A report on Cost and Accounting Procedure of PRAN FOOD COMPANY LTD

Prepared for
Mohammad Salahuddin Chowdhury, ACA Lecturer Department of Finance University of Dhaka

Prepared By

Serial No.
01. 02. 03. 04. 05. 06.

Name
MD. MOHIUDDIN KHAN TITU CHOWDHURY MOHAMMAD KAFIL UDDIN AZHARUL ISLAM AMIR HAMZA CHOWDHURY NASIB IMROZ BBA 16th Batch (Section A) Department of Finance University of Dhaka

Roll No.
16-025 16-031 16-047 16-067 15-109 16-258

ACKNOWLEDGEMENT
The successful accomplishment of this Report is the outcome of the contribution and involvement of a number of people, especially those who took the time to share their thoughtful guidance and suggestions to improve the Report. At the beginning we would like to pay our gratitude to the Almighty for giving us the ability to work hard under pressure. We have deepest gratitude to our respected Course Teacher Mohammad Salahuddin Chowdhury, ACA. We are thankful to him for continuous support and supervision, suggestions and providing us with valuable information that was very much needed for the completion of this presentation. We are also grateful to K M Amirul Islam, Manager of Accounts ,Pran Food Company Ltd. Our next thanks go to Md. Harun-ar-Rashid, AGM of Elite Group of Industries. Finally, our sincere gratitude goes to our classmates who helped us whenever we needed by providing us important information and also competing us, because we believe that competition helps us to do better.

Letter of Transmission Mohammad Salahuddin Chowdhury, ACA Lecturer Department of Finance University of Dhaka Dhaka Dear Sir, It gives us immense pleasure to submit our report on TERM PAPER ON COSTING AND ACCOUNTING PROCEDURE OF PRAN FOOD COMPANY LTD.. This report was assigned to us as a partial requirement of the COST AND MANAGEMENT ACCOUNTING (F-302) in Fifth semester. While making the report we come across many hurdles and pleasant experiences. But the valuable experiences we have gained during the period will undoubtedly benefit us in the years ahead. This report gave us an opportunity to apply our theoretical expertise, sharpen our views, ideas, and communication skills, and bridge them with the real world of practical experience, which will be a good head start for our future professional career. We realize that certain information enclosed in this report is imaginary and should not go beyond academic interest. We hope you would find the report in appropriate manner. We appreciate your cooperation and we hope you will call upon us with any queries occasioned by this report. We have tried sincerely to comprehend and translate our knowledge in writing this report. We enjoyed this project work and gladly attend any of your calls to clarify on our point, if necessary.

Sincerely yours, _____________ NASIB IMROZ On behalf of Group Section-A, 16th Batch 16-258

Executive Summary
Executive Summary
We, leading this term paper are optimistic to generate sufficient proceeds to facilitate our smooth running of B.B.A program. While developing the report we have conducted several analysis tools that led our theoretical knowledge to the reality uses. We conducted our report for the purpose of accumulation of practical uses of cost and accounting procedure we have learnt. As we know that manufacturing companies, basically, uses different kind of costing and accounting procedure to keep and maintain their overall manufacturing activity. To learn about the practical uses of costing and accounting procedure, we have selected Pran Food Company Ltd., a leading manufacturer of food products. Pran Food Company Ltd. Is a subsidiary of the Pran group of Industries (House no.50, road no. 03,South Avenue Tower,2nd floor, Gulshan,Dhaka. The company has different kind of painting products. Pran food is a business segment of Pran Food Company Ltd. So, there is a question that does they follow different costing and accounting procedure for different products? The answer is, no. they does not follow different costing and accounting procedure for different products rather they follow software oriented costing procedure named ARP. As they follow software oriented costing procedure, they do not need to keep traditional accounting procedure, e.g. journal entry, factory ledger, etc. As a Food manufacturing company, it does not follow process costing rather it follows job order costing. They maintain block flow diagram for paint manufacture to make their products with accuracy and flawlessness. As they have different product they have different cost schedule for their different products. We also included the different cost of goods sold, raw materials consumed, factory overhead, packing materials, and other statements in our report to make it clear that the procedure used are fair enough to present. We also included total inventory released and used for the production and new product pricing statement in our report. We are hoping that our report is fairly stated and not violent with the rules and regulation provided by the company.

