· web viewcost . amount incurred for production is cost and total cost is the sum of fixed cost...

COST Amount incurred for production is cost and total cost is the sum of fixed cost and variable cost whereas on the basis of components, cost could be classified into material, labour and expenses.

COSTINGMethod of ascertaining the cost is costing and different methods of costing are used in different industries.

COST ACCOUNTINGCost accounting is the branch of accounting which is concerned with the ascertainment of cost, cost control and cost reduction. It also assist to ensure decision making process in a prompt way to face the competitor’s policies and coordinate with competitive environment. In other words, it is concerned with keeping the cost related data in an appropriate manner.

COST ACCOUNTANCY Using the cost data for the decision making, policy formulation, comparative study and business forecasting is called cost accountancy.

OBJECTIVES OF COST ACCOUNTING

1) Ascertainment of cost- The primary objectives of the cost accounting is to ascertain cost of each product, process, job, operation or service rendered

2) Cost control -Cost accounting aims at controlling cost by setting standards and compared with the actual, the deviation or variation between two is identified and necessary steps are taken to control them.

3) Cost reduction–Maintaining the same quality but reducing the cost.4) Comparative study.5) Estimation of standard cost–Standardcost is the estimation of cost before

manufacturing.6) Variance analysis– variance = standard cost v/s actual cost.7) Facing the stiff competition.8) Decision making9) Determination of selling price10) Estimation of profit

TYPES OF COST

Fixed cost – The cost which remains fixed upto certain limit. Variable cost – The cost which is directly proportional to output and so it is also

known as changing cost. Total cost – Addition of fixed cost and variable cost

Total Cost = Fixed Cost + Variable Cost

Semi- variable cost OR Step cost –The cost which remains fixed upto certain limit but later it fluctuates.

Average fixed cost – It is the per unit cost of the fixed factors AFC = Fixed Cost / Output

Average variable cost – It is the per unit cost of variable factor,AVC = Variable Cost / Output

Average total cost – Average total cost or simple average cost is the per unit cost of both fixed and variable factors of production, thus Average cost = total cost / output

Marginal cost – The cost of producing an extra unit, Marginal cost = TCn – TCn-1

where, TCn = current total cost , Explicit cost – It is the actual cost paid in cash. Implicit cost OR Imputed cost – Implicit cost are the imputed value of entrepreneurs

own services and resources. In other words it is the cost incurred but not paid. Relevant v/s Irrelevant cost –Relevant cost is the cost significant for decision making and

irrelevant cost is the cost not helpful in decision making Sunk cost OR Past irrelevant cost – Cost incurred in years ago but now no more helpful in

decision making. Opportunity cost -Cost for next best alternative forgone or sacrifice.

METHODS OF COSTING 1) Unit costing / output costing / Single Costing – This method

is used in those manufacturing units where input is converted into output in one process.

2) Process costing –Input is converted into output in more than one process. Ex- medicine industry, chemical industry, etc.

3) Contract costing -Contract costing is the costing method applied to determine the cost of construction work performed as per a customer's specification.In this method, contractor is bound to come at the actual place of work. Ex – construction of dam, building, road, etc.

4) Job costing -The level of task is smaller and amount incurred is smaller. In this method work will be assigned to job worker and he has to complete it at his own premises.Ex – printing press, dry cleaner, etc.

5) Batch costing –This method of costing is used where units produced in a batch are uniform in nature and design. Ex – medicines, eatables, cosmetics, etc.

6) Multiple costing / Assembly line costing - : When the output is comprised of many assembled parts or components, as with television, motor cars, or electronic gadgets, costs have to be ascertained for each component, as well as with the finished product. Such costing may involve different methods of costing for different components. Therefore, this type of costing is known as composite costing or multiple costing.

7) Operating cost OR Service cost -Operating or service costing is used to ascertain the cost of particular service rendered by service providers, such as nursing homes, busses, or railways.

ELEMENTS OF COST

There are three elements of cost:

- Material Cost: This is the cost of material or the commodity used by the organisation for its production purpose. Material is the substance, from which a product is made. Thus, it may be in a raw or a manufactured state. It can be direct or indirect.

Direct Material Costforms an integral part of the finished product and is identified with the individual cost centre. It is also described as process material, stores material, production material, etc. Example: Raw materials purchased or purchased primary packing material, etc.

- Indirect Material Costis used for ancillary purposes of the business and cannot be conveniently identified with the

individual cost centre. Example: Consumable stores, oil and waste, printing and stationery material etc.

- Labour Cost: This is the cost, incurred in the form of remuneration paid to the employees or labours of the organisation. The workforce required to convert material into finished product is called labour. It can be direct or indirect.

Direct Labour Costis the cost incurred on those employees who directly take part in the manufacturing process and easily identified with the individual cost centre.

Indirect Labour Costis the cost incurred on those employees who do not directly take part in the manufacturing process and cannot identified with the individual cost centre. Example: salary of foreman, salesmen, director’s salary, etc.

Expenses: are the costs of services provided to the organisation. It can be direct or indirect.

Direct Expensesare the expenses which can be directly identified with the individual cost centres. Example: hire charges of machinery, cost of defective work for a particular job or contract etc.

