Material

List Of formulae’s
1. EOQ = √2 𝑥 𝑎𝑛𝑛𝑢𝑎𝑙 𝑑𝑒𝑚𝑎𝑛𝑑 𝑥 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑜𝑟𝑑𝑒𝑟/𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑝. 𝑎.

2. Total Carrying Cost = Average quantity carried in stock x carrying coat per unit p.a.

Average quantity carried in stock = Order size / 2

3. Total Ordering cost = No. of order x cost per order

No. of order = Annual demand / order size

4. Time interval = order size / demand

5. Total inventory related cost = carrying cost + ordering cost or

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√2𝑥𝑎𝑛𝑛𝑢𝑎𝑙 𝑑𝑒𝑚𝑎𝑛𝑑𝑥𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑜𝑟𝑑𝑒𝑟𝑥𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑝. 𝑎.

6. Inventory Turnover Ratio = Raw material consumed / Average quantity of raw material
Raw material consumed = opening stock + purchases – closing stock
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7. Inventory holding period = 365 days / inventory turnover ratio

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8. Cost BEP = Change in fixed cost / change in variable cost per unit
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9. ROL = Maximum consumption x Maximum lead time

(Normal consumption x normal lead time) + safety stock

10. Maximum Stock = ROL – (Minimum consumption x Minimum lead time) + EOQ

11. Minimum Stock / Safety stock = ROL – (Normal consumption x Normal lead time)

12. Average Stock = Maximum stock + minimum Stock /2

Or Minimum consumption + EOQ/2

13. Danger Level = Average consumption x emergency delivery time

 14. Computation of EOQ if discount is given In question
Order Size Purchase Cost Carrying Cost Ordering Cost Total Cost
Given Level Annual Demand (Order Size/2 ) No. of orders x A+B+C
x Purchase x Carrying Cost Cost per Order
price per unit per unit Per
(Regular) annum
Discounted Annual Demand (Order Size/2 ) No. of orders x A+B+C
Level x Purchase x Carrying Cost Cost per Order
price per unit per unit Per
(Discounted) annum
Select alternate resulting Lowest Cost.

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Important Terms
1.Just-in-time (JIT) Inventory management : JIT is a system of inventory management with
an approach to have a zero inventories of Raw material, finished Goods and of Work in
progress. According to this approach material should only be purchased when it is
actually required for production and produces only when it is required to be supplied.

2.ABC analysis : Items are classified into the following categories:

Category % of items % of Value

A 15% 70%
B 30% 20%
C 55% 10%

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3.Fast Moving, Slow Moving and Non Moving (FSN) Inventory : Under this system,
inventories are controlled by classifying them on the basis of frequency of usage.
F: Fast Moving , Near to store gate
S : Slow Moving, Inside the store
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N: Non Moving, end of store
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4.Vital, Essential and Desirable (VED) : Under this system of inventory analysis, inventories
are classified on the basis of its criticality for the production function and final product.
V : Vital, Very Important
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E : Essential, Important
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D : Desirable, Not so much required

5.High Cost, Medium Cost, Low Cost (HML) Inventory : Under this system, inventory is
classified on the basis of the cost of an individual item, unlike ABC analysis where
inventories are classified on the basis of overall value of inventory.

6. Material Control : It is the systematic control over the procurement, storage and usage of
materials to maintain smooth flow of materials and avoiding shortage / Surplus of
Inventory.

7. Material Requisition Note : Document used to issue of materials from store.

8. Purchase Requisition Note : Document is prepared by the storekeeper to request for

purchase to purchase department.

9. Purchase Order: It is a written request to the supplier to supply certain specified materials
at specified rates and within a specified period.
10. Goods Received Note : This document is prepared by receiving department which
unpacks the goods received and compare the quantity of material.

11. Material Transfer Note : This document is prepared when the material is transferred
from one department to another.

12. Material Return Note : It is a document given with the goods being returned from site to
the stores.

13. Bin Card : Card containing quantity detail of inventory inside the bin.

14. Stores Ledger : A ledger containing a separate account for each item of material and
component stocked in store giving details of the receipts, issues and balance both in
terms of quantity and value.
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15. Two bin system : If one bin items exhausts, new order is placed and till the mean time
quantity from the other bin is purchased.
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16. First-in First-out method : The materials received first are to be issued first when
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material requisition is received. Materials left as closing stock will be at the price of latest
purchases.
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17. Last-in First-out method : The materials purchased last are to be issued first when
material requisition is received. Closing stock is valued at the oldest stock price.
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18. Simple Average Method : Material Issue Price shall be average of all purchase price.

