Chapter 1 : Product Costing

1. Introduction
1) Analytical industries 分析性企业 are industries in which many products are
made from one raw material.
2) Synthetic industries 人造产业 are industries in which a product is made from
different materials or parts. Synthetic products may be made using process
costing or job systems of production.

1. Job Costing System 工作成本系统

1) Multiple Job Order Cost System 多项工作成本系统
2) Homogenous Products 同类产品
3) Non-homogenous Products 非同类产品
4) Assembly System 装配系统
5) Service Industries 服务业

2. Process Costing System 过程成本系统

1) Processing Methods
➢ Sequential Processing 连续性过程
➢ Parallel Processing 同行过程
➢ Selective Processing 选择性过程
2) Job-costing and Process Costing 任务成本与过程成本
3) Part job-costing and Part Process Costing 部分任务成本与部分过程成本
4) Hybrid Costing System 混合成本系统
5) Process Cost with Budgetary Control 预算控制 and Standards

4. Materials, Labour and Overheads

1) MRP 材料需求管理
➢ Materials requirement planning (MRP) `focuses first on the amount and tim-
ing to finished goods demanded and then determines the demand for mate-
rials, components_ and sub-assemblies
 2) ELEMENTS OF MRP
➢ Production schedule—It states how much to produce and how long it will
take to make each product.
➢ Bills of material—It states how much material, how many components and
sub-assemblies are required for production.
➢ Stock report—It states how many items are on hand, how many and when
items are to be received.
➢ Lead time
➢ Standard time—If the components or sub-assemblies are to be produced in-
ternally what is the standard time for completion?

1.6 Service Industries

1) Tangible Services 有型服务
➢ Service industries are classified into those selling tangible service, such as for
example restaurants, retail outlets and workops.

2) Intangible Services 无形服务

➢ Industries that sell intangible services, such as law firms, accounting firms,
tax consultants and non-profit organization, pose special problems.

1.7 Cost Volume Profit Relationship

1) Behavior of Costs
➢ Some costs vary with production while others are fixed, and some vary with
sales while others remain fixed.
2) Breakeven point 损益平衡点
➢ The point of volume where costs equal revenue is the breakeven point. This
is the point of zero profit.

1.8 Decision-making
1) Classification of Decision-making
➢ The decisions are classified into long-term and short-term decisions. Long-
term decisions relate to productive capacity and potential while short-term
decisions relate to operating efficiency.
1.9 Product Pricing
1) Target price
➢ The price management uses to determine the price of its own products
Example
Bongo Bhd. makes cement mixers. Due to recession in the construction industry it
is operating at 50% capacity. The cost of making 2,000 mixers are: material
RM40,000, labour RM6,000, variable overheads RM7,500 and fixed overheads RM
12,000. The selling price of each mixer is RM50. Latoya Bhd. wishes to buy and col-
lect the cement mixers from Bongo Bhd. Bongo Bhd. has invited tenders for 800
mixers. The following information is available to you to prepare a tender for sub-
mission.
1. Variable overheads for activity levels of 40% RM6,300, for 50% RM7,500, for
60% RM8,700 for 70% RM9,900, for 80% RM I I ,400, for 90% RM 12,700 and for
100% RM 14,000
2. Fixed overheads of RM 12,000 would apply for activity levels up to 80%.
You are required to:
(a) calculate the tender price that will give a 20% profit on it, and
(b) show by means of a statement the effect on profit if the tender is accepted.
Material (RM40,000÷2,000)×2,800 RM_______
Labour(RM6,000÷2,000)×2,800 RM_______
Variable overhead(70%) RM_______

RM________

Less:Cost of production for 2,000 mixers

Mate
RM______
rial
Labour
RM______
Vari
able
RM______
over
hears
 RM________

Cost of producing additing 800 mixers RM________

Add profit RM_______

tender price RM________

Effect on profit
before tender accepted after tender accepted
Sales RM100,000 RM________
Variable costs RM53,500 RM________
RM46,500 RM________
Fixed costs RM12,000 RM________
Profit RM34,500 RM________

2) Price chargeable
 A company gives a quotation for a job which requires 100kg of materials @
$10 per kg, 25 direct labour hours @ $40 per hour and overheads recovered on
the basis of kg used, at $8 per kg. a mark-up of 60% is added. What is the price
chargeable to the customer?

3) Using the information in question (b) above and assuming the customer accepts
the quotation, what profit would be earned on the job if the actual job takes 50 %
more materials but only 90% of the labour costs, and the quoted price cannot be
renegotiated?

4) Jumbly Ltd manufactures radiators in batches of 40. During May, Batch no. 23
had a slight manufacturing fault, resulting in only 36 radiators being completed.
The remainders were scrapped. Costs were Raw materials $1400, Labour and over-
heads $600. What was the cost per radiator?