Description
This is a lecture notes which i decided to compile and publish for great folks like you. Hope you would read and enjoy.
COST ACCOUNTING
Management accounting is an option of the broad
and popular accounting or subject area which is
studied globally and practice in most institution for
purposes of providing accountability for resources
injected in those institution.
THE ACCOUNTING DISCIPLINE
1. FINANCIAL ACCOUNTING (F.A)
This deals with data collection, arrangement,
recording and report writing i.e. fnancial statement.
2. FINANCIAL MANAGEMENT (F.M)
This deals with sourcing of funds for investments
and compensates the owner’s of the resources.
. MANAGEMENT ACCOUNTING (M.A)
This deals with strategic planning! i.e. costing and
collection of information drawn from fnancial
accounting and fnancial management and drawing
conclusion or decision ma"ing.
MANAGEMENT ACCOUNTING
This is therefore the activity within the main stream
accounting in which the technical people involved in
employing information drawn from fnancial
accounting and fnancial management in order to
reach decision which can help to run the fnancial
a#airs of the organisation internally and also
achieve its long$term objectives %strategies&
'ost analysis and management also referred to as
'osting is simply a component of management
accounting frame wor" or structure.
COST ANALYSIS AND MANAGEMENT
COST;
'ost is simply a pain for bearing, sacrifce su#ered
or incurred by an organisation in$order to achieve a
range of products.
COST ACCOUNTING
(s therefore a tool of management that provides a
detailed record of a cost relating to products,
services, operations or activities.
(t is a process of determining and accumulating the
costs of some particular product or services.
COST AND MANAGEMENT ACCOUNTING (CMA)
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-
'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;
'opyrighted uantity, prices and values indicated, store
management often fnds it a problem to determine
which price to be employed when issuing out stoc"
for consumption department.
)ver the years, a number of methods have been
derived to help in stoc" valuation and pricing each
of them with its advantage and short coming and
they include?$
1. @irst in @irst )ut %@(@)&
2. *ast in @irst )ut %*(@)&
. 0eighted average Method
A. /eplacement 'ost method
8. 7tandard price method.
FIRST IN FIRST OUT (FIFO)
2nder this method, materials are used in the order
in which they are received. (n other words,
materials received frst are issued and the process
is repeated throughout!$
AD*ANTAGES
$ Materials used are drawn from the cost
records in the logical and systematic manner.
$ Movement of materials in a continuous
orderly single manner represents a condition
necessary to inconsistent wea" eBcient
material control particularly for material
subject to detoriation, decay and so on.
$ (t is a more logical method because it
assumes that materials are issued in the
order in which they are produced.
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T-
'ost ,ccounting *ecturetes by *o"atech -ulu 2niversity +itgum 'ampus ;
'opyrighted uantity of each batch are
Ety 'ost to 6roduce
%7hs&
5atch )ne 2,3336cs F,3331G
5atch two 1,8336cs 4,3331G
5atch three 1,336cs 4,4331G
,ssuming you sell A,333 6cs during the year out of
the 8,233 produced. 'alculate the unit 'ost for each
batch.
7olution
5atch )ne G
Cost
¿ produce BatchOne
¿
Quantity
G
8,000
2,000
G A1G
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T-
'ost ,ccounting *ecturetes by *o"atech -ulu 2niversity +itgum 'ampus ;
'opyrighted uantity is 8H,243 2nits
iv. Ma=imum reorder period is F days.
v.rmal reorder period is H1 days.
vi. Minimum consumption is 4,J23 units
vii. Ma=imum consumption is 13H,283 units.
,dvice the management on the recommended
stoc" position at the end of the two months.
So.t'on
+eorder le!el * Ma.imum Consumption . Ma.imum period
* (%01"2% . #3
* #1#(#1$2% Units Ans4er
Minimum Stoc5 le!el 6Mn78 * +7 9 6,c . ,r8
* #1#(#1$2% - 60#12%% . 08
* '10'%1"2% Units
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T-
'ost ,ccounting *ecturetes by *o"atech -ulu 2niversity +itgum 'ampus ;
'opyrighted uantity of material or stoc" which is to
be ordered in one time to minimise inventory cost.
