Activity 1 - Introduction to Cost Accounting PDF

Preview

Summary

INTRODUCTION TO COST ACCOUNTINGCOST ACCOUNTING – This field of accounting informs management with the cost of rendering a particular service, buying and selling a product, and producing a product.COST CONCEPTS AND CLASSIFICATIONI. Cost classified as to relation to a product A. Manufacturing cost 1. ...

Description

INTRODUCTION TO COST ACCOUNTING COST ACCOUNTING – This field of accounting informs management with the cost of rendering a particular service, buying and selling a product, and producing a product. COST CONCEPTS AND CLASSIFICATION I.

II.

III.

Cost classified as to relation to a product A. Manufacturing cost 1. Direct Material 2. Direct Labor 3. Factory Overhead B. Non – manufacturing cost 1. Marketing or selling expense 2. General or administrative expense Cost classified as to variability A. Variable cost B. Fixed cost C. Mixed cost (semi-variable cost) Methods of separating Mixed Cost into fixed and variable components: 1. Scatter graph 2. High-low point 3. Method of lease square Cost for planning, controlling, and analytical processes A. Standard cost – Predetermined cost for direct materials, direct labor, and factory overhead. In essence, it is a budget for the production of one unit of a product or service B. Opportunity cost – the benefit given up when one alternative is chosen over another. This cost should be considered when evaluating alternatives for decision-making C. Differential cost – cost that is present under one alternative but is absent in whole or in part under another alternative. Incremental cost is an increase in cost from one alternative to another. Decremental cost is a decrease in cost from one alternative to another. D. Relevant cost – a future costs that changes across alternatives E. Sunk cost – cost for which an outlay has already been made and it cannot be changed by present or future decision F. Controllable cost - a cost is considered to be a controllable cost at a particular level of management if that level has a power to authorize the cost

PROBLEM 1 (Seatwork Midterm) Classify the following items as direct or indirect materials DM 1. Gold to make jewelry IM 2. Sandpaper used in furniture making DM 3. Paper used in printing books DM 4. Milk to make ice cream DM 5. Seats to be installed in a car DM 6. Leather to make gloves IM 7. Tape measure used by tailor PROBLEM2 (Seatwork Midterm) Classify the following as manufacturing (M), selling (S), or administrative (A). M 1. Factory supplies S 2. Advertising M 3. Rent on factory building S 4. Freight – out A 5. President’s salary A 6. Legal expenses S 7. Samples A 8. Bad debts S 9. Travel expenses of salesmen

PROBLEM 3 (Seatwork Midterm) Classify each of the following costs of Bug Company in two ways: (a) as variable (V) or fixed cost (F); (b) as inventoriable cost (I) or period cost (P). (a) V or F (b) I or P Example: Direct Labor V I Salary of company controller F P Fire insurance on direct materials V I Direct materials used V I Factory rent F I Sales commissions V P Overtime premium of machine V I operators Straight line depreciation of F I factory equipment Straight line depreciation of trucks F P used for delivery of sales to customers Salary of factory supervisor F I WAGES V

PROBLEM 4 (Seatwork Midterm) Johnson Corporation is preparing a flexible budget and desires to separate its electricity expense which is semi-variable and fluctuates with total machine hours, into its fixed and variable components. Information for the first three months of 2013 is as follows: Machine hours Electricity Expense

January February March

3, 500 2, 000 4, 000

P31, 500 P20, 000 P35, 600

Requirements: Using the least square method, 1. Compute the variable rate per machine hour Variable Cost per hour= Change in Cost/Change in Machine hours = (35 600-20 000) / (4 000-2000) = P7.8 per machine hour 2. Compute the fixed portion of Johnson’s electricity expense Fixed portion= 35 600 - (4 000 x 7.8) = P4 400 3. Compute the total manufacturing cost if actual machine hours is 6, 000 Total manufacturing cost = (Machine hour x Variable Cost) + Fixed Portion = (6 000 x 7.8) + 4 400 = P51 000

