Chapter # 2a4accounting.weebly.com/uploads/7/1/2/8/7128209/2... · 2020-01-27 · Chapter # 2 Page 18 Sameer Hussain ILLUSTRATION # 2: (UNIT COST AND MISSING INVENTORIES) The following

Chapter # 2 Accounting for

Manufacturing Operation

Sameer Hussain

www.a4accounting.weebly.com

Accounting for Manufacturing Operation

Chapter # 2

Page 14

Sameer Hussain www.a4accounting.weebly.com

SYLLABUS ACCORDING TO UNIVERSITY OF KARACHI:

Accounting for manufacturing concern. Statement of cost of goods manufactured. Income Statement. Closing entries.

WHAT THE EXAMINER USUALLY ASK?

Computation of: o Prime cost. o Conversion cost. o Manufacturing cost. o Raw material used. o Net purchases of raw materials. o Opening inventory of raw material. o Ending inventory of raw material. o Opening inventory of goods in process. o Ending inventory of goods in process. o Opening inventory of finished goods. o Ending inventory of finished goods. o Per unit cost. o Factory overhead rate.

Statement of Cost of Goods Manufactured. Income Statement. Closing entries.


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www.a4accounting.weebly.com Sameer Hussain

COST OF GOODS MANUFACTURED The total production cost of the finished goods transferred from the production facility of an organization during an accounting period. It is made up of the total expenditure for the period on direct materials, direct labours, direct expenses, and manufacturing overheads adjusted by the opening and closing stocks of raw materials and the work in process at the beginning and end of the period.

STATEMENT OF COST OF GOODS MANUFACTURED Name of Business

Statement of Cost of Goods Manufactured For the Period Ended __________________

Raw Material Used: Raw materials (opening) XXX Add: Net Purchases of Raw Materials: Purchases of raw materials XXX Add: Transportation-in XXX Delivered purchases of raw materials XXX Less: Purchase discount (XXX) Less: Purchase return and allowances (XXX) Net purchases of raw materials XXX Raw materials available for use XXX Less: Raw materials (ending) (XXX) Raw materials used XXX Add: Direct labour XXX Prime cost XXX Add: Factory Overheads: Indirect materials XXX Indirect labours XXX Factory maintenance and repair cost XXX Heat, light and power XXX Water, gas XXX Factory supervisor salary XXX Factory foreman salary XXX Depreciation – factory XXX Factory insurance expense XXX Factory rent XXX Other overheads XXX Total factory overheads XXX Manufacturing cost XXX Add: Work – in – process (opening) XXX Total work – in – process during the period XXX Less: Work – in – process (ending) (XXX) Cost of goods manufactured XXX


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INCOME STATEMENT Name of Business Income Statement

For the Period Ended _______ Sales XXX Less: Sales discount XXX Less: Sales returns and allowances XXX (XXX) Net sales XXX Less: Cost of Goods Sold: Finished goods (opening) XXX Add: Cost of goods manufactured XXX Merchandise available for sale XXX Less: Finished goods (ending) (XXX) Cost of goods sold (XXX) Gross profit XXX Less: Operating Expenses: Administrative expenses XXX Selling expenses XXX Distribution expenses XXX Total operating expenses (XXX) Net profit/Loss XXX/(XXX)

SOME BASIC FORMULAE

Prime Cost: The cost of direct materials and direct labor. Direct material + Direct labour

Conversion Cost: The total direct labor cost plus the overhead cost. Direct labour + Factory overhead

Manufacturing Cost: Direct material + Direct labour + Factory overhead

Cost of Goods

Manufactured: Manufacturing cost + Work in process (beg) – Work in process (end)

Direct Material Used: Raw material (beginning) + Net purchases of raw material – Raw material (ending)

Net Purchases of Raw

Material: Purchases of raw material + Transportation in – Purchase discount – Purchase return & allowance

Cost of Goods Sold: Finished goods (beginning) + Cost of goods manufactured – Finished goods (ending)

Per Unit Cost: Cost of goods manufactured

Number of units manufactured

Factory Overhead Rate Factory overhead X 100 Direct labour


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ILLUSTRATION # 1: (COST OF GOODS MANUFACTURED STATEMENT & INCOME STATEMENT)

ABC Company manufactures leather bags. The information on the cost 31 December 1989 is as under: Raw material (beginning) Rs.40,000 Raw material (ending) Rs.60,000 Raw material purchased Rs.200,000 Direct labour used Rs.170,000 Factory overhead Rs.130,000 Goods in process (beginning) Rs.100,000 Goods in process (ending) Rs.70,000 Finished goods (beginning) Rs.20,000 Finished goods (ending) Rs.30,000 Sales Rs.600,000 Operating expenses Rs.40,000 REQUIRED

(a) Prepare a statement of cost of goods manufactured. (b) Prepare income statement.

