COST ACCOUNTING

Questions and Answers on Cost Accounting

AUGUST 4, 2023
ALLIANCE ACADEMY
LAGOS, NIGERIA.
TABLE OF CONTENTS
Title Page
1. Job costing 2
2. Standard Costing 5
3. Process Costing 12
4. Cost Behaviour 15
5. Marginal Costing 18
6. Labour Costing 20
7. Absorption Costing 27
8. Break even Analysis 36
9. Control of Direct Materials 39
10. Factory Overhead 46

1
JOB COSTING
Coping with cost accounting by Eddy Omolehinwa
1. Fancy Ltd collects its cost data by the job order cost accumulation procedure for Job
No X50. The following data are available for January 20X1 when X50 was started and
completed.

Direct Material
10/1/20X1 Issued N1500
16/1/20X1 Issued N750

Direct Labour
Week of January 10 100 hours at 5/hr.
Week of January 16 150 hours at 5.10/hr.
Factory Overhead is absorbed at the rate of N4.20 per direct labour hour.

Required:
a. A job order cost sheet for Job No, X50
b. The selling price of the job assuming that profit is 25% of the amount to quote
for the job
Solution
a. JOB NO. X50

DATE MATERIALS DIRECT LABOUR PRODUCTION OVERHEAD

Material Amoun Hou Rat Amoun Absorptio Overhea Amoun
requisitio t r e t n basis: d rate t
n N N N Direct N N
labour hr.
10/1/20X issue 1500 100 5 500 100 4.20 420
1
Issue 750 150 5.1 765 150 4.20 630
0
2250 1265 1050
b. The selling price of the job assuming 25% profit:
N
Direct Material 2250
Direct Labour 1265
Production overhead 1050
4565
Profit (25% 0f 4565) 1141.25
Selling Price 5706.25

Coping with cost accounting by Eddy Omolehinwa

2
2. Time Day International Ltd produces special products made to customers’
specifications. The following data relate to job No. 16 which was started and
completed in January 20X2

First week of January Second week of January

Material used by dept. A N2000 N2500
Direct labour rate Dept. A N3.50/hr. N3.50/hr.
Labour hours used Dept. 500 250
A
Direct labour rate Dept. B N3.00/hr. N3.00/hr.
Labour hours Dept. B 200 100
Machine hours Dept. B 300 180
Factory overhead N2.20/ labour hour N2.20/ labour hour
Absorption rates in Dept.
A
Factory overhead N2.60/ labour hour N2,60/ labour hour
absorption rates in Dept.
B

Selling and administrative expenses are charged to each job at a rate of 10% of the
cost to manufacture. It is the policy of Time Day to make profit on each job equal to
20% of the amount to quote for the job.
Required:
Determine the amount to quote to job No.16

Solution
Direct Labour A: 500+250 = 750
N3.50 * 750 = N2625
Direct Labour B: 200+100 = 300
N3.00 * 300 = N900
Machine hours B: 300+180 = 480
N2.60 * 480 = N1248
Factory Overhead Absorption Rates: A: N2.20 * 750 = N1650
B: N2.60 * 300 = N 780
Selling and Administrative expenses: 10% * 10455 = N1045.5
Profit: 20% * 11500.5 = N2300.1

N N
Materials used Dept. A 4500
Direct Labour: A 2625
B 900 3525
8025
F.O.A.R: A 1650
B 780 2430

3
 N N
10455
Selling and Admin expenses 1045.5
11500.5
Profit 2300.1
Amount to quote 13800.6
3. Ngozi Ltd uses a job order costing system. The following transactions relate to the
month of December.
a. Raw materials issued to production = N50000
b. Total direct labour cost incurred = N48000
c. Manufacturing overhead is absorbed on the basis of N3.70 per direct labour
hour. There were 12000 direct labour hours utilized during the month.
d. Actual total manufacturing overhead incurred for the month was N46000
e. Production orders that cost N120000 were sent to their owners at a profit of 25%
based on cost.
You are informed that the beginning Work-In-Progress was N15000
Required:
i. Journalise the above entries where appropriate
ii. The value of Work-In-Progress at the end of December.

Solution
i.

DR CR
N N
Inventory 15000
Work-In-Progress 15000
Being the amount of Work-
In-Progress at the beginning
of the period
Production 50000
Raw materials 50000
Being amount of raw
materials issued to
production
Wages 48000
Profit 48000
Being the total direct labour
costs incurred
Manufacturing expenses 46000
Profit 46000
Being total amount of
manufacturing overhead
incurred
Production order 150000

4
 Owners 150000
Being cost orders sent to
their owners with 25% profit,

ii. Value of Work-In-Progress N

Beginning work in progress 15000

Materials 50000
Direct labour 48000
Manufacturing Overhead 46000
159000
STANDARD COSTING
Coping with Cost accounting by Eddy Omolehinwa
12. A company organized in two departments X and Y gave the following information
concerning its activities in a week.
Dept. X Dept. Y
Normal available working hours 1000 2000
Actual production hours 950 1920
Standard hours of output achieved 1160 1700
Total hours paid for 1000 2000
Wages:
Standard cost per hour N3 N2
Actual Total payment N3300 N3950
Variable Overhead:
Standard hour per cost of work N1.20 N0.75
Fixed Overhead:
Standard cost per hour N2.00 N1.50
Total overhead costs incurred in the two
Departments
N
Variable 2500
Fixed 4600
Required:

5
a) Compute for each department
i. The activity ratio
ii. The efficiency ratio
iii. Capacity ratio
iv. The wage variances
b) For the company as a whole determine the variances on:
i. Variable Overhead
ii. Fixed Overhead

Solution
Department X
a. Compute:
i. The activity ratio
Standard hours of work done . * 100%
Budgeted hours taken for the work done
= Standard hours of work done: 1160 hours
Budgeted hours taken: 1000 hours
= 1160 * 100%
1000 = 166%
ii. The Efficiency ratio
Standard hours of work done . * 100%
Actual hours taken for the work done
= Actual hours taken for the work done: 950 hours
Standard hours of the work done: 1160 hours
= 1160 * 100%
950 = 122.1%
iii. The Capacity ratio
Actual hours of work done (excluding idle time) * 100%
Budgeted hours
= Actual hours taken for the work done: 950 hours
Budgeted hours: 1000 hours
= 950 * 100%
1000 = 95%
iv. The wage variance:
Standard Total Payment – Actual total payment
= Actual Total payment: N3300
Standard total payment: N3 * 1160 = N3480
= N3480 – N3300
= N150F
b. Compute the variances on:
i. Variable overhead:
= Standard total variable overhead cost – Actual total variable overhead cost
= Standard total variable overhead cost: N1.20 * 1160 = N1392
Actual total variable overhead cost: N1.20 * 950 = N1140

6
 = N1392 – N1140 = N252F
ii. Fixed overhead:
= Standard total fixed overhead cost – Actual total fixed overhead cost
= Standard total fixed overhead cost: N2.00 * 1160 = N2320
= Actual total fixed overhead cost: N2.00 * 950 = N1900
= N2320 - N1900 = N420F