Indirect Expenses are the expenses which cannot be directly identified with the individual cost centres. Example: rent, lighting, telephone expenses, etc.

COST SHEETCost sheet is a periodic statement to ascertain the cost of different elements which have been used in production.

SPECIMEN OF COST SHEET

COST SHEET (for March……..)

Particulars Amount

Direct Material or Raw material consumed ……….

Direct labour or productive labour ……….

Direct expenses or chargeable expenses ……….

Prime cost ……….

Add: Factory overhead / Work overhead ……….

Factory cost / work cost ……….

Add: Office overhead ……….

Cost of production ……….

Add: Selling & Distribution overhead ……….

Total cost / Cost of sales……….

Where, Raw material consumed = Opening stock of raw material +

purchase of raw material + carriage /

freight inward + import duty –

closing stock –abnormal loss of raw

material – sale of scrap of raw material

HEADS NOT TO BE SHOWN IN COST SHEET

1. Personal expenses / drawings 2. Abnormal losses / Abnormal bad debts 3. Financial gains4. Dividend income5. Exclusive financial expenses ( like haulage)6. Discount allowed

QUESTIONS & SOLUTIONS

QUESTION

Draft a cost sheet for the month of January 2015 from the following details :

Rs.

Opening stock 10,000

Purchases of raw material 90,000

Carriage inward 10,000

Carriage outward 5,000

Closing stock of raw material 3,000

Abnormal loss of raw material 1,000

Sale of scrap of raw material 1,000

Sale of scrap2,000

Fuel, coal, gas & water3,500

Depreciation of Plant & Machinery 1,500

Store keeper’s salary 2,500

Supervisor / foremen salary 4,000

Rent of Factory Building 1,000

Stores consumed 3,000

Haulage 2,000

Power & Heating expenses 4,000

Office rent & light 1,500

Staff salary 5,000

Director’s fee 1,400

Legal fee 600

Depreciation on office furniture 1,000

Administrative expenses 6,000

Selling expenses 1,600

Advertisement 1,400

Delivery van expenses 1,500

Selling agent’s commission 500

Showroom expenses 2,000

Profit 10% on the cost and it is assumed that direct labour will be 60% of raw material consumed and direct expenses will be 50% of direct labour.

SOLUTION

COST SHEET (for January 2015)

Details Amount

Raw material consumed 1,05,000

Direct labour 63,000

Direct expenses 31,500

PRIME COST 1,99,500

Add: Factory overhead:

Fuel 3,500

Depreciation on machinery 1,500

Store keeper’s salary 2,500

Supervisor / foremen salary 4,000

Rent of Factory Building 1,000

Stores consumed 3,000

Haulage 2,000

Power & Heating expenses 4,000

Sale of scrap (2,000)

FACTORY COST 2,19,000

Add: Office overhead:

Office rent and light 1,500

Staff salary 5,000

Director’s fee 1,400

Legal fee 600

Depreciation on office furniture 1,000

Administrative expenses 6,000

COST OF PRODUCTION 2,34,500

Add: Selling & Distribution expenses:

Selling expenses 1,600

Advertisement 1,400

Delivery van expenses 1,500

Selling agent’s commission 500


TOTAL COST 2,46,500

Add: 10% Profit 24,650

SALES 2,71,150

Working notes:

Raw material consumed = Opening stock + purchase of raw material +

carriage inward – closing stock – abnormal

loss of raw material – sale of scrap of raw

material

= 10,000 + 90,000 + 10,000 – 3,000 – 1,000 -

1000

= 1,05,000Rs.

TENDER COSTING / ESTIMATED COSTING

QUESTION

Units produced 1,000

Amount

Direct material 14,000

Direct labour 7,000

Direct expenses 5,000

Factory overheads (25% fixed) 8,000

Office overheads (entirely fixed) 10,000

Selling & Distribution overhead (75% fixed) 4,000

Profit 10% on cost

Draft an estimated cost sheet for 1500units assuming the price of material is increased by 20% and labour by 10%.

SOLUTION

COST SHEET

Details total cost cost / unit

Direct material 14,000 14

Direct labour 7,000 7

Direct expenses 5,000 5

PRIME COST 26,000 26


Variable (75%) 6,000

Fixed (25%) 2,000 8,000 8

FACTORY COST 34,000 34


Fixed (100%) 10,000 10

COST OF PRODUCTION 44,000 44

Add: Selling & Distribution overhead:

Variable (25%) 1,000

Fixed (75%) 3,000 4,000 4

TOTAL COST 48,000 48

Add: Profit (10%) 4,800 4.8

SALES 52,800 52.8

ESTIMATED COST SHEET Details Amount

Direct material [(14000x1500/1000)+ 20%]25,200

Direct labour [(7000 x 1500/1000)+ 10%] 11,550

Direct expenses [(5000 x 1500/1000)]7,500

PRIME COST 44,250


Variable (6,000 x 1500 /1000) 9,000

Fixed 2,000 11,000

FACTORY COST 55,250


Fixed 10,000

COST OF PRODUCTION65,250

Add: Selling & Distribution:

Variable(1000 x 1500/1000) 1,500

Fixed 3,000 4,500

TOTAL COST 69,750

Add: Profit (assuming the same %) 6,975

SALES 76,725

QUESTION

Opening stock of raw material 8,000

Opening stock of WIP 20,000

Opening stock of finished gas 11,000

Closing stock of raw material 7,000

Closing stock of WIP 6,000

Closing stock of finished goods 10,000


Factory rent 2,400

Administrative expenses 700

Carriage outward 300

Loose tool written off 100

Interest on capital 200

Goodwill written off 800

Purchase of raw material 1,00,000

Freight inward 15,000

Abnormal loss of raw material 4,000

Storess consumed and lubricant used 2,100

Haulage 1,600

Drawing office salaries 1,900

Counting house salaries 2,700

Fuel, coal, gas, water 3,200

Selling expenses 900

Delivery expenses 300

Supervisor salary 1,400

Director's salary 700

Sale of scrap 5,000

Sale of scrap of raw material 1,000

Depriciation on plant and machinery 400

Estimating expenses 3,000

Direct wages 30,000

Chargable expenses 20,000

Indirect material and labour 8,000

Outstanding wages 3,000

Wages include abnormal idle time 2,500

Additional machine work for 500 hrs.

Machine hour rate is 2

Profit 20% on cost

Prepare a statement of cost. Also compute its sales value.

Solution

COST SHEET

Details Amount

Raw material consumed 1,11,000

Direct wages 30,000

Add: Outstanding wages 3,000

Less: Abnormal idle time 2,500 30,500

Chargeable expenses 20,000

Prime cost 1,61,500

Add : Factory ovehead :

Factory rent 2,400

Loose tool written off 100

Stores consumed and lubricants used 2,100

Haulage 1,600

Drawing office salaries 1,900

Fuel, coal, gas and water 3,200

Estimated expenses 3,000

Indirect material and labour 8,000

Machine expenses 1,000

Opening stock of WIP 20,000

Closing stock of WIP (6,000)

Sale of scrap (5,000)

Depreciation on plant and machinery 400

Supervisor’s salary 1,400

Factory cost 1,95,600


Administrative expenses 700

Counting house salaries 2,700

Director fees 700

Cost of production 1,99,700

Add: Opening stock of finished goods 11,000

Less: Closing stock of finished goods (10,000)

Cost of goods sold 2,07,000

Add: Selling and Distribution overhead:


Carriage outward 300

Selling expenses 900

Delivery van expenses

300

Total cost 2,03,700

Add: Profit 20% 40,740

Sales 2,44,440

JOINT COST

QUESTION

A factory produces 200 units of each of the following commodities Jay and Vijay. The cost of production is:

Particulars Jay Vijay

Direct material 12,000 1,000

Direct wages 8,000 5,000

Chargeable expenses 1,000 1,000

Additional information:

Factory overhead amt. to Rs. 6,500

Office overhead amt. to Rs. 3,480

If a profit of 25% on sales is to be credited, what would be the selling of each commodity per unit

SOLUTION

COST SHEET

Details Jay Vijay

Direct Material 12,000 10,000

Direct wages / labour 8,000 5,000

Chargeable expenses 1,000 1,000

Prime cost 21,000 16,000

Add: Factory overhead [8:5 ratio of direct labour] 4,000 2,500

Factory cost 25,000 18,500

Add: Office overhead [50:37 ratio of factory cost] 2,000 14,800

Cost of production 27,000 19,980

Add: Profit 9,000 6,660

Sales 36,000 26,640

S.P per unit 180 13,320

Working notes-

1- Calculation of sales

25% is the profit included in sales so the remaining i.e 75% is the Cost Of Profit.

Hence in Jay = (27000 x 100) /75 = 36,000

Vijay = (19,980 x 100)/75 = 26,640

2- Profit in case of Jay = 36,000 – 27,000 = 9000

Vijay = 26,640 – 19,980 = 6660

QUESTION

A pen manufacturing company is producing two types of pens-“Delux and Popular”.The manufacturing costs for the year ended 31 st March 2010 were:

Direct material 200000

Direct wages 112000

Production costs 48000

Additional info:

1- Direct material in “Delux” type cost twice as much as that “Popular”type.

2- Direct material of “Popular” type were 60 % of those for “Delux” type.

3- Production overhead was 30 paise per pen for both types.

4- Administration o/h for each type was 200% of direct labour.

5- Selling cost was 25 paise per pen for both the types.

6- Production during the year was:

“Delux” type-40000 pens of which 36000 were sold.

“Popular” type-120000 pens of which 100000 were sold.

7- Selling prices were 7 per pen for “Delux” type and 5 per pen of “Popular” type.

Prepare a statement showing the total cost per pen of each type and the profit made on each type of pen.

SOLUTION

Cost Sheet

Details Delux Popular

Direct material 2 1

Direct wages 1 0.6

Prime cost 3 1.6

Add: Production overhead 0.3 0.3

Factory cost 3.3 1.9

Add: Administrative overhead 2 1.2

Cost of production 5.3 3.1

Add: Selling cost 0.23 0.25

Total cost 5.55 3.35

Add: Profit 1.45 1.65

Sales 7 5

Working note:

1- Calculation of direct material

Let the cost of Popular type pen be x and therefore Deluxe be 2x.