PROBLEM 5 (Seatwork Midterm) Mighty Muffler Inc. operated an automobile service facility, which specializes in replacing mufflers on cars. The following table shows the cost incurred during a month when 750 mufflers were replaced. Fill in the missing amount

500 Total Fixed cost Total Variable cost Total cost Fixed cost per replacement Variable cost per replacement Total cost per replacement

P60 000 500X50= P25 000 P85 000 60K/500= P120 P50 120+50=P170

Number of Muffler Replacements 750 P60, 000 P37, 500 P97, 500 60K/500= P80 37500/750=P50 80+50=P130

1, 000 P60 000 1000X50= P50 000 P110 000 60K/500= P60 P50 60+50=P110

PROBLEM 6 (Seatwork Midterm) The financial statements of Mother Goose Company include these items: Marketing Cost P160, 000 Direct Labor Cost P245, 000 Administrative Cost P145, 000 Direct Materials used P285, 000 Fixed Factory overhead costs P175, 000 Variable Factory Overhead Costs P155, 000 Compute: 1. Prime Cost PC = DMU + DLC = 285K + 245K = P530 000 2. Conversion Cost CC = DLC + FFOC + VFOC = 245K + 175K + 155K = P575 000 3. Total inventoriable/ product cost TIC = DMU + DLC + FFOC + VFOC = 285K + 245K + 175K +155K = P860 000 4. Total period cost TPC = MC + AC = 160K +145K = P305 000 PROBLEM 7 (Seatwork Midterm) Valdez Motors Co. makes motorcycles. Management wants to estimate overhead costs to plan its operations. A recent trade publication revealed that overhead costs tend to vary with machine hours. To check this, they collected the following data for the past 12 months.

Month no. 1 2 3 4 5 6 7 8 9 10 11 12

Machine Hours 175 170 160 190 175 200 160 150 210 180 170 145

Overhead costs P4, 500 P4, 225 P4, 321 P5, 250 P4, 800 P5, 100 P4, 450 P4, 200 P5, 475 P4, 760 P4, 325 P3, 975

Required: 1. Using the high-low method to estimate the fixed and variable portion of overhead costs based on machine hours VARIABLE COST = (high OC – low OC) / (high MH – low MH) = (P5 475 – 3 975) / (210 – 145) = P23.08 per machine hour Overhead Cost High OC (5 475) Variable Cost High MH (210hrs) x 23.08 4, 847 Low MH (145hrs) x 23.08 Fixed Cost = OC - VC 628 2.

Low OC (3 975),

3 347 628

If the plant is planning to operate at a level of 450 machine hours next period, what would be the estimated overhead cost? = (Machine hours x per machine hour) + Fixed Cost = (450 x 23.08) + 628 = P11 014

COST ACCOUNTING CYCLE Merchandising Companies beginning balance of inventory

Purchase raw materials

Purchase (add inventory)

Used materials for production

Sold inventory (COGS)

Computation of COGS: Beginning inventory Plus: Net Purchases Total goods available for sale Less: Ending Inventory Cost of Goods Sold Manufacturing Company

Incurred Labor and Overhead for production

Beg WIP + DM, DL, OH

cost of completed units be transferred from WIP to FG

cost of sold units be transferred from FG to COGS

Computation of COGS: Direct Materials Used Add: Direct Labor used Add: Factory Overhead Total Manufacturing Cost Add: WIP, Beginning Cost of Goods put into process Less: WIP, Ending

Less: FG, Ending Cost of Goods Sold

Cost of goods manufactured Add: FG, Beginning Total goods available for sale QUIZ 1 MIDTERM Provide solution and final answer.

