MODUL AA025 (STUDENTS VERSION)

AA025: ACCOUNTING MODULE 2021/2022

d) Explain and compute over applied or under-applied overhead

Overapplied Overhead Applied Overhead > Actual Overhead
Underapplied Overhead Applied Overhead < Actual Overhead

Adjustment Of Underapplied Or Overapplied Overhead

Journal Entries :

Overapplied Overhead Dr Manufacturing Overhead XXX XXX
Cr Cost Of Goods Sold

Underapplied Overhead Dr Cost Of Goods Sold XXX
Cr Manufacturing Overhead XXX

Example 4:

For 2019, Asmad Enterprise estimate manufacturing overhead cost RM1 200 000. While

actual overhead costs for year 2016 is RM 1 180 000. Basis activities used are stated as
below :

Basis Activities Estimation Actual

Direct Labour Cost RM 2 000 000 RM 2 100 000

Direct Labour Hours 180 000 hours 190 000 hours

Machine Hours 200 000 hours 192 000 hours

Required:
a) Calculate overapplied or under applied overhead for each basis.
b) Prepare journal entries to demonstrate the adjustment process for the overhead cost.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 51

AA025: ACCOUNTING MODULE 2021/2022

Solutions:
a) Calculate overapplied or under applied overhead for each basis.

Step 1: Calculate Predetermined overhead rate

Basic Activities Predetermined Overhead Rate
a) Direct labour cost RM 1 200 000 X 100%
RM 2 000 000
b) Direct labour hours = 60%

c) Machine hours RM 1 200 000
180 000 Hours
= RM 6.67/ Hours

RM 1 200 000
200 000 Hours
= RM 6.00/Hours

Step 2: Calculate Applied manufacturing overhead

Basic Activities Applied manufacturing overhead
a) Direct labour cost 60% x RM 2 100 000
= RM 1 260 000

b) Direct labour hours RM6.67 X RM 190 000
= RM1 267 300

c) Machine hours RM 6.00 X RM 192 000
= RM 1 152 000

Basis Activities Overhead Applied Actual Overhead Over/ under applied

Direct Labour Costs RM 1 260 000 RM 1 180 000 Overapplied RM 80 000

Direct Labour Hours RM 1 267 300 RM 1 180 000 Overapplied RM 87 300
RM 1 180 000 Underapplied
Machine Hours RM 1 152 000 RM 28 000

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 52

AA025: ACCOUNTING MODULE 2021/2022

b) Prepare journal entries to demonstrate the adjustment process for the overhead cost.

Basis Activities Journal Entries
Direct Labour Costs Dr Manufacturing Overhead 80 000

Direct Labour Hours Cr Cost Of Goods Sold 80 000

Machine Hours Dr Manufacturing Overhead 87 300

Cr Cost of Goods Sold 87 300

Dr Cost Of Goods Sold 28 000

Cr Manufacturing Overhead 28 000

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 53

AA025: ACCOUNTING MODULE 2021/2022

TUTORIAL CHAPTER 5:MANUFACTURING OVERHEAD

QUESTION 1 (C3)
Vila Mewah Berhad provided the following information for 2013 for analysis.

Estimated direct labour costs 85,000 hours @ RM16/hour
Actual direct labour costs 80,000 hours @ RM17/hour
Estimated manufacturing overheads
Actual manufacturing overhead: RM969,000

Depreciation RM140,000
Property taxes RM22,000
Indirect labour RM82,000
Supervisor salary
Utilities RM300,000
Insurance RM49,000
Rental
Indirect material: RM130,000
Opening inventory 1/1/2013 RM200,000
Purchases
Ending inventory 31/12/2013 RM32,000
RM100,000

RM54,000

Required:
i. Calculate the predetermined overhead rate based on direct labour hours.
ii. Calculate over-applied or under-applied overhead for 2013.
iii. Prepare journal entries to transfer over-applied or under-applied overhead to
cost of goods sold account.

QUESTION 2 (C3, C4)
Kabinet Moden Bhd uses job order costing in its production. Three departments are involved
in producing XYZ products. Overhead is applied based on direct labour costs in Department
X, direct labour hours at Department Y and machine hours in Department Z.
Budgeted information for 2013 are as follows:

Manufacturing overhead Department X Department Y Department Z
Direct labour costs RM1,170,000 RM1,500,000 RM960,000
Direct labour hours RM1,500,000 RM1,250,000 RM450,000
Machine hours 40,000
100,000 125,000 120,000
400,000 500,000

Job cost sheet in January shows the actual cost and production information as follows:

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 54

AA025: ACCOUNTING MODULE 2021/2022

Direct material used Department X Department Y Department Z
Direct labour costs RM140,000 RM126,000 RM78,000
Overhead cost involved RM120,000 RM110,000 RM37,500
Direct labour hours RM98,000 RM129,000 RM80,000
Machine hours 8,000 11,000 3,500
34,000 45,000 10,400

Required:
i. Calculate the predetermined overhead rate for each department.
ii. Calculate the applied overhead for each department.
iii. Calculate over-applied or under-applied overheads for each department.
iv. Show the adjusting entries to write-off over-applied or under-applied overhead.

QUESTION 3 (C4)
Syarikat Perabot Ekslusif uses predetermined machine hours rate to absorb the
manufacturing overhead.

In 2012, the budgeted machine hours were 132,000 hours and the predetermined overhead
rate was RM18.20 per machine hour. The applied overhead and actual overhead for the year
are RM2,442,440 and RM2,317,461.

In 2013, the budgeted machine hours were estimated 5% higher than the actual machine
hours of 2012. The budgeted overhead for 2013 was RM2,620,926.
The following are the actual data for 2013:

Machine hours 139,260 hours

Labour hours 25,000 hours

Cost RM
200,000
Direct labour costs
70,000
Indirect labour costs 15,000
480,000
Sales commission 400,000
150,000
Depreciation – Factory equipment 119,000
200,000
Direct material costs 750,000
50,000
Factory fuel costs 150,000
190,000
Depreciation – Finished goods warehouse 480,000

Maintenance expenses 768
800,000
Factory supervisor salary

Factory property tax

Office building insurance

Factory rental

Salesman salary

Interest expense

Other overhead costs

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 55

AA025: ACCOUNTING MODULE 2021/2022

Required:
i. Calculate the budgeted overhead for 2012.
ii. Determine actual machine hours for 2012.
iii. Calculate the predetermined overhead rate for 2013.
iv. Calculate the applied overhead for 2013.
v. Calculate actual overhead for 2013.
vi. Determine whether it is over-applied or under-applied overhead by stating the
values and prepare the journal entries to write-off for both years.

QUESTION 4 (C4)
Setulus Hati Berhad uses a predetermined overhead rate to allocate manufacturing overhead
cost. The related information is given:

a. Budgeted production overhead cost for the current period is RM112,000.
b. Budgeted direct labour cost is RM168,000.
c. Budgeted direct labour hour is 28,000 hours.
d. Actual direct labour hour for October is 2,500 hours.
e. Actual direct labour cost for October is RM15,000.

Required:
i. Compute the predetermined overhead rate (POR) based on direct labour hour.
ii. Compute the predetermined overhead rate (POR) based on direct labour cost.
iii. Compute the applied manufacturing overhead for October based on POR
computed in (i).
iv. Compute the applied manufacturing overhead for October based on POR
computed in (ii).

QUESTION 5 (C4)
MAXi is one of the products produced by Perniagaan Seri Wang. On January 2010, the
company expected to incur the following:

Budgeted: 2,800 hours
Machine hours RM12,000
RM60,000
Direct labour costs RM21,000

Direct material costs
Manufacturing overhead costs

At the end of January 2010, the company had actually incurred:

Machine hours 2,240 hours

Units of finished goods 280 units

Direct labour costs RM11,200

Direct material costs RM67,200

Manufacturing overhead costs RM26,800

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 56

AA025: ACCOUNTING MODULE 2021/2022

Perniagaan Seri Wang uses direct labour costs as its activity base for assigning overhead
costs to MAXi job.

