DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 95 STEP 1: Calculate the predetermined overhead absorption rate (POR) STEP 2: Calculate the absorbed overhead STEP 3: Compare actual overheads and absorbed overheads. 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 Machine hours 15,500 hours Direct labour hours 18,000 hours You are required to calculate the over or under absorption for Bunga Raya Ltd. by using the machine hours and direct labour hours as a basis. Solution Example 4.8: EXAMPLE 4.8 Absorbed overhead = POR x Amount of allocation base incurred POR = Budgeted Production Overhead Budgeted amount of allocation base
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 96 QUESTION 1 Marten Ltd. is divided into four departments. A and B are production departments, X and Y are service departments. The actual costs for a period are as follows: Items RM Repairs and maintenance to plant 500 Depreciation of plant 1,000 Rent 1,200 Supervision 800 Power 400 Plant insurance 600 Lighting 500 Canteen 1,000 Total 6,000 The following information is available with respect to the four departments: Dept. A Dept. B Dept. X Dept. Y Area (sq. metre) 2,000 1,500 1,000 500 Number of employees 30 30 20 20 Effective horse power 10 15 15 10 Plant value (RM) 35,000 30,000 20,000 15,000 How should the overhead costs be apportioned? EXERCISES
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 97 QUESTION 2 Mirza Furnishing Manufacturing has three production departments and two service departments. Overhead costs incurred for the month just ended are as follows: RM Machine insurance 8,000 Rent rates 21,000 Indirect materials 5,000 Heating and lighting 10,000 Telephone expenses 2,000 Depreciation on machinery 24,000 Supervisors’ salaries 6,000 76,000 The three production department, A, B, and C and the two service departments X, and Y are housed in the same premises, the details of which, together with other statistics and information, are given below: Items Departments A B C X Y Allocated overheads; Specific to each department 2,900 3,000 4,000 1,500 1,000 Floor area occupied (sq. metres) 3,000 1,500 1,500 600 400 Direct labour hours 2,000 1,200 1,800 - - Labour rates per hour (RM) 4 3 2 - - Machine value (RM’000) 30 20 10 - - Value of materials issued (RM’000) 100 50 30 - - Service department X’s cost apportioned 50% 25% 25% - - Service department Y’s cost apportioned 20% 30% 50% - - You are required to: (a) Prepare a statement showing the overhead cost for each department, showing the basis of apportionment used. (b) Calculate overhead absorption rates based on labour hour.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 98 (c) Two pieces of furniture are made for customers. Direct costs are as follows: Job 888 Job 666 Direct materials (RM) 300 200 Direct labour (hours) Dept. A Dept. B Dept. C 20 12 10 16 10 14 Calculate the total cost of each job. QUESTION 3 Zima Ltd., absorbs its production overhead by using predetermined rates – a percentage on direct labour cost for Department P and a machine hour rate (calculated to three decimal places) for Department Q. The estimates made at the beginning of the financial year which ended on 31 October were as follows: Items Dept. P Dept. Q Direct labour cost Production Overhead Direct labour Machine RM450,000 RM517,500 172,500 hrs 20,000 hrs RM150,000 RM922,500 40,000 hrs 180,000 hrs For the month of October, the cost sheet for Job No. 186 shows the following information: Items Dept. P Dept. Q Materials used Direct labour Direct labour Machine RM200 RM360 120 hrs 20 hrs RM800 RM190 47.5 hrs 260 hrs Following the end of the financial year it was ascertained that actual production overhead incurred by Department P was RM555,000 and that incurred by Department Q was RM900,000.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 99 You are required to: (a) Calculate the overhead absorption rates for each of the departments. (b) Determine the total production overhead cost to be charged to Job No. 186 for October. (c) Show the over/under absorbed overhead for each department and for the company as a whole for the year ended 31 October assuming that actual direct labour cost and machine hours worked were as originally estimated. (d) Comment on the choice of an overhead absorption rate based on direct labour coast for Department P. QUESTION 4 Sea Ltd manufactures three types of scuba diving equipment known as Coral, Wave and Reef. Each product is started in the Machining department and completed in the Finishing department. It also has a service department, Canteen. Shown below are next year’s budgeting production data and manufacturing costs for the company. Budgeted Overheads Total Department Machining Finishing Canteen Allocated Overheads RM RM RM RM 67,500 30,000 25,000 12,500 Equipment depreciation 18,000 Insurance on equipment 10,000 Rent & rates 9,000 Electricity 12,000 Additional information: Items Total Department Machining Finishing Canteen Book value of equipment (RM) 180,000 120,000 45,000 15,000 Floor space occupied (sq. metre) 7,800 3,600 2,400 1,800 Number of employees 19 8 6 5 Machine hours 36,900 36,900 - - Direct labour cost (RM) 1,110,000 694,000 416,000 -
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 100 Additional information made available includes: Items Coral Reef Wave Production – units 2,500 1,000 1,800 Direct materials (RM) 200 320 240 Direct labour: - Machining department (RM) 100 210 130 - Finishing department (RM) 80 90 70 Machine hour (per unit) in the Machining department 5 10 8 You are required to; (a) Complete the overhead analysis sheet (allocation, apportionment & re-apportionment of service dept.) (b) Calculate the following budgeted overhead absorption rate:- i) machine hour rate for the machining department. ii) a rate expressed as a percentage of direct wages for the finishing department. (c) Calculate the factory cost of one unit of Coral, Reef and Wave using the absorption rates as calculated in part ii above. QUESTION 5 Gelang Patah Kicap Bhd. is divided into four cost centres. F1 (Fermentation), B1 (Bottling) and L1 (Labelling) are production cost centres, and M1 (Maintenance) is a service centre responsible for providing maintenance. The budgeted cost for the period are: RM Repair and maintenance 650 Rent 1,200 Depreciation of plant 540 Light 160 Supervision 1,980 Insurance of stocks 600 Power 1,080
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 101 Additional information is available in respect of the four cost centres: Items Production Cost Centres Service Cost Centres F1 B1 L1 M1 Area in sq. metre 3000 2000 1200 800 effective horse power 3000 2000 1000 - Number of employees 40 30 20 10 Value of plant RM30,000 RM28,000 RM20,000 RM2,000 Value of stock/material RM18,000 RM12,000 RM9,000 - Direct labour hour 1200 1240 1180 - Machine hour 1270 980 350 - Indirect hour 500 240 320 - Budgeted data for year 2008: F1 16% of stock/material cost B1 RM1.95 per direct labour hour L1 RM2.80 per machine hour You are required to; (a) Complete the overhead analysis sheet (re-apportionment using direct method) (b) Calculate over or under absorption of overhead. QUESTION 6 Sonawan Enterprise produces toys. It has two production departments and two service departments. The overhead costs for year 2015 with the additional data are as follows: Items Amount Departments RM Dept 1 Dept 2 Maintenance Store Allocated indirect material 500,000 250,000 200,000 50,000 - Allocated indirect labour 600,000 220,000 210,000 80,000 90,000 Depreciation of machinery 300,000 Power 350,000
