University Cost Accounting: Management and Control Assignment

This assignment solution delves into key aspects of management accounting, specifically focusing on cost and control. It begins by defining the elements of cost, differentiating between direct and indirect materials, labor, and overheads. The solution then explores different costing techniques, including the recording of costs and the use of averaging techniques for inventory management. It further examines cost concepts like prime cost, product cost, and conversion cost. A significant portion of the assignment is dedicated to a manufacturing statement and profitability statement, illustrating how costs are calculated and profits are determined. The solution also addresses the treatment of overtime payments and provides journal entries for material control and accrued payroll. Finally, it compares traditional costing with activity-based costing (ABC), highlighting the advantages and disadvantages of each approach, and concludes with a detailed explanation of different overhead allocation methods, including direct, step-down, and reciprocal methods, providing calculations for each.

MANAGEMENT
ACCOUNTING FOR
COST AND CONTROL

Table of Contents
ASSIGNMENT 1.............................................................................................................................3
QUESTION 1..................................................................................................................................3
QUESTION 2..................................................................................................................................3
QUESTION 3..................................................................................................................................4
QUESTION 4..................................................................................................................................5
QUESTION 5..................................................................................................................................6
QUESTION 6..................................................................................................................................6
QUESTION 7..................................................................................................................................7
QUESTION 9..................................................................................................................................8
QUESTION 10................................................................................................................................8
REFERENCES..............................................................................................................................11

ASSIGNMENT 1
Costing is an important part at the workplace. It helps in determining the actual price of
the product as well as the cost which is incur in the product, so better and effective cost
management different approaches are to be used. In the present report the whole discussion is
based on the major cost elements which are helpful in making the cost of a product. Along with
that all such factors and techniques which are beneficial in making cost effective are also be
considered. Also the cost which is incurred on the manufacturing plants are taken into points.
QUESTION 1
ELEMENTS OF COST
MATERIAL- Material cost is the tangible goods used in producing the project. This cost
can be direct or indirect. Direct material is quantifiable and can be traced and indirect material is
unquantifiable and cannot be traced.
For example – A company producing furniture may consider wood as a direct material because it
can be quantified.
LABOUR- Wages and salaries paid to the employees involved in manufacturing are
called as labour the cost can be divided into direct and indirect labour cost (Höglund and et.al.,
2016). Labour cost includes wages paid and indirect costs include other wages and incentives but
are not traceable.
For example-Wages for line managers are considered to be the direct cost.
OVERHEAD- Overhead cost is those cost that are related to production but are not
classified as direct or indirect cost. Common overheads includes depreciation on machinery,
factory equipment etc.
For example- Indirect material and Indirect labour
QUESTION 2
There are many products at workplace whose recording is must they helps in estimating a
proper balance for each and every material in a factory but for averaging technique small
business uses this approach for their business. Basically it can be said that recording cost is for
large business organisation but average techniques is for the small business.
The three best examples of using recording cost techniques are:

1. Land and building: This method is used just for the purpose of calculating the
depreciation of the assets (Kaplan and Atkinson, 2015). With the help of calculating
proper depreciation on assets it helps in getting the actual value of the fixed assets.
2. Plant and machinery: These are used with aim of manufacturing goods and products. So,
this is important for a business to maintain proper record of each and every valuables of
the organisation.
The three best examples of average techniques are as follow:
1. Grocery store: They maintain their stock just for getting the proper knowledgeable about
their products and inventory. This is one of the best way for calculating the actual stock
value in the store. So, that all things can be stored properly.
2. Small business enterprises: The average technique is used by the small business because
it helps them in manage their stock and also helps in reducing the cost of the production.
Because they use their previous year stock for the current year (Lapsley and Rekers,
2017).
3. Small firms: They manage their accounts and calculate the cost which is incurred on the
production.
QUESTION 3
Cost concepts
Prime cost: It comprises the direct costs of all the essential elements like direct material,
direct labour and direct overheads.
Product cost: This comprises payments or expenditures incurred to produce goods or
service i.e. direct material and labour, consumables, factory overheads and so on.
Period cost: As name implies, it is closely related to the fixed passage of time like selling
expense.
Conversion cost: It refers to the cost of labour and overheads that are necessary to
convert raw material into finished goods known as conversion cost (Nuhu, Baird and Bala
Appuhamilage, 2017).
Inventoriable cost: All the expenses which firm incur to get the material into a situation
of ready for sale are called inventoriable costs. It consists of material, labour and both the fixed
& variable overheads.

