COST ANALYSIS: COST CLASSIFICATION

AND COST SHEET 2

 Cost Classification—Basis
 Miscellaneous Cost Terms
 Cost Sheet/Cost Statement
 Cost Sheet—Advantages

Cost analysis and cost classification involve grouping of costs into various logical groups on some
suitable basis. Cost analysis and classification are essential for the purpose of cost control and
managerial decision making.

There are various methods of classification of costs. The method selected is based on the purpose
for which it is needed. The important bases of classification are:

1. By nature or element
2. By relation to cost centre or product
3. By function
4. By behaviour or variability
5. By time
6. By controllability
7. For decision making purpose
8. By payment
9. By normality.
 Cost Analysis: Cost Classification and Cost Sheet 15

(c) Expenses
It includes all costs other than materials and labour cost. It is the cost of various services consumed
by an undertaking. It is further classified into direct expenses and indirect expenses.

(i) Direct expenses: It includes cost of all services specifically incurred for a product, process, job or
cost centre. They are directly identified with a particular cost object. It is conveniently allocated
to a particular cost object in whole. It is also called chargeable expenses. It includes excise duty,
royalty, hire charges and repairs and maintenance of special equipment required for a job; cost of
special drawings, designs, moulds and patterns.

(ii) Indirect expenses: Indirect expenses are expenses incurred in relation to two or more products,
processes, jobs or cost centres. It is apportioned to various cost objects. It includes rent, rates,
taxes, insurance, lighting, depreciation, power, fuel, advertisement and repairs and maintenance.

2.2 BY RELATION TO COST CENTRE

On the basis of relation to cost centre, costs are classified as direct costs and indirect costs.

(a) Direct Costs

Direct costs are incurred in relation to a specific product, process, job or cost centre. They consists
of direct materials, direct labour and direct expenses. The total of all direct costs is called prime
cost.

(b) Indirect Costs

Indirect costs are general expenses incurred for two or more products, processes, jobs or cost centres.
They are apportioned to various cost objects on suitable basis. They include indirect materials,
indirect labour and other indirect expenses. The total of all indirect costs is also called overheads,
oncost or burden.

2.3 BY FUNCTION
All indirect costs are called overheads and can be classified on functional basis into:

(a) Factory overheads

(b) Office and administration overheads
(c) Selling overheads
(d) Distribution overheads.

(a) Factory Overheads

Factory overheads is also called production overheads, works overheads or manufacturing overheads.
It includes all indirect expenses in relation to production activity. It includes all indirect materials
used in production, indirect labour expended in production, works manager’s salary and allowances,
repairs, maintenance, depreciation and insurance of factory building, plant, equipment and machin-
18 Cost Accounting

(b) Differential Cost

The change in the cost of two alternatives is called differential cost. The increase in the total cost
due to increase in output is called ‘incremental cost’. The decrease in the total cost due to decrease
in output is called ‘decremental cost’.

(c) Relevant Cost and Irrelevant Costs

Cost items taken into consideration while making a decision are called relevant costs. Costs which
are not necessary for a particular decision making are called irrelevant costs. A cost relevant for a
particular decision may be irrelevant for another decision. A cost irrelevant for a decision may be
relevant for another decision. For example rent for own premises may be relevant for comparison of
profitability with another firm paying rent. But it is irrelevant for computing tax liability of a firm
using own building.

(d) Opportunity Cost

The benefit foregone due to an alternative decision taken is called opportunity cost. For example, a
person decides to start a business of his own. For the purpose he resigns his present employment and
withdraws his savings kept in a bank deposit. Due to this decision to start a business he foregoes
his salary income and interest income. The loss of salary and interest income is opportunity cost for
the business.

2.8 BY PAYMENT
On the basis of payment involved costs are classified as follows:

(a) Out of Pocket Costs or Explicit Costs

The costs result in actual outflow of cash, e.g., salary, wages, rent, advertisement, etc. paid.

(b) Imputed Costs or Notional Costs or Implicit Costs

These expenses are considered for decision making purpose only. They do not result in any cash
outflow, e.g., rent for own premises, interest on own capital and depreciation on fully depreciated
asset.

