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Thefollowing information relating to a type of raw material is available: Annual demand Unit price Ordering cost per order

Storage cost Interest rate 2,400 units Kshs.2.40 Kshs.4.00 2% per annum 10% per annum

Calculate Economic Order Quantity. Solution EOQ = C. S EOQ = 2 x 2,400 x 4 2.40x 12% = 258 units where EOQ = Economic Order Quantity A = Annual usage = 2400 units B = Buying cost per order Rs. 4 C = Cost per unit Rs. 2.40 S = Storage cost or Carrying cost 10 + 2 = 12% Note. Storage cost includes interest also. Problem 3.5. XV Co. requires 1,500 units ofa material per month, each costing Rs. 27. Cost per order is Rs.150 and the inventory carrying charges'work out to 20% of the average inventory. Find out the economic order quantity and the number of orders per year. EOQ EOQ _ - = ~ 2.A.B C.S 2 x 18,000 x 150 27 x 20% where No. of orders per year = : = 1,000 units. A = 1,500 x 12 = 18,000 units 8.= Rs. 150 C = Rs.27 S = 20% 18,000 + 1,000 = 18 orders. A worker under the Halsey method of remuneration has a time rate of Kshs. 24 per week of 48 hours, plus a cost of living bonus of 10cents per hour worked. He is given a 20 hours task to perform, which he accomplishes in 16 hours. He is allowed 50 per cent of the time saved as premium bonus. What would be his total hourly rate of 2.A.B

earnings and what difference would it make if he were to be paid under the Rowan method? Solution Time rate per hour = Rs. 24 /48= Kshs .50 Time allowed =20 hours Time taken = 16 hours Time saved = 20 - 16 = 4 hours Time wages = 16 hours @ .50 = Kshs. 8 Halsey Bonus = . 0.50 x 2 hours = Kshs. 1 Cost of living bonus = 16 hrs. @ .10 = Kshs. 1.60 Total earnings = Time wages + Bonus + Cost of living bonus =8+ 1 + 1.60=Kshs. 10.60 Total hourly rate =Kshs. 10.60/ 16 hours = 0.66 Rowan Bonus Time saved . = Time rate x Time saved x Time taken Time allowed =0.50x (4/20) x 16 =Kshs.1.60

Total earnings = 8 + 1.60 + 1.60 = Kshs. 11.20 Total hourly rate=11.20/ 16 hours = Kshs 0.70

In a factory Ram and Sham produce the same product using the same input of same material and at the same normal wage rate. Bonus is paid to both of them in the form of normal time wage rate adjusted by the proportion which time saved bears to the standard time for the completion of the product. The time allotted to the product is fifty hours. Ram takes thirty hours and Sham takes forty hours to produce the product. The factory cost of the product for

740= 60 Calculation of wage rate Suppose wage rate = x Wages of Ram = 30x + 30x x 20/ 50 Wages of Sham = 40x + 40x x I0/50 Thus the equation is : (40X + 40x x 10/50) . and (iii) Input of material.(30x+ 12x) =60 48x-42x =60 6x =60 x =10 Thus wage rate = Kshs 10 per hour Thus wages of Ram =30 hrs. if the unit material cost is Kshs.800 2.100 and for Sham Kshs.280 Difference in wages = 2. 16.280. (ii) Cost of materials used for the product. 12) Prime Cost 2.740 360 480 3.(30x + 30x x 10/50)= 60 Solve the equation and derive the value of x (40x+8x) . Calculate (i) Normal wage rate.Ram is Kshs 3.2.100 Sham 3. x 12) Sham (40 hrs.x 10 + (30 x 10 x 20/50) =420 Wages of Sham = 40 hrs x 10 (40 x 10x 10/50) = 480 Material cost in Ram’s job = 2740 -420 =2320 . 12 per man hour. x Rs. Solution Ram Factory cost Factory overhead Less: Ram (30 hrs. 3. The factory overhead rate is Kshs.800 .

Indian Manufacturing Company has three production department A. Band C and two service departmens X and Y. CA.M. The standard time ofjob X is 100 hours. Capital value of Assets 10 Machine hours 1000 500 20 1. The following is the budget for Feb.. The bonus system applicable to the job is as follows: Percentage a/lime saved to time allowed Bonus Saving upto 10% 10% of time saved From 11 % to 20% 15% of time saved From 21 % to 40% 20% of time saved From 41% to 100% 25% of time saved The rate of pay is Re.) Percentage of time saved to standard time Bonus (as percentage of time saved) (B) 01< Bonus hours . Amar 100 60 40 40% 20% .) Time saved (Hrs. Thejob has been completed by Amar in 60 hours.) (A) Time taken on the job (Hrs.ulate the total earnings of each worker and also the rate of earnings per hour. 2003.000 500 20 250 10 4.B.15. Bangalore.000 500 . Total hours to be paid (A + B) Total earnings @ Rs." Working Notes: (i) Bonus hours = Time saved x Bonus%. 01< Earnings per hour Rs. ft.000 1000 250 40 2. (ii) Earnings per hour = Total eamings + Time taken. 15 per hour. 15 per hour Rs. CalJ. Inter) Statement of Total Earnings and Rate of Earnings Per Hour Standard time ofjob (Hrs.Sham’s job= 2800-480 = 2320 Material input = 2320/16 = 145 units Problem 4. Adapted. Akbar in 70 hours and Anthony in 95 hours. Solution (B. Total A Direct materials Direct wages 2000 Factory rent Power Depreciation Other overheads 9000 4000 2500 1000 1000 5000 B 2000 2000 C 4000 8000 X 2000 1000 Y 1000 Area sq.

