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Cost & Management Accounting
N6
Cost & Management Accounting
TVET FIRST NATED SERIES
NATED Series
N6
Cost & Management
Accounting
• activities
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N6
Student’s Book
cost-managment acc N6-A4.indd 1
T Lakhan
Student’s Book
TVET FIRST NATED SERIES
• examples
2015/08/28 4:04 PM
N6
Cost & Management
Accounting
Student’s Book
T Lakhan
Cost & Management Accounting N6
Student’s Book
© T Lakhan, 2012
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ISBN: 978-1-4308-0072-9
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Contents
MODULE 1: JOB COSTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Unit 1.1: Differences between, and examples of, different cost systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Unit 1.2: Documents and control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Unit 1.3: The Job Cost Card and the Job Cost Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
MODULE 2: CONTRACT COSTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Unit 2.1: The different methods of contract costing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Unit 2.2: The Contract account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Unit 2.3: Methods of profit determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
MODULE 3: STANDARD COSTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Unit 3.1:
Unit 3.2:
Unit 3.3:
Unit 3.4:
The aims, uses and advantages of standard costing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Materials variances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Labour variances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Manufacturing overhead variances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
MODULE 4: COST CONTROL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
Unit 4.1: Distinction between marginal (direct) cost accounting and absorption cost accounting,
and the advantages and disadvantages of marginal (direct) cost accounting . . . . . . . . . . . . . . . . .101
Unit 4.2: Preparation of the Income Statement according to the direct/marginal and absorption cost
methods of accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
Unit 4.3: Calculation of breakeven quantity, breakeven value and safety margin using marginal cost
accounting, and drawing the breakeven graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105
MODULE 5: BUDGETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124
Unit 5.1:
Unit 5.2:
Unit 5.3:
Unit 5.4:
Unit 5.5:
The concepts ‘budget’ and ‘budget control’, and the advantages and disadvantages of budgets . .124
Aims of the various budgets and how to compile them . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125
The aim of, and compiling, the variable budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .138
The aim of, and compiling, the cash budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .141
The term ‘capital budget’, the aims of the capital budget, and various aspects relating to the
capital budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145
Unit 5.6: The master budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .169
MODULE 1
JOB COSTING
OVERVIEW
When you have completed this module, you should:
t Know the differences between and give examples of:
– product-oriented cost systems
– process-oriented cost systems.
t Understand the use of, and be able to record entries in, the:
– General Journal:
– Record all entries relating to materials, labour and manufacturing
overheads.
– General Ledger:
– Record all entries relating to materials, labour and manufacturing overheads
– Record entries in the control accounts (Materials Control, Production
Control, and Finished Goods Control).
– Materials Ledger:
– Record, per raw material item, all entries relating to the purchase, issue and
return of materials.
– Cost Ledger:
– Record all entries relating to materials, labour and manufacturing overheads
for each job.
– Finished Goods Ledger:
– Record all entries relating to the transfer from production and sales of
finished goods.
t Prepare a:
– Job Cost Card for a job(s)
– Job Cost Statement, showing the total production costs, selling and
administrative costs, the profit, and the selling price in respect of a job(s).
UNIT 1.1: DIFFERENCES BETWEEN, AND EXAMPLES OF, DIFFERENT
COST SYSTEMS
Introduction
The most obvious difference between a normal trading business and a manufacturing
business is that a trading business buys trading stock and sells it. However, in a
manufacturing business, the business produces the trading stock itself and then sells it.
To calculate the cost of the trading stock sold, you would look at the business’s records
(Trading Stock account). Alternatively, you would take opening stock plus purchases, less
closing stock. In a manufacturing business, however, it is not so simple.
1
In Cost and Management Accounting, we focus on
manufacturing enterprises. To calculate the cost of production,
you will add up the three elements of production cost:
t Direct materials
t Direct labour
t Manufacturing overheads.
production cost:
Comprises three
elements, namely direct
materials, direct labour
and manufacturing
overheads.
Cost and Management Accounting focuses on manufacturing enterprises.
Whatever a business is producing, it needs to determine how much it costs it to produce
the goods. In an attempt to collect and calculate these production costs, different cost
systems can be used, depending on the nature of the item being produced.
Definition of a cost system
A cost system is a specific method of collecting, editing and
disclosing the manufacturing costs of a product or group of
products.
cost system: A specific
method of collecting,
editing and disclosing
the manufacturing costs
of a product or group of
products.
Therefore, the nature of the product being produced will
determine the cost system to be used. Consider the following
examples:
t A business producing jam tins will not collect the costs separately for each tin
produced, as the products being produced are so small and need to be exactly the
same; hence it will not be easy to collect the costs for each separate tin. Instead, the
business will produce, say, 10 000 tins and then find the cost of all 10 000 tins. If it
needs to calculate the cost per unit, it will divide the total cost by 10 000.
t A construction business building a school and a mall will collect the costs for each
job separately, that is, it will collect and keep the costs of the school separate from the
costs of the mall. It will be very easy for the building contractor to separate the costs
for each job.
2
Types of cost systems
There are two types of cost systems, namely:
process-oriented cost
t The process-oriented cost system:
system: A system in
which the costs are
– According to this system, the costs are collected for
collected for every
every manufacturing process. All the products being
manufacturing process.
produced are the same (homogeneous), for example
homogeneous: The
a business producing candles, a canning factory or a
same.
clothing factory. Each product goes through the same
manufacturing process.
– This type of cost system is also termed a ‘process cost system’ or a ‘joint and byproducts cost system’.
Where all the products being produced are the
same (e.g. candles), we say that the product is a
‘homogeneous product’.
t The product-oriented cost system:
– According to this system, the costs are collected
separately for each product being produced. In this
case, all the products being produced are different
(heterogeneous), for example a building construction
product-oriented cost
systems: A system in
which the costs are
collected separately
for each product being
produced.
heterogeneous:
Different.
Where all the products being produced are different
(e.g. wedding dresses), we say that the product is a
‘heterogeneous product’.
3
enterprise, a business sewing wedding dresses according to each bride’s individual
pattern and needs, or an engineering firm.
– This type of cost system is also called a ‘job costing
unit costs: Are needed
system’ or ‘contract costing’.
to determine stock
The focus of this module is the job costing system, which is a
requirements and net
product-oriented cost system.
income, for planning
and control purposes,
Product-oriented cost systems are used to assist management to
and as an aid in decision
making.
determine unit costs. Unit costs are needed:
t To determine stock requirements and net income
t Because of their importance for planning and control purposes
t As an aid in decision making, e.g. to determine the price of a product.
UNIT 1.2: DOCUMENTS AND CONTROL
Introduction
As you are already aware, every transaction in accounting must be recorded. Therefore,
Every transaction in accounting needs to be recorded.
even for the production process to begin, a production order must be issued. This will
serve as proof that production may commence.
