CHAPTER 1 BCA

DPA20193 BASIC COST ACCOUNTING, CHAPTER 1

CHAPTER 1.0

INTRODUCTION TO COST ACCOUNTING AND ELEMENT OF COST

Course Outline
1.1 Identify the concept, principle, methods and techniques of cost

1.1.1 Define the cost accounting
1.1.2 Explain the importance of cost accounting to management
1.1.3 Identify the differences between cost accounting and financial accounting
1.1.4 Identify the basic cost concepts of costing principles:

a) Cost unit
b) Cost centre
c) Cost object
d) Conversion costs
e) Opportunity costs
f) Incremental costs
g) Replacement costs
h) Sunk costs
1.2 Identify the cost accumulation and cost assignment
1.2.1 Explain accumulation and assignment of costs for different functions
1.2.2 Explain cost accumulation for the purpose of stock valuation and profit reporting
a) Product Cost
b) Period Cost
1.2.3 Describe cost accumulation for the purpose of decision making by using high-low
method
a) Fixed costs
b) Variable costs
c) Semi-variable costs
1.2.4 Explain cost accumulation for the purpose of planning and control
a) Controllable costs
b) Non-controllable costs
1.3 Prepare statement of cost

EXERCISE

1.1 CONCEPT, PRINCIPLES, METHODS AND TECHNIQUES OF COST

What is Cost Accounting

1. Cost Accounting can be defined as follows;

‘Cost accounting is the establishment of budgets, standard costs and actual costs of
operations, processes, activities or products; and the analysis of variances,
profitability or the social use of funds.’

(CIMA, London)

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DPA20193 BASIC COST ACCOUNTING, CHAPTER 1

‘Cost accounting is a quantitative method that accumulates, classifies, summarizes,
and interprets information for three major purposes consist of operational planning

and controlling, special decision and product decision.’
(Charles T. Horngren)

2. Cost accounting involves the techniques for:
a) Determining the costs of products, processes, projects, in order to report the correct
amounts on the financial statements.
b) Assisting management in making decisions, and planning and control of an organization.

3. The Institute of Cost and Management Accountants (ICMA) London has defined costing as
the ascertainment of costs. This includes the techniques and processes of ascertaining
costs.

4. The Institute of Cost and Works Accountants of the U.K. has defined cost accountancy as the
“application of costing and cost accounting principles, methods and technique to the
science, art and practice of cost control and ascertainment of profitability as well as
presentation of information for the purpose of managerial decision-making.” (Jawahar Lal
(1989).

According to C.Drury, Cost Accounting is concerned with cost accumulation for stock
valuation to meet the requirements of external reporting, whereas management

accounting relates to the provision of appropriate information for people within the
organisation to help them make better decisions.

Cost Accounting is the establishment of budgets, standard costs and actual costs of
operations, processes, activities or products; and analysis of variances, profitability, or

the social use of funds.
(Lucey; 1996)

In short, Cost Accounting involves the following process:

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What is the Importance of Cost
Accounting to Management?

1. To determine product cost.
The cost of the product is very important in cost accounting. The total product cost and cost
per unit of product are important in making stock valuation, deciding price of the product
and managerial decision making.

2. To facilitate planning and control of regular business activities.
The cost formulation in cost accounting system is oriented to help in planning, control and
decision-making. The accumulation, classification and analysis of cost is done in such a way
as to help management decision regarding business activities.

3. To supply information for short and long run decisions.
Cost accounting system provides data for short and long run decisions of a non-recurring
nature. These decision generally involve high cost commitment.

4. In general cost accounting importance for the following purposes:
a) Provide a structured approach to measurement of costs in manufacturing process or
service industry;
b) Integrate, harmonize, and standardize cost accounting principles and practices;
c) Provide guidance to users to achieve uniformity and consistency in classification,
measurement, assignment, and allocation of costs to products and services;
d) Arrive at the basis of computing the cost of product, activity, or service where required
by legal or regulatory bodies;
e) Enable practicing members to make use of Cost Accounting Standards in the attestation
of General Purpose Cost statements; and
f) Assist in clear and uniform understanding of all the related issues by various user
organizations, government bodies, regulators, research agencies, and academic
institutions.

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What is the Difference between Cost
Accounting and Financial Accounting?

