King's Own Institute ACC200 - Concetta Ltd Accounting Assignment

This assignment solution focuses on job costing for Concetta Ltd., addressing key aspects of management accounting. It begins by defining job costing and its application, followed by the calculation of Work-in-Progress (WIP) inventory and the cost of goods in finished goods inventory using the FIFO method. The solution includes computation of the predetermined overhead rate and the application of overheads, determining over or under application of overheads, and discussing the accounting treatment for such discrepancies. It also contrasts job costing with Activity Based Costing (ABC), highlighting the benefits of ABC in allocating costs more accurately. The assignment provides detailed calculations and explanations for each step, offering a comprehensive understanding of the concepts involved.

For, Concetta Ltd.
Answer to Question 1:
Job Costing System or the Job order costing method of costing that
accumulates all the manufacturing costs and assigns them to the output
produced. It is generally used when the company produces different types
of products and all of them have significant cost. In other words,
companies have different jobs, each with different cost and different set of
output.
Companies which work on customized products uses job costing as each
order is completely different and treated as one job. For example
companies that manufacture aircrafts, construction companies, or
companies that produces specialized and customized clothing, furniture’s
can use job costing system.
Answer to Question 2:
The company had 3 open jobs in November 30 and completed some
during the month. The ending WIP for the company on December 31 can
be computed as below:
For Concetta Ltd
Job
No.
Opening WIP -
30 November
Completed
and
transferred
Closing WIP
- December
31
CC723 20,000 20,000 0
CH291 15,000 15,000 0
PS812 25,000 0 25,000
(Ending WIP = Opening WIP – Units Completed and Transferred Out)
Thus, the company had only one Job namely PS812 which is Printer stand
for a total WIP quantity of 25,000 units as on December 31. The ending
WIP cost of the job will be opening WIP plus the additions made to the job
in the month of December.

For this, we will need to compute the pre-determined overhead rate as we
will have to allocate the overhead for the job. The predetermined
overhead rate for the company is computed as under:
Working Note 1 - For Concetta Ltd
Computation of pre-determined Overhead
Rate
Total manufacturing overhead budget $45,00,00
0
Total Machine Hours 9,00,000
Therefore, pre-determined
overhead rate
(Total Overhead / Total Machine
Hours)
$5
Based on this, the cost of the ending WIP job as on 31 December can be
computed as below:
For Concetta Ltd
Computation of Ending WIP - 31/12
Particulars Amount Amount
Opening Balance as on 11/30 $2,50,000
Add: Additions in December
Raw Material $1,24,000
Purchased Parts $87,000
Labour Cost $2,00,500
Manufacturing Overhead
(19,500 mc hrs * $5/hr) (WN -1) $97,500 $5,09,000
Ending Balance as on 12/31 $7,59,000
Thus, the balance in Concetta’s WIP inventory as at 31, December
is $759,000.
Answer to Question 3:
To compute the cost of the chairs in Concetta’s finished goods inventory,
we will compute the finished goods inventory of the chairs as on 31
December.
For Concetta Ltd
Units of Chair in Finished Goods as on 12/31
Particulars Amount
Finished goods inventory as on 11/30 (A) 19,400

Add: Units Completed during the month (B) 15,000
Units available for sale (A+B) 34,400
Less: No. of units sold during the month 21,000
Thus, Ending inventory 12/31
(Units Available - Sales) 13,400
Thus, the company had 13,400 units of chairs as on 31 December.
Assuming that the company uses FIFO (First-In First-Out) method, the
ending inventory must be from the units that have been completed during
the month. We will now compute the cost of the units that have been
completed during the month as below:
For Concetta Ltd
Units of Chairs Completed in December
Particulars Amount Amount
WIP Inventory as on 11/30 $4,31,000
Add: Additions in December
Raw Material $3,000
Purchased Parts $10,800
Labour Cost $43,200
Manufacturing Overhead
(4,400 mc hrs * $5/hr) (WN -1) $22,000 $79,000
Total Cost of the Chairs in the month $5,10,00
0
Based on the above, per unit cost of the chair is as below:
For Concetta Ltd
Per unit cost of Chairs Produced
Total Chairs Manufactured during the
month 15,000
Total Cost of the Chairs in the month $5,10,00
0
Per unit cost $34
Since, the ending inventory of chairs is from these produced units, the
cost of the chairs in the finished goods inventory is:
For Concetta Ltd
Value of Finished Goods Inventory
Per unit cost $34
Ending inventory 12/31 $13,400
Value of Finished Goods Inventory $4,55,60

