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Accounting 3% exam weight

Cost Accounting Basics

Part of the WASSCE (Ghana) study roadmap. Accounting topic accoun-010 of Accounting.

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Cost Accounting Basics

🟢 Lite — Quick Review (1h–1d)

Rapid summary for last-minute revision before your exam.

Cost accounting is the systematic process of recording, classifying, analysing, summarising and allocating the costs of producing goods or services, with the goal of knowing the exact cost of a product, controlling expenditure and helping managers make pricing and production decisions. In WASSCE Accounting (Paper 2, Section C) it carries roughly 3% weight and appears as a structured essay or a manufacturing account problem worth 10–15 marks.

Must-know building blocks:

  • Cost centre — a location, department or function where costs are incurred (e.g. the Cutting Department of a garment factory in Tema).
  • Cost unit — a unit of product or service for which costs are ascertained (e.g. one bag of cement, one hour of crane hire).
  • Prime cost = Direct Materials + Direct Labour + Direct Expenses.
  • Total cost = Prime cost + Overheads (Factory, Administrative, Selling & Distribution).
  • Selling price = Total cost + Profit.
  • Variable cost per unit = Total variable cost ÷ Units produced; Fixed cost per unit = Total fixed cost ÷ Units produced.

High-yield pointers: master the manufacturing account layout, separate semi-variable costs using the high-low method, and know when marginal costing differs from absorption costing in valuing closing stock.

🟡 Standard — Regular Study (2d–2mo)

Standard content for students with a few days to months.

Classification of Costs

Costs are sorted in three ways for WASSCE questions. By nature/traceability: direct (traceable to a single cost unit, e.g. leather used to make one pair of sandals) and indirect (shared by many units, e.g. factory rent). By behaviour: fixed (rent, salaries, depreciation — total stays constant, per-unit falls as output rises), variable (raw materials, direct labour hours — total rises with output, per-unit constant) and semi-variable (a mixed element such as a telephone bill with a fixed line rental plus call charges — split using the high-low method). By function: production, administration, selling and distribution.

Prime Cost and Conversion Cost

Prime cost is the total of all direct, identifiable production expenditure: raw materials consumed, direct (productive) wages, and direct expenses such as hire of a special machine. Conversion cost = Direct Labour + Factory Overhead — it shows the extra cost needed to convert raw materials into finished goods.

Overheads: Allocation and Apportionment

Cost allocation charges an entire overhead to a single cost centre that caused it (e.g. the supervisor’s salary to the Assembly Department). Cost apportionment shares an overhead across several cost centres using a fair basis — floor area for rent, machine hours for power, number of employees for canteen. Apportioned amounts are then re-apportioned (often by the step or reciprocal method) to remove service-department costs.

Manufacturing Account

A manufacturing account is a vertical statement debited with opening stock of raw materials, purchases less purchase returns, carriage inwards, direct labour, direct expenses, and factory overhead. From this total, closing raw materials stock and closing work-in-progress are deducted to arrive at the cost of goods manufactured, which is then transferred to the Trading Account.

Marginal vs Absorption Costing

Under absorption costing, fixed factory overhead is absorbed into unit cost; closing stock therefore carries a portion of fixed overhead. Under marginal costing, only variable cost is charged to units; fixed overhead is treated as a period cost. Profit under the two methods will differ whenever the volume of closing stock changes.

🔴 Extended — Deep Study (3mo+)

Comprehensive coverage for students on a longer study timeline.

Edge Cases and Exam Traps

WASSCE markers consistently test three traps. First, students double-count factory overhead — once in computing factory cost inside the Manufacturing Account, and again as a separate line in the Income Statement. Correct treatment: factory overhead appears only in the Manufacturing Account; Administrative, and Selling & Distribution overheads are debited in the Income Statement. Second, opening and closing work-in-progress (WIP) is ignored. The Manufacturing Account must show: Opening WIP added to total production cost, and Closing WIP deducted to reach cost of goods manufactured. Third, material issues are sometimes valued at selling price instead of cost — use FIFO, LIFO or AVCO on cost, not on retail. A bonus trap: charging factory overhead to the administrative cost centre during apportionment, which inflates cost of sales and depresses reported profit.

Mechanism of the High-Low Method

To split a semi-variable cost, take the cost at the highest and lowest activity levels, compute the variable cost per unit = (High cost − Low cost) ÷ (High units − Low units), then derive the fixed element as Total cost − (Variable rate × Units). This figure is then used in marginal-costing computations and flexible budgeting.

Cost accounting connects directly to budgetary control (comparing standard with actual cost), standard costing (variance analysis for materials and labour) and management decision-making (make-or-buy, special-order pricing, break-even analysis). For service businesses in Ghana — banks, hospitals, haulage firms — the cost unit is typically a time measure (an hour, a patient-day, a kilometre) rather than a physical product.

Practice Prompts

  1. A Kumasi bakery produced 8,000 loaves in March and 10,000 in April. Total factory overhead was GH¢24,000 and GH¢28,000 respectively. Using the high-low method, calculate the variable overhead per loaf and the fixed overhead, then state the total overhead expected at a production level of 11,000 loaves.
  2. Given opening raw materials GH¢12,000, purchases GH¢58,000, closing raw materials GH¢9,000, carriage inwards GH¢3,500, direct wages GH¢40,000, factory overhead GH¢22,000, opening WIP GH¢6,000, closing WIP GH¢7,500, prepare the Manufacturing Account and state the cost of goods manufactured transferred to Trading.

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