19. Weighted Average Price Method : This method gives due weightage to quantities
purchased and the purchase price to determine the issue price.
Weighted Average price = Total Value of material in stock / Quantity purchased
 Labour
List Of formulae’s

1. Labour Turnover rates

a. Replacement Method: No. of replacement / Avg. no. of workers x 100
b. Separation Method : No. of separations / avg. no. of workers x 100
c. Flux Method : No. of separation + No. of replacement / Avg. no. of workers x 100
OR
No. of separations + No. of accessions / Avg no. of workers x100

2. Effective rate per hour in case of idle time = Total wages paid/( Total hrs spent – Normal
idle time)
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3. Amount to be charged from job in case of idle time = actual time worked x effective rate
per hour
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4. Time wages = Hrs spent x rate per hour

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5. Piece wages = No. of pieces produced x rate per piece

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6. Bonus under Rowen’s Plan = Time Saved / Standard Time x Time Taken x Rate Per Hour
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7. Bonus under Halsey’s plan = Time saved x 50% x Rate Per Hour

8. Earning under berth sharing system = Rate per hour x √ST x AT

9. Earnings under TAYLOR’s Differential piece rate system

Output Total earnings

Below Standard 83% of piece wages
Standard or above Standard 125% of piece wages

10. Earnings under Merrick’s Differential piece rate

Efficiency Total earnings

Upto 83.33% 100% of piece wages
83.33% -100% 110% of piece wages
Above 100% 120% of piece wages
11. Earnings under EMERSON’S efficiency system

Efficiency Total earnings

Upto 66.67% Normal time wages
Above 66.67% - 100% Time wages + bonus upto 20% on
the basis of step bonus rate
Above 100% 120% of time wages + 1% for every
1% of efficiency beyond 100%

12. Earnings under Gantt Task

Efficiency Total earnings

Below standard Time wages
100% 120% of Time wages
Above 100% 120% of Piece wages

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13. Earnings Per Hour: Total earnings / Effective Hours
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Important Terms
1. Employee Cost : Benefits paid or payable to the employees of an entity, whether permanent
or temporary for the services rendered by them. Employee cost includes payments made in
cash or kind.

2. Direct Labour Cost : Wages paid to direct workers of an organisation.

3. Indirect Labour Cost : Wages paid to indirect worker of an organisation

4. Idle Time : Time which is paid for but no production took Place

A. Normal Idle Time : Time which cannot be avoided or reduced in the normal course of
business. The cost of normal idle time should be charged to the cost of production.

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B. Abnormal Idle Time : It arises on account of abnormal causes and avoidable reasons and
should be charged to Costing Profit and Loss account.
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5. Time Keeping : It refers to recording and keeping of the employees’ attendance time.
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6. Time Booking : It is basically recording the details of work done and the time spent by an
employee on each job or process.

7. Overtime : Payment to employees, when an employee works beyond the normal working
hours. Usually overtime has to be paid at double the rate of normal hours.

8. Overtime Premium : It’s the amount of extra payment paid to an employee for extra work. It
is over and above the normal wages
 Overheads
1. Apportionment of Overheads

Overheads Basis
Indirect material Direct Material
Indirect labour Direct Labour
Power Horse power x Machine hours
Rent of factory Floor Area
Heating / Air-conditioning Area
General Overheads Direct Wages
Lighting Number of light points
Depreciation of Assets Book Value of Assets
Holiday pay / ESI Direct Wages
Stores Overheads Direct material
Works Overheads
Canteen Expenses
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Direct Labour
Number of Workers

2. Re-apportionment of Service Department Cost over Production department

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Service Department Basis

Maintenance / Repairs Labour Hours
Tool Room Machine Hours
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Canteen / Welfare Number of Workers

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Time Keeping Number of cards punched

Computer Section Computer Hours
Power House Horse Power
Stores Department Number of requisitions

3. Methods of Re – apportionment of Service Department Cost to production

Department, When % of service rendered is Given:
A. Reciprocal Basis
i. Simultaneous Equation Method
ii. Repeated Distribution Method
iii. Trial and Error Method
B. Non – Reciprocal Method
i. Step Ladder Method
ii. Direct Cost Method
4. Under / Over Recovery Of overheads = Overheads Incurred – Overheads Recovered
Overheads Incurred = Expenses Incurred – abnormal payments – Past year expenses
booked in current year
Overhead Recovered = Actual base x Recovery Rate
Recovery Rate = Budgeted Fixed Overheads / Normal Capacity

5.Treatment of Under / Over Recovery

a. Due to Normal reason: Split between Sales units, Finished goods units and WIP
units
b. Due to Abnormal Reason : Transfer to Costing Profit and Loss Account
C. Due to seasonal Reason : Transfer to Next Season.

