000
Direct Labour
20 × 12000
=240,000
Variable FOH
15 × 12000
=180,000
Fixed FOH
6 × 12000
=72000
_________
$ 876,000
Total cost for sales 8,000 units
Direct Material 32 × 8,000
= 256,000
Direct Labour
20 × 8,000
= 160,000
Variable FOH
15 × 8,000
= 120,000
Fixed FOH
6 × 8,000
= 48,000
Variable marketing
3 x 8,000
= 24,000
Fixed marketing 4 x 8,000
= 32,000
$ 640,000

E-2

Determine Mercaldo Company’s expected operating
income or loss for 19B.
19B
Sale decease to 15%

Rs

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

1

19950,000 × 15%
1950,000 – 2992500

16957500

Less:CGS
Fixed cost

7623000

Variable cost (W)

9835350

1745835

Net loss

(500850)

Variable cost varies with sales
VC

Sales

19A

11571000

1950,000

19B

x

16957500

1950,000 x = (1157100) (1695750)
x = 9835350

E- 3:
Crockett Company
Cost Of Goods Sold Statement
For The Year Ended On Dec , 31B

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

2

Rs

Rs

Rs

Direct Material
Material Opening

176000

Add: purchases (Net)
Add: Freight in

2400,000
32000 2432000

Material available for use

2608000

Less: Material Ending

196000

Direct Material used
2412000
Direct Labor
3204000
Factory Overhead
188560O
Total current manufacturing cost
7501600
Add: Work - in – process opening
129800
Cost of goods available for manufacturing
7631400
Less: Work - in – process ending
136800
Cost of goods manufactured
7494600
Add: Finished goods opening
620,000
Cost of goods available for sale
8114600

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

3

Less: Finished goods ending
567400 Cost of goods sold
7547200

E- 4 Prepare journal entries for above transactions.
JOURNAL

Rs

Rs

1- Work - in – process A/C
24500
Factory overhead A/C
4500
Material A/C
29000
_____________________________
2- Payroll A/C
44000
Accrued payroll A/C
33700
Income tax withheld
7000
FICA tax at 7.5%
33000
Accrued payroll A/C
33700
Cash A/C
33700
___________________________
3- Work- in – process
30,000
FOH
6000
Marketing expenses
8000
Payroll A/C
44000
Factory overhead A/C
4932
Marketing expenses
1096
Unemployment Insurance
2376
Fedral unemployment
352
FICA Tax P/A
3500
Working
Total cost =2376+352+3500 =6028
FOH (direct & indirect labour)
=6028+36000/44000 =4932
Marketing expenses
=6028×8000/44000=1096
4- Factory overhead
7500
Voucher payable
7500
____________________________________
5- Work - in – process
22932
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

4

Factory overhead applied
22932
____________________________________
6- Finished goods
60,000
Work - in – process
60,000
____________________________________
7- Material
50,000
Voucher P/A
50,000
____________________________________
8- Cost of goods sold
20,000
Finished goods
20,000
A/C Receivable

26000

Sales

26000

_____________________________________

E-5

Dr
Cr
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

5

Date
(a)

Particulars
Material A/C

$
120,000

Account payable A/C

(b)

Payroll A/C

120,000

90,000
FICA Tax

6750

Income Tax

15750

Accrued payroll

675000

Work in process A/C

45,000

Factory overhead A/C

9,000

Marketing expenses A/C

15,000

Administrative expenses A/C

21,000

Payroll A/C

(c)

$

Material A/C

90,000

26250

Account payable A/C

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

26250

6

(d)

Factory overhead

6156

Marketing expenses A/C

1710

Administrative expenses A/C

2394

2790

State unemployment

720

Federal unemployment

6750

FIACA Tax
(working)
Total cost = 10260
W.I.P = 10260×(54000)/90,000
=6156
Mark. Exp = 10260×(15000)/90,000
=1710
Admin exp = 1026×(21000)/90,000
=2394

(e)

Work in process A/C

60,000

Factory overhead A/C

15,000

Marketing expenses A/C

4,500

79500

Material A/C

(f)

Account payable A/C

900

Material A/C

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

900

7

(g)

Account payable A/C

75000

Accrued payroll A/C

67500
Cash A/C

(h)

Factory overhead A/C

142500
1000

Accumulated Dep-

1000

Machinery
(i)

Factory overhead A/C

9600

Account payable A/C
(j)

Finished goods A/C

9600
126000

Work in process A/C
(k)

Cost of goods sold A/C

126000
96000

Finished goods A/C
Account receivable A/C

96000
150,000

Sales A/C
(l)

Factory over head A/C

150,00
0
38056

Account payable A/C

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

38056

8

E-6
Dr
Date
(a)

