accounting

Income / Cost Statement of CTC

ParticularsAmountExisting

Direct Material $ 300,000 $ 300,000

Direct Laour $ 250,000 $ 250,000

Prime Cost $ 550,000 $ 550,000

Factory Overheads ( WN 1) $ 179,750 $ 179,750

Add: Opening Raw Material $ - $ -

Less: Closing Raw Materail $ 30,000 $ -

Factory Cost $ 699,750 $ 729,750 i.e cost of Goods Manufactured

Administrative Overheads (WN2 ) $ 39,292 $ 39,292

Add: Opening Work-in-Progress $ - $ -

Less: Closing Work-in-Progress $ 139,950 $ -

Cost of Goods Sold $ 599,092 $ 769,042

Selling & Distribution Expenses (WN3) $ 155,958 $ 155,958

Add: Opening Finished Goods $ - $ -

Less: Closing Finished Goods $ - $ -

Cost of Sales $ 755,050 $ 925,000

Margin / Income $ 224,950 $ 55,000

Sales $ 980,000 $ 980,000

Working Notes:

ParticularsFactory Overheads ( WN 1)Administrative Overheads (WN2 )Selling & Distribution Expenses (WN3)total

Production Supervisor's Salary $ 35,000 $ - $ - $ 35,000

Rent $ 64,000 $ 12,000 $ 4,000 $ 80,000

Council Rate $ 5,000 $ - $ - $ 5,000 Assumed all due to Production

Sales Staff $ - $ - $ 110,000 $ 110,000

Advertising $ - $ - $ 18,000 $ 18,000

Equipment Dep. $ 23,750 $ 625 $ 625 $ 25,000 Remaining 5% shared equally

Electricity $ 12,000 $ - $ 12,000

Manager's Salary $ 40,000 $ 26,667 $ 13,333 $ 80,000

Truck Lease $ - $ - $ 10,000 $ 10,000

$ 179,750 $ 39,292 $ 155,958

Notes:

In the provided income statement cost of sales also included the stock held by the

CTC, so the cost calculations made by the bookeeper is not correct.

Both the income statement gives different profit figures , because in the existing income

statement profit is less by closing raw material & WIP which is already held by CTC. And

in the new income statement true profits are shown.

Cost Volume Profit Analysis of Colonial Tap Company

(In $)

ParticularsAmount

Sales980000

Less:Variable Costs ( WN1)416000

Contribution Margin564000

Less:Fixed Costs (WN 2)318,800

Profit245,200

Working Note 1:

Material300000

Less: Closing Raw Material30000

270000

Less: Content of Closing WIP54000216000

Factory Wages250000

Content of Closing WIP50000200000

Total416000

Working Note 2:

Production Supervisor's Salary35000

Content of Closing WIP *700028,000

Rent80000


Council Rates5000


Sales Staff110,000

Advertisement18,000

Electricity12000


Manager's Salary80000


Truck Leases10,000

Total318,800

* Calculation already shown in previous sub sloutions

Evluation and usefulness of product costs based on direct materials and direct labour.in product costing cost are assigned to inventory and production based on the expenses . it is important process for the manufactures to chose different costing methods that they wants to be the business simple , accurate and other factors and so product costing is very useful some of the advantages of product costing is : Accuracy:Accuracy means that how the business can trace its expenses through product costs to correct the value of inventory .product cost analysis help in accuracy when it comes to variable costing.( Lacoma.T)Project tracking: Project tracking means when a company match the budgeted costs with the expected cost so costing plays very important role in project tracking so without proper costing it will be difficult to analyze cash flows and to determine that project has been success or not .Lacoma.T)Decision making : When a business manager make decision the decision is always based on the return on investment that how much a profit will be obtain from products based on costing . So product costing is the base which every manager will consider making decision Project development:It mean to create a new products so when a company plan to create new products or to recreate old product with new features so a product costing can be valuable resource to allow the business to attach a specific cost not only to product but also to product materials , features and abilities that allow accurate cost predications .(Lacoma.T)Recommendations for changes:For CTC I will recommend following suggestions: Whenever a company is calculating company s finances in that case accuracy is very important in financial statements , income statement and tax fillings. So each components of financial statement , income statement impact financial pressure in the business so incorrect calculations or inaccurate reports can create legal problems in tax fillings as well the significant concerns from investors The income statements reports depends on accurate calculations of cost of goods sold or product cost . so the CTC income statement by book keeper is incorrect so this leads serious problems and concerns for the business so CTC should hire a professional accountant rather then bookkeeper . (Kimbal.T) Incorrect product costing have also impact on budget because budget process depands on accurate calculations of expense and revenues Cost plus approach is used by CTC so it mean they ignore consumer demand in determining prices so I suggested for CTC to use cost Minus approach to do market research and also It can reduced costs as much as possible(james.T)

REFRENCES:

Kimball. Importance of Accurate Calculating in Product Cost Small business : http://smallbusiness.chron.com/ importance- accurate-calculating-product-cost-36698.html date accssed on 25 ,November.2013 Lacoma.T .The Advantages Product Costing Offers in Financial Accounting small business: http://smallbusiness.chron.com/advantages-product-costing-offers-financial-accounting-24883.html date accesses on 27,November,2013

James.T cost plus approach: http://www.ehow.com/facts_7297009_cost-plus-approach.html date accssed on 25, November,2013

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