Download pdf - COST ANALYSIS: COST CLASSIFICATION AND COST SHEET

�

�“Chapter-2(Final*proof)” — 2012/6/12 — 6:15 — page 13 — #1 �

�

�

�

�

�

COST ANALYSIS: COST CLASSIFICATION

AND COST SHEET 2

� Cost Classification—Basis

� Miscellaneous Cost Terms

� Cost Sheet/Cost Statement

� Cost Sheet—Advantages

Cost analysis and cost classification involve grouping of costs into various logical groups on somesuitable basis. Cost analysis and classification are essential for the purpose of cost control andmanagerial decision making.

There are various methods of classification of costs. The method selected is based on the purposefor which it is needed. The important bases of classification are:

1. By nature or element

2. By relation to cost centre or product

3. By function

4. By behaviour or variability

5. By time

6. By controllability

7. For decision making purpose

8. By payment

9. By normality.

�


�

�

�

�

�

Cost Analysis: Cost Classification and Cost Sheet 15

(c) Expenses

It includes all costs other than materials and labour cost. It is the cost of various services consumedby an undertaking. It is further classified into direct expenses and indirect expenses.

(i) Direct expenses: It includes cost of all services specifically incurred for a product, process, job orcost centre. They are directly identified with a particular cost object. It is conveniently allocatedto a particular cost object in whole. It is also called chargeable expenses. It includes excise duty,royalty, hire charges and repairs and maintenance of special equipment required for a job; cost ofspecial drawings, designs, moulds and patterns.

(ii) Indirect expenses: Indirect expenses are expenses incurred in relation to two or more products,processes, jobs or cost centres. It is apportioned to various cost objects. It includes rent, rates,taxes, insurance, lighting, depreciation, power, fuel, advertisement and repairs and maintenance.

2.2 BY RELATION TO COST CENTRE

On the basis of relation to cost centre, costs are classified as direct costs and indirect costs.

(a) Direct Costs

Direct costs are incurred in relation to a specific product, process, job or cost centre. They consistsof direct materials, direct labour and direct expenses. The total of all direct costs is called primecost.

(b) Indirect Costs

Indirect costs are general expenses incurred for two or more products, processes, jobs or cost centres.They are apportioned to various cost objects on suitable basis. They include indirect materials,indirect labour and other indirect expenses. The total of all indirect costs is also called overheads,oncost or burden.

2.3 BY FUNCTION

All indirect costs are called overheads and can be classified on functional basis into:

(a) Factory overheads

(b) Office and administration overheads

(c) Selling overheads

(d) Distribution overheads.

(a) Factory Overheads

Factory overheads is also called production overheads, works overheads or manufacturing overheads.It includes all indirect expenses in relation to production activity. It includes all indirect materialsused in production, indirect labour expended in production, works manager’s salary and allowances,repairs, maintenance, depreciation and insurance of factory building, plant, equipment and machin-

�


�

�

�

�

�

18 Cost Accounting

(b) Differential Cost

The change in the cost of two alternatives is called differential cost. The increase in the total costdue to increase in output is called ‘incremental cost’. The decrease in the total cost due to decreasein output is called ‘decremental cost’.

(c) Relevant Cost and Irrelevant Costs

Cost items taken into consideration while making a decision are called relevant costs. Costs whichare not necessary for a particular decision making are called irrelevant costs. A cost relevant for aparticular decision may be irrelevant for another decision. A cost irrelevant for a decision may berelevant for another decision. For example rent for own premises may be relevant for comparison ofprofitability with another firm paying rent. But it is irrelevant for computing tax liability of a firmusing own building.

(d) Opportunity Cost

The benefit foregone due to an alternative decision taken is called opportunity cost. For example, aperson decides to start a business of his own. For the purpose he resigns his present employment andwithdraws his savings kept in a bank deposit. Due to this decision to start a business he foregoeshis salary income and interest income. The loss of salary and interest income is opportunity cost forthe business.

