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- 20 Marks
Question
a) Frankadua Furniture Works located at Bomaa in the Ahafo Region has a rough estimate of the materials and labour cost of a set of living room furniture. It is expected that 8 cubic metres of timber, 6 cubic metres of foam and 12 square metres of fabric can be used. Glue, screws and other accessories will also cost GH¢80.
The Carpenters who will do the cutting, joining and finishing will use 35 hours. Since the company is fairly new, it will engage a tailor to sew the fabric to fit the sizes of the units of the chairs. For each set the tailor will charge GH¢150. Labour is paid at GH¢12 per hour plus a premium of GH¢5 per hour when the job requires more than 20 hours.
Timber is priced at GH¢25 per cubic metre, foam is GH¢20 per cubic metre while the fabric is GH¢15 per square metre. The Accountant has estimated overhead absorption rate of 20% on direct material cost.
Required:
i) Determine the prime cost of a set of living room furniture. (10 marks)
ii) Determine the full cost of a set of living room furniture. (5 marks)
b) Kempion Breweries Ltd has just commenced business in the alcoholic beverage sector of Ghana producing a local gin called Pitoo and is desirous of having a good grasp of its costs for product costing, valuation and pricing purposes.
Required:
State FOUR (4) features of a process costing system to be used by Kempion Breweries to arrive at the total cost of Pitoo. (5 marks)
Answer
a) i) Prime cost of the set of furniture:
| Description | Calculation | GH¢ |
|---|---|---|
| Timber | 8 cubic metres x GH¢25/m³ | 200 |
| Foam | 6 cubic metres x GH¢20/m³ | 120 |
| Fabric | 12 square metres x GH¢15/m² | 180 |
| Glue, screws, accessories | 80 | |
| Direct labour | 35 hours x GH¢12/hour + (15 hours x GH¢5/hour premium) | 420 |
| Direct expenses | Tailor charges | 150 |
| Total Prime Cost | 1,150 |
(10 marks)
ii) Full cost:
| Description | Calculation | GH¢ |
|---|---|---|
| Prime cost | From above | 1,150 |
| Overhead | 20% of direct material cost (GH¢500) | 100 |
| Total Full Cost | 1,250 |
(5 marks)
b) Features of a process costing system:
- Products are produced in mass quantities.
- Production is done in a sequential manner such that the output of one process becomes the input for a subsequent process.
- Product costs per unit are obtained through averaging.
- There are usually losses associated with process costing in the form of normal and sometimes abnormal losses.
- There is usually work-in-progress (WIP) in process costing that requires valuation.
- Valuing equivalent units of partly finished units may arise.
- Valuing joint and by-products may also arise in process costing. (Any 4 points @ 1.25 marks each = 5 marks)
- Tags: Features of Process Costing, Full Cost, Prime Cost
- Level: Level 1
- Topic: Cost Segregation and Estimation, Process Costing
- Series: APR 2022
- Uploader: Joseph