Hence, 40,000 x + 2x + 1,20,000 x = 2,00,000

80 000 x +1,20,000 x = 2,00,000

2,00,000 x = 2,00,000

X = 1

Cost of popular type pen is 1 and therefore Deluxe is 2x1= 2

2- Calculation of direct labour

Let the wages for Deluxe pen be x and therefore, Popular pen be 60% of x

Hence, 40,000 x +1,20,000 X 60% of x =1,12,000

40,000 x + 1,20,000 X 0.6x =1,12,000

40,000 x + 72,000x = 1,12,000

1,12,000 x = 1,12,000

X = 1

Wages for Deluxe pen is 1 and Popular is 60% of x i.e, 0.6 X 1= 0.6

QUESTION

Prepare reconciliation statement and memorandum using the following information:

1- Profit as per cost account is Rs. 93,000

2- Interest on drawing is Rs.500

3- Interest on capital is Rs.700

4- Loss by theft amt. to Rs.200

5- Transfer fee credited in financial books is Rs.450

6- Stores adjustment is credited in the financial books is Rs. 900

7- Factory o/h under recovered in cost books is Rs..2,400

8- Office o/h over recovered in cost books is Rs. 3,000

9- Selling exp. were Rs. 2,900 whereas selling o/h were Rs.3,100

10- Depreciation charged in excess by Rs.500 in cost books

11- Provision for tax made in financial books is Rs.800

12- Opening stock of raw material is Rs1,700, work- in- progress is Rs. 3,000, finished goods is Rs. 4,000 in cost books

Opening stock of raw material is Rs.1,500, work- in- progress is Rs. 3,000, finished goods is Rs. 4,500 in financial books

13- Closing stock of raw material is Rs. 2,300, work- in- progress is Rs. 2,000, finished goods is Rs. 5,000 in cost books

Closing stock of raw material is Rs. 2,400, work- in- progress is Rs. 1,950,

finished goods is Rs. 6,200 in financial books

SOLUTION

Reconciliation Statement

Particulars Amount

Profit as per cost accounts 93,000

Add: Interest on drawing 500

Transfer fee credited in financial book 450

Stores adjustment cr. in financial book 900

Office overhead over recovered in cost books 3,000

Selling overhead were over recovered in cost books 200

Depreciation is overvalued in cost books 500

Opening stock of raw material overvalued in cost books 200

Closing stock of raw material undervalued in cost books 150

Closing stock of finished goods undervalued in cost books 1,200

Less: Interest on capital 700

Loss by theft 200

Factory overhead under recovered in cost books 2,400

Provision for tax made in financial books 800

Opening stock of work in progress undervalued 100

Opening stock of finished goods undervalued 500

Closing stock of work in progress overvalued 50

Profit as per financial books 95,350

QUESTION

Cost sheet

Details Amount


Labour 15,000

Expenses 10,000

Prime cost 50,000

Add: Factory overhead 8,000

Factory cost 58,000

Add: Office overhead 7,000

Cost of production 65,000

Add: Selling and Distribution overhead

4,000

Total cost 69,000

Profit 6,000

Sales 75,000

Trading and profit and loss a/c

Particulars Amount Particulars Amount

To purchase of raw material 23,000 By sales 75,000

To wages 16,500 By dividend received 2,900

To direct expenses 10,400 By interest on income 600

To factory expenses 7,100

To office expenses 7,500

To Selling and Distribution exp. 3,800

To provision for tax 200

To goodwill written off 100

To loss of stock 300

To provision for dividend 100

To net profit 9,500

78,500 78,500

From the above information prepare reconciliation statement.

Reconciliation statement

Details Amount

Profit as per cost sheet 6,000

Add: Direct material over recovered 2,000

Factory exp. over recovered 900

Selling and distribution overhead over recovered 200

Dividend received 2,900

Int. on income 600

Less: Wages under recovered 1,500

Direct expenses under recovered 400

Office expenses under recovered 500

Provision for tax 200

Goodwill written off 100

Loss of stock 300

Provision for dividend 100

Profit as per financial books 9,500

Memorandum Reconciliation a/c

Particular Amount Particular Amount

To direct labour under recovered 1,500 By profit as per cost books 6,000

To direct expenses under recovered 400 By direct material over recovered 2,000

To office overhead under recovered 500 By factory overhead over recovered 900

To provision for tax 200 By Selling & Distribution overhead

To goodwill written off 100 over recovered 200

To loss of stock 300 By dividend received 2,900

To provision for dividend 100 By interest on income 600

To profit as per financial book 9,500

12,600 12,600

QUESTION

Cost Sheet

Particulars Amount


Direct labour 800

Prime cost 2,000

Factory overhead 600

Factory cost 2,600

Office overhead 520

Cost of Production 3,120

Profit 780

Sales

3,900

Draw a cost sheet if direct material is Rs.100 and direct labour is Rs.40.