2.8 BY PAYMENT

On the basis of payment involved costs are classified as follows:

(a) Out of Pocket Costs or Explicit Costs

The costs result in actual outflow of cash, e.g., salary, wages, rent, advertisement, etc. paid.

(b) Imputed Costs or Notional Costs or Implicit Costs

These expenses are considered for decision making purpose only. They do not result in any cashoutflow, e.g., rent for own premises, interest on own capital and depreciation on fully depreciatedasset.

2.9 BY NORMALITY

Costs are classified into the following two groups:

(a) Normal Costs

Expenses incurred in a normal business condition is called normal costs. These costs are includedin cost of production.

(b) Abnormal Costs

These costs are occasional and occur due to the happening of some unforeseen event, e.g., loss dueto fire, theft, accident etc. These costs are not included in the cost of production. They are debitedto costing profit and loss account.

�


�

�

�

�

�

20 Cost Accounting

(ii) Production cost centre and service cost centre Production cost centre refers to a place wheregoods are produced. They actually stand for a production department.

Service cost centre stands for divisions which help the production departments by providing variousservices like maintenance department, time office, boiler house, canteen etc.

(iii) Operation and process cost centre Operation cost centre stands for the total activities carriedout in a production department is divided into smaller functions or operation in relation to whichcosts are accumulated, e.g., cutting, welding, machining, boring etc.

Process cost centre stands for a department where production is carried on continuously. Costs arecollected for a process as a single unit.

(h) Profit Centre

Profit centre is a place or division in an organisation which brings revenue.

(i) Value Added

Value added refers to increase in the market value of a product in excess of the cost incurred foraltering or changing the composition of the product.

(j) Stock-Out Cost

Stock-out cost refers to the loss suffered by a company due to stoppage of production due to non-availability of raw materials.

(k) Shut-Down Cost

Shut-down cost refers to expenses continued to be incurred even after temporary closure of produc-tion facilities, e.g., insurance, security, management expenses like director’s fees, managing director’ssalary, salary and wages to skilled employees, Audit fees, etc.

The following chart shows classification of costs:

Total cost

Materials Labour Other expenses

Direct materials

Indirect materials

Direct labour

Indirectlabour

Direct expenses

Indirect expenses

Prime cost

Indirect cost or overheads or oncost

Productionoverheads

Office and administrationoverheads

Sellingoverheads

Distributionoverheads

�


�

�

�

�

�


Add: Opening stock of finished goods xxx xxx

Cost of goods available for sale xxx xxx

Less: Closing stock of finished goods xxx xxx

Cost of goods sold xxx xxx

Add: Selling and Distribution overheads:

Advertisement, free samples, showroom expenses xxx

Sales office salary and allowances xxx

Salesmen’s salary and commission xxx

Travelling expenses (for sales purpose) xxx

Warehouse rent and rates xxx

Carriage outward, delivery van expenses xxx xxx xxx

Cost of sales/total cost xxx xxx

Profit/loss xxx xxx

Sales xxx xxx

Advantages of a cost sheet

1. It helps to ascertain total cost and cost per unit.

2. Costs are classified under proper headings and presented in a logical order.

3. It enables inter-firm and intra-firm comparison of costs.

4. It helps in price fixation.

5. It helps to ascertain profit or loss for a period.

6. It helps in preparing tenders and quotations.

7. It helps in preparing budgets.

8. It enables close watch over cost for cost control.

Production or manufacturing accounts

If information for a period relating to cost of production is presented in a ledger format, it is calledproduction account or manufacturing account. All production expenses are debited to this account.Opening stock of work-in-progress is shown on the debit side. Closing stock of work-in-progress isshown on the credit side. The following is a proforma of a production account.

