Cost Accounting System Essentials

Manoj K Jain
Cost Sheet
By
CA M K Jain
Cost Sheet Page 1

Manoj K Jain
COST SHEET
Theory Questions with Answers
Question.1
(2002) (1994-Nov)
Write short notes on Chargeable Expenses.
Answer
These are the expenses which can be charged directly to jobs, products, processes, cost center or cost units. These are also
known direct expenses. Depending on the situation, the same item of expenses may be treated as chargeable expenses or an
indirect cost. The following may also be treated as chargeable expenses in relation to a product or job.
(1) Cost of patents.
(2) Hire charge in respect of special machinery or plant.
(3) Architects, surveyors and other consultant’s fees.
(4) Travelling, expenses to site.
(5) Freight inward on special materials.
Question.2
(1997, 2002) (1995-May)
Write short notes on Cost Center
Answer
Cost Center
It is defined as a location, person or an item of equipment or a group of these for which costs are ascertained and used for cost
control. Cost center are two types viz., impersonal and personal.
A cost center which consists of a location or an item of equipment or a group of these is called an impersonal cost center. A cost
center which consists of a person or a group of persons is Known as personal cost center.
In a manufacturing concern there are two types of cost center viz., production and service. Production cost centers are those were
production activity is actually carried out whereas services cost center are those sections which are ancillary to and render service
to production cost center.
Question.3
(1994, 1997, 2002, 2003) (2001 - May)
(1) Cost control and Cost reduction.
(2) Cost allocation and Cost Absorption.
(3) Controllable costs and uncontrollable costs (B. Com. (H) - 1999)
Answer
(I) Cost Control:
(1) cost control represents efforts made towards achieving a target or goal.
(2) The process of cost control is to set up a target, investments the variances variations and taking remedial measures to
correct them.
(3) Cost control assumes existence of standard of norms which are not challenged.
(4) Cost control is a preventive function Cost are optimized before they are incurred.
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(5) cost control sometime lack dynamics approach.
Cost Reduction:
(1) Cost reduction represents achievements in reduction or cost.
(2) Cost reduction is not contended merely with maintenance of performance according to the standards.
(3) It assumes the existence of concealed potential savings in the standards or norms which are therefore subject to constant
challenge or improvement.
(4) cost reduction is a corrective function. It operates even when efficient cost control system exists. There is a room for
reduction in the achieved costs.
(5) It is continuous process of analysis by various methods of all the factors affecting costs, efforts and functions in an
organization. The main aim is to have continuous economy in costs.
Part (II)
Cost allocation and cost absorption:-

Cost allocation is the allotment of whole item of costs to a cost center or cost unit. In other words, it is process of identifying,
assigning or allowing cost to a cost center or a cost unit.
Cost absorption is the process of absorbing all indirect costs or overhead costs allocated to or apportioned over particular cost
center or production departments by the units produced.
Part (III)
Controllable cost and Uncontrollable cost:-

Controllable cost are the costs which can be influenced by the action of specified member of an undertaking. Controllable costs
incurred in a particular responsibility center can be influenced by the action of the executive heading that responsibility center.
Uncontrollable costs are the cost which cannot be influenced by the action of a specified member of an undertaking.
The distinction between controllable and uncontrollable costs in not very sharp and is sometimes left to individual judgement. In
fact, no cost is controllable; it is only in relation to a particular individual that we may specify a particular cost to be either
controllable or uncontrollable.
Question.4
(a) What are the essentials of a goods Cost accounting system?

(b) Narrate the essential factors to be considered while designing and installing a cost accounting system. (1996 - May)
Answer
Essentials of a good cost accounting system:

The essential features of a good system cost accounting system are as follows:-
(1) The cost accounting system should be tailor made, practical, simple and capable of meeting the requirements of business
concern.
(2) The method of costing should be suitable to the industry and serve its objectives.
(3) The costing system should receive cooperation and participation of executives from various departments.
(4) The cost of installing and operating the system should justify the results.
(5) The system of costing should not sacrifice the utility by introducing meticulous and unnecessary details.
(6) The system should consider the organisation structure of the business and it should be designed and a sub - system of the
overall organisation.
(7) There should be a harmonious relationship between costing system and financial accounts. Unnecessary duplication should
be avoided. A single integrated accounting system would be ideal.
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Essential factors for designing a cost accounting system.

The essential factors installing a cost accounting system are listed as below:-
(1) A through understanding of - Organisational structure, manufacturing procedure and process; selling and distribution
procedure; and type of cost information required.
(2) Selection of a suitable costing technique (standard or actual, marginal or absorption).
(3) Pricing method suitable, for the material, to be issued to production.
(4) Method suitable for booking labour cost on jobs.
(5) A sound plan should be devised for the collection, allocation, apportionment and absorption of overheads.
(6) Deciding on ways of treating waste, scrap and idle time.
(7) Designing of suitable forms to be used for collecting and dissemination of cost data/information.
(8) Introduction of budgetary control technique so that actual performance may be compared with budgetary figures, for
measuring efficiency of performance.
Essential factors for installing a cost accounting system.

(1) The objectives of installing a costing system and the expectations of the management from the system should be identified
first. The system will be a simple one in the case of a single objectives but will be an elaborate one in the case of multiple
objectives.
(2) It is important to ascertain the significant variables of the manufacturing unit which are amenable to control and affect the
concern.
(3) A through study of the nature of business, its technical aspects, products, methods and stages of production should be
made. This will help in selecting a proper method of costing.
(4) A study for the organization structure, its size and layout etc. is also necessary this is useful to management to determine to
the scope of responsibilities of various managers.
(5) The costing system should be evolved in consultation with the staff and should be introduced only after meeting their
objections and doubts, if any. The cooperation of staff is essential for the successful operation of the system.
(6) Details of the records to be maintained by the costing system should be carefully worked out. The degree of accuracy of the
data to be supplied by the system should be determined.
(7) The forms to be used by foreman, workers etc. should b standardized. These forms be suitably designed and must ensure
minimum clerical work at all stages.
Question.5
(1996 - Nov)
A factory manufacturing only one product in one quality and size. The owner of the factory states that he has a sound system of
financial accounting which can provide him with unit cost information and as such he does not need a cost accounting system.
State your arguments to convince him the need to introduce a cost accounting system?
Answer
Arguments in favour of installing a cost accounting system
In a single product manufacturing factory

1. Management for a manufacturing units need information to draw plans for the future, to control the working of the unit and for
making day to day decisions, such information are not available from financial accounts. Financial accounting generates two
documents viz., profit and loss account and Balance Sheet at the end of the financial year. These two documents take
roughly about 13 to 14 months to reach to the hands of executives. Even on their receipts these executives cannot set right
anything that has gone wrong in the past. There fore in order to facilities executives to perform well the function of planning,
control and decision making the use of cost accounting system.
2. In financial accounting system no attempt is generally made to record data by jobs, processes, products, departments etc. It
only provides information in terms of income expenses, asset and liabilities for the company as a whole that Thus the
available information is not quite useful for the ascertainment of price, control of costs, ascertainment of product profitability
etc. Cost accounting records data in the manner that helps the ascertainment of price and profitability and also the control of
costs by using variances.
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3. Government in its efforts to protect consumers, often resorts to statutory price control. Cost accounting can help by providing
enough cost information which could be utilized to press upon the government to convince the price and to arrive at a
suitable price before their arbitrary fixation.
4. A sound system of cost accounting will highlight the capacity utilization and efficiency which will be beneficial in taking
suitable decisions for the improvement of operational results.
5. It also helps the management for the periodic assessment of performance of its executives. This can be done by establishing
standards, and presenting reports to appropriate authority.
Question.6
1997 Nov
What is meant by ‘Profit center’ ?
Answe r
It is define as an activity center of a business organization. Chief of such a center is fully responsible for all costs, revenues and
profitability of its operation. The main objective of profit center is to maximize the centers profit. Creation of profit centers facilities
management control and implementation of the objectives of responsibility accounting . A profit center may have a number of cost
center.
Question.7
1998 - Nov
Specify the methods of costing and cost units applicable to the following industries:
(1) Toy making
(2) Cement
(3) Radio
(4) Bicycle
(5) Ship building
(6) Hospital
Answer
Industry Method of costing Unit of cost
Toy making Batch Per batch
Cement Unit Per tonne or per bag
Radio Multiple per radio or per batch
Bicycle Multiple per bicycle
Ship Building contract per ship
Hospital operating per bad per day or per patient per day
Question.8
1999 - Nov
Discuss the four different methods of costing along with their applicability to concerned industry?
Answer
Four different methods of costing along with their applicability to concerned industry have been discussed as below:-
Job Costing:-
It is a method of costing which is used when the work is undertaken as per the customer’s special requirements. When an enquiry
is received form the customer, costs expected to be incurred on the job are estimated and on the basis of the estimate, a price is
quoted to the customer. Actual cost of materials, labour and overheads are accumulated and on the completion of job, these actual
costs are compared with the quoted price and thus the profit or loss on it is determined.
Batch Costing:-
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It is variant of Job costing. Under batch costing, a lot of similar units which comprises the batch may be used as a unit for
ascertaining cost. In the case of batch costing separate cost sheets are maintained for each batch of products by assigning a batch
number. Cost per unit in a batch is ascertained by dividing the total cost of batch by the number of units produced in that batch.
Contract Costing:-
If a job is very big and takes a long time for its completion, then method used for costing is known as contract costing. Here the cost
of each contract is ascertained separately. It is suitable for firms engaged in the construction of bridges, roads, building etc.
Operating Costing:-
It is define as the refinement of process costing. It is concerned with the determination of the cost of each operation rather than the
process. In those industries where a process consists of distinct operations, the method of costing applied or used is called
operation costing. Operation costing offers scope for control. It facilitates the computation of units operation cost at the end of each
operation by dividing the total operation cost by total output units. It is the category of the basic costing method, applicable, where
standardized goods or services result from a sequences of repetitive and more or less continuous operations, or processes to
which costs are charged before being averaged over the units produced during the period. The two costing methods included under
this head are process costing and service costing.
Question.9
1999 - Nov
Enumerate the factors which are to be considered before installing a system of cost accounting in a manufacturing organization.
Answer
Factors which are to be considered before installing a system of cost accounting in a manufacturing organization are:
(1) The objectives of installing a system of cost accounting should be defined, that is whether the system is meant for control of
cost or for price fixation.
(2) The organization of the company should be studied to understand the authority and responsibilities of the managers.
(3) The technical aspects and flow process should be taken into consideration.
(4) The products to be manufactured should be studied.
(5) The marketing set up to be looked into for devising suitable control reports.
(6) The possibility of integrating cost accounting system with financial accounting system should be examined.
(7) The procedure for collection and verification of reliability of the information should be studied.
(8) The degree of details of information required at each level of management should be examined
Question.10
2000 - May
Define cost objects and give three examples.
Answer
Cost Object:-
Cost object is defined as anything for which a separate measurements of costs is desired, Examples of cost object include a
product, service, project, customer, brand category, activity, departments or programme.
Question.11
2000 - May
Give three examples of cost drives of the following business functions in the value chain.
(i) Research and development
(ii) Design of products, Services and processes.
(iii) Marketing
(iv) Distribution
(v) Customer service.
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Answer
A cost driver is any factor whose change causes a change in the total cost of a related cost object. In other words, a change in the
level of cost driver will cause a change in the level of the total cost of a related cost object.
The cost drivers for business functions viz., Research and development; design of products services and process; marketing;
distribution and customer services are as below:-
Business functions Cost drivers

(1) Research and development --- No of research projects
--- personal hours on a project
--- Technical complexities of the projects
(2) Design of products, Services and --- Number of products in design
Processes --- Number of parts per product
(3) Marketing --- Number of engineering hours
--- Number of advertising run
--- Sales revenue
--- Number of products and volume of sales (in quantitative terms)
(4) Distribution --- Number of items distributed
--- Weight of items distributed
--- Number of customer
(5) Customer service --- Number of services calls
--- Number of products serviced
--- Hours spent in servicing of products.
Question.12
2000 - Nov
Explain Sunk costs and pre-production costs
Answer
Sunk Costs:-
These are historical cost which are incurred in the past. These costs were incurred for a decision made in the past and cannot be
changed by any decision that will be made in future. In other words, these costs plays no role in decision making in the current
period. While considering the replacement of a plant, the depreciated book value for the old plant is irrelevant, as the amount is a
sunk cost which is to be written off at the time of replacement.
Pre-Production Costs:-
These costs forms the part of development cost, incurred in making a trial production run, preliminary to formal production. These
costs are incurred when a new factory in the process of establishment or a new project is undertaken or a new product line or
product is taken up, but there is no established or formal production to which such costs may be charged. These costs are normally
treated as deferred revenue expenditure (except the portion which has been capitalized and charged to the costs of future
production.
Question.13
(2002) 2001 - May
What are the main objective of cost accounting?
Answer
Main objectives of cost accounting are as follows:-
(1) Ascertainment of cost
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(2) Determination of selling price

(3) Cost control and cost reduction.
(4) Ascertainment of profit of each activity.
(5) Assisting management in decision making.
Part C
Define Explicit costs. How it different from implicit costs?
Answer
Explicit cost:-
These costs are also known as out of pocket costs. They refer to those costs which invoice immediate payment of cash, Salaries,
Wages, postage and telegram, interest on loan etc. are some examples of explicit costs Because they involve immediate cash
payment. These payment are recorded in the books of accounts and can be measured.
Main points of difference

The following are the main points of difference between explicit and implicit costs.
(i) Implicit costs do not involve any immediate each payments. As such they are also known as imputed costs are economics
costs.
(ii) Implicit costs are not involve in the books of accounts but yet, they are important for certain types of managerial decision
such as equipment replacement and relative profitability of two alternative course of action.
Question.14
2002 - May
You have been asked to install a costing system in a manufacturing company. What practical difficulties:
Will you expect and how will you propose to overcome and the same?
Answer
The practical difficulties with which a cost accountant is usually confronted with while installing a costing system in a manufacturing
company are as follows:-
Lack of top management support:-

(1) Installation of a costing system do not receive the support of top management. They consider it as an interference in their
work. They believe that such, a system.
Resistance from cost accounting departmental staff:-

(2) the staff resists because of their fear of loosing their jobs and importance after the implementation for the new system.
Non cooperation from user departments:-

(3) The foreman, supervisors and other staff members may not cooperate in providing requisite data, as this would not only add
to their responsibilities but will also increase paper work of the entire team as well.
Shortage of trained staff:-

(4) Since cost accounting system’s installation involves specialized work, there may be a shortage of trained staff.
To overcome these practical difficulties necessary steps required are.
--- To sell idea to top management to convince them of the utility of the system.
--- Resistance and non - cooperation can be overcome by behavioral approach. To deal with the staff concerned effectively.
--- Proper training should be given to the staff at each level.
--- Regular meetings should be held with the cost accounting staff, user departments, staff and top management to clarify their
doubts/ points.
Question.15
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Manoj K Jain
2002 - May
Select a suitable unit of cost to be used in the following.
(i) Hospital
(ii) City Bus Transport
(iii) Hotels providing lodging facilities
Answer
Industry or product Unit of cost

