cost accounting - aunja mam

Unit Or Output Costing (Cost Sheet & Tender Costing)

Introduction

Unit or output costing is used in these industries or factories where standard products are produced from a common process and all the units produced are more or less similar to each other. Unit or output costing is also known as single costing method. Following are the main features of unit or output costing:

(i) Production consists of a single product or a few varieties of the same product,

(ii) Production units should be identical;

(iii) Production is uniform and on continuous basis, and

(iv) Per unit cost has to be determined in this method.

Definitions of Unit or Output Costing

According to J.R. Batliboi, "Output or single cost method is used in business where a standard product is turned out and it is desired to find out the cost of a basic unit of production."

According to Herald J. Wheldon, "Unit of output costing is a method of costing by the units of production, where manufacture is continuous and the units are identical or can be made by means of ratios."

Objectives of Unit or Output Costing

The following are the main objectives of unit or output or single costing:

(i) To know the total cost of production as well as the cost per unit of output,

(ii) To know the profit or loss on the production or output,

(iii) To classify various cost under relevant categories and its detail analysis,

(iv) To facilitate the preparation of tender price or quotation price,

(v) To control the cost of product through comparative statement study of the cost of two or more periods, and

(vi) To analyse the effect of each element of cost on total cost.

Methods of Unit of Output Costing

Following methods are adopted to calculate the unit or output costing:

C Cost Sheet,

C Statement of Cost, and

C Production Account.

It is to be noted that the fundamental principles of preparing above records of unit of output costing are almost same except that of Performa.

1 Unit or Output Costing (Cost Sheet & Tender Costing)

Cost Sheet

Unit or output costing is one of the important objectives of Cost Accounting. For this, it is essential to classify cost into certain constituents or categories. These are known as elements of cost. Elements of cost are:

(i) Direct Material,

(ii) Direct Labour,

(iii) Direct Expenses, and

(iv) Overheads.

(i) Direct Material

(ii) Direct Labour

(iii) Direct Expenses

(iv) Factory Overheads

(v) Office and Administrative Overheads

(vi) Selling and Distribution Overheads

When all the direct materials, direct labour and direct expenses are aggregated, the resultant sum is the prime cost. If we add factory expenses to the prime cost, this will give the factory or works cost and if in the factory cost, office and administrative expenses are added, the result is to the cost of production. If selling and distribution expenses are added to the cost of production, it gives the cost of sales.

It profit is added to the cost of sales, selling price is obtained. This can also be calculated by deducting losses, if any, from the cost of sales.

(i) Direct Material: It is the cost of all the materials which directly enter the product and become part of it. Expenses are such as inward components and primary packing materials. Expenses, such as inward freight, custom and insurance charges are also to be treated as direct material cost.

(ii) Direct Labour Cost: The portion of wages or salaries which can be identified with the charged to a single cost unit is treated as direct labour cost.

(iii) Direct or Chargeable Expenses: This covers all expenses directly incurred and identifiable to the specific unit of production, for example, royalty on production, special tools, special technical assistance for a particular job.

(iv) Factory Overheads: They can be classified into:

C Indirect materials, like lubricants, shop supplies, fuels, etc.

C Indirect labour, like supervision charges, inspection, helpers charges, etc., and

C Indirect expenses, like factory rent, taxes and insurance, electric and water supplies, power, depreciation on factory buildings and machines, etc.

(v) Office and Administrative Overheads: The cost of office maintenance, formulation of policies, direction of organization and controlling the operation of an undertaking which is not related directly to research development, production, distribution or selling activity or function. Examples of office and administrative overheads are general office expenses, postage, stationery, rent of office, auditor's, lawyer's and director's fee etc.


Prime Cost Factor Cost or

Works CostCost of

ProductionCost of Sales

(vi) Selling and Distributing Overheads: The cost incurred in promoting sales and retaining customers. This includes the cost of process which begins with making the packed product available for dispatch and ends with final sale. Examples are advertising, salaries of salesmen, market research expenses, sales office expenses, normal bad debts, discounts and commissions, expenses of warehouse at the selling point, usual loss in selling, freight outwards, etc.

Cost sheet serves the following objectives:

(i) Quantity or units of produced items in a particular period,

(ii) It reveals the total cost and cost per unit of goods produced,

(iii) Profit and loss statement may also be added in cost sheet,

(iv) It discloses the break-up of total cost into different elements of cost,

(v) Comparison of old record with new one is also possible in cost sheet, and

(vi) It acts as a guide to top management for fixation of selling prices and quotations.

Specimen of a Simple Cost Sheet

Cost Sheet for the period of ……………

Output ……………. Units …………..

ParticularsTotal Cost

(Rs.)

Cost of Per

Unit (Rs.)

Direct Materials - -

Direct Labour - -

Direct or Chargeable Expenses - -

Prime Cost - -

Add: Factory or Works Overheads - -

Factory or Works Cost - -

Add: Office and Administrative

Overheads - -

Cost of Production - -

Add: Selling and Distribution Overheads - -

Total Cost or Cost of Sales - -

Profit or Loss - -

Sales - -


Accounting Treatment of Stocks

Three types of stocks may be of the following :

C Stocks of raw materials,

C Stock of work-in-progress, and

C Stock of finished goods.

Stock of Raw Material : In order to calculate the value of raw materials consumed during the period of output, opening stock raw materials is added to the raw materials purchased and closing stock is subtracted. This is shown below with assumed figures.

Rs.

Opening stock of raw materials 10,000

Add : Purchases 30,000

40,000

Less : Closing stock of raw materials 8,000

Cost of materials consumed 32,000

Stock of Work-in-Progress : Stock of Work-in-progress is the stock of semi-finished goods. In cost sheet, opening stock of work-in-progress is added in prime cost along with factory or works overheads and closing stock of work-in-progress in subtracted therefore. Thus opening and closing stocks of work-in-progress are adjusted in factory or works cost as shown below:

Rs.

Prime cost 50,000

Add : Factory or works overheads 25,000

Manufacturing cost 75,000

Add : Opening stock of work-in-progress 12,000

Total goods processed during the period 87,000

Less : Closing stock of work-in-progress 10,000

Factory or works cost 77,000

Stock of Finished Goods: In cost sheet, finished goods are adjusted after calculating the cost of production. Opening stock of finished goods is added to the cost of production and closing stock of finished goods is subtracted therefore. The resultant figure is called cost of goods sold. This is illustrated below:

Rs.

Cost of production 1,00,000

Add: Opening stock of finished goods 15,000

Cost of goods available for sale 1,15,000

Less: Closing stock of finished goods 8,000

Cost of goods sold 1,07,000


The treatment of the stocks of raw materials, work-in-progress and finished goods are illustrated in the following specimen cost sheet:

Cost Sheet for the period …………………..

Output …………… Units …………..


(Rs.)

Cost of Per

Unit (Rs.)

Opening Stock of Raw Materials -

Add: Purchases -

Add: Expenses on Purchases -

-

Less: Closing Stock of Raw Materials -

Cost of Materials Consumed -

Direct Wages - -

Direct Expenses - -

Prime Cost - -

Add: Factory or Works Overheads - -

Add: Opening Stock of Work-in-Progress - -

- -

Less: Closing Stock of Work-in-Progress - -

Factory or Works Cost - -

Add: Office and Administrative Overheads - -

Costs of Production - -

Add: Opening Stock of Finished Goods -

-

Less: Closing Stock of Finished Goods -

Cost of Goods Sold

Add: Selling and Distribution Overheads

Cost of Sales

Profit (or Loss)

Sales


Items Excluded from Cost Sheet

The following items are of financial nature and thus are not included while preparing of a cost sheet:

Cash discount Interest payment

Preliminary expenditure (written off) Goodwill (written off)

Provision for taxation Provision for bad debts

Transfer to reserves Donations

Income tax paid Payment of dividend

Capital loss on sale of fixed assets Damages payment as per law

Detailed Cost Sheet

Specimen of a Cost Sheet of Kartik Limited Company for the

month of ……………………….

