COST ACCOUNTING b.com part II 2014 Regular & Private (SUPPLEMENTARY) Solved Paper Compiled & Solved by: Sameer Hussain
Instructions: (1) Attempt any FIVE questions. (2) All questions carry equal marks. (3) Use of calculator is allowed. Do not use abbreviations. (4) Answers without necessary computations will not be accepted. (5) All journal entries should be properly dated, intended and narrated. Q.No.1 ACCOUNTING FOR MANUFACTURING OPERATIONS Basit Manufacturing Company presents the following information for the quarter ended June 30, 2015: Sales Rs.98,000 Depreciation Factory Rs.3,000 Purchase of material 30,000 Factory rent 5,000 Carriage in 2,000 Factory insurance 1,000 Sales return 6,000 Administrative salaries 7,000 Direct wages 10,000 Sales salaries 6,000 Other factory wages 5,000 Depreciation Office 2,000 Material (beginning) 7,000 Material (ending) 8,000 Work in process 12,000 Work in process ending 10,000 Finished goods beginning 15,000 Finished goods ending 13,000 (a) Statement of cost of goods manufactured. (b) Income statement. SOLUTION 1 (a) BASIT MANUFACTURING COMPANY STATEMENT OF COST OF GOODS MANUFACTURED FOR THE PERIOD ENDED 30 JUNE 2015 Direct Materials: Raw materials (opening) 7,000 Add: Net Purchase of Raw Material: Purchases of raw material 30,000 Add: Carriage in 2,000 Net purchases of raw material 32,000 Raw materials available for use 39,000 Less: Raw materials (ending) (8,000) Raw materials used 31,000 Add: Direct labour 10,000 Prime cost 41,000 Add: Factory Overheads: Other factory wages 5,000 Depreciation Factory 3,000 Factory rent 5,000 Factory insurance 1,000 Total factory overhead 14,000 Total manufacturing cost 55,000 Add: Work in process (opening) 12,000 Total work in process during the period 67,000 Cost Accounting B.Com Part II 2014 Regular & Private (Supplementary) Solution 1
Less: Work in process (ending) (10,000) Cost of goods manufactured Rs.57,000 SOLUTION 1 (b) BASIT MANUFACTURING COMPANY INCOME STATEMENT FOR THE PERIOD ENDED 30 JUNE 2015 Sales 98,000 Less: Sales returns (6,000) Net sales 92,000 Less: Cost of Goods Sold: Finished goods beginning 15,000 Add: Cost of goods manufactured 57,000 Finished goods available for sale 72,000 Less: Finished goods ending (13,000) Cost of goods sold (59,000) Gross profit 33,000 Less: Operating Expenses: Administrative Expenses: Administrative salaries 7,000 Depreciation office 2,000 Total administrative expenses 9,000 Selling Expenses: Sales salaries 6,000 Total selling expenses 6,000 Total operating expenses (15,000) Net profit Rs.18,000 Q.No.2 ACCOUNTING FOR MANUFACTURING OPERATIONS Consider the information of Question No. 1 of this paper. Make closing entries in proper form of General Journal. Cost Accounting B.Com Part II 2014 Regular & Private (Supplementary) Solution 2
SOLUTION 2 BASIT MANUFACTURING COMPANY CLOSING ENTRIES FOR THE PERIOD ENDED JUNE 30, 2015 1 Manufacturing account 75,000 Raw material beginning 7,000 Purchases of raw material 30,000 Carriage in 2,000 Direct labour 10,000 Other factory wages 5,000 Depreciation factory 3,000 Factory rent 5,000 Factory insurance 1,000 Work in process opening 12,000 (To close the various manufacturing accounts) 2 Raw material ending 8,000 Work in process ending 10,000 Manufacturing account 18,000 (To close the various manufacturing accounts) 3 Expense and revenue summary 57,000 Manufacturing account 57,000 (To close the manufacturing accounts) 4 Expense and revenue summary 36,000 Finished goods beginning 15,000 Sales return 6,000 Administrative salaries expense 7,000 Depreciation office 2,000 Sales salaries expenses 6,000 (To close the various expense accounts) 5 Sales 98,000 Finished goods ending 13,000 Expense and revenue summary 111,000 (To close the various income accounts) 6 Expense and revenue summary 18,000 Capital 18,000 (To close the expense and revenue summary account) Q.No.3 JOB ORDER COSTING Muqsit Industries use job order cost accounting system. The following information was provided for the month of May 2015: (i) Opening balances: Materials Rs.13,000; Work in process Rs.15,000 and Finished goods Rs.21,000. (ii) Purchased direct materials of Rs.50,000 and indirect materials of Rs.5,000. (iii) Material issued to job: direct Rs.48,000 and indirect Rs.6,000. (iv) Total factory payroll was Rs.60,000 of which Rs.10,000 was indirect labour. (v) Payroll paid Rs.55,000. Cost Accounting B.Com Part II 2014 Regular & Private (Supplementary) Solution 3
