BINARY COLLEGE (CITY CAMPUS)

THIS ASSINGMENT IS WRTTTEN FOR

..
(MR. RAJA)

BY

(LINGESHZSAN KATHERASAN)

ID NUMBER
TITLE

: COST ACCOUNTING

DATE OF SUBMISSION

: 9 / 12 / 2015

BINARY COLLEGE (CITY CAMPUS)

DATE RECEIVED: SIGNATURE CO-ORDINATOR:

DIPLOMA IN ACCOUNTING: Year 1 Semester 2

ASSINGMENT DECLARATION FORM

I hereby declare that the attached assignment is my own work and understand that if I am
suspected of plagiarism or other form of cheating, my work will be referred to the programmed
director who may as a result recommend to the Faculty or business that my enrolment in the
programmed be discontinued.

BINARY STUDENT NUM

NAME

: LINGESHZSAN A/L KATHERSAN

ADDRES

: No.9A, LOT 364, JALAN 14, KG. ASAM KUMBANG

44000 KUALA KUBU BHARU

TEL NUM

: 010-2976681

SUBJECT

: COST ACCOUNTING

SIGNATURE

DATE SUBMITED

: 9 / 12 / 2015

REMARKS

THEORY

1) What is cost accounting?

Cost accounting study the cost structure of the business. It does so by collecting information on
the costs incurred by the activities of the company, was chosen to provide the cost of products
and services and other cost objects, and evaluate cost efficiency. Accounting costs are mainly
concerned with developing an understanding of where the company is earning and losing money,
and give input into the decision to generate profits in the future.
2) What is marginal cost?
The change in the total cost coming from making or producing one additional item. The aim is to
analyze the marginal cost to determine the level of the organization can achieve economies of
scale. The calculation is the most commonly used among manufacturers as a way to isolate the
optimal level of production.
3) What is meant by Absorption costing?
Absorption costing method that all manufacturing costs are absorbed by the units produced. In
other words, the cost of completed units in inventory will include direct materials, direct labor,
and both variable and fixed manufacturing overhead.
4) What is contribute?
The contribution is the amount of income remaining after all costs have been deducted directly
from income. This balance is the amount available to pay any fixed costs that a business has to
bear in the next report. Any excess contributions over the same fixed costs with profits earned.
5) What is meant by Break-even point?
Breakeven point represents that volume of production where total cost equal total revenue
resulting into a no-profit no-loss situation. If output falls below that point, there is loss and if
output exceeds the point there is profit.
6) What is sunk cost?
Historical cost or cost incurred previously known as sunk costs. They play a role in the decision
making process referred to as cost of current and irrelevant.

7) Cost center
It is defined as a location, person or item of equipment or group for which the cost is determined
and used to control costs.

8) Overhead
Overhead costs are necessary to run the business, but which cannot be directly attributed to any
particular business activities, products, or services.

9) Variable cost
A variable costs are costs that vary in relation to changes in the volume of activity. The concept
of variable costs can be used to model the future financial performance of the business, and also
to set minimum rates.

10) Cash budget

Cash budget contains details of the sources and uses of cash is projected in the next future. This
budget is used to determine whether the company's operations and other activities will provide a
sufficient amount of cash to meet its projected cash requirements. If not, the management needs
to find additional sources of financing.

