Level: Easy
Easy Worked Examples: Cost Accounting
Six easy, graded examples for Chapter 7 Cost Accounting, covering cost component calculations, the Manufacturing Account with and without Work In Progress, and Break-Even Analysis.
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Example 1: Calculating Prime Cost
Question
Solution plan
Prime Cost is the total of all DIRECT costs. Formula: Prime Cost = Direct Material Cost + Direct Labour Cost + Direct Expense Cost. Add only the three direct costs; overhead cost is NOT included at this stage.
| Particulars | RM |
|---|---|
| Direct Material Cost | 20,000 |
| Direct Labour Cost | 15,000 |
| Direct Expense Cost | 5,000 |
| Prime Cost | 40,000 |
Answer
The Prime Cost of Sri Maju Furniture Factory for January 2026 is RM40,000.
Where marks are usually lost
Example 2: Overhead Cost and Cost of Production
Question
Solution plan
Step 1: Find Prime Cost = Direct Material + Direct Labour + Direct Expense. Step 2: Group all INDIRECT costs (factory rent, machine depreciation, factory electricity) as Overhead Cost. Step 3: Cost of Production = Prime Cost + Overhead Cost.
| Particulars | RM |
|---|---|
| Prime Cost | |
| Direct Material Cost | 30,000 |
| Direct Labour Cost | 18,000 |
| Direct Expense Cost | 2,000 |
| Prime Cost | 50,000 |
| Overhead Cost | |
| Factory Rent | 6,000 |
| Depreciation of Baking Machine | 3,000 |
| Factory Electricity Cost | 1,000 |
| Total Overhead Cost | 10,000 |
| Cost of Production | 60,000 |
Answer
The Prime Cost is RM50,000, the Total Overhead Cost is RM10,000, and the Cost of Production of Delima Bakery for February 2026 is RM60,000.
Where marks are usually lost
Example 3: Manufacturing Account in 'T' Form
Question
Solution plan
All production costs (direct material, direct labour, direct expense, overhead) are DEBITED in the Manufacturing Account. The total of these costs is the Cost of Production, which is CREDITED as a transfer to the Trading Account. The debit side must equal the credit side.
| Particulars | RM | Particulars | RM |
|---|---|---|---|
| Direct Material Cost | 25,000 | Cost of Production (transferred to Trading Account) | 60,000 |
| Direct Labour Cost | 20,000 | ||
| Direct Expense Cost | 5,000 | ||
| Overhead Cost | 10,000 | ||
| 60,000 | 60,000 |
Answer
The debit side and credit side of the Manufacturing Account each total RM60,000. The Cost of Production of RM60,000 is transferred to the Trading Account.
Where marks are usually lost
Example 4: Cost of Production with Work In Progress
Question
Solution plan
Step 1: Prime Cost = Direct Material + Labour + Expense. Step 2: Add Overhead Cost. Step 3: ADD Opening Work In Progress (unfinished goods from last month completed this month). Step 4: DEDUCT Closing Work In Progress (goods unfinished at month end). The result is the Cost of Production.
| Particulars | RM |
|---|---|
| Direct Material Cost | 40,000 |
| Direct Labour Cost | 25,000 |
| Direct Expense Cost | 5,000 |
| Prime Cost | 70,000 |
| Add: Overhead Cost | 15,000 |
| 85,000 | |
| Add: Opening Work In Progress | 5,000 |
| 90,000 | |
| Less: Closing Work In Progress | 10,000 |
| Cost of Production | 80,000 |
Answer
The Prime Cost is RM70,000. Adding overhead gives RM85,000, and adding Opening Work In Progress gives RM90,000. After deducting Closing Work In Progress of RM10,000, the Cost of Production of Wangsa Bag Factory for April 2026 is RM80,000.
Where marks are usually lost
Example 5: Break-Even Point (Contribution Margin)
Question
Solution plan
Step 1: Contribution Margin per unit = Selling Price per unit - Variable Cost per unit. Step 2: Break-Even Point (units) = Fixed Cost / Contribution Margin per unit. Step 3: Break-Even Point (RM) = BEP (units) x Selling Price per unit. At BEP, total revenue = total cost, so there is neither profit nor loss.
| Particulars | Value |
|---|---|
| Selling Price per Unit (RM) | 10 |
| Less: Variable Cost per Unit (RM) | 6 |
| Contribution Margin per Unit (RM) | 4 |
| Fixed Cost per Month (RM) | 8,000 |
| Break-Even Point (units) = 8,000 / 4 | 2,000 |
| Break-Even Point (RM) = 2,000 x 10 | 20,000 |
Unit values are in 'units'; RM values are in Malaysian Ringgit.
Answer
The Contribution Margin per unit is RM4. The Break-Even Point is 2,000 units, equal to sales revenue of RM20,000. The stall must sell 2,000 ice cream cones a month to break even.
Where marks are usually lost
Example 6: Quantity for Target Profit
Question
Solution plan
Step 1: Contribution Margin per unit = Selling Price - Variable Cost = RM8. Step 2: Break-Even Point (units) = Fixed Cost / Contribution Margin. Step 3: Quantity for target profit = (Fixed Cost + Target Profit) / Contribution Margin per unit. The target profit is treated like 'extra fixed cost' that the contribution margin must cover.
| Particulars | Value |
|---|---|
| Selling Price per Unit (RM) | 20 |
| Less: Variable Cost per Unit (RM) | 12 |
| Contribution Margin per Unit (RM) | 8 |
| Fixed Cost per Month (RM) | 10,000 |
| Break-Even Point (units) = 10,000 / 8 | 1,250 |
| Target Profit (RM) | 6,000 |
| Fixed Cost + Target Profit (RM) | 16,000 |
| Quantity for Target Profit (units) = 16,000 / 8 | 2,000 |
Unit values are in 'units'; RM values are in Malaysian Ringgit.
Answer
The Contribution Margin per unit is RM8. The Break-Even Point is 1,250 units. To achieve the target profit of RM6,000 per month, Amira Cake Shop must sell 2,000 units of chocolate cake.
Where marks are usually lost
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