Band C. wages Basis of apportionment Actual 3000 4000 TOTAL A 3000 1000 2500 1000 9000 500 500 100 2500 B 1000 800 400 1000 C 1000 500 800 400 4000 X 2000 2000 1000 150 50 500 250 50 1000 Y 1000 22500 4100 2700 620 1890 3432 128 18 630 2002 43 11 1260 86 - 4200 5300 (4200) 420 286 (5720) (286) 29 (29) Notes: .P. ft. x M. Also compute machine hour rates for production departments A.hours D.Horse power of machines 15 50 40 20 15 A technical assessment for apportionment of the costs of service departments is as under: A % Service Department X 45 Service Department Y 60 B % 15 35 C % 30 - X % 5 Y % 10 - You are required to distribute overheads to various departments and redistribute service department costs to production department. Solution Overhead Distribution Statement Item Direct materials Direct wages Factory rent Power Depreciation Other overheads TOTAL Actual Area sq. hours Capital values x M. H.

241 6.000 + 20y or 400x-20y =80..8. Overhead costs as allocated to the five cost centres and estimates of benefit of service cost centres received by each of them are as under: Cost Centres A B C X Y Overhead Costs as allocated ( Rupees) 80.015 49. However. 1 34.200 hours (e) .. Deptt.030 34.412 Production Deptts.000 10. or machine hours may also be taken as the basis of apportionment. 80. (ii) Multiply the equation (i) by 20 and then adding 400x= 80.00. Problem 5.. (i) 20y =2. 3. Service Deptts. either capital values or machine hours may also be taken as the basis of apportionment. 1.000 + 0.P.000 240 ·30 X Rs.05 y .196 C Rs. Inter) (a) Secondary Overhead Distribution Summary ( Repeated or Continuous Distribution Method) Particulars Production Deptts.000 + 398 = Rs.000 (b) Estimated life . Overhead costs Overheads of X Overheads ofY Overheads of X Overheads of Y Overheads of X Final Overhead Cost of Prod. 1 86. 20. 40.2.. Y Rs. 90% of 20603 95% of 12060 A Rs.lOx .000 8.000 (-)20. 80. x Machine hours. 86.000 8. 12.(b) Simultaneous Equation Method: Suppose overhead of X service centre is x and ofY is y.271 20. 20. However. (i) y= 10.000 398x = 82.000 6.000 + (0.000 2.00.00.P.00.W. A company has three production cost centres Band C and two service cost centres X and Y.000 2.603) = Rs. A Rs.10.000 600 (-)600 3 (-)3 .000 (d) Yearly working time ( 50 weeks of 44 hours each) .000+y .533 B Rs. Overhead of X = 20.000 3. either H.000 4. Depreciation has been apportioned on the basis of capital values x machine hours.1..196 C Rs.. 20. (ii) x = 20.000 -2x+20y= 2.. (ii) Multiply both above equations by 20 20x =4.000+ lO%x .A.603 (overheads of X ) y = 10.000 6.00.721 Problem 5.. (J.000 + 5% Y .OOO+O.000 40.060 (Overheads ofY) Particulars Secondary Overhead Distribution Summary ( Simultaneous Equation Method) Overhead costs Overheads of X Overheads ofY Overhead cost of Production Deptt.10 x 20..6.000 (-)12.000 20.00.C.000 20.000 180 15 1 49.000 4.000 Estimates o/Benefits received/rom Service Centres % x 20 30 40 Solution 10 y 20 25 50 5 Required: Work out final overhead costs of each of the production departments including re-apportioned cost of service centres using (a) Continuous distribution method and (b) Simultaneous equation method.000+2x .121 2..10 years (c) Scrap value Rs.000 6.400 120 12 B Rs.000 .. 10. It is found that benefit of service cost centres is also received by each other along with the production cost centres.00.181 3. Power has been apportioned on the basis of H. The following particulars relate to processing machine treating a typical material: (a) Costofmachine-Rs.533 40. (i) OverheadofY= 10... Costs allocated to service centres are required to be apportioned to the production centres to find out cost of production of different products. 2. Costs of service departments X and Y have been distributed by Repeated Distribution Method.000 x = 82.

Machine maintenance 200 hours p.500 Rs.ks ora manufacturing company.000 ) 2. Cost data of a particular work order carried out above department during June are given below: Material used Rs. Rs.850 29.800 11. Power ( 16 units @ 10 paise per unit) Mac/line Hour Rate 1.000 x 10 2. Banga/ore) Solution Standing Charges 1. 8.0001. June.000 4.000 Direct wages Rs. Material used Rs.000 hrs.l. From the following particulars compute Machine Hour Rate: 2.000 + 2. 3. Departmental overhead 2.300 1m. Maintenance ( 1. Rs.. 500 Rs. 3. Total machine hours ( 50 x 44 ) Less: Maintenance hours Effective working hrs.200 (j) Two attendants control the operations of machine together with 6 other machines.000 Rs. (iii) @ Rs.60 0.15 Direct labour hours 70 Machine hours 25 You are requ ired: (a) to enumerate four methods of . Working Note: Calculation of effective hrs. Problem 5.000 1.000 2. Following particulars related to the production department ofa factory for the month of ' Solution Computation of Factory Overheads Rates : (i) Direct Labour Cost Rate: (ii) Machine Hour Rate: (iii) Direct Labour Hour Rate: ?verhead Direct wages x 100 Overhead No. Com. (ii) Machine hour rate.000 3.000 (i) 125% ofRs.I'. Standing charges per hour ( Rs..3.er:ead h 0 la our ours Statement of Factory Cost Direct material Direct wages Prime Cost Factory overhead: Direct labour cost rate R.I. Depreciation 3.18. ( B.200 + 2. 1407x50 ) 2.000 .000 Finishing Deptl. (f) Setting up time estimated at 5% oftotal productive time and is regarded as productive time (g) Electricity is 16 units per hour at 10 paise per unit (h) Chemical required w~kly Rs.I'.400 hrs.120 Rs. 2. 1.I'.000 ) 20X50) ( 2.50 Machine hOllr /'CIte R. The following figures have been extracted from the boo.100 Problem 5.000 Rs. Their combined weekly wages are Rs. 140 (k) Departmental overhead allocated to this machine per annum Rs.250 8. Chemicals ( 10. All jobs pass through the company's two departments: Material used Direct labour Factory overheads Direct labour hours Machine hours The following information relates to Job No.250 Labour hours booked 3. 65 265 255 Finishing Dept!.9. o. Problem 5. Attendants' wages ( Calculation of Machine Hour Rate Per Year Rs.l0 Direct labour Rs.250 14. 47 : Working Deptt.50 0.250 (ii) @ Rs.000 6.300 Machine hours booked 2.6. 8.640 22. of machine hours No.60 for 2.45 0.a.6.000 You are required to calculate the machine hour rate.062.. and (iii) Direct labour hour rate. 6.250 14.000 Working Dept!.000 6.50 22.400 What would be the factory cost of the work order under the following methods of charging overheads. 4.50 llQ.250 Factory Cost 14.250 14. (i) Direct labour cost rate.17. 6.890 Direct labour hOllr rate R.) Operating Charges l.250 7.I.200 200 2.812. 20 (i) Maintenance cost per year Rs.200 5.50 for 3. 8.000 Per Hour Rs. Rs.000 10. Material used Direct wages Direct labour hOllrs worked Hours of machine operation Overhead charges allocated to the department Rs.8.