(t is essentially an accounting formulae that
determines the points at which the combination of
order cost are the least. The result is the most
e#ective >uantity to order.
=O- *
?
(2Cd)
IP
=O- *
?
2 !
C
GRAPHICAL ILLUSTRATION
ASSUMPTIONS OF THE EO3
? There is spontaneous delivery i.e. there is no
time between ordering and receiving of items
ordered for or lead time is constant.
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T-
'ost ,ccounting *ecturetes by *o"atech -ulu 2niversity +itgum 'ampus ;
'opyrighted here C* ?eli!ery Cost per unit/
? * Annual demand * rice per Unit
@ * Holding Stoc5 Cost
Stoc5 holding cost * 6
!tock holdingCost
!tock Value
8 A
A * Annual >age in Unit
S * Ordering Cost
C * Annual Carrying Cost per Unit
? ,nnual demand is "nown and the uses period
is normally assumed to be 1 year
? )rdering and Iolding 'ost are "nown with
certainty.
? ,ssumes price is constant.
I..st!at'on H; The Mu"wano Management also
indicated that during the last 4 years, the company
have been "eeping stoc" at an average of F,823
2nit per year.
The average consumption annually often has been
in the average of %2J,H83 ; 1AH,A33& units whereby
the annual e=penditure on this stoc" level has been
estimated to be 7hs. 42,833,333. ,ssuming that
annual delivery cost per unit is A,43. ,dvice the
company on what level of 7toc" should be
considered the most ideal for all %.conomic )rder
Euantity&
So.t'on
=O- *
?
(2Cd)
IP
C * '13$% ? *
146,400?29,650
7
*
(010$&
@ * 6
38,520
72,500,000
8 . (%%A * %/%23A *
72,500,000
38,520
* (1##"
Therefore =O- *
?
(2" 4,370 "16,679)
(0.053 "1.882)
*
?
145,774,460
0.053 " 1882
@ 8?8
The following data has been provided by *o"atech
industries regarding the way it manages materials
i. ,nnual demand A3,333 2nits
ii. )rdering 'ost 2-K 83
iii. 2nit 6rice 2-K 233
iv. 7torage 'ost 2Q
v. (nterest rate1'ost of funds FQ
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T-
'ost ,ccounting *ecturetes by *o"atech -ulu 2niversity +itgum 'ampus ;
'opyrighted uired! 6repare *o"atech’s total inventory
management cost if *o"atech limited is to ac>uire
materials at a discount of 8Q.
7upposing supplier is willing to supply a monthly
833 units at a discount of 8Q is it worthwhile
acceptingT
=O- *
?
2 !
C
A * '%1%%% Units S* Shs 2%
C* #A : "A *(%A."%% * "%Shs
=O- *
?
2 " 40,000" 50
20
=O- * ''$/" Units
Total $n4ento.y 'anagement 5o/t/ 6 &.,e.3ng 5o/t/ 7 5a..y3ng 5o/t/
8ut t-e num2e. o0 o.,e./ 6
nnual demand
#OQ
40,000
447. 2
Ordering Costs * #×
6#& . 2%8 : 6
447.2
2
. "%8
Holding Cost *
#OQ
2
. "%
* ''$"
?iscount of 2A (%%-2A * &2A . "%%
UBC (&%
Carrying Cost * (%A . (&% * (&
=O- *
?
2 " 40,000" 50
19
'2#/#
?
'2&
Total in!entory management * ordering cost : Carrying Costs
But number of ordering *
nnual $emand
#OQ
*
40,000
459
* #$
Holding DCarrying Cost *
#OQ
2
*
459
2
* ""&/2
?
