Sep 15, 2007

Fourth Opposition- MAF

THis coming monday will be the second last paper to go,

The first three chapters are theories, so read through and try to understand and memorize the definations. As for the third chapter, there is a need to work out the high low method, so remember to look into it.

The Material Chapter, there are quite lot of formulas, remember it. As for FIFO, LIFO, and WAC, supposedly you already understood, merely read through will do.

As for Labour Chapter, you must know how to calculate each type of wages systems.

Proceed to the Overhead Chapter, you need to know how to allocate the cost to specific cost centres and then reapportionate it, then finally absorb it into your product cost.
OAR comprises of many basis, and so you need to know how to calculate different OAR with different basis.
Last but not least, compare the Overhead absorbed and the actualy Overhead incurred and determine whether it is over absorption or under absoption.

For Operation Costing, OUtput Costing and service costing, just read through theories.It is better if you can find a way to differentiate different costing method, so that it is clearer to you.

As for JOb Costing, it is to calculate the costs that are related to the job itself, rather than the whole operation.

Standard Costing is interrelated with the Variance analysis, as standard costing offers a standard yardstick to find out the variances between standard and the actual incurred.

MOre care to be taken in understanding how to calculate the different variances (refers to formula). If you wish not to remember the formula, you need to have a clear understanding and work out the simplest way of common sense.

TO be frank, personally i think process costing would be the hardest, following by variance analysis.
Here, you would need to open Process account and calculate the cost of finished goods, opening and closing WIP, abnormal loss or gain, normal loss.

Without OWIP and CWIP, the process account is much more simpified as you no need to open another statements of EU,statement of cost and statement of evaluation where by students get too frustrated as what the heck is it and i dont even know why we have to do this.

With OWIP and CWIP, three things extra that you need to work out:
1. statement of cost
2. statement of equivalent units(EU)
3. statement of evaluation

The percentage of CWIP is important in determining the cost allocated to it. The purpose of EU is to combine the unfinished percentage into the completed one.

As for OWIP, the more headache you will be, as you need to work out additional stuffs.
There are two ways of evaluating OWIP, which are WAC and FIFO
HOnestly, FIFO will crack your head like never..if you cant even understand why.
So if you need consultation of knowing how to do that, feel free to tell me.

Next, joint and by product costing, there are four methods to allocate joint cost to the joint and by product.

1. Physical measurement method
  • Dont be confused by the word itself. It is the units of each joint product that determine how much it would bear for the joint cost.
  • let's say: joint product 1 and 2 - 25 and 75 units respectively and the joint cost is RM100
    so how much to be allocated to each of them?
  • Answer: Under this method, 25/(25+75) times RM100 = RM25 for Joint product 1 and RM75 for joint product 2.

2. Sales Value Method

  • This one would depend on the sales value.
  • The same example from above, let's say sales value for Joint product 1 and 2 is RM 5 and RM10
  • Total sales value for 1 is RM5 times 25 = Rm 125
  • Total sales value for 2 is RM10 times 75 = RM 750
  • Total joint cost allocated for 1 is 125/(125+750) times RM 100
  • Total joint cost allocated for 2 is 750/(125+750) times RM100

3. Net realisable value method (NRV)

  • It is related the further processing and take the sales value after further processing minus the further processing cost to obtain the NRV, and take the NRV value to allocate the joint cost. it is quite similar with the salves value method but only thing is the additionay working

4. Constant Gross Profit Percentage method

  • It is less popular.
  • However, the concept of it is to remain the same gross profit percentage for each joint product.
  • So take the percentage times the sales value then you get the GP
  • Then, Sales value minus the GP and you get COS then minus again the separate further processing cost then you straight away get the allocated joint product

The following will be the absorption costing and marginal costing.

Marginal costing is only incorporating the concept of separating the variable cost and fixed cost so that it is suitablefor short term planning, where the fixed cost would remain unchanged in short term.

Absorption costing works another way round. It combines both the variable and fixed cost and it is similar with the income statement but an additional working is the over or under absorption of production overhead.

Remember the format of both and also the reconciliation statement, whether to check your answer or it is required to do so.

Last last last...would be the budget. The mistakes that students would tend to make is they asked for raw material requirement but you give purchase of raw material quantity and other similar wording but bears different meaning.

Cash budget in budgeting is similar with our Cash Flow statement, but it lists out the receipts and payments month by month. it is somehow far more complicated and tedious to do compared to the one in Financial Accounting. is time for my sweet dream, and wish you all may pass MAF with flying colour.

It is not the matter you will or not, it is how much you put in to do it!!

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