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Sample Paper For Above instruction
Introduction
Effective academic and professional writing requires adherence to submission guidelines and proper presentation standards. This paper addresses a series of accounting and managerial questions related to manufacturing overhead, utility costs, period and product costs, and journal entries for inventory transactions, illustrating the application of fundamental accounting principles and practices.
Question 1: What items are included in manufacturing overhead?
Manufacturing overhead encompasses indirect manufacturing costs that are not directly traceable to specific products but are essential for the production process. Typical items included in manufacturing overhead are indirect labor (such as factory supervisors, maintenance workers), indirect materials (supplies used in production that do not become part of the finished product), depreciation of factory equipment and facilities, factory rent, utilities for the manufacturing facility, factory repair and maintenance costs, and factory taxes. These costs are allocated to products based on appropriate cost drivers, such as machine hours or labor hours (Garrison, Noreen, & Brewer, 2020). The inclusion of these costs ensures that the total production expenses accurately reflect all resources consumed during manufacturing.
Question 2: Calculation of Utility Bill Based on Fixed and Variable Costs
Given the fixed monthly utility charge of SR 200 and a variable cost of SR 2 per kilowatt-hour (kWh), with a monthly activity level of 3,000 kWh, the total utility bill can be calculated as follows:
Total Utility Cost = Fixed Cost + (Variable Cost per kWh × Total kWh)
= SR 200 + (SR 2 × 3,000)
= SR 200 + SR 6,000
= SR 6,200
This calculation demonstrates how both fixed and variable costs contribute to the total utility expense. The fixed charge covers baseline utility costs regardless of consumption, while the variable component fluctuates with usage (Drury, 2018).
Question 3: Determining ALFAHD Corporation’s Period and Product Costs
The provided data includes various manufacturing and administrative expenses. To compute the period costs and product costs, we segregate costs based on their nature.
Product Costs:
- Factory Depreciation (12,470 for machinery and 1,000 for delivery vehicles) = SR 13,470
- Factory Repair and Maintenance = SR 910
- Indirect Labor = SR 11,700
- Indirect Materials = SR 9,360
- Manufacturing Equipment Depreciation = SR 2,080
Total Manufacturing (Product) Costs = SR 13,470 + SR 910 + SR 11,700 + SR 9,360 + SR 2,080 = SR 37,520
Period Costs:
- Advertising Costs = SR 12,470
- Administrative Salaries = SR 28,700
- Office Rent = SR 42,300
- President’s Salary = SR 60,000
- Sales Salaries = SR 38,000
Total Period Costs = SR 12,470 + SR 28,700 + SR 42,300 + SR 60,000 + SR 38,000 = SR 181,470
This analysis distinguishes costs directly linked to production (product costs) from those associated with administrative and selling functions (period costs), aligning with standard cost accounting practices (Atkinson, Kaplan, Anderson, & Matsumura, 2012).
Question 4: Journal Entries to Show Cost Flows on May 31
Inventories on May 1 and 31, along with costs incurred, are used to prepare journal entries that reflect the flow of costs through the manufacturing process.
May 1 Opening Balances:
- Raw Material Inventory DR SR 30,000
- Finished Goods Inventory DR SR 40,000
- WIP – Material DR SR 20,000
- WIP – Labor DR SR 20,000
- WIP – Manufacturing Overhead DR SR 15,000
Purchase of Materials:
- Raw Material Inventory (Debit) SR 130,000
- Accounts Payable (Credit) SR 130,000
Recording Direct Labor:
- Work in Process (DR) SR 140,000
- Wages Payable (CR) SR 140,000
Applying Manufacturing Overhead:
- Manufacturing Overhead (DR) SR 70,000
- Accounts Payable or Wages Payable (CR) SR 70,000
Cost Transfers During May:
- Raw Material used (from inventory to WIP):
Dr WIP – Material SR 130,000
Cr Raw Material Inventory SR 130,000
- Direct Labor:
Dr WIP – Labor SR 140,000
Cr Wages Payable SR 140,000
- Manufacturing Overhead Applied:
Dr WIP – Manufacturing Overhead SR 70,000
Cr Manufacturing Overhead SR 70,000
Work in Process and Finished Goods Adjustments:
- Costs transferred from WIP to Finished Goods as products are completed:
Dr Finished Goods SR 50,000
Cr WIP (composite) SR 50,000 (assuming balanced transfers)
- Adjust inventories to match ending balances:
Raw Material Inventory DR 40,000
WIP – Material DR 15,000
WIP – Labor DR 25,000
WIP – Manufacturing Overhead DR 10,000
- Cost of Goods Sold (assuming sales value SR 500,000 and inventory movements):
Dr Cost of Goods Sold SR 400,000
Cr Finished Goods SR 50,000
Sales Transaction:
- Recognize sales revenue:
Dr Accounts Receivable SR 500,000
Cr Sales Revenue SR 500,000
This suite of entries ensures accurate tracking of resource consumption and inventory valuations, facilitating proper financial reporting (Horngren, Datar, & Rajan, 2018).
Conclusion
The above responses encapsulate core principles of managerial and financial accounting related to manufacturing costs, inventory management, and cost flow. Understanding these concepts enables managers to make informed decisions regarding pricing, cost control, and resource allocation, ultimately contributing to efficient business operations and financial stability.
References
- Atkinson, A. A., Kaplan, R. S., Anderson, S. R., & Matsumura, E. M. (2012). Management accounting (6th ed.). Pearson Education.
- Drury, C. (2018). Management and cost accounting (10th ed.). Cengage Learning.
- Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2020). Managerial accounting (16th ed.). McGraw-Hill Education.
- Horngren, C. T., Datar, S. M., & Rajan, M. (2018). Cost accounting: A managerial emphasis (16th ed.). Pearson.