�


�

�

�

�

�

24 Cost Accounting

Proforma of production or manufacturing account

Particulars Total Cost(|)

Particulars Total Cost(|)

To opening work-in-progress xxx By closing stock ofwork-in-progress

xxx

To Materials consumed:

Purchase of materials xxx By production cost c/d(Balancing figure)

xxx

Add: Opening stock of materials xxx

Add: Purchase related expenses xxx

xxx

Less: Closing stock of materials xxx xxx

To Direct labour xxx

To Production overheads xxx

Less: Sale of scrap xxx xxx

xxx xxx

To production cost b/dTo administration overheads

xxxxxx

By cost of production(Balancing figure)

xxx

xxx xxx

Illustration-1

(Computation of materials consumed)

Calculate materials consumed from the following information:

|

Opening stock of raw materials 18,000

Purchase of raw materials 2,30,000

Carriage inward 27,000

Sale of raw material scrap 8,000

Closing stock of materials 20,000

�


�

�

�

�

�

26 Cost Accounting

Add: Purchase of materials 4,00,000

Add: Import duty and clearing charges 1,00,000

Add: Carriage on purchase 60,000

Add: Transit insurance and handling charges 25,000

6,35,000

Less: Return of defective materials tosupplier 40,000

Less: Sale of raw materials scrap 20,000

Less: Stock of materials on 31.3.10 60,000 1,20,000

Cost of materials consumed 5,15,000

Illustration-3

(Computation of prime cost)

From the following calculate the prime cost:

|

Stock on materials on 1.4.09 28,000

Purchase of materials 1,60,000

Expenses in connection with purchases 20,000

Direct materials returned to supplier 20,000

Stock of direct materials on 31.3.10 35,000

Manufacturing wages 90,000

Royalty charges 75,000

Hire and maintenance charges of a specialmachinery

45,000

Solution

Statement showing computation of prime cost:

| |

Materials consumed:

Stock on materials on 1.4.09 28,000


�


�

�

�

�

�


Add: Expenses in connection with purchases 20,000

2,08,000

Less: Direct materials returned 20,000

Less: Stock of direct materials on 31.3.10 35,000 55,000 1,53,000

Manufacturing wages 90,000

Direct expenses:Royalty charges

75,000

Hire and maintenance charges of a special machinery 45,000 1,20,000

Prime cost 3,63,000

Illustration-4

(Computation of prime cost)

From the following information calculate the prime cost:

|




Closing stock of raw materials 35,000

Carriage outward 30,000

Chargeable expenses 65,000

Indirect expenses 50,000

Factory wages 2,25,000

Factory rent 16,000

Solution

Statement showing prime cost:

| Total |

Materials consumed:

Opening stock of materials 40,000

Add: Purchase of raw materials 7,50,000

�


�

�

�

�

�

28 Cost Accounting

Add: Carriage inward 25,000

8,15,000

Less: Closing stock of rawmaterials

35,000 7,80,000



Prime cost 10,70,000

Illustration-5

(Cost sheet with grouping of expenses)

From the following information prepare a cost sheet showing (i) Prime cost, (ii) Works cost, (iii)Cost of production, (iv) Cost of sales and (v) Profit:

|


Stock of materials on 1.4.09 28,000


Manufacturing wages 2,85,000

Indirect materials 21,000

Indirect wages 42,700

Office salaries 57,600



Internal transport (factory) 27,500

Drawing office expenses 25,500

Advertisement 44,600

Printing and stationery 16,400

Works manager’s salary 30,000


Officer rent, rates and insurance 21,600

Director’s fees 22,000

�


�

�

�

�

�


Office equipment and furniture 14,900

Managing director’s Salary (30%) 13,500

Lighting - office 9,000 1,55,000

Cost of production 13,44,300

Selling and distribution overheads:


Salesmen’s salary, allowances andexpenses

23,700


Warehouse expenses 19,500

Managing director’s salary (30%) 13,500

Free samples distributed 3,700

Packing and forwarding expenses 12,300 1,35,800

Cost of sales/total cost 14,80,100

Profit (bf) 1,69,900

Sales 16,50,000

Illustration-6

(Simple cost sheet with stocks)

The following information is taken from the records of Arthi Ltd. for the month of April 2009.

