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Management Accounting (MA1) > Accounting for Material and Labour Costs > Flashcards

Accounting for Material and Labour Costs Flashcards

CHAPTER 6

1
Q

3 main ways of classifying materials

A

According to :

  • Substances that make them up
  • How they are measured
  • Physical properties
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2
Q

Raw material

A

Goods purchased for incorporation into products for sale

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3
Q

Work in progress

A

An intermediate stage between the manufacturer purchasing the materials that go to make up the finished product and the finished product

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4
Q

Finished good

A

A product ready for sale or despatch

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5
Q

Unit produced

A

= Unit sold + closing - opening

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6
Q

Double entry for issue of direct material

A

Dr WIP
Cr Material control a/c

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7
Q

Double entry for issue of indirect material

A

Dr Production Overhead
Cr Material control a/c

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8
Q

Double entry for material returned from production to store

A

Dr Material control a/c
Cr WIP/Production overhead

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9
Q

Explain FIFO

A

Values issues at the prices of the most oldest purchases

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10
Q

Explain LIFO

A

Values issues at the prices of the most recent purchases

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11
Q

Explain cumulative weighted average pricing

A

Calculate an average cost of all units whenever a new delivery is received

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12
Q

Explain periodic weighted average pricing

A

Calculate an average cost per unit at the end of a given period

–> easier to calculate than CWA

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13
Q

FIFO : In period of inflation…

A
  • materials to be issued at the cost lower than current market value
  • closing inventories valued at a cost current to market value
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14
Q

LIFO : In period of inflation…

A
  • materials to be issued at price current to market value
  • closing inventories lower than current market value
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15
Q

CWA : In period of inflation….

A
  • Value of material issues will rise gradually, but will tend to lag a little behind current market value @ date of issue
  • Closing inventory also lower than current market value
    ———————————————-
    Cost of materials issued + value of closing inventory = Cost of purchases + value of opening inventory
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16
Q

Advantages of FIFO

A

–> Logical pricing method
–> Easy to understand & explain to managers

17
Q

Disadvantages of FIFO

A

–> Cumbersome to operate
–> Difficult to compare costs & make decisions (varying prices for same material)
–> Prices may diverge widely from market price when there is high rate of inflation

18
Q

Advantages of LIFO

A

–> Issued price close to current market value
–> Managers continually aware of current costs when making decisions

19
Q

Disadvantages of LIFO

A

–> Cumbersome to operate (several batch baru separuh je guna astu dah ada batch baru masuk)
–> Often opposite to what is actually happening
–> Hard to make decision (variation in prices)

20
Q

Advantages of PWA & CWA

A

–> Fluctuations in prices are smoothed out
–> Ease decision making
–> No need to identify each bath separately

21
Q

Disadvantages of PWA & CWA

A

–> Resulting issue prices rarely an actual prices that has been paid
–> Price can be lower than current market value

22
Q

Shift allowances

A

Extra payments to employees who agree to work shifts at unsociable hours/irregular business hours

23
Q

Output related pay

A

Receive wages that are directly related to the output produced

24
Q

Piecework system

A

Employees are paid according to number of good units of production

25
Q

What is the condition to operate individual bonus scheme

A

Employee has full control over his own productivity/ speed of his work

–> the speed of work is not dependent upon production of other employees / speed of machinery

26
Q

Total labour cost for an employer =

A

Gross pay + Employer’s benefit contribution

27
Q

Direct labour cost

A

Cost of hours worked by production workers who are involved directly in the business’s productive activities

28
Q

Indirect labour cost

A
  • Indirect workers employment cost
  • OT premium direct workers
  • Idle time direct workers
29
Q

Double entry for direct labour cost

A

Dr WIP
Cr Wages control a/c

30
Q

Double entry for indirect labour cost

A

Dr Production overhead
Cr Wages control a/c

31
Q

Double entry for gross pay

A

» Dr Wages control a/c - Gross pay
» Cr Bank - Net pay
» Cr Payable account (tax) - Income tax & benefit contribution

32
Q

Double entry for purchase of material on credit

A

Integrated system

Dr Purchase
Cr Payable A/C

Interlocking system

Dr Raw material inventory
Cr Cost Ledger Control A/C

Management Accounting (MA1) (10 decks)

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