(vi) Factory overhead cost incurred Rs.32,000 including Rs.5,000 for depreciation and other on account. (vii) Factory overhead was applied @ 90% of direct labour cost. (viii) Jobs were completed to the extent of Rs.140,000. (ix) Sold goods costing Rs.150,000 for Rs.210,000. (a) Give entries to record the above transactions and to close factory overhead account. (b) Set up T accounts for material, work in process, finished goods and factory overhead. Complete the accounts in all respect. SOLUTION 3 (a) MUQSIT INDUSTRIES GENERAL JOURNAL 1 Raw material 55,000 Accounts payable 55,000 (To record the purchase of raw material on account) 2 Work in process 48,000 Factory overhead 6,000 Raw material 54,000 (To record the raw material used in production) 3 Work in process 50,000 Factory overhead 10,000 Accrued payroll 60,000 (To record the labour assigned to production) 4 Accrued payroll 55,000 Cash 55,000 (To record the payment for payroll) 5 Factory overhead 32,000 Allowance for depreciation 5,000 Accounts payable 27,000 (To record the actual factory overhead incurred) 6 Work in process (50,000 x 90%) 45,000 Factory overhead applied 45,000 (To record the applied factory overhead) 7 Finished goods 140,000 Work in process 140,000 (To record the cost of finished goods) 8 Cost of goods sold 150,000 Finished goods 150,000 (To record the cost of goods sold) 9 Accounts receivable 210,000 Sales 210,000 (To record the goods sold to customers on account) 10 Cost of goods sold 3,000 Under applied factory overhead 3,000 (To close the factory overhead account) Cost Accounting B.Com Part II 2014 Regular & Private (Supplementary) Solution 4
SOLUTION 3 (b) Raw Material Balance 13,000 2 Work in process 54,000 1 Accounts payable 55,000 c/d balance 14,000 68,000 68,000 Work in Process Balance 15,000 7 Finished goods 140,000 2 Raw material 48,000 c/d balance 18,000 3 Accrued payroll 50,000 6 Factory overhead 45,000 158,000 158,000 Finished Goods Balance 21,000 8 Cost of goods sold 150,000 7 Work in process 140,000 c/d balance 11,000 161,000 161,000 Factory Overhead 2 Raw material 6,000 6 Work in process 45,000 3 Accrued payroll 10,000 10 Cost of goods sold 3,000 5 Accounts payable 27,000 5 Allowance for depreciation 5,000 48,000 48,000 Q.No.4 STANDARD COSTING The following relate to Abdullah Corporation: Standard Actual Direct material 4,000 units @ Rs.30 per unit 4,200 units @ Rs.31 per unit Direct labour 3,200 hours @ Rs.40 per hour 3,160 hours @ Rs.42 per hour a) Calculate: (i) Material price and quantity variances. (ii) Labour wage and efficiency variances. b) Give entries in General Journal including entries to close variance accounts. SOLUTION 4 (a) Computation of Material Price Variance: Material price variance = (Standard price Actual price) x Actual quantity Material price variance = (30 31) x 4,200 Material price variance = (4,200) (Unfavourable) Computation of Material Quantity Variance: Material quantity variance = (Standard quantity Actual quantity) x Standard price Material quantity variance = (4,000 4,200) x 30 Material quantity variance = (6,000) (Unfavourable) Cost Accounting B.Com Part II 2014 Regular & Private (Supplementary) Solution 5
Computation of Labour Rate Variance: Labour wage variance = (Standard price Actual price) x Actual hours Labour wage variance = (40 42) x 3,160 Labour wage variance = (6,320) (Unfavourable) Computation of Labour Efficiency Variance: Labour efficiency variance = (Standard hours Actual hours) x Standard rate Labour efficiency variance = (3,200 3,160) x 40 Labour efficiency variance = 1,600 (Favourable) SOLUTION 4 (b) ABDULLAH CORPORATION GENERAL JOURNAL 1 Work in process (4,000 x 30) 120,000 Material price variance 4,200 Material quantity variance 6,000 Raw material (4,200 x 31) 130,200 (To record the material price and quantity variance) 2 Work in process (3,200 x 40) 128,000 Labour wage variance 6,320 Labour efficiency variance 1,600 