Assessment Item 2: Role of Cost Control in Managing Production

This report, designed for a Management Accounting course, meticulously examines the critical role of cost control in production management. It begins by exploring job costing, providing detailed calculations and analysis, and then progresses to process costing, including comprehensive process cost summaries and unit cost calculations. The report then delves into joint costing, offering decision-making scenarios and calculations to determine optimal selling strategies. A significant portion is dedicated to variance analysis, with in-depth explanations and calculations of direct material and labor variances, alongside a business report summarizing the findings. The report concludes with a thorough examination of budgeting, presenting sales, purchase, and inventory budgets, as well as a budgeted income statement and statement of retained earnings, demonstrating the financial impact of effective cost control. The assignment provides a practical application of cost accounting principles.

Role of cost control in managing the production - Assessment item 2
Management accounting Cost & control
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Role of cost control in managing the production - Assessment item 2
Table of Contents
Solution 1 Job costing.................................................................................................................................3
Solution 2 Process costing...........................................................................................................................6
Solution 3 - Joint costing - decision making..............................................................................................10
Solution 4 Variance analysis.....................................................................................................................12
Solution 5 Budgeting.................................................................................................................................16
Bibliography..............................................................................................................................................19
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Role of cost control in managing the production - Assessment item 2
Solution 1 Job costing
Predetermined Overhead Rate = 12,000
3,000
4.00 per Direct Labour hour
Direct Material
Control
15055 3210
6155
7000
25000
28210 28210
Work In Process
6700 30110
3210
14800 1200
14800 7000
1200
39510 39510
Finished Goods
8790 30000
30110
8900
38900 38900
Accounts Payable
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Role of cost control in managing the production - Assessment item 2
6700 2345
1800 6155
(Purchase of Direct
Material)
8500 8500
Cost of Goods Sold
30000
The great Pyramid of Giza if would have constructed now it would have tough to reconstruct the
pyramid even after presence of modern technologies and machinery. It took around 20 years in
the past around 4500 years back to complete the structure. According to the experts and civil
engineers it would take around $5 billion in the present terms to complete the structure.
According to the accurate data of the structure the pyramid is around 756 feet in length and 481
feet in height. The pyramid was originally built with the help of around 4000 workers in a time
span of 20 years but now with the advanced technology and availability of cranes and helicopters
it would be completed in 5 years time and would take around 1500 to 2000 workers help.
However economist do not find economical to build such a structure in present time due to cost
benefit analysis. The same cost if would have incurred in constructing a building then it would
have resulted in better outcome and facilities for the public. While making comparison the One
World Trade Centre was constructed within the lesser cost if it would have incurred to develop
Giza Pyramid (Wolchover, 2012).
Cost benefit analysis
Cost incurred in building
Pyramid of Giza - $5 billion
One World Trade Centre - $4 billion
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Role of cost control in managing the production - Assessment item 2
Pyramid of Giza One World Trade Centre
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Role of cost control in managing the production - Assessment item 2
Solution 2 Process costing
Process 1.
Process Cost Summary
For Month Ended may. 31
Particulars Details $ Amount
$
Costs charged to production
Costs of beginning goods in
process
Direct materials 3,000
Conversion 2,000 5,000
Costs incurred this period
Direct materials 30,000
Conversion 60,000 90,000
Total costs to account for 95,000
Unit cost information
Units to account for Units accounted for
Beginning goods in process 2,000
Completed & transferred
out
7,
00
0
Units started this period 6,000 Ending goods in process
1,
00
0
Total units to account for 8,000
Total units accounted
for
8,
00
0
Direct Convers
ion
Equivalent units of production Materials
Units completed & transferred
out 7,000 7,000
Units of ending goods in process 500 500
Equivalent units of production 7,500 7,500
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Role of cost control in managing the production - Assessment item 2
Cost per EUP Direct Conversi
on
Materials
Cost of beginning goods in
process 3,000 2,000
Costs incurred this period 30,000 60,000
Total costs 33,000 62,000
÷ EUP 7,500 7,500
Cost per EUP
$
4.40
$
8.27
d.
