MODUL AA025 (STUDENTS VERSION)

AA025: ACCOUNTING MODULE 2021/2022

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 1

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AA025: ACCOUNTING MODULE 2021/2022

KOLEJ MATRIKULASI LABUAN

ACCOUNTING 2: AA025

Topic 1: Introduction To Managerial Accounting

Learning Outcomes

1.1 Comparison between managerial accounting and financial accounting
(a) Explain the differences of managerial accounting and financial accounting:
type of users, timing of report, purpose of report, type of report, focus of
report, frequency of report, form of report produced and rules and regulation
pertaining to report.

1.2 Functions of management and roles of accounting information in management
(a) Explain the functions of management and roles of accounting information in
management.

1.3 Characteristics of managerial accounting information
(a) Explain the characteristics of managerial accounting information: accuracy,
timeliness, understandability, relevance, cost effective and flexibility.

1.4 Roles of management accountant
(a) Describe the roles and functions of management accountant to assist in
executing the functions of management.

1.1 Comparison between managerial accounting and financial accounting
(a) Explain the differences of managerial accounting and financial accounting: type of
users, timing of report, purpose of report, type of report, focus of report, frequency of
report, form of report produced and rules and regulation pertaining to report.

i. Definition of Managerial Accounting:
Managerial accounting is the process of providing economic and financial
information for internal users to help them in decision making.

ii. Differences of managerial accounting and financial accounting

Aspect Financial Accounting Managerial Accounting
1. Type of User
2. Timing of report • Internal and external users • Internal user

• Past data. • Past dan Future data.
• Focus on past data to evaluate • Focus on past data for

the company's overall preparing future reports
performance. such as budgets.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 2

AA025: ACCOUNTING MODULE 2021/2022

3. Purpose of report • Reporting profit/loss and • Assisting in planning, control
and decision making.
financial position.
Providing information for
• Provide information for all users. • specific internal users.

4. Form of report • Summary reports on the • Very detailed and specific
produced company as a whole.

5. Focus of Report • Focus on the past Company's • Focus on future reports by
overall reports. segments, departments and
6. Frequency of production lines.
report • Statement of Comprehensive
Income and Statement of • Frequent.
7. Types of report Financial Position. • Depending on requirements

• Periodically. such as daily, weekly or
• Every six months or every year monthly.
• Internal reports
• Financial Statements

8. Rules and • Required to follow GAAP • Not required to follow GAAP
regulations

1.2 Functions of management and roles of accounting information in management
(a) Explain the functions of management and roles of accounting information in
management.

Planning FUNCTIONS OF MANAGEMENT
Controlling i. Requires manager to look ahead and to establish objectives.

ii. These objectives are often diverse: maximizing short-term
profits and market share , maintaining a commitment to
environmental protection and contributing to social programs.

i. The process of keeping the company’s activities on track.
ii. In controlling operations, managers determine whether

planned goals are met.
iii. When there are deviations from targeted objectives, managers

decide what changes are needed to get back on track.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 3

AA025: ACCOUNTING MODULE 2021/2022

Directing i. Coordinating a company’s diverse activities and human
resources to produce a smooth-running operation.

ii. This function relates to implementing planned objectives and
providing necessary incentives to motivate employees.

ROLES OF ACCOUNTING INFORMATION IN MANAGEMENT

1. Planning ✓ Plan and control regular business operations through
2. Budgeting budget preparation.

✓ Adequate costing records provide a reliable basis
for making estimates and quoting tenders.

3. Control and evaluate ✓ Assessing activities performance and employee
performance performance.

4. Decision Making ✓ Make long-term and short-term decisions.
✓ Short-term decisions include decisions on pricing of
5. Determination of cost
and prices of products goods, decisions on receiving special orders for goods
or services and decisions on hiring and training of
employees.
✓ Long-term decisions include the decision to release a
new product or open a branch.
✓ Although the law of supply and demand to a great
extent determines the price of the article, cost to the
producer does play an important role. The producer
can take necessary guidance from his costing records
in case he is in a position to fix or change the
price charged.
✓ Cost accounting helps in making estimates -
Adequate costing

6. Stock valuation ✓ Cost accounting furnishes control which
management requires in respect of stock of materials,
work-in-progress and finished goods.

1.3 Characteristics of managerial accounting information
(a) Explain the characteristics of managerial accounting information: accuracy,

timeliness, understandability, relevance, cost effective and flexibility

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 4

AA025: ACCOUNTING MODULE 2021/2022

Accuracy The information provided must coincide with the needs
of management functions.
Timeliness It must coincide with the time it is needed.
Understandability Must be understood by managers where most managers
have no accounting or financial background.
Relevance Accounting information must provide different results
for an activity.
Cost-effective Benefits of information must outweigh the cost of
providing it.
Flexibility Easily adaptable to the needs of the decisions to be
made.

1.4 Roles of management accountant

(a) Describe the roles and functions of management accountant to assist in
executing the functions of management .

i. Management accountant designs the frame-work of cost and financial
accounts and prepares reports for routine financial and operational
decision-making.

ii. Management accountant plays an important role in forecasting future
business and economic events for making future plans i.e., long-term
plans, strategic management accounting, formulating corporate strategy,
market study etc. The management accountant also uses these reports for
taking important decisions.

iii. Management accountant has a major role to play in raising of funds and
their application. He has to decide about maintaining a proper mix
between debt and equity. Raising of funds through debt is cheaper because
of tax benefits.

iv. The management accountant occupies a pivotal position in the organisation.
He performs a staff function and also has line authority over the
accountant and other employees in his office .

v. Management accountant provides necessary information to management
in taking short-term decision e.g., optimum product mix, make-or-buy, lease
or buy, pricing of product, discontinuing a product etc. and long-term
decisions e.g., capital budgeting, investment appraisal, project financing etc.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 5

AA025: ACCOUNTING MODULE 2021/2022

KOLEJ MATRIKULASI LABUAN
ACCOUNTING 2: AA025

Topic 2: Manufacturing Cost Concept And Components

Learning outcomes:
2.1 The importance of cost information

(a) Explain the importance of cost information to management

2.2 Difference between costs and expenses
(a) Clarify the differences between costs and expenses.

2.3 Cost classification

Explain the classification of costs according to: prime and
i. Function - manufacturing cost, selling expenses and administration expenses.
ii. Cost behaviour – fixed, variable and mixed costs.
iii. Other classification such as direct cost and indirect cost.
2.4 Manufacturing Costs
(a) Calculate manufacturing costs, direct material, direct labour, and overhead:

conversion costs
2.5 Non-manufacturing costs

(a) Calculate non-manufacturing costs: selling costs and administration expenses
2.6 Direct costs

(a) Compute cost of direct material and cost of direct labour.
2.7 Indirect Costs

(a) Calculate indirect costs: overhead, indirect labour and indirect material.

2.8 Product costs and period costs
(a) Explain the differences between product costs and period costs, and compute both costs.

2.9 Statement of Costs of Goods Manufactured and Income Statement
(a) Prepare Statement of Costs of Goods Manufactured and Income Statement.

2.1 The importance of cost information
(a) Explain the importance of cost information to management

Planning ➢ Planning involves forecasting on the basis of available information,
setting goals; framing polices determining the alternative courses of
Decision action and deciding on the program of activities.
Making
➢ It facilitate the preparation of statements in the light of past results and
Controlling gives estimation for the future.

➢ Management accounting makes decision-making process more
scientific with the help of various modern techniques.

➢ Information/figure relating to cost, price, profit and savings for each of
the available alternatives are collected and analyzed accordingly which
will provide a base for taking sound decisions

➢ Management accounting tools e.g. standard costing and budgetary
control are helpful in controlling performance.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 6

AA025: ACCOUNTING MODULE 2021/2022

➢ Cost control is affected through the use of standard costing and
departmental control is made possible through the use of budgets.