Department Y
a. Compute:
i. The activity ratio
Standard hours of work done . * 100%
Budgeted hours taken for the work done
= Standard hours of work done: 1700 hours
Budgeted hours taken: 2000 hours
= 1700 * 100%
2000 = 85%
ii. The Efficiency ratio
Standard hours of work done . * 100%
Actual hours taken for the work done
= Actual hours taken for the work done: 1920 hours
Standard hours of the work done: 1700 hours
= 1700 * 100%
1920 = 88.5%
iii. The Capacity ratio
Actual hours of work done (excluding idle time) * 100%
Budgeted hours
= Actual hours taken for the work done: 1920 hours
Budgeted hours: 2000 hours
= 1920 * 100%
2000 = 96%
iv. The wage variance:
Standard Total Payment – Actual total payment
= Actual Total payment: N3950
Standard total payment: N2 * 1700 = N3400
= N3400 – N3950
= N550U
b. Compute the variances on:
i. Variable overhead:
= Standard total variable overhead cost – Actual total variable overhead cost
= Standard total variable overhead cost: N0.75 * 1700 = N1275
Actual total variable overhead cost: N0.75 * 1920 = N1440
= N1275 – N1440 = N165U

7
 ii. Fixed overhead:
= Standard total fixed overhead cost – Actual total fixed overhead cost
= Standard total fixed overhead cost: N1.50 * 1700 = N2550
= Actual total fixed overhead cost: N1.50 * 1920 = N2880
= N2550 – N2880 = N330U

COST ACCOUNTING_ A managerial approach

Adeniyi A A

EasyGo Ltd produces a specialty product which is sold in bottles. Batches of 144 such bottles are
produced by a team of men in 2hours at the following cost:

4 craftsmen at ₦400 per hour. 1,600

2 labourers at ₦200 per hour. 400

1 trainee at ₦100 per hour. 100

7men at an average of ₦300. 2100

In period X, 300 batches were produced at a total cost of ₦1,245,000, made up as follows:

Craftsmen 2700hrs paid, 2600 hours worked. ₦850 000

Labourers 1,600hrs paid, 1,200. 320,000

Trainee 700hours paid, 500 hours worked. 75,000

= 1245000

Required:

Calculate the total labour Variance and analyse this into rate, efficiency, idle time, mix and rate.

Easy Go Limited

Computation of Variances

Total labour Variance= (Standard cost – Actual cost)

(300×2×2,100) – 1,245,000= ₦1,260,000-₦1,245,000 = ₦15,000 (F)

Rate Variance= (Std rate – Act rate) × Act Hours

Craftsmen: 2,700 × 400) – 850,000 = ₦230,000 (F)

Labourers: 1,600 × 200) – 320,000 = 0

Trainee: 700 × 100) - 75,000 = (5,000) (A)

8
Idle time Variance= (Act hrs. paid – Act RS used) × STD rate

Craftsmen: (2700 – 2,600) × 400= #40,000 A

Labourers: (1600 – 1,200) × 200= 80,000 A

Trainee: (700 – 50) × 100= 20,000 A

Mix Variance= (STD mix-Act mix) × STD rate

Craftsmen: (4/7 × 4,300) = 2457 – 2600 × 400= ₦57,200 (A)

Labourers: (2/7 × 4,300) =) 1229-1200) × 200= ₦4,800 (F)

Trainee: (1/7 × 4,300) = 614 – 500) × 100 = 11,400(F)

Efficiency variance= (STD hours – Actual hours) × STD Rate

Craftsmen: (2,400 – 2600) × 400 = (80,000(A)

Labourers: (1,200-1,200) × 200= 0

Trainee: (600 – 500) × 100= 10, 000(F)

Reference: Standard costing Approach

1. Stomach limited makes a fruit drink called orange boom.

The standard costs for one unit finished product are: N

Direct materials (2kg @ #0.5 per kg) 1.00

Direct labour (1/2 hours @ #4.00 per hour) 2.00

Variable overhead ( #2 per standard direct labour hour) 1.00

Fixed overhead (#1 per standard direct labour hour) 0.50

Standard cost 4.5

Practically monthly capacity is 15,000 units with budgeted fixed overhead of #7.500. For the most
the recent month, 10,000 units were produced and sold. Related transactions and cost data for this
period are:

Material purchases (15,000kg @#0.40) 6,000

9
Material usage (22000kg @ #.50) 11,000

Direct labour (4,500 hours @#4.10) 18,450

Variable overhead incurred 11,000

Fixed overhead incurred 8,200

Required:

(i) Material price variance:

(ii) Material usage variance:

(iii) Labour rate variance:

(iv) Labour efficiency variance:

(v) Fixed overhead spending variance:

(vi) Variable overhead spending variance:

(vii) Labour efficiency component of variable:

(viii) Volume, variance

SOLUTIONS

STOMACH LTD.

Component resource rate/price cost/unit

Direct material 2kg 0.5 1

Direct labour 0.5hrs 4 2

Variable Overhead 0.5h 2 1

Fixed Overhead 0.5hrs 1 0.5

4.5

Normal capacity = 15000

Budgeted fixed overhead = 7500

Production = 10000 units

ACTUAL

Components resource price cost

Material purchase 15000 0.4 6000

Material usage 22000 0.5 11000

10
Direct labour 4500hrs 4.1 18450

VPO 4500hrs 2.444 11000

FO 95000 1.8222 8200

a. Material price variance

(SP-AP)ARP

(No.5-No.4)15000 units 1500(F)

b. material usage variance

(SQ-AR)ARP

(20000-22000)0.5 1000(A)

500

C. labour rate

(SR-AR)

(4-4.1)4500hrs 450

d. labour efficiency variance

(SH-AH)SR

(5000-4500)4 2000(F)

e. Fixed overhead spending variance N

Actual 8200

f. VPO efficiency/ spending variance

(SR-AR)HRP

(2-11000/4500)4500 2000(A)

g. VPO efficiency variance

(SH-AH)AR

(5000-4500)2 1000(F)

11
h. volume variance

Standard based on normal capacity - standard hours based actual output

0.5 X 15000 – 0.5 x 10000

= 2500 A

PROCESS COSTING
Coping with cost accounting by Eddy Omolehinwa
8. Ewatom Manufacturing Company operates two processing departments, A and B, in the
manufacture of light bulbs. Units completed in department B are transferred to the finished
goods store-room. The following data is available for the month of June 20X1
Dept. A Dept. B
Units from preceding Dept. 25000
Units started in process 50000 5000
Units in process, beginning inventory 3500 2000
Units completed and transferred to next department 25000
Units in process, ending inventory 10000
(There were no units completed and on hand)
Stages of completion of inventories in process)
Beginning: (Materials, labour and overhead) 2/3 1/4
Ending: Materials All All
Labour and Overhead 2/3 2/3
Required:
Compute equivalent production using the FIFO method for:
i. Department A and
ii. Department B

Solution
Department A

12
 Units Direct Labour and
material Overhead
Units in process, (3500) 2333.33 875
beginning
inventory
Units started in 50000
process
Units completed 25000
and transferred
71500 2333.33 875

Workings
Beginning:
Direct materials: 2/3 * 3500 = 2333.33
Labour and Overheads: ¼ * 3500 = 875

Department B

Units Direct material Labour and

Overhead
units from 25000
preceding
department
Units in process, (2000) (1333.33) (500)
beginning
inventory
Units started in 5000
process
Units In process 10000 10000 6666.67
ending inventory
38000 8666.67 6166.67

Workings
Beginning:
Direct materials: 2/3 * 2000 =1333.33
Labour overhead: ¼ * 2000 = 500
Ending:
Direct materials: 10000
Labour and Overhead: 2/3 * 10000 = 6666.67
Textbook: Cost accounting: Foundation and Evaluation

LO.2 (WA EUP) in manufacturing its products, Trevano Corp. adds all direct material at the
beginning of the production process. The company’s direct labour and overhead are considered to
be continuously at the same degree of completion. September production information is as follows:
Beginning WIP Inventory 24,000 pounds

13
Started during September 600,000 pounds

Completed during September 608,000 pounds

As of September 1, the beginning WIP Inventory was 45 percent complete as to labor and overhead.
On September 30, the ending WIP Inventory was 65 percent complete as to conversion.
a. Determine the total number of pounds to account for if Trevano uses the weighted average
process costing method.

b. Determine the equivalent units of production for direct material.

c. Determine the equivalent units of production for direct labor and overhead.

