Management Accounting 1B

Assignment 1

Question 1

1.1. Direct costing emphasizes the contribution margin of each product, which is the difference
between sales and variable costs. Full costing, also known as absorption costing, assigns both
variable and fixed costs to products.
1.2.

statements for WT for the year ended 28 February 2023 - Direct Costing Methods

N$’000 N$’000 N$’000

Sales 1010000
Less: Total variable costs: (N$150* x 8 000 units) (1 200)
OR: Variable production costs: (N$140 x 8 000 units) 1 120*
OR: Opening inventory (5 000 x N$140) 700

Add: production costs (10 000 x N$140) 1 400

Less: Closing inventory (7 000 x N$140) -980

Variable non-manufacturing
Selling & administrative 80
N$10 (N$80 000/8 000 units)
Contribution margin 800
Less: Total fixed costs: -465
Factory overhead 405
Selling & administrative 60
Net profit N$335

1.3.

profit statements for WT for the year ended 28 February 2023 - Absorption Costing Methods

N$000 N$000 N$000

Sales 1010000

Less: Cost of sales: (1 445)

Opening inventory (5 000 x N$180) 900

Add: Total production costs (10 000 x N$180) 1 800

 Less: Closing inventory (7 000 x N$180) (1 260)

Unadjusted cost of sales OR (N$180 x 8 000 units) 1 440

Add: Under applied overheads 5*

Gross profit 555

Less: Expenses: (140)

Variable selling & administrative 80

Fixed selling & administrative 60

Net profit 415

1.4.

Direct net profit N$335 000

Fixed costs deferred in closing inventory: 80 000

Absorption net profit N$415 000

Question 2

2.1.

The key difference between FIFO and weighted average is that FIFO is an inventory valuation method
where the first purchased goods are sold first whereas weighted average method uses the average
inventory levels to calculate inventory value.

2.2.

Mixing Process: 39 000

OWIP: 630 000 CWIP: 22 500

669 000 Finished goods: 646 500

669 000

FIFO method:

Total Material Conversion

costs
39 000 23 400
OWIP units 607 500 15 600 607 500
Started & compl units 22 500 607 500 9 000
CWIP units 669 000 13 500 639 900
636 600
 OWIP costs (N$) 79 395 ---------
Current costs (N$) 1 234 140 ------- 396 240
Total costs N$1 313 535* 837 900
N$1.9354 N$0.6192
Unit cost N$1.3162

Finished goods:
Opening WIP cost (N$42 000 + N$55 000) = N$79 395
Opening WIP units
Materials (15 600 x N$1.3162 = N$20 533

Conversion costs (23 400 x N$0.6192) = N$14 489

Completed units (607 500 x N$1.9354) = N$1 175 756
N$1 290 173

Closing WIP:

Material: 13 500 x N$1.3162 = N$17 769

Conversion costs 9 000 x N$0.6192 = N$5 573
23 342

Cost reconciliation

Units completed costs = N$1 290 173

Add: CWIP costs = N$23 342

Total costs N$1 313 515*

Process account a/c

Units N$ Units N$
Opening WIP 39 000 79 395 Completed 646 500 1 290 173
Cost incurred Closing WIP 22 500 23 342
- Materials 630 000 837 900
- Conversion costs 396 240

669 000 1 313 535 669 000 1313 515

2.3.

Weighted average method:

Total Material Conversion

costs
39 000 39 000 39 000
OWIP units 607 500 607 500 607 500
Started & compl units 22 500 13 500 9 000
CWIP units 669 000 660 000 655 500
67 350 12 045
79 395 837 900 396 240
OWIP costs (N$) 1 234 140 905 250 408 285
Current costs (N$) 1 313 535* N$1.3716 N$0.6229
Total costs N$1.9945
Unit cost

Finished goods:

● Material: 646 500 x N$1.3716 = N$886 739

Conversion costs 646 500 x N$0.6229 = N$402 705
N$1 289 444

Or: Opening (WIP): 39 000 x 1.9945 = N$77 786

Started and completed: 607 500 x 1.9945 = N$1 211 659

N$1 289 444

Or Alternative Solution for finished goods

Finished goods:
● Completed units (646 500 x N$1.9945) = N$1 289 444

Closing WIP:

● Material: 13 500 x N$1.3716 = N$18 517 ● Conversion costs

9 000 x N$0.6229 = N$5 606
24 123

Cost reconciliation

Units completed costs = N$1 289 444

Add: CWIP costs = N$24 123

 Total costs N$1 313 567*

Process account a/c

Units N$ Units N$
Opening WIP 39 000 79 395 Completed 646 500 1 289 444
Cost incurred Closing WIP 22 500 24 123
- Materials 630 000 837 900
- Conversion costs 396 240

669 000 1 313 535 669 000 1 313 567

Question 3

3.1.

The sales value method allocates the joint costs in proportion to the sales value of each product at the
split-off point, where they can be sold or processed further. The physical units method allocates the
joint costs in proportion to the physical measure of each product, such as weight, volume, or units.
3.2.

Joint cost allocation is important for several reasons. First, it helps you measure the profitability and
performance of each product or service that you offer. By allocating joint costs, you can compare the
revenues and costs of different products or services and identify the most and least profitable ones.

3.3.

JOINT COST:

N$

Cooking oil 250,000.00

FC - Purifying 7,000.00

VC - Purifying 50,000.00

307,000.00

FC - Processing 10,000.00

VC - Processing 18,000.00

335,000.00

NRV of Waste -25,000.00

310,000.00

3.4.

NRV method

High diesel Low diesel

Sales value 1,093,500 900,000

36,977

Seperable cost 81,000 -

NRV - byproduct -44,023

NRV 1,056,523 900,000

Ratio 0.54 0.46

 Allocated JC 167,400 142,600

3.5.

Sales 1,170,000 800,000 1,970,000

Cost of sales 217,443 126,755 344,199

Opening stock 24,000 - 24,000

Production cost 204,377 142,600 346,977

Closing stock 10,934 15,844 26,778

Gross profit 952,557 673,245 1,625,801