ACC2350: Costing Methods, Process Costing, Economic Order Quantity

This article covers topics such as direct tracing, driver tracing, manufacturing overhead, process costing, and economic order quantity in the context of ACC2350. It includes answers to questions related to costing methods, work in progress, and inventory costs.

Running head: ACC2350
Acc2350
Name of the Student:
Name of the University:
Authors Note:

1ACC2350
Contents
Answer to Q1:..................................................................................................................................2
Answer to Q2:..................................................................................................................................2
Answer to Q3:..................................................................................................................................8
Answer to Q4:..................................................................................................................................8
Answer to Q5:................................................................................................................................11
References:....................................................................................................................................14

2ACC2350
Answer to Q1:
Part 1:
(i):
Taking into consideration the different types of costs incurred to manufacture motor cell it seems
that using direct tracing would be most effective method to assign cost of each activity to the
motor manufacturing cell. Tracing costs directly would result in appropriate costing of cells
manufactured.
(ii):
In case selection of driver tracing generally the quantity of raw materials used or number of
direct labour hours needed can be used as potential driver to trace costs. Generally, the
assumptions such as the costs are related to direct materials used or number of labours used is the
main foundation behind tracing manufacturing overheads to products (Ganesan, 2015).
Part 2:
Direct tracing is the method where costs are directly traced to different costs objects whereas in
driver tracing the cost drivers are traced to assign cost to products manufactured. In direct
tracing, cost of products are ascertained more accurately compared to cost of products
determined using driver tracing method.
Answer to Q2:
Part 1:
Particulars Amount Amount

3ACC2350
($) ($)
Closing raw materials in hand (30 November) 20,000.
00
Add: raw materials used in production during November 39,000.
00
59,000.
00
Less: Opening raw materials in hand (01 November) 17,000.
00
Raw materials purchased during the month of November 42,000.
00
Amount of raw materials purchased during the month of November as can be seen in the table
above is $42,000.
Part 2:
Particulars Amoun
t ($)
Amount
($)
Beginning work in process 9,000.
00

4ACC2350
Less:
Direct labour costs (300 x 10) 3,000.
00
Manufacturing overhead (300 x 8) 2,400.
00
5,400.
00
Direct material costs in the beginning work in process 3,600.
00
The cost of direct materials included in the beginning work in process is $3,600 as per the above
calculation.
Part 3:
Particulars Amount ($)
Manufacturing overhead costs applied during November 26,400.00
Pre-determined overhead rate 8 Per direct labour
Number of direct labours worked during November
(Manufacturing overhead cost applied / Pre-determined 3300 hours

5ACC2350
overhead rate)
Number of direct labour hours working in the month of November has been calculated by
dividing the manufacturing overhead costs applied with the predetermined overhead rate and the
resultant number of labour hours worked during the month is 3,300 hours.
Part 4:
Particulars Amount ($) Amount ($)
Ending working in process 11,000.00
Less: Direct material costs 4,700.00
Direct labour costs in the ending inventory 6,300.00
Direct labour costs included in the closing inventory is $6,300 as per the calculation made in the
table above.
Part 5:
Particulars Amount
($)
Amount
($)
Opening finished goods 50,000.0
0

6ACC2350
Opening work in process 9,000.0
0
59,000.0
0
Add: Materials used during the month 39,000.0
0
98,000.0
0
Add: Manufacturing overhead applied 26,400.0
0
124,400.
00
Less: Closing finished goods 44,000.0
0
Closing work in process 11,000.0
0
55,000.
00
Cost of goods manufactured during November 69,400.