(i) Hospital Patient bed/day
(ii) City Bus Transport Passenger - km
(iii) Hotels providing lodging facilities Room / day
Question.16
1997
Explain the nature of product and period cost. How to they affect net income of a business enterprise?
Answer
Product costs:
Product costs are those which are included in the cost of product. These consist of direct material, direct labour and some of the
factory overheads. These costs change if there is a change in the level of output.
Period Costs:
Period costs are those which change with time and have no relation with the volume of production. These costs are not included in
the cost of product and are charged to Profit & Loss Account of the period. For example, under Marginal costing, all fixed costs are
period costs and are not included in the cost of production but transferred to costing Profit and Loss Account. Classification into
Period cost and Product Cost does affect income determination of a business. That is why there may be a difference in profit under
marginal costing and absorption costing.
Question.17
1997
Explain the important objective of cost accounting? What is cost accounting? Discuss briefly is important functions in a business
firm.
Answer
Meaning of Cost Accounting:-
Cost Accounting is the com used to describe the principles, conventions, techniques and systems which are employed I in detail,
the utilisation of its resources. The terminology in a business to plan and control in detail, the utilization of its resources. The
terminology of Cost Accountancy published by Chartered Institute of Management Accountants of England gives the following
definition of Cost Accountancy. The application of costing and 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 the
purpose of managerial decision making.
The same terminology defines costing as ‘The techniques and process of ascertaining costs’.
Wheldon has expanded the ideas contained in these definitions and according to him ‘ Costing is the classifying, recording and
appropriate allocation of expenditure for the determination of the cost of products or services, the relation of these costs to sales;
values and the ascertainment of profitability.’
Role of Cost Accounting:-
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Cost Accounting has grown out of the needs of businessmen to known in detail the costs involved in producing goods and services.
A good cost accounting system, as such, generates lots of cost information’s which serve may aims, objectives or purposes of cost
accounting such as :
Cost Ascertainment:-
(1) Cost Accounting helps in arriving at cost of production of each individual unit of production or job or operation or process or
department or service. Cost accounting lays down the principles which help in evolving method by which expenses are
analyzed and related to the unit production or job. Thus, one very important function of a cost accountants is the cost
ascertainment of each unit of production or job process.
Fixation of selling Price:-

(2) Through there are several Other factors determining the price of a product, yet one very important basis of fixing the selling
price is the because of this that many a time the pricing of the product is done cost of production. It is in this area where cost
accounting plays an important role. Techniques like break -even analysis help in this regard.
Helps in estimating:-
(3) In types of business where jobs or contract are to be for which tenders or quotations am to be given, cost accounting is very
helpful carried out to which the desired Cost Accounting records helps in such cases in estimating the costs profit margins
are added to arrive at the prices to be quoted in the tenders for the jobs or contracts.
Cost Control:-
(4) ‘Control’ means that plans and actions should confirm each on available from Cost Accounting, the managers at various level
in the organisation are able to control cost as well. In modern times, controlling costs is rather than the main objective of Cost
Accounting where as cost ascertainment is only a secondary objective. This purpose of cost control is ought to be achieved
through costing techniques such as Budgeting Standard Costing etc.
Providing data or information:-

(5) Which are the basis of management accounting thereby helping the management in taking long-term as well as short term
decisions. Decision-making actually involves comparison of the profitability of the various alternatives and in this area, Cost
Accounting serves a great purpose.
Part B
Methods of costing:-
Usually, two types of business concerns are found. One, which manufacture goods for stock and then ultimate sell to the
consumers. These concerns generally involved in non-standards products. Examples of these industries are printer, engineers,
builders, shoes and ready made garments manufacturers etc. In industries where continuous or successive processes are
involved, Process Costing method is employed, whereas in industries where jobs are undertaken and executed against specific
orders, it is job costing method which is employed.
Job Costing and Process Costing are the two main methods of costing. There are many more methods of costing which are based
on these two methods. A list of all the methods of costing is given below:-
--- Job costing
--- Contract costing
--- Batch costing
--- Process costing
--- Unit costing
--- operating costing
--- Multiple costing
Question.18
(B Com.-1999) 1998
“Product cost is a general term denotes different costs allocated to products for different purpose”. Describe three purpose. Explain
the composition of ‘Product cost, for the purpose of external financial reporting along with its rationale.
Answer
Period costs are those which change with time and have no relation with the volume of production. These costs are not included in
the cost of product and are charged to Profit and Loss Account of the period.
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The concept of period cost and product cost means differently for marginal costing and absorption costing. For marginal costing
purpose, period cost is fixed cost i.e. fixed factory overheads, fixed administration and selling and distribution overheads. In
marginal costing product cost is all variable cost i.e., direct material cost, direct labour cost and variable factory overheads.
For the purpose of absorption costing, period cost includes all selling distribution and administration overheads and product cost is
direct labour cost and factory overheads (both fixed and variable).
Question.19
(B.Com (H)- 1998,2000)
Distinguish between any three of the following:
(a) Expired cost and unexpired cost
(b) Direct and Indirect cost
Answer
Expired cost and unexpired cost.

Expired cost is that part of the cost , the benefit of which is already received. For example wages paid for the work done is an
expired cost.
Unexpired cost is that part of the cost, the benefit of which is yet to be received. For example, when insurance is paid in advance,
the extent of prepaid insurance is unexpired cost. Expired cost is called an expense and is debited to Profit and Loss account of the
period. Unexpired cost is an asset and is shown on the Assets side of the Balance Sheet of the company.
Part B
Direct and Indirect costs.

Direct Materials or Direct Labour or Direct Expenses (Direct Costs). Direct costs may be defined as the costs which can be easily
and directly identified with a particular costs unit. For example, cost of cloth in a ready made shirt or wages paid or payable to the
tailor for its stitching charges etc. are part of direct costs.
Indirect Materials/Indirect Labour/Indirect Expenses (Indirect Costs.) Indirect costs as opposed to direct costs, are those which can
not be easily or conveniently associated with particular cost units of cost centers. These costs are of general natured and are not
incurred for a specific cost unit. Examples are salaries of general staff, insurance charges depreciation of machinery, rent or
depreciation of the building etc.
The distinction between direct and indirect costs (be it materials or labour or other expenses) is done only on the basis of
convenience. In some cases, even some direct materials (such as gum, buttons, thread, nails etc.) used in production may be
treated as indirect materials simply because of the time and labour involved in ascertaining their costs for the particular cost units. It
is the some total of all indirect expenses, which is called ‘overheads’ which may further be classified as:
--- Factory overheads
--- Office and administrative overheads
--- Selling and Distribution overheads.
Question.19 A
1999
Distinguish between Fixed Cost and Variable Costs.
Answer
Fixed costs and variable costs.

On the basis, costs may be classified as fixed, variable and semi-variable. Fixed costs are those which remain fixed or constant
over a certain output limit. Even these costs may vary beyond that limit. So within this output limit at least, these cost remains
constant in total while the cost per unit varies with the change in output level. These costs vary with time. However, variable costs
are those which change in total amount . With the change in volume of output. But amount of these costs per unit of output remains
constant. As against these two, the semi-variable costs contain both fixed and variable costs. These costs are neither fully fixed nor
fully variable. These are also known as ‘ Fixed Costs’.
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In the following figure, a fixed cost line has been shown. This line is parallel to X -Axis which shows that fixed cost remains fixed
irrespective of the volume of output.
Variable costs are those which vary in total in direct proportion to the volume of output. These costs per unit remain relatively
constant with changes in production. Thus, variable costs fluctuate in total amount but tend to remain constant per unit as
production activity changes. Examples are direct material costs, direct labour cost, power repairs etc.
Question.20
1999
Explain the significance of ‘Decision - Making cost.
Answer
Decision - making cost. There are certain costs which are specially used for decision making by the management. Such decision -
making costs may be relevant costs or irrelevant costs. Various types of costs used by the management in decision making are
briefly described below:
Out of pocket costs:-

(1) Out of pocket costs are those which involve cash outlay as against those costs which do not require cash payment. For
example, material costs is an out of pocket cost while depreciation is not an out of pocket cost.
Sunk costs:-
(2) Sunk costs represent those cots which were incurred in the past, cannot be recovered. These costs are not relevant for
decision making.
Differential costs:-
(3) Different in the costs of two alternatives is called differential costs. For example, two alternatives may be two levels of activity
and the different in the costs of two level of activity is differential costs. Such differential costs may be either increase in total
cost or decrease in total cost in which case this may be known as incremental cost or decrement cost.
Conversion Cost:-
(4) Conversion cost is the aggregate of direct wages and factory overheads. In other words, total production cost minus cost of
raw materials is known as conversion cost.
Replacement Cost:-
(5) This is the cost of replacing the asset which is being used. For example, the replacement cost of material is the present
market price of material on the date of issue to the production department. Similarly, replacement cost of an asset is the price
at which a particular asset will be replaced i.e., its market price on the date of its purchase.
Opportunity Cost:-
(6) This is the cost of an alternative. This mean opportunity cost is the advantage foregone as a result of an alternative course of
action. This concept is used in problems of alternative choice.
Imputed Costs:-
(7) These are notional costs, which are not actually incurred. For example, when a building is owned and rent is paid. Then
notional rent or the rental value of such a building is an imputed cost.
Question.21
1999
Explain any two of the following:
(i) Notional salary for properties supervision.
(ii) Packing Expense
(iii) Sunk Costs
Answer
(i) Notional salary for proprietors’ supervision is that salary which is not actually payable but charged in the cost. It is the type of
imputed cost which may be specially computed for certain decision making. It is an item which is similar to notional rent of a
building owned by the company on which no rent is actually payable.
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(ii) Packing Expenses may be treated in cost as follows:

(1) Primary packing is a part of the production cost. For example, packing of chemicals and medicines etc. is primary packing
and should be included in the production cost of the product.
(2) Secondary packing is a part of the selling and distribution cost. Secondary packing is that which is required while
Selling/transferring the product and for its safe delivery to the customer. For example television set is sold in a especial kind
os packing. Such expenses are charged to selling and distribution overheads.
(iii) Sunk cost. Sunk cost is a past or historical cost which cannot be changed. Such costs are not relevant for decision making .
For example, if a company purchased a plant about 10 years ago, its purchase cost is not relevant for any decision that will
be taken at the time of purchase of a new plant. But sunk costs are analyzed before taking decisions because these may
affect future tax payments.
Question.22
2000
‘Cost Accounting has come to be an essential tool of the management’.
Answer
Advantages of costing.
A concern derives many advantages from the installation of a Costing system. Some of the important advantages are given below:
1. Cost accounting provides reliable cost data with regard to different elements of cost., i.e., material, labour and expenses.
This helps management in accurately determining the value of inventory and cost of goods sold.
2. A cost system reveals unprofitable activities, losses or inefficiencies occurring in any form such as inadequate utilisation of
plant, machinery, wastage of manpower etc.
3. Introduction of a cost reduction programme combined with operational research and value analysis techniques lead to
economy.
4. As costs are accumulated by jobs, processes, products and departments, the management can distinguish between
profitable and unprofitable activities. Effective measures may be taken to remove or reduce the unprofitable activities.
5. Availability of accurate cost data helps in the fixation of prices and price changes to be effected with greater reliance on the
outcome.
6. Costing furnishes suitable data and informations to the management to serve as guides in taking decisions involving financial
considerations. Information is provided on a number of problems such as whether to make or buy whether to, accept orders
below cost etc.
7. Standard costing and budgetary control methods help in the fixation of optimum level of efficiency. Variance analysis helps in
pointing out the deviations from this level so that suitable measures can be taken for plugging weak points.
8. A cost system provides ready figures for use by the Government for application to problems like price fixation, price control,
wage-level fixation, payment of dividends or settlement of disputes etc.
9. Cost Accounting provides the management with valuable data for the control of costs. Comparisons may be made from
period to period, of several units in the industry by employing uniform costing. Comparisons may also be made in respect of
cost of jobs, processes or cost centres.
10. When a concern is not working in full capacity due to some reason, the cost of idle capacity can be easily worked out and
revealed to the management.
11. The operation cost audit system in the Organisation prevents frauds and assists in furnishing correct cost data to the
management as well as outside parties.
12. Perpetual inventory system helps in exercising inventory control and preparation of periodical Profit & Loss Account.
Question.23
2001
Explain in brief the following concepts.
Product Costs.
Answer
Product Costs:-
Cost Sheet Page 13

Manoj K Jain
These are those costs which are necessary for production and which are included in the cost of production. Examples are direct
materials, direct wages and those factory overheads which are to be included in cost depending on the method of costing i.e.,
marginal costing or absorption costing.
Question.24
2001
Describes briefly the principle aims of classifying the costs.
Answer
Main aims of classifying the cost:

1. Classification of cots into fixed and variable helps in break-even analysis.
2. It also helps in preparation of flexible budgets.
3. This classification also helps the management in decision making.
4. Classification of costs into controllable and uncontrollable helps in controlling costs.
5. Classification of cots into product cost and period cost helps in computing product cost.
Question.25
2002
What purpose do cost centers serve? Are cost centers and cost units related to each other? If Yes, how?
Answer
‘Cost Center and Cost Unit’ are two very important terms used in connection with the ‘Costing’ which itself is defined are the
process and technique of ascertaining cost’. A Cost Center is defined as ‘A location person or item of equipment (or groups of
these) for which costs may be ascertained and used for the purposes of cost control’.
But a cost unit means ‘A unit of quantity of product, service or time (or a combination of these) in relation to which costs may be
ascertained or expressed’.
Ascertaining costs is the key activity in cost accounting. So it also becomes necessary to determine ‘unit’ in terms of which costs
are to be ascertained. Hence, a particular unit or measure of the product or service so selected or taken as the unit for costing
purposes is called ‘Cost unit’. A few examples of Cost Units usually are:
Product/Industry Cost Unit
Radio/T.V. Per radio or T.V.
Car Per Car
Coal Per tonne
Bricks Per thousand
Hospital Per bed or per patient per day
Transport Per k.m. Per bus/truck
0r
Per k.m. Per tonne
Building Construction Per building.
Similarly, the concept of ‘Cost Center’ is as well equally important in costing. Each identified portion of the factory for which costs
are first accumulated forms a cost center.
These costs are then charged to different cost units passing through the part of the factory or cost center.
Question.26
2002
Cost Sheet Page 14