Particulars

$

Work in process A/C

18500

Factory overhead A/C

2800

Material A/C
(b)

Finished goods A/C

Material A/C

51000
51000
32000

Account payable A/C
(d)

$

21300

Work in process A/C
(c)

Cr

Payroll A/C

32000
50,000

FICA Tax

3750

Federal Income Tax

8750

State Income Tax

2500

Accrued payroll

35000

(working)
Let total payroll = 100
Accrued payroll = 100- 7.5- 17.5-5
=70%
Accrued payroll A/C

35,000

Cash A/C
(e)

Work in process A/C

35000
27500

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

9

Factory over head A/C

9000

Marketing expenses A/C

8500

Administrative expenses A/C

5,000

Payroll A/C
(f)

50,000

Factory over head A/C

5000

Marketing expenses A/C

1165

Administrative expenses A/C

685

FICA A/C

3750

Federal

400

unemployment tax

2700
State

unemployment tax
(working)
Total = 6850
F-O-H = 6850×36500/50,000
=5,000
Marketing exp = 6850×8500/50,000
= 1165
Admin exp = 6850×5,000/50,000
= 685

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

10

(g)

Factory overhead A/C

11300

Accumulated Dep-

9450

Equipt

600
Prepaid insurance

1250

Account payable A/C
(h)

Work in process A/C
Factory over applied

(i)

Account receivable A/C

28100.5
0
92120

Sales A/C
(j)

Cost of goods sold A/C

92120
65800

(92120×100/140)Finished goods A/C
Cash A/C

28100.50

65800
76000

Account receivable

76000

A/C

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

11

E-7
Tuornton Company
Cost of goods manufactured statement
For the month of October, 19A
Direct Material

$

Opening Inventory

16200

+purchases

29,000

Cost of material available

36200

- closing Inventory

17000

Cost of material used

$

19200

Add:
Direct labour

16500

Prime cost

35700

Add: Factory overhead
Current manufacturing cost

8580
44280

Add: Work in process
(opening Inventory)

3600
47880

Less: Closing inventory

7120

Cost of goods manufactured

40760

E-8
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

12

Pensacola Corporation
Cost goods sold statement
For the year ended…….
Direct material

$

Opening inventory

88,000

+ Net purchases

366,000

+Direct expenses

6,600

Cost of material available

460,600

-closing inventory

64,000

$

Cost of material used

396600

Direct labour

523600

+prime cost

920200

Factory overhead
+Dep. Manufacturing

572800

Current Manufacturing cost

149300

Work in process
+Opening inventory
Cost of goods to be manufactured

29800
1522800

-closing inventory

38800

Cost of goods manufactured

1484000

Finished goods
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

13

+opening inventory

54200

Cost of goods available for sale

1538200

-closing inventory

66000

Cost of goods sold

1472200

P-1
Mat.Company
Cost of goods manufactured statement
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

14

For the month of March,
$

Direct Material
Opening inventory

20,000

+purchases

110,000

Cost of material available for use

130,000

-closing material used

26,000

Direct material used

$

104,000

Direct Labour:
+Direct Labour cost
160,000

Prime cost

264,000
Factory overhead:
80,000

+F-O-H cost
Current manufacturing cost

344,000

Work in process:
+Opening inventory
Cost of goods to be manufactured

40,000
384,000

-closing inventory
Cost of goods manufactured

36,000
348,000

Finished good:
+Opening inventory
Cost of goods available for sale
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

102,000

15

-closing inventory

450,000

Cost of goods sold

105,000
345000

(Working)
F-O-H = 50% of direct labour
= direct labour×50/100
Current manufacturing cost = D.M+D.L+F-O-H
344,000 = 104,000+ x +(x × 50/1000)
344,000 – 104,000 = x + 50x/100
240,000 = 100x + 50x/100
240,000 × 100/150 = x
160,000 = x
(a)
(b)
(c)

cost of goods manufactured = 348,000
prime cost = 264,000
conversion cost = labour + F-O-H
= 160,000 + 80,000
= 240,000
____________________________________________________________
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

16

P-2
Company – A
$
Cost of goods manufactured

380000

Finished goods:
+opening inventory

600,000

Cost of goods available for sale
4400,000
-closing inventory
1200,000
Cost of goods sold
3200,000
(Working)
Cost of goods sold = sale _ G.P
= 4000,000 _ (4000,000 ×20/100)
= 320,000

Company-B
$
Cost of goods available for sale
1490,000
Less: Finished goods closing
190,000
Cost of goods sold

