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Cost and Management Accounting

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Cost & Management Accounting (MGT-402)
VU
Normal Loss at the End of Process:
Preceding discussion of normal loss is for a situation where units are lost at the beginning or
during manufacturing process in the department. In many industries, lost units are identified by
quality inspectors at the end of manufacturing process when all production costs have been
incurred by the department. In such cases cost of units lost is charged to completed units only and
no portion of loss is absorbed by Units in work in process ending inventory
For this purpose lost units are included in equivalent production and the adjustment for lost units
is not required, cost of lost units is included in cost of units completed and transferred out or still
in the department. This treatment increases unit cost of completed units only.
Assuming that in department 2 lost units are discovered in final inspection at the end of process,
cost of production report of the department will be as follow:
Ginza Beauty products
Department 2
Cost of Production Report
For the Month of January 2006
Quantity Schedule.
Units received from preceding department
20,000
Units transferred to next department
16,000
Units still in process
(80% direct labor & factory overhead)
3,500
Units lost in process
Normal loss (at the end of process)
500
20,000
Total
Unit
Cost Charged to Department.
Rupees
Rupees
Cost from preceding department
390,000
19.50
Cost added by department:
Direct labor
36,284
1.88
Factory overhead
72,568
3.76
Total cost added by department
108,852
5.64
Total cost to be accounted for
498,852
25.14
Cost Accounted for as Follow
Rupees
Rupees
Transferred to next department
(16,000 units x Rs. 25.93)
414,810
Work in process ending inventory
Cost from preceding department
(3,500 units x Rs. 19.50)
68,250
Direct labor (3,500 units x 80% x Rs 1.88)
5,264
FOH (3.500 units x 80% x Rs. 3.76)
10,528
84,042
Total cost accounted for
498,852
Equivalent units produced
16,000 + (3,500 x 80%) + 500 = 19,300 units
Cost per unit
Direct labors
36,284/19,300 units
1.88
Factory overhead
72,568/19,300 units
3.76
Cost transferred to next department
16000 units x Rs. 25.14
402,240
Add cost of lost units
500 units x Rs. 25.14
12,570
143
Table of Contents:
  1. COST CLASSIFICATION AND COST BEHAVIOR INTRODUCTION:COST CLASSIFICATION,
  2. IMPORTANT TERMINOLOGIES:Cost Center, Profit Centre, Differential Cost or Incremental cost
  3. FINANCIAL STATEMENTS:Inventory, Direct Material Consumed, Total Factory Cost
  4. FINANCIAL STATEMENTS:Adjustment in the Entire Production, Adjustment in the Income Statement
  5. PROBLEMS IN PREPARATION OF FINANCIAL STATEMENTS:Gross Profit Margin Rate, Net Profit Ratio
  6. MORE ABOUT PREPARATION OF FINANCIAL STATEMENTS:Conversion Cost
  7. MATERIAL:Inventory, Perpetual Inventory System, Weighted Average Method (W.Avg)
  8. CONTROL OVER MATERIAL:Order Level, Maximum Stock Level, Danger Level
  9. ECONOMIC ORDERING QUANTITY:EOQ Graph, PROBLEMS
  10. ACCOUNTING FOR LOSSES:Spoiled output, Accounting treatment, Inventory Turnover Ratio
  11. LABOR:Direct Labor Cost, Mechanical Methods, MAKING PAYMENTS TO EMPLOYEES
  12. PAYROLL AND INCENTIVES:Systems of Wages, Premium Plans
  13. PIECE RATE BASE PREMIUM PLANS:Suitability of Piece Rate System, GROUP BONUS SYSTEMS
  14. LABOR TURNOVER AND LABOR EFFICIENCY RATIOS & FACTORY OVERHEAD COST
  15. ALLOCATION AND APPORTIONMENT OF FOH COST
  16. FACTORY OVERHEAD COST:Marketing, Research and development
  17. FACTORY OVERHEAD COST:Spending Variance, Capacity/Volume Variance
  18. JOB ORDER COSTING SYSTEM:Direct Materials, Direct Labor, Factory Overhead
  19. PROCESS COSTING SYSTEM:Data Collection, Cost of Completed Output
  20. PROCESS COSTING SYSTEM:Cost of Production Report, Quantity Schedule
  21. PROCESS COSTING SYSTEM:Normal Loss at the End of Process
  22. PROCESS COSTING SYSTEM:PRACTICE QUESTION
  23. PROCESS COSTING SYSTEM:Partially-processed units, Equivalent units
  24. PROCESS COSTING SYSTEM:Weighted average method, Cost of Production Report
  25. COSTING/VALUATION OF JOINT AND BY PRODUCTS:Accounting for joint products
  26. COSTING/VALUATION OF JOINT AND BY PRODUCTS:Problems of common costs
  27. MARGINAL AND ABSORPTION COSTING:Contribution Margin, Marginal cost per unit
  28. MARGINAL AND ABSORPTION COSTING:Contribution and profit
  29. COST VOLUME PROFIT ANALYSIS:Contribution Margin Approach & CVP Analysis
  30. COST VOLUME PROFIT ANALYSIS:Target Contribution Margin
  31. BREAK EVEN ANALYSIS MARGIN OF SAFETY:Margin of Safety (MOS), Using Budget profit
  32. BREAKEVEN ANALYSIS CHARTS AND GRAPHS:Usefulness of charts
  33. WHAT IS A BUDGET?:Budgetary control, Making a Forecast, Preparing budgets
  34. Production & Sales Budget:Rolling budget, Sales budget
  35. Production & Sales Budget:Illustration 1, Production budget
  36. FLEXIBLE BUDGET:Capacity and volume, Theoretical Capacity
  37. FLEXIBLE BUDGET:ANALYSIS OF COST BEHAVIOR, Fixed Expenses
  38. TYPES OF BUDGET:Format of Cash Budget,
  39. Complex Cash Budget & Flexible Budget:Comparing actual with original budget
  40. FLEXIBLE & ZERO BASE BUDGETING:Efficiency Ratio, Performance budgeting
  41. DECISION MAKING IN MANAGEMENT ACCOUNTING:Spare capacity costs, Sunk cost
  42. DECISION MAKING:Size of fund, Income statement
  43. DECISION MAKING:Avoidable Costs, Non-Relevant Variable Costs, Absorbed Overhead
  44. DECISION MAKING CHOICE OF PRODUCT (PRODUCT MIX) DECISIONS
  45. DECISION MAKING CHOICE OF PRODUCT (PRODUCT MIX) DECISIONS:MAKE OR BUY DECISIONS