01.04.2009|

30.04.2009|

Stock of raw materials 37,500 41,250

Stock of work-in-progress 28,700 23,200

Stock of finished goods 46,400 53,200

Transactions during the month are:


Productive wages 97,500



Other factory expenses 24,800

�


�

�

�

�

�

32 Cost Accounting

Administration expenses 41,600

Sale of factory scrap 2,400



Sales 4,35,000

Prepare a cost sheet showing (a) Prime cost, (b) Works cost, (c) Cost of production, (d) Cost ofsales and (e) Profit.

Solution

Cost sheet for the month of April, 2009

Particulars Total |

Materials Consumed:



1,84,000

Less: Stock of materials on 30.4.09 41,250 1,42,750

Productive wages 97,500

Prime cost 2,40,250

Production overheads:



Other factory expenses 24,800

63,250

Less: Sale of factory scrap 2,400 60,850

3,01,100

Add: Stock of work-in-progress on 1.4.09 28,700

3,29,800

Less: Stock of work-in-progress on 30.4.09 23,200

Works cost 3,06,600

Administration overheads: 41,600


�


�

�

�

�

�

34 Cost Accounting

Solution

Cost sheet for 6 months ending 31.3.2009

ParticularTotal(|)

Ratio Model‘A’ (|)

Model‘B’ (|)

Materials Consumed:

Stock of materials

On 1.10.08 29,800


1,54,300

Less: Stock of materials on 31.3.09 21,970 1,32,330 5:6 60,150 72,180

Direct labour 81,900 4:5 36,400 45,500

Prime cost 96,550 1,17,680

Factory overheads 62,100 4:5 27,600 34,500

Works cost 1,24,150 1,52,180

Office overheads 43,000 1:1 21,500 21,500

Cost of production 1,45,650 1,73,680

Selling overheads 35,700 2:3 14,280 21,420

Total cost 1,59,930 1,95,100

Profit: 20% on sales (or) 20/80 on cost 39,983 48,775

Sales 1,99,913 2,43,875

Number of units produced 2,500 3,000

Selling price per unit 79.97(Approx.)

81.29(Approx.)

Illustration-8

(Overhead expenses given as %)

The following expenses were taken from the account books of Nortan Ltd. for the year ending31.3.2010:

|

Direct materials 6,00,000

Direct labour 4,25,000

Direct expenses 65,000

�


�

�

�

�

�


Charge factory overheads at 60% of direct labour, office overheads at 20% on factory cost and sellingoverheads at 15% of factory cost.

Prepare a cost sheet showing profit earned if the company earns a profit of 25% on sales.

Solution

Cost sheet for the year ended 31.3.2010

Total(|)



Direct expenses 65,000

Prime cost 10,90,000

Factory overheads - 60% of directlabour

2,55,000

Works cost 13,45,000

Office overheads - 20% on workscost

2,69,000


Selling overheads - 15% on workscost

2,01,750

Total cost 18,15,750

Profit - 25% on sales or 25/75 ontotal cost

6,05,250

Sales 24,21,000

Illustration-9

(Finding the value of closing stock of finished goods)

The management of Jaihind Ltd. gives you the following information for the year ending 31.3.09.You are required to prepare a cost sheet.

|



Factory overheads 95,000

�


�

�

�

�

�

36 Cost Accounting

Administration overheads 60,000

Selling overheads 36,000

Sales 8,97,000

Additional information:

1. 3,500 units were produced during the year

2. Stock of finished goods 350 units valued at |70,000 as on 01.04.2008

3. Stock of finished goods as on 31.03.2009 are 400 units.

Solution

(i) Valuation of stock of finished goods on current cost basis:

Cost Sheet for the year ending 31.3.2009

Units Total|

Direct materials 3,500 3,75,000

Direct labour - 2,40,000

Prime cost 3,500 6,15,000

Factory overheads - 95,000

Works cost 3,500 7,10,000

Administration overheads - 60,000

Cost of production 3,500 7,70,000

Add: Opening stock of finished goods 350 70,000

3,850 8,40,000

Less: Closing stock of finished goods 400 88,000

Cost of goods sold 3,450 7,52,000

Selling overheads - 36,000

Cost of sales 3,450 7,88,000

Profit (bf) - 1,09,000

Sales 3,450 8,97,000

�


�

�

�

�

�


(ii) Valuation of stock of finished goods on average cost basis:

Cost sheet for the year ending 31.3.2009

Units Total|

Cost of production (Same as in (i)) 3,500 7,70,000

Add: Opening stock of finished goods 350 70,000

3,850 8,40,000

Less: Closing stock of finished goods 400 87,272

Cost of goods sold 3,450 7,52,728

Selling overheads - 36,000

Cost of sales 3,450 7,88,728

Profit (bf) - 1,08,272

Sales 3,450 8,97,000

Note:

Valuation of closing stock of finished goods:

(i) Current cost of production per unit =Cost of production during the year

Number of units produced during the year

=7,70,000

3,500= |220

Value of closing Stock = 400× 220 = |88,000

(ii) Average cost of production per unit =Cost of production + Value of opening stock

Units produced + Opening stock units

=8,40,000

3,850= |218.18 (Approx.)

Value of closing stock = 400× 218.18 = |87,272

Illustration-10

(Finding the missing information)

The books of Adarsh Manufacturing Company presents the following data for the month of April,2001.

Direct Labour Cost |17,500 being 175% of works overhead and cost of goods sold excluding admin-istration expenses |56,000. Inventory accounts showed the following opening and closing balances:

�


�

�

�

�

�

38 Cost Accounting

April 1|

April 30|

Raw materials 8,000 10,600

Work-in-progress 10,500 14,500

Finished goods 17,600 19,000

Other data:

Selling expenses 3,500

General and administration expenses 2,500

Sales for the month 75,000

You are required to:

(i) Compute the value of raw materials purchased

(ii) Prepare a cost statement showing the various elements of cost and also the profit.

(CA-Inter)

Solution

(i)Computation of value of materials purchased

| |

Cost of goods sold - 56,000

Add: Closing stock of raw materials - 10,600

Closing stock of work-in-progress - 14,500

Closing stock of finished goods - 19,000

1,00,100

Less: Opening stock of raw materials 8,000

Opening stock of work-in-progress 10,500

Opening stock of finished goods 17,600

Direct labour 17,500

Works overhead (17,500×100/175) 10,000 63,600

Raw materials purchase - 36,500

�


�

�

�

�

�


Note:

(1) All items added in the cost sheet till cost of goods sold is deducted.

(2) All items deducted in the cost sheet till cost of goods sold is added.

(3) Since administration cost is not included in cost of goods sold, it is not deducted.

(ii)Cost statement for the month of April 2001

Total|

Materials consumed:


Add: Purchase of materials 36,500

44,500

Less: Closing stock of raw materials 10,600 33,900


Prime cost 51,400

Factory overheads (17,500×100/175) 10,000

61,400

Add: Opening stock of work-in-progress 10,500

71,900

Less: Closing stock of work-in-progress 14,500

Works cost 57,400

General and administration overheads 2,500

Cost of production 59,900

Add: Opening stock of finished goods 17,600

77,500

Less: Closing stock of finished goods 19,000

Cost of goods sold 58,500

Selling expenses 3,500

Cost of sales 62,000

Profit (bf) 13,000

Sales 75,000

�


�

�

�

�

�

40 Cost Accounting

Illustration-11

(Finding missing information)

The following data relate to XYZ Ltd.