Accrued payroll (3,160 x 42) 132,720 (To record the labour rate and efficiency variance) ABDULLAH CORPORATION CLOSING ENTRIES 1 Labour efficiency variance 1,600 Cost of goods sold 14,920 Material price variance 4,200 Material quantity variance 6,000 Labour wage variance 6,320 (To close the variance accounts) Q.No.5 MATERIAL LOSSES Shameen Textile produces bed sheets. The cost applied on one of the order of Saba Traders for 1,000 units is as follows: Direct material Rs.50,000; direct labour Rs.20,000 and factory overhead Rs.10,000. During inspection 20 units were found defective. The defects were removed by applying the following cost: Direct material Rs.200; direct labour Rs.500 and factory overhead Rs.400. Journal entries to record the cost: (a) Applied on the 1,000 units. (b) Applied to rework 20 units if: (i) The specific job is charged. (ii) All jobs are charged. (c) Allocated to 1,000 finished units if: (i) The specific job is charged. (ii) All jobs are charged. Cost Accounting B.Com Part II 2014 Regular & Private (Supplementary) Solution 6
SOLUTION 5 SHAMEEN TEXTILE GENERAL JOURNAL 1 Work in process Material 50,000 Work in process Labour 20,000 Work in process Factory overhead 10,000 Raw material 50,000 Accrued payroll 20,000 Factory overhead applied 10,000 (To record the manufacturing cost) 2 (a) Work in process Material 200 Work in process Labour 500 Work in process Factory overhead 400 Raw material 200 Accrued payroll 500 Factory overhead applied 400 (To record the additional cost charged to job) 2 (b) Factory overhead 1,100 Raw material 200 Accrued payroll 500 Factory overhead applied 400 (To record the additional cost charged to overhead) 3 (a) Finished goods 81,100 Work in process Material 50,200 Work in process Labour 20,500 Work in process Factory overhead 10,400 (To record the cost of finished goods) 3 (b) Finished goods 80,000 Work in process Material 50,000 Work in process Labour 20,000 Work in process Factory overhead 10,000 (To record the cost of finished goods) Q.No.6 LABOUR COSTING Salam is employed by a company. He works 08 hours a day and 06 days a week. Units produced by Salman for the first week of June 2015 are presented below: Days Monday Tuesday Wednesday Thursday Friday Saturday Units 420 410 400 440 380 430 Prepare a schedule showing Salman s weekly earnings, the effective hourly rate and the labour cost per unit, assuming that company uses 100% Bonus Plan with a wage rate of Rs.80 per hour and the standard production rate is 50 units per hour. Cost Accounting B.Com Part II 2014 Regular & Private (Supplementary) Solution 7
SOLUTION 6 Mon Tue Wed Thu Fri Sat Total Units produced 420 410 400 440 380 430 2,480 Standard hours 8.4 8.2 8.0 8.8 7.6 8.6 49.6 Actual hours 8.0 8.0 8.0 8.0 8.0 8.0 48.0 Hours saved 0.4 0.2 NIL 0.8 NIL 0.6 2.0 100% bonus 32 16 NIL 64 NIL 48 160 Regular wages 3,840 Total labour cost 672 656 704 688 4,000 Unit labour cost 1.60 1.60 1.60 1.60 1.68 1.60 Computation: Monday Tuesday Wednesday Thursday Friday Saturday Standard hours 420/50 = 8.4 410/50 = 8.2 400/50 = 8.0 440/50 = 8.8 380/50 = 7.6 430/50 = 8.6 Actual hours 8.0 8.0 8.0 8.0 8.0 8.0 Hours saved 8.4 8.0 = 0.4 8.2 8.0 = 0.2 8.0 8.0 = NIL 8.8 8.0 = 0.8 7.6 8.0 = NIL 8.6 8.0 = 0.6 100% Bonus 0.4 x 80 = 32 0.2 x 80 = 16 0 x 80 = NIL 0.8 x 80 = 64 0 x 80 = NIL 0.6 x 80 = 48 Regular wages 8 x 80 = 8 x 80 = 8 x 80 = 8 x 80 = 8 x 80 = 8 x 80 = Total labour cost + 32 = 672 + 16 = 656 + 0 = + 64 = 704 + 0 = + 48 = 688 Unit labour cost 672/420 = 1.60 656/410 = 1.60 /400 = 1.60 704/440 = 1.60 /380 = 1.68 688/430 = 1.60 Computation of Effective Hourly Rate: Effective hourly rate = Total cost 48 hours Effective hourly rate = 4,000 48 Effective hourly rate = 83.33 Weekly earnings Effective hourly rate Labour cost per unit Rs.4,000 Rs.83.33 Rs.1.60 Q.No.7 FACTORY OVERHEAD COSTING Following data is available from the accounting records of Usman Company Limited: (i) Estimated factory overhead Rs.400,000. (ii) Estimated direct labour hours 80,000 hours. (iii) 40% of the rate is variable cost oriented. (iv) During the year, they worked 75,000 direct labour hours. (v) Actual factory overhead was Rs.380,000. Cost Accounting B.Com Part II 2014 Regular & Private (Supplementary) Solution 8
