Professional Documents
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METHODS OF COSTING
product. The production order constitutes the authority for work. Usually a production order contains
The production order usually lays down only the quantities of materials required and the time allowed
are issued.
and the aggregate cost, in summary, shown in the main cost sheet.
Material Cost:
or incorrect materials are returned from the shops to the stores on materials return notes. Scrap and
waste arising in the course of manufacture are returned in a similar manner. The materials requisitions,
materials return notes and materials transfer notes are ‘costed’ in accordance with the methods of
Labour Cost:
Manufacturing Overhead:
Completion of Jobs:
Work-in-Progress:
if any.
(c) The cost as ascertained, even where they are compiled very promptly, are historical as they are
compiled after incidence.
Illustration 1:
Particulars
Materials 12.08
Direct Wages – 22 hours at 25 paise per hour 5.50
Department A – 10 hours,
B – 4 hours
17.58
5.86
23.44
Particulars Particulars
Materials Used 77,500
A 2,500
A 5,000 B 4,000
B 6,000 C 1,000
C 4,000 Selling Costs 30,000
Solution
Particulars Department
A B C
`
Factory Overheads 2,500 4,000 1,000
20,000 24,000 16,000
Factory Overhead Rates per hour 0.125 0.167 0.063
30,000
1,00,000
Cost Sheet
Particulars
Materials 12.08
Dept. A 2.50
Dept. B 1.00
Dept. C 2.00 5.50
17.58
to stores.
Particulars
Materials used ( 8,000 – 400) 7,600
Direct Wages 500
8,100
Note
Illustration 3:
Solution
Particulars
Direct Materials
Direct Wages 7,50,000
16,50,000
4,50,000
Works Cost 21,00,000
4,20,000
25,20,000
5,25,000
Cost of Sales 30,45,000
Sales 36,54,000
COST ACCOUNTING
Methods of Costing
Particulars
Direct Materials 12,00,000
7,50,000
4,50,000
Works Cost 24,00,000
4,80,000
28,80,000
Particulars
Direct material 1,000
Department A 120
Department B 280
Department C 200 600
Indirect manufacturing Costs 600
2,200
thorough investigation.
Particulars Departments
A B C
Indirect Mfg. Cost ( ) 20,000 40,000 30,000
) 40,000 20,000 30,000
Particulars
Direct Materials (Given) 1,000
Dept. A 120
Dept. B 280
Dept. C 200 600
1,600
Dept. A 60
Dept. B 560
Dept. C 200 820
Total Cost 2,420
Illustration 5:
price.
Particulars )
Materials 70
Direct Wages 18 hours at 2.5 45
5
120
40
160
Particulars Particulars
Materials 1,50,000 Sales 2,50,000
Dept. X 10,000
Dept. Y 12,000
Dept. Z 8,000 30,000
Special stores items 4,000
Dept. X 5,000
Dept. Y
Dept. Z 2,000 16,000
2,00,000
50,000
2,50,000 2,50,000
20,000 50,000
30,000
50,000 50,000
It is also noted that average hourly rates for the 3 departments, X, Y and Z are similar.
Solution
Calculation of Departmental Overhead Rates
Particulars Departments
X Y Z
Particulars
Materials 70
Dept. X 20
Dept. Y 15
Dept. Z 10 45
5
120
Dept. X 10.00
Dept. Y 11.25
Dept. Z 2.50 23.75
Total Cost 143.75
28.75
172.50
Illustration 6 :
NUMBER OF HOURS
JOB NO.
SHOP A SHOP B
115 25 25
118 30
120 75 10
121 65
124 20 10
275 75
Solution:
Calculation of selling price of the Job
Costs in September
Material 1,325 810 765
800 500 475
Overheads 640 400 380
Total (A) 2,765 1,710 1,620
Costs in October
Material 515 665
125
330
245
100 264
Total (B) 225 1,106
2,726
272.6
651.80 620.18
3,721.08