MANAGEMENT ACCOUNTING

ASSIGNMENT - 1 (5 MARKS)

Solve the following questions and submit your assignment on/or before April 15th, 2021

Q#1
Write a Paragraph of 100 – 150 words for the following:
i. Scope of Cost Accounting
ii. Component of Cost Accounting
iii. Classifications of Costs

Answer#1:
Scope of Cost Accounting:

Cost accounting is being widely applied by the production units to modify the process and
maximize the profit. Following are the various applicability’s of the cost accounting techniques:

 Cost Analysis: Cost accounting determines the deviation of the actual cost as compared
to the planned expense, along with the reason for such variation.
 Cost Audit: To verify the cost sheets and ensure the efficient application of cost
accounting principles in the industries, cost audits are done.
 Cost Report: Cost reports are prepared from the data acquired through cost accounting to
be analyzed by the management for strategic decision making.
 Cost Ascertainment: To determine the price of a product or service, it is essential to
know the total cost involved in generating that product or service.

2. Components of Cost Accounting:

1. Direct Material: It refers to material out of which a product is to be produced or manufactured.

The cost of direct material is varying according to the level of output. For example: Milk is the
direct material of butter.

2. Indirect Material: It refers to material required to produce a product but not directly and does
not form a part of a finished product. For example: Nails are used in furniture. The cost of
indirect material is not varying in direct proportion of product.

3. Direct Labor: It refers to the amount paid to the workers who are directly engaged in the
production of goods. It varies directly with the output.

4. Indirect Labor: It refers to the amount paid to the workers who are indirectly engaged in the
production of goods. It does not vary directly with the output.

5. Direct Expenses: It refers to the expenses that are specifically incurred by the company to
produce a product. A product cannot be produced without incurring such expenses. It varies
directly with the level of output.

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 6. Indirect Expenses: It refers to the expenses that are incurred by the organization to produce a
product. But, these expenses cannot be easily found out accurately. For example: Power used for
production.

7. Overhead: It is the combination of all indirect materials, indirect labour and indirect expenses.

8. Factory Overhead: It is otherwise called Production Overhead or Works Overhead. It refers to

the expenses that are incurred in the production place or within factory premises. For example:
Indirect material, rent, rates and taxes of factory, canteen expenses etc.

9. Administration Overhead: It is otherwise called Office Overhead. It refers to the expenses that
are incurred in connection with the general administration of the company. For example: Salary
of administrative staff, postage, telegram and telephone, stationery etc.

10. Selling Overhead: It refers to all expenses incurred in connection with sales. For example:
Salary of sales department staff, travelers’ commission, advertisement etc.

11. Distribution Overhead: It refers to all expenses incurred in connection with the delivery or
distribution of goods and services from the producer to the consumer. For example: Delivery van
expenses. Loading and unloading, customs duty, salary of deliverymen etc.

3. Classification of costs:
The total cost of a product or service is basically classified into material cost, labor cost and
expenses as follows:
 Material Cost
 Labor Cost
 Expenses
 Direct Costs
 Direct Material
 Direct Labor
 Direct Expenses
 Indirect Costs

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 Manufacturing
Q#2
Following information relates to the Snowball Manufacturing Company:

Direct materials……………………………………………. $25,000

Indirect materials………………………………………….. 5,000
Direct labor………………………………………………… 30,000
Indirect labor……………………………………………….. 4,500
Factory overhead (excluding indirect materials and indirect labor) 15,000
Plant cost 500,000

Required: Compute the prime costs, conversion costs, and product costs also statement of COGM.

Q#3
Cost of Goods Manufactured and Sold Allure Company produces women’s clothing.
During 2004, the company incurred the following costs:

Factory rent 265,000

Direct labor 325,000
Utilities-Factory 88,000
Purchases of direct materials 465,000
Indirect materials 70,000
Indirect labors 35,000

Inventories for the year were as follows:

January
  1 December 31
Direct materials 90,000 50,000
Work in
process 40,000 85,000
Finished goods 115,000 95,000
Required
1. Prepare a statement of cost of goods manufactured
2. Calculate cost of goods sold.