➢ Performance of each and every individual is controlled with the help of
management accounting.

2.2 Difference between costs and expenses
(a) Clarify the differences between costs and expenses

Cost - Sacrifice of resources to acquire products/services which will benefit in the
future.
e.g : Cost to acquire machinery

Expenses - Sacrifice of resources to obtain benefit in current period.
e.g: Insurance Expense

2.3 Cost classification
Explain the classification of costs according to:

i. Function - manufacturing cost, selling expenses and administration expenses.

Function
Whether costs are related to manufacturing or non-manufacturing (selling & administration

expenses) processes.

Manufacturing Cost = Product Cost Non-manufacturing Cost = Period
Cost

Direct Direct Labour Manufacturing Selling Administrative
Materials Expenses Expense
Overhead

It refers to those It is defined as Consist of costs Costs to market Administration
materials which the wages paid to that are directly finished cost of the
become a major workers who are associated with products.
part of the engaged in the the organization that
finished product production manufacturing of Example:
and process the finished Advertising cannot be
can be easily whose time can product. expenses assigned to
traceable to the be conveniently Overhead cost
units. and also include either
economically manufacturing production or
Example: Wood traceable to units costs that cannot
in a table of products be classified as selling.
direct materials
Example: or direct labour. Example:
Assembly line Director’s
wages Example: glue, salary
nail

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AA025: ACCOUNTING MODULE 2021/2022

Prime Cost = Direct Material Cost + Direct Labour Cost

Conversion Cost = Direct Labour Cost + Manufacturing Overhead Cost.

ii. Cost behaviour – fixed, variable and mixed costs.

Cost Behaviour

i. Fixed Cost The feature of these costs is that the total costs remain same
while per unit fixed cost is always variable.
Examples: Depreciation expense

ii. Variable Cost These costs are variable in nature, i.e. they change according
to the volume of production. Their variability is in the same
proportion to the production
Example: Direct materials

iii. Mixed Cost Contains both variable and fixed cost elements.
Example: Electricity expense

iii. Other classification such as direct cost and indirect cost.

Direct Cost Indirect Cost
Cost that can be traced to a cost object.
Cost that cannot be traced to a cost
Example:Direct material and Direct object.
labor Example for manufacturing:
Manufacturing overhead

Example for non-manufacturing:
Advertising expenses

SUMMARY OF COST CLASSIFICATION

Manufacturing Cost Non- Manufacturing Cost
= =

Product Cost Period Cost

Raw Material Direct Labour Manufacturing Selling Administrative
Cost Cost Overhead Cost Expense Expense

Direct Cost Indirect Indirect Non-
Prime Cost Manufacturing Manufacturing

Cost Cost

Conversion COMPILED BY : SYIRLEEN ADLYNA OTHMAN
Cost

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AA025: ACCOUNTING MODULE 2021/2022

2.4 Manufacturing Costs
2.5 Non-manufacturing costs
2.6 Direct costs
2.7 Indirect Costs
2.8 Product costs and period costs

EXAMPLE 1

Nora Sdn Bhd produced 1,000 refrigerators a month. The cost and expenses incurred are as
below:

a. Factory equipment rent 1,500

b. Factory building insurance 500

c. Raw materials 200,000

d. Factory utilities 800

e. Office supplies 400

f. Assembly line wages 70,000

g. Depreciation on office equipment 400

h. Indirect materials 10,000

i. Factory property taxes 125

j. Factory supervisory salaries 1,700

k. Advertising 1,250

l. Sales commission 80,000

m. Depreciation on factory building 900

Instructions:

a) Classify the above items into product costs, period costs, prime costs and
conversion costs.

b) Determine the total amount of manufacturing costs, product costs, non-
manufacturing costs and period costs.

c) Determine the total amount of prime costs and conversion costs.

d) Determine the total amount of direct costs and indirect manufacturing costs.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 9

AA025: ACCOUNTING MODULE 2021/2022

Solutions:

Product Cost Period Prime Cost Conversion
Cost Cost
COST Direct Direct Mfg
ITEM Material Labor Overhead / /
/ /
a / / / /
b / / /
c / /
d //
e /
f / /
g / /
h /
i /
j /
k
l
m

a) Determine the total amount of manufacturing costs, product costs, non-
manufacturing costs and period costs.

Manufacturing Cost = Product Cost

Items RM
Raw Materials 200,000
Assembly Line Wages
Indirect Materials 70,000
Factory Utilities 10,000
Factory property taxes
Factory supervisory salaries 800
Depreciation on factory building 125
Factory equipment rent 1,700
Factory building insurance 900
Manufacturing Cost/ Product 1,500
Cost 500
285,525

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 10

AA025: ACCOUNTING MODULE 2021/2022

Non-manufacturing costs = Period Cost

Items RM
Office Supplies 400
Depreciation on Office 400
Equipment
Advertising 1,250
Sales Commission 80,000
Non-manufacturing costs 82,050

b) Determine the total amount of prime costs and conversion costs.

Items RM
Raw Materials 200,000
Assembly Line Wages
Prime Cost 70,000
270,000

Items RM
Assembly Line Wages 70,000
Indirect Materials 10,000
Factory Utilities
Factory property taxes 800
Factory supervisory salaries 125
Depreciation on factory building 1,700
Factory equipment rent 900
Factory building insurance 1,500
Conversion Cost 500
85,525

c) Determine the total amount of direct costs and indirect manufacturing costs.

Direct Cost = Prime Cost = RM 270,000

Items RM
Indirect Materials 10,000
Factory Utilities
Factory property taxes 800
Factory supervisory salaries 125
Depreciation on factory building 1,700
Factory equipment rent 900
Factory building insurance 1,500
Indirect Manufacturing Cost 500
15,525

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AA025: ACCOUNTING MODULE 2021/2022

Important:

Sales unit = Beginning units of Finished Goods + Production Units – Ending Units of
Finished Goods.

2.9 Statement of Costs of Goods Manufactured and Income Statement
(a) Prepare Statement of Costs of Goods Manufactured and Income Statement

STATEMENT OF COST OF GOODS MANUFACTURED AND STATEMENT OF
COMPREHENSIVE INCOME STATEMENT

(Company name)
Statement of Cost of Goods Manufactured

for the year ended

RM RM

Direct Materials:

Raw materials inventory, beginning XXX

(+)Raw materials purchased XXX

Raw materials available for use XXX XXX
(-) Raw materials inventory, ending (XXX) XXX
Direct Materials Used
Direct Labor: XXX XXX
Assembly line wages XXX XXX
Manufacturing Overhead: XXX XXX
Indirect Labor XXX
Indirect Materials (XXX)
Factory manager’s salary XXX
Total manufacturing overhead

Total current manufacturing costs
(+) Work in process, beginning
Total cost of work in process
(-) Work in process, ending
COST OF GOODS MANUFACTURED*

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AA025: ACCOUNTING MODULE 2021/2022

(Company name)

Statement of Comprehensive Income

for the year ended RM RM
XXX
Sales (net)
(-) COST OF GOODS SOLD: (XXX)
XXX
Finished goods inventory, beginning XXX (XXX)
XXX
(+) Cost of goods manufactured * XXX
Cost of goods available for sale XXX

(-) Finished goods inventory, Ending (XXX)

Cost of goods sold
Gross profit

(-) Operating expenses:
Sales expenses XXX

Administrative expenses XXX

Net Profit

EXAMPLE 2
HCC Sdn Bhd has the following cost and expense data for the month ending March 31,

2019:

RM

Accounts receivable 20,000

Sales 90,000

Assembly line wages 22,000

Factory utilities 5,000

Factory supervisory salaries 2,000

Plant and equipment 111,000

Factory taxes 2,000

Raw materials, March 1 9,000

Raw materials, March 31 11,000

Finished goods, March 1 18,000

Finished goods, March 31 7,000

Work in process, March 1 18,000

Work in process, March 31 8,000

Factory maintenance 4,000

Advertising 3,000

Raw materials purchased 20,000

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AA025: ACCOUNTING MODULE 2021/2022

Sales commissions 5,000
Accumulated depreciation on plant and factory equipment 61,000
Sales expenses 12,000
Administrative expenses 10,000
Depreciation on plant and factory equipment 6,000

REQUIRED:
Prepare Statement of Cost of Goods Manufactured and Comprehensive Income .

