CHAPTER NO.04

The Cost Accounting SystemDesign and operation

COST ACCOUNTING BOOK KEEPING It is the type of book keeping in which

double entry transactions are recorded for cost accounting transactions.

Following are the major cost accounting transactions: Purchase of materials Issue of materials Incurring labour Incurring factory overhead Completing goods Selling goods to customers

Purchase of Materials

a. Materials 10 500

Accounts Payable10 500

Materials purchased on credit

Issue of direct materials to production

b. Work in process account 9 500

Materials account9 500

Direct materials issued to production

Issue of indirect materials to production

c. Factory overhead account 500

Materials account 500

Indirect materials issued to production

Return of materials to suppliers

d. Accounts payable 500

Materials account 500

Materials returned to suppliers

Preparation of Payroll

e. Payroll account 19 500

Accrued payroll19 500

Preparation of payroll

Classification of payroll

f. Work in process account-direct labour 9 500 Factory overhead-indirect labour 2500

Selling overhead-sales salaries 3000Admin overhead-office salaries 4500

Payroll account19 500 Payroll Classified

Payment of payroll

g. Accrued payroll account 19 500

Bank account17 500 Income tax Payable1000 Insurance payable1000

Payroll paid

Other manufacturing overhead incurred

h. Factory overhead account 8 500

Account payables7 500 Accumulated Depreciation1000

Other factory overhead incurred

Other Selling and Admin expenses incurred

i. Selling overhead- 3000Admin overhead- 4500

Account Payables7 500

Other selling and admin expenses incurred

Factory overhead applied into production

j. Work in Process Account 8 500

Factory overhead account8 500

Factory overhead charged to production

When goods completed

k. Finished goods account 19 500

Work in process account19 500

Goods completed and transferred to finished goods

When goods sold

l. Cost goods sold account 19 500 Finished goods account19 500

Cost of goods sold recorded

Sales account 29 500

Account Receivable 29 500

Sales value of goods recorded

When cash collected from receivables

m. Cash account 19 500

Account Receivables19 500

Cash collected from receivables

When cash paid to payables

n. Account Payables 19 500

Bank account19 500

Cash paid to payables

QUESTIONS

EXERCISE NO.01During May the Endeavor company showed the following

transactions:1. Materials purchased on account for $40,000.2. Direct materials issued for $65,000.3. Indirect materials issued for $3,500.4. Total Payroll

Direct Labour $80,000 Indirect labour $9,500

5. Materials returned to suppliers for $900.6. Payroll paid $75,0007. Sundry manufacturing overhead incurred 42,000.8. Marketing and administrative expenses incurred $8,500.9. Account receivable collected $300,000.10. Accounts payable paid $135,000.11. Depreciation charged at 2% of cost of $120,000 of a factory building and

10% of cost of 237240 of factory equipment.12. Factory overhead applied at the rate of 60% of direct labour cost.13. Goods finished during the month for $203,400.14. Goods sold costing $205000 and sales value $285000.Required: Record journal entries for above transactions.

EXERCISE NO.02During September the MacFarland company showed the

following transactions:1. Materials purchased on account for $48,500.2. Direct materials issued for $62,000.3. Indirect materials issued for $6,000.4. Total Payroll

Direct Labour $40,000 Indirect labour $10,000 Office salaries $15,000 Sales salaries $20,000

5. Payroll paid after deducting 6.5% income tax and 10% insurance payable.6. Sundry manufacturing overhead incurred $12,600.7. Factory overhead applied at the rate of 80% of direct labour cost.8. Goods finished during the month for $155,000.9. Goods sold costing $160,000 and sales value $222,000.10. Cash collected from receivables for $168,000.

Required: Record journal entries for above transactions.

EXERCISE NO.03During November The Design company showed the following

transactions:1. Materials purchased on account for $33,000.2. Direct materials issued for $22,000.3. Indirect materials issued for $6,500.4. Total Payroll

Direct Labour $15,000 Indirect labour $4,000 Office salaries $3,000 Sales salaries $8,000

5. Payroll paid after deducting 6.5% income tax and 10% insurance payable.

6. Sundry manufacturing overhead incurred $2000.7. Factory overhead applied at the rate of 110% of direct labour cost.8. Goods finished during the month for $48,300.9. Goods sold costing $45,000 and sales value $65,000.

Required: Record journal entries for above transactions.

EXERCISE NO.04During September the Stillwater company showed the following

transactions:1. Materials purchased on account for $120,000.2. Direct materials issued for $60,000.3. Indirect materials issued for $15,000.4. Total Payroll

Direct Labour $45,000 Indirect labour $9,000 Sales salaries $15,000 Office salaries $21,000

5. Materials returned to suppliers for $900.6. Payroll paid after deducting 10% income tax payable.7. Indirect materials purchased $26,250.8. Sundry manufacturing overhead incurred 6,900.9. Marketing and administrative expenses incurred $8,500.10. Depreciation charged at 10% of cost of $120,000 of a factory Machinery.11. Factory overhead applied at the rate of $6 per hour and number of direct

labour hours are 6,000.12. Goods finished during the month for $126,000.13. Goods sold costing $96,000 and sales value $150,000.Required: Record journal entries for above transactions.

EXERCISE NO.05During January the Spacecraft company showed the following

transactions:1. Materials purchased on account for $55,000.2. Direct materials issued for $67,000.3. Indirect materials issued for $10,000.4. Total Payroll

Direct Labour $26,400 Indirect labour $6,400 Sales salaries $2,800 Office salaries $2,300

5. Materials returned to suppliers for $950.6. Payroll paid after deducting 15% income tax payable.7. Sundry manufacturing overhead incurred 32,000.8. Factory overhead applied at the rate of $5 per hour and number of

direct labour hours are 4,400.9. Goods finished during the month for $97,520.10. Goods sold costing $114,000 and sales value $142,500.Required: Record journal entries for above

transactions.