Difference between Cost Accounting and Financial Accounting. Financial Accounting
Cost Accounting

1. Audience/ Users Cost accounting involves the Financial accounting involves
2. Format preparation of a broad range the preparation of a standard
3. Level of detail of reports that management set of reports for an outside
4. Product costs needs to run a business. audience, which may include
5. Regulatory framework - Internal parties investors, creditors, credit
rating agencies, and regulatory
Cost accounting involves agencies.
creating reports that can be in - External parties
any format specified by The reports prepared under
management, with the financial accounting are highly
intention of including only that specific in their format and
information pertinent to a content, as mandated by
specific decision or situation. either Generally Accepted
Accounting Principles or
Cost accounting usually results International Financial
in reports at a much higher Reporting Standards.
level of detail within the Financial accounting primarily
company, such as for focuses on reporting the
individual products, product results and financial position
lines, geographical areas, of an entire business entity.
customers, or subsidiaries
Cost accounting compiles the Financial accounting
cost of raw materials, work- incorporates this information
in-process, and finished goods into its financial reports
inventory. (primarily into the balance
sheet).
There is no regulatory The structure of financial
framework governing cost accounting reports are tightly
accounting reports. governed by either Generally
Accepted Accounting
Principles or International
Financial Reporting Standards.

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Cost Accounting Financial Accounting

6. Report content The information in a cost A financial report contains an
accounting report can contain aggregation of the financial
7. Report timing both financial information information recorded through
8. Time horizon and operational information. the accounting system.
9. Nature The operational information
10. Accounting method can come from a variety of
11. Unit of measurement sources that are not under the
direct control of the
accounting department.

Cost accounting staff may Financial accounting personnel
issue reports at any time and issue reports only at the end
with any degree of frequency, of a reporting period.
depending upon
management's need for the Financial accounting is only
information. concerned with reporting the
results of reporting periods
Cost accounting same goes to that have already been
financial accounting too, but completed.
also can be involved in a Classifies, records, presents
variety of projections for and interprets in terms of
future periods (e.g. budgeting) financial character and
Classifies, records, present and provides the figures for the
interprets in a significant preparation of the financial
manner the material, labour, statements.
overhead costs involved in
manufacturing and selling
each product, job and service.

Does not based on the double Follows the double entry

entry system. system.

Applies any measurement unit All information is in term of
that is useful in a particular monitory unit.
situation such as labour hours,
and machine hours.

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DPA20193 BASIC COST ACCOUNTING, CHAPTER 1

What is the Basic Cost Concept of
Costing Principles?

Costs for Decision-making

Relevant Costs Relevant Costs

 Variable costs  Sunk costs
 Opportunity costs  General fixed overheads
 Incremental costs  Fixed cost (not vary by a
 Replacement costs
period)

Cost Definition Example
Concept
Cost Unit Quantitative unit of output or service to which Per kilowatt hour, per
costs can be related. kilogram of material, per
Cost Centre It is the most relevant for the activities of the passenger mile, per litre of
organization. paint, per ton of cement.
Cost Object There may be several different cost units in order
to cost various products or activities. Location (sales department,
Conversion Location, function, person or item of equipment sewing department)
Cost for which cost may be ascertained and allocated. Person (salesman)
Opportunity Cost are gathered together according to their Equipment (delivery van)
Cost incidence. Cost of producing a product,
Any item, product or activity for which a company cost of providing a service,
wants to ascertain the cost. cost of operating a
department, or any
Costs other than material cost. activities for which costs are
Labour costs and manufacturing overheads are measured and assigned.
needed to convert raw materials into finished Labour cost and
goods. manufacturing overhead
Cost that a person sacrifice when they choose one
option over another. Graduation vs salary
Vacation vs training
Entrepreneurship vs steady
job
Stock vs cash

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Incremental The additional costs resulting from an additional Processing of any products
Cost process or batch of units being produced. that involve additional
Also known as differential costs. process cost.
Replacement If fixed cost increase due to certain situation, the
Cost difference in the increment considered as Market price of replacing
incremental cost. the stock item.
Cost incurred to replace any existing facilities or Present value of machinery
asset having similar characteristics for future use. is RM1,000. Replacement
Since the cost is in the future, it is relevant for cost for that machinery
decision making. based on market value is
RM2,000.
Sunk Cost Cost that have already been incurred by past RM200 spent last year to
actions. replace a sink
They cannot be recovered. RM2 million spent five years
They are not relevant to future decisions. ago on a new manufacturing
When what is done cannot be undone plant
RM1 million spent on
Research and Development
two years ago

1.2 COST ACCUMULATION AND COST ASSIGNMENT

What is Cost Accumulation and Cost
Assignment?