13,00,000

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

17

P – 2 (cont.)
Company-C
$
Sales

429,000

Less: cost of goods sold

333,000

Gross profit

96,000

(Working)
$
Cost of goods manufactured
340,000
+Finished goods opening
45,000
Cost of goods available for sale
385,000
_ Finished goods closing
52,000
Cost of goods sold
333,000
P-3
Req(1)
Material A/C
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

18

Bal. b/d
20,000

W-I-P(Bal)
70,000

A/P
65,000

Bal. c/d
15,000

85,000

85,000

Material issue to production = 70,000
Req(2)
Payroll A/C
Accrued payroll
6000

W-I-P
6000

6000

6000

Direct labour cost = 6000
Req(3)
F-O-H A/C
Supplies expA/C
20000

W-I-P (Bal)
100,000

Ind lab exp A/C
55000
Acc: Dep
10000
Prep Ins
2000
Misc: exp

100,000

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

19

13000
100,000

Total F-O-H = 100,000
Req(4)
W-I-P A/C
Bal.b/d
7000

Fin goods
172,000

Material
70000
Payroll(lab)
6000
F-O-H
100,000

Bal.c/d
11000
183000

183000
Cost of goods manufactured = 172000
Req(5)
Finished goods A/C
Bal.b/d
34000
W-I-P
172000

C.GS
176000

Bal.c/d
30,000

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

20

206,000

206,000

Cost of goods sold = 176000
Req(6)
A/P A/C
Cash
77000

Bal. c/d
6000
83000

Bal.b/d
18000
Material
65000

83000

Payment of A/P = 77000
Req(7)
A/R A/C
Bal.b/d
54000
Sales
500,000

554000

Cash
532000

Bal.c/d
22000
554000

Amount collected from account receivable =
548000
Req(8)
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

21

Accrued payroll A/C
Cash
10,000

Bal.c/d
9000
19000

Bal.b/d
13000
Payment A/C
6000

19000

Payment to A/P = 10,000

P-4
Water Lux Company
1- For Purchase Of Material
Material A/C
91,000
Account payable A/C
91,000
______________________________________
2- For Use Of Material
Work in process
84,000
Material A/C
84,000
___________________________________
3- For Direct Labour
Work in process
50,000
Payroll A/C
50,000
________________________________
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

22

4- For Factory Overhead
Factory overhead A/C
25,000
Account payable A/C
25,000
________________________________
5- For Finished Goods
Finished goods A/C
157,000
Work in process A/C
157,000
_____________________________
6- For Cost Of Goods Sold
Cost of goods sold
140,000
Finished Goods
140,000
_____________________________
P – 4 (Working)
Calculation of purchase, use of material, direct labour,
FOH, Finished goods, cost of goods sold.
Direct Material
$
Opening inventory
17000
+purchases
91,000
Cost of material avail able
108,000
_ closing inventory
24,000
Cost of material used
84,000
Direct Labour
+Direct labour cost
50,000
Prime cost
134000
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

23

Factory overhead
+FOH
25000
Current Material cost
150,000
W/P
+ Opening inventory
12000
Cost of goods to be manufactured
71,000
_Closing inventory
141000
Cost of goods manufactured
57,000
Finished Goods
+opening inventory
29,000
Cost of goods available for sale
185,000
_closing inventory
45,000
Cost of goods sold
140,000
____________________________________________________

1,

1,

P-5
Prepare T accounts with January 1 Balance.
1Cash A/C

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

24

Bal b/d
20,000

Accrued payroll
74820

A/P A/C
179379

A/P A/C
104000
Bal c/d
20559

199379
199379
2A/C Account Rec
Bal b/d
25000
Sales A/C
228800
253800

Cash A/C
179379
Discount A/C
3661
Bal c/d
70760
253800

3Finished Goods
Bal b/d
9500
W/P
188000

CGS
176000

197500

197500

Bal c/d
21500

4BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

25

W/P A/C
Bal b/d
45000
Payroll
60500
Material
82500
FOH applied
47330

F. goods
188000
Bal.c/d
6830
194830

194830
5A/P A/C
Cash
104000

Bal c/d
160000
264000

Bal b/d
15500
Material
92000
FOH A/C
18500
Mark exp
18000
Admin exp
120000
264000