"3%
6#$ . 2%8 : 6"3% . (&8
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T-
'ost ,ccounting *ecturetes by *o"atech -ulu 2niversity +itgum 'ampus ;
'opyrighted ually
important when the cost system rises to
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T-
'ost ,ccounting *ecturetes by *o"atech -ulu 2niversity +itgum 'ampus ;
'opyrighted age rate
* ((0 . 01(%% * $%$10%%
Basic ayF Time Allo4ed * #' hours
Time ta5en * 0# hours
Time Sa!ed * 6#'-0#8 hours TS * (0 hours/
,ight bonus for Mohamed Mu5asa 6By Halsey >eir8
Bonus * (
( %&) ( '!)
3
)
*
6,100 " 30
3
*
183,000
3
?
Bonus * Shs
0(1%%%
?ay Bonus ay for Mohamed By Halsey
Bonus * (
( %&) ( '!)
2
)
*
2,980 " 16
2
* "31#'%
MohamedGs Total Bonus * ,ight Bonus : ?ay Bonus
* Shs 0(1%%% : Shs "31#'% *
?
Shs #'1#'%
Bross ay * Basic ay : Total Bonuses
* $%$10%% : #'1#'%
* Shs $&"1''%/
?=?UCT@O,S
7oan interestF 2A of Shs $&"1''%
* Shs 3&10""/
AH= * &A of $&"1''%
* Shs $(13"%
,SSI * $A of $&"1''%
* Shs 221$'(/
?. PETER ODUR (MACHINE OPERATOR) 5asic
6ay %Ta"e home 6ay&
Basic ay * Time allo4ed . ,ight >age rate
* 02 . Shs 21"%%/
Basic ay * Shs/ 33#1%%%
,ight F Time Allo4ed * 02 hours
Time Ta5en * &" Hours
Time Sa!ed * 602-&"8hours * "&hours/
?ayE Time allo4ed * &3 hours
Time Ta5en * $( hours/
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T-
'ost ,ccounting *ecturetes by *o"atech -ulu 2niversity +itgum 'ampus ;
'opyrighted uent section that needs to be
computationally determined is then due
fgure for period proft.
PERIOD PROFIT DETERMINATION
This fgure depends on the stage at which the
contract was reached in terms of its entire period
lifespan.
The earlier year stage is called 'nt"!("/'at"
sta0" and the rest of the period is the a/-an$"/
sta0" o& t%" $ont!a$t.
'onse>uently, when proft is to be determined at?$
(ntermediate stage, the formula is
A$ta. P"!'o/ #!o2t %,6V& G %tional V&
(
%C
COntract Price
)
ILLUSTRATION 89
0ith the support of the 0orld 5an", -ulu
municipality awarded a A2 billion shilling to Lott
contraction company limited in 2311 to construct
their main mar"et e=pected to be fully completed
by the year 2314.
-ulu Municipality engaged ,ler" Iill surveyor and
engineer to act. ,rchitect to oversee the project on
their behalf. The followings data were provided by
the town cler"
'. P.ant an/ Ma$%'n"!y
,c>uired locally shs 123,333,333
(mported from abroad 7hs JF4,333.333
''. E."$t!'$ty an/ 4at"!
6repaid 4FQ of materials on side
,ctual 7hs 4F,333,333
iv. Lirect labour costs 7hs 1,H33,333,333
v. 0or" 'ertifed 7hs 12,333,333,333
vi. Lirect material costs 7hs J833,333,333
vii. /eturned to store$ Q of direct materials.
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T-
'ost ,ccounting *ecturetes by *o"atech -ulu 2niversity +itgum 'ampus ;
'opyrighted uation or algebraic method.
D'!"$t A##!oa$%;
7ervice department costs are distributed to
production department on the basis of how service
department have been used by the centres.
This method does not consider interservice costs
the following procedures are always followed.
i. Letermine the basis of apportionment to
this service centre.
ii. Letermine interms of base the amount of
services provided to each of the other
department.
iii. 2sing the amount of services provided to
each department, apportion each service
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T-
'ost ,ccounting *ecturetes by *o"atech -ulu 2niversity +itgum 'ampus ;
'opyrighted uation
methods starts by establishing the e=act overhead
cost allocated by each department costs. This is
done by solving simultaneous e>uation. Then later
they are assigned to production departments
following the level of utiliUation by its department.