Manoj K Jain
“The term cost must be qualified according to its context.” Comment.
Answer
There are many definitions of the concept of Cost. The most acceptable definition of cost is the amount of expenditure (actual or
notional) incurred on, or attributable to a giving thing’ However, the term Cost cannot be easily defined. Its interpretation depends
upon the nature of the business or industry and the context in which it is used. The term Cost must be qualified according to its
context. For example, Fixed Cost, Sunk Cost, Labour Cost, period Cost etc.
The term ‘Cost’ should be distinguished from ‘expense’ though these two terms are sometimes interchangeably used. The term
‘Expense’ refers to sacrifice, the renouncing aspect of a revenue transaction. Expenses are matched with revenue to determine
income. Loss, on the other hand, is a term which is used to mean excess of cost over revenue. In other words, when revenue falls
short of cost, the difference between the two is termed as ‘Loss’.
Question.27
1999
Distinguish between Prime Cost & Conversion Cost
Answer
Prime Cost is the total of all direct costs i.e., direct materials, direct labour and direct expenses. Conversion Cost may be defined as
the sum of direct wages and overheads cost of converting raw material to the finished state or converting a material from one
stage of production to the next. In brief conversion cost is the total of direct wages and overheads.
Cost Sheet Page 15

Manoj K Jain
Numericals
Question.1
Prepare a cost sheet from the following data to find out profit and cost per unit.
Rs.
Raw materials consumed 1,60,000
Direct wages 80,000
Factory overheads 16,000
Office overheads 10% of factory cost
Selling overheads 12,000
Units produced 4,000
units sold 3,600
Selling price 100 per unit
Answer Prime cost Rs. 2,40,000: Factory cost Rs. 2,56,000: Cost of production Rs. 2,81600: Cost of goods sold Rs.
2,53,440; Total cost Rs. 2,65,440; Profit Rs. 94,560; Sales Rs. 3,60,000
QUESTION 2
Find out the cost of Raw materials purchased from the data given below:
Rs.
Prime Cost 2,00,000
Closing stock of raw materials 20,000
Direct labour 1,00,000
Expenses on purchases 10,000
Answer: Rs. 1,10,000
QUESTION 3
Prepare a cost sheet showing the cost per each item of expenses and the total cost per quintal when quintals
manufactured are 17,200.
Rs.
Raw materials 28,000
Fuel 6,900
Electric power 1,340
Process and general wages 63,500
Repairs 2,400
Haulage 1,060
Light and power 400
Rent 2,000
Rates and insurance 300
Office salaries and general expenses 7,000
Administration 5,000
Depreciation on Machinery 2,500
Answer Prime cost Rs. 91,500; Works cost Rs. 1,08,400; Total cost Rs. 1,20,400
QUESTION 4
Compute manufacturing expenses from the data given below
Rs.
Opening stock of raw material 5,000
Purchases 25,000
Cost Sheet Page 16

Manoj K Jain
Expenses on purchases 1,000

Direct wages 20,000
Direct expenses 1,000
Manufacturing cost 80,000
Answer Rs. 35,000

QUESTION 5
Prepare a cost sheet from the following
Rs.
Opening stock of Raw materials 5,000
Raw materials purchased 50,000
Sale of wastage of materials 200
Productive wages 20,000
Direct expenses 2,000
Unproductive wages 10,500
Estimating 800
Worker's canteen and welfare expenses 1,500
Bank interest 1,200
Expenses of capital issues 10,000
Godown expenses 1,000
Expenses of Branch establishments 500
Depreciation 2,000
Carriage inward on materials purchased
(not included in the cost of materials) 1,250
Carriage outwards 750
Consumable stores 2,000
Audit fees 250
Expenses of sales office 1,100
Wages of delivery vans 2,000
Municipal taxes in respect of factory
buildings 500
Printing and stationery sales 225
Cost of training new workers 2,300
Motive power 4,500
Bad debts 100
Advertising 300
Legal expenses 500
Rent of warehouse 300]
Bank charges 50
Commission on sales 1,500
Loose tools written off 600
Water supply 1,200
Discount on sales 200
Income tax paid 600
Works manager salary 1,000
Loss on sale of a part of plant 400
Insurance of stock of raw materials 300
Contribution to provident fund of
factory employees 1,000
Cost of samples 300
Shortage in stocks of finished goods 20
Experimental expenses 200
Wages of fireman 1,000
Telephone expenses 500
Market research expenses 500
Cost Sheet Page 17

Manoj K Jain
Travelling expenses 300
QUESTION 6
Prepare the cost sheet to show the total cost of production and cost per unit of goods manufactured by a co. for the
month of July 1999. Also find out the cost of sales
Rs.
Stock of raw materials 1-7-99 3,000
Raw materials purchased 28,000
Stock of raw materials 31-7-99 4,500
Manufacturing wages 7,000
Depreciation on plant 1,500
Loss on sale of a part of plant 300
Factory rent and rates 3,000
Office rent 500
General expenses 400
Discount on sales 300
Advertisement expenses to be charged fully 600
Income tax paid 2,000
The number of units produced during July 1999 was 3,000
The stock of finished goods was 200 and 400 units on 1-7-99 and 31-7-99 respectively. The total cost of units on hand
on 1-7-99 was Rs. 2,800. All these had been sold during the month.
Answer Prime cost Rs. 33,500; Factory cost Rs. 38,000; Cost of production Rs. 38,900; Cost of sales Rs. 37413
Question 7
From the following particulars, prepare a statement in such form as you consider most suitable for showing clearly all elements of
cost:-
Rs.
Opening stock of Raw Materials 25,000
Purchase of Raw Materials 70,000
Raw material returned to suppliers 2,000
Wages paid to :-
Productive workers 18,000
Non productive workers 2,000
Salary paid to office staff 5,000

Carriage on raw material purchased 500
Carriage on goods sold 1,500
Rent and rates of workshop 2,500
Fuel, gas, water etc. 1,000
Repair to plant 600
Depreciation on machinery 1,400
Office Expenses 1,500
Direct chargeable expense 800
Advertising 1,200
Answer Prime cost Rs. 73,500, Net factory cost Rs. 1,01,000, Cost of production of goods sold Rs. 1,07,500, Cost of sales Rs.
1,10,200
Question.8
The following data relate to the manufacture of a standard product during the following week period to June 30th 1991.
Rs.
Raw Materials consumed 4,000
Cost Sheet Page 18

Manoj K Jain
Wages 6,000
Machine hours worked 1,000
Machine hours rate 50 paise
Office overhead 20% on works Cost
Selling Overhead 6 paise per unit
Units produced 20,000
Units sold 18,000
@ Rs. 1/ per unit.
You are required to prepare a cost sheet showing the cost per unit and profit for the period.
Answer
Profit Rs. 5580.00 per unit profit - Rs. 0.310
Question.9
The following particulars relating to the year 1994 have been taken from the books of a chemical works manufacturing and selling a
manufacturing mixture.
Kg. Rs.
Stock on 1st Jan,. 1994
Raw materials 2,000 2,000
Finished mixture 500 1,750
Factory stores 7,250
Purchases
Raw materials 1,60,000 1,80,000
Sales
Finished mixture 1,53,050 9,18,000
Factory scrap 8,170
Factory wages 1,78,650

Power 30,400
Depreciation of machinery 18,000
Salaries:
Factory 72,220
Office 37,220
Selling 41,500
Expenses:
Direct 18,500
Office 18,200
Selling 18,000
Stock on 31st December, 1994

Raw material 1,200 --
Finished mixture 450
The stock of finished mixture at the end of 1994 is to be valued at the factory cost of the mixture for that year. The purchase price of
raw materials remained unchanged throughout 1994.
Prepare a statement giving the maximum possible information about cost and its break up for the year 1994.
Answer
Prime cost Rs. 3,77,800, factory cost Rs. 5,16,200, Cost of production of finished mixture sold Rs. 5,71,852, Cost of sales Rs.
6,31,352.
Question.10
Cost Sheet Page 19

Manoj K Jain
The following information has been obtained from the records of ABC Corporation for the period from June 1 to June 30th, 1991.
On June 1, 1991 On June 30th, 1991

Rs. Rs.
Cost of raw materials 60,000 50,000
Cost of work-in-progress 12,000 15,000
Cost of stock of finished goods 90,000 1,10,000
Rs.
Purchase of raw materials during June 91 4,80,000
Wages paid 2,40,000
Factory Overheads 1,00,000
Administration overheads 50,000
Selling & Distribution Overheads 25,000
Sales 10,00,000
Prepare a statement giving the following information:
(a) Materials consumed
(b) Prime cost
(c) Factory cost
(d) Cost of goods sold and
(e) Net profit
Answer
(a) 4,90,000
(b) 7,30,000
(c) 8,27,000
(d) 8,57,000
(e) 1,18,000
Question.11
The following figures are extracted from the trial balance of GoGetter Co. On 30th September1986:-
Rs. Rs.
Inventories:
Finished stock 80,000
Raw materials 1,40,000
Work-in-progress 2,00,000
Office appliances 17,400

Plant & Machinery 4,60,500
Buildings 2,00,000
Sales 7,68,000
Sales returns and rebates 14,000
Material Purchased 3,20,000
Freight incurred on material 16,000
Purchase returns 4,800
Direct labour 1,60,000
Indirect labour 18,000
Factory Supervision 10,000
Repairs and Upkeep-factory 14,000
Heat, Light & Power 65,000
Rates and Taxes 6,300
Miscellaneous factory expenses 18,700
Sales commission 33,600
Sales promotion 22,500
Sales travelling 11,000
Distribution Deptt- Salaries and Expenses 18,000
Office Salaries and Expenses 8,600
Cost Sheet Page 20

Manoj K Jain
Interest on Borrowed funds 2,000

Further details are available as follows
Closing Inventories:
Finished goods 1,15,000
Raw materials 1,80,000
Work-in-progress 1,92,000
Accrued expenses on:
Direct labour 8,000
Indirect labour 1,200
Interest on Borrowed funds 2,000
Depreciation to be provided on:
Office appliances 5%
Plant and Machinery 10%
Building 4%
Distribution of the following costs:
Heat, Light and power to Factory, Office and Distribution in the ratio 8:1:1 Rates and Taxes two-thirds to factory and one-third to
office. Depreciation on building to Factory, Office and selling in the ratio 8:1:1. With the help of the above information you are
required to prepare a condensed Profit and Loss statement of Gogetee Co. for the year ended 30th September 1986 along with
supporting schedules of :
(1) Cost of Sales
(2) Selling and Distribution Expenses
(3) Administration Expenses
Answer
Net profit Rs. 39,980
(1) Cost of Sales Rs. 7,14,020;
(2) Selling and Distribution Expenses Rs. 92,400;
(3) Administration Expenses Rs. 18,870
Question.12
The books of Adarsh Manufacturing Company present the following data for month of April 1992. Direct labour cost is Rs. 17,500
being 175% of works overhead. Cost of goods sold 56,000 excluding administration overhead.
April 1 April 2
Rs. Rs.
Raw materials 8,000 10,600
Work-in-progress 10,500 14,500
Finished goods 17,600 19,000
Other data are:
Selling Expenses 3,500
General and administration expenses 2,500
Sales for the month 75,000
You are required to:

(1) Compute the value of materials purchased.
(2) Prepare a cost statement showing the various elements of costs and also the profit earned.
Answer
(1) Rs. 36,500
(2) Prime cost Rs. 51,400; Works cost Rs. 61,400; Cost of Goods sold Rs. 56,000; Cost of Sales Rs. 62,000; Profit Rs. 13,000.
Question.13
The following figures for the month of April, 1991 were extracted from the records of a factory:-
Cost Sheet Page 21

Manoj K Jain
Rs.
Opening stock of finished goods (5,000 units) 45,000
Purchase of raw materials 2,57,100
Direct wages 1,05,000
Factory overheads 100% of Direct Wages
Administration on Overheads Rs. 1/- per unit
Selling and Distribution Overheads 10% of sales
Closing Stock of finished goods (10,000 units) ?
Sales (45,000 units) 6,60,000
Prepare a cost sheet for the month of April 1991, assuming that sales are made on the basis of “first-in first-out” principle.
Answer
Profit Rs. 1,35,320
Question.14
Bharat Electronics Ltd. furnishes the following information for 10,000 TV Valves manufactured during the year 1991:
Material 90,000
Direct wages 60,000
Selling Expenses 5,500
Power & Consumable stores 12,000
Factory Indirect Wages 15,000
Lighting of factory 5,500
Defective work (Cost of rectification) 3,000
Clerical Salaries and Management Expenses 33,500
Sale proceeds of scraps 2,000
Plant repairs & Maintenance and Depreciation 11,500
The net selling price was Rs. 31.60 per unit sold and all the units were sold.
As from 1st January, 1992 the selling price was reduced to Rs. 31.00 per unit. It was estimated that production could be increased
in 1992 by 50% utilizing spare capacity. Rates for materials and direct wages will increase by 10%.
You are required to prepare:-

(a) Cost sheet for the year 1991, showing various element of cost per unit and
(b) Estimated cost and profit for the 1992 assuming that 15000 units will be produced and sold during the year and factory
overheads will be recovered as a percentage of direct wages and office and selling expenses as a percentage of work cost.
Answer
(a) Profit total 82,000 & per unit 8.20
(b) Rs. 78,900
Question.15
A critical study of past expenses incurred on the manufacture of two kinds of acid containers (drums) shows:-
Nature of Expenses Expenses incurred on the

Manufacture of acid containers
Type “X” (Rs.) Type “Y” (Rs.)