6.Machine Hour Rate

Format

Fixed / Standing Charges

a. Rent and Rates
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XXX
Per Hour

b. Heating and lighting XXX

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c. Supervision XXX
d. Insurance XXX
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e. Depreciation XXX
f. Departmental and General XXX
overheads XXX
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g. Sundry shop supplies XXX

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Total (A) XXX XXX

Machine Expenses / Running Expenses per
Hour
a. Depreciation XXX
b. Power XXX
c. Repair and Maintenance XXX
d. Lubricant and oil XXX
e. Other running expenses XXX
Total(B) XXX
MHR (A + B) XXXX
Computation Of machine Hours

1. Number of working Days (365 – Holidays / Festivals/Sundays) xxx

2. Number of working Hours available per day xxx
3. Total Number of working Hours (1 x 2) xxx
4. Less, Hours required for maintenance xxx
5. Less, Unproductive Set up time xxx
Effective Machine Hours xxx

7.Absoption of Production Overheads

Method 1: Direct Material Cost Method: Amount of production Overheads x 100

Direct Material Cost

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Method 2: Direct Labour Cost Method: Amount of production Overheads
Direct Labour Cost
x 100

Method 3: Prime Cost Method : Amount of production Overheads x 100

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Direct Labour Cost

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Method 4: Rate per unit Method : Amount of production Overheads

Number of production Units
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Method 5: Direct labour Rate Method : Amount of production Overheads

Number of Labour Hours

8.Idle Capacity Cost: Total cost related to plant x Idle Capacity

Normal Capacity
 Important terms :

1. Installed/ Rated Capacity : Maximum capacity of producing goods or providing services.

Installed capacity is determined either on the basis of technical specification or through a
technical evaluation.

2. Practical Capacity : Actually utilised capacity of a plant.. This capacity takes into account loss
of time due to repairs, maintenance, minor breakdown, idle time, set up time, normal
delays, Sundays and holidays.

3. Normal Capacity : Normal capacity is the volume of production or services achieved or

achievable on an average over a period under normal circumstances taking into account the
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reduction in capacity resulting from planned maintenance.

4. Actual capacity : It is the capacity actually achieved during a given period.

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5. Idle capacity : It is that part of the capacity of a plant, machine or equipment which cannot
be effectively utilised in production.
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6. Overheads : Overheads represent expenses that have been incurred in providing certain
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ancillary facilities or services which facilitate or make possible the carrying out of the
production process; by themselves these services are not of any use.

7. Cost Allocation : Assignment of an entire item of cost to a particular cost center or cost
unit.

8. Cost apportionment : Assignment of proportions of items of cost to cost centres or

departments.

9. Re-apportionment : The process of assigning service department overheads to production

departments is called reassignment or re-apportionment.

10. Absorption : The process of recovering overheads of a department or any other cost center
from its output is called recovery or absorption.
 Activity Based Costing
Format
Cost Statement as per Traditional System
Products A B C
Direct Material XXX XXX XXX
Direct Labour XXX XXX XXX
Overheads (On the basis of Machine XXX XXX XXX
Hours or Labour Hours)
Total Cost XXX XXX XXX
Units XXX XXX XXX
Cost per unit Total Cost / Units XXX XXX XXX

Cost Statement as per ABC System

Products A B C
Direct Material
Direct Labour
XXX
XXX
CA XXX
XXX
XXX
XXX
Overheads
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1. Set Up Cost No. Of Set No. Of Set Ups No. Of Set
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Total set Up cost/ No. of Set ups Ups X Cost X Cost per set Ups X Cost
per set up up per set up
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No. of No. of No. of

2. Inspection Cost Inspection x Inspection x Inspection x
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Total Inspection cost / No of Inspection Cost per Cost per Cost per
inspection inspection inspection

3. Machine maintenance Machine Machine Machine

Total Machine Exp/Machine hours Hours x Cost Hours x Cost Hours x Cost
per hour per hour per hour

4. Procurement Cost No. of No. of No. of

Total Procurement Cost / Purchase purchase purchase purchase
orders order x Cost order x Cost order x Cost
per purchase per purchase per purchase
order order order

5. Etc.
Total Cost XXX XXX XXX
Units XXX XXX XXX
Cost per unit Total Cost / Units XXX XXX XXX
 Important Terms

1. Activity: Activity means an event that incurs cost.

2. Cost Object–It is an item for which cost measurement is required e.g. a product or a
customer or service or Job

3. Cost Driver–It is a factor that causes a change in the cost of an activity.

4. Resource Cost Driver– It is a measure of the quantity of resources consumed by an

activity. It is used to assign the cost of a resource to an activity or cost pool.