Required:
i. Compute the predetermined overhead rate (POR) and applied manufacturing
overhead.
ii. Compute the total production costs and cost per unit of MAXi.
iii. Compute the amount of overhead that was over-applied or under-applied.

QUESTION 6 (C4)
Syarikat Bentara Biru uses job order costing with a predetermined overhead allocation rate,
computed as a percentage of direct labour costs.

The Company estimated the following amounts for producing 200 units of products in
January 2012:

Budgeted production overhead costs RM8,320
Direct material costs RM11,200
Direct labour costs RM10,400
Direct labour hours 3,200 hours
Machine hours 2,800 hours

Additional information:

1. The following cost occurred during January 2012:
Direct material costs RM14,700

Direct labour costs RM13,000
Manufacturing overhead costs RM11,800

2. The job (200 units) had been completed in January.

Required:
i. Compute the applied manufacturing overhead costs for January.
ii. Compute product cost per unit.
iii. Compute the amount of overhead that was over-applied or under-applied.
iv. Prepare the journal entry to adjust for under-applied or over-applied overhead.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 57

AA025: ACCOUNTING MODULE 2021/2022

QUESTION 7 (C4)

Camp Company uses a job-order costing system. The company has two departments through

which most jobs pass. Selected budgeted and actual data for the past year are as follow:
Department A Department B

Budgeted overhead RM100,000 RM500,000
Actual overhead RM110,000 RM520,000

Expected activity (direct labour hours) 50,000 10,000

Expected machine hours 10,000 50,000
Actual direct labour hours 51,000 9,000

Actual machine hours 10,500 52,000

During the year, several jobs were completed. Data pertaining to one such job follows:

Direct materials Job 310
Direct labour cost: RM20,000

Department A (5,000 hours @ RM6) RM30,000
Department B (1,000 hours @ RM6) RM6,000
Machine hours used:
Department A 100
Department B 1,200
Units produced 10,000

Camp Company uses a plant-wide predetermined overhead rate to assign overhead to jobs.
Direct labour hours (DLH) is used to compute the predetermined overhead rate.

Required:
i. Compute the predetermined overhead rate.
ii. Using the predetermined overhead rate, compute the per unit manufacturing cost
of Job 310.
iii. Recalculate the unit manufacturing cost for Job 310 using departmental overhead
rates. Use direct labour hours for Department A and machine hours for
Department B.

QUESTION 8 (C3, C4)
The following is the budgeted data for Bunga Raya Ltd for August 2015.

Factory overheads RM55,000
Machine hours 17,500 hours
Direct labour hours 12,000 hours

The actual results for August 2015 are as follows:

Factory overheads RM65,000

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 58

AA025: ACCOUNTING MODULE 2021/2022

Machine hours 15,500 hours
Direct labour hours 18,000 hours

Required:
Calculate the over- or under-applied for Bunga Raya Ltd by using the machine hours and
direct labour hours as a basis.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 59

AA025: ACCOUNTING MODULE 2021/2022

KOLEJ MATRIKULASI LABUAN
ACCOUNTING 2: AA025

Topic 7: Job Order Costing
Learning Outcomes

7.1 Definition of job order costing
(a) Explain the definition of job order costing

7.2 Characteristics of job order costing
(a) Explain the characteristics of job order costing in term of product types, cost
accumulation, cost flows and documentation.

7.3 Determination of cost per job
(a) Explain and calculate the cost per job.
(b) Explain on source documents such as material requisition form and time ticket.
(c) Compute total manufacturing cost and the cost per job.
(d) Explain and prepare job cost sheet.

7.4 Journal entries
( a) Prepare journal entries related to job order costing.
(b) Prepare adjustment entries of over-applied and under applied overhead using write-
off method

7.1 Definition of job order costing
(a) Explain the definition of job order costing

Definition:
➢ Job order costing (JOC) is costs are assigned to each job or to each batch of goods

to fill a specific customer order.

➢ Each job(batch) has its own distinguishing characteristics.

➢ The objective is to compute the cost of per job. Examples are wedding
invitations card and furniture.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 60

AA025: ACCOUNTING MODULE 2021/2022

7.2 Characteristics of job order costing
(a) Explain the characteristics of job order costing in term of product types, cost
accumulation, cost flows and documentation.

CHARACTERISTICS JOB ORDER COSTING

PRODUCT TYPES Product is heterogenous (variety) – product produce

more than one type

PRODUCT Can be identified & differentiate for each product by

customer specification / order

COST ACCUMULATION Accumulated for each job / order

DOCUMENTATION Material Requisition Form, Time Ticket and Job Cost Sheet

Cost Flow Job 101 Finished Cost of
Job 102 Goods Goods Sold
Direct Material Job 103 Inventory
Direct Labour
Manufacturing Overhead

7.3 Determination of cost per job

(a) Explain and calculate the cost per job.

✓ Accumulates the costs of each job produced using normal costing system.

✓ When the job completed, cost per unit will be calculated

✓ Cost per unit= Total costs production

Total units produced

Calculation for cost per job:

1. XXX
Beginning Work in Process

Actual Direct Material XXX

Actual Direct Labour XXX

Applied Manufacturing Overhead XXX

(-) Ending Work in Process ( WIP) XXX

Total XXX

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 61

AA025: ACCOUNTING MODULE Job 101 Job 102 2021/2022
XXX XXX
2. XXX XXX Total
XXX XXX XXX
Beginning work in process(WIP) XXX XXX XXX
Actual Direct material XXX XXX XXX
Actual Direct labor XXX XXX XXX
Applied Manufacturing Overhead XXX XXX XXX
Total Cost per job XXX
Units Completed XXX
Cost per unit

(b) Explain on source documents such as material requisition form and time
ticket.

i. Material Requisition Form

Material Requisition Form

➢ To verify the raw material that is tranferred from store to production
department.

➢ It contains quantity and cost per unit of material information.
➢ It is a source reference to transfer from material inventory account to Work In

Process Inventory account.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 62

AA025: ACCOUNTING MODULE 2021/2022

ii. Time ticket

➢ Time ticket records total working hours, total direct labour costs and labour cost
per unit.

➢ It is reference to record the direct labour costs and also recorded in the work in
process account.

(c) Compute total manufacturing cost and the cost per job.

Example 1:
Sofiya Sdn Bhd (SSB) uses job order costing method to produce wooden based cabinets. On
Dec 25, 2013, SSB receives orders of 20 wooden cabinet products from Dairy Farm
Enterprise. This booking is labeled as KKS 123.

SSB started the job production process on 1 January 2019.

Time Ticket No. Description RM

30/100 8 hours @ 10 80
25/107 5 hours @ 20 100
25/110 24 hours @ 17.50 420

Material Requisition No Description RM

A115 250 meters nyatoh@RM150 37,500
A225 100 meters meranti@RM120 12,000

SSB uses the direct labour cost base to applied manufacturing overhead costs. The total
factory overhead is expected to be RM47,360 and the direct labor cost is RM2,560 a month.

The KKS 123 was completed on Jan 15 and sent to Dairy Farm Enterprise on Jan,20.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 63

AA025: ACCOUNTING MODULE 2021/2022

REQUIRED:
Calculated manufacturing cost and the cost per job.
Solutions:

Predetermined overhead rate = RM47,360 x 100 = 1850%
RM2,560

Applied Manufacturing Overhead = 1850 % x RM600
= RM 11,100

Actual Direct Material RM
Actual Direct Labour 49,500
Applied Manufacturing Overhead
Total 600
Units Produced 11,100
Product Cost Per Unit 61,200

(d) Explain and prepare job cost sheet. 20
3,060

➢ Used to record costs chargeable to specific jobs.
➢ Constitutes the subsidiary ledger for the work in process account.
➢ Each entry to Work in Process Inventory must be accompanied by a

corresponding posting to one or more job cost sheets.
➢ Costs involved are direct material, direct labour, and applied overhead.
➢ One job cost sheet is assigned to each job or batch.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 64

AA025: ACCOUNTING MODULE 2021/2022

Example 2:
Using the same informations given in Example 1, prepare Job Cost Sheet.

