B.B.A. - Cost Accounting (Sem. - 1) Unit -1 Introduction + and Functions of Cost Accou Concept of Cost; Analysis and Cost Sheet (Statement of Cost); Qu reconciliation between financial accounts and cost a Profit; Preparation of Reconciliation Statement. Meaning of Cost, Costing and Cost Accounting, Features, Soy inting, Advantages and Limitation’ of Cost Accountiy T Clasification of Costs: Elements of Costs Preparationg vations and tender. Introduction and need fg ccount, reasons for disagreement difference between proces al loss. Preparation d Unit - Process Costing : Meat and job costing, wastage an process accounts. ning, features and applicability, \d by-products, normal and abnorm Unit - TIL Operating Costi Classification of costs, Features of operating costing ‘Transport costing (Standard charge, running and operating cost, maintenance charg and log sheet) Unit -1V Mersinel Costing Introduction, Application of Marginal Costing in terms of cost control, level of activity planning - Break-even-analysis : Appli i ee ly pplication of BEP for various Simple Numerical will be based on Unit I, II, III and IV. ww) Scanned with CamScannerUnit-1 1. Meaning, Scope of Cost Accounting Cost Sheet and Tender 01-57 2. Reconciliation of Profit Shown by Financial Accounts and Cost Accounts 58-98 Unit-11 3. Process Costing 99-143 Unit - IT 4, Operating Costing 144-166 Unit-IV 5. Marginal Costing 167 - 223 Model Question Paper 224-226 Scanned with CamScanner| Mean., Scope of Cost Ale Cost Sheet and Tender as” TSS Chapter Unit =1 Meaning, Scope of Cost Accounting | Cost Sheet and Tender COST ACCOUNTING MEANING To understand the meaning of Cost Accounting following terms are required to be understood : 1. Cost 2. Cost Accountancy 3. Costing . 4. Cost Accounting 5. Cost Control and 6. Cost Audit. 1, Cost : It has been defined by Institute of Cost and Management Accountants in England (ICMA) as “the amount of expenditure incurred or attributed on a given thing”. Bg. Cost of a calculator means the material, labour and wages directly required to produce a calculator and some portion of indirect expenses like office expenses, rent ete. allocated or apportioned to it. 2. Cost Accountancy : ICWA has defined Cost Accountancy as “Cost Accountancy is the application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control and the ascertainment of profitability. It includes the presentation of information derived therefrom for the purpose of ‘management decision-making”. Cost Accountancy is science since the cost accountant should possess the systematic knowledge to discharge his responsibility and functions. Tt is an art gince the cost accountant should have the ability and skill to apply his knowledge to the various aspects such as ascertainment of costs, control of costs, sRcertainment of profitability, marginal costing ete. Cost Accountancy includes Yarlous subjects such as Costing, Cost Accounting, Cost Control and Cost Audit 3. Costing : According to ICMA, “Costing is the technique and process of ascertaining cost”, Wheldon defines Costing as under “Costing is the classifying, recording, and appropriate allocation of expenditure for the determination of cost of products or services; and for the presentation of suitably trranged data for the purposes of control and guidance of the management. It crrtudies the ascertainment of the cost of every order, job, contract, process, service eanit as may be appropriate. It deals with the cost of production, selling and Sistrbution. Thus, it helps in knowing the cost of various services and products ane iso gives information as to what could have been the cost by pointing out where find iow they have gone wrong with facilities to correct the same.” @ [. cost Accounting : According to ICMA, “Cost Accounting is the process of Gocounting from the point at which expenditure is incurred or committed to the sctablishment of its ultimate relationship with cost centers and cost units. In its ‘widest usage, it embraces the preparation of statistical data, application of cost control methods and the ascertainment of profitability of the activities carried out or planned. ‘Scanned with CamScanner(B.B.A. ~ Sem. ~1) (Na i Ld ost Accounting (B.A. D (Nagpuy jon, classification, analy, In simple language, Cost Accounting is accumulat} ‘ost, operational Planning interpretation of cost data for-.qscertainment of control and for decision making. | jon by executive act, Cost Control: It is defined as the guidance and regulation by Action, costs of operating on undertaking’ | 5 Standard Costi It is exercised through a number of techniques such oe othe aaa creat Budgetary Control. Standard Costing is a system 10 CONT through pre-determined cost, its comparison with act laying det ‘ontrol means laying dome! variances together with their causes. Budgetary contro! Meare te sown monetary and quantitative terms what exactly 2 i coming period’ and then to ensure that actual results do not diverge from Planing course more than necessary. 6. Cost Audit : It is defined by ICMA as, “the verification of cost accounts ang check on the adherence to the cost accounting plan. It is an independent e examination of the cost accounts of different outputs of an under me ant verification whether such accounts of the different output, serve the purpey intended”. GENERAL PRINCIPLES OF COST ACCOUNTING Following are the main principles of Cost Accounting : 1, Cause-effect relationship : Cause-cffect relationship should be established each item of cost. Each item of cost should be related to its cause as minutely possible and the effect of the same on the various departments should ascertained. A cost should be shared only by those units which pass through thy departments for which such cost has been incurred. Charge of cost only after its incurrence : Unit cost should include only thew costs which have been actually incurred. For example unit cost should not charged with selling cost while itis still in factory. Past costs should not form part of future costs : Past costs (which could ne be recovered in past) should not be recovered from future costs as it will not on affect the true results of future period but will also distort other statements. 4. Exclusion of abnormal costs from cost accounts. All costs incurred because abnormal reasons (like theft, negligence) should not be taken into consideration while computing the unit cost. If done so, it will distort the cost figures ané mislead management resulting in wrong decisions. 5. Principles of double entry should be followed preferably. To lessen the chances & any mistake or error, cost ledgers and cost control accounts, as far as possi, should be mintained on double entry principles. This will ensure the comectnes! oF GO sheets and cost statements which are prepared for cost ascertainmell and cost control. CHARACTERISTICS OF COSTING SYSTEM Features of Cost Accounting 4 “h ideel system of costing is that which achieves the objectives of a costing systelt and brings all advantages of costing to the business,” Pelle, ait charactristies which an ideal sys! ening are! the 1m of costing should possess or the py ich shoulé be taken into consideration before installing a costing syste the Ponts Which shi 1. Buleabilty to the business : A costing system should be tail -made, practic and mu: devived according to the nature, conditions, Tequirements and si of the business. Any system which s es the purposes of the business supplies necessary informatio g the pe) busin suppl 7 Monmation for running the business efficiently is an ie 2+ Bimplicity : The system of costing should be simple and plain so that it mayb cavily understood even by a person of arene ther infor provided tn of average intelligence. The facts, figures at ions provided by cost accounting must be i right ing, must be presey the ria form at the right time to the right person in order 4 {more mean , f on in order to make it more meaningful. 3. Flexibility : The system of costing be flexible so that it may be chi according to changed conditions and ¢ cumstanc flexibility will be outmoded because ; ci ‘he system without suet of fast changes i business and indust a Scanned with CamScannerMean, Scope of Cost Ale Cost Sheet and Tender we'2" 3 Thus, the system must have the capacity of expansion or contraction without much changes. : 4. Economical : A costing system is like other economic goods. It costs money just like economic goods. If the system is too expensive, management may be unwilling to pay as buyers are not willing to pay for the goods if these arc expensive as compared to their utility. A costing system should not be expensive and must be adapted according to the financial capacity of the business. The benefits to be derived from the system must be more than its costs as management will be willing to install the system when its perceived expected benefits exceed its perceived expected costs. In short, the system must be economical taking into consideration the recuirements of the business. The cost of installing and operating the system should justify the results. 5. Comparability : The costing system must besuch so that it may provide facts and figures necessary to management for evaluating the performance by comparing it with the past figures, or figures of other concerns or against the industry as a whole or other departments of the same concern. Capability of presenting information at the desired time : The system must provide accurate and timely information so that it may be helpful to management for taking decisions and suitable action for the purpose of cost control. 7. Necessary cooperation and participation of executives from various departments of the concern is essential for development of a good system of cost accounting. Moreover, management should have faith in the costing system and should also provide a helping hand for its development and success. 