SOLUTION # 1: ABC Company

Statement of Cost of Goods Manufactured For the Period Ended 31 December 1989

Raw Material Used: Raw materials (opening) 40,000 Add: Net purchases of raw materials 200,000 Raw materials available for use 240,000 Less: Raw materials (ending) (60,000) Raw materials used 180,000 Add: Direct labour 170,000 Prime cost 350,000 Add: Factory overheads 130,000 Manufacturing cost 480,000 Add: Goods – in – process (opening) 100,000 Total goods – in – process during the period 580,000 Less: Goods – in – process (ending) (70,000) Cost of goods manufactured 510,000

ABC Company Income Statement

For the Period Ended 31 December 1989 Sales 600,000 Less: Cost of Goods Sold: Finished goods (opening) 20,000 Add: Cost of goods manufactured 510,000 Merchandise available for sale 530,000 Less: Finished goods (ending) (30,000) Cost of goods sold (500,000) Gross profit 100,000 Less: Operating expenses (40,000) Net profit 60,000


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ILLUSTRATION # 2: (UNIT COST AND MISSING INVENTORIES) The following data relate to a manufacturing company for the year 1999: Raw material purchased Rs.300,000 Raw material used Rs.360,000 Direct labour cost Rs.250,000 Factory overhead Rs.270,000 During the year 180,000 units were manufactured and 190,000 units were sold. Selected information concerning inventories during the year is as follows: (in Rupees) Dec. 31st Jan. 1st Raw materials ? 80,000 Work in process 50,000 70,000 Finished goods (25,000 units beginning) ? 100,000 REQUIRED

(a) Cost of goods manufactured. (b) Average unit cost. (c) Cost of goods sold assuming FIFO method (d) Ending inventories of:

(i) Material (ii) Finished goods

SOLUTION # 2: M/S. ________________

Statement of Cost of Goods Manufactured For the Period Ended 31 December 1999

Raw material used 360,000 Add: Direct labour 250,000 Prime cost 610,000 Add: Factory overheads 270,000 Total manufacturing cost 880,000 Add: Work – in – process (opening) 70,000 Total work – in – process during the period 950,000 Less: Work – in – process (ending) (50,000) Cost of goods manufactured 900,000

Computation of Unit Cost: Average unit cost = Cost of goods manufactured Number of units manufactured Average unit cost = 900,000 180,000 Average unit cost = Rs.5

Computation of Raw Material Ending Inventory: Raw material opening inventory 80,000 Add: Purchase of raw material 300,000 Raw material available for use 380,000 Less: Raw material used (360,000) Raw material ending inventory 20,000

Computation of Finished Goods Ending Units: Finished goods opening units 25,000 Add: Units manufactured 180,000 Units available for sale 205,000 Less: Units sold (190,000) Finished goods ending units 15,000


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Computation of Cost Finished Goods Ending Inventory: Finished goods ending inventory = Finished goods ending in units x Average unit cost Finished goods ending inventory = 15,000 x 5 Finished goods ending inventory = Rs.75,000

M/S. ________________ Cost of Goods Sold

For the Period Ended 31 December 1999 Finished goods beginning inventory 100,000 Add: Cost of goods manufactured 900,000 Good available for sale 1,000,000 Less: Finished goods ending inventory (75,000) Cost of goods sold 925,000


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PRACTICE QUESTIONS Question # 1: 2006 – Regular (Cost Accounting) – UOK A manufacturer presents the following details about the various expenses for the month of June 2006. Purchase 80,000 Depreciation – Office furniture 200 Opening stock of raw material 5,000 Repair of plant and machinery 1,300 Carriage – in 3,000 Salesman’s expenses 500 Import duty 7,000 Advertising expenses 5,000 Closing stock of raw material 15,000 Direct wages 46,000 Factory rent 3,000 General manager’s salary 18,000 Bad debts 500 Factory manager’s salary 13,000 Printing and stationary 700 Depreciation plant and machinery 1,400 Carriage – out 1,700 Audit fees 1,300 Indirect material 800 Research and development cost 3,000 Power 4,000 Legal expenses 800 REQUIRED Classify the above expenses under the various elements of costs, showing separately the total expenditure. Question # 2: 1995 – Private (Advanced & Cost Accounting) – UOK The following information has been taken from the ledger of Aslam Brothers Jodia Bazar, Karchi, for the year ended on June 30, 1995:

Stock of materials, 30 June 1995 15,700 Stock of materials, 1 July 1994 12,000 Materials purchased during the year 46,250 Carriage outward 1,075 Carriage inward 1,786 Salaries – Factory 1,625 Salaries – Office 3,150 Discount expense 725 Bad debts written off 1,628 Repairs of plant, machinery and tools 1,113 Rent and insurance – Factory 2,125 Rent and insurance – Office 500 Sales 115,275 Travelling expenses 525 Traveler’s salaries & commission 1,925 Productive wages 31,500 Depreciation of machinery & tools 1,625 Depreciation of office furniture 75 Director’s fees 1,500 Gas and water – Factory 300 Gas and water – Office 100 Manager’s salary (3/4th factory, 1/4th office) 2,500 General expenses 850