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 102 Rental for factory 350,000 Maintenance 275,000 Additional Information: Machinery book value (RM) 370,000 180,000 150,000 50,000 Kilowatts hours 150,000 200,000 20,000 30,000 Floor area (sq. ft.) 280,000 330,000 125,000 65,000 Maintenance service hours 30,000 45,000 - - Number of material requisition 168 216 - - Direct labour hours 35,000 10,000 Machine operating hours 18,000 42,000 The overheads allocated and apportioned to service departments are re-apportioned to the production departments using direct method. The production overheads are absorbed based on the direct labour hours and machine operating hour for Dept 1 and Dept 2 respectively. You are required to; (a) Prepare an overhead analysis sheet for Sonawan Enterprise for the year ended 2013 using suitable basis (use 2 decimal points). (b) Calculate the overhead absorption rates (OAR) for Dept 1 and Dept 2. QUESTION 7 Molding View Tech Sdn. Bhd. has three production departments (P, Q and R) and two service departments (X and Y). Overhead incurred for the period were as follows: Items Departments P Q R X Y Indirect material (RM) 1,800 2,700 1,300 1,000 1,600 Indirect wages (RM) 7,000 12,000 3,200 9,000 5,000 Repairs & Maintenance (RM) 950 2,150 350 250 150
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 103 Other expenses incurred are: RM Rent rates 9,500 Power 1,000 Heating and lighting 6,000 Plant insurance 2,500 Equipment insurance 1,000 Depreciation expenses were 6% of the value of assets owned by the company. Additional informations: Items P Q R X Y Value Plant (RM) 12,500 30,000 3,750 3,750 - Equipment (RM) 2,000 1,000 4,000 2,000 1,000 Productive capacity Direct labour hour 28,000 41,000 40,000 - - Direct labour cost 41,000 60,000 48,000 - - Machine hour 24,000 43,000 5,000 - - Floor area occupied (sq. metres) 3,000 7,000 3,000 1,000 1,000 Effective horse power 80 180 30 10 - Service department’s costs allocated to other departments based on percentage: P Q R X 30 50 20 Y 30 60 10 Departmental overhead absorption rates are as follows: P - 55% of direct labour cost Q - RM1 per machine hour R - RM0.20 per direct labour hour You are required to; (a) Prepare overhead analysis sheet (re-apportionment using direct method). (b) Calculate over or under absorption of overhead.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 104 QUESTION 8 Modern Machines Ltd. have 3 production departments (M1, M2 and M3) and two service departments (S1 and S2). The following data are extracted from the records of the company for a particular period: RM Indirect material 15,000 Indirect wages 10,000 Depreciation on machinery 25,000 Depreciation on building 5,000 Rent, rates& taxes 10,000 Electric power for machinery 15,000 Electric power for lighting 500 Additional data: Items Departments Total M1 M2 M3 S1 S2 Direct wages (RM) 15,000 15,000 4,000 2,000 4,000 40,000 Direct materials (RM) 20,000 10,000 19,000 6,000 5,000 60,000 Value of machinery (RM) 60,000 100,000 40,000 25,000 25,000 250,000 Floor area (sq. ft.) 15,000 10,000 10,000 5,000 10,000 50,000 Horse power of machines 50 60 30 5 5 150 No. of light points 15 10 10 5 10 50 Labour hours 10,000 10,000 7,000 6,000 7,000 40,000 Machine hours 14,000 16,000 13,000 11,500 11,500 66,000 The expenses of service departments are to be apportioned as follows: Departments A B C X Y S1 40% 20% 30% - 10% S2 30% 30% 40% - -
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 105 The business uses the following rates for each department: M1 RM2.15 of machine hour M2 195% of direct labour cost M3 RM3.15 of labour hour You are required to: (a) Complete the overhead analysis sheet which show apportionment and re-apportionment (using direct method) of overhead. Use 2 decimal point. (b) Calculate over/under absorption of overhead during the period. QUESTION 9 Zaim Raffeq Sdn Bhd has FOUR (4) cost centres. F1 (Fermentation), B1 (Bottling) and L1 (Labelling) are production cost centres, and M1 (Maintenance) is a service cost centre responsible for providing maintenance. The budgeting production and manufacturing costs for the company are as follows: RM Insurance of plant and machinery 1,200 Rent 2,400 Depreciation of machinery 1,080 Lighting and heating 1.360 Supervision 3,960 Insurance of stocks 1,200 Power 2,160 Additional information related to the FOUR (4) cost centres: Items PRODUCTION COST CENTRES SERVICE COST CENTRES F1 B1 L1 M1 Area in sq. metre 6,000 4,000 2,400 1,600 effective horse power 6,000 4,000 2,000 - Number of employee 80 60 40 20
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 106 Value of plant machinery RM60,000 RM56,000 RM40,000 RM4,000 Value of stock RM36,000 RM24,000 RM18,000 - Maintenance hours 1,000 480 640 - Service Department cost apportioned 50% 25% 25% You are required to: (a) Prepare an overhead analysis sheet for Zaim Raffeq Sdn Bhd for the ended 2014 using suitable basis (to two decimal points). (b) Calculate the overhead absorption rates for Department F1, B1 and L1. QUESTION 10 Sunshine Sdn Bhd is a manufacturing company operating with two production departments; BB and CC, to produce a product called ‘LAILAI’. The company also has services department; YY and ZZ. The company has produced the following budgeted overheads to production and services departments for the year ended 31 December 2013. Items Production Departments Services Departments BB CC YY ZZ Overhead RM240,000 RM245,000 RM75,000 RM45,000 The expenses of the services departments are apportioned as follows: Production Departments Services Departments BB CC YY ZZ YY 40% 45% - 15% ZZ 50% 50% - - The estimated machine hours and labour hours for the two production departments are as follows: Production Departments BB CC Machine operating hours 20,500 13,800 Direct labour hours 50,000 40,000
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 107 You are required to: (a) Prepare an overhead analysis sheet for the year ended 31 December 2013. (b) Calculate predetermined overhead absorption rates for each department using machine hours basis for department BB and direct labour hours basis for department CC. (c) The actual overhead incurred for Department BB and Department CC are RM320,000 and RM250,000 respectively. Determined the under or over absorption of overhead for each department if the actual machine hours for Department BB is 22,000 hours and actual direct labour hours for Department CC is 32,000 hours. QUESTION 11 Tebaboo Bhd is a weapon manufacturing company operating three production departments namely BURST Department, BOOM Department, BLAST Department to produce a product called BOMMET. The company also has a Maintenance Department as its service department. The company has produced the following budgeted cost statement for the year ended 31 December 2010. Items Department Total cost (RM) BURST (RM) BOOM (RM) BLAST (RM) Maintenance (RM) Direct material 35,000 20,000 25,000 30,000 110,000 Direct labour 15,000 20,000 10,000 12,000 57,000 Indirect material 15,000 10,000 15,000 5,000 45,000 Indirect labour 12,000 17,000 10,000 7,500 46,500 Insurance on machinery - - - - 5,000 Factory administrative and personnel - - - - 7,500 Insurance (building) - - - - 7,200 Rent and rates - - - - 5,000 Cost of production - - - - 283,200
