Cost Accounting

Question 1

What is the accounting cycle for manufacturing

Answer 1

Source documents > journal entries > post to ledger > trial balance > work in progress > production cost statement > statement of comprehensive income > statement of financial position

Question 2

What sections are present In the ledger

Answer 2

• balance sheet section
• nominal account section
• cost account section
• final account section

Question 3

What does the cost account section include

Answer 3

Raw materials stock, raw materials issued, direct labour, wages, consumable stores etc

Question 4

What does the final account section include

Answer 4

Direct materials cost, direct labour cost, direct labour cost, factory overheads

Question 5

What are raw (direct) materials cost

Answer 5

The materials that go into the final product I.e. are converted during the manufacturing process into the finished product. (Company dependent because the finished product of one company can become the raw materials in the manufacture of another company)

Question 6

Direct labour cost

Answer 6

The labour cost of workers that are directly involved in the manufacture of goods

Question 7

What are prime costs

Answer 7

The raw(direct) material cost + the Direct labour cost. This is the primary cost and is basic to all production

Question 8

What are indirect material cost

Answer 8

Materials that do not form an integral part of the finished product but are still necessary in the production process eg. Lubricating oil, petrol, cleaning materials etc

Question 9

What is indirect labour cost

Answer 9

Labour costs for workers that are not directly involved in the production process eg. Cleaning staff, factory manager etc

Question 10

What are factory overheads

Answer 10

All the costs that are incurred in order to run the factory other than the direct materials and direct labour eg. Rent, insurance, electricity etc

Question 11

What are fixed costs

Answer 11

The costs that remain distant within a period of time irrespective of the amount of goods produced eg. Rent

Question 12

What are variable costs

Answer 12

Costs that vary in direct proportion to the amount of goods produced eg. Raw material cost, electricity, direct labour

Question 13

What is the total cost of production

Answer 13

This equals the raw material, direct labour, and factory overhead costs

Question 14

What is a unit cost

Answer 14

The cost of one item I.e. the total cost of production divided by the number of items produced

Question 15

What is a mark up

Answer 15

The profit that the business adds to the cost. Can be quoted as a percentage of figures

Question 16

What is the selling price

Answer 16

The sun of cost price and mark up

Question 17

What is the flow of goods in manufacturing

Answer 17

Raw materials > raw materials issued > work in progress > finished products > sales

Question 18

Why is it common to find stock on hand at the end of the year in a manufacturing business

Answer 18

In order to prevent stoppages in the factory

Question 19

What is the production cost statement

Answer 19

A summary of the ledger accounts which shows the total cost of production

Question 20

What does the production cost statement look like

Answer 20

Direct/prime costs XXX
Direct materials cost 1 XXX
Direct labour costs 2 XXX
Factory overhead costs 3 XXX
Total manufacturing costs XXX
WIP at beginning of the year XXX
WIP at the end of year XXX
Cost of production of finished goods XXX