REQUIRED Prepare a statement giving the following information:

(a) Materials consumed (b) Prime cost (c) Factory overhead and percentage on wages (d) Factory cost (e) Administrative overhead and percentage on factory cost (f) Total cost (g) Net profit


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Question # 3: 1989 – Regular & Private (Advanced & Cost Accounting) – UOK Charmi Bag Company manufactures leather bags. The information on the cost for the first quarter of 1989 is as under: Raw material consumed 60,000 Direct labour used 40,000 Factory overhead applied 32,000 Goods in process (beginning) 7,000 Goods in process (ending) 4,000 REQUIRED Prepare a statement of cost of goods manufactured. Question # 4: 1987 – Regular & Private (Advanced & Cost Accounting) – UOK The following information is collected from the books of Saleem Manufacturing Company for the month of January 1986: Raw material inventory January 1 9,000 Direct labour used 54,000 Raw material inventory January 31 9,500 Factory overhead cost incurred 22,000 Raw material returned to suppliers 1,500 Cost of goods manufactured 110,000 Work in process inventory January 1 13,000 Finished goods inventory Jan. 1 13,000 Work in process inventory January 31 27,000 Finished goods inventory Jan. 31 8,000 Raw material purchased 50,000 Sales 150,000 Direct raw material used 48,000 Gross profit on sales 35,000 REQUIRED Prepare a statement of cost of goods manufactured and income statement. Question # 5: 1998 – Regular & Private (Advanced & Cost Accounting) – UOK The following data have been taken from the books of Saleem Manufacturing Company Ltd. for the year 1997 – 98: Inventories 1 July 1997 (Rs.) 30 June 1998 (Rs.) Raw materials 16,000 18,000 Goods – in – process 24,000 22,000 Finished goods 12,000 26,000 Data for the year: Rs. Sales 480,000 Purchases of raw materials 110,000 Purchase discount 2,000 Direct labour 90,000 Factory overhead 98,000 Operating expenses 70,000 REQUIRED

(a) Statement of cost of goods manufactured (b) Income statement (c) Closing entries

Question # 6: 2012 – Private (Advanced & Cost Accounting) – UOK The following data have been taken from the books of Mehmood Manufacturing Ltd. for the year 2010 – 2011: Inventories July 1st June 30th Raw material 16,000 20% more than the beginning inventory Goods in process 24,000 10% less than the beginning inventory Finished goods 12,000 26,000 Data for the Year: Sales Rs.480,000 Purchased raw material 110,000


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Purchases discount 2,000 Direct labour 90,000 Factory overhead 98,000 Operating expenses 70,000 REQUIRED Prepare:

(a) Statement of Cost Of Goods Manufactured. (b) An Income Statement. (c) Closing Entries.

Question # 7: 1991 – Regular & Private (Advanced & Cost Accounting) – UOK The books of Jan Manufacturing Company included the following data for the year ended 31 December 1990: In Rupees: 1 January 1990 31 December 1990 Raw materials 30,000 40,000 Goods – in – process 50,000 75,000 Finished goods 70,000 90,000 Purchases of raw materials 215,000 Purchase discount 10,000 Freight inward 15,000 Heat, light and power 30,000 Factory machine repairs 5,000 Factory insurance 4,000 Indirect labour 10,000 Indirect materials 10,000 Direct labour 90,000 Sales 560,000 Sales return & allowances 20,000 Selling and administrative expenses 88,000 REQUIRED

(a) Statement of cost of goods manufactured (b) Income statement

Question # 8: 2005 – Regular (Cost Accounting) – UOK The accounting department of Mirza Manufacturing Company provided the following data for May 2005: Sales Rs.825,000; Marketing expenses 10% of sales; Administrative expenses 5% of sales; Purchases Rs.375,000; Factory overhead 2/3 of direct labour; Direct labour Rs.156,000. Inventories Beginning Ending Finished goods Rs.90,000 Rs.100,000 Work in process 80,000 105,000 Materials 70,000 85,000 REQUIRED

(i) Cost of goods manufactured statement. (ii) Income statement.