8. The system of costing should not sacrifice the utility by introducing meticulous and unnecessary details. : A carefully phosed programme should be prepared by using network analysis for the introduction of the system. 10. Minimum changes in the existing set up : The existing system of delegation and division of authority and responsibility must not be disturbed with the costing system. As far as possible the system must be such so that it may least disturb the exising organisational set up. 11, Uniformity of forms : All forms and proformas etc. necessary to the system should be uniform in size and quality of paper. Higher efficiency can be obtained by using colour of the paper to distinguish different forms. Printed forms should contain instructions as to their use and disposal. Forms should be suitably designed for collection and dissemination of cost data. 12, Minimum clerical work : The filling of the forms by foremen and workers should involve as little clerical work as possible as most of workers are not well educated. To ensure reliable statistics, every original entry should be supported by an examiner’s signatures. 12, Efficient system of material control : There should be an efficient system of stores and stock control as materials usually account for a grester proportion of the total cost. A good method of pricing material issued to production should be followed. 14, Adequate wage procedure : There should be a well defind wages procedure for recording the time spent by workers on different jobs, for preparing the wage sheets and for the payment of wages. Thus the introduction of well defined wage system will help to control the cost of labour. 15. Departmentalisation of expenses : A sound plan should be devised for the allocation, apportionment and absorption of overheads in order to cont accurately, 16, Reconciliation of cost accounts and financial accounts : If possible the cost accounts and financial accounts should be interlocked into one integral ‘accounting, scheme. If this is not possible the systems should be so devised that the two nets of accounts are capable of easy reconciliation. 17, External factors installation of a costing system mainly depends on internal factors of a firm, but external factors may also affect the structure of the Scanned with CamScannerv 3 4 s's'2" Cost Accounting (B.B.A. ~ Sem. ~1) (Nagpur Unig system. For example, cost accounting rules applicable to certain industries | M* notified by the Central Government require certain cost information to jy} developed and included in the books of accounts. Therefore, an ideal system g costing should take:care of internal as well as external factors. 18. Duties and responsibilities of the cost accountant : Under a good system ¢ cost accounting the duties and responsibilities of the cost accountant should b| clearly defined. The cost accountant should have access to all works ang departments. SCOPE OF COST ACCOUNTING The scope of Cost Accounting is wider than ‘costing’ which only meang ascertainment of costs. Though the terms ‘Cost Accounting’ and ‘Costing’ are used interchangeably, various activities form part of Cost Accounting which are as under : 1. Cost Book-keeping : Complete set of costing:-books of account is maintained for} recording all costs incurred at each department for the various products and) services. The costing books are maintained on double entry system. Cost Ascertainment : Major function of Cost Accounting is ascertainment of cost of products, processes, jobs, services etc. Managerial decisions like pricing, planning and control are possible if cost if properly ascertained. t 3. Cost System : Systems and procedures are devised for proper accounting for) costs. 4. Cost Comparisons : Cost Accounting includes comparisons between cost from) ¢ different technologies, cost of various products, services and such costs over a period of time etc. [ . Cost Analysis : When there is variation between pre-determined costs and actual costs, it is necessary to analysis the various elements of cost to arrive at reasons for variation, correction for future and also for fixing the responsibility for increase in costs. 6. Cost Control : Utilisation of cost information for controlling costs is main function of Cost Accounting. 7. Cost Reports : Cost Reports are prepared and presented to the management at different levels. Normally such reports are for insiders of the Company but Sometimes they may be used by outsiders. On the basis various of cost reports, management can carry out its functions like planning, control, performance appraisal and managerial decision-making etc. FUNCTIONS OF COST ACCOUNTING Analysis of the above definitions brings out the following three functions of Cost Accounting : ‘A. Ascertainment of Cost; B. Control over Costs; and | C. Reporting or Presentation. All these functions are aimed to furnish the information to the management. A. Cost Ascertainment Cost ascertainment or cost finding involves five processes (Inown as 5 A's of Cost Accounting). Scanned with CamScanner‘Mean. Scope of Cost Ale Cost Sheet and Tender were’. z a) Ascertainment or Collection : Through appropriate head of accounts as per nature of expenses, financial accounting yields this information. All the.expenses pertaining to the period are included under this proces: b) Analysis : This involves the claséification of expenses into various elements of costs like Material, Labour and Overheads. c) Allocation : This is possible when entire amount of a given item is charged directly to a department or work centre. (i.e. Cost Centre) a) Apportionment : Where an item of cost cannot be entirely ‘charged to: a particular department or work centre, it is distributed equitably among the departments concerned on appropriate basis. e) Absorption : After allocation and apportionment of costs to the departments or, work centres, the aggregate cost is absorbed by or charged to the product or services produced in that department. This is done by using appropriate base of absorption known as "unit rate’. Generally the process of allocation, apportionment and absorption is essential in relation to indirect costs. . ‘Thus, through these five steps, the expenses pertaining to a particular period are translated into cost of product produced or services rendered and expenses are linked to production. ‘These measures are known as system or method of costing. Cost Ascertainment and Cost estimation Basis Cost Ascertainment Cost Estimation ‘Meaning : Tt is the process of determination |It_ is the process of. of actual costs after it has been | determination of future costs incurred. in advance before production _ starts. Recording in| Actual cost is recorded in the| Estimated cost is not books : books of accounts recorded in the books of L_ accounts. Budget : Actual cost is not considered for | Estimated costs are used in | preparation of budget preparation of budgets. Price Quotation: | Actual cost is not used for price | Estimated cost is used for \ quotation price quotation. B. Cost Control Cost of product or services rendered and enable measure control is the second function of Cost Accounting. It is defined as “tool for guidance and regulation by executive action for cost of operating an undertaking’ by Institute of Cost and Works Accountants, London. This process involves : a) Setting up targets for expenses and activities like production, sales, purchase ete. b) Measuring actual expenses and volume of activities through cost ascertainment techniques; ©) Comparison of actual target and finding out deviations or differences and identifying areas of efficiencies and deficiencies; Analysing the causes of deviation and fixing responsibility on particular person within the organisation; and ©) Corrective action for improvement of performance in future. ‘The measures adopted to control cost are known as Techniques of Costing. ©. Reporting ‘This function is concerned with the presentation of information obtained through cost methods and techniques of costing to the management. The proper system of Teporting would ensure that concerned person receives right type of information at an appropriate time. ‘The reporting system differs from organisation to organisation, depending on peculiar needs. a) Scanned with CamScannerae: | ' 6 Sea's Cost Accounting (B.B.A. ~ Sem, —1) Nagpur tg ADVANTAGES oF cost ACCOUNTING Following are the advantages of Cost Accounting to various groups : 1. Management . 2. Employees ’ 3. Creditors and Lenders 4 Government and Public Enterprises 5. Society in general 3. Advantages to Management : 8) Choice of location, technology and capacity of project stage is totally based g cost calculations. ») Break-even analysis is necessary for taking decision about installation of plant, ©) Cost accounting facilitates determination of produet-mix. 4) Decisions regarding centralized and decentralized buying are based comparative costs. . ¢)_ Price fixation is always done on the basis of costing information, 4) Determination of number of workers, labour-mix, placement, promotion incentives of employees etc. is done on the basis of cost-beneht analysis. 8) Financial decisions like capital requirement, sources, time of raising capital ete are guided by cost considerations. h) Planning, decision making, co-ordination, performance appraisal, motivation ete, are basic functions of management and are possible only with the help of Cot Accounting. 2. Advantages to Employees : 8) Efficiency level expected by Management is declared in advance which imparts clarity to their work and undue work pressure is avoided. ©) Employees are distinguished as efficient & inefficient. It is great motivation for the best performers, ©) Efficient employees are properly rewarded by way of various incentives, bonus ete so their morale is maintained. 