Lesson-13 Elements of Cost and Cost Sheet Learning Objectives • • • To understand the elements of cost To classify overheads on different

bases To prepare a cost sheet

Elements of Cost Raw materials are converted into finished products by a manufacturing concern with the help of labor, plants etc. The elements that constitute the cost of manufacturing are known as elements of cost. The elements of cost include the following: • • • Material Labor Expenses

Each of these elements is again subdivided into direct and indirect material. Direct material, direct labor and direct expenses are those which can be traced in relationship with a particular process, job, operation or product. Indirect material, indirect labor and indirect expenses are those which are of general nature and cannot be traced in relationship with a particular process, operation, job or product. Direct material Direct labor Direct expenses Indirect material Indirect labor Indirect expenses together constitute prime cost

of the factory together constitute factory (or works)

Prime cost + Factory (or works) overhead = Factory cost or works cost Factory cost + Administration overhead = Cost of production Cost of production + Selling and distribution overhead = Total cost or cost of sales While working out the cost of sales, following details are to be kept in mind: Opening stock of raw material Add: Purchasing of raw materials Less: Return to suppliers Less: abnormal loss of materials Rs. *** *** *** *** Rs.

Less: Closing stock of raw materials Raw material consumed Direct wages Direct expenses Prime cost Factory overhead expenses Add: Opening work in process Less: sales of scraps Less: closing work in process Factory cost or works cost Office and administration overhead Cost of production Add: Opening finished stock Less: closing finished stock Cost of production of goods sold Selling overhead Distribution overhead Total cost or cost of sales Profit Selling price Key Terms Direct Material Direct material is the material which can be conveniently identified with or allocated to cost centers and cost units. It refers to the material out of which a product is manufactured. For example, leather shoes are produced out of leather, butter is produced out of milk, steel utensils are produced out of stainless steel and so on. Thus, leather, milk and stainless steel are the direct materials for the manufacture of shoes, butter and steel utensils respectively. Like direct material, another kind of material may be required for manufacturing but not directly. For example, machines used for production require lubricants, jute and cotton wastes etc. which are indirect materials. Direct material is a component of prime cost and indirect material is a component of factory overhead. Direct material directly varies with the output whereas indirect material does not so. Direct Wages Direct wages are the wages which can be conveniently identified with or allocated to cost centers and cost units. It refers to the wages paid to the workers who actually produce goods. In case of manual work, it is not difficult to locate direct worker because he is the one who produces goods. In case of the work done by a machine, the person who collects input and

output and in whose account the output is credited for the purpose of payment of wages is direct worker. There are several other workers in a factory who help direct workers in connection with their work with regard to supply of materials, power etc. and in respect of supervision and maintenance. These are indirect workers and wages of indirect workers at different stages of production are indirect wages. Direct wage is a component of prime cost whereas indirect wage is a component of factory overhead. The former directly varies with the output whereas the latter may not vary so. Direct Expenses Besides direct material and direct layout, certain expenses may be wholly and exclusively necessary for a particular production. This expense is referred as direct expense and it can be easily identified with or allocated to cost centers or cost units. For example, if an order is received, a manufacturer will have to prepare a mould exclusively for this purpose. The cost of the mould may be regarded as direct expense of the production. Similarly, the charge for hiring a special plant for production is also direct expense and it can be easily identified with and allocated to cost centers or cost units. The cost of preparing blue print for a production is another example of direct expense. Overhead Overhead is an indirect expense incurred at various levels of activities of an enterprise. These expenses cannot be conveniently identified with or allocated to cost centers or cost units. According to functions, classification of overhead expenses may be done as follows: (i) Factory or Works Overhead Factory or works overhead refers to all indirect expenses of a factory. It includes the following: • • • • • • • • • (ii) Wages of all factory staff excluding those of direct workers Indirect material Rent Rates Taxes of factory Depreciation of factory assets Excise duty Canteen expenses Labor welfare expenses

Administration Overhead It refers to all the expenses incurred in connection with general administration. In administrative building, following things are included: • • Salary of administrative staff Rent

• • • • • • •

Rates Taxes of administrative accommodation Postage Telegram and telephone Stationery Lighting of administrative building Depreciation of office appliances

Depreciation of office appliances etc. is included in administration overhead. (iii) Selling Overhead Selling overhead refers to all expenses incurred in connection with sales. In selling overhead, following things are included: • • • • • • • • • • • (iv) Salary of sales staff Traveler’s commission Advertisement Rent Rates Taxes of sales office Depreciation of sales office appliances Cost of participation in industrial fares and exhibitions Cost of free gifts Cost of free after sales service Normal bad debt

Distribution Overhead Distribution overhead refers to all the expenses incurred in connection with the delivery of a product after the sale is affected. In distribution overhead, following things are included: • • • • • Delivery van expenses Fright and insurance Packing for delivery loading and unloading Salary of the deliverymen Customs duty

According to behavior, classification of overhead expenses may be done as follows: a. Variable Overhead The overhead expenses that vary proportionately with the output are variable overhead. b. Semi-Variable or Semi-Fixed Overhead

utilization is beyond that degree. so these costs are partly fixed and partly variable. Some of the items of fixed costs are as follows: • • • • Rent and rate of building Salary of work mangers. More frequent repairs will be necessary involving further cost.The overhead expenses that vary with the output but not proportionately are semivariable or semi-fixed overhead. direct wages and direct expenses are variable items of direct cost. These costs vary proportionately with the output. Normal repair is mostly fixed in nature because within a certain degree of capacity. This is why the element is semi-fixed or semivariable. Semi-Variable Costs Semi-variable costs include overhead expenses that vary according to output but not proportionately. . Variable costs Variable costs include prime cost and variable overheads. It should be always kept in mind that in this connection direct materials. if we classify cost according to behavior. Therefore. such an increase in cost will not be proportionate to an increase in output. sales managers Depreciation of buildings Insurance b. we get the following classification: a. Some of the items of variable costs are as follows: • • • • • • Direct material Direct wages Direct expenses Consumable stores Power Fuel c. Some of the items of semi-variable costs are as follows: • • • • • • Normal repairs and maintenance of building and plant Salary of supervisors Charge men Foremen Service department expenses Depreciation of plant and machinery Consider the element repairs. But still. Fixed Costs Fixed costs include only those overhead expenses which remain fixed irrespective of the level of output. administrative manager.

