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system
XY Limited commenced trading on 1 February with fully paid issued share capital
of 500 000, Fixed Assets of 275 000 and Cash at Bank of 225 000. By the end of
April, the following transactions had taken place:
1. Purchases on credit from suppliers amounted to 572 500 of which 525 000
was raw materials and 47 500 was for items classified as production overhead.
2. Wages incurred for all staff were 675 000, represented by cash paid 500 000
and wage deductions of 175 000 in respect of income tax etc.
3. Payments were made by cheque for the following overhead costs:
Question IM 4.1
Intermediate:
Integrated cost
accounting
Production
Selling
Administration
4.
5.
20 000
40 000
25 000
Issues of raw materials were 180 000 to Department A, 192 500 to Department
B and 65 000 for production overhead items.
Wages incurred were analysed to functions as follows:
6.
7.
8.
300 000
260 000
42 500
47 500
25 000
675 000
Direct labour
Direct materials
Production overhead
Department A
Department B
290 000
175 000
105 000
570 000
255 000
185 000
115 000
555 000
9. Sales on credit were 870 000 and the cost of those sales was 700 000.
10. Depreciation of productive plant and equipment was 15 000.
ACCOUNTING ENTRIES FOR A JOB COSTING SYSTEM
15
Question IM 4.2
Intermediate:
Interlocking
accounts
AZ Limited has separate cost and financial accounting systems interlocked by control accounts in the two ledgers. From the cost accounts, the following information
was available for the period:
()
Cost of finished goods produced
Cost of goods sold
Direct materials issued
Direct wages
Production overheads
(as per the financial accounts)
Direct material purchases
512 050
493 460
197 750
85 480
208 220
216 590
In the cost accounts, additional depreciation of 12 500 per period is charged and
production overheads are absorbed at 250% of wages.
The various account balances at the beginning of the period were:
()
Stores control
Work in progress control
Finished goods control
54 250
89 100
42 075
Required:
(a) Prepare the following control accounts in the cost ledger, showing clearly the
double entries between the accounts, and the closing balances:
Stores control
Work in progress control
Finished goods control
Production overhead control
(10 marks)
(b) Explain the meaning of the balance on the production overhead control
account.
(2 marks)
(c) When separate ledgers are maintained, the differing treatment of certain items
may cause variations to arise between costing and financial profits. Examples
of such items include stock valuations, notional expenses, and non-costing
items charged in the financial accounts. Briefly explain the above three
examples and state why they may give rise to profit differences.
(3 marks)
(Total 15 marks)
CIMA Stage 1 Cost Accounting
16
(6 marks)
Stores ledger
control account
(000)
Opening balance
Financial ledger control a/c
Opening balance
Question IM 4.3
Intermediate:
Preparation of
interlocking
accounts from
incomplete
information
176.0
224.2
Production wages
control account
(000)
196.0
Production overhead
control account
(000)
119.3
Job ledger
control account
(000)
114.9
169.5
153.0
During the period 64 500 kilos of direct material were issued from stores at a
weighted average price of 3.20 per kilo. The balance of materials issued from
stores represented indirect materials.
75% of the production wages are classified as direct. Average gross wages of
direct workers was 5.00 per hour. Production overheads are absorbed at a predetermined rate of 6.50 per direct labour hour.
Required:
Complete the cost accounts for the period.
