Section A: Summary Content Notes

Transcription

1 COST ACCOUNTING 30 JULY 2015 Section A: Summary Content Notes MANUFACTURING ACCOUNTS: NEW LEDGER ACCOUNTS New Ledger Accounts pertaining to manufacturing concerns are divided into the following categories: Direct / Raw Material Work in Process Finished Goods Consumable stores STOCK ACCOUNTS Direct Material Factory Overheads Direct Labour Selling & Distribution Administration COSTS ACCOUNTS Salaries Depreciation Telephone Rates NOMINAL ACCOUNTS

2 FORMAT: Production Cost Statements and notes MANUFACTURING BUSINESS PRODUCTION COST STATEMENT Name of Manufacturer Production Cost Statement for the period ended Notes R Direct costs/prime cost Direct material costs 1 Direct labour costs 2 Factory overhead costs 3 Total manufacturing costs Work-in-process at beginning of the year Work-in-process at end of the year Cost of production of finished goods () INCOME STATEMENT INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2015 Sales Cost of sales Gross Profit Operating expenses Selling and distribution cost Administration costs Net profit for the year 13

3 MANUFACTURING BUSINESS NOTES TO THE FINANCIAL STATEMENTS 1. Direct material costs Opening stock Net purchases( ) Carriage on purchases Custom duties Closing stock Direct material cost () 2. Direct labour costs Factory wages Pension Fund Contributions Medical Aid Contributions UIF Contributions Direct labour cost 3. Factory overhead costs Indirect material( Indirect labour( Depreciation: machinery and equipment Maintenance: machinery and equipment Rent for factory buildings ( X 50% Factory electricity and water Factory overhead costs

4 4. Cost of finished goods sold Opening stock of finished goods Cost of finished goods produced during the year Goods returned Closing stock of finished goods Cost of finished goods sold () Section B: Exercises Question 1 COST ACCOUNTING (45 marks; 25 minutes) 1.1 PRINCESS BIN FACTORY Princess Bin Factory manufactures one type of household bin. The financial year ended on 28 February REQUIRED: Prepare the Production Cost Statement for the year ended 28 February (16) Prepare the Income Statement for the year ended on 28 February (13) INFORMATION: A. The following information was extracted from the financial records on 28 February 2015: Administration cost R Raw/Direct material cost? Factory overhead cost Selling and distribution cost Direct labour cost: Normal time Prime cost Work-in-process stock (1 March 2014) Work-in-process stock (28 February 2015)? Sales Cost of sales?

5 B. The following information was not taken into account: The factory employs six workers. Each worker earned R overtime per year. Unused indirect material, R Advertising (selling and distribution) includes R3 720 for a threemonth contract which ends on 31 March Rent expense was omitted from the figures above. Total rent paid amounted to R The rent for February 2015 has not been paid yet. Rent was increased by R820 per month on 1 January % of this expense must be allocated to the factory and the balance must be transferred to the Administration Cost Account. C bins were manufactured during this financial year at a unit cost of R35. D. The business uses a mark-up percentage of 60% on cost. Trade discounts of R were offered to cash customers during this financial year. 1.2 ROB'S PENCILS Rob Lambert is the owner of Rob's Pencils, a manufacturing business that produces one type of pencil. The financial year ended on 30 June Production is based on orders received, therefore there are no work-inprocess balances. REQUIRED: Comment on the fixed cost per unit. Note that fixed costs increased from R in 2013 to R in (2) Rob wants to know if the level of production for this financial year was satisfactory. Calculate the break-even point for the year ended 30 June (4) Do you consider the level of production to be satisfactory or not? Quote and explain figures to support your opinion. (4) Rob is concerned about the management of the variable costs. Identify ONE problem regarding the variable costs. Quote appropriate figures to support your answer. Provide TWO suggestions that he can use to address the problem identified. (6)

6 INFORMATION: Financial information extracted from the records of Rob's Pencils: 30 JUNE JUNE 2013 TOTAL (R) UNIT COST (R) TOTAL (R) UNIT COST (R) Fixed costs , ,20 Variable costs: , ,90 Direct material cost , ,00 Direct labour cost , ,30 Selling and distribution cost , ,60 Selling price per unit R14,50 R13,50 Number of units produced and sold Break-even point (units)? Section C: Answer Book 45 PRINCESS BIN FACTORY PRODUCTION COST STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2015 Prime cost Total manufacturing cost Cost of production of finished goods 16

7 1.1.2 INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2015 Gross profit Operating expenses Net profit for the year ROB'S PENCILS Comment on the fixed cost per unit. Note that fixed costs increased from R in 2013 to R in Calculate the break-even point for the year ended 30 June Do you consider the level of production to be satisfactory or not? Quote and explain figures to support your opinion. 4

8 1.2.3 Identify ONE problem regarding the variable costs. Quote appropriate figures to support your answer. Provide TWO suggestions that Rob can use to address the problem identified. 6 Section C: Solutions 1.1 PRINCESS BIN FACTORY PRODUCTION COST STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2015 Raw/Direct material cost check operation Direct labour cost one part correct Prime cost Factory overhead cost one part correct ( (rent) ) Total manufacturing cost check operation Work in process (1 March 2013) Work in process (28 Feb 2014) check operation must be subtracted (66 300) Cost of production of finished goods x R35

9 1.1.2 INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2015 Sales Cost of sales ( ) x 100/ One part correct ( ) Gross profit check operation Operating expenses ( ) Selling and distribution cost ( ) Administration costs ( ) if 1/3 of rent above Net profit for the year check operation (subtracted) ROBS PENCILS The fixed cost per unit decreased from R3,20 to R2,80. Economies of scale (more units were produced in 2014) ,50 11,75 = ,45 or units one part correct 4 Not satisfactory Explanation quoting figures (mark according to BEP calculation above) Although the business produced more goods than last year, ( ), it failed to break even this year. ( ) Low profit last year / loss this year Identify ONE problem regarding the variable costs. Quote appropriate figures to support your answer. Cost identified figures Raw materials costs increased from R4,00 to R5,50 per unit. Provide TWO suggestions that Rob can use to address the problem identified. Any TWO suggestions: Possible answers: Monitor production techniques to minimise wastage Train workers Buy in bulk to take advantage of discount Look for local suppliers reduce transport cost 6