Rs. 16190 in his books as “establishment” which includes the following expenses: • • • • • • • • • • • • • • • • Agents commission-. If one extra unit is to be produced. 1500 Trade magazines-. Overhead is an indirect expense incurred at various levels of activities of an enterprise.Rs. rates and insurance of warehouse-. 270 Printing and stationery-. rates and insurance of office-. The elements that constitute the cost of manufacturing are known as elements of cost. 310 Rent. 1130 Director’s remuneration-.Rs.Rs.Rs.Rs.Rs.Rs.Rs. 1970 Bad debts-. Direct wages are the wages which can be conveniently identified with or allocated to cost centers and cost units 4.It is important to know the behavior-wise classification of cost because the total of variable costs per unit of output is known as marginal cost. 1800 Warehouse repairs-. 3. Only the variable costs will come into the picture. 150 Bank charges-.Rs. 170 From the above information. Marginal cost represents the cost incurred in producing one extra unit. 1400 Traveling expenses-. 510 Lighting of office-.Rs. the fixed costs will not increase. 2. Direct material is the material which can be conveniently identified with or allocated to cost centers and cost units.Rs.Rs. 70 Office salaries-. 100 Discount allowed-. 70 Donations-.Rs. 760 Rent. Summary 1. 5750 Warehouse wages-.Rs. 230 Lighting of warehouse-. Exercise Problem 1 A manufacturer has shown an amount of Rs. These expenses cannot be conveniently identified with or allocated to cost centers or cost units. prepare a statement showing the following (in separate totals): • • • • Selling expenses Distribution expenses Administration expenses Expenses which you will exclude form total cost Solution .Rs.

You are required to prepare a statement showing the subdivision of total cost. 2.970 .650 1.4. incurred the following expenses during a certain period.500 1.850 510 3.00 15. Materials used on jobs Wages traceable to jobs Wages paid to men for maintenance work Salaries of sales men Directors’ fees Carriage inwards on raw materials Carriage outwards Factory rent and rates Works salaries Hire of crane for job no.500 7.300 Depreciation of plant Depreciation of delivery vans Insurance on finished goods Lubrication oil Bad debts Commission to salesmen Cost of idle time in factory Auditors fees Dividends paid Lighting of showroom Office salaries and expenses Income tax Rs.190 150 1.000 860 2.26. a manufacturing company. 1. 132 Consumable stores Rs.540 86.800 1. rates and insurance of warehouse Lighting of warehouse Administration expenses: Lighting of office Office salaries Directors’ remuneration Rent.500 70 100 4. rates and insurance of office Printing and stationery Trade magazines Bank charges Total expenses to be considered in estimation costs Expenses to be excluded form costs: Donations Discount allowed Total Problem 2 ABC Ltd.100 10.800 510 310 270 Rs.Statement of Cost Rs.800 1.400 230 1.000 8.680 1.600 2.120 1.800 8.6.800 6.400 1.20. Selling expenses: Agents’ commission Traveling expenses Bad debts Distribution expenses: Warehouse wages Warehouse repairs Rent.130 1.600 5..070 2.300 20.890 70 1.750 760 170 6.500 250 300 2. 3.

850 1.000 15.09.20.500 300 46.600 8.400 86.340 Solution Statement of Cost Direct materials Add: carriage inwards Direct wages Direct expenses (hire of crane for job no. Prepare a cost sheet showing clearly the cost per unit under the various elements and also the profit or loss per unit.800 250 510 10.000 10.000 3.03.21.350 12. 1995. Branch office expenses 25.000 building 16. 1.300 20.600 2.500 2.300 2.000 Problem 4 The following figures are taken from the books of a manufacturing company for the year ended on March 31.55.800 1.00. 30.650 1.76. Direct materials Direct labor Depreciation of factory building Insurance: Rs.800 7.100 2.00.540 860 1.200 2.000 Depreciation of staff cars Rs.800 2.650 3.400 340 3. 132) Prime cost Works overhead Wages paid to men on maintenance work Factory rent and rates Works salaries Consumable stores Depreciation of plant Lubricating oil Cost of idle time in factory Works cost Administration overhead Directory fees Auditors fees Office salaries and expenses Cost of production Selling and distribution overhead Salaries of salesmen Carriage outwards Depreciation of delivery vans Insurance of finished goods Commission to sales men Lighting of showroom Bad debts Total cost Rs.000 .350 26.000 Depreciation of office 8.550 20.

000 4.000 15.50 3.000 30.00 330. 20.000 15.000 50.000 Solution Output-.25.000 8.Year ended on March 31.000 4.Staff cars Office building Factory building Delivery van-maintenance and running expenses Salaries (including that of Sales Manager Rs.75.000 33.00 42.500 20.30 Rs Per unit Rs 250.35 411. 1995 Total Rs.40 1.000 1.000 6.000 and Factory Chief Engineer (Rs.000 2.00.10.93.000 Cost Sheet Period -.000 37.000) Finished goods warehouse expenses 2. 5.000 4.500 2.20.60 0.00 80.000 2.000 1.00.00 32.000 35.20.30.000-25.000 2.000 10.000 4.50 0.000 units) Units produced--10.000) Electricity Other office administration expenses Cost of production Selling and distribution overhead: Sales manager’s salary Advertisement Sales promotion Rs 25.75.20 2.00 .000 4.00 1.000 12.20 0. Direct materials Direct labor Prime cost Works overhead Depreciation of factory building Insurance 0f factory building Salary of factory chief engineer Electricity (35.000 15.000-5.30 379.000 18.000 Electricity (including Rs.000 18.000) for administrative office) Advertisement Sundry factory expenses Sales promotion Office administration expenses Expenses for participating in industrial exhibition Sales (10.000 60.000-20.000 5.93.000 2.00 49.00 0.500 41.500 2.50 6.000 60.000 8.000 3.15 23.16.80 0.000) Sundry factory expenses Work cost Office and administration overhead Depreciation of office building Depreciation of staff cars Insurance of staff cars Insurance of office building Salaries (2.000 25.65 1.00.23.00 1.

500 50. 95 st Solution Statement of Cost of Production Period-. 95 On 31st October.75. Rs.71.700 3.07.000) 2.46.October 1995 Rs.300 (75.200 Purchase of raw materials Sale of finished goods Direct wages Factory expenses Office and administration expenses Selling and distribution expenses Sale of scrap Rs.Expenses in industrial exhibition Branch office expenses Finished goods warehouse expenses Delivery van-maintenance and running expenses Cost of sales Profit (balancing figure) Sales 8. 95 Raw materials Finished goods Work-in-progress: On 1st October.23.700 13.000 2.46.85.76.000 42.400 75.600 35.500 1.85.80 3.20 10.600 1.000 3.600 2.000 0.000 2. Materials consumed Opening stock Purchases Less: Closing stock Direct wages Prime cost Factory expenses 60.03.000 12.000 6.000 1. 60.900 75.000 30.75.50 1.500 7.00 Problem 5 From the following figures. Rs.300 . 95 Raw materials Finished goods Stock on 31st October.00 1. prepare separate statements of cost and profit for the month of October 1995.70 422.65 500.600 Stock on 1 October.300 3. 2.35 77.000 30.900 1.12.42.25.40.00.000 15.

