ACC-2303: Cost and Management Accounting

Chapter 1: Materials: Controlling and Costing

Material Management:

Effective materials management is essential in order to- (1) provide the best service to customer, (2) produce at
maximum efficiency, and (3) manage inventories at predetermined levels to stabilize investments in inventories.

Successful materials management requires the development of a highly integrated and coordinated system involving
sales forecasting, purchasing, receiving, storage, production, shipping, and actual sales.

Procedures for Material Procurement and Use:

Production processes and materials requirements vary according to the size and type of industry, the cycle of
procurement and use of materials usually involves the following steps:

1. Engineering, planning and routing determine the design of the product, the materials specifications, and the
requirements at each stage of operations. Engineering and planning not only determine the maximum and minimum
quantities to run and the bill of materials for given products and quantities, but also cooperate in developing
standards where applicable.

2. The production budget provides the master plan from which details concerning materials requirements are
eventually developed.

3. The purchase requisition informs the purchasing agent concerning the quantity and type of materials needed.

4. The purchase order contracts for appropriate quantities to be delivered at specified dates to assure uninterrupted
operations.

5. The receiving report certifies quantities received and may report results of inspection and testing for quality.

6. The materials requisition notifies the storeroom or warehouse to deliver specified types and quantities of materials
to a given department at a specified time or is the authorization for the storeroom to issue materials to departments.

7. The materials ledger cards record the receipt and the issuance of each class of materials and provide a perpetual
inventory record.

Cost of Acquiring Materials:

A guiding principle in accounting for the cost of materials is that all costs incurred in entering a unit of materials
into factory production should be included.

Acquisition Costs, such as the vendor’s invoice price and transportation charges, are visible costs of the purchased
goods.

Less obvious costs of materials entering factory operations are costs of purchasing, receiving, unpacking, inspecting,
insuring, storing, and general and cost accounting.

Purchase Discount: trade discounts and quantity discounts normally are not on the accounting records but are
treated as price reductions.

Freight In: freight or other transportation charges on incoming shipments are obviously costs of materials, but
differences occur in the allocation of these charges to different items purchased.

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 ACC-2303: Cost and Management Accounting

Materials Ledger Card-Perpetual Inventory:

As purchased materials go through the systematic verification of quantities, prices, physical condition, and other
checks, the crux of the accounting procedure is to establish a perpetual inventory-maintaining for each type of
materials a record showing quantities and prices of materials received, issued and on hand.

In a perpetual inventory system, an entry is made each time the inventory is increased or reduced.

Materials ledger cards or stock ledger sheets constitute a subsidiary materials ledger controlled by the materials or
inventory accounts in the general ledger or in the factory ledger.

Materials ledger cards commonly show the account number, description or type of materials, location, unit
measurement, and maximum and minimum quantities to carry.

These cards are the material ledger, with new cards prepared and old ones discarded as changes occur in the types of
materials carried in stock.

The ledger card arrangement is basically the familiar debit, credit and balance columns under the description of
received, issued and balance.

Materials Ledger Card

Piece or Part No. ……………………. Reorder Point……………………….

Description……………………………Reorder Quantity…………………….

Maximum Quantity……………………….

Received Issued Balance

Date Rec. Qty Amount Date Req. Qty Amount Quantity Unit Amount
No. No. Cost

Physical Inventory:

The alternative to a perpetual inventory system is the periodic inventory system, whereby purchases are added to the
beginning inventory, the ending (remaining) inventory is counted and costed, and the difference is considered the
cost of materials used.

Regardless of whether a periodic or perpetual inventory system is used, periodic physical counts are necessary to
discover and eliminate discrepancies between the actual count and the balances on materials ledger cards.

These discrepancies may be due to:

a) Errors in transferring invoice data to the cards, b) Mistakes in costing requisitions, c) Unrecorded invoices or
requisitions d) Spoilage, breakage, and theft.

Materials Costing Methods:

The ultimate objective is cost accounting is to produce accurate and meaningful figures for the cost of goods sold.

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 ACC-2303: Cost and Management Accounting

These figures can be used for purposes of control and analysis and are eventually matched against revenue produced
in order to determine operating income.