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1. Cost is simply the expenditure incurred for producing a product or providing a service.
2. Cost accumulation involves identifying, measuring and recording cost information.
3. Cost assignment is about assigning costs to cost objects.
4. Cost classification is the arrangement of costs items into logical groups.

What is cost accumulation for the purpose
of stock valuation and profit reporting?

1. Product Cost are costs identified with goods produced or purchased for resale.
2. Period Costs are those costs which are not included for stock valuation purposes.
3. Example of product cost and period cost:

Product Cost Period Cost
Manufacturing cost Non-manufacturing cost (overheads)

- Direct materials - Indirect materials
- Direct labour - Indirect labour
- Direct expenses - Indirect expenses
Direct material- Steel, wood, iron, rice, raw Indirect material – nails, glue, varnish, salt,
cotton, rubber, crude oil sugar, gas
Direct labour – Worker at assembly line, Indirect labour – foremen of machine,
special designer, carpenters, pilots, technician, supervisors, electricians, forklift
lecturer, doctor, machine operators, chefs truck operators
Direct expenses – Cost of special layout, Indirect expenses – depreciation,
royalty for recipe or writing, hiring special insurance, rental, cashier’s salary,
machine or tools for manufacturing process advertising, sales commission, office salary

4. The different between product cost and period cost:

Product Cost Period Cost
Product cost become an expense when the Period costs which consist of anything other
goods are sold. than manufacturing costs are treated as
expenses and written off in the period they
Manufacturing cost considered as product are incurred.
cost. Non-manufacturing cost considered as
Known as direct costs or inventoriable costs, period cost.
are directly related to production output and Considered indirect costs or overhead costs,
are used to calculate the cost of goods sold not directly tied to production level.
Always variable, depending on production
levels Usually fixed, but can also be semi-variable
Related to volume, such as units produced or
labour hours Related to overhead and indirect costs
Are recorded on a balance sheet
Are recorded on an income statement

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What is cost accumulation for the purpose of
decision making by using high-low method?

Type Definition Example
Fixed Costs Cost which remain unchanged regardless Supervisor salary, rental,
of the level of activity or the outcome of a depreciation, leasing charge
Variable Costs decision under consideration
Cost that vary with production output. It Direct materials, direct wages,
Semi variable Costs change in direct proportion to the level of and direct expenses
production output
Cost of variable and fixed elements Telephone cost
attached together to the total cost. Step
costs are semi-fixed costs that increase or
decrease after a certain level of activity or
time period.

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 High-low method is a method of estimating cost behaviour by comparing the total cost
associated with two different level of outputs.

EXAMPLE 1

Based on the above situation, calculate the fixed cost and variable cost using high-low method.
Solution Example 1:

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High-low method
= Highest Cost – Lowest Cost

Highest Unit – Lowest Unit
= 5,800 – 3,210

190 – 78
= 2,590

112
Variable Cost per unit, b = RM23.125/unit
Highest level,
Fixed Cost = TC – VC(x)

= RM5,800 – RM23.125(190)
= RM5,800 – RM4,393.75
a = RM1,406.25
Lowest level,
Fixed Cost = TC – VC(x)
= RM3,210 – RM23.125(78)
= RM3,210 – RM1,803.75
= RM1,406.25
y = a + bx
y = total cost
a = fixed cost
b = variable cost
x = volume

y = RM1,406.25 + RM23.125x

Let say you are required to find total cost for 150 units.
Y = RM1,406.25 + RM23.125(150)
Y = RM4,875

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EXAMPLE 2

Let say you are a manager of a hotel and you are really concerned about the cost of which hotel is
incurring and you want to derive a model to predict future cost, based on historical cost. You have
collected data for the last 10 months and wants to see the cost for the next 2 months.

Solution Example 2: 12
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EXAMPLE 3

Company α wants to determine the cost-volume relation between its factory overhead cost
and number of units produced. Use high-low method to split its factory overhead (FOH)
costs into fixed and variable components and create a cost volume relation. The volume and
the corresponding total cost information of the factory for past eight months are given
below:

Month Units FOH (RM)
1 1,520 36,375
2 1,250 38,000
3 1,750 41,750
4 1,600 42,360
5 2,350 55,080
6 2,100 48,100
7 3,000 59,000
8 2,750 56,800

Solution Example 3:

What is cost accumulation for the purpose of
planning and control?