Solutions:

HCC Sdn. Bhd
Statement of Cost of Goods Manufactured

for the month ended 31st March 2019

Direct Materials: RM RM
Raw materials inventory, beginning 9000
(+)Raw materials purchased 20,000 18,000
22,000
Raw materials available for use 29,000
(-) Raw materials inventory, ending (11,000) 19,000
Direct Materials Used 59,000
Direct Labor: 5,000 18,000
2,000 77,000
Assembly line wages (8,000)
Manufacturing Overhead: 69,000
Factory Utilities
Factory supervisory salaries

Factory taxes 2,000
Factory maintenance 4,000
Depreciation expense- Plant & Factory 6,000
Equipment
Total manufacturing overhead
Total current manufacturing costs

(+) Work in process, beginning
Total cost of work in process
(-) Work in process, ending
COST OF GOODS MANUFACTURED*

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 14

AA025: ACCOUNTING MODULE 2021/2022

HCC Sdn. Bhd RM
Statement of Comprehensive Income 90,000
for the month ended 31st March 2019
(80,000)
Sales (net) RM 10,000
(-) COST OF GOODS SOLD:
18,000 (30,000)
Finished goods inventory, beginning 69,000 (20,000)
(+) Cost of goods manufactured * 87,000
Cost of goods available for sale (7,000)
(-) Finished goods inventory, ending
Cost of goods sold 12,000
Gross profit 5,000
(-) Operating expenses: 3,000
Sales expenses 10,000
Sales commisions
Advertising
Administrative expenses
Net Profit

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 15

AA025: ACCOUNTING MODULE 2021/2022

TUTORIAL CHAPTER 2
MANUFACTURING COST, CONCEPT AND COMPONENTS

QUESTION 1 (C2)
Here is a list of typical types of expenses found in manufacturing firm. These can be classified
as direct materials, direct labour, manufacturing overhead, administrative expenses, selling
and distribution expenses, or finance expenses. In the right-hand column, write down what
type of expense each item is.

No. Cost Cost analysis

1. Raw materials for goods – identifiable with product made

2. Rent of factory buildings

3. Sales staff salaries
4. Wages of machine operators in factory

5. Wages of accounting machine operators in office

6. Depreciation of lathes in factory
7. Depreciation of computers in office

8. Depreciation of fixtures in sales showrooms

9. Supervisors’ wages in factory
10. Works manager’s salary: he reckons that he spends ¾ of his

time in the factory and ¼ in general administration of the
business
11. Raw materials incorporated in goods sold, but too difficult to
trace to the goods being made

12. Depreciation of motor vehicles used for delivery of finished
goods to customers

13. Interest on bank overdraft

14. Wages of crane drivers in factory
15. Discounts allowed

16. Company secretary’s salary

17. Advertising

18. Wages of staff of canteen used by factory staff only.

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AA025: ACCOUNTING MODULE 2021/2022

QUESTION 2 (C3)
The following information is expenses involved in the manufacturing operation for
Perusahaan Keropok Seri Sentosa.

Items RM
Direct material 80,000
Direct labour 60,000
Indirect material 67,850
Indirect labour 45,000
Depreciation expenses
6,000
Factory machine 5,600
Vehicles 5,500
Water and electricity expenses (80% factory) 3,000
Telephone expenses (70% factory) 6,200
Salesmen commission 4,400
Research expenses

Required:
Compute prime cost, period cost, product cost and conversion cost.

QUESTION 3 (C3)
Some selected sales and cost data for job order 515 are given below:

Direct materials used RM100,000
Direct labour RM150,000
Factory overhead
RM75,000
(all indirect, 40% variable)
Selling and administrative expenses RM120,000

(60% variable)

Required:
Compute the following:

a. Prime cost
b. Conversion cost
c. Direct cost
d. Indirect cost
e. Product cost
f. Period cost

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 17

AA025: ACCOUNTING MODULE 2021/2022

QUESTION 5(C3)
The following are the initial inventory of Kilang Perabot Arabella for December 2014.

Item Total (RM)
Direct material 80,000
Work in process 23,000
Finished goods 8,000

During the month of December, the following transactions occurred:
i. Raw material worth RM95,000 was bought on credit.

ii. Indirect material valued at RM6,500 was used in production.
iii. Salaries of factory workers comprise of RM80,000 direct labour and RM9,000 indirect

labour.

iv. Administrative salary amounted to RM42,200 for that month.
v. Utilities expenses of RM9,700 which 70% was for factory.

vi. The depreciation for all fixed assets was RM25,000. 80% of it is for factory equipment

and machine.
vii. Building rental was RM15,000. 60% of it is for factory.

viii. Ending inventory are:

Item Total (RM)

Direct material 65,800

Work in process 8,500

Finished goods 9,600

Required:
Calculate for December 2014:

i. Cost of goods manufactured
ii. Period cost
iii. Cost of goods sold

QUESTION 6 (C3, C4)
Below are the records of Perusahaan Diamond Bay for the period ended 31 December
2013:

Item RM
99,000
Sales (14,000 units) 27,000
Purchase of direct material
Opening inventory: 13,000
7,000
Direct material
Work in process 66,000
Direct labour 29,000
Factory manager salary 10,500
Indirect material

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AA025: ACCOUNTING MODULE 2021/2022

Depreciation expenses – Factory machine 5,800
Indirect labour 8,000
Factory utility 16,000
Factory rental 9,000
Sales expenses 68,000
Administrative expenses 15,000
Ending inventory:
5,500
Direct material 4,650
Work in process

The finished goods inventory (units) is as follows:

Opening inventory 4,800 units

Ending inventory 1,000 units

Required:
i. Prepare Statement of Costs of Goods Manufactured for the year ended 31
December 2013.
ii. Calculate the manufacturing cost per unit.

QUESTION 7 (C4)
Perkilangan Sun Perkasa produces high-tech light bulbs. Below is the costs and sales
information for 2014.

No. Item RM
1. Opening direct material 10,500
60,800
2. Purchase of direct material 10,000
19,000
3. Direct material purchase return
4. Ending direct material 11,000
20,000
5. Salaries: 45,000
Factory supervisor 13,000
Managing director 25,000
Office staff
Production manager 4,800
Production operator 1,500
52,000
6. Production operator overtime 3,000
5,000
7. Cost of idle time 40,000
8. Sales commission 45,500
20,000
9. Medical cost: 40% factory, 60% office

10. Indirect material
11. Rental: 30% factory, 70% office

12. Utilities: 60% factory, 40% office

13. Insurance: 75% factory, 25% office

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AA025: ACCOUNTING MODULE 2021/2022

14. Advertising 14,800
15. Depreciation of factory machine 34,000
16. Direct material import duty
17. Indirect material import duty 1,600
18. Wages on purchase of direct material 800
19. Direct material freight-in 700
20. Freight-out 900
21. Work in process opening inventory 700
22. Work in process ending inventory
23. Finished goods opening inventory 23,000
24. Finished goods ending inventory 1,000
25. Sales
26. Sales discount 101,000
27. Sales return 110,000
28. Production operator medical cost 650,000

45,000
20,000

3,000

Required:
Prepare
i. Statement of Costs of Goods Manufactured for the year ended 31 December 2014.
ii. Statement of Comprehensive Income for the year ended 31 December 2014.

