IV SEMESTER BCOM/BBA

COST ACCOUNTING

Meaning of Cost
The simple word ‘cost’ has a variety of meanings according to the context. For a common man, the
word cost means the price. But in management terminology, the term cost refers to the amount of
expenditures incurred or attributed to manufacture a product and service.

According to ICWA, India – “Cost is a measurement, in monetary terms, of the amount used for the
purpose of production of goods or rendering services”

Meaning of Costing
According to Charted Institute of Management Accountants (CIMA) of UK has defined costing as “The
techniques and process of ascertaining costs.

Costing is the technique and process for determining the cost of a product, service or job. Under this
techniques of cost refers the body of principles and rules and process refers routine procedure
followed in the organizations.

In short, costing is the systematic procedure of ascertaining the cost of a product, service or job.

Meaning of Cost Accounting

Cost accounting is a formal system of accounting for cost in the books of accounts by means of
which cost of products & services are ascertained and controlled.

The Charted Institute of Management Accountants (CIMA) of UK has defined cost accounting
as “the application of costing and cost accounting principles, methods, techniques to the
science, art and practice of cost control and the ascertainment of profitability. It includes the
presentation of information derived there from for the purpose of managerial decision
making”.

According to Kohler, “Cost accounting deals with the classification, recording, allocation,
summarization and reporting of current and prospective costs”.

Functions and objectives of cost accounting

 1. Ascertainment of the cost: This is the primary objectives of cost accounting. In
other words, the basic objective of cost accounting is to ascertain the cost of
products and services.

2. Control and reduction of cost: cost accounting aims at improving efficiency by

controlling and reducing cost.

3. Guides to business policy: Cost accounting guides management to conduct the

business with utmost efficiency. Cost data provide guidelines for various
managerial decision like make or buy, selling below cost, utilization of idle plant
capacity etc
4. Determining the selling price: Cost accounting provides cost information on the
basis of which selling price of products or services may be fixed. In period of
depression, cost accounting guides in deciding the extent to which the selling
price may be reduced to meet the situation.
5. Ascertaining profits: To help the management in ascertaining the profitability of
each product , sales area and division

6. Measuring and improving performance: Cost accounting measures efficiency by

classifying and analyzing cost data and then suggest various steps in improving
performance so that profitability is increased.

7. Provided basis for managerial decision making:

a) Whether to purchase or buy
b) Comparative merits and demerits of different methods of production,
profitability of new lines of production.

DIFFERENCES BETWEEN FINANCIAL ACCOUTING AND COST ACCOUNTING

SL.NO BASIS FINANCIAL ACCOUNTING COST ACCOUNTING
External Purpose Internal Purpose
1 Purpose (Information for the (Information for the
Interested parties) Management)
Statutory Obligatory as per Voluntary expect
2
Requirements Companies Act 1956 certain Industries
Ascertainment of Profit or Loss
and the financial position of Determination of the cost of
3 Objective
the business products or services
4 Periodical Reporting On the Annual basis Continuous process

5 Pre-Determined Cost Not covered Covered

 In Detail ( In terms of various
6 Classification of Cost Not in Detail heads)
Format of Uniform as per Companies Act of Not in Uniform as per the
7 presenting the 1956 requirement of Management
information
It records both monetary and
8 Transactions It records only non- monetary transactions
monetary transactions

It needs reconciliation of its

profits with profit as per
Reconciliation of It does not need any such
9 Financial records
Profit reconciliation
It deals not only with actual
10 Dealings with facts It deals only with facts and also future
actual facts estimations
Independent from Cost Dependent on the
11 Entity Accounting Financial Accounting

DESIGNING AND INSTALLING A COST ACCOUNTING SYSTEM

There is no ready-made cost system to suit each and every business. However, before a
costing system is installed a preliminary investigation must be made as to the desirable
conditions for the success of the system.