Customer Name: Dairy Farm Enterprise Job No: KKS 123
Address: Date Completed: 15 Jan 2019
Product Description: Wooden Cabinet
Date Started: 1 Jan 2019

DIRECT MATERIAL DIRECT LABOR MANUFACTURING OVERHEAD

Date Requisition Cost Date Time Cost Hours *Rate Cost
(RM) Ticket (RM) Cost (RM)

1/1/19 A115 37,500 1/1/19 30/100 80 600 1850% 11,100
Total A225 100 11,100
12,000 25/107 420
600 Total
49,500 Total

Summary: RM

Direct 49,500
material:
Direct Labor: 600
Manufacturing 11,100
Overhead:
61,200
Cost per job: 20

Units 3,060
completed
Unit Cost:

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 65

AA025: ACCOUNTING MODULE 2021/2022

7.4 Journal entries
( a) Prepare journal entries related to job order costing.

1. Purchase of Raw Material Debit Credit

RM RM

Dr Raw Materials Inventory XX
Cr Accounts payable/Cash/ Bank XX

(to record purchase of raw material)

2. Record raw materials used in manufacturing

Dr Work in process Inventory XX

Cr Raw Materials Inventory XX
(to record direct materials used)

3. Record direct labour cost used in manufacturing

Dr Work in process Inventory XX
Cr Salaries payable XX

(to record direct labour used)

4. Record applied manufacturing overhead in Manufacturing

Dr Work in process Inventory XX

Cr Manufacturing Overhead XX

(to record manufacturing overhead)

5. Record actual indirect raw materials used in manufacturing

Dr Manufacturing Overhead XX

Cr Raw Materials Inventory XX
(to record indirect materials)

6. Record actual indirect labour used in manufacturing

Dr Manufacturing Overhead XX
Cr Salaries payable XX

(to record indirect labour)

7. Record actual other manufacturing overhead in manufacturing

Dr Manufacturing Overhead XX

Cr Prepaid insurance XX

Cr Accumulated depreciation-equipment XX
Cr Utilities payable XX

Cr Rent payable XX
Cr Cash/ Accounts Payable XX

(to record overhead cost)

8. Record Finished Goods

Dr Finished Goods Inventory XX

Cr Work in process Inventory XX

(to record completion of Job xx )

9. Record Cost of Goods Sold

Dr Cost of goods sold XX

Cr Finished Goods Inventory XX
(to record cost of Job xx sold)

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 66

AA025: ACCOUNTING MODULE 2021/2022

10. Record sales of finished goods XX
XX
Dr Accounts Receivable / Cash
Cr Sales

(to record sale of Job xx )

Example 3:

Dahletu Enterprise uses job order costing system. The following account balances are
obtained on 1 October 2015.

Raw materials inventory RM 8,000
Work in process inventory RM12,000

Finished goods inventory RM15,000

Below is information for October:

1. Raw materials purchase on account worth RM65, 000.

2. Raw materials used in the production process worth RM58, 000. RM8, 000 of it is
indirect raw material.

3. Labor cost is worth RM75, 000 in which RM5, 000 is indirect labor cost

4. Manufacturing overhead is applied at the rate of RM7.50 per hour direct labor hour.
A total of 10,000 hours of direct labor are used in the production.

5. Manufacturing overhead amounting to RM64, 900 are as follows:

Rental (cash) RM25,000
Utilities (payable) RM20,600

Insurance (have matured) RM 2,600
Repair (payable) RM 700

Depreciation expense-factory equipment RM16,000

At the end of the month, 1,200 of the job are completed and transferred to finished
goods account.

7. A total of 700 units of completed job has been sold on account for RM500, 000.

REQUIRED:

a) Calculate the total cost and cost per unit for the job.
b) Prepare journal entries for transactions above.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 67

AA025: ACCOUNTING MODULE 2021/2022

Solutions : RM12,000
a) RM50, 000
RM 70,000
Beginning work in process inventory RM75,000
Direct Material
Direct labor RM207,000
Applied Manufacturing Overhead (RM7.50 x 10000 hours)
Cos per job 1,200
Units completed RM172.50

Unit Cost Debit Credit
b) Journal entries 65,000 65,000

1 Dr. Raw materials inventory 50,000 58,000
Cr. Account Payable 8,000

(to record purchase of raw material on account) 70,000
2 Dr. Work in process inventory 5,000

Dr. Manufacturing Overhead 75,000
Cr. Raw materials inventory
75,000
(to record cost of direct raw material and indirect raw material
cost) 64,900 75,000

3 Dr. Work in process inventory 25,000
Dr. Manufacturing Overhead 20,600
Cr. Salaries payable
(to record direct labor costs and indirect labor costs) 2,600
700
4 Dr. Work in process inventory (RM7.50 x 10,000h)
Cr. Manufacturing Overhead 16,000

(to record applied manufacturing overhead cost) 207,000
5 Dr. Manufacturing Overhead 207,000

Cr. Cash 120,750
Cr. Utilities Payable 120,750
Cr. Prepaid insurance
Cr. Repair payable 500,000
Cr. Depreciation expense - Factory equipment 500,000
(to record actual manufacturing overhead cost)
6 Dr. Finished goods inventory
Cr. Work in process inventory
(to record cost of finished goods)
7 Dr. Cost of goods sold (700 unit x RM172.50)
Cr. Inventory of finished goods
(to record cost of goods sold)
8 Dr. Accounts receivable
Cr. Sales
(to record sales on account)

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 68

AA025: ACCOUNTING MODULE 2021/2022

(b) Prepare adjustment entries of over-applied and under applied overhead

using write-off method.

➢ Should be recorded at the end of the accounting period.

➢ Adjustments need to be made to cost of goods sold.

➢ Over applied overhead :

Dr. Manufacturing Overhead XX
Cr. Cost Of Goods sold XX

(to record over-applied overhead)

➢ Under- applied overhead : XX
XX
Dr. Cost Of Goods sold
Cr. Manufacturing Overhead

(to record under-applied overhead)

Example 4:

Using the same informations in Example 3, prepare journal entries to record over-applied
or under applied manufacturing overhead.

Applied Manufacturing Overhead = RM75,000

- Actual Manufacturing Overhead = 77,900

Under-applied Manufacturing Overhead = 2,900

Dr Cost of Good Sold 2,900
Cr Manufacturing Overhead 2,900

(to record under –applied overhead )

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 69

AA025: ACCOUNTING MODULE 2021/2022

TUTORIAL CHAPTER 7:JOB ORDER COSTING

QUESTION 1 (C3, C4)
Sri Pulas Enterprise is an exclusive clothing distributor with custom order. The business
uses normal costing system. The estimated annual factory overhead is RM60,000 and
12,000 direct labour hours used. Jobs for the month of February 2013 are shown in the
table below:

Job X Job Y Job Z
180
Direct labour hours 250 200 RM
2,000
Cost: RM RM 1,400
1,000
Beginning work in process 4,600 3,300

Direct materials 2,200 1,700

Direct labour 1,500 1,200

The actual manufacturing overhead cost for February is RM3,700.

Required:
i. Calculate the total cost for Job X, Job Y and Job Z.
ii. Calculate over- or under-applied overhead.
iii. Prepare journal entries to adjust the over- or under-applied overhead to the cost
of goods sold account.

QUESTION 2 (C4)
AKFA Manufacturing uses the job order costing system in determining the cost of its
products. The manufacturing process involves two departments, namely Cutting
Department and Preparing Department. The following data are related to the order for Job
Z14 with 500 units completed.