Inventories

Beginning|

Ending|

Finished goods 1,10,000 95,000

Work-in-progress 70,000 80,000

Raw materials 90,000 95,000

Additional information:

Cost of goods available for sale 6,84,000

Total goods processed during the period 6,54,000

Factory overheads 1,67,000

Direct materials used 1,93,000

Requirements:

(i) Determine raw materials purchased.

(ii) Determine the direct labour cost incurred.

(iii) Determine the cost of goods sold.(B.Com. (Hons.), Delhi University)

Solution

(i)Computation of raw materials purchased

|

Direct materials used 1,93,000

Add: Closing stock of rawmaterials

95,000

2,88,000

Less: Opening stock of rawmaterials

90,000

Raw materials purchase 1,98,000

�


�

�

�

�

�


(ii)Determination of labour cost incurred

|

Total goods processed during theperiod

6,54,000

Less: Opening stock ofwork-in-progress

70,000

5,84,000

Less: Factory overheads 1,67,000

Prime cost 4,17,000

Less: Direct materials used 1,93,000

Direct labour cost 2,24,000

(iii)Determining the cost of goods sold

|

Cost of goods available for sale 6,84,000

Less: Closing stock of finishedgoods

95,000

Cost of goods sold 5,89,000

2.13 EXERCISES

I. Objective Type Questions

A. State whether the following statements are true or false

1. Cost centre is a place where direct materials are expended.

2. Direct materials enter the finished product.

3. The total of direct labour, direct expenses and production overheads is called conversion cost.

4. Hire charges paid for a special machinery is part of production overheads.

5. Royalty payable on production is production overheads.

6. Imputed cost results in outflow of cash.

7. Semi-variable cost is also called step cost.

8. The total of all direct expenses is called prime cost.

9. Valued added refers to cost incurred in the production of a product.

10. Variable cost per unit increases due to increase in production.

11. Fixed cost is also called period cost.

�


�

�

�

�

�

42 Cost Accounting

12. Standard cost is a predetermined cost.

13. Fixed costs are generally uncontrollable.

14. Sunk costs result in cash payment.

15. Office overheads are unavoidable costs.

(Ans: True - 2, 3, 7, 8, 11, 12, 13, 15; False - 1, 4, 5, 6, 9, 10, 14)

B. Fill in the blanks

1. Prime cost refers to total of all expenses.

2. Works cost is the total of prime cost and .

3. Costs which result in actual payment of cash is called .

4. Period cost or time cost is cost.

5. The benefit foregone due to an alternative decision is called .

6. Labour cost incurred for conversion of raw materials into finished goods is called .

7. Bad debts is an example of cost.

8. Costs remaining constant per unit is called .

9. Place, a person, a machine or a group of these in relation to which cost is ascertained is called.

10. The division which brings or earns revenue for a business is called .

11. Costs which can be influenced by managerial action is called .

12. Travelling expenses incurred specifically for a particular job is called .

13. Expenses incurred for two or more jobs or cost centres is called .

14. Increase in the market value of a product in excess of costs incurred for changing or alteringits composition is known as .

15. The difference in the total cost between two levels of production is called .

(Ans: 1. Direct, 2. Factory overheads, 3. Out of pocket cost, 4. Fixed, 5. Opportunity cost,6. Direct labour, 7. Policy, 8. Variable cost, 9. Cost centre, 10. Profit centre, 11. Controllable cost,12. Direct expenses, 13. Indirect expenses, 14. Value added, 15. Differential cost)

II. Theory Questions

A. Short answer type questions

1. What is cost centre? Explain the various types of cost centre.

2. Explain direct materials.

3. What is direct labour?

4. What is direct expense? Give few examples.

5. What is prime cost?

6. Explain opportunity cost.

7. What is policy cost?

8. What is imputed cost?

9. What is cost classification?

10. Define out-of-pocket cost.

�


�

�

�

�

�


11. Define semi-variable cost.

12. All costs are controllable, comment.

13. What is value added? Explain.

14. What is conversion cost?

15. What is cost sheet?

B. Long answer type questions

1. Write short notes on: (a) Cost centre; (b) Opportunity cost; (c) Notional cost; (d) Out ofpocket cost; and (e) Policy cost.

