Cost Control Accounts When Cost Accounting was evolved, the necessary data for cost ascertainment were tested from documents which were entirely independent of documents used by financial ints. Normally at that time two sets of primary documents and accounting books were used With the growth of Cost Accounting System, the fixation of selling price before actual roduction and control over cost became important, two independent sets of books (in Cost and Financial Accounting) are kept and both used the same primary documents. The profits shown by these two sets are periodically reconciled through a reconciliation statement in the pattern of bank reconciliation. Since the same set of primary documents are used. certain control accounts are opened in cost and financial books. These control accounts are called Cost Ledger Adjustment or Control Account in the financial books and General Ledger Adjustment or Control Account in the cost books. accoul COST LEDGER In cost books two kinds of ledgers are kept (i) Principal ledger or cost ledger and (1 Subsidiery ledger. In the principal ledger all impersonal accounts are kept. These are (a) General Ledger Adjustment Account and (6) Control Accounts for subsidiery ledger. In subsidiery ledger the accounts kept are (2) Stores ledger in which separate accounts are opened for each item of stores (b) Work-in-progress ledger which accounts of each job or batch or process and (c) Finished goods ledger which has accounts of finished goods. It is to be noted that following Control Accounts are opened for each subsidiary ledger in the cost ledger along with General Ledger Adjustment or Control Account (1) Stores Ledger Control Account (2) Work-in-Progress Ledger Control Account (3) Finished Goods Control Account Besides above, there are certain other control accounts related to impersonal account (4) Wages Control Account (5) Factory Overhead Control Account (6) Office Overhead Control Account (7) Selling and Distribution Overhead Control Account (8) Cost of Sales Account (9) Costing Profit and Loss Account (10) Overhead Suspenses AccountGENERAL LEDGER ADJUSTMENT OR CONTROL ACCOUNT [Cost Ledger Control Account) No personal accounts are kept in the cost books but as the cost books are maintained on the principle of double entry, all transactions which arise in the financial accounts are debited or credited to General Ledger Control Account maintained for this purpose. This account makes the cost ledger self balancing. Basically, this account represents personal or cash or Bank Costing Ledger Principal Ledger or Subsidary Ledger Cost Ledger | rs | 1. Stores Ledger 2. Work-in-P: Leds General Ledger Contr Accounts 5. Finshed Goad: Ledge Adjustment Account for Subsidiary . Ledger | (1) Stores ledger Control Account (2) Work-in-Progress Ledger Control Account (3) Finished Goods Control Account (4) Wages Control Account (5) Factory Overhead Control Account (6) Office Overhead Control Account (7) Selling and Distribution Overhead Control Account (8) Cost of Sales Account (9) Costing Profit and Loss Account (10) Overhead Suspenses Account Accounts in the financial books. For example, materials purchased against cash is debited to Stores Ledger Control Account and credited to General Ledger Control Account. Stores Ledger Control Account: \t deals with transactions of materials. All receipts are debited and issues are credited, the balance shows the stock of raw materials. Work-in-Progress Ledger Control Account: This account is debited with the opening balance of work-in-progress, materials, labour and factory overhead costs (recovered) and is credited with the cost of finished goods. Balance will be closing work-in-progress Finished Goods Control Account: This account is debited with the opening balance of finished goods, the cost of finished goods for the period transferred from the Work-in-Progress Control Account and the amount of administrative overhead recovered. The goods sold are credited from Finished Goods Control Account to Cost of Sales Account. The closing balance will show unsold stock carried over. Wages Control Account: \t records labour transactions. The account is debited with the gross wages and is credited by the transfer of direct labour to work-in-progress and indirect labour to Factory. Administration and Selling and Distribution Overhead Control Account.| ost ° actor Overhead Control Account: \t deals with manufacturing overhead expenses. It is by the amount of indirect material, indirect labour and indirect expenses incurred. This joie 1 is credited by the amount of overhead recovered. yoo fice Overhead or Administration Overhead Control Account: Administrative overhead tis debited to this account, the amount of overhead recovered in the finished goods sold is oi ted 10 this, account, It may be, alternatively, transferred to Costing Profit and Loss Account if ws ae pt charged to Cost of Goods Sold. as Selling and Distribution Overhead Account: \n this account selling and distribution costs ve debited and it is credited by transfer to Cost of Sales Account by recovered selling and ri ribution overheads. Cost of Sales Account: This account is debited with the cost of goods sold and selling and gistribution overhead recovered and is closed by transfer to Costing Profit and Loss Account. Costing Profit and Loss Account: This account records the transfer of amounts of under and aver absorbed overheads, the sale value of goods sold, and the balance from the Cost of Sales secount. Abnormal losses or gains are debited and credited to this account. The closing balance ofthis account represents the costing profit or loss. The costing profit and loss is reconciled with the profit or loss shown by the financial profit or loss. Overhead Suspense or Adjustment Account: In this account under or over absorbed overheads (of factory, administration and selling and distribution) are