As soon as a job is started, a Job Card is opened for that job. A Job Card is similar to the
production control account. It records all the costs associated with that job. A separate job
card is kept for each job.
This Job Card will, among other things, include the following:
t The name of the job
t The costs that were incurred on the job, i.e.:
– Direct materials
– Direct labour
– Manufacturing overheads
4
t The balance from the previous period needs to be brought
down first before you record any new costs for the period.
Control accounts are kept in the General Ledger to record the
above. The control accounts consist of:
t Materials control
These three are
t Production control (work in progress) used to control
t Finished goods control
stock.
t Manufacturing overheads control.
control accounts: Are
kept in the General
Ledger and consist
of materials control,
production control
(work in progress),
finished goods control,
and manufacturing
overheads control.
auxiliary ledgers:
Provide relevant,
detailed information
and include the
Materials Ledger, the
Cost Ledger and the
Finished Goods Ledger.
Other ledgers (auxiliary ledgers) are also kept, as they provide
relevant, detailed information:
t Materials Ledger:
– An account is opened for each raw material, e.g. rubber,
leather, etc.
– Purchases, issues to production, returns, etc., pertaining to each raw material are
recorded in the relevant account
– Remember to bring down any balances from the previous period first
t Cost Ledger:
– An account is opened for each job
– All costs relating to each job are recorded in the individual account
– Remember to bring down any balances from the previous period first
t Finished Goods Ledger:
– An account is opened up for each job
– All transfers from production as well as sales of the job are recorded.
Remember that we need to collect the three production costs (direct materials, direct
labour and manufacturing overheads).
Materials
When the production department of a business needs material, it
will complete a Materials Requisition, which will be authorised
by the production manager. This requisition will detail how
much material is needed and the exact specifications of that
material.
This requisition is then sent to the stores where the material is
drawn and sent to production. The Materials Requisition is a
source document for the issue of materials.
‘Materials’ is treated like a normal stock account (asset), because
that is essentially what it is! The materials control account is
used to control all materials (direct and indirect).
5
Materials Requisition:
Is a source document for
the issue of materials,
and details how much
material is needed and
the exact specifications
of that material.
direct materials: Those
materials used in the
manufacturing process
which can be traced to
(seen in) the finished
goods, for example the
wood in a desk.
indirect materials:
Those materials used
in the manufacturing
process which cannot
be traced to (seen in)
the finished goods, for
example the sandpaper
used to sand down a
desk.
Handling/recording of materials
Remember that a business buys materials (direct and indirect) in order to produce
something. The business does not sell its materials, but uses them to produce finished
goods (i.e. it issues the materials to production).
t When it buys the materials, the Materials Control account increases (debit).
t When it issues materials to production, the Materials Control account decreases
(credit).
Example 1.1
Rex Manufacturers makes ladies’ leather and canvas handbags. It is currently busy
with two jobs, T100 and T101. Job T100 was started the previous year in 2012 and
completed during the course of the 2012 financial year, while Job T101 was only started
this year. The following information is extracted from its records:
Balances on 1 January 2012:
Job T100
R30 000
Materials: Leather
Canvas
R26 000
R20 000
Transactions during the year:
LEATHER
Purchases
Issues:
Job T100
Job T101
CANVAS
R100 000
R80 000
R36 000
R34 000
R30 000
R30 000
GLUE (INDIRECT MATERIAL)
R50 000
R10 000
Required:
Record the above in the:
t General Journal.
t General Ledger:
– Materials Control account
– Manufacturing Overheads Control account
– Production Control account.
t Materials Ledger:
– Leather
– Canvas.
t Cost Ledger:
– Job T100
– Job T101.
6
Suggested solution:
GENERAL JOURNAL OF REX MANUFACTURERS
DR
Materials Control (100 000 + 80 000 + 50 000)
CR
Bank/Creditors Control/Purchases
Total materials purchased
230 000
DR
Production Control (70 000 + 60 000)
CR
Materials Control
Direct materials issued to production
130 000
230 000
130 000
DR
Manufacturing Overheads Control
CR
Materials Control
Indirect materials issued to production
10 000
10 000
Journal entries 2 and 3 can be combined.
GENERAL LEDGER OF REX MANUFACTURERS
MATERIALS CONTROL
Balance b/d (26 000+20 000)
46 000 Production Control
Bank/Creditors/Purchases
130 000
230 000 Manufacturing Overheads Control
Balance c/d
136 000
276 000
Balance b/d
10 000
276 000
136 000
MANUFACTURING OVERHEADS CONTROL
Materials Control
10 000
PRODUCTION CONTROL
Balance b/d
30 000
Materials Control
130 000
MATERIALS LEDGER OF REX MANUFACTURERS
LEATHER
DATE
01/01/12
PURCHASES/RECEIVED
ISSUED
BALANCE
Balance b/d
26 000
100 000
70 000
56 000
7
CANVAS
DATE
01/01/12
PURCHASES/RECEIVED
ISSUED
BALANCE
Balance b/d
20 000
80 000
60 000
40 000
GLUE
DATE
PURCHASES/RECEIVED
ISSUED
BALANCE
50 000
10 000
40 000
You have a Materials Control account in the General Journal and a Subsidiary Ledger
for Materials (Materials Ledger). Notice that the balance on the Materials Control
account (i.e. R136 000) and the total balance of all your materials in the Materials
Ledger (i.e. R136 000, being R56 000 for Leather + R40 000 for Canvas + R40 000 for
Glue) are equal.
Think about the Debtors Control account in the General Ledger. The balance on this
account is equal to the individual balances of each debtor in the Debtors Ledger. The
same principle applies here.
COST LEDGER OF REX MANUFACTURERS
JOB T100
Balance b/d
30 000
Materials (36 000 + 30 000)
66 000
JOB T101
Materials (34 000 + 30 000)
64 000
Activity 1.1
Self-assessment
Best Desks (Pty) Ltd manufactures students’ desks. It is currently busy with two jobs,
namely SOTC-100 and ITB-100. Job SOTC-100 was started the previous year and
completed during the course of that year, while Job ITB-100 was only started this year.
Two basic materials are used to produce the desks, namely wood and steel.
The following information is extracted from its records:
Balances at 1 January 2012:
Production Control
Materials Control
Finished Goods Control
Job SOTC-100
Job ITB-100
R250 000
R100 000
R188 000
R200 000
R50 000
8
Materials:
Wood
Steel
R55 000
R45 000
Costs incurred during the year (issues to production):
DETAILS
SOTC-100
ITB-100
Materials: Wood
Steel
Indirect materials
Direct labour
Indirect labour
R20 000
R15 000
R10 000
R60 000
R10 000
R30 000
R25 000
R16 000
R75 000
R14 000
Balances at 31 December 2012:
Materials Control
R70 000
Additional information:
t Overheads are recovered at a rate of 150% of the direct material costs.
t Completed jobs are invoiced and sold at 80% of cost.
t Selling and administrative costs for Job SOTC-100 amounted to R50 000.
