¤Virtual University Of Pakistan Network¤
SEMESTER SPRING 2012
Cost & Management Accounting (MGT-402)
Assignment No. 01
Due Date: 9th April 2012 -- 12th April 2012 Marks: 20
“Cost of Goods Sold”
Hypothetical Tools Manufacturing Limited (HTML) - an ISO certified company located nearby
Modern Village is engaged in manufacturing and marketing of small agriculture implements. The
company is operating with 100 people including 75 factory workers and 15 office workers
supported by supporting staff of 6 people. The company’s core management evolves around Mr.
Marketer; Mr. Producer; and Mr. Financer, who are accountable to Mr. Big – CEO of HTML.
Mr. Producer is responsible for the overall manufacturing activities of the company. Operating
cycle of the company spans over a single quarter and therefore, the company enjoys 4 operating
cycles each year. For valuing Raw Material and Finished Goods inventories, the company uses
FIFO costing; while Work-in-Process inventories are valued at Weighted Average. The company
uses job order costing for determining per unit manufacturing cost. At the start of the production,
Factory Overhead (FOH) is predetermined on some logical basis and charged to the job
During the 1st Quarter of Year 20X1, the company has received an order of producing 40,000
units of one of its famous brand – Auto Sprinkle. Mr. Producer in consultation with Mr. Marketer
has gathered the following cost data related to this order:
a) This product requires three different types of raw materials - Material-Alpha, material-Beta
and material-Gamma. The process is started with 40,000 units of Material-Alpha, which includes
5,000 units @ Rs. 0.30 each at the time of starting the process. After completing 50% of the
process, 14,000 units of material-Beta including beginning inventory of 4,000 units @ Rs. 0.25
each are added to the process. When the process reaches to the level of 80%, there is a need to put
material-Gamma into the process for completing the product. At this stage, 11,000 units of
material-Gamma including 3,000 units @ Rs. 0.40 available in the opening stock are added
b) During the quarter, following quantities of all materials were also purchased:
Alpha - 35,000 Units @ Rs. 0.35 each, Beta - 10,000 Units @ Rs. 0.30 each, and Gamma - 8,000
Units @ Rs. 0.60 each.
c) At the end of the quarter, store ledger cards show units in the quantities of 4,000, 6,000 and
5,000 of material- Alpha, Beta, and Gamma respectively.
d) To complete these 40,000 units during the quarter, all the factory workers worked for 6 hours
a day for 5 days-week throughout the quarter at Rs. 1.65 per man hour worked.
e) For charging overheads to this order, the company estimated FOH cost equal to 20% of the
total manufacturing cost.
f) During the period, organization incurred 5% of sales value as selling expenses.
Some other overhead costs incurred by the organization are given as below:
Indirect Labor 2,800 -----
Supervision 3,000 -----
Supplies 1,400 800
Repairs & Maintenance 900 400
Depreciation 1,000 350
Utilities 740 310
Insurance 560 280
Delivery expenses ----- 2,460
At the end of the quarter, 38,500 units were sold at an average price of Rs. 2.25 per unit.
Compute the following as to per unit :
Manufacturing Cost (10 marks)
Period Cost (2 marks)
Gross Profit (2 marks)
Net Profit (2 marks)
Compute and adjust Under/Over applied FOH by using “Net Profit” method.
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Total Mfg Cost = 77,625 (R. Mat = 17,550 + Labour = 44,550 + FOH
applied = 15,525)
2. Period Cost = 4,331.75
3. Gross Profit = 11,935
4. Net Profit = 3003.75
5. Over applied FOH = 5,125
6. Using Net Profit Method the adjusted Net Profit will be 8,128.75.
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