Direct Material 3.50 6.50
Direct wages 1.00 1.50
Plant and Machine usage
allocated as hourly basis 2.00 3.00
General overhead apportioned
at 200% of direct wages 2.00 3.00
------------ ------------
8.50 14.00
======= =======
Cost Sheet Page 22

Manoj K Jain
Cost records for month of August 1991 show:

Direct materials utilised 26,500
Direct wages 5,850
Plant and Machine Usage 16,250
General Overheads 11,700
------------
Total 60,300
=======
Containers produced: Type ‘X’ 2000 units and Type ‘Y’ 3,000 units.
Prepare a consolidated cost sheet distributing the total production cost between the two types of containers according to the
different elements of cost and also showing cost per container of each type.
Answer
Type X 8.70
Type Y 14.30
Type X 17,400
Type Y 42,900
--------------
60,300
========
Question.16
Sreelekha Mfg. Co. Manufacturing two types of pens P & Q. The cost for the year ended 30th June 1991 is as follows:-
Rs.
Direct Material 4,00,000
Direct Wages 2,24,000
Production Overheads 96,000
-------------
7,20,000
Its further ascertained that:
(a) Direct Materials in Type P cost twice as much direct materials as in type Q.
(b) Direct Wages for type Q were 60% of those for type P.
(c) Production overheads was of the same rate of both types.
(d) Administration overheads for each was 200% of direct labour.
(e) Selling cost were 50 paise per pen for both types.
(f) Production during the year:
Type P 40,000
Type Q 1,20,000
(g) Sales during the year:
Type P 36,000 pens and
Type Q 1,00,000 pens.
(h) Selling prices were Rs. 14 per pen for type P and Rs. 10 per pen for type Q.
Prepare statement showing per unit cost of production, total cost, profit and also total sales value and profit Separately for the two
types of Pen P & Q.
Answer Profit per unit P Rs. 2.90, Q Rs. 3.30, Material cost per unit P rs. 4, Q Rs. 2., Cost of sales per unit P =
Rs. 11.10, Q Rs. 6.7
Question.17
The books and records of the Anand Manufacturing Co. present the following data for the month of August 1988.
Direct labour cost Rs. 16,000 (160% of factory overheads)
Cost Sheet Page 23

Manoj K Jain
Cost of goods sold Rs. 56,000

Inventory accounts showed these opening and closing balances:-
August 1 August 31
Raw Materials 8,000 8,600
Work-in-progress 8,000 12,000
Finished goods 14,000 18,000
Other data
Selling expenses 3,400
General and administration expenses 2,600
Sales for the month 75,000
You are required to prepare a statement showing cost of goods manufactured and sold and profit earned.
Answer
15,600 - profit.
Question.18
A Ltd. Co. has capacity to produce 1,00,000 units of a product every month. Its works cost at varying levels of production is as
under:
Level Works cost per unit
Rs.
10% 400
20% 390
30% 380
40% 370
50% 360
60% 350
70% 340
80% 330
90% 320
100% 310
Its fixed administration expenses amount to Rs. 1,50,000 and fixed marketing expenses amount to Rs. 2,50,000 per month
respectively. The variable distribution cost amount to Rs. 30 per unit.
It can market 100% of its output at Rs. 500 per unit provided it incurs the following further expenditure:
(a) It gives gift items costing Rs. 30 per unit of sale;
(b) It has lucky draws every month giving the first prize of Rs. 50,000; 2nd prize of Rs. 25,000; , 3rd prize of Rs. 10,000 and
three consolation prizes of Rs. 5,000 each to customers buying the products.
(c) It spends Rs. 1,00,000 on refreshments served every month to its customers;
(d) It sponsors a television programmed every week at a cost of Rs. 20,00,000 per month.
It can market 30% of its output at Rs. 550 per unit without incurring any of expenses referred to in (a) to (d) above.
Advise the company on its course of action. Show the supporting cost sheets.
Answer
38,00,000, 104,00,000
Question.19
The cost structure of an article the selling of which is Rs. 45,000 is as follows:
Direct material 50%
Direct Labour 20%
Overheads 30%
An increase of 15% in the cost of materials and of 25% in the cost of labour is anticipated. These increased costs in relation to the
present selling price would cause a 25% decrease in the amount of present profit and article.
Cost Sheet Page 24

Manoj K Jain
You are required:

(1) To prepare a statement of profit per article at present
(2) The revised selling price to produce the same percentage of profit to sales as above before.
Answer
(1) Profit Rs. 15,000 and
(2) Selling prize Rs. 50,625.
Question.20
On June 30th, 1996 a flash flood damaged the ware house and factory of ABC corporation completely destroying the work in
progress Inventory. There was no damage to either the raw materials of finished goods inventories. A physical verification taken
after the flood revealed the following valuations:
Raw material Rs. 62,000

work in progress ?
Finished Goods Rs. 1,19,000
The Inventory on Jan. 1, 1996 consisted of the following:
Raw Materials Rs. 30,000
Work in progress Rs. 1,00,000
Finished goods Rs. 1,40,000
-------------- 2,70,000
A review of the books and records disclosed that the gross profits margin historically approximated 25% of sales. The sales for the
first six months of 1996 were Rs. 3,40,000. Raw material purchase were Rs. 1,15,000. Direct labour costs for this period were Rs.
80,000 and manufactures overhead has historically been 50% of direct labour.
Compute the cost of work in progress inventory lost at June 30, 1996 by preparing a Statement of cost and profit.
Question.21
The following inventory data relate to XYZ Ltd.
Opening Closing
Finished goods Rs. 1,10,000 95,000
Work in progress Rs. 70,000 80,000
Raw material Rs. 90,000 95,000
Additional information:
Cost of goods available for sale Rs. 6,84,000
Total goods processed during the period 6,54,000
Factory overheads Rs. 1,67,000
Direct material used Rs. 1,93,000
Requirements:
(1) Determine raw material purchases
(ii) Determine the direct labour cost incurred.
(iii) Determine the cost of goods sold.
Answer i. Rs. 1,98,000, ii. Rs. 2,24,000, iii. Rs. 5,89,000
Question.22
A fire occurred in the factory premises on October 31, 2003. The accounting records have been destroyed certain accounting
records were kept in another building. They reveal the following for the period September, 1, 2003 to October 31, 2003:-
(i) Direct materials purchased Rs. 2,50,000

(ii) Work in process inventory, 1.9.2003 Rs. 40,000
(iii) Direct materials inventory, 1.9.2003 Rs. 20,000
(iv) Finished goods inventory, 1.9.2003 Rs. 37,750
Cost Sheet Page 25

Manoj K Jain
(v) Indirect manufacturing cost 40% of conversion cost

(vi) Sales revenues Rs. 7,50,000
(vii) Direct manufacturing labour Rs. 2,22,250
(viii) Prime cost Rs. 3,97,750
(ix) Gross margin percentage based on revenues 30%
(x) Cost of goods available for sale Rs. 5,55,775
The loss is fully covered by insurance. The insurance company wants to know the historical cost of the inventories as a basis for
negotiating a settlement, although the settlement is actually to be based on replacement cost and not historical cost.
Required:-
(i) Finished goods inventory, 31.10.2003
(ii) Work in progress inventory, 31.10.2003
(iii) Direct material inventory, 31.10.2003
Answer i) Rs. 30,775, ii) Rs. 67,892, iii) Rs. 94,500
Question.23
The following data pertains to a company for the month of March, 2003
(1) Direct material used Rs. 847
(2) Opening stock of finished goods.
(3) Closing stock of finished goods Rs. 94
(4) Direct labour cost Rs. 389.
(5) Manufacturing overheads?
(6) Cost of goods produced Rs. 1,878
(7) Cost of goods sold?
(8) Cost of goods available for sale Rs. 1,949.
Answer
[Manufacturing overheads Rs. 642; opening stock of finished goods Rs. 71; cost of good sold Rs. 1,855]
Question.24
The following information for the year ended 31st March, 1999, is obtained form the book and records of a factory:
Completed Jobs Work in progress

Rs. Rs.
Raw material supplied from stores 1,80,000 60,000
Wages 2,00,000 80,000
Chargeable expenses 20,000 8,000
Material transferred to work in progress 4,000 4,000
Material returned to stores 2,000 ---
Factory overhead is 80% of wages and administrative overhead is 25% of factory cost.
The value of executed jobs during 1999 was Rs. 8,20,000.
Prepare:
(1) Consolidated completed jobs account showing the profit made or loss incurred on Jobs, and also
(2) Consolidated work in progress account.
Question 25
The cost sale of production ‘A’ is made up as follows:
rs.
Material used in :
manufacturing 5,500
Cost Sheet Page 26

Manoj K Jain
selling the product 150

packing materials 1,000
factory :75
the office 125
Labour required in production 1,000

Labour required for supervision of the management for factory 200
Expenses:
Direct factory 500
indirect factory 100
office 125
Depreciation:
office building and equipment 75
factory 175
Selling expenses 350

Freight on materials 500
Advertising 125
Assuming that all products manufactured are sold, what should be the selling price to obtain a profit of 25% on selling price?
Answer prime cost Rs. 8,500, factory cost Rs. 9,050, cost of production rs. 9,375, cost of sales rs.
10,000, sales rs. 13,333
Question.26
Prepare Cost Sheet for month of March 1991 from the following particulars:
Inventories 1.3.91 (Rs.) 31.3.91 (Rs.)

Raw Material 10,000 12,000
WIP 25,000 20,000
Finished Goods 30,000 35,000
Raw Material Purchased Rs. 1,00,000

Productive Wages Rs. 62,000
Chargeable Expenses Rs. 40,000
Factory Overheads 50% of Wages
Administration Overheads 20% of Works Cost
Selling & Distribution Overheads Rs. 21,800
Sales Rs. 2,50,000
Answer Loss Rs. 50,000

Question.27
Using following information prepare Cost Sheet by FIFO Method and determine profit for March 2000:
Raw Materials on 1-3-2000 2,000 Kgs Rs. 2,000

Raw Material Purchased 1,00,000 Kgs Rs. 1,10,000
Raw Materials Stock on 31-3-2000 5,000 Kgs
Productive Wages Rs. 73,500
Chargeable Expenses Rs. 50,000
Factory Overheads 40% of chargeable expenses
Administration Overheads 20% of Works Cost
Opening Stock of finished goods 5,000 units Rs. 55,000
Sales 32,000 units
Closing Stock finished goods 3,000 units
Selling and Distribution Overheads Rs. 2 per unit
Profit margin 50% on Sales.
Also rework your answer if:
Cost Sheet Page 27

Manoj K Jain
(i) Stock valuation on Weighted average method.

(ii) Stock Valuation on LIFO method.
(iii) Attempt the question if stock valuation at factory Costs.
Question.28
Raw Material Consumed Rs. 2,00,000
Productive Wages Rs. 1,00,000
Factory Overheads Rs. 2/- unit
Opening Stock finished goods 5,000 units Rs. 50,000
Sales 25,000 units @Rs. 20/-
Closing Stock finished goods 10,000 units
Opening WIP NIL
Closing WIP Rs. 10,000
It consists of
Material Rs. 5,000
Labour Rs. 3,000
Factory Overheads Rs. 2,000
Administration Overheads Rs. 38,000
Selling & Distribution Overheads Rs. 2/- unit
Prepare Cost Sheet:
Answer Profit Rs. 1,41,333

Question.29
A factory has received an order for three different types of casting weighting respectively 18,45 and 27 tonnes. 10% of the raw
materials used are wasted in manufacturing and are sold as scrap for 20% of the cost of raw materials .
The cost of raw materials is Rs. 250 per tonne, the wages for three types of casting are respectively Rs. 4,000 Rs. 10,500 and Rs.
5,500. The cost of the moulds for the three different types of casting are respectively Rs. 400, Rs. 500 and Rs. 300.
If the factory overhead charges are 40% of the wages in each case, find the cost of production per tonne of each type of casting.
Answer I Rs. 605.56, II Rs. 610, III Rs. 568.52

Question.30
The following figures are collected from the books of an iron foundry after the close of the year:
Raw Materials: Rs.

Opening Stock at the beginning of the year 7,000
Purchases during the year 50,000
Closing stock at the end of the year 5,000
Direct Wages 10,000

Works overhead: 50% of direct wages
Stores overhead on material: 10% on the cost of materials.
10% of the finished castings were found to be defective in manufacturing and were rectified by expenditure of additional works
overhead charges to the extent of 20% on the proportionate direct wages.
10% of the castings were rejected being not upto specification and a sum of Rs. 400 was realised on sale as scrap.
The total gross output of casting during the year was 1,000 tonnes.
Find out the manufacturing cost of the saleable castings per tonne
Answer Quantity 900, Value rs. 71,980

Question.31
Cost Sheet Page 28

Manoj K Jain
Pleasant Cold Limited manufactured and sold 1,000 refrigerators in the year ending 31st March, 1995. The summarized Trading &
Profit and Loss A/c is set out below:
Rs. Rs.
To Cost of Materials 80,000 By Sales 4,00,000
To Direct Wages 1,20,000
To Manufacturing expenses 50,000
To Gross Profit c/d 1,50,000
-------------- ------------
4,00,000 4,00,000
======== =======
To Management and Staff
Salaries 60,000 By Gross profit b/d 1,50,000
To Rent, Rates, Insurance 10,000
To Selling expenses 30,000
To General expenses 20,000
To Net Profit 30,000
------------ ------------
1,50,000 1,50,000
======= =======
For the year ending 31st March, 1996 it is estimate that-
1. Output and sales will be 1,200 refrigerators.
2. Prices of new materials will rise by 20% of the previous years level.
3. Wages rates will rise by 5%.
4. Manufacturing cost will rise in proportion to the combined cost of materials and wages.
5. Selling cost per unit will remain unchanged.
6. Other expenses will remain unaffected by the rise in output.
You are required to submit a statement for the Board of Directors showing the price at which the refrigerators should be marketed
so a to show a profit of 10% on selling price. (Hint : Calculate cost per unit )
Answer Prime cost Rs. 222, Works cost Rs 277.5, Cost of production Rs. 352.5, Cost of
sales Rs. 382.5 , Sale price Rs. 425.
Question.32
The cost structure of an article the selling price of which is Rs. 500 is as follows:
Direct Materials : 50% of the total cost
Direct Labour: 30% of the total cost.
Overhead : Balance
Due to anticipated increase in existing materials price by 20% and in the existing labour rate by 10% the existing profit would come
down by 30 % if the selling price remains unchanged.
Prepare a comparative statement showing the cost, profit and sale price under the present conditions and with the increase
expected for the future. Assuming the same percentage of profit on cost as under present conditions. (Calculations may be made to
the nearest rupee) has to be earned.
Question.33
Find profit by drawing a cost sheet with the following information for the month of June, 2001:
Rs.
Opening stock: Raw - materials 1350
Finished goods 2500
Closing Stock : Raw - Materials 750
Finished goods 1500
Raw - Materials purchased 20,000
Cost Sheet Page 29

Manoj K Jain
Wages paid to labourers 8000

Direct expenses 1250
Factory printing and stationery 350
Rent : Factory 250
Office 120
------- 370
Wages for supervisor 1000
Interest paid 1200
Dividend received 300
Lighting - office 125
Audit fees 150
Bank charges 500
Cost of samples 100
Income tax 1000
Advertising 1250
Cash discount 800
Salary of godown - keepers 175
Commission of travelling agents 500
Sales 50000
Answer Profit Rs. 12,280

Question.34
The Margos company has just completed operations for the year 1983. The company’s Assistant Accountant (who is very
inexperienced) prepared the following Profit and Loss Account for the years activities:
Rs. Rs.
Sales 32,00,000
Operating Expenses:
Insurance 40,000
Gas, electricity and water 1,00,000
Direct Labour Cost 6,00,000
Depreciation on factory equipment 1,60,000
Raw Materials purchased during the year 12,00,000
Rent 4,00,000
Selling & Administration Overheads 3,20,000
Indirect labour 1,20,000
----------- 29,40,000
---------------
Net Profit 2,60,000
You have been asked to assist the company in preparing a correct cost sheet for the year 1983. The following additional
information is available.
(i) The company is a manufacturing firm that produces a product for sale to outside customers.
(ii) 80 percent of the rent paid applies to factory operations and the remainder to Selling and Administration activities.
(iii) No raw materials were on hand on 1st January . However, raw materials of the value of Rs. 1,50,000 purchased during 1983
were still on hand on 31st December. The remainder was used in production during the year.
(iv) 70 percent of the Insurance and 90% of the Gas, Electricity and water paid apply to factory operations the remainder applies
to Selling and Administration activities.
(v) Work - in - Progress and finished goods inventories were:
1st January 31st December

