Basic Cost Concepts

ffimffiion *r sdathn*ripsryd@r@eA@pis
Prepare the Cost Sheet with as many details as possible and ascertain the Selling Price per unit of the product.
1. Direct Materials - 12.5o/o ol Selling Price, 4. Administration 0H - 50o/o of Production Cost,
2. DIrect labour - 17.5o/o of Selling Price, 5. Profit (Rs.750 per unit) - 15olo of Sales.
3. Production Overheads - 1/3nc ol Prime Cost,

Solution: Note: It is given that Administration OH = 50o/o of Production Cost, i.e. 50% of Cost of Production.
We know that Cost of Production = FactoU Cost + AOH. Hence, if AOH = 50o/o of Cost of Production, the
balance 50o/o should be Factory Cost. Therefore, Factory Cost to AOH will be 500/o : 50o/o or I : 1.

Direct Materials
Direct Labour

FACTORYCOST
Administration Overheads
COST OF PRODUCTION

COST OF SALES
Profit

Note: Percentage Column is first filled up with given data. Then Profit amount (given) is written in amount column. The
other amounts are then calculated on proportionate basis, since Profit = Rs.750 = l5o/o of Sales.

@e @@imdG@frFst-0hs#hrtion d O{t=Trffi of.*exd#q M "

From the following particulars, prepare a Cost Statement showing the component of Total Cost and the Profit for the year
ended 31st December.
Pailiculars 0n la Januarv 0n 31* December
Stock of Raw Materials 4,oo,ooo 5,00,000
Stock of Finished Goods 60,000 1,50,000
Stock of Work-ln-Proqress 1,5o,ooo 1,00,000

Particulars Rs. Partlculars Rs.

Raw Materials Purchased 47,50,000 Sales for the year g6,()(),ooo

Carriage lnwards 1,25,000 Selling Expenses 92,500

Wages 17,50,000 General Expenses 3,20,000
Works Manager's Salary 3,00,000 Debenture lnterest 50,000
Salary - Factory Employees 3,00,000 Dividend Paid 10,000
Salary - Office Stafl 2,00,000 lncome-Tax Provision 5,000
Salary - Salesmen 1,00,000 Goodwillwritten otf 1,00,000
Factory Rent & lnsurance 72,500 Sales Tax paid 1,60,000
Power Expenses 95,000 Transfer to Machinery Replacement Fund 1,00,000
Other Production Expenses 4,20,000 lnterest on Loan 75,000
Bad Debts written ofl 15,000 Bank Charges 5,000
Loose tools written off 10,000 Discount Allowed 27.000
)

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Students'Handbook on Cost Accounting and Financial Management

Solution:
1. Statement of Factory OH: Rs. 2. Statement of Administration OH: Rs.
Works Manager's Salary 3,00,000 Salary - ffice Staff 2,00,000
Salary - Factory Employees 3,00,000 Gerieral Expenses 3,20,000
Factory Rent & Insurance 72,500 Bank Charoes 5,000
Power Expenses 95,000 Total 5,25,000
Other Production Expenses 4,20,000 3. Statement of Sellins & Dist. OH: Rs.
Loose tools written off 10.000 Salary - Salesmen 1,00,000
Total 11,97,500 Sellino Exoenses 92.500
Total 1,9e500

4. Cost Sheet for

Particularc Rs.
Opening Stock of Raw Materials 4,00,000
Add: Purchases & Carriaqe Inwards (Rs.47,50,000 + Rs.1,25,000) 48,75,000
52,75,000
Less: Closinq Stock of Raw Materials (5,00,000)
Direct Materials Consumed 47,75,000
Add: Direct Labour 17.50,000
PRIME COST 55,25,000
Add: Factory Overheads (wN 1) 11,97,500
Add: Openinq Stock of Work-in-Progress 1,50,000
78,72,500
Less: Closinq Stock of Work-in-Progress (1,00,000)
FACTORY COST 77,72,500
Add: Administration Overheads (wN 2) 5,25,000
COST OF PRODUCTION 92,97,500
Add: Openinq Stock of Finished Goods 60,000
COST OF GOODS AVAIIABLE FOR SALE 83,57,500
Less: Closinq Stock of Finished Goods (1,50,000)
COST OF GOODS SOLD 92,07,500
Add: Sellinq and Distribution Overheads (wN 3) 1,92,500
COST OF SALES 94,00,000
Add: Profit / (Loss) (balancing figure) 6,00,000
go,oo,ooo
SALES

from Cost Sheet: The following items are excluded from the Cost Sheet for the reason
Item Rs. Reasons for exclusion
Bad Debts written off 15,000 Reoresents Loss / Inefficiency in Credit Grantins and Collection.
Debenture Interest 50,000 Financial Item / Exoense.
Dividend Paid 10,000 Aporopriation of Profits.
Income-Tax Provision 5,000 Profit-based outflow.
Goodwill written off 1.00,000 Policv based / Comoanv-soecific transfer entrv in accounting system.
Sales Tax paid 1,60,000 Collection and Remittance on behalf of Government. No revenue or cost is
involved to the business entity.
Transfer to M/c Replacement Fund 1.00.000 In the nature of Aporooriation of Profits.
Interest on Loan 75,000 Financial Item / Expense.
Discount Allowed 27,000 Policy based / Company+pecific transaction.
Note: Profit as per Cost Sheet represents Profit before Interest and Taxation, i.e. PBIT.

ffi ffi $fl .i.h:arfft$ffi iflf,#ffi i

A lire occurred in the factory premises on 31st October of a year. The accounting rccords have been destroyed. Cefiain
accounting records kept in another building, reveal the lollowing lor the period ld September to 31a October.