2.9 BY NORMALITY
Costs are classified into the following two groups:

(a) Normal Costs

Expenses incurred in a normal business condition is called normal costs. These costs are included
in cost of production.

(b) Abnormal Costs

These costs are occasional and occur due to the happening of some unforeseen event, e.g., loss due
to fire, theft, accident etc. These costs are not included in the cost of production. They are debited
to costing profit and loss account.
20 Cost Accounting

(ii) Production cost centre and service cost centre Production cost centre refers to a place where
goods are produced. They actually stand for a production department.
Service cost centre stands for divisions which help the production departments by providing various
services like maintenance department, time office, boiler house, canteen etc.

(iii) Operation and process cost centre Operation cost centre stands for the total activities carried
out in a production department is divided into smaller functions or operation in relation to which
costs are accumulated, e.g., cutting, welding, machining, boring etc.
Process cost centre stands for a department where production is carried on continuously. Costs are
collected for a process as a single unit.

(h) Profit Centre

Profit centre is a place or division in an organisation which brings revenue.

(i) Value Added

Value added refers to increase in the market value of a product in excess of the cost incurred for
altering or changing the composition of the product.

(j) Stock-Out Cost

Stock-out cost refers to the loss suffered by a company due to stoppage of production due to non-
availability of raw materials.

(k) Shut-Down Cost

Shut-down cost refers to expenses continued to be incurred even after temporary closure of produc-
tion facilities, e.g., insurance, security, management expenses like director’s fees, managing director’s
salary, salary and wages to skilled employees, Audit fees, etc.
The following chart shows classification of costs:
Total cost

Materials Labour Other expenses

Direct Indirect Direct Indirect Direct Indirect

materials materials labour labour expenses expenses

Prime cost
Indirect cost or overheads or oncost

Production Office and administration Selling Distribution

overheads overheads overheads overheads
 Cost Analysis: Cost Classification and Cost Sheet 23

Add: Opening stock of finished goods xxx xxx

Cost of goods available for sale xxx xxx
Less: Closing stock of finished goods xxx xxx
Cost of goods sold xxx xxx
Add: Selling and Distribution overheads:
Advertisement, free samples, showroom expenses xxx
Sales office salary and allowances xxx
Salesmen’s salary and commission xxx
Travelling expenses (for sales purpose) xxx
Warehouse rent and rates xxx
Carriage outward, delivery van expenses xxx xxx xxx
Cost of sales/total cost xxx xxx
Profit/loss xxx xxx
Sales xxx xxx

Advantages of a cost sheet

1. It helps to ascertain total cost and cost per unit.
2. Costs are classified under proper headings and presented in a logical order.
3. It enables inter-firm and intra-firm comparison of costs.
4. It helps in price fixation.
5. It helps to ascertain profit or loss for a period.
6. It helps in preparing tenders and quotations.
7. It helps in preparing budgets.
8. It enables close watch over cost for cost control.

Production or manufacturing accounts

If information for a period relating to cost of production is presented in a ledger format, it is called
production account or manufacturing account. All production expenses are debited to this account.
Opening stock of work-in-progress is shown on the debit side. Closing stock of work-in-progress is
shown on the credit side. The following is a proforma of a production account.
24 Cost Accounting

Proforma of production or manufacturing account

Particulars Total Cost Particulars Total Cost

(|) (|)
To opening work-in-progress xxx By closing stock of xxx
work-in-progress
To Materials consumed:
Purchase of materials xxx By production cost c/d xxx
(Balancing figure)
Add: Opening stock of materials xxx
Add: Purchase related expenses xxx
xxx
Less: Closing stock of materials xxx xxx
To Direct labour xxx
To Production overheads xxx
Less: Sale of scrap xxx xxx
xxx xxx
To production cost b/d xxx By cost of production xxx
To administration overheads xxx (Balancing figure)
xxx xxx

Illustration-1

(Computation of materials consumed)

Calculate materials consumed from the following information:

|
Opening stock of raw materials 18,000
Purchase of raw materials 2,30,000
Carriage inward 27,000
Sale of raw material scrap 8,000
Closing stock of materials 20,000
26 Cost Accounting

