Course: Cost Accounting (5410)

Semester: Spring, 2022

ASSIGNMENT No. 1

Q.1   Define Cost Accounting. Enlist the various classifications of cost and describe them.        

It is a process of determining and controlling the cost of each activity, product, job, process and department.  The Chartered Institute of Management Accountants (CIMA) London defined the cost accounting as “Cost Accounting is the process of accounting from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centers and cost of units. In the widest usage, it embraces the preparation of statistical data, application of cost control methods and the ascertainment of profitability of activities carried out or planned”. Wheldon described that “Cost Accounting is the application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control and the ascertainment of profitability.  It includes the presentation of information derived for the purposes of managerial decision making”. In other words, cost accounting may be described as “It is the process of recording, allocating and reporting the various costs incurred in the operations of an enterprise”.——————————

Q.2   The December 31, 2018 trial balance of Pigions Company showed:           

Required: Determine (i) the total manufacturing cost, (ii) the cost of goods manufactured, (iii) the cost of goods sold and (iv) Net profit

                                                                                                            Rs.                               Rs.

Raw materials inventory 31-12-2018                                                           1960

Purchases raw materials                                                                     240,00

                                                                                                            25960

Less Raw Materials Inventory 31-12-2017                                       1760 

Q. 3     The following data has been extracted form the cost accounting record of Alpha Automobile Workshop, Rawalpindi: –                                                         

                        i)          Spare parts issued for repair of vehicle:

                                    05.08.2014                              Rs. 4,320

                                    06.08.2014                              Rs. 8,930

                        ii)         Labour charges of a Senior Mechanic         Rs. 3,500

                        iii)        Labour charges of a Helper              Rs. 1,200

                        iv)        Other overhead costs                                    Rs. 1,300

The vehicle of Mr. Altaf was booked for repair on 04 August, 2014 and job No 215 was allotted to it. The job was completed on 06 August, 2014 and the repaired vehicle was delivered to the client next day. The invoice for 30% above cost was raised which was paid by the customer at the time of taking delivery.

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Q. 4     What is the equivalent production? Explain in terms of its effect on completed Unit cost.       

This represents the production of a process in terms of completed units. In other words, it means converting the uncompleted production into its equivalent of completed units. The term equivalent unit means a notional quantity of completed units substituted for an actual quantity of incomplete physical units in progress, when the aggregate work content of the incomplete units is deemed to be equivalent to that of the substituted quantity, (e.g., 100 units of 60% completed = 60 completed units).

The principle applies when operation costs are being apportioned between work- in-progress and completed output. Thus, in each process an estimate is made of the percentage completion of any work-in-progress. A production schedule and a cost schedule will then be prepared.

The work-in- progress is inspected and an estimate is made of the degree of completion, usually on a percentage basis. It is most important that this estimate is as accurate as possible because a mistake at this stage would affect the stock valuation used in the preparation of final accounts. The formula of equivalent production is:

Equivalent units of work-in-progress = Actual no. of units in progress of manufacture x Percentage of work completed

Q. 5     Roshan milling Corporation manufactures a product requiring processing in three             department, with all materials put into process in the first department. During December 220,000 units were completed in department 1 at the total cost of Rs.            352,360 and were transferred to the next department. From this lot, department 2            Completed and transferred out 170,000 units incurring direct labour cost of Rs. 52,360 and factory overhead cost of Rs. 26,180. The December 31, work in Process inventory of department 2 is 44,000 units which were 25% complete as to direct labour and factory overhead cost. The spoilage occurs at the end of process and is considered as normal loss.   

Department 1:

Total Unit = 220 000

Total Cost = 352 360

Department 2:

Total Unit = 170 000

Labor Cost = 52 360

Overhead Cost = 26 180

Process Unit = 44 000  

Complete work = 25%