Direct labour hours Cutting Department Preparing Department
Direct labour costs 682 1,000
Raw materials
Machine hours RM4,774 RM4,500
Manufacturing overhead* RM4,300 RM3,000

62 50
RM1,400 RM15,000

*Manufacturing overhead consists of outstanding expenses, depreciation and expired
insurance.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 70

AA025: ACCOUNTING MODULE 2021/2022

The company decides the overhead rate for the Cutting Department to use machine hours
basis and Preparing Department to use direct labour costs basis. The following data are the
annual estimated budget:

Direct labour hours Cutting Department Preparing Department
Direct labour costs 97,000 130,000
Machine hours
Overhead costs RM485,000 RM520,000
6,790 6,500

RM156,170 RM1,664,000

A total of 300 units of Job Z14 has been sent to the customer. The agreed selling price is 150%
of the production costs and paid in cash.

Required:
i. Calculate the predetermined overhead rate for each department.
ii. Calculate the total cost for Job Z14.
iii. Calculate the selling price per unit.
iv. Prepare the related journal entries.
v. Prepare the T-account to record the work-in-process inventory.

QUESTION 3 (C4)
YoYo Sdn Bhd (YSB) produces T-shirts according to customer specification. YSB uses job
order costing system and overhead is absorbed based on machine hours. On 1 December
2012, there are no opening balances for work-in-process and finished goods accounts. The
following are the budgeted information related to factory overhead:

Machine hours 4,700
Direct labour hours 1,200
Manufacturing overhead costs RM23,500

The information below is related to the three jobs carried out in December 2012:

CT-51 SZ-71 SK-57

Direct material RM3,500 RM2,600 RM6,000

Direct labour RM1,500 RM1,400 RM3,100

Direct labour hours 150 140 310

Machine hours 450 400 950

Booked units 300 250 600

The actual manufacturing overhead costs for the month of December 2012 is RM8,000. At
the end of December 2012, all jobs have been completed. Jobs CT-51 and SZ-71 were sold
immediately for cash. Every booking was sold at 60% more than the cost price.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 71

AA025: ACCOUNTING MODULE 2021/2022

Required:
i. Calculate the predetermined overhead rate for the year 2012.

ii. Calculate the manufacturing overhead absorbed for each job and total.
iii. Calculate the total cost for each job.
iv. Calculate YSB total manufacturing overhead under- or over-applied for the month

of December 2012.
v. Calculate the cost of goods sold and sales revenue for the month of December.

QUESTION 4 (C4)

Rahman Holding uses job costing to determine product cost for its clients. The following are
information related to jobs no. M14, S18, H20 and A23.

a. Work-in-process opening balances are as follows:

Job No RM

M14 4,200

S18 1,300

A23 800

b. Direct materials and direct labour used:

Job No Direct materials (RM) Direct labour (RM)
8,200
M14 10,200 9,700
14,500
S18 13,800 17,600

H20 16,000

A23 21,400

c. Manufacturing overhead is absorbed at the rate of 85% of direct labour costs.

d. Actual Manufacturing overhead:

RM

Indirect material 12,000

Depreciation of factory equipment 4,400

Equipment rental (paid) 12,500

Miscellaneous expenses (payable) 13,300

e. Jobs that have been completed are M14, S28 and A23.

f. Jobs that have been send to the customer (cash sales).

Job No. Sales (RM)

M14 54,000

A23 106,700

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 72

AA025: ACCOUNTING MODULE 2021/2022

Required:
i. Calculate the total cost for each job above.
ii. Prepare the related journal entries (omit explanation).
iii. Show the Work-in-process account.

QUESTION 5 (C1, C2, C3)
The Barakah Company has two producing departments: assembly and finishing. The
company has been using plantwide predetermined overhead rate based on direct labour
hours. The following estimates were made for the current year:

Manufacturing overhead Assembly Finishing Total
RM200,000 RM100,000 RM300,000
Direct labour hours
Machine hours 40,000 35,000 75,000
5,000 16,000 21,000

Mahoney started and completed Job 1512 during the year. The job-order cost sheet indicated
the following:

Materials requisitioned RM18,000
Direct labour costs RM16,000
Direct labour hours:
1,700 hours
Assembly 1,300 hours
Finishing
Machine hours: 1,000 hours
Assembly 700 hours
Finishing

A total of 2,000 units were produced on Job 1512.

Required:
i. Assume that Barakah Company uses a plantwide predetermined overhead based
on direct labour hours. Calculate the total costs and the unit cost for each of the
2,000 units produced by Job 1512.
ii. Assume that Barakah Company uses separate departmental overhead rates based
upon direct labour hours for assembly and machine hours for finishing. Calculate
the total costs and unit cost for each of the 2,000 units produced by Job 1512.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 73

AA025: ACCOUNTING MODULE 2021/2022

QUESTION 6 (C4)
The Hayat Auto Company builds equipment to customers’ specification. On March 1, two jobs
were in process with the following costs and information:

Job 43 Job 44
RM34,400
Direct materials RM10,200
10,400
Direct labour 21,000 7,370

Applied overhead* 4,950 52,170

Total costs 36,150 67

Machine hours 45

*Applied on the basis of machine hours

During March, Job 45 was started and Job 44 was completed and delivered to the customer.
Job 43 was missing a part that was back-ordered and would be completed in June. The

following costs were incurred in March:

Job 43 Job 44 Job 45

Direct materials RM2,300 RM4,500 RM12,700

Direct labour RM2,400 RM3,300 RM4,500

Machine hours 21 11 23

It is Hayat Auto Company policy to bill clients at cost plus 40%.

Required:
i. Calculate the overhead rate that Hayat Auto Company is using.
ii. Calculate the overhead applied to each job during the month of March.
iii. Calculate the balance in work in process on March 31.
iv. What was the price of Job 44?

QUESTION 7 (C4)
During March, the following transactions occurred at Sinar Mentari Inc.:
1. Materials were purchased on account for RM24,000.
2. Materials totalling RM20,000 were requisitioned for use in production.
3. Direct labour payroll for the month was RM30,000 with an average wage of RM10 per

hour.
4. Actual overhead of RM28,000 was incurred and paid.
5. Manufacturing overhead was charged to production at the rate of RM11 per direct labour

hour.
6. Completed units costing RM52,000 were transferred to finished goods.

7. Units costing RM44,000 were sold on account at 145 percent of cost.

Beginning balances as of March 1 were as follows:

Materials RM6,500
Work in process 8,000

Finished goods 7,000

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 74

AA025: ACCOUNTING MODULE 2021/2022

Required:
i. Prepare the journal entries for the above transactions.
ii. Calculate the ending balances of the following accounts:
Raw materials inventory
Work in process inventory
Finished goods inventory
Manufacturing overhead

QUESTION 8 (C4)
Cerah Sdn Bhd (CSB) uses job order costing method to produce wood-based products. On
January 22, 2010, CSB received an order for 100 units of Ukir-X products from Pudujaya Sdn
Bhd (PSB) for a price of RM55 per unit. This order is labeled as Kerja 300.

CSB started Kerja 300 on 30 January and the following costs have been incurred for the
completion of the job:

Labour tickets no. Description RM
TB18 12.5 hours @ RM20 250
TB25 30 hours @ RM19 570
RM
Material requisition no Description 720
PB43 60 meter of thick wood @ RM12 500
PB54 40 meter of medium wood @ RM12.50 1,000
PB62 100 meter of lime wood @ RM10

CSB applied manufacturing overhead on the basis of direct labour cost. The total
manufacturing overhead cost is expected to be RM400,000 per year while total labour cost
is expected to be RM250,000 per year.

Kerja 300 was completed on February 3 and sent to PSB on February 5, 2010.

Required:
Prepare the Job Cost Sheet for Kerja 300.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 75

AA025: ACCOUNTING MODULE 2021/2022

QUESTION 9 (C3, C4)
Perniagaan Accounting A Cabinet uses the job order costing system to determine its job
order costs. The information for the first month of its operation in year 2017 is as follows:

1. Purchase of raw materials worth RM99,700 on credit.

2. Direct materials and direct labor costs are as follow:

Job number

Items L01 L02 L03 L04

Direct materials (RM) 10,330 9,750 11,200 10,760
Direct labor (RM) 9,280 9,000
7,320 8,440

3. For the current year, the estimated manufacturing overhead is RM19,800 and the
estimated direct labor costs is RM24,000. Direct labor cost is used as the basis for
applying manufacturing overhead.