SOLUTION

Cost Sheet

Details Amount

Direct material 100

Direct labour 40

Prime cost 140

Factory overhead 30

Factory cost 170

Office overhead 34

Cost Of Profit 204

Profit 51

Sales 255

Working note:

Calculation of factory overhead:

(Factory overhead x100) ÷ Direct labour

600 X 100 / 800 = 75%

75% of 40 = 30

Calculation of office overhead:

(Office overhead X 100) ÷ Factory cost

520 X 100 / 2600 = 20%

20% of 170 = 34

Process costing

QUESTION

Process A Process B

Units introduced 100 @ 10 -

Material 1,20,000 9,000

Labour 6,000 8,000

Office overhead 4,000 5,000

Scrap 5% 2%

Realised from Scrap 6 per unit 8 per unit

Selling price/unit - Rs. 60 / unit

SOLUTION

Process A a/c

Particular units Amount Particular Units Amount

To units introduced 1,000 10,000 By scrap 50 300

To material 12,000 By process B 950 31,700

To labour 6,000

To office overhead 4,000

1,000 32,000 1,000 32,000

Process B A/c

Particular Units Amount Particulars Units Amount

To Process A a/c 950 31,700 By Scrap 19 152

To material 9,000 By finished stock a/c 931 53,548

To labour 8,000

To office overhead 5,000

950 53,700 950 53,700

Statement of profit

D etails Amount

Sales (Process B) (931 units X Rs.60 /unit ) 55,860

Less: Cost 53,548

Profit 2,312

*Valuation of abnormal loss

Total input Total value

(-) Normal Loss units value

Then apply unitary method in the outcome of above equation.

QUESTION

Process A a/c

Units introduced 1,000 @ 15

Material 7,000

Labour 2,000

Overhead 1,000

Net loss 2.5% (Scrap @ 5 each)

Output 960 units

1/3rd output of Process A is directly transfered to warehouse for sale.

Selling price per unit @ Rs. 40

Prepare Process A A/c.

SOLUTION

Process A a/c

Particular units Amount Particular units Amount

To units introduced 1,000 15,000 By Normal Loss (2.5%) 25 125

To material 7,000 By abnormal Loss 15 383

To labour 2,000 By process B (2/3) 640 16,328

To overhead 1,000 By warehouse 320 8,164

1,000 25,000 1,000 25,000

Working note:

Calculation of Abnormal loss

Units Amount

1,000 25,000

Less: Normal loss 25 125

975 24,875

24875 / 975 X 15 = 383

Statement of profit

Details Amount

Selling of Process A a/c (320 units @40) 12,800

(-) Cost of production 8,164

PROFIT 4,636

QUESTION

Process A

Units introduced 500 @ 18

Material 3,000

Labour 2,000

Overheads 1,000

Normal loss 5% [scrap realised Rs 10 each]

Output 448 units

Prepare process A a/c, normal loss a/c.

SOLUTION

Process A a/c


To units introduced 500 9,000 By normal loss 25 250

To material 3,000 By abnormal loss 35 1,086.8

To Labour 2,000 By process B 440 13,663.2

To overheads 1,000

500 15,000 500 15,000

Normal loss a/c

Particular Units Amount Particular Units Amount

To process A 25 250 By cash 25 250

25 250 25 250

QUESTION

Process a units introduced 500 @18 each

Material consumed 5,000

Labour 3,000

Overheads 2,000

Normal loss 10%

Realiable value 4 per unit

Output 460 units

Prepare Process a/c

SOLUTION

Process A A/c


To units introduced 500 9,000 By normal loss 50 200

To material 5,000 By Process B 460 19,218

To labour 3,000

To overheads 2,000

To abnormal Gain 10 418

510 19,418 510 19,418

Working note-

Units Amount

500 9,000

- Normal loss (50) (200)

450 18,800

Calculation of abnormal gain for 10 units

18,800 / 450 X 10 = 418

QUESTION

Net output 2500 units

Abnormal loss 200 units

Normal loss 10 %

Calculate units introduced.

SOLUTION

Let the units introduced be x

Normal loss = 10% of x

=1/10x

Units introduced = Net Output + abnormal loss + normal loss

x =2500 + 200 + 1/10x

x = 2700 + 1/10x

10x = 27,000 + x

9x = 27,000

x = 3, 000 units

Hence, units introduced = 3,000 units

QUESTION

Prepare Process B a/c from the following

Units transfered from Process A 800 units against total cost of Rs 31,000

Material consumed Rs. 7500, labour Rs 3500, overhead Rs. 3000 ,normal loss 5%, realiable value 10/per units.

output 775 units

Prepare Process B a/c,normal loss a/c and abnormal gain a/c [Processs B is the Final process. ]

SOLUTION-

Process B a/c


To Process A 800 31,000 By Normal Loss 40 400

To material 7,500 By finished stock 775 45,480

To labour 3,500

To overhead 3,000

To abnormal gain 15 880

815 45,880 815 45,880

Working note-

Units amount

800 45,000

(-) Normal loss 40 400

760 44,600

Calculation of abnormal gain:

44600 / 760 x 15 = 880

Normal loss a/c


To process B 40 400 By cash a/c 25 250

By abnormal Gain a/c 15 150

40 400 40 400

Working notes-

Units amount

5000 90,000

(-) Normal loss 350 2,500

4,650 87,500

Calculation of abnormal gain

87500 / 4650 X 50 = 941

Statement of profit

Details Amount

Selling price for ( 2350 units @ 35 /unit ) 82,250

Less: Cost of production 44,220

Profit 38,030

QUESTION

The output from process 1 totalled 2500 units was considered that 200 units were abnormally cost

Normal loss was allowed 10 %

Add. Info.

Material @ 5 per unit

Labour 4,000

Overhead 3350

Wastage realised 2.5 per unit

Prepare process a/c and abnormal loss a/c

SOLUTION

Process 1 a/c


To materials 3000 15000 By normal loss 300 750

To labour 4,000 By ab. loss 200 1600

To o/h 3,350 By process B 2500 20,000

3,000 22,350 3,000 22,350

Abnormal loss a/c

Particular units amount Particular units amount

To process A 200 1600 By cash a/c 200 1600

200 1600 200 1600

Working note-Units introduced = Normal loss + abnormal Loss + Net output

x = x/10 + 200 + 2500

9x = 2000 + 25000

x = 3000

QUESTION

Particulars Process

A B

Direct wages 640 1200

Machinery expenses 360 300

Factory overhead 200 225

Raw material consumed 2,400 -

UNITS

Gross production 37,000

Wastage 1,000 1,500

Opening stock - 4,000

Closing stock - 1,000

Prepare Process A and Process B A/c.

SOLUTION

PROCESS A A/c

Particulars Units Amount Particulars Units Amount

To Direct Wages 640 By Normal Loss 1,000 -

To Machinery exp. 360

To Factory O/H 200

To Raw - material By Process B A/c 36,000 3,600

Consumed 37,000 2,400 (balancing figure)

37,000 3,600 37,000 3,600

PROCESS B A/c

Particulars Units Amount Particulars Units Amount

To Opening By wastage A/c 1,500 -

Stock 4,000 400

To Process AA/c 36,000 3,600 By finished stock 37,500 5,625

To Direct wages 1,200 (balancing figure)

To Machinery exp. 300

To Factory O/H 225 By closing stock 1,000 100

40,000 5,725 40,000 5,725

JOINT & BY – PRODUCT

QUESTION

Joint Separate exp. Separate exp.

Expenses of A of By- Product B

Material 12,000 7,000 3,000

Labour 6,000 3,0002,000

Other expenses 2,000 1,000 1,000

20,000 11,000 6,000

Additional information:

1- 50units of By – Product B were produced and sold @ Rs. 20/unit , at a profit of 25% on selling price .

2- Prepare Main Product A A/c and By – Product B A/c

SOLUTION

General explanation

Main product → Total Cost + Profit = Sales

Joint cost

By- Product → Total Cost + Profit = Sales

Share in Share in

Joint expense Joint expense

of A of B

Selling price of By- product B (500 X 2 ) = 10,000

LESS: Profit = 2,500

Total cost of By- product B 7,500

LESS: Separate expenses of By- product B = 6,000

Share in Joint cost 1,500

Therefore,

Share of A in Joint expenses = 20,000 – 1,500

= 18,500

MAIN PRODUCT A A/c


To Joint expense 20,000 By By – product a/c 1,500

By balance c/d18,500

20,000 20,000

To balance b/d 18,500

To separate cost 11,000 By balance c/d 29,500

29,500 29,500

BY- PRODUCT B A/c


To main product a/c 1,500 By sales 10,000

To separate cost a/c 6,000

To profit 2,500

10,000 10,000

QUESTION

A factory is engaged in the production of Chemical X and in the course of its manufacture a By- product Y is produced which after a seperate process has a commercial value.

Particulars Joint SeperateSeperate

Expenses expenses X expenses Y

Material 9,600 3,680 90

Labour 5,850 3,840 1,375

Overhead 1,725 750 245

Additional Information:

1. The output for the month ─ 142 ton for X and 49 ton for Y.2. The selling price of Y was Rs. 140 per ton and profit is 25% on selling price.3. Prepare Main Product X A/c and By- Product Y A/c and also calculate per ton cost of X

& Y.

MAIN PRODUCT A/c


To material a/c 9,600 ByBy- product a/c 3,435

To labour a/c 5,850

To overhead a/c 1,725 By balance c/d 13,740

17,175 17,175

To balance b/d 13,740

To material a/c 3,680

To labour a/c 3,840

To overhead a/c 750 By cost of production 22,010

22,010 22,010

BY- PRODUCT A/C


To main product a/c 3,435

To material a/c 90

To labour a/c 1,375

To overhead a/c 245 By cost of production c/d 5,145

5,145 5,145

To cost of production b/d 5,145

To Profit 1,745 By sales a/c 6,860

6,860 6,860

MACHINE HOUR RATE QUESTIONCalculate Machine Hour Rate for the month of January related to particular machine.