The monthly cost of renting a manufacturing plant is a part of manufacturing overheads;
therefore, it will be conversion and inventoriable costs.
QUESTION 4
Manufacturing statement
Particulars Amount
Direct material
Beginning inventory 110000
Add: Purchase 500000
Add: Material inward 22000
Material available for sale 632000
Less: Closing material inventory 16000
Material consumed in production 616000
Direct labor 130000
Add: beginning Work in process labor 9000
Less: closing working in process labor 5000
134000
Factory overheads
Manufacturing expenses 60000
Cartage outward 5000
Insurance 3000
Less: prepaid insurance 750
2250
Rates 6750
Salary 200000
Add: Outstanding 11000
211000
Depreciation on machinery 12000
Total overheads 297000
Add; Beginning work in process expense 6000
Less: ending work in process expense 3000
Overheads 300000
Total (Material + labor + overheads) 1050000
Add: beginning Work-in-process material 15000
Less: Ending work in process material 7000
Cost of goods manufactured 1058000
Profitability statement
Expenditures Amount Income Amount
To opening stock 70000 By sales of finished goods 1700000

To cost of goods manufactured 1058000 By closing stock 25000
To gross profit (b/f) 597000
1725000 1725000
To discount 6000 By gross profit b/d 597000
To advertisement 12000 By discount receipts 4000
To audit fees 3000
To rates 2250
To insurance (25%) 1000
Less: Prepaid (25%) 250 750
To light and power 12000
To general expense 9000
To salary 100000
Add: Accrued salary 700 100700
To sales commission 40000
To tax expense 50000
To net profit (Balance figure) 365300
601000 601000
QUESTION 5
Overtime payments should not be considered as a direct labour and always considered as
a part of indirect labour. Overtime refers to the amount paid by the company for the extra work
performed by the workers (Schroeder, Clark and Cathey, 2016). It is treated as an indirect cost of
labour while figuring out the cost of manufacturing. For instance, a worker worked for 51 hours
exceeded the normal working hours 48 and the normal wages rate is 8GBP/hour whereas the
work performed in excess to 48 hour will be paid at 12GBP. Thus, it will be treated as follows:
Direct labor (51*8GBP) = 408GBP
Manufacturing overheads (3 hours *4GBP) = 12GBP
Total cost = 420GBP
QUESTION 6
Material control account
1st
April To balance b/d $40,000.00
By work in progress
control a/c $70,000.00
To General ledger control a/c
(b/f) (material purchase) $ 80,000.00
By factory overhead
control a/c $30,000.00
30th
April By balance c/d $20,000.00

$120,000 $120,000
Journal entries
Date Particulars L.F. Debit Credit
April Work-in-progress control a/c Dr.
To Material control a/c
(Direct material issued to the production
department)
$70,000
$70,000
April Factory overhead control a/c Dr.
To Stores ledger control a/c
$30,000
$30,000
Total $100,000 $100,000
QUESTION 7
Accrued payroll A/c
To payroll a/c $62000 By balance b/d $20000
By Direct labor's wage a/c $28000
To balance
c/d $8000 By indirect labor's wages a/c $22000
$70000 $70000
Journal entries:
Date Particulars L.F. Debit Credit
April Direct labour's wage a/c A/c Dr.
To accrued payroll a/c
$20,000
$20,000
Indirect labour’s wages a/c Dr.
To accrued payroll a/c
$22,000
$22,000
QUESTION 8
(A) Gross payment:
Direct manufacturing labour (43 hours* $22) $946
Idle time (5 hours * $40) $200
Overtime premium (April 21)
(50% premium)
(2 hours* $11) $22