4. Other costs incurred during the production process are as follows:

Items RM
Indirect materials 5,350
Indirect labor 4,720
Utilities 6,100
Maintenance 9,200
Depreciation 3,900
Tax 2,300

5. Completed jobs are L01, L03 and L04.

Required:
(a) Calculate the predetermined overhead rate.

(b) Determine the cost for each job

(c) Prepare the journal entries for the related manufacturing cost flow.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 76

AA025: ACCOUNTING MODULE 2021/2022

KOLEJ MATRIKULASI LABUAN
ACCOUNTING 2: AA025

Topic 8 : Process Costing

Learning outcomes:
8.1 Definition of process costing

(a) Explain the definition of process costing
8.2 Characteristics of process costing

(a) Explain characteristics of process costing and the differences in term of product types,
cost accumulation, cost flows and documentation.

(b) Compare between process costing and job order costing.
8.3 Equivalent units

(a) Explain the definition of equivalent units and calculate the equivalent units using
weighted average method.

8.4 Calculation of product cost per unit
(a) Calculate product cost per unit using the weighted average method based on
assumptions:
(b) Direct material is added at the beginning, ending or uniformly in the process
(c) Conversion costs incurred uniformly.

8.5 Cost of finished units and ending work-in-process inventory
(a) Calculate cost of finished units (transferred-out cost) and cost of ending work-in
process.

8.6 Transferred-in cost
(a) Explain transferred-in cost.
(b) Explain the concept of transferred-in cost from previous department
(c) Compute cost of equivalent units for transferred-in cost in the second department.

8.7 Production cost report
(a) Prepare production cost report for each department.

8.8 Journal entries
(a) Prepare journal entries for current costs, transferred-in cost and transferred-out cost.

8.1 Definition of process costing
(a) Explain the definition of process costing

➢ A system for assigning costs to goods that are mass-produced in a continuous
sequences of steps, called processes.

➢ Process industries produce large numbers of identical units, such as steel rods,
boxes of cereal, gallons of paint and cases of picante sauce.

➢ Many companies in the petroleum, food and beverage, pharmaceutical and
chemical industries use process costing.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 77

AA025: ACCOUNTING MODULE 2021/2022

8.2 Characteristics of process costing
(a) Explain characteristics of process costing and the differences in term of
product types, cost accumulation, cost flows and documentation.

Types of products Homogenous products ( similar product that are mass-
produced such as boxes of cereal, food and beverage.)

Accumulated cost A process costing system accumulates the cost of each
process needed to complete the product. For example cost
Documentation accumulated by:
Cost Flow
1. Processing Department
2. Packaging Department

Cost are summarized in a Production Cost Reports

Cost are charged to every process. Total cost are
determined at the end of a period time.

(b) Compare between process costing and job order costing.

COMPARISON OF JOB AND PROCESS
COSTING

Direct Material Job Finished Cost of good
Direct labor 101 Goods sold
Manufacturing
Overhead Job
102

Job
103

JOB COSTING

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 78

AA025: ACCOUNTING MODULE 2021/2022

DIFFERENCE BETWEEN JOB ORDER COSTING AND PROCESS COSTING

Type Of Product JOB ORDER COSTING PROCESS COSTING

Heterogenous Homogenous
(Assigned To A Specific Job) ( Similar Product That Are
Mass-Produced)
Accumulated Cost Cost For Each Batch
Cost Of Each Process

Cost Flow Cost Are Charged To Cost Are Charged To Every
Documentation Individuals Job. Process.
Total Cost Are Determined Total Cost Are Determined At
When The Job Is Completed The End Of A Period Time.

Job Cost Sheets Production Cost Reports

8.3 Equivalent units

(a) Explain the definition of equivalent units and calculate the equivalent units
using weighted average method.
➢ In the production, not all the processing units will be fully completed.
➢ Equivalent units represent units that are supposes to be completed over
aperiod of time using the production costs incurred.
➢ Formula :

Equivalent units = Completed unit + [ Ending work in process unit x Completed
percentage ( % ) ]

8.4 Calculation of product cost per unit
(a) Calculate product cost per unit using the weighted average method based on
assumptions:
(b) Direct material is added at the beginning, ending or uniformly in the process
(c) Conversion costs incurred uniformly.
➢ The completed percentage for raw materials depends on when the material is
added during the production process.

Beginning of the process 100%

Ending of the process 0%

Continuously Uniformly with the level of production process.

➢ The completed percentage for transferred in unit is 100%.
➢ The completed percentage for conversion cost is uniformly with the level of

production process.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 79

AA025: ACCOUNTING MODULE 2021/2022

Cost per equivalent unit = (Beginning WIP costs + Costs added during period)
Equivalent units

Example 1:

Mekar Sejati Enterprise is using process costing system to trace production costs.
Information of the Department One is as follows:

Beginning work in process 10,000 units @ RM54,300
Unit started 17,800 units
Cost added during period incurred RM116,514
Unit finished and transferred out 20,200 units
Ending work-in-process 7,600 units (40% complete)

REQUIRED:

a. Compute the Equivalent Units.
b. Compute the Cost per Equivalent Units.
c. Determine the Cost of Finished Units.
d. Determine the Cost of Ending Work in Process.

Solutions: 20,200
3,040
(a) Equivalent units
Units Completed and Transferred out 23,240 unit
+ Units of Ending Work-in-Process x %
completed (7,600 x 40%) RM 54,300
RM 116,514
(b) Cost per equivalent unit RM 170,814

Cost of Beginning Work in Process 23,240
+ Current costs incurred RM 7.35/unit

Total Costs
÷ Equivalent units

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 80

AA025: ACCOUNTING MODULE 2021/2022

8.5 Cost of finished units and ending work-in-process inventory
(a) Calculate cost of finished units (transferred-out cost) and cost of ending work-
in process.

FINISHED UNITS AND TRANSFERRED OUT COST

Finished units & transferred out cost = Units finished & transferred out x Cost per
unit

M1.10 = RM110,000
ENDING WORK IN PROCESS COST– calculated separately for each cost element

Ending WIP costs = (Units ending WIP x % completed) x Cost per unit

Example 2:
Using the same informations in Example 1,

a. Determine the Cost of Finished Units.
b. Determine the Cost of Ending Work in Process.

a. Cost of finished unit 20,200
Units finished and transferred out RM 7.35
x Cost per Equivalent unit
RM148,470

b. Cost of Ending Work in Process 3,040
RM 7.35
(Units of Ending Work in Process x %
complete) RM22,344
x Cost per Equivalent unit

8.6 Transferred-in cost
(a) Explain transferred-in cost.
(b) Explain the concept of transferred-in cost from previous department
(c) Compute cost of equivalent units for transferred-in cost in the second
department.
➢ The cost that has been incurred in a previous department ( Department 1) and
that will be transferred into next department ( Department 2) for the purpose of
continuing the next process.

Notes:

✓ Units completed & transferred out of Department 1 = Units started in
production of Department 2.

✓ Completion % for transferred in is 100%
✓ Completed & transferred out cost of Department 1 = Transferred in cost of

Department 2.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 81

AA025: ACCOUNTING MODULE 2021/2022

8.7 Production cost report
(a) Prepare production cost report for each department.
➢ Summary of the production cost information for each department for a
given period.
➢ Reports are used by managers to control production and cost at each
processing department.