The following are the steps to be taken while introducing cost accounting
system:
i. Preliminary investigations should be made relating to the
technical aspects of business.
ii. The objectives of the system must be ascertained.
iii. Further it is necessary to ascertain the significant factors
which affect the costing system and this system must cover all
the functions, namely production,administration, distribution
etc.
iv. Technical aspects must be studied thoroughly.
v. Methods of procedures, storage and issue of materials should
be examined and modified as per the requirements.
vi. Another pre requisite to successful operation of the system is
the coordination from the staff and from all levels of
management in the organization.
vii. It is necessary to standardize the forms to be used by
foreman, workers etc, in order to ensure minimum clerical
 work. viii. Effective arrangement is to be made to present the
cost data to different levels . ix. Survey of accounting system
and supervision of installation.
x. Proper supervision of the installation is also to be ensured.
xi. There should be proper reconciliation of cost and financial
accounts.
xii. The procedures must be as simple as possible.
xiii. The installation and operations of the system should be
economical.
xiv. The system should be introduced gradually.

VARIOUS CONCEPTS IN COST ACCOUNTING

Some concepts which are used in cost accounting are as follows:

i. Cost: It is the amount of resources given up in exchange for

some goods or services. The resources given up are expressed
in monetary terms. Cost is defined as ―the amount of
expenditure (actual or notional) incurred or attributable to a
given thing.
ii. Expense: Expenses are cost which has been applied against
revenue of particular accounting period in accordance with
the principle of matching cost to revenue.
iii. Loss: loss is defined as ―reduction in firm’s equity, other than
from withdrawals of capital for which no compensating value
has been received. iv. Cost Centre: A cost centre is defined by
CIMA of UK as “a location, person, or item of equipment (or
group of these) for which cost may be ascertained and used
for the purpose of control”. Thus, a cost center refers to a
section of the business to which cost can be charged. it may
be a location ( a department , a sales area), an item of
equipment ( a machine , a delivery van) , a person ( a
salesman , a machine operator) or a group of these ( 2
machines operated by one workman). The main purpose of
ascertaining the cost of a cost centre is control of cost.
v. Profit centre: A profit centre is that segment of activity of a
business which is responsible for both revenue and expenses
 and discloses the profit of a particular segment of activity.
Profit centers are created to delegate responsibility to
individuals and measure their performance.
vi. Cost Unit: A cost unit is defined by CIMA as ― a unit of
product , service or time in relation to which cost may be
ascertained or expressed .cost units are the things that the
business is set up to provide of which cost is ascertained.
vii. Cost Object: “anything for which a separate measurement of
cost may be desired”. A cost accountant want to know the
cost of a particular thing and such a thing is called a cost
object. A cost object may be a product, service, activity,
department or process etc. Examples are:
Product: Car, TV, Cosmetics..
Service: Cab services, electricity.
Process: Melting process in a steel mill, weaving process in a
textile mill.
Activity: Purchasing raw material.
Department: Purchasing department, sales dept etc..

CLASSIFICATION OF COST:

1. Classification Into Direct And Indirect Cost:

(a) Direct Cost - these are those costs which are incurred for and
conveniently identified with a particular cost unit, process or department.
Cost of raw material used and wages of machine operator are common
examples of direct costs.

(b) Indirect Costs: These Costs cannot be conveniently identified with a

particular cost unit or cost centre. Depreciation of machinery, insurance,
lighting, power, rent, managerial salaries are common examples of indirect
cost.

2. Classification into Fixed and Variable Costs:

(a) Fixed cost: These costs remain constant in total amount over a wide
range of activity for a specified period of time. i.e. these do not increase or
decrease when the volume of production changes. Examples - rent and lease,
 managerial salaries, building insurance, municipal taxes are common
examples of fixed cost.
(b) Variable costs: these cost tend to vary in direct proportion to the
volume of output in general, variable costs shows the following
characteristics.
i. Total amount of variable cost increases or decreases in direct proportion
to the volume of output. ii. Variable cost per unit does not change.

3. Semi - variable or semi fixed cost (Mixed Cost): These costs include both a
fixed and a variable component i.e. these are partly fixed and partly
variable. A semi variable cost has often fixed element below which it will
not fall at any level of output. The variable costs changes either at a
constant rate or in lumps. For example, introduction of an additional shift in
the factory will require additional supervisors and certain cost will increase
by jumps. In the case of telephone, there is a minimum rent and after a
specified number of calls, the charges are according to the number of calls
made. Thus there is no fixed pattern of behavior of semi variable cost.