Q#4

Raw material (1-1-03) Rs. 12,500 Raw material (31-12-03) Rs. 32,000
Work-in-Process(1-1-03) 6,300 Work-in-Process(31-12-03) 16,500
Finished Goods (1-1-03) 12,500 Finished Goods(31-12-03) 25,000
Sales 678,600 Direct labor 125,000
Sales return 15,000 Other factory overhead 17,600
Purchases of raw material 245,000 Repair and maintenance 10,000
Administrative expense 70,000 Insurance-factory 12,000
Marketing expense 55,000 Depreciation-factory 22,000
Indirect material 8,000
Indirect labor 4,500
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Required:
1. Statement of cost of goods manufactured
2. Statement of cost of goods sold
3. Income Statement

Q#5
The following data pertain to Spartan Products Company:
Sales Revenue 1,000,000
Direct materials inventory, Jan 1, 2004 20,000
Direct labor-Wages 350,000
Depreciation expense-Plant and equipment 80,000
Indirect labor-Wages 5,000
Heat, Light, and power - Plant 12,000
Supervisor's salary-Plant 40,000
Finished goods inventory, Jan 1, 2004 35,000
Work in Process inventory, Dec, 31, 2004 25,000
Supplies-Administrative office 6,000
Property taxes-Plant 13,000
Finished goods inventory, Dec 31, 2004 40,000
Direct materials inventory, Dec 31, 2004 30,000
Sales representative's salaries 190,000
Work in Process inventory, Jan, 1, 2004 35,000
Direct materials purchases 100,000
Supplies-Plant 4,000
Depreciation-Administrative office 30,000

Required
Prepare a statement of cost of goods manufactured and an income statement for Spartan Products
Company for the year ended December 31, 2004,

Q # 6ABSORPTION AND DIRECT COSTING

Bilal Manufacturing Co. uses direct costing. Following information have been received from their
accounting records for a single product at the end of the year:

Planned Production in units 30,000

Actual Production in units 30,000
Actual sales in units 30,000

Fixed Costs (Rs.) Variable Costs (Rs.)

Raw Materials 15
Direct Labor 20
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 FOH 10
Rs. 90,000 or Rs. 3 per unit sold
under the absorption costing
Marketing and Administrative Costing Rs. 80,000 60,000

Note: Selling price of each single unit is Rs. 150.

Required
Prepare operating income statement by direct costing approach.

Q#7
Kabeer Manufacturing Co. uses direct costing. Following information have been received from their
accounting records for a single product at the end of the year:

Planned Production in units 30,000

Actual Production in units 29,000
Actual sales in units 28,000

Fixed Costs (Rs.) Variable Costs (Rs.)

Raw Materials 52
Direct Labor 40
FOH 28
Fixed FOH - Cost Rs. 160,000
Marketing and Administrative Costing Rs. 100,000 Rs. 9 per unit sold

Note:Selling price of each single unit is Rs. 200.

Required
Prepare operating income statement by both, absorption and direct costing approach.

Q#8
The estimated unit costs for a company operating at a production and sales level of 12,000 units are as
follows:
Cost Item Estimated
Unit Cost (Rs.)
Direct materials 32
Direct Labor 20
Variable factory overhead 15
Fixed factory overhead 6
Variable marketing 3
Fixed marketing 4
Required
i. Identify the estimated conversion cost per unit.
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 ii. Identify the estimated prime cost per unit.
iii. Determine the estimated total variable cost per unit
iv. Compute the total cost that would be incurred during a month with a production level of 12,000
units and a sales level of 8,000 units.

Q#9
Inventory costs – absorption vs direct costing: The following information is available for Keller
Corporation’s new product line:

Sales price per unit Rs. 15

Variable manufacturing cost per unit of production 8
Total annual fixed manufacturing cost 25,000
Variable administrative cost per unit of production 3
Total annual fixed marketing and administrative expenses 15,000

There are no inventory at the beginning of the year. Normal capacity is 12,500 units. During the year
12,500 units were produced and 10,000 units were sold.

Required
i. Ending inventory, assuming the use of direct costing.
ii. Ending inventory, assuming the use of absorption costing.
iii. Total variable cost charged to expense for the year, assuming the use of direct costing.
iv. Total fixed cost charged to expenses for the year, assuming the use of absorption costing.

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 CVP - ANALYSIS
Q # 10

Sales Rs. 5,000,000

Less: Variable Cost 3,000,000
Contribution Margin 2,000,000
Less: Fixed Cost 1,600,000
Profit 400,000

Note: Selling Price for each unit = Rs. 4

Required:
a. Break-Even Point (in amount)
b. Break-Even Point (in units)
c. Margin of Safety
d. Margin of Safety (%)
e. Margin of Safety (in units)

Q # 11
The Salishan Lodge had sales of $4,500,000. The fixed expense was $1,200,000 and the variable expense
totaled $1,800,000

Required:
1. Contribution margin ratio (C/M)
2. Break-even point
3. Contribution Margin

Q # 12
The accounting firm of Smith and Thompson has been studying the sales requirements of the Frisco
Bottling Company. In the course of the study, the managing partner submits the following estimated
data:

Sales $900,000 Fixed marketing expenses $71,000

Direct materials 206,200 Variable marketing expenses 80,000
Direct Labor 165,200 Fixed administrative expenses 9,500
FOH 171,896 Variable administrative expenses 4,000
Variable FOH 102,600

Required:
a. Break-even point in dollars
b. Margin of Safety
c. Rate of Margin of Safety

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