QUESTION 8 (C4)
The following are cost information for Aura Sdn Bhd (ASB) for November 2006 that produces
perfume.

Items RM
Opening inventories: Direct material 18,000

Work in process 35,000
Purchase of direct materials 175,000
Operators salary 173,000
Factory supervisor salary
Administrative workers salary 35,000
30,000
Factory machine maintenance
Office general expenses 120,000
Utility (80% factory, 20% office) 30,000
Ending inventories: Direct material 45,000
10,000
Work in process 20,000

Required:
Prepare Statement of Costs of Goods Manufactured for the month ended November 2006.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 20

AA025: ACCOUNTING MODULE 2021/2022

QUESTION 9 (C3)
Pearl Kreatif Sdn Bhd (PKSB) is a business that produces unique pottery handicrafts. The
following are cost information obtained from the sales department, administrative
department and production department.

Items RM
Distribution and transportation 30,000
Direct labour 95,000
Direct material used
Indirect material used 160,000
Rental expenses (70% factory) 10,000
Salaries expenses (30% factory) 60,000
Other indirect manufacturing cost
Other sales and administration expenses 210,000
7,800

15,000

Required:
Calculate:

i. Direct cost
ii. Manufacturing overhead cost
iii. Period cost

QUESTION 10 (C4)
Ramal Luar Sdn Bhd (RLSB) produces and sells electronic products. The following are cost
information for RLSB for the year ended 31 December 2007.

Items RM
Direct material on 1 January 2007 25,000
Direct material on 31 December 2007 15,000
Purchase of direct material
Work in process on 1 January 2007 150,000
Work in process on 31 December 2007 70,000
Finished goods on 1 January 2007 40,000
Finished goods on 31 December 2007 90,000
Direct labour
Factory supervisor salary 100,000
Sales 300,000
Sales discount
Sales commission 40,000
Direct material freight-in 1,500,000
Indirect labour
Factory equipment rental 80,000
Utilities expenses (70% factory) 100,000
Security guard salary (60% factory)
13,000
75,000
20,000
45,000
17,000

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 21

AA025: ACCOUNTING MODULE 2021/2022

Factory machine depreciation 24,000
Administrative expenses 300,000

Required:
Prepare Statement of Costs of Goods Manufactured for the year ended 31 December 2007.

QUESTION 11 (C4)
Gagak Maju Enterprise is a small and medium company that has manufacturing operation in
the Northern Zone. The following are information prepared by Gagak Maju Enterprise for
the year ended 31 December 2017:

Items RM
Direct materials beginning inventory 100,000
Direct materials ending inventory 80,000
Sales expenses 205,000
Factory utilities 80,000
Direct materials purchase 800,000
Factory depreciation 185,000
Direct labour 180,000
Sales
Factory insurance 3,500,000
Indirect labour 56,000
Factory supplies
Administration expenses 290,000
Work in process beginning inventory 13,000
Work in process ending inventory
Finished goods beginning inventory 280,000
Finished goods ending inventory 200,000
Office depreciation 190,000
270,000
235,000

36,000

Required:
(i) Prepare a statement of cost of goods manufactured for the year ended 31
December 2017.
(ii) Prepare a statement of profit or loss for the year ended 31 December 2017.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 22

AA025: ACCOUNTING MODULE 2021/2022

KOLEJ MATRIKULASI LABUAN
ACCOUNTING 2: AA025

Chapter 3: Cost Behavior

Learning Outcomes
3.1 Variable costs

(a) Explain total variable costs and variable cost per unit of production using
calculation and graph.

3.2 Fixed costs
(a) Explain total fixed costs and fixed cost per unit of production using
calculation and graph.

3.3 Mixed costs
(a) Explain mixed costs
(b) State three methods used to segregate mixed costs: high low method,
graph and simple regression method.
(c) Segregate mixed costs using high-low method.
(d) Form a cost function.
Y = a + bx

3.1 Variable costs

(a) Explain total variable costs and variable cost per unit of production using
calculation and graph.

Definition:
i. Costs that vary in total directly and proportionately with changes in the activity
level.Variable costs remain the same per unit at every level of activity.
ii. Variable costs are those costs that vary directly and proportionately with the
output.

iii. It should be kept in mind that the variable cost per unit is constant but the
total cost changes corresponding to the levels of output.

iv. It is always expressed in terms of units, not in terms of time.
v. Management decisions can influence the cost behaviour patterns. The concept

of variability is relative. If the conditions upon which variability was
determined changes, the variability will have to be determined again.
vi. Example: Direct material, direct labour, variable manufacturing overhead

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AA025: ACCOUNTING MODULE 2021/2022

Graph:

3.2 Fixed costs
(a) Explain total fixed costs and fixed cost per unit of production using
calculation and graph.
Definition:
i. Costs that remain the same in total regardless of changes in the activity level
within a relevant range. Fixed cost per unit cost varies inversely within
activity.
ii. The cost which is incurred for a period, and which, within certain output and
turnover limits, tends to be unaffected by fluctuations in the levels of activity
(output or turnover)”.
iii. These costs are incurred so that physical and human facilities necessary for
business operations, can be provided. These costs arise due to contractual
obligations and management decisions. They arise with the passage of time
and not with production and are expressed in terms of time.

iv. Examples: rent, property taxes , insurance, rent, depreciation on building,
advertising expense, salaries expense.

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AA025: ACCOUNTING MODULE 2021/2022

3.3 Mixed costs
(a) Explain mixed costs

Definition:
i. Costs that have both a variable element and fixed components.
ii. These costs are called mixed or semi variable.
iii. Mixed costs are harder to evaluate because they change in response to

fluctuation in volume.
iv. Change in total but not proportionately with changes in activity level.
v. Example: Utility cost

Graph:

Characteristics of Fixed, Variable and Mixed Cost:

Category Fixed Costs Variable Costs Mixed Costs
Total cost Changes
Constant Change with output but not
Cost per proportionately proportionately
unit Decreases with with output
increase in Decreases with increase in
Examples output Constant output but less than the decrease
Plant
depreciation, Fuel expense, in fixed cost per unit
wages, raw Telecommunication costs, senior
property taxes materials
management salaries,
transportation cost

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AA025: ACCOUNTING MODULE 2021/2022

(b) State three methods used to segregate mixed costs: high low method,
graph and simple regression method.

Method:

1. High-Low method

- One of the several mathematical techniques used in managerial
accounting to split a mixed cost into its fixed and variable
components.

- Given a set of data pairs of activity levels (i.e. units, labor hours,
machine hours, etc.) and the corresponding total cost figures, high-low
method only takes two extreme data pairs (i.e. the highest and the
lowest) as inputs.

- These are then used to calculate the average variable cost per unit (b)
and total fixed cost (a) to obtain a linear cost volume function:

y = a + bx

Where,
y is total cost; and
x is activity level.

2. Graph

➢ Scatter graph method is a graphical technique of separating fixed
and variable components of mixed cost by plotting activity level
along x-axis and corresponding total cost (i.e. mixed cost) along y-
axis.

3. Simple regression

➢ A statistical technique that may be used to estimate a linear total
cost function for a mixed cost, based on past cost data.

➢ The cost function may then be used to predict the total cost at a
given level of activity such as number of units produced or
labor/machine hours used.

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AA025: ACCOUNTING MODULE 2021/2022

(c) Segregate mixed costs using high-low method.
(d) Form a cost function. Y = a + bx

SEPARATION OF MIXED COST

Method:
1. High-Low method

Example 1 Number of tablets Total maintenance
produced cost (RM)
1st quarter 360 tablets 1,720
2nd quarter 415 tablets 1,830
3rd quarter 480 tablets 1,960
4th quarter 240 tablets 1,480

Step 1: Identify the highest and lowest levels of activity and calculate the variable cost
per unit.

