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  • 20 Marks

IMAC – NOV 2023 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Calculate closing inventory using FIFO and compute direct material price and usage variances for Prekese and Kakaduro.

a) The following data has been extracted from the books of ABC Ltd for the month of October 2023.

Date Description
2/10/2023 Bought 200 units @ GH₵100 per unit
5/10/2023 Bought 150 units @ GH₵120 per unit
8/10/2023 Issued 120 units
12/10/2023 Bought 100 units @ GH₵90 per unit
20/10/2023 Issued 140 units
24/10/2023 Bought 300 units @ GH₵150 per unit
28/10/2023 Issued 210 units

Required:
Using the FIFO method, calculate the value of the closing inventory. (10 marks)

b) Identify FOUR (4) pieces of information that can be seen on an invoice. (5 marks)

c) Preka body lotion is a product produced from the combination of two materials: prekese and kakaduro. Preka body lotion has a standard direct material cost as follows:

Material Quantity (kg) Cost per kg (GH₵) Total Cost (GH₵)
Prekese 6 15 90
Kakaduro 10 10 100

During period one, 1,000 units of Preka body lotion were manufactured, using 11,700 kilograms of prekese and 10,000 kilograms of kakaduro, costing GH₵98,600 and GH₵78,000 respectively.

Required:
Calculate the following variances for prekese and kakaduro:
i) The direct material price variance (2.5 marks)
ii) The direct material usage variance (2.5 marks)

a) ABC Ltd – Calculation of Closing Inventory Using FIFO Method

Date Receipt/Issued Balance
2/10/2023 200 @ GH₵100 200 @ GH₵100 = GH₵20,000
5/10/2023 150 @ GH₵120 200 @ GH₵100 = GH₵20,000
150 @ GH₵120 = GH₵18,000
Total = GH₵38,000
8/10/2023 Issued 120 @ GH₵100 80 @ GH₵100 = GH₵8,000
150 @ GH₵120 = GH₵18,000
Total = GH₵26,000
12/10/2023 100 @ GH₵90 80 @ GH₵100 = GH₵8,000
150 @ GH₵120 = GH₵18,000
100 @ GH₵90 = GH₵9,000
Total = GH₵35,000
20/10/2023 Issued 140 80 @ GH₵100 = GH₵8,000
60 @ GH₵120 90 @ GH₵120 = GH₵10,800
100 @ GH₵90 = GH₵9,000
Total = GH₵19,800
24/10/2023 300 @ GH₵150 90 @ GH₵120 = GH₵10,800
100 @ GH₵90 = GH₵9,000
300 @ GH₵150 = GH₵45,000
Total = GH₵64,800
28/10/2023 Issued 210 20 @ GH₵150
280 @ GH₵150 = GH₵42,000
Total = GH₵42,000

Closing Inventory:

  • 280 units @ GH₵150 per unit = GH₵42,000
    (10 marks)

b) Information That Can Be Seen on an Invoice:

  1. Payment Due Date: The date by which the payment is expected.
  2. Unique Invoice Number: A specific number that identifies the invoice.
  3. Description of Products/Services Sold: Details of what has been purchased.
  4. Quantity and Price of Each Product/Service: The amount and cost per unit of the items listed. (4 points @ 1.25 marks each = 5 marks)

c)
i) Direct Material Price Variance

Material Calculation Variance (Favorable/Adverse)
Prekese (11,700 kg × GH₵15) – GH₵98,600 GH₵76,900 Favorable (F)
Kakaduro (10,000 kg × GH₵10) – GH₵78,000 GH₵22,000 Favorable (F)

Prekese Price Variance:

  • 11,700 kg should have cost GH₵175,500, but did cost GH₵98,600
  • Variance = GH₵76,900 Favorable (F)

Kakaduro Price Variance:

  • 10,000 kg should have cost GH₵100,000, but did cost GH₵78,000
  • Variance = GH₵22,000 Favorable (F)
    (2.5 marks)

ii) Direct Material Usage Variance

Material Calculation Variance (Favorable/Adverse)
Prekese (1,000 units × 6 kg) – 11,700 kg = 5,700 kg GH₵85,500 Adverse (A)
Kakaduro (1,000 units × 10 kg) – 10,000 kg = 0 kg No Variance