Output ………………. Units


(Rs.)

Cost Per

Unit (Rs.)

Opening stock of raw materials

Add: Purchases

Carriage inward

Customs duty and Octroi

Less: Closing stock of raw materials

Cost of Direct Materials Consumed

Direct labour or Productive wages

Direct or Chargeable expenses

Prime Cost

Add: Works or Factory Overheads:

Indirect materials

Indirect wages

Overtime payment

Fuel and Power charges

Rent and Taxes

Insurance

Lighting


Supervision

Stationery

Canteen and Welfare expenses

Repairs

Haulage

Salaries to factory manager

Depreciation of plant and machinery

Works expenses

Gas and water charges

Drawing office salaries

Technical director's fees

Laboratory expenses

Factory telephone expenses

Less: Sale of scrap

Add: Operating stock of work-in-progress

Less: Closing stock of work-in-progress

Factory or Works Cost

Add: Office and Administrative Overheads:

Office salaries

Director's fees

Office rent and rates

Office stationery and Printing charges

Salary to managerial staff

Depreciation of office furniture

Office lighting & Heating charges

Establishment charges

Director's travelling expenses

Postage charges


Legal charges

Audit fees

Depreciation and repair of office equipment and building

Cost of Production

Add: Selling and Distribution Overheads:

Advertising expenses

Showroom expenses

Bad debts

Salaries to salesman's

Packing expenses

Carriage outward

Commission on sales to agents

Counting house salaries

Cost of catalogues or product

Expenses of delivery vans

Collection charges

Travelling expenses

Cost of tenders for product

Warehouse expenses

Sales manager's salaries

Sales director's fees

Showroom expenses

Sales office expenses

Depreciation and Repairs of delivery vans

Expenses of sales branches

Cost of Sales or Total Cost

Profit

Sales


Problem (1): The following details are extracted from the accounting books of a manufacturer :

Rs.

Material Purchased and Consumed 10,000

Direct Labour Expenses 20,000

Direct Expenses 5,900

Factory Depreciation 100

Repairs and Renewals 200

Insurance 500

Rent, Rates and Taxes 600

Electric Consumption 100

Power 100

Fuel 50

Water 50

Chowkidar's Wages 100

Factory Manager's salary 500

Foreman's Salary 100

Office Stationery 50

General Charges 100

Bank Charges 150

Office Rent 100

Postage & Stamps 40

Telephone & Telegrams 10

Manger's Salary 500

Office Clerk's Salary 200

Advertising 100

Commission to Salesmen 200

Discounts 100

Prepare a Cost Sheet.

Solution :

Cost Sheet

Particulars (Rs.) Total Cost (Rs.)

Materials Consumed 10,000

Labour 20,000 35,000

Direct Expenses 5,000

Prime Cost 35,000

Add: Factory Expenses:

Depreciation 100


Repairs and Renewals 200

Insurance 500

Rent, Rates and Taxes 600

Electric Charges 100

Power 100

Fuel 50

Water 50

Chow kidar's Wages 100

Manager's Salary 500

Foreman's Salary 100 2,400

Factory or Works Cost 37,400

Add: Administrative Expenses:

Office Stationery 50

General Charges 100

Bank Charges 150

Office Rent 100

Postage and Stamps 40

Telephone and Telegrams 10

Manager's Salary 500

Office Clerk's Salary 200 1,150

Cost of Production 38,550

Add : Selling Expenses:

Advertising

Commission to Salesmen

Discounts

Cost of Sales 38,950

Statement of Cost

Where a statement is prepared to show total cost and the profit or loss, but where it is not desired to find out cost per unit, the statement so prepared is the statement of cost. If from this statement the cost per unit has to be calculated then it can be had by dividing the total cost by the number of units produced. The simple type of statement of cost is as under:


Problem (2): Prepare a statement of cost from the following particulars for the year 2007:

Opening stock of raw materials Rs. 20,000

Purchases of raw materials Rs. 30,000

Closing stock of raw materials Rs. 15,000

Direct labour Rs. 15,000

Factory overheads Rs. 12,000

Office and administrative overheads Rs. 7,000

Solution :

Statement of Cost for the year 2007

Particulars Total Amount (Rs.)

Opening Stock of raw materials 20,000

Add: Purchases of raw materials 30,000

50,000

Less: Closing stock of raw materials 15,000

35,000

Cost of Materials Consumed 35,000

Direct Labour 15,000

Prime Cost 50,000

Factory Overheads 12,000

Factory Cost 62,000

Office and Administrative Overheads 7,000

Total Cost 69,000

Problem (3): A firm manufactured and sold 1000 typewriters. Its summarized Trading and Profit and Loss Account for the year 2007 is as follows:

Trading and Profit & Loss Account

Rs. Rs.

To Materials 80,000 By Sales 4,00,000

To Direct Wages 1,20,000

To Factory Charges 50,000

To Gross Profit b/d 1,50,000 4,00,000 4,00,000

To Management & By Gross Profit b/d 1,50,000

Staff Salaries 60,000

To Rent, Rates and Taxes 10,000

To General Expenses 20,000

To Selling Expenses 30,000 _______

1,50,000 1,50,000


For the year 2008, it is estimated that:

(a) Prices of materials rose by 20% on the previous year's level.

(b) Wage rate have risen by 5%.

(c) Factory charges increased by 25%.

(d) Office expenditure remained unaffected.

Prepare a statement showing the price at which the typewriters should be sold so as to yield a profit of 10% on sales.

Solution :

Statement Showing the Price of Typewriters for the year 2008


Materials 96,000

Direct Wages1,26,00

02,22,000

Prime Cost

2,22,000

Add : Factory Charges 62,500

Factory or Works Cost 2,84,500

Add : Administrative And General Expenses :

Managerial & Staff Salaries 60,000

Rent, Rates & Taxes 10,000

General Expenses 20,000 90,000

Cost of Production 3,74,500

Add : Selling Expenses 30,000

Cost of Sales 4,04,500

Add : Profit (on 10% Sales Price) 44,945

Sales Price 4,49,445

Problem (4): The following figures have been extracted from accounting records of business concern during a month:

Rs.

Stock-in-hand 1-4-2006

Raw Materials 25,000

Finished Goods 17,360

Stock-in-hand 30-4-2006

Raw Materials 26,250

Finished Goods 15,750

Purchases of Raw Materials during the month 21,900

Work-in-Progress 1-4-2006 8,220

Work-in-Progress 30-4-2006 9,100

Sales of Finished Goods 72,310


Direct Wages 17,150

Works Expenses 8,344

Office Expenses 6,870

Selling and Distribution Expenses 4,210

Prepare a statement of cost for the month of April 2006.

Solution :

Statement of Cost for the Month of April 2006


Stock of Raw Materials 1-4-2006 25,000

Add: Purchases 21,900

46,900

Less: Stock of Raw Materials 31-4-2006 26,250


Add: Direct Wages 17,150

Prime Cost 37,800

Add: Work Expenses 8,340

46,140

Add: Work-in-progress 1-4-2006 8,220

56,360

Less: Work-in-progress 30-4-2006 9,100


Add: Office Expense 6,870

52,130

Add: Stock of Finished goods 1-4-2006 17,360

69,490

Less: Stock of Finished goods 30-4-2006 15,750


Add: Selling and Distribution Expenses 4,210

Total Cost 57,950

Add: Profit 14,360

Sales of Finished Goods 72,310


Problem (5): 15,000 pens of a factory were manufactured during the month of July, 2008 of which 13,500 pens were sold at Rs. 7 per pen. The following figures are obtained from the costing record:

Rs.

Raw Materials Consumed 52,000

Direct Wages 15,600

Works expenses are allocated to production by means of a machine hour rate. This rate for July, 2008 was Rs. 4 per hour and 1,100 machine hours were per cent works cost and selling overheads at Re. 0.25 per cent.

Compile a cost sheet showing:

(i) Cost per unit, and

(ii) Profit for the month.