7ACC2350
00
Taking into consideration the cost of raw materials, labour cost and manufacturing overhead the
amount of cost of goods manufactured during the month of November is $69,400.
Part 6:
Sub part a:
Manufacturing overhead incurred during November is $28,000 whereas manufacturing overhead
applied during the period is $26,400. Thus, manufacturing overhead is under-applied by $1,600.
Sub part b:
Date Account titles and explanations Debit ($) Credit
($)
Finished goods 1,280.00
Work in process 320.00
Manufacturing overhead 1,600.
00
Answer to Q3:
Part 1:

8ACC2350
Process costing is generally used in manufacturing industry however, a company operating
service industry can also use process costing in case similar services are provided in large
volume to the customers. An example in service industry is the telecommunication service
provider which can use process costing to ascertain cost of services provided.
There are number of examples of manufacturing organisations using process costing.
Organizations manufacturing chemicals, refining oil are few of the many organizations that can
use process costing to ascertain cost of their products.
Part 2:
Process costing in case of manufacturing industries would use the proportionate amount of raw
materials, proportionate amount of direct labour and manufacturing overheads to determine the
cost of work in progress. However, in case of service industry ascertaining cost of work in
progress would be significantly different as there is no cost of materials hence, it is primarily
consists of the proportionate cost of services incurred to complete the proportionate service
provision. It is easier to calculate the cost of work in progress for manufactured goods compared
to calculation of work in progress for process costing of services.
Answer to Q4:
Sub part a:
Amounts are in $
Particulars Mineral
analysis
Soil
Analysis
Directly incurred overhead costs 900,000. 800,00

9ACC2350
00 0.00
Computing department:
Mineral Analysis (200000 x 385/700) 110,000.
00
Soil Analysis (200000 x 315/700) 90,00
0.00
Engineering department:
Mineral Analysis (400000 x 530/1000) 212,000.
00
Soil Analysis (400000 x 470/1000) 188,00
0.00
Total costs 1,222,000.
00
1,078,000
.00
Sub part b:
Usage ratios calculation:
Mineral
analysis
Soil
Analysis

10ACC2350
Computing department
Mineral Analysis (200000 x 385/700) 110,00
0.00
Soil Analysis (200000 x 315/700) 90,00
0.00
Usage ratios
(110000 x 100/200000) 5
5%
(90000 x 100/200000) 4
5%
Engineering department:
Mineral Analysis (400000 x 530/1000) 212,00
0.00
Soil Analysis (400000 x 470/1000) 188,00
0.00
Usage ratios
(212000 x 100/400000) 5
3%
(188000 x 100/400000) 4

11ACC2350
7%
Thus, usage ratio of computing department is 55% for MA and 45% for SA. In case of
engineering department the usage ratio is 53% for MA and 47% of SA.
Answer to Q5:
Part (1):
Economic order quantity is the quantity of goods to be ordered in each order to minimize the
inventory costs of an organization. Economic order quantity (EOQ) is calculated by using the
following formula:
Where, S= set up cost per order (Ordering cost per order); D= Demand per year and H= Holding
costs per unit per year.
Accordingly, EOQ in this case is 5,656.85 per order, i.e. 5657 bottle per order (Weygandt,
Kimmel & Kieso, 2015).
Part (2):
Assuming that the company is ordering 5657 bottle per order which is the calculated economic
order quantity then the amount of savings in annual inventory costs would be as following:
Particulars Amount ($) Amount ($)
Annual inventory costs with EOQ

12ACC2350
Holding costs (5657 x 0.50)/2 1,41
4.25
Ordering costs
Number of orders (40000/5657)
8.00
Ordering costs (100 x 8) 80
0.00
Annual inventory costs 2,21
4.25
Existing annual inventory costs 3,00
0.00
Savings in annual inventory costs (3000 - 2214.25) 78
5.75
Part (3):
With the following new parameters the new reorder quantity is calculated below:
Ordering cost per order 10
0.00

13ACC2350
Holding cost per bottle per year
0.50
Annual demand (150 x 350) 52,50
0.00
Where, S= set up cost per order (Ordering cost per order); D= Demand per year and H= Holding
costs per unit per year.
EOQ for the above will be 6481 bottles per order.
References:
Ganesan, R. (2015). Managerial Cost Accounting. In The Profitable Supply Chain (pp. 259-265).
Apress, Berkeley, CA.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting.
John Wiley & Sons.