The most common methods of costing materials issued, and inventories are:

(1) Fist-in, First out (FIFO)

(2) Average Cost

(3) Last-in, First out (LIFO)

(4) Other methods-such as market price at date of issue or last purchase price, and standard cost.

(1) Fist-in, first out (FIFO)

The FIFO method of costing issued materials follows the principle that materials used should carry the actual
experienced cost to the specific units used.

The method assumes that materials are issued from the oldest supply in stock and that the cost of those units when
placed in stock is the cost of those same units when issued.

Advantages of FIFO:

The FIFO method of costing is simple to operate because no complicated calculation is involved.

Materials used are drawn from the cost-record in a legal order.

Materials issued are charged to production at actual cost in order of their receipts,

The valuation of closing inventory represents nearer to current market price.

The FIFO method is beneficial whenever the size and cost of material units are large.

Disadvantages of FIFO:

The following are the disadvantages and drawbacks of FIFO method of costing.

The cost of material charged to production may not reflect the current market price.

The record-keeping may become difficult whose number of purchases are made of the same material at different
prices.

Under FIFO method costing difficulties arise when returning to vendors.

When excess material is returned from factory to storeroom, the problem of costing arises.

FIFO is Recommended When:

a) The size and cost of materials units are large; b) Materials are easily identified as belonging to a particular
purchased lot, and c) Not more than two or three different receipts of the materials are on a materials card at one
time.

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 ACC-2303: Cost and Management Accounting

Example:
Feb.1. Beginning Balance: 800 Units @ Tk. 6.00 Per Unit
4 Received 200 Units @ Tk. 7.00 Per Unit
10 Received 200 Units @ Tk. 8.00 Per Unit
11 Issued 800 Units
12 Received 400 Units @ Tk. 8 Per Unit
20 Issued 500 Units
25 Returned 100 excess units from the factory to the storeroom- to be recorded at the latest issued price (or at the
actual issued price if physically identifiable)
28 Received 600 Units @ Tk. 9 Per Unit

Calculation for these Transactions would be as follows:

FIFO Costing Method
Date Particulars Received Issued Balance
Qty Rate Amount Qty Rate Amount Qty Rate Amount
(Tk.) (Tk.) (Tk.) (Tk.) (Tk.) (Tk.)
Feb 1 Beginning Balance 800 6 4,800
Feb 4 Received 200 7 1,400 800 6 4,800
200 7 1,400
Feb 10 Received 200 8 1,600 800 6 4,800
200 7 1,400
200 8 1,600
Feb 11 Issued 800 6 4,800 200 7 1,400
200 8 1,600
Feb 12 Received 400 8 3,200 200 7 1,400
200 8 1,600
400 8 3,200
Feb 20 Issued 200 7 1,400 300 8 2,400
200 8 1,600
100 8 800
Feb 25 Return to 100 8 800 300 8 2,400
Storeroom 100 8 800
Feb 28 Received 600 9 5,400 300 8 2,400
100 8 800
600 9 5,400
Cost of Materials Issued/ Used in 7,800 Cost of 8,600
Production (4,800+1,400+1,600+800- Ending
800) Material
(2,400+800+
5,400)

2) Average Costing Method

The average cost method assigns a cost to inventory items based on the total cost of materials purchased in a period
divided by the total number of items purchased.

The average cost method is also known as the weighted-average method.

The average costing method divides the total cost of all materials of a particular class by the number of units on
hand to find the average price.

The cost of new invoices is added to the total in the balance column, the units are added to the existing quantity, and
the new total cost is divided by the new quantity to arrive at the new average cost.

Materials are issued at the established average cost until a new purchase is recorded.

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 ACC-2303: Cost and Management Accounting

Advantages:

It is realistic costing method useful to management in analyzing operating results and appraising future production.

It minimizes the effect of unusually high or low materials prices, thereby making possible more stable cost estimates
for future work.

It is a practical and less expensive perpetual inventory system.