Type Definition Example
Controllable cost Cost that are targeted for cost reduction by Production wastage,
managers. production efficiency and
Non-controllable With proper planning and controls, production product reworks.
cost managers are able to reduce controllable cost
without compromising product quality. Factory insurance
Unavoidable costs are treated as fixed. premium, factory rental
Costs are not targets for cost reduction. and any fixed costs.

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1.3 STATEMENT OF COST

Company ABC
Statement of Cost for the year ended XXXX

Direct Material RM RM
Direct Opening Stock of raw material XXX
XXX XXX
Add: XXX (XXX)
Purchase of raw material XXX
Carriage inwards XXX XXX
XXX XXX
Less: Closing stock of raw material XXX
XXX
Value of raw material consumed XXX XXX
Add: Direct Wages/Direct Labour XXX
Add: Direct Expenses: Royalty XXX
(XXX)
PRIME COST XXX
Add: Factory Overhead: XXX

Indirect wages
Rent and rates of the factory

GROSS FACTORY COST
Add: Work in Progress (opening)
Less: Work in Progress (closing)

FACTORY COST
Add: Administration Overhead:

Rent
Depreciation on office equipment

PRODUCTION COST XXX
XXX
Add: Finished Goods (opening) (XXX)
Less: Finished Goods (closing) XXX

Add: Selling and Distribution Overhead: XXX
Sales expenses
Promotion

COST OF GOODS SOLD/TOTAL COST/
COST OF SALES

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EXERCISE

QUESTION 1

Below is the information for Syarikat Pelangi Sdn Bhd: Pc, fo, ao, sdo
RM

Direct materials – opening stock 15,000 – pc

Direct materials – closing stock 16,000 - pc

Direct materials purchased 12,000 - pc

Factory worker’s wages 20,000 – pc

Manager’s salary 10,000 – oa,fo

Office staff’s salary 6,000 - ao

Salesman’s commission 5,000 – sdo

Carriage inwards 2,000 - pc

Factory’s rental 4,000 - fo

Other office expenses 1,200 - ao

Additional information;
- Manager spent 60% of his time in the office and 40% in the factory.
Based on the information given above, you are required to prepare cost statement for the year
ended 31 December 2013.

QUESTION 2

The following data have been extracted from Ekio Wood Furniture as at 31 December 2013:

RM

Carpenter’s wages 21,000

Supervisor’s salary 13,500

Wood : Opening stock 9,800

Closing stock 6,850

Purchase (wood) 83,000

Factory overhead 14,000

Clerk’s salary 16,200

Lorry driver’s salary Manager’s 6,700

salary 20,000

Carriage inwards 2,500

Rental of special machine 1,800

Rental of machine 9,000

Depreciation : Machinery 2,800

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Equipment at showroom 1,100
Lorry (use for delivering) 6,000
Carriage outwards 4,700
Electricity 8,700
Canteen maintenance 1,500

Additional information:
i. Electricity cost is divided between factory, administration and showroom according to
the floor area occupied (sq. metres): factory 2000 m2, office 500 m2 and showroom 1000
m2.
ii. Canteen is used by 5 clerks, 10 carpenters and 5 sales officers.

You are required to prepare statement of cost on 31 December 2013.

QUESTION 3

The following information is taken from the books of Syarikat Mizi Jaya Sdn Bhd.:

Items RM
Direct material on 1/1/2008 15,000
Work in progress on 1/1/2008 2,500
Finish goods on 1/1/2008 22,500
Direct material purchased 65,000
Sales
Depreciation 500,000
Insurance premium 25,000
Office staff’s salary 1,500
Salesmen’s commissions 22,000
Miscellaneous administration cost 13,000
Electricity and water expenses 65,000
Royalty 10,000
Lorry driver’s wages 5,000
3,000

Additional information: RM
i. 5,000
500
Stocks as at 31/12/2008: 8,500
Direct material
Work in progress
Finish goods

ii. Direct labour used was 35,000 hours at rate RM5.50 per hour.
iii. Depreciation of factory’s equipment is RM20,000 and the rest is for office equipment.
iv. Insurance premium for factory is RM1,000 and the rest is for office.

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v. Miscellaneous administration cost for factory is RM45,000 and the rest is for office.
vi. Electricity and water expenses for factory is RM8,000 and the rest is for office.
vii. Lorry was used to send goods to the customers.

You are required to prepare cost statement to find prime cost, production/factory cost and total
cost.