Cost Sheet for July, 2008

ParticularsAmount

(Rs.)

Cost Per

Unit (Rs.)

(i) Raw Materials Consumed 52,000 3.46

Direct Wages 15,600 1.04

Prime Cost 67,600 4.50

Add: Works Overheads 4,400 0.33

Factory or Works Cost 72,000 4.80

Add: Office Overheads 10,800 0.72

Cost of Production 82,800 5.52

(ii) Cost of Sales and Profit

Cost of Production for 13,500 pens 74,520

(13,500 x 5.52)

Add: Selling Overheads (13,500 x 0.25) 3,375


Sales (13,500 x 7) 94,500

Less: Cost of Sales 77,895

Profit 16,605


Problem (6): In respect of a factory, the following figures have been extracted for the year 2006:

Rs.

Cost of Materials 6,00,000

Wages 5,00,000

Factory Overheads 3,00,000

Administrative Charges 3,36,000

Selling Expenses 2,24,000

Distribution Charges 1,40,000

Profit 4,20,000

A work order has been executed in 2007 and the following expenses have been incurred.

Rs.

Material 8,000

Wages 5,000

Assuming that in 2007 the rate for factory overheads gone up by 20%. Distribution charges have gone down by 10% , and selling and administration charges have each gone up by 120%, at what price the product should be sold so as to earn the same rate of profit as in 2006.

Factory overheads are based on direct wages and administration selling and distribution charges on Factory Cost.

Solution :


Particulars Amount (Rs.)


Wages 5,00,000

Prime Cost 11,00,000

Add: Factory Overhead 3,00,000


Add: Administrative Charges 3,36,000


Add: Selling expenses 2,24,000

Distribution Charges 1,40,000

Total Cost 21,00,000

Add: Profit 4,20,000

Sales 25,20,000


Calculations :

Percentage of factory overhead to Wages

(3,00,000 x 100 + 5,00,000) = 60

Percentage of Administration overhead to Factory cost

(3,36,000 x 100 + 14,00,000) = 24

Percentage of Selling overhead to Factory cost

(2,24,000 x 100 + 14,00,000) = 16

Percentage of Distribution overhead to Factory cost

(1,40,000 x 100 + 14,00,000) = 10



Cost of Materials 8,000

Wages 5,000

Prime Cost 13,000

Add: Factory Overheads 3,600 (1)


Add: Administrative Charges 4,462 (2)


Add: Selling Charges 2,975 (3)

Distribution Charges 1,494 (4)

Total Cost 25,531

Add: Profit 5,106 (5)

Sales 30,637

Working notes:

(1) 60% of 5,000 = 3,000 + 600 (20% of 3,000) = 3,600

(2) 24% of 16,600 = 3984 + 478 (12% of 3,984) = 4,462

(3) 16% of 16,600 = 2,656 + 319 (12% of 2,656) = 2,975

(4) 10% of 16,600 = 1,660 - 166 (10% of 1,660) = 1,494

(5) Profit @ 20% on Total cost (as per previous year) = 5,106

Production Account

According to G.R. Glower and R.G. Williams, "The production account is used to denote a particular form of manufacturing account prepared in conjunction with the financial accounts in order to show the actual cost of producing the goods manufactured during the period."

The production account is presented in the form of an account based on double entry system. The basic objective of production account is to show the cost of production along with the cost per unit.


The production account, also known as manufacturing account is used for industries or factories producing Pig iron, yarn and cloth, bricks, coal and coke, etc. The information in this account is presented in form of prime cost, factory or works cost, cost of production, Total cost and profit.

Difference between a Cost Sheet and Production Account

Following are the main differences between a Cost Sheet and a Production Account:

S. No. Cost Sheet Production Account

(i) It is a statement. It is an account based on debit and credit system.

(ii)They provides basis for comparison between two periods.

Production accounts do not provide information for comparison.

(iii) It is helpful in cost control system. It is not helpful in cost control system.

(iv)It is not based on double entry system of book- keeping.

It is based on double entry system of book-keeping.

(v)It is a basic statement and other costing documents are prepared with its help.

It is not so in their case.

(vi)It can be prepared even during the production.

It is prepared only when production is over.

(vii)It is helpful in reconciliation of costing Profit/Loss with that of financial accounts.

In its case, it is not possible.

Problem (7) : The following are the balances of the impersonal ledger of a colliery relating to revenue at the end of the year 2007 :

Rs. Rs.

Wages paid for coal production 5,80,000 Salaries 36,000

Coal for colliery consumption 45,000 Coal sold (including 8,84,000

Timber used in coal production 64,000 colliery) 1,12,000 tons

Ropes used in coal production 12,000 Wages paid for coke making 50,000

Stores used in coal production 76,000 Stores used for coke making 37,000

Royalties paid 42,000 Salaries for coke making 8,000

General charges 70,000 Coke sold (43,500 tons) 5,40,000

The stock of coal at the beginning of the year amounted to 7,000 tons valued at Rs. 5 per ton and at the end of the year 15,000 tons valued at the same rate. The stock of coke at the beginning of the year amounted to 2,000 tons valued at Rs. 10 per ton and at the end of the year 500 tons valued at the same rate. The total production of the colliery was 1,85,000 tons of coal and 42,000 tons of coke; 65,000 tons of coal being used for coke making. Prepare separate production accounts for coal and coke, showing the cost of each item of expense per ton of coal and coke respectively, taking coal used for coke making at cost price.


Solutions :

Production Account of Coal for the year 2007

(Output: 1,85,000 Tons)

ParticularsCost Per Ton (Rs.)

Amount (Rs.)

ParticularsCost Per Ton (Rs.)

Amount (Rs.)

To Wages 3.14 5,80,000 By Cost of production 5.00 9,25,000

To Coal for colliery consumption 0.24 45,000

To Timber used 0.35 64,000

To Ropes used 0.06 12,000

To Stores used 0.41 76,000

To Royalties 0.23 42,000

To General charges 0.38 70,000

To Salaries 0.19 36,000

5.00 9,25,000 5.00 9,25,000

Tons (Rs.) Tons (Rs.)

To Opening stock 7,000 35,000 By Sales 1,12,000 8,84,000

@ Rs. 5 per ton By Coke production 65,000 3,25,000

To Cost of production 1,85,000 9,25,000 account @

To Profit 3,24,000 Rs.5 per ton

By Closing stock @ 15,000 75,000

Rs. 5 per ton

1,92,000 12,84,000 1,92,000 12,84,000

Production Account of Coke for the year 2007

(Output: 42,000 Tons)

ParticularsCost Per

Ton (Rs.)

Amount

(Rs.)Particulars

Cost Per

Ton (Rs.)

Amount

(Rs.)

To Coal consumed 7.74 3,25,000 By Cost of production 10.00 4,20,000

65,000 tons @ Rs. 5 per ton 42,000 tons

To Wages 1.19 50,000

To Stores used 0.88 37,000

To Salaries 0.19 8,000

10.00 4,20,000 10.00 4,20,000

Tons Amount Tons Amount

(Rs.) (Rs.)

To Opening stock 2,000 20,000 By Sales 43,500 5,40,000

@ Rs. 10 per ton By Closing stock 500 5,000

To Cost of production 42,000 4,20,000 @ Rs. 10 per ton

To Profit 1,05,000


44,000 5,45,000 44,000 5,45,000

Tender Price or Quotation Price

Quite often the management has to quote prices of its products in advance or has to submit tenders for products to be supplied. For this objective an estimated cost sheet has to be prepared to show the estimated cost of products to be manufactured. In this cost sheet, cost of direct materials, direct labour or wages and overheads are pre-determined on the basis of previous costs after taking in to account the present conditions and also the anticipated changes in the future price.

After the total cost has been estimated, a desired profit is added to arrive at the price to be quoted. Such profit may be given as a percentage of cost or percentage of selling price. In order to calculate the amount of profit, it is easy to assume that figure as 100 on which profit percentage is given and then calculate the amount of profit.

