Management Accouting

Question 1: Katas Limited is a manufacturer of industrial chemicals. It uses a weighted average method of process costing. Materials are added at the beginning of the process but conversion costs occur uniformly throughout the process. The following data has been compiled for the month of July 2014. Work in process, 1 July 336 000 units 40% complete 336 000 units Work in process, 31 July 80% complete 100 000 units Units started during July 2014 200 000 units Cost of Work in Process 1 July 2014 Direct Materials $798,000 Conversion Costs $ 90,000 $ 888,000 Costs incurred during the month of July 2014 Direct material $ 810 000 Conversion costs $ 942 000 $ 1,752,000 Required: 1. Calculate the cost of goods completed and transferred out for the month of July 2014 2. Calculate the cost of work in process inventory as at 31 July 2014. 3. Prepare a journal entry as at 31 July 2014, to record the transfer of goods completed and transferred out in July 2014 Answer: 1. Unit started During July 2014 200000 Cost incurred during the month July 2014 1752000 Cost per Unit 8.76 1.Cost of goods sold Cost of Goods sold Cost of Beginning finished goods inventory 2943360 Purchases or cost of goods manufactured 888000 Cost of ending finished goods inventory 1752000 Cost of goods sold 2079360 2. Cost of work in process inventory as at 31 July 2014 Cost of work in process Work in process 31 July (Unit) 100000 Work in process 31 July (Unit) 876000 Cost of work in process 1 July 2014 1752000 Cost of work in process inventory 31 July 876000 Date 2014 Particulars Amount Debit Amount Credit 1 July Work in process a/c dr. To assembly account payable (direct material was purchased and added it in the beginning) 798000 798000 1 July Work in process ac dr. To assembly various a/c (conversion cost is occurred uniformly throughout the process) 31 July Work in process testing a/c dr. To work in process assembly a/c (to record 100000 units are completed and transferred from assembly to testing) 1752000 1752000 2. 1. Sale Budget Sale Budget Sale budget January Box type C Box type P Budgeted sale ($) 135 195 Unit Selling Price (BOXES) 400000 600000 Total Budgeted Sales 54000000 117000000 2. Production Budget Production Budget January Box type C Box type P Budgeted sale 135 195 Add: Desired ending Inventory 5000 15000 Total Need 5135 15195 Less: Beginning inventory 10000 20000 Required Production 4865 4805 3. Direct Material Budget Direct Material Budget January Box type C Box type P Amount of raw material required for production 100 100 Number of raw materials desired in ending inventory 1.Paper board 5000 5000 2. Corrugating Medium 10000 10000 Total Number of raw material required 15100 15100 Less Amount of raw materials in beginning inventory 1.Paper board 15000 15000 2. Corrugating Medium 5000 5000 Amount of raw material to purchase 4900 4900 Cost per Raw Material 36.296296 25.128205 4. Direct Labour Budget Direct Labor Budget January Box C Box P Unit of production 4865 4805 Direct labor per unit 0.25 0.5 Direct Labor needed for production 1216.25 2402.5 Direct labor cost per hour 18 18 Budgeted Direct labor cost 21892.5 43245 Direct Labor Budget 21892.5 43245 5. Manufacturing overhead Budget Month January Box type C Box type P Unit of production 4865 4805 Total Unit of Production 9670 Variable Overhead costs Indirect labor(61.43) 75000 Indirect Material 15750 Insurance 24000 Total Variable Cost 114750 Fixed Overhead Cost Land and Council Taxws 27000 Utilities 37500 Total Fixed overhead cost 64500 Total Overhead cost 179250 Deduct Depreciation 43500 Cash Disbursement for Manufacturing 135750 Manufacturing overhead per unit 14.0382627 6. Selling and Administrative expense budget Selling and Administrative Expense Budget January Fixed Selling Expense Salaries of sales personnel 112500 management Salaries 135000 Clerical Wages 39000 Variable Selling Expense Miscellaneous Administrative Expense 6000 Advertisement 22500 Selling and Administrative Expense Budget 315000 Reference: Anacoreta, L. and P. D. Silva (2005). International accounting standards for SMEs: An exploratory study. Unpublished paper Berry, R. H. and A. Waring (1995). A user perspective on making corporate reports valuable. British Accounting Review, 27: 139-152. Chua, W.F. (1986), Radical Developments in Accounting Thought, The Accounting Review, Vol. LXI, No. 4, pp. 60132. CIMA Education Group. A guide to devolved budgeting. (PDF 144KB). CIMA Technical Guide, June 1997 Collis, J. and R. Jarvis (2000). How owner-managers use accounts, Centre for Business Performance, ICAEW. Curran, J. and R. A. Blackburn (2001). Researching the Small Enterprise, Sage, London. Deakins, D., D. Logan and L. Steele (2001). The financial management of the small enterprise, Research Report 64, ACCA. Durfee, D. Alternative budgeting. CFO, June 2006, Volume 22, Issue 7, p. 28 Eurostat (2005). European business: Facts and figures, data 1995-2004, European commission.