PRACTICE QUESTIONS 9

Production during the year 500,000 Meter

Rs.
Raw material purchased 500,000
Labour cost incurred 200,000
Supervisor's salary 250,000
Production manager salary 300,000
Social Security charges of production workers 20,000
Cost of annual shutdown of plant 100,000
Lubricant for plant 10,000
Packing material being a production cost 25,000
Accountant salary 105,000
Commercial manager salary 225,000
Godown rent 120,000
Power charges 300,000

Production of last 5 years is as follows

Year 1996 1997 1998 1999 2000

Production 550,000 475,000 525,000 515,000 500,000

The maximum capacity of plant under ideal conditions is 600,000 meter

Required
Work out the total cost incurred for production and per unit cost of inventory from the above information

SOLUTION

Total Cost Incurred For Production

Rs.
Raw material purchased 500,000
Labour cost incurred 200,000
Supervisor's salary 250,000
Production manager salary 300,000
Social Security charges of production workers 20,000
Cost of annual shutdown of plant 100,000
Lubricant for plant 10,000
Packing material being a production cost 25,000
Power charges 300,000
Total cost incurred for production 1,705,000

Per Unit Cost Of Inventory

Rs.

1
Raw material purchased
500,000/500,000

0.4
Labour cost incurred
200,000/500,000

0.416
Supervisor's salary
250,000/600,000

0.5
Production manager salary
300,000/600,000

0.03333
Social Security charges of production workers
20,000/600,000

0.16666
Cost of annual shutdown of plant
100,000/600,000

0.02
Lubricant for plant
10,000/500,000

0.05
Packing material being a production cost
25,000/500,000

0.6
Power charges
300,000/500,000

Per unit cost of inventory 3.185

Fixed Factory Overheads are divided by Normal production (600,000) for the purpose of calculating
Per unit cost of inventory because they will occur even without any production ;)