Question # 9: 2008 – Private (Advanced & Cost Accounting) – UOK Moon Co. has provided following for the year ended December 31, 2007: Sales 655,000 Advertising expense 65,000 Direct labour cost incurred 148,000 Direct material purchased 225,000 Building rent: 60% allocated to manufacturing and 30% to administrative & selling 95,000


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functions Utilities – factory 50,000 Maintenance – factory 32,000 Selling and administrative salaries 95,000 FOH applied at the rate of 90% of direct labour Inventories Jan. 1, 2007 Dec. 31, 2007 Raw material 21,000 10,000 Work in process 28,000 42,000 Finished goods 42,000 45,000 REQUIRED (i) Prepare a Statement of Cost of Goods Manufactured for the year ended December 31, 2007. (ii) Prepare an Income Statement. Question # 10: 2009 – Private (Advanced & Cost Accounting) – UOK Following information was taken from the accounting record of Al-Rehman Industries: 1.1.2009 31.12.2009 Finished goods 25,000 29,000 Work in process 40,000 48,000 Material 2,000 30,000 During the year the following transactions were performed: Material purchases 350,000 Direct labour cost 120,000 Indirect factory labour cost 60,000 Depreciation – Factory building 20,000 Depreciation – Salesroom & office (share equally) 15,000 Utilities (60% to factory, 20% to office & 20% to salesroom) 50,000 Other indirect manufacturing cost 40,000 Sales person’s salaries 40,000 Office salaries 24,000 Sales on account 730,000 REQUIRED

(a) Statement of Cost of Goods Manufactured. (b) Income Statement.

Question # 11: 1997 – Regular (Advanced & Cost Accounting) – UOK The following data relates to the operations of Hassan Manufacturing Company for the year ended 31 December 1996: Inventories at 1 January 1996: Rupees:

Raw materials 26,000

Goods in process 44,000

Finished goods 60,000 Purchase of raw materials 195,000 Purchase return and allowances 8,000 Sales 408,600 Sales return and allowances 3,600 Purchase discount 2,000 Sales discount 3,000 Freight – in 4,000 Machine repairs 7,000 Heat, light 15,000 Factory insurance 6,000 Indirect labour 9,000


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Factory supplies 10,000 Administrative expenses 20,000 Direct labour 58,000 Data for adjustment on 31 December 1996: Rupees:

(1) Inventories on 31 December 1996: Raw materials 38,000 Goods in process 27,000 Finished goods 82,000

(2) Make allowance for depreciation on: Factory building 4,000 Factory machinery 2,000 Office building 5,000

(3) Insurance premium on factory was paid on 1 July 1996 for one year. (4) Productive wages (direct labour) payable 2,000 (5) Factory supplies on hand 2,000 (6) Amortization on patents 1,000

REQUIRED (a) A Statement of Cost of Goods Manufactured for the year ended 31 December 1996. (b) Income Statement for the year ended 31 December 1996.

Question # 12: 1998–Regular & 1995–Regular (Advanced & Cost Accounting) – UOK Kamran Company produces various types of fertilizers. No beginning units in process of finished were on hand on 1 January 1996. 30,000 finished units were on hand on 31 December 1996 and 95,000 units were sold during the year. There were no units in work in process inventory on 31 December 1996. The materials put into production cost Rs.300,000 (75% were direct materials). There was no beginning or ending materials inventory. Labour costs were Rs.350,000 (40% was for indirect labour). Factory overhead costs, other than direct materials and direct labours were the following:

Heat, light and power Rs.115,000 Depreciation 78,000 Factory taxes 65,000 Repairs and maintenance 42,000

Selling expenses were Rs.80,000, general and administrative expenses were Rs.50,000. REQUIRED Compute:

(a) Cost of goods manufactured (b) Total cost (c) Unit cost (d) Prime cost (e) Conversion cost

Question # 13: 1996 – Regular (Advanced & Cost Accounting) – UOK The accounting records of Alladen Manufacturing Company include the following information relating to the year ended 31 December 1996: 31 December

1996 (Rs.) 1 January 1996

(Rs.) Material inventory 60,000 47,500 Goods – in – process inventory 18,750 20,000 Finished goods inventory (January 1: – 5,000 units) ? 95,000 Raw material purchases 142,500 Direct labour cost 97,500 Factory overhead cost 221,150 The company manufactured a single product during 1996, 22,500 units were manufactured and 20,000 units were sold.


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REQUIRED (a) Prepare a statement of cost of finished goods manufactured for 1996. (b) Compute the cost of producing a single unit during 1996. (c) Compute the cost of inventory of finished goods at 31 December 1996 assuming that the

FIFO method of inventory costing is used. (d) Compute the cost of goods sold during 1996, assuming that the FIFO inventory costing is

used. Question # 14: 2009 – Regular (Advanced & Cost Accounting) – UOK The following extract of costing information relates to commodity ‘A’ manufactured by Ribbi Engineering Company for the half year ended 31st December 2008: Purchase of raw material 250,000 Sales (all on account) 300,000 Factory overhead (20% of direct labour) 25,000 Carriage on purchases 3,000 Stock (July 1, 2008) Raw material 28,000 Finished goods (1,200 units) 3,000 Work in process 45,000 Stock (December 31, 2008) Raw material 17,000 Finished goods (1,000 units) ? Work in process 91,500 Selling and distribution overheads are Rs.3 per unit sold. During the period 29,800 units were produced. REQUIRED

(1) Compute cost of material used. (2) Calculates the amount of direct labour used. (3) Prepare Statement of Cost of Goods manufactured. (4) Prepare Statement of Cost of Goods Sold.