I..st!at'on; The following data is e=tracted from
the cost account limited for the month of dec 2311.
Cost C"nt!"s o!
/"#a!t("nts
In/'!"$t
Costs
In/'!"$t
Labo! Costs
6roduction department
7ervice Lepartment
6
E
/
K
1J3,333
2A3,333
A3,333
33,333
1F3,333
223,333
H3,333
233,333
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T-
'ost ,ccounting *ecturetes by *o"atech -ulu 2niversity +itgum 'ampus ;
'opyrighted
This is a lecture notes which i decided to compile and publish for great folks like you. Hope you would read and enjoy.
COST ACCOUNTING
Management accounting is an option of the broad
and popular accounting or subject area which is
studied globally and practice in most institution for
purposes of providing accountability for resources
injected in those institution.
THE ACCOUNTING DISCIPLINE
1. FINANCIAL ACCOUNTING (F.A)
This deals with data collection, arrangement,
recording and report writing i.e. fnancial statement.
2. FINANCIAL MANAGEMENT (F.M)
This deals with sourcing of funds for investments
and compensates the owner’s of the resources.
. MANAGEMENT ACCOUNTING (M.A)
This deals with strategic planning! i.e. costing and
collection of information drawn from fnancial
accounting and fnancial management and drawing
conclusion or decision ma"ing.
MANAGEMENT ACCOUNTING
This is therefore the activity within the main stream
accounting in which the technical people involved in
employing information drawn from fnancial
accounting and fnancial management in order to
reach decision which can help to run the fnancial
a#airs of the organisation internally and also
achieve its long$term objectives %strategies&
'ost analysis and management also referred to as
'osting is simply a component of management
accounting frame wor" or structure.
COST ANALYSIS AND MANAGEMENT
COST;
'ost is simply a pain for bearing, sacrifce su#ered
or incurred by an organisation in$order to achieve a
range of products.
COST ACCOUNTING
(s therefore a tool of management that provides a
detailed record of a cost relating to products,
services, operations or activities.
(t is a process of determining and accumulating the
costs of some particular product or services.
COST AND MANAGEMENT ACCOUNTING (CMA)
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;'opyrighted uantity, prices and values indicated, store
management often fnds it a problem to determine
which price to be employed when issuing out stoc"
for consumption department.
)ver the years, a number of methods have been
derived to help in stoc" valuation and pricing each
of them with its advantage and short coming and
they include?$
1. @irst in @irst )ut %@(@)&
2. *ast in @irst )ut %*(@)&
. 0eighted average Method
A. /eplacement 'ost method
8. 7tandard price method.
FIRST IN FIRST OUT (FIFO)
2nder this method, materials are used in the order
in which they are received. (n other words,
materials received frst are issued and the process
is repeated throughout!$
AD*ANTAGES
$ Materials used are drawn from the cost
records in the logical and systematic manner.
$ Movement of materials in a continuous
orderly single manner represents a condition
necessary to inconsistent wea" eBcient
material control particularly for material
subject to detoriation, decay and so on.
$ (t is a more logical method because it
assumes that materials are issued in the
order in which they are produced.
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;'opyrighted uantity of each batch are
Ety 'ost to 6roduce
%7hs&
5atch )ne 2,3336cs F,3331G
5atch two 1,8336cs 4,3331G
5atch three 1,336cs 4,4331G
,ssuming you sell A,333 6cs during the year out of
the 8,233 produced. 'alculate the unit 'ost for each
batch.
7olution
5atch )ne G
Cost
¿ produce BatchOne
¿
Quantity
G
8,000
2,000
G A1G
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;'opyrighted uantity is 8H,243 2nits
iv. Ma=imum reorder period is F days.
v.
rmal reorder period is H1 days.vi. Minimum consumption is 4,J23 units
vii. Ma=imum consumption is 13H,283 units.
,dvice the management on the recommended
stoc" position at the end of the two months.