PROBLEM 8 (Quiz 1 Midterm) The Ram Manufacturing Company produced P100, 000 units during the year ended December 31, 2009. It incurred the following costs for the year Materials P75, 000 (10% is indirect materials) = 67 500 Labor P97, 000 (7% is indirect labor) = 90 210 Factory Overhead 125% of direct labor cost = 121 250 WIP – January 1 P25, 500 WIP – December 31 P27, 000 Required: How much is the Company’s cost of goods manufactured? Direct Materials Used Add: Direct Labor used Add: Factory Overhead Total Manufacturing Cost Add: WIP, Beginning Cost of Goods put into process Less: WIP, Ending Cost of goods manufactured

67 500 90 210 112 762.50 270 472.50 25 500 295 972.50 27 000 268,972.50

Problem 9 (Quiz 1 Midterm) Donna Company submits the following data for May 2013 Direct labor cost P80, 000 Purchases P100, 000 Factory overhead Applied at 150% of direct labor cost Inventories May 1 May 31 Finished goods P45, 000 P24, 000 Work in Process P25, 800 P18, 000 Materials P22, 000 P25, 000 Required: How much is the Company’s Cost of goods sold? Direct Materials Used May 1 ADD: Purchases Less Direct Materials Used May 31 DM, used Add: Direct Labor used Add: Factory Overhead (80k x 1.50) Total Manufacturing Cost Add: WIP, Beginning Cost of Goods put into process Less: WIP, Ending Cost of goods manufactured Add: FG, Beginning Total goods available for sale Less: FG, Ending Cost of Goods Sold

22 000 100 000 25 000 97,000 80 000 120 000 297 000 25 800 322 800 18 000 304 800 45 000 349 800 24 000 P325 800

Problem 10 (Quiz 1 Midterm) Kyle Manufacturing Company produces various types of fertilizers. No beginning work in process or finished goods were on hand on January 1, 2012. The following are data provided by the company: 30, 000 finished goods were on hand on December 31, 2012. 95, 000 units were sold during the year No units in work in process inventories on December 31, 2012.

Materials put into production amounts to P300, 000, 75% were direct materials DM = 225 000 (No beginning or ending materials inventory) Labor costs were P350, 000, 40% was for indirect labor DM = 210 000 IDM = 140 000 Factory overhead costs other than indirect material and indirect labor were the following: Heat, light, water P120, 000 Depreciation P75, 000 Property Taxes P65, 000 Repairs and maintenance P40, 000 Selling Expenses were P80, 000 and general and administrative expenses were P50, 000. Required: Compute the following: 1. Cost of goods manufactured Direct Materials Used P225 000 Add: Direct Labor used P210 000 Add: Tot. Factory Overhead P515 000 Indirect Material Used Indirect Labor Used Heat, light, water Depreciation Property Taxes Repairs and maintenance Cost of goods manufactured

7. Net Income Sales Less: COGS Gross Profit Less: Selling Cost Less: Administrative Cost NET INCOME P75 000 P140 000 P120, 000 P75, 000 P65, 000 P40, 000 P950 000

2. Unit Cost (cost per unit of goods manufactured) Unit Cost = COGS Manufactured / units = 950 000 / 125 000 = 7.60 per unit of goods manufactured 3. Prime Cost Prime Cost = Direct Material Used + Direct Labor Used = 225 000 + 210 000 = P435 000 4. Conversion cost CC= Direct Labor Used + Factory Overhead Cost =210 000 + 515 000 = P725 000 5. Period cost Period Cost = Selling Cost + Administrative Cost = 80 000 + 50 000 = P130 000 6. Cost of Goods Sold Direct Materials Used 225 000 Add: Direct Labor used 210 000 Add: Tot. Factory Overhead P515 000 Indirect Material Used P75 000 Indirect Labor Used P140 000 Heat, light, water P120, 000 Depreciation P75, 000 Property Taxes P65, 000 Repairs and maintenance P40, 000 Total Manufacturing Cost 950K/125K=7.6units WIP. BEG 0 0 WIP, END 0 0 FG, BEG 0 0 Less: FG, Ending ? 30K Cost of Goods Sold (950k x 7.6)

P722k

950k

IDM = 75 000

3 325 000 722 000 2 603 000 80 000 50 000 2 473 000...