Page 279 P5-1 Hugo Products

Cost of Production Summary

For the period
(1) Quantity Schedule:
Units Started
70000
Units Completed and T.out
60000
Still in process
10000

(2) Equivalent Production:

Units fully completed +

Partially completed
Mat: 60000 +
2500 = 62500
Lab: 60000 +
2500 = 62500
F.O.H: 60000 +
2500 = 62500

(3) Cost Charged to the Department:

Cost Added by This department TC
PUC
Mat: 30000 / 62500
0.48
Lab: 20000 / 62500
0.32
F.O.H: 40000 / 62500
0.64
Total cost 90000
1.44
(4)Coat Accounted for as follows:
Cost of units completed ( 60000 * 1.44) = 86400
W.I.Pending
Mat: (2500 * 0.48) = 1200
Lab: (2500 * 0.32) = 800
F.O.H: (2500 * 0.64) = 1600

Total Cost 90000

Joint Product
When two or more products are produced from the same basic raw material
and are of almost equivalent value it is known as joint product
Example: In refining of crude oil, both petrol and diesel are obtained

By Product
By product are incidental waste arising during the course of manufacture of
main product.
Example: In processing of sugarcane, both sugar and molasses is obtained
Joint Product Cost
When by a process more than one product is produced, the material and
conversion cost incurred prior to split-off stage is known as joint cost.

Principles of Budgeting
1. Should provide sound financial management by focusing on
requirement of the organization
2. Should focus on the objectives and policies of the organization.
3. Should ensure the most effective use of financial and non-financial
resources.
4. Programmed activities should be planned in advance.
5. Requires consistent delegation for framing and executive budget.
6. Should include coordinating efforts of various departments establishing
a frame of reference for managerial decision and evaluate managerial
performance.

Preparing the Master Budget

Page 333 P6-10
Joint Cost Allocation
Sale value method
Product Number of Per Pound Total Pound Joint Cost
Chickens Allocation
AA 25000 5 125000 77736.318
A 15000 4 60000 37317.432
B 6000 2 12000 7462.686
C 4000 1 4000 2487.562
Total 201000 125000

Working
AA = 125000 / 201000 * 125000 =77736.318
A = 125000 / 201000 * 60000 = 37317.432
B = 125000 / 201000 * 12000 = 7462.686
C = 125000 / 201000 * 4000 = 2487.562

Page 333 P6-11

Joint cost Allocation
Produ Barrel Cost Selli Marke Hyphothi Joint
ct s after ng t tical Cost
Produc Split- Pric value Value Allocat
 ed of e ion
Gasoli 50000 2,000, 25 12500 10500000 277941
ne 0 000 00 2
kerose 10000 500,00 30 30000 2500000 661765
ne 0 0 00
Diesel 25000 100,00 20 50000 4000000 105882
Fuel 0 0 00 3
Total 17000000 450000
0

Working
Joint Processing cost 5,000,000
(-) Revenue (500,000)
450,0000

G = 4500000 / 17000000 * 10500000 = 2779412

K = 4500000 / 17000000 * 2500000 = 661765
D = 4500000 / 17000000 * 4000000 = 1058823
Self Study problem page 419
FiFO Method
Mat:
Lab:
Units completed 6400
6400
(+) Opening completed 0
(200 * 8%) 160
(+) Ending completed 600
480
7000
7040
(-) opening all (200)
(200)
6800
6840

Material Price Variance

AQ (AP SP)
20900 (5.90 6)
20900 * 0.10 = 2090 Fav.

Material Quantity Variance

SP (AQ SQ)
6 (20900 20400)
6 (500) = 3000 Unfav.

Direct labor Variance

AH (AR SR)
27100 (7.70 7.50)
27100(0.20) = 5420 Unfav.

Labor Rate Variance

SR (AH SH)
7.50 (27100 27360)
7.50(260) = 1950 Fav.

Page 514 E10-1

(1)
Number of units 25000 25000
Absorption Costing Variable Costing
D. Material 200,000 200,000
D. Labor 100,000 100,000
Variable factory 80000 80000
overheaad
Fixed F.O.H 60000
Total Cost 440,000 380,000
Unit Cost= Total 17.6 15.2
cost/number of units

(2)
Ending Inventory = 25000-20000
 = 5000
Cost of ending inventory under Absorption costing
= 5000 * 17.6
= 88000
Cost of ending inventory under Variable costing
= 5000 * 15.2
= 76000
(3)

Income statement Under Variable Costing

Sale
500,000
(-) CGS (20000 * 15.2)
(304,000)
Contribution Margin
196,000
(-) Fixed Factory over head
(60,000)
(-) selling and admin. Expenses
(40,000)
Net Profit
96,000
Income statement under Absorption Costing
Sale
500,000
(-)CGS
(352,000)
Gross profit
148,000
(-) Selling and admin. Expenses
(40000)
Net Profit
108,000

Page 516 E10-8 Computing break-even

(1)
QBE = Total Fixed cost/Contribution Margin Per unit
Contribution Margin per unit = (sale price Vc)
= 13
5
=8

QBE = FC / C/M .P.unit

70000 = FC / 8
FC = 560,000
(2)
Total variable expense at break-even Volume
= Sale FC
= 910,000 560,000
= 350,000
Define Job Process Costing and order Costing
Job costing is used for unique products, and process costing is
used for standardized products. Size of job. Job costing is used for
very small production runs, and process costing is used for large
production runs.
E8-2
(1) Material Price Variance
 AQ ( AP SP )
51680 ( 0.55 0.50 )
51680 ( 0.05 )
= 2584 Unfav.
(2) Material Quantity Variance
SP ( AQ SQ )
0.50 ( 51680 51200 )
0.50 ( 480 )
= 240 Unfav.
(3) Direct Labor Variance
AH ( AR SR )
40000 ( 7.60 8 )
40000 ( 0.4)
= 16000 Fav.
(4) Labor Efficiency rate
SR ( AH SH )
8 ( 40000 37680 )
8 ( 2320 )
= 18560 UnFav.

E10-3
Number of Units 70000 70000
Absorption Variable Costing
 Costing
D. Material 90000 90000
D. Labor 120000 120000
Variable Factory 60000 60000
overhead
Fixed Factory 150000
overhead
Total cost 420,000 270,000
Unit cost = total 5.25 3.375
cost/total unit

Income statement under Variable Costing

Sale
700,000
(-) CGS (70000 * 3.375)
(236,250)
C.M
463,750
(-) Fixed Factory overhead
(150,000)
Net income
313,750

Income statement under Absorption Costing

Sale
700,000
(-) CGS ( 70000 * 5.25)
(367,500)
Gross Profit
332,500