QUESTION 1
P&G Company produces many products for household use. Company sells products to
storekeepers as well as to customers. Detergent-DX is one of the products of P&G. It is a
cleaning product that is produced, packed in large boxes and then sold to customers and
storekeepers.
P&G uses a traditional standard costing system to control costs and has established the following
materials, labor and overhead standards to produce one box of Detergent-DX:
Direct materials: 1.5 pounds @ $12 per pound
$18.00
Direct labor: 0.6 hours $24 per hour
$14.40
Variable manufacturing overhead: 0.6 hours @ $5.00
$3.00
$35.40
During August 2012, company produced and sold 3,000 boxes of Detergent-DX. 8,000 pounds
of direct materials were purchased @ $11.50 per pound. Out of these 8,000 pounds, 6,000
pounds were used during August. There was no inventory at the beginning of August. 1600 direct
labor hours were recorded during the month at a cost of $40,000. The variable manufacturing
overhead costs during August totaled $7,200.
Required:
1.
Compute materials price variance and materials quantity variance. (Assume that the
materials price variance is computed at the time of purchase.)
2.
Compute direct labor rate variance and direct labor efficiency variance.
3.
Compute variable overhead spending variance and variable overhead efficiency variance.

Solution:
(1) Materials variances:
= (8,000 pounds $11.50) (8,000 pounds $12)
= $92,000 $96,000
= $4,000 Favorable
= (6,000 pounds $12) (4,500 pounds $12)
= $72,000 $54,000
= $18,000 Unfavorable
(2)Labor variances:
= $40,000 (1,600 hours $24)
= $40,000 $38,400
= $1,600 Unfavorable
= (1,600 hours $24) (1,800 hours $24)
= $38,400 $43,200
=$4,800 Favorable
(3) Variable overhead variances:
= (1,600 hours $4.5) (1,600 hours $5)
= $7,200 $8,000
= $800 Favorable
= (1,600 hours $5) (1,800 hours $5)
= $1,000 Favorable

QUESTION 2
From the following forecasts of income and expenditure, prepare a cash budget for the
months Jan. to April 2011.

Months
2010

Sales

Purchase

(Credit) (Credit)

Wages

Manufacturing Administrative

Selling

expenses

expenses

expenses

30000

15000

3000

1150

1060

500

35000

20000

3200

1225

1040

550

2011 Jan. 25000

15000

2500

990

1100

600

Nov.
Dec.

Feb.

30000

20000

3000

1050

1150

620

March

35000

22500

2400

1100

1220

570

April

40000

25000

2600

1200

1180

710

Additional information in follows:

1. The customers are allowed a credit period of two months.
2. A dividend of $ 10000 in payable April.
3. Capital expenditure which has to be incurred: 15th Jan. $ 5000, we will buy a plant and in
March, we will buy a building on loan and its payment will be done with in monthly installments
of $ 2000 each.
4. The creditor are allowing a credit of 2 months.
5. Wages are paid on the 1st of the next months.
6. Lag in payment of other expenses is one month.
7. Balance of cash in hand on 1st Jan. 2011 is $ 15000.

CASH BUDGET (FOR THE OF JANUARY TO APRIL 2015)

JAN

FEB

MARCH

APRIL

Receive cash from debtors

30000

35000

25000

30000

Cash available

45000

53985

53795

60975

50000

88985

78795

90975

Paid to supplier for purchase

15000

20000

15000

20000

Wages

3200

2500

15000

20000

Other expenses

2815

2690

2820

2890

10000

Plant

5000

Loan

2000

2000

26015

25190

22820

37290

Balance c/d

18985

28795

30975

23685

Balance b/d

15000

18985

28795

30975

Receipts:

Payment:

Dividend

QUESTION 3

From the following particulars you are required to calculate BEP.

(a) Fixed cost $ 2, 00, 000, selling price per unit $. 40, variable cost per unit $. 1.5.
(b) Fixed cost $. 40,000, sales $. 100,000, variable cost $. 30,000.

(a) Computation of BEP =

Fixed Cost

fixed cost /Selling price per unit Variable cost per unit

= $ 200,000

Selling price per unit = $ 40 per unit

Variable cost per unit = $ 15 per unit
= 200,000 /40-15
BEP in units = 8,000
BEP in value =BEP units x Selling price per unit
=8,00040
=$ 320,000

(b)BEP = Fixed Cost x Sales

Sales Variable Cost
=40,000 x 100,000 / 100,000 x 30,000
=400,000 /7 = $ 57,142