43.600) 1.200 (16.000 10. 35.460 42 .000 9.900 (30.Stock of finished goods on October 31. heat and light Sundry factory overheads Financial charges Sales Closing stock: Direct materials Rs.000 Statement of Profit or Loss Period-.39.900 75.600 1.09.600 (1.78.200) 2. 1995.23.000 13.400 9.42.43.78. 1995 Cost of goods sold Selling and distribution expenses Cost of sales Profit (balancing figure) Sales Note-.40.17.25.900 9. The following details are available for the year ended on June 30.Less: Sale of scrap Adjustment for work-in.progress: Opening Closing Works cost Office and administration expenses Cost of production 2.000 3.Office and administration expenses may also be shown in the statement of profit or loss as illustrated in the next problem.56.03.500 (2. (thousands) 140 20 12 120 1. 1995 Add: Cost of production Less-.000 Stock of finished goods on October 01.12. Rs.October 1995 Rs.600) 8.900) 9. (thousands) Opening stock Direct materials Work-in-progress Finished goods Direct materials purchased Direct labor Indirect labor and supervision Administrative expenses 26 74 120 436 120 44 160 Selling expenses Factory power.900 8. Problem 6 The Susan and company makes art prints.

Factory rent. Rs. You are required to prepare the following: a) A schedule of cost of goods manufactured for the year ended on 30th June. 1995 Rs. rates and insurance Depreciation of factory equipment 94 70 Work-in-progress Finished goods 54 80 The company values work-in-progress at factory cost.Year ended on June 30. 1995 Rs.Year ended on June 30. heat and light Sundry Adjustment for work-in-progress: Opening Closing Cost of goods manufactured Profit Statement Period-. 95 b) A profit statement for the year ended on 30th June. rates and insurance Depreciation of equipment Power. (Thousands) (Thousands) Direct materials consumed Opening stock Purchases Less: Closing stock Direct labor Prime cost Factory overhead Indirect labor and supervision Rent.460 26 436 462 (42) 420 120 540 44 94 70 20 12 74 (54) 240 780 20 800 Sales Less: Cost of goods sold: . (Thousands) (Thousands) 1. 95 Solution Schedule of Cost of Goods Manufactured Period-. Rs.

000 6.000 9. 1995 At prime cost Manufacturing expenses Work-in-progress.04. 95 st Rs.000 4.000 84.000 . 66. 95 At prime cost Manufacturing expenses Stock of raw materials on 1st January.02.000 54.98.000 15.00 On the basis of above data.000 45.77.Opening stock of finished goods Cost of goods manufactured Less: Closing stock of finished goods Gross profit Less: Administrative expenses Selling expenses Financial charges Net profit 120 800 920 (80) (840) 620 160 140 120 (420) 200 Problem 7 A company is manufacturing refrigerators and the following details are furnished in respect of its factory operations for the year ended on December 31.000 2.25. prepare a statement showing the cost of production.000 Rs. 31 December.000) 4.000 1.000 2.000 4. 51.77. 95 Purchase of raw materials Direct labor Manufacturing expenses Stock of raw materials on 31st December.000 7.000 (2.25. Raw materials consumed: Opening stock Purchases Less: Closing stock Direct labor 2.71. 1995: Work-in-progress on 1st January.000 1.69.04. Solution Schedule of Cost of Production Rs.71.

000 40. What price should the company quote to manufacture a machine which is estimated to require an expenditure of Rs.000 25% 5% .000 a.80. 1.000 90.000 on wages so that it will yield a profit of 25% on the total cost or 20% on selling price.80.000 7.000 19.000 1.000 on materials and Rs. b.80.60.60.000 3.000 Problem 8 The accounts of the Steel Ways Engineering Co. Show the works cost and total cost.40.000) 84. the percentage that the works overhead cost bears to the manual and machines labor wages and the percentage that the establishment and general expenses bear to the works cost.000 6. Solution Statement of Cost Materials used Manual and machine labor wages (directly chargeable) Prime cost Works overhead expenditure Works cost Establishment and general expenses Total cost Percentage of works overhead to manual and machine labor (40000/160000) x 100 Percentage of establishment and general expenses to works cost (19000/380000) x 100 Rs.000 3.Adjustment for work in progress: Opening Closing Prime cost Manufacturing expenses Adjustment for work in progress: Opening Closing Cost of production 51.000 3.000 (45. Ltd for 1995 are as follows: Materials used Manual and machine labor wages directly chargeable Works overhead expenditure Establishment and general expenses Rs.75. 1.000 19.000 15000 9000 ----------- 6.000 6.000 1.000 40.65.99. 6. 8.

000 2.Statement of Estimated Cost for the Manufacture of the Machine Enquiry from….000 14. Checked by…….000 500 Carriage on goods sold Rent and rates of workshop Flues.000 70. Date ….500 100 600 1.000 18. 8.000 500 95. 1.500 800 1.500 775 16. prepare a statement in the way which you consider most suitable for showing clearly all elements of cost: Opening stock or raw materials Purchase of raw materials Raw materials returned to suppliers Closing stock of raw materials Wages paid to-Productive workers Non-productive workers Salaries paid to office staff Carriage on raw materials purchased Solution Statement of Cost Rs.069 20.000 2.200) 92. Materials consumed: Opening stock Purchasing Carriage on purchases Less: Returns Less: abnormal loss 25. Repairs to plant Depreciation on machinery Office expenses Direct chargeable expenses Advertising Abnormal loss of raw materials Rs.400 1.000) 93. Rs. water etc.500 (2. Cost of materials Direct wages Prime cost Works overhead: 25% of wages Works cost Establishment and general expenses: 5% of works cost Total cost Profit (20% on selling price or 25% on cost) Price to be quoted Rs.300 Rs.000 70.800 18.000 1.000 6.200 1.500 2.344 Prepared by ….500 (1.200 .000 5.500 15.275 4. Problem 9 From the following details. gas. 25.

Less: closing stock Productive wages Direct chargeable expenses Prime cost Works overhead: Non-productive wages Rent and rates of workshop Fuel. 1995 Total Per unit .000 Problem 10 The following data relates to the manufacture of a standard product during the four weeks period to June 30.000 1.600 1000 50 paise 20% on works cost 6paise per unit 20000 18000 @ Re.09.20000 units Cost Sheet Period-. gas.800 5. water etc.700 1.500 99.000 600 1.06. Repairs to plant Depreciation on machinery Works cost Office overhead: Salaries to office staff Office expenses Cost of production Selling and distribution overhead Carriages on goods sold Advertising Cost of sales (18.400 7.300 2.000 800 92.200 2.500 1.500 1.4 weeks ended on June 30.000 2. 1995: Raw materials consumed Wages Machine hours worked Machine hours rate Office overhead Selling overhead Units produced Units sold Rs. 4.500 18.500 6. Solution Output-.800) 73. 1 per unit You are required to prepare a cost sheet showing the cost per units and profit for the period.300 1.500 1.000 Rs.