Question # 15: 2004 – Private & 2011 –Private (Advanced & Cost Accounting) – UOK The following data relate to a manufacturing company for the year 2003: Purchase of direct material Rs.440,000 Direct material used Rs.450,000 Direct labour paid during the year Rs.325,000 Direct labour assigned to production Rs.350,000 Manufacturing overhear Rs.400,000 During the year 122,000 units were manufactured and 125,000 units were sold. Selected information concerning inventories during the year is as follows: Dec. 31st Jan. 1st Materials Rs. ? Rs.50,000 Work in process Rs.70,000 Rs.90,000 Finished goods (15,000 units beginning) Rs. ? Rs.135,000 REQUIRED

(a) Cost of goods manufactured. (b) Average unit cost. (c) Cost of goods sold assuming FIFO method. (d) Ending inventories of:

(i) Material (ii) Finished goods


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Question # 16: 2008 – Regular & 1996–Private (Advanced & Cost Accounting) – UOK The following data relate to Waseem Co. for the year 2007:

1. Purchase of direct material Rs. 88,000 2. Direct material used 90,000 3. Direct labour paid 65,000 4. Direct labour assigned to production 70,000 5. Factory overhead cost incurred 80,000

During the year 24,400 units were manufactured and 25,000 units were sold. Selected information concerning inventories during the year is as follows:

Jan. 1, 2007 Dec. 31, 2007 Material Rs.10,000 ? Work in process Rs.18,000 Rs.14,000 Finished goods 3,000 units Rs.27,000 ? REQUIRED

(1) Cost of goods manufactured during 2007. (2) Average unit cost produced during 2007. (3) Cost of goods sold assuming FIFO basis. (4) Cost of ending inventories of: (i) Materials (ii) Finished goods. Also pass the necessary entries.

Question # 17: 2003 – Regular & Private (Cost Accounting) – UOK Record of Nasir and Mazkoor Corporation show the following information: Sales (500 T.V sets) Rs. 100,000 Material purchased 30,000 Direct labour ? Factory overhead (2/3 of direct labour) 20,000 Selling expense 5% of sales General expense 10% of sales Inventories January 1, 2003 Material Rs. 5,000 Finished goods (50 T.V sets) 7,000 Inventories December 31, 2003 No unfinished work on hand Finished goods (70 T.V sets) ? Material Rs. 7,000 REQUIRED

(1) The number of units manufactured. (2) An income statement for the period ended Dec. 31, 2003. (3) Unit cost of TV manufactured. (4) Finished goods ending inventory using FIFO flow of cost. (5) Gross profit per unit.

Question # 18: 2000 – Regular & Private (Advanced & Cost Accounting) – UOK Microsoft Company produces a single product. The following information has been taken from the company’s records for the year 1999: Production in units 30,000 Sales in units ? Ending finished goods in units ? Sales (Rs.25/- per unit) 650,000 Costs: Advertising Rs.90,000 Direct labour 160,000 Raw materials purchased 80,000


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Building rent (production uses 80% of the space, administration & sales offices uses the rest) 50,000 Utilities, factory 35,000 Maintenance, factory 25,000 Depreciation on factory equipment is estimated at Rs.0.10 per unit produce ? Selling and administrative salaries 100,000 Other factory overhead costs 11,000 Other selling and administrative expenses 20,000 Inventories Jan. 1, 1999 Dec. 31, 1999 Raw material Rs.20,000 Rs.10,000 Work in process 30,000 40,000 Finished goods --- ? The finished goods inventory is being carried at average unit production cost for the year. REQUIRED

(1) Prepare statement of cost of goods manufactured for the year. (2) Compute the following:

a) The number of units in finished goods inventory at December 31. b) The cost of the units in finished goods inventory at December 31.

(3) Prepare an income statement for the year. Question # 19: 2007 – Regular (Advanced & Cost Accounting) – UOK The following information is taken from the financial statements of M/S. Adnan & Brothers Ltd. at the end of the year 06. Goods in process inventory ……………………………………………........ Rs.600,000 Cost of raw materials used ……………………………………………........ Rs.3,120,000 Cost of goods manufactured ……………………………………………........ Rs.7,444,000 Factory overhead, 75% of direct labour

……………………………………………........ Rs.1,800,000

REQUIRED Compute the cost of goods in process inventory at January 1, 2006. Question # 20: 1994 – Regular & Private (Advanced & Cost Accounting) – UOK The following information is taken from the financial statements of Jagir & Co. at the end of the year 1993. Rupees Goods in process inventory ending …………………………………… 30,000 Cost of raw materials used …………………………………… 156,000 Cost of goods manufactured …………………………………… 372,000 Factory overhead, 75% of direct labour …………………………………… 90,000 REQUIRED Compute the cost of goods in process inventory at January 1, 1993. Question # 21: 2013 – Private (Advanced & Cost Accounting) – UOK The information below is taken from the financial statement of Craftsman Products at the end of the year 2012: Goods in process inventory – ending Rs.50,000 Cost of raw material used 260,000 Direct labour ? Factory overhead (250% of direct labour cost) 250,000 Cost of goods manufactured 602,000 REQUIRED

(a) Compute the cost of goods in process at the beginning of the year 2012. (b) Prepare statement of cost of goods manufactured.