1. Rent of department Rs.7800 per annum (Machine occupies 1/5th area).2. Lighting Rs. 2880 per annum (there are 12 workers in the department and 2 workers are

engaged on this machine).3. Insurance Rs.360 per annum4. Cotton. Oil, waste Rs.600 per annum (1/4th time of the foremen is devoted on this

machine)5. Cost of machine is Rs. 92000 and it has estimated scrap value of Rs. 20006. Machine will work for1800 hrs / annum.7. It will incur Rs. 11250on the repairs and maintenance during entire working life.8. Machine consumes 5 units of power / hr at the cost of 601 paise / unit.9. The working life of machine will be 18000 hours.

SOLUTION

MACHINE HOUR RATE

Particulars Amount

A) Standard Expenses :Rent (7800 / 5) 1,560Lighting (2880 X 2/12)480

Insurance 360Cotton, oil, waste 600Salary of foremen (60,000 X 1/4) 15,000 18,000

Standing Expenses per hour (18000 / 1800) 10

B) Machine Expenses: Depreciation [(92,000 - 2000) / 18000] 5Repairs & Maintenance (11250 / 18000) 0.625Power (5 unit X 60 paise per unit) 3

Machine Hour Rate 18.625

QUESTION

Prepare a Machine Hour Rate computation for the month of January 2011 to recover the overhead expenses from the following information:

1. Rent of department 1,200 per annum (space occupied by each machine 1/4th)2. Lighting 576 per annum (12 men in department and 2 are engaged on this machine)3. Insurance 96 per annum4. Oil, cotton, waste 60 per annum5. Salary of foremen Rs. 9,000 p[er annum ( he devotes 1/3rd time on this machine)6. Working hours per annum is 1,200 hrs7. The cost of machine is Rs. 27,500 , scrap value is Rs. 500 and estimated working life is

15,000 hrs.8. Repairs and Maintenance Rs. 4,500 for whole working life 9. Power consumption 5 units per hour @10 paise per unit.

SOLUTION

Computation of Machine Hour Rate

Particulars Amount

A) Standing Expenses

Rent of department (1,200 / 4) 300

Lighting (576 X2/12) 96

Insurance 96

Oil, cotton, waste 60

Salary of foremen 3,000

Total Standing Expenses 3,552

Standing expenses per hour 2.96

B) Machinery Expenses: Depreciation [(27,500+500)/15,000] 1.86Repairs and Maintenance (4,500 / 15000) 0.3Power 0.5


QUESTION

1. Power consumed by 4 identical machines Rs.4,800 per annum (@10 paise per unit).2. Each machine uses 10 units of power /hr.

Calculate per annum hour worked by each machine.

SOLUTION Working hour of each machine: Power used by 4 machine per annum = 4,800 X 10 = 48,000 units Units per machine = 48,000/4 = 12,000 unitsEach machine uses 10 units per hour So, 1 unit per hour = 12,000 / 10 = 1,200 hour / annum

QUESTION

Calculate Machine Hour Rate assuming that the machine will work on 90% capacity throughout the year and there will be a breakdown of 10%.

There are 2 holidays at Diwali, 1 at Holi, 1 on 22nd October, 1 on 26th January, 1 at Christmas, exclusive o0f Sundays.

The factory works 8 hours on 5 days and 5 hours on Saturdays.

Annual expenses for 20 identical machines are as under.

Power Rs. 3,120

Lighting Rs. 640

Salaries of foremen Rs. 1,200

Lubricating oil Rs. 66

Repairs to machines Rs. 1,446

Depreciation Rs. 980

SOLUTION

Calculation of annual working hours:

Total days in a year 365 days

Less: Official holidays 6 days

Remaining days 359 days

Less: Total Sundays 52

Days left 307 days

Saturdays Remaining days

52 days X 5 hrs 255 days X 8 hrs

= 260 hrs = 2,040 hrs

Total hours = 260 hours + 2,040 hours = 2,300 hours

90% efficiency (2,300 X 90% ) = 2,070 hours

Less: Idle time (10%) = 207 hours

Annual working hours = 1,863 hours

MACHINE HOUR RATE

Per annum hours = 1,863 hours

Particulars Amount

A) Standing expenses:Lighting (640 / 20) 32 Salaries of foremen (1200 / 20) 60Lubricating oil (66 / 20) 3.30 Total Standing expenses 95.30

Standing expenses per hour 0.05

B) Machine Expenses:Power (3,120 / 20 = 156 / 1863) 0.08Repairs to machines (1446 / 20 = 72.3 / 1863) 0.04Depreciation (980 / 20 = 49 / 1863) 0.02


QUESTION

The following annual expenditure has been incurred in respective of a shop having 5 identical machines:i. Rent and rates Rs. 4,000ii. Lighting charges for shop Rs. 500iii. Attendant’s salary – there are 2 attendants and each is paid Rs. 50 per monthiv. Supervisor’s salary - there is 1 supervisor for 5 machines and his monthly salary is

Rs. 300.v. Lubricants and cotton waste for the shop Rs. 100vi. Hire purchase installment for the machines Rs 2,300 (including Rs. 300 for interest)vii. Repairs and maintenance for the month Rs. 1,000viii. Power consumed by the shop @ 6¼ Paise per unit Rs. 3,750ix. Each machine consumes 10 unit of power per hourx. Depreciation on each machine Rs. 600 per annum

Calculate annual working hours and Machine Hour Rate.