Required:
1. Record the following in the General Journal:
t Materials purchased (you need to calculate this amount as the balancing figure
in the Materials account)
t Direct materials issued
t Indirectmaterials issued.
2. Prepare the following accounts in the General Ledger (only consider opening
balances and materials):
t Materials Control
t Manufacturing Overheads Control
t Production Control.
3. Prepare the accounts in the Materials Ledger for the following:
t Wood
t Steel.
4. Prepare the following accounts in the Cost Ledger (only consider opening
balances and materials):
t Job SOTC-100
t Job ITB-100.
9
Labour
direct labour: Refers to all
the human effort used to
produce the finished goods.
The cost of direct labour
is the wages paid to direct
labour, for example in a
factory that produces shirts,
‘direct labour’ refers to the
work done by the employees
who cut and sew the shirts.
Labour refers to all the human effort, both physical and
mental, used in the factory. Labour is also categorised as
direct and indirect.
Handling/recording of labour
The source document used for labour is the Clock Card
which records the actual time that the employee spends on
the job and for which he or she is remunerated accordingly.
indirect labour: Refers to all
the human effort that is also
used in the factory, but not to
produce the final products,
for example in a factory that
produces shirts, ‘indirect
labour’ refers to the work
performed by the factory
supervisor, the factory
cleaner, the factory security
guard, etc.
Clock Card: The source
document used for the
recording of labour.
Example 1.2
Use the same information as in Example 1.1, as well as the following additional
information extracted from the records of Rex Manufacturers:
DIRECT LABOUR
JOB T100
Hours spent on the job, according to employee Clock Cards
Labour rate per hour
Required:
Enter the above in the:
t General Journal.
t General Ledger:
– Labour Control account
– Wages Payable account
– Manufacturing Overheads Control account
– Production Control account.
10
JOB T101
INDIRECT
LABOUR
3 000
2 000
500
R20
R22
R15
t Cost Ledger:
– Job T100
– Job T101.
Suggested solution:
GENERAL JOURNAL OF REX MANUFACTURERS
DR
Labour Control *
CR
Wages Payable
Total labour cost for the period
111 500
DR
Production Control (60 000 + 44 000)
CR
Labour Cost Control
Allocation of direct labour costs
104 000
111 500
104 000
DR
Manufacturing Overhead Control
CR
Labour Cost Control
Allocation of indirect labour costs
7 500
7 500
Journal entries 2 and 3 can be combined.
* Total labour cost:
Job T100
Job T101
Indirect labour
3 000 hours × R20
2 000 hours × R22
500 hours × R15
=
=
=
R60 000
Direct labour
R44 000
R7 500
R111 500
GENERAL LEDGER OF REX MANUFACTURERS
LABOUR CONTROL
Wages Payable
111 500 Production Control
Manufacturing Overheads Control
104 000
7 500
WAGES PAYABLE
Labour Control
MANUFACTURING OVERHEADS CONTROL
Materials Control (from Example 1.1)
Labour Control
10 000
7 500
11
111 500
PRODUCTION CONTROL
Balance b/d (from Example 1.1)
30 000
Materials Control (from Example 1.1)
130 000
Labour Control
104 000
COST LEDGER OF REX MANUFACTURERS
JOB T100
Balance b/d (from Example 1.1)
30 000
Materials (from Example 1.1)
66 000
Labour
60 000
JOB T101
Materials (from Example 1.1)
64 000
Labour
44 000
Activity 1.2
Self-assessment
Use the information from Activity 1.1 to:
1. Record all labour transactions in the General Journal.
2. Prepare the following in the General Ledger:
t Labour Control account
t Wages Payable account
t Manufacturing Overheads Control account (use the accounts that you opened
in Activity 1.1)
t Production Control account (use the accounts that you opened in Activity 1.1).
3. Record the following in the Cost Ledger (use the accounts that you opened in
Activity 1.1):
t Job SOTC-100
t Job ITB-100.
Manufacturing overheads
Manufacturing overheads are all the indirect production costs;
in other words, all the other production costs except direct
material and direct labour.
manufacturing
overheads: Comprise
all indirect production
costs, that is, all
production costs except
direct material and
direct labour.
Handling/recording of manufacturing overheads
Because there are so many items that make up manufacturing
overheads, we first accumulate the manufacturing overheads
in the Manufacturing Overheads Control account and then transfer one amount to the
Production Control account. The amount that is transferred to the Production Control
account is the Applied/Absorbed/ Recovered/Allocated overheads, that is, the overheads
that are calculated using a predetermined overhead rate (you will recall this from your
study of Cost and Management Accounting N5).
12
Introduction of the Applied Overheads account
In Cost and Management Accounting N5, you came across the
Manufacturing Overheads Control account. Now, in addition to
this account, you have an Applied Overheads account.
Applied Overheads
account: Is merely
an extra step in
the handling of
manufacturing
overheads.
The Applied Overheads account is merely an extra step in the
handling of manufacturing overheads. You are already familiar
with the transfer of the applied overheads (calculated using the
predetermined overhead rate) from the Manufacturing Overheads Control account to the
Production Control account.
Now, from the Manufacturing Overheads Control account, you first transfer the applied
overheads to the Applied Overheads account, and then, from this account, you transfer
them to the Production Control account.
Example 1.3
Use the information from Examples 1.1 and 1.2, as well as the following additional
information extracted from the records of Rex Manufacturers:
Actual information:
Factory electricity
R15 000
Factory rent
R50 000
Depreciation on factory equipment
R16 000
Factory rates & taxes
R12 000
Additional information:
t Overheads are recovered at a rate of 100% of direct labour cost.
t The balance on the Finished Goods Control account at the beginning of the year
was R256 000.
t Selling and administrative costs amounted to R64 000 for Job T100.
t Job T100 was completed and invoiced to the client at a profit of 20%.
Required:
Enter the above in the:
t General Journal.
t Cost Ledger:
– Job T100
– Job T101.
t General Ledger:
– Manufacturing Overheads Control account
– Applied Overheads account
13
– Production Control account
– Finished Goods Control account
– Cost of Sales account.