000 Under-absorbed overhead .50 4. work-in-progress and finished stock in the ratio of 168 : 24 : 48 : or 7 : I : 2 as under: Cost of sales Work-in-progress Finished stock Amount Rs. Delhi) Solution Manufacturing overhead .000 were sold.000 1.80. The foHowing data are available from the records of the company for the year ended 31 st March.000 4. 16.60 lakhs' + 40. 1.00. overhead was recovered at a pre-determ ined rate of Rs. How would under/over-absorbed overheads be treated in cost accounts? ( B.60 lakhs should be charged to the cost of sales and closing stock by using a supplementary rate. 418khs of unabsorbed overheads which is due to defective planning (abnormal reasons) should be charged to Costing Profit and Loss Account and the remaining 40%.000 units @ Rs.000 Finished goods stock 4.80. The total factory overhead expenses incurred and the man-days actually worked were Rs.. 4 per unit Charge to cost of sales (30. 4) 0.80. it was found that 60% of the unabsorbed overheads were due to defective planning and the rest were attributable to increase in overhead costs.21.000 units = Rs.000 Work-in-progress 2. 4) 1. ( B.50.000 Manufacturing overhead applied 7.Actual Manufacturing overhead .000 2.000 units @ Rs.19.ColI/ .00 Problem S. 1.20 Charge to closing stock (10.) = Overheads Direct material Overheads Direct wages x 100 Direct Labour Cost % Rate x Machine Hour Rate Overheads Machine hmll s Problem 5. 25 per man-day. 41. Com. (in lakh) 41. 41akhs) Supplementary Rate = Rs.000 24. 47 under each offour methods referred to.Applied Under-absorbed overhead Rs. Delhi) Solution Less: Actual overhead incurred Overhead absorbed ( Rs.50 lakh and 1.000 Apply two methods for disposal of under-absorbed overhead showing the implications of each method on the profit of the company. On analysing the reasons.000 Cost of goods sold 16. 2003 : Rs.00 60% of this Rs. 1. Rs. 25 x 1..-17 Method I. Delhi) Solution (i) (ii) Material Cost % Rate (III) (I\.absorbing factory overheads department under the methods quoted. In a manufacturing unit.Com.50 lakh hours) Under-absorbed overheads Rs.40. (in Jakhs) 2. and (b) to prepare a statement showing the different cost results for Job No.40. 30.000 Methods of Disposal Overheads 5. O~t ofthe 40.000 units produ'ced during a period. uses a historical cost system and applies overheads on the basis of pre-determined rates. Under-absorbed amount of overhead ofRs.80.000 7.50 lakh days respectively.40 Under-absorbed overhead 4. (B.000 is added to cost of sales. i.50.50. Jladras.e.50.00. 8. Manufacturing overhead incurred 8. XYZ Co.00. Hons..40 Charge to Costing Profit and Loss Account (60% ofRs.50 37. Rs. Hons.

46.50 7.22.000. 6..500 Production records at the end of the year indicated the following for the product line 'Krish'.000 2. The rate is 50 paise per unit if production is less than 20 units per day.00 30. Department X 1. 59.50 (ii) When factory overheads are charged at 80% on prime cost Materials (@ 30 p.05.500 30. Mee~t Manufacturing Company makes several product lines which are processed through three production departments . Y and Z.30. per unit) Labour cost Statement of Cost Factory overhead 15 Rs.60 21. Tabulate the above data in the form ofa suitable statement and indicate the factory cost per unit under each of the abo~e methods if the daily production is : (a) 15 units. The profit will reduce by Rs.000 10.50 15.62 1.000 10.00 22.000 Total Rs.000 20.000 Deptt.000. 4.50 12.15.000 2. 10.50 15.000 1. Problem 5. 45.50 :5 Factory overhead Prime Cost (B) FactoryCost Factory cost per unit (8 + A) Rs. 6. per unit) Labour cost J 00% on labour cost Statement of Cost 15 Rs. (c) 25 units. (b) Compute the cost of'Krish' line for the year by using: (i) Plant-wide rate.00 12.23.62 Problem 5.00 22. Solution (a) Calculation of Departmental Overhead Rates . 70.99.00 1. 17. It is proposed to charge factory overhead under one of the following methods : (i) 100% on labour cost.000 DepartmentY 2.40.40 25 Rs.000 Effect on Pront. (ii) 80% on prime cost. 70.500 DepartmentZ 5. Rs.40 32.50.41.000 80. Z Rs.00 18. (ii) Departmental rates.00. 70..00 12. The entire amount of under-absorbed manufacturing overhead may be carried forward to the next year if it is presumed that such under-absorption has arisen due to cycl ical or seasonal fluctuations.00 9.60.50 7.00. 7.e.000 Deptt.e. i.000 1. Standard production for a particular work order is 20 units per day and piece rate wages is 60 paise per unit if daily production is 20 units or more. Rs.000 5.X Rs.50 1. Solution (i) When factory overheads are charged 01 (A) Production (units per day) Materials (@ 30 paise.000 1.50 1.000 because of increase in the cost of sales which is debited to Profit and Loss Account.00 40. the profit of the current year will then be based on predetermin~d overheads and remain unaffected.000 + 20.X.50 Factory cost per unit (B Prime Cost (B) Factory Cost + A) 1. In such a case. Rs.50.44 1.000 25. Cost of materials is 30 paise per unit.000 Prime Cost Direct Labour Hours You are required to (a) Calculate the departmental and plant-wide overhead rates based on direct labour hourS .00 18.000 Deptt.000 1.500 5.00 37.24. (b) 20 units. Y Rs. 7. Thus the net effect of using this method is that the profit for the year will be reduced by Rs.000+20.000-( 10. The relevant data for a year is as follows: Factory Overh~at1 Direct Labour Direct Labour (including share of Hours Cost service department) Rs.000 1.000).00 12.added Rs.50 15. 4. i. Rs. 30. Method II.000 will be credited to Profit and Loss Account on account of increase in the value of closing stock of work-in-progress and finished goods.00 14.00.30 20 Rs. Units produced 20.50 19.60 20 Rs.50 18.00 7. On the other hand. 10.50 12.