Date Particulars Received Issued Balance

Qty Rate Amount Qty Rate Amount Qty Rate Amount
(Tk.) (Tk.) (Tk.) (Tk.) (Tk.) (Tk.)
Feb 1 Beginning Balance 800 6 4,800
Feb 4 Received 200 7 1,400 1,000 6.20 6,200
Feb 10 Received 200 8 1,600 1,200 6.50 7,800
Feb 11 Issued 800 6.5 5,200 400 6.50 2,600
Feb 12 Received 400 8 3,200 800 7.25 5,800
Feb 20 Issued 500 7.25 3,625 300 7.25 2,175
Feb 25 Return to 100 7.25 725 400 7.25 2,900
Storeroom
Feb 28 Received 600 9 5,400 1,000 8.30 8,300
Cost of Materials Issued/ Used in 8,100 Cost of 8,300
Production (5,200+3,625-725) Ending
Materials

3) Last-In-First-Out Method
The last in first out (LIFO) method of costing materials issued is based on the premise that materials units issued
should carry the cost of the most recent purchase, although the physical flow may actually be different.

The method assumes that the most recent cost (the approximate cost to replace the consumed units) is most
significant in matching cost with revenue in the income determination procedure.

Under LIFO procedures, the objective is to charge the cost of current purchases to work in process or other
operating expenses and to leave the oldest costs in the inventory.

Several alternatives can be used to apply the LIFO method. Each procedure results in different costs for materials
issued and the ending inventory, and consequently in a different profit.

It is mandatory, therefore, to follow the chosen procedure consistently.

Advantages of LIFO:

(1) Materials consumed are priced in a systematic and realistic manner. It is argued that current acquisition costs are
incurred for the purpose of meeting current production and sales requirements; therefore, the most recent costs
should be charged against current production and sales.

(2) Unrealized inventory gains and losses are minimized, and reported operating profits are stabilized in industries
subject to sharp materials price fluctuations.

(3) Inflationary prices of recent purchases are charged to operations in periods of rising prices, Thus reducing
profits, resulting in a tax saving, and therewith providing a cash advantage through deferral of income tax payments.
The tax deferral creates additional working capital as long as the economy continues to experience an annual
inflation rate increase.

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 ACC-2303: Cost and Management Accounting

Disadvantages or limitations of LIFO:

(1) The election of LIFO for income tax purposes is binding for all subsequent years unless a change is authorized or
required by the Internal Revenue Service (IRS)

(2) This is a “cost only” method with no right down to the lower of cost or market allowed for income tax purposes.

(3) LIFO must be used in financial statements if it is elected for income tax purposes. However, for financial
reporting purposes, the lower LIFO cost or market can be used without violating IRS LIFO conformity rules.

(4) Record keeping requirements under this method, as well as FIFO, are substantially greater than those under
alternative costing and pricing methods.

(5) Under LIFO, the balance sheet reflects the earliest inventory costs incurred. Consequently, in periods of rising
prices, the company’s inventory, current and total assets, and stockholders’ equity are understated.

Date Particulars Received Issued Balance

Qty Rate Amount Qty Rate Amount Qty Rate Amount
(Tk.) (Tk.) (Tk.) (Tk.) (Tk.) (Tk.)
Feb 1 Beginning Balance 800 6 4,800
Feb 4 Received 200 7 1,400 800 6 4,800
200 7 1,400
Feb 10 Received 200 8 1,600 800 6 4,800
200 7 1,400
200 8 1,600
Feb 11 Issued 200 8 1,600 400 6 2,400
200 7 1,400
400 6 2,400
Feb 12 Received 400 8 3,200 400 6 2,400
400 8 3,200
Feb 20 Issued 400 8 3,200 300 6 1,800
100 6 600
Feb 25 Return to 100 6 600 300 6 1,800
Storeroom 100 6 600
Feb 28 Received 600 9 5,400 400 6 2,400
600 9 5,400
Cost of Materials Issued/ Used in 8,600 Cost of Ending 7,800
Production (1,600+1,400+3,200+600- Material
600) (2,400+5,400)

4) Other Material Costing Methods

(a) Market price at date of issue or last purchase price: materials precisely standardized and traded on commodity
exchanges, such as cotton, wheat, copper, or crude oil, are sometimes put into production at the quoted price at date
of issue.

This method of materials costing and that of using the last purchase price are often used for small, low-priced items.

(b) Standard Cost: this method charges issued materials at a predetermined or estimated cost reflecting a normal or
an expected future cost.