4) Dus to growth of organization, workers get better status, higher security of job and better prospectus for career development. 3. Advantages to Creditors and Lenders : a) Interest of creditors and lenders is better protected if the debtor organization is profit making unit and is on high growth track. ») Cost Accounting helps the lenders for taking decisions such as take over absorption or mergers of defaulting borrowers. ©) The soundness of present and prospective borrowers can be judged by the lenders on the basis of cost reports. 4. Advantages to Government and Public Enterprises a) Levy of indirect taxes like sales-tax, excise duty etc. is done considering the cost to the producer and capacity of customer to bear the tax burden. ») Government has to always keep the cost of collection of taxes as low as possible. ©) Costing helps the Government while preparing annual budget wherein revenues are matched with cost of projects and activities, 4 4) Measurement of efficiency of public enterprises in execution of the projects 18 based on costing information con ©) Fixation of procurement price of agricultural produce, administration of prices . Products ete. is possible only with the help of cost accounting, Advantages to Society in general : 4) Cost consciousness helps in bringing down the costs and prices so that the sustomers can get better quality things in reasonable prices, promotes 0% tate of economic growth, helps in getting advantages of exports. %) Cost data facilitates optimum. allocation of resources in the society. Scanned with CamScanner_ :- . -s a Mean., Scope of Cost Ale Cost Sheet and Tender row 3 ) Cost accounting provides data for census of production, input-output tables national income accounting etc. 4) Strict cost control and promotion of cost efficiency lead to higher level of ‘economic and social welfare in the society. LIMITATION OF COST ACCOUNTING a) Duplication of efforts : Cost Accounting is only repetition. It uses as a basis, Financial Accountancy data. Thus, it involves only rearrangement of data and change in terminology. To a great extent, expenses and costs mean the same thing, Thus, this involves only duplication of efforts, b) Expensive : Cost Accounting adds to the expenditure due to maintenance of registers, records and staff for cost ascertainment. This adds to the expenses. ¢) Unnecessary : Quite often, production volume and prices are determined by market forces, competition and regulatory government authority. In such cases enterprise management is not free to take effective decision. This reduces considerably utilisation of costing information, Therefore, the system is unnecessary. ) Not useful for decision making : Many management decisions are affected by consideration or factors other than cost. The impact of such factors outweigh cost consideration. This reduces utility value of Cost Accounts. e) Failure of the system : It is argued that costing system has failed to bring the desired results. Therefore, it is defective. f) Limited applicability : Modern methods of costing cannot be readily applied to certain industries. There is no ready made system which can be applied to all the concerns, 2) Not reliable : Cost accounting is bi COST CONCEPTS AND CLASSIFICATIONS Concept of Cost The term ‘cost’ does not have a definite meaning and its scope is extremely broad and general. It is, therefore, not easy to define or explain this term without leaving any doubt concerning its meaning. Cost accountants, economists and others develop the concept of cost according to their needs because one complete description of ‘cost’ to suit all situations is not possible. According to Oxford Dictionary, cost means “the price paid for somehing’. However, some of the definitions of cost are given below : 1, Cost is “the amount of expenditure (actual or notional) incurred or attributable to a given thing”. (CIMA, UK) “Cost is a measurement, in monetary terms, of the amount of resources used for the purpose of production of goods or rendering services”. (Cost Accounting Standards of ICWA of India) 3. “A cost is the value of economic resources used as a result of producing or doing the things costed”. (W. M. Harper) “Cost means economic sacrifice, measured in terms of standard monetary unit incurred or potentially to be incurred as a consequence of a business decision to achieve a specific objective”. (Committee on Cost Concepts and Standards of American Accounting Association) a man i ba order to assign a definite meaning to the term ‘cost’, it should be used with cost Rae Tan adjective according to the specific purpose for its use. For example, direct manned caeat ratiable cost, controllable cost, material cost, selling cost, prime cost, , differential cost, standard cost, estimated cost, actual cost, joint cost, conversi book, 82? Se8t ete., have specific meanings. All these terms have been explained in this, Cost ee Expense and Loss ' n the terms ‘cost’ and ‘expense’ are used interch: aoe bly. ead from from expense and loss. ne eae Tis thar nee 38 defined as “an expired cost resulting from a productive usage of an asset" t which has been applied against revenue of a particular accorunting period ed on estimates and hence it is not reliable. Scanned with CamScannera 3 wrs's Cost Accounting (B.B.A. ~ Sem. ~D (Nagpur ug, in accordance with the principle of matching costs to revenue. In other words, an ex is that portion of the revenue. In other words, an expense is that portion of the rey earning potential of an asset which has been consumed in the generation of reveny Unexpired or unconsumed part of the cost is recorded as an asset in the balance sh Such an unexpired cost is converted into an expense when it expires while helping | earn revenue. For example, when a plant is purchased, depreciation on plant (expig cost) is charged to profit and loss account as an expense and cost of plant remaining afy Providing depreciation (unexpired cost) is shown as an asset in the balance sheet. Eyg year, depreciation on plant representing expense is debited to profit and loss account ay depreciated value representing unexpired cost is shown in the balance shect. Prepaj insurance is also an example of unexpired cost which is shown in the balance sheet as q asset. Loss : Loss is defined as “reduction in firm's equity, other than from withdrawals ¢ capital for which no compensating value has been received”. A loss is an expired coy resulting from the decline in the service potential of an asset that generated no benefit the firm. Obsolescence or destruction of stock by fire are examples of loss \ | \, ¢ ! [Shown in i Profit and Loss own in ‘Account Balance Sheet oon debit side asan ANALYSIS AND CLASSIFICATION OF COSTS Prime Cost It comprises of all direct materials, direct labour and direct expenses. It is also known as flat cost. Prime Cost = Direct Materials + Direct Laboui Works Cost It is also known as factory cost or cost of manufacture. It is the cost of manufacturing an article. It includes prime cost and factory expenses [Works Cost = Prime Cost + Factory Overheads] Cost of Production It represents factory cost plus administrative expenses. (Cost of Production = Factory Cost + Administrative expenses. Total Cost It represents cost of production plus selling & distribution expenses. (Total Cost = Cost of production + Selling & Distribution Expenses| Selling Price Itis the price which includes total cost plus margin of profit or minus loss, if any- ‘Selling Price = Total Cost + Profit ( Loss)| Direct Expens ett Scanned with CamScannerMean, Scope of Cost Ale Cost Sheet and Tender ree’ 9 COMPOSITION OF SELLING PRICE | Profit | Selling and Distribution Overheads Office ' Overheads Factory | Overheads Direct Expenses Direct a 3 . 2 Labour 3 3g z = 6 2 6 Direct é 3 z Materials & ie a ‘TREATMENT OF CERTAIN ITEMS | | Expenses Examples Treatment | 1. Relating to | 1. Dock Charges Should be added to Direct Material | purchase of | 2. Import duty consumed. Materials | 3. Carriage | 4. Cartage 5. Loading & unloading charges 6. Octroi, custom duty 7. Material returned to suppliers. It should be deducted from Material cost, 2. Relating to | 1. Stores expenses Factory Overheads preservation | 2. Normal Loss Itis borne by good units. of Materials | 3. Abnormal Loss Excluded from cost statement. 4. Sale of scrap or residue of defective | Deducted from factory overheads. | goods or sale of salvaged goods. 