2. What do you understand by cost classification? Explain the various cost elements on the basisof variability.

3. Explain the functionwise classification of overheads.

4. Explain cost sheet. What are its uses?

5. All costs are controllable. Explain.

6. Explain what do you understand by chargeable expenses and state its treatment in costaccounts. (CA-Inter)

7. Explain various costs used in decision making and explain their characteristics.(B.Com. (Hons), Delhi University)

8. What is the purpose of classifying costs?

III. Practical Problems

A. Short answer type questions

1. Compute materials consumed from the following:

|

Opening stock of materials 20,000


Carriage on purchases 15,000

Sale of materials scrap 7,000


(Ans: Materials consumed |1,35,000)

2. Compute materials consumed from the following:

|

Purchase of direct materials 3,50,000



�


�

�

�

�

�

44 Cost Accounting


Sale of direct materials scrap 15,000

Materials returned to supplier 30,000


Opening stock of direct materials 50,000

Closing stock of direct materials 40,000

(Ans: Materials consumed |3,42,000)

3. Compute prime cost:

|

Opening Stock of materials 35,000


Import duty and Clearing charges 1,50,000

Other purchase expenses 25,000



Factory overheads 1,60,000

Royalty paid on production 1,20,000

Hire charges for special machinery 40,000

(Ans: Prime cost |9,90,000)

4. Find the gross cost of goods processed during the period:

|

Prime cost 80,000



Closing stock of work-in-progress 25,000

Office overheads 70,000

(Ans: Gross cost of goods processed |1,55,000)Note: Gross cost of goods processed = Prime Cost + Factory Overheads + Opening Stock ofWork-in-Progress.

�


�

�

�

�

�


5. Find the net works cost:

|

Prime cost 1,50,000

Production overheads 60,000


Closing stock of work-in-progress 30,000

(Ans: Net works cost |2,07,000)

6. Prepare a cost sheet from the following:

|

Raw materials consumed 80,000

Wages 20,000

Works expenses charged at 100% of wages, office overheads charged at 25% on works cost andselling overheads at 10% on works cost.

(Ans: Cost of sales |1,62,000)

7. Calculate profit and sales from the following:

|

Cost of sales 5,00,000

Profit 20% on sales

(Ans: Profit |1,25,000; Sales - |6,25,000)

8. In a factory a standard product is manufactured. From the following particulars prepare acost sheet showing total cost and profit made:

|

Raw materials consumed 30,000

Labour 60,000

Works overhead is charged at 40% of works cost and office overheads is taken at 20% of totalcost. The standard product sold during the period is 180 units at |1200 each.

(B.Com., Bharathidasan University)

(Ans: Total cost |1,87,500; Total profit - |28,500; Cost per unit |1041.67; Profit per unit|158.33)

�


�

�

�

�

�

46 Cost Accounting

Note :

(a) Works cost = 40/60 on prime cost

(b) Office overheads = 20/80 on works cost.

9. The following information is taken from the records of X Ltd. for the year ending 31.3.2010:

Raw materials consumed |20,000

Direct wages |16,000

Production overheads 150% of direct wages

Office overheads 25% on works cost

Selling overheads |2 per unit sold

Opening stock of finished goods 500 units valued at |4,000

Units produced during the period |10,000

Units sold during the period 9,500 units at |10 per unit.

Prepare a cost sheet.