Receipts and issues of materials are recorded in quantities only on the materials ledger cards or in the computer data
bank, thereby simplifying the record keeping and reducing clerical or data processing costs.

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 ACC-2303: Cost and Management Accounting

Inventory Valuation at Cost or Market (Whichever is Lower): The Lower of Cost or Market (LCM)

The practice of pricing year-end inventories (materials as well as work in process and finished goods) at cost or
market, whichever is lower.

This departure from any experienced cost basis is generally defended on the grounds of conservatism.

As used in the phrase lower of cost or market, the term market means current replacement cost (by purchase or by
reproduction, as the case may be) except that:

Market should not exceed the net realizable value (i.e., estimated selling price in the ordinary course of business less
reasonably predictable costs of completion and disposal); and

Market should not be less than net realizable value reduced by an allowance for an approximately normal profit
margin.

Periodic Inventory:

If, however, a periodic rather than a perpetual inventory procedure is used, whereby the issues are determined at the
end of the period by ignoring day-to-day issues and subtracting total ending inventory from the total of the
beginning balance plus the receipts, the ending inventory would consist of:

Feb 1 Beginning balance 800 units @ Feb 11 Issued 800 units Ending Inventory= 2,300 Units -1,300 Units = 1,000 Units Consists of:
Tk. 6 per unit Feb 20 Issued 500 units FIFO Periodic Inventory
Feb 4 Received 200 units @ Tk. 7 Total Issued (Unit)= 600 units x Tk. 9 per unit = Tk. 5,400
per unit 1,300 400 units x Tk. 8 per unit = Tk. 3,200
Feb 10 Received 200 units @ Tk. 8 Total cost of ending inventory (Tk.)= 5,400 + 3,200= Tk. 8,600
per unit Average Periodic Inventory
Feb 12 Received 400 units @ Tk. 8 Average Cost (Tk.) =
per unit {(800 x 6) + (200 x 7) + (200 x 8) + (400 x 8) + ( 600 x 9)} ÷ (800 +
Feb 25 Returned 100 units 200 + 200 + 400 + 600) = Tk. 7.4545
Feb 28 Received 600 units @ Tk. 9 Cost of ending materials (Tk.) = 1,000 x 7.4545= Tk. 7,454.5
per unit LIFO Periodic Inventory
Total Received (Unit) = 800 units x Tk. 6 per unit = 4,800
800 + 200 + 200 + 400 + 100 + 600 200 units x Tk. 7 per unit = 1,400
= 2,300. Total cost of ending inventory (Tk.)= 4,800 + 1,400 = Tk. 6,200

Valuation Procedure of LCM:

(1) In principle, inventories are to be priced at cost.

(2) Where cost cannot be recovered upon sale in the ordinary course of business, a lower figure is to be used.

(3) This lower figure is normally market replacement cost, except that the amount should not exceed the expected
sales price less a deduction for costs yet to be incurred in making the sale. On the other hand, this lower market
figure should not be less than the expected amount to be realized in the sale of the goods, reduced by a normal profit
margin.

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 ACC-2303: Cost and Management Accounting

Exercises:
1. Materials costing methods. The following information is to be used in costing inventory on October 31:
October 1. Beginning balance: 800 units @ Tk. 6
5. Purchased 200 units @ Tk. 7
9. Purchased 200 units @ Tk. 8
16. Issued 400 units
24. Purchased 300 units @ Tk. 9
27. Issued 500 units
Required: Compute the cost of materials used and the cost assigned to the October 31 inventory by each of these
perpetual inventory costing methods. (1) First-in, First-out. (2) Last-in, First-out. (3) Average, using a materials
ledger card and rounding unit costs to the nearest cent. (4) Market price at date or issue.
(i) Cost of Materials under First-in-First-out (FIFO) Method
Date in Particulars Received Issued Balance
October Qty Rate Amount Qty Rate Amount Qty Rate Amount
(Tk.) (Tk.) (Tk.) (Tk.) (Tk.) (Tk.)
1 Beginning balance 800 6 4,800
5 Purchased/Received 200 7 1,400 800 6 4,800
200 7 1,400
9 Purchased/Received 200 8 1,600 800 6 4,800
200 7 1,400
200 8 1,600
16 Issued 400 6 2,400 400 6 2,400
200 7 1,400
200 8 1,600
24 Purchased/Received 300 9 2,700 400 6 2,400
200 7 1,400
200 8 1,600
300 9 2,700
27 Issued 400 6 2,400 100 7 700
100 7 700 200 8 1,600
300 9 2,700
Cost of materials issued/ used in 5,500 Cost of ending material 5,000
production (2,400 + 2,400 + 700) (700 + 1,600 + 2,700)