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Question # 22: 2006 – Private (Cost Accounting) – UOK The following data relates to the operation of Salman Manufacturing Company for the year ended December 31, 2005. Sales 608,600 Selling & administrative expenses 35,000 Machinery repair expenses 7,500 Purchases discount 2,500 Sales return & allowances 8,000 Direct labour 90,000 Factory insurance 7,000 Freight in 5,000 Purchase of raw material 315,500 Factory supplies expenses 1,300 Bad debts expense 1,500 Import duty 3,000 Purchases return & allowances 13,000 Office supplies expense 500 Factory rent & taxes 20,200 Foreman’s salary 30,000 Sales discount 2,600 Indirect labour 15,000 Inventories 1.1.2005 31.12.2005 Raw material 30,000 68,000 Goods in process 40,000 ? Finished goods 70,000 56,000 Factory manager estimated work in process as follows: Raw material 20,000 Direct labour 30,000 The company assigns FOH on the basis of direct labour cost. REQUIRED

(a) Determine FOH rate. (b) Compute the cost of W.I.P. on December 31, 2005. (c) Prepare statement of cost of goods manufactured & income statement for 2005.

Question # 23: 1992 – Private (Advanced & Cost Accounting) – UOK The following balances have been taken from the general ledger of Fano Manufacturing Company: Raw material inventory (1 December 1991) 37,950 Raw material purchase 189,600 Raw material returns 8,800 Carriage inwards 15,700 Direct labour 254,400 Indirect labour 59,250 Depreciation (Machinery) 30,850 Heat, light and power 25,400 Factory rent & taxes 31,450 Factory repairs expense 19,350 Foreman’s salary 24,500 Raw materials inventory (31 December 1991) 57,500 Work in process inventory (1 December 1991) 53,400 The foreman estimates that Rs.31,800 of raw materials and Rs.24,800 of direct labour are to be allocated to the unfinished goods in process on 31 December 1991. REQUIRED

(a) Determine the factory overhead rate based on direct labour cost. (b) Compute the cost of 31 December 1991 inventory of goods in process. (c) Prepare statement of cost of goods manufactured for 31 December 1991.


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Question # 24: 2012 – Regular (Advanced & Cost Accounting) – UOK Faraz Motors Ltd. started and completed 100 motor cycles during the year at a cost of Rs.26,000 per unit. 88 of these completed motor cycles were sold for Rs.40,000 each. In addition the company had 10 partially completed motor cycles in its factory at year end. The total costs incurred during the year were as under:

Direct material used Rs.700,000 Direct labour applied to production Rs.800,000 General & admin. Expense Rs.480,000 Manufacturing overhead 160% of direct labour cost Selling expense Rs.500,000

REQUIRED Compute for the current year:

(a) Total manufacturing cost charged to work in progress (b) Cost of goods manufactured (c) Cost of goods sold (d) Gross profit on sales (e) Net profit (f) Ending inventory of work in process and finished goods

Question # 25: 2006 – Regular (Cost Accounting) – UOK The following information was taken from the books and records of the Standard Manufacturing Company for the year ended Dec. 31, 2005. Units Costs Sales during the year 8,000 ? Opening inventory of finished goods 1,800 14,500 Closing Inventory Work in process 100 ? Finished goods 2,000 ? Manufacturing Costs Direct material 30,000 Direct labour 20,000 Factory overhead 16,000 The foreman has submitted the following costs for the closing work in process. Inventory Material cost 2,700 Direct labour cost 1,000 The company’s past experience showed that FOH cost tends to fluctuate closely in production to direct labour cost. REQUIRED

(1) Determine the number of units manufactured during the year. (2) Compute the estimated cost of work in process. (3) Determine cost of each unit. (4) Determine the ending inventory of finished goods and the cost of sales.

Question # 26: 1994 – Regular & Private (Advanced & Cost Accounting) – UOK Factory overhead is 30% of cost of goods manufactured. Direct labour is 20% of sales or 40% of cost of goods manufactured. Ending raw materials inventory is Rs.8,000 more than beginning raw materials inventory. Sales totaled Rs.200,000 for the year. REQUIRED Compute the net cost of raw materials purchased during the year.


