Project Management Accounting Blending Management

Question: Describe about the Project Management Accounting for Blending Management. Answer: 1. Schedule of Cost of goods manufactured Sold Particulars Amount Amount Op balance of raw material $ 3,247,250.00 Purchase of Raw material $ 425,000.00 Closing Stock of Raw material $ (850,000.00) Raw Material consumed $ 2,822,250.00 Direct Labor costs $ 864,000.00 Manufacturing Overhead $ 1,350,000.00 Total Manufacturing costs $ 5,036,250.00 Change in Work in process inventory $ (156,250.00) Cost of goods manufactured $ 4,880,000.00 op balance of Finished goods inventory $ 320,000.00 Cost of goods available for sale $ 5,200,000.00 Closing balance of finished goods inventory $ (1,200,000.00) Cost of Goods Sold $ 4,000,000.00 Raw Material Particular Amount Particular Amount Op balance (balancing Figure) $ 3,247,250.00 Work in process $ 2,822,250.00 Purchase of Raw material $ 425,000.00 Closing Stock of Raw material $ 850,000.00 Total $ 3,672,250.00 Total $ 3,672,250.00 WIP Particular Amount Particular Amount Op balance $ 240,000.00 Cost of goods manufactured $ 4,880,000.00 Raw material (balancing figure) $ 2,822,250.00 Direct Labor $ 864,000.00 Manufacturing OH $ 1,350,000.00 Closing balance $ 396,250.00 Total $ 5,276,250.00 Total $ 5,276,250.00 Workings: Statement Showing Calculation of Closing WIP Particular Amount Direct Material $ 140,000.00 Direct Labor costs $ 100,000.00 Manufacturing overhead $ 156,250.00 Closing balance $ 396,250.00 The overhead absorption rate is calculated by using this formula: OHR= Budgeted Overhead/ Budgeted labor hours Calculation of Overhead Absorption Rate Particular Amount Budgeted Overhead $ 1,000,000.00 Budgeted Labor Hour 200000 Overhead Absorption rate $ 5.00 The overhead absorption rate is calculated by using this formula: LHR= labor cost / labor hours Calculation of labor Hour Rate Particular Amount Labor Cost $ 100,000.00 Direct Labor Hour 31250 labor Hour rate $ 3.20 Note: Labor hour rates are calculated from the figures of WIP given in the question Accounts payable Particular Amount Particular Amount Bank account $ 430,000.00 Op balance $ 70,000.00 Closing balance $ 65,000.00 Raw Material purchased (balancing figure) $ 425,000.00 Total $ 495,000.00 Total $ 495,000.00 Finished Goods Particular Amount Particular Amount Op balance $ 320,000.00 Cost of jobs sold $ 4,000,000.00 Cost of goods manufactured (balancing figure) $ 4,880,000.00 closing balance $ 1,200,000.00 Total $ 5,200,000.00 Total $ 5,200,000.00 2. Income Statement for the month of July 2016 Particulars Amount Sales $ 6,000,000.00 Less: Cost of Goods Sold $ (4,000,000.00) Gross Profit $ 2,000,000.00 Less: Selling and Administrative Costs $ (400,000.00) Net Profit $ 1,600,000.00 3. The cost of a product can be measured using various cost accounting techniques. The two popular methods are Process costing and Job costing (DRURY 2012). The Job costing technique is used to calculate the cost of a particular contract or job that is unique in nature. The process costing computes the costs that are charged in each process (De Zoysa et al. 2014). The difference between the process costing and job costing are given below: Basis Process costing Job Costing Meaning The method in which the cost that is charged to various process and operations are determined is known as process costing (Chak and Fung 2015). The Job costing is a process that calculates the cost of a particular contract or job (Fullerton et al. 2014). Nature Productions are standardized. Productions are customized. Cost Costs are first determined for the processes are then allocated to the units. Costs for each job are calculated. Cost Center Process Job Cost reduction High Low Transfer Costs are transferred from one process to another (Fullerton et al. 2013). No transfer of costs Ascertainment of cost At the end of the cost period At the completion of job Industry Suitable for industry where mass production is done. Suitable for industry where products are manufactured as per customers specification. 4. There are two systems for records keeping of inventory this are perpetual inventory system and periodic inventory system. In the periodic inventory system the inventory balance are not continuously updated (Uyar and Kuzey 2016). The purchases are recorded in the purchase account and the cost of goods sold account does not exist in this system. The cost of goods sold is determined by a closing entry at the end of the accounting period. In the perpetual inventory system, the cost of goods sold and the inventory balances are updated regularly. The purchases are directly recorded in the inventory account (Nixon and Burns 2012). For sales two entries are passed one at the sales value and other at the cost of goods sold. The purchase account is not useful in the perpetual inventory system. Based on the above discussions it can be concluded that as production reports requires monthly updates of cost of goods sold and inventory so monthly production report is an example of perpetual inventor y system (Otley 2016). Reference Chak, S.C. and Fung, H., 2015. Exploring the effectiveness of blended learning in cost and management accounting: An empirical study. InNew Media, Knowledge Practices and Multiliteracies(pp. 189-203). Springer Singapore. De Zoysa, A., Bhati, S. and De Zoysa, M., 2014. A survey of cost and management accounting practices in Sri Lanka. DRURY, C.M., 2013.Management and cost accounting. Springer. Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2013. Management accounting and control practices in a lean manufacturing environment.Accounting, Organizations and Society,38(1), pp.50-71. Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices.Journal of Operations Management,32(7), pp.414-428. Nixon, B. and Burns, J., 2012. The paradox of strategic management accounting.Management Accounting Research,23(4), pp.229-244. Otley, D., 2016. The contingency theory of management accounting and control: 19802014.Management Accounting Research,31, pp.45-62. Uyar, A. and Kuzey, C., 2016. Does management accounting mediate the relationship between cost system design and performance?.Advances in Accounting.