Practice Questions

Tentative solutions

Qsn 1: From the following information, prepare a cost sheet for period ended on 31st March 2006.

Opening stock of raw material 12,500 Purchases of raw material 1, 36,000 Closing stock of raw
material 8,500 Direct wages 54,000 Direct expenses 12,000 Factory overheads 100% of direct wages
Office and administrative overheads 20% of works cost Selling and distribution overheads 26,000
Cost of opening stock of finished goods 12,000 Cost of Closing stock of finished goods 15,000 Profit
on cost 20%.

Ans:

Cost sheet for the period ending 31st March 2006

Opening stk of RM 12,500

Add: Purchases 1,36,000

Less: Closing stock 8,500

Direct wages 54,000

Direct expenses 12,000

Prime Cost 2,06,000

Factory O/H

(100% of direct wages) 54,000

Works Cost 2,60,000

Office and admn O/H 52,000

(20% *2,60,000)

TC of Production 3,12,000

Add: Opening stk of FG 12,000

Cost of goods 3,24,000

Available for sale

Less: Closing stock of FG 15,000

COGS 3,09,000

Selling and sitribution O/H 26,000

TC 3,35,000

Profit

(20%*3,35,000) 67,000

Sales 4,02,000
Qsn 2: The following information is given to you from which you are required to prepare Cost Sheet
for the period ended on 31st march 2006:

Consumable material: Opening stock 20,000 Purchases 1, 22,000 closing stock 10,000

Direct wages 36,000 Direct Expenses 24,000 Factory overheads 50 % of direct wages

Office and administration overheads 20% of works cost Selling and distribution expenses Rs.3 per
unit sold

Units of finished goods In hand at the beginning of the period (Value Rs. 12500) 500

Units produced during the period 12,000

In hand at the end of the period 1,500

Find out the selling price per unit if 20% profit on selling price. There is no work-in-progress either at
the beginning or at the end of the period.

Ans: Cost sheet for the period

Opening stock 20000

Add: Purchases 122000

Less: Closing stock 10000

Cost of raw material = 1,32,000

Consumed

Add:

Direct wages 36,000

Direct expenses 24,000

Prime Cost 1,92,000

Factory O/H

50% of direct wages 18,000

(12,000*1.50)

Factory O/H 2,10,000

Office O/H

20% of Work Cost 42,000

TC of Production 2,52,000
Add: Opening stk 12,500

Of FG

(500*25)

Cost of Goods available

For sale

(12000+500) 2, 64,500

Less: Closing stk of FG

@21 p.u (1500 units) 31,500

Cost of goods sold

(12,500-1500=11,000 units) 2,33,000

Add: Selling and Distbn exp 33000 (3*11,000 units)

Cost of sales 2,66,000

Add: Profit

(20% on SP) 66,500

Sales 3,32,500

Qsn 3: The Venketeshwara Hospital Trust operates two types of specialist X-ray scanning machines,
XR1 and XR50. Details for the next period are estimated as follows:

Machine XR1 XR50

Running hours 1100 2000

(£) (£)

Variable

running costs

(excluding plates) 27500 64000

Fixed costs 20000 97500

A brain scan is normally carried out on machine type XR1: this task uses special X-ray plates costing
£40 each and takes four hours of machine time. Because of the nature of the process, around 10 per
cent of the scans produce blurred and therefore useless results.

Required:

(a) Calculate the cost of a satisfactory brain scan on machine type XR1. (b) Brain scans can also be
done on machine type XR50 and would take only 1.8 hours per scan with a reduced reject rate of 6
per cent. However, the cost of the X-ray plates would be £55 per scan.

Required: Advice which type should be used, assuming sufficient capacity is available on both types
of machine.
Ans:

Particulars XR1 XR50

Variable running costs 27,500 64,000
Hours 1100 2000
Fixed Costs 20,000 97,500
Cost sheet
Plates Cost 40 55
Overhead =4*VC/Hours =1.8*VC/Hours
=4*27500/1100 =1.8*64,000/2000
=100 =57.6
Normal Loss =0.1*(100+40) =0.06*(55+57.6)
=14 =6.756
Total Cost 154 119.356

Qsn 4: Several costs incurred by Myrtle Beach Golf Equipment, Inc. are listed below. For each cost,
indicate which of the following classifications best describe the cost. More than one classification
may apply to the same cost item. For example, a cost may be both a variable cost and selling cost

Cost Classifications a. Variable b. Fixed c. Administrative d. Selling e. Manufacturing

f. Research and development g. Direct material h. Direct labour I. Manufacturing overhead

Cost Items

1. Metal used in golf clubs. – a, e, g

2. Salary of the plant manager- b, e, i
3. Cost of natural gas used to heat factory-a, e, i
4. Commissions paid to sales personnel-a, d
5. Wages paid to employees who assemble golf bags-e, h
6. Salary of an engineer who is working on a prototype of a new solar-powered golf cart-b, f
7. Depreciation on the word processing equipment used by the company president’s secretary-b,c

Qsn 5: The following expenditure was incurred on a contract of 12, 00,000 for the year ending 31-
12-2015.

`Materials 2,40,000 Wages 3,28,000 Plant 40,000 Overheads 17,200 Cash received on account of the
contract to 31st Dec., 2015 was ` 4,80,000, being 80% of the work certified. The value of materials in
hand was ` 20,000. The plant had undergone 20% depreciation. Prepare Contract Account

It is assumed that the when the work certified is 1/10 or more but less than 9/10 of the contract
price then the profit to the P and L account to be transferred is

Notional Profit * 2/3* Cash Ratio (Cash received / Work certified)

Ans: Contract account

Particulars Amt Particulars Amt

Materials 240000 Materials in hand 20,000
Wages 328000 Plant in hand (40,000 32,000
less 20%)
Plant 40,000 By WIP 6,00,000
 Work certified
(480000*80%)
Overheads 17,200 Notional Profit 26,800
To P and L a/c 14,293
(2,68,00*2/3*80%)
Reserve 12,507