debited or credited. The balance of this account, if carried to next period will be shown as balance, if not carried to next period will be transferred to Costing Profit and Loss Account, if charged as subsidiary rate to production transferred to Cost of Sales Account (on units sold), Work-in-Progress (on units incomplete) and to Finished Goods sold (on units not sold) Sometimes this account is not maintained and the amount of under or over absorbed overheads is transferred direct to Costing Profit and Loss Account. dist Entries in Control Accounts Following are the Journal entries in brief which will explain the accounting in the Control Accounts, - Transations Entry in Cost Ledger Materials ( Receipts of materials into stores. Debits Stores Ledger Control Accounts Credit Cost Ledger Control Account or Gen. Ledger Control Account. Reverse of the above entry. Debit Work-in-Progress Control Account. Credit Cost Ledger Control Account. Debit Work-in-Progress Control Account Credit Stores Ledger Control A/c. (i) Return of materials to suppliers (vi) Receipt of materials for direct issue. (1) Issue of materials and stores for production (as per requisition slips in Materials Abstract) %) Issue of material as indirect material Debit Factory Overhead Control Credit Stores Ledger Control A/c. a Return of material form Job to stores. ™) ‘Transfer from one job to another job. Revere of (iv) entry. Debit Trnsferee Job A/c Credit Transferor Job A/c.Labour: (1) Payment of Wages/Outstanding wages (i) Allocation of Wages to production (as per Wages Abstract) Git) Absorption of indireet labour (works overhead) Direct Exps: (2) Charging Direct Exps Works Overheads: (2) Works overhead paid or outstanding (a) Works overhead recovered (iii) Under absorption of works overhead (7) Over absorption of work overhead Administration Overheads (i) Office and Administrative Overhead paid or outstanding (i) Office and Admn. overhead recovered (iii) Office and Admn. Overhead under recovered (iv) Over absorption overheads Selling and Destribution Overheads (i) Overhead paid or outstanding (ii) Overhead recovered (iii) Under absorption of overhead (iv) Over absorpton of selling and disribution overheads. Normal and Abnormal Wastage: (Normal wastage of stores and normal idle time. (i) Abnormal wastage of stores and abnormal idle time. ed 3 Debit Wages Control Accounts. Credit Gen, Ledger Control Account Debit Work-in-Progress Control Account Credit Wages Control Account. Debit Works Overhead Control Account Credit Wages Control Account. Debit Work-in-Progress Control Account Credit Gen, Ledger Control Account. Debit Works Overhead Control Account. Credit Gen. Ledger Control Account Debit Work-in-Progress Control Account. Credit Works Overhead Control Account. Debit Overhead Suspense Account or Debit Costing P & L Account Credit Works Overhead Control Account Reverse to above entry. Debit Office and Adm. Overhead Control Account Credit Gen. Ledger Control A/c. Finished Stock Ledger Control A/c. Credit Office and Adm. OH Control Account Debit Overhead Suspense Account. or Debit Costing Profit and Loss Account Credit Office and Admn. Overhead Control Account. Reverse to above entry. Debit Selling and Distr. OH Control A/c Credit Gen, Ledger Control Account Debit Cost of Sales Account Credit Selling and Distr. OH Control A/c Debit Overhead Suspense Account or Debit Costing Profit & Loss Account Credit Selling & Distr. OH Control A/e Reverse to above entry. Debit Works Overhead Control Account Credit Stores Ledger Control Account. Credit Wages Control Account. Debit Costing Profit and Loss Account. Credit Stores Ledger Control Account. Credit Wages Control Account.cor insted Sto y 00 ck, Sale and Profit wo coset goods sold f un Sales 4 Profit (or Loss) on sales (as per Cost of gales Account) o) Final Profit as per Costing P & L Account pebit st of production of finished goods, 625 Debit Finished Stock Ledger Control Nc Credit Works-in-Progress Control Account Debit Cost of Sales Account Credit Finished Stock Ledger Control A/c Debit Cost Ledger Control Account Credit Cost of Sales Account Debit Cost of Sales Account Credit Costing Profit and Loss Account Debit Costing of Profit and Loss Account Credit Gen. Ledger Control Account and Credit to Various Control Accounts On the basis of above entries following are in brief debits and credits of various control accounts. Vame of Account Debit side Credit side Gores Ledger Control A/c (i) Materials purchased (as per stores receipt notes), (ii) Materials returned (as per stores returned notes). (i) Materials charged to costs (as per stores requisition slips). (ii) Materials returned to suppliers (as per purchase return statements) Wages Control A/c. (i) Gross wages paid or o/s (as per pay roll). (i) Wages charged to costs (as per wages abstract) Works Overhead Control A/c (i) Works overhead expenses incurred (as per financial books and charged through General Ledger Control A/c.) Indirect materials and indirect labour charged to production (ai) () Works overhead expenses charged to costs (WIP) (at pre-determined rates.) Administration Overhead Control A/c. Administration overhead expenses incurred (as per financial books and charged, through General Ledger (i) Administration overhead expenses charged to costs (at predetermined rates.) Through ed stock ledger control Control A/c.) (ii) Administration department's _ wages Distribution Overhead (0) Distribution oyethead () Distribution overhead expenses Control A/c expenses incurred (as per charged to costs (at pre- financial books and charged determined rates). Through through General Ledger Finished Stock Ledger Control A/c.) Control or cost of sales Ave. (ii) Distribution Department's a aes : . Selling Overhead (i) Sellng overhead expenses (i) Selling overhead expenses Control Ale incurred (as per financial charged to costs (at books and charged through General