(Ans: Cost of production - |75,000; Closing stock - 1,000 units; Value - |7,500; Cost ofsales-|90,500; Profit - |4,500)

B. Comprehensive questions

1. Simple cost sheet-with detailed cost elements

From the following particulars taken from the books of United Engineering Ltd., prepare acost sheet for the year ending 31.3.2010.

|




Productive wages 2,83,000

Hire charges and maintenance of a special equipment 46,000

Royalty paid 84,000

Carriage on purchases 21,500




Foreman salary 20,000

�


�

�

�

�

�


Depreciation, repairs and maintenance

Of Plant and machinery 42,000

Of office furniture and equipment 27,500

Drawing office salaries 18,000

Motive power, fuel and oil 39,000

Lubricants and cotton waste 13,400





Travelling expenses

General 12,700

Sales promotion 17,500

Samples and gifts 14,000

Bad debts written off 10,000

General manager’s salary 60,000

General manager’s salary to be apportioned in the ratio of 4 : 3 : 3 to factory, office and salesdepartments. Sale of finished goods amounted to |15,00,000.(Ans: Prime cost - |8,30,700; Works cost - |10,51,100; Cost of production - |11,72,600; Costof sales - |13,14,600; and Profit - |1,85,400)

2. Simple cost sheet with opening and closing stocks

From the following particulars, prepare a cost sheet for the year ending 31.03.2010:

1.4.2009 31.3.2010

| |

Stock of materials 22,750 26,300



|



Factory manager salary 25,000

Depreciation of plant and machinery 27,100

Office rent, rates and insurance 14,600

�


�

�

�

�

�

48 Cost Accounting

Salesman travelling expenses 21,900


Debenture interest 16,500

Directors fee 24,000

General manager salary 25,000

Transfer to general reserve 20,000

Wages 3,70,000

Power expenses 1,15,000


General expenses 17,300

Dividend paid 35,000


Income tax 41,000

Goodwill written off 10,000

Bank charges 6,000


Sales for the year 16,00,000

(Ans: Prime cost - |10,07,850; Works cost - |11,77,450; Cost of production - |13,04,850; Costof goods sold - |13,07,950; Cost of sales - |13,72,650; Profit |2,27,350)

3. Dev Ltd. provides the following particulars for the month of August, 2009. Prepare a costsheet:

1.8.2009 31.8.2009

| |

Stock of raw materials 75,000 60,000



Transactions during the month of August 2009:

|


Factory expenses 82,000

Depreciation of plant and machinery 41,000

Selling and distribution overheads 27,500

�


�

�

�

�

�




Office overheads 34,500

Sales 6,00,000

(Ans: Prime cost - |4,35,000; Works cost - |5,32,500; Cost of production - |5,67,000; Cost ofgoods sold - |5,55,000; Cost of sales - |5,82,500; Profit - |17,500)

4. Apportionment of Common Expenses

TV Ltd. produces television sets in two models - Deluxe and Premium. The followinginformation is taken from their records for the year ending 31.3.2010.

1.4.2009 31.3.2010

| |

Deluxe Premium Deluxe Premium

Stock of work-in-progress 70,000 40,000 90,000 80,000

Stock of finished goods 1,65,000 1,10,000 2,10,000 1,70,000

Purchase of materials - |12,00,000; Direct labour - |7,50,000. Materials consumed were inproportion of 5 : 7 and wages incurred were in the ratio of 2 : 3 for the two models. Factoryoverheads is charged at 80% of direct labour, Administration overheads charged at 25% onworks cost and selling and distribution overheads estimated at 15% on works cost.

The company wants to earn a profit of 25% on sales. Find the profit of each model for theyear 2009.

(Ans: Profit - Deluxe: |4,61,000; Premium - |6,66,000)

5. Valuation of Closing Stock

Sri Ram Ltd. produces a standard product. It furnished the following cost information for 6months ending 30.9.09:

|

Materials consumed 80,000



Selling overheads at |2 per unit

Number of units produced 4,200

Number of units sold - 4,000 at |45 per unit

�


�

�

�

�

