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Cost Accounting Smart Work
Cost Accounting Smart Work
Material Cost
Prepare a statement showing details of overhead costs allocated to each product type
using activity-based costing.
Cost Sheet
5. A Ltd. produces a single product X. During the month of July 2023, the company has
produced 14,560 tonnes of X. The details for the month of July 2023 are as follows:
(i) Materials consumed ` 15,00,000
(ii) Power consumed in operating production machinery 13,000 Kwh @ ` 7 per Kwh
(iii) Diesels consumed in operating production machinery 1,000 litres @ ` 93 per litre
(iv) Wages & salary paid – ` 64,00,000
(v) Gratuity & leave encashment paid – ` 44,20,000
(vi) Hiring charges paid for Heavy Earth Moving machines (HEMM) engaged in production
- ` 13,00,000. Hiring charges is paid on the basis of production.
(vii) Hiring charges paid for cars used for official purpose – ` 80,000
(viii) Reimbursement of diesel cost for the cars – ` 20,000
(ix) The hiring of cars attracts GST under RCM @5% without credit.
(x) Maintenance cost paid for weighing bridge (used for weighing of final goods at the time
of despatch) – ` 7,000
(xi) AMC cost of CCTV installed at weighing bridge (used for weighing of final goods at the
time of despatch) and factory premises is ` 6,000 and ` 18,000 per month
respectively.
(xii) TA/ DA and hotel bill paid for sales manager- ` 16,000
(xiii) The company has 180 employees works for 26 days in a month.
Required:
PREPARE a Cost sheet for the month of July 2023.
Cost Accounting System
6. The financial books of a company reveal the following data for the year ended
31st March, 2023:
(`)
Opening Stock:
Finished goods 625 units 1,06,250
Work-in-process 92,000
01.04.2022 to 31.03.2023
Raw materials consumed 16,80,000
Direct Labour 12,20,000
4
During the FY 2023-24, the company has received an order from a car manufacturer where
it estimates that the cost of material and labour will be ` 80,00,000 and ` 40,50,000
respectively. The company charges factory overhead as a percentage of direct labour and
administrative overheads as a percentage of factory cost based on previous year's cost.
Cost of delivery of the components at customer's premises is estimated at ` 4,50,000.
You are required to:
(i) Calculate the overhead recovery rates based on actual costs for 2022-23.
(ii) Prepare a Job cost sheet for the order received and the price to be quoted if the
desired profit is 25% on sales.
Process Costing
8. The following information is furnished by ABC Company for Process - II of its manufacturing
activity for the month of April 2023:
(i) Opening Work-in-Progress – Nil
(ii) Units transferred from Process I – 55,000 units at ` 3,27,800
(iii) Expenditure debited to Process – II:
Consumables ` 1,57,200
Labour ` 1,04,000
Overhead ` 52,000
(iv) Units transferred to Process III – 51,000 units
(v) Closing WIP – 2,000 units (Degree of completion):
Consumables 80%
Labour 60%
Overhead 60%
(vi) Units scrapped - 2,000 units, scrapped units were sold at ` 5 per unit
(vii) Normal loss – 4% of units introduced
(iii) In 2022-23, fixed cost per unit was ` 60 and it is expected to increase by 10%
in 2023-24. The variable cost is expected to increase by 25%. Selling price for
2023-24 has been fixed at ` 300 per packet.
You are required to calculate the Break-even volume in units for 2023-24.
(b) The M-Tech Manufacturing Company is presently evaluating two possible processes
for the manufacture of a toy. The following information is available:
Particulars Process A (`) Process B (`)
Variable cost per unit 12 14
Sales price per unit 20 20
Total fixed costs per year 30,00,000 21,00,000
Capacity (in units) 4,30,000 5,00,000
Anticipated sales (Next year, in units) 4,00,000 4,00,000
Suggest:
1. Identify the process which gives more profit.
2. Would you change your answer as given above, if you were informed that the
capacities of the two processes are as follows:
A - 6,00,000 units; B - 5,00,000 units?