000+ 1. The overhead rates for each of the department will be as follows: ~ Foundry = Machine Shop = 5. 1. revised cost sheet will appear as follows: Foundry Machine Shop Assembling Revised Cost Sheet Works overhead Foundry .00 8.30. per h our (b) Statement of Cost of 'Krish' Departmental Rs. 5. x 100 = 150% of dIrect wages And here lies the fallacy.. Hans. Rs. When information is available regarding various departments.500 10.50% of direct wages Machine Shop .. In other words. Delhi) 5.000 1.. overheads 52.000 .500 2. Direct wages 10.500 Direct wages 75.24..000 50. Labour Hours of X. x 100 .000 1. Foundry Machine Shop Assembling Total Rs.35.24. Machine Shop and Assembling.Overhead Rate per hour = Department Y = Department X = Department Z = 1. Solution.000 50.00 Rs. Y and Z Deptts.24. 1. 2.000 .15. 2002.000 1.00.55 per hour = = Rs. Rs.lrs (B.30.9.000 1. It is apparent that the company has charged works overhead on the basis of blanket (single) rate computed as follows: _ Total works overhead .000 90.81.000 1.100% of direct wages Correct Factory Cost Rs.000 Administration overheads 42..00 .000 2.46.000 89. 1.000 10..15.49 Plant-wide Rs..000 70.50. overhead absorption rates should always be computed separately for each department.000 10.20 per hour -------.00 7.000 Works overhead 5.Total direct wages 105000 70 000 . Try to correct it.000 10.Foundry 2 Machine Shop 4 Assembling 2 Works overhead (150% of direct wages) Total Cost It seems there is some fallacy.96.15.500 5.05.000 3. 16 Material Direct wages ..000 2.000 90. Direct materials 90.00. manufactures pumps which pass through three departments Foundry.000+ 1. Com. 16.000 Factory Overhead Direct Labour HO\.20 2.000 10.000+2.000 Factory Cost 1.000 = Rs 3 .05.000 The factory cost of manufacturing an 'X' type ofpum}> is prepared by the company as follows: Rs.000+5. 15.000 1.180% of direct wages Assembling .000 Problem 5.000 10. Rs.000 _ 80. The manufacturing expenses are as follows: . Rs.-----=--Total Total Overheads of X.15.000 On the basis of the abov~ overhead rates.000 ' I I 'd S 109 e pant-wI e rate = Rs. Billa & Co.05.. mUltiple rates are always preferable to blanket rate.56.46. The following data are obtained from its books for the year ended 31st December. 2 4 2 1..000 Selling and dist.1020 3420 A factory uses job costing.00 per hour = Rs. Y and Z Deptts.

Cost of sales and the Sales value. 120.000 210.Factory overheads 45. based on cost rates prevailing in the previous year.000 Profit 60.000 52.000 42. Percentage of factory overheads to direct wages = 45000 x 100 = 60% 75000 2.400 Selling and distribution overheads Cost of Sales Profit Sales Value Calculation of Rates : 1.500 60.000 .900 (a) Prepare a Cost Sheet indicating the Prime cost. 75.900 365.500 304. Factory cost.. It is estimated that direct materials required will be Kshs. 2002 Direct materials Direct wages Prime Cost Factory overheads Factory Cost Administration overheads Production Cost 90.000. What should be the price for these jobs if 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 and selling and distribution overheads as a percentage of factory cost. Solution Cost Sheet for the year ended 31st Dec.000 and direct labour will cost Kshs. (b) In 2003.000 45. Percentage of administration overheads to works cost = 42000 x100 = 20% 210.000 75.000 252.000 165. Production cost. the factory received an order for a number of jobs.