➢ Format for Production Cost Report;

Department A: ( Company’s Name)
Quantity Production Cost Report –Department A

For the month ended XXX

Physical Units

Beginning work in process 80,000

Units started 160,000 Equivalent Units

Unit to be accounted for 240,000 Direct Materials Conversion Costs

Must be Finished & transferred out 100,000 100,000 100,000
the same Ending work in process 140,000 140,000 84,000

Units accounted for 240,000 240,000 184,000

Costs Direct Materials Conversion Costs Total
Beginning work in process 115,000
Current cost incurred 40,000 75,000
Costs to be accounted for
÷ Equivalent unit 56,000 53,800 109,800
Cost per Equivalent Unit
96,000 128,800 224,800

240,000 184,000 -

0.40 0.70 1.10 Suppose to
110,000 be the same
Finished & transferred out cost 100,000 x 1.10
however
different due
to rounding

error

Ending work in process: 140,000 x 0.40 = 56,000 114,800
Direct materials 84,000 x 0.70 = 58,800 224,800
Conversion costs
Costs accounted for

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 82

AA025: ACCOUNTING MODULE 2021/2022

Department B

( Company’s Name)

Production Cost Report –Department B
For the month ended XXX

Quantities Physical Units Equivalent Units
Beginning work in process 40,000
Units started 100,000 Transferred Direct Conversion
Units to be accounted for * 140,000 in Materials Costs

Units Finished & transferred out 90,000 90,000 90,000 90,000
Ending work in process 50,000
Units accounted for * 140,000 50,000 50,000 40,000

140,000 140,000 130,000

Costs Transferred Direct Conversion Total
in Materials Costs
Beginning work in process 40,500 75,500
Current cost incurred 20,000 15,000 37,500 174,500
Costs to be accounted for 110,000 27,000 78,000 250,000
÷ Equivalent unit 130,000 42,000
Cost per Equivalent Unit 140,000 140,000 130,000 -
0.60 1.83
0.93 0.30

Finished & transferred out cost 90,000 x 1.83 164,700

Ending work in process: 50,000 x 0.93 = 46,500 85,500
Transferred in 50,000 x 0.30 = 15,000 250,200
Direct materials 40,000 x 0.60 = 24,000
Conversion costs
Costs accounted for

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 83

AA025: ACCOUNTING MODULE 2021/2022

8.8 Journal entries
(a) Prepare journal entries for current costs, transferred-in cost and transferred-
out cost.

Department A

1. Record current manufacturing cost

Dr Work in process inventory – Department A XX
Cr Raw Materials Inventory XX

Cr Salaries payable

Cr Manufacturing Overhead
(to record current manufacturing cost for Department A)

2. Record finished and transferred out cost to Department B

Dr Work in process inventory – Department B XX
Cr Work in process inventory – Department A XX

(to record finished and transferred out cost to Department B)

Department B

1. Record current manufacturing cost

Dr Work in process inventory – Department B XX

Cr Raw Materials Inventory XX
Cr Salaries payable

Cr Manufacturing Overhead

(to record current manufacturing cost for Department B)

2. Record finished and transferred out cost to finished goods inventory

Dr Finished Goods Inventory XX

Cr Work in process inventory – Department B XX
(to record finished goods inventory)

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 84

AA025: ACCOUNTING MODULE 2021/2022

Example 3:
Mesti Dapat A Sdn. Bhd. (MDASB) using the weighted average method for process costing
system. Production process through two departments in sequence namely the Processing
Department and the Packaging Department. Here are some of the operational information
for January 2015.

Processing Department Packaging Department

Beginning work in process 1,500 units 2,000 units
units (100% completed for (100% completed for
material, 40% completed material, 70% completed
for conversion) for conversion)

Beginning work in process RM2,825 RM4,800
cost:

Direct material

Conversion costs. RM3,060 RM1,520

Costs from earlier department - RM14,500
?
Unit started 8,000 units
600 units
Ending work in process units 1,000 units (100% completed for
material, 50% completed
(100% completed for for conversion)
material, 80% completed
RM20,400
for conversion) RM35,200

Current cost:

Direct material RM17,600

Conversion costs RM44,370

Note: 60% from Conversion Cost is Direct Labour Cost

REQUIRED:

(i) Show a production cost report for the Processing Department and Packaging
Department for the month of the January 2015 by showing the following items:
(a) Physical units.
(b) Equivalent units.
(c) Cost per equivalent unit.
(d) Cost of finished units (transferred-out cost) and cost of ending work in process
inventory.

(ii) Show journal for the January 2015 transactions.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 85

AA025: ACCOUNTING MODULE 2021/2022

Solutions :

Mesti Dapat A Sdn. Bhd.

Processing Department

Production Cost Report for the Month of January 2015

QUANTITY SCHEDULE

Quantities Physical Flow

Beginning work in process 1,500

Units started 8,000 Equivalent Units

Units to be accounted for * 9,500 Direct Material Conversion Costs

Units Finished & transferred out 8,500 8,500 8,500

Ending work in process 1,000 1,000 800

Units accounted for * 9,500 9,500 9,300

Cost (RM) Direct Material Conversion Cost Total
Beginning work in process 2,825 3,060 5,885
Current cost 17,600 44,370 61,970

Cost to be accounted for 20,425 47,430 67,855
÷ Equivalent Unit 9,500 9300 -
Cost per unit equivalent 2.15 5.10
7.25

Finished and Transferred out Cost 8500 x RM 7.25 61,625
Ending Work In Process Cost :
Direct Material 1000 x 2.15 2150
Conversion Cost 800 x 5.10 4080
6,230
Cost Accounted for 67,855

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 86

AA025: ACCOUNTING MODULE 2021/2022

Mesti Dapat A Sdn. Bhd.
Packaging Department
Production Cost Report for the Month of January 2015

QUANTITY SCHEDULE

Quantity Physical Flow

Beginning work in process 2,000

Started unit 8,500 Equivalent Units

Units to be accounted for 10,500 Transferred- Direct Conversion
in Material Costs
Finished units 9,900 9,900
Ending work in process 600 9900 9,900 300
Units accounted for 10,500 600 600 10,200
10,500 10,500

Cost ( RM) Transferred-in Direct Conversion Total
14,500 Material Costs
Beginning work in process 1,520 20,820
Current Cost 4,800 35,200 117,225
Cost to be accounted for 138,045
÷Equivalent Units 61,625 20,400 36,720
Cost per unit equivalent 10,200 -
Finished and Transferred out 76,125 25,200 13.25
Cost 3.60 131,175
Ending Work In Process Cost : 10,500 10,500
Transferred in 7.25 2.40
Direct Material
Conversion Cost 9,900 x 13.25
Cost accounted for
131,175

600 x 2.40 1440
1080
300 x 3.60 138,045

131,175
6,870

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 87

AA025: ACCOUNTING MODULE 2021/2022

(v)

Date Particulars Debit Credit
61,970
Dr Work in process inventory – Processing Department 17,600
26,622
Cr Raw Materials Inventory 17,748

Cr Salaries payable

Cr Manufacturing Overhead

(to record current manufacturing cost for Processing

Department)

Dr Work in process inventory – Packaging Department B 61,625

Cr Work in process inventory – Processing Department 61,625

(to record finished and transferred out cost to Packaging

Department )

Dr Work in process inventory – Packaging Department 55,600

Cr Raw Materials Inventory 20,400
21,120
Cr Salaries payable 14,080

Cr Manufacturing Overhead

(to record current manufacturing cost for Packaging

Department )

Dr Finished Good Inventory 131,175
131,175
Cr Work in process inventory – Department B

(to record finished goods inventory)

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 88

AA025: ACCOUNTING MODULE 2021/2022

TUTORIAL CHAPTER 8:PROCESS COSTING

QUESTION 1 (C4)
The Nan Corporation manufactures typewriters and uses a process cost system to account
for the costs. Production is done in two departments and the average costing method is used.
The following information is available:

Units Dept. 1 Dept. 2

Beginning units in process 6,000 8,000
Department 1: -
45,000
100% direct materials; 20% complete as to conversion costs - 42,000
Department 2: - 45,000

100% direct materials; 70% complete as to conversion costs 9,000

Started in process during the period 5,000

Received in from Department 1

Transferred to finished goods

Ending units in process
Department 1:

100% direct materials; 75% complete as to conversion costs
Department 2:

100% direct materials; 40% compete as to conversion costs

Costs Dept. 1 Dept. 2
Beginning work in process inventory
RM 0 RM 57,720
From preceding department
Direct materials 8,000 0
Direct labour
Factory overhead 5,000 18,000

Added during the period 3,000 8,000
Direct materials
Direct labour 16,000 83,720
Factory overhead
RM 200,000 RM 0
100,000 150,000
90,000 120,000

390,000 270,000

Required:
Prepare a production cost report for Department 1 and Department 2.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 89

AA025: ACCOUNTING MODULE 2021/2022

QUESTION 2 (C3)
The following data is in relation to the process of Remi Ishak Sdn Bhd for April 2012. All
materials were added in the beginning process while labour and overhead were added
uniformly throughout the process.

