7. Syarikat Sabah prepares lumber for companies who manufacture furniture. (a) The main product is finished lumber with a byproduct of wood shavings. The byproductis sold to plywood manufacturers. For July, the manufacturing process incurredRM332,000 in total costs. 80,000 board feet of lumber were produced and sold along with 6,800 kg of shavings. The finished lumber sold for RM6.00 per board foot and the shavings sold for RM0.60 a kg. There were no beginning or ending inventories.Required: Prepare two statements of financial position as at 31 December 2019 showing the byproduct as a cost reduction during production, and as a revenue item when sold each. (b) Distinguish and briefly discuss the merits [or demerits] between the two principal methods of accounting for byproducts: the production byproduct method and the sale byproduct method. (c) Identify the revenue or expense amounts necessary to make a sell-or-process-further decision and the reasons behind them. (d) Identify the four methods of allocating joint costs to individual products and the most preferred method among accountants.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
7. Syarikat Sabah prepares lumber for companies who manufacture furniture.
(a) The main product is finished lumber with a byproduct of wood shavings. The byproduct
is sold to plywood manufacturers. For July, the manufacturing process incurred
RM332,000 in total costs. 80,000 board feet of lumber were produced and sold along with 6,800 kg of shavings. The finished lumber sold for RM6.00 per board foot and the shavings sold for RM0.60 a kg. There were no beginning or ending inventories.
Required:
Prepare two statements of financial position as at 31 December 2019 showing the byproduct as a cost reduction during production, and as a revenue item when sold each.
(b) Distinguish and briefly discuss the merits [or demerits] between the two principal methods of accounting for byproducts: the production byproduct method and the sale byproduct method.
(c) Identify the revenue or expense amounts necessary to make a sell-or-process-further decision and the reasons behind them.
(d) Identify the four methods of allocating joint costs to individual products and the most preferred method among accountants.
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