FIN301: Management Accounting Assignment on Costs and Controls

This document presents a comprehensive solution to a management accounting assignment, addressing key concepts in cost accounting and control. The assignment begins by identifying the three major cost elements of a product or service: direct materials, direct labor, and expenses. It then explores detailed cost recording and averaging techniques, and defines the status of monthly plant rental costs. The solution includes the use of IF functions for net income or loss scenarios, and discusses the treatment of overtime payments. Further, the assignment provides ledger entries for material control and accrued payroll, calculates gross pay, and identifies indirect labor. A business report compares traditional and ABC costing systems. Finally, the solution demonstrates the allocation of service departments using both direct and step methods, providing a complete overview of cost accounting principles and practices.

MANAGEMENT
ACCOUNTING FOR
COSTS AND
CONTROLS

Table of Contents
Question 1 Identify the three major cost elements in the cost of a product or service................4
Question 2 Give three examples of products where detailed recording of costs is required and
averaging techniques used...........................................................................................................4
Question 3 Define the status of monthly cost of renting a manufacturing plant.........................4
Question 4 Use IF functions to allow for the possibility of either a net income or a net loss....4
Question 5 Should overtime payments be treated as direct labor, or as overhead? Explain.......4
Question 6 Show the Materials Control account in the ledger for April and a general journal
entry to record the cost materials purchased during April...........................................................5
Question 7 T-account for Accrued Payroll for March and general journal entries for recording
salaries and wages earned by factory employees during March..................................................5
Question 8 ...................................................................................................................................6
a) Calculate Smith's Gross pay for the week...............................................................................6
b) Indicate the sum to be treated as indirect Labor......................................................................6
Question 9 Prepare a business report outlining the traditional costing system and evaluate
arguments for and against ABC...................................................................................................6
Question 10 Allocate service departments using different methods............................................7
a) Direct method.........................................................................................................................7
b)Step method..............................................................................................................................7

Question 1 Identify the three major cost elements in the cost of a product or service
There are three important elements of costs to be included in a particular product or services is
given as below:
Material- Direct material is that costs in which all kinds of raw materials used directly in the
making of a particular product.
Labor- All the labors directly assigned in designing of a particular product or services will count
as direct labor.
Expenses- All the expenses directly incurred in the manufacturing of goofs or services are
termed as direct expenses of a product.
Question 2 Give three examples of products where detailed recording of costs is required and
averaging techniques used.
Detail recording of costs
 Marketing expenses
 Selling expenses
 Administrative expenses
Averaging techniques
 Cost of goods sold
 Inventory
 Value averaging
Question 3 Define the status of monthly cost of renting a manufacturing plant
Monthly cost of renting a manufacturing plant is required as prime cost as well as period
cost as rent is incurred in an entity for meeting its manufacturing operations. So, rent will be
count as manufacturing overhead cost allocated to all the products.
Question 4 Use IF functions to allow for the possibility of either a net income or a net loss
Illustration 1: IF Function

Question 5 Should overtime payments be treated as direct labor, or as overhead? Explain.
Overtime payments is treated as overhead and this particular payment will be included in
the manufacturing overhead charge as overtime is paid to an individual for earning higher wages
as compared to the normal working hours. This kind of payment is regarded as indirect labor
costs.
Question 6 Show the Materials Control account in the ledger for April and a general journal
entry to record the cost materials purchased during April
Table 1: Material account
Particulars Amount Particulars Amount
To balance B/d 40000 By work in progress
(material issue for
production)
70000
To balance Carry
forward
80000 By factory overhead
control (indirect
material issued)
30000
To balance c/d 20000
120000 120000
Particulars Debit Credit
Work in progress a/c Dr 70000
To store ledger account 70000
Factory overhead a/c Dr 30000
To store ledger account 30000
Question 7 T-account for Accrued Payroll for March and general journal entries for recording
salaries and wages earned by factory employees during March
Particulars Amount Particulars Amount
To wages paid 50000 By balance b/d 20000
To wages expenses 28000 By accrued wages 66000
By balance c/d 8000

Particulars Debit Credit
Accrual payroll account Dr 50000
To Wages paid 50000
Accrual payroll account Dr 28000
To wages expenses 28000
Accrued wages 66000
To Accrual payroll 66000
Question 8
a) Calculate Smith's Gross pay for the week
Overtime hours Overtime
premium
Wage rate Overtime
wages
Normal
Wages
Gross pay
2 hrs 50% 22 11 22*40 22
6 hrs 100% 22 22 132
Normal wages 880
1034
b) Indicate the sum to be treated as indirect Labor
The total sum of overtime premium is 154 is treated as indirect labor
Question 9 Prepare a business report outlining the traditional costing system and evaluate
arguments for and against ABC
Costing is a technique for evaluating price of products by which income statement is to
be prepared that presents financial performance of organization. There are several kinds of
costing methods used for determining costing such as marginal, absorption, ABC and different
techniques. All of these techniques are different form each other for determining costs. For this,
traditional costing is related to assigning cost of products for production and distribution system.
On the other side, under activity based costing system, prices are determined for completing any
action plan in specific determined time. Therefore, for both pricing methods, techniques to
measure costs is different form each other. In addition to this, traditional costing is related to
creating ideas for overhead and incurring expenses on business operations. However, ABC
costing is linked with setting price of goods for producing particular products in fixed time.

Moreover, traditional costing is considered as interlinked with bench marking for which
comparison between pricing and different costing structures of several companies. It generates
varieties of ideas are created for further production and supplement of goods.
Question 10 Allocate service departments using different methods
a) Direct method
Particulars Basis P1 P2 S1 S2
Material
and labor 20000 150000 10000 15000
Indirect
costs 90000 70000 6000 18000
110000 220000 16000 33000
S1 Employees 6000 6000 16000 4000
Cost after
allocation 104000 214000 0 29000
b)Step method
Particulars Basis P1 P2 S1 S2
Material
and labor 20000 150000 10000 15000
Indirect
costs 90000 70000 6000 18000
Total cost 110000 220000 16000 33000
S2
Specific
percentage 6600 16500 9900 33000
Cost after
allocation 103400 203500 6100 0