Cost Accounting

This document provides answers to various topics and concepts related to Cost Accounting. It includes information on material budget, sales price variance, revenue sales quantity variance, and allocation of support department costs.

Running head: COST ACCOUNTING
Cost accounting
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1COST ACCOUNTING
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................2
Answer 3..........................................................................................................................................3
Bibliography....................................................................................................................................5

2COST ACCOUNTING
Answer 1
South steel company from Saudi Arabia that is engaged in building the integrated steel
mill for producing steel billets is planning to manufacture 270000 units in 2nd quarter (April to
June). Material budget for the entity will be as follows –
Units to be produced 270000
Direct material required per unit 1.2
Total material required (unit) 324000
Desired closing inventory 60000
Total required production 384000
Less: opening inventory 84000
Materials to be purchased 300000
Cost of steel *SAR 22.25
Total cost for steel *SAR 6675000
*SAR stands for Saudi Arabian Riyal
Answer 2
Ravago Middle East Company (RMEA) from Saudi Arabia is engaged in reprocessing of
synthetic rubber material and the polymer compound production. Budgeted sales of the entity are
12000 units at a price of SAR 150.5 with the production cost of SAR 80.5 per unit. The actual
sales revenue is SAR 20,37,000 and 14000 units were sold. Hence, it can be identified that –
Units Selling price per unit (SAR) Profit per unit (SAR)
Budgeted 12000 150.5 70
Actual 14000 145.5 65
Sales price variance = (Actual sales price – budgeted sales price) * actual sales unit

3COST ACCOUNTING
Sales price variance = (145.5 – 150.5) * 14000 = SAR 70,000 (Unfavorable)
Revenue sales quantity variance = (actual sales units – budgeted sales units) * standard profit per
unit
Revenue sales quantity variance = (14000 – 12000) * 70 = SAR 140,000 (Favorable).
Revenue sales quantity variance may be caused due to various factors like labour while the sales
price is does not involve this.
Answer 3
Jotun Paints from Saudi Arabia is engaged in manufacturing of the decorative paints,
protective and powder coatings and marine paints. Following information are available for
support department and operation department
Support department Operation department
Maintenance
cost
Administration
cost
Maintenance
cost
Administration
cost
Costs SAR 15000 SAR 6000 SAR 24000 SAR 32000
Machine hours used 800 1500 1200 1800
Number of labor 200 100 300 150
Cost of maintenance department = SAR 15000
Total machine hours = 1200 + 1800 = 3000
Allocation rate = 15000 / 3000 = SAR 5 per machine hour
Administration department cost = SAR 6000
Total labors = 300 + 150 = 450

4COST ACCOUNTING
Allocation rate = 6000 / 450 = SAR 13.33 per employee
Allocation of support department cost to the operation department will be as follows –
Operation 1 Operation 2
Maintenance SAR 5 * 1200 = SAR 6000 SAR 5 * 1800 = SAR 9000
Administration SAR 13.33 * 300 = SAR 4000 SAR 13.33 * 150 = SAR 2000
Changes in cost after allocation will be as follows –
Support department Operation department
Maintenance
cost
Administration
cost
Maintenance
cost
Administration
cost
Costs SAR 15000 SAR 6000 SAR 24000 SAR 32000
Allocation to
maintenance dept SAR 15000 SAR 6000 SAR 9000
Allocation to
administration dept SAR 6000 SAR 4000 SAR 2000
Total Cost Nil Nil SAR 34000 SAR 43000

5COST ACCOUNTING
Bibliography
Christ, K.L. and Burritt, R.L., 2015. Material flow cost accounting: a review and agenda for
future research. Journal of Cleaner Production, 108, pp.1378-1389.
Guenther, E., Jasch, C., Schmidt, M., Wagner, B. and Ilg, P., 2015. Material Flow Cost
Accounting–looking back and ahead.
Ravago.com. 2019. Middle East › Regions › Ravago. [online] Available at:
https://www.ravago.com/regions/middle-east/ [Accessed 6 Apr. 2019].
Solbsteel.com. 2019. Solb Steel: Home. [online] Available at: http://www.solbsteel.com/ssc/
[Accessed 6 Apr. 2019].