Selling and distribution overheads Add: 15% increase 7..900 x 100 =16.375 x 100 = 28.000 Miscellaneous factory overhead 3. % of profit to sales =60.000) Direct labour (30. 2002.000 It is the practice of business to make the jobs absorb factory overheads on the basis of 120% of direct labour cost.000 240.000 45.. 1448.600 . except Job No.000 195.000 + 2.000 Completed Jobs 45.600 1.67% (1/ 6 of sales or 1/5 of total cost ) Job Cost Sheet (Statement showing Estimated Cost and Price of Jobs in 2003) Direct materials Direct wages Prime Cost Factory overheads (60% of direct labour) Factory Cost Administration overheads (20% of factory cost) Cost of Production Selling and distribution overheads (28..3.000 48. 42. The costs incurred by the business on 31 st Dec.000 69.000) Add: Factory overhead (38.000 .000 x 120%) Prime Cost Works Cost Rs.000 and Rs.400 120. the last day of accollnting year.000 + 8.. 1448.000 Indirect labour 2. has completed all jobs in hand on 30th Dec.000 Direct labour (Job 1448) 8. 40. showed direct materials and direct labour costs of Rs. 2002 Direct materials ( 40. engaged in job work. Direct materials (Job 1448) 2. Deihl) Solution Cost of Work-in-Progress of Job No.75% of Factory cost) Total Cost Profit (1/5 of cost) Selling Price 357.875 52. 2002. 1448 as on 31st Dec.75% 4. 1448 on 31 st Dec.000 71.. overhead % to Factory cost = 60.000 Problem 7..000 75.4.375 Selling and dist.000 288.400 428.500 60. 80. 2002. 30. Nahar Electricals Ltd. The cost sheet on 30th Dec.. (11 COlli /lOllS.000 38.000 respectively as having been incurred on Job No.25. Calculate the cost of work -inprogress of Job No. were as follows: Rs.

200.30 per labour hour Selling and distribution overhead .000 Wages 328. The value of materials in hand was Kshs. 0. 2003 Production overhead .000. 0.50 Selling and distribution overhead 25% ofRs. 0. Finished in 2003 Rs.50 per direct labour hour Selling and distribution overhed . 40 I have been Rs.40 40 250 Contract price of the job is Rs.60 Assembly 100 hours @ Re. X Co. Ltd. (b) as it would appear if the job were completed in January.25% of production cost From 1st January. 2003 Production overhead : Store-keeping and material handling . Il1Ier) Finished before 1-1-2003 Production overhead: 300 hours @ Re.Re.60 120 Assembly 100 hours @ Re. being 80% of the work certified.000. 0. has absorbed overhead by means ofa blanket r~te based on direct labour hours.CII'.75 Assembly 100 hours @ Re. 0.Problem 7. Direct material cost <Xl Direct wages: Machining 200 hours @ Re.000 for the year ending 31-12-2002. Prepare Contract Account. 400 Prime Cost Rs. Show the job cost sheet for Job No. machining and assembly.000 Overheads 17.60 Assembly 100 hours @ Re. it decides to adopt separate rates for the three main activitiesStore-keeping and material handling. 0040 Job Cost Sheet Job No. Solution Particulars Direct materials Direct wages: Machining 200 hours @ Re. 480.75 per machine hour Assembly . 525 and it requires 180 machine hours to c6mplete. As from 1st January.000 Plant 40.Re.Re. Overhead absorption rates are: Prior to 1st January. Materials 240. 2003. 2002 was Kshs.25% of production cost Direct costs of Job No. 401 Total Cost Profit Selling Price 150 400 100 500 25 525 Rs. Direct materials Direct wages: Machining 200 hours @ Re.. 2002 Particulars Particulars . 424) Total Cost Loss Selling Price 120 40 9 135 ~ 90 160 250 174 424 \06 530 5 525 The following expenditure was incurred on a contract of Kshs.30 Prime Cost Production Cost Selling and distribution overhead (25% ofRs. 0.Machining . 2003. 0. 1. 20. The estimates of costs and absorption rates for selling and distribution cost remain unchanged. 0.200 Cash received on account of the contract to 31st Dec. 0040 Production overhead: Store-keeping and handling \0% ofRs. 90 Machining 180 hours @ Re.7. 40 I : (a) as it would appear if the job had been completed prior to I st January. 401 (I.A . The plant had undergone 20% depreciation. 2003. Solution Contract Account for the year ending 31st December. 0. 90 Production Cost 120 40 250 Particulars Job Cost Sheet Job No. 0.

000 40.000 1. 20.000* 35.800 26.000 328.000. f)elhi) Solution Particulars Contract Account for the year ending .000 At the end of the year.00. 10.000 Work certified (480.000 less 20%) Work-in-Progress 20.000 17.800 652. 4. (/J COlli. In addition work-in-progress not certified at the end of the year had cost Rs. the machinery was valued at Rs.000 50.000 To Profit & Loss Alc 26.000 Other expenses 90.000 By Work-inProgress : Certified Unceltified By Machinery at site By Materials at site By Notional .800 To reserve/provisional profit 14. Rs. During the first year..000.. 5.000 30.. Also show the various figures of profit that can be reasonably transferred to the Profit and Loss Account.50.800 x 2/3 x 80/100) = 14293 Problem 8. Work certified during the year totalled Rs. Particulars Rs.00.000 15.000 50. the amounts spent were: Rs. Thekedar accepted a contract for the construction of a building for Rs.000 652.40... Profit transferred to Profit and Loss Account is computed by the following method: Notional Profit x 2/3 x Cash ratio = ( 26.000 90.000.800 Note.000 x I00) 80 To Notional Profitc/d 26.000 and materials at site were ofthe value of Rs. the contractee agreeing to pay 90% of work certified by the architect.293 12507 Notional Profit b/d 600.. Prepare Contract Account in the books of Thekedar.50.000 26... 15.000 Labour 1.Materials Wages Plant To Overheads 240. 30.000 Materials in hand Plant in hand (40.200 32.20.20.2.000. Material 1.000 4.000 Machinery. Rs. To Materials To Labour To Machinery To Other expenses To Notional Profit cld To P& LAic To Reserve 1.

