Accounting Assignment 8 - Cost Accounting System, Manufacturing Costs, Budgets, and Variance Analysis

This assignment covers various topics related to cost accounting system, manufacturing and product costs, budgets, variance analysis, and more. It includes answers to various questions related to accounting and also provides a production budget, direct materials budget, and direct labor budget.

Running head: ACCOUNTING ASSIGNMENT 8
Accounting Assignment 8
Name of the Student:
Name of the University:
Authors Note:

1ACCOUNTING ASSIGNMENT 8
Contents
Task 1:.............................................................................................................................................2
Task 2:.............................................................................................................................................4
References:....................................................................................................................................25

2ACCOUNTING ASSIGNMENT 8
Task 1:
Answers:
1. The data in a cost accounting system must be stored properly from the source document
such as suppliers invoice bills and other supporting documents by a professional
adequately qualified for the job. Access to the cost accounting system should be
restricted. Only the accountant should be allowed access to the system.
2. Information about manufacturing and product costs are necessary to ascertain the cost of
production properly and take informed decision about the business.
3. The manufacturing entities in Australia are under compulsion to follow the standard in
maintaining and managing accounting information.
4. The financial systems generally have inbuilt system to check and compare the invoices
and purchase orders. In case of discrepancies, the financial system outlines those
discrepancies.
5. In case based system GSTs are reconciled to determine the net GST liability (payable) or
net GST asset (receivable) as the case may be. In case of accrual basis of accounting
adjustments are made to determine GST payable and GST receivable both to make
payment accordingly.
6. Variance analysis helps the management to identify the possible area of lack of efficiency
in the production or manufacturing process. Necessary changes shall be made in these
areas by the management to improve the efficiency of the overall production process.
7. The reliability of variance analysis techniques would be improved significantly if the
integrity in the costing system is intact. The data recorded in costing system if correctly
processed without any manipulation then the resultant information will reflect the actual

3ACCOUNTING ASSIGNMENT 8
costing of a manufacturing and production organization. Thus the variance analysis will
also be improved as the data will be authentic and correct (Dekker, 2016).
8. Budgets are prepared to achieve organization objectives. Comparison of actual financial
performance of an organization with its budgeted performance further helps the
management to evaluate the efficiency of an organization in achieving its objectives.
9. Three objectives of budgets are as following:
a. Evaluation of performance.
b. Optimum utilization of resources.
c. Minimizing cost of productions.
10. Three sources to gather information are as following:
a. Historic financial statements.
b. Board of directors’ report.
c. Proposed agreement documents.
11. The principle of double entry system of accounting is that there would be equal liabilities
and assets after each financial transaction as there is always compensating effects on
wealth and liabilities for the double entry system of accounting of each and every
financial transaction.
Accrual based accounting is on the basis of earning and incurred concept rather
than receipts and payments. Thus, revenue is recognized when earned even if not
received and expenditures are recognized when incurred even if not paid (Otley,
2016).
12. The following is on the basis of actual components:
a. Raw materials.

4ACCOUNTING ASSIGNMENT 8
b. Direct labor.
c. Factory overhead both fixed and variable.
However, there are the following which can also be referred to as components of finished
products:
I. Upstream of raw materials.
II. Raw materials.
III. Secondary products.
IV. Intermediate products (Fullerton, Kennedy & Widener, 2014).
Task 2:
Question 1:
Particulars Amount
($)
Amount
($)
Cost of goods manufactured
Opening balance of direct materials 49,000.
00
Opening WIP 28,000.
00
Purchases during the year 198,000.
00

5ACCOUNTING ASSIGNMENT 8
Direct labour costs incurred 205,000.
00
Manufacturing overhead 173,000.
00
653,000.
00
Less:
Closing balance of direct materials 42,000.
00
Closing balance of WIP 30,000.
00
72,000.
00
Cost of goods manufactured 581,000.
00
Cost of goods sold
Cost of goods manufactured 581,000.
00

6ACCOUNTING ASSIGNMENT 8
Add: Opening finished goods 80,000.
00
501,000.
00
Less: Closing finished goods 76,000.
00
Cost of goods sold 425,000.
00
Question 2:
Manufacturing statement
Particulars $ $
Opening direct materials 7,000
.00
Opening WIP 9,600
.00
Purchases 42,300
.00

7ACCOUNTING ASSIGNMENT 8
Direct labour costs 10,000
.00
Manufacturing overheads 15,000
.00
83,900
.00
Less:
Closing direct materials 7,400
.00
Closing WIP 13,000
.00
20,400
.00
Manufacturing costs 63,500
.00
Trading statement
Particulars $ $

8ACCOUNTING ASSIGNMENT 8
Sales 82,000
.00
Less: Cost of goods sold 61,000
.00
Gross profit 21,000
.00
Profit and loss account
Particulars $ $
Sales 82,000
.00
Less: Cost of goods sold 61,000
.00
Gross profit 21,000
.00
Less: Expenditures
Selling expenses 4,100
.00

