1. Cost & Management Accounting
Material
Lecture-6
Mian Ahmad Farhan (ACA)

2. Problem
The information relating cost department of BETA corporation is as fallow
Inventory Jan 1 Dec 31
Material 34, ,000
Work in process 82, ,000
Finish goods 48, ?
Finish goods inventory Jan units
Dec units
Sold during the year 3,380 units at Rs. 220 per unit.

3. Problem Material Purchase Rs. 3,60,000 Conversion cost 2,14,400
Freight In ,600
Purchase discount ,000
Prepare Cost of Goods Sold Statement

4. Material consumed Direct material opening inventory Rs. 34000
Add Net purchases
Material Purchased 3,60,000
Add Freight Inward ,600
Less Purchase discount 8,000
3,60,600
Material available for use ,94,600
Less raw material closing stock ,000
Direct Material consumed ,45,600

5. Conversion Cost
Conversion Cost = Direct Material + Direct Labor

6. Total Factory Cost Material consumed Rs. 3,45,600
Add Conversion cost ,14,400
Total factory cost ,60,000

7. Cost Of Goods Manufactured
Total factory Cost ,60,000
Add Opening Work in process inventory ,000
Cost of goods to be manufactured ,42,000
Less Closing Work in process ,000
Cost of goods manufactured ,00,000

8. Cost Of Goods Sold Cost of goods manufactured 6,00,000
Add Opening finished goods inventory 48,000
Cost of goods to be sold 6,48,000
Less Closing finish goods X
Cost of goods sold X

9. Valuation of Closing Finish Goods
Closing finish goods = Closing finish goods Per unit manufacturing cost

10. Per Unit Manufacturing Cost
Cost of goods manufactured
No. of units manufactured

11. No. Of Units Manufactured
Opening finished goods units + Units manufactured – closing finished goods units = Units sold
X – 420 = 3880
Units manufactured = – 300 = 4000

12. Per Unit Manufacturing Cost
Cost of goods manufactured
No. of units manufactured
6,00,000
4,000 =
150

13. Opening Finish Goods Opening finish goods inventory
Units of Opening finish goods inventory
48,000
300 =
160

14. Value Of Closing Finish Goods Inventory
Closing finish goods = Closing finish goods Per unit manufacturing cost
= = 63000

15. Cost Of Goods Sold Cost of goods manufactured 6,00,000
Add Opening finished goods inventory 48,000
Cost of goods to be sold 6,48,000
Less Closing finish goods ,000
Cost of goods sold 5,85,000

16. Material
Material means goods in inventory kept as input for the production of finished output.

17. Product Cost Product Cost Material Conversion cost
That contain heavy proportion in product
cost. The management should be
vigilant about the control of material cost
It consist of both Labor and FOH

18. Categories Of Material & Supplies
Direct Material
Indirect Material
Office Supplies
Shipping Supplies

19. For example wood in manufacturing of table
Direct Material
Direct material costs are those cost of material that are traceable in full in the cost of a product or services
For example wood in manufacturing of table

20. Indirect Material
The cost that is incurred in producing product but which can not traced in full
Polish on table

21. Accrual Concept Important concept of Accounting.
Revenue of the period is matched with expenses.

22. Inventory Maintenance System
Perpetual Inventory System
Continuous record for each inventory item
Perpetual records are useful in preparing monthly quarterly or other financial statement.
In this method the cost of ending inventory and cost of goods sold can directly be determined.

23. Inventory Maintenance System
Periodic inventory System or Physical system
Does not keeps a continuous record of inventory on hand.
At the end of the period the business makes physical count of inventory on hand.