Question 4 (a) NT Ltd. showed a net loss of 9,000 as per their cost accounts for the year ended 31-03-2025. However, the financial books disclosed ...

Question

Question 4 (a) NT Ltd. showed a net loss of 9,000 as per their cost accounts for the year ended 31-03-2025. However, the financial books disclosed a net profit of 7,000 for the same period. The following information was revealed as a result of scrutiny of the figures of both the sets of books: () Factory overheads absorbed 52,000 Selling & distribution overheads over absorbed 6,000 Administrative overheads under absorbed 7,500 Interest on Loan 8,800 Dividend received 9,000 Factory overheads charged 45,000 Depreciation charged in financial accounts 42,000 Depreciation recovered in cost accounts 45,000 There is the difference in the value of closing stock of finished goods due to varying basis of valuation. 500 units of closing stock is valued at 41,000 in cost accounts whereas market price per unit of closing stock is 80 per unit. It is found that there is still a difference in the reconciliation statement after considering all of the above which is due to the excess of raw material consumption in cost accounts. Prepare: (i) A reconciliation statement taking net loss as per cost accounts as base, and (ii) Find out the excess of material consumption during the period in cost accounts effectuated the difference in reconciliation. (8 Marks) (b) A manufacturing unit using Standard costing system and the following information was obtained from its records: Standard Actual Production 4,800 units 4,560 units Working days 25 27 COST AND MANAGEMENT ACCOUNTING Fixed overhead 48,000 46,800 Variable overhead 14,400 14,400 Required: Calculate the following overhead variances: (i) Variable overhead variance (ii) Fixed overhead variance (iii) Fixed overhead Expenditure variance (iv) Fixed overhead Volume variance (v) Fixed overhead Calendar variance (6 Marks)

Accepted Answer

Answer Solution: (a) (i) Statement of Reconciliation of profit as obtained under Cost and Financial Accounts () () Net Loss as per Cost Records (9,000) Add: Excess of Material Consumption (see below) 8,300 Factory Overhead over-absorbed ( 52,000 - 45,000) 7,000 Selling & Distribution Overhead over- absorbed 6,000 Dividend Received 9,000 Depreciation over-charged ( 45,000 - 42,000) 3,000 33,300 24,300 Less: Administration Overhead under-absorbed 7,500 Interest on Loan 8,800 Over-valuation of Closing Stock of Finished Goods ( 41,000 - 40,000) ( 80 p.u. x 500 units = 40,000 in financial accounts) 1,000 (17,300) Profit as per Financial Records 7,000 (ii) Statement showing calculation of excess of material consumption in cost accounts: () () Net Loss as per Cost Records (9,000) Add: Excess of Material Consumption X Factory Overhead over-absorbed 7,000 Selling & Distribution Overhead over-absorbed 6,000 Dividend Received 9,000 Depreciation over-charged 3,000 X + 25,000 X + 16,000 Less: Administration Overhead under- absorbed 7,500 Interest on Loan 8,800 Over-valuation of Closing Stock of Finished Goods 1,000 (17,300) Profit as per Financial Records X -1,300 Therefore, x – 1,300 = 7,000 Or x = 7,000 + 1,300 = 8,300 Excess of material consumption during the period in cost accounts is 8,300. (b) (i) Variable Overhead Variance: = Standard Overhead for Actual Production - Actual Variable Overhead =       14,400 ×4,560 units 4,800 units - 14,400 = 13,680 – 14,400 = 720 (A) (ii) Fixed Overhead Variance: = Absorbed Fixed Overhead – Actual Fixed Overhead COST AND MANAGEMENT ACCOUNTING =       48,000 ×4,560 units 4,800 units - 46,800 = 45,600 - 46,800 = 1,200 (A) (iii) Fixed Overhead Expenditure Variance: = Budgeted Fixed Overhead – Actual Fixed Overhead = 48,000 - 46,800 = 1,200 (F) (iv) Fixed Overhead Volume Variance: = Absorbed Fixed Overhead – Budgeted Fixed Overhead =       48,000 ×4,560 units 4,800 units - 48,000 = 45,600 - 48,000 = 2,400 (A) (v) Fixed Overhead Calendar Variance: = (Actual Days - Budgeted Days) x Standard rate per day = (27 days – 25 days) x 48,000 25days = 3,840 (F)

Detailed Solution & Explanation

Key Concepts to Understand

Depreciation

Net Profit

Variance

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