Ledger Control A/c.) (ji). Selling Department's wages pre-determined rates). Through Cost of Sales A/c(i) Amounts credited to stores, wages, and works overhead. (ii) Direct expenses charged through General Ledger Control A/c. Work-in-progress Ledger Control A/c (i) Amount credited to Work- in-progress Control A/e. (ii) Administration overhead charged to costs. Finished Stock Ledger Control A/c. al (i) Amount credited to Finished Goods Ledger Control A/c. (ii) Selling and Distribution Overhead charged to costs. (i) Overhead Control Account under absorption or recovery. (ii) Balance transferred to Gen. Ledger Controls A/c. Cost of Sales A/c. —t Costing Profit and Loss A/c (i) Selling Price of Finished Goods (ii) Balance (closing) General Ledger Control or Adjustment Account IMustration 1: [Accounting for Materials} (i) Transfers to Finished Goods Ledger Control A/c. (as per ’ Finished Production Transferred to finished stock). (i) Transfer to Costs of Sales A/c as per quantities of finished products sold. (i) Sales value of the finished products sold as per sales register. (i) Profit transferred from Cost of Sales Account. (ii) Overhead Control Account if over recovery is transferred to Costing P & L A/c | (i Opening balance (ii) Stores Ledger Control A/c (Purchase of Materials) (Gili) Wages Control A/c (Wages paid or outstanding) (iv) Works Overhead Control Account (Paid) (v) Office and Admn. Overhead Control A/c. (Paid) (vi) Selling and Distribution Overhead Control A/c (Paid) vii) Costing P & L A/c (Profit on sales) During the month of January, following transactions regarding materials took place in Hind Co. z 1. Material Purchased: (a) Credit purchases (b) Credit purchases for a special job (c) Cash purchases . Returns to suppliers . Direct materials issued to production . Indirect materials issued Material returned from production to stores 6. Material transferred (from Job. No. 1 to Job No. 2) wEwn 18,000 800 2,000 1,000 12,000 1,200 200 400 You are required to enter these transactions in the cost books (under cost control accounting system)Gee 627 ‘Solution: _ Cost Books (a) Stores Ledger Control Alc z z To General Ledger Adjustment A/c Dr) 18,000 (Being Credit Purchases) 18,000 (py Work-in-Progress Ledger Control Ae ( To General Ledger Adjustment A/c La Ld (Being credit purchases for a special job) 50 _ een special job) ——{@ Stores Ledger Control Ave aan To General ledger Adjustment A/c : Sone (Being Cash Purchases) : 7 General Ledger Adjustment A/c Dr. 1,000 To Stores Ledger Control A/c ° . 1,000 (Being return of materials to supplier) : 7 Work-in-progress Ledger Control A/c Dr] 12,000 To Stores Ledger Control A/c 12,000 (Being direct material issued to production) " 7, Works-overhead Control A/e 1,200 To Stores Ledger Control A/c 1,200 (Being issue of indirect materials) 3. Stores Ledger Control Ale Dr. 200 To Work-in-Progress Ledger Control A/c 200 (Being materials returned from production) € lob No.2 Ale Dr. 400 To Job No 1 A/c 400 (Being transfer of materials from Job 1 to Job 2) | Mlustration 2 : [Accounting for Wages Enter the following transactions in cost books (under Cost Control Accounting System): z Wages paid to direct labour 4,000 Salaries paid to production staff 525 Salaries paid to administration staff 400 Salaries paid to selling and distribution staff 600 5,525 Solution: Cost Books z z Wages Control A/c Dr.| 5,825 To General Ledger Control A/c 5,525 (Being the amount of total wages) Work-in-Progress Ledger Control A/c Dr. 4,000 To Wages Control A/c 4.000 (Being the amount of direct wages) 2 Works Overhead Control A/c i pins Administration Overhead Control A/c >. ra Selling and Distribution Overhead Control A/c " 1,525 To Wages Control A/c (Being transfer of indirect wages)Mllustration 3: [Accounting for Direct Expenses and Overhead] Enter the following transactions in the cost books. 1. Direct Expenses we 2. Analysis of overheads (services by creditors) Works Overhead 2,000 Administration Overhead 1,000 Selling and Distribution Overhead 2,000 3. Analysis of petty cash reveals: Works Overhead 120 Administration Overhead 10 Selling and Distribution Overhead Ty 4. Overhead is absorbed as under: Works overhead 1,900 Administration Overhead 1,050 Selling and Distribution Overhead 2,000 Solution: Cost Books z z 1. Works-in-progress Ledger Control A/c Dr. 500 To General Ledger Adjustment A/c 500 (Being amount of direct expenses) 2. Works Overhead Control A/c Dr. 2,000 Administrative Overhead Control A/c Dr. 1,000 Selling and Distribution Overhead Control A/c Dr.| 2,000 To General Ledger Adjustment A/c 5,000 (Being amount of overhead) 3. Works Overhead Control A/c Dr. 120 Administrative Overhead Control A/c Dr. 10 Selling and Distribution Overhead Control A/c Dr. 70 To General Ledger Adjustment A/c 200 (Being amount of overhead as per petty cash) 4. Work-in-progress Ledger Control A/c Dr. 1,900 To Works Overhead Control A/c 1,900 (Being absorption of overhead by production) Finished Goods Ledger Control A/c Dr. 1,050 To Administration Overhead Control A/c 1,050 (Being administration overhead recovered by finished goods) Cost of Sales Ale ~ Dr} 2,000 2,000 To Selling and Distribution Overhead Control A/c (Being selling and distribution overhead recovered)“Ca os! — Costing Profit and Loss A/e Dr 290 ‘To Works Overhead Control A/c 220 Jo Selling and Distribution Overhead Control A/c 10 (Being th the amount of under absorption transferred to Costing P&L. A/c “administrative Overhead Control A/e Dr 40 To Costing Profit & Loss Ale 40 Being the amount of over absorption transferred to Costing P&L A/c) From the above, it will be observed that works overhead and selling and distribution overhead are ander recovered and administration overhead is over recovered Overhead Overhead Under Over incurred absorbed Recovery Recovery Works Overhead 2120 1900 220 - Administration Overhead 1010 1050 40 Selling and Dist. Overhead 2070 2000 70 a Note: Over recovery or under recovery may be put as balances of Overhead Control Accounts i.e. got transferred to Costing P/L A/c Tiustration 4: From the following figures, ascertained from Costing Records and Financial Books of «factory, You are required to pass necessary entries in the cost journal (assume that,a system of maintaining contro] accounts prevails in the organisation). z Purchases 3,90,000 Carriage Inward 5,850 Stores issued 3,58,800 Productive wages 3.46,320 Unproductive labour 1.21,680 Works on cost 3.48.400 Materials used in repairs 3.120 Cost of completed jobs 12,80,630 Solution: Cost Journal z] z Stores Ledger Control Ale Dr | 3.90,000 | ‘To General Ledger Control A/c | 3.90,000 (Being the total amount of purchases as appeared in financial books) Stores Ledger Control Ale ° Dr | 5,850 To General Ledger Consol A/e ___ (Being the amount of carriage inwards as per financial books) Work-in-Progress Ledger Control A/c De | 3,58,800 ‘To Stores Ledger Control A/c 3,58,800 (Being the amount of stores issued as per materials abstract) Wages Control A/c Dr. | 4,68,000 ‘To General Ledger Control A/c 4,68,000 (Being the amount of direct and indirect wages expended)Work-in-Progress A/c Dr.| 3,46,320 To Wages Control A/c 3,46,320 (Being the amount of direct wages) Works Overheads Ale Dr.} 1,21,680 To Wages Control A/e 1,21,680 (Being the amount of indirect wages allocated to works overhead) Works Overheads Ale Dr.] 3,48,400 To General Ledger Control A/c 3,48,400 (Being the amount works expenses other than indirect wages as per Financial Books) Works Overheads Ale Dr| 3,120) To Stores Ledger Control A/e 3,120 (Being the cost of materials used in repairs) Finished Goods Ledger Control A/c Dr. | 12,80,630 To Work-in-Progress Ledger Control A/c 12,80,630 (Being the cost of completed jobs transferred from Work-in- Progress A/c) Mlustration 5: The balances in Cost Ledger of a manufacturing company on January 1, 2002 were : Stores Ledger Control Account 7,000 Work-in-Progress Ledger Control Account 12,800 Finished Stock Ledger Control Account 2,000 Cost Ledger Control Account! 21,800 You are given the following information for the year Purchases of materials 40,000 Direct factory wages 60,000 Manufacturing expenses 34,600 Selling and distribution expenses 5,400 Materials issued to production 37,200 Manufacturing expenses recovered 34,440 Selling and distribution expenses recovered 5,320 Sales 1,50,000 Stock of material at December 31, 2002 9,800 Stock of finished goods at December 31, 2002 4,700 Work-in-progress at December 31, 2002 14,700 You are required to show the accounts in the Cost Ledger for the year 2002, to prepare the Costing Account for the year and extract a trial balance Solution: Stores Ledger Control Account z z To Balance b/d 7,000 | By Work-in-Progress Ledger To Cost Ledger Control A/c 40,000 Control A/c (issues) 37,200 (purchases) By Balance c/d 9,800_ 47,000 47,000 we Cost Ledger Control A/c means General Ledger Adjustment or Control A/c.oo M turin, > eg (Works) oO erhead Control Account ze ——___, z cot Ledger Control A/c 34,600 | By Work-in-Progress Ledger Control A/c 34,440 | By Balance c/d 160 ot 34,600 Work-in-Progress Ledger Control Account 7 z jp Balance bd 12,800 | By Finished Stock Ledger jp cost Ledger Control A/e (wages) 60,000 Control A/c 129,740 qo stores Ledger Control A/c By Balance c/d 14,700 (material) 37,200 zo Manufacturing Overhead Control A/c (mfg. exps) 34,440 1,44,440 1,44,440 Selling and Distribution Overhead Control Account z z Jo Cost Ledger Control A/c 5,400 | By Cost of Sales A/c 5,320 By Balance ¢/d 80 5,400 3,400 Finished Stock Ledger Control Account z z To Balance b/d 2,000 | By Cost of Sales A/c 1,27,040 To Work-in-Progress By Balance c/d 4,700 Ledger Control A/c 1,29,740 1,31,740 1,31,740 Cost of Sales Account z z To Finished Stock By Cost Ledger Ledger Control A/c 1,27,040 Control A/c (Sales) 130,000 To Selling and Distribution Overhead Control A/c 5,320 To Costing and P&L A/c 17,640 _1,50,000 _ 7 1,50,000 . Costing Profit and Loss Account _ = fe To Cost Ledger Control A/c 17,640 | By Cost of Sales 17,640Cost Ledger Control Account € To Cost of Sales A/c 1,50,000 | By Balance b/d tere To Balance c/d 29,440 | By Stores Ledger Control A/c 40,000 By Mfg. Overheads Control A/c 34,600 By Work-in-Progress Ledger Control A/c 60,000 By Selling and Distribution Overheads Control A/c 5,400 ___| By Costing Profit and Loss A/c 17,640 1,79,440 1,79,440 Trial Bi Dr Cr z z Stores Ledger Control A/c 9,800 Manufacturing Overhead Control A/c 160 Selling and Distribution Overheads Control A/c 80 Work-in-Progress Ledger Control A/c 14,700 Finished Stock Ledger Control Ac/ 4,700 Cost Ledger Control ac 29,440 29,440 29,440 Note: (i) Cost Ledger Control A/c = General Ledger Adjustment A/c (ii) Balances of Overhead Controls Accounts will be their over or under absorption, these can be transferred to Costing P&L Account. Illustration 6: The cost ledger of a company showed the following balances as at Ist January 2003. z z Stores Ledger Control A/c 1,05,000 ‘Work-in-progress Account 78,400 Finished Goods Account 55,800 Works on Cost Account 1,000 Administration on Cost 600 Cost Ledger Control Account or General Ledger Adjustment A/c 2,38,800 2,39,800 2,39,800 Further balances resulting from the operations for the year ended 31st December 2003 were: Stores Purchases 3,60,000 Stores Issued to Production Order 3,93,000 Stores Issued to Works and Repair Order15,000 Wages 6,15,000 Production Labour 5,90,000 Unproductive Labour 25,000 Carriage Inwards 6,000 Works on Cost Allocated to Production Order 1,79,000 Works Expenses 140,000 Administration Expenses 18,000 Administration on Cost Allocation to Production Order 18,400 Goods Finished During the Year 11,72,000sched Goods Sold (Cost) Finishes gales Expenses ee fe a necessary accounts in the cost ledger schedule of balances for the year ended 31st per, 2003. solution: Note: It may be noted that 1, Stores Ledger A/c = Stores Ledger Control A/c 2, Work-in-Progress A/c = Work-in-Progress Ledger Control A/c. Finished Goods A/c = Finished Goods Ledger Control A/c. 3 4, Work on Cost Alc = Works overhead Control A/c. 5, Administration on Cost A/c = Administration Overhead Control A/c 6, Cost Ledger Control A/c = General Ledger Adjustment A/c 7, Wages A/c = Wages Control A/c. Stores Ledger Account z z qo Balance b/d 1,05,000 | By Work-in-Progress A/c 3,93,000 To Cost Ledger Control By Work on Cost: ‘Accounts (purchases) 3,60,000 (Stores issued to works qo Cost Ledger Control A/c and repair order) 15,000 (Carriage inwards) 6,000 | By Balance c/d 63,000 4,71,000 4,71,000 Work-in-Progress Accounts z z To Balance b/d 78,400 | By Finished Goods A/c 11,53,600 To Store Ledger Account 3,93,000 | BY Balance c/d 86,800 To Wages A/c 5,90,000 To Works on cost A/c 1,79,000 12,40,400 12,40,400 Finished Goods Account z z To Balance b/d 55,800 | By Cost of Sales A/c 12,000,000 To Work-in-Progress A/c 11,53,600 | By Balance c/d 27,800 To Administration on cost A/c 18,400 a _ 12,27,800 12,27,800 a Works on Cost Account ee ; - To Stores: Ledger A/c 15,000 To Wages A/c 25,000 | By Work-in-Progress A/c 1,79,000 To Cost Ledger Control By Balance b/d 1,000 Account (expenses) 1,40,000 ~~ 7,80,000 1,80,000Administration on Cost Account - ay € z To Balance b/d 600 | By Finished Goods A/c 18,400 To Cost Ledger Control By Balance c/d 200 Account (expenses) 18,000 | 18,600 [18,600 Wages Account e z To Cost Ledger Control Account 6,15,000 | By Work-in-Progress A/c 5,90,000 By Work on Cost A/c 25,000 6,15,000 6,15,000 Cost of Sales Account z z To Finished Goods Account 12,00,000 | By Cost Ledger Control A/c 12,13,400 To Cost Ledger Control Account (expenses) 13,400 12,13,400 12,13,400 Cost Ledger Control Account e z To Cost of Sales A/c 12,13,400 | By Balance b/d 2.38,800 To Balance c/d 1,77,800 | By Stores A/c (purchases) 3,60,000 By Wages A/c 6,153,000 By Stores A/c (Carriage inwards) 6,000 By Works Expenses A/c 1,40,000 By Administration Expanses A/c 18,000 By Sales Expenses A/c 13,400 13,91,200 13,91,200 Trial Balance as at 31st December, 2002 Stores Ledger Account Work-in-Progress Account Finished Goods Account Administration on Cost Account Cost Ledger Control Account 1,77,800 Mlustration 7: The Rajasthan Manufacturing Company, commenced operations on Ist April, 2002 and Completed the following transactions during the year ended 31st March, 2003.7) ae —_ i purchased materials for %. 10,40,000. Requisitioned direct materials totalling %. 6,00,000 for job orders, i equistioned indirect materials worth 8, 60,000. : “i returned materials worth &. 20,000 to the vendors. 0 etumed materials to the stores room: from job orders Z £10,000 paid for wages €. 13,00,000. cai Distributed wages a folows: direct Inour 8 12,86,00; indirect. 16,000 gui) Resorded aditional actual overhead cons of 880,000, ix) Applied overhead to production at 50% of direct labour cost (a) Completed jobs during the year costing &.23,00,000 «i Sold ised goods as follows: selling price %. 37,00,000 cost of finished goods sold % 22,20,000. (xi) Allowed credit for finished goods returned by customers 8. 30,000. These finished goods cost & 18,000. 24,000, from indirect materials issued— wi (ai) Carried forward to next year the over or under-absorbed overhead. Show how these transactions will be recorded in the Cost Ledger of the company for the year 2002 «q Also record only transaction (XI) and (XII) in the Cost Joumal of the Company. Solution: Stores Ledger Control Account z z To General Ledger BY Work-in-Progress Adjustment A/c 10,40,000 Ledger Control A/c 6,00,000 To Work-in-Progress Ledger By Works Overheads Control A/c 24,000 Control A/c 60,000 To Works Overheads By General Ledger Control A/e 10,000 Adjustment A/c 20,000 By Balance /d 10,74,000 10,74,000 Wages Control Account z z To General Ledger By Work-in-Progress Adjustment A/c 13,00,000 Ledger Control A/c 12,84,000 By Works Overhead Control Ale 16,000 13,00,000 7 13,00,000 Works Overheads Control Account z z To Stored Ledger Control A/c 60,000 | By Stores Ledger Control A/c 10,000 To General Ledger By Work-in-Progress Ledger ; Adjustment A/c 5,80,000 Control A/e 6,42,000 © Wages Control A/c 16,000 | By Balance c/d 4,000 0 6,56,000 8.56.00Work-in-Progress Ledger Control Account al ; ~~ To Stores Ledger Control A/c 6,00,000 | By Stores Ledger Control A/c 24,000 To Wages Control A/c 12,84,000 | By Finished Goods Ledger To Works Overhead Control Ave 23,00,000 Control A/c 6,42,000 | By Balance c/d 2,02,000 | 25,26,000 [25.26.00 Finished Goods Ledger Control Account € = 7 z To Work-in-Progress By Cost of Sales A/c 22,20,000 Ledger Control A/e 23,00,000 | By Balance c/d 98,000 To Cost of Sales A/c 18,000 23,18,000 [| 23.18,000° Cost of Sales Account z z To Finished Ledger By General Ledger Control A/c 22,20,000 ‘Adjustment A/c 37,00,000 To General Ledger By Finished Goods Adjustment A/c 30,000 Control A/c 18,000 To Costing Profit and Loss A/c 14,68,000 37,18,000 37,18,000 Costing Profit and Loss Account z z To General Ledger Adjustment A/c 14,68,000 | By Cost of Sales A/c 14,68,000 | General Ledger Adjustment Account z z To Cost of Sales A/c 37,00,000 | By Stores Ledger Control A/c 10,40,000 To Stores Ledger Control A/c 20,000 | By Wages Control A/c 13,00,000 To Balance c/d 6,98,000 | By Works Overheads Control A/e 5,80,000 By Cost of Sales A/c 30,000 _| By Costing Profit and Loss A/e 14,68,000 fa t000 PO ___44,18,000_ (As at 31st March, 2003) ~ Dr Cr z z Stores Ledger Control A/c 3,94,000 Work-in-Progress Ledger Control A/c 2,02,000 Finished Goods Ledger Control A/c 98,000 Works Overhead Control A/c 4,000 General Ledger Adjustment A/c 6,98,000 6,98,000 6,98,000Entries in Cost Journal (For transactions XI and X11) ral Ledger Adjustment A/c — To Cost of Sales Ale peing amount ofsalesy “Goat of Sales AC — = To Finished Goods Ledger Control A/c (Being cost of finished goods sold transferred) cing COS Cost of Sales Ale To General Ledger Adjustment A/c (Being cost of returns from customers) jnished Goods Ledger Control A/c Dr. To Cost of Sales A/c (Being cost of returned goods, transferred) 37,00,000 22,20,000 22,20,000 30,000 30,006 18,000 18,000 Mustration 8: M/s Beta Ltd. uses the perpetual inventory procedure for all inventory accounting. oval debits and credits in certain of their accounts on 31st March, 2004 are given below: Total Debits Total Credits Raw materials %. 