COST ACCOUNTING TUTORIAL

WEEK 1 & 2
INTRODUCTION TO COST TERMS AND PURPOSES

Explanation Video Link →

https://www.youtube.com/channel/UC_u1IOAgNSFThwN2a8637ew

Problem 1. Classification of Cost in Merchandising Sector

Essential College Supplies is a store in Universitas Indonesia. The store has an apparel section
(t-shirt with the school logo) and convenience section. It reports revenue from the 2 section
separately. Classify the following cost as follow:
a) Direct or Indirect Cost of the total number of t-shirt sold
b) Variable or Fixed costs of how the total costs of the apparel section change as
the total number of t-shirt sold changes. (If in doubt, select on the basis of whether the total
costs will change substantially if there is a large change in the total number of t-shirt sold.)

Cost:
1. Annual fee for licensing the school logo
2. Cost of stores’ manager salary
3. Cost of t-shirt purchased for sale to customer
4. Subscription to College Apparel Trends magazine
5. Leasing of computer software used for financial budgeting at the store
6. Cost of coffee provided free to all customers
7. Cost of cleaning the store every night after closing
8. Freight-in costs of t-shirt purchased by ECS

Problem 2. Classification of Cost in Manufacturing Sector

Depok Furniture Company assembles two types of chairs (recliners and rockers). Separate
assembly lines are used for each type of chair. Classify the following cost as follows:
a) Direct or Indirect Cost for the total number of recliners assembled
b) Variable or Fixed costs of how the total costs changes as the total number of
recliners assembles changes. (If in doubt, select on the basis of whether the total costs will
change substantially if there is a large change in the total number of recliners assembled.)

Cost:
1. Cost of fabric used on recliners
2. Salary for public relations managers for Depok Furniture
3. Annual convention for furniture manufacturers; generally Depok Furniture attends
4. Cost of lubricants used on the recliner assembly line
5. Freight cost of recliner frames shipped from Medan to Depok
6. Electricity cost for recliner assembly line (single bill covers entire plant)
7. Wages paid to temporary assembly line workers hired in periods of high recliner
production (paid on hourly basis)
 8. Annual fire-insurance policy for the whole plant
9. Wages paid to plant manager who oversees the assembly lines for both chair

Problem 3. Inventoriable Cost versus Period Cost

Each of the following cost items pertains to one of these companies: Ace Hardware (a
merchandising company), Samsung (a manufacturing company), and Rent a Nanny (a service
company):

1. Cost of plumber and plumbing supplies available for sale at Ace Hardware
2. Electricity used to provide lighting for assembly-line workers at Samsung
manufacturing plant
3. Mileage paid to nannies travelling to clients for Rent a Nanny
4. Wages for personnel responsible for quality testing of the Samsung products during the
assembly process
5. Salaries for Rent a Nanny marketing personnel
6. Lunches provided to the nannies for Rent a Nanny
7. Salaries of employees at Samsung retail stores
8. Shipping costs for Samsung to transport products to retail stores

Problems:
a) Distinguish between manufacturing-, merchandising-, and service-sector company
b) Distinguish between inventoriable costs and period costs
Classify each cost above as inventoriable cost or period cost

Problem 4. Income Statement and Statement of COGM

Urban Corporation has the following account balances (in millions)

For Specific Date:

Direct materials inventory, Jan 1 2020 $15
WIP inventory, Jan 1 2020 10
Finished goods inventory, Jan 1 2020 70
Direct materials inventory, Dec 31 2020 20
WIP inventory, Dec 31 2020 5
Finished goods inventory, Dec 31 2020 55

For Year 2020:

Purchase of direct materials $325
Direct manufacturing labor 100
Depreciation – Plant and equipment 80
Plant supervisory salaries 5
Miscellaneous plant overhead 35
Revenues 950
 Marketing, distribution, and customer- 240
service costs
Plant supplies used 10
Plant utilities 30
Indirect manufacturing labor 60

Prepare an income statement and a supporting schedule of Cost of Goods Manufactured for the
year ended Dec 31 2020.

Homework
Problem 5 Missing records, Computing Inventory Costs

Ron Howard recently took over as the controller of Johnson Brothers Manufacturing. Last
month, the previous controller left the company with little notice and left the accounting
records in disarray. Ron needs the ending inventory balances to report first-quarter numbers.

For the previous month (March 2020) Ron was able to piece together the following information
(in thousand dollars):

Direct materials purchased 90

WIP Inventory, 1 March 2020 30
Direct materials inventory, 1 March 2020 13.5
Finished goods inventory, 1 March 2020 190
Conversion Cost 340
Total manufacturing costs added during the period 400
Cost of goods manufactured 5 times direct
materials used
Gross margin as percentage of revenues 30%
Revenues 640

Calculate the cost of:

1. Finished-goods inventory, 31 March 2020
2. WIP inventory, 31 March 2020
3. Direct materials inventory, 31 March 2020