Variable cost per unit (b) = (Highest cost − Lowest cost)

(Highest volume − Lowest volume)

= (RM1,960 − RM1,480)

(480 tablets − 240 tablets)

= RM480 / 240 tablets

= RM2 per tablet

Step 2: Calculate the total fixed cost.
Total fixed cost (a) = Total mixed cost – Total variable cost
= Total mixed cost – (Variable cost per unit × Number of units)
= RM1,960 – (RM2 per tablet × 480 tablets)
= RM1,960 – RM960
= RM1,000

Step 3: Create and use an equation to show the behavior of a mixed cost.
Total mixed cost = Total fixed cost + (Variable cost per unit × Number of units)
Y = a + bx

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AA025: ACCOUNTING MODULE 2021/2022

Y = Total mixed cost
a = Total fixed cost
b = Variable cost per unit
x = Number of units

Estimated manufacturing equipment maintenance cost at 400 tablets
Y = RM1,000 + (RM2 x 400 tablets)

= RM1,800

Example 2:

Ahmad Manufacturing is a banana chips manufacturer around the city of Tangkak, Melaka.
Here's some cost information taken from its financial records for January and February
2019;

Units of production January February
21,000 27,000
Bananas RM
Wages and salaries RM 20,250
Rent on factory building 15,750 16,750
Depreciation on factory machine 15,250 1,500
Factory utilities 1,500 200
1,540
200 40,240
1,420
34,120

REQUIRED:
a) Identify each cost above as variable, fixed or mixed by using the following table.

Bananas January Cost per February Cost per Types of cost
unit units
Wages and salaries RM RM RM RM Variable cost
15,750 20,250 Mixed cost
Rent on factory building 15,250 0.75 16,750 0.75 Fixed cost
Depreciation on factory 1,500 1,500 Fixed cost
machine 0.726 0.620
200 200
Factory utilities 0.071 0.056
1,420 0.010 0.007

0.068 1,540 0.057 Mixed cost

b) For mixed cost separate variable costs and fixed costs using high-low method.
Wages and salaries
b = (RM16,750 – RM15,250)
(27,000 – 21,000)
= RM0.25 per unit

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AA025: ACCOUNTING MODULE 2021/2022

a = Total mixed cost – Total variable cost
= RM16,750 – (RM0.25per unit × 27,000 units)
= RM10,000

Factory utilities
b = (RM1,540 – RM1,420)

(27,000 – 21,000)
= RM0.02 per unit

a = Total mixed cost – Total variable cost
= RM1,540 – (RM0.02 per unit × 27,000 units)
= RM1,000

c) Estimate the total cost of factory utilities if the company produces 35,000 banana
chips

Total cost of factory utilities

Y = RM1,000 + RM0.02x
= RM1,000 + RM0.02(35,000)
= RM1,700

d) Create an equation of total cost to show the behavior of mixed cost. (y=a+bx)

Bananas Total fixed costs Variable costs per
Wages and salaries (a) unit (b)
Rent on factory building RM RM
Depreciation on factory machine - 0.75
Factory utilities 0.25
10,000 -
1,500 -
200 0.02
1,000 1.02
12,700

Y = RM12,700 + RM1.02x

e) Estimate the total cost if the company produces 35,000 units banana chips

Y = RM12,700+ RM1.02x
= RM12,700 + RM1.02(35,000)
= RM48,400

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AA025: ACCOUNTING MODULE 2021/2022

TUTORIAL CHAPTER 3:COST BEHAVIOUR

QUESTION 1 (C3, C4)
Sinar Zaman Enterprise (SZE) produces and sells various types of yogurt. The following data
relates to costs for three sales level.

Cost and expense items 5,000 units Sales units 10,000 units
Cost of yogurt RM 8,000 units RM
Salaries and wages 5,250
Equipment depreciation 4,250 RM 10,500
300 8,400 4,500
Utilities 500 4,400 300
Supplies 150 300 600
Administrative expenses 1,300 200
560 1,300
180
1,300

Required:
i. Determine the cost behaviour and calculate costs and expenses involved using the

following table. Use the high-low method to segregate mixed cost.

Cost and expenses Variable cost per unit Total fixed cost
items

ii. Form the total cost function
iii. Calculate the total costs if sales volume is 9,500 units

QUESTION 2 (C3)
Syarikat Tansformasi Auto Berhad can manufacture 30,000 units of tyre per month. The
following are information related to production cost at production level of 10,000 units and
20,000 units.

Production level Cost per unit Cost
behavior
Cost elements 10,000 20,000 10,000 20,000
units units units units
Direct material
Direct labour RM20,000 RM40,000
Factory supplies
Utilities RM30,000 RM60,000
Maintenance
Machine depreciation RM10,000 RM20,000

RM6,000 RM9,000

RM10,000 RM10,000

RM12,000 RM12,000

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AA025: ACCOUNTING MODULE 2021/2022

Required:
i. Complete the table by computing the cost per unit for both production level and
determine the cost behaviour for each cost elements.
ii. Segregate mixed costs using high-low method and calculate the estimated total
costs for the mixed costs element if the production level is 15,000 units.

QUESTION 3 (C2, C3, C4)
The following is the Comprehensive Income Statement of Syarikat Electricity Dolls for 2010
and 2011. The company produces remote control cars. The selling price per unit is RM50.

Sales 2010 (RM) 2011 (RM)
Cost of goods sold 210,000 270,000
Gross profit 63,000 81,000
Operational expenses 147,000 189,000

Wages and salaries 30,500 33,500
Utilities 14,200 15,400
Insurance 15,000 15,000
Depreciation – Vehicles 20,000 20,000
Maintenance
Supplies 4,520 4,520
Total 21,000 27,000
Net profit 105,220 115,420
41,780 73,580

Required:
i. What cost driver can be used to determine the cost behaviour for each cost above?
ii. Identify each cost above either as variable costs, fixed costs or mixed costs.

iii. Using the high-low method, segregate the mixed costs to determine the variable
costs and fixed costs.

iv. Calculate the following costs for 2010 and 2011.
a. Cost of goods sold per unit
b. Variable cost per unit
c. Total fixed costs

QUESTION 4 (C4)
Syarikat Jojet Sdn Bhd (SJSB) is a textile manufacturer in Klang. Here are the machine hours
and electricity costs for the company from the years 2000 to 2006.

Year Machine hours Electricity costs (RM)
2000 20,000 190,000
2001 35,000 270,000
2002 15,000 150,500

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AA025: ACCOUNTING MODULE 2021/2022

2003 33,000 265,500
2004 40,000 320,000
2005 24,000 220,000
2006 36,000 350,000

Required:
i. Calculate the variable cost of electricity per machine hour.
ii. Calculate the fixed costs for electricity per year.
iii. Form the cost function for electricity costs.
iv. Calculate the estimated cost of electricity at 38,000 machine hours.

QUESTION 5 (C4)

Here are the costs that have been involved for Pusat Perubatan Kaba (PPK) for the year 2007
and 2008:

Year 2007 2008

Number of patients 12,000 16,000

Costs: RM RM
Nurses salaries 120,000 120,000
Vaccines and syringes
Various supplies 60,000 80,000
Administration 19,000 22,000
50,000 50,000

Required:
i. Identify the cost behaviour for each item above.
ii. Calculate the variable cost per unit and total fixed cost.
iii. Form the cost function for PPK.
iv. Estimate the total costs if the number of patients in 2009 is 18,000.