Suggested solution:
GENERAL JOURNAL OF REX MANUFACTURERS
DR
CR
Manufacturing Overheads Control
110 500
Materials Control (Example 1.1)
10 000
Labour Control (Example 1.2)
7 500
Electricity
15 000
Rent
50 000
Depreciation: Factory equipment
16 000
Rates & taxes
12 000
Actual manufacturing overheads transferred to Manufacturing Overheads Control
DR
** Applied Overheads
CR
Manufacturing Overheads Control
Overheads recovered during the year
104 000
DR
*** Cost of Sales
CR
Manufacturing Overheads Control
Under-recovery of manufacturing overheads
6 500
104 000
6 500
DR
Finished Goods Control
CR
Production Control
Finished goods transferred from production
216 000
DR
Cost of Sales
CR
Finished Goods Control
Cost of goods sold
216 000
DR
**** Bank/Debtors
CR
Sales
Selling price of goods sold
336 000
216 000
216 000
336 000
** Applied Overheads:
t Overheads are recovered at a rate of 100% of direct labour cost (given).
t Direct labour cost is R104 000 (from Example 1.2).
t Therefore Applied Overheads
= R104 000 × 100%
= R104 000
14
*** Under-recovered overheads:
Actual overheads
R110 500
Applied overheads
R104 000
Under-recovery
R6 500
**** Sales
R216 000 (Production costs)
+ R64 000 (Selling & Admin costs)
R280 000
+ 56 000 (20% profit)
336 000
GENERAL LEDGER OF REX MANUFACTURERS
MANUFACTURING OVERHEADS CONTROL
Materials Control (from Example 1.1)
Labour Control (from Example 1.2)
10 000 Applied Overheads **
7 500 Cost of Sales
Factory electricity
15 000
Factory rent
50 000
Factory depreciation
16 000
Factory rates & taxes
12 000
110 500
104 000
6 500
110 500
APPLIED OVERHEADS
Manufacturing Overheads Control
104 000 Production Control
104 000
PRODUCTION CONTROL
Balance b/d (from Example 1.1)
30 000 Finished Goods (Job T100)
Materials Control (from Example 1.1)
130 000 Balance c/d (Job T101)
Labour Control (from Example 1.2)
104 000
Applied Overheads
104 000
368 000
Balance b/d
216 000
152 000
368 000
152 000
FINISHED GOODS CONTROL
Balance b/d
256 000 Cost of Sales
216 000
Production Control
216 000 Balance c/d
256 000
472 000
472 000
Balance b/d
256 000
COST OF SALES
Manufacturing Overheads Control
Finished Goods Control
6 500
216 000
15
COST LEDGER OF REX MANUFACTURERS
JOB T100
Balance b/d
30 000 Finished Goods
Materials
66 000
Labour
60 000
Applied Overheads*
60 000
216 000
216 000
216 000
Job T100 is complete, and there is thus no balance to take forward to the next period.
JOB T101
Materials (from Example 1.1)
64 000 Balance c/d
Labour (from Example 1.2)
44 000
Applied Overheads*
44 000
152 000
152 000
Balance b/d
152 000
152 000
Note: The balance (c/d) for Job T101 (the unfinished job) is equal to the balance (c/d)
in the Production Control account.
Remember that the balance c/d on the production control account refers to unfinished
work or work-in-progress. Therefore the balance of the production control account
must be equal to the balance of the unfinished job.
The amount for finished goods in the production control account refers to jobs that are
complete and must therefore equal to the total production cost of the finished job/s.
*Applied Overheads per job:
Predetermined overhead rate is 100% of direct labour cost (given).
JOB T100
Direct labour cost = 60 000
Therefore Applied Overheads
= 100% × 60 000
= 60 000
JOB T101
Direct labour cost = 44 000
Therefore Applied Overheads
= 100% × 44 000
= 44 000
Activity 1.3
Self-assessment
Use the information from Activities 1.1 and 1.2, together with the information below,
to record the following:
1. In the General Journal:
t Actual overheads
t Applied overheads
t Over-/under-application of overheads.
2. In the Cost Ledger (use the accounts that you opened for Activities 1.1 and 1.2):
t Job SOTC-100
t Job ITB-100.
16
3. In the General Ledger:
t Manufacturing Overheads Control account
t Applied Overheads account
t Production Control account (use the account from Activities 1.1 and 1.2)
t Finished Goods Control account
t Cost of Sales account.
Additional information:
Actual costs incurred during the year:
Depreciation:
Rent:
Water & electricity:
Rates & taxes:
Insurance:
Office
Factory
Office
Office
Factory
Factory
Office
Factory
R10 000
R40 000
R90 000
R80 000
R20 000
R50 000
R15 000
R20 000
UNIT 1.3: THE JOB COST CARD AND THE JOB COST STATEMENT
The Job Card
As mentioned earlier, as soon as a job is started, a Job Card is opened for that job. Then,
when any materials, labour or overheads are issued or used for the job, these are recorded
on the Job Card. The Job Card will, among other things, contain the following:
t The name of the job
t The date the job was started
t The date the job was completed
t How many units of finished goods were completed for the job (e.g. one job that you
are busy with involves making 1 000 students’ desks for a college. When the job is
complete, you will indicate that 1 000 desks have been completed.)
17
t The costs that were incurred on the job, i.e.:
– Any balances b/d from a previous period
– Direct materials
– Direct labour
– Manufacturing overheads.
– Selling and administrative costs
– Profit for the job
– Selling price of the job (if it is finished)
Example of a Job Card
NTN MANUFACTURERS
JOB CARD
JOB NUMBER: ITB100
DATE STARTED: 1 July 2012
UNITS COMPLETED:
DATE COMPLETED:
COSTS
Balance b/d
Materials
Labour
Overheads
Total Production Costs
Selling and administrative costs
Total costs
Profit
Selling price
The Job Cost Statement
The Job Cost Statement is a summary of all the production
costs, selling and administrative costs, profit, and selling price
for a particular job.
Job Cost Statement:
Is a summary of all
production costs, selling
and administrative
costs, profit, and selling
price in respect of a
particular job.
You will list all the production costs (materials, labour and
overheads), including any balance brought down from the
previous period. Together, this will give you the total production
costs. To these, you will add any selling and administrative costs to get the total costs of
the job(s) to the business. Then you add the profit (if the job has been completed and sold)
and calculate the selling price.
Note: Notice that the Job Cost Statement and the Job Card have the same information but
are just presented in a different format.
18
Example 1.4
Use the information from Examples 1.1, 1.2 and 1.3 to prepare a Job Card and the Job
Cost Statement for each job.
Additional information:
t Selling and administrative costs amounted to R64 000. This is only applicable to
completed jobs.
Suggested solution:
REX MANUFACTURERS
JOB CARD
JOB NUMBER: T100
DATE STARTED: 2011
UNITS COMPLETED:
DATE COMPLETED: 2012
COSTS
Balance b/d
30 000
Materials
66 000
Labour
60 000
Overheads
60 000
Total Production Costs
216 000
Selling and administrative costs
64 000
Total costs
280 000
Profit
56 000
Selling price
336 000
19
REX MANUFACTURERS
JOB CARD
JOB NUMBER: T101
DATE STARTED: 2012
UNITS COMPLETED:
DATE COMPLETED:
COSTS
Balance b/d
0
Materials
64 000
Labour
44 000
Overheads
44 000
Total Production Costs
152 000
Selling and administrative costs
Total costs
Profit
Selling price
These fields are not filled in because
the job is not complete.
