IDENTIFY THE THREE MAJOR COST ELEMENTS IN THE COST OF A PRODUCT OR SERVICE

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IDENTIFY THE THREE MAJOR COST ELEMENTS IN THE COST OF A PRODUCT OR SERVICE

Task

The purpose of Assessment item 1 is to establish the skills needed in the workplace for costing products and services using the appropriate processes and tools and apply analytical processes to construct accounting systems and models using workplace tools. Each question uses realistic data and the professional practices similar to that found in workplaces.

Your assignment consists of different question styles including discussion questions, reports, exercises, problem questions and spreadsheet questions. It assesses learning outcomes as listed in the assignment rationale below.

QUESTION 1 Management accounting and costs (4 marks)

Identify the three major cost elements in the cost of a product or service. Define each and give examples.

QUESTION 2 Costing (4 marks)

Give three examples of products where more detailed recording of costs is required and three examples of products where averaging techniques may be appropriate.
 

QUESTION 3 Cost concepts (4 marks)

The monthly cost of renting a manufacturing plant is

A a prime cost and an inventoriable cost.
B a prime cost and a period cost.
C a prime cost and a product cost.
D a conversion cost and a period cost
E a conversion cost and an inventoriable cost.
Explain your answer.

QUESTION 4 Manufacturing statement and income statement (18 marks)
Spreadsheet. See the Spreadsheet Advice PDF in Interact2 Resources and the examples in your textbook.

See the requirements within the spreadsheet template below.

Check the assignment requirements in this subject outline paying particular attention to the spreadsheet requirements. Ensure you have separate data and report areas showing only formulas. Use IF functions to allow for the possibility of either a net income or a net loss. Show row and column headings and paste both a normal view and a formula view.

QUESTION 5 Cost concepts (8 marks)
Should overtime payments be treated as direct labour, or as overhead? Explain.

QUESTION 6 Understanding the entries in the Materials Control account (6 marks)
The Materials Control account balances were $40 000 on 1 April and $20 000 on 30 April. During April direct materials issued to production were $70 000 and indirect materials consumed were $30 000.

Required:
Show the Materials Control account in the ledger for April and a general journal entry to record the cost materials purchased during April.

QUESTION 7 Understanding the entries in the Accrued Payroll account (8 marks)
Salaries and wages payable to factory employees were $20 000 on 1 March and $8000 on 31 March. Gross salaries and wages paid during March totalled $50 000. March`s direct labour totalled $28 000.

Required:
T-account for Accrued Payroll for March and general journal entries for recording salaries and wages earned by factory employees during March.

QUESTION 8 Payroll: direct and indirect labour (8 marks)
J. Smith worked for 48 hours during the pay week ending Friday April 24. His normal working week consists of 40 hours, of which 35 hours were spent on production while the remaining 5 hours were non-productive idle time. Smith worked 2 hours overtime at a premium of 50% on Monday April 20 because a customer required work finished by Tuesday April 21 even if overtime had to be worked to complete it. Smith worked a further 6 hours overtime on Wednesday April 22 on other production. It is the policy of the company to pay an overtime premium of 100% after the first 3 hours on any one day. Smith’s normal wage rate is $22 per hour.

Required:
(a) Calculate Smith’s gross pay for the week.
(b) Indicate the sum to be treated as indirect labour.

QUESTION 9 Activity Based Costing (10 marks)

Your employer is contemplating changing the existing traditional costing systems used in the business to adopt activity based costing (ABC). See your text page 81.
Prepare a business report outlining the traditional costing system and evaluate arguments for and against ABC. Use the Internet as a resource. The following resources will help you prepare and format your report:

QUESTION 10 Direct, step and reciprocal methods of overhead allocation (20 marks)
Colin and Company has two production departments and two service departments. The budgeted costs of these departments are:

The services of S1 are allocated according to the number of employees in the other departments:

S2 has 20 employees, P1 30 employees and P2 30 employees.

The services of S2 are allocated 30% to S1, 20% to P1 and 50% to P2.

Required:
Allocate service department costs to the production departments using
(a) the direct method
(b) the step method 
(c) the reciprocal services method.

1. Solve manually. Use the algebraic method for the reciprocal services method.
2. Then solve with a spreadsheet. Show the Matrix algebra solution. See examples in your text.