Solution Cost Sheet Output-.630 --0.340 1.100 7.67.50000 units Raw materials Direct wages Prime cost Factory overhead: 100 % of direct wages Works cost Administrations overhead: Re.000 2.57. 0.242 1.100 12.060 0.420 5.000 6.500 2.025 0.630) Cost of goods sold (18000 units) Selling overhead (Re.525 0.000 Prepare a cost sheet for the month of April 1995 assuming that the sales are made on the basis of first in first out principle.100 3.600 (1. 1 per unit 10% of sales 103.100 10.06 per unit on 18000 units) Cost of sales Profit (balance figure) Sales Problem 11 Rs.342 45. 0.05.100 1.100 4.000 10. 45.57.000 5.630 0. 4.000 10% of direct wages Re.05.200 0.000 .62.100 5.000 2. @ Re.342 1.000 50.50) Works cost Office overhead (20% on works cost) Cost of production Less: Closing stock (2000 units @Re.080 12. 1 per unit Cost of production Add: opening stock of finished goods Period-.300 0.Raw materials consumed Wages Prime cost Works overhead (1000 hrs. 0.000 Rs.17.100 9.420 Rs.000 The following figures for the month of April 1995 were taken from the records of a factory: Opening stock of finished goods (5000 units) Purchase of raw materials Direct wages Factory overhead Administration overhead Selling and distribution overhead Closing stock of finished goods (10000 units) Sales (45000 units) Rs.500 0. 6.310 1.142 1.05. 0.580 18. Rs. 2.260) 11.000 2.105 0.60.690 0.April 1995 Total Per units Rs.000 500 10.

1992.000 Rs. 10. Problem 12 From the following details related to production and sales for the year ended on December 31. Per unit cost of goods sold Rs.03. 10. prepare a cost statement showing the following things: • • • • • Prime cost Works cost Cost of production Cost of sales Profit or loss Rs.000 50.48000 hours Chargeable expenses Factory wages for direct labor Administration expenses Selling expenses Distribution expenses Sales proceeds of finished goods (30000 units) .000 5.5.92: (a) Raw materials-(b) Work in progress-At prime cost Add manufacturing expenses (c) Finished goods (at cost) Raw materials purchased Freight on raw material Machines hours worked-. Per unit Rs. 25. Production during the month = (sales 45000 units + closing stock 10000 units – opening stock 5000 units) = 50000 units.000 10.24.680 1.000 by 45. 3.420 4. 14. 6.000 9.00. 2.320 6.000 -----------36.342 pr unit because sales include all opening stock and part of current production.000 54.1.000 1.6674 Working Notes 1.007 14.000 Rs. 30.000 sales units.60.680 66. 4.35.100 Less: closing stock of finished goods: 10000 units @ Rs.60.342 Cost of goods sold (45000 units) Selling and distribution overhead @10% of sales Cost of sales Profit (balancing figures) Sales 1.660 3.58.44.70.000 10.00. 10.000 Stock on 1.000 2.467 11.000 36.00.58.193 1.000 1.000 2.667 has been obtained by dividing Rs. 4.62. 6. the entire closing stock represents current production @ Rs. Since goods have been sold on FIFO basis.680 by 45000 sales units.193 has been obtained by dividing Rs.

39.90. @Rs.44.Stock as on December 31.000 8.000) Rs.20.70.000 6. 23 per units) Add: opening stock of finished goods (8000 units) Less: closing stock of finished goods (10000 units) Cost of goods sold (30000 units) Selling expenses Distribution expenses Cost of sales Profit (balancing figures) Period--Year ended on December 31.44.000 1. 25.000 6.000 36.000 ------------54.00.000 1.000 Rs.000 50.000 7.) Adjustment for work in progress: Opening Closing Works cost Administration expenses Cost of production (32000 units @Rs.000) 4.00 per hr. Solution Cost Sheet Output-. 1992: (a) Raw materials (b) Work in progress At prime cost Add: Manufacturing expenses (c) Finished goods at cost (10000 units) Finished goods produced 32000 units 45.95.000 (9.000 54.000 1. 1992 Rs.80.36.35.000) (15.000 2.00.000 Rs.80.000 2.000 1. 45.000 10.000 (45.000 30.000 2. 1.000 Apply FIFO principal in finished goods valuation.000 1.90.10.000 7.000 5.000) (3.32000 units Raw materials consumed: Opening stock Purchase Freight on purchases Less: closing stock Factory wages Chargeable expenses Adjustment for work in progress: Opening Closing Prime cost Works overhead (48000 hrs.000 6.36. 3.90.000) 6.000 (45.000 . 9.

00. Units of opening stock = (sales 30000 units + closing stock 10000 units – production during the year 32000 units) = 8000 units 2.000 4.000 ------------ Problem 13 A manufacturing company submits the following information on March 31. Value of closing stock (applying FIFO basic): Rs.000 6.000 65.000 Rs.000 Rs.44.000 2000 units at current year rate of Rs.000 8.000 7.000 ---------1.75.000 1.10. 1995: Sales for year Inventories at the beginning of the year: Materials Finished goods Work in progress Purchase of raw materials for the year Direct labor Inventories at the end of the year: Materials Work in progress Finished goods Other expenses for the year Selling expenses @10% of sales Factory overhead @ 60% of direct labor cost Administrative expenses @5% of sales Prepare a statement of cost 4. . 23 per unit 46. Rs.000 1.90. 3.000 Solution Statement of Cost For the year ended on March 31. 8000 units at least year’s rate 1. 2.Sales Working Notes 9. 1995 Rs.

74.000 1. Cost of goods sold excluding administrative expenses Rs.000 39. Inventory account showed the following opening and closing balances: April 1 Rs.600 April 30 Rs.250 2.000 13.750 2.09.75.000 8.000 10.10.18. 10.500 41.000 Note Since administration expenses have been expressed as a percentage of sales.000 (6.500 17.51.000 4.750 27.000 4. Problem 14 The books of a manufacturing company present the following data for the month of April 1992: Direct labor cost Rs. 8.250 23.000 2.000 2.500 being 175% of works overhead.000 1. 56000.600 14.000 7.000) (2.000 65.000) 2.10.000 2.11. these have not been included in cost of goods manufactured.000 1.000 1.Materials consumed: Opening inventory Purchases Less: closing inventory Direct labor Prime cost Factory overheads: 60% of direct labor cost Adjustment for work in process Opening Closing Cost of finished goods manufactured Add: opening inventory of finished goods Less: closing inventory of finished goods Cost of goods sold Administration expenses: 5 % of sales Selling expenses: 10% of sales Cost of sales Profit (balancing figure) Sales 3.13.13. 17.000 Raw materials Work in progress Finished goods .500 19.