Prekese Usage Variance:

  • 1,000 units should have used 6,000 kg, but did use 11,700 kg
  • Variance = 5,700 kg × GH₵15 = GH₵85,500 Adverse (A)

Kakaduro Usage Variance:

  • 1,000 units should have used 10,000 kg, but did use 10,000 kg
  • Variance = 0 kg (No Variance)
    (2.5 marks)
  • 20 Marks

IMAC – MAR 2023 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Discuss tasks suitable for piece rate and hourly rate payment systems and compute labor variances and standard costing variances.

a) Employees may be paid either using piece rate or hourly rate.

Required:
In reference to the statement above, state THREE (3) tasks/jobs that:
i) Piece rate may be used. (3 marks)
ii) Hourly rate may be used. (3 marks)

b) Krenkren enterprise uses the hourly rate to pay her employees. The current rate is GH¢6 per hour. However, employees are paid 1.5 times for each overtime hour worked. Each employee is to work a minimum of 40 hours a week without a guaranteed payment. Any extra hour will attract overtime rate.

Extract from the time sheet for a week has been provided below:

Name Staff Number Hours worked
Kwame Sarfo H 1356 56
John Addae H 3456 38
Thomas Appia F 2254 48
Rose Danso F 8645 50

Required:
Calculate the basic pay for each of the staff. (9 marks)

c) The following standard costs apply to the manufacture of a product by Pontir Ltd:

  • Standard weight to produce one unit: 12 kgs
  • Standard price per kg: GH¢9
  • Standard hours to produce one unit: 10
  • Standard rate per hour: GH¢4

Actual production and costs for one accounting period were:

Cost Element Actual Usage Actual Cost (GH¢)
Material 3,770 kgs 35,815
Labour 2,755 hours 11,571

The actual output was 290 units.

Required:
Calculate relevant material and labor cost variances and present these in a format suitable for presentation to the management of Pontir Ltd. (5 marks)

a)
i) Tasks that may use Piece rate as a mode of payment:

  • Molding of blocks
  • Production of pieces of furniture
  • Sewing of dresses
  • Baking of bread
    (Any 3 points @ 1 mark each = 3 marks)

ii) Tasks that may use Hourly rate as a mode of payment:

  • Dressing of hair at the salon
  • Clerical work at the office
  • Servicing of cars
  • Maintenance of machines
  • Repair of equipment
    (Any 3 points @ 1 mark each = 3 marks)

b)
Computation of basic pay:

Name Staff Number Hours Worked Rate (GH¢) Overtime Hours Overtime Rate Basic Pay (GH¢)
Kwame Sarfo H 1356 56 6 16 1.5 × 6 384
John Addae H 3456 38 6 0 0 228
Thomas Appia F 2254 48 6 8 1.5 × 6 312
Rose Danso F 8645 50 6 10 1.5 × 6 330

Total: (9 marks)

c)
Summary of variances for one accounting period
(F = Favourable; A = Adverse)

Materials:

Variance Type Amount (GH¢) Favourable/Adverse
Price 1,885 A
Usage 2,610 A
Cost 4,495 A

Labour:

Variance Type Amount (GH¢) Favourable/Adverse
Rate 551 A
Efficiency 580 F
Cost 29 F

Workings:
Materials:

  • Actual cost: GH¢35,815
  • Price variance: GH¢1,885 A
  • Actual quantity purchased/used: 3,770 × GH¢9 = GH¢33,930
  • Usage variance: GH¢2,610 A
  • Standard quantity for actual production at standard price: 290 × 12 × GH¢9 = GH¢31,320
  • Cost variance: GH¢4,495 A

Labour:

  • Actual cost: GH¢11,571
  • Rate variance: GH¢551 A
  • Actual quantity purchased/used: 2,755 × GH¢4 = GH¢11,020
  • Efficiency variance: GH¢580 F
  • Standard quantity for actual production at standard price: 290 × 10 × GH¢4 = GH¢11,600
  • Cost variance: GH¢29 F
    Total: (5 marks)
  • 20 Marks

IMAC – DEC 2022 – L1 – Q4 – Accounting for Inventory and Labour

Explanation of inventory discrepancies, preparation of a FIFO inventory statement, sources of management information, and explanation of an investment center.