4. Classification into Controllable and non-controllable cost:

(a) Controllable costs: these are the cost which may be directly
regulated at a given; level of management authority. Variable costs are
generally controllable by department heads. For E.g.: cost of raw material may
be controlled by purchasing in larger quantities.

(b) Non controllable cost - These are those costs which cannot be
influenced by the action of a specified member of an enterprise. For e.g.: it’s
very difficult to control costs like factory rent, managerial salaries etc.

5. Classification into Historical Costs and Pre-Determined Costs:-

(a) Historical costs: these are past costs which are ascertained after
these have been incurred. Historical costs are thus nothing but actual costs.
These costs are not available until after the completion of manufacturing
operations.

(b) Pre-determined costs - these are future cost which are ascertained in
advance of production on the basis of a specification of all the factors affecting
cost. These costs are extensively used for the purpose of planning and control.
 6. Classification into Normal and Abnormal Costs.

(a) Normal cost: Normal cost may be defined as cost which is normally
incurred on expected lines at a given level of output. This cost is a part of cost
of production.

(b) Abnormal cost: Abnormal cost is that which is not normally incurred
at a given level of output. Such cost is over and above the normal cost.

ELEMENTS OF COST:

A cost is composed of three elements i.e., materials, labor and expenses.

Each of these elements may be direct or indirect.
Total Cost

Direct Cost
Indirect Cost

Direct Material, Direct labour & Direct Exp Indirect Material, Indirect labour &
Indirect Exp

A. Material cost: According to CIMA, UK material cost is “The cost of

commodities supplied to an undertaking”. Material may direct or indirect.

(a) DIRECT MATERIAL: direct material cost is that which can be

conveniently identified with and allocated to cost units. Direct materials
generally become a part of finished product .for example clay used in
bricks, leather in shoes , cloth in garment, steel in machine.
(b) INDIRECT MATERIAL: These are those materials which cannot be
conveniently identified with individual cost units.

B. Labour Cost: This is ―the cost of remuneration (wages, salaries,

commission bonus etc) of the employees of an undertaking‖.

(a) DIRECT LABOUR: direct labour cost consists of wages paid to workers
directly engaged in converting raw materials into finished product.
 (b) INDIRECT LABOUR: it is of general character and cannot be
conveniently identified with a particular cost unit. For eg: wages paid to
supervisor, clerk, peon, watchman, cleaner etc.

C. Expenses: All costs other than material and labour are termed as expenses.
It is defined as the cost of services provided to an undertaking

(a) DIRECT EXPENSES: According to CIMA, UK, ―direct expenses are those
expenses which can be identified with and allocated to cost centres or
units.
(b) INDIRECT EXPENSES: All indirect cost, other than indirect materials and
indirect labour costs are termed as indirect expenses.

