e-Consult | Revision Qns

1.

XYZ Ltd uses a job costing system. The following information relates to a specific job:

Direct Materials used: £5,000

Direct Labour Costs: £3,000

Overhead Allocated to the Job: £2,000

Job was completed and invoiced to a customer.

Prepare a journal entry to record the cost of the job and explain how the Work in Progress account is affected.

Journal Entry:

|------------|------------------------------------------|-----------|------------|

| | Direct Materials | £5,000 | |

| | Direct Labour | £3,000 | |

| | Manufacturing Overhead | £2,000 | |

| | Customer Accounts Receivable | | £10,000 |

Explanation of Work in Progress Account Effect:

The Work in Progress account is affected as follows:

Debit (Decrease): The Work in Progress account is debited by £10,000. This reflects the total cost of the job that has been completed and transferred to finished goods. The balance of the Work in Progress account is reduced by the total cost of the job.

Therefore, the Work in Progress account is debited by £10,000 to reflect the completion of the job and the transfer of the finished goods to the customer.

2.

A company uses a process costing system to manufacture a product. During a particular period, the following data was collected:

Opening Work in Progress: £8,000

Total Production Costs incurred during the period: £40,000

Total Units Started and Completed during the period: 500

Closing Work in Progress: £6,000

Calculate the cost of production for the period and explain how the Work in Progress account is affected.

Calculation of Cost of Production:

Cost of Production = (Opening Work in Progress + Total Production Costs) - Closing Work in Progress

Cost of Production = (£8,000 + £40,000) - £6,000 = £42,000

Effect on Work in Progress Account:

In a process costing system, the Work in Progress account is used to track the cost of products currently in the production process. The following adjustments are made:

Credit (Increase): The Work in Progress account is credited by the total production costs incurred during the period (£40,000). This reflects the cost of the products that are still in the production process at the end of the period.

Debit (Decrease): The Work in Progress account is debited by the cost of the products that were completed and transferred to finished goods. This is equal to the cost of production (£42,000).

Summary of Adjustments:

Account	Debit (£)	Credit (£)
Work in Progress	£42,000	£42,000

Therefore, the cost of production for the period is £42,000. The Work in Progress account is credited by £42,000.

3.

A company has the following information for the month of June:

Direct Materials Used: £8,000

Direct Labour Cost: £4,000

Factory Overheads: £3,000

Cost of Goods Manufactured: £12,000

State which of the following are direct costs and which are indirect costs. Justify your answers. Calculate the factory overheads allocated per unit if 200 units were produced.

Direct Costs:

Direct Materials Used (£8,000): This is a direct cost because the materials are directly traceable to the production of the goods. They are an integral part of the finished product.

Direct Labour Cost (£4,000): This is a direct cost because the labour is directly involved in the manufacturing process and can be directly attributed to the production of the goods.

Indirect Costs:

Factory Overheads (£3,000): This is an indirect cost because these costs are incurred in the factory but cannot be directly traced to a specific product. They are necessary for the overall operation of the factory but are not a direct component of the goods themselves.

Calculation of Factory Overheads Allocated per Unit:

Factory Overheads per Unit = Total Factory Overheads / Number of Units Produced

Factory Overheads per Unit = £3,000 / 200 units = £15 per unit

Therefore, the factory overheads allocated per unit is £15.

5.5 Manufacturing accounts (3)