Table Of Contents
Serial NO. Topics 1 2 3 4 5 6 7 8 9 10 11 12 13
Executive Summary Company Profile

Page No. 01 03 05 11 14 17 21 23 25 26 26 27-29

Products feature Material and manufacturing process By product/waste

Quality Control Material costing and accounting procedures

Table of Contents

Costing of finished goods Determination of per unit cost & selling price of the product Cost of goods sold statement
Selling and administrative expense

Work-in process Inventory costing

Conclusion

Chapter 1 Introduction

Background of the Study

Our report goes through on Cost Accounting. Cost Accounting has been identified as the most intensely studied variable in Cost & Management Accounting. Cost accounting is an expanded phase of the general or financial accounting of a business concern which provides management promptly with the cost of producing or selling each article or of rendering a particular service. If a company wants to maximize production through economies of scale it must use cost accounting properly.

Objective of the Study

The objectives of our report are to learn the practical knowledge about cost accounting. Those are Measuring direct labor cost under job order costing system Under or over applied manufacturing overhead computation Journal process under job order costing system T-Account under job order costing system Showing typical income statement

Methodology of the Study

There are two types of information. These are: Primary Sources Secondary Sources

We have totally collected our information from secondary sources as the company wasnt interested to provide any kind of information from primary sources.

Limitations of the Study

Limited Time Much information was confidential Lack of adequate information Unwillingness of employees to provide information. Limitation of Knowledge

Chapter 2 Theoretical Overview

Cost Accounting
Cost accounting is an expanded phase of the general or financial accounting of a business concern which provides management promptly with the cost of producing or selling each article or of rendering a particular service. Some of the most frequently encountered variable costs are listed below. This is not a complete list of all costs that can be considered variable. More, some costs listed here m A job order costing system is used in situations where many different products are produced each period. For example clothing factory would typically made many different types of jeans for both men and women during a month. In a job order costing system, costs are traced to the jobs and then the costs of the job are divided by the number of units in the job to arrive at an average cost per unit. Advantages and Disadvantages of Job Order Costing System: One of the primary advantages of job order costing system is that the management team has ready access to all the costs incurred for each job being completed. This allows the team to examine each cost incurred, finding out why it happened, and determine how it can be controlled better in the future, thereby contributing to better ongoing levels of profitability

Manufacturing company Manufacturing costs Direct materials Direct labor Variable portion of manufacturing overhead Indirect materials Lubricants Supplies

Fixed Cost:
Definition and Explanation: A fixed cost is a cost that remains constant, in total, regardless of changes in the level of activity. Unlike variable costs, fixed costs are not affected by changes in activity. Consequently, as the activity level rises and falls, the fixed costs remain constant in total amount unless influenced by some outside forces, such as price changes. Rent is a good example of fixed cost. Fixed cost can create confusion if they are expressed on per unit basis. This is because average fixed cost per unit increases and decreases inversely with changes in activity. Examples of fixed cost include straight line depreciation, insurance property taxes, rent, supervisory salary etcAjob order costing system is used in situations where many different products are produced each period. For example clothing factory would typically made many different types of jeans for both men and women during a month. In a job order costing system, costs are traced to the jobs and then the costs of the job are divided by the number of units in the job to arrive at an average cost per unit.

Cost Concept
Cost concept has developed according to the needs of accountants, economists and engineers. Accountants have defined cost as an exchange price. A sacrifice made to secure benefit. In financial accounting the forgoing or sacrifice at debt of acquisition is represented by a current or future diminution in cash or other asset. Cost traceability in service industries The traceability of cost is as important for decision making in service business as in manufacturing. For routine pricing decision, bidding on jobs, dropping or adding a service knowing the cost of different service is of the paramount importance in any competitive

environment, and the traceability of cost is as fundamental in calculating the cost of a service as it is in calculating the cost of a manufactured goods. Classification of cost The cost classifications are essential for meaningful summarization of cost data. The most commonly used classification are based on the relationship of cost to the following The product The volume of production Manufacturing department, processes, cost centers Cost accounting period A decision action or evaluation

Cost in relation to the product The process of classifying cost and expenses can being by relating cost of the different phases in the operation of business. In manufacturing concern, total operating cost consist of two element Manufacturing cost Commercial cost

Manufacturing cost Its also called production cost or factory cost. It has three elements Direct material Direct labor Factory overhead

Here, direct material + direct labor = prime cost Indirect labor + indirect material + other indirect cost = factory overhead Prime cost + factory overhead = manufacturing cost

Commercial cost Commercial expense fall into two broad classification Marketing expense Administrative expense

Cost behavior analysis Because of the dynamic nature of business, company often is faced with the need to make changes in the level and mix of their business activities. For management to plan a companys activities intelligently and control its cost effectively, the relationship of cost incurrence to change in activity must be understood thoroughly. Three techniques for segregating the fixed and variable components of cost are: High and low point method The scatter graph method The method of least square

According to the least square method, the reliability is the highest among of others method. The reliability depends on the correlation between the activities and cost being analyzed.