3 Relating to | 1. Set up cost ‘Treated as factory overheads installation | 2. Inspection Cost ‘Treated as factory overheads | setup of | machines 4 Relating to | 1. Welfare expenses “Treated as factory overheads. workers 2. Canteen expenses Treated as factory overheads 3. ‘Training expenses Treated as factory overheads 4. Wages of Apprentices Treated as factory overheads 5. Workmen's compensation Direct wages if insurance wages are calculated after including 6. Travel concession the cost of benefits, 7. Profit sharing bonus Factory ovetheads if considered as { additional cos Expenen Direct expenses if treated for a tating to particular job. Otherwise considered eng as factory overheads. Direct materials selling & distribution overheads., a Fancy packing Scanned with CamScannerzo wen Cost Accounting (B.A. ~ Sem. ~D (Nagpur gy [ Beeman OF costs © Elements of Cost is defined by Institute of Cost and Management Accountants, England as “The primary classification of costs according to,the factors upon whj expenditure is incurred, viz., materials cost, wages and expenses] Cost of producing and selling of any product is divided into three main classe, materials, labour and expenses. For example, when a book is published cost of paper material cost, payment made to workers engaged for printing, binding etc. is labour co, and royalty paid to writer of book, rent of premises, clerical salary, advertisement, pom, ete. are expenses, These ‘classes’ of cost are called Elements of Cost. ‘The details of the elements of costs are as under : Direct and Indirect Expenses : Total expenses are bifurcated into direct expense and indirect expenses. Dire expenses are those which can be conveniently allocated to a particular product, job ¢ service unit, For example if cloth is produced the expenditure for cotton, yarn and othe chief materials like caustic soda, soda ash etc., wages paid to labourers of carding spinning, weaving departments ctc. are direct’ expenses of material and laboy respectively. In addition to this expenditure by way of power, fuel, depreciation ¢ machineries, are examples of direct expenses. While there can be various indirec expenditure items like Factory expenses, office and administrative expenses, selling an, distribution expenses which are incurred for the factory as a whole and the same canno be allocated to any product directly. (| | 1. Direct Materials : The materials which directly enter the product and forms par |_— of finished product are direct materials. They can be easily identified in th product and can be directly charged to the product. For Example, wood it furniture, paper in book. All components used in the product, all material passing from one process or production to other are the examples of direc materials. 2. Indirect Materials : Materials used for repair and maintenance of machinery spares, compo-nents, packing materials etc. are indirect materials. Thest materials normally do not form a part of finished product and may not bt identified separately in finished products. For example cotton, waste, lubricants belting ete. 3. Direct Labour : Wages paid to the workers who are directly involved it manufacturing process are only included here. Such wages can conveniently bt allocated to particular job, product or service unit. It refers to all labour expende in the construction, composition for manufacture of the product. 4, Indirect Labour : Wages paid to workers who are not directly involved it manufacturing process are called indirect labour. Wages paid to foremen storekeepers, watch & ward staff, repairs & maintenance staff, supervisors etc are example of indirect labour charges. 5. Other Direct Expenses : Expenditure which can be conveniently allocated to é particular job or product other than the direct material and direct labour art called direct expenses or charges. Carriage of raw materials, royalty paid on tht basis of quantity of goods, hire of special equipment for production, cost 0 defective work ete. are examples of direct expenses. 6.. Other Indirect Expenses : A. Factory Overheads : Those indirect expenses incurred in factory are calleé works overheads or factory overheads. These include the expenses incurreé inside factory like, rates and insurance, transport, wages paid to repai gangs, works manager's salary, workers canteen and welfare expenses, depreciation of factory building etc. Office and Administrative Overheads : Those indirect expenses incurred it office are termed as office overheads. These expenses include salary of office staff, office rent, lighting, printing & stationery, accounts department expenses, Directors fees, telephone, postage, legal expenses, audit fees etc. C. Selling and Distribution Expenses : The selling expenses include indirect material, indirect labour and indirect expenses incurred {oF Scanned with CamScanner‘Mean, Scope of Cost Ale Cost Sheet and Tender err oh promotion of sales and relating customers. For example salaries and commission of sales manager, advertising, samples, bad debts, sales office expenses etc. While distribution expenses include all indirect material, indirect labour and indirect expenses incurred in handling the product from the time it is completed in factory till it reaches its destination. For example cost of packing and forwarding, loading, carriage outward, dispatch clerks’ salaries, upkeep and running of delivery vehicles etc.| Elements of costs can be presented in table form as under : ——_ | Elements of Cost | wala ce wis] [tim | [tis Work ‘Administrative | [ Selling & we oma COST OF PRODUCTION OROFFICE COST = Works / Factory Cost + Office & Administrative Overheads COST OF SALES Cost of Production + Selling & Distribution overheads SELLING PRICE = Cost of Sales + Profit ITEMS EXCLUDED FROM COST ACCOUNT: Following items are excluded from the cost accounts as they do not affect the cost of production : 1. Financial Matters : Interest on loans and dividends on shares paid / received, rent recei-vable, cash discount received / paid, profit / loss on sale of investments / fixed assets, expenses for raising capital etc. 2. Profit Appropriations : Income-tax, wealth-tax, transfer to reserves, charitable donations, excess depreciation, amounts written off, profit-based bonus to directors etc. 3. Abnormal Expenditure : Cost of abnormal wastage of material by theft, fire etc., abnormal idle time, cost of rectification of defective work, exceptional bad debts, fines and penalties for infringements of law ete. PREPARATION OF COST SHEETS TENDERS AND QUOTATIONS Where only one product is produced the cost records are maintained under Single or Output or Unit Costing. All information necessary for finding out the cost of production can be taken from financial books if so designed. Single or output cost system is used in the business where a standard product is turned out and it is desired to find out the cost of a basic unit of production. It is applied where the manufacturing process is a single one and the product also is generally single. The industries where this method of costing is Used are collieries, quarries, brick-making, breweries, etc. The unit of cost is the unit in which ultimate production is measured e.g. per ton of coal, per 1000 bricks or per SMe Of the single product, -A-~ Cost Accounting (Sem. — 1) (Nagpur University) Scanned with CamScannere wes STATEMENT OF COST For calculating cost per unit, a statement of cost is prepared. This statement show prime cost, works cost, cost of production, cost of goods sold and cost of sales. Pre may be ascertained if selling price is known or estimated. Format of simple cost sheet and standard cost sheet are given below : Cost Accounting (B.B.A. ~ Sem. ~I) (Nagpur Ui SIMPLE COST SHEET Cost Sheet For the period Units Products... Units soy Particulars Total Cost | Per Unit z g Direct Materials Direct Labour Direct Expenses Prime Cost Factory Overheads Factory Cost ‘Administrative Overheads Cost of Production Selling and Distribution Expenses ian Total Cost 2 Add Profit (% on Sales) ee Sales STANDARD FORM OF COST SHEET Cost Sheet Month Ending Units Products...... Particulars Total Cost] Per Unit z z Direct Materials Opening stock of material Add ; Purchases of materials Less : Closing stock of materials Materials consumed Direct wages Direct Expenses 1, Prime Cost Factory (Works) Overheads : Fuel power and water factory Lighting heating Indirect Material Wages of foremen and other Indirect labour Drawing office, works office expenses Depreciation on plant, equipment Depreciation on factory land and building | Factory rent, taxes and insurance Less : Scrap value Defective work ‘Add : Work in progress (Opening) Less : Work in progress (Closing) 2. Works Cost ‘Administrative Overheads Office rent, insurance, lightiing, cleaning, Office Salary ‘Telephone, law expenses, audit fees Depreciation on office building and furniture Director's remuneration General Manager's sulary Printing and stationery Scanned with CamScanner“Mean, Scope of Cost Ale Cost Sheet and Tender 3. Total Cost of Production ‘Add : Opening Stock of Finished Products {Less : Closing Stock of Finished Products Selling and Distribution Overheads Show room expenses Salesman’s salaries and commission Bad debts Discounts to distributors Warehouse rent and other expenses Carriage outwards Advertising Delivery expenses 4. Cost of Sales Net Profit, 5,_Selling Price Illustration 1: From the following particulars of product. X compile Production Statement, for the month of August : Raw Material Opening Stock Purchases Closing Stock Direct Labour Factory overhead Office and Administrative overhead Finish Stock Opening Stock 500 units @ & 11.20 per unit Closing Stock 1,500 units @ current cost price. Profit on Sates 20% Selling and Distributive Expenses & 20,000 Units produced 25,000 Solution : z 20,000 1,50,000 10,000 60,000 22,500 27,500 Production Statement of Product X for the Month of August Units Total Cost Raw Material Opening Stock 20,000 Add ; Purchase 1,50,000 1,70,000 Less : Closing Stock Direct labour Prime Cost Factory Overhead Factory cost vg Ullce and Administrative overhead Cost of Product ‘Add: Opening Stock @ ® 11.20 ess Closing Stock @® 10.80* Gent of Goods Sold ling and Distribute Court att Distribute Expenses Profit 25% on cost of sales £2,20,000 = 25,000 units = 10.80 25,000 10,000 25,000 25,500) 1,500 24,000 Scanned with CamScanner7 ws ‘ustration 2 : Cost Accounting (B.B.A.