Assignment
Question 1: Orkin Limited is manufacturing zinc anodes for rust prevention. You are required to group the costs, which are listed below (a) to (j) into the following classification (each cost is intended to belong to only one classification). Indicate your answer by stating i, ii, iii, iv, v, or vi in the answer space provided.
(i) Direct materials (ii) Direct labour (iii) Direct expenses (iv) Indirect production overhead (v) Selling and distribution costs (vi) Administration costs
(a) Freight charges for purchase of raw materials Answer:
(b) Secretarial fees for corporate secretarial services Answer:
(c) Wages for manufacturing workers involved in production Answer:
(d) Insurance relating to manufacturing activities. Answer:
(e) Property taxes on factory buildings Answer:
(f) Depreciation on factory facilities Answer:
(g) Accountant's salary Answer:
(h) Advertising expenses for promotion of finished goods. Answer:
(i) Carriage outwards incurred for delivery of goods to customers Answer:
(j) Lighting and heating at factory premises Answer:
Question 2: Explain 5 differences between Financial Accounting and Management Accounting.
Question 3: State whether the following statements are True or False in the answer space provided:
(a) Cost accounting is concerned with recording, classifying and summarizing costs for determination of costs of products or service. Answer:
(b) Indirect material and indirect labour are components of prime cost.
(c) Sunk cost is a cost which remains constant over a period of time.
(d) Opportunity cost is the potential benefit that is given up when one alternative is selected over another.
(e) Variable cost per unit increases with increase in output.
(f) Selling and administrative costs are part of manufacturing overhead.
(g) Direct labour is a part of manufacturing overhead.
(h) Only direct manufacturing costs are assigned to inventories and cost of goods sold.
(i) Commission paid to sell products are part of the cost of goods sold.
(j) Manufacturing overhead must be assigned to both work-in-process inventory and finished goods inventory for external financial reporting purposes.
Question 4: The following information has been extracted from the books of accounts of Zaltech Limited for the year ended 31 December 2015:
Selling expenses $ 140,000
Stock of Raw materials, 1 January 2015 90,000
Stock of Raw materials, 31 December 2015 60,000
Direct labour 150,000
Purchases of raw materials 750,000
Sales 2,500,000
Administrative expenses 270,000
Indirect materials 30,000
Indirect manufacturing wages 75,000
Leasing costs - factory 306,000
Manufacturing machinery depreciation 204,000
Manufacturing overhead 25,000
Work in progress, 1 January 2015 180,000
Work in progress, 31 December 2015 100,000
Stock of Finished goods, 1 January 2015 260,000
Stock of Finished goods, 31 December 2015 210,000
The Board of Directors of Zaltech Limited wants to organise the above data in an appropriate format for the purpose of cost accounting. Assume that raw materials consist entirely of direct materials.
Required:
Prepare a schedule of cost of goods manufactured.
Question 5: Using the information given in Question (4) above,
(a) Compute the cost of goods sold
(b) Prepare an income statement for the year ended 31 December 2015.