You are on page 1of 22

# 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.

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.

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 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.