Work-in-Progress Rs. 4,20,000 Rs. 4,80,000
Finished goods Rs. 5,40,000 Rs. 4,00,000
Cost Sheet Page 30

Manoj K Jain
You are required to prepare:

(a) A statement of cost of goods manufactured in 1983, and
(b) A corrected Cost Sheet for the year ended 31st December, 1983.
Question 35
A manufacturer of metal chairs of several types follows a simple costing system. Records are kept of the materials consumed in the
manufacture of each type of chair and of the number of chairs of each type Produced. Wages and overheads are allocated in
Proportion to the cost of raw materials. Accounts are made up to 30th June every year. During the year ending June 30th, 2000 the
output of type ‘A’ chairs was 40,000. The cost of raw materials used as Rs. 2,75,000. The following is the summarised statement of
the Manufacturing and Profit and Loss Account for the year.
Rs. Rs.
To Raw Material 13,75,000 By Sales 48,55,000
To Factory Wages 11,50,000 By Stock of finished goods 80,000
To Factory Expenses 11,12,500
To Opening Stock of Finished Goods 50,000
To Gross Profit 12,47,500
----------------- ----------------
49,35,000 49,35,000
========== =========
To Office and Administration Expenses 3,05,000 By Gross Profit 12,47,500
To Net Profit 9,42,500
----------------- ----------------
12,47,500 12,47,500
========== =========
In August 2000, the business was offered a Government Contract to manufacture and supply of 10,000 ‘A’ type chairs at a Price to
allow a net profit equal to 10% of cost. All expenses charged in the above account are admissible with the exception of the
following under ‘Administration expenses’.
Advertisement Rs. 18,500; Bad debts Rs. 11,000;
Directors fees Rs. 1,20,000 to be restricted to Rs. 1,15,000.
It was ascertained that in August, 2000 the cost of Raw Materials is 10% above last year and the wage rate has increased by 20%.
Factory Expenses Per unit of output are estimated not to have changed. Owing to increase in output the Proportion of office and
administrative expenses have been reduced by 10 Per cent. Calculate on the basis of these estimates, total contract price for
10,000 chairs.
Question 36
A Company Produces a fan and sells it for Rs. 300. An increase of 15 Per cent in cost of material and 10 Per cent in cost of labour
anticipated. If the only figures available are those given below, what must be the selling Price to give the same Percentage of gross
Profit as before:
a) Material cost have been 45 Per cent of cost of sales,
b) Labour cost has been 40 Per cent of cost of sales,
c) Overhead costs have been 15 Per cent of cost of sales,
d) The anticipated increased costs in relation to the present sales Price would cause a 35 Per cent decrease in the amount of
the Present gross Profit.
Question 37
M/s AB Shoes Co. manufactures two types of shoes A and B. Production costs for the year ended 31st March, 2000 were:
Direct Material Rs.15,00,000;

Direct wages Rs.8,40,000;
Production overhead Rs.3,60,000.
There was no work - in - Progress at the beginning at the end of the year. It is ascertained that.
Cost Sheet Page 31

Manoj K Jain
(a) Direct material in type A shoes consists twice as much as that in type B shoes.
(b) The direct wages for type B shoes were 60% of those of type A shoes.
(c) Production overhead was the same Per pair of the A and B type.
(d) Administration overhead for each type was 150% of direct wages.
(e) Selling cost was Rs. 1.50 Per pair.
(f) Production during the year were : type A 40,000 Pairs of which 36,000 were sold: Type B 1,20,000 Pairs of which 1,00,000
were sold.
(g) Selling Price was Rs. 44 for type A and Rs. 28 for type B Per pair. Prepare a statement showing cost and Profit. Show
complete working.
Question 38
Prepare a Cost Sheet from the following data given below:
Production in the month of January 10,000 units
Raw material is Rs. 5 Per unit
Wages is Rs. 3 Per unit.
Factory overhead is 60% of wages
Office overheads is 20% of works
Selling overheads is Rs. 1 Per unit
Sales are 8,000 units @ 15 Per unit
Question 39
Mice Ltd. is a manufacturing Stuff toys and sells them @ 200 each. It has obtained an order for 3,000 toys and the company was to
quote price for the toy earnings a profit of 20% of Sales. Last year data is given as below:
Sales Rs. 20,00,000

(10,000 toys @ Rs. 200)
Material 6,00,000
Wages 4,00,000
Factory Overhead 2,80,000
Office Overhead 3,20,000
The company noticed that the rate of material has increased by 10% and factory overheads have gone up by 15% and office
overheads have decreased by 10%.
Factory overheads are recovered as a Percentage of wages. Office overheads has recovered as a Percentage of factory cost.
Question 40
X and Y shoe Polish company Ltd. manufactures black and brown Polish in one standard size of tin retailing at Rs. 1.08 and Rs.
1.20 respectively. Following data are supplied to you.
Direct Material Rs.

Polish 7,38,000
Tins 2,88,000
Direct Wages 2,44,800
Production overhead 3,67,200
Administrative and Selling O/H 1,22,400
Sales for the year were: Black 14,40,000 tins and brown 600,000 tins. The Opening and closing stocks were:
Black Brown
Opening Stock 48,000 1,60,000
Closing Stock 1,08,000 60,000
Cost Sheet Page 32

Manoj K Jain
The opening stock of black and brown polish was valued at its Production cost of paise 80.4 Per tin and Paise 86.4 Per tin
respectively. The cost of raw material for brown polish is 10% higher than that for black but there is no difference in the cost of tins.
Direct wages for brown are 8% higher than those for black polish and production overheads are considered to vary with direct
wages. Administrative and selling overhead is absorbed at a uniform rate Per tin of Polish sold.
Prepare a statement to show the cost and profit Per tin of polish.
Question 41
From the understated Particulars you are required to Prepare a monthly cost sheet of Plastic toys Manufacturers Ltd., showing cost
and Profit Per 1000 toys. Show also in the form of a summary, the cost of sales, Net Profit and sales for the month. The Company
manufacturers only one type of toy. The opening stock was valued at the same price per 1000 toys as the production of the month
concerned.
Material:
Basic Raw Material 1400 tons @ Rs. 5 Per ton
Stores Rs. 5,000
Labour:
Direct Rs. 16,000
Indirect Rs. 3,000
Overheads - Works 25% of direct labour
Office 10% of works cost
Production for the month (of Nov. 1972) was 10 lakh toys
Sales for the month 9 lakh toys Rs. 50 Per 000

Stock in the beginning 2 lakh toys
Stock at the close 3 lakh toys
Question 42
Works out in cost sheet form the unit cost of Production Per ton of special paper, manufactured by a paper Mill in December 1972
from the following data:
Direct Materials
Paper Pulp 500 tons @ Rs. 50 Per ton
Other Materials 100 tons @ Rs. 30 Per ton.
Direct Labour
80 skilled men @ Rs. 3 Per day for 25 days
40 unskilled men @ Rs. 2 Per day for 25 days.
Direct Expenses
Special Equipment Rs. 3,000
Special dyes Rs. 1,000
Work overhead
Variable @ 100% and
Fixed @ 60% on Direct wages
Administration 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 the special equipment after utilisation in manufacture is nil.
Question 43
Cost Sheet Page 33

Manoj K Jain
Delta Engineering Limited Produces a uniform type of Product and has a manufacturing capacity of 3,000 units Per week of 48
hours. From the cost records of the Company, the following data are available relating to output and cost for three consecutive
weeks:
Week Unit Direct DirectFactory overheads
number manufactured Material Rs. Labour Rs.(Variable & fixed)
1 1,200 9,000 3,600 31,000
2 1,600 12,000 4,800 33,000
3 1,800 13,500 5,400 34,000
Assuming that the Company charges a Profit of 20% on selling Price, find out the selling Price Per unit when the weekly output is
2,000 units.
Question 44
A factory can produce 60,000 units Per annum as its optimum (100%) capacity. The estimated costs of Production are as under:
Direct material Rs. 3 Per unit
Direct labour Rs. 2 Per unit
Indirect expenses:
Fixed Rs. 1,50,000 Per annum
Variable Rs. 5 Per unit
Semi - variable Rs. 50,000 Per annum upto 50% capacity and
an extra expense of Rs. 10,000 for every 25%
increase in capacity or part thereof.
The factory Produces only against orders (and not for own stock).
If the Production Programme of the factory is as indicated below and the management desires to ensure a Profit of Rs. 1,00,000 for
the year work out the average selling price at which each unit should be quoted:
First 3 months of the year 50% of capacity; remaining 9 months 80% of capacity.
Ignore selling, distribution and administration overheads.
Question 45
The expenses of a machine cost center for a particular months are as follows:
a) Power Rs. 50,000;
b) Maintenance and Repairs: Rs. 10,000;
c) Machine Operator’s Wages: Rs. 2,000;
d) Supervision: Rs. 6,000;
e) Depreciation: Rs. 40,000
Other particulars are given below:
Products Rate of Production
Production in units
A 30 Units P/H 1,800
B 10 units P/H 500
C 6 units P/H 300
D 4 Units P/H 260
The entire Production was to be offered to Government on ‘Cost Plus 20%’ basis. Material costs Per units are: A: Rs. 40; B: Rs. 60;
C: Rs. 100 and D: Rs. 300.
Cost Sheet Page 34

Manoj K Jain
Prepare a statement showing Product - wise ‘cost’ and ‘offer’ price.
Question 46
A Ltd. Co. has capacity to Produce 1,00,000 units of Product every month. Its works cost at varying levels of Production is as
under:
Level Works cost Per unit (Rs.)
10% 400
20% 390
30% 380
40% 370
50% 360
60% 350
70% 340
80% 330
90% 320
100% 310
Its fixed administration expenses amount to Rs. 1,50,000 and fixed marketing expenses amount to Rs. 2,50,000 Per month
respectively. The variable distribution cost about, to Rs. 30 Per unit.
It can market 100% of its output at Rs. 500 Per unit Provided it incurs the following further expenditure:
a) It gives gift items in Rs. 30 Per unit of sale;
b) It has lucky draws every month giving the first Prize of Rs. 50,000; 2nd Prize of Rs. 25,000, 3rd Prize of Rs. 10,000 and three
consolation Prizes of Rs. 5,000 each to customers buying the Product.
c) It spends Rs. 1,00,000 on refreshments served every month to its customers;
d) It sponsors a television Programme every week at a cost of Rs. 2,00,000 Per month.
It can market 30% of its output at Rs. 550 Per unit without incurring any of the expenses referred to in (a) to (d) above.
Advise the company on its course of action. Show the supporting cost sheets.
Question 47
AB Ltd. manufactures Product XL 101 in batches of 100 units by a series of operations in the fabrication and Assembly
departments of a factory. The following details relate to 42 batches manufactured by the firm during June 1999:
Fabrication Department
Materials :
Issued 2,420 Kg of an alloy costing Rs. 25/kg; 200 Kg were returned at the end of the month. Off - cuts and scrap fetched Rs. 500.
Labour:
Normal rate of wages is Rs. 15/hr. Time office recorded 2,460 hours for June 1999. This included 240 hours overtime work paid at
double the normal rate.
Assembly Department
Materials:
Cost of Components used Rs. 57,900
Cost Sheet Page 35

Manoj K Jain
Labour:
Workers are paid at a piece work rate of Rs. 4 / unit for production up to 3,000 units. For excess production over 3,000 units up to
4,000 units, the rate is 25% more and for excess Production over 4,000 units the rate is 50% more. During June 1999, there was
stoppage of Production for 10 hours. Due to machine break down and for this stoppage ten workers in the department were paid
wages at time rate of Rs. 15 / hr.
Calculate the average Prime cost Per unit of XL 101 manufactured during June 1999.
Cost Sheet Page 36

Manoj K Jain
Detailed Answers
Answer.1
Question No. 1
Particulars PU Amount Units
Raw Material Consumed/DM 1,60,000
Direct Wages/DL 80,000
Direct Expenses 0
PRIME COST 2,40,000
Factory Oveheads (WN 1) 16,000
GROSS FACTORY COST 2,56,000
+ Opening WIP 0
- Closing WIP 0
NET FACTORY COST( of comp units) 2,56,000 4,000
Administration Overheads 25,600
10% of FC
COST OF PRODUCTION of goods prod 70.40 2,81,600 4,000
+ Opening Finished Stock 0 0
- Closing Finished Stock 70.40 -28,160 -400
COST OF prod of GOODS SOLD 2,53,440 3,600
COST OF SALES 2,65,440 3,600
PROFIT 94,560
SALES 100.00 3,60,000 3,600
Answer.2
Question No. 2
Raw Material Consumed/DM
Purchases 1,10,000
+ expenses on purchases 10,000
+ Opening Stock 0
- Closing Stock -20,000
Direct Wages/DL 1,00,000
Direct Expenses 0
PRIME COST 2,00,000
Answer.3
Cost Sheet Page 37

Manoj K Jain
Question No. 3
Particulars PU Amount Units(Qtls)
Raw Material Consumed/DM 1.63 28,000
Purchases
+ Opening Stock
- Closing Stock
RM Consumed
Direct Wages/DL 3.69 63,500
Direct Expenses -
PRIME COST 5.32 91,500
Factory O/h…………...(WN1) 0.98 16,900
GROSS FACTORY COST 6.30 1,08,400
+ Opening WIP -
- Closing WIP -
NET FACTORY COST( of comp units) 6.30 1,08,400 17,200
Administration Overheads…...WN2 0.70 12,000
Working Note 1
Factory O/h
Fuel 6,900
Electric Power 1,340
Repairs 2,400
Haulage 1,060
Light and Power 400
Rent 2,000
Rates and Ins 300
Dep on Mach 2,500 16,900
Working Note 2
Administration O/h
Off salary and exp 7,000
Administration O/h 5,000 12,000
Answer.4
Question No. 4
Particulars Amount
Purchases 25,000
Carriage/Exp 1,000
+ Opening Stock 5,000
Raw Material Consumed/DM 24,000
Direct Expenses 1,000
PRIME COST 45,000
Factory Oveheads 35,000
GROSS FACTORY COST 80,000
Answer 5
Cost Sheet Page 38

Manoj K Jain
Question No. 5
Purchases 50,000
Carriage Inward 1,250
- Closing Stock 0
PRIME COST 78,250
(-) sale of scrap -200
+ Opening WIP 0
- Closing WIP 0
NET FACTORY COST( of comp units) 1,09,670
Administration Overheads……WN2 1,300
COST OF PRODUCTION of goods prod 1,10,970
+ Opening Finished Stock 0
- Closing Finished Stock (FIFO) 0
COST OF prod of GOODS SOLD 1,10,970
Selling & Distribution Overheads…WN3 7,175
COST OF SALES 1,18,145
PROFIT
SALES
Working Note 1
Factory O/h
Unproductive wages 10,500
Estimating 800
Canteen & Welfare Exp 1,500
Godown Exp 1,000
Branch Exp 500
Depreciation 2,000
Consumable Stores 2,000
MT-Factory Building 500
Traingin Workers 2,300
Power 4,500
Rent of Warehouse-Ass 300
Loose Tools written off 600
Water Supply-Assumed 1,200
Work Manager Salary 1,000
Loss on sale of Plant-Assumed Normal 400
Insurance of St of RM 300
Contib To PF of Factory 1,000
Shortage of Fin Goods-Assumed normal 20
Experimental Exp-Assumed 200
Wages of Fireman 1,000 31,620
Cost Sheet Page 39