(ii) Cost of Materials under Last-in-First-out (LIFO) Method

Date in Particulars Received Issued Balance
October Qty Rate Amount Qty Rate Amount Qty Rate Amount
(Tk.) (Tk.) (Tk.) (Tk.) (Tk.) (Tk.)
1 Beginning balance 800 6 4,800
5 Purchased/Received 200 7 1,400 800 6 4,800
200 7 1,400
9 Purchased/Received 200 8 1,600 800 6 4,800
200 7 1,400
200 8 1,600
16 Issued 200 8 1,600 800 6 4,800
200 7 1,400
24 Purchased/Received 300 9 2,700 800 6 4,800
300 9 2,700
27 Issued 300 9 2,700 600 6 3,600
200 6 1,200
Cost of materials issued/ used in 6,900 Cost of ending 3,600
production:(1,600+1,400+2,700+1,200) material

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 ACC-2303: Cost and Management Accounting

(iii) Cost of Materials under Average Costing method

Date in Particulars Received Issued Balance
October Qty Rate Amount Qty Rate Amount Qty Rate Amount
(Tk.) (Tk.) (Tk.) (Tk.) (Tk.) (Tk.)
1 Beginning balance 800 6.00 4,800
5 Purchased/Received 200 7 1,400 1,000 6.20 6,200
9 Purchased/Received 200 8 1,600 1,200 6.50 7,800
16 Issued 400 6.50 2,600 800 6.50 5,200
24 Purchased/Received 300 9 2,700 1,100 7.18 7,900
27 Issued 500 7.18 3,590 600 7.18 4,308
Cost of materials issued/ used in 6,190 Cost of 4,308
production:(2,600+3,590) ending
material

(iv) Cost of Materials under Market Price at Date of Issue

Received/Purchased in October: Issued in October: Cost of inventory at the end of the
period:
1. Beginning balance 800 units @ Tk. 6 per unit = 16. Issued 400 units @ Tk. 8 per unit =
Tk. 4,800. Tk. 3,200. Beginning balance = Tk. 4,800
Add: purchase = 5,700
5. Purchased 200 units @ Tk. 7 per unit = Tk. 1,400. 27. Issued 500 units @ Tk. 9 per unit = Materials available = 10,500
Tk. 4,500. Less: Materials used = 7,700
9. Purchased 200 units @ Tk. 8 per unit = Tk. 1,600. Ending inventory = Tk. 2,800
Total issued (unit)= 900.
16. Purchased 300 units @ Tk. 9 per unit = Tk.
2,700. Total cost of materials issued (Tk.) =
7,700.
Total received =
800 + 200 + 200 + 300 (unit) = 1,500.

Materials purchased (Tk.) = 1,400 + 1,600 + 2,700 =

5,700.

Total cost of materials (Tk.) = 10,500.

2. Average costing method -perpetual and periodic inventory costing. The following information was available from
Sailor Company's January inventory records:

Balance at January 1 Units Unit Costs (Tk.) Total Cost (Tk.)

2,000 9.775 19,550
Received:
January 6 1,500 10.3 15,450
January 26 3,400 10.75 36,550
Issued:
January 7 1,800
January 31 3,200
Balance at January 31 1,900

Required: Compute the cost of materials used and the cost assigned to the January 31 inventory, using (a) perpetual
inventory records and the average costing method, and (b) the periodic inventory costing system at average cost. For
(b), round the unit cost to the nearest cent and add the rounding difference to the cost of materials used.