5. Activity Cost Driver–It is a measure of the frequency and intensity of demand, placed on
activities by cost objects. It is used to assign activity costs to cost objects.

6. Cost Pool-It represents a group of various individual cost items. It consists of costs that
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have same cause effect relationship. Example Machine set-up.

7. Value-Added Activities : Activities which are indispensable in order to complete the

process. The customers are usually willing to pay (in some way) for these services. It adds
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something to value of product

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8. Non-Value-Added Activities (NVA) activity not valued by the external or internal

customer. It adds nothing to value of product.
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 Cost Sheet

Format
: Cost Sheet

₹
Opening stock of raw material XXX
Add, Purchases of raw material XXX
Less, closing stock of raw material XXX
Raw material consumed XXX
Add, Direct wages XXX
Prime Cost XXX
Add, factory overheads XXX
Gross Factory cost XXX
Add, opening stock of Work in progress XXX
Less, Closing stock of work in progress
Factory Cost
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Add, Administrative overheads (relating to Production)
XXX
XXX
XXX
Cost of production XXX
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Add, Opening stock of finished goods XXX
Less, Closing stock of finished goods XXX
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Cost of goods sold XXX

Add, Administration Overheads (General) XXX
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Add, Selling and distribution overheads XXX

Cost of sales XXX
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Add, profit XXX

Sales XXX
 Important Terms

1. Cost Sheet : A Cost Sheet is a document which provides a detailed cost information
of different type of cost at regular interval.

2. Prime Cost : Prime cost represents the total of direct materials costs, direct labour
costs and direct expenses.

3. Direct Expenses : Expenses which are incurred to manufacture a product or for

provision of service and can be directly traced in an economically feasible manner to
a cost object.

4. Factory Overheads : It is also known as works/ production/ manufacturing

overheads, includes all expenses of factory
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5. Quality Control Cost : This is the cost of resources consumed towards quality control
procedures to check Compliance.
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6. Research & Development cost : It includes only those research and development
related cost which with is incurred to improvement of process, system, product or
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services.
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7. Administrative Overheads : Expenses relating to Office and administration

8. Selling Overheads : Expenses relating to sales only

9. Distribution Overheads : It includes the cost related with making the goods available
to the customers. The costs are
 Marginal Costing
Formulae’s
1. BEP (UNITS) = Fixed Cost / Contribution per unit OR BEP (in ₹) / SP Per unit

2. BEP (₹) = Fixed Cost / PV ratio OR BEP (in ₹ ) x SP Per unit

3. Sale units to earn desired Profit = Fixed cost + desired profit / Contribution per unit

4. Sale ₹ to earn desired profit = Fixed Cost + Desired Profit /PV ratio

5. Contribution per Unit = SP per unit – VC Per unit

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6. PV Ratio (profit Volume ratio) = Contribution / sales x100 OR
Contribution per unit / Selling price per unit x 100
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7. Margin of safety (units) = Actual sales in units – BEP sale in units

8. Margin of safety (₹) = Actual sales in ₹ - BEP sale in ₹

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9. MS Ratio = Margin of safety / sales x 100

10. Total sales = BEP sale + MES

11. Profit = Sale – VC – FC OR Contribution – FC OR Margin of safety (₹) x PV ratio

12. General Equation : Sales – VC = FC + Profit OR Sales x PV ratio = FC + Profit

Contribution + Sales – VC OR FC + Profit OR Sales x PV ratio

13. Before tax profits = After tax profits / 1- Tax rate

14. If PV ratio is 40% of sales than VC ratio will be 60% of sales

15. PV Ratio If information of two years are given = Change in profit/ change in sales x 100

16. Cost BEP = Change in FC / Change in VC Per unit

 ∑
Decision criteria in case of COST BEP
Expected production Alternate
Below Cost BEP Alternate with less FC
Equals to Cost BEP Any Alternate
Above COST BEP Alternate with less VC

17. Overall BEP (UNITS) FC/ Weighted Contribution per unit

18. Weighted contribution per unit = Total Contribution /∑ w

19. Overall BEP (₹) = FC / Weighted PV Ratio

20. Weighed PV Ratio = Total contribution / Total Sales x 100

21. If Overall BEP is in units than it will be divided in the ratio of W, If it is in ₹ than it will be
divided in the ratio of sales in ₹

22. Format Under Marginal Costing

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Sales xxxx
Less, variable cost
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Direct material Xxxx

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Direct Labour Xxxx

Direct expenses xxxx
Variable factory overhead xxxx
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Variable cost of goods produced xxxx

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+ opening stock of finished goods xxxx

-closing stock of finished goods xxxx
Variable cost of goods sold xxxx
+ Variable administration overhead xxxx
+ Variable selling overhead xxxx
Total variable cost Xxxx
Contribution Xxxx
Less, Fixed factory overheads Xxxx
Fixed administration overhead Xxxx
Fixed selling overhead Xxxx
Profit xxxx
23. Format Under Absorption Costing
Sales xxxx
Less, Manufacturing cost of goods
sold Xxxx
Direct material Xxxx
Direct Labour xxxx
Direct expenses xxxx
Variable factory overhead xxxx
Fixed factory overheads xxxx
Manufacturing cost of goods xxxx
produced xxxx
+ opening stock of finished goods xxxx
-closing stock of finished goods xxxx
Standard cost of goods sold xxxx
+ Under Recovery Xxxx
-Over Recovery Xxxx
Manufacturing cost of goods sold Xxxx
Gross profit
- Variable administration overhead
-Fixed administration overhead
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Xxxx
Xxxx
Xxxx
- Variable selling overhead xxxx
-fixed selling overhead
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Profit
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 Important Terms
1. Contribution : is the difference between sales revenue and total variable costs
irrespective of manufacturing or non-manufacturing. It is profit before subtracting
fixed Cost

2. Cost-Volume-Profit (CVP) Analysis : It is an analysis of reciprocal effect of changes in cost,

volume and profitability. Such an analysis explores the relationship between costs,
revenue, activity levels and the resulting profit.

3. P/V ratio : This ratio shows the proportion of sales available to cover fixed costs and profit.
Indicates profit percentage on Margin Safety.

4. Break-even Point: The level of sales where an entity neither earns profit nor incurs loss.
Below BEP there is profit, above BEP there is profit.

5.
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Margin of Safety : The margin between sales and the break-even sales is known as margin
of safety.
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6. Angle of Incidence : This angle is formed by the intersection of sales line and total cost line
at the break-even point. This angle shows the rate at which profits is earned once the
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break-even point is reached.

7. Marginal Cost : Change in total cost, If we increase/ Decrease the production by one unit.
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unit.
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8. Marginal Costing : It is a costing system where products or services and inventories are
valued at variable costs only. It does not take consideration of fixed costs.

9. Absorption Costing : A method of costing by which all direct cost and applicable overheads
are charged to products or cost centers for finding out the total cost of production.
Absorbed cost includes production cost as well as administrative and other cost.
 Budgetary Control
Format
Flexible Budget
Capacity 60% 80% 90%
Sales Units …….. …….. ……..
Selling price …….. …….. ……..
Total sales (Sales units x Selling Price) …….. …….. ……..
Less, variable cost
Direct material …….. …….. ……..
Direct Labour …….. …….. ……..
Direct Expenses …….. …….. ……..
Variable Factory Overheads …….. …….. ……..
Variable Administration Overheads …….. …….. ……..
Variable Selling Overheads …….. …….. ……..
Contribution
Less, Fixed Cost
Factory Overheads
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……..

……..
……..

……..
……..

……..
Administration Overheads …….. …….. ……..
Selling Overheads …….. …….. ……..
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Profit …….. …….. ……..

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Functional Budget
1. Sales Budget
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Product A Product B
Units Rate Value Units Rate amount
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

2. Production Budget
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Sales Units
Add, Closing stock Finished Goods
Less, Opening Stock Finished Goods
Production

3. Input Usage Budget

Production x RM Required
Production x Lab hours required
 4. Input Purchase Budget

Product A Product B
Usage
Add, Closing Stock of Raw Material
Less, Opening Stock of Raw Material
Purchase Units

5. Labour Hours Budget

Deptt A Deptt B
Hours Required For
Product A
Product B

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Important terms
1. Budget : It is Quantitative or Financial Statement prepared prior to definite period of time
for achieving a given objective.

