quired: Calculate the direct material and direct labour variances, indicating whether each variance is favourable or unfavourable. Prepare journal entries to record: The purchase of direct materials and use of direct materials in production. The use of direct labour in production. The closing of variances to cost of goods sold.
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.
Exercise #2
The production engineering staff and the factory accountant have set the following standards for Marley Ltd:
|
Direct material |
|
|
Quantity (kgs) |
4.00 |
|
Price per kg ($) |
0.90 |
|
Direct labour |
|
|
Quantity (hrs) |
0.25 |
|
Rate per hour ($) |
33.00 |
Actual material purchases amounted to 240,000 kgs at $0.93 per kg. Actual costs incurred in the production of 50,000 units were as follows:
|
Direct material |
210,000 kgs for $195,300 |
|
Direct labour |
13,000 hrs for $448,500 |
Required:
- Calculate the direct material and direct labour variances, indicating whether each variance is favourable or unfavourable.
- Prepare
journal entries to record:- The purchase of direct materials and use of direct materials in production.
- The use of direct labour in production.
- The closing of variances to cost of goods sold.
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