~ Sem. ~ 1) (Nagpur Unig} The following extracts of costing information relate to commodity A forthe year ending 31-03-2015, Purchase of flaw material 48,000 Direct wages 40,000 Stock on 01-04-2014 of Raw material 8,000 of Finished goods 1,600 quintals 6,400 Stock on 31-03-2015 ‘of Raw material 8,800 of Finished goods 3,200 quintals Work on Cost 16,800 Work-in-Progress 1 April 2014 1920 31" March, 2015 6,400 Office and Administrative Overheads 3,200 1,20,000 Sales (Finished Product) Advertising, discount allowed and selling cost is Re 0.40 p commodity were produced. er quintal. During the year 25600 quintals of ‘Calculate cost of production and extend the cost sheet to include profit also so that it may also be called Production Statement. Solution : Cost Sheet for the Year ending 31* March, 2015 Particulars Total Cost | Unit Cost z z Raw material used Opening Stock Add : Purchases | | Less Closing Stock 47,000 Direct wages 40,000 | Prime Cost 87,200 Works on Cost _16,800 | 1,04,000 Add Worke-In-progress in the beginning | Zis20 1,05,920 Less : Closing work-in-progress 6,400 Works Cost 99,520 3.89 Office on Cost 3,200 1,02,720 Cost of Production 25,600 quintals ‘Add: Opening stock of finished goods 1,600 quintals 27,200 quintals 1,09,120 | 4.01 Less : Closing Stock of Finished goods 31200 quintals | “azaio) Cost of goods sola 24,000 quintals 96,280) 401 Selling cost & 0.40 per unit sold 9600, 040 : peso; 40 Profit (balancing figure Mp2, 28 es | T20,000| 5.02 & 1,02,720 x 3,200 units =F 12,840 25,600 units )) Mlustration 3 : From the following data, relating to the manufacture of a standard product during the month of S&P! prepare a statement showing cost and profit per unit. Raw Material used Direct wages Man Hours worked z 40,000 ; 24,000 9,500 (hours,) 4 * al Scanned with CamScanner-Moan., Scope of Cost Ale Cost Sheet and Tender wee 15 Man Hour Rate 4 per hour “ Office Overheads 20% on Works ¢dst Selling Overheads 1 per unit Units produced 20,000 Units sold 18,000 @ 8 10 per unit Solution : Cost Shect of for the Month of Sept., Particulars Total Cost] Per Cost Closing Stock 19,000 48,300 3.22 Direct Wages 32,000 Prime Cost 80,300 Works Expenses : Indirect Wages 4,000 | Power 1,050 i Plant Maintenance 3,660| | Rates and Lighting 9/10 900) 1 Sundry Expenses 1,400 Building Repairs 9/10" 90] B’s Salary 1,200) Depreciation: Plant 1,900 | Building 9/10 720 Rent (9/10) 1,080, Less : Scrap/s Sale 400) 15,600 1.08 Add : Work-in-Progress “| 95,600 6.39 6,500 0.43 Less : Closing Work-in-Progress 1,02,400 6.82 7,200 Ost Works Cost 94,700 631 Office Expense: Salaries | Rates and Lighting 1/10 | | ‘Sundry Expenses Building Repairs 1/10 | D's Salary ) Depreciation Building 1/10 ] Rent _13,300 0.89 Cost of Production j 1,08,000 7.20 Opening Stock of Finished goods 4,500 Less : Closing Stock of Finished Goods @ & 7.20 112,500! 720 Cost of Goods Sales 5040) 1,07,460 720 Selling Expenses Carriage Outward Travelling Expenses Advertising ‘Agent's Commission | Bad Debts 2,000 Cost of Sales 719,460) 8.01 Profit 40,540| _2.72 Sales 60,000, 10-73. Note + Income Tax, discount re financial nature. Illustration 8 : Work out in cost sheet form the un Paper Mill in December from the following. data Direct Materi Paper Pulp ~ 500 tons @ 50 per ton Other Materials ~ 100 ton’ @ & 30 per ton ived and interest on capitals, have been on it cost of production mitted being items of Pet ton of special paper, manufactured by # Scanned with CamScanner‘Mean., Scope of Cost Ale Cost Sheet and Tender rs 19 Direct Labour : 80 skilled men @ & 3 per day for 25 days. 40 unskilled men @ ® 2 per day for 25 days. Direct Expenses : “Special Equipment 3,000 Special dyes 1,000 Works Overhead Variable @ 100% and Fixed @ 60% on Direct Wages Administrative Overhead @10% and Selling and Distribution overhead @ 15% on works cost 400 tons of special paper was manufactured and Rs 800 was realised by the sale of waste material during the course of manufacture. The scrap value of special equipment after utilization in manufacture is nl Solution : Cost Sheet of December z z Total _| (Per Unit) Direct Materials : Paper Pulp 500 tons @ 50 per ton 25,000| 62.50 Other Material 100 tons @ 30 per ton 3,000 50 28,000) 70.00 Less : Sale of Waste realised '200 2.00 27,200| 68.00 Direct Labour 80 skilled men @ € 3 per day for 25 days 80 x 3 x 25 6,000] 15.00 40 unskilled men @ % 2 per day for 25 days 40 x 2 x 25 2,000 5.00 Direct Expenses Special Equipment 3,000 7.50 Special Dyes 1,000 2.50 Prime Cost 39,200) 98.00 Works Over head Variable 100% on Direct Wages 20.00 Fixed 60% of Direct Wages 6,000 + 2,000) 12.00 Works Cost 130.00 Administrative Overhead 10% of Works Cost 13.00 Cost of Production 143.00 Selling and Distribution Overhead 15% of Works Cost 19.50 ‘Total Cost 162.50 Illustration 9 : ‘The accounts of PK. Manufacturers Ltd forthe year ending on 31" March, 2015 ; show the following : z Stock of materials on 1* April, 2014 67,200 Materials purchased 2,59,000 Bad debts written off 9,100 Travelers’ salaries and commission 10,780, Depreciation written off on office Furniture 420 Rent, rates, taxes and insurance (factory) 11,900, Productive wages 1,176,400 Directors’ fees 8.400 General expenses 4,760 Gas and water (factory) 1,680 Travelling expenses 2,940 Sales 6,00,000 Manager's salary (2/3 rd for factory, 1/3 rd for office) 15,000 Depreciation on plant and machinery 18.200 Cash discount is allowed 4.060 Repairs to plant and machinery 6230 Carriage and cartage outwards 6020 Scanned with CamScannerto ries Cost Accounting (B.B.A.~ Sem. —D (Nagpur Un, Direct expenses Denn 1 Rent, rates and insurance (office) a Gas and water (office) eH Stock of materials as on 31" March, 2015 an: Prepare a statement giving the following information : (i) Materials consumed; (ti) Prime eq Giii) Factory cost ; (iv) Cost of production; Cost of Sales; and (vi) Net Profit. Solution : Statement of Cost Period : year ended 31-03-2015 ae a 2 Materials Consumed : | Opening Stock 67,200, Purchases 2,59,000, 3:26,200| Less: Closing Stock 87,920) 2.38.9 Productive Wages | N76, 40) Direct Expenses 10,01 Prime Cost 525,65 Factory Expenses : Rent, Rates, Taxes and Insurance 11,900 Gas and Water 1,680 Manager's Salary (2/3 x 15,000) | 10,000 Depreciation on Plant and Machinery | 18:20 Repairs to Plant and Machinery 6230) _48,01 Factory Cost a7 Office and Administration Expens: | Directors’ Fees | 8,400 General Expenses | 4760 Manager's Salary (1/3 x 15,000) | s;000 Rent, Rates and Insurance | 2800 Gas and Water | 360 Depreciation on Furniture | _420) _o194 Cost of production | 594,68 Selling and Distribution Expenses : | Traveller's Salaries and Commission | 10,780 ‘Travelling Expenses (see Note 1) 2,940 Bad Debits | 9,100 Carriage and Carriage Outwards | 6020 Cost of Sales | Net Profit (balancing figure) Sales Notes : 1, Ithas been assumed that Travelling expenses have been incurred in connection with sales : 2. Cash discount has been treated as a financial charge and excluded from cost accounts, Ilustration 10 : The following figures are extracted front the books of a manufa icturing company for the year end 31* March, 2015. Prepare a cost sheet showing clearly the cost per unit under the various elements and a the Profit & Loss per unit. Particulars amt] Particulars | Ait z ie Direct materials 25,00,000 | Branch office expenses 30,000 Direct labour 8,00,000 || Depreciation of office building 10,008 Depreciation of factory building "16,000 | Depreciation staff cars. 15,008 Insurance Blectricity (including ¥ 5000) | 1 Staff cars 2,000 || For administrative office | 35,000 Office building 1,500 || Advertisement 18,000 Factory building 2,000 || Sundry factory expenses | 420.00 Delivery van- maintenance and | | Sales promotion ee | running expenses 12,000 | fice ‘administration expenses | 60,06 jes (including that of sales | Expenses for participating Salaries eg 20,000 and | __ in industrial exhibition | 8,000 factory chief engineer 25,000) } 2.78,000 | Sates (10.000 units) | go.0o.il Finished goods warchouse expense: 000 || Units produced — 10,000 __| 50,00,008 Scanned with CamScannerMean. Scope of Cost Ale Cost Sheet and Tender rae x Solution = “" ‘Output : 10,000 units Cost Sheet Period : year ended 31:3.2015. Product — X_ Product — ¥ Cost Total No. of Cost | Total per unit, Units per unit z z z z Direct Materials 25,00,000 250.00 Direct Labour 8,00,000 80.00 Prime Cost 33,00,000 330.00 Works overhead : | Depreciation of Factory Building 16,000 1,60 Insurance of factory Building 2,000 0.20 Salary of Factory Chief Engineer 25,000 2.50 Electricity (35,000 ~ 5,000) 30,000 3.00 | Sundry Factory Expenses 4,20,000| _4,93,000 42.00 | _49.30 Worlks Cost 37;93,000 379.30 Office and Administration Overhead : Depreciation of Office Building 10,000 1.00 Depreciation of Staff Cars 15,000 1.50 Insurance of Staif Cars 2,000 0.20 Insurance of Office Building 1,500 0.15 Salaries (275,000-20,000-25,000) 2,30,000 23.00 Electricity 5,000 | “oso Other Office Administration Expenses 60,000) _3,23,500 6.00 Cost of Production 41,16,500 Selling and Distribution Overhead : Sales Manager's Salary 20,000 2.00 | Advertisement 18,000 1.80 Sales Promotion #000 0.40 Expenses in Industrial Exhibition 8,000 0.80 Branch Office Expenses 30,000 * 3.00 Finished Goods Warehouse Expenses} 15,000 1.50 Delivery Van Maintenance ‘and Running Expenses 412,000| _1,07,000] 1.20 Cost Sales 42,23,500 922.35 Profit (balancing figure) 7,76,500, 77.65 Sales. 