Assignment: 1

Subject Code: ACC512

Subject Name: Management Accounting for Costs and Control

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Q1

Cost elements involved in production of a product or providing service are mention below.

Direct Material (DM): Material which is easily traceable to individual units in an

economically feasible manner is known as direct material (example: A car with Engine and
Wheels). The material which is not feasible to trace are known as indirect material (Oil,
Leather, cables, nuts and bolts).

Direct Labour (DL): Wages paid for the time spent on manufacturing a product or providing
service is called as direct labour (example: Fabricate, machine). Indirect labour is those
which are not involved in direct material or machine handling for production. (Example:
supervision).

Manufacturing Over Head (OH): All factory expenses which are not direct material or direct
cost (example: Insurance, Factory Rent and Electricity). (Williams, 2013)

Q2

The cost of resources consumed which is not easily traceable need to have more detailed
recording of costs such as Jobbing (example: Printing job in a printing company on different
orders, repairs to electronic devices or machines like refrigerator, washing machine, Custom
built houses). Average technique may be appropriate for the batches of unit output of a
product which is identically standardised (example: Can of Milk, Litres of oil, tonne’s of
wheat). (Williams, 2013)

Q3

The monthly cost of renting plant is conversion cost and a period cost.

As rent need to be pay on a particular fixed period of interval such as monthly, quarterly or
annually so it is a period cost. Since rent is paid for manufacturing plant which are an
overhead and the overhead is considered as conversion cost.

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Q4

Normal View:

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Formula View:

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Q5

Time worked in excess of normal time is called overtime and it is usually paid at over time
rates, for example, a worker normally works for 40 hours per week and paid $20 per hour. In
a particular week if the worker works 50 hours and company pays him $25 for every excess
hour’s of 40 hours then the allocation of payment will be calculated as mention below.

Direct Labour (50 hours x $ 20) = $1000

Manufacturing Overhead (10 hours x $5) = $ 50 (Over Time Premium)

Total Cost = $ 1050

The overtime premium is $50 which a part of manufacturing overhead cost.

However if the overtime hours worked were at the request of a customer to complete the job
at a speedy level then all amount of $1050 will be charged as direct labour.

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Q6

Material Control

Opening Balance: $40000

Closing Balance: $20000

Raw Material Issued to production: $70000

Material Consumed: $30000

Materials Control Account:

Opening Bal - Closing Bal + Raw Material – Material Consumed

40000-20000+70000-30000 = 60000

Particulars Debit Credit

Dr. Work In Process 60,000
Material Control 60,000

Q7 Accrued payroll

Salary and Wages Paid 50000 Opening Balance 20000

WIP Direct Labour 28000
Closing Balance 8000 Overhead Control 10000
58000 58000

Journal Entry for salaries and wages earned by factory employees during March

Particulars Debit Credit

Work in Process 28000
Overhead Control 10000
Accrued Payroll 38000

Journal Entry for salaries and wages paid to factory employees during March

Particulars Debit Credit

Accrued Payroll 38000

Bank/Cash 38000

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Q8

Direct Labour DL = 35 hours (out of 40 -5 hours idle = overhead)

+8 hours of overtime

Total Hours worked = 43 hours (35+8)

Smith’s Normal Wage Rate =$ 22 P/h

Normal Wage Rate x Total hours worked = $22 x 43 hours = $946

Actual hours worked – Weekly Hours = 3hours are overtime (43-40)

Over Time = 3hours x 50% premium on actual rate

($22 x 50%) = 33 (3x11)

Therefore Smith’s gross pay for the week = $979 ($946+$33)

The excess hours than regular 40 hours worked are considered as indirect labour.

Q10

Given Collin Company have S1 and S2 service department P1 and P2 Production department.

Service Consumed By:

Service S1 S2 P1 P2 Total
Supplied
By:
S1 0 20% 30% 30% 80%

S2 30% 0 20% 50% 100%

Points to be noted:

The Sum of direct and indirect labour will be utilized as both S1 and S2 are service
department (S1=16000 and S2=33000)

The indirect given cost of P1 and P2 will be used for overhead (P1= 9000 and P2 = 70000).

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Direct method

S1 S2 P1 P2 Total

Overhead 16000 33000 90000 70000 209000

costs
Reallocate S1 (16000) 0 16000*30/60 16000*30/60
=8000 =8000
Reallocate S2 0 (33000) 33000*20/70 33000*50/70
=9428 =23571
Total 0 0 107428 101571 209000

Step Method

S1 S2 P1 P2 Total

Overhead 16000 33000 90000 70000 209000

costs
Reallocate S1 (16000) 16000*20% 16000*30% 16000*30%
=3200 = 4800 = 4800
Reallocate S2 0 (36200) 36200*20/70 36200*50/70
=10342 =25857
Total 0 0 105143 100657 209000

Reciprocal Services Method

S1 S2 P1 P2 Total

Overhead 16000 33000 90000 70000 209000

costs
Reallocate S1 (27553) 5510 0.30*27533 0.30*27533
=8259 =8259
Reallocate S2 11553 (38510) 0.20*38510 0.50*38510
=7702 =19255
Total 0 0 105961 97514 209000

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Reciprocal service method calculation

S1 = 16000 + 0.30s2

S2 = 33000 + 0.20 s1 (Substitute for s2 in 1)

S1 = 16000 + 0.30 (33000+0.20 s1)

= 16000 + 9900 + 0.06s1

S1 = 25900/0.94

= 27553

S2 = 33000 + 0.20 (27553)

= 33000 + 5510 (Substitute into 2)

= 38510

SpreadSheet Solution Normal View:

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Spreadsheet Solution formula view:

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References:

Bibliography
University, C. S. (2017, April). Student Resources. Retrieved from Interact2.csu.edu.au:
https://interact2.csu.edu.au/webapps/cmsmain/webui/courses/S-
ACC512_201730_S_I/Student%20Resources?action=frameset&subaction=view&pid=pid-
1346867-dt-content-rid-2759422_1

Williams, V. F. (2013). Cost Management (3 ed.). Australia: McGraw-Hill Education.

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