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Question # 27: 2007 – Regular (Advanced & Cost Accounting) – UOK From the following information compute the net cost of raw materials purchased during the year: Factory overhead is 30% of cost of goods manufactured. Direct labour is 20% of sales and 40% of cost of goods manufactured. Ending raw materials inventory is Rs.40,000 more than beginning raw materials inventory. Sales totaled Rs.1,000,000 for the year. Question # 28: 1993 – Private (Advanced & Cost Accounting) – UOK The following data appeared in the books of Al-Imran Industries as on 30 June 1993: Sales Rs. 406,000 Raw material inventory, 1 January 1993 Rs. 20,000 Raw material purchased Rs. 260,000 Raw material returned to suppliers Rs. 10,000 Goods in process inventory, 1 January 1993 Rs. 10,000 Direct labour Rs. 110,000 Cost of goods manufactured Rs. 380,000 Gross profit on sales Rs. 60,000 Raw materials consumed Rs. 237,500 Indirect manufacturing cost Rs. 60,000 Transportation – in Rs. 3,000 Finished goods inventory, 1 January 1993 Rs. 45,000 REQUIRED

(a) Determine the closing inventories of: (1) Raw material (2) Goods in process (3) Finished goods (b) Prepare entries to close manufacturing accounts at the end of June 1993.

Question # 29: 1992 – Regular (Advanced & Cost Accounting) – UOK The following data appeared in the books of Ali Industries Ltd. as of 31 March 1992: Sales Rs. 203,000 Raw material inventory, 1 January 1993 Rs. 10,000 Raw material purchased Rs. 5,000 Raw material returned to suppliers Rs. 5,000 Goods in process inventory, 1 January 1993 Rs. 130,000 Direct labour Rs. 45,000 Cost of goods manufactured Rs. 185,500 Gross profit on sales Rs. 25,000 Raw materials consumed Rs. 118,750 Indirect manufacturing cost Rs. 29,250 Transportation – in Rs. 1,250 Finished goods inventory, 1 January 1993 Rs. 22,500 REQUIRED

(a) Determine the closing inventories of: (1) Raw material (2) Goods in process (3) Finished goods (b) Prepare entries to close manufacturing accounts at the end of month, include an entry to

close the manufacturing account to the income summary account.


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Question # 30: 1993 – Regular (Advanced & Cost Accounting) – UOK Maroof Manufacturing Company showed beginning and ending inventories balances for 1992: Inventory Account 31 December 1992

(Rs.) 1 January 1992

(Rs.) Raw material 30,000 26,000 Goods in process 9,000 12,000 Finished goods 35,000 39,000 The amounts debited and credited during the year to the accounts used in recording manufacturing costs are summarized below: Accounts (in Rupees) Debit Entries Credit Entries Raw material 200,000 ? Direct labour 60,000 68,000 Manufacturing overhead 85,000 85,000 Goods in process inventory ? ? Finished goods inventory ? ? REQUIRED

(a) Compute the amounts for 1992: (1) Direct material purchased. (2) Direct materials used. (3) Direct labour payroll paid during the year. (4) Direct labour cost assigned to units manufactured. (5) The year-end liability for direct wages payable. (6) The overhead application rate, assuming that overhead costs are applied to units

manufactured in proportion to direct labour cost. (7) Total manufacturing cost debited to goods in process inventory.

(b) Prepare statement of cost of goods sold for 1992. Question # 31: 2002 – Regular & Private (Cost Accounting) – UOK From the following information determine (a) Prime cost (b) Conversion cost (c) Cost of goods sold (d) Cost of goods manufactured for the month of November, 2002. Product A Product B Production 10,000 units 8,000 units Beginning inventory 1,000 units 900 units Ending inventory 2,000 units 100 units Unit cost applicable to inventories and production: Direct material Rs.4 per unit Rs.3 per unit Direct labour 10 per unit 20 per unit Factory overhead 7 per unit 14 per unit Actual factory overhead was Rs.182,400, under or over applied factory overhead is to be adjusted in cost of goods sold. Question # 32: 2002 – Regular & Private (Cost Accounting) – UOK The Aslam and Asghar Corporation had the following data: Inventories Jan. 1, 2003 Dec. 31, 2003 Material Rs. 10 Rs. 20 Finished goods 50 15 Work in process – material 5 15 Work in process – labour 20 15 Work in process – factory overhead 30 15 During January, the company purchased materials for Rs.200, direct labour cost incurred was Rs.100 of which Rs.75 was paid. Factory overhead applicable to production was 150% of the direct material cost. REQUIRED


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T account showing the flow of the cost of goods manufactured and sold, using three accounts of work in process. (Note: Statement of cost of goods manufactured is not required).

