Product Cost Sheet released pending test report

Please ensure the materials availability for execute your costing scenario which in listed in the attached file.Thanks for releasing Cost Sheet so soon. There are a few observations in first trial, please go:


In BP :
1. Input UOM should be Pcs instead of Kg
2. If Input UOM is Kg/Lit:input and output upto 2 decimals->Pack Size should be in Kg
3. Cost Centers should be arranged according to Production Flow in BP, CO,PS,EXP etc.
4. Cost Component description should be GPO instead of General Production Overhead in BP, CO,PS,EXP etc.
5. In LEO Description Dept. Code should be Cost Center Code in BP, CO,PS,EXP etc.
6. Landed Cost is not a cost component class thus should be adjusted with PO price in all cases
7. In actual cost summary Total Batch Cost is not representative phrase in BP, CO,PS,EXP etc. (total costs to make the entire batch into CO,PS,EXP etc. would be the total batch cost)


In CO, PS, EXP:


1. Input UOM should be Pcs instead of IFC and output UOM in IFC whithout any fraction->Pack Size should be in agreement with Item description


In General/Common Rules:
1. Cost Centers Assessment Rates found inconsistent in different items accrued from the same batch
2. Active and Raw materials rate per unit is inconsistent with BP and total cost is not proportionate)
3. Total cost & Qty of active/raw in various items originated from the same batch can not be more than what consumed in BP


We might take 1 week (approx) to test the entire sheet with all actual transactions and bases.

Reply on Submission of Conversion Cost to a Toll Manufacturing Company

Thanks for sharing the operating costs/COC (Cost of conversion). It would have been better if bases line assumptions and costs sheets were there along with this, however to optimize the time I am putting some assumptions / queries behind this indicative costs , please help me to revalidate my understanding.


01. USD 0.75/sachet of 5 g is a COC including your company’s margin etc and it is a delivered price at Factory gate

02. The price includes all kind of taxes and to be deductable as per applicable laws

03. Understanding the site’s different facilities to be shared for GENO along with other products, hence costs is also proportionate and there would be improvement in costs also

04. We have shared 5 Years volume , technical details, equipment requirements( certain equipments are our company Specific), process flows with project team and assuming all have been taken into consideration while crafting the costs

05. Any CAPEX requirement and related to that any costs are not in scope of this costs

06. Clarity on Payment term – we prefer 60 days credit term. Trust this offer covers this.

In our earlier discussion I have cleared the costs model is P2P (Procure to Pay) - that means your company will procure all materials, maintain inventory and will sale FG (Finished Goods) as per purchase order. In short “ RM and PM costs + COC/Operating costs = P2P Costs at Factory gate”.

I am sure you have the volume, however as reference sharing the projected volume with you might help as reference.

Yr 1 -36 MT ,

Yr2 -57 MT,

Yr 3-62MT,

Yr 4-95MT and

Yr 5-111MT

Kindly revert if I am in the same page or any difference or any queries you have.

Business wise earning statement-Segment Reporting

Q.1. Consignment wise contribution on Export Sales - Others Expenses column - Which are the other expenses?

A. Other Expense- Free Goods.

Q.2. Daily Cash and Bank Position Report - Main cash refers to cash receipts?

A. Main Cash- Cash amount from Sales Proceed.(Depot)

Q.3. Business wise earning statement - Same format for other businesses and Export?. Since the formats are different, they would be considered as two reports

A. Same format for other businesses and Export- Yes

Q.4. LP3 status Report - Enter a column for LP3 amount, can you please populate some data and provide the report. It is not clear as to how we are tracking the fund utilized from the LP3.

A. PFA the New Report Format along with Data.

Q.5. MDR Report - Please provide explanation for the fields and some sample data.

A. PFA. Please find two format in the different name- One sheet containing Product wise, Business wise, Qty, Rate in detail -name-"MDR data file" and another is MDR Report. Please find in excel there has some requirement . Like- Location wise, Business wise, Month wise, Etc.

Q.6. Pending Format clarity on Agent Security Deposit and Agent Commission Reports

A. I discussed with Agro counterpart, he informed me after having the consent of his boss that they do not need that two reports. 

Cost Sheet  format- The existing format is for standard Cost sheet, hence some of the fields are not relevant, please send the format required as per Actual Cost sheet

What is Risk propensity?