9ACCOUNTING ASSIGNMENT 8
General and administratuve expenses 2,900
.00
7,000
.00
Profit before tax 14,000
.00
Less: Tax @30% 4,200
.00
Net profit 9,800
.00
Question 3:
FIFO:
In
Cost
Units Per Total Units
Unit
$ $ $
200 7.2 1440 1440
160 7.4 1184
290
260 8 2080
110
1760
Issues 220 8 1760
Purchases 330 2598
Issues 2106 70 7.4 518
Purchases 360 2624
$ $ $
Balance 200 7.2
unit unit
Details per Total Units per Total
Cost Cost
i) Perpetual inventory system
Out Balance
Periodic System $

10ACCOUNTING ASSIGNMENT 8
Opening stock: raw material at beginning 200 1440
Add: purchases 160 1184
Total material available 360 2624
Less: closing stock – raw material at end 220 1760
Raw material used 140 864
Calculation of closing stock: 220 1760
Weighted average cost under a perpetual system:
i) Perpetual inventory system
In Out Balance
Cos
t
Cost Cost
Details Unit
s
Per Tota
l
Unit
s
per Total Unit
s
per Total
Unit unit unit
$ $ $ $ $ $
Balance 200 7.2 1440 200 7.2 1440

11ACCOUNTING ASSIGNMENT 8
Purchase
s
160 7.4 1184 360 7.288888
9
2624
Issues 290 7.288
9
2113.777
8
70 7.288888
9
510.22222
2
Purchase
s
260 8 2080 330 7.849158
2
2590.2222
2
Issues 110 7.849
2
863.4074
1
220 7.849158
2
1726.8148
1
1726.8
Moving average periodic system:

12ACCOUNTING ASSIGNMENT 8
Units $
Opening
balance 200 1440
Purchas
es 160 1184
Purchas
es 260 2080
620 4704
$
200 7.20
420 7.77
620 7.59
220 7.59
400 7.59
Less: closing stock
Raw material used
Opening stock: raw material
Add: purchases
Total material available
Question 4:
Date Account titles Debit ($) Credit
($)
Purchases (Inventories) 450.00
Accounts payable- Reliable Ltd 450.
00
(Being purchases made on credit)
Cost of productions 170.00
Purchases (Inventories) 170.
00
(Being goods issued for production)

13ACCOUNTING ASSIGNMENT 8
Accounts payable- Reliable Ltd 30.00
Purchases (Inventories) 30
.00
(Being faulty goods returned)
Purchases (Inventories) 15.00
Cost of productions 15
.00
(Being goods returned to store from production)
Question 5:
i) Perpetual inventory system (FIFO)
In Out Balance
Cost Cost Cost
Details Units Per Total Units per Total Units per Total
Unit unit unit
$ $ $ $ $ $
Balance 50 12 600 50 12 600

14ACCOUNTING ASSIGNMENT 8
Purchases 100 12.4 1240 150 1840
Issues 80 12 960 70 12.4 868
Return 20 12.4 248 50 12.4 620
Purchases 100 12.2 1220 150 1840
Issues 120 0 1474 30 12.2 366
Return to store 20 12.2 244 50 12.2 610
Journal entries:
Date Account titles Debit ($) Credit ($)
Jan-14 Accounts payable 248.00
Purchases (inventories) 248.00
(Being goods returned to supplier)
Jan-30 Purchases (inventories) 244.00

15ACCOUNTING ASSIGNMENT 8
Cost of production 244.00
(Being goods returned to store from production)
Accounting entry for loss of stock:
Date Account titles Debit ($) Credit ($)
Jan-31 Loss of goods 61.00
Purchases (inventories) 61.00
(Being goods short in stock taking)
Trading & PL account 61.00
Loss of goods 61.00
(Being loss of goods transferred to PL account)
Question 6:
Hours in
week
Hourly rate No of
weeks
annuallly
Annual
Basic wages 40 12 480 52 24,960.
00

16ACCOUNTING ASSIGNMENT 8
Compensation insurance 3,744.
00
Payroll taxes 1,310.
40
Contribution to superannuation funds 2,246.
40
Total annual cost to worker 32,260.
80
Number of hours actually worked by a worker (52 x 40) - (4+1+2) x 40} 1,800.
00
Hourly rate (32260.80 / 1800) $17.92
Hourly composite charge out rate to recover all labor costs is calculated below:
Hourly rate (32260.80 / 2080) $1
5.51
Question 7:

17ACCOUNTING ASSIGNMENT 8
Manufacturing overheads
Production activity levels 90% 100% 110%
Indirect materials 27,000.00 30,000.00 33,000.00
factory rent 30,000.00 30,000.00 30,000.00
Factory managers salary 55,000.00 55,000.00 55,000.00
Maintenance of machinery 9,000.00 10,000.00 11,000.00
Electricity 4,500.00 5,000.00 5,500.00
Depreciation- Machinery 7,000.00 7,000.00 7,000.00
Workers' compensation insurance 2,700.00 3,000.00 3,300.00
Insurance machinery 900.00 900.00 900.00
Depreciation- building 2,500.00 2,500.00 2,500.00
Total manufacturing overheads 138,600.00 143,400.00 148,200.00
Question 8:
Production budget
Sales in units 35,000.00
Add: 50% of October sales (15000 x 50%) 7,500.00

18ACCOUNTING ASSIGNMENT 8
42,500.00
Less: Opening finished stock (July 01) 7,000.00
Production in units for the quarter ending in September 35,500.00
Cost of direct materials (Refer to direct material budget) 213,000.00
Cost of direct labour (Refer to direct labour budget) 426,000.00
Factory overhead (35500 x 10) 355,000.00
Cost of production 994,000.00
Direct materials budget
Production units for the Quarter 35,500.
00
Direct materials required for each unit 3 Kg
Total direct materials needed for production (35500 x 3) 106,500.
00
Cost of direct materials (106500 x 2) 213,000.
00
Direct labour budget

19ACCOUNTING ASSIGNMENT 8
Production in units 35,
500.00
Direct labour hour 1 hour per
unit
Total labour hour required (35000 x 1) 35,
500.00
Direct labour costs (35500 x 12) 426,
000.00
Question 9:
Particulars $
Direct materials (15 x 25) 375.00
Direct labour (16 x 15) 240.00
Variable factory overhead (16 x 4) 64.00
Fixed factory overhead (16 x 2) 32.00
Standard manufacturing cost of a
door
711.00
Question 10:

20ACCOUNTING ASSIGNMENT 8
Particulars Amount
($)
Budgeted factory overhead
{(39650 x 1.5) x 1.05} 62,448.
75
Actual factory overhead 60,468.
00
Variance (1,980.7
5)
Variance is favourable
Question 11:
Selling price $40
Less: Variable cost $15
Contribution per unit $25
Break-even point
Fixed costs $425000

21ACCOUNTING ASSIGNMENT 8
Contribution per unit $25
Break-even point in units (425000 /
25)
17000
Break-even point in sales (17000 x 40) 680000
0 . 5 1 1 . 5 2 2 . 5 3 3 . 5 4 4 . 5
0
100000
200000
300000
400000
500000
600000
700000
800000
Chart Title
Question 12:
Variable costs
Particulars $
Commission on each shoe 7.00
Shoe service supplies 0.60

22ACCOUNTING ASSIGNMENT 8
Utilities 0.40
Total variable cost per shoe 8.00
Fixed costs per month
Salaries of four shoe technicians (3000 x 4 +1200) 13,200.00
Advertisements 900.00
Rent 1,500.00
Shoe service utilities 250.00
Rent of decorative plant 150.00
Plant insurance 2,400.00
Total fixed costs per month 18,400.00
Contribution per shoe
Standard fee per shoe 20
Less: Variable cost per shoe 8
Contribution per shoe 12
Breakeven point (BEP)

23ACCOUNTING ASSIGNMENT 8
Total fixed costs $18,400.00
Contribution per unit $12
BEP in units (18400/12) 1534 shoe services
BEP in $ (1534 x 20) $30,680
Question 13:
Before getting into any discussion about the variance in the quarter of January to March it would
be beneficial to calculate the variances. The table below shows variances in different
expenditures
January to March
Expense details Actual Budget Variance
$ $ $
Rent 16,000.00 15,000.00 1,000.00
Advertising 220,000.00 250,000.00 (30,000.00)
Office salaries 550,000.00 500,000.00 50,000.00

24ACCOUNTING ASSIGNMENT 8
Promotion 150,000.00 140,000.00 10,000.00
Totals 936,000.00 905,000.00 31,000.00
As can be seen in the table above that except advertisement expenditure all other variances are
unfavorable to the organization i.e. the actual expenditures have exceeded the budgeted
expenditures. The reason for such increase in expenditures must be evaluated by the management
and necessary steps shall be taken to ensure that in the future such expenditure reduces (Messner,
2016).

25ACCOUNTING ASSIGNMENT 8
References:
Dekker, H. C. (2016). On the boundaries between intrafirm and interfirm management
accounting research. Management Accounting Research, 31, 86-99.
Fullerton, R. R., Kennedy, F. A., & Widener, S. K. (2014). Lean manufacturing and firm
performance: The incremental contribution of lean management accounting
practices. Journal of Operations Management, 32(7-8), 414-428.
Messner, M. (2016). Does industry matter? How industry context shapes management
accounting practice. Management Accounting Research, 31, 103-111.
Otley, D. (2016). The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, 45-62.