BASIC CONCEPTS – QUESTIONS (1)

QUESTION NO. 1
Following information pertain to Katas Industries Limited for the year ended 30 June 2020:
(i) Purchase of raw material:
Rs. in '000
Purchase price 96,100
Discount on bulk purchases 3,290
Early settlement discounts 1,580

(ii) Cost incurred at various locations:

Warehouse
Description Factory Head Sales Raw Finished
office office material goods
----------------------- Rs. in '000 --------------------------
Salaries & wages 9,200* 2,000 3,800 860 640
Depreciation 3,500 1,250 750 150 120
Rent 3,640 - 2,360 380 160
Utilities 2,780 940 1,230 450 235
*75% of factory salaries & wages vary with the level of production

(iii) Breakup of inventories:

1 July 30 June
2019 2020
--------- Rs. in '000 ------
Raw material 6,800 8,500
Work in progress 1,980 1,600
Finished goods 8,960 12,000

(iv) Due to a machine break down, raw material costing Rs. 1,560,000 was lost during the
production process.

Required:
Compute cost of goods manufactured for the year ended 30 June 2020. (08)
[Q-1, Aut-20]

QUESTION NO. 2
Tuesday Manufacturers Limited produces a single product. The following costs were incurred in the
month of June 2019:
Rs.’000
Direct labor 2,075
Depreciation on plant and machinery 380
Distribution costs 589
Factory manager’s salary 247
Indirect labor 848
Indirect material consumed 345
Raw material purchases 3,845
Selling costs 1,248
Other production overheads 580
Other administrative overheads 388

Following other information is available:

(i) On 1 June 2019, stock of finished goods consisted of 1,350 units valued at Rs. 1,640 per unit while
stock of raw materials was valued at Rs. 1,490,000.
(ii) 5,200 units of finished goods were produced during June 2019.
(iii) There was no work-in-progress at the end of the month whereas work in progress at 1 June 2019
was valued at Rs. 208,000.
 BASIC CONCEPTS – QUESTIONS (2)

(iv) Stock of raw materials on 30 June 2019 was valued at Rs. 970,000.
(v) 1,500 units of finished goods were available in stock as on 30 June 2019.
(vi) Cost of finished goods is determined using FIFO method.
Required:
Compute cost of goods sold for the month of June 2019. (07)
(Autumn 2019 Q-3)
QUESTION NO. 3
The following particulars/projections pertain to a well-maintained medium-sized car:

Rupees
Cost of car 1,200,000
Salvage value after 100,000 kilometres (km) 300,000
Maintenance cost:
– Service after every 5,000 km 6,000
– Replacement of spares/parts (per 2,000 km) 4,000
Vehicle tax per annum (20% adjustable against income tax payable 7,500
by the owner)
Insurance per annum 36,000
Cost of petrol per litre 75
Cost of tyres replacement after 25,000 km 20,000

On an average, the car consumes one litre for every 15 km.

Required:
For three different levels of use i.e. 10,000, 20,000 and 30,000 km per annum, prepare a schedule
showing:
• Variable, fixed and total costs
• Variable, fixed and total costs per km
In respect of each type of cost, give appropriate justification for treating it as a variable or a fixed cost.
(10)
{Spring 2016, Q # 7}

QUESTION NO. 4
NKL Enterprises produces a single product. For the month of January 2019, the books of account
show the following:
Rupees
Raw material purchases 845,000
Direct labour 735,000
Selling costs 248,000
Depreciation on plant & machinery 80,000
Distribution cost 89,560
Factory manager’s salary 47,600
Indirect labour 148,000
Indirect material consumed 45,000
Other production overheads 84,000
Other accounting costs 60,540
Other administrative overheads 188,600

Opening and closing stocks were as follows:

Opening Closing
--------------- Rs. --------------
Raw material 240,000 380,000
Finished goods 620,000 710,000
Work in process 340,000 270,000
 BASIC CONCEPTS – QUESTIONS (3)

Required:
Compute cost of goods manufactured of NKL for the month of January 2019.

QUESTION NO. 5
Soya Fry Limited manufactures Cooking Oil. Following information is available with respect to
purchases and overheads for the year ended 31 December 2014.