Question # 33: 2004 – Regular (Cost Accounting) – UOK From the following partial information completes the income statement: Sales ? Less: Cost of Goods Sold: Opening inventory finished goods 60,000 Add: Cost of goods manufactured ? Less: Finished goods inventory, ending ? Cost of goods sold ? Gross profit (41.25% of sales) ? Operating expenses ? Net income 26 2/3% of sales 640,000 The Other Information is as under: Raw material used Rs.530,000, direct labour Rs.450,000, Factory overhead 50% of prime cost. The work-in-process was opening Rs.120,000, closing Rs.110,000. REQUIRED Determine the missing figures and complete the income statement, show computation. Question # 34: 2011 – Regular (Advanced & Cost Accounting) – UOK The accounting records of Asim Corporation contain the following information: Inventories July 1, 2011: Raw material Rs.132,000 Goods-in-process Rs.97,200 Finished goods Rs.144,600 Inventories at July 31, 2011

Items Raw Material Goods-in-Process Finished Goods Raw materials Rs.144,000 Rs.38,700 Rs.130,500 Labour Rs.24,000 Rs.90,000 Overhead ? Rs.72,000 Totals Rs.144,000 Rs. ? Rs.292,500 Data for the month ended July 31, 2011: Cost of goods manufactured Rs.2,430,000, Factory overhead (80% of direct labour) Rs.535,200. The company also paid transportation costs of Rs.90,000 on materials purchased. It received credit of Rs.48,900 for material returned to suppliers. REQUIRED Prepare a statement of cost of goods manufactured for the month ended July 31, 2011. Some information needed for this statement is not listed above but can be computed from the data given. Question # 35: 2005 – Private (Cost Accounting) – UOK The following information has been taken from the accounting records of Latif Manufacturing Company: Inventories (Jan. 1, 2004) Raw material Rs.27,300. Goods-in-process Rs.16,200. Finished goods Rs.24,100. Inventories (Mar. 31, 2004)

Items Raw Material Goods-in-Process Finished Goods Material Rs.29,050 Rs.6,450 Rs.21,750 Labour 2,100 13,500 Overhead ? 10,800 Totals Rs.29,050 Rs. ? Rs.46,050


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Data for the three months ended on March 31, 2004: Cost of goods manufactured ........................................... Rs.406,440. Factory overhead .................................................................... Rs.89,200. The company also paid transportation costs on materials purchased of Rs.13,850, it received credit of Rs.8,150 for materials returned to suppliers. REQUIRED On the basis of the above information and the missing data, which can be derived from it, prepare a statement of cost of goods manufactured for the three months ended on March 31st 2004. Question # 36: 2013 – Regular (Advanced & Cost Accounting) – UOK Following data have been extracted from the books of Shadab Manufacturing Co.: Finished goods inventory (opening) Rs.120,000 Work in process (opening) 10,000 Freight in 5,000 Factory overhead (80% of direct labour) 120,000 Raw material inventory (opening) 10,000 Purchase of raw materials ? Material returned to supplier 3,000 Work in process (ending) 80,000 Gross profit (20% of sales) 60,000 Cost of goods manufactured 300,000 Raw material inventory (ending) 12,000 REQUIRED

(a) Prepare statement of cost of goods manufactured and cost of goods sold. (b) Compute sales revenue.

Question # 37: 2010 – Regular (Advanced & Cost Accounting) – UOK Aslam started business with a name of PM Industries on April 1 and produced by the end of the month of June 40,000 units of its single product. The product requires three basic raw materials. A, B and C, which were purchased during the first three months at the following prices and quantities:

Particulars Purchases Price (Rs.) Quantities Purchased (Units)

Quantity on Hand June 30 (Units)

Material ‘A’ 0.35 per unit 35,000 4,000 Material ‘B’ 0.30 per unit 10,000 6,000 Material ‘C’ 0.60 per unit 8,000 5,000 Factory wages and other salaries paid and outstanding were:

Particulars Paid Outstanding Direct labour Rs.18,000 Rs.750 Indirect labour 2,625 175 Supervision 3,000 --- Marketing & administrative salaries

8,200 1,800


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Other overhead consisted of: Particulars Factory Overhead Marketing & Administrative Expenses

Supplies Rs.700 Rs.800 Repairs 450 400 Maintenance 500 350 Depreciation 870 310 Utilities 280 280 Insurance --- 2,460 There were no ending inventories of W.I.P. However finished goods inventories contained 1,500 units. The company was sold 38,500 units at an average sale price of Rs.2.25 per unit. REQUIRED

(i) Prepare Statement of Cost of Goods Manufactured & Statement of Cost of Goods Sold. (ii) Prepare an Income Statement for the period ended June 30, 2010.

(Show all your computations).

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Chapter # 2a4accounting.weebly.com/uploads/7/1/2/8/7128209/2... · 2020-01-27 · Chapter # 2 Page 18 Sameer Hussain ILLUSTRATION # 2: (UNIT COST AND MISSING INVENTORIES) The following