Cost Acccounting - Case Study Example

The resulting amount is then deducted by the work in process beginning to come up with cost of goods manufactured. The cost of goods manufactured is then added to the finished goods beginning to come up with goods available for sale. The goods available for sale is deducted by the amount equal to finished goods ending inventory to arrive at COST OF GOODS SOLD. The cost of production report is a major tool for decision making. The cost accounting system shows us the true picture of the Elan company.

Based on Table 1 in the Appendix, for the year ended December 31, 1999, When the cost of goods sold amount of $137,935 is divided by the total revenue for the same year of $676,734, the cost of goods ratio of 20.38 percent. When the cost of goods sold for the year ended December 31, 1997 amounting to $106,182 is divided by the total revenue amount for the same year of $384,181, cost of goods ratio is 27.64 percent. To be more conservative, we can divide the cost of goods sold for the year 1998 of $137,935 by only the product sale of $342,078, the cost of gold ratio increase to 40.

32 percent. As for the year 1997, when we divide the cost of goods sold amount of $ 106,182 by the total product sales of $215,486 then the cost of goods sold for the year will increase to 49.28%. The table shows that the product selling price is higher than cost of goods sold. The. The direct materials are the ingredients that used in making the drugs and other products. The second production cost is the direct labor. The direct labor is the total amount paid for factory workers who are directly making those products.

The third kind of production cost is the Factory overhead. All factory cost that cannot be identified as direct materials and direct labor are lumped under the account title factory overhead costs. Examples of factory overhead are indirect materials, indirect labor or janitor, electricity cost and telephone expenses. The production cost is an actual amount and not estimated. Factory overhead costs can be divided into two kinds. The first kind is fixed cost. This means that the amount will generally be the same for the current accounting period irregardless of the increase or decrease in the number of products that are being processed.

An example of fixed cost is factory supervisor salary and the factory rent expense. The second kind of production cost is the variable cost. The variable cost is named so because the cost or expense amount will increase if production of goods will increase and the amount of such cost or expense decreases when the production of goods will decrease. Examples of variable production cost are direct materials and direct labor.The production cost is an actual amount and not estimated.(B)Assess the extent to which the system provides useful information for pricing,decision making, planning, control and performance measurement.(80 marks) The cost accounting system presented in section (A) above EXTENSIVELY will provide all the minimum requirements that the pricing and decision makers in the Elan company will need for their decision making functions. The