DPA20193 BASIC COST ACCOUNTING, CHAPTER 4 108 Additional information: Item Production Department Service Department BURST BOOM BLAST Maintenance Area occupied (square meters) 6,500 4,000 2,500 4,000 Machine value (RM) 60,000 55,000 40,000 55,000 Number of employees 55 60 65 50 Direct labour hours 1,500 1,000 2,000 - Maintenance service hours 6,000 2,200 4,500 - Machine hours 2,100 1,800 1,600 - Reapportionment overhead using maintenance service hours basis. You are required to prepare an overhead analysis sheet for the year ended 31 December 2010.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 109 CHAPTER 5 COSTING METHODS Topic Overview 5.1 Job and Batch Costing 5.1.1 Define Job and Batch Costing 5.1.2 Explain the features and steps involved in job and batch costing 5.1.3 Identify source documents used in the job costing 5.1.4 Show the calculation of unit cost and pricing under both methods EXERCISES 5.2 Service Costing 5.2.1 Define Service Costing 5.2.2 Features of Service Costing 5.2.3 Describe unit cost associated under the service costing method EXERCISES 5.1.1 DEFINITION OF JOB ORDER COSTING AND BATCH COSTING 1. Job order costing is a method of costing whereby work is done based on the customer’s special requirements and usually these orders are for a short duration. 2. A special type of job costing, which is site-based and which is over a relatively longer duration, is known as contract costing. 3. The purpose of job order costing is to: a) Ascertain the cost for each completed job b) Determine the profit or loss of these completed jobs, and c) Provide a valuation for uncompleted jobs (work-in-progress). 4. Products and services produced by firms operating in job order industries are customized and hence they are diversified and distinct from one another. 5. It is generally used in industries such as the printing press, repair workshops, plumbing works, automobile repairs, general engineering work, furniture-making, beautician services and other similar work where the job is done to the customer’s special requirements. 6. Costs are recorded for each individual job, which is the cost unit. Job Order Costing
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 110 7. Accurate cost ascertainment can be done only with careful routing and scheduling as there are no preset procedures to be followed in the production process. 1. Batch Costing is a method of collecting costs of each batch. 2. The Chartered Institute of Management Accounting (CIMA) defines batch costing as ‘that form of specific order costing which applies when similar articles are manufactured in batches, either for sale or for use within the undertaking’. 3. It is method of costing whereby identical cost units pass through a process and each batch of similar articles is distinct and separately identifiable. 4. The batch is considered as a job and treated as a cost unit. 5. The cost per unit of articles in the batch is computed by dividing the batch cost by the number of good completed articles in the batch. 6. A batch is a cost unit which has a number of identical articles whose identity is sustained throughout the stages of production. 7. Batch costing is most commonly used in the production of small engineering parts, footwear, furniture, clothing, toys, food items, drugs, plastic products, nuts and bolts, and bakeries item. 8. For instance, in plastic industry, because it would be too costly to make a single plastic item. The production is sold based on various type of demand which is may be different in term of its shape and size. 5.1.2 EXPLAIN THE FEATURES AND STEPS INVOLVED IN JOB AND BATCH COSTING 1. Work is undertaken based on the customer’s own specifications. 2. Production is for customer order and not for maintaining stock. 3. Products manufactured are distinguishable and hence are not uniform. Batch Costing Features of Job Order Costing
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 111 4. There is no uniformity in the flow of production amongst jobs and every job can be identified clearly. 5. The cost is for the job and is not related to the unit production, e.g. printing 10,000 sheets rather than cost of printing one sheet. 6. Every job is charged with its own cost. 7. Work-in-progress (WIP) depends on the number of incomplete jobs in hand at the end of the period. 8. The valuation of WIP is difficult, as each job has to be dealt with as a separate unit for each element of cost, i.e. materials, labour and overheads. 9. Separate job or production numbers are allotted to each job, as each job is a separate accounting unit. 10. A separate cost record is maintained for each job from the time the production begins until it is completed. 11. The job is usually carried out in the factory premises. Step 1 The potential customer makes a request for a job to be done indicating clearly all the requirements. Step 2 The specific details of the job order, such as the quantity, quality, size, colour, date of delivery and any other special requirements are discussed with the customer and agreed upon. The production planning department prepares an appropriate design for the job as per the specifications, on receipt of the order from the customer. Step 3 - The production planning department then decides on the series of operations to carry out the job and assigns the job to the relevant machines or departments. - Bills of materials are produced estimating the amount of materials required for the job. - The production order, known as work order or job order, the cost of the job is calculated. - All relevant information relating to the job is shown in the production order. - The relevant information includes the following: a) Detailed requirements for the job, product, or service. b) Quantity to be produced. Steps in Job Order Costing