Job Order Costing

A job order costing system is used in situations where many different products are produced each period. For example clothing factory would typically made many different types of jeans for both men and women during a month. In a job order costing system, costs are traced to the jobs and then the costs of the job are divided by the number of units in the job to arrive at an average cost per unit. Job order costing system is also extensively used in service industries. Hospitals, law firms, movie studios, accounting firms, advertising agencies and repair shops all use a variety of job order costing system to accumulate costs for accounting and billing purposes. The details here deal with a manufacturing firm, the same concept and procedures are used by many service organizations. The record keeping and cost assignment problems are more complex in a job order costing system when a company sells many different products and services than when it has only a single product or service. Since the products are different, the costs are typically different. Consequently, cost records must be maintained for each distinct product or job. For example an attorney in a large criminal law practice would ordinarily keep separate records of the costs of advising and defending each of her clients. And a clothing factory would keep separate track of the costs of filling orders for particular styles, sizes, and colors of jeans. A job order costing

system requires more effort than a process costing system. Companies classify manufacturing costs into three broad categories:(1) direct materials, (2) direct labor, (3) manufacturing overhead.As we study the operation of a job costing system, we will see how each of these three types of costs is recorded and accumulated. Measuring Direct Materials Cost in Job Order Costing System: At the beginning of production process a document known as "bill of materials" is used for standard products. A bill of materials is a document that lists the type and quantity of each item of materials needed to complete a unit of standard product. In case where it is not possible to use a bill of materials because the product is not a standard product the production staff determines the materials requirements from the blueprints submitted by the customer.

Measuring Direct Labor Cost in Job Order Costing System: Direct labor cost is handled in much the same way as direct materials cost. Direct labor consists of labor charges that are easily traced to a particular job. Labor charges that cannot be easily traced directly to any job are treated as part of manufacturing overhead. The latter category of labor cost is known as indirect labor and includes tasks such as maintenance, supervision, and cleanup. Workers use time tickets to record the time they spend on each job and task. At the end of the day, the time tickets are gathered and accounting department enters the direct labor hours and costs on individual job cost sheets. Application of Manufacturing Overhead: Manufacturing overhead must be included with direct labor on the job cost sheet since manufacturing overhead is also a product cost. However, assigning manufacturing overhead to units of product can be a difficult task. There are three reasons for this: 1. Manufacturing overhead is an indirect cost. This means that it is either impossible or difficult to trace these costs to a particular product or job. 2. Manufacturing overhead consists of many different items ranging from the grease used in machines to the annual salary of production manager. 3. Even though output may fluctuate due to seasonal or other factors, manufacturing overhead costs tend to remain relatively constant due to the presence of fixed costs. Given these problems, about the only way to assign overhead costs to production is to use an allocation process. Job Order Costing System--The Flow of Costs: To understand the flow of costs in job order costing system, we shall consider a single month's activity for a company, a producer of product A and product B. The company has two jobs in process during April, the first month of its fiscal year. Job 1, of 1000 units of product A was

started in March. By the end of March, $30,000 in manufacturing costs had been recorded for the job 1. Job 2 an order for 10,000 units of product B was started in April. Multiple Predetermined Overhead Rates: When a single predetermined overhead rate is used for entire factory it is called plant wide overhead rate. This is fairly common practice--particularly in smaller companies. But in large companies, multiple predetermined overhead rates are often used. Problems of Overhead Application: We need to consider two complications relating to overhead application. These are: 1. Under-applied overhead and over-applied overhead calculation. 2. Disposition of any balance remaining in the manufacturing overhead account at the end of a period. Predetermined Overhead Rate and Capacity: Companies typically base their predetermined overhead rates on the estimated, or budgeted, amount of allocation base for the upcoming period. This is the method that is used in the chapter, but it is practice that is recently come under severe criticism. Recording Non-manufacturing Costs: In addition to manufacturing costs, companies also incur marketing and selling costs. These costs should be treated as period expenses and charged directly to the income statement and therefore should not go into the the manufacturing overhead account. Recording Cost of Goods Manufactured and Sold: When a job has been completed, the finished out put is transferred from the production department to the finished goods. warehouse. By this time, the accounting department will have charged the job with direct materials and direct labor cost and manufacturing overhead will have been applied using the predetermined overhead rate. Job Order Costing in Services Companies: Job order costing is also used in service organizations such as law firms, movie studios, hospitals, and repair shops, as well as manufacturing companies. In a law firm, for example, each client represents a "job," and the costs of that job are accumulated day by day on a job cost sheet as the client's case is handled by the firm. Advantages and Disadvantages of Job Order Costing System:

