Managerial Accounting

Week 1

1. a) Schedule of cost of goods manufactured for Nani’s fashion

Schedule of Cost of Goods Manufactured

Inventory - Direct Material

 

Beginning of Inventory - Raw Materials

 $        20,000

COGS - Purchase - Raw Materials

 $        90,000

Total Raw Materials

 $    1,10,000

Ending Inventory - Raw Materials

 $        12,500

Total Direct Materials

 $        97,500

Direct Labor

 

COGS - Direct Labor Cost

 $    1,00,000

Total Direct Labor

 $    1,00,000

Factory Overhead

 

COGS - Indirect Labor Cost

 $          7,500

COGS - Indirect Material Cost

 $          5,000

COGS - Salaries and Wages

 

COGS - Compensation

 

COGS - Electricity

 $        20,000

COGS - Depreciation

 $        30,000

COGS - Other

 $        40,000

Total Factory Overhead

 $    1,02,500

Total Manufacturing Cost

 $    3,00,000

Inventory - Work in Progress

 

Beginning of Inventory - WIP

 $        20,000

Total Work in Progress

 $    3,20,000

Ending Inventory - WIP

 $        15,000

Cost of Goods Manufactured

 $    3,05,000

1. b) Schedule of cost of goods sold for Nani’s Fashions

Schedule of Cost of Goods Sold

Cost of Goods Manufactured

$ 3,05,000.00

Add: Administration Overheads

$ 0.00

Cost of Production

$ 3,05,000.00

Add: Opening Inventory - Finished Goods

$ 10,000.00

Less: Closing Inventory-Finished Goods

$ -25,000.00

Cost of Goods Sold

$ 2,90,000.00

Information provided by the schedule of cost of goods sold

The schedule of cost of goods sold provides complete detail about each element that forms part of the total cost of goods sold. The income statement does not provide detailed information about the total cost of goods sold, so the purpose of schedule of cost of goods sold is to provide detailed information about each element of cost and the changes in the opening and closing inventory (Accounting Tools, 2019).

1. c) Income statement for the current year

Income Statement for current year

Particulars

Amount

Sales Revenue

$ 4,75,000.00

Less: Cost of Goods Sold

$ -2,90,000.00

Gross Profit

$ 1,85,000.00

Less: Operating Expenses

 

     Selling and administrative expenses

$ -75,000.00

Operating Income

$ 1,10,000.00

Less: Income tax expense

$ -45,000.00

Net Income

$ 65,000.00

Week 2

a) Total cost behavior in formula for:

Total Electricity Cost =  $1600+  $4* Hours of operation

Variable electricity Cost per hour of operation = (4800-3600)/(800-500) = $4

Workings :

Level

Total hours of operation

Total electricity cost

 

650

4240

 

700

4400

Highest Activity

800

4800

 

600

4200

 

550

3700

Lowest Activity

500

3600

 

Variable cost = (Highest Activity Cost- Lowest Activity Cost)/( Highest Activity Units- Lowest Activity Units)

Variable electricity Cost per hour of operation = (4800-3600)/(800-500) = $4

Fixed Cost = Highest Activity Cost – (Variable Cost * Highest Activity Units)

            = 4800-(4*800)

            = $1600

b) Total electricity costs for July

=$1600+ $4* Hours of operation

= $1600+ ($4* 570)

= $3880

c) The main drawback of the high-low method of cost estimation is that it is a relatively simple method that does not take into account small variations in costs. This method is based on the assumption that fixed costs and variable per unit would always remain constant at any level of output or activity, however this does not hold true many times in real life situations. This method only uses two data values for determining the variable cost per unit and may not provide an absolutely accurate estimate of the costs (CFI, n.d.).

Week 3

1. a) Journal entries

Particulars

Debit

Credit

Direct Material

$ 4,850.00

 

Accounts payable

 

$ 4,850.00

(To record cost of purchase of direct materials)

 

 

Direct Labour

$ 640.00

 

Wages Payable

 

$ 640.00

(To record labour expenses)

 

 

Manufacturing Overhead

$ 336.00

 

Other Indirect Costs

 

$ 336.00

(To record Manufacturing overhead)

 

 

Finished Goods Inventory

$ 5,826.00

 

Direct Material

 

$ 4,850.00

Direct Labour

 

$ 640.00

Manufacturing Overhead

 

$ 336.00

(To transfer costs to finished goods at completion of Job A26)

 

 

Cost of goods sold

$ 5,243.40

 

Finished Goods

 

$ 5,243.40

(To record shipment of 900 cuddly koalas to local toy shop)

 

 

 b) Cost per cuddly koala for job number A26

            = Total Production Cost/ Number of units

            = 5826/1000

            = $5.826

Workings:

Direct Material

$ 4,850.00

Direct Labour

$ 640.00

Overheads( 10.5*32)

$ 336.00

Total Production cost of 1000 units

$ 5,826.00

c) The managers at Toys world would use this information for determination of per unit selling price of each cuddly koala. As the managers have correct information of the per unit cost of each unit, they can use this information for deciding the appropriate selling price for each cuddly koala, and add the desired margin percentage or amount to the per unit cost to arrive at the appropriate selling price (Leger, 2019). It is really important to have correct information about the per unit cost, otherwise there is a high risk of the products of the company being underpriced or overpriced . If the products are underpriced, it will lead to losses for the company, and if the products are overpriced, it would lead to lower sales for the company as customers would not be willing to buy the products offered by company at very high prices. So, this information would enable the managers of Toys World to decide the appropriate pricing strategy for the company.

References for Managerial Accounting

Accounting Tools. (2019). The cost of goods sold statement. Retrieved from https://www.accountingtools.com/articles/what-is-a-cost-of-goods-sold-statement.html

CFI. (n.d.). High Low Method. Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/accounting/high-low-method/

Leger R. (2019). How to Find Price Per Unit From an Income Statement. Retrieved from https://smallbusiness.chron.com/price-per-unit-income-statement-33516.html

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Managerial Accounting Assignment Help

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