Add: Purchase of materials 4,00,000

Add: Import duty and clearing charges 1,00,000
Add: Carriage on purchase 60,000
Add: Transit insurance and handling charges 25,000
6,35,000
Less: Return of defective materials to
supplier 40,000
Less: Sale of raw materials scrap 20,000
Less: Stock of materials on 31.3.10 60,000 1,20,000
Cost of materials consumed 5,15,000

Illustration-3

(Computation of prime cost)

From the following calculate the prime cost:

|
Stock on materials on 1.4.09 28,000
Purchase of materials 1,60,000
Expenses in connection with purchases 20,000
Direct materials returned to supplier 20,000
Stock of direct materials on 31.3.10 35,000
Manufacturing wages 90,000
Royalty charges 75,000
Hire and maintenance charges of a special 45,000
machinery

Solution
Statement showing computation of prime cost:

| |
Materials consumed:
Stock on materials on 1.4.09 28,000
Add: Purchase of materials 1,60,000
 Cost Analysis: Cost Classification and Cost Sheet 27

Add: Expenses in connection with purchases 20,000

2,08,000
Less: Direct materials returned 20,000
Less: Stock of direct materials on 31.3.10 35,000 55,000 1,53,000
Manufacturing wages 90,000
Direct expenses: 75,000
Royalty charges
Hire and maintenance charges of a special machinery 45,000 1,20,000
Prime cost 3,63,000

Illustration-4

(Computation of prime cost)

From the following information calculate the prime cost:

|
Opening stock of raw materials 40,000
Purchase of raw materials 7,50,000
Carriage inward 25,000
Closing stock of raw materials 35,000
Carriage outward 30,000
Chargeable expenses 65,000
Indirect expenses 50,000
Factory wages 2,25,000
Factory rent 16,000

Solution

Statement showing prime cost:

| Total |
Materials consumed:
Opening stock of materials 40,000
Add: Purchase of raw materials 7,50,000
28 Cost Accounting

Add: Carriage inward 25,000

8,15,000
Less: Closing stock of raw 35,000 7,80,000
materials
Factory wages 2,25,000
Chargeable expenses 65,000
Prime cost 10,70,000

Illustration-5

(Cost sheet with grouping of expenses)

From the following information prepare a cost sheet showing (i) Prime cost, (ii) Works cost, (iii)
Cost of production, (iv) Cost of sales and (v) Profit:

|
Purchase of materials 5,35,000
Stock of materials on 1.4.09 28,000
Stock of materials on 31.3.10 32,500
Manufacturing wages 2,85,000
Indirect materials 21,000
Indirect wages 42,700
Office salaries 57,600
Carriage inward 18,300
Chargeable expenses 53,000
Internal transport (factory) 27,500
Drawing office expenses 25,500
Advertisement 44,600
Printing and stationery 16,400
Works manager’s salary 30,000
Carriage outward 18,500
Officer rent, rates and insurance 21,600
Director’s fees 22,000
 Cost Analysis: Cost Classification and Cost Sheet 31

Office equipment and furniture 14,900

Managing director’s Salary (30%) 13,500
Lighting - office 9,000 1,55,000
Cost of production 13,44,300
Selling and distribution overheads:
Advertisement 44,600
Salesmen’s salary, allowances and 23,700
expenses
Carriage outward 18,500
Warehouse expenses 19,500
Managing director’s salary (30%) 13,500
Free samples distributed 3,700
Packing and forwarding expenses 12,300 1,35,800
Cost of sales/total cost 14,80,100
Profit (bf) 1,69,900
Sales 16,50,000

Illustration-6
(Simple cost sheet with stocks)

The following information is taken from the records of Arthi Ltd. for the month of April 2009.

01.04.2009 30.04.2009
| |
Stock of raw materials 37,500 41,250
Stock of work-in-progress 28,700 23,200
Stock of finished goods 46,400 53,200
Transactions during the month are:
Indirect materials 17,550
Productive wages 97,500
Indirect wages 20,900
Purchase of materials 1,46,500
Other factory expenses 24,800
32 Cost Accounting

Administration expenses 41,600

Sale of factory scrap 2,400
Advertisement 26,500
Carriage outward 5,000
Sales 4,35,000

Prepare a cost sheet showing (a) Prime cost, (b) Works cost, (c) Cost of production, (d) Cost of
sales and (e) Profit.