40. In the bounded rationality model, an individual or team stops searching for alternatives as soon as an acceptable (“good enough”) goal or solution is discovered.  This is referred to as:

a.	limited search
b.	settling
c.	availability phenomena
d.	None of these

ANS:  A                  

   41.   _____ is a process of continuing or increasing the allocation of resources to a course of action even though a substantial amount of feedback indicates that the choice made is wrong.

a.	Limited search
b.	Escalating commitment
c.	Availability phenomena
d.	None of these

ANS:  B                   

   42.   When individuals and teams stop looking for possible goals or solutions to a problem after finding one that seems adequate, they have engaged in ____.

a.	limited search
b.	risk propensity
c.	escalating commitment
d.	emotional block

ANS:  A                   

   43.   _____is the tendency of an individual or team to make or avoid decisions in which the anticipated outcomes are unknown. 

a.	Risk propensity
b.	Balancing interests
c.	Risk commitment
d.	Balancing effects

ANS:    A

What are the 6 steps under a process costing system?

Six steps must be taken when deriving and assigning product cost under a process costing system:

1. Compute the total number of physical units to account for.

2. Compute the physical units accounted for by tracing the physical flow of units.

3. Determine the number of equivalent units of production, either on the weighted average or FIFO basis, for each cost component. The cost components include transferred-in (if multidepartmental), direct material, direct labor, and overhead. In cases of multiple materials having different degrees of completion, each material is considered a separate cost component. If overhead is applied on a direct labor basis or is incurred at the same rate as direct labor, labor and overhead can be combined as one cost component and referred to as “conversion.”

4. Determine the total cost to account for, which is the sum of beginning inventory costs and all production costs incurred for the current period.

5. Compute the cost per equivalent unit of production for each cost component.

6. Assign the costs to the units transferred and the units in ending work in process inventory. The method of cost assignment depends on whether weighted average or FIFO costing is used. The total of the costs assigned to units transferred and to units in ending work in process inventory must equal the total cost to account for.

How Equivalent units of production is measured?

The physical flow of production units through a department and the manufacturing effort expended in a department during a period normally occur in the following order:

• units started in the previous period and finished in the present period,
• units started in the present period and finished in the present period, and
• units started in the present period and not finished in the present period.

Because of these mixed manufacturing efforts, production cannot be measured by counting whole units. Accountants use a concept known as equivalent units of production to measure the quantity of production achieved during a period. 

Equivalent units of production (EUP) are an approximation of the number of whole units (deem as fully completed units) of output that could have been produced during a period from the actual effort expended during that period. 

 

EUPs are calculated by multiplying the number of actual but incomplete units produced by the respective percentage degree of completion. The following simple example indicates how equivalent units are calculated.
 

Assume the cooking department of a company had no beginning inventory in November. During November, the department worked on 220,000 units: 200,000 units were completed and 20,000 units were 40 percent complete at the end of the period. The EUP for the period are 208,000 [(200,000 100%) (20,000 40%)].

How a particular Job may be traced in a Job order Cost System?

In an actual or a normal cost job order system, direct material and direct labor are traced, respectively, using material requisition forms and employee time sheets, to individual jobs in process. Service companies may not attempt to trace direct material to jobs, but instead consider the costs of direct material to be part of overhead. Tracing is not considered necessary when the materials cost is insignificant in relation to the job’s total cost. 

Technology is playing an increasing role in aiding the management of jobs and in tracking job costs. Even basic accounting software typically has a job costing module. By automating the data entry processes, more accurate and timely data are gathered and employees are relieved of the recurring burden of logging data. The latest technology being adopted in job shops is project management software. These programs allow operational and financial data about jobs to be shared throughout the firm. Intranets are being created to facilitate the dissemination of this information.

In an actual cost system, actual overhead is assigned to jobs. More commonly, however, a normal costing system is used in which overhead is applied using one or more predetermined overhead rates multiplied by the actual activity base(s) incurred. Overhead is applied to Work in Process Inventory at the end of the month or when the job is complete, whichever is earlier.

Where Job Order Costing can be applicable

A cost accounting system should be compatible with the manufacturing environment in which it is used. Job order costing and process costing are two traditional cost accounting systems. Job order costing is used in companies that make a limited quantity of products or provide a limited number of services uniquely tailored to customer specifications. 

 

This system is especially appropriate and useful for many service businesses, such as advertising, legal, and architectural firms. Process costing is appropriate in production situations in which large quantities of homogeneous products are manufactured on a continuous flow basis.

A job order costing system considers the “job” as the cost object for which costs are accumulated. A job can consist of one or more units of output, and job costs are accumulated on a job order cost sheet. 