500 2. 3. Prepare a cost statement showing the various elements of cost and also the profit earned.400 10. 33. i.500 75.000) 57.400 (10.April 1992 Raw materials consumed [as in (i) above] Direct labor Prime labor Works overhead Adjustment for work in progress: Opening Closing Works cost or cost of production Rs. 100/175x17500) Prime cost Less: direct labor Raw materials consumed Add: closing stock of raw materials Less: opening stock of raw materials Values of raw material purchased Rs.500) 61.900 10.600 44.400 10.400 14.000 19.000 (17.400 .Other data are: Selling expenses General and administration expenses Sales for the month You are required to: (i) (ii) Solution Rs.500 (8.500 (14.000) 36.000) 51.000 75.500 51.500) 33.900 (10.500 71.900 17.e.500) ------------ (4.000 61.500 (ii) Cost Statement Period-. 56.600) 57. (i) Statement Computing the Value of Raw Materials Purchased Cost of goods sold Add: closing stock of finished goods Less: opening stock of finished goods Works cost of cost of production Add: closing stock of work in progress Less: opening stock of work in progress Less: works overhead (100/175 x direct labor.400 (17.000 Compute the value of raw material purchased.

600 75. Solution Statement of Cost For the year ended on June 30. manufactures two types of pens P and Q. profit and also total sales value and profit separately for the two types of pen P and Q.000 75.500 62.Add: opening stock of finished goods Less: closing stock of finished goods Cost of goods sold General and administration expenses Selling expenses Profit (balancing figures) Sales 17.000 2.000) 56.500 3.00. 10 per pen for type Q. The cost data for the year ended on June 30.000 ----------7. Co.20.000 ----------- It is further ascertained that: (i) Direct materials of type P costs twice as much direct materials of type Q (ii) Direct wages for type Q were 60% of those for type P (iii) Productions overhead was of the same rate for both types (iv) Administration overhead for each was 200% of direct labor (v) Selling costs were 50 paise per pen for both types (vi) Production during the year: Type P Type Q (vii) Sales during the year: Type P Type Q 36000 100000 40000 120000 (viii) Selling prices were Rs. 1995 is as follows: Direct materials Direct wages Production overhead 4.24.000 (19. Prepare a statement showing per unit cost of production total cost. 14 per pen for type P and Rs.000 96.000 13. 1995 P 40000 units Q120000 units .000 2.000 Problem 15 Shrelekha Mfg.

00 3.60 3.000 6.000 24.00 3.400 5.500 Direct materials Direct wages Plant and machine usage allocated on hourly basis General overhead apportioned at 200%of direct wages Cost per container Cost record for the month of august 1995 shows: Direct materials utilized .00.000 Works cost 7.000 1.04.68.000 80.00 1.000 10.000 7.40.50 2.40.000 2.000 Less: Closing stock of finished goods: (P-4000 x Rs.48.400 15. Per unit Rs.000 42.24.66.000 50.50 14.000 Administration overhead 4.000 3.00 0.000 6.10.20 0.34.69.10 2.30. 26.20. Rs. Per unit Rs.600 1.120000 x60 2. Q20000 x Rs.400 36000.60 0.000 4.30 10.50 1.000 2.400 3.04.00 6.24.00 2.6.000 4.50 6.64. Total Rs.50 6.90 14.000 3.81.60 4.04.24.Total Rs.000 1.600 pen 68. 3.20.00 Rs.00 Problem 16 A critical study of past expenses incurred in the manufacture of two kinds of acid containers shoes is as follows: Nature of expenses Expenses incurred on the manufacture of acid containers Type X Type Y Rs.60 6.60.01.60.000 6.00 10.20 Direct materials 40000 x 2:120000 x 1 4.24.000 10.60 10. Q-100000) Selling costs @50 p.50 11. 2.20) Cost of goods sold (P – 1.44.000 3.000 Cost of production 11.00 1.40 6.00 2.000 Direct wages 40000 x100-.20 0.99.88.84.00 1.80 2.70 3.20 3. per 10.00.600 Sales 4.000 Prime cost 6.60.00 8.70.000 2.60 2.000 72.600 18.000 Total cost Profit (balancing figure) 10.44.20 6. Total Rs.000 4.000 1.56.000 Production overhead 40000: 120000 96.

500 ----- Direct materials (2000 x 3.50) 2000 Direct wages: x Rs.000 4.550 11.5850 65000 4500 x Rs. 19.000 ------13. other expenses as computed above are quite different from the actual expenses incurred in August 1995.000 4. The actual expenses should.16250 13000 9000 x Rs.700 60.000 9.300 Containers produced-.500 13. 2.800 5.16250 13000 --8.600 -------- 4.100 .000 42.800 3. Solution Computation of the cost of production of the given quantities of the two types of containers on the basis of past expenses per container is as follows: Type X (2000 units) Rs.000 Total Rs.000 17.800 Type Y (3000 units) Rs. Types X (2000 units) Rs.000 59.Type X= 2000 units Type Y= 3000 units Prepare a consolidated cost sheet distributing the total production cost between the two types of containers according to the different elements of cost and also showing the cost per container of each type.000 6.5850 65000 Prime cost 4000 Plant and machinery usage: x Rs.000 Type Y (3000 units) Rs.000 13.65.Direct wages Plant and machine usage General overheads Total 5.000 1. 19.500 9.000 Direct materials Direct wages Plant and machine usage General overhead Except direct materials.250 34.800 ---8.000 2.50) and (3000 x 6.16250 13000 Work cost 4000 General overhead: x Rs.050 23. 7. 7.850 16. be distributed between the two types of containers on the basis of past expenses for given quantities. therefore.500 4.250 11.

Paid in July Less: payment for June Less: advance payment 6.000) 52.000 1.95 Purchase and receipt of direct materials in July 1995 Direct wages paid in cash in July 1995 (which includes Rs. 2000) Works overhead charges for the month Stock of direct materials on 31.000 60.000 (2.900 14.000 140 .000 25 per unit 300 per unit 20% increase in direct materials cost 10% increase in direct wages 5% increase in works overhead charges 20% reduction in administration and selling overhead charges Same percentage of profit on sales price as in July 95 Output-.7.95 Purchases during the month Less: stock as on 31. you are required to: (i) (ii) Prepare a cost statement for July 1995.44. 6.40.16250 13000 Total cost Cost per container Problem 17 17.000 10.1000 units Total amount Rs.000 (3.000 1. Materials consumed: Stock as on 1.95 Administration and selling overheads Sales price From the above details.7.000 1. Estimate the sale price of unit of the same product in August 1995 assuming: • • • • • Solution Statement of Cost Rs. Rs.30 A factory produced and sold 1000 units of a product in July 1995 for which the following details are available: Stock of direct material on 1.50.70 42.7.95 Direct wages-.400 8. 3000 on account of June 1995 and an advance of Rs.000 (10.July 1995 Cost per unit Rs. 1.000 55.44.9000 x Rs.000) 55.000) Period-.7.

1000 units Total cost of raw materials consumed-.000 2. 50 Prime cost Works overhead 105/100 x Rs.000 Total cost of direct labor-.000 1.25 per unit Cost of sales Profit (balancing figure) Selling price @Rs. 11. i.000 60. 12. 20. 300 50.000 25.Prime cost Works overhead Works cost or cost of production Administration and selling overheads @Rs. 40.000 2. general overhead as well as selling and distribution overhead are to be charged at the same respective percentages as in the previous year.Rs.000 3.Rs.50.000 Total selling and distribution overhead expenses-.Rs.Rs.Rs.000 50 190 60 250 25 275 25 300 Estimate of Selling Price Per Unit in August 1995 Direct materials 120/100 x Rs. 25 Cost of sales Profit @ 81/3 % on sale or 1/12th of sales.000 25.2640 On the basis of the following instructions.00 55.000 Total general overhead expenses-. • • • • • • • Total production-.00 306.000 Total works overhead expenses-.00 223. 1/11th of cost selling price Working Note Rs. (b) Works overhead.00.00 286. 168.82 Ratio of profit to sales in July 95 = Problem 18 25000 = 1/12th or 8 1/3 % 300000 The following details are available for the previous years production of fans for M/s Eastern Engineering Co. prepare the details of price quotation per unit of fan for the current year: (a) Costs of raw materials and direct labor have to be increased by 10% and 15% respectively over the previous year level. 60 Works cost or cost of production Administration and selling overheads 80/100 x Rs.75.00 20.000 Total sale price for 800 units sold-. 140 Direct wages 110/100 Rs.Rs.00 27. . 36.e.90.00 63. 16.82 333.

000 1.000 72.00 12.71 40000 x 100 = 200% 20000 36000 (2) Percentage of general overhead on works cost = x 100 = 50% 72000 16000 (3) Percentage of selling and distribution expenses on cot of goods sold x 100 = 86400 18.00 36.10 123.61 160.000 36.00 72.600) 86. 20 Prime cost Works overhead @ 200% of direct labor Works cost General overhead @50% of works cost Cost of production Selling and distribution overhead @ 18.000 32.12.5% 10240 (4) Percentage of profit on cost = x 100 = 10% 102400 (1) Percentage of works overhead on direct labor = .08.00 20.80 140. 12.000 20.5% of cost of goods sold Total cost Profit @ 10% on total cost Price to be quoted Working Notes Rs. Solution Cost Sheet for the Year…… Raw materials consumed Direct labor Prime cost Works overhead expenses Works cost General overhead expenses Cost of production Less: closing stock (200 units) @ Rs.00 108.(c) Profit is to be estimated at the same percentage on total cost as is earned in the previous year.20 46.00 Estimated Price to be Quoted Per Units for the Year… Raw materials 110/100 x Rs.20 41.00 36.640 (Output-. 108 Cost of goods sols (800 units) Selling and distribution over head expenses (on 800 units) Cost of sales Profit (balancing figure) Sales Total Rs.00 40.1000 units) Per unit Rs.00 20.10 14.000 (21.00 ---108.240 1.02.80 146.00 32.400 16.20 23. 13.30 22.000 1. 12.400 10.00 82.00 128. 12 Direct labor 115/100 x Rs.000 40.

the selling price was reduced to Rs.95.00 Output-. As from January 01.500 3.500 The net selling price was Rs.000 6.000 15. 1996.000 9. furnishes the following information for 1000 TV valves manufactured during the year 1995: Materials Direct wages Poser and consumable stores Factory indirect wages Lighting of factory Defective works (Cost of rectification) Rs.20) 4.500 47.50. It was estimated that the production could be increased in 1996 by 50% utilizing spare capacity. (Apply the same respective percentages as in the previous year).00 per unit.15 4.000 15.000 60. 31.000 12.000 15.50 .000) 45.000 Clerical salaries and management expenses Selling expenses Sales proceeds of scraps Plant repair & maintenance and depreciation 33.000 1.20 1.10000 units Materials Wages Prime cost Factory overheads: Power and consumable stores Factory indirect wages Lighting of factory Defective work (cost of rectification) Plant repairs & maintenance and depreciation Less: sale of scraps Works cost 12.55 0.000 5.500 5. Solution Cost Sheet Period-.Year ended on December 31.50 0.500 3. Estimated cost and profit for 1996 assuming that 15000 units will be produced and sold during the year Factory overheads are recovered as a percentage of direct wages and office and selling expenses as a percentage of works cost.000 1.00 60. Cost sheet for the year 1995 showing various elements of cost per units b.00 1. 90.Problem 19 Bharat Electronics Ltd.60 per units sold and all the units were sold. 1995 Total Per unit 90.000 5.500 2.000 11. Rates for materials and direct wages will increase by 10%.30 1.000 11. You are required to prepare: a.000 (2.70 (0.50 19. 31.

000 2.16.47.000 82. 31) 4.21.000 90.26 Sales (15000 x Rs.000 1.000 a. 9.86.21.29 Cost of sales 3. 60.500 5.000 84.500 39.500 Wages: 15000 x Rs.40 8. Selling and distribution overheads Administration overheads Factory overheads 1.90 1.90 23.00 Working Notes (1) Percentage of factory overhead on wages in 1995 = 45000 x 100 = 75% 60000 39000 (2) Percentage of office and selling expenses on works cost in 1995 = x 100 = 195000 20% Problem 20 A factory uses job costing method.250 4.900 5.34. 1.800 Rs.45 Office and selling expenses @ 20% or works cost 64.60 99.50 Factory overheads @ 75% of wages 74.750 21. Estimated Cost Sheet for 1996 Estimated output-.000 3.60 Cost of sales Profit (balancing figures) Sales Note The cost of rectification of defective works has been included in factory overheads on the assumption that the defectives are normal.000 31.65.35 0.05.55 3.60 6.20 31.90 9.Office and selling expenses: Clerical salaries and management expenses Selling expenses 33.15000 units Total Per unit Materials: 15000 x Rs.48.350 4.74 Estimated profit (balancing figure) 78.50. the cost of rectification should be charged to the costing profit and loss account.100 25. Prepare a job cost sheet indicating the following: .000 1.80. The following cost data is obtained from its books for the year ended on December 31.000 Prime cost 2.95 Works cost 3.500 16. In case where defective works is due to abnormal causes. 1995: Direct materials Direct wages Profit Rs.000 3.