Opening WIP (1 April) 10,000 units involving cost of:

Direct materials RM8,226

Conversion costs RM5,196

Units started in April 15,600 units

Costs involved in April RM13,022
Direct materials RM16,440
Conversion costs
23,000
Units completed and transferred-out to process 2
Ending WIP (30 April)

Conversion costs (40% finished)

Required:
Calculate,
i. Ending work in process units on 30 April 2012.
ii. Equivalent units for direct materials and conversion costs.
iii. Product cost per unit for direct materials and conversion costs.

QUESTION 3 (C3)
Maya Karim Enterprise has been using process costing system in calculating the cost of its
production. The following information is taken from the first department of business:

Work in process beginning units 10,000 units @ RM54,300
Units started 17,800 units
Current costs involved RM116,514
Units completed 20,200 units
Work in process ending units 7,600 units (40% completed)

Required:
Calculate,
i. Equivalent units
ii. Product cost per unit
iii. Cost of completed units
iv. Ending work in process cost

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 90

AA025: ACCOUNTING MODULE 2021/2022

QUESTION 4 (C4)
Nipanpaint Paint factory produces paints to sell in the Malaysian market. The company uses
process costing and production process goes through two departments, Processing
Department and Canning Department. The following data relates to the company’s
operations for both departments for the year ended December 2012.

Beginning inventory units Processing Department Canning Department

Beginning inventory costs: 1,200 units (100% 1,700 units (100%
Direct materials completed for materials, completed for materials,
Conversion costs 40% completed for 70% completed for
Prior department cost conversion) conversion)

Units started RM2,525 RM4,500
Ending inventory units
RM2,760 RM4,500
Current costs: - RM14,200
Direct materials
Conversion costs 7,700 ?

700 units (100% 300 units (100%
completed for materials, completed for materials,
80% completed for 50% completed for
conversion) conversion)

RM17,322 RM20,100
RM44,106 RM34,900

Required:
Prepare a Production Cost Report using the weighted average method for:
i. Processing Department
ii. Canning Department

QUESTION 5 (C3)
Sekut Mary Sdn Bhd manufactures nut cookies using process costing based on weighted
average basis. The company estimates costs based on units (one container contains 50 pieces
of cookies) and produced through two departments, Mixing Department and Moulding
Department, before the cookies are marketed. Mixing Department is responsible for mixing
the basic ingredients to make the cookies which than is transferred to the Moulding
Department. The Moulding Department will than add a secret ingredient to the mixture in
this process. The following are Moulding Department’s information for the month of January
2011:

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 91

AA025: ACCOUNTING MODULE 2021/2022

Beginning inventory: 4,000 (0% completed for direct
Units materials costs; 20% completed for
conversion costs)
Transferred-in cost from Mixing Department
Direct material costs RM2,800
Direct labour costs 0
Manufacturing overhead costs
Information for the current period: RM140
Units transferred-in RM160
Transferred-in costs
Direct material costs 16,000
Direct labour costs RM7,600
Manufacturing overhead costs RM600
Ending inventory: RM3,780
Units RM4,740

2,000 (100% completed for direct
material costs; 80% completed for
conversion costs)

Required:
i. Calculate product cost per unit for direct materials, conversion costs and transferred-

in costs for Moulding Department.
ii. Calculate transferred-out costs and ending inventory costs for Moulding Department.
iii. Prepare journal entries to record current costs, transferred-in costs and costs of

finished goods for Moulding Department.

QUESTION 6 (C3)
Londong Cool Sdn Bhd (LCSB) bottles mineral water through a processing department. The
use of conversion cost is uniform. The following are information concerning the production
operation for the month of January 2009:

Item RM
Direct material cost 425,500
Direct labour cost 165,000
Manufacturing overhead cost 332,500

Additional information : 40,000
Units in process, 1 January 80%
Percentage completed– Direct material 70%

- Conversion

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 92

AA025: ACCOUNTING MODULE 2021/2022

Units started in January 210,000
Units completed and transferred out 180,000
Units in process, 31 January
Percentage completed – Direct material ?
50%
- Conversion 25%
Work in process cost, January 1 RM
79,750
Direct material 32,500
Direct labour 32,875
Appplied manufacturing overhead

Required :
Calculate :

i. Unit in process on 31 January 2009.
ii. Equivalent unit for direct material and conversion cost.
iii. Product cost per unit

QUESTION 7 (C3)

Faudina Sdn Bhd (FSB) produces durian flavoured dodol. The following data have been
collected from a processing department of FSB for January 2007. Conversion costs was

involved consistently throughout the production process.

Work in process, January 1 – 10,000 units

Direct materials: 100% completed RM22,000

Conversion: 20% completed RM4,500

Units started in January 100,000 units

Completed units and transferred to finished goods inventory 80,000 units

Ending work in process, January 31 ?

Direct materials: 100% completed
Conversion: 33.33% (1/3) completed

Costs involved throughout January:

Direct materials RM198,000

Conversion costs:

Direct labour RM52,800

Applied overhead RM105,600

Required:

i. Prepare the physical units flow table

ii. Calculate,
a. Equivalent units for material and conversion cost

b. Product cost per unit
c. Completed units cost and ending work in process

iii. Prepare the journal entries related to January 2007

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 93

AA025: ACCOUNTING MODULE 2021/2022

QUESTION 8 (C3, C4)

Lahadatok Sdn Bhd (LSB) manufactures bottled juices through a processing department. LSB

uses weighted average method to calculate product cost. Direct materials are added at the
beginning of the process, while direct labour and overhead are incurred uniformly.

Information relating to inventory, production and cost for the month of January 2008 are as
follows:

Production information: Units

Beginning inventory (conversion 25%) 210,000

Units started 650,000

Ending inventory (conversion 50%) 180,000

Beginning work in process inventory: RM

Direct materials 146,000

Conversion 88,000

Current costs:

Direct materials 739,800

Direct labour 410,000

Applied overhead 333,600

Required:
i. Prepare physical units flow table
ii. Calculate,

a. Equivalent units for material and conversion cost

b. Product cost per unit

QUESTION 9 (C4)
Jati Unggul Sdn Bhd (JUSB) is one of the calculator manufacturers that produce calculators
for the Malaysian market. JUSB uses the process costing system and the calculators are
manufactured through two departments, Processing and Packaging. Productions and costs
data for the month of March 2017 are as follows:

Beginning WIP units Processing Department Packaging Department
2,000 units (Direct materials 3,000 units (direct materials
Units started into production 100% completed, conversion 100% completed, conversion
Beginning WIP costs: costs 40%) costs 70%)

Direct materials 50,000 ?
Conversion costs
Costs transferred-in from the RM75,600 RM24,300
previous department RM50,400 RM45,300
Ending WIP units RM37,770
-
2,000 units (direct materials
1,000 units (direct materials 100% completed, conversion
100% completed, conversion costs 50%)
costs 40%)

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 94

AA025: ACCOUNTING MODULE 2021/2022

Current costs: RM305,040 RM86,400
Direct materials RM201,974 RM129,600
Conversion costs

Required:
Prepare the Production Cost Report using weighted average method for:
i. Processing Department
ii. Packaging Department

QUESTION 10 (C3, C4)
Sri Harapan Sdn Bhd (SHSB) produces fresh noodles for the local market. The processing of
noodles involves two continuous processes, Department A (Processing) and Department B
(Packaging). The conversion costs are incurred uniformly for each department. Data for the
month of June 2017 are as follows:

Direct materials Department A Department B
Direct labour RM303,700 RM101,300
Manufacturing overhead RM109,500 RM71,175
RM131,600 RM85,540

Additional information:

Department A Department B

Work in process units, June 1 50,000 20,000

Work in process percent completed:

Direct materials 80% 60%
Conversion costs 70% 50%

Units started into production 200,000 ?