5,60,000 %. 4,830,000 Work-in-Progress 16,96,000 14,80,000 Direct labour 6,72,000 6,72,000 Manufacturing Overhead 3,04,000 = Finished goods 18,72,000 14,536,000 Cost of goods sold 14,56,000 - Manufacturing Overheads applied eS 3,36,000 The accounts given above did not include the following costs that should be recognised. Direct labour % 32,000 Indirect labour 2,400 Other manufacturing Overheads 2,880 Raw materials purchased during the year amounted to %. 5,20,000. Manufacturing overheads is wpplied as a percentage of direct labour. Prepare all the control accounts showing the opening and closing inventories of raw materials, work- inprogress and finished goods, all adjusting and closing entries and appropriating over/under applied wvethead among work-in-progress, finished goods and cost of goods sold Solution: ; Stores Ledger Control Account 2003, — z 2004 z April 1 To Balance c/d 40,000 | March By Work-in-Progress (Balancing figure) 31 Ledger Control A/c 4,80,000 To General Ledger By Balance.c/d 80,000 Adjustment A/c (purchases) 5,20,000 | 5,60,000 5,60,000Work-in-progress Ledger Control Account 2003. April! z 2004, March 31 z To Balance b/d By Finished Goods (see Note) 2.08,000 Ledger Control A/c 14.80.000 To Stores Ledger By Balance o/d Control Ave 4.80,000 To Wages Control Ave (Cost of Work-in-Progress (672000 + 32000) 7.04000 at the end) 2.64.000 To Manufacturing Overheads Control Ave (50% of 7,04,000) 3.52.000 | 17,44.000 17.44.000- 2004, March 31 |e] 2004, Mareh 31 [ Oe To Balance o/d 2,64,000 | By Overhead Control A/c | 6.467 (See working note 2) By Balance e/d | 2.57.53 2.64.00 2.64.000 Manufacturing Overheads Control Account 2004. April 1 z 2004, March 31 | z To General Ledger Adjustment A/e 3,04.000 By Work-in-Progress | 3.52.00 March 31 Control A/c | To General Ledger Adjustment A/c 5.280 | To Work-in-Progress (2400 + 2880) | Control A/c (Working note 3) 6.467 To Finished Goods Control A/c (Working note 3) 10,190 To Cost of Goods Sold A/c (See note No. 3) 26,063 3,52.000 | Finished Goods Ledger Control Account 2003, April 1 To Balance b/d (Balancing figure) To WIP Ledger Control A/c March 31, 2004 To Balance b/d z 2004, March 31 3,92,000 | By Cost of Goods Sold 14,80,000 | By Balance e/d (Stock-in-hand) 18,72,000 2004 March 31 4,16,000 | By Manufacturing Overhead A/c (See Note 3) By Balance ¢/d 4,16,000 z 14,56,000 4,16,000 18. 100 10,190 4,05,810 4,16,000oe 639 Cost of Goods Sold Account eh & | 2004, March 31ST oot d . e ped Goods ” 7 By Manufacturing edger CO} 56,000 Overheads Control A/c 26,063 By Costing Profit and Loss A/c —__ | 14,56,000 Rote: (1) Total debits in the Wor rogres dering the debits arising out of the wages a Ted Goa 000 eress Ledger Control Account are %. 16,96,000, wit outstanding, the other debits are eo Materials im an Overheads oe ‘The balance, i.e. &. 2,08,000 must be the opening balance (2) Total wages are &. 7,04,000 including &. 32,000 outstanding. Manufacturing overhead applied is £336,000 based presumably on &. 6,72,000 which works out @ 50%. On this basis the total overhead to he debited to the Work-in-progress Control Account is %. 3,52,000, i.e. 50% of %. 7,04,000. (3) There is an over-recovery of %. 42,720 in case of manufacturing overheads. This is to be joned over Work-in-progress, Finished Goods Stock and Cost of Goods Sold. The ratio of these items isas follow: Work-in-progress %. 2,64,000 Finished goods stock %, 4,16,000 Cost of goods sold %. 10,64.000 (ie. total goods sold &. 14,56,000—Z. 3,92,000 opening stock presuming that the goods are sold on FIFO basis). The amounts are respectively %. 6,467; %. 10,190 and @. 26,063. TYPICAL ILLUSTRATIONS Illustration 9: On 31st March, the following balances were extracted from the books of the Supreme Manufacturing Company: Dr. Cr z z Stores Ledger Control A/c 35,000 Work-in-Progress Control A/c 38,000 Finished Goods Control A/c 25,000 Cost Ledger Control A/c 98,000 98,000 98,000 The following transactions took place in April: z Raw Materials: 95.000 Purchased a Returned to Suppliers ao Issued to Production ae Returned to Stores fond Productive Wages Bs oo Indirect Labour 50,000 Factory Overhead Expenses Incurred aa Selling and Administrative Expenses 2,13,000 Cost of Finished Goods Transferred to Warehouse 210,000 Cost of Goods SoldSales 3,00,009 Factory overheads are applied to production at 150% of direct wages, any under/over absorbeg overhead being carried forward for adjustment in the subsequent months. All administrative and selling expenses are treated as period costs and charged off to the Profit and Loss Account of the month in which they are incurred. Show the following Accounts Ale; (c) Work in Progress Control A/e; (4) Fi Ale; (f) Costing Profit and Loss A/e: (2) Trial Balance as at 30th April. (a) Cost Ledger Control A/c, (b) Stores Ledger Contra] shed Goods Stock Control A/c; (e) Factory Overhead Contr] Solution : (a) Cost Ledger Control A/c z id To Costing Profit & By Balance b/d 98,000 Loss A/c (Sales) 3,00,000 } Stores Ledger Control A/c 95,000 Stores Ledger Control A/c 3,000 |” Wage Control A/c 65,000 Balance c/d 95,000 (Productive Wages + Indirect labour) Factory Overhead Control Ale * 50,000 ” Selling & Admn. Overhead Expenses A/c 40,000 ” Costing Profit & Loss A/c 