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 112 c) Period of the job, i.e. starting date and expected completion date. d) Specifications of materials required, and e) Details of other processes engaged in carrying out the job. Step 4 - The estimated job cost is calculated based on the expected usage of materials, labour, overheads costs, and any other specific cost for the job. - The other specific cost could include the use of special equipment for the job. - A desired profit markup is added to the cost of the job to arrive at the expected selling price of the job. Step 5 The job starts once the customer agrees to the quoted selling price. Step 6 All relevant costs related to the job are included in a specific job cost card (job cost sheet) bearing the job order number. Step 1 The costs for the batch are collected in a manner similar to job costing. This is because the batch is treated as a job during production. Step 2 On the completion of the batch production, the cost per unit is calculated as the total batch cost divided by the number of units in the batch. Step 3 Each batch is given a batch order number and a separate cost sheet is prepared for each batch. 5.1.3 IDENTIFY SOURCE DOCUMENTS USED IN THE JOB COSTING 1. A job cost card for each job is generated with details of all costs relating to the particular job. 2. As the work done in job order costing is based on the special requirements of the customer, each job cost card will be specific for each customer. 3. Raw materials needed for the production process are transferred from the warehouse to the production department. A material requisition form completed by the production department supervisor is sent to the warehouse supervisor. Steps in Batch Costing
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 113 4. A time record is a source of document that records the time an employee spends on a job. The time records are sent to the cost accounting department where the information is used to assign the direct labour costs to individual jobs. 5. The job cost card/ job cost sheet, material requisition and time record form can be referred in the following figure. Figure 3.1.1 Job Cost Card Figure 3.1.2 Material Requisition Form
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 114 Figure 3.1.3 Time Record Form Source: accounting formanagement.org 5.1.4 SHOW THE CALCULATION OF UNIT COST AND PRICING UNDER BOTH METHODS Mania Ltd. undertook three jobs in January, 2011. All jobs were started in January 2011. The costs associated with the job, for the month of January were as follows: Items RM Job X1 Job X2 Job X3 Materials issued from stores 3,000 7,000 5,000 Materials returned to store 30 70 - Special materials purchased 100 - 300 Direct wages 600 2,000 400 EXAMPLE 5.1 Calculation in Job Order Costing
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 115 It is estimated that the overhead for 2011 as RM50,000 and the direct labour hours as 25,000. Overhead is to be absorbed on a direct labour hour basis. Overhead incurred in January was RM4,000. Direct workers are to be paid RM1 per hour. Job no. X1 was the only job completed and dispatched in January. The selling price is RM7,000. Prepare from the above data the tabulated cost cards for jobs X1, X2, and X3. Solution Example 5.1: Amani Manufacturing Co. Ltd. produces special purpose grinding machines. A customer has asked Amani Mftg. Co. Ltd. to quote a price for making the machine. The following estimates were available. Direct material cost RM500 Direct wages: Machining 300 hours at 50 cents. Assembling 200 hours at 25 cents. Overhead is absorbed at 20 cents per direct labour hour. Selling and distribution overhead is 25% of production cost. Profit is 25% of total cost. Prepare the job cost card indicating the price to be quoted. Solution Example 5.2: EXAMPLE 5.2
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 116 BatchPro Company manufactures special components to order. It has the following budgeted overheads for the year based on normal activity levels. Department Budgeted Overheads Budgeted Activity Driver Machining RM30,000 5,000 machine hours Assembly RM20,000 4,000 assembly hours The other non-manufacturing overheads are computed as 10% of the production cost. A total of 600 special components were made in batch number 601. The following costs were incurred for batch number 601. Direct materialsRM6,000 Labour 500 hours in the machining department at RM2 per machine hour 600 hours in the assembly department at RM1.50 per assembly hour A special equipment for testing the quality of the components was hired at a cost of RM700. The total time booked in the machining department was 800 machine hours. You are required to calculate: a) The total cost and the unit cost of batch number 601. b) The profit per component if the selling price is RM40 per component. Solution Example 5.3: EXAMPLE 5.3 Calculation in Batch Costing
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 117 You are required to prepare a Batch Cost Sheet of an engineering works showing the cost of Batch No. 8801 of 1,000 units from the following information. You are given that the batch passes through three departments, X, Y and Z. Costs incurred for the batch are: Direct Materials Issued: Dept. X 5,400 kgs. @RM10 per kg Dept. Y 600 kgs @RM8 per kg Dept. Z 500 kgs @RM20 per kg Direct Wages: Dept. X 1,000 hours @RM2 per hour Dept. Y 200 hours @RM2.50 per hour Dept. Z 1,000 hours @RM1.50 per hour Factory Overhead: Dept. X 150% on Direct Wages @RM10 per labour hour Dept. Y Dept. Z 66 2/3% on Direct Wages After the batch is complete, 600 kgs of raw materials issued to Dept. X are found to be surplus and returned to stories. Solution Example 5.4: EXAMPLE 5.4
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 118 QUESTION 1 Botanical Company specializes in building garden structures on order. On 1 April, Job 141 was in process, with an opening balance of RM22,400. Botanical Company absorbs manufacturing overheads based on direct labour hours s their work is labour intensive. The direct labour rate is RM12 per hour and the overheads absorption rate (OAR) is RM15 per labour hour. In April, another job number 142 was started on. The following shows the costs incurred for the two jobs in April: Items Job number 141 Job number 142 Direct materials RM4,000 RM7,500 Direct labour cost RM2,100 RM3,500 You are required to prepare a schedule of manufacturing cost for each job as at the end of April. QUESTION 2 (a) List an example of cost measurement for each of the following services industries. Industries Examples Hospitals Canteen Hotels Transportation (b) Describe THREE (3) differences between characteristics of job order costing and process costing. (c) Yaya Boutique is a tailoring shop which produces school uniforms based on customer’s orders. The company has two production departments namely Cutting and Sewing. The company uses a job-order costing system and applies the predetermined overhead rates of absorption to absorb the production overhead cost to all jobs ordered. The overhead for Cutting Department is EXERCISES 5.1