Manoj K Jain
Administration Overheads
Audit Fees 250
Legal Exp 500
Bank Charges 50
Telephone 500 1300
Selling & Distribution Overheads
Carriage Outward 750
Sales Off Exp 1100
Wages of Delivery vans 2000
Printing & Stat 225
Advertisement 300
Commision on sales 1500
Dis on sales-Assumed 200
Cost of samples 300
Marke Research exp 500
Travelling Exp-Assumed 300 7175
Answer.6
Question No. 6
Purchases 28,000
Direct Expenses
PRIME COST 33,500
Dep-1500, Factory Rents -3000
+ Opening WIP 0
- Closing WIP 0
NET FACTORY COST( of comp units) 38,000 3,000
Administration Overheads 900
Off Rent-500,Gen exp 400
COST OF PRODUCTION of goods prod 12.96667 38,900 3,000
+ Opening Finished Stock 14.00000 2,800 200
- Closing Finished Stock (FIFO) 12.96667 -5,187 -400
COST OF prod of GOODS SOLD 13.04048 36,513 2,800
Dis 300, advts, 600 900
COST OF SALES 13.36 37,413 2,800
Answer.7
Cost Sheet Page 40

Manoj K Jain
Question No. 7
Particulars Amount Units
Purchases (70000 - 2000 + 500) 68500.00
+ Opening Stock 25000.00
- Closing Stock -18800.00 74,700
Direct Expenses 800
PRIME COST 93,500

+ Opening WIP 0
- Closing WIP 0
Working Note 2
- Closing Finished Stock 0

Factory Oveheads (WN 1)
Non Prod Workers 2000
Rent 2500
Fuel Gas etc. 1000
Repairs 600
Dep on Mach 1400 7500
Working Note 2
Office staff 5000
exp 1500 6500
Carriang on goods sold 1500
Advt 1200 2700
Answer.8
Cost Sheet Page 41

Manoj K Jain
Question No. 8
Purchases
+ Opening Stock
- Closing Stock
Direct Expenses
PRIME COST 10,000
Hrs x cost per hour= 1000 x 0.50 500
+ Opening WIP 0
- Closing WIP 0
NET FACTORY COST( of comp units) 10,500
Working Note 2
COST OF PRODUCTION of goods prod 0.63 12,600 20,000
- Closing Finished Stock 0.63 -1,260 -2,000
COST OF prod of GOODS SOLD 11,340 18,000
Selling & Distribution Overheads 0.06 1,080
.06 pu
COST OF SALES 12,420
PROFIT 5,580
SALES 1.00 18,000 18,000
Answer.9
Cost Sheet Page 42

Manoj K Jain
Question No. 9
Purchases 180000.00 1,60,000
+ Opening Stock 2000.00 2,000
- Closing Stock -1350.00 -1,200
1,80,650 1,60,800
PRIME COST 3,77,800
Factory Oveheads (WN 1) 1,46,570
(-) sale of scrap units or normal wastage -8,170 -7,800
GROSS FACTORY COST 5,16,200 1,53,000
+ Opening WIP 0
- Closing WIP 0
NET FACTORY COST( of comp units) 5,16,200 1,53,000
Working Note 2
COST OF PRODUCTION of goods prod 5,71,620 1,53,000
+ Opening Finished Stock 1,750 500
- Closing Finished Stock At FC -1,518 -450
COST OF prod of GOODS SOLD 5,71,852 1,53,050
COST OF SALES 6,31,352 1,53,050

PROFIT 2,86,648
SALES 9,18,000 1,53,050
Stores
Purch 24250
+ op st 7250
- Cl st -5550 25950
Power 30400
Dep 18000
Salary 72220 146570
salary 37220
exp 18200 55420
Salary 41500
selling exp 18000 59500
Answer.10
Statement of Cost & Profit of ABC Corp. for the month of June, 1991
Particulars Rs. Rs. Rs.
Opening stock of raw materials 60,000
Purchase of raw materials 4,80,000
Closing stock of raw materials (50,000) 4,90,000
Wages paid 2,40,000
Prime Cost 7,30,000
(+) factory overheads 1,00,000
Gross factory cost 8,30,000
(+) Opening Stock of Work - in - Progress 12,000
Cost Sheet Page 43

Manoj K Jain
(-) Closing stock of Work - in - Progress (15,000)

---------------
Net factory cost 8,27,000
(+) Administration overheads 50,000
---------------
Cost of Production 8,77,000
(+) Opening stock of finished goods 90,000
(-) Closing stock of finished goods (1,10,000)
---------------
Cost of Production of goods sold 8,57,000
(+) Selling and Distribution overheads 25,000
---------------
Cost of sales 8,82,000
Profit (B.F.) 1,18,000
(10,00,000 - 8,82,000) ---------------
Sales 10,00,000
========
Answer 11
Cost Sheet Page 44

Manoj K Jain
Question No. 11
Purchases 3,15,200
Freight 16,000
+ Opening Stock 1,40,000
- Closing Stock -1,80,000
Direct Expenses
PRIME COST 4,59,200
Factory Oveheads 1,70,550
+ Opening WIP 2,00,000
- Closing WIP -1,92,000
COST OF PRODUCTION (of goods prod) 6,56,620
+ Opening Finished Stock 80,000
- Closing Finished Stock -1,15,000
COST OF (prod of )GOODS SOLD 6,21,620
PROFIT 39,980
SALES 7,54,000
Factory Overheads
Indirect Labpur( 18000 +1200) 19,200
Factory Supervision 10,000
Repairs 14,000
Heat Light and Power 65k*8/10 52,000
Rates and Taxes 6300*2/3 4,200
Misc Factiry Exp 18,700
PM 46,050
Building 6,400
1,70,550
Office O/h
Salary exp 8,600
dep-off apll 870
Heating Light and power 65k * 1/10 6,500
Rates and Taxes 6300*1/3 2,100
Building 800
18,870
Selling and Distrubtion o/h
Sales Commission 33,600
Sales Promotion 22,500
Sales Travelling 11,000
Distribution salary 18,000
Heating Light and power 65k*1/10 6,500
Building 800
92,400
Answer.12
Cost Sheet Page 45

Manoj K Jain
Computation of value of raw material purchased

Rs.
Cost of goods sold excluding admin. overheads = 56,000
(-) Opening stock of finished goods = (17,600)
(+) Closing stock of finished goods = 19,000
---------------
Net factory cost = 57,400
(-) Opening stock of Work - in - Progress = (10,500)
(+) Closing stock of Work - in - Progress = (14,500)
---------------
Gross factory cost = 61,400
(-) factory works / overheads = (10,000)
[Direct labour x 100 / 175 = 17,500 x 100 / 175] ---------------
Prime cost = 51,400
(-) Direct labour = (17,500)
---------------
Raw material consumed 33,900
(-) Opening stock of raw materials = (8,000)
(+) Closing stock of raw materials = 10,600
---------------
Raw material purchased 36,500
=======
Answer.13
Question No. 13
Purchases 2,57,100
+ Opening Stock
- Closing Stock
Direct Expenses
PRIME COST 3,62,100
+ Opening WIP
- Closing WIP
Administration Overheads 1.0000 50,000
COST OF PRODUCTION (of goods prod) 10.3420 5,17,100 50,000
+ Opening Finished Stock 45,000 5,000
- Closing Finished Stock -1,03,420 -10,000
COST OF (prod of )GOODS SOLD 4,58,680 45,000
PROFIT 1,35,320
SALES 6,60,000 45,000
Answer.14
Cost Sheet Page 46

Manoj K Jain
Question No. 14
Raw Material Consumed/DM 9.00 90,000
Direct Expenses
PRIME COST 15.00 1,50,000
Factory Oveheads (WN 1) 4.50 45,000
+ Opening WIP 0
- Closing WIP 0
NET FACTORY COST( of comp units) 19.50 1,95,000
Administration Overheads(WN2) 3.35 33,500
COST OF PRODUCTION of goods prod 22.85 2,28,500
- Closing Finished Stock 0
COST OF prod of GOODS SOLD 22.85 2,28,500
COST OF SALES 23.40 2,34,000 10,000
PROFIT 8.20 82,000
SALES 31.60 3,16,000 10,000
Power and Consumable Stores 12,000
Indirect Wages 15,000
Lighting of Factory 5,500
Defective Work Rectification 3,000
Rep Maint Dep 11,500
(-) sale of Scrap (2,000) 45,000
Clerical Salry & Mgmt Exp 33,500
Determination of Absorption rates Amount Abs rate

Direct Wages 60,000
Factory Overheads 45,000 75 % of DW
Works Cost 1,95,000
office 33,500 17.1794872 % of WC
Selling & Distribution Overheads 5,500 2.8205128 % of WC
Part B
Raw Material Consumed/DM 9.90 1,48,500
PRIME COST 2,47,500
Factory Oveheads 75% of DW 74,250
FACTORY COST 3,21,750
Admin and SD OH 20% of FC 64,350
COST OF SALES 25.74 3,86,100
PROFIT 78,900
SALES 31.00 4,65,000
Answer.15
Cost Sheet Page 47

Manoj K Jain
Question No. 15
Particulars PU Type X PU Type Y Total
Units 2,000 3,000
DM 2*3.50:3*6.50 3.50 7,000 6.50 19,500 26,500
DW 2*1.00:3*1.50 1.00 2,000 1.50 4,500 5,850
PRIME COST
FO 2*2:3*3 2.00 4,000 3.00 9,000 16,250
FACTORY COST
Gen o/h -200% of DW 2.00 3.00 11,700
Statement of Cost
Particulars PU Type X PU Type Y Total
Units 2,000 3,000
DM 2*3.50:3*6.50 3.50 7,000 6.50 19,500 26,500
DW 2*1.00:3*1.50 0.90 1,800 1.35 4,050 5,850
PRIME COST 4.40 8,800 7.85 23,550 32,350
FO 2*2:3*3 2.50 5,000 3.75 11,250 16,250
FACTORY COST 6.90 13,800 11.60 34,800 48,600
Gen o/h -200% of DW 1.80 3,600 2.70 8,100 11,700
COST OF PRODUCTION (of goods prod) 8.70 17,400 14.30 42,900 60,300
Answer.16
Question No. 16
Particulars Units Type P Units Type Q Total
DM 2*40000:1*120000 1,60,000 2,40,000 4,00,000
DW 1*40000:0.6*120000 80,000 1,44,000 2,24,000
Direct Expenses
PRIME COST 2,40,000 3,84,000
FO 96000/160000=0.6 p.u. 24,000 72,000 96,000
GROSS FACTORY COST 2,64,000 4,56,000
+ Opening WIP
- Closing WIP
NET FACTORY COST( of comp units) 2,64,000 4,56,000
Administration Overheads 1,60,000 2,88,000
COST OF PRODUCTION (of goods prod) 40,000 4,24,000 1,20,000 7,44,000
+ Opening Finished Stock
- Closing Finished Stock (4,000) -42,400 (20,000) -1,24,000
COST OF (prod of )GOODS SOLD 36,000 3,81,600 1,00,000 6,20,000
Selling & Dist o/h 18,000 50,000
COST OF SALES 36,000 3,99,600 6,70,000
PROFIT 1,04,400 3,30,000
SALES 36,000 5,04,000 1,00,000 10,00,000
Answer.17
Statement of cost of Anand Mfg. Co. for the month of August 1988
Opening stock of raw material 8,000
Purchases of raw material (WN) 36,000
Closing stock of raw materials (8,600) 35,400
Direct labour cost 16,000
Prime Cost 51,400
(+) factory overheads 10,000
[Direct labour cost / 160 x 100
= 16,000 / 160 x 100 -------------
Gross factory cost 61,400
(+) Opening stock of Work - in - Progress 8,000
Net factory cost 57,400
(+) Office overheads (Gen. & Admin. expenses) 2,600
-------------
Cost of Production 60,000
(-) Closing stock of finished goods (18,000)
Cost Sheet Page 48

Manoj K Jain
--------------
Cost of goods sold 56,000
(+) Selling expenses 3,400
--------------
Cost of sales 59,400
(+) profit (75,000 - 59,400) 15,600
--------------
Sales 75,000
========
Working Note:
Computation of raw materials Purchased
(+) Closing stock of finished goods 18,000
(-) Opening stock of finished goods (14,000)
--------------
Cost of Production 60,000
(-) Office overheads (2,600)
--------------
factory cost 57,400
(+) Closing stock of Work - in - Progress 12,000
(-) Opening stock of Work - in - Progress (8,000)
--------------
(-) factory overheads 10,000
--------------
Prime cost 51,400
(-) Direct labour cost 16,000
--------------
Raw material consumed 35,100
(+) Closing stock of raw material 8,600
(-) Opening stock of raw material (8,000)
--------------
Raw materials Purchased 36,000
=======
Answer.18
Cost Sheet Page 49

Manoj K Jain
Question No. 18
sell 30% i.e. 30,000 un sell 100% i.e. 100000un
NET FACTORY COST 380.00 1,14,00,000 310.00 3,10,00,000
Administration O/h 1,50,000 1,50,000
COST OF PRODUCTION 1,15,50,000 3,11,50,000
Selling & Distribution O/h
Variable 30.00 9,00,000 30.00 30,00,000
Fixed 2,50,000 2,50,000
Extra Exp for 100% sale 0 52,00,000
Cost of Sales 1,27,00,000 3,96,00,000
PROFIT 38,00,000 1,04,00,000
SALES 550.00 1,65,00,000 500.00 5,00,00,000
Extra Expen for 100% sale(WN1)
gift 3000000
lucky draw
ist 50000
iind 25000
iiird 10000
Consol 15000
Refreshment 100000
Advertisement 2000000
Total 52,00,000
Advice the Company.