SOLUTION

a. 24000 + 600000 =624,000 pounds

b.

Beginning WIP inventory 24000

Add Started 600000
624000
Less Completed 608000
Ending WIP inventory 16000

Unit started and completed = 608000 - 24000 = 584000

C.

Units Direct material Overhead

Beginning WIP 24000 24000 24000
Started and completed 584000 584000 58400
Ending WIP inventory 16000 16000 10400
EUP 624000 624000 618000

REFERENCE: STUDOC.COM

1. Nikel Company uses FIFO process costing. Data are as follow

Beginning inventory 40% completion 5000units

Unit completed during the period 100,000units

Ending inventory 70%completed 9,000units

The cost of the beginning inventory was $2900 and current production cost were $166,880

a. compute equivalent production

b. compute the unit cost

c. compute the cost of ending inventory of work in pr0cess.

d. compute the cost of goods completed and transferred to finish goods inventory

SOLUTION

14
a. (100000+ (9000X70%))-(5000X40%) = 104300

b. $166880/$104300 = $1.60

c. 9000X70%X$1.60 = $10,080

d. $159,700

Beginning inventory $2,900

Finish opening inventory (5000X60%X1.60) $4,800

Unit started and completed during the period (95,000X$1.60) $152,000

-------------

TOTAL $159,700

COST BEHAVIOUR
Textbook: Coping with cost accounting
Practice question 1
The fixed cost behavior of Usman Limited is as follows:
Range
0-1000. 10000
1001- 3000. 12,000
3001- 6000. 13,000
At an activity level of 2500 unit, variable cost total 4,375
You are required to determine:
a) The cost per unit of producing 3050 units of output
b) Incremental cost of moving from output level of 2500 units to that of 3050 units
SOLUTION
1. for 3050 units
FC= 13,000
VC= 4375÷ 2500= 1.75
VC for 3050 units = 1.75 x 3050 = 5337.5
TC for 3050 units =13000+ 5337.5 = 18337.5

15
Per unit= 18,337.5 ÷ 3050= 6.01
2. Incremental cost
Cost of 2500= 12000 + 4375 =16375
Cost of 3050 = 18337.5
Incremental cost= 18337.5 - 16375 = 1962.5

QUESTION 2. TEXTBOOK: Cost accounting foundations and evolutions

16. LO.2 (Cost behavior) Flaherty Accounting Services pays $2,000 per month for a tax
software license. In addition, variable charges incurred average $9 for every tax return the
firm prepares.
. Determine the total cost and the cost per unit if the firm expects to prepare the following
number of tax returns in March 2010:
1. 200
2. 500
3. 800
b. Why does the cost per unit change in (1), (2), and (3) of part (a)?
c. The owner of Flaherty Accounting Services wants to earn a margin (excluding any other
direct costs) on tax returns of $15,000 during March. If 200 returns are prepared, what tax
return preparation fee should be charged? If that fee is charged and 800 returns are
prepared, what is the margin in March?
SOLUTION
a I. 2000+ 9(200) = 3800
Cost per unit= 3800÷ 200= 19
2. 2000+ 9(500) = 6500
Cost per unit= 6500÷ 500= 13
3. 2000+ 9(800) = 9200
Cost per unit= 9200÷ 800 = 11.5
b. It changes because there is a change in the number of tax returns and fixed cost reduces
as tax returns increases.
c. For 200 tax returns= 15000÷200 = $75
75+19=$ 94

16
For 800 tax returns= 94 x 800 = $75,200
Margin for 800 tax returns = 75200 - 9200 = 66,000

QUESTION 3
13. LO.2 (Cost behavior) Spirit Company produces baseball caps. The company incurred the
following costs to produce 12,000 caps last month:
Cardboard for the brims $ 4,800
Cloth 12,000
Plastic for headbands 6,000
Straight-line depreciation 7,200
Supervisors’ salaries 19,200
Utilities 3,600
Total $52,800
a. What did each cap component cost on a per-unit basis?
b. What is the probable type of behavior that each of the costs exhibits?
c. The company expects to produce 10,000 caps this month. Would you expect each type of
cost to increase or decrease? Why? Can the total cost of 10,000 caps be determined?
Explain.
SOLUTION
a.
i. Cardboard for brims = 4800÷ 12000 = 0.4
ii. Cloth = 12000 ÷ 12000 = 1
iii. plastic for headbands= 6000 ÷ 12000= 0.5
iv. Straight line depreciation = 7200÷ 12000 = 0.6
v. Supervisors salaries = 19200 ÷ 12000 = 1.6
vi. Utilities = 3600 ÷ 12000= 0.30
Total = 4.4
b.
i. Cardboard for brims - variable cost
ii. Cloth- variable cost
iii. Plastic for headbands- variable cost
iv. Straight line depreciation- fixed cost
v. supervisor salaries- fixed cost
vi. Utilities- mixed cost
c. Variable costs are constant per unit and will change in total in direct proportion to
changes in activity, fixed costs are constant in total and will vary inversely on a per-unit basis
with changes in activity, mixed costs fluctuate in total with changes in activity and can be
separated into their variable and fixed components, Step costs are either variable or fixed,

17
depending on the size of the changes (width of the steps) in cost that occur with changes in
activity.
Yes the cost of 10,000 caps can be determined by studying the behaviour of cost and
estimating it using previous units done.

MARGINAL COSTING
REFERENCE: STUDOC.COM

QUESTIONS

1 From the following information find out;

a. P/V Ratio

b. Sales

C. Margin of safety

Fixed cost=Rs.40, 000

Profit=Rs.20, 000

BEP=Rs.80, 000

SOLUTION

a. P/V Ratio

Since S-V=F+P

BEP X P/V Ratio = (value of Pis Zero at BE sales)

P/V Ratio=40,000/80000 =50/100

b. Sales X P/V Ratio=FC+P OR Sale=Contribution/P/V Ratio

40,000+20,000/50/100

=60,000/1 X 100/50

=Rs.1.20, 000

c. Margin of safety=Sales - BEP Sales

MOS =120,000-80,000

=MOS=Rs.40, 000

2. Bansi Company manufacture a single product having a marginal cost of Rs.1.50 per unit. fixed cost
Rs. 30,000 per annum. the market is such that up to 40,000 units can be sold at a price of Rs.3.00 per

18
unit, but any additional sales must be made at Rs.2.00 per unit company has a planned profit of Rs.
50,000. How many units must be made and sold