Problem (8): Given:

Total cost = Rs. 30,000

Profit = 20% of cost

Suppose Cost = Rs. 100

Profit = 100 x 20% = Rs. 20

When cost is Rs. 30,000

Profit = 30,000 X 20 / I00 = Rs. 6,000

Profit = Rs. 6,000.

Problem (9): Given:

Total Cost = Rs. 30,000

Profit = 20% of selling price

Suppose Selling price = Rs. 100

Profit = 100 x 20% = Rs. 20

Cost = Selling price – Profit

= 100 – 20 = Rs. 80

So when profit is 20% or 1/5 of selling price, it is 20/80 = 1/4 or 25% of cost. When total cost is Rs. 30,000, the profit will be calculated as follows:

Profit = 30,000 X 25% = Rs. 7,500.

Profit = Rs. 7,500

Problem (10): Given:

Selling price = Rs. 30,000

Profit = 20% of cost

Suppose Cost = Rs. 100

Profit = 100 x 20% = Rs. 20


Selling price = Cost + Profit

Selling price = 100 + 20 = Rs. 120

So profit of 20% of cost is equal to 20/120 or 1/6 of selling price. Thus, the profit will be calculated as follows:

Profit = Rs. 30,000 X 1/6 = Rs. 5,000

Profit = Rs. 5,000

Problem (11): Mr. Kartik furnishes the following data relating to the manufacture of a standard product during the month of March, 2007 :

Raw materials consumed Rs. 10,000

Direct labour Rs. 6,000

Machine hours worked 600 Hrs.

Machine hour rate Rs. 5

Administrative overheads 20% on factory cost

Selling overhead Re. 0.50 per unit

Unit produced 15,000

Units sold 14,000 at Rs. 4 per unit

You are require to prepare a cost sheet from the above, showing:

(i) the cost per unit,

(ii) cost per unit sold and profit for the period.

Solution:

Cost Sheet of Mr. Kartik for the month of March, 2007

Output: 15,000 Units

ParticularsTotal

(Rs.)

Per Unit

(Rs.)

Direct materials 1,000 0.677

Direct labour 6,00 0.44

Prime Cost 16,000 1.077

Production overheads (600 machine hrs. @ Rs. 5 per hour) 3,000 0.200

Factory or Works Cost 19,000 1.277

Administrative overheads (a 20% on factory cost) 3,800 0.253


Less: Closing stock on 31st March 2007 1,530

(1,000 units @ Rs. 1.53 per units)

Cost of Goods Sold 21,270 1.530

Selling overhead (@ Re. 0.50 for 14,000 units) 7,000 0.500

Cost of Sales 28,270 2.030


Profit 27,730 1.970

Sales for 14,000 Units 56,600 4.000

Problem (12): On the various items of direct cost for the production of 100 units of a product, a firm has expended the following amount:

Materials Rs. 10,000

Labour Rs. 5,000

Other Expense Rs. 1,000

The expenses incurred in the factory are to be apportioned as 5% of prime cost. Administrative expenses come to 2% of the factory cost. Expenses for sales and distribution are just the half of both factory and administrative expenses. The firm charges a profit of 10% on the sales price and output is 100 units.

Calculate the various costs including the amount of sales and profits.

Solution :

Statement of Cost

Output : 100 Units


(Rs.)Cost Per Unit

(Rs.)

Materials 10,000

Labour 5,000

Other Expenses 1,000 16,000 160.00

Prime Cost 16,000 160.00

Add: Factory Expenses (5% of prime cost) 800 8.00

Factory Cost 16,800 16,800

Add: Administrative Expenses (2% of factory cost) 336 3.36


Add: Selling Expenses (1/2% of Rs. 1,113) 568 5.68

Cost of Sales 17,704 177.04

Add: Profit (10% of Sales price) 1,967 19.67

Sales and Selling Price 19,671 196.71

Problem (13): From the following particulars Prepare a Cost Sheet showing the prime cost, factory cost, administrative cost and selling cost. Also calculate the percentage of factory expenses to wages, percentage of office expenses to factory cost:

Rs.

Stock of raw material on 1st Jan. 2006 20,000


Stock of raw material on 31st Dec. 2006 10,000

Purchases of raw materials 10,000

Wages 5,000

Factory expenses 1,000

Office and administrative expenses 2,600

Selling expenses 1,300

The firm has to send a tender for the supply of goods. It is estimated that the materials required would cost Rs. 5,000 and the wages Rs. 1,250. The tender is to be made at a net profit of 10% on the cost of sales. State the amount of tender based on the percentages you have calculated.

Solution :

Cost Sheet for the Year 2006


Stock of raw materials as on 1-1-2006 20,000

Add: Purchases of raw material 10,000

30,000

Less: Stock of raw materials on 31-12-2006 10,000


Add: Wages 5,000

Prime Cost 25,000

Add: Factory expenses 1,000

Factory Cost 26,000

Add: Office and administrative expenses 2,600


Add: Selling expenses 1,300


Calculations for percentages:

(1) Percentage of Factory expenses to Wages

= (1,000 + 5,000) x 100 = 20%

(2) Percentage of Office expenses to Factory cost

= (2,600 26,000) x 100 = 10%

(3) Percentage of Selling expenses to Factory cost

= (1,300 26,000) x 100 = 5%


Statement Showing Tender Price


Direct materials 5,000

Direct labour 1,250 6,250.00

Prime Cost 6,250.00

Add: Factory expenses (20% of Wages) 250.00

Factory Cost 6,500.00

Add: Adminish'ative expenses ( 10% of Factory cost) 650.00

Cost of Production 7,150.00

Add: Selling expenses (5% of Factory cost): 325.00

Cost of Sales 7,475.00

Add: Profit (10% on the Cost of sales) 747.50

Tender Price 8,222,50

Problem (14): The following extract of costing information relates to commodity A for the year ending 31 December, 2007.

Rs.


Direct wages 50,000

Rent, rates, insurance and factory on cost 20,000

Factory charges 1,000

Stock- 1 January, 2007

Raw materials 8,000

Finished products - 2000 tons 8,000

Stock 31 December, 2007

Raw materials 12,000

Finished products - 4,000 tons

Work-in-progress 1 January, 2007 2,400

Work-in-progress 31 December, 2007 8,000

Factory supervision cost 4,000

Sales of finished products 1,50,000

Advertising, discount allowed and selling costs Re. 0.40 per ton sold. 32,000 tons of the commodities


were produced during the period. Prepare a production statement to ascertain:

(a) the cost of the output of the period and the cost per ton of production, and

(b) the net profit.

ParticularsTotal Amount

(Rs.)Cost of Per Ton (Rs.)

Opening Stock of raw materials (01-01-2007) 8,000


71,000

Less: Closing Stock (31-12-2007) 12,000


Direct wages 50,000

Prime Cost 1,09,000

Factory Overheads:

Rent, rates, insurance and factory on cost 20,000

Factory charges 1,000

Factory supervision cost 4,000 25,000

1,34,000

Less: Work-in-progress (31-12- 2007) 8,000


Add: Stock of finished products (1-1-2007) 8,000

1,36,400

Less: Stock of finished products (31-12-2007) 16,050

(4,000 tons @ Rs. 4.0125 = 16,050)

Cost of Goods Sold (30,000 tons)(2) 1,20,350

Selling Overhead (@ 40 paise for 30,000 Units) 12,000 0.40

Cost of Sales 1,32,350 4.41

Profit 17,650 0.59

Selling Price 1,50,000 5.00


Working notes:

(1) Cost of production per ton =Rs. 1,28,400 32,000 tons = Rs. 4.0125

(2) Quantity sold = 2,000 tons + 32,000 tons = 34,000 - 4,000 tons = 30,000 tons

Problem (15): The Rajendra Chemicals Company supplies you the following details from its cost records:

Rs.