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 ACC-2303: Cost and Management Accounting

Requirement a: Perpetual inventory record using Average Costing method:

Date Particulars Received Issued Balance
in Qty Rate Amount Qty Rate Amount Qty Rate Amount
January (Tk.) (Tk.) (Tk.) (Tk.) (Tk.) (Tk.)
1 Beginning balance 2,000 9.775 19,550
6 Received 1,500 10.300 15,450 3,500 10.000 35,000
7 Issued 1,800 10.000 18,000 1,700 10.000 17,000
26 Received 3,400 10.750 36,550 5,100 10.500 53,550
31 Issued 3,200 10.500 33,600 1,900 10.500 19,950
Cost of materials issued/ used in production 51,600 Cost of ending 19,950
(18,000+33,600) materials

Requirement b: Periodic inventory record using Average Costing method:

Received/Purchased: Issued: Cost of Inventory at the End of the
January: January: Period:
1. Beginning balance: 2,000 units @ Tk. 9.775 per 7. Issued 1,800 units @ Tk. 10.000 Per
unit = Tk. 19,550. Unit = Tk. 18,000. Beginning balance = Tk. 19,550
Add: Received = 52,000
6. Received: 1,500 units @ Tk. 10.300 per unit = Tk. 31. Issued 3,200 units @ Tk. 10.500 per Materials available = 71,550
15,450. unit = Tk. 33,600. Less: Materials used = 51,600
Ending inventory = Tk. 19,950
26. Received: 3,400 units @ Tk. 10.750 per unit= Tk. Total issued (unit)= 5,000.
36,550.
Total cost of materials issued (Tk.) =
Total received (unit) = 1,500+3,400 =4,900. 51,600.

Cost of materials received (Tk.) = Ending inventory (unit): 6,900-5,000 =

15,450+36,550=52,000. 1,900

Total cost of materials (Tk.)=19,550+15,450+36,550

= 71,550.

3. Materials Costing Methods. D’Mart Company, a wholesaler, made the following purchases of material X
during 2023:
Date Units Price Per Unit (Tk.) Total (Tk.)
January 7 8,000 12.00 96,000
March 30 8,800 12.40 109,120
May 10 12,000 1200 144,000
July 5 16,000 12.60 201,600
September 2 6,400 12.80 81,920
December 14 7,200 12.68 91,296
58,400 723,936

The December 31, 2023, inventory was 15,200 units, and on January 1, 2023, 4,000 units at Tk. 11.92 each were on
hand. The sales price during the year was stable at Tk. 16.

Required:
(1) Prepare a schedule of December 31, 2023, inventory, assuming a periodic inventory system and LIFO as the
costing method.
(2) Prepare a statement showing material X's sales, cost of goods sold, and gross profit for 2023, assuming the FIFO
costing method.

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 ACC-2303: Cost and Management Accounting

Requirement—1): Schedule of inventory under periodic inventory and LIFO costing method

Date Unit Rate (Tk.) Amount (Tk.)

January-1 4,000 11.92 47,680
January-7 8,000 12.00 96,000
March-30 3,200 12.40 39,680
Total: 15,200 183,360

Requirement-2: Statement of Sales, Cost of Goods Sold, Gross Profit

Amount (Tk.)
Sales- [(4,000+58,400-15,200) x 16] 755,200
Less: Cost of goods sold:
Beginning inventory (4,000 x 11.92)…….47,680
(+) Purchase……………………………..723,936
Materials available……………………...771,616
(-) Ending inventory…………………….193,376 578,240
Gross profit 176,960

Calculation of ending inventory: 15,200 unit

Date Unit Rate (Tk.) Amount (Tk.)

July-5 1,600 12.60 20,160
September-2 6,400 12.80 81,920
December-14 7,200 12.68 91,296
Total 15,200 193,376

4. Materials Costing Methods. A corporation that uses a perpetual inventory system had the following transactions
during June:
June 1. Beginning balance: 200 units @ Tk. 3.00 per unit.
June 2. Purchased 500 units @ Tk. 3.20 per unit.
June 7. Issued 400 units.
June 11. Purchased 300 units @ Tk. 3.30 per unit.
June 14. Issued 400 units.
June 17. Purchased 400 units @ Tk. 3.20 per unit.
June 21. Issued 200 units.
June 24. Purchased 300 units @ Tk. 3.40 per unit.
June 26. Purchased 400 units @ Tk. 3.50 per unit.
June 29. Issued 600 units.