Budget and Budgetary Control
13. XY Co. Ltd manufactures two products viz., X and Y and sells them through two divisions,
East and West. For the purpose of Sales Budget to the Budget Committee, following
information has been made available for the year 2022-23:
Budgeted Sales Actual Sales
Product
East Division West Division East Division West Division
X 400 units at ` 9 600 units at ` 9 500 units at ` 9 700 units at ` 9
Y 300 units at ` 21 500 units at ` 21 200 units at ` 21 400 units at ` 21
Adequate market studies reveal that product X is popular but underpriced. It is expected
that if the price of X is increased by ` 1, it will, find a ready market. On the other hand, Y
is overpriced and if the price of Y is reduced by ` 1 it will have more demand in the market. The
company management has agreed for the aforesaid price changes. On the basis of these
price changes and the reports of salesmen, following estimates have been prepared by the
Divisional Managers:
9
SUGGESTED HINTS/ANSWERS
8days
Or, Minimum lead time = = 4 days
2
1 hour
= (5 hours × ` 120) + 6 hours 5 hours` 120
= ` 600 + ` 100 = ` 700
Effective hourly rate = ` 700/5 hours = ` 140 /hour
(ii) Let time taken = X
Earnings under Halsay Scheme
Effective hourly rate =
Time Taken
Or, Effective hourly rate under Halsey Incentive plan =
(Time takenRate) 50% of Rate (Time allowed Time taken)
TimeTaken
11
(`) (`)
To Opening stock of 1,06,250 By Sales 45,60,000
Finished Goods
To Work-in-process 92,000 By Closing stock of 91,300
finished Goods
14
(`)
Sales revenue (A) 45,60,000
(12,615 units)
Cost of sales:
Opening stock 1,50,000
(625 units × ` 240)
Add: Cost of production of 12,405 units 43,28,140
(Refer to working note 2)
Less: Closing stock (1,44,795)
` 43,28,140 415 units
12,405 units
Production cost of goods sold (12,615 units) 43,33,345
Selling & distribution overheads
(12,615 units × `6) 75,690
` 20,50,400
Administrative Overhead Recovery Rate = 100 = 6.91% of Factory Cost
` 2,96,80,000
Working Note:
Calculation of Selling and Distribution Expenses
Particulars (`)
Total Sales Revenue (` 16,000 + ` 8,000) 24,000
Less: Estimated Profit (` 4,000 + ` 1,600) (5,600)
Cost of Sales 18,400
Less: Cost of production:
- Joint Costs (10,000)
- Subsequent costs (` 5,000 + ` 3,000) (8,000)
Selling and Distribution expenses (Balancing figure) 400
10. Operating cost statement of P Holiday Resorts
Particulars Cost per annum
(` In lakhs)
Staff Salaries 680.00
Room Attendant’s Wages (Refer WN-3) 286.20
Lighting, Heating & Power 300.00
Repairs, Maintenance & Renovation 180.00
Linen 30.00
Laundry charges 24.00
Interior Decoration 75.00
Sundries 30.28
Depreciation: (Refer WN-4)
Building 45.00
Furniture & Fixture 9.00
Air Conditioners 7.50
Total cost for the year 1666.98
Computation of profit:
Let ` x be the rent for deluxe from.
Equivalent deluxe room days are 90,720 (Refer WN-2)
Total takings = ` 90,720x
Profit is 25% of total takings.
Profit = 25% of ` 90,720x = ` 22,680x
20
17,094 12
(v) Actual Labour Cost Per Unit = = ` 34.19
6,000
22
(c) Idle capacity costs are treated in the following ways in Cost Accounts:
(i) If the idle capacity cost is due to unavoidable reasons: A supplementary
overhead rate may be used to recover the idle capacity cost. In this case, the
costs are charged to the production capacity utilised.
(ii) If the idle capacity cost is due to avoidable reasons: Such as faulty planning, etc.
the cost should be charged to Costing Profit and Loss Account.
(iii) If the idle capacity cost is due to trade depression, etc.: Being abnormal in
nature the cost should also be charged to the Costing Profit and Loss Account.
(iv) If the idle capacity cost is due to seasonal factors, then the cost should be
charged to cost of production by inflating overhead rate.
(d) Treatment of over and under absorption of overheads are:
(i) Writing off to costing P&L A/c: Small difference between the actual and absorbed
amount should simply be transferred to costing P&L A/c, if difference is large then
investigate the causes and after that abnormal loss/ gain shall be transferred
to costing P&L A/c.
(ii) Use of supplementary Rate: Under this method the balance of under and over
absorbed overheads may be charged to cost of W.I.P., finished stock and cost of
sales proportionately with the help of supplementary rate of overhead.
(iii) Carry Forward to Subsequent Year: Difference should be carried forward in the
expectation that next year the position will be automatically corrected.
(e) Distinguish between Cost allocation and Cost absorption:
Cost allocation is the allotment of whole item of cost to a cost centre or a cost unit. In
other words, it is the process of identifying, assigning or allowing cost to a cost centre
or a cost unit.
Cost absorption is the process of absorbing all indirect costs or overhead costs
allocated or apportioned over particular cost center or production department by the
units produced.