JOB COST STATEMENT OF REX MANUFACTURERS
JOB T101
Balance b/d
Direct materials:
Leather
Canvas
Direct labour
Applied manufacturing overheads
Total production costs
0
34 000
30 000
(100% of labour cost)
64 000
44 000
44 000
152 000
JOB T100
Balance b/d
Direct materials
Leather
Canvas
30 000
36 000
30 000
Direct labour
Applied manufacturing overheads (100% of labour cost)
Total production costs
Sales & administrative costs
Total costs
Profit @ 20%
Selling price
20
66 000
60 000
60 000
216 000
64 000
280 000
56 000
R336 000
Example 1.5
JMD Ltd uses a job costing system to control manufacturing costs. The company
manufactures shoes, for which it uses two raw materials, namely rubber and leather.
During the year, the company is busy with three jobs: JMD01, JMD02 and JMD03.
Job JMD01 was started in January 2012, while Job JMD02 was completed and invoiced
at cost plus 50% to the client.
Balances: 1 January 2012:
Manufacturing account
R70 000
Raw Materials Control account
R55 000
Applied Overheads account
R65 000
Cost Ledger:
R32 000
R38 000
Job JMD01
Job JMD02
Materials Ledger: Rubber
Leather
R25 500
R9 500
Costs incurred during the month:
Labour
R65 000
Overheads
R71 000
Materials issued:
Rubber
Leather
JMD01
R1 255
R5 668
JMD02
R5 555
R7 271
JMD03
R4 850
R6 857
According to the time cards, 5 000 labour hours were clocked and worked during
January. The cost of labour is R13 per hour. A summary of the labour hours worked in
January further reveals that the following labour hours were clocked per job:
Job JMD01
Job JMD02
Job JMD03
800
2 300
1 900
Overheads are applied at 100% of direct labour costs.
Required:
1. Record the above transactions in the following accounts in the General Ledger of
JMD Ltd:
1.1 Raw Materials Control
1.2 Manufacturing Overheads Control
1.3 Applied Overheads Control
21
1.4 Production Control.
2. Show the accounts for jobs JMD01 and JMD03 in the Cost Ledger.
3. Prepare the Job Cost Statement for Job JMD02.
Suggested solution:
1.
GENERAL LEDGER OF JMD LTD
RAW MATERIALS CONTROL
Balance b/d
55 000 Production Control
Balance c/d
55 000
Balance b/d
31 456
23 544
55 000
23 544
MANUFACTURING OVERHEADS CONTROL
Actual Overheads/Bank/Creditors
71 000 Applied Overheads (65 000 × 100%)
Cost of Sales (under-recovery)
71 000
65 000
6 000
71 000
APPLIED OVERHEADS
Manufacturing Overheads Control
65 000 Production Control
65 000
PRODUCTION CONTROL
Balance b/d
70 000 Finished Goods Control
110 626
Materials Control
31 456 Balance c/d (WIP)
120 830
Labour Control
65 000 Applied manufacturing overheads
65 000 231 456 Balance b/d (WIP)
231 456
120 830
2.
COST LEDGER OF JMD LTD
JOB JMD01
Balance b/d
Direct material
32 000 Balance c/d
6 923
Direct labour
10 400
Applied manufacturing overheads
10 400
59 723 Balance b/d
59 723
59 723
22
59 723
JOB JMD03
Direct material
11 707 Balance c/d
Direct labour
24 700
Applied manufacturing overheads
24 700
61 107 Balance b/d
61 107
61 107
61 107
3.
JOB COST STATEMENT OF JMD LTD
JMD02
Balance b/d
38 000
Direct materials
12 826
Direct labour
29 900
Applied manufacturing overheads
29 900
Production costs
110 626
Selling and administrative costs
–
Total costs
110 626
Profit @ 50%
55 313
Selling price
R165 939
Example 1.6
Ehlanzeni Manufacturers produces children’s toys. They are currently busy two jobs:
EM1 and EM2.
Job EM1 was started eight months ago while Job EM2 was only started during the
current month, September 2012.
At the end of September 2012, the following incomplete Production Control account
was extracted from the records of Ehlanzeni Manufacturers:
Production Control
Balance b/d
43 000 Finished Goods Control
Materials Control
152 000 Balance c/d
Labour Control
280 000
Applied Manufacturing Overheads Control
?
Additional information:
t Summary of the costs for Job EM2 as at the end of September 2012:
Materials
R20 000
Labour
R44 000
23
?
?
t
t
t
t
t
Overheads ?
Overheads are recovered at a predetermined overhead rate of 80% of direct
material cost.
Only Job EM1 was completed at the end of September 2012.
Job EM2 was only started in September 2012.
Job EM1 was sold at a profit of 60% on cost.
15 000 units were produced in Job EM1
Required:
a. Prepare the Job Card for BOTH the jobs. Calculate the selling price of Job EM1
ONLY.
b. Calculate the unit cost of Job EM1 only.
c. Complete the Production Control account in the General Ledger.
d. Calculate the over or under-recovery of manufacturing overheads if the actual
overheads were R130 000. State whether it is an over or under-recovery of
overheads.
e. What is the journal entry to record the above over/under-recovery of overheads?
Suggested solution:
a.
JOB CARD
EM1
EM2
Balance
43 000
0
Material
132 000
20 000
Labour
236 000
44 000
Applied overheads
105 600
16 000
Total Production Costs
516 600
80 000
Profit @ 60%
309 960
Selling price
826 560
b.
516 600
15 000
= R 34,44
=
Remember to take the total cost and divide and by the number of
units produced in that job. Common mistake that students make
is to take the selling price and divide by number of units.
24
c.
Production Control
Balance b/d
43 000 Finished Goods
Material Control
152 000 Balance c/d
Labour Control
280 000 Applied Overheads
121 600 596 600
Balance b/d WIP
80 007
d.
Actual overheads
R130 000
Applied overheads
R121 600
R8 400 Under-recovered overheads
e.
Dr:
Cost of sales
8 400
Cr:
Manufacturing overheads
8 400
25
516 600
80 000
596 600
MIND-MAP OF MODULE 1
Two Types Of Cost Systems
Process costing
Similar goods are produced. Costs
are collected together.
E.g.: chemical industries, canning
factories
Product costing
Different goods are produced. Costs
are collected separately.