Advantages of Cost Accounting

1. Profitable and Unprofitable Activities: It will throw light upon those activities which bring profits
and those activities which result in losses. This will be done only if the cost of each product or each
job is ascertained and compared with the price obtained.
2. Measurement and Improvement of Efficiency: The chief advantage to be gained is that Cost
Accounting will enable a concern to, first of all, measure its efficiency and then to maintain and
improve it. This is done by suitable comparisons and analysis of the differences that may be
observed. For example, if materials spent upon a pair of shoes in 2001 come to Rs. 100 and for a
similar pair of shoe the amount is Rs. 120 in 2002. It is an indication of decline in efficiency.
Of course, the increase may only be due to increase in price of materials; it may also be due to greater
wastage in use of materials or inefficiency at the time of buying so that unnecessary high prices were
paid. Comparisons may also be made with average figures for the whole industry (if such figures are
available) and with ideal figures which may have been determined before head.
In any case it is this sort of comparison which tells management about the going up or coming down of
efficiency. The study will certainly indicate the steps to be taken to remove the causes of inefficiency or
to consolidate a factor which leads to greater efficiency.
3. Guides in Fixation of Prices:
In many cases a firm is able to fix a price for its products on the basis of the cost of production. In such
a case, price cannot be properly fixed if no proper figures of cost are available. In case of big contracts,
no quotation can be made unless the cost of completing that contract can be ascertained.
If prices are fixed without costing information, it is possible that the price quoted may either be too
high, in which case orders cannot be obtained, or it may be too low, in which case an order will result in
a loss. It is a mistake on the part of any management to believe that mere increase in sales volume will
result in profits; increased sales at prices lower than the cost may well lead the concern to the
bankrupt court. Only Cost Accounting will reveal what price will be profitable .
4. Information for Proper Planning: For a proper system of Costing, it is necessary to have detailed
information about the facilities available about machine and labour capacity. This helps in proper
planning of work so that no section is overworked and no section remains idle.
5. Helps in Inventory Control: Information about availability of stocks of various materials and
stores must be constantly available if there is a good system of Cost Accounting. This helps in two
 ways. Firstly, production can be planned according to the availability of materials and fresh stocks
can be arranged in time when old stocks are exhausted. Secondly, loss due to carelessness or
pilferage or any other mischief will be known and, therefore, put down.
6. Helps in decision making: Some of the important questions before management can be solved
only with the help of information about costs. For example, if there is the problem of replacement
of labour by machinery, Cost Accounting will at least guide management in finding out what the cost
of production will be if either machinery or labour is used.
7. Expansion in Production: Sometimes it is necessary to decide whether production of one product
or the other is to be increased. This problem can also be solved only if proper information about
costs is available.
8. Reasons for Losses Detected: Exact causes of existence of profits or losses will be revealed by a
system of Cost Accounting. For example, a concern may suffer not because the cost of production is
high or prices are low but because the output is much below the capacity of the concern. It is only
Cost Accounting which will reveal this reason for loss. It also helps in distinguishing between
expenditure and loss which is necessary and that which is unnecessary, that is to say, between
normal and abnormal losses.
9. Check the Accuracy of Financial Accounts: A good system of Cost Accounting affords an
independent and most reliable check on the accuracy of financial accounts. This check operates
through reconciliation of profits shown by Cost Accounts and by Financial Accounts. On the basis of
various advantages of Cost Accounting, it can be easily said that ‘a good system of costing serves as
a means of control over expenditure and helps to secure economy in manufacture’.
10. Helps in Cost Control: Cost accounting helps in controlling cost with specialties like standard
costing and budgetary control.
11. Prevention of Frauds and Manipulation: Introducing cost audit can prevent frauds. If so,
correct and reliable data was available from the costing records which are highly useful to the
government, share holders, the creditors and the like.

Disadvantages or Limitations of Cost Accounting

The limitations or disadvantages of cost accounting are listed below:

1. Historic in Nature: Only past performances are available in the costing records but the
management is taking decision for future.
2. Expensive: The system of cost accounting involves additional expenditure to be
incurred in installing it and maintaining it.
3. The system is more complex: As cost accounting involves number of steps in
ascertaining cost, It is considered to be complicated system of accounting.
4. Inapplicability: All business cannot use of a single method and techniques of costing. It
all depends on the nature of business and type of product manufactured by it.
5. Not suitable for small organization: A cost accounting system is applicable only to
large business organization.
6. Lack of social accounting: Cost accounts fails to take into account the social obligation
of the business. In other words, social accounting is outside the preview of cost
accounting.
 ITEMS EXCLUDED FROM COST
The following items are of financial nature and thus not
included while preparing a cost sheet:

1. Cash discount
2. Interest paid
3. Preliminary expenses written off
4. Goodwill written off
5. Provision for tax
6. Provision for bad debts
7. Transfer to reserves
8. Donations
9. Income tax paid
10. Dividend paid
11. Profit/loss on sale of fixed assets
12. Damages payable at law.

COST SHEET

Cost Sheet is defined by CIMA, U.K. as “a document which provide for the assembly of the detailed cost
of a cost centre or cost unit”.