Calculation
of costs
transferred
to finished
goods
Cost assignment and
reconciliation
Costs transferred out to finished
goods
Direct materials 30,800
Conversion 57,867 88,667
Costs of ending goods in
process
Direct materials 2,200
Conversion cost 4,133 6,333
Total costs accounted for 95,000
Process 2
Production Cost Report
Costs Charged to Production
Costs of beginning goods in
process
Transferred In 8,000
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Role of cost control in managing the production - Assessment item 2
Direct materials 3,000
Conversion 4,000
1
5,000
Costs incurred this period
Transferred In -
Direct materials $35,000
Conversion 45,000
8
0,000
Total costs to account for 95,000
Unit cost information
Units to account for
Beginning goods in process 1,000
Units started this period 7,000
Total units to account for 8,000
Units accounted for
Completed and transferred out 7,250
Ending goods in process 750
Total units accounted for 8,000
Transferr
ed In Direct Conversion
Equivalent units of production
Materia
ls
Units completed & transferred
out 7,250 7,250 7,250
Units of ending goods in process 750 750 225
Equivalent units of production 8,000 8,000 7,475
Cost per EUP
Transferr
ed In Direct Conversion
Materia
ls
Cost of beginning goods in
process 8,000 3,000 4,000
Costs incurred this period - 35,000 45,000
Total costs 8,000 38,000 49,000
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Role of cost control in managing the production - Assessment item 2
÷ EUP 8,000 8,000 7,475
Cost per EUP
$
1.00
$
4.75
$
6.56
d.
Calculation
of costs
transferred
to finished
goods
Cost assignment and
reconciliation
Costs transferred out to finished
goods
Transferred In
$
7,250.00
Direct materials 34,438
Conversion 47,525 89,213
Costs of ending goods in
process
Transferred In 750
Direct materials 3,563
Conversion cost 1,475 5,787
Total costs accounted for 95,000
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Role of cost control in managing the production - Assessment item 2
Solution 3 - Joint costing - decision making
Required: (a) If A was allocated $187 500 of the joint production costs under the net
realisable value method, what was the selling price of D?
Total Joint Cost 250000
Less Allocated to A -187500
Joint Cost of B 62500
Add Further Processing Cost 25000
Total Cost 87500
Quantity Produced 40000
Selling Price of D 2.19 Per Kg
(b) Suppose the firm receives an offer to buy all of product A for $2 per kg at the split-off
point. Would the firm be better off selling A or processing further to produce C? By how
much?
After Processing
Selling Price of A 4.5
Less Selling Price at Split - off Point 2
Additional Selling Price 2.5
Less Additional Processing Cost -0.75
Additional Benefit 1.75
At Split -off Point
Selling Price of A 2
Less Joint Cost -3.13
Net Loss -1.13
It would be beneficial for the firm to sell after processing further as
it results in
additional benefit of 1.75 Per Kg
Required: (a) If A was allocated $187 500 of the joint production costs under the net
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Role of cost control in managing the production - Assessment item 2
realizable value method, what was the selling price of D?
Total Joint Cost 250000
Less Allocated to A -187500
Joint Cost of B =C9+C10
Add Further Processing Cost 25000
Total Cost =C11+C12
Quantity Produced 40000
Selling Price of D =C13/C14 Per Kg
(b) Suppose the firm receives an offer to buy all of product A for $2 per kg at the split-off
point. Would the firm be better off selling A or processing further to produce C? By how
much?
After Processing
Selling Price of A 4.5
Less Selling Price at Split - off Point 2
Additional Selling Price =C21-C22
Less Additional Processing Cost =-45000/60000
Additional Benefit =C23+C24
At Split -off Point
Selling Price of A 2
Less Joint Cost =-187500/60000
Net Loss =C28+C29
It would be beneficial for the firm to sell after processing further as it results in
additional benefit of 1.75 Per Kg
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Role of cost control in managing the production - Assessment item 2
Solution 4 Variance analysis
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