Accounting entries for a job costing system

XY Limited commenced trading on 1 February with fully paid issued share capital of 500 000, Fixed Assets of 275 000 and Cash at Bank of 225 000. By the end of April, the following transactions had taken place: 1. Purchases on credit from suppliers amounted to 572 500 of which 525 000 was raw materials and 47 500 was for items classified as production overhead. 2. Wages incurred for all staff were 675 000, represented by cash paid 500 000 and wage deductions of 175 000 in respect of income tax etc. 3. Payments were made by cheque for the following overhead costs: Production Selling Administration 4. 5. 20 000 40 000 25 000

Question IM 4.1 Intermediate: Integrated cost accounting

Issues of raw materials were 180 000 to Department A, 192 500 to Department B and 65 000 for production overhead items. Wages incurred were analysed to functions as follows: Work in progress Department A Work in progress Department B Production overhead Selling overhead Administration overhead 300 000 260 000 42 500 47 500 25 000 675 000

6. 7.

8.

Production overhead absorbed in the period by Department A was 110 000 and by Department B 120 000. The production facilities, when not in use, were patrolled by guards from a security firm and 26 000 was owing for this service. 39 000 was also owed to a firm of management consultants which advises on production procedures; invoices for these two services are to be entered into the accounts. The cost of finished goods completed was Department A Direct labour Direct materials Production overhead 290 000 175 000 105 000 570 000 Department B 255 000 185 000 115 000 555 000

9. Sales on credit were 870 000 and the cost of those sales was 700 000. 10. Depreciation of productive plant and equipment was 15 000.
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11. Cash received from debtors totalled 520 000. 12. Payments to creditors were 150 000. You are required (a) to open the ledger accounts at the commencement of the trading period; (b) using integrated accounting, to record the transactions for the three months ended 30 April; (c) to prepare, in vertical format, for presentation to management, (i) a profit statement for the period; (ii) the balance sheet at 30 April. (20 marks) CIMA Stage 2 Cost Accounting

Question IM 4.2 Intermediate: Interlocking accounts

AZ Limited has separate cost and financial accounting systems interlocked by control accounts in the two ledgers. From the cost accounts, the following information was available for the period: () Cost of finished goods produced Cost of goods sold Direct materials issued Direct wages Production overheads (as per the financial accounts) Direct material purchases 512 050 493 460 197 750 85 480 208 220 216 590

In the cost accounts, additional depreciation of 12 500 per period is charged and production overheads are absorbed at 250% of wages. The various account balances at the beginning of the period were: () Stores control Work in progress control Finished goods control 54 250 89 100 42 075

Required: (a) Prepare the following control accounts in the cost ledger, showing clearly the double entries between the accounts, and the closing balances: Stores control Work in progress control Finished goods control Production overhead control (10 marks) (b) Explain the meaning of the balance on the production overhead control account. (2 marks) (c) When separate ledgers are maintained, the differing treatment of certain items may cause variations to arise between costing and financial profits. Examples of such items include stock valuations, notional expenses, and non-costing items charged in the financial accounts. Briefly explain the above three examples and state why they may give rise to profit differences. (3 marks) (Total 15 marks) CIMA Stage 1 Cost Accounting

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ACCOUNTING ENTRIES FOR A JOB COSTING SYSTEM

(a) Describe briefly three major differences between: (i) financial accounting, and (ii) cost and management accounting. (b) Below are incomplete cost accounts for a period: Stores ledger control account (000) Opening balance Financial ledger control a/c 176.0 224.2 Production wages control account (000) 196.0 Production overhead control account (000) 119.3 Job ledger control account (000) 114.9

(6 marks)

Question IM 4.3 Intermediate: Preparation of interlocking accounts from incomplete information

Financial ledger control a/c

Financial ledger control a/c

Opening balance

The balances at the end of the period were: (000) Stores ledger Jobs ledger 169.5 153.0

During the period 64 500 kilos of direct material were issued from stores at a weighted average price of 3.20 per kilo. The balance of materials issued from stores represented indirect materials. 75% of the production wages are classified as direct. Average gross wages of direct workers was 5.00 per hour. Production overheads are absorbed at a predetermined rate of 6.50 per direct labour hour. Required: Complete the cost accounts for the period. (8 marks) (Total 14 marks) ACCA Foundation Paper 3