Thus cost sheet is a periodical statement of cost designed to show in detail the various elements of cost
of goods produced like prime cost, factory cost of production and total cost. It is prepared at regular
intervals. Comparative figures of the previous period may also be shown in the cost sheet so that
assessment can be made about the progress of the business.
 COST SHEET – FORMAT

Particulars Cost Per Amount Amount

Unit(RS)
DIRECT MATERIALS
Opening Stock of Raw Material **
Add: Purchase of Raw materials *
Add: Purchase Expenses **
Less: Closing stock of Raw Materials *
Raw Materials Consumed ** ***
DIRECT WAGES (LABOUR) * ***
DIRECT CHARGES ( EXPENSES ) ** ***
*
**
*

PRIME COST (1) ***

Add :- FACTORY OR WORKS OVER HEADS:
Factory Rent **
Factory Power *
Indirect Material **
Indirect Wages *
Supervisor Salary **
Factory Insurance *
Drawing & office salary **
Factory Asset Depreciation * ***
**
*
**
*
**
*
**
*

WORKS COST INCURRED ***

Add: Opening Stock of Work-in -progress Less: ***
Closing Stock of Work-in -progress ***
WORKS COST (2) ***
ADD:- OFFICE & ADMINISTRATION OVER HEADS:-
Office Rent ***
Depreciation & Repair of office equipment ***
 General Charges ***
Audit Fees ***
2

Bank Charges ***

Counting house Salary Other Office ***
Expenses ***
COST OF PRODUCTION (3) ***
Add: Opening stock of Finished Goods Less: ***
Closing stock of Finished Goods ***
COST OF GOODS SOLD ( 4) ***
Add:- SELLING AND DISTRIBUTION OVERHEADS:-
Sales man Commission ***
Sales man salary ***
Traveling Expenses ***
Advertisement ***
Delivery man expenses ***
Sales Tax ***
Bad Debts ***
COST OF SALES (5) ***
Profit (balancing figure) ***
SALES ***

PROBLEMS ON COST SHEET

Problem.No.1
The following cost data are available from the books for the year ended 31.12.2017

Direct materials Rs.1,66, 000

Direct wages Rs.1, 18,000

Direct expenses Rs.72,000

Factory overheads Rs.48,000

Office & administrative overheads Rs.36,000

Sales Rs.6, 00,000

Prepare a cost sheet indicating the prime cost, works cost, production cost, cost of sales and sales value

Problem.No.2
Prepare a cost sheet from the following details:
Raw materials consumed Rs.80,000

Wages- Rs.20,000

Works expenses are charged at 100% of wages Office

overhead is charged at 25% on works cost

Selling overhead at 10% on works cost.

Problem.No.3
From the following information prepare a Cost sheet for the month of January
Particulars Rs.

Stock of raw materials on 1st January 25,000

Stock of raw materials on 31st January 26,200

Purchase of raw materials 21,900

Carriage on purchases 1,100

Sale of finished goods 72,300

Direct wages 17,200

Non-productive wages ( Indirect Wages) 800

Direct expenses 1,200

Factory overheads 8,300

Administrative overheads 3,200

4,200
Selling overheads

Problem.No.4
Bangalore Ltd. Supplies you the following information and required you to prepare a Cost sheet.

Stock of raw materials on 1ST Sept 2012 Rs 75000

Stock of raw materials on 30th Sept 2013 Rs 91500

Direct wages Rs 52500

Indirect wages Rs 2750

Sales Rs 200000

Work – in – Progress on 1st Sept 2012 Rs28000

Work – in – Progress on 30th Sept 2013 Rs 35000

Purchases of Raw Materials Rs 66000

Factory rent, rates and power Rs 15000

Depreciation of plant and machinery Rs 3500

Expenses on purchase Rs 1500

Carriage Outward Rs 2500

Advertising Rs 3500

Office rent and taxes Rs 2500

Traveller’s wages and commission Rs 6500

Stock of finished goods on 1st Sept 2012 Rs 54000

Stock of finished goods on 30st Sept 2013 Rs 31000

Problem.No.5
From the following information prepare a cost sheet to show: Prime cost, Works cost, COP, COS, and
Profit

Raw material Purchased Rs 32250

Carriage on purchases Rs 850

Direct wages Rs 18450

Factory overheads Rs 2750

Selling overheads Rs 2450

Office Overheads Rs 1850

Sales Rs 75000

Sale of factory scrap Rs 250

Opening stock of finished goods Rs 9750

Closing stock of finished goods Rs 11100.

