COST CLASIFICATION OF FRESCO COMPANY
A Report
By
01) W.G.H.K. WIJESUNDARA (BSC/2020B/MOHE/WD-048)
02) A.M.P.D. DHARMAWARDANA (BSC/2020B/WD-018)
03) I.T.D. IMADUWA (BSC/2020B/MOHE/WD-025)
04) S.D.C. SILVA (BSC/2020B/MOHE/WD-020)
05) W.P.D.A. FERNANDO (BSC/2020B/WD-009)
06) R.S. HANSIKA (BSC/2020B/MOHE/WD-052)
BSAA 12023 Cost & Management Accounting
Mrs.Hashara Fernando
Year 1, Semester 1
School of Accounting and Business
The Institute of Chartered Accountants of Sri Lanka
30th January 2020
1
Table of Contents
INTRODUCTION 6
COMPANY NAME 1
PRODUCTION 2
COST 3
COST UNIT 4
COST CENTRE 5
COST CLASIFICATION 6
NATURE 6
PURPOSE 6
BEHAVIOR 6
CALCULATION 6
2
INTRODUCTION
Fresco company is the famous food drink supplier in Sri Lanka. It is a partnership company.
Always it tries to give best and healthy food drinks to their valuable consumers. When we see it
we can see two production centers. They are,
Assembly
Machinery
finishing
beside them there are two service e department in there.
Maintain
Warehouse
3
Cost
cost is the monetary value that has been spent by a company in order to produce something. In a
business, cost expresses the amount of money that is spent on the production or creation of a
good or service. Cost does not include a mark-up for profit.
Cost Unit
unit cost is a total expenditure incurred by a company to produce, store, and sell one unit of a
particular product or service.
Ex ; One bottle of fruit juice , One cup of jam
Cost center
A cost center is a department or function within an organization that does not directly add to
profit but still costs the organization money to operate.
There are 3 production department and 2 service department in Fresco company,
Production department
1. Assembling department
2. Machinery department
3. Finishing department
Service department.;.
1.Maintain department
2. Warehouse department
4
Cost classification
Classification of Costs essentially means the grouping of costs according to their similar
characteristics. Now, in costing there are a dozen ways to classify costs as per their nature, functions,
traceability etc.
Basic of cost classification
MATERIAL COST
NATURE LABOUR COST
CLA SSIFICA TIO N O F C O ST
EXPANSES
DIRECT COST
PURPOSE
INDIRECT COST
FIXED COST
BEHAVIOR VARIABLE COST
SEMI VARIABLE
COST
5
Nature
Jam ingredients Fruit juice ingredients
Mixed fruit pulp blend Fruit pulp
Sugar Sugar
Water Flavor
Vitamin B3 Carbohydrate
Vitamin C Water
Vitamin B
Vitamin C
Material cost
Labour Cost:
The cost incurred in the form of salaries and wages, together with the related
employment cost.
e.g. Machine Operator's Salary
Assembler's Salary
Finishing Department Labour's Salary
Expenses: External costs such as rent business rates, electricity. gas, postage, telephone and
similar items which will be documented invoices from the supplier
6
Purpose
• Direct Cost
Cost that can specifically and exclusively identified with the specific cost object/unit in
and Affective manner. Direct cost can further have classified into three parts by
considering the elements of cost.
Fruit juice Products Fruit jam Products
Direct Material cost
Water, fruit pulp, flavour, Mixed fruit pulp blend,
vitamin B3, carbohydrate, water, flavour, vitamin B3
Sugar A, sugar
Direct Labour Cost Machine Operator’s Salary, Machine Operator’s Salary,
Materials Assembler’s Salary Materials Assembler’s Salary
Direct expenses Fruit juice Products Jam Products Packaging
Bottling Designer’s Salary Designer’s Salary
Indirect Cost
Costs those that cannot be specifically and exclusively identified with a specific cost object/unit in
effective manner. This cost cannot be directly attributed to particular cost unit. These costs are also
referred as overhead costs.
7
Fruit juice Products Jam Products
Indirect Material Cost Bottle Bottle , Cup
Indirect Labour Cost Supervisor’s Salary, Security Supervisor’s Salary, Security
officer’s Salary officer’s Salary
Indirect Expenses Depreciation of the machine, Depreciation of the machine,
Factory rent, Paint the Factory rent, Paint the
factory name board factory name board
Behavior
The way a specific cost reacts to changers in activity level is called cost behavior. The main cost
behaviours are,
Fixed Cost
Fixed cost is those that stay the same in total regardless of the number of unites produced or
Sold. Although total fixed cost is the same, fixed per unit changes as fewer or more units are
produced.