2. Budget Centre : A section of an organization for which separate budget can be

prepared and control exercised.

3. Budgetary Control : Guiding and regulating activities with a view to attaining

predetermined objectives, effectively and efficiently.

4. Budget Manual : The Budget manual is a schedule, document or booklet which

shows, in written forms the budgeting organisation and procedures.

5.
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Budget Period : The period of time for which a budget is prepared and used. It may
be a year, quarter or a month.

6. Fixed Budget : a fixed budget, is a budget designed to remain unchanged irrespective

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of the level of activity actually attained
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7. Flexible Budget: flexible budget is defined as a budget which, by recognizing the

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difference between fixed, semi-variable and variable costs is designed to change in

relation to the level of activity attained.
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8. Zero-based Budgeting (ZBB) : Zero- based Budgeting (ZBB) is defined as a method of

budgeting which requires each cost element to be specifically justified, although the
activities to which the budget relates are being undertaken for the first time without
approval the budget allowance is zero
 By Product and Joint Product
Format
1. Reverse Cost Method

Product A Product B
Sales Value after further processing
Less, Estimated Profit
Less, Selling and distribution Cost
Less, Post separation Cost
Joint Cost Value

2. Constant Gross Margin percentage Method

Product A Product B
Sale Value after further processing CA
Less, Gross Margin @ Constant Gross margin %
Total Cost of Output
Less, Post Separation Cost
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Selling and Distribution Cost
Joint cost Value
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Constant gross margin Method = (Total sales Value – Total pre and Post Cost) / Total Sales
Value x 100
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3. Salve Value at Splitt off Point

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Sales Qty x Split off selling Price

4. Final sales Value Method

Sales Qty x Final selling Price

5. Contribution Margin Method

Product A Product B
Final sale Value …….. ……..
Less Variable Cost
Pre Cost (In qty Ratio) ……… ………
Post Cost ……… ………
Contribution ……… ………
Less Fixed Cost
Pre Cost (in Contribution Ratio) ……… ………
Post Cost ……… ………
Profit ………. ……….
 Important Terms

1. Joint Products. Two or more products of equal importance, produced, simultaneously

from the same process, with each having a significant relative sale value are known as
joint products and of equal importance.

2. Co-Products. Two or more products which are contemporary but do not emerge
necessarily from the same material in the same process, but producing same point of
time.

3. By-Products. Products recovered from material discarded in a main process, or from the
production of some major products. It is of very low realizable value.

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 Service Costing

Format
1. Transport Operating Cost Sheet

Operating Cost Sheet

Vehicle No. Period:

Cost Units Number of cost unit:

Particulars Total Per Km

Fixed Cost
Road Tax ……… ………
Insurance ……… ………
Driver wages ……… ………
Conductor Wages ……… ………
Cleaner Wages
Depreciation
Garage Rent
CA ……….
……….
……….
……….
……….
……….
Ofiice and administration Cost ………. ……….
Total A ………. ……….
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Variable Cost
Petrol …….. ……..
Oil …….. ……..
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Tyres ……… ………

Repairs ……… ………
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Total B ………. ……….

Operating Cost (A+B) ……….. ………..

2. Hotel cost sheet

Particulars Total Per Room day

Fixed Cost
Staff Salaries ……… ………
Room Attendant Wages ……… ………
Lighting , Heating ……… ………
Repairs ……… ………
Licence fees ………. ……….
Depreciation ………. ……….
Total A

Variable Cost
Cost of free tea and coffee in room ………. ……..
Cost of complementary breakfast ..….. ……..
Cost of toilet supplies …….. ………
Laundry Cost ……… ………
Total B ……… ……….
Operating Cost (A+B) ………. ………..

3. Hospital Cost Sheet

Particulars Total Per Room day

Fixed Cost
Staff Salaries ……… ………
Room Attendant Wages ……… ………
Lighting , Heating ……… ………
Repairs ……… ………
Licence fees ………. ……….
Depreciation ………. ……….
Total A

Variable Cost
Cost of free food supply
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Cost of complementary breakfast ..….. ……..
Cost of toilet supplies …….. ………
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Laundry Cost ……… ………
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Total B ……… ……….