50,00,000 Illustration 11: From the following particulars prepare a statement in such form as you consider most suitable for elements of cost = Farialars [at Pana ag — stock of raw material 25,000 || Carriage on goods sold Paw tastritereturned to suppliers} "2/000 || Fuel Gan Waves et Closing, Stock of raw materials, 18,800 || Repairs to plant | Wages paid to Depreciation on machinery | Preductive workers 18,000 || Otter expenses Nom productive workers 21000 | Direct churgeable expenses Salaries pelo lie stall 000 || Advertsing Muara purchased| "800 || Abnormal fos ofraw materials —_ 1,200 Materials Consumed Opening, Stock, Purch Carriage on Purchases Less : Returns Less : Abnormal Loss (See Note) Scanned with CamScannerCost Accounting (B.B.A. ~ Sem. ~ 1) (Nagpur Uy a v8 Less : Closing Stock | Productive wages Direct Chargeable Expenses | Prime Cost Works Overhead : 2,000 Non-productive Wages 2,500 Rent and Rates of Workshop | ooo Fuel, Gas, Water ete. 600 | Repairs to Plant 1400] _7, Depreciation on Machinery | 99% Works Cost | Office Overhead : 5,000 Salaries to Office Staff 1'500 | Office Expenses ao Cost of Production | Selling Distribution Overhead : 1,500 | Carriage on Goods sold 1200 __2,7 Advertising | “_ i9, Cost of Sales Note : Abnormal loss of materials should be excluded From cost and debited to costing profit and loss a hence it has been deducted from materials cost. Mlustration 12: 4 ‘The following data relate to the manufacture of a standard product during the four-week-period 31" March, 2015, Raw materials consumed 4,000 Wages % 6,000 ‘Machine hours worked 1,000 Machine hour rate 50 paise Office overhead 20% on works cost Selling overhead 6 paise per unit Units produced 20,000 Units sold 18,000 @ Re. I per unit ‘You are required to prepare a cost sheet showing the cost per unit and profit for the period. Solution : Output : 20,000 units Cost Sheet Period : 4 weeks ended 31.3.20! | Total | Per Unit) Lie |e Raw Materials Consumed 000, Wien | 61000 | Prime Cost | 70,000 | Works Overhead (1,000 hours @ Re. 050) | "soo | Works Cost | 10,500 | Office Overhead (20% on works cost) | 2,100) Cost of Production | 32,600 | Less : Closing Stock (2,000 units @ Re. (0.630) 1.260 | Cost of Goods Sold (18,000 units) | 1340 Selling Overhead (Re. 0.06 per unit on 18,000 units) | oso Cost of Sales 72,420 Fron oalenins) figure) Sales 5.580 Ilustration 13 ; From the following particulars you are required to prepare a mont ; 5 are 0 th ect mnufactu company shoving cost and profit per 1.000 units of production Y ere mes. ofa Manel ei erie i. a form of summary the ost of sales, net profit and sales forthe month, The Comes mfacares only ne pe of pro opening stock was valued at the same price per 1,000 units 25! Materials Basic raw materials Stores 1,400 tons @ @ 5 per ton 5,000 j Scanned with CamScanner23 ‘Meon, Scope of Cost Alc Cost Sheet and Tender o's" Labour: Direct 16,000 te Indirect 3,000 Overheads : Works 25% of direct labour Office 10% of works cost, Production for the month of November, 2014 ; 10,00,000 units Sales for the month 9,00,000 units @ & 50 per 1.000 units. ‘Stock at the begining of the month : 2,00,000 units. Stock atthe end of the month : 3,00,000 units. Solution Output : 10,00,000 units Cost Sheet riod : November, 2014 Total] Per Unit z z Basic Raw Materials + 1,400 tons @ Re. 5 per ton 7,000] 7.00 Direct Labour 16,000 Prime cost 23,000 Indirect Materials 5,000 Indirect Labour 3,000 Works Overhead : 25% of direct labour 4,000 Works Cost 35,000 Office Overhead : 10% on works cost 3,500 Cost of Production 38,500 Add : Opening Stock : 2,00,000 units @ Rs, 38,50 Per thousand units 7.700 46.200 Less : Closing Stock : 3,00,000 units @ Rs. 38.50 per Per thousand units | 11/550 = Cost of Goods Sold (9,00,000 units) 34,650| 38.50 Profit (balancing figure) 10,350] 11.50 Sales 45,000] 50,00 Illustration 14: The following particulars have been extracted from the books of M. Manufacturing Co. Ltd., Kolkata for the year ended 31 March, 2015. Particulars Tmt Particulars ‘Amt z z Block of Materials as on = Rent, Rates, Taxes and 1s April, 2014 47,000 || Insurance (Factory) 3000 Stock of Materials as on ‘Travelling expenses | 3:00 31 March, 2015 50,000 || Travelers Salaries and Commission | 8,400 Materials purchased 2,08 000 || Production Wages 140,000 Drawing Office Salaries 9,600 || Depreciation written off on | Counting House Salaries 14,000 || “Machinery, Plant and Tools 7,100 Carriage Inwards 8,200 || Depreciation written of on Furniture, "600 Carriage Outwards 5,100 || Directors Fees 6,000 Cash Discount Allowed 3,400 | Gas & Water Charges (Factory) 1,500 Bad Debts written off 4,700 || Gas & Water Charges (Office) '300 Repairs of Plant, Machinery | General Office Charges & Tools 10,600 || Manager's Salary 12,000 Rent, rates, taxes and Insurance (Office) 1,000 Out of 48 working hours in a week, the time devoted by the manager fo the factory and office was on an average 40 hours and 8 hours respectively throughout the accounting year. Solution : In the books of M. Manufacturing Col Ltd. Statement of Cost and Profit for the Product For the year ended on 31+ March, 2015 Particulars Details | Amount z z z Direct Materials of Raw Materiala consumed : Opening Materials 47,000 Add : Purchases of Materials 2,08,000 Add : Carriage Inwards 8,200] 2,16,200 Scanned with CamScannerCost Accounting (B.B.A. ~ Sem. ~ I) (Nagpur Un x Horr 75000 50,000) 2,13 Less: cosing Stack 23, Labour or Productive Wages asad Prime Conk ractny Oven «600 Drawing Ofte Sales 1220 Repairs of Plant, Machinery & Tools Seco | Rent, Rates, Taxes and Insurance (factory) 7.100 | Depreciation on toa tae in & Tools | 11500 | Gan a Wate Caeaee ees Manager's Salary for factory (12,000 x 40/48) 20.000) 1a Works Cost or Factory Goat 8 omes & Adsininntios Orton saoo Counting House Salaries Hey | Rent, Rate, Taxes & Insurance (office) *600 | Depecaton ss Rem (209 Divcors ree 200 Gas & Water Cargo *s00 General Otes Oe! Manager's Salary for office (12,000 x 8/48) 2,000) 2890 Cost of Production | 323090 sening Onesnees “Bad Deb sana | Sop Trevetine See S100 Travelers Salaries & Commission 8,400 19,60, Distabatlon ovens “4 Cartage one | an of Sucre Fota cost | it & Working Notess=-===- J 2) Assume all the goods produced during the year, were sold out in the same year. })_*Some Cost Accountants donot prefer to include Cash Discount allowed sel Bad Debts writteng the Cost Sheet on the ground that these are purely off financial matters Mlustration 15 : {n 8 factory wo types of tape recorders are manuftcture viz. “Aryobbat’ & ‘Rohini’ models from Following paniculars prepare a statement showing cost & profit per old tens ho opening or closing stock Aryahhat Rohini Labour 15,600 62.920 Material 27,300 1,08,680 Works overhead is char & 286 ‘Rohini’ models were sold, Solution : Comparative Cost Statement for the year ended (78 Units) B 286 U: Particulars ‘Total PerUnit | Total_| Per Unit Materials 27,300 10,8680) 38 Labour 415,600 62,920 2 Prime Cost 42,900 1,71,600 Factory on Cost : | _ Works overhead 80% of labour | 15,600 too” 12.480 ; [2,920 | 5 oy 4 41529 40 « 50,336 12,480 160 50,336 | a Factory Cost 55,38 9 m setory Con 0 710} 2,21,936] Office overhead 15% of works cont 0x 15 $8.88 8 0 307; Scanned with CamScannerMoun. Sow of Cost Ae Cost Shovt and Tender wee. 3 21,936« 18 ' 1 \ 2a 7 3.290 8,907 | 107, 6 Total Cost 63,687 a7, 2,55,426) 392 Aad : profit 14,313 183) 30,774 108 = 78,000 4,000, _2,86,000' _ _ TENDER QUOTATION . Type No. 1 ‘Where all Information are Given Note : If manufacturing expenses increase in combined proportion of material and wages, then *+ will be calculate for the calculation of manufacturing expenses in Tender Sheet Mlustration 16: Following is the Trading & Profit & Loss account of a company which manufactures 1000 Rainconts Particulars Amt.) Particulars Asst. z z Material 50,000 Sales 120,000 Gross Profit ‘coats in the year 2015, will go up by 20% and wages 10%. will increase in combined proportion of material and wages. i 30,000 Woes 35,000 Prime Cost 75,000 Factory on cost : = Munutacturing kapenses sax Factory Cost Office un Cast : sooo Ment Sates ond Tanes 208 Gepeses Rapenises 2s Cost uf Production Seliing end distribution on coat! & in tnpeneen Fer aing eayenees Total Cost Ald Veotie Bales Scanned with CamScanner26 Cost Accounting (B.B.A. ~ Sem. —1) (Nagpur tig sss" i Percentage of Manufacturing Expenses to Prime Cost Matiufacturing Expenses 100 Prime Cost 15,000 69 = 99 75.000 % 100 = 20% Tender of Quotation Particulars vai = 25,000 Material = “P3q9"% 500 20% of increased (25,000) Wages = 75.000 . s00 10% of increased (12,500) Prime Cost Factory on cost : Manufacturing exp. 20% of prime cost (43,750) ae Factory Cost , Otice on Cost : : e00| taxes 2,000) Rent, Rates a , General Expenses 12000) 2240 Cost of Production 74,50 Selling and distribution on cost : Selling Expenses = 2008 x 500 1,000 0 Packing Expenses = 202 500 | 00} _1,50 Total Cost. 76,00 Add: Profit 19,00 ‘Tender Price 95.00 Mustration 17: 8 3 ‘account for the year 2014 is set act below : Total Cost _ 76,000 x20 _ 100-20 ~~~ go = 19,000 A firm manufactured and sold 1000 typewriters in the year 2001. Its Summarized Trading & P & Particulars ‘Ant Particulars Tat z x Cost of material 80,000 | | Sales 00,06 Direct Wages 1,20,000 ‘Manufacturing charges 50,000 Gross Profit 1,50,000 4,00,000 4,00,00 Management and staff salaries {60,000 || Gross Profit 1,50,00 Rent, rates and insurance 10,000 || 4 General Expenses, 20,000 Selling Expenses *30,000 Net Profit 30,01 1,50,00 |_ 150.00 1. Output and sales will be 1200 typewriter in 2015, 2. Prices of material will rise by 20% on the previous year level \ 3. Wages rate will rise by 5%, : {Manufacturing charges wil increase in proportion tothe combined of material and wages. i 5. Selling cost per unit will remain unchanged, i 6 Other expenses wil remain unaffected by the ise in output. i Prepare a statement showing the price at which the typewriters to be manufacture should i ‘marketed so as to show profit of 10% on selling price, oe aoe Scanned with CamScannerMean, Scope of Cost Ale Cost Sheet and Tender a's 7 Solution = Cost Statement production : 1000 units f Year = 2014 Particulars z z Gost of Material 80,000 Direct Wages 1,20,000, Prime Cost 2,00,000 Factory on Cost ‘Manufacturing Charges 0,000 Factory Cost 2,50,000 office on Cost : Management and staff salaries 60,000 Rent, Rates and Insurance 10,000 General Expenses 20,000 _ 90,000 Cost of Production ~ | 3,40,000 Selling and Distribution on Cost : Selling Expenses _30,000 Total Cost Add: Profit Sales 00,000 Percentage of Manufacturing Expenses to Prime Cost Manufacturing Expenses 1g Cost of Production Selling and Distribution on Cost : - Mp Ct 50,000. = 259 30000; 100 =25% Tender of Quotation for 1200 Typewsters (Yesr=2015) Particulars = [= 00 | waterat = 5289 1200 96000) 20% sed (6,000 19.200) 1,15,200 09 piret wages = 222.22 4 1200 148,000 5% sd (148,000 7200) 151,200 Prime Gost 268800 Factory on Cost Stesufetaring charges 25% of rime cat 66,600 Factory Cort 338,000 ortce on 22k Management sd Staff Salaries 60,000 Rent, Rates and Taxes ae oo ae al Expenses 90,00 General Expense 23am Selling Expenses = 22-990 x 1200 36,000 , 4,59,000 Raat Gomsend | _‘s1/000 ‘Tender Price 10,000 Total Cost _ 459,000 x 10 Total Cost _ 4,59,000% 10 _ 51 99 100-10 90 51,000 ub Vt Ilustration 18 : Following one the particulars forthe production of 2000 sowing machines of Bharat Engincering Lid for the year ending 31" March 2014. z Particular 1,60,000 Cost of material 240,000 Wages 1,00,000 Manufacturing Expenses 1,20,000 Salaries "20,000 Rent, rates and insurance 3BB.A.