Stock of raw materials on 1 September, 2007 65,000

Stock of raw materials on 30 September, 2007 90,000

Direct wages 51,000

Indirect wages 3,750

Sales 2,00,000

Work-in-progress on 1-9-2007 28,000

Work-in-progress on 30-9-2007 35,000


Factory rent, rates and power 14,000

Depreciation of plant and machinery 3,500

Expenses on purchases 2,000

Carriage outward 1,000

Advertising 5,000

Office rent and taxes 2,500

Travellers wages and commission 6,500

Stock of finished goods on 1-9-2007 54,000

Stock of finished goods on 30-9-2007 31,000

Prepare a cost sheet giving the maximum possible break-up of cost and profit.

Solution:

Cost Sheet of Rajendra Chemicals Company for the year ending- 30-9-2007


Stock of raw materials (1-9-2007) 65,000


Expenses on purchases 2,000

1,42,500

Less: Stock of raw material (30-9-2007) 90,000


Direct wages 51,000

Prime Cost 1,03,500

Add: Work-in-progress (1-9-2007) 28,000


Factory Overheads:


Factory, rent rates and power 14,000

Depreciation of plant and machinery 3,500 21,250

1,52,750

Less: Work-in-progress (30-9-2007) 35,000


Office and Administrative Overheads:

Office rent and taxes 2,500


Add: Stock of finished goods (1-9-2007) 54,000

1,74,250

Less: Stock of finished goods (30-9-2007) 31,000

Cost of Goods Sold 1,43,250

Selling and Distribution Overheads:

Carriage outward

Advertising 12,500

Travellers wages and commission


Profit 44,250

Sales 2,00,000

Problem (16): The following data are available from the cost ledger of Ramesh Industries for the year 2006 :

Rs.

Plant maintenance 25,000

Lighting 6,300

Depreciation on plant 8,100

Rate and taxes for the works 3,900

Staff salaries 32,000

Management salaries 22,000

Power for plant 10,600

Rental for leasehold equipments 9,600


Rectification cost of defectives (Normal) 8,400


Consumable stores 17,600


General charges 15,600

Sale proceeds from Scrap 4,200

During the year total production was 1,20,000 units. The break-up of prime cost per unit was: materials Rs. 2.20 and wages Rs.l.80. The average selling price was Rs. 6.75 per unit and entire quantity produced during the year was sold out.

With effect from January I, 2007, the selling price was reduced to Rs. 6.40 per unit. It was envisaged that production could be enhanced during 2007 by 337 per cent without incurring any overtime on extra shift work or additional selling expenses. You are required to prepare statements showing (i) Actual cost and profit for the year 2006. (ii) Estimated cost and profit for 2007 assuming that the entire production will be sold during the year.

Assumptions, if any, required to be made in the above exercise should be clearly stated.

Solution:

Statement of Cost and Profit of Ramesh Industries For the year 2006

Output: 1,20,000 Units

ParticularsTotal Amount

(Rs.)Cost of Per Unit (Rs.)

Materials 2,64,000 2.20

Wages 2,16,000 1.80

Prime Cost 4,80,000 4.00

Variable Charges:

Power for plant 10,600

Rectification cost of defectives 8,400

Consumable stores 17,600

36,200

Less: Sale' of scrap 4,200 32,400 0.27

Total Variable Cost 5,12,400 4.27

Fixed Overheads:


Plant maintenance 25,000

Lighting 6,300

Depreciation on plants 8,100

Rates and taxes for works 3,900

Rental for leasehold equipments 9,600 90,000 0.75

Factory or Works Cost 6,02,400 5.02

Office and Selling Overheads:

Staff salaries 32,000

Management salaries 22,000

General charges 15,600 69,600 0.58

Selling expenses 30,000 0.25



Profit 1,08,000 0.90

Sale and Selling Price 8,10,000 6.75

Statement of Estimated Cost and Profit Of Ramesh Industries For the year 2007 Estimated

Output: 1,60,000 Units

ParticularsTotal Amt.

(Rs.)Cost of Per Unit (Rs.)

Prime Cost @ Rs. 4.00 per unit 6,40,000 4.00

Variable charges less scrap value @ Re. 0.27 per unit 43,200 0.27

Variable Cost 6,83,200 4.27

Fixed Charges:

Works (90,000 + 1,60,000) 90,000 0.56

Office (69,000 + 1,60,000) 69,000 0.43

Selling (30,000 + 1,60,000) 30,000 0.19


Profit 1,51,800 0.95

Sales (1,60,000 X 6.40) 10,24,000 6.40

Working notes:

(i) Estimated output for 2007 is 1,20,000 4/3 = 1,60,000 units.

(ii) Variable charges have been assumed to increase in proportion to the volume of output whereas fixed charges have been assumed to remain constant.

Problem (17): The Mahesh Electrical Limited manufacturers X product. A summary of its activities for 2005 is as follows:

Units Rs.

80,000 8,00,000

Sales

Material inventory : 1.1.2005 50,000

31.12.2005 32,000

Work-in-Progress inventory

1.1.2005 55,000

31.12.2005 72,000

Finished goods: 1.1.2005 16,000 64,000

31.12.2005 24,000

Material purchases 1,42,000


Direct labour 1,45,000

Manufacturing overheads 1,08,000


General and administration expenses 40,000

Calculate:

(a) The current manufacturing cost for the year 2005.

(b) The total cost of goods manufactured (finished), the number of units manufactured (finished) and the cost per unit.

(c) The cost of goods sold for the year presuming the company uses the LIFO inventory costing method for its finished goods inventory.

Solution:

Cost Sheet of Mahesh Electrical Limited for the year 2005

Output: 88,000 units (1)


Opening Stock (1-1-2005) 50,000

Add: Purchases 1,42,000

1,92,000

Less: Closing Stock (31-12-2005) 32,000

Materials Consumed 1,60,000

Direct Labour 1,45,000

Prime Cost 3,05,000

Manufacturing Overheads 1,08,000

4,13,000

Add: Opening work-in-progress (1-1-2005) 55,000

4,68,000

Less: Closing work-in-progress (31-12-2005) 72,000

Factory Cost (Cost of Goods Manufactured) 3,96,000

General and Administration Expenses 40,000


Add: Opening stock of finished goods (1-1-2005) 64,000

5,00,000

Less: Closing stock of finished goods (31-12-2005) 1,03,600 (3)

3,96,400

Selling Expenses 50,000



Net Profit 3,53,600

Sales 8,00,000

Working notes:

(1) No. of units manufactured during the year 2005 :

Sales + Closing stock - Opening Stock 80,000 + 24,000 - 16,000 = 88,000 units

(2) Cost of per unit finished goods = 4,36,000 + 88,000 = Rs. 4.95

(3) Valuation of closing finished stock on UFO basis

16,000 units @ Rs. 4/- = Rs. 64,000

8,000 units @ Rs. 4.95 (2) = Rs. 39,600

Cost of finished stock on 31-12-2005 = Rs. 1,03,600

Problem (18): In respect of Rajesh Limited the following particulars have been extracted for the year 2006 :

Cost of materials Rs. 6,00,000

Direct Wages Rs. 5,00,000

Factory overheads Rs. 3,00,000

Administrative overheads Rs. 3,36,000

Selling overheads Rs. 2,24,000

Distribution overheads Rs. 1,40,000

Profit Rs. 4,20,000

A work order has to be executed in 2007 and the estimated expenses are:

Materials Rs. 8,000, Wages Rs. 5,000

Assuming that in 2007 the rate of factory overheads has gone up by 20%, distribution. overheads have gone down by 10% and selling and administrative overheads have each gone up by 15% at that price should the product be sold as to earn the same rate of profit as in 2006.

Factory overheads are based on wages and administrative, selling and distribution overheads on factory cost.

Particular Amount (Rs.)


