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.
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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