E.g.: construction business,
engineering business
You must be able to prepare:
t General Journal – for all transactions regarding Materials, Labour, Overheads
(Manufacturing Overheads & Applied Overheads), Finished Goods, Cost of Sales
t General Ledger – for all transactions regarding Materials, Labour, Overheads
(Manufacturing Overheads & Applied Overheads), Finished Goods, Cost of Sales
t Materials Ledger – Open an account for each material used in the production
process, including indirect materials
t Cost Ledger – Open an account for each job. Transfer finished jobs to Finished
Goods account. Incomplete jobs will have a balance carried down (WIP)
t Job Cost Statement – Prepared for each job. Start with any balances b/d for
the job and add Materials, Labour and Overheads for that job to calculate the
Total Cost of Production. If job is incomplete, stop here. If job is complete and
invoiced, then carry on and add any Selling & Administrative Costs to get Total
Costs. Then add Profit to get Selling Price of job
26
ASSESSMENT ACTIVITIES
You will be competent against the Learning Outcomes of this module if you can
successfully do the assessment activities below.
Question 1
Vera CC manufactures designer babies’ shoes on special order. They are currently busy
with two special orders, namely Job V565 and Job V566, for which they are using the job
costing accounting system for recording.
Job V565 was started during May 2012 while Job V566 was only started in June 2012. Both
jobs were completed at the end of June 2012.
The following information was extracted from their records:
Production Control account (01/06/12)
R80 000
Finished goods (01/06/12)
R310 000
Cash purchases of materials during June 2012
?
Material Control account (01/06/12)
R75 000
Material Control account (30/06/12)
R150 000
Material issued during June 2012:
– V565
– V566
R60 000
R11 000
Direct labour hours for June 2012:
– V565
– V566
3 800
1 500
Labour rate per hour
R35
Mark-up on cost:
– V565
– V566
60%
45%
Shoes produced:
– V565
– V566
10 000
25 000
Additional information:
t Overheads are applied at a rate of 75% of direct labour cost.
Required: (Round off your answers to the next whole)
t Draw up the Job Cost Statement for each of the special orders to calculate the
production costs. Determine the profit and selling price on both the jobs.
t Calculate the cost per unit of each job.
t Complete the Production Control account in the General Ledger of Vera CC.
t Calculate the value of materials purchased during June 2012.
Question 2
The following incomplete Production Control account appeared in the records of Buffalo
City Producers on 30 April 2012. The business uses a job costing system:
27
PRODUCTION CONTROL
Balance b/d
22 000 Finished Goods Control
?
Material Control
15 000 Balance c/d
?
Labour Control
20 000
Applied Overheads Control
?
?
?
Additional information:
1. Overheads are recovered at a rate of 110% of direct labour cost.
2. The business is currently busy with two jobs, namely, BCP101 and BCP102.
3. Details of the jobs are as follows:
BCP101
Balance b/d
Materials
Labour
Applied overheads
Number of units produced
BCP102
R12 000
R10 000
R8 000
R7 000
R11 000
R9 000
?
?
6 000
5 000
4. Selling and administration costs amount to R15 000. These costs are allocated to Job
BCP101 and Job BCP 102 in the ratio 2:1 respectively.
5. Both jobs were completed and sold at a profit of 75%.
6. Actual overheads were R25 000.
Required:
t Prepare a Job Card for Job BCP101 only. Show the profit/loss and the selling price of
this job.
t Complete the account for Job BCP102 only in the Cost Ledger.
t Calculate the total cost per unit for each job.
t Complete and close off the Cost of Sales account in the General Ledger.
Question 3
3.1 Differentiate between:
3.1.1 Product- and process-oriented cost systems.
3.1.2 Direct and indirect materials.
3.1.3 Direct and indirect labour.
3.2 Northern Cape Urban Manufacturers produces skateboards. The following
information was extracted from their records with regards to completed Job NCU555:
Balance b/d
R40 000
Materials
R30 000
Labour
R60 000
Additional information:
t Manufacturing overheads are recovered at a rate of R10 per direct labour hour
t The business paid R15 per direct labour hour worked
t 10 000 skateboards were produced in this job.
28
Calculate the:
t Prime cost
t Manufacturing overheads
t Cost per unit.
Question 4
Taletso Manufacturers makes leather sandals. The following information was extracted
from their records with regards to a job that was recently completed:
Balance b/d
R75 000
Materials
R80 000
Labour
R90 000
Additional information:
t Manufacturing overheads are recovered at 120% of direct material cost
t 5 000 pairs of sandals were produced in this job.
Calculate the:
‡ Manufacturing overheads
‡ Production costs
‡ Cost per unit.
Question 5
The following Production Control account appeared in the records of Orbit CC. The
business uses a job costing system:
PRODUCTION CONTROL
Balance b/d
27 500 Finished Goods Control
Material Control
130 000 Balance c/d
Labour Control
210 000
Applied Overheads Control
400 000
?
?
?
?
Additional information:
1. Overheads are recovered at a rate of 75% of direct material cost.
2. The business adds 80% mark-up on its finished jobs.
3. The business is currently busy with two jobs, namely, Job ORB1 and Job ORB2.
Job ORB2 is complete. The details of the jobs are as follows:
ORB1
Balance b/d
ORB2
R1 500
R26 000
Materials
R20 000
R110 000
Labour
R28 500
R181 500
?
?
Applied overheads
29
Selling and administration costs amount to R60 000. These costs are allocated to
Job ORB1 and Job ORB2 in the ratio 1:3, respectively.
Required:
t Complete the Production Control account in your answer book.
t Prepare the Job Cost Statement for Job ORB2.
t Calculate the unit cost of Job ORB2 if 100 000 units were produced.
t Show Job ORB1 ONLY in the Cost Ledger.
Question 6
Vuselela Ltd manufactures lawnmowers. They sell their lawnmowers to all the major
chain stores and also manufacture them to clients’ individual specifications. They are
currently busy only with two special orders, for which they are using the job costing
accounting system for recording. Special order VL01 was started during April 2012 and
special order VL02 was started during May 2012.
They want you to calculate the cost of each job as at 31 May 2012 and supply you with the
following information for May 2012:
Production control account (01/05/12)
R52 000
Finished goods (01/05/12)
R250 000
Materials purchased on credit during May 2012
R67 000
Material control account (01/05/12)
?
Material control account (31/05/12)
R48 000
Material issued during May 2012:
– VL01
– VL02
R36 500
R22 000
Direct labour hours for May 2012:
– VL01
– VL02
1 600
1 100
Total direct labour cost for May 2012
R74 250
Total number of units produced:
– VL01
– VL02
6 000
4 800
Mark-up on cost:
– VL01
– VL02
75%
55%
Additional information:
t Overheads are applied at a rate of R5,50 per unit produced
t At the end of May 2012, special order VL01 was complete.
Required: (round off your answers to the next whole)
t Draw up the Job Cost Statement for each job. Determine the profit and selling price
on the completed job only.
t Complete the following accounts in the General Ledger of Vuselela Ltd:
– Materials Control
– Production Control
– Finished Goods Control.