Solution

Cost sheet for the month of April, 2009

Particulars Total |
Materials Consumed:
Stock of materials on 1.4.09 37,500
Add: Purchase of materials 1,46,500
1,84,000
Less: Stock of materials on 30.4.09 41,250 1,42,750
Productive wages 97,500
Prime cost 2,40,250
Production overheads:
Indirect materials 17,550
Indirect wages 20,900
Other factory expenses 24,800
63,250
Less: Sale of factory scrap 2,400 60,850
3,01,100
Add: Stock of work-in-progress on 1.4.09 28,700
3,29,800
Less: Stock of work-in-progress on 30.4.09 23,200
Works cost 3,06,600
Administration overheads: 41,600
Cost of production 3,48,200
34 Cost Accounting

Solution
Cost sheet for 6 months ending 31.3.2009
Total Ratio Model Model
Particular
(|) ‘A’ (|) ‘B’ (|)
Materials Consumed:
Stock of materials
On 1.10.08 29,800
Add: Purchase of materials 1,24,500
1,54,300
Less: Stock of materials on 31.3.09 21,970 1,32,330 5:6 60,150 72,180
Direct labour 81,900 4:5 36,400 45,500
Prime cost 96,550 1,17,680
Factory overheads 62,100 4:5 27,600 34,500
Works cost 1,24,150 1,52,180
Office overheads 43,000 1:1 21,500 21,500
Cost of production 1,45,650 1,73,680
Selling overheads 35,700 2:3 14,280 21,420
Total cost 1,59,930 1,95,100
Profit: 20% on sales (or) 20/80 on cost 39,983 48,775
Sales 1,99,913 2,43,875
Number of units produced 2,500 3,000
Selling price per unit 79.97 81.29
(Approx.) (Approx.)

Illustration-8

(Overhead expenses given as %)

The following expenses were taken from the account books of Nortan Ltd. for the year ending
31.3.2010:

|
Direct materials 6,00,000
Direct labour 4,25,000
Direct expenses 65,000
 Cost Analysis: Cost Classification and Cost Sheet 35

Charge factory overheads at 60% of direct labour, office overheads at 20% on factory cost and selling
overheads at 15% of factory cost.

Prepare a cost sheet showing profit earned if the company earns a profit of 25% on sales.

Solution

Cost sheet for the year ended 31.3.2010

Total
(|)
Direct materials 6,00,000
Direct labour 4,25,000
Direct expenses 65,000
Prime cost 10,90,000
Factory overheads - 60% of direct 2,55,000
labour
Works cost 13,45,000
Office overheads - 20% on works 2,69,000
cost
Cost of production 16,14,000
Selling overheads - 15% on works 2,01,750
cost
Total cost 18,15,750
Profit - 25% on sales or 25/75 on 6,05,250
total cost
Sales 24,21,000

Illustration-9

(Finding the value of closing stock of finished goods)

The management of Jaihind Ltd. gives you the following information for the year ending 31.3.09.
You are required to prepare a cost sheet.

|
Direct materials 3,75,000
Direct labour 2,40,000
Factory overheads 95,000
36 Cost Accounting

Administration overheads 60,000

Selling overheads 36,000
Sales 8,97,000

Additional information:
1. 3,500 units were produced during the year
2. Stock of finished goods 350 units valued at |70,000 as on 01.04.2008
3. Stock of finished goods as on 31.03.2009 are 400 units.

