Costing: An introduction Teachers’ Manual by Colin Drury

By Colin Drury

The purpose of the second one version of this ebook is to supply an advent to the speculation and perform of fee and administration accounting. a value accounting procedure accumulates monetary details for inventory valuation and revenue size while a administration accounting approach accumulates, classifies and experiences details that would help managers of their decision-making, making plans and keep an eye on actions. This booklet is anxious with either price and administration accounting, with equivalent emphasis being put on either structures. meant essentially for college students who're pursuing a twelve months fee and administration accounting path, the booklet is perfect for these drawing close this topic for the 1st time. it truly is compatible for starting place specialist (CACA, CIMA and twelve months university starting place classes, organization of Accounting Technicians, BTEC larger and nationwide degree, "A" point accounting and a primary point costing path for undergraduate measure scholars.

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2 (a) (b) See Chapter 7 for the answer to this question. (i) It is rational to undertake a common process if the total revenue from the sale of the products from the joint process exceeds the joint costs plus further processing costs of those products which are further processed. Consider the following example. A joint process costs £600 and joint products A, B and C emerge. The further processing costs and sales revenue from the finished products are as follows: Products A B c Additional finishing costs £ 300 400 500 Sales revenue from from finished product £ 600 800 1,000 1,200 2,400 In the above example total revenue (£2,400) is greater than joint costs (£600) plus the additional costs of processing (£1,200).

Notional costs such as interest on capital or rent on premises owned are examples of expenses which are recorded in the cost accounts but not the financial accounts. These are hypothetical costs taken into account to represent a benefit enjoyed by an organization in respect of which no actual expense has been incurred. 6 (a) The distinguishing features of the cost accounting system are: (i) an interlocking accounting system is operated; (ii) a full absorption job costing system is operated. 6 31 Production wages control account £ (iv) General ledger control 25,000 £ (v)Job ledger control (80% X 25) (vi)Production overhead control (25-20) £25,000 £ (x)Job ledger control (20 X 150%) Profit and loss under absorbed overhead £33,000 £ 20,000 19,000 £ 30,000 3,000 £33,000 Job ledger control account Opening balance (ii) Stores ledger control (v) Production wages control (x) Production overhead control 5,000 £25,000 Production overhead control account (iii) Stores ledger control 2,000 (vi) Production wages control5,000 (vii) General ledger control 26,000 20,000 £ (xi)Cost of sales (balance) 79,000 Closing balance (given) 10,000 20,000 30,000 £89,000 £89,000 Selling and administration overhead account (viii) General ledger control £ 12,000 (xii)Cost of sales (10% X 110) Profit and loss under absorbed overhead £12,000 £ 79,000 11,000 £90,000 1,000 £12,000 Cost of sales account (xi) Job ledger (xii) Selling and administration overhead £ 11,000 Profit and loss £ 90,000 £90,000 32 Accounting entries for a iob costing system Sales account £ Profit and loss £110,000 (ix)General ledger control £ £1100,000 Profit and loss account Cost of sales Under absorbed overhead: Production Selling and administration Net profit (to General ledger ledger control) £ 90,000 Sales £ 110,000 3,000 1,000 16,000 £110,000 £110,000 General ledger control account (ix) Sales Closing balance £ 110,000 22,000 £132,000 (c) (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) £ Opening balance 26,000 (i)Stores ledger control 27,000 (iv)Production wages 25,000 control (vii)Production overhead control 26,000 (viii)Selling and administration overhead 12,000 Net profit 16,000 £132,000 Purchases of materials Direct materials allocated to jobs Indirect materials (not allocated to jobs) Production wages incurred Direct wages allocated to jobs Indirect wages (not allocated to jobs) Production overhead incurred (other than materials and wages) Selling and administration overhead incurred Sales value of jobs completed in the period Production overhead absorbed Production cost of jobs completed in the period Selling and administration overhead absorbed.

SSAP 9 recommends that in determining the proportion of profit taken to date the judgement involved should be exercised with prudence and caution should be applied so that the profit on the contract to date is not overstated. ant on site b/f 600 1 £ --- Loss taken 18,540 4,000 6,000 9,000 3,000 3,000 1,500 12,000 10,000 7,500 2,390 145,433 112,390 Accrued expenses b/fwd Provision for faulty work b/fwd 700 600 10,000 Profit calculations: Contract 1: 2j3 x £13,700 profit (£150,000 value of work certified£136,300 cost of sales).

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