Management Accouting Essay

Question 1:

Katas Limited is a manufacturer of industrial chemicals. It uses a weighted average method of process costing. Materials are added at the beginning of the process but conversion costs occur uniformly throughout the process. The following data has been compiled for the month of July 2014.

Work in process, 1 July – 336 000 units

40% complete

336 000 units

Work in process, 31 July

80% complete

100 000 units

Units started during July 2014

200 000 units

Cost of Work in Process 1 July 2014

Direct Materials

$798,000

Conversion Costs

$ 90,000

$ 888,000

Costs incurred during the month of July 2014

Direct material

$ 810 000

Conversion costs

$ 942 000

$ 1,752,000


Required:

1. Calculate the cost of goods completed and transferred out for the month of July 2014

2. Calculate the cost of work in process inventory as at 31 July 2014.

3. Prepare a journal entry as at 31 July 2014, to record the transfer of goods completed and transferred out in July 2014

Answer:

1.

Unit started During July 2014

200000

Cost incurred during the month July 2014

1752000

Cost per Unit

8.76


1.Cost of goods sold

Cost of Goods sold

Cost of Beginning finished goods inventory

2943360

Purchases or cost of goods manufactured

888000

Cost of ending finished goods inventory

1752000

Cost of goods sold

2079360


2. Cost of work in process inventory as at 31 July 2014

Cost of work in process

Work in process 31 July (Unit)

100000

Work in process 31 July (Unit)

876000

Cost of work in process 1 July 2014

1752000

Cost of work in process inventory 31 July

876000

Date

2014

Particulars

Amount

Debit

Amount

Credit

1 July

Work in process a/c dr.

To assembly account payable

(direct material was purchased and added it in the beginning)

798000

798000

1 July

Work in process ac dr.

To assembly various a/c

(conversion cost is occurred uniformly throughout the process)

31 July

Work in process – testing a/c dr.

To work in process assembly a/c

(to record 100000 units are completed and transferred from assembly to testing)

1752000

1752000

2.

1. Sale Budget

Sale Budget

Sale budget

January

Box type C

Box type P

Budgeted sale ($)

135

195

Unit Selling Price (BOXES)

400000

600000

Total Budgeted Sales

54000000

117000000


2. Production Budget

Production Budget

January

Box type C

Box type P

Budgeted sale

135

195

Add: Desired ending Inventory

5000

15000

Total Need

5135

15195

Less: Beginning inventory

10000

20000

Required Production

4865

4805


3. Direct Material Budget

Direct Material Budget

January

Box type C

Box type P

Amount of raw material required for production

100

100

Number of raw materials desired in ending inventory

1.Paper board

5000

5000

2. Corrugating Medium

10000

10000

Total Number of raw material required

15100

15100

Less Amount of raw materials in beginning inventory

1.Paper board

15000

15000

2. Corrugating Medium

5000

5000

Amount of raw material to purchase

4900

4900

Cost per Raw Material

36.296296

25.128205


4. Direct Labour Budget

Direct Labor Budget

January

Box C

Box P

Unit of production

4865

4805

Direct labor per unit

0.25

0.5

Direct Labor needed for production

1216.25

2402.5

Direct labor cost per hour

18

18

Budgeted Direct labor cost

21892.5

43245

Direct Labor Budget

21892.5

43245


5. Manufacturing overhead Budget

Month

January

Box type C

Box type P

Unit of production

4865

4805

Total Unit of Production

9670

Variable Overhead costs

Indirect labor(61.43)

75000

Indirect Material

15750

Insurance

24000

Total Variable Cost

114750

Fixed Overhead Cost

Land and Council Taxws

27000

Utilities

37500

Total Fixed overhead cost

64500

Total Overhead cost

179250

Deduct Depreciation

43500

Cash Disbursement for Manufacturing

135750

Manufacturing overhead per unit

14.0382627


6. Selling and Administrative expense budget

Selling and Administrative Expense Budget

January

Fixed Selling Expense

Salaries of sales personnel

112500

management Salaries

135000

Clerical Wages

39000

Variable Selling Expense

Miscellaneous Administrative Expense

6000

Advertisement

22500

Selling and Administrative Expense Budget

315000

Reference:

Anacoreta, L. and P. D. Silva (2005). International accounting standards for SMEs: An exploratory study. Unpublished paper

Berry, R. H. and A. Waring (1995). A user perspective on “making corporate reports valuable.” British Accounting Review, 27: 139-152.

Chua, W.F. (1986), ‘Radical Developments in Accounting Thought’, The Accounting Review, Vol. LXI, No. 4, pp. 601–32.

CIMA Education Group. A guide to devolved budgeting. (PDF 144KB). CIMA Technical Guide, June 1997

Collis, J. and R. Jarvis (2000). How owner-managers use accounts, Centre for Business Performance, ICAEW.

Curran, J. and R. A. Blackburn (2001). Researching the Small Enterprise, Sage, London.

Deakins, D., D. Logan and L. Steele (2001). The financial management of the small enterprise, Research Report 64, ACCA.

Durfee, D. Alternative budgeting. CFO, June 2006, Volume 22, Issue 7, p. 28

Eurostat (2005). European business: Facts and figures, data 1995-2004, European commission.

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