30
Question 7
The following Production Control account appeared in the records of Majuba Productions.
The business uses a job costing system:
PRODUCTION CONTROL
Balance b/d
83 500 Finished goods control
Material control
145 000 Balance c/d
Labour control
180 000
Applied overheads control
300 000
?
?
?
?
Additional information:
1. Overheads are recovered at a rate of 80% of direct labour cost.
2. The business is currently busy with two jobs, namely, Job MP01 and Job MP02.
3. Selling and administration costs amount to R60 000. These costs are allocated to Job
MP01 and Job MP02 in the ratio 2:1 respectively.
Details of the jobs are as follows:
MP 01
Balance b/d
MP02
R66 800
R16 700
Materials
R116 000
R29 000
Labour
R100 000
R80 000
?
?
25 000
16 000
Applied overheads
Number of units produced
Required:
a. Prepare a Job Card for each job. Show the profit and selling price on the MP01 job
ONLY if the mark-up on cost is 90%.
b. Calculate the cost per unit for each job. Round off your answers to 2 decimal places.
c. In addition to the information given, use the information below to calculate the
balance in the Materials Control account of Majuba Productions, if:
t The balance on the Material Control account at the beginning of the period was
R80 000
t Materials to the value of R200 000 were purchased for cash
t Indirect materials issued to production totaled R50 000.
d. Show the General Journal entry to record applied overheads.
e. To which account is an over or under-recovery of manufacturing overheads closed off?
Question 8
Study the Production Control account below and answer the questions that follow:
31
PRODUCTION CONTROL
Balance b/d
15 000 Finished Goods Control
Materials Control
100 000 Balance c/d
Labour Control
125 000
Manufacturing Overhead Control
130 000
370 000
250 000
120 000
370 000
8.1 Briefly explain the balance b/d on the debit side of R15 000.
8.2 Briefly explain the balance c/d on the credit side of R120 000.
8.3 Explain the debit entry for materials control. Does this amount include direct and
indirect materials? Give a reason for your answer.
8.4 Explain the debit entry for labour control. Does this amount include direct and
indirect labour? Give a reason for your answer.
8.5 Explain the debit entry for manufacturing overheads control. Is this amount of
R130 000 the actual or applied manufacturing overheads? Give a reason for your
answer.
8.6 Does the credit entry of R250 000 for finished goods refer to the cost price or the
selling price of finished goods.
8.7 Is it possible for the production account not to have a balance c/d? Give a reason for
your answer.
Question 9
The following incomplete and incorrectly prepared accounts appeared in the Cost Ledger
of Gert Sibande Manufacturers on 29 February 2012. The business uses a job costing
system:
COST LEDGER
JOB: GSM2940
Balance b/d
25 000 Labour control
Material control
54 000
60 000
JOB: GSM3960
Balance b/d
18 000 Labour control
Material control
73 000
70 000
Additional information:
1. Overheads are recovered at a rate of 90% of direct material cost.
2. Only Job GSM2940 was completed during the financial period. It was sold at a profit
of 50% on 28 February 2013.
3. Total selling and administration costs amount to R20 000. These costs are
allocated to Job GSM2940 and Job GSM3960 in the ratio 3:2 respectively.
4. Actual overheads amounted to R115 000.
32
5. 5 000 units were produced in Job GSM2940 and 3 000 units were produced in Job
GSM3960.
Required:
a. Correctly complete the accounts for both jobs in the Cost Ledger.
b. Calculate the profit/loss and the selling price for Job GSM2940 only.
c. Calculate the cost per unit for each job.
d. Calculate the over or under-application of overheads for the business. State clearly if
your answer is an over or under-application.
Question 10
Swinton Publishers publishes and prints books on special order only. They are currently
busy only with two special orders, i.e. Job TL567 and Job NNL786. Job TL567 was started
during January 2012 and Job NNL786 was started during February 2012.
The following information is supplied to you at the end of February 2012:
Production control account (01/02/2012)
R30 000
Finished goods (01/02/2012)
R50 000
Materials purchased for cash during February 2012
R25 000
Material control account (01/02/2012)
?
Material control account (29/02/2012)
R52 000
Material issued during February 2012:
– Job TL567
– Job NNL786
R30 500
R15 000
Direct labour hours for February 2012:
– Job TL567
– Job NNL786
2 000
800
Total direct labour cost for February 2012
(Labour for all jobs are paid at the same rate)
R44 800
Total number of units produced:
– Job TL567
– Job NNL786
4 000
2 500
Mark-up on cost:
– Job TL567
– Job NNL786
70%
60%
Additional information:
t Overheads are absorbed at a rate of R6 per unit produced.
t At the end of February 2012, Job TL567 was complete.
Required:
a. Prepare a Job Card for each job for February 2012. Determine the profit and selling
price on the completed job/s only.
b. Complete the following accounts in the General Ledger of Swinton Publishers:
i. Materials Control
ii. Production Control
iii. Finished Goods Control.
33
Question 11
Nkangala Factory manufactures ladies swimwear. The business is currently busy two
jobs, NF01 and NF02. The business uses a job costing system and at the end of June 2012,
the following incomplete Job Cards were extracted from its records:
JOB CARDS
JOB NF01
JOB NF02
Balance b/d
R50 000
?
Materials
R66 000
R14 000
Labour
R72 000
R20 000
Overheads
?
?
Total production costs
?
?
Profit
?
?
Selling price
?
?
Additional information:
t The business started Job NF02 on 4 June 2012.
t Overheads are recovered at a predetermined overhead rate of 120% of direct labour
cost.
t Only Job NF01 was completed at the end of June 2012.
t Job NF01 was sold at a profit of 90% on cost.
t 50 000 units were produced in Job NF01.
t The balance on the Finished Goods Control account on 31 May 2012 is R31 000.
Required:
a. Complete an account for each job in the Cost Ledger. Balance both the accounts.
b. Calculate the unit price of Job NF01.
c. Calculate the selling price of Job NF01.
d. Complete the Production Control account in the General Ledger. Balance the account.
e. Complete the Finished Goods Control account in the General Ledger. Balance the
account.
Question 12
Elangeni Manufacturers uses a job costing system to calculate product costs. They are
currently busy with three jobs, namely, E1, E2 and E3. On 31 December 2012, the following
information was extracted from their records:
Details
Job E1
Job E2
Job E3
Material (01/12/12)
R65 000
R45 000
R20 000
Labour (01/12/12)
R56 000
R36 000
R20 000
Applied Overheads (01/12/12)
R28 000
R18 000
R10 000
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Costs for December 2012:
Details
Job E1
Job E2
Job E3
Material
R70 000
R58 000
R30 000
Labour
R60 000
R40 000
R28 000
Number of units produced
R50 000
R30 000
R20 000
Additional information:
t Overheads are recovered at R0,75 per unit produced.