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 119 absorbed based on direct labour hours, while the overheads for Sewing Department is absorbed based on machine-hours. The following budget has been made at the beginning of the year 2015: Items Department Cutting Sewing Machine hours 9,500 35,000 Direct labour hours 30,000 15,000 Direct labour cost RM240,000 RM150,000 Direct material cost RM141,000 RM97,500 Production overhead cost RM270,000 RM210,000 Recently, the company has received an order from Caliph Kindergarten to provide a total of 150 pieces of uniforms. The following information is provided regarding the job. Items Department Cutting Sewing Machine hours 30 80 Direct labour hours 60 40 Rate per labour hour RM8 RM10 Direct material cost RM500 RM250 You are required to calculate the predetermined overhead rate of absorption for each production department. (d) Based on question (c), determine the cost for the job.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 120 QUESTION 3 Mayview Glory Sdn. Bhd. has three departments that produce items ordered by customers. The company applies predetermined overhead rates of absorption to absorb the department overheads for all complete work orders. The following bases are used to absorb overhead costs for each job: Department P - Machine Hours Department Q - Direct Labour Hours Department R - Direct Material Costs The company estimates the costs below for the year ended December 2015: Items Department P Department Q Department R Production overhead (RM) 22,000 43,940 16,000 Direct labour (RM) 8,350 10,600 5,800 Direct material (RM) 8,600 12,200 5,080 Direct labour hours 10,000 13,000 6,000 Machine hours 5,500 7,350 1,150 Information for Job No. 1305 is as follows: Items Department P Department Q Department R Direct material (RM) 5.25 8.80 2.50 Direct labour (RM) 8.00 12.50 5.75 Direct labour hours 6 8 4 Machine hours 4 3 1.5 You are required to: (a) List FOUR (4) characteristics of job costing. (b) Compute the overhead absorption rate for each department. (c) Show the total overhead absorbed from each department. (d) Analyze the total costs and what is the selling price if profit is 15% on total cost?
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 121 QUESTION 4 Caymoon Sdn. Bhd. is a factory that produces DIY furniture which has three departments; Department X, Department Y and Department Z. the company applies predetermined overhead rates of absorption to absorb the department overhead for all complete orders. The company estimates the cost below for the year ended December 2016. Items Department X Department Y Department Z Production Overhead (RM) 40,000 45,000 35,000 Direct Labour (RM) 10,000 15,000 5,000 Direct Material (RM) 16,800 20,400 9,450 Direct labour hours 7,000 9,000 6,000 Machine hours 8,000 8,500 5,500 In November 2016, the cost sheet for Job No.007 is as follows: Items Department X Department Y Department Z Direct Material (RM) 6.00 7.00 3.00 Direct Labour (RM) 8.50 15.00 5.50 Direct Labour Hours 8 10 5 Machine Hours 3 6 2 The overhead for Department X is absorbed based on machine hours, Department Y is absorbed based on direct labour hours and Department Z is absorbed based on direct material cost. You are required to: (a) Compute the overhead absorption rate for each department. (b) Prepare Job Order Cost Sheet for Job No. 007. (c) Calculate: (i) The selling price based on 25% mark up. (ii) The total costs and the total selling price for the job if 30 units are produced.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 122 QUESTION 5 The Mawarni Company has two producing departments: assembly and finishing. The company has been using a plantwide predetermined overhead rate based on direct labor hours. The following estimates were made for the current year: Assembly Finishing Total Manufacturing Overhead RM200,000 RM100,000 RM300,000 Direct labor hours 40,000 35,000 75,000 Machine hours 5,000 16,000 21,000 Mawarni started and completed Job 1512 during the year. The job-order cost sheet indicated the following: Materials Requisitioned RM18,000 Direct labor cost 16,000 Direct labor hours: Assembly 1,700 Hours Finishing 1,300 Hours Machine Hours Assembly 1,000 Hours Finishing 700 Hours A total of 2,000 units were produced on Job 1512. Required: (a) Assume that Mawarni uses a plantwide predetermined overhead based on direct labor hours. Calculate the total cost and the unit cost for each of the 2,000 units produced by Job 1512. (b) Assume that Mawarni uses separate departmental overhead rates based upon direct labor hours for assembly and machine hours for finishing. Calculate the total cost and the unit cost for each of the 2,000 units produced by Job 1512.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 123 QUESTION 6 (a) A costing method is a way of costing which is designed to suit the way goods are processed or manufactured or the way services are provided. Job Order Costing and Process Costing are among the methods that can be used. (i) List TWO (2) characteristics of Job Order Costing. (ii) State THREE (3) differences between job costing and process costing. (b) Rawaria Boutique is a company located in Sentosa, Johor Bahru. One of their customer, Ms Glomoria is a popular singer in Malaysia. She requested Rawaria Boutique to make her 2 exclusive gowns for several awards events. Below is the information regarding the order (identified as Gown A and Gown B). Items Gown Quality Consumed Rate Direct material Gown A 4 meter of crepe RM80 per meter Gown B 4 meter of chiffon RM75 per meter Indirect material Gown A 2 meter of lace RM55 per meter Gown B 30 gram of beads RM5 per gram Direct labour Gown A 32 hours RM50 per hour Gown B 24 hours RM50 per hour Indirect labour Gown A 10 hours RM79 per hour Gown B 8 hours RM70 per hour Production overhead RM10 per direct labour hour Additional information: 1. Due to her schedule, Ms Glomaria requested that the gown be delivered to her personally at her house in Kuala Lumpur. The delivery cost is RM200 for each gown. 2. Rawaria Boutique consulted a fashion designer to assist in designing Ms Glomoria’s gown. The consultation fee for gown A is RM250 and Gown B is RM300. 3. The net profit margin of the company is 200% of the cost. You are required to: (a) Prepare a statement of job cost for Gown A and Gown B. (b) Calculate the selling price and profit for both Gown A and Gown B.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 124 QUESTION 7 (a) Your manager has assigned you to determine type of costing method that is suitable for your production process. In order to respond him, you need to: (i) List TWO (2) characteristics of Job Order Costing. (ii) List THREE (3) differences between Job Order Costing and Process Costing. (b) Ahmad Saifuddin is the manager of Samisung Berhad and he has been asked to determine the estimated profit if the company accept the order from MASES Enterprise. The order was called MASES#101 and the information is given as follow: Units order: 10,000 units Material used: JK575; 1500kg at RM125 per kg Chemical CH88: 300 litre at RM80 per litre Direct labour: Cutting Division; 120 hours at RM15.00 per hour Assembly Division; 150 hours at RM12.00 per hour Rental of special machine at RM1500 per month Packaging RM12,000 Selling price was charged at RM50 per unit. Overhead was applied using labour hour and predetermined overhead rate was calculated at RM320 per hour. The job has taken for 2 months and was completed ate the end of November 2012. You are required to prepare Job Cost Card that shows TOTAL COST and PROFIT from the order. QUESTION 8 (a) Give THREE (3) characteristics of Job Order Costing. (b) Amanda Décor Ltd runs a home décor business that design wallpaper on customer demand through two production department namely Design Department and Decorating Department.