50,000 3,98,000 3,98,000 (6) Stores Ledger Control A/c z z To Balance b/d 35,000] By Cost Ledger Control A/c 3,000 ” Cost Ledgey Control A/c 95,000} |” Work-in-Progress ” Work-in-Progress Control A/c Control A/c 3,000} ” Balance c/d 1,33,000 1,33,000 (c) Work-in-Progress Control A/e z z To Balance b/d 38,000| By Stores Ledger ” Stores Ledger Control A/c 98,000 Control A/e 3,000 ” Wages Control A/c 40,000] "Finished Goods Control Ave 2,13,000 ” Factory Overhead ” Balance c/d 20,000 Control A/c (15% of Direct Wages) 60,000 | pees 2,36,000 2,36,000 (d) Finished Goods Control A/c z z To Balance b/d 25,000 | By Cost of Goods Sold A/e 2,10,000 Work-in-Progress 2,13,000 | By Balance c/d 28,000 2,38,000 2,38,000we (€) Factory Overhead Control A/e “Tr e z 1 Ale 25,000 | By Work-in- wages Control ly Work-in-Progress 7 pnect Labour) Control Ale « cost Ledger Control A/c | __ 50,000} ” Balance c/d _ 75,000 (J) Costing Profit and Loss A/e/Cost of Sales A/e € 7 7 z so cast of Goods Sold Ae 2,10,000 | By Cost Ledger Control A/c 3,00,000 gelling and Admn. (Sales) overhead A/C 40,000 «cost Ledger Control A/c (Costing profit) 50,000 3,00,000 3,00,000 : Trial Balance Dr. Cr z z stores Ledger Control A/c 32,000 Work-in-Progress Control A/c 20,000 Finished Goods Control A/c. 28,000 Factory Overhead Control A/c 15,000 Cost Ledger Control A/c - 95,000 95,000 93,000 Working Notes: a Wage Control A/c z z To Cost Ledger Control A/e 65,000 | By Work-in-Progress Control A/c 40,000 ” Factory Overhead Control A/c 23,000 65,000 65,000 Dr Cost of Goods Sold A/c _ z To Finished Goods Control A/c 2,10,000 | By Costing Profit & Loss A/c 2,10,000 SS 210,000} | __2,10,000_ Pr Selling & Administrative Expenses A/e - er ; To Cost Ledger Control Ale 40,000 | By Costing Profit & Loss A/e 40,000 meray onail 40,000 ~ 40,000Mlustration 10: A company operates on historic job cost accounting system, which is not integrated with the financial accounts. At the beginning of a month, the opening balances in cost ledger were: @ (in lakhs) Stores Ledger Control Account 80 Work-in-Progress Control Account 20 Finished Goods Control Account 430 Building Construction Account 10 Cost-Ledger Control Account 540 During the month, the following transactions took place: Materials Purchased 40 Issued to production 50 Issued to general maintenance 6 Issued to building construction 4 Wages Gross wages paid 150 Indirect wages 40 For building construction 10 Works Overheads Actual amount incurred (excluding items shown above) 160 Absorbed in building construction 20 Under absorbed 8 Royalty paid 5 Selling, distribution and administration Overheads . 25 Sales 430 ‘At the end of the month, the stock of raw material and work-in-progress was %. 55 lakhs and % 25 lakhs respectively. The loss arising in the raw material account is treated as factory overheads. The building under construction was completed during the month. Company's gross profit margin is 20% on sales. Prepare the relevant control accounts to record the above transactions in the cost ledger of the company, Solution: Stores Ledger Control Account (SLC) & (in laksh) & (in laksh) To Balance b/d 80| By WIP A/c 30 To CLC Alc (purchases) 40 By Admn. Overhead 6 (General Maintenance) A/c By Building A/c 4 By Factory Overhead (B/F) 5 By Balance c/d _ 120 : Work-in-Progress Control A/e (WIP) To Balance b/d By FGC (B/F) 327 To SLC A/c By Balance o/d 25 To Wages Control To Works Overhead A/c To CLC Ale (Royalty) ae 352ow Finished Goods Control A/c (FGC) ce b/d 430) By C Fo Balance > 'y Cost of Sales 360 wir (ished goods By Balance o/d 397 produced in the month) 07 157 157 Building Construction A/e 7p Balance b/d 10} By CLC Ale “4 qo SLC Ale 4 (Capitalised as Building) To Wages Control A/e 10 qo Works Overheads A/c 20 44 “4 Cost Ledger Control A/c (CLC) Jo Building Costn. A/c 44 | By Balance b/d 540 To Costing P & L Ale 450 | By SLC A/c 40 To Balance c/d 477 | By Wages Control A/c 150 By Work Overhead A/c 160 By WIP (Royalty) A/c 5 By SDA Overheads A/c 25 By Costing P&L A/c (NP) 31 971 on Works Overhead A/c To SLC Alc 5| By Building Construction A/c 20 To Wages Control 40 | By WIP (B/F) 177 To CLC Ale 160 | By P & L A/c Under Absorption 8 205 205 Wages Control A/c To CLC Alc (gross wages) 150 | By WIP A/c (Direct wages) 100 By Factory Overheads A/c (Indirect wages) 40 By Building Consts A/c 10 150 150 § & D Admn. Overheads Control A/c (SDA Overheads) To CLC Ale 25 | By Cost of Sales A/c 31 To SLC Alc | 6 31 31 Cost of Sales A/c To FGC Alc 360 | By CLC Alc - Sales A/c 450 To SDA Overheads A/c 3 To Costing P/L A/c 59 0 _- 450 7Costing of P&L A/e f Sales A/c To Works Overhead A/c 8 | By Cost o! > To CLC Alo—Net Profit 51 |” 59 > Trial Balance at the end of the month , Stores Ledger Control A/c : Work-in Progress Control A/c 3 Finished Goods Control A/c Cost Ledger Control A/c 477 m Note: 1. Works overhead is underabsorbed by %. 8 lakh, since it is a negligible amount, therefore ithas been transferred to Costing P&L A/c. 2. Royalty paid on production is transferred to WIP Control A/c (as a direct expenses). . Cost of Sales = Sales - GP ie. % 450 - 90 =, 360 lakhs. QUESTIONS OBJECTIVE QUESTIONS L. True or False Statement. Give reason in brief. L 2. 3. 4. 5. 2 8. 9. 