 

Job order cost sheets for uncompleted jobs serve as the Work in Process Inventory subsidiary ledger. Cost sheets for completed jobs not yet delivered to customers constitute the Finished Goods Inventory subsidiary ledger, and cost sheets for completed and sold jobs compose the Cost of Goods Sold subsidiary ledger.

Can standard cost system be applied in Job Order Costing?

Yes! 

 

A standard cost system determines product cost by using, in the inventory accounts, predetermined norms for prices and/or quantities of component elements. After production is complete, the standard production cost is compared to the actual production cost to determine the efficiency of the production process. A difference between the actual quantity, price, or rate and its related standard is
called a variance.



Standards can be used in a job order system only if a company typically engages in jobs that produce fairly similar products. One type of standard job order costing system uses standards only for input prices of material and/or rates for labor. This process is reasonable if all output relies on basically the same kinds of material and/or labor. 

 

If standards are used for price or rate amounts only, the debits to Work in Process Inventory become a combination of actual and standard information: actual quantities at standard prices or rates.

What are the three contingencies in case of a defective delivery of goods?

The three different contingencies which may arise in case of a defective delivery, i.e., delivery of a wrong quantity, are:

(1) Delivery of goods less than contracted for . where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject the goods. If he accepts them, he shall pay for them at the contract rate [sec. 37(1)].

Example. A sells to B 2,000 OF “200 yards reels of sewing cotton. After taking delivery B finds that the length of the cotton per reel is less than 200 yards. The average being shortage of about 6 per cent. B may reject the goods. If he waives the right of rejection, he is liable to pay the price of the goods at the contract rate [Back etc. v. synzmanoski, (1924)A.C. 43].

If the goods have been rejected for short delivery. The seller can make, within the time limit, another delivery in accordance with the terms of the contract.

(2) Delivery of goods in excess of the quantity contracted for. Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may (i) accept the whole ; or (ii) reject the whole ;or (iii) accept the quantity he ordered and reject the rest. If the buyer accepts the whole of the goods so delivered, he must pay for them at the contract rate [sec. 37(2)

Example . A places an order with B to supply 25 bottles of orange syrup. B sends 30.A is entitled to reject the whole, or he may accept 25 and reject the rest. If he accepts all the 30, he must pay for them at the contract rate.

(3) Delivery of goods contracted for mixed with other goods. Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different description, the buyer may accept the goods which are in accordance with the contract and reject the rest, or may reject the whole [sec 37(3)].

Example. A contracts with B to buy 100 tons of cane sugar. A delivers to B 75 tone of cane sugar and 25 tons of beet sugar. A may either (i) accept 75 tons of cane sugar which is in accordance with the contract, and reject 25 tons of beet sugar which is of a different description, or (ii) reject the whole sugar.

The provision of sec.37 are subject to any usage of trade, special agreement, or course of dealing between the parties [sec.37(4)].

If quantity deliver is deficit or excess which is negligible , the court does not take it into account. The maxim is “ the law does not take trivial deviations into account.”

What is job order costing system ?

A job order costing system is practiced by companies that make (perform) relatively small quantities or distinct batches of identifiable, unique products or services. 

 

For example, job order costing is appropriate for a publishing company that produces educational text books, an accountant who prepares tax returns, an architectural firm that designs commercial buildings, and a research firm that performs product development studies. In each instance, the organization produces tailor-made goods or services that conform to specifications designated by the purchaser of those goods or services.
 

Services in general are typically user specific, so job order costing systems are commonly used in such businesses. In these various settings, the word “job” is synonymous with engagement, project, and contract.

What is underapplied or overapplied manufacturing overhead?

Simpson Inc. uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to its various jobs. At the beginning of the year, the company estimated manufacturing overhead would be $400,000 and direct labor hours would be 40,000. The actual figures for the year were $430,000 for manufacturing overhead and 42,000 direct labor hours. Is manufacturing overhead underapplied or overapplied for the year? By how much?

First, calculate the predetermined overhead rate (based on direct labor hours (DLH)) as follows.

Predetermined overhead rate = Estimated overhead costs ¸ Estimated direct labor hours

Predetermined overhead rate = $400,000 ¸ 40,000 direct labor hours = $10.00 per DLH

Then, determine the amount of manufacturing overhead applied during the period:

Overhead applied = Predetermined overhead rate x Actual direct labor hours

Overhead applied = $10.00/direct labor hour x 42,000 direct labor hours = $420,000

Finally, compare the actual manufacturing overhead costs to the amount applied and decide whether it is underapplied or overapplied:

Actual	$430,000
Applied	420,000
Balance (underapplied)	$  10,000