Problem.No.6
From the books of accounts of M/s Aryan Enterprises, the following details have been extracted for the
year ending March 31 2017

Stock of Raw Materials

Opening – Rs 188000

Closing – Rs 200000

Materials purchased during the year Rs 832000

Direct wages Rs 238400

Indirect wages Rs 16000

Salaries to administrative staff Rs 40000

Freight Inwards Rs 32000

Freight Outwards Rs 20000

Sales Rs 15,79800

Cash Discount allowed Rs 14000

Bad Debts written off Rs 18800

Repairs to plant and machinery Rs 42400

Rent, Rates and Taxes

Factory Rs 12000

Office Rs 6400

Travelling expenses Rs 12400

Salesmen’s Salaries and commission Rs 33600

Depreciation written off Plant and machinery Rs 28900

Depreciation written off Furniture 2400

Directors fees Rs 24000

Electricity charges (Factory)Rs 48000

Fuel( for boiler) Rs 64000

Sale of Scrap Rs 500

General charges Rs 24800

Manager’s salary Rs 48000

The manager’s time is shared between the factory and office in the ratio of 20: 80.

Prepare a Cost sheet

Problem.No.7
Prepare a statement showing cost and profit from the following details. Clearly showing (a)
Prime cost (b) Works cost (c) Cost of production(d) Cost of sales and (e) Profit
Particulars Rs. Particulars Rs.

Direct wages - 1,50,000 Direct materials 5,00,000

Power 2,500 Oil and water 2,500

Storekeeper’s wages 5,000 Transfer to general reserve 5,000

Factory rent 25,000 Foremen’s salary 12,500

Office rent 12,500 Factory lighting 7,500

Repairs: Office lighting 2,500

Factory plant 17,500 Depreciation

Office building 2,500 2,500 Factory plant 2,500

Goodwill written off 12,500 Office building 6,250

Consumables stores 6,250 Manager’s salary 25,000

Director’s fees 625 Office stationery 2,500

Telephone rent 6,250 Postage 1,250

Travelling expenses 2,500

Salesmen’s salaries

Advertising 6,250 Warehouse rent 2,500

Income tax 50,000 Dividend paid 10,000

Sales 9,47,500
Problem.No.8
The following data have been extracted from the books of Sunshine Industries ltd., for the year 2017:
Rs. Rs.

Opening Stock of Raw Material 25,000 Indirect Consumption of Material 500

Purchase of Raw Material 85,000 Salary –Office 2,500

Closing Stock of Raw Material 40,000 -Salesmen 2,000

Carriage Inward 5,000 Other Factory Expenses 5,700

Wages-Direct 75,000 Other Office Expenses 900

Wages-Indirect 10,000 Manager’s Remuneration 12,000

Rent and rates-Factory 5,000 Other Direct charges 15,000

-Office 500 Advertisement Expenses 2,000

Depreciation Travelling Expenses of Salesmen 1,100

-Plant & Machinery 1,500 Carriage and Freight Outward 1,000

-Office Furniture 100 Sales 2,50,000

Other selling expenses 1,000 Advance Income-tax paid 15,000

The manager has the overall charge of the company and his remuneration is to be allocated as Rs.4,000
to the factory,Rs.2,000 to the office and Rs.6,000 to the selling operations. From the above particulars
prepare a statement showing

(a) Prime cost;

(b) Factory cost;

(c) Cost of production;

(d) Cost of sales; and (e) Net profit.

Problem.No.9
Following information has been obtained from the records of a manufacturing concern:
 1st Sep.,2017 30th Sep.,2017

Rs. Rs.

Stock of Raw material 40,000 50,000

Stock of Finished goods 1,00,000 1,50,000

Stock of Work-in-progress 10,000 14,000

Rs. Rs.

Indirect labour 50,000 Administration expenses 1,00,000

Lubricants 10,000 Power 30,000

Insurance on plant 3,000 Direct labour 3,00,000

Purchase of raw materials 4,00,000 Depreciation on machinery 50,000

Sale commission 60,000 Factory rent 60,000

Salaries of salesmen 1,00,000 Repairs on factory building 11,000

Carriage outwards 20,000 Sales 12,00,000

Prepare a statement of cost and profit showing (a) cost of raw materials consumed;(b) prime cost;(c)
total manufacturing cost;(d) factory manufacturing cost;(e) cost of production;(f) cost of goods sold;(g)
cost of sales; and (h) profit.