(8 marks)
(Total 14 marks)
ACCA Foundation Paper 3
On 30 October 2002 the following were among the balances in the cost ledger of a
company manufacturing a single product (Product X) in a single process operation:
Dr
Raw Material Control Account
Manufacturing Overhead Control Account
Finished Goods Account
Cr
Question IM 4.4
Integrated
accounts and
stores pricing
87 460
5 123
148 352
The raw material ledger comprised the following balances at 30 October 2002:
Direct materials:
Material A:
Material B:
Indirect materials:
18 760 kg
4 242 kg
52 715
29 994
4 751
17
Question IM 4.5
Intermediate:
Labour cost
accounting and
recording of
journal entries
18
Question IM 4.6
Intermediate:
Preparation of the
wages control
account plus an
evaluation of the
impact of a
proposed
piecework system
Product 1
Product 2
Product 3
Productivity
(output per hour)
Piecework rate
(per unit)
66 units
12 units
14.4 units
1.00
0.50
0.40
19
Question IM 4.7
Intermediate:
Contract costing
Thornfield Ltd is a building contractor. During its financial year to 30 June 2000, it
commenced three major contracts. Information relating to these contracts as at
30 June 2000 was as follows:
Contract price
Expenditure to 30 June 2000:
Materials and subcontract work
Direct wages
General expenses
Position at 30 June 2000
Materials on hand at cost
Accrued expenses
Value of work certified
Estimated cost of work
completed but not certified
Plant and machinery allocated
to contracts
Contract 1
Contract 2
Contract 3
1 July 1999
1 January 2000
1 April 2000
()
()
()
210 000
215 000
190 000
44 000
80 000
3 000
41 000
74 500
1 800
15 000
12 000
700
3 000
700
150 000
3 000
600
110 000
1 500
600
20 000
4 000
6 000
9 000
16 000
12 000
8 000
The plant and machinery allocated to the contracts was installed on the dates the
contracts commenced. The plant and machinery is expected to have a working life
of four years in the case of contracts 1 and 3 and three years in the case of contract
2, and is to be depreciated on a straight line basis assuming nil residual values.
Since the last certificate of work was certified on contract number 1, faulty work
has been discovered which is expected to cost 10 000 to rectify. No rectification
work has been commenced prior to 30 June 2000.
In addition to expending directly attributable to contracts, recoverable central
overheads are estimated to amount to 2% of the cost of direct wages.
Thornfield Ltd has an accounting policy of taking two thirds of the profit attributable to the value of work certified on a contract, once the contract is one third
completed. Anticipated losses on contracts are provided in full.
Progress claims equal to 80% of the value of work certified have been invoiced to
customers.
You are required to:
(a) prepare contract accounts for each contract for the year to 30 June 2000,
calculating any attributable profit or loss on each contract;
(12 marks)
(b) calculate the amount to be included in the balance sheet of Thornfield Ltd as
on 30 June 2000 in respect of these contracts.
(4 marks)
(Total 16 marks)
ICAEW Accounting Techniques
20
(a) PZ plc undertakes work to repair, maintain and construct roads. When a customer requests the company to do work PZ plc supplies a fixed price to the
customer and allocates a works order number to the customers request. This
works order number is used as a reference number on material requisitions
and timesheets to enable the costs of doing the work to be collected.
PZ plcs financial year ends on 30 April. At the end of April 2000 the data
shown against four of PZ plcs works orders were:
Works order number
Date started
Estimated completion date
Direct labour costs
Direct material costs
Selling price
Estimated direct costs
to complete orders:
Direct labour
Direct materials
Independent valuation of work
done up to 30 April 2000
488
1/3/99
31/5/00
(000)
105
86
450
517
1/2/00
30/7/00
(000)
10
7
135
518
14/3/00
31/5/00
(000)
5
4
18
519
18/3/00
15/5/00
(000)
2
2
9
40
10
60
15
2
1
2
1
350
30
15
Question IM 4.8
Intermediate:
Contract costing
Overhead costs are allocated to works orders at the rate of 40% of direct labour
costs.
It is company policy not to recognize profit on long-term contracts until they are
at least 50% complete.
Required:
(i) State, with reasons, whether they above works orders should be
accounted for using contract costing or job costing.
(4 marks)
(ii) Based on your classification at (i) above, prepare a statement showing
clearly the profit to be recognized and balance sheet work in progress valuation of each of the above works orders in respect of the financial year
ended 30 April 2000.
(10 marks)
(iii) Comment critically on the policy of attributing overhead costs to works
orders on the basis of direct labour cost.
(6 marks)
(b) Explain the main features of process costing. Describe what determines the
choice between using process costing or specific order costing in a
manufacturing organization.
(10 marks)
(Total 30 marks)
CIMA Operational Cost Accounting Stage 2
21