QUESTION 6 (C4)

Perusahaan Qu Puteh wants to determine the variable electrical rate per machine hour for
the purposes of estimating the electrical cost for July and August. Information for four
months are as follows:

Month March April May June
Machine hours 2,200 hours 2,400 hours 2,600 hours 2,800 hours
Electricity cost
RM2,160 RM2,222 RM2,341 RM2,520

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AA025: ACCOUNTING MODULE 2021/2022

Estimated production unit:

July 2,000 units

August 2,150 units
Every unit needs an average of 1.6 machine hours

Required:
i. Compute variable and fixed costs components for overall electrical cost.
ii. Using information in (i), calculate the electricity cost for July and August.

QUESTION 7 (C3, C4)
Sikal Sdn Bhd produces and sells mountain bike. The following are production activities
based on machine hours in the Assemble Department for the second half of the year 2014:

Month July August Sept Oct Nov Dec
Machine hours 700 600 670 660 520 500

Total cost (RM) 6,200 5,600 6,020 6,000 4,900 5,000

Required:
i. By using the high-low method, calculate variable cost per unit and total fixed
cost.
ii. Calculate total cost if 100 machine hours was used.

QUESTION 8 (C3, C4)
Anggun Sdn Bhd (ASB) produces spare parts for cars. The following are ASB production
cost for 10,000 units:

Items RM
Direct material 15,000
Direct labour 14,000
Factory supervisor salary 2,500
Factory rental 4,000
Factory building insurance 5,000
Factory machine depreciation 4,000

Required:
i. Calculate variable cost per unit
ii. Calculate total manufacturing fixed cost
iii. Form the manufacturing cost function
iv. Calculate estimated manufacturing cost if ASB produces 20,000 units.

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AA025: ACCOUNTING MODULE 2021/2022

KOLEJ MATRIKULASI LABUAN
ACCOUNTING 2: AA025

Topic 4: Cost Volume Profit Analysis (CVP)

Learning Outcomes

4.1 Definition and importance of CVP analysis
(a) Define and explain the importance of CVP analysis.

4.2 Assumptions in CVP analysis
(a) Explain the assumptions used in CVP analysis.

4.3 CVP analysis method
(a) Describe CVP analysis in determining the break-even point (BEP) and the
forecasted sales.
(b) Calculate using mathematical equation method and contribution margin
method

4.4 Margin of safety
(a) Explain and calculate margin of safety in ringgit, unit and percentage.

4.5 Sensitivity analysis
(a) Explain the effects of changes in selling price, fixed costs and or variable costs
on CVP through calculation

4.1 Definition and importance of CVP analysis
(a) Define and explain the importance of CVP analysis

Definition:
Cost Volume Profit Analysis examines behavior of total revenues, total costs & operating
income as changes occur in the output level, the selling price, the variable cost per unit or
the fixed cost of a product.
Importance Of Cost Volum Profit Analysis

1. Determine sales level at Break-Even Point.

2. Determine the sales required to achieve profit target.
3. Make decisions regarding pricing policies.
4. Make decisions regarding fixed costs and marketing strategies.
5. Review the impact on profit when there is a change in the CVP analysis element.

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AA025: ACCOUNTING MODULE 2021/2022

4.2 Assumptions in CVP analysis
(a) Explain the assumptions used in CVP analysis
1. The units sold are equal to the unit of production.
2. Costs and revenues are linear.
3. Fixed and variable cost can be identified.
4. The selling price is fixed.

4.3 CVP analysis method
(a) Describe CVP analysis in determining the break-even point (BEP) and the
forecasted sales.

1. At BEP, the business does not earn profit or loss.

2. At BEP, profits equal zero, Total Revenue = Total Cost, Fixed Cost =
Contribution Margin

3. Importance: Demonstrates the minimum level of sales that businesses need to
get in order to avoid losing

(b) Calculate using mathematical equation method and contribution margin
method

COST VOLUM PROFIT ANALYSIS METHOD
1. EQUATION METHOD

a) Break-Even Point (BEP) Equation:

TOTAL REVENUE = TOTAL COST

TOTAL REVENUE = Total Fixed Cost (FC) + Total Variable Cost (VC)

Sales Price (SP) x Sales Unit (SU) = Total FC + (VC per unit x SU)

b) Profit Equation:

NET PROFIT (NP) = TOTAL REVENUE - TOTAL COST

NET PROFIT = Total Revenue - Total FC - Total VC

NET PROFIT = (SP per unit x SU) - Total FC - (VC per unit x SU)

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AA025: ACCOUNTING MODULE 2021/2022

EXAMPLE 1:

Skypark Holdings produces a kind of product. Each unit is sold at RM4.00. The fixed cost of
RM600 per month and the variable cost is estimated at RM2.50 per unit.

Calculate:

i) Break-Even Point (in RM and units).
BEP (unit) Sales (unit) = FC + VC

RM4.00 SU = RM600 + RM2.50 SU
RM1.5SU = RM600

SU = 400 units

BEP (RM) = SP x BEP(unit)
= RM4.00 x 400
= RM1,600

ii) Net profit if 500 units are produced.

NP = Sales – VC – FC
= RM4.00(500) - RM2.50(500) – RM600
= RM2,000 – RM1,250 – RM600
= RM150

iii) Sales unit if desired net profit is RM300.

NP = Sales – VC – FC

RM300 = RM4.00 SU - RM2.50 SU -RM600
RM1.50SU = RM900

SU = RM900
RM1.50

SU = 600 units

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AA025: ACCOUNTING MODULE 2021/2022

2) CONTRIBUTION MARGIN METHOD (CM)

CM per unit (CMU) = SP per unit – VC per unit
BREAK-EVEN POINT (BEP)

BEP = Fixed Cost
CMU

SALES UNIT (SU)

SU = Fixed Cost + Net Profit
CMU

Using EXAMPLE 1, calculate:

i) Break-Even Point (in RM and units).

BEP (Unit) = RM600 + 0
RM1.50

= RM600/RM1.50
= 400 units

BEP (RM) = 400 x RM4
= RM1,600

ii) Net profit if 500 units are produced

CMU = SP per unit – VC per unit
= RM4.00 - RM2.50
= RM1.50

Sales Unit = FC + Net Profit
CMU
500 units
= RM600 + Net Profit
RM750 RM1.50
Net Profit
= RM600 + Net Profit
= RM150

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AA025: ACCOUNTING MODULE 2021/2022

iii) Sales unit if the desired profit is RM300

Sales Unit = RM600 + RM300
RM1.50

= 600 units

3) GRAPH METHOD Total Sales, y=RM4x
(SP per unit x SU)
Cost (RM)
Total Cost, y=RM2.50x + RM600
PROFIT [(VC per unit x SU)+ FC]

BEP

1,600

600 FIXED COST, y=RM600
LOSS units

400

4.4 Margin of safety
(a) Explain and calculate margin of safety in ringgit, unit and percentage.

Margin of Safety (RM) = Current Sales (RM) – Sales BEP (RM)

Margin of Safety (Unit) = Current Sales (Unit) – Sales BEP (Unit)

Margin of Safety (%) = Margin of Safety (unit or RM) x 100
Current Sales (unit or RM)

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EXAMPLE 2: = RM15,500 @ 5,000 units
Given: = RM22,320 @ 7,200 units
Sales on BEP
Actual Sales

Calculate:
a) Margin of Safety in RM

= RM22,320 – RM15,500
= RM6,820

b) Margin of Safety in unit
= 7,200 – 5,000
=2

,200 units
c) Margin of Safety in percentage
= RM6,820 x 100%
RM22,320
= 31%

4.5 Sensitivity analysis
(a) Explain the effects of changes in selling price, fixed costs and or variable costs
on CVP through calculation

The effects of changes in selling prices, fixed costs and variable costs on cost volumes profit.