2.000 1.000 6. 1.000 3.000 90.000 96.000 1.800 Direct materials Direct wages Prime cost Factory overheads: 60% of direct wages Work cost Administration overheads: 20% of works cost Cost of production Selling and distribution overhead: 28:75% of works cost Cost of sales 2 Profit: 16 % on sales.000 84.50. 1. 20% on cost 3 Selling price . Solution Job Cost Sheet For the year ended on December 31.90. i. What should be the price for these jobs if the factory intends to earn the same rate of profit on sales assuming that the selling and distribution overheads have gone up by 15%? The factory recovers factory overheads as a percentage of direct wages and administration.40.000 4. 2.• • • • • Prime cost Works cost Production cost Cost of sales Sales value b.56. selling and distribution overheads as a percentage of works cost on the basis of cost rates in the previous year.80.000 7.20.09. 1995 Direct materials Direct wages Prime cost Factory overheads Works cost Administration overheads Cost of production Selling and distribution overheads Cost of sales Profit Sales values Estimated Cost Sheet and Price of Jobs for 1996 Rs.38.05.30.50.76.000 1.80. the factory receives an order for a number of jobs.21. It is estimated that direct materials required will be of Rs.04.800 7.e. In 1996.42.40.000 1.000 90.000 and direct labor will cost Rs.000 4.800 Rs.000 5.000 5.800 8.000 1.000 1.50.000.14.30.000 3.

400 1.400 52. distribution overhead was decreased by 10% and selling and administrative overhead each was increased by 12.500 A material had been manufactured and supplied to Mr.75% (4) Percentage of profit – 121800 2 x 100 = 16 % On sales 730800 3 121800 On cost x 100 = 20% 609000 Problem 21 Following figures are taken from the records of a company for the year 1994-95: Direct materials Direct wages Works overhead Administrative overhead Selling overhead Distribution overhead Profit Rs.Working Notes (1) Percentage of factory overheads on direct wages 90000 x 100 = 60% 150000 84000 (2) Percentage of administration overheads on works cost = x 100 = 20% 1420000 (3) Percent age of selling and distribution overheads on works cost = Selling and distribution overheads 105000 Add: 15% increase 15750 ----------120750 ------------Percentage on works cost = 120750 x 100 = 28.000 33. 4. X in 1995-96 for which the following expenses were incurred: Direct materials Direct wages Rs.000 30. . At what price.5%.600 22.000 2. percentage in 1996 = 25% + 15% of 25% = 28. works overhead was increased by 20%.000 In 1995-96. 60.75% 420000 105000 Alternatively percentage in 1995 is x 100 = 25% 420000 So.000 50.

000 1.000 11.000 6.71% 12600 (4) Percentage of distribution overhead in 1995-96 = x 100 = 6.600 2.the above supply is to be billed to Mr. 60.800 25.284 830 11.46.000 2.10% thereof 14.926 9.000 1.40.200 12.366 1. Solution Direct materials Direct wages Prime cost Works overhead: 72% of wages Works cost Administration overhead: 25.000 36.86% of cost of production Cost of sales Profit 20% of sales i.600 (1) Percentage of works overheads on wages in 1995-96 = 3600 x 100 = 72% 50000 37800 (2) Percentage of administration overhead on works cost in 1995-96 = x 100 = 146000 25.5% thereof 22.000 1.000 Rs.600 1. 4.89% of works cost Cost of production Selling overhead: 13.800 1.10.870 14.000 50.440 7.000 37.89% 25200 (3) Percentage of selling overhead on cost of production in 1995-96 = x 100 183800 =13.000 50.000 1.440 1.350 Direct materials Direct wages Prime cost Works overhead Works cost Administration overhead Cost of production Selling overhead Distribution overhead Cost of sales Working Notes Cost Sheet for the Year 1994-95 Actual At 1995-96 rate Rs.10.000 336 + 12.480 2. 25% of cost Sale price Rs.400 14000 .71% of cost of production Distribution overhead: 8.73.600 22400 + 12. X so as to earn the same rate of profit on selling price as earned in 1994-95.000 30000 + 20% thereof 30.e.86% 183800 . 60.83.000 2.21.5% thereof 33.

Materials consumed: Stock on 1.95 Wages Prime cost Factory overhead Works cost Administration overhead Cost of production 100 10.95: Rs. 1995 Rs.200 and wages Rs.000 11.000 7.(5) Percentage of profit on cost in 1994-95 = Problem 22 52500 x 100 = 25% 210000 Following figures are available from the books of a manufacturing company for the year ended on 31. Prepare a cost sheet showing the following: • • • • • Prime cost Works cost Cost of production Cost of sales Sales b.1.500 4. 6.000 2.250 4.000 4.000 7.500 16. Solution Cost Sheet For the year ended on December 31.200 .500 4. 1. Ascertain the sale price of the job if the factory intends to earn a profit 10% higher than the percentage of profit earned in 1995.95 Purchased during 1995 Less: stock on 31. In 1996.195 Stock on 31.12. Further assume that factory overhead is recovered as a percentage of the wages and administration and selling overhead as a percentage of works cost. the factory receives an order for a job which will require materials of Rs.95 Purchase during 1995 Wages 1.000 (2.12.000 10.500 Profit for the year Selling overhead Factory overhead Administration overhead Rs.000) 9. Materials: Stock on 1. Assume that 2 factory overhead has gone up by 16 % and selling overhead has gone down by 3 20% in 1996.090 5.12.200 a.500 21. 750.

475 478 2.200 25.e.200 5. th of cost 3 11 Sale price Working Notes Rs.431 1.31% 21750 6090 2 (4) Percentage of profit on sale in 1995 = x 100 = 16 % 36540 3 2 2 Percentage of profit on sale in 1996 = 16 % +10% = 26 % 3 3 .248 4.750 4.090 36.950 4.500 5.150 5250 x 100 = 70% 7500 4200 (2) Percentage of administration overhead on works cost in 1996 = x 100 = 21750 19.950 525 2.250 30. i.Selling overhead Cost of sales Profit for the year Sales 25.450 6.540 Estimated Cost Sheet and Price of Job for 1996 Materials Wages Prime cost Factory overhead: 70% of wages Works cost Administration overhead: 19:31% of works cost Cost of production Selling overhead: 19.679 Cost sheet for the year 1995 at 1996 rates Materials Wages Prime cost 2 Factor overhead: 4500+16 % thereof 3 Work cost Administration overhead Cost of production Selling overhead: 5250 – 20% thereof Cost of sales (1) Percentage of factory overhead on wages in 1996 = 9.953 478 3.200 750 1.250 21.31% of works cost Cost of sales 2 4 Profit: 26 % of sales.500 16. 1.200 30.000 7.31% 4200 (3) Percentage of selling overhead on works cost in 1996 = x 100 = 19.