One of the primary advantages of job order costing system is that the management team has ready access to all the costs incurred for each job being completed. This allows the team to examine each cost incurred, finding out why it happened, and determine how it can be controlled better in the future, thereby contributing to better ongoing levels of profitability

Chapter 3 Practical Application

Company Overview
PRAN GROUP was born in 1980. Keeping in view the corporate mission of the group we have over the years diversified our activities. Today we are the largest processors of fruits & vegetables in Bangladesh. We encourage contract farmers and help them grow quality crops with increased yields and to obtain fair prices. The Group comprises of 10 companies. The head offices are located at Dhaka with production facilities around the country. Our management is modern adapted to our environment & culture. Our largest asset is our competent team of handson-mangers & dedicated employees. Companys Essential Information Address: Property Heights, 12 R.K. Mission Road GPO Box- 83 City: Dhaka

Phone: +880-2-9563126, 7167412, 7167416 Fax: +880-2-9556415

Email: amcm@pranfoods.com. Web: http://www.pranfoods.net.

Management Body

The top level makes the all kinds of decision. After that, production related planning handed over the Controller. Here, budget is made. Financing Department finances here according to the master budget plan. The cost department and then gather all necessary information andtries to run the production.

Company Variable and Fixed Cost

Materials Costs: In job order costing system, materials requisitions are used to charge jobs for direct materials used. If requisitions are used in process costing, details are considerably reduced because materials are charged to departments rather than to jobs, and the number of departments using materials is usually less than the number of jobs a firm might handle at a given time. Frequently materials are issued only to the process-originating department; subsequent department other than the first, they are charged to that department performing the specific operation. For materials control purposes, materials need not always be priced individually on requisition forms. The cost of materials used can be determined at the end of the production period through inventory difference procedures, i.e., adding purchases to beginning inventory and then deducting ending inventory. Or consumption reports which state the cost of materials or quantity of materials put into process by various departments can be used. Costs or quantities charged to departments by consumption reports may be based on formulas or proration. Formulas specify the type and quantity of materials required in the various products and are applied to finished production in order to calculate the materials consumed. Chemical and pharmaceutical industries use such procedures, particularly when more than one product is manufactured by a department. Frequently the cost of materials used by a department must be prorated to different products on various estimated bases. In 2009 work in process of Pran Foods Company Ltd. wad 24500 and the journal entry charging direct manufacturing materials used during a period is: Work in Process - cost department Materials 24,500 Dr. 24,500 Cr.

The source of the cost figures for the above entry as well as the entries for labor and factory overhead is the cost of production report which is discussed on cost of production report page. Direct Labor: Labor costs are identified by and charged to departments in process costing, thus eliminating the detailed clerical work of accumulating labor costs by jobs. Daily time tickets or weekly time

clock cards are used instead of job time tickets. Summary labor charges are made to departments through an entry which distributes the direct manufacturing payroll: Work in Process - Blending department Work in Process - Testing Departments Work in Process - Terminal Department Payroll 29,140 37,310 32,400 Dr. Dr. Dr. 98,850 Cr.

