Tutorial 1

Q1.

(a) Financial Accounting: - The financial information used by external parties. It involves the
preparation of Financial Statements and Annual Audited Accounts. The reports are usually prepared
periodically, and it is required legally by the law. The report’s formats must comply with the
Accounting Standards and Company Law. It has a broad based scope and is usually measured
monetarily only. It’s time frame is past or historical. It also consists of internal historical data and it
emphasises on objectivity and verifiability.

(b) Management Accounting: - The information used by internal management staff. It involves
planning, controlling, decision making and performance measurement. The reports are prepared based
on the discretion of managers and the format is usually not required by law. It focuses on specific
areas and it is measured in both monetary and non-monetary terms. The timeframe used to provide the
information is in past, future and the present. The data comes from internal and external parties and
emphasises more on relevance and flexibility.

c) Cost Accounting : - Involves the application of a comprehensive set of principles, methods and
techniques to be determination and appropriate analysis of costs to suit the various parts of the
organization structure within a business

Q2.

Cost Centre is a production or service location, a function or activity or an item of equipment for
which cost are accumulated. It is a collecting place for cost. For example, a cost centre for service and
location type cost centres would be Stores and canteen respectively.

Cost Units is a unit of product or service in relation to which costs are ascertained or distributed. Cost
units vary from business to another based on the type of industry, purpose of measurement of product
and information available. Businesses will define cost unit differently which are manufacturing and
non-manufacturing. Examples of a cost unit for brick factory would be the number of bricks produced
by the company.

Q3.

Prime cost is the total of direct cost. Prime costs are costs that can be easily traceable to the cost
unit. Prime costs comprise of direct material, direct labour & direct expenses. Production overheads
are costs that cannot be easily traceable to the cost unit. Production overheads comprise of indirect
material, indirect labour and indirect expenses

Q4.

The three major elements of product costs in a manufacturing company are direct material, direct
labour and overheads.

Direct materials arematerials that can be physically and conveniently traced to a product. For
example, wood would be the direct material for a table.

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Direct labour would be the labour cost that can be physically and conveniently traced to a product.

Overheads are all the other cost of manufacturing a product other than direct materials and direct
labour. Examples include factory rent and rates, depreciation of factory equipment/machinery,
supervisor’s salary and so on.

Q5)

a)Period
b)Product
c)Product
d) Period
e)Period
F)Product
g)Product
h)Period/Product
i)Period
j)Period
k)Product

Q6)

a)Variable/Product cost
b)Fixed/ Selling and administration cost
c) Variable/ Product cost
d) Variable/ Selling and administration cost
e) Fixed/ Product cost
f) Foxed/ Product cost
g) Fixed/ Selling and administration cost
h) Variable/ Selling and administration cost
i) Fixed/ Selling and administration
j) Variable/ Product cost

Q7)

1) Sunk cost
2) Fixed cost
3)Semi-variable cost
4)Semi-fixed cost
5)Opportunity cost
6) Incremental cost
7) non - controllable cost

Q8

“A variable cost is a cost that varies per unit of product, whereas a fixed cost is constant per unit of
product”. I disagree with this statement because:

Variable cost is defined as cost which varies in direct proportion to outputwithin the relevant
range. It means, the Total Variable Cost will increase by the sum of the unit variable cost of the
output. However, within the relevant range, the unit variable cost remains the same for each and
every units that are being produced.

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On the other hand, fixed cost refers to those cost that remains constant regardless of the activity
level within the relevant range of activity level. The Total Fixed Cost remains the samebut, the
fixed cost per unit would decrease as with activity level since there are now more units of output
which are able to absorb the fixed amount of expenditure.

Q9.
Variable cost is a cost that varies as the level of activity changes. An example of a variable cost is the
cost of materials. As production is increased the materials requirement will increase and therefore the
cost of materials will increase.

Fixed cost is a cost that remains the same irrespective of the level of activity. The cost of renting a
building is classified as a fixed cost. The rent would be paid periodically and would not vary with the
level of activity.

Mixed cost is a cost that is partly fixed and partly variable. An example of a mixed cost is the
remuneration package of a sales representative. The basic salary of the sales representative is the fixed
element and any sales commission paid is the variable element. The commission payable would
depend on the volume of sales achieved, hence, the
variable element.

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Q8.

Unit produced Costs

RM
High level 12,000 55,500
Low level 8,500 39,750
3,500 15,750

Variable cost/ sales = RM15,750 = RM4.50 per unit

RM3,500

Using high unit produced, total variable costs = 12,000 units x RM4.50 = RM54,000
Fixed cost per period = RM54,500 – RM55,500 = RM1,000

Q9
Prime costs are costs that can be easily traceable to the cost unit. Prime costs comprise of direct
material, direct labour & direct expenses. Production overheads are costs that cannot be easily
traceable to the cost unit. Production overheads comprise of indirect material, indirect labour and
indirect expenses

Q10. Variable Cost per unit

= RM9,250– RM6,750
5,000 units – 3,000 units

= RM 1.25

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