cost of accounting
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1. Provide numerical examples of a Direct Material Budget for the second quarter (April to June) by considering a manufacturing company operating in Saudi Arabia as a sample study. (2marks)
Answer:-
Almarai, makes a juice that sells for SAR 68/unit. It expects to produce 5,000 units in April and 6,000 units in May and 7,000 unit in June. Almarai prefers to end each period with a direct materials inventory equal to 30% of the direct materials required for the next period’s production.
Almarai’s product uses 0.2 pounds of direct material per unit, at a cost of SAR 5/lb. There were 500 lbs. of direct material on hand on April 1. Assume that budgeted production for July is 8,000 units.
The direct materials purchases and usage budget for the second quarter (April to June)
|
Item |
April |
May |
June |
Total |
|
Required production in units |
5,000 |
6,000 |
7,000 |
18,000 |
|
* DM required per unit, in pounds |
0.2 |
0.2 |
0.2 |
0.2 |
|
Total DM required, in pounds |
1,000 |
1,200 |
1,400 |
3,600 |
|
Less: Beginning DM inventory |
(500) |
(360) |
(420) |
(1,280) |
|
Plus: Desired ending DM inventory |
360 |
420 |
480 |
1,260 |
|
Required DM purchases in pounds |
860 |
1,260 |
1,460 |
3,580 |
|
* Budgeted DM cost per pound |
5 |
5 |
5 |
5 |
|
Budgeted cost of DM |
4,300 |
6,300 |
7,300 |
17,900 |
|
Usage budget |
= 1,000 * 5 = 5,000 |
= 1,200 * 5 = 6,000 |
= 1,400 * 5 = 7,000 |
18,000 |
Notes:-
· Beginning DM inventory of the month is desired ending DM inventory of last period.
· Desired ending DM inventory of June = Required production in units of July * 0.2 * 30% = 8,000 * 0.2 * 30% = 480
· Usage budget = Total DM required, in pounds * Budgeted DM cost per pound
2. XYZ Industries Co. decided to allocate Human Resource department costs based on the number of employees in each department and Information Technology costs based on the number of machine hours in each department. (2marks)
Required:
a) Give a numerical example for the four departments, given the table below, (the numerical information should be appropriate as per the table given as a reference.
Answer:-
|
|
Support Departments |
Operating Departments |
TOTAL |
||
|
|
Human Resource |
Information Technology |
Hot Rolled Hollow Steel |
cold Rolled Hollow Steel |
|
|
Total department cost |
310,000 |
169,000 |
1,504,000 |
680,000 |
2,663,000 |
|
Number of employees |
10 |
3 |
30 |
10 |
53 |
|
Number of machine hours |
5 |
500 |
100 |
400 |
1,005 |
b) Then based on your given information, use The Direct method to allocate support department costs.
Allocate cost:
|
Human Resource |
(310,000) |
0 |
232,500 |
77,500 |
0 |
|
Information Technology |
0 |
(169,000) |
33,800 |
135,200 |
0 |
|
Total department cost |
310,000 |
169,000 |
1,504,000 |
680,000 |
2,663,000 |
|
TOTAL |
0 |
0 |
1,770,300 |
892,700 |
2,663,000 |
· Determining the percentage usage based on Number of employees:-
· Hot Rolled Hollow Steel Department: 30 / 40 (30 + 10) = 75% of Human Resource department costs
· Cold Rolled Hollow Steel Department: 10 / 40 (30 + 10) = 25% of Human Resource department costs
· Determining the percentage usage based on Number of machine hours:-
· Hot Rolled Hollow Steel Department: 100 / 500 (100 + 400) = 20% of Information Technology department costs
· Cold Rolled Hollow Steel Department: 400 / 500 (100 + 400) = 80% of Information Technology department costs
· Determining the allocated costs of Human Resource department to operating departments:-
· Hot Rolled Hollow Steel Department: 310,000 * 75% = 232,500 of Human Resource department costs
· Cold Rolled Hollow Steel Department: 310,000 * 75% = 77,500 of Human Resource department costs
· Determining the allocated costs of Information Technology department to operating departments:-
· Hot Rolled Hollow Steel Department: 169,000 * 20% = 33,800 of Information Technology department costs
· Cold Rolled Hollow Steel Department: 169,000 * 80% = 135,200 of Information Technology department costs
· Determining the total costs of operating departments after adding allocated costs from Support Departments:-
· Hot Rolled Hollow Steel Department: 1,504,000 + 232,500 + 33,800 = 1,770,300
· Cold Rolled Hollow Steel Department: 680,000 + 77,500 + 135,200 = 892,700
3. For what types of products is the physical output method appropriate? Give suitable and real example that should support your answer. ch9 (1mark)
Answer:-
· Physical output method can be used only when joint products are measured the same way (e.g. pounds or feet).
· The joint costs per batch of mud are as follows:
|
Specifics |
Amount |
|
Direct Materials |
17,750 |
|
Direct Labor |
2,300 |
|
Overhead |
213,790 |
|
Total Costs |
233,840 |
· Assume that at the split-off point, there are the following quantities of products:
|
Specifics |
Quantity (pounds) |
|
Skin cream |
200 |
|
Shampoo |
150 |
|
Soap |
150 |
|
Total Costs |
500 |
· Using the physical units’ method, the total joint costs of 233,840 are allocated using the pounds of products at the split-off point.
|
Product |
Split-Off Quantity (pounds) |
Percent at Split-Off |
× |
Joint Cost |
= |
Joint Cost Allocation |
|
Skin cream |
200 |
40 |
× |
233,840 |
= |
93,536 |
|
Shampoo |
150 |
30 |
× |
233,840 |
= |
70,152 |
|
Soap |
150 |
30 |
× |
233,840 |
= |
70,152 |
|
Totals |
500 |
100 |
|
|
|
233,840 |
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