A Ltd. Co. has an excess Profit of Rs. (104 - 38) lakh = Rs. 66 lakhs at 100% Production level. At this level the company gets sales
maximisation as well as Profit maximisation, although profit per unit decreases from Rs. 126.67 at 30% Production level to Rs. 104
but this is not significant. Hence it is advisable to the company to produce at 100% level.
Answer.19
Question No. 19
Old x Change = New
DM 0.50X 115% 0.575X
DL 0.20X 125% 0.25X
OH 0.30X 0.30X
TC X 1.125X
Profit Y 75% 0.75Y
SP 45000.00 45000.00
We get
X + Y = 45,000
1.125X + 0.75 Y = 45,000
X = 30,000 AND Y = 15,000
Statement of cost
Old New
DM 15000.00 17,250
DL 6000.00 7,500
OH 9000.00 9,000
TC 30000.00 33,750
Profit 15000.00 1/3*z
SP 45000.00 z
Profit at present is 1/3rd of SP
Part(B)-Revised SP to earn same % Profit
New Cost 33750 New Cost + Profit = SP
New profit 16875 33750 + Z/3 = Z
New SP 50625 Z = 50625
Cost Sheet Page 50

Manoj K Jain
Answer.20
Statement of cost & Profit
(+) Raw material Purchases 1,15,000
(-) Closing stock of raw materials (62,000) 83,000
(+) Direct Labour cost 80,000
Prime cost 1,63,000
(+) manufactures overheads 40,000
[50 / 100 of Direct labour = 50 / 100 x 80,000] --------------
(+) Opening stock of Work - in - Progress 1,00,000
---------------
Cost of production 2,34,000
(+) Opening stock of finished goods 1,40,000
(-) Closing stock of finished goods (1,19,000)
---------------
(+) Profit 85,000
[25% on sales = 25 / 100 x 3,40,000] ---------------
Sales 3,40,000
=========
Answer.21
Question No. 21
Purchases 1,98,000
DM Consumed 1,93,000
Direct Expenses 0
PRIME COST 4,17,000
Factory Oveheads (WN 1) 1,67,000
+ Opening WIP 70,000
Total Goods Processed 6,54,000
- Closing WIP -80,000
+ Opening Finished Stock 1,10,000
Goods available for sale 6,84,000
- Closing Finished Stock -95,000
Answer.22
Cost Sheet Page 51

Manoj K Jain
Question No. 22
Purchases 2,50,000
DM Consumed 1,75,500
Direct Expenses 0
PRIME COST 3,97,750
Factory Oveheads (WN 1) x 1,48,167
x = 40%(222250+x)
+ Opening WIP 40,000
- Closing WIP -67,892
+ Opening Finished Stock 37,750
Cost of Goods av for sale 5,55,775
- Closing Finished Stock -30,775
Selling & Distribution Overheads 0

PROFIT 2,25,000
SALES 7,50,000
Answer.23
Computation of Manufacturing overheads
Rs.
Cost of goods Produced 1,878
(-) Direct labour cost (389)
(-) Direct material used (847)
---------------
Manufacturing overheads 642
========
Computation of opening stock of finished goods.

Rs.
Cost of goods available for sale 1,949
(-) Cost of goods Produced (1,878)
---------------
Opening stock of finished goods 71
=======
Computation of cost of goods sold

Rs.
Cost of goods available for sale 1,949
(-) Closing stock of finished goods (94)
---------------
=======
Answer 24
Cost Sheet Page 52

Manoj K Jain
(Consolidated) Job Account

To Material 1,80,000 By Material 2,000
To Wages 2,00,000 By WIP A/c 4,000
To Chargeable Expense 20,000 By Prime Cost 3,94,000
------------- ------------
To Prime cost 3,94,000 By Factory Cost 5,54,000
To Factory Overheads 1,60,000
------------- ------------
To Factory Cost 5,54,000 By Cost of goods produced/sold 6,92,500
To Administration Overheads 1,38,500
-------------- ------------
To Cost of goods produced/sold 6,92,500 By Sales 8,20,000
To Costing P/L 1,27,500
========= ========
Work in Progress Account

To Material 60,000 By bal 2,00,000
To Wages 80,000
To Chargeable Expense 8,000
To Job Account 4,000
To Factory Overheads 48,000
========= ========
Answer.25
Statement of cost of Production ‘A’
Particulars Rs. Rs.
Manufacturing materials 5,500
Packing materials 1,000
Labour required in Production 1,000
Direct factory expenses 500
freight on materials 500
--------------
Prime Cost 8,500
(+) factory overheads
Indirect materials 75
Labour required for supervision 200
Indirect expenses 100
Depreciation 175 550
-------------- --------------
factory cost 9,050
(+) Office overheads
Indirect materials 125
Expenses 125
Depreciation 75 325
-------------- --------------
Cost of Production / cost of goods sold 9,375
(+) Selling overheads
Material used in selling Product 150
Selling expenses 350
Advertising 125 625
-------------- --------------
=======
Profit margin = 25% on selling Price

i.e 1 / 4 on selling price
Or 1 / 3 on cost of sales
Cost Sheet Page 53

Manoj K Jain
Selling value of goods Produced (Sales) = (1 / 3 x 10,000 + 10,000)

= 13,333
Profit = 13,333 -10,000
= 3,333 Ans.
Answer 26
(+) Raw material Purchases 1,00,000
(-) Closing stock of raw materials (12,000) 98,000
Chargeable Expenses 40,000
--------------
Prime cost 2,00,000
(+) Opening stock of Work - in - Progress 25,000
---------------
Net Factory Cost 2,36,000
------------
Cost of production 2,83,200
---------------
Cost of goods sold 2,78,200
Selling & distribution Overheads 21,800
---------------
(+) Profit 50,000
[25% on sales = 25 / 100 x 3,40,000] ---------------
Sales 2,50,000
=========
Answer 27
(FIFO Method)
Particulars Rs. Rs. Units
Opening stock of raw materials 2,000 2,000
(+) Raw material Purchases 1,10,000 1,00,000
(-) Closing stock of raw materials (5,500) 1,06,500 5,000
--------------
Prime cost 2,30,000
(+) Opening stock of Work - in - Progress -
(-) Closing stock of Work - in - Progress -
---------------
------------
Cost of production 3,00,000 30,000
(+) Opening stock of finished goods 55,000 5,000
(-) Closing stock of finished goods (30,000) (3,000)
--------------- -------------
Cost of goods sold 3,25,000 32,000
Cost Sheet Page 54

Manoj K Jain

---------------
(+) Profit 3,89,000
[25% on sales = 25 / 100 x 3,40,000] ---------------
Sales 7,78,000
=========
(Weighted Average Method)

Particulars . Rs. Rs. Units
--------------
Prime cost 2,30,010
(+) manufactures overheads (40% of chargeable Expenses) 20,000
---------------
Administration Overheads (20% of Factory Cost) 50,002
------------
(-) Closing stock of finished goods (30,429.60) (3,000)
--------------- -------------
Cost of goods sold 3,24,582.40 32,000
Selling & distribution Overheads (Rs. 2 per unit sold) 64,000.00
---------------
Cost of sales 3,88,582.40
(+) Profit 3,88,582.40
[50% on sales = 100 of Cost of sales] ---------------
Sales 7,77,164.80
=========
(LIFO Methods)
--------------
Prime cost 2,30,200
(+) manufactures overheads (40% of chargeable Expenses) 20,000
---------------
Administration Overheads (20% of Factory Cost) 50,040
------------
--------------- -------------
Selling & distribution Overheads (Rs. 2 per unit sold) 64,000
Cost Sheet Page 55

Manoj K Jain
---------------
(+) Profit 3,86,240
[50% on sales = 100 of Cost of sales] ---------------
Sales 7,72,480
=========
(FIFO Method and Stock at Factory Cost)

--------------
Prime cost 2,30,000
---------------
Net Factory Cost 2,50,000 30,000
------------
--------------- -------------
---------------
(+) Profit 3,94,000
[25% on sales = 25 / 100 x 3,40,000] ---------------
Sales 7,88,000
=========
Answer 28
Question No..28
Direct Expenses 0
PRIME COST 3,00,000
2 x 30000 + 2000 - 0(for op wIP)
+ Opening WIP 0
- Closing WIP m-5000,l-3000,fo-2000 -10,000
NET FC ( of comp units) 3,52,000
+ Opening Finished Stock 50,000 5,000
- Closing Finished Stock -1,30,000 -10,000
COST OF prod of GOODS SOLD 3,10,000 25,000
PROFIT 1,40,000
SALES 5,00,000 25,000
Cost Sheet Page 56

Manoj K Jain
Answer 29
Particulars I II III
unit Amount Unit Amount Unit Amount
Raw material 20 5,000 50 12,500 30 7,500
Wages 4,000 10,500 5,500
Moulds 400 500 300
---------- ---------- ----------
Prime Cost 9,400
Factory Overheads 1,600 4,200 2,200
(-)Scrap 2 100 5 3
------- --------- --------- ----------- -------- ----------
Factory Cost 18 10,900 45 27
Cost Per Ton 605.56
Answer 30
Question No 30
Particulars Per Unit Amount Units
Purchases 50,000
Raw Material Consumed 52,000
DL 10000
Prime Cost 62,000 1,000
FO 5000
Stores o/h 5200
(-) 10% rejection- Normal Loss -400 -100
(+) Rework Cost 10000/1000 *90 *20% 180
Factory Cost 79.978 71,980 900
Answer 31
Cost Sheet Page 57

Manoj K Jain
Question No 31
Output 1,000
Raw Material Consumed 80.00 80,000
Direct Wages 120.00 1,20,000
Direct Expenses 0.00 0
PRIME COST 200.00 2,00,000
Factory Oveheads 50.00 50,000
NET FACTORY COST 250.00 2,50,000
Administration Overheads 90.00 90,000
60000+10000+20000
COST OF PRODUCTION 340.00 3,40,000
COST OF GOODS SOLD 340.00 3,40,000
Selling & Distribution Oh 30.00 30,000
COST OF SALES 370.00 3,70,000
PROFIT 30.00 30,000
SALES 400.00 4,00,000 1,000
Raw Material Consumed 96.00 1,15,200 1,200
Direct Wages 126.00 1,51,200
Direct Expenses
PRIME COST 222.00 2,66,400
Factory Oveheads 55.50 66,600
NET FACTORY COST 3,33,000
60000+10000+20000
COST OF PRODUCTION 4,23,000
COST OF GOODS SOLD 4,23,000
COST OF SALES 4,59,000 0.9x
PROFIT 51,000 0.1x
SALES 425.00 5,10,000 1,200 x
Answer 32
Question No. 32-Ref Q 19
Old Change New
Material 0.5a x 120% 0.6a
Labour 0.3a x 110% 0.33a
Overheads 0.2a 0.2a
Tc a 1.13a
Profit b x 70% 0.7b
SP 500.00 500
a + b = 500
1.13a + 0.7b = 500
Solving we get
a = 350
b = 150
New Cost 395.50
Same Profit 150/350 * 395.50 169.50
New SP 565.00
Cost Sheet Page 58

Manoj K Jain
Answer 33
Particulars Rs. Rs. Rs. Units
(+) Raw material Purchases 20,000
(-) Closing stock of raw materials (750) 20,600
--------------
Prime cost 29,850
(+) manufactures overheads
Factory printing and stationery 350
Rent : Factory 250
Wages for supervisor 1000 2,050
--------------
---------------
Net Factory Cost 31,900
Light-office 125
Audit fees 150
Bank charges 500
rent 120 1,495
------------
Cost of production 33,395
---------------
Selling & distribution Overheads
Cost of samples 100
Advertising 1250
Salary of godown - keepers 175
Commission of travelling agents 500 3,325
---------------
(+) Profit 12,280
---------------
Sales 50,000
Answer 34
Cost Sheet Page 59

Manoj K Jain
Question No. 34
Purchases 12,00,000
+ Opening Stock 0
- Closing Stock -1,50,000
Direct Expenses
PRIME COST 16,50,000
+ Opening WIP 4,20,000
- Closing WIP -4,80,000
COST OF PRODUCTION (of goods prod) 23,08,000 Part (a)
+ Opening Finished Stock 5,40,000
- Closing Finished Stock -4,00,000
COST OF (prod of )GOODS SOLD 24,48,000
Selling & Distribution Overheads 4,22,000
PROFIT 3,30,000
SALES 32,00,000
working note
Total FO Selling & Adm
Insurnace 40,000 28,000 12,000
Gas Electricty Water 1,00,000 90,000 10,000
Depreciation on Factory Equip 1,60,000 1,60,000
Rent 4,00,000 3,20,000 80,000
Selling and Admin O/h 3,20,000 3,20,000
Indirect Labour 1,20,000 1,20,000
7,18,000 4,22,000
Answer 35
Statements Showing the Contract Price of 10,000 ‘A’ type chairs
Rs. Amount
(Rs.)
2,75,000 x 10,000
Raw Materials ----------------------------- 68,750
40,000
Add: Anticipated increase in the value of raw materials 6,875 75,625

by 10% of 68,750 ----------
2,75,000 10,000
Wages (11,50,000 x ------------------ x ----------------- 57,500
13,75,000 40,000
Add: Increase in wage rate by 20% 11,500 69,000

-------------- ------------
Prime Cost 1,44,625
Cost Sheet Page 60

Manoj K Jain
2,75,000 10,000
Factory Expenses (11,12,500 x --------------- --------------- 55,625
13,75,000 40,000 ------------
Factory Cost 2,00,250

Office and Administrative Expenses
3,05,000 - 34,500 (inadmissible)* i.e. 2,70,500
2,75,000 10,000
2,70,500 x --------------- x --------------- 13,525
13,75,000 40,000
Less : 10% reduction -- 1,352 12,173

----------- -------------
Total Cost 2,12,423
Profit (10% on Cost) 21,242
----------------
Selling Price 2,33,665
========
Inadmissible Expenses = 18,500 + 11,000 + (1,20,000 - 1,15,000) = 34,500
Answer 36
Old Change New
Material 0.45x *115% 0.5175x
Labour 0.40x *110% 0.44x
Overheads 0.15x 0.15x
Tc x 1.1075x
Profit y *65% 0.65y
SP 300.00 300
x+y= 300
1.1075x + 0.65y = 300
x= 229.50
y= 70.50
New Cost 254.17

Same Profit 78.08
New SP 332.25
Answer 37
Statement of Cost and Profit of Type A and B Shoes for the year ending 31 March, 00
Type A Type B
Total Per Pair Total Per Pair
Direct materials Rs. 6,00,000 15.00 9,00,000 Rs. 7.50
Direct wages 3,00,000 7.50 5,40,000 4.50
--------------- -------------- -------------- ---------------
Prime Cost 9,00,000 22.50 14,40,000 12.00
Production overhead 90,000 2.25 2,70,000 2.25
--------------- --------------- -------------- ---------------
Production Cost 9,90,000 24.75 17,10,000 14.25
Administrative expenses 4,50,000 11.25 8,10,000 6.75
--------------- --------------- --------------- ---------------
Cost of Production 14,40,000 36.00 25,20,000 21.00
Less: Closing Stock 1,44,000 4,20,000
--------------- --------------- --------------- ---------------
Cost Sheet Page 61