Direct Wages 5,00,000


Factory Overheads (60% of Direct wages) 3,00,000

Factory Cost 14,00,000

Administrative Overheads (24% of Factory cost) 3,36,000

Cost Production 17,36,000

Selling Overheads (16% of Factory cost) 2,24,000

Distribution Overheads (10% of Factory cost) 1,40,000



Profit (20% on Total cost or Cost of sales) 4,20,000

Sales 25,20,000

Statement of Estimated Cost and Profit for Work Order in 2007


Cost of Materials 8,000

Direct Wages 5,000

Prime Cost 13,000

Factory Overheads 3,600

(60% of Wages = 3,000 + 600 (20% of 3,000) = 3,600)

Factory Cost 16,600

Administration Over heads 4,582

(24% of Factory cost = 3,984 + 598 (15% of 3,984) = 4,582)


Selling Overheads 3,054

(16% of Factory cost = 2,656 + 398 (15% of 2,656 = 3,054)

24,236

Distribution Overheads 1,494

(10% of Factory cost = 1,660 - 166 (10% of 1,660) = 1,494)


Profit (20% on Cost of sales = 25,730 X 20 + 100) 5,146

Tender Price 30,876

Problem (19): The following informations relating to the year 2007 have been taken from the books of a Pradeep Chemicals works manufacturing and selling a chemical mixture:

Kg. Rs.

Stock on 1-1-2007 :

Stock of raw materials 2,000 2,000

Stock of finished mixture 500 1,750

Stock of factory stores – 7,250

Purchases of raw materials 1,60,000 1,80,000

Purchases of factory stores – 24,250


Sales' of finished mixture 1,53,000 9,18,000

Sales of factory scrap – 8,170

Factory wages 1,68,650

Power charges 30,400

Depreciation of machinery 18,000

Factory salaries 72,220

Office salaries 37,220

Salaries of selling department 41,500

Direct expenses 28,500

Office expenses 18,200


Stock on 31-12-2007 :

Stock of raw materials 1,200 –

Stock of finished mixture 450 –

Stock of factory stores – 5,550

The stock of finished mixture at the end of 207 is to be valued at the factory cost of the mixture for that year. The purchase price of raw materials remained unchanged throughout 2007. Prepare a Production Statement.

Solution:

Statement of Production of Pradeep Chemicals Works

(For the year ending 31st December, 2007)

Particulars Kg. Amount (Rs.)

Stock of raw materials (on 1-1-2007) 2,000 2,000

Add: Purchases of raw materials 1,60,000 1,80,000

1,62,000 1,82,000

Less: Stock of raw materials (on 31-12-2007) 1,200 1,350 (1)

Materials Consumed 1,60,800 1,80,650

Factory wages 1,68,650


Prime Cost 3,77,800

Factory Overheads :

Factory stores consumed 25,950 (2)


Power charges 30,400

Depreciation on machinery 18,000

Factory salaries 72,220

5,24,370

Less : Factory scrap sold 7,800 (3) 8,170

Factory or Works Cost 1,53,000 5,16,200


Office salaries 37,220

Office expenses 18,200

Cost of Production 1,53,050 5,71,620

Add: Opening stock of finished mixture (on 1-1-2007) 500 1,750

1,53,500 5,71,620

Less: Closing stock of finished mixture (on 31-12-007) 450 1,518 (4)

Cost of Finished Mixture Sold 1,53,050 5,71,852

Selling and Distribution Overheads:

Salaries of selling dept. 41,500



Profit 2,86,648

Sales 1,53,050 9,18,000

Working notes :

(1) Valuation of closing stock of raw material on 31-12-2007 :

(2) Factory stores consumed = (7,250 + 24,250 – 5,550) = Rs. 25,950

(3) Calculation of Factory scrap sold in Kg.:

Sales of finished mixture in kg. 1,53,050

Add: Closing Stock of finished mixture 450

1,53,500


Less: Opening Stock o finished mixture 500

Finished mixture produced in Kg. 1,53,000

Factory scrap sold (balance figure in Kg.1,60,800 - 1,53,000) 7,800

Materials consumed in Kg. 1,60,800

(4) Closing Stock of finished mixture :

Problem (20): From the following particulars prepare a Cost Sheet showing the total cost per ton for the period ended 31St December, 2007:

Rs. Rs.

Raw materials 33,000 Loose tools written off 600

Productive wags 35,000 Rent and taxes (office) 500

Direct expenses 3,000 Water supply 500

Unproductive wages 10,000 Factory insurance 1,200

Factory rent and taxes 7,500 Office insurance 500

Factory lighting 2,200 Legal expenses 400

Factory heating 1,500 Rent of warehouse 300

Power 4,400 Depreciation of plant and machinery 2,000

Haulage 3,000 Depreciation of office building 1,000

Director's fee (works) 1,000 Depreciation of delivery vans 200

Director's fee (office) 2,000 Bad debts 100

Factory cleaning 500 Advertising 300

Sundry office expenses 200 Sales department salaries 1,500

Estimating expenses 800 Up-keeping of delivery vans 700

Factory stationery 750 Bank charges 50

Office stationery 900 Commission on sales 1,500

Solution :

Cost Sheet for the year 2007

Output : 14,775 tons



Productive wags 35,000


Prime Cost 71,000


Factory or Work Overheads:

Unproductive wages 10,500

Factory rent and taxes 7,500

Factory lighting 2,200

Factory heating 1,500

Power 4,400

Haulage 3,000

Director's fee (works) 1,000

Factory cleaning 500

Estimating expenses 800

Factory stationery 750

Loose tools written off 600

Water supply 1,200

Factory insurance 1,100

Depreciation of pant and machinery 2,000 37,050



Director's fee (office) 2,000

Sundry office expenses 200

Office stationery 900

Rent and taxes (office) 500

Office insurance 500

Legal expenses 400

Depreciation of office building 1,000

Bank charges 50 5,550

Office and Administrative Cost 1,13,600

Selling Overheads:

Rent of warehouse 300

Depreciation of delivery vans 200

Bad debts 100

Advertising 300

Sales department salaries 1,500


Commission on sales 1,500

Up-keeping of delivery vans 700 4,600

Total Cost 1,18,200

Cost of per ton = 1,18,200 + 17,775 = Rs. 8 per ton.

Problem (21): The following is the costing information of production for the half year ended 30th June, 2005 :

Rs.

Purchases of raw materials 1,32,000

Direct wages 1,10,000

Rent, taxes, insurance and works on cost 44,000

Carriage inwards 1,584

Stock on 1-1-2005 :


Finished product 1,600 tons 17,600 Stock on 30-6-2005 :


Finished product 3,200 tons 35,200

Work-in-progress 1-1-2005 5,280

Work-in-progress 30-6-2005 17,600

Cost of factory supervision 8,800

Sales of finished products 3,30,000

Advertising, discounts allowed and selling expenses @ 75 paise per ton, Sold 25,600 tons of commodity were produced during the half year period.

You are required to prepare cost sheet and calculate:

(i) The value of raw materials used,

(ii) The cost of the output for the period,

(iii) The cost of the turnover for the period,

(iv) The net profit for the period, and

(v) The net profit per ton of the commodity.

Solution :

Cost Sheet for the half year ended 30 June, 2005


Stock of raw materials on 1-1-2005 22,000


1,54,000


Less: Stock of raw materials 30-6-2005 24,464

(i) Materials Consumed 1,29,536


Carriage inwards 1,584

Prime Cost 2,41,120

Factory or Works Overhead:

Rent, taxes, insurance and Works on cost 44,000

Factory supervision 8,800

Work-in-progress on 1-1-2005 5,280 58,080

2,99,200

Less: Work-in-progress on 30-6-2005 17,600

(ii) Cost of Output 2,81,600

Cost of Turnover for the period will be calculated as follows:

Opening stock of finished goods on 1-1-2005 17,600

Add: Cost of output 2,81,600

2,99,200

Less: Closing stock of finished goods on 30-6-2005 35,200

2,64,000

Add: Advertising, discounts and selling expenses 18,000

(@ 75 paise per ton on 24,000 tons)

(iii) Cost of Turnover 2,82,000

Sales 3,30,000

Cost of turnover 2,82,000

(iv) Net Profit for the period 48,000

(v) Net Profit per ton (Rs. 48,000 + 24,000 (1) ) 2.0

Working note:

(1) Calculation of total tons for net profit. Tons

Opening stock(1-1-2005) 1,600

Add: Finished goods produced 25,600

27,200

Less: Closing stock (30-6-2005) 3,200


Total Tons 24,000

Problem (22): From the following particulars, you are required to prepare a statement showing (a) The cost of material consumed (b) Prime cost (c) Factory cost (d) Total cost (e) The percentage of factory on cost to productive wages, and (f) The percentage of general on cost to factory cost.

