BKAM2013 Management Accounting I

Topic 2: Cost Terms, Concepts and Classifications

Exercise 1

The following is the information of High-tech Company for the year ended 31
December 2006:

Administrative salaries 2,400
Advertising expense 1,200
Utilities costs 3,500
Depreciation expense 4,800
Direct labor cost ?
Beginning raw materials inventory 2,100
Ending raw materials inventory 3,200
Beginning finished goods inventory 46,980
Ending finished goods inventory 44,410
Administration insurance expense 2,240
Indirect labor cost 15,700
Factory insurance expense 3,400
Purchases of raw materials 14,600
Factory repair and maintenance 3,900
Marketing and selling salaries 2,000
Tax on factory 4,440
Sales commissions 1,410
Beginning work in process inventory 1,670
Ending work in process inventory 1,110

Additional information:
1. 80% of the utilities costs apply to factory operations; the remaining
amounts apply to selling and administrative activities.
2. 70% of the depreciation expense is for the factory equipment; 30% is for
the office equipment.
3. Direct labor cost is 40% of conversion cost.


(a) Prepare a schedule of cost of goods manufactured for the year ended 31
December 2006.

(b) Calculate the cost of goods sold for the year ended 31 December 2006.

Exercise 2


31 December 2006 210.000 Sales 2. Exercise 3 2 .000 Finished goods inventory. 1 January 2006 90. BKAM2013 Management Accounting I The following information has been taken from the accounting records of Line Klear Company for last year: RM Selling expenses 140.000 Insurance. 31 December 2006 60.000 Direct labor cost 150.000 Raw materials inventory.000 Indirect labor 300. factory 162.000 Work in process inventory. factory 36. REQUIRED: (a) Prepare a schedule of cost of goods manufactured for the year ended 31 December 2006.000 Finished goods inventory.000 Work in process inventory.000 Management wants these data organized in a better format so that financial statements can be prepared for the year.000 Purchases of raw materials 750. 1 January 2006 180. (c) Prepare an income statement for Line Klear Company. 31 December 2006 100.500.000 Maintenance. (b) Calculate the cost of goods sold.000 Utilities.000 Depreciation.000 Raw materials inventory.000 Administrative expenses 270. factory 87. 1 January 2006 260. factory 40.000 Indirect materials 15.

Company’s last year data is as follows: Month Hours of Maintenance Maintenance Costs (RM) January 1.000 July 2.050 April 2.400 June 2.100 11. Exercise 4 3 .120 May 1.400 11.350 February 1.600 12.000 12. calculate the predicted maintenance costs at 2.200 11. (b) Write the high-low equation for the maintenance costs.550 August 2.250 November 1.000 10. (c) Using your answer in requirement (b). The company’s controller is accumulating data to be used in preparing its annual profit plan for the coming year. for maintenance costs. calculate the variable and fixed cost components in the maintenance costs of Dania Fitness Company. The cost behavior pattern of the company’s equipment maintenance costs must be determined.100 September 1.600 11.700 REQUIRED: (a) Using the high-low method.300 hours of activity.200 11. in the form of Y = a + bX. BKAM2013 Management Accounting I Dania Fitness Company operates a chain of fitness centers in Sintok area.800 11.400 12. The accountant has suggested the use of an equation.800 11.350 March 1.300 11.200 October 1.300 December 1.

These costs at high and at low levels of activity over recent years are given below: Level of Activity Low High Machine-hours 60. estimate a cost formula for maintenance.000 Total factory overhead costs RM274.000 machine-hours? 4 .000 at the high level of activity above consists of maintenance cost.000 80.000 Rent (fixed) RM130.000 For planning purposes. rent and maintenance.000 The factory overhead costs above consist of indirect materials. (b) Using the high-low method of cost analysis.000 machine- hours level of activity as follows: Indirect materials (variable) RM90. BKAM2013 Management Accounting I Servqual Company is the Malaysian manufacturing company whose total factory overhead costs fluctuate somewhat from year to year according to the number of machine-hours worked in its production facility. REQUIRED: (a) Estimate how much of the factory overhead cost of RM312.000 Total factory overhead costs RM274. The company has analyzed these costs at the 60.000 Maintenance (mixed) RM54.000 RM312. (c) What total overhead costs would you expect the company to incur at an operating level of 65. the company wants to break down the maintenance cost into its variable and fixed cost elements.