Factory Overhead Costs: Factory overhead incurred in process costing as well as in job order costing should be accumulated in the factory overhead subsidiary ledger for producing and service departments. This procedure is consistent with requirements for responsibility accounting and responsibility reporting. Normally it is emphasized to use the predetermined overhead rates for charging overhead to jobs and products. However, in various process and job order costing procedures, actual rather than applied overhead is sometimes used for product costing. This practice is feasible when production remains comparatively stable from period to period, since factory overhead will then remain about the same from one month to the next. The use of actual overhead can also be justified when factory overhead is not and important part of total cost. However, predetermined overhead rates for producing departments should be used if: 1. Production is not stable. 2. Factory overhead, especially fixed overhead, is a significant cost. Fluctuations in production can lead to the unequal incurrence of actual factory overhead from month to month. In such cases, factory overhead should be applied to production using predetermined rates, so that units produced receive proper charges for factory overhead. Similarly, if factory overhead - especially fixed factory overhead - is significant, it is desirable to allocate factory overhead on the basis of normal or uniform production using predetermined overhead rates. Indeed, the use of predetermined rates is highly recommended for improving cost control and facilitating cost analysis. Prior to charging factory overhead to departments via their respective work in process accounts, expenses must be accumulated in a factory overhead control account. As expenses are incurred the entry is:

Factory overhead control Accounts Payable Accumulated Depreciation - Machinery Prepaid Insurance Materials

xxxxx

Dr. xxxxx xxxxx xxxxx xxxxx Cr. Cr. Cr. Cr.

Payroll

xxxxx

Cr.

The use of factory overhead control account requires a subsidiary ledger for factory overhead, with departmental expense analysis sheet to which all expenses are posted. Service department expenses are kept in like manner and distributed later to producing departments. At the end of each period, departmental expense analysis sheets are totaled. These totals, which also include distributed service department costs, represent factory overhead for each department. By debiting the actual cost incurred or by using the predetermined overhead rates multiplied by the respective actual activity base (e.g., direct labor hours) for each producing department, the entry charging these expenses to work in process is as follows:

Work in Process - Blending department Work in Process - Testing Departments Work in Process - Terminal Department Factory Overhead Control

28,200 32,800 19,800

Dr. Dr. Dr. 80,800 Cr.

Different Kinds of Documents

AMCL (Agricultural Marketing Company Ltd) keeps various types of documents. These documents help the company in following ways: Maintaining proper accounting procedure Ensuring credibility Finding error and making adjustments Reference for future use

Material Documents For this reason the company maintains several kinds of material related documents. Among them most important are purchase voucher and material requisition. These two documents help the accountant to find out any kind of inconsistencies and adjusting them. Material Requisition The Material requisition originates with (1) stores or where house clerk who observes that quantity on hand is at a set ordering minimum, (2) a materials ledger clerk who may be responsible for notifying the purchasing agent when to buy , (3) a works manager who foresees the need for special materials or unusual quantities, (4) a research or engineering department employee who needs materials or supplies of a special nature, or (5) a computer that has been

programmed to produce replenishment advice for the purchasing department. For standard materials, little information other than the stock number may be needed, and the purchasing agent uses judgment concerning where to buy and the quantity to order. For other purchases requests, it may be necessary to give meticulous descriptions, blueprints, catalog numbers, weights, standards, brand names, exact quantities to order, and suggested prices. Below is an example of the purchase requisition:

Example/Sample of purchase requisition form:

Purchase Requisition To Purchasing Department Deliver to _________________

No. 07615 Mo | Day | Yr. Date Required___________________ Dept. No. ________________ Acct. No. _______________

Suggested Supplier________________________________________________________________ Qty Item No. Description Unit Price Amount

Budget Control Allowance for period ____ Balance Available___ Amt This Purchase___ Remaining Balance___

Ordered By____ Approved By___

One copy remains with the originating employee, and the original is sent to the purchasing department for execution of the request

Labor related documents The company also maintains labor related documents. These documents help the employer to fix the proper compensation of the employee and work period related information. These documents are labor timeticket andjob cost sheet Labor Time Ticket: Direct labor cost is handled in much the same way as direct materials cost. Direct labor consists of labor charges that are easily traced to a particular job. Labor charges that cannot be easily traced directly to any job are treated as part of manufacturing overhead. The later category of labor cost is known as indirect labor and includes tasks such as maintenance, supervision, and cleanup. Workers use time tickets to record the time they spend on each job and task. A completed labor time ticket is an hour by hour summary of the employees activities throughout on a specific job, the employee enters the job number on the time ticket and notes the amount of time spent on that job. When not assigned to a particular job, the employee records the nature of the indirect labor task (such as cleanup and maintenance) and the amount of time spent on the task. The daily time tickets are also used as the basis for labor cost entries into the accounting records. Following is an example of employees time ticket. Sample Employee Time Ticket Time Ticket No. 843 Employee Mr. Helal Started 7:00 12:30 2:30 Job Cost Sheet: At the end of the day, the time tickets are gathered and accounting department enters the direct labor hours and costs on individual job cost sheets. Following is an example of a job cost sheet. Example of Job Cost Sheet JOB COST SHEET Job Number 2B47 Department Cost Item For Stock Date Initiated March 3 Date Completed Units Completed Ended 12:00 2:30 3:30 Time Completed 5.0 2.0 1.0 Date March 3 Station 4 Rate $9 9 9 Amount $45 18 9 Job Number 2B47 2B50 Maintenance