Ex: Rent, Insurance
Variable cost
Variable cost is the cost that changers in total each time an additional unit is produced or sold.
With a variable cost, the per unit cost stays the same, but the more units produced or sold, the
higher the total cost. Direct materials are a variable cost.
Ex: Direct Material, Direct Labor
Semi Variable cost
A semi variable cost, also known as a semi fixed cost or mixed cost, is a cost composed of a
mixture of both fixed and variable components. Cost are fixed and become variable after this
production level is exceeded.
Ex: Electricity, Telephone
8
9
Calculations
These are the cost of production and service departments of the Fresco. We can easily find
the sales, profit and such things.
Estimated amount of both the product is 50000.
Buy fruits 10000
Building rent 120000
Workers salary 88000
Fuel for machines 30000
Warehouse 20000
Electricity 50000
Assembling Machinery Finishing Warehouse Maintain
Direct labour 25000 26000 20000 36000 20000
cost
Indirect 207000 130000 170000 25000
material
Indirect labour 10000 12000 12000
Floor (square 40000 30000 20000 20000 10000
meter )
Number of 30 20 20 10 10
workers
Machines cost 1000000 750000 750000
Total kilowatt 3000 2000 3000 1000 1000
hours
Estimated 8000 5000 5000
machine hours
Estimated 10000 25000 15000
labour hours
Extra details: -
Assembling, machinery & Finishing units depreciate their machine and vehicle in order monthly
rate of 2%,1%,2%.
28000 of workers insurance own for the maintain department
The total overhead of maintain department should be re divided equally and canteen should be
according to the number of workers.
The overhead of the assembly should be absorb like this.
10
Assemble unit Machine hours
Machinery unit Labor hours
Finishing unit Labor hours
Description Product
Fruit juice bottle Jam
Direct material cost 800 600
Direct labor cost 300 200
Actual labor hours 10 20
Actual machine hours 5 10
Non production cost 200 300
Production service
assemble machinery finishing warehouse maintain
Warehouse 20% 20% 20% 40%
maintain 30% 15% 30% 25%
11
Production center Service center
Asse Machiner Finishing Warehou Maintain
mbli y departm se departm
ng departm ent departm ent
depa ent ent
rtme
nt
Fruits 10000 10000
Building rent Square 120000 4000 30000 20000 20000 10000
meters 0
4:3:2:2:
1
Workers’ Number 88000 3300 22000 22000 11000 28000
insurance of 0
workers
3:2:2:1
Fuel for Machin 30000 1200 9000 9000
machine e cost 0
4:3:3
Warehouse 20000 20000
electricity Kilowatt 50000 1500 10000 15000 5000 5000
hours 0
3:2:3:1:
1
Indirect 2070 130000 170000 25000
material 00
Direct labor 36000 20000
Indirect 1200 144000 144000
labor 00
Machine\ 2400 90000 180000
vehicle 00
depreciation
6670 435000 560000 117000 63000
00
2100 21000 21000 (63000)
0
Number 4387 29250 29250 (117000) 14625
of 5
workers
3:2:2:1
4875 4875 4875 (14625)
7367 490125 615125
50
12
OAR (assembling)machine hours =736755
8000
=92
OAR(producing) labour hour =490125
25000
=20
OAR(Distribution) =615125
15000
=41
Repeated distribution method
Production dep Service dep
assemble machinery finishing warehouse maintain
667000 435000 560000 117000 63000
Warehouse 23400 23400 23400 46800
Maintain 32940 16470 32940 27450
Warehouse 5490 5490 5490 10980
Maintain 3294 1647 3294 2745
Warehouse 549 549 549 1098
Maintain 329.4 164.7 329.4 274.5
warehouse 54.9 54.9 54.9 109.8
Fresco company
Statement of cost of production
For the month of July
Fruit juice bottle Jam bottle
DM 800 600
DL 300 200
DE
Primary cost 1100 800
+ POH 92*5=460 92*10=920
20*10=200 20*20=400
41*10=410 41*20=810
1,070 2,130
Production cost 2,170 2,930
+NPOH 200 300
COST per unit 2,370 3,230
Profit (cost*50%) 1,185 1,615
Selling price 3,555 4,845
13
Mr.fresh company
Income statement under marginal costing method
For month of june
Fruit juice bottle Jam bottle
sales 1000*3555 3555000 1000*4845 4845000
(-)production cost
Direct material 800000 600000
Direct labour 300000 200000
Variable 88000 (1188000) 88000 (888000)
production
overhead
Gross profit 23667000 3957000
(-)other variable
cost
Selling expenses 1000000 1400000
Net profit 1366700 2557000
14