6Material A/C

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

26

Bal b/d
10,000 A/P A/C
92000

102000

W/P
82500
FOH
8300
Bal c/d
11200
102000

7Accrued payroll A/C
Cash
74820

Bal c/d
2250
77070

Bal b/d
2250
Payroll
74820

77070

8Machinery A/C
Bal b/d
40,000

Bal c/d
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

27

40,000
40,000

40,000

9Depreciation A/C

Bal c/d
10,000
10,000

Bal b/d
10,000

10,000

10Common stock

Bal c/d
60,000
60,000

Bal b/d
60,000

60,000

11Retained Earnings
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

28

Bal c/d
21250
21250

Bal b/d
21250

21250

12With Holding

Bal c/d
8170
8170

Payroll A/C
8170

8170

13State unemployment

Bal c/d
2322
2322

Payroll
2322

2322

14FOH

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

29

A/P A/C
18500
Payroll
12500
FIAC Tax
5475
Material
8300

Bal c/d
44775
44775

44775

15Marketing exp
Payroll
8000
FIAC tax
600
A/P A/C
18000

Bal c/d
26600
26600

26600

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

30

16Admin exp A/C
Payroll
5000
FIAC Tax
375
A/P A/C
120,000

Bal c/d
125375
125375

125375

17FIAC Tax
FOH
5475
Bal c/d
6450
6450

Mark exp
600
Admin exp
375
6450

18FOH Applied

Bal c/d

W/P
47330
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

31

47330
47330

47330

19C.G.S
FG
176000

176000

Bal c/d
176000
176000

20Sales A/C

Bal c/d
228800
228800

A/C A/R
228800

228800

21Discount A/C
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

32

A/R A/C
3661

Bal c/d
3661

3661

3661

22Payroll A/C
W.H.Tax
8170

W/P
60500

State unemp tax
2322

FOH
12500

Federal unemp tax
688

Mark exp
8000

Accrued payroll
74820

Admin exp
5000

86000

86000

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

33

P – 5 (cont.)

TRAIL BALANCE
SR
#

A/C

TITLE

Dr

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

Cr

34

1-

Cash

20559

2-

A/R A/C

70760

3-

F G A/C

21500

4-

W/P A/C

6830

5-

A/P A/C

6-

Material A/C

7-

Accrued payroll A/C

8-

Machinery A/C

9-

A/C Depreciation A/C

10,000

10
-

Common stock

60,000

R.E A/C

21250

W.E Tax A/C

8170

State unemp tax

2322

Fedral unemp tax

688

11
12
-

160,000
11200
2250
40,000

13
14
-

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

35

15
16
17
18
19
20
-

Marketing exp

26600

Admin exp

125375

FICA Tax

6450

FOH Applied A/C

47330

C.G.S

176000

Sales A/C

28800

Discount A/C
Payroll A/C
FOH A/C

3661
_

_

44775

21
22
23
547260

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

547260

36

P- 5 (cont.)

JOURNAL ENTRIES
Rs
A. Material A/C
A/P A/C

Rs

93,000
93,000

B. FOH A/C

18500
A/P A/C

C. Payroll A/C

18500

86000
With holding tax

8170

State un employment tax

2322

Federal un employment tax

688

Accrued payroll

74820

Accrued payroll
Cash

74820

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

74820

37

W/P A/C

60500

FOH A/C

12500

Marketing expenses
Payroll A/C

8000
86000

FOH A/C

5475

Marketing expenses
FICA Tax

600

D.Work in process A/C

6450
82500
8300

FOH A/C
Material
E. W/P A/C

90800
47330

FOH Applied A/C
F. Finished goods

47330
188000

W/P A/C
G.Cost of goods sold

188000
176000
176000

Finished goods
A/R A/C

228800
228800

Sales A/C
H.Cash A/C

179379

Discount A/C (183040×2%)
A/R A/C (228800×80%)

3661

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

183040

38

I. Marketing expenses
Admin expenses
A/P A/C
J. A/P A/C

18000
120,000
300,000
104000

Cash A/C

104000

P-6
MANDMENEYER COMPANY
COST OF GOODS SOLD STATEMENT
FOR THE YEARB ENDED ON 30-11-19B
Direct Material

$

Opening inventory
+purchases

$
4000
1, 80,000

Cost of material available

22,000

_closing inventory

4250

Direct material used
17750
Direct Labour
+Direct labour
7500
Prime cost
225250
FOH
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

39

+FOH Applied
5000
Current manufacturing cost
30250
WIP
+Opening inventory
4000
Cost of goods to be manufactured
34250
_Closing inventory
7500
Cost of goods manufactured
26750
Finished Goods
+Opening inventory
3500
Cost of goods available for sale
30250
_closing inventory
5700
Cost of goods sold
25150
________________________________________

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

40

P -6 (cont.)
MANDMEYER COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED 30-11-19B
Rs

Rs

Net sales
56000
Less: cost of goods sold
(25150)
Gross Profit
30850
Less: Opening expenses
BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

41

Marketing expenses

2800

56000×2%
Administration expenses
(3920)

1120

56000×2%
Operating Income
26,930
Less: Other expenses
(560)
56000 ×1%
NET INCOME
26,370
__________________________________________________________________
_

BusinessFellows.Biz | Copyrights: Mr Salman Yousaf

42

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