Direct Materials Req. No. Amount 14873 Tk.660

Ticket 843

Direct Labor Hours Amount 5 Tk.45

Manufacturing Overhead Hours Rate Amount

Cost Summary Direct Materials Direct Labor Manufacturing Overhead Total Cost Unit Product Cost

TK Tk Tk Tk Tk

Date

Units Shipped Number Balance

The system we have just described is a manual method for recording and posting labor costs. Many companies now rely on computerized system and no longer record labor time by hand on sheet of paper. One computerized approach uses bar codes to enter the basic data into the computer. Each employee and each job has a unique bar code. When an employee begins work on a job, he or she scans three bar codes using a hand-held device much like the bar code readers at grocery store check-out stands. The first bar code indicates that a job is being started; the second is the unique bar code on his or her identity badge; and the third is the unique bar code of the job itself. This information is fed automatically via an electronic network to a computer that notes the time and then records all of the data. When the employee completes the task, he or she scans a bar code attached to the job. This information is relayed to the computer that again notes the time, and a time ticket is automatically prepared. Since all of the source data is already in computer files, the labor costs can be automatically posted to job cost sheets (or their electronic equivalents). Computers, coupled with technology such as bar codes, can eliminate much of the drudgery involved in routine bookkeeping activities while at the same time increasing timeliness and accuracy.

Utility Documents Water bill, electricity bill, gas bill, telephone bill etc are the main forms of documents kept under this heading.

Job Order Costing

Job order cost sheet: Pran Foods Company Ltd. collects its cost data by the job order cost accumulation procedure. For Job 642, the following data are available: This data is taken from the fiscal year 2007 Direct Materials Direct Labor 9/14 Issued $ 1,200Week of Sep. 20 180 hrs @ $6.20/hr 9/20 Issued 662Week of Sep. 26 140 hrs @ $7.30/hr 9/22 Issued 480 Factory overhead applied at the rate of $3.50 per direct labor hour..

The job order cost sheet is given below Forge Machine Works Job Order Cost Sheet--Job 642 Direct materials Direct labor Applied factory overhead Date Amount Date (Week Hours Rate Cost Date (Week Hours Rate Cost Issued of) of) 9/14 $1,200 9/20 180 $6.20 $1,116 9/20 180 $3.50 $630 9/20 662 9/26 140 7.30 1,022 9/26 140 3.50 490 9/22 480 -------------------------$2,342 $2,138 $1,120 ===== ====== ====== The sales price of the job, assuming that it was contracted with a markup of 40% of cost. Sales Price of job 642, contracted with a markup of 40% of cost: Direct materials Direct labor Applied factory overhead Total factory cost Markup 40% of cost $2,342 2,138 1,120 $5,600 2,240 ------$7,840 =====

Job Order Costing--Journal Entries, T Accounts, Income Statement Pran Foods Company Ltd. is a manufacturing firm that uses job order costing system. On January 1, the beginning of its fiscal year 2009, the company's inventory balances were as follows: Raw materials Work in process Finished Goods $20,000 $15,000 $30,000

The company applies overhead cost to jobs on the basis of machine-hours worked. For the current year, the company estimated that it would work 75,000 machine-hours and incur $450,000 in manufacturing overhead cost. The following transactions were recorded for the year 3. Raw materials were purchased on account, $410,000. 4. Raw materials were requisitioned for use in production, $380,000 ($360,000 direct materials and $20,000 indirect materials). 5. The following costs were incurred for employee services: direct labor, $75,000; indirect labor, $110,000; sales commission, $90,000; and administrative salaries, $20,000. 6. Sales travel costs were $17,000. 7. Utility costs in the factory were $43,000. 8. Advertising costs were $180,000. 9. Depreciation was recorded for the year, 350,000 (80% relates to factory operations, and 20% relates to selling and administrative activities). 10. Insurance expired during the year, $10,000 (70% relates to factory operations, and 30% relates to selling and administrative activities). 11. Manufacturing overhead was applied to production. Due to greater than expected demand for its products, the company worked 80,000 machine-hours during the year. 12. Goods costing $9,00,000 to manufacture according to their job cost sheets were completed during the year. 13. Goods were sold on account to customers during the year at a total selling price of $1,500,000. The goods cost $870,000 to manufacture according to their job cost sheets.