Solution

(i) Valuation of stock of finished goods on current cost basis:

Cost Sheet for the year ending 31.3.2009

Units Total
|
Direct materials 3,500 3,75,000
Direct labour - 2,40,000
Prime cost 3,500 6,15,000
Factory overheads - 95,000
Works cost 3,500 7,10,000
Administration overheads - 60,000
Cost of production 3,500 7,70,000
Add: Opening stock of finished goods 350 70,000
3,850 8,40,000
Less: Closing stock of finished goods 400 88,000
Cost of goods sold 3,450 7,52,000
Selling overheads - 36,000
Cost of sales 3,450 7,88,000
Profit (bf) - 1,09,000
Sales 3,450 8,97,000
 Cost Analysis: Cost Classification and Cost Sheet 37

(ii) Valuation of stock of finished goods on average cost basis:

Cost sheet for the year ending 31.3.2009

Units Total
|
Cost of production (Same as in (i)) 3,500 7,70,000
Add: Opening stock of finished goods 350 70,000
3,850 8,40,000
Less: Closing stock of finished goods 400 87,272
Cost of goods sold 3,450 7,52,728
Selling overheads - 36,000
Cost of sales 3,450 7,88,728
Profit (bf) - 1,08,272
Sales 3,450 8,97,000

Note:
Valuation of closing stock of finished goods:
Cost of production during the year
(i) Current cost of production per unit =
Number of units produced during the year
7,70,000
= = |220
3,500
Value of closing Stock = 400 × 220 = |88,000
Cost of production + Value of opening stock
(ii) Average cost of production per unit =
Units produced + Opening stock units
8,40,000
= = |218.18 (Approx.)
3,850
Value of closing stock = 400 × 218.18 = |87,272

Illustration-10

(Finding the missing information)

The books of Adarsh Manufacturing Company presents the following data for the month of April,
2001.

Direct Labour Cost |17,500 being 175% of works overhead and cost of goods sold excluding admin-
istration expenses |56,000. Inventory accounts showed the following opening and closing balances:
38 Cost Accounting

April 1 April 30
| |
Raw materials 8,000 10,600
Work-in-progress 10,500 14,500
Finished goods 17,600 19,000
Other data:
Selling expenses 3,500
General and administration expenses 2,500
Sales for the month 75,000

You are required to:

(i) Compute the value of raw materials purchased
(ii) Prepare a cost statement showing the various elements of cost and also the profit.
(CA-Inter)
Solution

(i)
Computation of value of materials purchased
| |
Cost of goods sold - 56,000
Add: Closing stock of raw materials - 10,600
Closing stock of work-in-progress - 14,500
Closing stock of finished goods - 19,000
1,00,100
Less: Opening stock of raw materials 8,000
Opening stock of work-in-progress 10,500
Opening stock of finished goods 17,600
Direct labour 17,500
Works overhead (17,500×100/175) 10,000 63,600
Raw materials purchase - 36,500
 Cost Analysis: Cost Classification and Cost Sheet 39

Note:
(1) All items added in the cost sheet till cost of goods sold is deducted.
(2) All items deducted in the cost sheet till cost of goods sold is added.
(3) Since administration cost is not included in cost of goods sold, it is not deducted.

(ii)
Cost statement for the month of April 2001
Total
|
Materials consumed:
Opening stock of raw materials 8,000
Add: Purchase of materials 36,500
44,500
Less: Closing stock of raw materials 10,600 33,900
Direct labour 17,500
Prime cost 51,400
Factory overheads (17,500×100/175) 10,000
61,400
Add: Opening stock of work-in-progress 10,500
71,900
Less: Closing stock of work-in-progress 14,500
Works cost 57,400
General and administration overheads 2,500
Cost of production 59,900
Add: Opening stock of finished goods 17,600
77,500
Less: Closing stock of finished goods 19,000
Cost of goods sold 58,500
Selling expenses 3,500
Cost of sales 62,000
Profit (bf) 13,000
Sales 75,000
40 Cost Accounting

Illustration-11

(Finding missing information)

The following data relate to XYZ Ltd.

