ILLUSTRATION QUESTIONS
JOB, BATCH & SERVICE COSTING
Illustration I (Job Costing)
The following indirect costs were incurred on job number 2390 of ABC Company Ltd.
Materials Ghc4,010
Wages: - Dept. A 60 hours @ ghc3 per hour
Dept. B 40 hours @ ghc2 per hour
Dept. C 20 hours @ ghc5 per hour
Other overhead expenses for these departments were estimated as follows:
Variable overheads:
Dept. A GHc 5,000 for 5,000 labour hours
Dept. B GHc 3,000 for 1,500 labour hours
Dept. C GHc 2,000 for 500 labour hours
Fixed overheads are estimated at GHc 20,000 for 10,000 normal working hours.
Required:
Calculate the cost of Job Number 2390 assuming administrative and selling and distribution
overheads is 10% of factory cost and calculate the price to give profit of 25% on selling price.
Illustration II (Service Costing)
Suppose that a canteen records the following cost during the month.
GH¢
Food and drink 11,250
Labour 11,250
Heating and Lighting 1,875
Repairs and consumable stores 1,125
Financing costs 1,000
Depreciation 750
Other apportioned costs 875
Revenue 22,500
The canteen serves 37,500 meals in a month.
You are required to find:
a. Total cost for the month
b. Total cost per meal
c. Total subsidy
d. The subsidy per plate
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Illustration III (Batch Costing)
The following data have been recorded for four batches in a period.
Batch A B C D
Output (units) 250 60 200 120
Cost per batch: (£)
Direct Material 1,650 750 2,100 900
Direct Labour 9,200 1,520 6,880 2,400
Labour Hours 1,150 190 860 300
The total production overhead for the period has been analyzed as follows:
£
Machine related cost 14,600
Material handling and dispatch 6,800
Stores 8,250
Inspection/ Quality Control 5,850
Set-up Cost 6,200
Engineering Support 8,300
50,000
Cost drivers have been identified for the cost pools as follows:
Cost pool Cost Drivers
Machine cost Machine Hours
Material handling Material- Movement
Stores Requisitions raised
Inspection Number of Inspections
Set-up Number of Set-ups
Engineering Support Engineering hours
The following cost driver volumes were recorded for the batches:
Batch: A B C D Total
Machine hour per batch 520 255 610 325 1,710
Material Movement 180 70 205 40 495
Requisition 40 21 43 26 130
Inspections 18 8 13 8 47
Set-ups 12 7 16 8 43
Engineering hours 65 38 52 35 190
Required:
a. Calculate the batch and unit cost using traditional costing bases.
b. The batch and unit costing using ABC (Activity based costing)
c. Compare the cost in a) and b) above.
d. Comment on the likely position, if the firm was cost plus pricing.
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MARGINAL AND ABSORPTION COSTING
Illustration 1
A company produces a single product with the following budget:
Selling Price GH¢10.00
Direct Materials GH¢3.00 per unit
Direct Wages GH¢2.00 per unit
Variable Production Overheads GH¢1.00 per unit
Fixed Production Overheads GH¢10,000.00 per month
The fixed production overhead is absorbed on the volume of 5,000 units per month.
Required:
Show the operating statement for the month, when 4,800 units were produced and sold under:
a.Marginal Costing
b.Absorption Costing
Assume that costs were as budget.
Illustration II
ATALA Ltd produces a single product with the following budget:
Direct Material GHS30.00 per unit
Direct Labour GHS20.00 per unit
Variable production overheads GHS10.00 per unit
Selling Price per unit GHS100.00
Fixed production overhead GHS100,000 per month
The fixed production overhead is absorbed on the volume of 5,000 units per month. Actual
production for the month was 10,000 units, whiles 9,600 units were sold.
Required:
Show the operating statement for the month using the following costing techniques:
(a)Marginal Costing
(b)Absorption Costing
(c)Reconcile the profits between both techniques
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Illustration III
Vanny Ltd makes and sells a single product and has total production capacity of 30,000 units per
month.
The budget for January 2014 contained the following information:
Normal capacity (Units) 27,000
Variable costs per unit:
Production (GH¢) 110
Selling and distribution (GH¢) 25
Fixed overheads:
Production (GH¢) 756,000
Selling and administration (GH¢) 504,000
The actual operating data for January 2014 is as follows:
Production 24,000 units
Sales @ GH¢250 per unit 22,000 units
Opening inventory of finished goods 2,000 units
During the month of January 2014, the variable factory overheads exceeded the budget by
GH¢120,000.
Required:
(a) Prepare profit statement for the month of January using:
(i) Marginal costing: and
(ii) Absorption costing.
(b) Reconcile the difference in profits (if any), under the two methods.
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Illustration IV
Ataala Ltd is a company that produces fruit juice which is bottled and sold in crates. The normal
annual level of production on which the fixed production overhead absorption is based is 120,000
crates.
Data for the just ended financial year of 31 December 2018 is as follows:
Production 145,000 crates
Sales 112,000 crates
Selling price GHS2,000 per crate
Costs:
Direct material 600 units
Direct labour 520 hours
Variable overhead 250
Fixed production overhead 1,820,000
Variable selling and distribution cost 10% of sales revenue
Fixed selling and distribution cost GHS234,000
Assume no opening inventories
Required:
Prepare profit statements for the year ended 31 December, 2018 based on
(a) Marginal costing
(b) Absorption costing
(c) Reconcile the Profit figures in (a) and (b) above
(d) Outline TWO differences between Marginal Costing and Absorption Costing
NOTE: Please show workings and leave all monetary computations in 2 decimal places
5
BUDGETING
Illustration I
The UPSA Fabrication Company is in the process of preparing the Cash Budget for the last four
months of 2017 that is September to December. The following information has been made available.
Sept. Oct. Nov. Dec.
(i) Projected Sales (Units) 6,000 6,500 6,500 7,000
(ii) Selling Price is GHS10 per unit but it is expected to drop by 5% from 1st November.
(iii) Receipt for goods sold is as follows; 20% in the month of sales, 60% the following month after
sales and the balance in the second month after sales. Bad debt is estimated at 2% of sales values.
(iv) Purchases of goods at GHS6.00 per unit per month are as follows: September 7,000 units,
October 7,000 units, November 7,200 units and December 6,500 units.
(v) Goods purchased are paid one month in arrears.
(vi) Monthly expenses estimated at 12% on sales revenue are paid in the month in which the expense
is incurred.
(vii) The company plans to buy a delivery van at a cost of GHS27,000.00. 40% of the cost is to be
paid in October and balance in January 2018.
(viii) The Director withdraws GHS2,000.00 monthly for personal expenses.
(ix) Extracts from August figures are as follows:
(a) Debtors GHS46,000.00 out of which GHS10,000.00 is part of July sales before the bad debt.
(b) Creditors for goods GHS20,000.00
(c) Cash GHS7,000.00.
Required:
(a)Prepare the monthly CASH BUDGET for the four months ending December, 2017.
(b)Advice the Managing Director of the steps to be taken to ensure efficient use of idle cash balances
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Illustration II
PIAC Ltd commences trading on 1 June with a capital of GH¢480,000. The following estimates have
been made:
(i) Plant and equipment costing GH¢320,000 will be purchased and installed prior to commencement
of the business. The plant and equipment is payable in July and will be depreciated on a straight line
basis over eight years with no expected disposal value
(ii) On 1 June, an initial stock of goods will be purchased for GH¢192,000 payable in July. All goods
sold from 1 June will be replaced immediately. Purchases will be on two months credit.
(iii) Gross profit will be 15% on the cost of goods
(iv) Forecast sales for the first three months are:
June GH¢184,000; July, GH¢216,000 and August GH¢248,000
Sales is on credit payable in the month following sale
(v) Rent and rates of GH¢64,000 for twelve months from 1 June is payable in July
(vi) Wages and other overheads commencing in June are estimated at GH¢48,000 per month. 50%
will be paid in the month incurred with the balance payable in the following month.
Required:
(i) Prepare cash budget for the three months period June, July and August.
(ii) Advice management on what to do with idle cash balance of GH¢24,000.
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Illustration III
Joy Daddy Ltd commences trading on 1 June with a capital of GH¢240,000. The following estimates
have been made:
Plant and equipment costing GH¢160,000 will be purchased and installed prior to
commencement of the business. The plant and equipment is payable in June and will be
depreciated on a straight line basis over eight years with no expected disposal value
On 1 June, an initial stock of goods will be purchased for GH¢96,000 payable in July. All
goods sold from 1 June will be replaced immediately. Purchases will be on two months credit
Gross profit will be 33 1/3% on the cost of goods
Forecast sales for the first three months are:
- June GH¢92,000; July, GH¢108,000 and August GH¢124,000
- Sales is on credit payable in the month following sale
Rent and rates of GH¢32,000 for twelve months from 1 June is payable in July
Wages and other overheads commencing in June are estimated at GH¢24,000 per month.
50% will be paid in the month incurred with the balance payable in the following month.
Required:
Prepare cash budget for each of the three months June, July and August
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FUNCTIONAL BUDGETS
Illustration IV
Nii Limited manufactures three products called SI, MI, and LAR. The information given below
relates to the month of October, 2011.