Details of purchases: Rs.’000

Raw material purchased (including 17% sales tax which is refundable) 60,500
Packing material purchased 2,050
Settlement discount received on raw material purchases 400
Transportation cost relating to raw material (70%) and packing material (30%) 300
Details of overheads:
Rent 2,700
Salaries and wages 2,500
Other variable overheads 5,000
Other fixed overheads 1,500

Other information:
(i) The break-up of rent is as follows:
Rs. in ‘000’
Factory 2,000
Warehouse (50% for raw material, 10% for packing material and 40% for 500
finished goods)
Shelf spacing in super markets 200

(ii) Break-up of salaries and wages, other variable and fixed overheads is as follows:
Allocation between
Manufacturing Administration
Salaries and wages *60% 40%
Other variable overheads 80% 20%
Other fixed overheads 60% 40%
*Manufacturing salaries includes 70% direct wages to labourers working in the factory
which vary with the level of production.

(iii) Opening and closing inventories are as follows:

1-Jan-2014 31-Dec-2014
-----------Rs. in ‘000’---------
Packing material 700 285
Raw material 5,000 7,780
Finished goods 2,962 4,162
Work in process 1,950 3,000

Required:
Compute cost of goods manufactured for the year ended 31 December 2014. (17)
{Spring 2015, Q # 5 amended}

QUESTION NO. 6
Identify which of the following costs should be classified as variable, fixed, stepped or semi-variable
costs:
(i) Each salesman is paid a commission of Rs. 10,000 per month plus Rs. 2 per unit sold.
(ii) Machine operator is paid wages at the rate of Rs. 400 per hour worked.
(iii) Goods are stored in a 3rd party warehouse where storage cost is charged as follows:
- Rs. 40,000 per month for upto 5,000 units
- Rs. 55,000 per month for units more than 5,000 but less than or equal to 7,000
- Rs. 80,000 per month for units more than 7,000
(iv) Factory manager is paid a monthly salary of Rs. 120,000.
(v) Direct material cost of Rs. 20 per unit.
 BASIC CONCEPTS – QUESTIONS (4)

(vi) Electricity bill.

(vii) Machine is serviced for Rs. 20,000 after use of every 2,000 hours.

QUESTION NO. 7
Following expenses relate to Fine Toys for the year ended December 31, 2018:
(i) Factory rent for the year was Rs. 240,000.
(ii) Insurance premium paid for factory assets was Rs. 80,000 for the year.
(iii) Transportation paid for purchase of raw material to the transport company at the rate of Rs.
5 per unit. Total raw material purchased during the year was 50,000 units at a price of Rs.
60 per unit.
(iv) Direct labor was paid at the rate of Rs. 10 per hour. Total direct labor hours worked for the
year were 40,000 hours.
(v) Machinery repairs were carried out during the year as follows:
- Rs. 20,000 for annual scheduled repairs
- Rs. 5,000 for parts replacement after every 2,000 hours usage.
During the year machinery was used for 6,000 hours.
(vi) Electricity bill for the year comprises of following:
- Rs. 24,000 being fixed annual charge
- Rs. 5 per unit consumed. During the year 11,000 units of electricity were consumed.
(vii) Other fixed factory overheads for the year amount to Rs. 90,000.
Required:
Calculate total variable production costs and fixed production costs for the year.

QUESTION NO. 8
Canteen department of a manufacturing business provides food to employees at subsidized price of
Rs. 30 per meal. The accounts manager has gathered the following data:

Cost
Rs.
Food cost 12.60 per meal
Wages 8.70 per meal
Depreciation All fixed
Utilities (variable portion) 6% of sales
Maintenance (variable portion) 3% of sales
Insurance All fixed

During the year 2018, total 77,500 meals were served and costs were:
Rs.
Food cost 976,500
Wages 774,250
Depreciation 25,000
Utilities 168,750
Maintenance 186,500
Insurance 5,000

Required:
Calculate following for the year ending December 31, 2018:
• Total sales for the year
• Total variable costs for the year
• Total fixed costs for the year.