WBA DBM 624

Q1. To prepare the process I and process II accounts, we need to calculate the following: Calculate the cost of materials, labor, and overhead for each process. Calculate the cost per unit for each process. Calculate the normal loss for each process. Calculate the cost of abnormal loss and abnormal gain for each process. Calculate the total cost of production for each process. Prepare the process accounts. Let's start with Process I: Process I Account for August 2019 Particulars Amount (Sh) Particulars Amount (Sh) Materials Labor Opening WIP 0 Opening WIP 0 Purchase 6,000 kg * 50 Direct Wages 24 hours * 200 Total Cost 300,000 Total Cost 4,800 Overheads (Absorbed) 71,400 Normal Loss 400 kg * 50 (80% of input) -20,000 Closing WIP (4,600 kg) ? Abnormal Loss ? (6,000 kg - 4,600 kg) ? Total Cost of Production ? Total Cost of Abnormal Loss ? To calculate the closing WIP and abnormal loss cost for Process I, we need to find the cost per unit (CPU) for both materials and labor. Then, we can calculate the closing WIP cost and abnormal loss cost. Cost per Unit for Process I Materials CPU = Total Materials Cost / Total Input Materials CPU = 300,000 Sh / 6,000 kg = 50 Sh/kg

Labor CPU = Total Labor Cost / Total Labor Hours Labor CPU = 4,800 Sh / 24 hours = 200 Sh/hour Closing WIP for Process I Closing WIP (in kg) = Input - Normal Loss Closing WIP (in kg) = 6,000 kg - 400 kg = 5,600 kg Closing WIP Cost = (Closing WIP in kg) * (Materials CPU + Labor CPU) Closing WIP Cost = 5,600 kg * (50 Sh/kg + 200 Sh/hour) = 1,120,000 Sh Abnormal Loss for Process I Abnormal Loss (in kg) = Input - Closing WIP Abnormal Loss (in kg) = 6,000 kg - 5,600 kg = 400 kg Abnormal Loss Cost = Abnormal Loss (in kg) * Materials CPU Abnormal Loss Cost = 400 kg * 50 Sh/kg = 20,000 Sh Now, let's prepare the Process I Account: Process I Account for August 2019 Particulars Amount (Sh) Particulars Amount (Sh) Materials 300,000 Labor 4,800 Opening WIP 0 Opening WIP 0 Purchase 300,000 Direct Wages 4,800 Total Cost 300,000 Total Cost 4,800 Overheads (Absorbed) 71,400 Normal Loss -20,000 (80% of input) Closing WIP (5,600 kg) 1,120,000 Abnormal Loss 20,000 (6,000 kg - 5,600 kg) Total Cost of Production 1,491,400 Total Cost of Abnormal Loss 20,000 Now, let's move on to Process II: Process II Account for August 2019

Process II Account for August 2019 Particulars Amount (Sh) Particulars Amount (Sh) Materials 320,000 Labor 10,800 Opening WIP 0 Opening WIP 0 Purchase 320,000 Direct Wages 10,800 Total Cost 320,000 Total Cost 10,800 Overheads (Absorbed) 71,400 Normal Loss -48,000 (90% of input) Closing WIP (3,400 kg) 1,248,000 Abnormal Loss 48,000 (4,000 kg - 3,400 kg) Total Cost of Production 1,591,400 Total Cost of Abnormal Loss 48,000 Now, we have prepared the Process I and Process II accounts. Next, we will calculate the Abnormal Loss and Abnormal Gain accounts: Abnormal Loss Account Particulars Amount (Sh) Particulars Amount (Sh) To Process I Account 20,000 By Process II Account 48,000 Total 20,000 Total 48,000 Abnormal Gain Account Particulars Amount (Sh) Particulars Amount (Sh) To Process II Account 20,000 By Process I Account 48,000 Total 20,000 Total 48,000 These accounts show the transfer of costs associated with abnormal losses and gains between Process I and Process II Q2. i) The Balanced Scorecard Approach: The Balanced Scorecard is a strategic performance management framework that helps organizations translate their strategic objectives into a set of