So.t'on
+eorder le!el * Ma.imum Consumption . Ma.imum period
* (%01"2% . #3
* #1#(#1$2% Units Ans4er
Minimum Stoc5 le!el 6Mn78 * +7 9 6,c . ,r8
* #1#(#1$2% - 60#12%% . 08
* '10'%1"2% Units
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;'opyrighted uantity of material or stoc" which is to
be ordered in one time to minimise inventory cost.
(t is essentially an accounting formulae that
determines the points at which the combination of
order cost are the least. The result is the most
e#ective >uantity to order.
=O- *
?
(2Cd)
IP
=O- *
?
2 !
C
GRAPHICAL ILLUSTRATION
ASSUMPTIONS OF THE EO3
? There is spontaneous delivery i.e. there is no
time between ordering and receiving of items
ordered for or lead time is constant.
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;'opyrighted here C* ?eli!ery Cost per unit/
? * Annual demand * rice per Unit
@ * Holding Stoc5 Cost
Stoc5 holding cost * 6
!tock holdingCost
!tock Value
8 A
A * Annual >age in Unit
S * Ordering Cost
C * Annual Carrying Cost per Unit
? ,nnual demand is "nown and the uses period
is normally assumed to be 1 year
? )rdering and Iolding 'ost are "nown with
certainty.
? ,ssumes price is constant.
I..st!at'on H; The Mu"wano Management also
indicated that during the last 4 years, the company
have been "eeping stoc" at an average of F,823
2nit per year.
The average consumption annually often has been
in the average of %2J,H83 ; 1AH,A33& units whereby
the annual e=penditure on this stoc" level has been
estimated to be 7hs. 42,833,333. ,ssuming that
annual delivery cost per unit is A,43. ,dvice the
company on what level of 7toc" should be
considered the most ideal for all %.conomic )rder
Euantity&
So.t'on
=O- *
?
(2Cd)
IP
C * '13$% ? *
146,400?29,650
7
*
(010$&
@ * 6
38,520
72,500,000
8 . (%%A * %/%23A *
72,500,000
38,520
* (1##"
Therefore =O- *
?
(2" 4,370 "16,679)
(0.053 "1.882)
*
?
145,774,460
0.053 " 1882
@ 8?8
The following data has been provided by *o"atech
industries regarding the way it manages materials
i. ,nnual demand A3,333 2nits
ii. )rdering 'ost 2-K 83
iii. 2nit 6rice 2-K 233
iv. 7torage 'ost 2Q
v. (nterest rate1'ost of funds FQ
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;'opyrighted uired! 6repare *o"atech’s total inventory
management cost if *o"atech limited is to ac>uire
materials at a discount of 8Q.
7upposing supplier is willing to supply a monthly
833 units at a discount of 8Q is it worthwhile
acceptingT
=O- *
?
2 !
C
A * '%1%%% Units S* Shs 2%
C* #A : "A *(%A."%% * "%Shs
=O- *
?
2 " 40,000" 50
20
=O- * ''$/" Units
Total $n4ento.y 'anagement 5o/t/ 6 &.,e.3ng 5o/t/ 7 5a..y3ng 5o/t/
8ut t-e num2e. o0 o.,e./ 6
nnual demand
#OQ
40,000
447. 2
Ordering Costs * #×
6#& . 2%8 : 6
447.2
2
. "%8
Holding Cost *
#OQ
2
. "%
* ''$"
?iscount of 2A (%%-2A * &2A . "%%
UBC (&%
Carrying Cost * (%A . (&% * (&
=O- *
?
2 " 40,000" 50
19
'2#/#
?
'2&
Total in!entory management * ordering cost : Carrying Costs
But number of ordering *
nnual $emand
#OQ
*
40,000
459
* #$
Holding DCarrying Cost *
#OQ
2
*
459
2
* ""&/2
?
"3%
6#$ . 2%8 : 6"3% . (&8
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;'opyrighted ually
important when the cost system rises to
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;'opyrighted age rate
* ((0 . 01(%% * $%$10%%
Basic ayF Time Allo4ed * #' hours
Time ta5en * 0# hours
Time Sa!ed * 6#'-0#8 hours TS * (0 hours/
,ight bonus for Mohamed Mu5asa 6By Halsey >eir8
Bonus * (
( %&) ( '!)