(April 22) (100% premium after 3
hours)
(3 hours*$11) + (3 hours
*$22)
$33 + $66 = $99
Total $1267
(B) Indirect labour:
Idle time + overtime premium
$200 + $22 + $99 = $321
QUESTION 9
In the case, firm has contemplated changes into the existing traditional costing system so
as to implement the activity based costing. The main difference between these two; is that
traditional methods assign or allocate overheads using drivers like machine hour and labour
hours which is not founded suitable for every expenses incurred. Unlike this, ABC method
allocates cost to the product using the related activities as a cost driver and helps to figure out the
right amount of cost.
Favourable arguments for ABC
 It is the best technique because it makes cost and effect relationship among various set of
activities to produce the goods and service.
 Right cost determination through appropriate allocation basis helps to charge right selling
price (Rahman and Ramli, 2016).
 It also facilitates business to monitor, supervise and control overheads.
Criticism or arguments against the ABC
 It may be sometime complicated to find out the most appropriate and suitable cost driver.
 It is very difficult to examine & evaluate costs on the basis of various activities.
 Implementation of ABC technique needs excessive fund and also the time consuming
process.
QUESTION 10
Direct method: This method directly allocates overheads of service departments to
the production departments.
Department Sum P1 P2
S1 30+30 = 60 30/60 30/60
S2 20+50 = 70 20/70 50/70

Departments P1 P2 S1 S2
Material and labor 200000 150000 10000 15000
Allocated overheads 90000 70000 6000 18000
Dept.S1 reallocation 3000 3000 -6000
Dept.S2 reallocation 5143 12857 -18000
Total overheads 98143 85857 0 0
Total 298143 235857
Step-down method: This technique first allocates overhead of those service
departments which has highest overheads to other production & service divisions and
follows the same step for the other departments (Picker and et.al., 2016).
Particulars P1 P2 S1 S2
Material & overheads
$
200,000.00
$
150,000.00 $ 10,000.00 $ 15,000.00
Indirect costs
$
90,000.00
$
70,000.00
$
6,000.00 $ 18,000.00
S2's overhead allocation
$
3,600.00
$
9,000.00
$
5,400.00 $ (18,000.00)
S1's overhead allocation
$
5,700.00
$
5,700.00 $ (11,400.00)
Overheads
$
99,300.00
$
84,700.00
$
-
$
-
Total costs
$
299,300.00
$
234,700.00 $ 10,000.00 $ 15,000.00
Reciprocal method: It considers relationship among various departments and gives them
full value while allocating the overheads using equation.
Equation
S1 6000 6000+30%S2
S2 18000 18000+(20/80)S1
S1 = 6000+30%(18000+20/80S1)
S1 = 6000+30%(18000+25%S1)
S1 = 6,000 + (5400+0.075S1)
S1 – 0.075S1 = 11,400
0.925S1 = 11,400
S1 = 11,400/0.925
S1 = 12324

By putting the value of S1 in second equation
= 18000 + (20/80)S1
= 18,000 + (20/80)*12324
= 18,000 + 3,081
= 21,081
Departments P1 P2 S1 S2
Material and labor 200000 150000
Allocated overheads 90000 70000 6000 18000
Dept.S1 reallocation
12324*30/80 =
4622
12324*30/80
= 4622 -12324
12324*20/80
= 3081
Dept.S2 reallocation
21,081*20% =
4216
210,81*50%
= 10541
21081*30%
= 6324 -21081
Total overheads 98838 85162 0 0
Total cost 298838 235162

REFERENCES
Books and Journals
Höglund, L. and et.al., 2016. Management accounting of control practices: a matter of and for
strategy. Inthe 9TH INTERNATIONAL EIASM PUBLIC SECTOR CONFERENCE, held
in LISBON, PORTUGAL, SEPTEMBER 6-8, 2016. 12(3). pp.12-39.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Lapsley, I. and Rekers, J.V., 2017. The relevance of strategic management accounting to popular
culture: The world of West End Musicals. Management Accounting Research.
Nuhu, N.A., Baird, K. and Bala Appuhamilage, A., 2017. The adoption and success of
contemporary management accounting practices in the public sector. Asian Review of
Accounting. 25(1). pp.10-46.
Picker, R. and et.al., 2016. Applying international financial reporting standards. John Wiley &
Sons.
Rahman, N.A.A. and Ramli, A., 2016. Entrepreneurial Orientation, Strategic Management
Accounting Practices, Innovation, and Firm Performance: Craft Industry Perspective. In
Proceedings of the ASEAN Entrepreneurship Conference 2014. Springer Singapore.
10(3). pp.179-191
Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2016. Financial Accounting Theory and
Analysis: Text and Cases: Text and Cases. Wiley Global Education.