Solution to conceptual cases of management accounting

CHAPTER NO. VII JOB AND BATCH COSTING

Case 1
1.

Beginning DM inventory + Purchases Ending DM inventory = DM used

Rs.16,000 + Rs.275,000 Ending DM inventory = Rs.200,000
Ending DM inventory = Rs.91,000

2. Units in beginning finished goods inventory = Rs.3,510/Rs.5.85 = 600 units

Since 10,000 units were manufactured and 600 were in beginning finished
goods inventory, 10,600 units were available for sale. But 8,900 units were
sold, so ending finished goods inventory is 1,700.
3. Cost of goods manufactured = Rs.93,000 + Rs.50,000 Rs.18,750 = Rs.124,250
4.

Prime cost = Rs.19.50 = Direct materials + Direct labour

Direct materials = Rs.19.50 Direct labour
Conversion cost = Rs.32 = Direct labour + Overhead
Overhead = Rs.32 Direct labour
(Rs.19.50 Direct labour) + Direct labour + (Rs.32 Direct labour) = Rs.39.50
Direct labour = Rs.12
Direct materials + Direct labour = Rs.19.50
Direct materials + Rs.12 = Rs.19.50
Direct materials = Rs.7.50

5.

Total manufacturing costs + BWIP EWIP = COGM

Rs.156,900 + Rs.60,000 EWIP = Rs.125,000
EWIP = Rs.91,900
Prime cost + Overhead = Total manufacturing costs
Rs.90,000 + Overhead = Rs.156,900
Overhead = Rs.66,900

Case 2
1.

H. P. Company
Statement of Cost of Goods Manufactured

For the Month of March

Direct materials:
Beginning inventory.......................................
Add: Purchases...............................................
Direct materials available for use..................
Less: Ending inventory..................................
Direct materials used in production.............
Direct labour..........................................................
Overhead...............................................................
Total manufacturing costs..................................
Add: Beginning work in process........................
Less: Ending work in process............................
Cost of goods manufactured..............................

2.

Rs.40,300
70,000
Rs.110,300
16,500
Rs.93,800
22,000
216,850
Rs.332,650
10,000
(7,350)
Rs.335,300

H. P. Company
Cost of Goods Sold Schedule
For the Month of March
Cost of goods manufactured....................................................
Add: Beginning finished goods inventory..............................
Cost of goods available for sale...............................................
Less: Ending finished goods inventory...................................
Cost of goods sold.....................................................................

Rs.335,300
5,450
Rs.340,750
10,210
Rs.330,540

Case 3
a. Bicycle production is manufacturing. The product is tangible and fairly
homogeneous. (One bicycle model is much the same as another.) Production
is separate from consumption.
b. Pharmaceuticals are manufacturing. A drug is tangible, and consumption is
separate from production. The product is not heterogeneous in that variation
is minimized. (Drug companies must meet certain standards regulating
allowable variation in the chemical composition of each tablet or dose.)
c. Income tax preparation is a service. It is heterogeneous in that the quality of
work varies from preparer to preparer and also to various returns prepared by
the same preparer. While the printed return is tangible, the knowledge
required for it is not. In addition, the return cannot be prepared without the
assistance of the taxpayer. Production and consumption are intertwined.
d. The application of artificial nails is a service. It is heterogeneous in that the
quality of work varies from manicurist to manicurist. Additionally, the same
manicurist may do a better job with some customers than with others. The

production and consumption process are overlapping. While the nails are
tangible, the application process is not and cannot be inventoried.
e. Glue production is manufacturing. The product is tangible and fairly
homogeneous. (One bottle of glue is much the same as another produced by
the same firm.) Production is separate from consumption.
f.

Child care is a service. The services rendered are not tangible and cannot be
inventoried. They are heterogeneous. One caregiver differs from another, and
the same caregiver may vary in quality (e.g., patience, creativity) throughout
the day and/or with different children. Production and consumption take place
simultaneously.

Case 4
1. Reliance Company should use job-order costing because each installation is
unique and made-to-order. Materials may differ from office to office, as may
direct labour.
2. Predetermined overhead rate = Rs.65,000/5,000 = Rs.13/DLH
Wage rate = Rs.75,000/5,000 = Rs.15/DLH
Direct materials
Direct labour (Rs.15 50)
Overhead (Rs.13 50)
Total cost

Rs.3,500
750
650
Rs.4,900

3. The company cannot use an actual costing system; it needs to know the cost
of each installation as it is completed. Since overhead is incurred unevenly
throughout the year, and certain overhead bills arrive after the need for unit
costs occurs, overhead must be applied to production using a predetermined
rate.