Inventories
Beginning Ending
| |
Finished goods 1,10,000 95,000
Work-in-progress 70,000 80,000
Raw materials 90,000 95,000
Additional information:
Cost of goods available for sale 6,84,000
Total goods processed during the period 6,54,000
Factory overheads 1,67,000
Direct materials used 1,93,000

Requirements:
(i) Determine raw materials purchased.
(ii) Determine the direct labour cost incurred.
(iii) Determine the cost of goods sold.
(B.Com. (Hons.), Delhi University)

Solution

(i)
Computation of raw materials purchased
|
Direct materials used 1,93,000
Add: Closing stock of raw 95,000
materials
2,88,000
Less: Opening stock of raw 90,000
materials
Raw materials purchase 1,98,000
 Cost Analysis: Cost Classification and Cost Sheet 41

(ii)
Determination of labour cost incurred
|
Total goods processed during the 6,54,000
period
Less: Opening stock of 70,000
work-in-progress
5,84,000
Less: Factory overheads 1,67,000
Prime cost 4,17,000
Less: Direct materials used 1,93,000
Direct labour cost 2,24,000

(iii)
Determining the cost of goods sold
|
Cost of goods available for sale 6,84,000
Less: Closing stock of finished 95,000
goods
Cost of goods sold 5,89,000

2.13 EXERCISES
I. Objective Type Questions

A. State whether the following statements are true or false

1. Cost centre is a place where direct materials are expended.
2. Direct materials enter the finished product.
3. The total of direct labour, direct expenses and production overheads is called conversion cost.
4. Hire charges paid for a special machinery is part of production overheads.
5. Royalty payable on production is production overheads.
6. Imputed cost results in outflow of cash.
7. Semi-variable cost is also called step cost.
8. The total of all direct expenses is called prime cost.
9. Valued added refers to cost incurred in the production of a product.
10. Variable cost per unit increases due to increase in production.
11. Fixed cost is also called period cost.
42 Cost Accounting

12. Standard cost is a predetermined cost.

13. Fixed costs are generally uncontrollable.
14. Sunk costs result in cash payment.
15. Office overheads are unavoidable costs.

(Ans: True - 2, 3, 7, 8, 11, 12, 13, 15; False - 1, 4, 5, 6, 9, 10, 14)

B. Fill in the blanks

1. Prime cost refers to total of all expenses.

2. Works cost is the total of prime cost and .
3. Costs which result in actual payment of cash is called .
4. Period cost or time cost is cost.
5. The benefit foregone due to an alternative decision is called .
6. Labour cost incurred for conversion of raw materials into finished goods is called .
7. Bad debts is an example of cost.
8. Costs remaining constant per unit is called .
9. Place, a person, a machine or a group of these in relation to which cost is ascertained is called
.
10. The division which brings or earns revenue for a business is called .
11. Costs which can be influenced by managerial action is called .
12. Travelling expenses incurred specifically for a particular job is called .
13. Expenses incurred for two or more jobs or cost centres is called .
14. Increase in the market value of a product in excess of costs incurred for changing or altering
its composition is known as .
15. The difference in the total cost between two levels of production is called .

(Ans: 1. Direct, 2. Factory overheads, 3. Out of pocket cost, 4. Fixed, 5. Opportunity cost,
6. Direct labour, 7. Policy, 8. Variable cost, 9. Cost centre, 10. Profit centre, 11. Controllable cost,
12. Direct expenses, 13. Indirect expenses, 14. Value added, 15. Differential cost)

II. Theory Questions

A. Short answer type questions

1. What is cost centre? Explain the various types of cost centre.

2. Explain direct materials.
3. What is direct labour?
4. What is direct expense? Give few examples.
5. What is prime cost?
6. Explain opportunity cost.
7. What is policy cost?
8. What is imputed cost?
9. What is cost classification?
10. Define out-of-pocket cost.
 Cost Analysis: Cost Classification and Cost Sheet 43

11. Define semi-variable cost.

12. All costs are controllable, comment.
13. What is value added? Explain.
14. What is conversion cost?
15. What is cost sheet?

B. Long answer type questions

1. Write short notes on: (a) Cost centre; (b) Opportunity cost; (c) Notional cost; (d) Out of
pocket cost; and (e) Policy cost.
2. What do you understand by cost classification? Explain the various cost elements on the basis
of variability.
3. Explain the functionwise classification of overheads.
4. Explain cost sheet. What are its uses?
5. All costs are controllable. Explain.
6. Explain what do you understand by chargeable expenses and state its treatment in cost
accounts. (CA-Inter)
7. Explain various costs used in decision making and explain their characteristics.
(B.Com. (Hons), Delhi University)
8. What is the purpose of classifying costs?