 

a) Inventory refers to the goods and materials that a business holds for the ultimate goal of resale, production, or utilization in the near future. Inventory could be in the form of raw materials, finished goods, work in progress, among others.

Required:
Identify FIVE (5) reasons actual inventory counted may be different from the balance in the inventory records. (5 marks)

a) Causes of discrepancies in closing inventory:

  • Theft by staff
  • Evaporation in the case of liquids and gas
  • Error in counting
  • Casting errors
  • Errors in recording
  • Over or understatement in stocks issued
  • Wrong classifications/coding
  • Error in counting at the time of receipt of stocks.
    (Any 5 points @ 1 mark each = 5 marks)

b) Statement of inventory movement (FIFO):

Date Receipt Issued Balance
2/1/2022 1,000 @ GH¢40 1,000 @ GH¢40 = GH¢40,000
5/1/2022 600 @ GH¢45 1,000 @ GH¢40 = GH¢40,000
600 @ GH¢45 = GH¢27,000
10/1/2022 800 @ GH¢40 200 @ GH¢40 = GH¢8,000
600 @ GH¢45 = GH¢27,000
11/1/2022 150 @ GH¢40 50 @ GH¢40 = GH¢2,000
600 @ GH¢45 = GH¢27,000
15/1/2022 1,200 @ GH¢42 50 @ GH¢40 = GH¢2,000
600 @ GH¢45 = GH¢27,000
1,200 @ GH¢42 = GH¢50,400
18/1/2022 850 @ GH¢42 50 @ GH¢40 = GH¢2,000
600 @ GH¢45 = GH¢27,000
350 @ GH¢42 = GH¢14,700
24/1/2022 900 @ GH¢48 1,000 @ GH¢42 = GH¢42,000
900 @ GH¢48 = GH¢43,200
(Marks are evenly spread using ticks = 10 marks)

c) Sources of management information: Examples

  • Internal: Ledger books, invoices, budget statements.
  • External: Internet, journals, print media, social media, reports from regulatory bodies.
    (2 marks)

d) An investment center is a segment of an organization that has the authority to invest resources of the organization, incur cost, and generate sufficient revenue to pay off the investment in assets. When a firm evaluates an investment center, it looks at the rate of return as measured by ROI and RI that it can earn on its investment.

  • 20 Marks

IMAC – NOV 2021 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Calculation of direct and indirect labour costs, examples of inventory costs, and explanation of uses of standard costing.

a) Asase Aban Ltd pays some of the employees on a time basis but is subject to a monthly minimum wage of GH¢800 as directed by the Government of Ghana. For one of the months, the following data were extracted from the timesheet of the company:

SRN Name Staff Number Number of hours
1 Kwame Sarfo K00324 262
2 Ajoa Mansa A00225 240
3 Salomy Adiku S00552 180
4 Joseph Asiedu J00654 332
5 Thomas Tinge T00724 204

The hourly rate was GH¢4.00, the minimum hours to be worked by each staff beyond which overtime can be paid is 224 per month. All overtime attracts a premium of GH¢1.50 per hour.

Required: i) Calculate the direct labour cost for the month. (8 marks) ii) Calculate the total indirect labour cost for the month. (2 marks)

b) Most businesses overlook their actual inventory cost, but in reality, the inventory price is more than its purchase price. It is because it includes the cost of ordering, as well as the cost of storing and maintaining until sales happen. Therefore, for assessing inventory value, every business must consider carrying or holding cost and ordering cost, together with the purchase price.