QUESTION 4

The following information given by Syarikat MOZA Trading for the month of January 2008:

RM

Direct materials 105,000

Factory worker’s salary 55,250

Office worker’s salary 4,250

Lorry driver’s salary 1,250

Salesman’s salary 4,000

Canteen manage’s expenses 4,000

(3/4 of canteen users are factory workers)

(1/4 of canteen users are office workers)

Salesman’s commission 600

Depreciation of factory machine 3,000

Depreciation of office furniture 250

Depreciation of transport lorry 750

Depreciation of exhibition room’s furniture 50

Factory supervisor’s salary 6,000

Plant rent (special job) 1,000

You are required to prepare cost statement to find prime cost, production/factory cost and total
cost.

QUESTION 5

The following information is costs incurred for Bonnia Sdn Bhd, a factory manufacturing

women clothes, for the year ended 30 April 2006.

RM

Building (at cost = RM250 000) 120 000

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Machine (at cost = RM120 000) 80 000
Stock at 1/5/2005:
8 000
Direct materials 5 000
WIP direct materials 3 000
WIP direct labour 25 000
Purchase of direct materials 6 000
Direct wages 24 000
Factory salary 34 000
Office salary 5 000
Electric 8 600
Insurance 10 400
Factory rent 1 800
Sales commission 2 500
Factory maintenance expenses 1 400
Carriage inwards of direct materials 134 500
Cash

Additional information:

i) Stock at 30 April 2006:

Direct materials 2 900

WIP direct materials 1 400

WIP direct labour 2 100

ii) Insurance and electric are divided to factory and office on ratio 3 : 2

iii) Depreciation calculated based on reducing balance method at rate 10% a year for

all type of fix assets. Depreciation is fully calculated in the year the asset is

purchased and no depreciation calculated for the year it is sold.

Prepare cost statement.

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QUESTION 6

Calculate prime cost, factory cost, cost of production and cost of sales from the following

particulars:

RM RM

Direct materials 40 000

Direct wages 10 000

Direct expenses 2 000

Wages of foreman 1 000

Storekeeper’s wages 500

Electric power 200

Lighting – factory 500

– office 200

Rent – factory 2 000
– office 1 000

Repairs and renewal: 500
Factory plan 1 000
Machinery
Office premises 200

Depreciation – office premises 500
plant and machinery 200

Manager’s salary 2 000
Office printing and stationery 200
Telephone charge
Postage and telegram 50
Salesman’s commission and salary 100
Advertising 500
Carriage outward 500
150

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QUESTION 7

(a) Based on the information given below, prepare cost statement for Syarikat Sri Pelangai

Sdn Bhd for the year ended 31 December 2008:

Direct materials – opening stock RM
Direct materials – closing stock 15,000
Direct materials purchased 16,000
Return outward 12,000
Factory worker’s wages 5,000
Manager’s salary 20,000
Direct factory costs 10,000
Office staff’s salary 2,000
Salesman’s commission 6,000
Carriage inwards 5,000
Factory’s rental 2,000
Other office expenses 4,000
Direct materials duty import 1,200
Opening work in progress 1,800
Closing work in progress 1,600
2,100

Additional information;
Manager spent 60% of his time in the office and 40% in the factory.

(a) Based on the cost statement which you have prepared at 8 (a), how many sales that
they should make in order to earn RM50,000 in profit?

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QUESTION 8

Below is the balance of the accounts of Rangkaian Utuh Sdn Bhd for the year ended 31st

December 2014.

RM

Sales 200,000

Direct labour 15,500

Carriage inward 1,000

Purchase of raw material 77,500

Opening stock: Raw material 7,500

Work-in-progress 2,800

Finished goods (1,500 units) 5,500

Closing stock: Raw material 6,000

Work-in-progress 1,500

Finished goods (2,100 units) 5,800

Rental 16,000

Utilities 5,000

Salesman commission 900

Depreciation of van (used for sales activities) 500

Office clerk salary 1,700

Royalty 12,000

Additional information:
1. Rental is divided between factory and office (60 : 40)
2. Utilities is divided between factory and office (50 : 50)
3. Total production units are 25,000 units during the period. Advertising costs is
calculated as RM0.60 per unit sold during the period.
4. Royalty is based on units sold.

You are required to prepare a statement of cost based on the information given.

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QUESTION 9
a) Briefly define the following items and give ONE (1) example for each item.

