Page 102 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes

Notes As all the issues are priced at the standard price, some difference (called, variance)
is normally found between the actual cost price and the standard issue price.

Advantages of Standard Price Method

The main advantages of this method are:
(a) This method facilitates the control of material cost,
(b) It is simple and easy to work,
(c) This method reduces the clerical work pertaining to the computation of issue price, and

(d) It is a tool for measuring the purchase efficiency.

disadvantages of Standard Price Method

This method suffers from the following disadvantages:
(a) The use of standard price for material issues results in material profit or loss, and
(b) This method deviates from the costing principle, in the sense that the issue is not valued at
the cost price.

Example: Set up a Store Ledger Account form and enter the following transactions
adopting the Weighted Average Method of pricing issues:
2005 July,
2 Opening balance: 50 units @ ` 3 per unit.
3 Issued to production: 2 units
6 purchased 48 units @ ` 4 per unit

10 Issued out 20 units to production
17 purchased 76 units @ ` 3 per unit
22 Received back into stores 19 units out of 20 units issued on 10th July, 2005
25 Issued to production: 10 units.
Solution:

Stores Ledger Account

date Received Issues Balance
Qty. Rate Amount Qty. Rate Amount Qty. Rate Amount
Units (`) (`) Units (`) (`) Units (`) (`)
July – – – – – – 50 3.00 150.00
2005, 2
3 – – – 2 3.00 6.00 48 3.00 144.00
6 48 4.00 192.00 – – – 96 3.50 336.00
10 – – – 20 3.50 70.00 76 3.50 266.00

Contd…

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