10. i. The purpose of cost control accounts is not to control the cost of production. Cost Ledger Control Accounts is a system of integrating cost and financial accounts. Cost control accounts are prepared on the fundamental principles of double entry book keeping. Cost Ledger Adjustment Account represent inter alia personal accounts shown in financial books. The balance of Stores Ledger Control Account does not represent the total balance of stock of all items of material. - Selling and distribution costs incurred are credited to selling and distribution overhead account. . The closing balance of costing Profit and Loss A ‘ccount represents under or over-absorption of overheads. Overhead Adjustment Account always has debit balance. Cost Ledger Control Accounts always show a credit balance. Cost Ledger Control Account is maintained to make the cost ledger self balancing. Under-absorbed Overhead are always credited to Costing P & L Alc. [Ans. False (1) (2) (5) (6) (7) (8) (11) other True] Tl. State whether Sollowing statements are True or False. wena + Purpose of cost control is to control production cost, - Posting in Wages Control Accounts is do: - Balance of Stores Ledger Control A . General Ledger Adjustment account . Control accounts are complete accor ne from wages analysis table, is personal account as shown in the general ledger. n unts kept in the costing leds [False (1) others are correct) as“ow rin the BPS me ‘Account makes the cost ledger self balancing sing balance of Costing Profit and Loss A/c shows. — is credited from Work-in-progress Account purchase for specific jobs are direetly debited to account When stores is issued for production, Control Account is debited ‘account is credited [Ans. (1) General Ledger Adjustment (2) Profit or toss (3) Cost of finished goods (4) Work-in- Vork-in-progress, Stores] progress Control (3) W THEORETICAL QUESTIONS ‘ontrol Account’? Mention the main control accounts and explain their utility entry basis? Clos 2 3 4 5 Control 1, What are °C What are principal and subsidiary books that are kept in costing system under double Mention their importance and explain how the subsidiary books are written? 4, What is the purpose of preparing General Ledger Adjustment Account or Cost Ledger C Account? How are entries recorded in this account? | Write short note on *Cost-Ledger Control Account’, ‘Non-integrated Accounting is one of the system of Cost Control Accounting to ke« Explain. 6. (a)_ Define the term "Non-Integrated Accounting’ (8) Explain the system of non-integrated accounting and state the principal ledgers that are ‘0 be maintained (briefly mention about the contents) and the principal accounts that are to be maintained. ‘ontrol ep cost books’ SHORT ANSWER QUESTIONS What do you understand by Cost Control Account? Write names of Control Accounts kept in Cost Ledger. Give an outline of Work-in-progress Ledger Control Account. wing under Cost Control System. Write journal entries of follo’ (a) Raw material purchased on credit (b) Material issued for production (direct) (c) Material return to supplier 5. What is purpose of preparing Cost Ledger Control Account? 6. What are advantages of Cost Control Accounts? NUMERICAL QUESTIONS 1. The following transactions took place for the month of April 2005 in A & Co. Enter the transactions in the cost books pertaining to material (1) Materials Purchase: (a) Credit purchases % 3,000, (b (c) Credit purchases for a special job &, 1,000 ) Cash purchases %. 1,000 (2) Returned to suppliers ®. 250. (3) Direct materials issued to. jobs %. 2,000. (4) Indirect materials issued to jobs &. 500. (5) Materials returned from jobs to stock % 200. (6) Materials transferred from Job No. 101 t© Job No, 102 @.75 2. Enter the following transactions of a company for the month of April 2005 pertaining to labour (a) Wages 12,000 Less: Deduction: geEmployees Provident Fund State Insurance Premium Income Tax Net wages to be paid in cash 800 Employers contribution are: Provident Fund & 800 and State Insurance % 200 From the wages analysis books, we found the following details of total wages 1. Direct labour 2. Indirect labour 3. Salaries to administrative stall 4. Salaries to selling and distribution staff (5) Direet expenses 400 240 “ato 0 10.560 8,000 2,000 2,000 1,000 13.000 4.000 Pass journal entries in the financial and cost books from the following information regarding overheads. Prepare statement of recovery of overhead and pass suitable entries for under/over recovery z (a) Outstanding Expenses 6.000 (A) Cash expenses 500 Analysis of above Outstanding Exps Cash Exps Total 8 z z Factory Overhead 3.000 300 3.300 Admn. Overhead 2.000 100 2.100 Selling and Distribution Overhead 1.000 100 1.100 6.000 500 Absorption of Overheads is as under: (a) Factory Overheads 2.800 (6) Adm. Overheads 2.000 (c) Selling and Distribution Overheads 1.300 6.100 From the following details show the necessary accounts in the cost ledger. Opening Balance z Materials 8.000 Work-in-Progress 5,000 Finished Goods 10.000 Transaction during the period Materials purchased Wages paid (including @ 000 indirect wages) Overhead incurred (Overhead recovered & 9.000) Sales Closing Balance 11,000 9.000 12.000 25,000 10.000 8.000 50.000 [Ans. Direct Materials issued to Production & 22.000. Cost of Completed Work & 33,000, Cost of Goods Sold % 33,000, Profil © 16.000, Overhead under recovered & 1000 TR to PLY [Mints © Opening balance of GL Adj Ae % 23.000. closing balance of GL Ady Le % 32000, Tatal closing TB % 32,000)we s, From the following figures ascertained from the records of a company for the year ended 30th June, . 2004 you are required to pass necessary entries and to prepare the Ledger Accounts and the Trial Balance. 30th June 30th June 2003 2004 General Ledger Adj. A/c 3,60,950 — Work-in-Progress Accounts-balance 1,40,000 89,100 Stock of Finished Goods-balance 1,36,750 1,41,750 Stores on hand balance 84,200 1,31,400 Purchases 4,50,000 Carriage inwards 6,300 Stores issued 4,05,000 Productive wages 3,70,200 Unproductive wages 1,21,600 Works on cost 3,68,400 Material used in repair 4,100 Cost of completed jobs 13,90,000 Cost of finished goods sold 13,85,000 Selling expenses 28,000 Office administration 70,000 Works on cost allocated to Work-in-Progress . 4,95,000 Office on cost allocated to Work-in-Progress 68.900 [Ans. Trial Balance Total €. 3,63,350; Balances: General Ledger Adj. A/c % 3,62,450 (Cr); Work- in-Progress © 89,100 (Dr.) Stock of Finished goods © 1,41,750 (Dr.) Stores 1,31,400 (Dr); Works on cost % 900 (Cr.); Office on cost 1,100 (Dr)}