Product Quantity Price/Unit
(Units) (GH₵)
Sales: SI 1200 80
MI 2400 96
LAR 1800 112
Materials used in the company’s Products:
Material M1 M2 M3
Unit cost GH₵ 3 GH₵ 5 GH₵ 8
Quantity used in: MA MB MC
(Units) (Units) (Units)
Product SI 5 3 1
Product MI 4 4 3
Product LAR 3 2 2
Finished stocks: Product (SI) Product (MI) Product(LAR)
(Units) (Units) (Units)
Quantities:
1st October 1200 1800 600
31st October 1320 1980 660
Material stocks: MA MB MC
(Units) (Units) (Units)
1st October 31,200 24,000 14,400
31st October 37,440 28,800 17,280
Required:
Prepare the following functional budgets for the month of October 2012 for
(i) Sales in quantity and value, including total value
(ii) Production quantities
(iii)Material usage in quantities
(iv)Material purchases in quantities and value, including total value.
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FIXED, FLEXED AND FLEXIBLE BUDGETS
Illustration V
Vanny Ltd budgeted to sell 200 units and produced the following budget.
GHS GHS
Sales 71,400
Variable costs:
Labour 31,600
Material 12,600 44,200
Contribution 27,200
Fixed costs 18,900
Profit 8,300
Actual sales turned out to be 230 units, which were sold for GHS69,000. Actual expenditure on
labour was GHS27,000 and on material GHS24,000. Fixed costs totaled GH10,000
Required:
Prepare a FLEXIBLE BUDGET that will be useful for Management control purposes.
Solution:
Budget Budget per unit Flexed Budget Actual Budget
(GH¢) 230 units
200 units (GH¢) 230 units (GH¢) (GH¢)
Sales 71,400 71,400/ 200 units 357 × 230 units 69,000
= 82,110
= 357
Variable costs:
Labour 31,600 158 36,340 27,000
Material 12,600 63 14,490 24,000
44,200 221 50,830 51,000
Contribution 27,200 136 31,280 18,000
Fixed costs 18,900 18,900 10,000
Profit 8,300 12,380 8,000
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TERM PAPER: MASTER BUDGET
INSTUCTIONS: In groups of not more than Five (5) Members in a Group, please solve the
Question below and submit printed and bound copies on or before Sunday, 17th April, 2022 at 03:00
pm. Each Group will be required to do a 10 minutes Presentation and 5 minutes Q & A session.
PokuPharma Company Limited manufactures two products known as A and B. Product A is
produced in department 1 and B in department 2. The following information is available for 2010.
Standard material and labour costs:
GH¢
Material X 1.80 per unit
Material Y 4.00 per unit
Direct labour 3.00 per hour
Overhead is recovered on a direct hour basis.
The standard material and labour usage for each product is as follows:
A B
Material X 10 units 8 units
Material Y 5 units 9 units
Direct labour 10 hours 15 hours
The Statement of Financial Position (SOFP) for the previous year ended 2009 was as follows:
GH¢ GH¢ GH¢
Property, plant and equipment:
Land 42,500
Building and equipment 323,000
Less depreciation 63,750 259,250 301,750
Current Assets:
Inventory: Finished goods 24,769
Raw materials 47,300
Receivables 72,250
Cash and Bank 8,500 152,819
Less current liabilities:
Creditors 62,200 90,619
Net Assets 392,369
Financed by:
300,000 ordinary shares of GH¢1 each 300,000
Add reserves 92,369 392,369
Other relevant data is as follows for the year 2010:
Finished Products
A B
Forecast sales (units) 8,500 1,600
Selling price per unit (GH¢) 100 140
Closing inventory required (units) 1,870 90
Opening inventory (units) 170 85
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Direct Material
Material X Material Y
Opening inventory (units) 8,500 8,000
Closing inventory required (units) 10,200 1,700
Department 1 Department 2
GH¢ GH¢
Budgeted variable overhead rates
(per direct labour hour)
Indirect materials 0.30 0.20
Indirect labour 0.30 0.30
Power (variable portion) 0.15 0.10
Maintenance (variable portion) 0.05 0.10
Budgeted fixed overheads Department 1 Department 2
GH¢ GH¢
Depreciation 25,000 20,000
Supervision 25,000 10,000
Power (fixed portion) 10,000 500
Maintenance (fixed portion) 11,400 799
Estimated non-manufacturing overheads GH¢
Stationery etc (Administration) 1,000
Salaries 18,500
Office 7,000
Commission 15,000
Car expenses (sales) 5,500
Advertising 20,000
Sundry (office) 2,000
69,000
Budgeted cash flows are as follows:
Q1 Q2 Q3 Q4
GH¢ GH¢ GH¢ GH¢
Receipts from customers 250,000 300,000 280,000 246,250
Payments:
Materials 100,000 120,000 110,000 136,996
Wages and salaries 100,000 110,000 120,000 161,547
Other expenses 30,000 25,000 18,004 3,409
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Required:
Prepare a Master Budget for the year ended 2010 and the following functional budgets;
1. Sales budget
2. Production budget
3. Direct materials usage budget
4. Direct materials purchase budget
5. Direct labour budget
6. Factory overhead budget
7. Selling and Administration budget
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