balanced performance measures. It goes beyond traditional financial metrics and includes non- financial measures related to customers, internal processes, and learning and growth. This approach provides a more comprehensive view of an organization's performance and helps align various departments and employees with the overall strategic goals. ii) Kaizen Costing: Kaizen is a Japanese term that means continuous improvement. Kaizen costing is a cost management approach that emphasizes continuous cost reduction efforts through small, incremental improvements in processes and operations. It encourages employees at all levels to identify and implement cost-saving measures, making it a bottom-up approach to cost control. iii) Target Costing: Target costing is a proactive cost management approach used during the product design and development phase. It involves setting a target cost based on market conditions and customer expectations and then designing the product or service to meet that cost target. It promotes cost-conscious product development and helps companies remain competitive in pricing. iv) Lifecycle Costing: Lifecycle costing considers the total cost of a product or service over its entire lifecycle, including design, production, maintenance, and disposal phases. It helps organizations make informed decisions about product or service investments by considering long-term costs and benefits, environmental impact, and sustainability. v) Benchmarking Cost Accounting: Benchmarking involves comparing an organization's cost and performance metrics against industry or competitor standards. It helps identify areas of improvement and best practices, leading to more effective cost management strategies and performance improvement. vi) Activity-Based Costing (ABC): ABC is a costing method that allocates indirect and overhead costs to products or services based on the activities that drive those costs. It provides a more accurate and detailed understanding of cost drivers and helps organizations allocate costs more precisely, improving decision-making related to pricing, product mix, and process improvement. vii) Strategic Cost Management: Strategic cost management focuses on aligning cost management practices with an organization's overall strategic objectives. It involves identifying and managing costs strategically to gain a competitive advantage, such as cost leadership, product differentiation, or market focus. viii) Theory of Constraints: The Theory of Constraints (TOC) is a management philosophy that identifies and addresses bottlenecks or constraints within a production or operational process. TOC aims to maximize throughput and improve overall system performance by focusing resources on the most critical areas. It involves cost management strategies that prioritize resolving constraints.

Material Usage Variance = [(50 meters x 1,950 units + 20 kg x 1,950 units) x (Sh 100/meter for X + Sh 200/kg for Y)] - [(96,000 meters + 31,500 kg) x (Sh 100/meter for X + Sh 200/kg for Y)] Material Usage Variance = [(97,500 meters + 39,000 kg) x (Sh 100 + Sh 200)] - [(127,500) x (Sh 100 + Sh 200)] Material Usage Variance = [Sh 13,950,000 + Sh 7,800,000] - [Sh 12,750,000 + Sh 25,500,000] Material Usage Variance = Sh 21,750,000 - Sh 38,250,000 Material Usage Variance = -Sh 16,500,000 iii) Labor Rate Variance: Labor Rate Variance = (Actual Hours x Actual Rate) - (Actual Hours x Standard Rate) Labor Rate Variance = (31,000 hours x Sh 125/hour) - (31,000 hours x Sh 125/hour) Labor Rate Variance = Sh 3,875,000 - Sh 3,875,000 Labor Rate Variance = Sh 0 iv) Labor Efficiency Variance: Labor Efficiency Variance = (Actual Hours x Standard Rate) - (Standard Hours x Standard Rate) Labor Efficiency Variance = (31,000 hours x Sh 125/hour) - (10 hours x 2,000 units x Sh 125/hour) Labor Efficiency Variance = Sh 3,875,000 - Sh 2,500,000 Labor Efficiency Variance = Sh 1,375,000

So, the variances are as follows: i) Material Price Variance: Sh 0 ii) Material Usage Variance: -Sh 16,500,000 iii) Labor Rate Variance: Sh 0 iv) Labor Efficiency Variance: Sh 1,375,000