Topic 2-.pptx...........................

Topic 2-.pptx...........................

• 1.
  Management Accounting (BAC3044) Topic 2 Product costing: Costing for Materials
• 2.
  Product costing: ManufacturingCosts Manufacturing costs are often combined as follows: Prime Cost Conversion Cost Direct Material Direct Labor Manufacturing Overhead 24/02/2025 Prof Dr Indra Devi
• 3.
  Elements of ManufacturingCosts Cost elements RM Direct materials X Direct labour X Direct expenses X Manufacturing overhead X Total manufacturing costs/ Full costs XX 24/02/2025 Prof Dr Indra Devi Prime Costs XX
• 4.
  Example 1 • PrimeFurniture Sdn Bhd specialises in living room leather furniture products. During the month of March, the company purchased RM105,000 of raw materials. Direct labour hours worked during the period was 4,000 hours.The workers were paid RM10 per hour. Direct expenses (high performance glue etc) of RM11,000 was incurred. Manufacturing overhead for the month was RM36,000. • Each set of leather sofa was sold for RM5,500. Prime Furniture also incurred selling costs including sales commission of RM125,000 and administration costs of RM18,000. Stock information for the period is as follows: 1 March 2017 31 March 2017 Raw material stock RM12,000 RM25,000 Work in process stock RM25,000 RM12,000 Finished Goods stock RM5,500 RM13,000 24/02/2025 Prof Dr Indra Devi
• 5.
  Required: a) Determine thecost of raw materials consumed in production and the prime costs. b) Calculate the total of cost manufactured for the month of March. c) Calculate the cost of one set of leather sofa, assuming 75 were completed during March. d) Prepare a cost of goods sold statement for the month of March. e) Prepare an income statement for the month of March. 24/02/2025 Prof Dr Indra Devi
• 6.
  Exercise 1 • SecondTechnology Sdn Bhd specialises in computer products. During the month of March, the company purchased RM105,000 of raw materials. Direct labour hours worked during the period was 3,000 hours.The workers were paid RM20 per hour. Direct expenses of RM12,000 was incurred. Manufacturing overhead for the month was RM32,000. • Each set of computer was sold for RM6,000. Second Technology also incurred selling costs including sales commission of RM120,000 and administration costs of RM10,000. Stock information for the period is as follows: 1 March 2023 31 March 2023 Raw material stock RM10,000 RM20,000 Work in process stock RM25,000 RM12,000 Finished Goods stock RM6,050 RM14,050 24/02/2025 Prof Dr Indra Devi
• 7.
  Required: a) Prepare manufacturingstatement for the month of March. b) Prepare an income statement for the month of March. Assuming 80 computers were completed during March. 24/02/2025 Prof Dr Indra Devi
• 8.
  Costs for DecisionMaking Cost for decision making –Cost Behaviour Fixed costs Semi-variable costs Unit fixed costs Total fixed costs Variable costs Unit variable costs expenses Total variable costs Fixed element Variable element 24/02/2025 Prof Dr Indra Devi
• 9.
  Fixed Costs Units produced Fixed costs perunit RM 0 30,000 1 30,000 10 3,000 100 30 1000 3 24/02/2025 Prof Dr Indra Devi
• 10.
  Variable costs Total Variable Cost RM25,000 RM50,000RM75,000 ÷ Units Produced 5,000 10,000 15,000 Variable Cost per Unit RM5.00 RM5.00 RM5.00 24/02/2025 Prof Dr Indra Devi
• 11.
  Semi variable costs •Semi-variable costs have properties of both variable and fixed elements attached to the total costs • For semi-variable costs, the distinction between the fixed and variable costs element is important for decision-making purposes. • Cost estimation methods such as high-low method, scatter diagram and regression analysis are used to separate the fixed and variable elements in semi-variable costs. • The high/low method is a ‘method of estimating cost behaviour by comparing the total cost associated with two different level of outputs. The difference in costs is assumed to be caused by the variable costs increasing, allowing unit variable costs to be calculated. Following from this, since total costs is known, the fixed costs can be derived” (CIMA Official Terminology). • High/low method is a ‘method of estimating cost behaviour by comparing the total cost associated with two different level of outputs. 24/02/2025 Prof Dr Indra Devi
• 12.
  Example 1 • Thetotal cost of maintenance at Zack Sdn Bhd consists of both fixed and variable costs. The following information relates to the last four months: • Hours worked Total cost • RM • Month 1 9,300 115,000 • Month 2 9,200 113,600 • Month 3 9,400 116,000 • Month 4 9,600 116,800 • Required: • Using the high- low method, estimate the total cost for Zack if 10,000 hours were worked in Month 5. 24/02/2025 Prof Dr Indra Devi
• 13.
  Solution • Step 1 •From the previous four months costs, the following two periods are selected: • The period with the highest volume (hours) of activity and its corresponding costs; and • The period with the lowest level of activity and its corresponding costs • Step 2 • The difference between the two costs at the two levels of activities will be the variable costs. • Step 3 • Thus, the variable costs per unit may be calculated by dividing the difference in total costs by the difference in activity levels. Subsequently the fixed costs can be determined by substituting the variable costs per unit into the formula, Total Costs (TC)= Fixed Cost (FC) + (Variable Cost (VC) per unit x Volume), where total costs must correspond to either the high level or the low level of activity. • 24/02/2025 Prof Dr Indra Devi
• 14.
  Solution In the exampleabove this will be: Hours worked RM Highest activity 9,600 116,800 Lowest activity 9,200 113,600 400 3,200 VC per unit = RM3200/400 = RM8 TC= FC + (VC per unit x Volume) RM116,800= FC + (RM8 x 9600) FC = RM116,800-RM76,800 = RM40,000. Therefore, if 10,000 hours were worked, then the total cost for Month 5 will be: TC= RM40,000 + RM8 x 10,000 = RM120,000 24/02/2025 Prof Dr Indra Devi
• 15.
  Exercise 1 • Thetotal cost of maintenance at XYZ Sdn Bhd consists of both fixed and variable costs. The following information relates to the last four months: • Hours worked Total cost • RM • Month 1 8,500 112,000 • Month 2 9,000 115,000 • Month 3 9,500 118,000 • Month 4 9,600 118,800 • Required: • Using the high- low method, estimate the total cost for XYZ if 20,000 hours were worked in Month 5.
• 16.
  Exercise 2 2. Estimatethe total cost for the January next year if Big Sky rent out for 3,000 occupancy days
• 17.
  Costs for Planningand Control Controllable costs- Within the control of managers Uncontrollable costs- Beyond the control of managers Planning and control costs 24/02/2025 Prof Dr Indra Devi