Problem.No.10
Mr.Gopal furnishes the following data relating to the manufacturing of a standard product during the
month of April 1984:
Raw materials consumed Rs.15,000

Direct wages Rs.9,000

Machine hours worked 900 hours

Machine hour rate Rs.5

Administrative overhead 20% on works cost

Selling overhead Re.0.50 per unit

 Units produced: 17,100

Units sold at Rs.3 each: 16,000 at Rs.4 per unit.

You are required to prepare a cost sheet from the above showing:

(a) The cost per unit

(b) Profit per unit sold and profit for the period.

Problem.No.11
From the following information for the month of January, prepare a cost sheet to show the following
components: a) Prime cost; b) factory cost; c) Cost of production; d) Total cost.

Particulars Rs.

Direct material 57,000

Direct wages 28,500

Factory rent and rates 2,500

Office rent and rates 500

Plant repairs and maintenance 1,000

Plant depreciation 1,250

Factory heating and lighting 400

Factory manager’s salary 2,000

Office salaries 1,600

Director’s remuneration 1,500

Telephone and postage 200

Printing and stationery 100

Legal charges 150

Advertisement 1,500
Salesmen’s salaries 2,500

Showroom rent 500

Sales 1,16,000

PROBLEMS ON TENDERS / QUOTATIONS

Problem.No.12
The accounts of a machine manufacturing company disclose the following information for the six
months ending 31st Dec 2017

Rs.

Materials used 1,50,000

Direct wages 1,20,000

Factory overhead expenses 24000

Office Expenses 17640

Prepare a Cost Sheet of the machines and calculate the price which the company should quote for the
manufacture of a machine requiring materials valued at Rs 1250 and expenditure on productive wages
of Rs 750 so that the price may yield a profit of 20% on the selling price.

For the purpose of price quotation charge Factory overheads as a percentage of direct wages and
administrationoverheads on work cost.

Problem.No.13
In respect of a factory the following particulars have been extracted for the year 2016

Rs.

Materials used 6,00,000

Productive wages 5,00,000

Factory overhead expenses 3,00,000

Administration Charges 33,6,000

Selling Charges 2,24,000

Distribution Charges 1,40,000

Profit 4,20,000
A work order has to be executed in 2017 and the estimated expenses are:

Materials Rs8000 , Wages Rs 5000

Assuming in 2017, the rate of factory overheads has gone up by 20%, Distribution charges have gone by
10% and selling and administration charges have gone each by 15%. At what price should the product
be sold so as to earn the same rate of profit on the selling price in 2016.

Factory overheads are based on wages and administration, selling and distribution overheads on
factory cost.

Problem.No.14
The following extracts of costing information relate to commodity X for the year ending 31-122017

Purchases of raw materials Rs 6000 DM

Direct Wages Rs 5000 - DW

Rent, Rates and insurance Rs 2000 - F

Carriage inwards Rs 100 - DM

Stock ( 1-1-2017)

Raw materials Rs 1000

Finished products – 200 tonnes Rs 800

Stock ( 31-12-2017)

Raw materials Rs 1100

Finished products – 400 tonnes ?

Cost of factory supervision Rs 400

Sale of finished products Rs 15000 SALES

Advertising and Selling cost is 40 paise per tonne sold.

3000 tonnes of the commodity were sold during the year.

Prepare a cost sheet.

Problem.No.15
E. Ltd Furnish the following information for 10000 units of a product manufactured during the year
2017

Materials Rs 90000

Direct Wages Rs 60000

Power and consumable stores Rs 12000

Indirect Wages Rs 15000

Factory lighting Rs 5500

Cost of rectification of defective work Rs 3000

Clerical salaries and management expenses Rs 33500

Selling expenses Rs 5500

Sale proceeds of scrap 2000

Repairs and maintenance Rs 11500

The net selling price was Rs 31.60 per unit sold and all units were sold.

As from 1.1.2018, the selling price was reduced to Rs 31 per unit. It was estimated that production
could be increased in 2013 by 50% due to spare capacity.

Rates for materials and direct wages will increase by 10%

You are required to prepare:

a) Cost sheet showing the various elements of cost per unit

b) Estimated cost and profit

Assume that 15000 units will be produced and sold during the year and factory overheads will be
recovered as a percentage of direct wages and office and selling expenses as a percentage of works
cost.