Journal Entries
1 Raw materials Accounts payable 2 Work in process Manufacturing overhead Raw materials 3 Work in process Manufacturing overhead Sales commission expense Administrative salaries expense Salaries and wages payable 4 Sales travel expense Accounts payable 5 Manufacturing overhead Accounts payable 6 Advertising expense Accounts payable 7 Manufacturing overhead Depreciation expense Accumulated depreciation 8 Manufacturing overhead Insurance expense Prepaid insurance 9* Work in process Manufacturing overhead 10 Finished Goods Work in process 11 Accounts Receivable Sales Cost of goods sold Finished goods 410,000 410,000 360,000 20,000 380,000 75,000 110,000 90,000 200,000 475,000 17,000 17,000 43,000 43,000 180,000 180,000 280,000 70,000 350,000 7,000 3,000 10,000 480,000 480,000 900,000 900,000 1,500,000 1,500,000 870,000 870,000

*The predetermined overhead rate for the year would be computed as follows: Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total units in the allocation base = $450,000 / 75,000 machine-hours = $6 per machine-hour Based on the 80,000 machine-hours actually worked during the year, the company would have applied $480,000 in overhead cost to production: 80,000 machine-hours $6 per machine-hour = $480,000.

T Accounts Accounts Receivable 11 1,500,000 Finished Goods Bal. (11) 30,000 870,000 10 900,000 Accounts Payable (1) 410,000 (4) 17,000 (5) 43,000 (6) 180,000 Sales (11) 1,500,000 Sales Commissions Expenses (3) 90,000 Advertising expense (6) 180,000 Raw Materials Bal. (2) 20,000 380,000 (1) 410,000 Bal. 50,000 Prepaid Insurance (8) 10,000 Salaries and Wages Payable (3) 475,000 Cost of goods sold (11) 870,000 Administrative Salary Expense (3) 200,000 Depreciation Expenses (7) 70,000 460,000 480,000 Bal. 20,000 Work in Process Bal. (10) 20,000 900,000 (2) 360,000 (3) 75,000 (9) 480,000 Bal. 30,000 Accumulated Depreciation (7) 350,000 Manufacturing Overhead (2) (9) 20,000 480,000 (3) 110,000 (5) 43,000 (7) 280,000 (8) 7,000

Insurance Expense (8) 3,000 Sales Travel Expense (4) 17,000

Under or Over applied manufacturing overhead

Manufacturing overhead is over applied for the year. The entry to close it out to cost of goods sold is as follows: Manufacturing overhead Cost of goods sold 20,000 20,000 Income Statement Pran Foods Company Ltd. Income Statement For the Year Ended December 31,2009 Sales Less cost of goods sold ($870,000 - $20,000 over applied O/H Gross margin Less selling and administrative expenses: Commission expense Administrative salaries expense Sales travel expense Advertising expense Depreciation expense Insurance expense Net operating income $1,500,000 850,000 -------------650,000 $90,000 200,000 17,000 180,000 70,000 3,000 ------------

560,000 ------------$90,000 ======

Chapter 4 Findings and Conclusion

Findings
The company keeps different kinds of cost related documents which includes material documents, material requisition, labor time ticket, job cost sheet and utility documents. The company maintains job order costing for each job order. They maintain job order cost sheet, job order costing journal entries, t-accounts and income statement Under or over applied manufacturing overhead are properly computed They measure direct labor cost under job order costing system The company doesnt maintain EOQ, lead-time thats why they face trouble in inventory management. Often there remains over inventory in the factory warehouse, as a result the opportunity cost is higher.

Conclusion
Cost accounting is very important for maintaining proper accounting procedure. It provides management promptly with the cost of producing or selling each article or of rendering a particular service. AMCL maintains some procedures and ignores some procedures of cost accounting. The company should maintain all procedures for maximizing profitability.

Bibliography

1. http://www.accountingformanagement.com/cost_accounting_definition.htm 2. http://en.wikipedia.org/wiki/Special:Search?search=Executive+Summary+ofcost+accoun ting&sourceid=Mozilla-search 3. Managerial Accounting, Garrison &Norren