43.800 Cost of work not certified 3.400 1. 2003 and find out the profit. 2003 200 Labour 54.000 10.43.30.000 *Working Notes: Transfer to P & LAic = 50.200 40.820 120.500 54.000 x ~ x 90% = Rs. Rs.) = 50.800 200 11. Notional profit x Work celti~ed Contract pnce x Cash ratio = 50.000 Other figures that may alternatively be transferred to P & LAic may be computed as follows: I. The following particulars relate to Contract No.400 1.150 Particu/crrs By Materials returned l3y Materials in hand By Work-in-Progress : Certified Uncertified By Plant at site Us.00. ontract pnce = 50.J.000 x 4. The BBA Construction Company undertakes large contracts. Notional profit x.00.400 8.00. Solution Particulars To Materials sent to site To Labour To Establishment charges To Direct expenses To Wages accrued To Direct expenses accrued To Plant at site 1'0 NotionalProlit c/d Cost and .'rofit bid 1.000 20.000 15.300 Materials on hand on 31 st March.800 3.260 5% C 30. During the quarter ending 31st March.000 60.250 2. 2003 Rs 64.16.400 '10 I' & L /l.000 2.00.000 7.620 Direct labour Direct expenses 7.lc ( 18. 3. 400 1.000 10% A B 20.000 5. 20.000 30.\/cll1a!{ement Accounting Contract No. Rs.667 2.000 x 90% = Rs. 2003 1.400 II!.40.250 Cash received from contractee 1.43.000 Prepare a Contract Account for the period ending 31 st March. 125 carried out during the year ended on 31 st March.000 .500 Direct expenditure accrued on 31 st March.000 Wages accrued on 31 st March.000 Establishment charges 3.400 Direct expenditure 2. 2003.000 x 1 3 = Rs .000 x 400000 " 10. 2003 1. 2003 8. Work certified by architect 1.000 4. 125 Account for the year ending 31st March.300 18.3.OOO ) x 1.000 10% 50.400 Plant installed at site 11.260 TOTAL 84.000 1.000 Problem 8.56. 18.150 18.000 50. 15. NotIOnal profit x Work certified C .150 x To Resene '3 2 I JO.000 Production overhead Normal loss in input .! 50 18..00.800 Contract price 2.400 Value of plant on 31 st March.000 --50. It was decided to transfer 2/3 of the profit on cash basis to Profit and Loss Account.200 Materials returned to store 400 Materials sent to site 64.000 5. 2004 the cost and production were as under: Processes Direct material 34.56.Profit cld 4.200 11.000 3.150 By Notionall.150 A product passes through three processes to completion.000 = lb.

060 -2300 x 4 units =960 920 -46 Process C Unit @ amt Unit @ amt . Production overhead is allocated to each process on the basis of 50% of direct labour cost.000 Transfer to department C 2260 2000 212.600 Normal Loss 30200 Abnormal loss 40.600 Unit 100 920 @ 30/= amt 3000 119.000 212. Prepare process accounts.060 Unit 46 4 870 920 @ 50/= amt 2300 960 208.100 Process B Unit Input material 920 Direct material Direct labour Direct expenses Production overheads 920 @ amt 119.600 1000 . There was no stock of materials or work-inprogress in any process department at the beginning or end of the period.060 Value of abnormal loss = 212.600 122.600 Value of abnormal gain = 120. 50 per unit were introduced to process A. Solution: Input material Direct material Direct Labour Direct expenses Production overheads Abnormal gain 20 1020 Unit 1000 @ 50/= Process A amt 50000 Normal Loss 20000 Transfer to department B 30000 5000 15000 2.000-3000 x 20 units = Kshs 2.Sale of scrap per unit Production in units 920 30 870 50 800 60 1000 units of Kshs.600 1020 122.

600 .60 units Abnormal loss = 40 units @ Rs. (B. 3.360 Particulars By Normal loss By Abnormal loss By Process B Alc (Transfer) Kg. 2.140 Labour 10.800 870 . The direct labour accounted for Rs.Input material 870 Direct material Direct Labour Direct expenses Production overheads Abnormal gain 17 887 208000 Normal Loss 87 34200 Transfer to Finished stock 800 50000 25000 6. 6 = Rs. Com. 9. from Process A To Materials To Labour To Overheads To . 2 per unit. 6 per unit Output transferred to Process B = 500 units @ Rs. A loss of 5% is allowed in Process A and 2% in Process B. 6 each were introduced in Process A. The normal loss is 10% of input and the net production was 500 kg.000 Particulars To Tr.200 units were produced by Process B which were transferred to warehouse. nothing being realised by disposal of the wastage. During April 10.400 200 760 3.Normal output Rs.000 units of the finished product were sold @ Rs.600 The output was 9. 4 per kg. Prepare (i) Process Accounts and (ii) a Statement of Profit or Loss of the firm for April.220 Value of abnormal gain = 318.) Solution: Particlliars To Materials To Labour To Overheads Units ·Cost per unit = Rs.220 870 60/= 5.87 Problem 9. assuming there were no opening stocks of any type. 200 and the other departmental expenses amounted to Rs.300 units from Process A.220 320.000 4.000 Problem 9. Rs.000 3. 120 240 3. the product passes through two processes.7 (Process Accounts and Statement of Profit or Loss) In a factory. 6 = Rs. 3.800 325. of a material was charged to Process A at the rate ofRs.33 600 kg. the selling and distribution expenses being Rs.4 (Process Accounts with Missing Figure) Rs.3 (Normal alld Abnormal Loss) Process Costing 9.360 Working Notes: Cost per unit = Normal cost ----. 8. The other costs were as follows: Process A Process B Rs. 15 per unit..Process A Account 600 Rs.000 units of material costing Rs.000 6.md abnormal loss. Solution: Particulars To Materials To Direct labour To Other expenses Kg. 76. 60 40 500 600 Rs. 240 Problem 9. A and B.420-5200 x 17 units = Kshs 6.. Assuming that process scrap is saleable at Rs. Materials 6. prepare a ledger account of process A clearly showing the values of normal .000 Overheads 6.360 -120 ---'----= 600 .000 325. 2 per kg. 760.