Rs.

Stock of finished goods 31-12-2005 72,800

Stock of raw material 1-1-2005 33,280

Purchase of raw materials 7,59,200

Productive wages 5,16,800

Stock of finished goods 31st Dec. 2005 78,000

Stock of raw materials 31st Dec. 2005 35,360

Sales of finished goods 15,39,200

Works overhead charges 1,29,200

Office and general charges 70,161

The company is about to send a tender for a large plant. The costing department estimates that the materials required would cost Rs. 52,000 and the wages to workmen for making the plant would cost Rs. 31,200. The tender is to be made at a net profit of 25% on the selling price. Show what the amount of tender would be if based on the above percentage.

Solution:



Raw Materials

Opening stock on 1-1-2005 33,280

Add: Purchases of raw materials 7,59,200

7,92,480

Less: Closing Stock on 31-12-2005

35,360

(a) Cost of Materials Consumed 7,57,120

Productive wags 5,16,880

(b) Prime Cost 12,74,000

Works overhead charges 1,29,220

(c) Factory or Works Cost 14,03,220


Office and General expenses 70,161

(d) Total Cost 14,73,381

(e) Percentage of factory on cost to Productive wags is 25% (1) 25%

(f) Percentage of general on cost to Factory cost is 5% (2) 5%

Working notes:

(1) (1,29,220 + 5,16,880) x 100 = 25%

(2) (70,161 + 14,03,220) x 100 = 5%


Materials consumed 52,000

Productive wages 31,200

Prime Cost 83,200

Works overheads charges (25% of Productive wages) 7,800 (1)


Office and General expenses (5% of the Factory cost) 4,550 (2)

Total Cost 95,550

Net profit (25% of Selling price or 33112% of cost) 31,850 (3)

Tender Price 1,27,400

Working notes:

(1) 31,200 x 25 100 = 7,800

(2) 91,000 x 5 100 = 4,550

(3) 95,550 x 25 100 = 31,850

Problem (23): From the following figures calculate the :

(a) Cost of materials consumed,

(b) Value of output of manufactured goods, and

(c) Percentage of gross profit on sales.

Trading Account

Particular Amount (Rs.) Particular Amount (Rs.)

To Stock finished goods 1,28,000 By Sales 13,44,000

To Stock of raw materials 38,400 By Closing stock of finished goods 1,12,000

To Purchases 3,84,000 By Closing stock of raw materials 44,800


To Wages 6,40,600

To Carriage inward 32,000

To Gross profit 2,68,800

15,00,800 15,00,000

Solution :

Statement of Cost




Less: Closing stock of raw materials 4,22,400

(a) Cost of Materials Consumed 44,800

Carriage inward Wages 3,77,600

(b) Value of Output en: Manufactured Goods 32,000

(c) Percentage of gross profit on Sale 6,40,600

(2,68,800 13,44,000) 100 = 20% 10,50,200

20%

Problem (24): From the following information, prepare Pig Iron Production Account showing the cost per ton of each:

Stock on 1st January, 2007 : Rs.

Coal 4,720 Coke 3,580Limestone 1,450Iron stone 3,930Sundries 3,930Pig Iron 12,500

Purchase during the years: Coal 21,880Coke 29,470Limestone 4,080Iron stone 18,690Sundries 7,810Sales of slag 10,500General works charges 4,500Sales of Pig Iron 1,20,000Wages 17,000


Stock on 31st December 2007 : Coal 3,600Coke 2,050Limestone 1,530Iron stone 3,620Sundries 3,010Pig Iron 21,500

The total production of Pig Iron amounts to 32,000 tons.

Solution:

Production Account for Pig Iron

Output: 32,000 Tons

ParticularsCost Per

tons (Rs.)

Amount

(Rs.)Particulars

Cost Per

tons (Rs.)

Amount

(Rs.)

To Coal consumed 0.72 23,000 By Sales of slag 0.33 10,500

To Coke consumed 0.97 31,000 By Cost of production 3.01 96,730

To Limestone consumed 0.12 4,000

To Iron stone consumed 0.59 19,000

To Sundries used 0.27 8,730

To wages 0.53 17,000

To General works charges

0.14 4,500

3.34 1,07,230 3.34 1,07,230

By Opening stock of Pig Iron

12,500 By Sales 1,20,000

To Cost of production 96,730 By Closing stock of Pig

Iron21,500

To Profit 32,270

1,41,500 1,41,500

Problem (25): A manufacturer was required to quote for a contract for the supply of 1,000 electric fans. From the following data, prepare a statement showing the price to be quoted to give the same percentage of net profit on turnover as was realized during the six months.

Rs.


Closing stock of raw materials 4,900

Purchases of materials 52,500

Factory wages 95,000



Establishment expenses 10,000

Completed Stock in hand Ist October, 2006 Nil

Completed Stock in hand 1st October, 2007 35,000

Sales 1,89,000

The number of fans manufactured during the six months was 4,000 including those sold and those in stock at the close of the period. The fans to be quoted for are of uniform quality and make, and similar to those manufactured during the six months. The cost of factory labour had increased by 10 percent and material cost by 15 per cent.

Solution:

Statement of Cost for the Manufacture of 4,000 Electric Fans


Opening stock of raw Materials 35,000

Purchases of material 52,500

87,500

Closing stock 4,900


Factory wages 95,000

Prime Cost 1,77,600



Establishment expenses 10,000

Total Cost 2,05,100

Add: Completed opening stock on 1-10-2006 Nil

Cost of Fans Manufactured 2,05,100

Less: Completed closing stock on 01-10-2007 35,000


Profit (10% on Sales) 18,900

Sales 1,89,000

Tender Price for 1,000 Electric Fans


Materials (1/4 of Rs. 82,600 + 15% of 20,650) 23,748

Wages (1/4 of Rs. 95,000 + 10% of 23,750) 26,125

Prime Cost 49,873


Factory expenses (1/4 of Rs. 17,500) 4,375

Factory Cost 54,248

Establishment expenses (1/4 of Rs. 10,000) 2,500

Total Cost 56,748

Add: Profit (10% on Sales) 6,305

Tender Price 63,053

Problem (26): From the following particulars, you are required to prepare a statement showing (a) the cost of material used (b) the works cost (c) total cost (d) the percentage of works overheads to wages (e) the percentage of general overheads to work cost:

Rs.

Stock of finished goods 1st January, 2007 56,000

Stock of raw materials 1st January, 2007 25,600

Purchases 5,84,000

Wages 3,97,600

Sales of finished goods 11,84,000

Stock of finished goods 31st December 2007 60,000

Stock of raw materials 31s1 December, 2007 27,200

Works overheads 87,402

Office and general expenses 71,048

The company is about to send a tender for a large plant. The costing department estimate that the materials required would cost Rs. 40,000 and the wages to workmen for making the plant would cost Rs. 24,000. The tender is to be made at a net profit of 20 per cent on the sales.

Show that the amount of tender would be if based on the above percentages.

Solution:

Statement of Cost for the Year ended 31st December, 2007


Stock of raw materials (on 1st January, 2007) 25,600

Purchases 5,84,000

6,09,600

Less: Stock of raw materials 31st December 2007 27,200

(a) Materials Consumed 5,82,400

Wages 3,97,600

Prime Cost 9,80,000

Works overheads 87,402


(b) Factory or Works Cost 10,67,402

Office and General expenses 71,048

(c) Total Cost 11,38,450

Add : Stock of finished goods 1st January, 2007 56,000

11,94,450

Less: Stock of finished goods 31St December, 2007 60,000


Profit 49,550

Sales 11,84,000

(a) Percentage of works overheads to Wages 21.98% or 22% (approx.) 22%

(e) Percentage of general overheads to Works Cost 6.6% 6.6%

Statement Showing Tender Price


Materials 40,000

Wages 24,000

Prime Cost 64,000

Work overheads (22% of wages) 5,280


General overheads (6.6% of works cost) 4,572

Total Cost 73,852

Add: Profit (20% of the Sales = 73,852 X 20 80) 18,463

Tender Price 92,315

Problem (27): Below is mentioned the expenditure in the manufacture of A:

Three months ended

31-12-2006


Fuel 6,900

Electric power 1,340


Direct wages 63,500

Repairs of factory 2,400

Haulage 1,060

Light and water charges of factory 400

Rent of factory 2,000

Rates and insurance 300

Salaries and general expenses 7,000

Administrative expenses 5,000

Depreciation charges 2,500

Tons Manufactured - 17,200.

Prepare a cost sheet, showing the cost per item and total cost per ton for the period.

Solution :

Cost Sheet for the three months



Direct wages 63,500

Prime Cost 91,500

Factory Overheads:

Fuel 6,900

Electric power 1,340

Repairs of factory 2,400

Haulage 1,060

Light and water charges 400

Rent of factory 2,000

Rates and insurance 300

Depreciation charges 2,500 16,900



Salaries and general expenses 7,000

Administration expenses 5,000 12,000

Total Cost 1,20,400

Calculation of Cost of per ton = 1,20,400 -7 17,200 = Rs. 7.0 7.0


Problem (28): The accounts of a factory show the following information during the year ended 30th June, 2006 :

Rs.

Materials used 3,00,000


Factory and general expenses 50,000

Administrative expenses 30,000

The factory and general expenses relate to the factory only. You are required to prepare the following statements showing:

(a) Cost of Production,

(b) Percentage of factory and general expenses to productive wags,

(c) Percentage of administrative expenses to factory cost,

(d) The price the company should quote, on the basis of the above information, for the production of a machine requiring materials valued at Rs. 1,000 and wages Rs. 500, so that the price will yield a profit of 25 per cent on the selling price.

Solution:




Prime Cost 5,50,000

Factory 'and general expenses 50,000

(a) Factory Cost or Cost of Production 6,00,000

Administrative Expenses 30,000

Total Cost 6,30,000

(b) Percentage of factory and general expenses to Productive

wages (50,000 + 2,50,000) X 100 = 20%20%

(c) Percentage of administrative expenses to Factory cost

(30,000 + 6,00,000) X 100 = 5%5%

Statement of Tender Price


Materials 1,000

Wages 500

Prime Cost 1,500


Factory and general expenses ( 20% of Productive wages) 100

Factory Cost 1,600

Administrative expenses (5% of Factory cost) 80

Total Cost 1,680

Add: Profit 25% on Selling price ( 1680 25 + 75) 560

Tender Price 2,240

Problem (29): In 2002 the account of a company manufacturing cars, disclosed following particulars :

Rs.


Direct wages 17,40,000

Factory overhead expenses 2,82,000

Establishment and general expenses 2,78,000

You are asked to prepare a cost sheet showing the price at which the company should sale its car during 2003, assuming:

(a) That it is estimated that each car will require materials worth Rs. 2,900 and expenditure in direct wages Rs. 1,200.

(b) That during 2003, the factory overhead expenses will bear the same ratio to direct wages as in 2002.

(c) That the percentage of establishment and general expenses on factory will be the same in 2003 as in 2002.

(d) That the company has decided to earn a profit of 10 percent on the selling price.





Factory overhead expenses

(Percentage with Direct wages = 16.2% )2,82,000


Establishment and General expenses

(Percentage with Factory cost = 7.7% )2,78,000

Total Cost 39,00,000

Solution :

Statement of Tender Price of Car for the year 2003



Materials 2,900

Direct wages 1,200

Prime Cost 4,100

Factory overhead expenses

(16.2% of Direct wages = (1200X16.2 +100)194

Factory Cost 4,294

Establishment and General expenses

(7.7% of Factory cost = 4294 X 7.7 + 100 )331

Total Cost 4,625

Profit (10% on Selling price = 4625 X 10 + 100) 514

Tender Price for Car 5,139

Problem (30): From the following particulars, write up the Item No. 25 account and find out the value of the tender:

Rs.

Materials used 3,000


Direct Expenses 250

Provide 60 percent of productive wages for works on cost and 121/2 per cent on works cost for office on cost. Profit to be realized 15 per cent on the tender price.

Solution :

Statement for Value of the Tender of Item No. 25


Materials used 3,000


Direct expenses 250

Prime Cost 5,550

Works-on-cost (60% of Productive wages) 1,380

(2,300 60 100 = 1,380)


Office-on-cost (12½ per cent on Works cost)

(6,930 12.5) 100 = 866866


Total Cost 7,796

Profit (15% on Tender price)

(7,795 15) 1001,376

Tender Price 9,172

Problem (31): Mahesh Company Limited manufactured and sold 1,000 Refrigerators in the year ending 3pt March, 2005. The summarized Trading and Profit and Loss Account is set out below:

Rs. Rs.

To Raw materials 80,000 By Sales 1,20,000

To Direct wages 1,20,000

To Manufacturing exp. 50,000

To Gross profit c/d 1,50,000 _______

4,00,000 4,00,000

To Management and staff salaries 60,000 By Gross profit b/d 1,50,000

To Rent rates and insurance 10,000

To Selling expenses 30,000

To General expenses 20,000

To Net profit 30,000 ______

1,50,00 1,50,00

For the year ending 3pt March, 2005, it is estimated that:

(a) The output and sales will be 1,200 Refrigerators.

(b) The prices of materials will rise by 20 per cent on the previous year's level.

(c) The wage rates will rise by 5 per cent.

(d) Manufacturing expenses will rise in proportion to the combined costs of materials and wages.

(e) Selling cost per unit will remain unchanged.

(f) Other expenses will remain unaffected by the rise in output.

You are required to submit a statement for the Board of Directors showing the price at which refrigerators should be marketed so as to show a profit of 10 per cent on selling price.

Solution :

Cost Sheet for 1,000 Refrigerators

Particulars Total Cost Cost of Per


(Rs.) Refrigerator (Rs.)

Raw materials 80,000 80

Direct wages 1,20,000 120

Prime Cost 2,00,000 200

Manufacturing expenses 50,000 50

Factory Cost 2,50,000 250

Office Overheads:

Salaries to management and staff 60,000 60

Rent, rates and insurance 10,000 10

General expenses 20,000 20

Cost of Production 3,40,000 340

Selling expenses 30,000 30

Total 3,70,000 370

Cost

Profit 30,000 30

Sales 4,00,000 400

Statement of Tender Price for 1,200 Refrigerators

ParticularsAmount

(Rs.)

Cost of Per Refrigerator (Rs.)

Materials (80,000 1,000 = 80 + 20% of 80 = 96 1,200) 1,15,200 96.00

Direct wages (1,20,000 1,000 = 120 + 5% of 120 = 126 1,200) 1,51,200 126.00

Prime Cost 2,66,400 222.00

.Manufacturing expenses ( 2,66,400 25 + 100) 66,600 55.50

Factory or Works Cost 3,33,000 277.50

Rent, rates and insurance 10,000 8.33

Management and staff salaries 60,000 50.00

General expenses 20,000 16.67

Cost of 4,23,000 352.50


Production

Selling expenses (30,000 X 1200 + 1000 = 36,000) 36,000 30.00

Total Cost 4,59,000 382.50

Profit 10% on Selling price (4,59,000 X 10 + 90 = 51,000) 51,000 42.50

Sale of Price for Refrigerator 5,10,000 425.00


cost accounting - aunja mam

Documents