Tutorial_1_2_(06.10.2022, 13.10.

22)
(Exercises from: B. Nita, “Cost and management accounting : tutorial exercises with examples”, Wrocław: Wydawnictwo UEW)

TOPIC: Basic cost terms and concepts, cost classification

Ex. 1.
The following business operations took place in the construction company "Odra-Bud" Wroclaw in January:
No Content of business operations Amount of money
.
1 Issued from storage materials for the construction of sewage treatment plant Cost 120 750,00
Purchased office supplies, which were forwarded to the accounting department. The 230,00
2
payment deadline specified on the invoice - 7 days Cost
It was found that the construction of sewage treatment plant in the previous
3
reporting period were used 950 t of cement Resource consumption
4 Paid with cash advance for the purchase of new office equipment Expense 700,00
Received an invoice for the services. The payment deadline specified on the invoice 14 500,00
5
- 7 days Cost
It was found that masons worked 10 000 hours in the construction of sewage
6
treatment plant in the first decade of January Resource consumption
7 Paid by bank transfer for purchased earlier office supplies. Bank statement received 230,00
Expense
8 Paid cash for a shipment sent by courier. The invoice will be sent via mail Expense 45,00
The Bank has collected a fee for the current account for the first quarter of this year. 90,00
9
Bank statement received Expense
10 Calculated salaries for administration staff Cost 24 600,00
11 Paid with cash marketing department employee for business travel Expense 167,00
Maintenance department has calculated that the earthworks own equipment
12
consumed 27 600 l fuel Resource Consumption
13 Paid by bank transfer the income tax Expense 1 950,00

Required:
Assign the economic operations into costs, expenses and resource consumption.
(A cost is incurred when a resource is consumed for some purpose.)

TOPIC: Overhead cost assignment and interdepartmental cost assignment

Exercise 1.2
Mark & Mark Co. manufactures two products: X and Y. During a specified periodMark & Mark incurred
prime cost (direct material and direct labour costs) for manufacturing X and Y equaled 26 000 USD and 50 000
USD respectively.
Besides manufacturing overhead costs for the period were 45 600 USD and non-manufacturing costs
(selling, general and administrative) were equal to 36 480 USD.
Manufacturing overheads are assigned to the products on the basis of prime cost, while non-manufacturing
costs are allocated to the products using total manufacturing cost.
Required:
Compute the total manufacturing costs and the total product costs for X and Y.

Exercise 1.4
CA&CA S.A., a window-making business, manufactures high quality wood windows adjusted to customers’
expectations. CA&CA has three production departments and two service departments. Budgeted overhead costs
for the coming month are as follows:
 Property rent and taxes: 16 250 PLN,
 Insurance of machinery: 12 480 PLN,
 Depreciation of machinery: 39 000 PLN,
 Heating and lighting: 7 800 PLN,
 Salaries of production supervisor: 8 250 PLN.
The three production departments are located in the new premises, the details of which are given in table 1.9.
Table 1.9.
Specification Production departments Service departments
X Y Z A B
Area occupied (sq. metres) 2 000 2 500 1 000 200 800
Machine value (zł) 42 000 36 50 000 16 000 12 000
000
Direct labour hours 4 700 3 500 2 800 - -
Department A’s costs 60% 30% 10% - -
apportioned
Department B’s costs apportioned 25% 70% 5% - -

It is assumed that insurance and depreciation of machinery are apportioned on the basis of the value of
machinery. Heating, lighting and property rents and taxes are regarded as being related to the total floor area of
buildings. It is also assumed that salaries of a production supervisor are related to the number of direct labour
hours.
Required:
Calculate appropriate overhead absorption rates and assign all manufacturing overheads to production
departments, showing clearly the basis of apportionment used.

Exercise 1.5.
Squirrel and Badger Sp. z o.o. manufactures three different products: X, Y, Z and has four production
departments: Machining, Electrical, Welding and Assembly. Total manufacturing overheads for the plant are
588 000 PLN and the company has selected direct labour hours as the allocation base for assigning overheads to
products. Shown in table 1.10. below are the coming year’s budgeted production data and manufacturing costs
for the company.
Table 1.10.
Specification Machining Electrical Welding Assembly Total
Department Department Department Department
Overheads (PLN) 248 000 172 000 71 200 96 800 588 000
Direct labour hours 62 000 40 000 16 000 22 000 140 000

Direct labour hours required by each product in the production departments are presented in table 1.11.
Table 1.11.
Department Labour hours required by:
Product X Product Y Product Z
Machining 38 26 18
Electrical 22 – 34
Welding – 31 12
Assembly 14 10 8
Required:
Calculate the budgeted manufacturing overhead cost per unit of products X, Y and Z using:
1) the blanket overhead rate,
2) the departmental overhead rate.

Exercise 1.9.
 IT Cal S.A. designs, manufactures and sells computers for personal and office use as well as sells computers
wholesale with various designs and parameters. The company has four manufacturing operations: designing,
machining, assembling and
testing.
In order to support the manufacturing activities, the company has two service department: Payroll
Accounting Department established to handle the details of recordkeeping for employee wages and Transport
Department that deals with supplying with various types of microprocessors, other semiconductor elements,
hard disc drives etc. Transport Department from time to time provides services for Payroll Department as well.
During the current period, total overhead costs for each department, before any interdepartmental allocation,
were as follows:
 Designing: 86 000 zł,
 Machining: 120 000 zł,
 Assembling: 106 000 zł,
 Testing: 84 000 zł,
 Payroll Accounting: 40 000 zł,
 Transport Department: 30 000 zł.
For the current period, table 1.14. summarizes the usage of services by both the operating and service
departments.
Table 1.14.
Service work Service work used by:
provided by: Payrol Transpor Designin Machinin Assemblin Testin
l t g g g g
Payroll Accounting – 40 240 360 120 240
Department (labour hours)
Transport Department 600 – 1 350 675 2 700 675
(kilometres)
Required:
Allocate the two service departments costs to the four operating departments using four different methods:
1) the direct method,
2) the step method,
3) the simultaneous equation method,
4) the repeated distribution method.