F2
UNIT 3 & 4: Cost classification and cost behavior
Production overhead = indirect cost
Controllable cost: cost for which the behavior pattern can be easily analyzed to facilitate
budgetary control comparisons
Period cost: cost that is directly deducted as expenses for the period, NOT included in
inventory valuation (COGS)
Prime cost = total direct cost
Conversion cost = labor cost + manufacturing cost = labor cost + (prime cost + overheads)
6.5−2.5
Variable cost/unit = =0 ,04
225−125
Fixed cost = 6.5 – 225.0,04= -2,5
Ad. Ex.= R.0,04 – 2,5 R = 62500 + 25. (Ad. Ex.)
A rather easy to understand approach:
4000 = VCPU.1000 + FC
10000 = VCPU.3000 + FC + 500
Solve equation: VCPU = 2.75; FC = 1250
39400 = VCPU.8000 + FC
68000 = VCPU.15000 + 5000.(VCPU-1) + FC
Solve equation:
VCPU = 2.8
UNIT 6: Accounting for material
Reorder level = maxium usage x maxium lead time
When inventories reach this level, orders shoud be placed to replenish inventories. otherwise,
stockouts are possible in case of maximum usage and maxium lead time.
Minimum level = reorder level – (average usage x average lead time)
When inventories reach this level, stockouts are possible anytime IMMEDIATE measures
need to be taken
Maxium level = reorder level + reorder quantity – (minimum usage x minimum lead time)
When inventories reach this level, management needs to take measure to minimize
inventories.
Average inventory = safety inventory/buffer inventory/minimum level + ½ reorder quantity
supplier’s inventories + physical inventories = free inventories + customers’s inventories
IMPORTANT EQUATION
Holding cost = CH (Cost of holding one unit for the period) x Average inventory
Holding cost = CH (Cost of holding one unit for the period) x ½ Reorder quantity
Ordering cost = Co (Cost of placing one order) x number of order
Demand duringthe period( D)
Ordering cost = Co (Cost of placing one order) x
Reorder quantity
When inventory cost is optimized: Holding cost = Ordering cost
EOQ =
√ 2 CoD
CH
√
2 CoD
EBO = D
CH (1− )
R
Ans.: A
Ans.: B
Note:
Moving weigthted: calculate average cost after an purchase, using the carrying unit value after
an issue.
Monthly weighted: unit cost is equal for a period unit cost =
∑ unit x cost
total unit
UNIT 7: ACCOUNTING FOR LABOUR
An increase in production without an increase in productivity will not change unit cost.
An increase in prodcutivity wil reduce unit cost.
Efficiency ratio x capacity ratio = production volume ratio
¿ Actual hours worked output measured∈expected of standard hours
Expected hours ¿ make output x =
Actual hours taken Hours budgeted hours budgeted
idle time
idle time ratio= x 100 %
total hours
Replacements
labour turnover rate= x 100 %
average number of employees∈ period
17 rejected products only 193 products counted
Earning = 100*0.20 + 93*0.30 = 47.9
NOT: 193.0.30 = 57.9
Machine breakdown idle time indirect
Overtime to complete constumer’s request direct
Direct earning = basic pay + premium pay = 36*3.6 + 2.5.4 = 140.4
UNIT 8 & 9: Overhead and Marginal costing
Fixed absortion rate = Budgeted production overhead /( budgeted production/budgeted time/...)
Absorbed overhead = actual production/budgeted time/.... x fixed absortion rate
TASKS NEEDED TO REVISE: 1, 11, 13, 24, 28, 29, 44
Packing department = 8960 + 8400 x (3/21) = 10160
Remember: 4 indirect employees in Canteen are not included in the apportion of service cost.
Therefore, 3/21 not 3/25
Absortion rate = 360000/8000 = 45
Fixed production overhead = Absortion rate x actual production = 405.000
Absorbed overhead = 4500 * 8 = 36,000
Over-absorbed by 6000 actual overhead = 36,000 – 6,000 = 30,000
11) C
12) Absorbed overhead = 3.5 x 30,000 = 105,000 < actual overhead by 108,875 – 105,000 = 3,875
Under – absorbed
X first total allocated of Y = [30,000 + 46,000.(20/100)].[1/1-(200/10000)]=40,000 Total
allocated for X = 46,000 + 40,000 . 10/100 = 50,000
Overhead for P = 95,000 + 40,000. 40/100 + (50,000 + 40,000.(10/100)). 30/100 = 126,000
D
14,850
16) 45
17)25
18) D
20) D
21)B
B
C
D
26) A
27) A
28) C
29) cost per unit = 21
Revenue = 156,000
Overhead absorbed = 5 . 5800 = 29000 over-absorbed = 1,600 PL
profit = revenue – cogs + over-absorbed = 45,400
30) B
31) D
34)74550
35) A
36) C
37) B
38)C
39)35000
40)D
41) D
42) C
43) C
44) D
45) 35