III. Practical Problems

A. Short answer type questions
1. Compute materials consumed from the following:

|
Opening stock of materials 20,000
Purchase of materials 1,25,000
Carriage on purchases 15,000
Sale of materials scrap 7,000
Closing stock of materials 18,000

(Ans: Materials consumed |1,35,000)

2. Compute materials consumed from the following:

|
Purchase of direct materials 3,50,000
Carriage inward 27,000
Carriage outward 18,000
44 Cost Accounting

Sale of factory scrap 10,000

Sale of direct materials scrap 15,000
Materials returned to supplier 30,000
Indirect materials 25,000
Opening stock of direct materials 50,000
Closing stock of direct materials 40,000

(Ans: Materials consumed |3,42,000)

3. Compute prime cost:

|
Opening Stock of materials 35,000
Purchase of materials 4,10,000
Import duty and Clearing charges 1,50,000
Other purchase expenses 25,000
Closing stock of materials 30,000
Factory wages 2,40,000
Factory overheads 1,60,000
Royalty paid on production 1,20,000
Hire charges for special machinery 40,000

(Ans: Prime cost |9,90,000)

4. Find the gross cost of goods processed during the period:

|
Prime cost 80,000
Factory overheads 45,000
Opening stock of work-in-progress 30,000
Closing stock of work-in-progress 25,000
Office overheads 70,000

(Ans: Gross cost of goods processed |1,55,000)

Note: Gross cost of goods processed = Prime Cost + Factory Overheads + Opening Stock of
Work-in-Progress.
 Cost Analysis: Cost Classification and Cost Sheet 45

5. Find the net works cost:

|
Prime cost 1,50,000
Production overheads 60,000
Opening stock of work-in-progress 27,000
Closing stock of work-in-progress 30,000

(Ans: Net works cost |2,07,000)

6. Prepare a cost sheet from the following:

|
Raw materials consumed 80,000
Wages 20,000

Works expenses charged at 100% of wages, office overheads charged at 25% on works cost and
selling overheads at 10% on works cost.
(Ans: Cost of sales |1,62,000)

7. Calculate profit and sales from the following:

|
Cost of sales 5,00,000
Profit 20% on sales

(Ans: Profit |1,25,000; Sales - |6,25,000)

8. In a factory a standard product is manufactured. From the following particulars prepare a

cost sheet showing total cost and profit made:

|
Raw materials consumed 30,000
Labour 60,000

Works overhead is charged at 40% of works cost and office overheads is taken at 20% of total
cost. The standard product sold during the period is 180 units at |1200 each.
(B.Com., Bharathidasan University)
(Ans: Total cost |1,87,500; Total profit - |28,500; Cost per unit |1041.67; Profit per unit
|158.33)
46 Cost Accounting

Note :
(a) Works cost = 40/60 on prime cost
(b) Office overheads = 20/80 on works cost.

9. The following information is taken from the records of X Ltd. for the year ending 31.3.2010:

Raw materials consumed |20,000

Direct wages |16,000
Production overheads 150% of direct wages
Office overheads 25% on works cost
Selling overheads |2 per unit sold
Opening stock of finished goods 500 units valued at |4,000
Units produced during the period |10,000
Units sold during the period 9,500 units at |10 per unit.

Prepare a cost sheet.

(Ans: Cost of production - |75,000; Closing stock - 1,000 units; Value - |7,500; Cost of
sales-|90,500; Profit - |4,500)

B. Comprehensive questions
1. Simple cost sheet-with detailed cost elements
From the following particulars taken from the books of United Engineering Ltd., prepare a
cost sheet for the year ending 31.3.2010.

|
Stock of materials on 1.4.2009 65,700
Stock of materials on 31.3.2010 48,500
Purchase of materials 3,79,000
Productive wages 2,83,000
Hire charges and maintenance of a special equipment 46,000
Royalty paid 84,000
Carriage on purchases 21,500
Carriage outward 24,900
Indirect materials 34,000
Indirect wages 30,000
Foreman salary 20,000
 Cost Analysis: Cost Classification and Cost Sheet 47