EXAMPLE 3 (a - c questions are relevant)

a. Change in selling price
Milimewah Company intends to reduce the selling price from RM25 to RM20. Variable
cost per unit is RM16 and fixed cost is RM16,000. How many units should be sold to
achieve BEP and profit of RM15,000?

CM per unit = SP per unit – VC per unit
= RM20 – RM16
= RM4

Sales unit (BEP) = FC
CM per unit

= RM16,000
RM4

= 4,000 units

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AA025: ACCOUNTING MODULE 2021/2022

Sales Unit (for profit RM15,000)
= FC + NP
CM per unit
= RM16,000 + RM15,000
RM4
= 7,750 units

b. Changes in variable cost

To increase sales, the Milimewah Company intends to provide a commission of 10% of
the sales price to the salesperson. How many units should be sold to achieve BEP and
net profit of RM15,000?

Commission = 10% x RM20 = RM2
New VC = RM16 + RM2 = RM18

CM per unit = SP – VC
Sales unit (BEP) = RM20 – RM18
= RM2
= FC

CM per unit
= RM 16,000

RM2
= 8,000 units

Sales unit (for RM15,000 profit) = FC + NP
CMU

= RM16,000 + RM15,000
RM2

= 15,500 units

c. Changes in fixed costs
In order to increase sales volume, Milimewah Company intends to make advertising
expenses of RM5,000. How many units should be sold by the company to achieve BEP
and net profit of RM15,000?

New fixed cost = RM16,000 + RM5,000
= RM21,000

Sales units (BEP) = RM21000 = RM21,000 + RM 15,000
RM 2 RM 2

= 10,500 units = 18,000 units
Sales units (for profit RM15,000)

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AA025: ACCOUNTING MODULE 2021/2022

TUTORIAL CHAPTER 4: COST VOLUME PROFIT (CVP) ANALYSIS

QUESTION 1 (C3, C4)
The following are information for Syarikat POLA:

Fixed cost RM10,000
Variable cost RM2 per unit
Sales price RM12 per unit

Required:
i. How many units must be sold to achieve break-even point?
ii. How much sales must be sold to achieve break-even point?
iii. If the company intends to earn a profit of RM1,000, how many units should it sell?

iv. If the company intends to sell 200 units of goods and the selling price is not fixed, how
much should the company sell to achieve break-even point?

v. If the company sells 200 units of goods and attain a profit of RM1,000, how much
should the company set as its selling price?

QUESTION 2 (C3, C4)
The following are information for Syarikat Karam:

Sales price RM20 per unit
Variable costs RM5 per unit
Fixed costs RM2,000

Required:
i. What is the break-even point in units and ringgit?
ii. How much will the profit be if sales are at 300 units?

iii. How much will the losses be if sales are at 100 units?
iv. What is the margin of safety in units and ringgit if sales are at 300 units?
v. Sketch the cost volume profit graph using information from (i) above.
vi. How much sales should the company made if it targets a profit of RM1,000?

QUESTION 3 (C3, C4)
Syarikat Negawatt manufactures water pipes. Last year, the company experienced
encouraging increase in sales. However, due to overwhelming competition from other pipes
manufacturer, Syarikat Negawatt has decided to focus more on promotion to sustain its
growth. In preparation for its promotional campaign next year, the company’s accountant
has provided the following information for 2012:

Variable cost per unit RM
Direct materials 3.25
Direct labour 8.00

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AA025: ACCOUNTING MODULE 2021/2022

Variable overhead 2.50
Total variable cost per unit 13.75

Fixed costs: 25,000
Production 40,000
Sales 70,000
Administration 135,000
Total fixed costs

Selling price per unit RM25
Estimated current year sales 20,000 units

The company’s manager predicted sales for 2013 to be 22,000 units.

Required:
i. Calculate the current year net profit.
ii. Calculate the break-even point in units for the current year.
iii. Calculate the break-even point in units for 2013 if the company incur additional

advertising expenses of RM12,250.
iv. At the level of 22,000 units, what is the maximum advertising expenses it can incur if

the company wants to achieve a net profit of RM60,000?

QUESTION 4 (C4)
Haruman Bakti Bhd (HBB) produces a branded product named ‘Wangi’. The product is
usually sold at RM8.00 per unit. The budgeted output and sales for the current year were
made at 80,000 units. The following information was obtained from the budget ended 31
December 2012:

Output and sales unit 80,000 100,000
Costs: RM RM
Direct materials 120,000 150,000
Direct labour 120,000
Manufacturing overhead 96,000 120,000
Administrative expenses 112,000
Sales expenses 70,000
65,000 64,000
58,000 524,000
451,000

Required:
i. Compute the total fixed costs and total variable costs at each production level.
ii. Sketch cost, volume and profit graph. Show,

a. Break-even point
b. Margin of safety
c. Profit and loss area

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AA025: ACCOUNTING MODULE 2021/2022

iii. From the information above, determine whether HBB will get a profit or loss when
the output and sales are at 80,000 units and 100,000 units.

iv. Calculate the new break-even point in units if HBB intends to increase the sales price
by 20% and increase the labour cost by RM0.50 per unit.

v. To ensure product quality and consumer preferences, the production department has
proposed to increase the price of raw materials by 20%. Other costs and selling price
per unit remained unchanged. Determine whether HBB will get profit or loss at
80,000 units. (Hint: Part v is not related to Part iv)

QUESTION 5 (C4)
Syarikat Baiduri (SB) has been in business for several years. Below is the information
obtained from SB business records for the year 2012.

The average price for a pair of glasses RM70
Variable costs for a pair of glasses:
RM28
Lens and frame RM12
Sales commission RM 8
Administrative overhead RM66,000
Fixed costs

Required:
i. Calculate:

a. Break-even point in units and ringgit
b. How many units have to be sold if SB targets a net profit of RM80,000? (round up

the answer)
ii. SB is considering buying a new optical lens cutting machine which will reduce the

cost of lens by RM6 per pair. This will increase the yearly fixed cost to RM8,000 and
also increase sales to 5,000 units a year. Should this suggestion be implemented?
Prove it through calculation.
iii. A marketing consultant advise SB that they can increase their sales by 30% if the price
decrease by 10% and RM20,000 was spent on advertising and promotion. If the
current sales unit is 3,000 units, should SB make these two changes? Evidence should
be shown through calculation.

QUESTION 6 (C4)
Syarikat Permai Sdn Bhd manufactures a product called BESS. The following information is
derived from the company’s budget for 2007.

Fixed manufacturing cost RM
Fixed sales cost 90,000
Direct material cost per unit 30,000

6

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AA025: ACCOUNTING MODULE 2021/2022

Direct labour cost per unit 6
Variable overhead cost per unit 8
Sales price per unit 40
Current sales are 8,000 units

Required:
i. Calculate break-even point (in units and ringgit).
ii. Sketch the cost volume profit graph by showing the break-even point.
iii. Calculate the margin of safety (in units and ringgit).
iv. Calculate the sales unit if the company wants to achieve a profit of RM30,000.
v. If the company intends to replace the fixed salesman salary of RM24,000 to a sales

commission of RM5.00 per unit, calculate the new break-even point (in units and
ringgit).