SOLUTION

a. Contribution desired= FC+ Desired profit

=30,000+50,000=80,000

b. Calculation of contribution by producing 40,000 units

=3.00- 1.50

=1.50

c. Contribution for producing 40,000 units

=1.50 X40, 000units

=Rs.60, 000

d. Additional Units to be produced and sold at Rs.200 per unit after 40,000units

Rs. 80,000-Rs.60, 000=Rs.20, 000

e. units to be produced for contribution of Rs.20, 000 and change in price. Contribution per
unit=Rs.2.00-Rs.1.50=Rs.0.5

f. Additional units to be produced for contribution of Rs.20, 000=

20,000 X100/50 =40,000Units

Total Units to be produced to earn planned profit=

40,000+40,000=80,000

3. A company has a machine No.9 which can produce either product A OR B. The cost data relating
to machine A and B are as follows

PARTICULARS PRODUCT (A) PRODUCT (B)

Selling price Rs.20.00 Rs.30.00

Variables Rs.14.00 Rs.18.00

Contribution Rs.6.00 Rs.12.00

ADDITIONAL INFORMATION

a. Capacity of machine No.9 is 1000hrs

b. in one hrs. Machine No.9 can produce 3 units of A and 1unit of B which product should machine
No.9 product.

SOLUTON

19
STATEMENT SHOWING CONTRIBUTION PER HOUR FOR MACHINE NO.9

PARTICULARS PRODUCT (A) PRODUCT (B)

Sales 20.00 30.00

Variable expense 14.00 18.00

Contribution per unit 6 12

Contribution per hour 18.00 12.00

Contribution per 1000 unit 18,000 12,000

From the above table we can see that company should produce product A with the help of machine
No.9

LABOUR COSTING

BOOK: ATSWA
CHAPTER: FOUR
TOPIC: ELEMENT OF COST: LABOUR
QUESTI0N: 4.4
PAGE 124
End times co. ltd manufactures two different types of product, namely miaweni and
yirewoho. Below is a summary of the payroll data of the company’s production department
for the month of March 2006
Hours worked direct workers indirect workers
Ordinary time 3600 hrs. 800 hrs.
Overtime 650 hrs. 80 hrs.
Wage rate per hour ₵15000 ₵20000
The company pays overtime at a time and half. Overtime is generally worked to meet
budgeted production targets.
Analysis of the time used by the direct workers on the two products reveal the following:
Miaweni 2,400hours
Yirewoho 1,150hours
Idle time 700hours
Required:
a) Prepare the following accounts:
I. Wages control account
II. Work in progress control account
III. Production overhead control account
b) Explain the term labour turnover cost and state four examples of such cost
c) Outline five causes of labour turnover

Solution
End times co. ltd
March 2006

20
Total earnings for direct workers:
Basic pay for miaweni (2400 * 15000) 36,000
Basic pay for yirewoho (1150 * 15000) 17,250
Pay for idle time (700 * 15000) 10,500
1
Overtime premium ( * 650 *15000) 4,875
2
Net payable/amount payable to direct workers 68,625
Total earnings for direct workers:
Basic pay for (800 * 20000) 16,000
1
Overtime premium ( * 80 *20000) 800
2
Net payable/amount payable 16,800
Total net payment to both direct and indirect workers
₵68,625,000 + ₵16,800,000
= 85,425,000
(This is taken to the debit side of wages control account)

Amount to take to work in progress control account as direct labour cost

₵’000
Basic pay for miaweni 36,000
Basic pay for yirewoho 17,250
Basic pay to direct workers on all jobs 53,250
1
Overtime premium ( * 650*15,000) 4,875
2
Total labour cost of indirect workers that
worked at overtime period 800

1
Overtime premium ( * 800) 400 1,200
2
Labour cost to be charged against WIP account 59,325

Amount to take to work in production overhead control account as indirect labour cost
Total earnings of indirect workers 16,800
Less: amount charged as direct labour cost 1,200
15,600
Idle time (700 * 15000) 10,500
Total indirect labour cost 26,100
(This is taken to production Overhead Control Account)
Wages control account
₵’000 ₵’000
Cash 85,425 WIP 59,325
Production Overhead 26,100
85,425 85,425

Work in progress control account

₵’000 ₵’000

21
Wages control 59325

Production overhead control account

₵’000
Wages control 26,100

LABOUR TURNOVER COST

It signifies the labour force during a given period. It can be measured by using the
following formula
Number of employees leaving during a period
× 100
average number of employees for the same period
These costs can be substantial, yet to some extent are avoidable through enlightened
personnel policies and good management. Examples are;
1. Leaving cost (interviews)
2. Replacement cost (advertising, selection)
3. Training cost (cost of required internal and external courses
4. Learning cost (slower initial production)
Causes of labour turnover
1. Dissatisfaction with the job wages or working condition
2. Retirement
3. Discharged due to incompetence, lateness etc.
4. Health issues
5. Lack of promotion opportunities

ATSWA
CHAPTER FOUR
ELEMENT OF COST: LABOUR
QUESTI0N 4.9
a) Write formulae for remuneration payable using: (i) time rate system; and (ii)
payment by result
b) PUCT provides you with the extracted details of its employees labour records as
under:
Data
 Name of employee sanity Moses
 Unit produced 90 80
 Standard time allowed
(in minutes per units produced) 30
 Actual time worked in hours 35 40
 Rate per hour N200 N250
 Rate per unit N66.7 N68
Required:

22
1. Determine the remuneration payment using (i) Time rate system; (ii) Payment by
result; and (iii) Bonus Scheme is based on the product of time saved and hourly rate.
2. Which of the two employee is efficient.

SOLUTION
A. Time rate: workers are paid on the basis of hours engaged.
Hours worked * rate per hour
Payment by result: workers remuneration is calculated by multiplying the quantity
of unit produced by the fixed rate per hour
Unit produced * rate per hour

23
TIME RATE SYSTEM
Sanity
Actual hours worked × rate/hr.
=35 × N200
=7,000
Moses
Actual hours worked × rate/hr.
=40 * N250
= N10, 000
ii. PAYMENT BY RESULT
Sanity
Unit produced × rate/hr.
=90 units × N66.7
= N6003
Moses
Unit produced × rate/hr.
=80 units × N68
= N5440
How time was allocated
Standard time allowed in units: 30 mins/unit for each person
Sanity
90 units
30 × 90 =2700mins
2700
= 45hrs
60
Moses
80 units
30 × 80 =2400mins
2400
= 40hrs
60
iii. HALSEY BONUS SCHEME
1
× time saved × hourly rate
2
Time saved = time allowed – time taken
Sanity
Time saved =45 – 35 = 10hr
1
× 10 × 200
2
= N1000
Moses
Time saved =40 – 40 = 0

24
1
× 0 × 250
2
= N0
HALSEY WEIR
1
× time saved × hourly rate
3
Time saved = time allowed – time taken
Sanity
Time saved =45 – 35 = 10hr
1
× 10 × 200
3
= N833.33
Moses
Time saved =40 – 40 = 0
1
× 0 × 250
3
= N0
ROWAN SCHEME
time taken
× time saved × hourly rate
time allowed
Time saved = time allowed – time taken
Sanity
Time saved =45 – 35 = 10hr
35
× 10 × 200
45
= N1555.56
Moses
Time saved =40 – 40 = 0
40
× 0 × 250
40
= N0
Employee Sanity is more efficient
WHELDON’S COSTING SIMPLIFIED
L.W.J. OWLER & J.L. BROWN
6TH EDITION
CHAPTER EIGHT
METHODS OF REMUNERATION AND EFFECT ON COST
QUESTI0N 37
PAGE 85
a) The XYZ Company operates the rowan premium bonus scheme for its production
workers. During week ended November 8, employee A, whose basic hourly rate of pay is
4, was assigned the following jobs which he completed:

25
 Time allowed Time taken
Job 123 24 18
Job 345 40 25
You are required to calculate:
(i) A’s remuneration for the week in question: and
(ii) His effective hourly rate of pay for that week.
b) What would A’s remuneration for the week have been if the Halsey 50/50 premium
bonus scheme had been in operation

SOLUTION
Hourly rate of pay £4
Time allowed Time taken
Job 123 24 18
Job 345 40 25

Job 123
Day rate = actual hours worked × rate/hr.
= 18 × 4
= 72
time taken
Bonus pay (rowan) = × time saved × hourly rate
time allowed
18
= ×6×4
24
=18
Total pay = 72 + 18
= 90
Job 345
Day rate = actual hours worked × rate/hr.
= 25 × 4
= 100
time taken
Bonus pay (rowan) = * time saved * hourly rate
time allowed
25
= × 15 × 4
40
=37.5
Total pay = 100 + 37.5
= 137.5
TOTAL REMUNERATION FOR THE WEEK
£90 + £137.5 = £227.5
HOURLY RATE OF PAY FOR THE WEEK
18 + 25 = 43
£ 227.5
= £5.29 ≈ 5.3
43

26
B. Day rate = 43 × £4
=£172
Halsey 50/50 Premium Bonus
1
× Time saved × hourly rate
2
Time saved = time allowed – time taken
= (24+40) – (18+25) hours
= 64 – 43 hrs.
=21hrs
1
× 21 × £4 = 42
2
Total pay for the week = 42 + 172 = £214

ABSORPTION COSTING

1. From the following information extracted from the records of sap Dey international for a period, you
are required to answer the questions that follows.
Per unit
N
Selling price of product 250
Direct material 40
Direct labour 50
Variable production overhead 25
Per period
N
Fixed manufacturing cost 40,000
Fixed selling and administrative cost 42,000
In addition to the above costs, the company offers 5% sales commission on value of sales.
Opening stock inventory 0
Units produced 4,000
Units sold 3,600
Required:
(a) Calculate the cost of a unit of production under marginal costing.

(b) Calculate the cost of a unit of production under absorption costing.

(c) What is the net profit for the period using absorption costing?

(d) What is the net profit for the period using marginal costing?

(e) Account for difference in net profit under marginal costing and that of absorption costing in this case.

27
(f) What is the value of closing stock under marginal costing?

SOLUTIONS
SAP DEY INTERNATIONAL

N
A) Direct material 40
Direct labour 50
Variable production overhead 25
115

B) Direct material 40
Direct labour 50
Variable production overhead 25
Fixed manufacturing 10
125

C) INCOME STATEMENT USING ABSORPTION

COSTING TECHNIQUES
N N
Sales (3,600×250). 900,000
Less cost of sales
0pening inventory. -
Add production cost (4000×125) 500,000
Less closing inventory (400×125) 50,000
Gross profit 450,000
Less:
Selling and administrative cost. 42,000
Sales commission 45,000
(87,000)
Net profit 363,000

D) INCOME STATEMENT USING MARGINAL

COSTING TECHNIQUES
N N
Sales (360,000×25). 900,000
Less cost of sales
Opening inventory.
Add production cost (4000×115). 460,000
Less closing inventory (400X115) 46,000

28
 414,000

Sales commission 45,000

(459,000)
Contribution 441,000
Less period cost
Fixed manufacturing cost 40,000
Fixed selling and administrative cost 42,000
(82,000)
359,000

E) Reconciliation of profit.
N
Closing inventory under absorption costing 50,000
Closing inventory under marginal costing 46,000
Difference in profit 4,000

Check N
Absorption costing techniques profit 363,000
Marginal costing techniques profit 359,000
4,000

F) Value of closing inventory under marginal costing

N
4000×115 = 46,000

2. From the information extracted from the records from the records of Asiko Ltd about its product for a
period you are required to answer questions that follows:

Direct material consumed 24,000

Direct labour utilised 38,000

Manufacturing cost:

Fixed 30,000

Variable 28,000

Selling and administrative cost

Fixed 20,000

29
Variable 25,000

Units produced 48,000

Units sold 4,000

Units in opening stock 0

Contribution to sales ratio 2/5

(a) Which of the costing method (absorption or marginal) will show a higher net profit and why?

(b) Determine the value of closing stock at the end of the period using each of marginal costing and
absorption costing

2a when the number of units produced is higher than the number of units sold absorption profit will
higher than marginal profit when the number of units produced is less than the number of units sold
absorption profit will be lower than marginal profit.

ASIKO LTD.

2b. Cost unit under marginal costing technique

N
Direct material 24,000
Direct labour 38,000
Variable production overhead 28,000
90,000
Production cost/unit =90,000/48,000=N1.875

Unit produced 48000

Unit sold 4000

Closing stock 44000

Closing stock =44000 unit x N1.875 =82,500

C. using absorption costing technique

Cost under marginal cost technique 90000

Fixed manufacturing cost 30000

30
 120000

Production cost/ unit= 120,000/48,000= N2.5

Closing stock =44000 units X N2.5=N110,000

3. The cost department of Okechi Company has established the following standards for manufacturing.

Normal capacity (units) 200,000

Maximum capacity (units) 250,000

Standard variable manufacturing cost per unit N15

Variable marketing expenses N1.50

Fixed factory overhead N400, 000

Fixed marketing expenses N250, 000

Sales price per unit #30

Operating units for the year just ended were as follows:

Opening stock 20,000

Production 180,000

Sales 175,000

Required:

(a) Prepare the profit and loss account for the using

(i) Absorption costing.

(II) Marginal costing.

(b) How many units should be sold in order to earn profit of #80,000?

SOLUTION

3. (i) INCOME STATEMENT USING ABSORPTION COSTING

N N

Sales (175000 x 30) 5,250,000

31
Less cost of sales

Opening inventory (20,000 units x 17) 340,000

Production cost 3,060,000

3,400,000

Less closing stock

(25000 x 17) (425,000) (2,975,000)

Gross profit 2275000

Less manufacturing cost

Fixed marketing exp. 250000

Variable marketing (1.5 x 175000) 262500 (512500)

Net profit 1,762,500

(Ii) INCOME STATEMENT USING MARGINAL COSTING TECHNINQUE

N N

Sales 5250000

Less cost

Opening inventory 300,000

Variable production overhead 2700,000

3,000,000

Less closing stock

(25,000 x 15) (375000)

2625000

Variable selling expenses 262500 (2,887,500)

Contribution 2,362,500

Less period Cost

Fixed factory overhead 400000

Fixed marketing expenses 250000 (650000)

1,712,500

32
3b. contribution to sales ratio = 40%

Variable cost = 60%

Cost
Sales =profit + Fixed cost/contribution to sales ratio

=N80, 000 + 650,000 = N730, 000/0.4

Sales= N1825000

Sales in unit = N1825000/N30

= 60,833 units should be sold to achieve the targeted profit.