On 30 October 2002 the following were among the balances in the cost ledger of a company manufacturing a single product (Product X) in a single process operation: Dr Raw Material Control Account Manufacturing Overhead Control Account Finished Goods Account 87 460 5 123 148 352 Cr

Question IM 4.4 Integrated accounts and stores pricing

The raw material ledger comprised the following balances at 30 October 2002: Direct materials: Material A: Material B: Indirect materials: 18 760 kg 4 242 kg 52 715 29 994 4 751
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ACCOUNTING ENTRIES FOR A JOB COSTING SYSTEM

12 160 kg of Product X were in finished goods stock on 30 October 2002. During November 1999 the following occurred: (i) Raw materials purchased on credit: Material A: 34 220 kg at 2.85/kg Material B: 34 520 kg at 7.10/kg Indirect: 7221 (ii) Raw materials issued from stock: Material A: 35 176 kg Material B: 13 364 kg Indirect: 6917 Direct materials are issued at weighted average prices (calculated at the end of each month to three decimal places of ). (iii) Wages incurred: Direct 186 743 (23 900 hours) Indirect 74 887 (iv) Other manufacturing overhead costs totalled 112 194. Manufacturing overheads are absorbed at a predetermined rate of 8.00 per direct labour hour. Any over/under absorbed overhead at the end of November should be left as a balance on the manufacturing overhead control account. (v) 45 937 kg of Product X were manufactured. There was no work-in-progress at the beginning or end of the period. A normal loss of 5% of input is expected. (vi) 43 210 kg of Product X were sold. A monthly weighted average cost per kg (to three decimal places of ) is used to determine the production cost of sales. Required: (a) Prepare the following cost accounts for the month of November 2002. Raw Material Control Account Manufacturing Overhead Control Account Work-in-Progress Account Finished Goods Account All entries to the accounts should be rounded to the nearest whole . Clearly show any workings supporting your answer. (16 marks) (b) Explain the concept of equivalent units and its relevance in a process costing system. (4 marks) (Total 20 marks) ACCA Management Information Paper 3

Question IM 4.5 Intermediate: Labour cost accounting and recording of journal entries

(a) Identify the costs to a business arising from labour turnover. (5 marks) (b) A company operates a factory which employed 40 direct workers throughout the four-week period just ended. Direct employees were paid at a basic rate of 4.00 per hour for a 38-hour week. Total hours of the direct workers in the four-week period were 6528. Overtime, which is paid at a premium of 35%, is worked in order to meet general production requirements. Employee deductions total 30% of gross wages. 188 hours of direct workers time were registered as idle. Required: Prepare journal entries to account for the labour costs of direct workers for the period. (7 marks) (Total 12 marks) ACCA Foundation Stage Paper 3

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ACCOUNTING ENTRIES FOR A JOB COSTING SYSTEM

One of the production departments in A Ltds factory employs 52 direct operatives and 9 indirect operatives. Basic hourly rates of pay are 4.80 and 3.90 respectively. Overtime, which is worked regularly to meet general production requirements, is paid at a premium of 30% over basic rate. The following further information is provided for the period just ended: Hours worked: Direct operatives: Total hours worked 25 520 hours Overtime hours worked 2 120 hours Indirect operatives: Total hours worked 4 430 hours Overtime hours worked 380 hours Production: Product 1, 36 000 units in 7 200 hours Product 2, 116 000 units in 11 600 hours Product 3, 52 800 units in 4 400 hours Non-productive time: 2 320 hours Wages paid (net of tax and employees National Insurance): Direct operatives 97 955 Indirect operatives 13 859 The senior management of A Ltd are considering the introduction of a piecework payment scheme into the factory. Following work study analysis, expected productivities and proposed piecework rates for the direct operatives, in the production department referred to above, have been determined as follows: Productivity (output per hour) Product 1 Product 2 Product 3 66 units 12 units 14.4 units Piecework rate (per unit) 1.00 0.50 0.40

Question IM 4.6 Intermediate: Preparation of the wages control account plus an evaluation of the impact of a proposed piecework system