~ Cost Accounting (Sem. ~1) (Nagpur University) Scanned with CamScannermg 2 wee General Expenses Selling expenses Sale i Cost Accounting (B.B.A. ~ Sent. — 1) (Nagpur Unig 40,000 60,000 8,00,000 Company plans t9 manufacture 3000 sewing machine during the year ending 31% March 2015 Statement showing the price at which machine would be marketed so as to show a profit of I ‘rice, Following additional information is supplied to you : 2. Wages rate will rise by 5%, Manufacturing expenses will ise in 4. Selling expenses per unit will remain the same, 3. Other expenses will remain unatfe; ted by the rise in output, 0% on sel 1. Prices of material will be rise by 20% on the previous year level proportion to the combined cost of material and wages, Solution : Cost Statement Production 2000 units Year = 2014 Particulars [eT ‘Cost of Nateriar | 1,60;009 Direct Wages 2,10,009 Prime Cost 4,00,009 Factory on Cost : | Manufacturing Expenses 1,00,009 Factory Cost | 5,00,009 Office on Cast Salaries, 1,20,000 Rent, Rates and Insurance 20,000 General Expenses 40,000! 1,80,00 Cost of Production a ee Selling and distribution on cost 6,80,000, Selling Expenses 60,000, Total Cost 77,40,000, Add : Profit 60,000 Sale | 500.000 8 | 00.000 Percentage of Manufacturing Expenses to Prine Gost Manufacturing Expenses Prime Cost * 100 1,00,000 ~ 4,00,000 * 10 ‘Tender of Quotation for 30000 Sewing Machines Production : 3000 units Machin 0 Year = 2018 articular; € z t Of Material » 1460,000 . " 2,000 * 3,000 2,40,000 20% rived a 2,40,000 -48,00¢ Wages = 280000 | a, x 3,60,000 | 5% tised Prime Cont | 18.000 Factory on Cost : | 25%, of prime cost | Factory Cont, 1,66,500 sand innurance | 20,000 | General Expenses 20,000, Cost of Production 40,000 | _1,80,000 Selling and distribution on cost 0,000 “000, * 4.000 Sellin xpennen = Total Cost Add : Profit 1402.50 + 10 100-10 ‘Tender Price 10,12,500 Scanned with CamScanner‘Mean., Scope of Cost Ale Cost Sheet and Tender Pas" a ilustration 19 : Production data ofa manufacturer forthe year ended on 31st March, 2009 is given below : Particular z Materials 2,50,000 Wages: 3,00,000 Works overhead 1,50,000 Office overhead 65,000 Selling Expenses (per unit ® 15) 15,000 Sales 9,50,000 Output was 1000 units. During the year 2010 the manufacturer wants to quote price for 1500 units, Materials cost is expected to rise by 10% and labour cost will rise by 20% Works overheads and office overheads will remain unchanged. Selling Expenses per unit will rise by 5 per unit, Manufacturer wants 20% profit on sales. Prepare a statement showing the quotation price of 1500 units and cost sheet for the year 2007. Solution : Cost Sheet Production : 1000 units Period 31*t March 2009 Particulars ‘Amount_|T.Amount| PU. Material Consumed ,50,000 250 Wages ‘A. Prime Cost Factory on cost B. Factory Cost Office Overheads ‘65,000 | ©. Office Cost 765,000 | Selling Expenses 15,000| D. Total Cost 5770.00, (#). Profit | 8,00,000 Sales | |. 9,50,000 | Tender Sheet Production : 1500 units Period : 2010 Particulars: [Amount [T- Amount] _P.U. [250 + 10% 275] Material Consumed : (WN — 1) 4,12,500 Wages {WN — 2) [300 + 20% = 360] 5,40,000 Prime Cost 9,52,500 Factory on cost 1,50,000 ‘Works Cost 11,02,500 | Office on cost [total uncharged] 65,000 Office Cost 11,67,500, Selling Expenses [15 + 5 = 20] _'30,000 Total Cost | 11,97,500 | (+) Profit 20% on Selling Price | _2.99,375) Selling Price / Tender Price / Sales 14,96,875 | 1. Material consumed as per (ender: Old material (P.U.) 250 (4) 10% (increase) 25 215 Total = 275 x 1500 = 4,12,500 2 Wages for tender Od wages (P.U,) 300 (4) 20% (increase) 60 360 Total 360 x 1500 ~ 5,40,000 Scanned with CamScannera ” wen Cost Accounting (B.B.A.~ Sem. ~D (Nagpur Unis ‘Type No. 2 When Manufacturing Expenses not Increase in Combine % of Material and Wage, Illustration 20 : ‘On 30th April 2015 a Fan manufacturer desired to quota for a contract for the supply of 1000 fans. Fro, the following data prepare a statement showing the price to be quoted to give the same percentage of ry Profit on tumover sales as was realized during the months ending 31" March 2015, i z Particular ( Stock of raw material (31st Oct., 2014) 35,000 Stock of raw material (31st March, 2015) 4,900 Purchase of raw material 52,500 Factory Wages (direct wages) 95,000 Factory Expenses 17,500 Establishment Expenses 10,000 Completed stock (31st Oct, 2014) Nil Completed Stock (31st March, 2015) 35,000 Sales. 1,89,000 ‘The number of Fan manufactured during the six month was 4,000 including those sold & those in stog at the close of the period. The fan to be quoted for are of uniform size & quality & similar to thoy ‘manufactured during six months, ending 31" March 2015. As from Ist April, 2015 cost of material increase bby 15% & the cost of factory labour or wages increased by 10%, Solution : Cost-statement for the six month ending on Sist March 2015 Production = 4000 Fan Particulars z T z | Per Unit Opening stock of raw material | 35,000 Purchase of raw material 52,500 87/300 Less: Closing stock of raw material 4,900 Consumed material | aaic00| 82,600] 2065 Factory wages / direct | | 95,000 23.75 ‘Prime Cost | ijr7600| 4440 Factory on Cost : Factory expenses 17,500] . 17,500| 48 Factory cost 1,95,100 48.78 omice on Cost : | Establishment expenses 10,000} _ 10,000, _28t Cost production 705.100} E12 Add: Completed stock il Less: Completed stock | 205,100 Cost of goods sold or Total cost “35,000 Add : 1,70,100 | | 18,000, Sales 189,000 | Statement showing Tender of Quotation for 1000 stores. Production = 1000 Fan Period : 30: April, 201 Particulars | _&__) Per Unit 32,600 Consumed Material 2502 ,. 1000 = 20,650 20,650) ‘Add: Cost of material increased by 15% 3,098 15 » | 20650 x 25; = 3097.5 23,748| 93,748) 297 5.000 Direct Wages » $2:008 , 1000 = 23,750 23,750 | a6 ‘Add : factory labour of wages increased by 10% 2,375 | | 36,138 i 3 Prime Cost | | pe Factory on Cost | Factory Expenses x 1,000 4,375 | 4,375 | 4 Factory Cost 54248 542 Scanned with CamScanner‘Mean, Scope of Cost Ale Cost Shet and Tender 3 Difice on Cost? - 10,000 | Establishment Expenses = 3P.900 1 99 | 250 ‘Total Cost a | ‘Add : Profit 10% | ‘Tender Price | Profit Total cost x 10 56,748 x 10 _ 5,674! Too = 19 = Profit = SSS TD 2 SED A Ilustration 21 : On 207 April 2015; tn electric meter manufacturer desired to quota fora contract for the supply of 10,000 meters, from the following data, prepare a statement showing the price to be quoted to give the same percentage’ of net profit on turnover as was realised during the six months to 31st March 2015, Particular z Stock of raw material 1st October, 2014 1,00,000 Stock of raw material 31st March” 2015 14,000 Purchase of raw material, 1,50,000 Factory Wages (direct wages) 300,000 Variable factory overhead ‘50,000 sales 5,40,000 Completed stock Ist October, 2014 Nil Completed Stock 31st March, 2015 1,00,000 Number of meter manufactured during the six months was 12,000 including those sold and those stock at the close of the period. The meters to be manufactured for are if uniform size upto 31st March 2015. {As from 1" April 2015 the cost of factory labour inereased by 10%. Solution : Cost-statement during the six month ended 31st March 2015 Production = 12,000 unit Particulars | __] Per Unit Stock of raw material 700,000 | ] Purchase of raw material 150,000 | 2150,000 | Less: Closing stock of raw material 14,000 | Consumed material 2736,000| 2,36,000) 19.67 Factory wages 310,000 25.00 Prime cost 5,36,000 44.67 Factory on Cost : Variable factory overhead 50,000 _ 50,000] _4.17 Factory cost | 586,000] 48.78 Office on Cost : | Cost production ‘Add: Completed stock (Opening) Less: Completed stock (Closing) | Total cost | Add : Profit | | Sales | Statement of showing Tender Price Price = 10,000 Period : 30% April, 2018 Particulars Z| ft _| Per nit Consumed Material 23 | 1,96,667 | Ad: Rctry / Direct Wages | 2.50000 | a yur increased 10% (2,50,000) 25,000 | gras Ca wimeeeenmaaera S7iser) amuesr) var Factor on Cost : 0 10,000 | | 150,000 x 10, : Variable Factory Overhead ==""73.000 41,667) 41,667) _4.17 Total | 513,294] 51,94 Ada: Prof | ex) 32 “Tender Price 570,371| $7.04 Profit = Fotsheost<10 _ prot = “gg = 57,037 100 = 10 Scanned with CamScannerAccounting (B.B.A. ~ Sem. er 32 rn" Cost Accounting j Mlustration 22 : i Following is the information regarding expenses incurred in the manufacture of 500 carpets for the six months ending 31* December, 2014. > z 1 Particular 5,000 \ Stock. of material 3,000, | Stock of material 5,000 Indirect Expenses 2,000 Completed Stock 3,000 Completed Stock 5,000 Wages 13,000 Material purchased é i Sales 30,000 Cost-statement for the half year ended Production = 500 Units. Period = 6 montiy | Particulars L__* = ‘Stock of Material | 5,000) Material Purchase 13,000 | 18,000 Less : Closing Stock of Material _3,000 Consumed Material 15,000! 