QUESTION ON STANDARD COSTING

1. Stomach limited makes a fruit drink called orange boom.

The standard costs for one unit finished product are: N

Direct materials (2kg @ #0.5 per kg) 1.00

Direct labour (1/2 hours @ #4.00 per hour) 2.00

Variable overhead ( #2 per standard direct labour hour) 1.00

Fixed overhead (#1 per standard direct labour hour) 0.50

Standard cost 4.5

Practically monthly capacity is 15,000 units with budgeted fixed overhead of #7.500. For the most the
recent month, 10,000 units were produced and sold. Related transactions and cost data for this period
are:

33
 N

Material purchases (15,000kg @#0.40) 6,000

Material usage (22000kg @ #.50) 11,000

Direct labour (4,500 hours @#4.10) 18,450

Variable overhead incurred 11,000

Fixed overhead incurred 8,200

Required:

(i) Material price variance:

(ii) Material usage variance:

(iii) Labour rate variance:

(iv) Labour efficiency variance:

(v) Fixed overhead spending variance:

(vi) Variable overhead spending variance:

(vii) Labour efficiency component of variable:

(viii) Volume, variance

SOLUTIONS

STOMACH LTD.

Component resource rate/price cost/unit

Direct material 2kg 0.5 1

Direct labour 0.5hrs 4 2

Variable Overhead 0.5h 2 1

Fixed Overhead 0.5hrs 1 0.5

4.5

Normal capacity = 15000

Budgeted fixed overhead = 7500

Production = 10000 units

34
 ACTUAL

Components resource price cost

Material purchase 15000 0.4 6000

Material usage 22000 0.5 11000

Direct labour 4500hrs 4.1 18450

VPO 4500hrs 2.444 11000

FO 95000 1.8222 8200

a. Material price variance

(SP-AP)ARP

(No.5-No.4)15000 units 1500(F)

b. material usage variance

(SQ-AR)ARP

(20000-22000)0.5 1000(A)

500

C. labour rate

(SR-AR)

(4-4.1)4500hrs 450

d. labour efficiency variance

(SH-AH)SR

(5000-4500)4 2000(F)

e. Fixed overhead spending variance N

Actual 8200

f. VPO efficiency/ spending variance

(SR-AR)HRP

35
(2-11000/4500)4500 2000(A)

g. VPO efficiency variance

(SH-AH)AR

(5000-4500)2 1000(F)

h. volume variance

Standard based on normal capacity - standard hours based actual output

0.5 0.5

X ___ X 1

15000 10000

2500(A)

BREAK EVEN ANALYSIS

BOOK: COPING WITH COST ACCOUNTING
AUTHOR: EDDY O. OMOLEHINWA
CHAPTER: TEN
TOPIC: BREAK – EVEN ANALYSIS AND COST VOLUME – PROFIT RELATIONSHIP
QUESTI0N: 2
PAGE: 206
Given the following data of Asiko limited, you are required to answer the question that follow:
(a) How many units should be sold in order to?
I. Make a loss of N28, 000?
II. Break-even?
III. Make a profit of N28, 000?
(b) If the total fixed cost is increased to N150, 000, what will be the new breakeven point?
SOLUTION
A. Selling price per unit = N35.00
Variable cost per unit = N21.00
Total fixed cost = N 140,000
36
ASIKO LIMITED
B. Selling price per unit = 35
Variable cost per unit = 21
Total fixed cost = 140000
Contribution per unit = selling price – variable cost per unit
= 35 – 21
= 14
(i). Contribution = FC + profit
If there is a loss:
C = FC – Loss
To earn a loss of 28000
C = 140,000 – 28, 000
= 14
Contribution per unit is 14, total number of units that will generate total contribution of
112,000
122,000 =
14
= 8,000 units
(ii). to break even, asiko limited must earn enough contribution which must be equal to
140,000
140,000
No of units to be sold = = 10,000 units
14
iii. To make a profit of 28,000
C = FC + P
= 140000 + 28,000
= 168,000
168,000
Number of units to be sold =
14
=12,000
C. If TFC is increased to 150,000
TFC = 150,000
New BEP (in units)
150,000
Number of units to be sold =
14
=10714.3

2. The Sherston Brick Company (SBC) manufactures a standard stone block for the building
industry. The production capacity for the year is 100,000 standard blocks. The selling price per
block is $1.60, variable costs are $0.60 per brick and fixed costs are $60,000 per annum.

Determine:
37
a) The break-even point in terms of sales revenue and output.
b) The margin of safety if sales amount to 90,000 bricks in the year.
The market for blocks becomes much more competitive, and SBC reduces its price to $1.50
per brick. Sales still decline to 80,000 bricks, whilst costs rise relentlessly. Variable costs rise
to $O.66 per brick and rises in business taxes and other contributions increase fixed costs to
$80,000 per annum.
c) Is the firm still profitable?
Adapted from
http://textbook.stpauls.br/business_textbook/operations_management_student/
page_62.htm

SOLUTION

Sales (100000×1.60) $160000

Variable cost (100000×0.60) $60000
Contribution $ 100000
Fixed cost $60000
Profit $40000

¿ cost
a) Breakeven point(BEP) (sales revenue)=
CMR
Fixed cost= $60000
S−VC $ 160000−60000
CMR= =
S 160000
$ 100000
=
$ 160000
= 0.625
$ 60000
BEP (sales revenue) =
0.625
= $96000

¿ cost
BEP (output) =
contribution/unit
Fixed cost= $60000
contribution
Contribution/unit=
no of bricks
$ 100000
=
100000
=1
$ 60000
BEP (output) =
1
= 60000 blocks

b) Margin of Safety (MOS) if sales amount to 90000 blocks in the year.

MOS (output) = Actual output-Breakeven output

38
 Actual output= 90000 blocks

Breakeven output= 60000 blocks

MOS (output) = 90000 blocks – 60000 blocks

= 30000 blocks

c) Sales (80000 × 1.5) $120000

Variable cost (80000 × 0.66) $ 52800
Contribution $67200
Fixed cost $80000
Loss $12800

Due to the competition in the market and the relentless increase in the costs, the firm ceases
to remain profitable.

Coping with cost accounting by Eddy Omolehinwa

QUESTION 2

Given the following data of ASIKO LIMITED you are required to answer the questions that follow:

Selling price per unit = #35.00

Variable cost per unit = #21.00

Total fixed cost = #140,000

(a) How many units should be sold in order to

(I) Make a loss of #28,000?
(II) Break even?
(III) Make a profit of # 28,000?
(b) If the total fixed cost is increased to #150,000 what will be the new breakeven point?

SOLUTION
(I) Make a loss of #28,000?

BREAKEVEN =FIXED COST/CONTRIBUTION PER UNIT

Contribution =fixed cost – loss

#140,000 -#28,000 = # 112,000

# 112,000/ 14 = 8,000 units

(ii) Breakeven = fixed cost /contribution per unit

# 140,000 /14 =10,000 unit

(iii) Make a profit of # 28,000?

Fixed cost + profit = #140,000 + #28,000= # #168,000

39
 # 168,000 / 14 =12,000 units

(B) Total fixed cost increased by #150,000 = #140,000 + # 150,000 =# 290,000

Fixed cost / contribution per unit =# 290,000/14 = 20714 unit

CONTROL OF DIRECT MATERIALS

Coping with cost accounting by Eddy Omolehinwa

QUESTION 2

On 1st January MR G started a small business of buying and selling a particular product .He invested his
savings of #40,000 in the business and during the next six months, the following transactions occurred.