Non-productive time is expected to remain at 10% of productive time, and would be paid at 3.50 per hour. Required: (a) Prepare the production departments wages control account for the period in A Ltds integrated accounting system. (Ignore employers National Insurance.) (9 marks) (b) Examine the effect of the proposed piecework payment scheme on direct labour and overhead costs. (11 marks) (Total 20 marks) ACCA Cost and Management Accounting 1

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Question IM 4.7 Intermediate: Contract costing

Thornfield Ltd is a building contractor. During its financial year to 30 June 2000, it commenced three major contracts. Information relating to these contracts as at 30 June 2000 was as follows: Contract 1 Date contract commenced 1 July 1999 () Contract price Expenditure to 30 June 2000: Materials and subcontract work Direct wages General expenses Position at 30 June 2000 Materials on hand at cost Accrued expenses Value of work certified Estimated cost of work completed but not certified Plant and machinery allocated to contracts 210 000 44 000 80 000 3 000 3 000 700 150 000 4 000 16 000 Contract 2 1 January 2000 () 215 000 41 000 74 500 1 800 3 000 600 110 000 6 000 12 000 Contract 3 1 April 2000 () 190 000 15 000 12 000 700 1 500 600 20 000 9 000 8 000

The plant and machinery allocated to the contracts was installed on the dates the contracts commenced. The plant and machinery is expected to have a working life of four years in the case of contracts 1 and 3 and three years in the case of contract 2, and is to be depreciated on a straight line basis assuming nil residual values. Since the last certificate of work was certified on contract number 1, faulty work has been discovered which is expected to cost 10 000 to rectify. No rectification work has been commenced prior to 30 June 2000. In addition to expending directly attributable to contracts, recoverable central overheads are estimated to amount to 2% of the cost of direct wages. Thornfield Ltd has an accounting policy of taking two thirds of the profit attributable to the value of work certified on a contract, once the contract is one third completed. Anticipated losses on contracts are provided in full. Progress claims equal to 80% of the value of work certified have been invoiced to customers. You are required to: (a) prepare contract accounts for each contract for the year to 30 June 2000, calculating any attributable profit or loss on each contract; (12 marks) (b) calculate the amount to be included in the balance sheet of Thornfield Ltd as on 30 June 2000 in respect of these contracts. (4 marks) (Total 16 marks) ICAEW Accounting Techniques

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ACCOUNTING ENTRIES FOR A JOB COSTING SYSTEM

(a) PZ plc undertakes work to repair, maintain and construct roads. When a customer requests the company to do work PZ plc supplies a fixed price to the customer and allocates a works order number to the customers request. This works order number is used as a reference number on material requisitions and timesheets to enable the costs of doing the work to be collected. PZ plcs financial year ends on 30 April. At the end of April 2000 the data shown against four of PZ plcs works orders were: Works order number Date started Estimated completion date Direct labour costs Direct material costs Selling price Estimated direct costs to complete orders: Direct labour Direct materials Independent valuation of work done up to 30 April 2000 488 1/3/99 31/5/00 (000) 105 86 450 40 10 350 517 1/2/00 30/7/00 (000) 10 7 135 60 15 30 518 14/3/00 31/5/00 (000) 5 4 18 2 1 15 519 18/3/00 15/5/00 (000) 2 2 9 2 1 5

Question IM 4.8 Intermediate: Contract costing

Overhead costs are allocated to works orders at the rate of 40% of direct labour costs. It is company policy not to recognize profit on long-term contracts until they are at least 50% complete. Required: (i) State, with reasons, whether they above works orders should be accounted for using contract costing or job costing. (4 marks) (ii) Based on your classification at (i) above, prepare a statement showing clearly the profit to be recognized and balance sheet work in progress valuation of each of the above works orders in respect of the financial year ended 30 April 2000. (10 marks) (iii) Comment critically on the policy of attributing overhead costs to works orders on the basis of direct labour cost. (6 marks) (b) Explain the main features of process costing. Describe what determines the choice between using process costing or specific order costing in a manufacturing organization. (10 marks) (Total 30 marks) CIMA Operational Cost Accounting Stage 2

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