Operating Cost (A+B) ………. ………..
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4. Power House Cost Sheet

Steam Produced ---- Units Electricity Generated ------ units

Steam used for Generation ----- Units

Particulars Total Per unit

Steam production Cost
Direct Material : Coal
water
Direct Labour: Wages for coal handling
Wages For Stocking
Overheads : indirect Material – oil
Indirect Labour – Supervision
Indirect Expenses – Depreciation
Repair & Maintenance
Total
Total production of Steam units
Steam used for Generation of electricity
Electricity Generation Cost
Cost of steam used
Wages of operator
Depreciation
Repairs
Supervision Charges
Total

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Important Point
1. Service Costing: It is application of cost concepts in ascertainment of cost or providing
services. It is also known as operating costing as relates to operating of a service.

2. Composite Cost Unit: Unit of service cost consists of two different units.

3. Equivalent Service unit: To calculate cost or pricing of two more different grade of
services which uses common resources, each grade of service is assigned a weight and
converted into equivalent units. Converting services into equivalent units make
different grade of services equivalent and comparable.

4. Build-Operate-Transfer (BOT): With BOT, the private sector designs, finances,

constructs and operate the facility and eventually, after specified concession period, the
ownership is transferred to the Government. Therefore, BOT can be seen as a
developing technique for infrastructure projects by making them amenable to private
sector participation.
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 Cost Control Accounts
: Store ledger Control Account
Particulars Amount Particulars Amount
Bal b/d (Opening) Work in progress A/c(Issue)
GLAA (Purchase) GLAA (Return)
WIP (Return) Factory Overheads (Normal
Loss)
Cost P&L (Abnormal Loss
Bal c/d (Closing)

Work in progress Control Account

Particulars Amount Particulars Amount
Bal b/d (opening0 Store Control A/c(Return)
Store Ledger Control A/c (issue) Finished Goods
Factory
(Recovered)
Overheads

Wage Control A/c (Direct wages

A/c
CAA/c(Transfer)
Bal c/d 9Closing)

Due)
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Finished Goods Control Account

Particulars Amount Particulars Amount
Bal b/d (Opening) Cost of sales A/c
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Work in progress (Transfer) (Transfer)

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Administration O/H (Recovered) Bal c/d (Closing)

Cost of sales Account

Particulars Amount Particulars Amount
Finished Goods A/c (Transfer) GLAA (Sales)
Selling O/H (Recovered)
Cost P&L A/c (Profit

Wage Control A/c

Particulars Amount Particulars Amount
GLAA (Paid) WIP Control A/c (Direct
wages due)
Factory overheads A/c
(Indirect wages due)
 Factory Overheads A/c
Particulars Amount Particulars Amount
GLAA (Incurred) WIP A/c (Recovered)
Cost P&L (Over Recovery) Cost p&L (Under
recovery)

Cost P&L A/c

Particulars Amount Particulars Amount
Factory O/H A/C (U/R) Cost of sales A/C (profit) 90,000
GLAA
90,000

Selling and Distribution Overheads

Particulars Amount Particulars Amount
GLAA (Incurred) Cost of sales (Recovered)

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General Ledger Control A/c
Particulars Amount Particulars Amount
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Store Ledger Control A/c (Return) Bal b/d

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Cost of sales A/c (Sales) Factory Overheads

Bal c/d A/c(incurred)
Store ledger A/c
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(purchases)
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Wage Control A/c(paid)

Cost P&L A/c (transfer)
Selling o/h A/c(incurred)

Memorandum Reconciliation Account

Particulars Amount Particulars Amount

Loss as per Cost account Profit as per Cost account
Financial expenses Financial incomes
Overheads under absorbed Overheads over absorbed
Undervaluation of opening stock Overvaluation of closing
Over valuation of closing stock stock
Profit as per financial account Undervaluation of closing
stock
Loss as per financial account
 Standard Costing
Important Definitions

Standard Costing : A technique which uses standards/ Target for costs and revenues for

The purposes of control through variance analysis.

Standard Price : A predetermined price fixed on the basis of a specification of a product or

service and of all factors affecting that price.

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Standard Time : The total time in which task should be completed at standard performance.

Variance : A divergence from the predetermined rates, expressed ultimately in money value,
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generally used in standard costing and budgetary control systems.

