Project Management Accounting(BBAC501) - Essay Example

To put this into lump light it would be good to know what constitute a cost in manufacturing process. Manufacturing Overhead Costs Stocks are normally classified as an asset in the financial statements, and it is very pertinent note that each product mentioned as en inventory includes the costs of the following: 1. Direct material 2. Direct labor 3. Manufacturing (or factory) overhead Direct material and labour costs are directly traceable to the product being produced. Manufacturing (or factory) overhead on the other hand consist of costs which indirectly relate to factory and on this regard they are divided and allocated to each unit of product.

Accordingly this cost are reported in balance sheet inform of finished goods and work in progress (WIP) (GAAP). There are also other costs that would be treated as manufacturing overhead depending on the circumstances for instance, a loyalty or property tax imposed on a factory building. Although it will appear as fixed cost GAAP requires it allocation and assignment to each unit of manufactured product during such period. Other manufacturing overheads; 1. Material handling e.g. fork lifting opera oration for moving materials and units. 2. Technical expertise for setting up manufacturing equipment which requires some specifications. 3. Work force who inspect and supervise products as they are being manufactured.

In my estimates the following are the assumptions which hold in my review 1. There was virtually no beginning inventory of raw material, work in process and finished goods. 2. At the end of the month, 10% of the materials purchased remained on hand, work in process amounted to 20% of the manufacturing costs incurred during the month, and finished goods inventories were negligible. 3. The factory occupies 80% of the premises, the sales area 15% and administration 5%. 4. Most of the equipment is used for manufacturing, with only 5% of the book value being used for sales and administrative functions. 5. Almost all of the electricity is consumed in the factory. 6. The truck is used to deliver finished goods to customers. 7. The manager spends about one-half of his time on factory management, one-third in the sales area and the rest on administration.

Product Costing Cost ($) Cost ($)  Direct material 300,000 Direct labor 250,000 Prime Cost 550,000 550,000 Manufacturing (or factory) overhead Rent (80% of 80,000)Assp. No. 3 64,000 Production Supervisor's salary 35,000 Electricity (Assp. No. 5) 12,000 Manager's salary (80,000 x 1/2 Assp. No. 7) 40,000 Equipment depreciation (25,000x95% Assp. No. 4) 23,750 174,750 Total cost of production 724,750 Colonial Tap Company (CTC) Financial Statements for the month ended Cost ($) Cost ($) Sales 980,000 Less C.O.G.

Total cost of production 724,750 Less Material at the end ( 10% of 300,000 Assp. No. 2) (30,000) Less Work in progress (20% of 174,750 Assp. No. 2 ) (34,950) 659,800 Gross Profit 320,200 Non Manufacturing Expenses Administrative Expenses Council Rates 5,000 Rent (80,000 x 15% Assp. No. 3) 12,000 Manager's Salary (80,000x2/3 Assp. No. 7 ) 266,667 Equipment