(a) Calculate spending and idle capacity variance. (b) Give entries to record and to close the variances. SOLUTION 7 (a) Computation of Factory Overhead Rate: Estimated factory overhead Factory overhead rate = Estimated direct labour hours 400,000 Factory overhead rate = 80,000 Factory overhead rate = Rs.5 per labour hour Computation of Variable Factory Overhead Rate: Variable Factory overhead rate = 5 x 40% Variable factory overhead rate = Rs.2 Computation of Fixed Factory Overhead: Estimated factory overhead 400,000 Less: Variable factory overhead (80,000 x 2) (160,000) Fixed factory overhead Rs.240,000 Computation of Spending Variance: Actual factory overhead 380,000 Less: Budgeted allowance based on actual output: Fixed factory overhead budgeted 240,000 Variable factory overhead (75,000 x 2) 150,000 Budgeted allowance based on actual output (390,000) Factory overhead spending variance (Favourable) 10,000 Computation of Idle Capacity Variance: Budgeted allowance based on actual output 390,000 Less: Applied factory overhead for actual output (75,000 x 5) (375,000) Factory overhead idle capacity variance (Unfavourable) 15,000 SOLUTION 7 (b) USMAN COMPANY LIMITED GENERAL JOURNAL 1 Work in process 375,000 Factory overhead idle capacity variance 15,000 Factory overhead spending variance 10,000 Factory overhead applied 380,000 (To record the factory overhead and variances) Cost Accounting B.Com Part II 2014 Regular & Private (Supplementary) Solution 9
USMAN COMPANY LIMITED CLOSING ENTRIES 1 Factory overhead spending variance 10,000 Cost of goods sold 5,000 Factory overhead idle capacity variance 15,000 (To close the variance accounts) Q.No.7 PROCESS COSTING Ar-Rahman Company presents the following data for department one for the first month of operation: Direct material Rs.580,000 Direct labour Rs.216,000 Factory overhead Rs.162,000 During the month, 12,000 units were placed in production of which 10,000 units were completed and transferred to department two. The remaining units were 80% completed as to material and 40% completed as to conversion cost. (a) Calculate: (i) Equivalent production unit. (ii) Unit cost of production. (iii) Cost of completed units. (iv) Cost of units still in process. (b) Entries to record the costs: (i) Charges to department one. (ii) Transferred to department two. SOLUTION 8 (a) AR RAHMAN COMPANY EQUIVALENT PRODUCTION UNITS (DEPARTMENT ONE) FOR THE PERIOD Particulars Material Labour Overhead Equivalent Units Equivalent Units Equivalent Units Units completed & transferred out 10,000 10,000 10,000 Add: Work in process (ending): (WIP ending units x % of completion) Direct material (2,000 x 80%) 1,600 Direct labour (2,000 x 40%) 800 Factory overhead (2,000 x 40%) 800 Equivalent production in units 11,600 10,800 10,800 AR RAHMAN COMPANY PER UNIT COST (DEPARTMENT ONE) FOR THE PERIOD Particular Cost Equivalent Units Per Unit Cost Direct material 580,000 11,600 50 Direct labour 216,000 10,800 20 Factory overhead 162,000 10,800 15 Total per unit cost Rs.958,000 Rs.85 Cost Accounting B.Com Part II 2014 Regular & Private (Supplementary) Solution 10
AR RAHMAN COMPANY STATEMENT OF UNITS COMPLETED AND TRANSFERRED OUT (DEPARTMENT ONE) FOR THE PERIOD Units Completed During This Month: Units completed x Unit cost Total cost of units completed (10,000 x 85) 850,000 Total cost of units completed and transferred to finished goods Rs.850,000 AR RAHMAN COMPANY STATEMENT OF WORK IN PROCESS ENDING INVENTORY (DEPARTMENT ONE) FOR THE PERIOD Direct material (2,000 x 80% x 50) 80,000 Direct labour (2,000 x 40% x 20) 16,000 Factory overhead (2,000 x 40% x 15) 12,000 Cost of work in process ending inventory Rs.108,000 SOLUTION 8 (b) AR RAHMAN COMPANY GENERAL JOURNAL 1 Work in process (Department one) 958,000 Raw material 580,000 Accrued payroll 216,000 Factory overhead applied 162,000 (To record the manufacturing cost charged to process) 2 Work in process (Department two) 850,000 Work in process (Department one) 850,000 (To record the transfers of goods from department one to department two) Cost Accounting B.Com Part II 2014 Regular & Private (Supplementary) Solution 11