3
)
*
6,100 " 30
3
*
183,000
3
?
Bonus * Shs
0(1%%%
?ay Bonus ay for Mohamed By Halsey
Bonus * (
( %&) ( '!)
2
)
*
2,980 " 16
2
* "31#'%
MohamedGs Total Bonus * ,ight Bonus : ?ay Bonus
* Shs 0(1%%% : Shs "31#'% *
?
Shs #'1#'%
Bross ay * Basic ay : Total Bonuses
* $%$10%% : #'1#'%
* Shs $&"1''%/
?=?UCT@O,S
7oan interestF 2A of Shs $&"1''%
* Shs 3&10""/
AH= * &A of $&"1''%
* Shs $(13"%
,SSI * $A of $&"1''%
* Shs 221$'(/
?. PETER ODUR (MACHINE OPERATOR) 5asic
6ay %Ta"e home 6ay&
Basic ay * Time allo4ed . ,ight >age rate
* 02 . Shs 21"%%/
Basic ay * Shs/ 33#1%%%
,ight F Time Allo4ed * 02 hours
Time Ta5en * &" Hours
Time Sa!ed * 602-&"8hours * "&hours/
?ayE Time allo4ed * &3 hours
Time Ta5en * $( hours/
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;'opyrighted uent section that needs to be
computationally determined is then due
fgure for period proft.
PERIOD PROFIT DETERMINATION
This fgure depends on the stage at which the
contract was reached in terms of its entire period
lifespan.
The earlier year stage is called 'nt"!("/'at"
sta0" and the rest of the period is the a/-an$"/
sta0" o& t%" $ont!a$t.
'onse>uently, when proft is to be determined at?$
(ntermediate stage, the formula is
A$ta. P"!'o/ #!o2t %,6V& G %
tional V&(
%C
COntract Price
)
ILLUSTRATION 89
0ith the support of the 0orld 5an", -ulu
municipality awarded a A2 billion shilling to Lott
contraction company limited in 2311 to construct
their main mar"et e=pected to be fully completed
by the year 2314.
-ulu Municipality engaged ,ler" Iill surveyor and
engineer to act. ,rchitect to oversee the project on
their behalf. The followings data were provided by
the town cler"
'. P.ant an/ Ma$%'n"!y
,c>uired locally shs 123,333,333
(mported from abroad 7hs JF4,333.333
''. E."$t!'$ty an/ 4at"!
6repaid 4FQ of materials on side
,ctual 7hs 4F,333,333
iv. Lirect labour costs 7hs 1,H33,333,333
v. 0or" 'ertifed 7hs 12,333,333,333
vi. Lirect material costs 7hs J833,333,333
vii. /eturned to store$ Q of direct materials.
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;'opyrighted uation or algebraic method.
D'!"$t A##!oa$%;
7ervice department costs are distributed to
production department on the basis of how service
department have been used by the centres.
This method does not consider interservice costs
the following procedures are always followed.
i. Letermine the basis of apportionment to
this service centre.
ii. Letermine interms of base the amount of
services provided to each of the other
department.
iii. 2sing the amount of services provided to
each department, apportion each service
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;'opyrighted uation
methods starts by establishing the e=act overhead
cost allocated by each department costs. This is
done by solving simultaneous e>uation. Then later
they are assigned to production departments
following the level of utiliUation by its department.
I..st!at'on; The following data is e=tracted from
the cost account limited for the month of dec 2311.
Cost C"nt!"s o!
/"#a!t("nts
In/'!"$t
Costs
In/'!"$t
Labo! Costs
6roduction department
7ervice Lepartment
6
E
/
K
1J3,333
2A3,333
A3,333
33,333
1F3,333
223,333
H3,333
233,333
)*)+, -.)/-. )+0(/ 11213341+5-167 2318 55, 9.,/ ((( 7.M.7T./ ):. ')7T ,'')2:T
-'ost ,ccounting *ecture
tes by *o"atech -ulu 2niversity +itgum 'ampus ;'opyrighted