MODULE 13 COST ACCOUNTING (MANUFACTURING)

1 MODULE 13. COST ACCOUNTING ( manufacturing ). Note to the Teacher: In Grade 10 learners were exposed to cost concepts and then in Grade 11 they drew up manufacturing ledger accounts, calculated costs of manufacturing and were exposed to some ethical and internal control measures. In Grade 12 the focus falls on the Production Cost Statement, costing and ethical and control measures. If you wish to revise the General Ledger accounts then we suggest you refer to the Grade 11 textbook. How- ever, it is not necessary. At this stage you would be better off revising the different cost components and then lead them into the Production Cost Statement.

2 Most learners find this statement a lot easier than the ledger accounts. It is important to note that it has become the norm in examinations to test the two aspects, the Produc- tion Cost Statement and the costing in two different parts of a question. This is because of work-in- progress. If costing includes work-in-progress then the calculations are far more complicated as they are bringing in costs from the previous year. In the examination guideline document it states that for costing calculations there must be no work-in-progress at school level. Further assumptions are also made around factory overheads and administration and selling and distribution costs.

3 In terms of the school curriculum Factory overheads and Administration costs are regarded as fixed costs in other words the costs remains the same irrespective of the number of units produced. However, Factory overheads will include some items that could be seen as variable, for example electricity. While electricity does have a fixed amount each month the balance will be variable if you double your production then this will affect the electricity charges. The same can be said for other costs, consumable stores. At school level we regard Factory overheads and Administration costs as fixed the majority of the costs will be fixed.

4 However, make learners aware of the fact that this is a bit of an assumption and that at tertiary level they will be involved in more complicated calculations when they will have to split these costs further in to what is fixed and what is variable. TASK Matching columns COLUMN A COLUMN B. COST CONCEPTS DEFINITION. 1. Direct materials J Material that forms a part of the item produced. 2. Indirect materials F Materials that are used in the manufacturing process but do not form part of the item produced. 3. Direct labour L Labour directly involved in the manufacture of the goods. 4. Indirect labour A Labour used in the factory but are not involved in the manufacture of the goods.

5 5. Prime cost H Total direct costs (raw materials + direct labour). 6. Factory overheads B Other expenses incurred by the factory other than direct expenses. 7. Fixed costs K Costs that remain constant irrespective of the amount produced. 8. Variable costs D Costs that vary in proportion to the amount of goods produced. 9. Total cost of production I Includes all costs involved in the production. 10. Unit cost C Cost of one item produced. 11. Mark-up G The profit made on the goods produced. 12. Selling price E The price that the items are sold for. New Era ACCOUNTING : Grade 12 1 Teacher's Guide TASK Ralley Bike Manufacturers: Production Cost Statement NAME OF MANUFACTURER: RALLEY BIKE MANUFACTURERS.

6 PRODUCTION COST STATEMENT FOR THE PERIOD ENDED 28 FEBRUARY Note Direct / Prime costs 430 000. Direct material costs 1 330 000. Direct labour costs 2 100 000. Factory overhead costs 3 354 000. Total manufacturing costs 784 000. Work-in-process at beginning of the year 40 000. 824 000. Work-in-process at end of the year (44 000). Cost of production of finished goods 780 000. NOTES TO THE FINANCIAL STATEMENTS. 1. Direct material costs Opening stock 80 000. Net purchases (200 000 + 60 000) 260 000. Carriage on purchases 30 000. 370 000. Closing stock *(40 000). Direct material cost 330 000. *Balancing figure 2. Direct labour costs Factory wages (210 000 110 000) 100 000.

7 Direct labour cost 100 000. 3. Factory overhead costs Consumable stores (24 000 6 000) 18 000. Salaries and wages/indirect labour 60 000. Depreciation 16 000. Rent (200 000 x 3/5) 120 000. Electricity 120 000. Sundry expenses (25 000 x 80%) 20 000. Factory overhead costs 354 000. 4. Selling and distribution costs Depreciation 7 000. Rent (200 000 x 1/5) 40 000. Electricity 8 000. Sundry expenses (25 000 x 15%) 3 750. Commission 84 000. Selling and distribution costs 142 750. New Era ACCOUNTING : Grade 12 2 Teacher's Guide 5. Administration costs Salaries & wages (210 000 100 000 60 000) 50 000. Depreciation 3 000. Rent (200 000 x 1/5) 40 000.

8 Electricity 8 000. Sundry expenses (25 000 x 5%) 1 250. Administration costs 102 250. TASK Kwa-Mabula Manufacturers: Production Cost Statement, Income Statement NAME OF MANUFACTURER: KWA-MABULA MANUFACTURERS. PRODUCTION COST STATEMENT FOR THE PERIOD ENDED 28 FEBRUARY Note Direct / Prime costs 1 482 000. Direct material costs 1 1 302 000. Direct labour costs 2 180 000. Factory overhead costs 3 923 200. Total manufacturing costs 2 405 200. Work-in-process at beginning of the year 80 000. 2 485 200. Work-in-process at end of the year[2] (75 200). Cost of production of finished goods [1] 2 410 000. [1]. Refer to the finished goods stock note below to get this figure.

9 [2]. Work-in-process is the balancing figure. INCOME STATEMENT FOR THE PERIOD ENDED 28 FEBRUARY Note Sales 3 600 000. Cost of finished goods sold / Cost of sales 6 (2 400 000). Gross profit 1 200 000. Other costs (599 500). Administration costs 4 (182 500). Selling & distribution costs 5 (417 000). Net profit 600 500. NOTES TO THE FINANCIAL STATEMENTS. 1. Direct material costs Opening stock 180 000. Net purchases (600 000 + 460 000 24 000) 1 036 000. Carriage on purchases 150 000. 1 366 000. Closing stock (64 000). Direct material cost 1 302 000. 2. Direct labour costs Factory wages 180 000. Direct labour cost 180 000. New Era ACCOUNTING : Grade 12 3 Teacher's Guide 3.

10 Factory overhead costs Consumables stores (14 000 + 44 000 6 000) 52 000. Salaries and wages (indirect labour). (360 000 180 000 80 000) 100 000. Depreciation [(1 000 000 240 000) x 12%] 91 200. Rent (500 000 x 60%) 300 000. Electricity 320 000. Sundry expenses (90 000 x 4/6) 60 000. Factory overhead costs 923 200. 4. Selling and distribution costs Depreciation sales vehicles 11 000. Rent (500 000 x 25%) 125 000. Electricity (344 000 320 000 10 000) 14 000. Sales vehicle running expenses 72 000. Sundry expenses (90 000 x 1/6) 15 000. Commission (3 600 000 x 5%) 180 000. Selling and distribution costs 417 000. 5. Administration costs Salaries 80 000.