Depreciation, repairs and maintenance

Of Plant and machinery 42,000
Of office furniture and equipment 27,500
Drawing office salaries 18,000
Motive power, fuel and oil 39,000
Lubricants and cotton waste 13,400
Office salaries 52,000
Printing and stationery 11,300
Warehouse expenses 26,000
Advertisement 31,600
Travelling expenses
General 12,700
Sales promotion 17,500
Samples and gifts 14,000
Bad debts written off 10,000
General manager’s salary 60,000

General manager’s salary to be apportioned in the ratio of 4 : 3 : 3 to factory, office and sales
departments. Sale of finished goods amounted to |15,00,000.
(Ans: Prime cost - |8,30,700; Works cost - |10,51,100; Cost of production - |11,72,600; Cost
of sales - |13,14,600; and Profit - |1,85,400)

2. Simple cost sheet with opening and closing stocks

From the following particulars, prepare a cost sheet for the year ending 31.03.2010:

1.4.2009 31.3.2010
| |
Stock of materials 22,750 26,300
Stock of work-in-progress 18,200 15,700
Stock of finished goods 37,600 34,500

|
Purchase of raw materials 6,20,000
Carriage inward 21,400
Factory manager salary 25,000
Depreciation of plant and machinery 27,100
Office rent, rates and insurance 14,600
48 Cost Accounting

Salesman travelling expenses 21,900

Carriage outward 13,800
Debenture interest 16,500
Directors fee 24,000
General manager salary 25,000
Transfer to general reserve 20,000
Wages 3,70,000
Power expenses 1,15,000
Office salaries 28,000
General expenses 17,300
Dividend paid 35,000
Warehouse expenses 29,000
Income tax 41,000
Goodwill written off 10,000
Bank charges 6,000
Printing and stationery 12,500
Sales for the year 16,00,000

(Ans: Prime cost - |10,07,850; Works cost - |11,77,450; Cost of production - |13,04,850; Cost
of goods sold - |13,07,950; Cost of sales - |13,72,650; Profit |2,27,350)

3. Dev Ltd. provides the following particulars for the month of August, 2009. Prepare a cost
sheet:

1.8.2009 31.8.2009
| |
Stock of raw materials 75,000 60,000
Stock of work-in-progress 27,000 36,500
Stock of finished goods 50,000 62,000

Transactions during the month of August 2009:

|
Purchase of raw materials 2,50,000
Factory expenses 82,000
Depreciation of plant and machinery 41,000
Selling and distribution overheads 27,500
 Cost Analysis: Cost Classification and Cost Sheet 49

Direct labour 1,70,000

Sale of factory scrap 16,000
Office overheads 34,500
Sales 6,00,000

(Ans: Prime cost - |4,35,000; Works cost - |5,32,500; Cost of production - |5,67,000; Cost of
goods sold - |5,55,000; Cost of sales - |5,82,500; Profit - |17,500)

4. Apportionment of Common Expenses

TV Ltd. produces television sets in two models - Deluxe and Premium. The following
information is taken from their records for the year ending 31.3.2010.

1.4.2009 31.3.2010
| |
Deluxe Premium Deluxe Premium
Stock of work-in-progress 70,000 40,000 90,000 80,000
Stock of finished goods 1,65,000 1,10,000 2,10,000 1,70,000

Purchase of materials - |12,00,000; Direct labour - |7,50,000. Materials consumed were in

proportion of 5 : 7 and wages incurred were in the ratio of 2 : 3 for the two models. Factory
overheads is charged at 80% of direct labour, Administration overheads charged at 25% on
works cost and selling and distribution overheads estimated at 15% on works cost.
The company wants to earn a profit of 25% on sales. Find the profit of each model for the
year 2009.
(Ans: Profit - Deluxe: |4,61,000; Premium - |6,66,000)

5. Valuation of Closing Stock

Sri Ram Ltd. produces a standard product. It furnished the following cost information for 6
months ending 30.9.09:

|
Materials consumed 80,000
Direct labour 55,000
Factory overheads 33,000
Selling overheads at |2 per unit
Number of units produced 4,200
Number of units sold - 4,000 at |45 per unit