(i) Fixed Costs
(ii) Variables Costs

b) Syarikat Danisya produce an elegant furniture. The following is a list of some of the
costs incurred by the company:
Production manager’s salary
Purchase of wood
Salesman commissions
Wages of factory machine operators
Advertising
Carriage inwards on raw materials
Depreciation of office computer
Rent and rates for factory
Factory supervisor salary
Royalties paid to designers (based on Production)
Fire insurance for factory
Office salaries

You are required to classify of each item above as (a) Prime Cost (b) Production
Overhead and (c) Selling and Administration Overhead.

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c) The following information is extracted from the book of Syarikat Danisya Sdn Bhd, a

manufacturer of elegant furniture for the year ended 31 December 2015:

Purchase of raw materials RM 15,000
Direct wages 12,000
Office salaries 8,000
Royalties 10,550
Carriage inwards of raw materials 6,000
Factory rental 2,000
Utilities 2,000
Opening stock at 01/01/2015:
2,500
Raw materials 1,000
Work in progress 6,000
Finished goods (4,000)
Closing stock at 31/12/2015: 2,450
Raw materials 1,100
Work in progress 9,000
Finished goods (6,000)

Additional information:
i) Advertising expenses will be charged RM0.15 per unit sold.
ii) 31,000 units have been produced for the period.
iii) The royalties paid based on the unit produced.
iv) Utilities should be divided among three departments which are 50% factory,
25% for the office and 25% for sales department.

You are required to prepare the Statement of Cost for the Year Ended 31 December 2015.

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QUESTION 10

The following information was taken from Ikatan Manufacturing Company a manufacturer

of wood based furniture:

RM

Stock of raw material on 1 January 2013 3,200

Stock of raw material on 31 December 2013 2,400

Direct wages 64,000

Carriage inward of raw material 800

Stationary 350

Depreciation 8,500

Advertising 1,200

Purchase of raw material 40,000

Office staff salary 20,500

Insurance of factory 2,400

Lubricant for machine 500

Electricity and water bill 1,000

Royalty (based on production units) 4,500

Sales 300,000

Additional information:

i. 4/5 of the electricity and water bill is for factory use and 1/5 is for office use.

ii. 60% of the depreciation is for production use and the balance is allocated for

office use.

iii. Commission for sales will be given at 5% from sales

You are required to;

a) Define direct material and direct labour.

b) Prepare the Statement of Cost for the company for the Year Ended 31 December

2013.

c) Calculate the targeted net profit for the year using the cost statement above.

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QUESTION 11
a) Define the meaning of variable cost and fixed cost. The meaning of each cost must

be enclosed with graph sketch and ONE (1) example of each cost.

b) The following information was available for Behrang Manufacturing Bhd for the year

ended 30 June 2012:

Inventories : Materials RM RM
Work in progress 1 July 2011 30 June 2012
Finished goods
95,000 115,000
130,000 115,000
135,000 120,000

Afadcvtoerrtyising expenses 85,000
Direct labour 215,000
Depreciation of office equipment
Depreciation of factory equipment 35,000
Power and electricity – factory 26,000
Indirect labour 7,500
Materials purchased 27,000
Office salaries expenses 145,000
Property taxes – factory 95,000
Property taxes – office 5,500
Rent expenses – factory 16,000
Sales 8,500
Sales expenses 960,000
Insurance – factory 150,000
Miscellaneous cost – factory 4,500
5,500

You are required to calculatee Total Production Cost for the Year Ended 30 June 2012. 25
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QUESTION 12
a) Identify the following cost as either prime cost, production overhead, administration
overhead, selling and distribution overhead.
(i) Production manager’s salary
(ii) Depreciation of machinery
(iii) Assembler’s manager
(iv) Office salary
(v) Advertising
(vi) Delivery expenses
(vii) Raw material used
(viii) Salesman salary and expenses
(ix) Director’s salary
(x) Factory rent and rates

b) The following information is taken from Melati Bhd. for the year ended 31 December

2016.

Inventory 1 January 2016 RM
31 December 2016 15,000
Work in Progress 1 January 2016 18,000
31 December 2016 7,500
Raw material purchases 6,800
Freight inward 62,000
Direct wages
Salesman commission 500
Office staff salary 12,000

500
5,500

AZS/JP/PMS 26

Insurance DPA20193 BASIC COST ACCOUNTING, CHAPTER 1
Repair of machinery expenses
Advertising 1,200
Office rental 600
Depreciation of machinery 1,000
2,400
2,500

You are required to determine prime cost, production cost and total cost.

c) Based on your answer in (b) calculate the profit (if the company produced and sold
3,500 units of goods at RM100 per unit. Assuming there is no opening and closing
finished goods.

AZS/JP/PMS 27