Manoj K Jain
Cost of Goods sold 12,96,000 36.00 21,00,000 21.00

Selling expenses 54,000 1.50 1,50,000 1.50
--------------- --------------- -------------- ---------------
Cost of Sales 13,50,000 37.50 22,50,000 22.50
Profit 2,34,000 6.50 5,50,000 5.50
--------------- --------------- -------------- ---------------
Sales 15,84,000 44.00 28,00,000 28.00
========= ========= ======== =========
Apportionment of Cost
1. Allocation of Material Cost:

Suppose Type B’s Per pair material cost is x
Then Type A’s Per Pair material cost 2 x
1,20,000 x + 80,000 x = Rs. 15,00,000;
Or 2,00,000 x = Rs. 15,00,000;
Or x = Rs. 7.50 .
Type B’s Per Pair material cost = Rs. 7.50
Type A’s Per Pair material cost = 7.50 x 2 = Rs. 15.00 Per Pair
2. Allocation of Direct wages

Let labour charge Per Pair of A = y
Labour charge Per Pair of B = 0.6 y
40,000 y + 1,20,000 x 0.6 y = 40,000 y + 72,000 y
1,12,000 y = Rs. 8,40,000
y = Rs. 8,40,000 / 1,12,000 = Rs. 7.50 Per Pair
A’s Labour charges = 7.50 Per Pair,
B’s Labour charges = 7.50 x 60% = Rs. 4.50 Per pair.
3. Production overheads have been distributed in the ratio of Production quantity.
= Rs. 3,60,000 / (1,20,000 - 40,000) = Rs. 2.25 Per Pair.
Answer 38
(Production = 10,000 units)
Particulars Per unit Amount
Raw Material 5.00 50,000
Wages 3.00 30,000
------- ----------
Prime Cost 8.00 80,000
+ Factory Overhead (60% of wages) 1.80 18,000
-------- ----------
Factory Cost 9.80 98,000
+ Office & Administration Overhead 1.96 19,600
(20% of work cost) ------- ---------Cost of Production
11.76 1,17,600
+ Opening Finished goods --- --
- Closing Finished goods [Working Note 1] --- (23,520)
--------- ------------
Cost of Goods sold 11.76 94,080
+ Selling & Distribution Overhead 1 8,000
-------- ----------
Cost of Sales 12.76 1,02,080
Cost Sheet Page 62

Manoj K Jain
+ Profit 2.24 17,920

--------------- ---------------
Sales 15 1,20,000
======= =======
Working Note 1
Finished goods are always valued at cost of production.
1,17,600
Closing finished goods =------------- x 2,000 units = Rs. 23,520
10,000 units
Unit equation:
Opening Finished Goods + Cost of Production = Closing Finished goods + Sales
NIl + 10,000 = Closing Finished goods + 8,000
Therefore, Closing Finished Goods = 10,000 - 8,000 = 2,000 units
Answer 39
Last Year Current Year
Material 6,00,000 1,98,000 (WN 1]
Wages 4,00,000 1,20,000 [WN 2
-------------- -----------------
Prime Cost 10,00,000 3,18,000
+ Factory Overhead 2,80,000 96,600 [WN 3]
-------------- -----------------
Factory Cost 12,80,000 4,14,600
+ Office Overhead 3,20,000 93,285 [WN 4]
------------- ------------------
Cost of Production 16,00,000 5,07,885
+ Profit 4,00,000 1,26,971 [WN5]
------------------ ----------------
Sales 20,00,000 6,34,856
========= ========
Working Note:
Price for the tender of 3,000 toys
Working Note 1:
6,00,000
Material ------------------ x 3,000 + 10% = 1,98,000
10,000
Working Note 2 :
4,00,000
Wages ----------------- x 3,000 = 1,20,000
10,000
Working Note 3:
Factory Overhead 2,80,000
------------------------------ = ----------------- x 100 = 70%
Wages 4,00,000
Cost Sheet Page 63

Manoj K Jain
New Factory Overhead = 70% + 15% of 70% = 80.5% Wages = 80.5% (1,20,000) = Rs. 96,600
Working Note 4 :
Office Overhead = 3,20,000
--------------------------- ------------------- x 100 = 25%
Factory Cost 12,80,000
New Office Overhead = 25% - 10% of 25% = 22.5% factory cost = 22.5% (4,14,600) = Rs. 93,285
Working Note 5 :
20
P= -------- S
100
Therefore, new Profit = 5,07,885 x 1/4 = 1,26,971
Answer 40
Particulars Black Brown Units
Sold 14,40,000 6,00,000

+ Closing Stock 1,08,000 60,000
- Opening Stock (48,000) (1,60,000)
Production 15,00,000 5,00,000
Black Brown Total
PU Total
Material Cost-Polish 540000 198000 738000
1500000*x + 500000*1.1x = 738000
x = 0.36
Material Cost-Tins 216000 72000 288000
1500000*x + 500000*x = 288000
x = 0.144
Direct Wages 180000 64800 244800
1500000*y+500000*1.08y=244,800
y = 0.12
Prime Cost 936000 334800 1270800
Production o/h 270000 97200 367200
367200/244800 * 100 = 150% of DW
Factory Cost 0.804 1206000 432000 1638000
+ op stock 38592
- Cl Stock -86832
Cost of Goods Sold 1157760
Adm & Selling o/h 86400 122400
1440000z+600000z=122400
z=0.06
Cost of Sales 1244160
Profit 311040
Sal;es 1555200
Answer 41
Cost Sheet for the month of Nov. 1972
Amount Per unit
Rs. Rs.
Basic Raw material 7,000 7.00
Cost Sheet Page 64

Manoj K Jain
Labour 16,000 16.00

--------------- --------------
Prime Cost Rs. 23,000 23.00
Works on cost: 5,000
Stores 3,000
Indirect Labour 4,000
--------------
Works O/H @ 25% on wages 12,000 12.00
--------------- --------------
35,000 35.00
Works Cost 3,500 3.50
--------------- --------------
Office on cost 10% of Works cost 38,500 38.50
7,700 -----
--------------- --------------
Total Cost for 10 lakh toys 46,200 38.50
Add opening stock 2 lakh toys/12 lakh toys x 38,500
Less closing toys 3 lakh toys/10 lacs toys x 38,500 11,550
--------------- -------------
Cost of Sales 9 lakh toys 34,650 38.50
Profit 45,000 50.00
--------------- -------------
10,350 11.50
======= ======
Answer 42
Cost Sheet of December 1972
Total Cost Per
Rs. Ton Rs.
Direct Material
Paper Pulp 500 tons @ 50 Per ton 25,000 62.50
Other Material 100 tons @ 30 Per ton 3,000 7.50
--------------- --------------
28,000 70.00
Less sale of waste realised 800 2.00
--------------- ---------------
27,200 68.00
Direct Labour
80 skilled men @ Rs. 3 Per day
for 25 days 80 x 3 x 25 = 6,000 15.00
40 unskilled men @ Rs. 2 Per day
for 25 days 40 x 2 x 25 = 2,000 5.00
Direct Expenses
Special Equipment 3,000 7.50
Special Days 1,000 2.50
---------------- --------------
Prime Cost 39,200 98.00
Works Overhead
Variable 100% on Direct wages 8,000 20.00
Fixed 60% of direct wage 4,800 12.00
---------------- --------------
Works Cost 52,000 130.00
Administrative overhead
10% of works cost 5,200 13.00
--------------- --------------
Cost Sheet Page 65

Manoj K Jain
57,200 143.00
Cost of Production Selling and Distribution overhead

15% on works cost 7,800 19.50
---------------- ---------------
Total Cost 65,000 162.50
Answer 43
Basic Calculations:
1. Computation of Variable Factory Overheads
3. Computation of Selling Price Per Unit at a Production Level of 2,000 units Per week
Total Cost Cost Per unit
Rs. Rs.
Direct Material Cost @ Rs. 7.50 Per unit
(Rs. 9,000 - 1,200) 15,000 7.50
Direct Labour @ Rs. 3 Per unit
(Rs. 3,600 - 1,200) 6,000 3.00
Variable Overheads @ Rs.5 Per unit 10,000 5.00
Fixed Overheads (as ascertained above) 25,000 12.50
----------------- ---------------
56,000 28.00
Add: Profit (20% of SP or 25% of Cost) 14,000 7.00
------------------ -----------------
70,000 35.00
========= ========
Answer 44
Statement of Cost
First 3 months Remaining 9 Total
7,500 units months 43,500
36,000 units units
Rs. Rs. Rs.
Direct material @ Rs. 3 Per unit 22,500 1,08,000 1,30,500
Direct labour @ Rs. 2 Per unit 15,000 72,000 87,000
------------------- ----------------- ----------------
Prime cost 37,500 1,80,000 2,17,500
========= ======== ========
Add: Indirect expenses:
Fixed (1:3) 37,500 1,12,500 1,50,000
Variable @ Rs. 5 Per unit 37,500 1,80,000 2,17,500
Semi - variable
For first 3 months @ Rs. 50,000 Per annum 12,500
For remaining 9 months @ Rs. 70,000
Per annum 52,500 65,000
----------------- ----------------- ----------------
Total Cost 1,25,000 5,25,000 6,50,000
Profit -- -- 1,00,000
-----------------
Sales -- -- 7,50,000
========
Answer 45
Cost of Machine Centre
Cost Sheet Page 66

Manoj K Jain
Rs.
Power 50,000
Maintenance and repairs 10,000
Machine operators wages 2,000
Supervision 6,000
Depreciation 40,000
--------------
1,08,000
========
Statement Showing Product - wise - Cost

Product Output Equivalent Machine Center Cost Per Material Tot Cost
Machine hrs Cost Unit Cost PU Per unit
Total Per Per hr. Total
hour allocation
A 1,800 30 60 28,800 16 40 56
B 500 10 50 24,000 48 60 108
C 300 6 50 24,000 80 100 180
D 260 4 65 31,200 120 300 420
------ ------- ----------
225 480* 1,08,000
*1,08,000/ 225 = Rs. 480 Per hour
Statement of ‘Offer Price’

Production Cost Per Profit Per Offer Price
unit unit @ 20% Per unit
Rs. of cost) Rs.
A 56 11.20 67.20
B 108 21.60 129.60
C 180 36.00 216.00
D 420 84.00 504.00
Answer 46
Statement showing the Profitability at 30% and 100% Level of Capacity
Particulars At 30% At 100%
A. No. of units 30,000 1,00,000
B. Works cost Per unit 380 310
C. Total works cost (A x B) 1,14,00,000 3,10,00,000
D. Fixed Administration Expenses 1,50,000 1,50,000
E. Cost of goods Produced (C + D) 1,15,50,000 3,11,50,000
F. Selling & Distribution Expenses 11,50,000 66,50,000
G. Cost of Sales (E x F) 1,27,00,000 3,78,00,000
H. Sales Revenue 1,65,00,000 5,00,00,000
I. Profit (1 + G) 38,00,000 1,22,00,000
Advice - The company is advised to operate at 100% since the profit at 100% level exceed the profit at 30% level.
Working Note:
Calculation of Selling and Distribution Expenses
At 30% At 100%
A Fixed marketing expenses 2,50,000 2,50,000
Cost Sheet Page 67

Manoj K Jain
B Variable Distribution Overheads @ Rs. 30 9,00,000 30,00,000

C Gift items @ Rs. 30 --- 30,00,000
D Lucky Draw Prizes
(Rs. 50,000 + Rs. 25,000 + Rs. 10,000 + Rs. 15,000) --- 1,00,000
E Refreshments --- 1,00,000
F Cost of Sponsoring Television Programme --- 2,00,000
------------------ ------------------
G Total 11,50,000 66,50,000
========= =========
Answer 47
Statement showing the average Prime cost Per unit of XL 101
(Period of manufacture - June 1999)
Rs. Rs.
1) Direct Material:
Fabrication Department
Alloy 2,420 Kg. x Rs. 25 60,500
Less: (a) Returned to stock
200 Kg x Rs. 25 = Rs. 5,000
Sale of off - cuts scrap = 500 5,500 55,000
----------
Assembly Department
Cost of component used 57,900
----------------
Total 1,12,900
========
2) Direct Labour
Fabrication Department 2,460 hours x Rs. 15 36,900
Assembly Deptt.
3,000 x Rs. 4.00 = Rs. 12,000
Next 1,000 x Rs.5.00 = 5,000
Next 200 x Rs. 6.00 = 1,200 18,200
------------ ---------------- ----------------
4,200 55,100
====== ========
Total Prime Cost:
Direct Material Cost Rs. 1,12,900

Direct Labour Cost 55,100
-------------------
1,68,000
Average Prime Cost = Rs. 1,38,000 - 4,200 units = Rs. 40.00
Note:
Overtime Premium (excess over normal) rate should not be considered for calculating the average Prime cost per unit. Overtime
payment is the result of exigencies of situation and it does not represent the normal cost. Therefore, it will be inappropriate to
consider this cost for arising at the normal Prime cost Per unit. Therefore, the cost of overtime working in Fabrication Department
and idle time cost due to stoppage of production should be considered a part of overhead and not the part of Prime cost.
Cost Sheet Page 68

Cost Accounting System Essentials

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Manoj K Jain

Cost Sheet Page 1

Cost Sheet Page 2

(5) cost control sometime lack dynamics approach.

Cost allocation and cost absorption:-

Controllable cost and Uncontrollable cost:-

(a) What are the essentials of a goods Cost accounting system?

Essentials of a good cost accounting system:

Cost Sheet Page 3

Essential factors for designing a cost accounting system.

Essential factors for installing a cost accounting system.

Arguments in favour of installing a cost accounting system

In a single product manufacturing factory

Cost Sheet Page 4

Cost Sheet Page 5

Cost Sheet Page 6

Business functions Cost drivers

Cost Sheet Page 7

(2) Determination of selling price

Main points of difference

Lack of top management support:-

Resistance from cost accounting departmental staff:-

Non cooperation from user departments:-

Shortage of trained staff:-

Cost Sheet Page 8

Industry or product Unit of cost

Role of Cost Accounting:-

Cost Sheet Page 9

Fixation of selling Price:-

Providing data or information:-

Cost Sheet Page 10

Expired cost and unexpired cost.

Direct and Indirect costs.

Fixed costs and variable costs.

Cost Sheet Page 11

Out of pocket costs:-

Cost Sheet Page 12

(ii) Packing Expenses may be treated in cost as follows:

Cost Sheet Page 13

Main aims of classifying the cost:

Cost Sheet Page 14

“The term cost must be qualified according to its context.” Comment.

Cost Sheet Page 15

Answer: Rs. 1,10,000

Cost Sheet Page 16

Expenses on purchases 1,000

Answer Rs. 35,000

Cost Sheet Page 17

Travelling expenses 300

Salary paid to office staff 5,000

Cost Sheet Page 18

Factory wages 1,78,650

Stock on 31st December, 1994

Cost Sheet Page 19

On June 1, 1991 On June 30th, 1991

Office appliances 17,400

Cost Sheet Page 20

Interest on Borrowed funds 2,000

You are required to:

Cost Sheet Page 21

You are required to prepare:-

Nature of Expenses Expenses incurred on the