. Com...600 860 92.000 hrs.400 6.000 x 3.140 + 9.500 units = Rs.000 By Normal Loss By Finished product Alc (@ Rs.000 Solution Variable overheads: Indirect labour Stores including spares Semi-variable overheads: Power: Fixed Variable Repairs and Maintenance : Fixed Variable Fixed overheads: Depreciation Insurance Salaries Flexible Budget for the period. 12. Materials 6.000 2.000 At 90% capacity 6. variable) Repairs and maintenance (60% fixed.000 14.600 The output was 9.300 10.000 units of material costing Rs.000 3.200 units were produced by Process B which were transferred to warehouse. ..Process A Account 10.400 74.000 10.000 Rs.400 74. 80% and 90% plant capacity.400 6.000 Particulars To Tr. Com..86 9.500.114 units .000 .000 x 80 70 70 80 = Rs.300 units from Process A.114 units . 8. 8* per unit) Units 500 200 ·Cost per unit = Rs.000 By Normal Loss By Finished product Alc (@ Rs.000 6.000 4.300 10.000 10. 10· per unit) 186 76..000 Units 9. 8* per unit) Units 500 200 ·Cost per unit = Rs. Capacity 40% variable) 12. Indirect labour cost at 70% = 12..86 9.500 1.000 11.1.200 900 CA) Total oVI!rhead (8) Estimt"d direct labour hours Direct labour hour rate (A + 8) 11.140 + 9. 15 per unit. Particulars 9.500 3. 10. 76.386 Process B Account Rs. During April 10.000 4.300 76.500 4. Madurai) At 70% capacity Rs.000 1.7 (Process Accounts and Statement of Profit or Loss) In a factory.000 Overheads 6.000 4. 13.000 Particlilars 9.140 6. 10· per unit) 186 76... 8 By Normal loss By Abnormal loss By Transfer to Process B (@ Rs. A loss of 5% is allowed in Process A and 2% in Process B. 9.000 4. (B.200 700 6.1. the product passes through two processes.000 3.000 1.386 Process B Account Rs.000 0.Abnormal gain Alc + 10. from Process A To Materials To Labour To Overheads To Abnormal gain Alc + 10..1.140 6.000 Re 0.000 . Similar calculation for other variable item i.000 10..000 12.000 20.000 Units 9. the selling and distribution expenses being Rs.000 Rs. Variable Overheads: Indirect labour Stores including spares Semi-variable Overheads: Power (30% fixed..000 10..140 Labour 10.000 10.000 15..536 11.Process A Account 10. 8 By Normal loss By Abnormal loss By Transfer to Process B (@ Rs.200 800 6. Prepare (i) Process Accounts and (ii) a Statement of Profit or Loss of the firm for April. 60...000 = Problem 9.72 Working Notes: I.24.750 1. 6 each were introduced in Process A.000 units of the finished product were sold @ Rs.. 2. Fixed Overheads: Depreciation Insurance Salaries Total Overheads Estimated direct labour hours At 80% Ils.) Solution: Particlliars To Materials To Labour To Overheads Units ·Cost per unit = Rs.000 Rs.000 10... 91..e.. Variable power at 70% = 14. . (BBM Bangalore: B.600 Units 74.250 Rs. A and B.. assuming there were no opening stocks of any type.600 Units 74. .000 Rs.500 At 80% capacity Rs.000 3.. nothing being realised by disposal of the wastage.500 11.000 4.000 6.000 6.000 Particlilars 9.300 76. 2 per unit.. 62. 10. 91. 60.500 units = Rs. Draw up a flexible budget tor overht'ad expenses on the basis of the following data and determine the overhead rates at 70%. Particulars 9.000 3.000 0.600 860 92. 7()oA. The other costs were as follows: Process A Process B Rs.000 = Problem J 1.. Rs.

98. . Indirect material Variable cost per unit = Change in cost Ch .000 1. Similar calculation for indirect labour and inspection.000 84. shows the following profit/loss during the year 2002 Rs. 54.000 84.000 2.50.000 1.000 units.20. Fixed selling and administrative expenses amount to Rs.000 Maintenance . Hons. Com. Salesmen are paid a commission of Re I per unit sold.(1.20.000 1.. 13.000 .40. 2. 7 per unit.000) Variable expenses (direct) Selling expenses (10% fixed) Distribution expenses (20% fixed Administration expenses (Rs.64.000 5. 1.000 = Problem 11.24. Depreciation and engineering services costs are the same at two levels of production.000 Similar calculation for maintenance cost. Supervision = = . 85.24.000 94.000 .000 units of production.. Direct labour averages Rs.7S0 90 80 = 1.500. Power . .20. 0. 2.000 units = = 36.000 x Similar calculation for repairs and maintenance x 70 80 Material Labour Variable overheads Fixed overheads (Rs.50. at 90% = 12.40.6 hours to produce one unit of DETX II.000 1.000 = Rs.50. 2. Volume of production (in units) Expenses . Direct material costs Rs.20.000 1. at 90% = 14. 2.70.000 Rs. Hence there is no fixed cost involved.05.87.50 per hour and requires 1. 2. Manufacturing overhead is estimated in the following amounts under specified conditions of volume . Change in cos t Variable cost per Untt = Change in output Rs.000 2.500 = Rs.000 3.20 Variable indirect material 1.000 30.000 1.000 Variable costs: Direct material @ Rs.34.000.Fixed Variable @ Rs. 7 per unit Direct labour @ Rs.. t t ange In ou pu Rs. The budget manager of Jupiter Electricals Limited is preparing flexible budget for the accounting year starting from 1st July 2003.08.000 units Rs.9.20 per unit Fixed Variable @ Re.000-1.250. Indiret material Indirect labour Inspection Maintenance Supervision Depreciation of plant and equipment Engineering services 1. 0.000.000 1.12.000 per year. ABC Ltd.] Output 1.000 85.1.000 1..60 per unit Fixed Costs : Depreciation Engineering services Selling and distribution expenses 54. The company produces one product-DETX II.000 x 90 80 at 90% = 1.20 Fixed supervision cost 1.000 x 1.Fixed = Rs. 12.000 90. 3.64.20 = Rs.8. tS. Budget for the year ending 30th June 2004 11. 6.500 1.000 = Rs.39. 1. variable = Rs.68.000 28.000 30.00.64.000 90.000 94. 2.000 94.50.40.30. 4 per unit Salesmen's commission @ Re I per unit Indirect materials @ Rs.000 90. Thus these are fixed costs. Delhi.75.000 Solution Total manufacturing overhead 9. Direct labour hours at 70% = 1.20. 14. 3.50.500 Problem 11.000) = 1. 1. 1.000" 90 80 =·Rs.80.stores.000 12.500 1. 50.000 Prepare a Total Cost Budget for 1.20) Rs.000 Total 90.000 1. 3.000 Working Notes: Fixed and variable components of each item of cost are determined as follows: 1.55.000-1.08.30.000 for 1.000 1.34.000 Rs.98.20 per unit Indirect labour @ Rs.20.60.000 x Rs. 2.02. 2.25 per unit Inspection @ Re.OOOunits = 66. 9.98.75 per unit Semi-variable costs: Supervision [B.