Sales were 1,600 units @ Tk. 7 per unit; marketing and administrative expenses totaled Tk. 2,100.
Required:
(1) Prepare comparative income statements based on the transactions for June, using the LIFO and FIFO methods
and a 40% income tax rate.
(2) For each costing method, determine the cash position at the end of June, assuming that all transactions,
purchases, sales, and nonmanufacturing expenses were paid in cash.

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 ACC-2303: Cost and Management Accounting

Calculation of cost of materials under LIFO method

Date in Particulars Received Issued Balance
June Qty Rate Amount Qty Rate Amount Qty Rate Amount
(Tk.) (Tk.) (Tk.) (Tk.) (Tk.) (Tk.)
1 Beginning balance 200 3.00 600
2 Purchased/Received 500 3.20 1,600 200 3.00 600
500 3.20 1,600
7 Issued 400 3.20 1,280 200 3.00 600
100 3.20 320
11 Purchased/Received 300 3.30 990 200 3.00 600
100 3.20 320
300 3.30 990
14 Issued 300 3.30 900 200 3.00 600
100 3.20 320
17 Purchased/Received 400 3.20 1,280 200 3.00 600
400 3.20 1,280
21 Issued 200 3.20 640 200 3.00 600
200 3.20 640
24 Purchased/Received 300 3.40 1,020 200 3.00 600
200 3.20 640
300 3.40 1,020
26 Purchased/Received 400 3.50 1,400 200 3.00 600
200 3.20 640
300 3.40 1,020
400 3.50 1,400
29 Issued 400 3.50 1,400 200 3.00 600
200 3.40 680 200 3.20 640
100 3.40 340
Cost of materials issued/ used in 5,820 Cost of ending 1,580
production material
(1,280+900+920+640+1,400+680) (600+640+340)

Calculation of cost of materials under FIFO method

Date in Particulars Received Issued Balance
June Qty Rate Amount Qty Rate Amount Qty Rate Amount
(Tk.) (Tk.) (Tk.) (Tk.) (Tk.) (Tk.)
1 Beginning balance 200 3.00 600
2 Purchased/Received 500 3.20 1,600 200 3.00 600
500 3.20 1,600
7 Issued 200 3.00 600 300 3.20 960
200 3.20 640
11 Purchased/Received 300 3.30 990 300 3.20 960
300 3.30 990
14 Issued 300 3.20 960 200 3.20 640
100 3.30 330
17 Purchased/Received 400 3.20 1,280 200 3.20 640
400 3.20 1,280
21 Issued 200 3.20 640 400 3.20 1,280
24 Purchased/Received 300 3.40 1,020 400 3.20 1,280
300 3.40 1,020
26 Purchased/Received 400 3.50 1,400 400 3.20 1,280
300 3.40 1,020
400 3.50 1,400
29 Issued 400 3.20 1,280 100 3.40 340
200 3.40 1,020 400 3.50 1,400
Cost of materials issued/ used in 5,470 Cost of ending 1,740
production material
(600+640+960+330+640+1,280+1,020) (340+1,400)

BBA Program, Department of Business Administration, International Islamic University Chittagong.

 ACC-2303: Cost and Management Accounting

Requirement-1):
Comparative Income Statement
For the month ended June-30, 2023
Particulars FIFO (Tk.) LIFO (Tk.)
Sales (1,600 x Tk. 7) 11,200 11,200

Less: Cost of goods sold:

Beginning inventory 600 600

+ Purchase 6,290 6,290

Materials available 6,890 6,890

- Ending inventory 1,740 1,580

Cost of goods sold 5,150 5,310

Gross profit 6,050 5,890

Less: Marketing and administrative expenses 2,100 2,100

Income before income tax 3,950 3,790

Less: Income tax @ 40% 1,580 1,516

Net income 2,370 2,274

Requirement-2):
Cash Position at the end of June

Particulars FIFO (Tk.) LIFO (Tk.)

Cash receipts:

Sales (1,600 x Tk. 7) 11,200 11,200

Less: Cash disbursements:

Purchases 6,290 6,290

Marketing and administrative expenses 2,100 2,100

Income tax @ 40% 1,580 1,516

Total disbursements 9,970 9,906

Cash balance 1,230 1,294

BBA Program, Department of Business Administration, International Islamic University Chittagong.