Required: i) State TWO (2) examples of inventory ordering costs. (2 marks) ii) State THREE (3) examples of inventory holding costs. (3 marks)

c) Explain TWO (2) uses of standard costing. (5 marks)

 

a) i) Calculation of direct labour cost for the month:

Name Hours Worked Basic Pay (GH¢) Overtime Hours Overtime Pay (GH¢) Total Direct Labour Cost (GH¢)
Kwame Sarfo 262 1,048 38 57 1,105
Ajoa Mansa 240 960 16 24 984
Salomy Adiku 180 720 0 0 720
Joseph Asiedu 332 1,328 108 162 1,490
Thomas Tinge 204 816 0 0 816
Total 5,115

ii) Calculation of total indirect labour cost for the month:

Name Indirect Labour Cost (GH¢)
Kwame Sarfo 57
Ajoa Mansa 24
Salomy Adiku 80
Joseph Asiedu 162
Thomas Tinge 0
Total 323

b) i) Examples of inventory ordering cost:

  1. The cost associated with the selection of suppliers.
  2. Processing of procurement, placing advertisements for the supply of goods, tender documentation, and meeting expenses. (Any 2 points @ 1 mark each = 2 marks)

ii) Examples of inventory holding cost:

  1. Rent of warehouse.
  2. Electricity cost.
  3. Insurance of stock.
  4. Deterioration of stock.
  5. Staff cost. (Any 3 points @ 1 mark each = 3 marks)

c) Uses of standard costing:

  1. To assign per unit costs to production to value inventory.
  2. To control overhead spending.
  3. To measure and evaluate the use of production capacity with respect to the incurrence of fixed overhead costs. (Any 2 points @ 2.5 marks each = 5 marks)

 

  • 20 Marks

IMAC – MAY 2020 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Compare FIFO and weighted average inventory valuation, compute profit, and explain standard costing concepts.

a) Grains Dealers Ltd is in the business of buying farm produce in bulk from out-growers for onward sale to manufacturers. In view of the huge volumes of receipt and sale transactions, the company is unable to use the specific pricing method for valuing inventories. The company needs advice on the impact on profit of using the FIFO or Weighted Average methods of inventory valuation. The following data has been extracted for the month of October 2019 for use:

Inventory balance as at 01/10/19 was 800 units at GH¢4 per unit.

Date Purchases Sales
Quantity Price (GH¢)
05/10/2019 1,200 5.00
10/10/2019
12/10/2019 1,500 6.00
15/10/2019 1,800 7.25
18/10/2019
25/10/2019 2,400 8.00
28/10/2019

Additional information:
A physical inventory count on 31 October 2019 revealed a shortage of 200 units.

Required:
i) Prepare the inventory ledger showing the value of costs of inventory sold, and the closing inventory on the basis of the perpetual inventory valuation system under:

  • FIFO Method (6 marks)
  • Weighted Average Method (6 marks)

ii) Compute the profit for the month for each method in columnar form. (3 marks)

b) Explain the following as used in standard costing and variance analysis:
i) Ideal standard;
ii) Attainable standard; (5 marks)

a)
i) FIFO METHOD – INVENTORY LEDGER

Date Receipts Issues Balance
Qty GH¢ Qty
01/10/19 800 4.00
05/10/19 1,200 5.00
800
10/10/19 800
700
12/10/19 1,500 6.00
15/10/19 1,800 7.25
18/10/19 500
1,500
1,400
25/10/19 2,400 8.00
28/10/19 400
1,600
31/10/19 Shortage 200
Total
(6 marks evenly spread using ticks)