15,099 Wages , 5,000 Prime Cost 25,000 Factory on Cost : Indirect Expenses 5,000) _5,000 Factory cost 25,000 i]| Omtice on Cost : | ‘4 Wi)! Cost production 35,000 Add: Completed Stock (Opening) | om 27,000 | Less : Completed stock (Closing) x rou ose | agen LL ada : Prone | 24,000 Sales |__a,omn ‘Tender of Quotation for 200 Ga Production = 200 Carpet v ho arpets Pe i sees iat = 15.000% 20 Stock of Material = 18.0003 20 Add: Direct Wages = 900 200 500, Prime Cost Factory on Cost : 8,000] _8,000 Indiret Expenses = 8.000» 200 | Factory Cont | Add : Profit 20% ‘Tender Price | 10,000 x 2 Profit = 10.000 20 5 509 i If in the example material and labour calculate on the basis of cost statement and al of previous percentage : ter fen for the tender when the follo fs ler whe wing three % will be ier that the Over-heads will be charge in the tender on the bal Scanned with CamScannerSt Men Seep of Cest Ale Cost Sheet and Tender wor PS cy Overhead 1, Percentage of Factory overhead to Direct Wages = FSEHELCTERSA 100 : 2, Percentage of Office overhead to Factory Wages = fies Ouest x 100 Percentage of selling and distribution expenses to Factory Cost Selling & distribution expenses actory Cost Note : If in the problem selling and distribution expenses is given separately and chang: uniform then both percentages will be calculate separately. in future is not Illustration 23 : From the following prepare cost statement x Stock of material 31" December 2013 30,000 Material purchased 7,50,000 Productive wages 6,00,000 Sales 16,30,000 Raw material on 31" December 2014 32,000 Work overheads 120,000 Office overheads 1,46,800 Company wanted to prepare a tender for a machine for the year 2015 as per cost department, the material will be consumed % 20,000 and labour % 25,000. Prepare the tender, which is showing 20% on selling price. Solution : Cost - statement for the year ended on 31* December, 2014 Particulars ‘Amount _| Amount Stock of Raw Material 7 30,000 Add : Material Purchased 7,50,000 7,80,000 Less : Stock of Raw Material _'32,000 Consumed Material Productive Wages Prime Cost Factory on Cost : | Works Overheads | Factory Cost Office on Cost Office Overhead, Total Cost Add : 20% Profit, Sales 7,48,000 Work Overhead Productive Wages * 100 1,20,000 00,000 * 100 = 20% Office Overhead Work Cost % 100 1. Percentage of Work Ovethead to Productive Wages= 2. Percentage of Office Overhead to Work Cost 10 16,48,000 * 100 = 10% ‘Tender Sheet Particulars: | Amount | Amount Material Consumed | 20,000 Labour / Wages | 28,000 Poca time Cost | 45,000 2% ot Labour (25,000) | 5,000| 5,000 Otte on Costs | 10% of Factory Cost (50,000) | 5,000 5,06 ue — | ego Scanned with CamScannerrrr Total Cost x 20 10030 = 35000220. 15750 Mlustration 24 Sa Cost Accounting (B.B.A. ~ Sem. ~1) (Nagpur u, | Production data of a manufacture for the year 2014 was as follows : Raw material Wages Work overheads Office overheads Sales Output was 10,000 unit durin, Material cost is expected to rise 10% Solution : z 20,000 30,000 15,000 6,500 90,000 the year 2015 the manufacturer want’to quote price for 500 unig and labour cost 20%. The manufacturer wants 10% profit on sale. Cost ~ Statement for the year ended 2014 Particulars z z Raw Material 20,007 Wages 30,009 Prime Cost 50,000 Factory on Cost : Works Overhead 15,000] 15,009 Factory Cost 165,009 Office on Cost Office Overhead 6,500} _6,509 Cost of Production 71,300 Add : Proft | 18's00 Sales 30,000 _ Work Overhead 1. Percentage of Work Overhead to Productive Wages= Direct Wages * ! 15,000 = 30,000 * 100 = 50% > = Office Overhead 2. Percentage of Office Overhead to Work Cost = WorkCost * 100 = £500. ~ 65,000 * 100 Tender for Quotation for the year ended 2015 Price = 500 Period ; 2015 Particulars z =] Per Unit 20,000 Raw Material = TOO" x 500 | 1,000 Materia] cost 10% rised 100 1,100 2.20 20,000 = Wages = To-gnp * 500 1,500 Wages cost 20% rised _300 Prime Cost waxes (1,200) 900 Factory Cost Office on Cont : 10% of factory cost (3,800) Bao Cost of Production 4,180 «10 Add : Profit = “i555 ‘Tender Price ~ Scanned with CamScannereT rm, Sxpeof Cot Ae Cost Sheet and Tender res) 3 wastration 25 ¢ a ‘Vijay scooters Ltd, Manufactured 175 scooters in the year 2014 at a production cost of & 33,46,875 eich he sold @ €27,000 each. Analysis of costs as follows z Material 14,35,000 Wages 16,62,500 Work overheads’ 2,49,375 ‘Administrative overheads 2,67,750 Selling overheads 3,50,000 Vijay scooters intend to manufacture and sell 200 scooters in 2015 by reducing selling price by & 1000 per scooter. You are required to estimate per scooter profit he may earn in 2015 keep the following details in ind: inl i) Material cost wll go up by & 300 per scooter. ii) Wages will go down by ® 400 per scooters. iil) Percentage of works on cost to wages will remain the same as was in 2014 iv) Administrative overheads will be reduced by & 20 per scooter. v) Selling overheads per scooter will be reduced by 25%. Solution : Vijay Scooters Ltd. Statement of Cost Production : 175 Scooters Period : 2014 Particulars ‘Amount per Unit] Amount Total ; z z Material 200] 14,35,000 Wages 9,500] 16,62,500 Prime Cost 17,700} 30,97,500 Factory on Cost : Works Overhead 1.428] _2,49,375 Works Cost 79125] 33,46,875 Office on Cost ‘Administrative Overheads 1530] _2,67,750 Cost of Production 20,655] 36,14,625 Selling Overheads 2,000] _3,50,000 Total Cost 22,655] 39,64,625 Net Profit 4,345 Sale: 27,000} 1. Percentage of Work Overhead to Wages = WoFOvethead 99 “Gisan * 100 Statement of Estimate (Tender) for the year ended 2015 Production : 200 Scooters Period : 2015 Particulars Amount per Unit] Amount Total Yaterial (8,200 + 300) 8,500 17,00,000 Wages cost (9,500 - 400) ~2:100) ——18,20,000 Prime Cost 17,600, 35,20,000 Work Overheads 15% of wages , 1,365) _2,73,000 Works Cost 18,965, 37,93,000 ‘dininistrative Overheads (1,530 - 20) 1,510 _3,02,000 Office Cont 20,475, 40,95.000 Selling Overheads (2,000 - 500) 300,000 Total Cont 48,95,000 et Prosit, 8,05,000 Bales (27,000 - 1,000) 52,00,000 Mustration 26 : Inrespect of a factory the following fi re have been obtained for the y 1. Cost of Material 6,00,000 2. Wages for labour 5,00,000, ee 2 | | i | Scanned with CamScannerey 3 ss . Cost Accounting (B.A. — Sen. =D (Nagpur Ly, = 3,00,000 ; 3: Factory Over head 3,36,000 * “9: SAuministrative charges . 2,24,000 SI Selling charges 1,40,000 6. an charges 420,000 7. Profit i A work order has been executed in 2015 and the following expenses have been incurred. a) Materials 8,000 ‘b) Wages of labour 5,000 Assuming that in 2015 the rate of factory overhead has gone up by 20%. Distribution charges Bone down by 10% and selling and administration charges have each gone up by 124% at what price should ihe Product be sold, so as to eam the same rate of profit on the selling price as in 2014? Factory overhead i based on direct labour and administrations, Selling and distribution charges on factory cost. Solution : Cost Sheet Production : xxx Period : 2014 Particulars ‘Amount Amount Total z= z Material Consumed 6,00,000 Direct Wages 5,00,000 Prime Cost 11,00,000 Factory on Cost : Factory Overheads _3,00,009 Works Cost 14,00,000 Office on Cost : ‘Administrative charges | 836,000 Cost of Production | 17,36,000 Selling and Distribution Expenses : Selling Charges 2,24,000) Distribution Charges 140,000) _3,64,000 Total Cost 21,00,000 (+) Prot 4,20,000 Sales 25,20,000 = Factory on Cost 1. Percentage of factory on cost to Wages Wazes 100 — 3,00,000 5,00,000 * 100= 60% 2. Percentage of office on cost to factory cost Office on Cost Factory Cost * 100 3,36,000 T406,000 * 100=24%% ; Selling Expenses 3. Percentage of selling expenses to factory cost = menses es "BexPenses to factory cos Factory Cost * 100 2.24,000 , 14,00,000 * 100= 16% 4 Percentage of distribution expenses to Factory cost Distibution Expenses Factory Cost * 100 14,00,000 * 100= 10% 5. Percentage of old profit to old sale 4,20,000 252,000 * 100 = 16.67% This percentage will be useful for tender, Scanned with CamScanneree sen, Sopeef cost Me Cot Stet and Tender Mein ‘Tender Sheet a7 rrr Period : 2015 producti ‘Naterial Waes-ime Cost Factory on Cost: {60% of Wages (5,000 x 60%) (+) instance 20% (3,000 x 20%) ‘Works Cost office on Cost : 124% of Factory Cost (16,600 x 24%) fe) Insurance 123% (9,984 x 12.55) Office Cost selling & Distribution Expenses : Gost (16,600 » 16%) (2,686 x 12.5) 5 (16,600 x 10%) (4) Decrease 10% (1,660 x 10%) ‘Total Cost (+) Profit = 100 - 16.67 = 83.33 83.33 : 25,564 : 86.67 :? 25,564 x 16.67 83.33 ‘Tender Price / Selling Price Selling Expenses : 16% of Factory Distribution Expenses : 10% of Factory Cost Amount per unit ‘Amount Total - 8,000 | 5,000 13,000 3,000) 600 3,600 16,600 3,984 498 4,482 21,082 2,656, 322 2,988 1,660 166 1,494 25,564 Sud 30,678 Ilustration 27 + Reliable Enginéering Works Ltd. Having 3 department Budgeted expenses as under for cost period : Particulars Ve] Be “Cz 1 Material 750,000) 50,000] 50,000 2. Direct Wages 68,320| 43,920| 39,650 3. Direct Expenses 80) 1,140] 450 4. Ractory Expenses 48,800 32,940| 30,550 5. Office Expenses 13,440| 12,800 9,945 6._Direet Labour Hours 3,90,400 | 2,92:800|_2,84,000 Factory expenses charged by labour hour rate and office expenses on factory cost by percentage method. Company want to submit « quotation for a job in which profit will be include 7.5% on total cost. Estimate expenses for job as under Particulars ee ee 1 Material 2,100, 1,500 1,200 2. Direct Wages 21250] 1.750] 1,675 3. Chargeable Overheads 50 ~ = 4.__ Direct Labour Hours 12,000 10,800 10,000. Prepare Quotation, Solution ; cont Sheet Froduetion xa Period : 7 T we Ter 30,000 nae Won 39,650 ‘rime Cont 90,100 ‘etary on Cont ‘actory Expenses: 30,550 omee or ee 720,650 Office en Expenses 9,945 feat of Production 30°59 Scanned with CamScanner