SOLUTION

Power used by 5 machines per annum :

6¼ or 25/4 paise = 1 unit

Or, 6.25 paise= 1 unit

So, 1 Re = 0.16 x 100 unit (1/6.25 = 0.16)

1 Re = 16 units

Power consumed = 16 X 3,750

= 60,000 units

Each machine uses (60,000 / 5) = 12,000 units / machine

Each machine consumes 10 units in 1 hr

So, 1 unit = 1/10

Total hours = Total units ÷ Hours per unit

= 12,000 ÷ 10

= 1,200 hrs.

SOLUTION

MACHINE HOUR RATE

Per annum 1200 hours

Particulars Amount

A. Standing expenses:Rent & Rates (4,000 / 5) 800Lighting [(500/ 5 ] 100Attendent’s salary [(50 x 2 x12)÷5] 240Supervisor’s salary [(300 x 12) ÷ 5] 720Depreciation 600Interest (300 / 5) 60 Total Standing Expenses 2,520

OPERATING COST /

SERVICE COSTING

Uses of operating costing:

In transport industry In theatres In hospitals In hotels In power house

QUESTION

A transport company operates a fleet of 20 busses between Lucknow and Kanpur , 25 days a month.

Lucknow and Kanpur are 80 km apart. Each bus completes 2 round trips per day. Calculate total km covered during the month The sitting capacity of the bus is 50 passengers and on an average it remains 901%

occupied, also calculate total passenger km during the month.

SOLUTION

Total km covered during the month = (80 x 2 x 2) x25 x20 =1,60,000 km Total passenger km covered during the month = Total km x passenger occupied = 1,60,000 x ( 50 x 90%) = 1,60,000 x 45 = 72,00,000Psg. km

QUESTION

Standing Expenses per hour 2.1

A. Machinery Expenses:Power [(3,750 / 5) ÷ 1200] 0.625Repairs & Maintenance [(1,000 / 5) ÷ 1,200] 0.167Lubricants & cotton waste [(100/5) ÷ 1,200] 0.017


Z Ltd, a transfer company operates 10 bussed between two places which are 90 km apart, each bus makes a round trip per day and busses run 25 days a month. The sitting capacity of each bus is 80 passenger and it remains 75% occupied all the time. Calculate total km covered during the month, total passenger km, total operating cost for the month and per passenger km cost from the following details:

i. Rent of the department Rs. 30,000p.a.ii. Insurance of the depo. Rs. 25,200 p.a.iii. Driver’s & cleaners salary Rs. 3,000 per quarteriv. Depreciation for the entire fleet Rs. 21,600 p.a.v. Consumption of tyre& tubes Rs. 750 per monthvi. Fuel consume @ 10 paise / km

SOLUTION

Total km covered during a month = 90x 2 x 25 x 10

= 45,000 km

Total passenger km covered during a month = 45,000 x 60

= 27,00,000psg km/ month

OPERATING COST SHEET

Details Amount

Standing Expenses:

Rent 2,500

Insurance 2,100

Salary 1,000

Total Standing Expenses 5,600

Running & Repairs & Maintenance:

Depreciation 1,800

Consumption of tubes &tyres 750

Fuel 4,500

Operating cost / month 12,650

Operating cost per km = 12,650 ÷45,000

Rs. 0.28

Cost per passenger km = 12,650 ÷ 27,00,000

= Rs. 0.0046

QUESTION

Following expenses were incurred for the month of April, 2012:

i. Rent Rs. 6,000ii. Driver’s salary Rs . 5,000

iii. Annual insurance Rs. 18,000iv. Cost of vehicles Rs. 1,00,000 (estimated life 1 year)v. Tyres and tubes allocation per month Rs. 2,600

vi. Repairs &maintenance Rs. 2,100 p.a.There are 5 vehicles, each computes 1 round trip per day and one way distances 150 kmSitting capacity of the vehicle is to passenger and it remains 755 occupies all the time. Calculate operating cost per km and price of ticket for 50 km , taking a profit of 25% on cost.

SOLUTION

Total km covered during a month = 30 x 150 x 2 x5 = 45,000 km Total passenger km covered during a month = 45,000 x 30 =1,35,000psg km / month

OPERATING COST SHEET [ for April, 2012]

Details Amount Standing Expenses: Rent 6,000 Driver’s salary 5,000 Annual insurance 1,500 Total Standing Expenses 12,500

Running & Repairs & maintenance:Depreciation 1,667Tyres& Tubes 2,600 Repairs & maintenance 175Total Running Expenses 4,442 Operating cost for the month 16,942

Cost per km = 16,942 ÷ 45,000 = Rs. 0.376Cost per passenger km = 16,942 ÷13,50,000 = Rs. 0.012Cost per passenger for 50 km = 0.12 x50 = Rs. 0.60 Price of ticket = 0.60 + 20% = Rs. 0.75

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