. Prepare a master budget for the year.000 480.000 600.000 60% 0f sales 20 workers @ Kshs 150 per month Administration.600 Kshs 3.000) Direct wages (20 workers x Rs.000 800.000 36. selling and distribution expenses Kshs. 800. 150 x 12) Prime Cost 516.000 200.5% on sales Kshs 12.000 per year).000 200.000 . Solution Master Budget ·for the year ending..Float glass Manufacturing Company requires you to present the budget for the next year from the following information: Sales: Toughened Glass Bent Glass Direct material cost Direct wages Factory overheads: Works manager Foreman Stores and spares Depreciation on machinery Light and power Repairs and maintenance Other sundries Kshs 500 per month Kshs 400 per month 2..000 Kshs 8.000 10% on direct wages 600. 36. Sales: Toughened Glass Bent Glass Total Sales Less: Cost of production : Direct materials (60% of Rs.

000 units 1.00.600 26.000 15.00.000) 3.000 Rs.000 50.000 20.000 Units required for production Add: Closing stock Material X 1. 2003 1.000 2. 3 per unit for 35.000 units and that of Y is 4.500 units and that of Y is 3.05.000 35.600 20.800 12. Product B requires 5 units of X and 2 units of Y. The price of X is Kshs 2 per unit and that of Y Kshs.Less: Factory costs) 226.000 A company manufactures two products.000 70. Prepare the Material Usage Budget and Materials Purchase Budget for the year ending 31st Dec. 2003.000 5.000 Product 8 (Units) 10.2 Rs. 2.000 8.000 Material Purchase Budget for the year ending 31st Dec.000 1. 2.000 .000 units.05.000 Less: selling and distribution expenses Net Profit 190.000 units and that of product B 10. The desired closing stock of material X is 5.400 6.000 Total (Units) Total usage Cost of Materials X-@ Rs. The sales manager has estimated the sales of product A to be 5.02.000 Total cost of materials 65. 2 per unit for 1.000 31. 2003 Estimated sales Material X : @ 10 units per product A and 5 units per product B Material Y : @ 3 units per product A and 2 units per product B Product A (Units) 5.Fixed Factory Overhead: Works manager's salary (500 x 12) Foreman's salary (400 x 12) Depreciation Light and power Variable Factory Overhead: Stores and spares Repairs and maintenance Sundry expenses Factory Cost Gross Profit (Sales .35.500 1.000 4.05. A and B by making use of two types of materials viz.00. X and Y. Product A requires 10 units of X and 3 units of Y.600 (574. Solution Material Usage Budget for the year ending 31st Dec.00.000) 3.500 Rs.000 units.000 50.000 units Y-@ Rs.000 1.000 (36.000 units. 3 per unit. The estimated opening stock of material X for the budget period is 2.

000 52.500 70. Com.18. 25.000 83.05.000 7.000 1.00. 2003.500 8.00.500 5.000 25.2003 Less: Estimated Stock on 1.000 75.000 70.16.000 7.000 14.14. Product Solution A B C (as Sales (units) per sales budget) 1.000 2.6.65. 25. Com.000 cash in hand on 1st April 2003 and it requires you to prepare cash budget for the three months.000 1.00Q (b) (c) (d) Solution 25% of sale is for cash and the period of credit allowed to customers for credit sale is one month.000 Problem 11.000 1.000 25. 25.000 8.000 is to be paid in June 2003.000 91.09.000 55.000 39.3 1. Expenses Rs.000 9.000 Total Closing balance 40.000 30.000 91000 1.000 66.000 June Rs.000 27.000 15.000 70.000 1.000 81. From the following particular.000 February March April May June 53.000 60.000 22. prepare a Production Budget of a Company for the month ended June 30.000 Estimated stock (units) I June 2003 30 June 2003 14.000 .000 7.04.000 3. A company is expecting to have Rs.15. 53.000 8.05.000 50. 81.000 36.000 2.000 5.000 Rs..000 Total Rs.000 95.000 Less : Opening stock Units to be purchased Cost per unit Cost of materials to be purchased Material Y 35.08.82.000 10.000 25.50.000 4.3.500 1.000 78.2003 Product A Units Product 8 Units Product C Units Budgeted Production 1.000 94.6. 6.000 9.000 Total Payments: Creditors Wages Expenses Income tax 23.) Production Budget for the month ending 30th June 2003 Sales as per Sales Budget Add: Estimated Stock on 30.000 May Rs. Delay in payment of wages and expenses one month.000 69.51.000 IIIstration 11.000 14.50.000 1. Income tax Rs.000 (8. 25.000 78. The following information is supplied to you.000 8.000 2. Madurai) Opening balance Receipts : Cash sales Debtors Cash Budget for three months ending June 2003 April Rs.42. (B.000 8.000 8.000 1. April to June 2003.000 7.000 8.000 14.000 15.