Purchases of product sales of product

Date of receipt quantity (boxes) total cost date of dispatch quantity (boxes) total value

1 Jan 200 7,200 10 th Feb 500 25,000

8 Feb 400 15,200 20 April 600 27,000

11 march 600 24,000 25 June 400 15,200

12 April 400 14,000

15 June 500 14,000

The product is stored in the premises Mr. G has rented and the closing stock of the product counted by
30 June was equal to the number in the records of Mr .G .other expenses incurred and paid in cash
during the six -month period amounted to #2,300.

REQUIRED: RECORD THE ABIVE TRANSACTION ON STORES LEDGER USING EACH OF THE FOLLOWING
METHODS.

A) FIFO B) lifo C) average method

B) SOLUTION USING FIFO METHOD
DATE UNIT UNIT TOTAL UNIT UNIT TOTAL UNIT UNIT TOTAL
COST COST COST
1 JAN 200 36 7200 200 7200
8 FEB 400 38 13,200 100 22,400
10 FEB 200 7,200
300 11,400
800 18,600 100 3,800
11 600 40 24,000 700 27,800
MARCH
12 400 35 14,000 1,100 13,800
APRIL
20 100 3,800

40
 APRIL
500 20,000
600 23,800 500 10,000
15 500 28 14,000 1,000 24,000
JUNE
25 100 4000
JUNE
300 10500
400 14500 600 9,800

USING LIFO METHOD

DATE UNIT UNIT TOTAL UNIT UNIT TOTAL UNIT UNITPRICE TOTAL
PRICE PRICE
13 JAN 200 36 7,200 200 7200
8 FEB 400 38 15200 600 22400
10 FEB 400 15200
100 3600
500 18800 100 3600
11 600 40 24000 700 27600
MARC
12 400 14000
APRIL
200 3000
600 17000 500 24600
15 500 28 14000 1000 38600
JUNE
25 400 11200 600 27400
JUNE

USING WEIGHTED AVERAGE METHOD

DATE UNIT UNIT TOTAL UNIT UNITPRICE TOTAL UNIT UNITPRICE TOTL
PRICE
13TH 200 36 7,200 200 36 7,200
JAN
8TH FEB 400 38 15,200 600 37.3 22,400
10TH 500 37.3 18,650 100 37.5 3,750
FEB
11TH 600 40 24,000 700 39.6 27,750
MRRCH
12TH 400535 14,000 1,100 37.9 26,590
PRIL
20TH 400 37.9 15,160 700 37.9 26,590
APRIL
15TH 500 28 14,000 1,200 33.8 40,590
JUNE
41
25TH 400 33.8 13,520 800 33.8 27,070
JUNE

42
Coping with cost accounting by Eddy Omolehinwa

QUESTION 3

MURASISE OLEKOPE NIGERIA LTD has the following records during a year.

1st JAN Opening stock 1,000 units at #300 each

1st MAY purchases 800 units at #312 each

1st OCT PURCHASES 1,000 UNITS AT #326 each

18th feb sales 600 units

30th JULY SALES 700 UNITS

15TH Nov sales 800 units

Required:

Record the above transactions on a store ledger card using each of FIFO and average method.

SOLUTION

USING FIFO

DATE UNIT UNIT TOTAL UNIT UNIT TOTAL UNIT UNIT TOTAL
PRICE PRICE PRICE
13TH Jan 200 36 7,200 200 36 7,200
8th feb 400 38 13,200 100 22,400
10th feb 200 36 7,200
300 38 11,400
500 18,600 100 3,800
th
11 600 40 24,000 700 27,800
march
12th 400 35 14,000 100 13,800
April
20th 100 38 3,800
April
500 40 20,000
600 23,800 500 10,000
15th 500 28 14,000 1,000 24,000
June
25thjun 100 40 4000
300 35 10,500

400 14,500 600 9,800

USING WEIGHTED AVERAGE

DATE UNIT UNITPRIC TOTAL UNIT UNITPRICE TOTAL UNIT UNITPRIC TOTAL
E E
43
 13TH 200 36 7,200 200 36 7,200
Jan
8th feb 400 38 15,200 600 37.3 7,200
10th 500 37.3 18,650 100 37.5 3,750
feb
11th 600 40 24,000 700 39.6 27,750
march
12th 400 35 14,000 1,100 37.9 41,750
April
20th 400 37.9 15,160 700 37.9 26,590
April
15th 500 28 14,000 1,200 33.8 40,590
June
25th 400 33.8 13,520 800 33.8 27,070
June

Coping with cost accounting by Eddy Omolehinwa

QUESTION 4:

For the six month ended 30th June 20x2, HARUNA LTD that buys a particular product from Kano and sells
to customers in Zaria has the following transactions in its record. There was an opening balance of
1,000units valued at 140 each.

DATE QUANTITY BOUGHT (IN UNITS) COST PER UNIT

# #

JANUARY 1,000 148

MARCH 900 154

MAY 1,500 158

DATE QUANTITY SOLD PRICE PER UNIT

FEBUARY 1,400 200

APRIL 1,000 200

JUNE 1,600 230

Required:

(a) Record the above transactions on a stores ledger card using each of the following methods
(i) LIFO (II) weighted Average (III) FIFO
(b) Calculate the gross profit during the period under each of the three methods.

USING LIFO METHOD

44
 DATE UNIT UNIT TOTAL UNIT TOTAL UNIT UNIT TOTAL
PRICE PRICE
JULY 1,000 140 140,000
20x2
JAN 1,000 148 148,000 2,000 288 288,000
FEB 1,000 148,000
400 56,000
1,400 204,000 600 84,000
MARCH 900 154 133,600 1,500 217,600
APRIL 900 138,600
100 140,000
1,000 278,600 500 (61000)
MAY 1,500 158 237,000 2,000 176,000
JUNE 800 123,200
800 126,400
1,600 249,600 400 73,600

USING FIFO METHOD

DATE UNIT UNIT TOTAL UNIT TOTAL UNIT UNIT TOTAL

COST COST
JULY 1,000 140 140,000
20x2
JAN 1,000 148 148,000 2,000 288,000
FEB 1,000 140,000
400 59,200
1,400 199,200 600 88,800
MARCH 900 154 133,600 1,500 227,400
APRIL 600 88,800
400 61,600
1,000 150,400 500 77,000
MAY 1,500 158 158,000 2,000 235,000
JUNE 800 123,200
800 126,400
1,600 249,600 400 (146,000)

USING WEIGHTED AVERAGE

45
 DATE UNIT UNITCOS TOTAL UNIT TOTAL UNIT UNIT TOTAL
T COST
JULY 1,000 140 140,000
20x2
JAN 1,000 148 148,000 2,000 288,000
FEB 1,400 201,600 600 144 86,400
MARCH 900 154 138,600 1,500 150 225,000
APRIL 1,000 150,000 500 150 75,000
MAY 1,500 158 237,000 2,000 156 312,000
JUNE 1,600 249,600 400 156 62,400