WEIGHTED AVERAGE METHOD – INVENTORY LEDGER

Date Receipts Issues Balance
Qty GH¢ Qty
01/10/19 800 4.00
05/10/19 1,200 5.00
10/10/19 1,500
12/10/19 1,500 6.00
15/10/19 1,800 7.25
18/10/19 3,400
25/10/19 2,400 8.00
28/10/19 2,000
31/10/19 Shortage 200
Total
(6 marks evenly spread using ticks)

ii) Computation of Profit for the Month

FIFO Weighted Average
GH¢ GH¢ GH¢
Sales 74,000 74,000
Cost of Sales
Opening inventory 3,200 3,200
Purchases 47,250 47,250
Closing inventory (4,800) (4,662)
Total 45,650 45,788
Gross Profit 28,350 28,212
(3 marks)

b)
i) Ideal Standard

  • An ideal standard is a standard set under the most favorable conditions with no allowances for inefficiencies such as waste, spoilage, or machine downtime. These standards are achievable only under perfect conditions and serve to highlight and monitor the full cost of factors such as waste.

ii) Attainable Standard

  • An attainable standard is set at levels that assume efficient levels of operation but includes allowances for factors like losses, waste, and machine downtime. This type of standard is more realistic and motivational, as it provides some allowance for unavoidable inefficiencies.
  • 20 Marks

IMAC – NOV 2019 – L1 – Q4 – Accounting for Inventory and Labour

Calculate material variances, explain time and piece rate, and compute direct and indirect labour costs

Walata Ltd manufactures and sells a unique anti-cold formula called the Magic Ball. The product is produced from a combination of two ingredients; R and Q with the following details:

Standard quantity per unit:

  • Q: 3kg
  • R: 2kg

Standard prices:

  • Q: GH¢2.50
  • R: GH¢4.00

For the quarter just ended, the following results were recorded:

  • Actual production: 2,000 units
Material Quantity purchased and used Price per Kilogramme
Q 4,800 kg GH¢4.25
R 5,400 kg GH¢2.20

Required:
i) Calculate the price variance for each material. (3 marks)
ii) Calculate the usage variance for each material. (3 marks)

b) Apagya Ltd has two product lines AB and CD. Time rate and piece rate labour rewarding systems are used for AB and CD products respectively.
Required:
Explain the terms time rate and piece rate, clearly outlining their differences and giving examples of business settings where each could be applied. (4 marks)

c) AB Ltd operates a 40-hour weekly work regime and rewards labour for all overtime worked at time and one-half.
The wage rate is GH¢80 per hour.
The following details are recorded for the month of October 2019 for an employee (Adamu):

Week Hours Worked
1 36
2 48
3 45
4 46

Required:
i) Compute the total direct labour costs for Adamu for the month of October 2019. (4 marks)
ii) Calculate the total indirect labour costs for Adamu for the month of October 2019. (4 marks)

d) Explain the treatment of overtime premium in accounting for labour costs. (2 marks)

 

b) Piece Rate
This is a wage reward system where labour is paid based on the volume of work done. Here, the output recorded is the reference point for measuring the wages payable to the employee but not the time spent. Examples of production settings where this rate system is applicable may include construction, manufacturing, food processing, etc. (2 marks)

Time Rate
This is a reward system that relates wages to the time spent by the employee. Example: hourly, daily, weekly, fortnightly, or monthly, depending on the nature of the employee’s skill. This is usually used in service firms such as accounting firms, hospitality services, law firms, etc. (2 marks)

c) AB Ltd
i) Computation of total direct labour costs for the month of October 2019

Week Hours Worked Calculation Cost (GH¢)
1 36 36 x GH¢80 2,880
2 48 48 x GH¢80 3,840
3 45 45 x GH¢80 3,600
4 46 46 x GH¢80 3,680
Total 14,000
(4 marks evenly spread using ticks)

ii) Computation of total indirect labour costs for the month of October 2019

Item Calculation Cost (GH¢)
Idle time 4 x GH¢80 320
Overtime premium (Week 2) 8 x GH¢80 x 50% 320
Overtime premium (Week 3) 5 x GH¢80 x 50% 200
Overtime premium (Week 4) 6 x GH¢80 x 50% 240
Total 1,080
(4 marks evenly spread using ticks)

d) Treatment of Overtime Premium in Accounting for Labour Costs
Overtime premium is generally accounted for as indirect labour costs. However, where overtime payments result from customer-specific requirements for the production of a product or job, then such overtime premium may be accounted for as direct labour.
(2 marks)

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