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 125 The following information is provided regarding the two production departments: Items Design Department Decorating Department Estimated manufacturing overhead cost per year RM180,000 RM450,000 Activity based for department Direct Labour Hours (DLH) Machine Hours (MH) Budgeted activity for the year 10,000 DLH 9,000 MH Two jobs were started during the current period and two were completed, Job AB and Job CD: Items Job AB Job CD Direct material cost RM10,200 RM24,000 Direct labour cost RM24,000 RM24,000 Direct labour hours – Design Dept. 1130 220 Machine hours – Decorating Dept. 30 190 You are required to: (a) Calculate the predetermined overhead rate for the Design Department and Decorating Department. (b) Prepare the job cost cards for each job. (c) Calculate the selling price for each job if profit is 50% of total cost.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 126 5.2.1 DEFINE SERVICE COSTING 1. Service costing is a costing method used to compute the costs of services rendered. 2. A company operating in a service industry will costs its services to establish the selling price for the services provided. 3. Service costing is used in service industries such as car hire services; road, rail and air transport services; hotels; electrical services, restaurants; hospitals and consultancy services. 4. Service organizations do not make or sell tangible goods, and therefore inventories of services cannot be maintained. 5. Services can be categorized as: a) External services – services provided to a customer. Example provision of accounting/auditing services, educational services, hotel services, transportation services, etc. b) Internal services – services provided within an organization. Any service provided by one department to another. Example maintenance work, IT services, warehousing services, human resource services, etc. 5.2.2 FEATURES OF SERVICE COSTING 1. The operating and service costs may be collected for different cost units so that the relevance and utility of cost data can be understood. 2. Services are rendered according to the customer’s needs. It has to be provided as and when required. It cannot be inspected in advance nor returned if it does not meet the requirements. 3. A service provided may not be standardized and may vary every time it is provided and intangible in nature. 4. Operating and service costs are usually collected under variable/running costs and fixed/standing costs. 5. The output of service costing is intangible and cannot be stored and used later when needed. It has to be provided as and when required.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 127 5.2.3 DESCRIBE UNIT COST ASSOCIATED UNDER THE SERVICE COSTING METHOD 1. There are two categories of cost units: a) Simple Cost Unit is based on a single measurement, simple and easily understood. It is based on single measurement. For example: Service Cost Unit Hotels Guest Restaurants Meals served Transport Kilometres Hospitals Patients Schools Students b) Composite Cost Unit is used to identify the cost unit measurement when more than one unit is combined together. For example: Service Cost Unit Hotels Room per day Auditing Man hours Transport Passenger miles Hospitals Patients day Education Students hours 2. Other possible cost unit that can be applied on certain situation. Services Possible Cost Unit Hospitals Patients per day, numbers of operations, admittance per day Electricity Kilowatt per hour (kWh) Hotels Occupied beds per day, guests per day, meals per day Restaurants/ Canteen Meals served Transportation Tonnes per kilometre, passengers per kilometre Auditing Man per hour Colleges Full time equivalent student, work load per day, course offered per semester
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 128 Bank or Financial Institutions Per transaction, per services (e.g. per letter of credit, per application, per project etc.) Insurance Per policy, per claim 3. Formula for cost unit: Daily Company provides transportation service and has 5 buses. In one year period, there are 20,000 passengers and it runs in all 50,000 kilometres. The total cost of operating in a year is RM25,000,000. You are required to compute the cost per passenger per running mile. Solution Example 5.5: EXAMPLE 5.5 COST PER SERVICE UNIT = TOTAL SERVICE COST NUMBER OF SERVICE COST UNITS
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 129 Jessie Owens Bhd. is a haulage contractor and operates three tow trucks. The following information is available: 1. Loading costs: RM9 per tonne 2. Fuel costs: RM0.75 per kilometre 3. Repair costs: 45 cent per kilometre 4. Depreciation: RM1.50 per kilometre plus RM150 per month per vehicle 5. Driver’s wages: RM900 per month per vehicle 6. Supervision expenses: RM1,000 per month 7. General expenses: RM650 per month 8. During the month of June, it is expected that all the three tow trucks will be fully utilized. A total of nine trips will be made. The return journey will be empty. For trips 1 to 9 the tonnes carried are 68,56,80,64,52,80,58,52,50 respectively. The kilometres travelled one way for trips 1 to 9 are 720; 1060; 1560; 460; 880; 1920; 360; 400 and 540 respectively. Calculate: a) The running cost b) The standing cost c) The total cost d) The average cost per tonne kilometre for the month of June. Solution Example 5.6: EXAMPLE 5.6
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 130 QUESTION 1 Big Brothers Transport Co. runs a bus service business which only has one (1) bus that is used to carry passengers to and from the city. The bus operates 20 days in a month and below is the data related to the company’s operation for the year ended 31 December 2011: (a) Total operating costs per annum. (b) Total operating costs per passengers per annum. (c) Find the fare rate charged per passenger if expected markup is 50% on total costs. EXERCISES 5.2 Bus purchase price RM60,000 Bus useful life 550,000 km Bus scrap value RM5,000 Driver’s salary RM1,500 per month Repair and maintenance expenses RM500 per month Insurance, tax and license RM1,000 per annum Cost tyre per set RM500 Bus tyre useful life 15,000 km Diesel RM1.80 per liter Diesel usage 10 km per liter Total km per day 500 km Total passengers per annum 15,000 passengers You are required to calculate:
DPA20193 BASIC COST ACCOUNTING, CHAPTER 5 131 QUESTION 2 A company runs a holiday home. For this purpose, it has hired a building at a rent of RM10,000 per month along with 5% of total taking. It has three types of suites for its customers consist of single room, double rooms and triple rooms. Following information is given: Type of suite Number Occupancy Percentage Single Room 100 100% Double Room 50 80% Triple Room 30 60% The rent of double rooms suite is to be fixed at 2.5 times of the single room suite and that of triple rooms suite as twice of the double rooms suite. The other expenses for the year 20X8 are as follows: Items RM Staff salaries 1,425,000 Room attendants’ wages 450,000 Lighting, heating and power 215,000 Repairs and renovation 123,500 Laundry charges 80,500 Interior decoration 74,000 Sundries 153,000 Provide profit at 20% on total taking and assume 360 days in a year. You are required to calculate the rent to be charged for each type of suite.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 132 CHAPTER 6 BUDGETS FOR PLANNING AND CONTROL Topic Overview 6.1 Apply the budgeting system 6.1.1 Define the meaning of budgeting 6.1.2 Discuss the advantages/purpose of budgeting: a) Planning tool b) Communication tool for the whole organization c) Resource allocation tool d) Performance measurement tools 6.1.3 Explain different types of budget: a) Static Budget b) Flexible Budget 6.2 Discover the nature of static and flexible budget 6.2.1 Define the static and flexible budget 6.2.2 Differentiate between static budget and flexible budget 6.2.3 Identify the limitations in static and flexible budget 6.3 Construct the static and flexible budget 6.3.1 Prepare static budget and flexible budget EXERCISES 6.1 BUDGETING SYSTEM 1. Budgeting is the process of allocating funds and monitoring of actual performance against budget. 2. Budget is simply a plan of future activities with monetary implications. 3. A budget is a detailed plan, expressed in quantitative terms, that specifies how resources will be acquired and used during a specified period of time. 4. A budget is a quantitative expression of a plan action. What is Budgeting?
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 133 5. Each company or organization will prepare their financial plan, to forecast and estimate their financial position. 6. Cost has a negative relationship with profit but revenue has a positive relationship with profit. Hence, business that can decrease cost and increase revenue will be able to increase the profit. 7. Thus, the manager can plan to achieve the desired performance by making changes in fixed cost, variable costs, selling price and sales volume. 8. The budgeting process are as follows: Identify objectives Identify constraints Propose alternatives Evaluate alternatives Choose the best alternatives Implement and monitor Feedback
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 134 Budgets are an essential feature of the planning and control system and are therefore an integral feature of effective management. The advantages or purpose of having a budget are as follows: Advantage Explanation Planning tool ➢ A good action plan will help the company achieve a higher level of performance. ➢ The managers need to plan future operations, consider how conditions in their company might change, and the steps they should take to respond to the change. ➢ Management is forced to set targets to give direction to operations, to anticipate problems and to be ready for changes. Communication tool for the whole organization ➢ Top management will communicate their expectations and target to lower level management. ➢ Thus, everyone will know the direction the organization wants to take, and to strive for the achievement of the company. ➢ Transmitting information about plan to all affected. ➢ Management will also receive feedback from subordinates for any improvement. Resource allocation tool ➢ Process of assigning and managing assets or resources to support an organization’s strategic goals. ➢ Budget will allocate the limited resources into meaningful distribution. ➢ Budgeting process force management to decide which assets are most profitable to invest. Performance measurement tool ➢ Budget used for performance evaluation. ➢ Procedures to control and review the targets that can be achieved, and any performance to be monitored. ➢ Performance is often evaluated by measuring success against the budgets. ➢ Provide useful guide to managers, on how to evaluate targets that they have previously setting. Advantage or Purpose of Budgeting System
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 135 Types of Budget STATIC BUDGET • Static budget is a budget that does not change in volume or unit of activity. • It is fixed, with no changes, and based on the actual activity. • It contains elements where expenditure remains unchanged against the variations in sales level. • It will use the same unit and at one activity level only. • So this type of budget is not confined only to traditional overhead expenses. FLEXIBLE BUDGET • Flexible budget changes according to variations in the volume or unit of activity. • It is more sophisticated and useful than a static budget, which remains at one amount regardless of the units of activity. • It will use different units for each different activity.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 136 6.2 NATURE OF STATIC AND FLEXIBLE BUDGET Source: eFinance Management STATIC BUDGET • The volume of output or turnover attained remain unchanged. • Prepared at the beginning of the budgeting period and only valid for planned level activity. • Projection of budgeted data at one level of activity. FLEXIBLE BUDGET • Estimates of what costs should be for any level of activity within a specified range or volume. • Budget data is for various levels of activity. It will cover the range of activities within which the company will operate. • It is a detailed plan for controlling overhead costs that is valid in the company's relevant range of activity Definition of Static and Flexible Budget
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 137 No Element Static/Fixed Budget Flexible Budget 1 Flexibility It is inflexible and does not change with the actual volume of output achieved. It is flexible and can be suitably recasted quickly according to the level of activity attained. 2 Condition It assumes that conditions would remain static. It is designed to change according to change conditions. 3 Classifications of costs Costs are not classified according to their variability for example fixed, variable and semi-variable. Costs are classified according to the nature of their variability. 4. Comparison Comparison of actual and budgeted performance cannot be done correctly if the volume of output differs. Comparisons are realistic as the changed plan figures are placed against actual ones. 5. Forecasting It is difficult to forecast accurately the results in it. It clearly shows the impact of various expenses on the operational aspect of the business. 6. Budget Only one budget at a fixed level of activity is prepared due to an unrealistic expectation on the part of the management. All conditions will remain unaltered. Series of budgets are prepared at different levels of activity. 7. Ascertainment of costs It is not possible to ascertain costs correctly if there is a change in circumstances. Costs can be easily ascertained at different levels of activity under this type of budget. 8. Tool for cost control It has a limited application and is ineffective as a tool for cost control. It has more applications and can be used as a tool for effective cost control. 9. Fixation of prices and submission of tenders If the budgeted and actual activity levels vary, the correct ascertainment of costs and fixation of prices becomes difficult. It helps in fixation of price and submission of tenders due to correct ascertainment of costs. Different between Static and Flexible Budget