profit is expressed as a percentage of sales.18. The purchase price of raw materials remained unchanged throughout 1992. 1 3 2 .650 30.000 24. 26 Cost is Rs.250 1. 73 So.000 Salaries: Factory Office Selling Direct Office Selling Raw materials Finished mixture Factory stores 5.1. Kg 72220 37220 41500 18500 18200 18000 1200 450 Rs 153050 ? ? Rs.400 18. In the problem nothing has been mentioned whether the percentage is on cost or sales. Solution Statement of Cost Period-.78. profit is Rs. Rs. The result will be different if the percentage is applied on cost. Prepare a statement giving the maximum possible information about cost and its break up for the year 1992. Materials consumed: Opening stock 2.Year ended on December 31. 3 profit 2 1 4 = = 26 / 73 cos t 3 3 11 Normally.000 8.250 9.1992 Raw materials Finished mixtures Factory stores Purchase: Raw materials Factory stores Sales: Finished mixture Factory scrap Factory wages Power Depreciation of machinery 160000 Kg 2000 500 Rs. 2. 100.550 The stock of finished mixtures at the end of 1992 is to be valued at the factory cost of the mixture for that year.750 7. Problem 23 The following details related to the year 1992 have been taken from the books of chemical works: Stock on 1.When sales value is Rs.000 .80. 1992 Rs.170 1.000 1.

352 2.38.500 3.86.220 18.Purchases  1200  × Rs.250 24.550) 25.77.78.180000  Less: closing stock   160000  Factory wages Direct expenses Prime cost Factory overheads: Power Depreciation of machinery Salary (factory) Factory stores: Opening stock Purchases Less: Closing stock Less: sale of factory scrap Cost of goods manufactured Add: opening stock of finished mixture Less: closing stock of finished mixture Cost of goods sold Office and administration overhead: Salary (office) Office expenses Selling and distribution overhead: Salary (selling) Selling expenses Cost of sales Profit (balancing figure) Sales Note 1.650 1.000 The closing stock of finished mixture valued at factory cost (as stated in the problem) is as follows: 450 × Rs.16.000 (1.350) 1.420 59.16.17.950 1.650 18.800 30.000 72.220 7.170) 37.31.200 41.400 18.18.46.82.000 1.80.000 1.750 5.516200 = Rs1518 153050 + 450 − 500 Problem 24 .648 9.500 (5.400 5.80.200 1.432 55.950 (1.570 (8.500 18.250 31.518) 5.500 6.

660 9.200 2. The net selling price was Rs. State the assumption made to solve the problem. Prepare statements showing different element of cost for 1990 and estimated cost and profit for 1991 assuming that 150000 units will be produced and sold in the year.500 Repairs and maintenance Cost of rectification of defective work Consumable stores Selling expenses General expenses Receipt form the sale of scrap Profit form guest house Rs. the selling price was reduced to Rs.000 Production was 100000 units. 1.1.150 0.000 2.80. Solution Statement of Cost Period-.000 0.200 3.500 3. 1.245 0.024 27.867 .80 and wages was Rs.000 1. industries.00. Rs.500 7.000 1.400 24.K.000 24.090 0. 4.000 3.000 5.200 20.700 0. Rates and taxes for factory premises Lighting of the factory Depreciation (plant) Staff salaries Management salaries Power Indirect wages 2. prime cost per unit of materials was Rs.00.000 12. 20.052 0.Year ended on December 31.800 1.600 2.595 3.200 0.70 per unit.000 9. 1.50 per unit.20. 1991.000 Materials Wages Prime cost Works overhead: Variable: power Consumable stores Cost of rectification of defective work Less: sales of scrap Fixed: indirect wages Depreciation (plant) Rates and taxes for factory premises Lighting of the factory repairs and maintenance (plant) Works cost 9. 1990 (Output-. As from January 01.070 0.296 0.86. Rs.From the cost ledger of B. It was estimated that the production could be increased in 1991 by 50 percent without incurring any overtime or extra shift.800 5.000 14.200 7.000 24.600 29.20.000 15. 4.272 59.600 15.400 1. the following information was obtained for the year 1990: Rs.200 0. All the units were sold.800 5.028 0.056 0.000 5.000 units) Total amount Cost per unit Rs. Rs.

147 4.000 4.120 0.200 4.500 Materials @Rs.10.466 0. 500 is as follows: Direct material Direct labor Overhead 50% of the total cost 30% of the total cost Balance amount .160 64.70.200 45.50. 0. 1.098 4.452 4.800 59.000 24.432 4.970 0.300 45.397 3.Administrative overhead: Fixed Management salaries Staff salaries General expenses Cost of production Selling overhead: Fixed Cost of sales Profit (balancing figures) Sales Working Notes 12.000 0.80.900 14.068 0. 2.200 5.75. Problem 25 The cost structure of an article.000 1.20 per unit Prime cost Works overhead: variable @Rs. Statement of Estimated Cost and Profit for 1991 (Estimated output-.234 4.50.46.660 6.319 0. (2) It has been assumed that the defectives are within normal limit.95.80 per unit Wages @Rs.700 (1) The profit from guest house has been excluded form cost because it is not an item of cost accounts.000 9. 4.240 0.000 40.000 0.440 4.800 1.560 23.70.000 Per unit Rs.31.50) Note It has been assumed that selling and other expenses of fixed nature will not change as a result of increase in output.500 5.500 14. It is an income to be shown in financial accounts.272 0.669 0.150000 units) Total Rs. 1.301 3.092 0. 1. the selling price of which is Rs.200 3.272 per unit Fixed Works cost Administration overhead: Fixed Cost of production Selling overhead: fixed Profit (balancing figure) Sales (150000 x Rs.660 4.840 6.

43 Putting the value of b in equation (i).43b = 65.50a Direct materials 0.Due to an anticipated increase in existing materials price by 20% and in the existing labor rate by 10%. profit will go down by 30%.13. Prepare a comparative statement showing the cost.20a Overhead Expected cost 0.13b = 565……………(iii) Subtracting equation (ii) form equation (iii).10a (20%) 0. or a =500 – 151 = 349 Percentage or profit on cost = Comparative Statement Present cost Increase Expected cost 209 116 70 395 171 566 151 x 100 = 43. 65 or b = = 151 (nearly) 0.03a (10%) 0. Hence.30a Direct labor 0. we get: 1. 500 per unit Present cost Increases 0. profit and sale price under the present conditions and with the increase expected for future. Then.70b = 500…………(ii) Multiplying equation (i) by 1.27% 349 Direct material Direct labor Overhead Total cost Profit 43. the existing profit would come down by 30% in case the selling price remains unchanged. we get: 0. we get: a + 151 = 65. assuming the same percentage of profit on cost as at present had to be earned.27% 174 105 70 349 151 500 (50%) (30%) (20%) 35 110 --- (20%) (10%) . a + b = 500……………………(i) 1.60a 0.20a If the selling price remains unchanged.13a + 0.33a 0. a+ b = Rs.13a + 1. Solution Let “a” be the total cost per unit and “b” be the profit per unit.

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