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Variance Analysis: The analysis of variances arising in standard costing system into their
constituent parts.
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Formula’s
Material Variance

1 2 3 4
SP x SQ SP x SM SP x AQ© AP x AQ©

Material Cost Variance (MCV) = 1-4

Material Price Variance (MPV) = 3-4

Material Usage Variance = 1-3

Material Yield Variance = 1-2

Material Mix Variance = 2-3

SP = standard price per unit CA

AP= Actual price per unit
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AQ© = Actual Quantity Consumed
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SM = Standard Mix = AQ© in standard Ratio

SQ= Standard Quantity for actual output

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Labour Variances

1 2 3 4 5
SR X ST SR X SM SR X AT(W) SR X AT (P) AR X AT(P)

Labour Cost Variance (LCV)= 1-5

Labour Rate Variance (LRV) = 4-5

Labour Idle Time Variance (LITV) = 3-4

Labour Efficiency Variance (LEV)= 1-3

Labour Yield Variance(LYV) = 1-2

Labour Mix Variance (LMV)= 2-3

SR = Standard Rate per hour

AR = actual rate per hour

ST = Standard time for actual output

AT(W) = Actual time worked

AT(P) = Actual time worked

SM = standard Mix = Actual time worked in standard ratio

Variable overhead Variances

1 2 3
SR X ST SR X AT(W)
CA AR X AT(W)

Variable overhead Cost Variance = 1-3

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Variable overhead Budget Variance = 2-3
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Variable overhead efficiency Variance = 1-2

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SR= Standard rate per hour hour of Variable Overhead = Budget Variable overhead / Budget
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Hours

AR= Actual rate per hour of variable overheads = actual variable overheads / actual hours

ST= Standard time for actual output

AT(W) = Actual time worked

Fixed Overhead Variance

1 2 3 4 5
SR X ST SR X AT(W) SR X RT SR X BT AR X AT (P)

Fixed Overhead Cost Variance = 1-5

Fixed Overhead Budget Variance = 4-5

Fixed Overhead Volume Variance = 1-4

Fixed Overhead Calendar Variance = 3-4

Fixed Overhead Capacity Variance = 2-3

Fixed Overhead Efficiency Variance = 1-2

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SR= Standard rate per hour of Fixed Overhead = Budget Fixed overhead / Budget Hours

AR= Actual rate per hour of Fixed overheads = actual Fixed overheads / actual hours
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ST= Standard time for actual output
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AT(W) = Actual time worked

AT(P) = Actual time paid

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BT = Budget Time
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RT = Revised budget Time = Budget hours x Actual days / Budget Days

 Job / Batch/ Contract

Format:
Job Cost Sheet

₹
Direct Material XXX
Direct Labour XXX
Prime Cost XXX
Factory Overheads XXX
Factory Cost XXX
Administrative Overheads XXX
Cost of production
Selling Overheads
CA XXX
XXX
Cost of sales XXX
Profit XXX
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sales XXX
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Batch Costing
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EBQ = √2 x Annual Demand x Cost per set up/carrying cost per unit per annum

Total Set up Cost = Number of set ups x Cost per set up

Number of set ups = annual Demand / Batch Size

Total Carrying Cost = Average quantity carried in stock x carrying cost per unit p.a

Average quantity carried in stock = Batch size / 2

Contract Account
Format
Particulars ₹ Particulars ₹
Material XXX Material at site XXX
Labour XXX Bank (Material Sale) XXX
Paid XXX P&L (loss on sale) XXX
+Closing o/s XXX Material at site XXX
-Opening o/s XXX Material sent to store XXX
+Opening prepaid XXX Plant at site XXX
-Closing Prepaid XXX Plant sent to store XXX
Expenses XXX WIP XXX
Plant XXX Work Certified XXX
Notional Profit XXX Work Uncertiifed XXX

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Important Definitions

Job Costing : Applicable where the work is done as per instruction given by customers,
consists of separate contracts, jobs or batches, each of which is authorized by specific order
or contract.

Contract Costing : It is a form of specific order costing where job undertaken is relatively
large and normally takes period longer than a year to complete and which cant not be
executed within the factory premises.

Work Certified : The value of a contract which is completed by contractor and certified by
contractee

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Work Uncertified : Work which has been carried out by the contractor but has not been
certified by the Contractee
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Retention Money : It is that part of Work certified which is retained by contractee

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Cost-plus Contract : A contract where the value of the contract is determined by adding an
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agreed percentage of profit to the total cost.

Escalation Clause : A clause in a contract which empowers a contractor to revise the price
of the contract in case of increase in the prices.

Batch Costing: Batch Costing is a type of specific order costing where articles are

manufactured in predetermined lots, known as batch. Under this costing method the cost

object for cost determination is a batch for production rather output as seen in unit

costing.

Economic Batch Quantity (EBQ): Economic Batch quantity is the size of a batch where total cost
of set-up and