COST ACCOUNTING

1)    Use standard A4 size white paper with Times New Roman font and size 12
2)    Line spacing (1.5 lines); 2.54 cm margin
3)    Each page (except cover) must be numbered and justified

QUESTION
Tenrack is a fairly large manufacturing company located in the southern United States. The company manufactures tennis rackets, tennis balls, tennis clothing and tennis shoes. All products bearing the company’s distinctive logo, a large green question mark on a white flocked tennis ball. The company’s sales have been increasing over the past 10 years. The tennis rackets division has recently implemented several advanced manufacturing techniques, such as robot arms hold the tennis rackets in place while the glue dries, and machine vision systems check for defects. The engineering and design team uses computerised drafting and testing of new products.

The following managers work in the tennis rackets division:
Jason Dennis,Sales Manager (supervises all sales representatives)
Dave Marley, Cost Accounting Manager (supervises cost accountants)
Kevin Carson, Production Supervisor (supervises all manufacturing employees)
Sally Renner, Engineer (supervises all new-product design teams)

REQUIRED

a) What are the primary accounting information needed by each manager?
     Give examples.                               Â

b) Which, if any, financial accounting report(s) is likely to be used by each manager? Explain.                                     Â

c) Name one special purpose management accounting report that could be designed for each manager. Include the name of the report, the information it would contain, and how frequently it should be issued.

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Exercises
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How would you classify the following in terms of direct or indirect materials?

(A) Paper used in printing a book
(B)  Glass used in spectacles
(C) Cloth used in making a dress
(D) Timber used in constructing a house
(E) Petrol used in running an engine
(F) Water used in making ice-cream
(G) Water used in making ice.

How would you classify the following in terms of (A) Prime Costs, (B) Production Overhead, (C) Administration Overhead, (D) Selling Overhead, and (E) Distribution Overhead?

(1)    Production manager’s salary            (16)    Time-keeper’s wages  Â

(2)    Depreciation (machinery)            (17)    Lubricating oil (works)  Â

(3)    Boiler fuel            (18)    Travelling expenses  Â

(4)    Insurance (finished stock)            (19)    Toilet supplies (office)  Â

(5)    Assemblers’ wages            (20)    Toilet supplies (works)  Â

(6)    Foremen’s salaries            (21)    Travelling expenses of salesmen  Â

(7)    Repairs to machinery            (22)    Accommodation expenses of salesmen  Â

(8)    Office salaries            (23)    Entertainment expenses of salesmen  Â

(9)    Chief Accountant’s salary            (24)    Carriage-inwards on raw materials  Â

(10)    Advertising            (25)    Royalty per unit of production  Â

(11)    Raw materials used            (26)    Expenses on factory canteen  Â

(12)    Electric power            (27)    Wages of crane driver in factory  Â

(13)    Hire of computer            (28)    Wages of crane driver in haulage company  Â

(14)    Delivery expenses            (29)    Wages of office boy in general office  Â

(15)    Bad debts            (30)    Wages of store clerks  Â

How would you classify the following in terms of fixed, variable or semi-variable costs ?

(a) Depreciation (straight line method)
(b) Depreciation (units of use method)
(c) Direct materials
(d) Insurance on factory building
(e) Direct labour
(f) Insurance on plant and machinery
(g) Heat, light and power
(h) Repairs and maintenance
(i) Rent for factory
(j) Costs of milk in making ice-cream
(k) Inspectors’ salaries.

How would you classify the following in terms of fixed, variable or semi-variable
costs?

(a) depreciation (straight line method)
(b) depreciation (reducing balance method)
(c) direct materials
(d) insurance
(e) direct labour
(f) light and power
(g) rent for restaurant
(h) costs of milk in making ice-cream

5.    How would you classify the following in terms of direct or indirect materials?

(a) paper used in printing a book
(b) glass used in spectacles
(c) cloth used in making a dress
(d) timber used in constructing a house
(e) water used in making ice-cream
(f) water used in making ice

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QUESTION 1

The following are the stock movements and related prices for an item that your company buys from Germany and re-sells alongside its own range of products. Prices paid during the month were noticeably affected by exchange rates.

Date    Movements    Units    Cost RM    Total RM    Units
1/3    Balance    (Nil)          Â
2/3    Purchased    600    18    10800  Â
7/3    Purchased    400    19    7600  Â
8/3    Sold                300
15/3    Purchased    200    20    4000  Â
18/3    Sold                500
21/3    Purchased    350    21    7350  Â
25/3    Sold                450
26/3    Purchased    300    22    6600  Â
31/3    Sold                250

Note: All items sold in march were sold at RM24 each.

REQUIRED:

Calculate the closing stock values at the end of March, using the following methods:

(a) First In First Out
(b) Last In First Out
(c) Weighted Average

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QUESTION 2

Marla (Retail) Bhd. sells only one type of car alarm. At the start of this year, it held a stock of 40 alarms which had cost RM420 each.

Records of monthly purchases and sales for the half year just ended are as follows:

Month    Purchases    Sales
    Units    Cost Price per unit RM    Units    Selling Price per unit RM
January    200    443    150    480
February    250    460    180    480
March    320    480    220    500
April    Nil    -    210    500
May    200    510    170    510
June    220    520    240    550

REQUIRED:

Calculate the closing stock values at the end of the half year, using the following methods:

(a) First In First Out
(b) Last In First Out
(c) Weighted Average

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QUESTION 3

On 1 January Mr. Sarjit started a small business buying and selling a special yarn. During the next six months, the following transactions occurred:

Date of receipt    Yarn Purchases     Date of Despatch    Yarn Sales
    Quantity
Boxes    Total Cost RM        Quantity Boxes    Total Value RM
13/1    200    7,200    10/2    500    25,000
8/2    400    15,200          Â
11/3    600    24,000    20/4    600    27,000
12/4    400    14,000          Â
15/6    500    14,000        400    15,200

REQUIRED:

Calculate the value of the material issues during the six month period, and the value of the closing stock at the end of June, using the following methods of pricing:

(a) First in, First Out.
(b) Last in, First Out.
(c) Weighted Average (to 2 decimal places).

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