Required:
a. All three jobs are completed. Calculate the following (round off your answers to 2
decimal places):
t Costs per unit for all three jobs and
t The total gross profit ONLY for jobs E1 and E2, if the following is the selling price
per unit for each of the jobs:
– Job E1: R8,00 per unit
– Job E2: R10,00 per unit.
Question 13
Study the incomplete Job Cards below of Tshwane Producers CC for the 2012 financial
year and answer the questions that follow:
JOB CARD FOR JOB TPCC01
Balance b/d
R80 000
Materials
R120 000
Labour
R150 000
Manufacturing overheads
(b)
(a)
(c)
Profit
(d)
Selling price
(e)
JOB CARD FOR JOB TPCC02
Balance b/d
(f)
Materials
R50 000
Labour
R70 000
Manufacturing overheads
(a)
(g)
(i)
Profit
Selling price
Additional information:
t Job TPCC01 was only started during the 2010 financial year
t Manufacturing overheads are recovered at 120% of the direct material costs
t Only Job TPCC01 is complete
t Profit is calculated at 65% on cost for completed jobs only
t Job TPCC01 has produced 100 000 units
t Total actual manufacturing overheads is R160 000.
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Required:
i. What is the description for (a)?
ii. Calculate the amounts for (b) to (i).
iii. Calculate the unit price of Job TPCC01 only.
iv. Complete the Production Control account in the General Ledger.
v. Prepare the Manufacturing Overhead Control account.
Question 14
Esayidi Manufacturers uses a job costing system to calculate product costs. They are
currently busy with three jobs, namely, EM 001, EM 002 and EM 003. The following
information was extracted from their records on 31 August 2012:
Details
EM 001
EM 002
EM 003
Material (01/08/12)
R14 000
R100 800
R11 490
Labour (01/08/12)
R18 950
R 9 000
R10 900
Applied Overheads (01/08/12)
R39 030
R19 900
R18 850
Costs for August 2012:
Details
EM 001
EM 002
EM 003
Material
R126 500
R96 500
R93 600
Labour
R94 000
R71 800
R94 000
Number of units produced
700 000
300 000
250 000
Required:
a. Calculate the total manufacturing costs per job, if overheads are allocated at 150% of
direct labour costs.
b. All three jobs are completed. Calculate the costs per unit as well as the total profit
per job if the following is the selling price per unit for each of the jobs:
t Job EM 001: R5,00 per unit
t Job EM 002: R2,30 per unit
t Job EM 003: R1,75 per unit.
Question 15
The following incomplete information was extracted from the Cost Ledger of Mnambiti
Ltd for the year ending 29 February 2012:
COST LEDGER OF MNAMBITI LTD
JOB: ML929
Balance b/d
15 000 Finished goods
Materials
8 500
Labour
9 000
Applied manufacturing overheads
?
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?
JOB: ML930
Materials
3 350 Balance c/d
Labour
5 000
Applied manufacturing overheads
?
?
Additional information:
t Manufacturing overheads are recovered at a rate of 250% of direct material cost
t Job ML929 is complete
t Job ML930 is incomplete
t All completed jobs are invoiced and sold at a mark-up of 50% on cost
t Finished goods balance on 1 March 2012 was R45 000
t The actual manufacturing overheads for the year amounted to R30 000.
Required:
a. Prepare the Job Cost Statement for Mnambiti Ltd for the above two jobs, showing
the profit and selling price for the completed job only.
b. Complete the following accounts in the General Ledger of Mnambiti Ltd:
i. Production Control
ii. Finished Goods Control
iii. Manufacturing Overheads Control
iv. Cost of Sales.
Question 16
The following was extracted from the records of Pinetek (Pty) Ltd:
PRODUCTION CONTROL
Balance b/d
55 000 Finished Goods Control
Materials Control
220 000 Balance c/d
Labour Control
120 000
Applied Overheads
360 000
755 000
700 000
55 000
755 000
COST OF SALES
Applied overheads
Additional information:
t Overheads are recovered at a rate of R3,00 per direct labour hour.
Required:
a. Calculate the actual number of direct labour hours used.
b. Calculate the actual overheads incurred by the business.
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20 000
Question 17
Madadeni Manufacturers uses a job costing system to calculate product costs. They are
currently busy with three jobs, namely MAD01, MAD02 and MAD03. The following
information was extracted from their records on 31 December 2012:
DETAILS
JOB
MAD01
MAD02
MAD03
Balances on 1 January 2012:
t Materials
R86 400
R80 000
R50 000
t Labour
R88 000
R73 000
R62 500
?
?
?
t Materials
R330 000
R280 000
R182 000
t Labour
R350 000
R300 000
R240 000
?
?
?
100 000
70 000
50 000
t Applied overheads
Costs incurred during the year:
t Applied overheads
Number of units produced
Additional information:
t Overheads are recovered at a rate of 100% of direct material cost.
Required:
a. Calculate the total manufacturing costs for each job.
b. Calculate the cost per unit for each job.
c. Record the issue of direct materials to production in the General Journal.
d. Calculate the profit on the MAD01 job ONLY if the mark-up on cost is 200%.
Question 18
Motheo Manufacturers makes car seats. The business is currently busy only with two
special orders, for which they are using the job costing accounting system for recording.
Job BWM05 was started during April 2012 and Job MERC06 was started during May
2012. The business requests you to calculate the cost of each job as at 31 May 2012 and
supply you with the following information for May 2012:
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Production control account (01/05/12)
R66 000
Finished goods (01/05/12)
R100 000
Materials purchased on credit during May 2012
R54 000
Material control account (01/05/12)
?
Material control account (31/05/12)
R48 000
Material issued during May 2012:
– BWM05
– MERC06
R36 500
R22 000
Direct labour hours for May 2012:
– BWM05
– MERC06
1 600
1 100
Total direct labour cost for May 2012
R74 250
Total number of units produced:
– BWM05
– MERC06
6 000
4 800
Mark-up on cost:
– BWM05
– MERC06
75%
55%
Additional information:
t Overheads are applied at a rate of R15 per labour hour .
t Actual manufacturing overheads was R40 000.
t At the end of May 2010, special order BWM05 was complete.
Required: (round off your answers to the next whole)
a. Draw up the Job Cost Statement on 31 May 2012 for each of the special orders
to calculate the production costs. Determine the profit and selling price on the
completed job/order only.
b. Complete the following accounts in the General Ledger of Motheo Manufacturers
on 31 May 2012:
i. Materials Control
ii. Production Control
iii. Finished goods Control
iv. Manufacturing Overhead Control.
c. Calculate the unit cost on 31 May 2012 for jobs:
i. BWM05
ii. MERC06.
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