QUESTION 7 (C4)
Cerakan Sdn Bhd (CSB) is a crystal accessories manufacturer. The CSB manager has provided
the following information:

Sales price per unit RM
Variable costs per unit: 50
Direct material
Direct labour 12
Manufacturing overhead 10
Sales commission 8
Fixed costs: 2
Salary expenses
Rental expenses 10,000
8,000

Required:
(Consider each question separately)
i. Calculate break-even point in units and ringgit.
ii. Calculate net profit if 2,500 units were sold.
iii. If the variable manufacturing overhead were to increase by 20%, calculate the new

selling price if CSB wants to maintain the same contribution margin as before.
iv. If rental expenses were to increase by RM3,000, calculate the new sales unit if CSB

wants to earn a profit of RM15,000.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 44

AA025: ACCOUNTING MODULE 2021/2022

QUESTION 8 (C4)
Bukit Ruang Sdn Bhd (BRSB) provided some of their expected operating information for
2009 as follows:

Sales Total Per unit
(-) Variable cost RM RM
200,000 20
Contribution margin (120,000) (12)

(-) Fixed cost 80,000 8
Net profit
(64,000)
16,000

Required:
i. Calculate break-even point in units and ringgit.
ii. Sketch and label the cost volume profit graph based on information (i).
iii. Determine BRSB’s margin of safety in ringgit based on expected profit for 2009.
iv. Calculate the sales unit if profit is RM30,000.
v. Determine additional profit that BRSB will earn if sales increase to RM225,000.
vi. Based on the original information, calculate the sales unit if BRSB wants to earn 20%

on sales for net profit.
vii. Prepare an income statement based on answer (vi).

QUESTION 9 (C4)
Silang Sdn Bhd is an established clothing business. The following are estimated cost incurred
for 2014:

Sales unit 1,500
RM
Administrative expenses 15,000
Equipment depreciation 3,500
Advertising expense 1,500
Variable manufacturing cost per unit 23
Salesman commission per unit 2
Sales price per unit 45

Required:
i. Calculate break-even point in unit and ringgit.
ii. Calculate margin of safety in unit and ringgit
iii. Calculate net profit for 2014.
iv. Calculate sales unit if the company’s target for net profit is RM25,000.
v. Calculate sales price to maintain net profit in 2014 if variable manufacturing cost

increased by 25% and advertising expense decreased to RM750. The other information
are constant.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 45

AA025: ACCOUNTING MODULE 2021/2022

KOLEJ MATRIKULASI LABUAN
ACCOUNTING 2: AA025

Topic 5: Manufacturing Overhead

Learning Outcomes
5.1 Manufacturing overhead concept

a) Explain manufacturing overhead
b) Explain the concepts of actual overhead, applied overhead and budgeted

overhead
5.2 Comparison among actual costing system, normal costing system and standard

costing system,
a) Explain the differences in product costing using actual costing system, normal

costing system and standard costing system.
b) Explain the advantages of normal costing compared to actual costing
5.3 Normal costing system
a) Explain and calculate the applied overhead.
b) Compute predetermined overhead rate based on units of production basis,

labour hours basis, machine hours basis, direct material costs basis and
direct labour costs basis.
c) Compute product cost per unit using normal costing system.
d) Explain and compute over applied or under-applied overhead.

5.1 Manufacturing overhead concept
a) Explain manufacturing overhead

i. All manufacturing costs other than direct material and direct labour cost

ii. Overhead costs are recognized as indirect manufacturing costs

iii. Eg: indirect raw material, indirect labour.

b) Explain the concepts of actual overhead, applied overhead and budgeted
overhead

Actual Refers to indirect manufacturing costs actually occurring and
Overhead recorded.

Applied Refers to indirect manufacturing costs that have been assigned
Overhead to the goods manufactured.
Calculated overhead estimation based on actual activity.
Budgeted
Overhead Refers to planned or scheduled manufacturing overhead costs,
actual overhead cost is still unknown

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 46

AA025: ACCOUNTING MODULE 2021/2022

5.2 Comparison among actual costing system, normal costing system and standard
costing system,
a) Explain the differences in product costing using actual costing system, normal
costing system and standard costing system.

Actual costing Taking into account the actual cost of direct materials,actual
Normal costing cost of direct labour,and actual overhead cost
Standard costing
Taking into account the actual cost of direct materials,actual
cost of direct labour,and applied overhead cost

Taking into account the standard cost of direct
materials,standard cost of direct labour,and standard
overhead cost

b) Explain the advantages of normal costing compared to actual costing

i. Product Pricing can be determine in advance.
ii. The cost of the product will be remain at a certain time period for using the

same overhead rate(Actual costing system is for reporting purposes)

5.3 Normal costing system
a) Explain and calculate the applied overhead.
b) Compute predetermined overhead rate based on units of production basis,
labour hours basis, machine hours basis, direct material costs basis and direct
labour costs basis.

Determination Of Products Cost Per Unit Using Normal Costs System

➢ Manufacturing overhead costs were absorbed/applied into products using
Predetermined Overhead Rate (POR)

Predetermined Overhead = Estimated total manufacturing overhead costs
Rate
Estimated basis of yearly activities
(Denominator activity)

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 47

AA025: ACCOUNTING MODULE 2021/2022

Basic Calculation For Predetermined Overhead Rate :
Basic Activities :

i. Direct labor hours

ii. Direct labor costs

iii. Machine-hours

iv. Direct materials cost

v. Production unit

Example 1:

Syarikat Seri Malindo manufactures two types of products named Nas 5 and Nas 6 at the
beginning of 2019. Factory managers provide estimated information such as the following
:

Manufacturing overhead RM 500 000
Machine hours 200 000 hours
Direct labour hours 100 000 hours
Direct labour cost RM 650 000
Raw material cost RM 450 000
Production unit 75 000 units

Required :

Compute the predetermined overhead rate basis on the of the following activities:
a) Machine hours
b) Direct labour hours
c) Direct labour cost
d) Raw material cost
e) Production unit

Solutions: Predetermined Overhead Rate
Basic Activities RM 500 000/ 200 000

a) Machine hours = RM 2.50/Machine Hour

b) Direct labour hours RM 500 000 / 100 000
= RM 5.00 / Direct Labour Hours
c) Direct labour cost
RM 500 000 / RM 650 000 x 100%
d) Raw material cost = 76.92%

e) Production unit RM 500 000 / RM 450 000 x 100%
= 111.11%

RM 500 000 / 75 000 unit
= RM 6.67 / unit

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 48

AA025: ACCOUNTING MODULE 2021/2022

Example 2 :

On September 2018 these are the data found regarding manufacturing cost:

Direct Material Department X Department Y Department Z
RM 140 000 RM 126 000 RM 78 000
Direct Labour Cost
RM 120 000 RM 110 000 RM 37 500
Manufacturing
Overhead RM 98 000 RM 129 000 RM 80 000
Direct Labour Hours
8 000 hours 11 000 hours 3 500 hours

Machine Hour 34 000 hours 45 000 hours 10 400 hours

● Each department use different basis to determine applied overhead.

● Department X is based on 65% of direct material cost, department Y is based on
95% of direct labour cost while department Z based on RM7.99 per machine hour.

Required:

Calculate the applied overhead for each department

Solutions:

Applied Manufacturing Overhead = Predetermined overhead rate X actual activity

DEPARTMENT Calculation

X 65% X RM 140 000= RM 91 000
Y 95% X RM 110 000= RM 104 500
Z RM 7.99 X 10 400 machine hour = RM 83 096

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 49

AA025: ACCOUNTING MODULE 2021/2022

c) Compute product cost per unit using normal costing system

Example 3 :

Aman Sdn. Bhd. produces Haji brand for songkok. Each unit of songkok requires 0.5 meters
of velvet cloth and 30 minutes of direct labour hours. The cost of velvet cloth is RM5 per
meter and the direct labour cost is RM10 per hour. Actual costs for August and September,
2014 are as follows:

Month Actual Overhead Costs Production Units
August RM12,000 1,000

September RM10,000 500

Required:
Compute product cost per unit for August and September using the actual costing system.

Solutions:

Direct material August September
Direct labor 0.5m x RM5 = RM2.50 0.5m x RM5 = RM2.50
Actual overhead 0.5 jam x RM10 = RM5.00 0.5 jam x RM10 = RM5.00

Product cost per unit RM12,000 RM10,000
1,000 units 500 units
= RM12.00 = RM20.00
RM19.50 RM27.50

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 50