James Ltd opened a plant for making spare parts on January 1. Data for the first two months operations are shown below. January (units) February (units) Units started in month 3,900 2,700 Units completed (all sold) 2,400 2,400 Closing work in progress 1,500 1,800 Variable costs: Rupees Rupees Material 58,500 48,600 Labour 36,000 21,000 Fixed costs 63,000 63,000 Sales Revenue 112,800 120,000 January 31 the units were 100 percent complete for materials and 80 percent complete for labour in closing work in progress. February 28, the units in closing work in progress were 100 percent complete for materials and 50 percent complete for labour. The company’s policy for valuation of work in progress in under review. The board of directors decided that two alternative profit and loss statement should be prepared for January and February. One statement would value work in progress on a weighted average cost basis and the other would adopt a first in first out basis. Fixed costs would be absorbed in proportion to actual labour costs in both cases. For both bases gave same value of closing work in process as well as profit. When the statements for February were presented to the board the following suggestions were made: We would not have a problem over the valuation basis if we used standard costs. It would be simpler and more informative to go to a direct cost valuation basis for management use. Required: Prepare profit and loss statements for November on two alternative bases decided by the board of directors showing calculations of cost of production report. Explain with supporting calculations the differences between the results shown by each statement you have prepared.
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.
James Ltd opened a plant for making spare parts on January 1. Data for the first two months operations are shown below.
|
|
January (units) |
February (units) |
|
Units started in month |
3,900 |
2,700 |
|
Units completed (all sold) |
2,400 |
2,400 |
|
Closing work in progress |
1,500 |
1,800 |
|
Variable costs: |
Rupees |
Rupees |
|
Material |
58,500 |
48,600 |
|
Labour |
36,000 |
21,000 |
|
Fixed costs |
63,000 |
63,000 |
|
Sales Revenue |
112,800 |
120,000 |
January 31 the units were 100 percent complete for materials and 80 percent complete for labour in closing work in progress. February 28, the units in closing work in progress were 100 percent complete for materials and 50 percent complete for labour. The company’s policy for valuation of work in progress in under review.
The board of directors decided that two alternative
- We would not have a problem over the valuation basis if we used
standard costs. - It would be simpler and more informative to go to a direct cost valuation basis for management use.
Required:
- Prepare profit and loss statements for November on two alternative bases decided by the board of directors showing calculations of cost of production report.
- Explain with supporting calculations the differences between the results shown by each statement you have prepared.
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