(b)GROSS PROFIT DURING THE PERIOD USING FIFO METHOD

SALES: 1,400* 200 = 280,000

1,000*20 =200,000

1,600*230=368,000

TOTAL 848,000

ISSUES: FEB: 199,200

APRIL: 150,400

JUNE: 249,600

TOTAL 599,200

SALES 848,000

LESS: COST OF GOODS SALES (599,000)

GROSS PROFIT 248,800

USING LIFO METHOD

ISSUES: FEB: 204,000

APRIL: 278,600

JUNE: 126,400

TOTAL 609,000

SALES 848,000

LESS COST OF GOODS SOLD: (609,000)

GROSS PROFIT: 239,000

USING WEIGHTED AVERAGE METHOD

46
ISSUES:

FEB 201,600

APRIL 150,000

JUNE 249,600

TOTAL 601,200

SALES 848,000

LESS COST OF GOODS SOLD (601,200)

GROSS PROFIT 246,800

FACTORY OVERHEAD

BOOK: COPING WITH COST ACCOUNTING

AUTHOR: EDDIE OMOLEHINWA
CHAPTER: SEVEN
TOPIC: FACTORY OVERHEAD
QUESTION: 2
PAGE: 138
Ogayemi Ltd. has two productions department at his Okitipupa plant. Department A does
machine with expensive machine tools requiring much floor space, power and supplies.
Department B does bench wok and assembled with only inexpensive hand tools. Overhead cost
and estimate annual hours are determined as follows
Department Estimated annual hours (N) Estimated overhead(N)
A 100,000 150,000
B 20,000 75,000

Ayo Adeniyi has given a job to the company which requires 30 hours in department A and 50hrs
in Department B
Required:
a) If the company uses separate overhead rate for each department. What is the total
overhead cost to be charged for the job?
b) If the company uses a factory wide overhead rate what is the company total overhead
cost to be charge for the job.
SOLUTION
Separate Overhead Rate Department A
Overhead rate= N150, 000/10000=N15/hrs.
Department B
47
Overhead rate =75000/20000=3.75/hrs.
Total overhead cost to be charged for the job
Department A (30hrs ×₦15) 450
Department B (50hrs × 375) 187.50
637.50

Factory wide overhead rate

Total estimated overhead cost ₦150,000 + ₦75000 =₦225,000
Total estimated annual hours 10,000+20,000 = 30,000hours
Overhead rate 225,000 = ₦7.50
30,000
Total overhead cost to be charged for the job
Department A (30 × ₦7.50) 225
Department B (50 × ₦750) 375
600

48
BOOK: COPING WITH COST ACCOUNTING
AUTHOR: EDDIE OMOLEHINWA
CHAPTER: SEVEN
TOPIC: FACTORY OVERHEAD
QUESTION: 4
PAGE: 139
Ekpenyong Ltd has four producing departments A, B, C and D and three service departments E,
F, G. The overhead cost that is traceable to each departments is estimated as follows:
A ₦200,000
B ₦280,000
C ₦80,000
D ₦160,000
E ₦60,000
F ₦100,000
G ₦120,000

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Each of the service department overheads is to be distributed to the producing departments
sequentially in the following sequence and on the following bases.
G -Floor Area
F - Number of employees
E - Value of equipment
It is the company policy that once a service departments cost has been apportioned, no cost
from other services department are to be apportioned to it.
Additional information provided as follows:
DEPT FLOOR AREA SPACE NUMBER OF VALUE OF EQUIPMENT PRODUCT
EMPLOYEES (₦)
A 15,000 50 250,000 40,000 direct labour
hours
B 30,000 70 100,000 80,000 direct labour
cost
C 25,000 40 100,000 9,200 machine hours
D 10,000 20 50,000 30,000 direct labour
hour
E 20,000 20 100,000
F 20,000 20 26,000
G 10,000 10 240,000
130,000 230 650,000

You are required to prepare a cost distribution sheet and to develop appropriate departmental
Overhead rate for each of the production departments.

50
 SOLUTION
Ekpenyong limited
PRODUCTION DEPARTMENT SERVICE DEPARTMENT
A B C D E F G
(₦) (₦) (₦) (₦) (₦) (₦) (₦)
TACEABLE COST 200,000 280,000 8,000 160,000 60,000 10,000 120,500
APPORTIONED
OVERHEAD;
DEPT G 150,000 30,000 25,000 10,800 20,000 20,000 120,800
DEPT F 30,000 42,000 24,000 12,000 12,800 (120,000)
DEPT E 46,000 23,000 23,000 11,500 (92,000)
TOTAL 290,000 37,500 152,000 193,500

DEPARTMENT OVERHEAD RATE

I. DEPARTMENT A
₦ 291,000
40,000 HOURS
= ₦7.28/HRS
II. DEPARTMENT B
₦ 375,000
80,000
= ₦4.69/LABOUR COST
III. DEPARTMENT C
₦ 152,000
9,000
= ₦16.52/MACHINE HOURS
IV. DEPARTMENT D
₦ 193,500
30,000 HOURS
= ₦645/LABOUR HRS

51
BOOK: COPING WITH COST ACCOUNTING
AUTHOR: EDDIE OMOLEHINWA
CHAPTER: SEVEN
TOPIC: FACTORY OVERHEAD
QUESTION: 5
PAGE: 141
OLUFUNTO MANUFACTURING co. Ltd. Operates three production departments made up of two
machine departments A and B, and an assembly department C. it absorbs its overhead into
production costs on the basis of hourly rates. For a given period, the following data applied:
Department
Budgeted overhead A B Assembly C
Rent 4,000 6,000 8,000
Rates 2,000 2,000 2,000
Depreciation 1,000 3,000 4,000
Light 5,000 5,000 6,000
Power 6,000 6,000 6,000
Indirect labour 3,000 3,000 4,000
Indirect materials 2,000 3,500 4,000
Sundries 1,000 15,000 2,000
Equipment servicing 4,000
24,000 30,000 40,000
Budgeted hours
Machine hours 12,000 6,000
Direct labour hours 8,000
At the end of the period the following figures were produced
A B Assembly C
Actual overhead incurred 27000 28,000 44,000
Actual hours worked:
Machine hours 10,000 8,000
Direct labour hours 10,000
You are required to:
d) Calculate the overhead absorption rates that were in operation during the period.
e) Calculate the extent to which overhead was under or over absorbed by the three
departments during the period.
f) Analyse the causes of any under or over absorbed overhead calculated in (b) above.

52
 SOLUTION
Dept A Dept B Assembly C
Actual overhead absorption rate 2,400 30,000 40,000
M H. MH DLH
Basis of Overhead Absorption
Overhead Absorption Rate is 24,000 30,000 40,000
12,000 6,000 8,000
N2/MH N3/MH N5/DLH
N
I. Actual overhead incurred in Dept A 27,000
Overhead absorbed into Dept A (10,000 × N2/MH) 20,000
Under absorbed overhead in Dept A 7,000
II. Actual overhead incurred in Dept B 28,000
Overhead absorbed into Dept B (8,000 × N5/MH) 40,000
Over absorbed overhead in Dept B 12,000
III. Actual overhead incurred in Assembly C 44,000
Overhead absorbed into Assembly C (10,000 × N5/DLH) 50,000
Over absorbed overhead in Assembly C 6,000
(b) The under and over absorption was caused by the actual overhead being different from
the budgeted overhead.
(C) The actual volume of activity being different from the budgeted volume of activity.

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