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 138 Time Consuming • Appropriate period of time is required to prepare well planned budget which can give benefit to the company. • Budget preparation takes long period to match with financial requirement while it also need for extra manpower to get the estimates as accurate as possible. • The budgeting exercise takes a huge effort, especially in a big company with various department. So it need an extra time to estimate various field. Continuous Monitoring • The budget should always be monitored from time to time to avoid wrong or inaccurate data. • Sometimes management ignores the real environment factors, which are happening in the external environment, that cannot be controlled by the company. Inaccuracy • Budgeting is based on a lot of assumptions in estimating the expenses and revenues. If they set the standard too high, it may cause the management fail to achieve the company's goal. • The company needs to be particular for many factors, such as prices of raw materials, interest rates, degree of competition, employee's skill and technology efficiency. • The change will influence and affect the company's performance. Lack of Information • Some cost such as labour cost and overhead might be predicted inaccurately if there are no sufficient information about the cost. Complexity • The manager needs to separate the variable cost, fixed cost and semi-variable cost. Each cost must be separated clearly so as not to interfere with the decision-making process. Limitation in Static and Flexible Budget
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 139 6.3 STATIC AND FLEXIBLE BUDGET Levels of activity 4000 units 5000 units 6000 units Production overhead RM10,000 RM12,000 RM14,000 Cost per unit RM2.50 RM2.40 RM2.33 The production overhead is not constant over different levels of activity in amount or cost per unit. Production overheads are therefore semi-fixed costs. a) What will be the variable and fixed element at the three levels of activity? b) What is the flexible budget at normal level of activity 8,000 units? c) What is the flexible budget at actual level of activity 5,500 units? Solution Example 6.1: EXAMPLE 6.1
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 140 Activity levels 60% 70% 80% RM RM RM Overhead: Depreciation 800 900 1,000 Power 1,200 1,500 1,800 2,000 2,400 2,800 How a budget is prepared by interpolation, if the actual level of activity is 65%. Solution Example 6.2: EXAMPLE 6.2
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 141 The following information is available: Levels of activity (units) 4,000 5,000 6,000 Levels of activity (%) 40 50 60 RM RM RM Materials 20,000 25,000 30,000 Labour 12,000 15,000 18,000 Production overhead 10,000 12,000 14,000 Administration overhead 8,000 8,000 8,000 Selling & distribution overhead 10,000 10,000 10,000 Total cost 60,000 70,000 80,000 If the level of activity exceeds 6,000 units the additional fixed costs will be RM2,000 for production, RM1,000 for selling and distribution and RM500 for administration. Prepare a flexible budget for activity level or production level of 6,500 units. Solution Example 6.3: EXAMPLE 6.3
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 142 QUESTION 1 Selasih Bhd makes and produces a type of product at average 5,000 units per month. The following data shows the overhead statement for Production Department in terms of its budget and actual expenses for January 2008: Items Variable cost per unit Budget (5,000 units) Actual (4,650 units) Variable direct labour Variable manufacturing overhead Variable overhead Fixed direct labour Fixed overhead RM 1.00 3.00 4.00 RM 5,000 15,000 20,000 3,000 12,500 RM 4,900 14,250 18,200 3,000 12,500 Total cost 55,500 52,850 You are required to shows the flexible budget report for January 2008 at 4,650 units production. QUESTION 2 The following budget is prepared at activity level of 8,000 labour hours. Expenses Budget Cost Function -------------------------- --------------------- ----------------------- Direct labour RM55,500 RM3,500 + 6.5x Direct material RM84,000 RM10.5x Salary RM22,000 RM22,000 + 0x Depreciation RM 9,500 RM9,500 + 0x (x = activity level) You are required to prepare the flexible budget at activity level of 7,800 and 8,400 labour hour. EXERCISES
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 143 QUESTION 3 Firma ABC Enterprise had prepared budget for two level of activity as below: Production (units) 5,000 units 6,000 units Direct labour Direct material Salary Depreciation Other overhead RM 16,000 25,000 22,500 18,000 18,500 RM 17,200 30,000 23,000 18,000 21,000 You are required to prepare budget statement for activity level of 6,200 units by using High-Low Method. QUESTION 4 AMRITSA Company produce a product and had prepare budget for the following activity level: Variable cost per unit 7,000 units 8,000 units 9,000 units RM RM RM Direct material Direct labour Variable manufacturing overhead Fixed manufacturing overhead Administrative overhead RM2.54 RM6.40 RM1.50 - - 17,780 44,800 10,500 20,000 17,000 20,320 51,200 12,000 20,000 17,000 22,860 57,600 13,500 20,000 17,000 110,080 120,520 130,960 You are required to prepare flexible budget at activity level of 4,500 units by using High-Low Method.
DPA20193 BASIC COST ACCOUNTING, CHAPTER 6 144 QUESTION 5 The manager of Gayawarna Pte Ltd requested you to prepare a flexible budget for his production department. The followings are the information related to the department. i) The company normally operates at around 60% of its capacity which is equivalent to 5400 units. ii) After taking into consideration of certain factors, the Sales Manager is highly confident that future sales could reach 80% capacity. Current flexible budget information: Level of operation (%) 50% 60% 70% Direct material 56,700 68,040 79,380 Direct labour 24,300 29,160 34,020 Manufacturing overhead 56,400 60,720 65,040 Administrative expenses 47,250 47,250 47,250 Others operational expenses 110,700 114,480 118,260 You are required to prepare the company flexible budget for 70% and 80% levels of activity. QUESTION 6 Sonata Company provide flexible budget for the following activity volume: a) Jan 100,000 unit b) Feb 120,000 unit c) Mac 150,000 unit The additional information are as follows: RM Sales price 5.00 per unit Variable cost: Material 1.20 per unit Labour 2.00 per unit Overhead 0.50 per unit Fixed cost RM45,000 but will be increased 20% for a volume more than 140,000 units. Prepare flexible budget for the above three level of activity.