0
Thus, the cost of the chairs in Concetta’s Finished Goods
Inventory as at December 31 is $455,600.

Answer to Question 4:
To compute the overheads under or over application, we will first compute
the total overhead applied. For total overhead applied, we need the total
machine hours used for the year. The total machine hours for the year are
as below:
Computation of Machine Hours Used
From January to November 8,30,000
For December 49,900
Total during the year 8,79,900
Considering the pre-determined overhead rate of $5 per machine hour,
the total overhead applied during the year is
Total Overhead applied
(879,900 mc hrs * $5/mc hr)
$43,99,50
0
We will now see the total actual overhead incurred during the year as
below:
Computation of Total Overhead Incurred
From January to November $41,40,000
For December $2,52,000
Total during the year $43,92,000
Thus, we see that the total overhead incurred is less than the overhead
applied, indicating that the overhead has been over applied.
Over applied Overhead = $43,99,500 - $43,92,000
Over applied Overhead = $7,500
Thus, Concetta over applied overhead to the tune of $7,500.

Answer to Question 5:
The over applied or under applied overhead at the end of year must be
adjusted to close the books of accounts and allocate appropriate cost to
the job in hand. The two distinct treatment of the over applied or under
applied overhead are:
1. Close it to Cost of Goods Sold
This is by far the most common treatment of the over applied or under
applied overhead is to close it with cost of goods sold. This is because
when the overheads are under or over applied, it indicates that the cosy
of production of goods has been misappropriated and transfer of
difference to the cost of goods sold equalizes the cost and reflects
accurate cost of goods sold. Transfer to cost of goods sold balances the
overhead and closes the under or over application of overheads.
Generally, the above is done when the amount of the under or over
application of overheads are insignificant. When they are of value which is
not very high, the overheads are treated as period cost and allocated to
cost of goods sold in total to balance.
2. Apportion it to items of cost WIP inventory, Finished Goods and Cost
of Goods Sold.
When the under or over applied overheads are significant and allocating
them to one single cost head is not feasible, the under or over applied
overhead is allocated to all the cost items that have created the difference
including the Work In Progress Inventory, Finished Goods and Cost of
Goods sold.
Here, the overheads are actually apportioned to all the units of the
company, be it under process, as finished goods or sold. This is in contrast
to the earlier treatment where all the under or over applied overheads is
apportioned to the goods sold. Cases where the amount is significant, this
treatment will lead to higher cost of goods sold providing lower net
income of the firm. Appropriation to each cost head will allocate them

evenly and thus the cost of goods sold is not inflated unreasonably
leading to accurate net income.
The above are two distinct methods of allocating the over or under
applied overheads.
Answer to Question 6:
Job Costing method is one of the simplest method of costing wherein all
the product costs including direct material, direct labour and overheads
are collected and allocated to the current job in hand of the company
evenly on basis of either machine hour or labour hour or labour cost or
any other single base of allocation of overhead costs to the products of
the company. (Bragg, 2019)
On the other hand, ABC or the Activity Based Costing is more logical
approach of cost allocation over the products manufactured by the
company. This method starts with identification of all major indirect
activities of the company and finds out the cost of the same. This activity
cost are them allocated to the products basis their usage of the activity
and not simply by one basis. (AccountingCoach.com, 2019).
The use of ABC costing eliminates the deficiency of the job costing by
identifying each point of cost in the company. Currently Concetta is using
a single rate of overhead rate based on machine hour. This is allocating all
the overhead based on machine hour used. However, in reality all the
overheads are not supposed to be evenly distributed as some jobs are
using more resources than others.
The use of Activity Based coting will eliminate this problem as this method
will first identify all the cost points and their usage. Then it will allocate
the overheads based on the activity usage.

References
AccountingCoach.com. (2019). Activity Based Costing | Explanation | AccountingCoach.
Retrieved from https://www.accountingcoach.com/activity-based-costing/explanation on
14 Apr. 2019
Bragg, S. (2019). Job costing. [online] AccountingTools. Retrieved from
https://www.accountingtools.com/articles/2017/5/14/job-costing on 14 Apr. 2019
Copeland, R. (2000). Managerial accounting. Houston, TX: Dame.
dummies. (2019). Cost Accounting: The Weighted Average Costing Method - dummies.
Retrieved from https://www.dummies.com/business/accounting/cost-accounting-the-
weighted-average-costing-method/ on14 Apr. 2019].
Garrison, R., Noreen, E. and Brewer, P. (n.d.). Managerial accounting.
Turney, P. (1997). Activity based costing. London: Kogan Page.