Units completed and transferred-out 210,000 ?

Work in process units, June 30 ? 10,000

Work in process percent completed:

Direct materials 50% 80%
Conversion costs 25% 50%

Work in process costs, June 1:

Direct materials RM36,700 RM22,800
Direct labour RM16,500 RM6,500

Manufacturing overhead RM19,600 RM10,500

Required:

Calculate the following:

i. The work in process units for Department A on 30 June 2017.
ii. The equivalent units for direct materials and conversion costs for Department A.

iii. The unit costs of production for Department A.

iv. The assignment of costs to units transferred-out for Department A.
v. The ending work in process costs for Department A.

vi. The units completed and transferred out for Department B.

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 95

AA025: ACCOUNTING MODULE 2021/2022

KOLEJ MATRIKULASI LABUAN
ACCOUNTING 2: AA025

Chapter 9: Absorption Costing and Marginal Costing

Learning Outcomes
9.1 Definition of absorption costing and marginal costing

a. Explain the definition of absorption costing and marginal costing
9.2 Comparison between absorption costing and marginal costing

b. Explain the differences between absorption costing and marginal costing in term of
product costing, inventory valuation and income statement.

9.3 Product cost determination
a. Calculate product cost under absorption costing and marginal costing.

9.4 Income statement format
a. Clarify the differences in format and prepare the income statement under absorption
costing and marginal costing based on actual costing system and normal costing
system.
b. Reconcile over-applied and under-applied overhead in income statement using
normal costing system.
c. Explain and reconcile net profit difference under absorption costing and marginal
costing.

9.5 Advantages and disadvantages of absorption costing and marginal costing
a. Explain the advantages and disadvantages of absorption costing and marginal
costing from the aspects of decision making, performance evaluation and reporting.

9.1 Definition of absorption costing and marginal costing

Absorption Costing : Product costing method that considers all variable and fixed
production costs

Marginal Costing : Product costing method that considers variable production
cost only

9.2 Comparison between absorption costing and marginal costing

Product Costing Absorption Costing Marginal Costing

All types of production costs, which Only variable production cost will
are fixed cost and variable cost are be considered in determining
considered in determining the product cost
product cost

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 96

AA025: ACCOUNTING MODULE 2021/2022

Inventory Manufacturing overhead fixed cost Manufacturing overhead fixed cost
Evaluation is inventoried in absorption costing will be considered as period cost in

marginal costing

Statement of Sales Sales
Comprehensive - Cost of Goods Sold - Variable cost
Income Gross profit Contribution Margin
- Operations Expenses - Fixed Cost
Net Profit
Net Profit

9.3 Product cost determination
a. Calculate product cost under absorption costing and marginal costing.

Actual Costing:

Direct Material (actual) Absorption Marginal
Costing Costing
Direct Labour (actual)
Variable manufacturing overhead (actual) XXX XXX

Fixed manufacturing overhead (actual) XXX XXX
(Fixed manufacturing overhead ÷units produced) XXX XXX
Product cost per unit
XXX -

XXX XXX

Normal Costing System:

Direct Material (actual) Absorption Marginal
Costing Costing
Direct Labour (actual) XXX
XXX XXX
Variable manufacturing overhead (applied) XXX XXX
Fixed manufacturing overhead (aplied) XXX XXX
(Fixed manufacturing overhead ÷units produced)
-
Product cost per unit
XXX XXX

EXAMPLE 1:
Azmal & Co uses actual cost system in allocating overhead cost. Below are the
informations from Azmal and Co. for the year 2019.

Variable Cost Per Unit: RM
Direct Material 3
Direct Labour 6
Manufacturing Overhead 1

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 97

AA025: ACCOUNTING MODULE 2021/2022

Selling & Administration 2
Fixed Annual Cost: 60,000
Manufacturing Overhead 10,000
Selling & Administration

Production and sales in unit:

Beginning Inventory 0
Production 5,000
Sales 4,000
Ending Inventory 1,000

Selling price per unit is RM30.00

Using absorption costing and marginal costing, you are required to:
a) calculate product cost per unit

Solutions:
a) Product Cost Calculation per Unit

Absorption Costing RM Marginal Costing RM
3
Direct Material 3 Direct Material 6
1
Direct Labour 6 Direct labour
10
Variable manufacturing overhead 1 Variable manufacturing Overhead
(Actual) (Actual)

Fixed manufacturing overhead 12 Product cost per unit
(actual) (RM60,000)

5,000unit

Product cost per unit 22

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 98

AA025: ACCOUNTING MODULE 2021/2022

9.4 Income statement format
a) Statement of Comprehensive Income ( actual costing)

( Company’s Name)

Statement of Comprehensive Income – Absorption Costing
for the year ended 31st December 2XXX

RM RM
XXX
Sales (selling price x units sold)
XXX
(-)Cost of goods sold XXX

Beginning inventory( products cost per unit x beginning inventory units) XXX XXX
XXX
(+) Cost of Goods Manufactured (product cost per unit x units produced) XXX
RM
Cost of goods available for sale XXX XXX
(-)Ending inventory (Product cost per unit x ending inventory units) XXX
XXX
Cost of goods sold XXX

Gross Profit XXX XXX
(-)Operating Expenses: XXX XXX
Variable selling & administration expenses (VSAE x units sold)
Fixed selling & administration expenses

Operating expenses

Net profit

( Company’s Name)

Statement of Comprehensive Income – Marginal Costing
for the year ended 31st December 2XXX

RM

Sales (selling price x units sold)

(-)Variable cost:

Variable Cost Of Goods Sold

Beginning inventory( products cost per unit x beginning inventory units) XXX
Cost of goods manufactured (product cost per unit x units produced) XXX

Cost of Goods Available for Sale XXX

(-) Ending inventory (Product cost per unit x ending inventory units) XXX

Variable Cost of Goods Sold XXX

(+)Variable selling & administration expenses (VSAE x units sold) XXX

Total variable cost

Contribution margin

(-) Fixed cost:

Fixed manufacturing overhead XXX

Fixed selling & administration expenses XXX

Total fixed cost

Net profit

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 99

AA025: ACCOUNTING MODULE 2021/2022

a) Using the same informations from Example 1, provide Statement of Comprehensive
Income for the year ended 31st December 2010

Solutions:

Nur Jaya Co.
Statement of Comprehensive Income – Absorption Costing

for the year ended 31st December 2010

RM RM
120,000
Sales (RM30 x 4,000)
(88,000)
(-)Cost of goods sold 32,000

Beginning inventory - (18,000)
14,000
(+) Cost of Goods Manufactured (RM22 x 5,000) 110,000

Cost of goods available for sale 110,000

(-)Ending inventory (RM22 x 1,000) (22,000)

Cost of goods sold

Gross Profit

(-)Operating Expenses:

Variable selling & administration expenses (RM2 x 4,000) 8,000

Fixed selling & administration expenses 10,000

Operating expenses

Net profit

Nur Jaya Co.
Statement of Comprehensive Income – Marginal Costing

For the year ended 31st December 2010

RM RM
120,000
Sales (RM30 x 4,000)
(48,000)
(-)Variable cost: 72,000

Variable Cost Of Goods Sold (70,000)
2,000
Beginning inventory -

Cost of goods manufactured (RM10 x 5,000) 50,000

Cost of Goods Available for Sale 50,000

(-) Ending inventory (RM10 x 1,000) (10,000)

Variable Cost of Goods Sold 40,000

(+)Variable selling & administration expenses (RM2 x 4,000) 8,000

Total variable cost

Contribution margin

(-) Fixed cost:

Fixed manufacturing overhead 60,000

Fixed selling & administration expenses 10,000

Total fixed cost

Net profit

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 100