1.20
 Basic Cost Concepts

1. DIrect Material purchased Rs.2,50,fi)0 6. Sales Revenues Rs.7,50,0fi1

2. Work in Process inventory on la September Rs. 40,000 7. Dlrect Labour Rs.2,22,250
3. Direct Material inventory on 1* September Rs. 20,000 8. Prime Costs Rs.3,97,750
4. Finished Goods inventory on la September Rs. 37,750 9. Cost of goods available for sale Rs.5,55,75
o/o
5. lndirect Manulacturlng Costs 40oh ol Conversion 10. Gross Margin percentage 30Yo
Costs based on Revenues

The loss is fully covered by insurance. The lnsurance 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, not historical cost.
You are required to compute the following items as on 31st October - (1) Finished Goods lnventory, (2) Work in Process
lnventory, and (3) Direct Materials lnventory.

Solution: Cost Sheet for the vear ended 31s October

Particularc Computation Rs.
Opening Stock of Raw Materials (given) 20,000
Add: Purchases & Caniaqe Inwards (oiven) 2.50.000
2,70,000
[ess: Closing Stock of Raw Materials (balancing figure) (e+s0o)
Direct Materials Consumed (by reverse working) Prime Cost Less Labour 1,75,500
Add: Direct Labour (oiven) 2.22.250
PRIME COSI (given) 3,97,750
Add: Factory Overheads (See Note below) (2,22,250 + 600lo) x 40o/o 1,48,t67
Add: Ooeninq Stock of Work-in--Proqress (qiven) 40,000
5,85,9L7
Less: Closino Stock of Work-in-Prooress (balancinq fisure) (67.a92\
FACTORY COST (by reverse working) Rs.5,18,025 - Nil 5,18,025
Add: Administration Overheads (Not given in Question, hence ignored) Nil
COST OF PRODUCTION (by reverse working) Rs.5,55,775 - Rs.37,750 5,18,025
Add: Openinq Stock of Finished Goods (oiven) 37,750
COST OF GOODS AVAILABLE FOR SALE (given) 5,55,775
Less: Closinq Stock of Finished Goods (balancing figure) (3O,775)
COST OF GOODS SOLD (by reverse working) Rs.5,25,000 - Nil 5,25,000
Add: Sellinq and Distribution Oyerheads (Not oiven in Ouestion. hence iqnored) Nil
COST OF SALES (Sales Less 30o/o) 5,25,000
Add: Profit / (Loss) (30o/o of Sales oiven) 2.25.000
SALES (qiven) 7.50.000
Note:
. Cost Sheet format is first written, and the figures available in the question are filled up. The other figures are derived by
reverse working and / or as balancing figures.
r Conversion Cost = Direct Labour +
Factory OH (i.e. Indirect Manufacturing Costs). Since Factory OH is 40olo of
Conversion Costs (100o/o), Dlrect tabour =
100o/o - 40o/o = 6o0/o of Convercion Costs.
. Since Direct Labour = 600/o of Conversion Costs = Rs.2,22,250 (given), Factory OH is calculated at 40olo proportionately.

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COIIPREHENSIVE LTD the information -
1. From Financial Records: Rs.Ofl)s 2. From lnventorv Records: Rs.000s Rs.000s
Pailiculars Partlculars of Stock As at 31st Dec As at lst Jan
Sales for the year 75,00 Raw Miterlals 10,60 8,00
Dlrect Labour 17,50 Flnlshed Goods 19,00 17,60
Management Erpenses 2,W WIP (50'/. complete) 14,50 10,50
Sellino Exoenses 3,50

L.2L
Students'Handbook on Cost Accounting and Financial Management

3. From analysis of past data:

(a) Direct Labour would be 175o/ool Works Overheads.
(b) Cost of Goods Sold (excluding Administration Overheads) would be Rs.l1,2fi1per unit.
(c) Selling Expenses would be Rs.700 per unit.

You are required to:

1. Compute the value of materials purchased during the year.
2. Determine the rate of profit earned on Sales.
3. Discuss whether inrerest payment ol Rs.2,00,000 on Working Capltal would affect the above rate bf profit.

Solution: Cost Sheet for

Particularc Computation Rs.OO0s
Opening Stock of Raw Materials (given) 8,00
Add: Purchases & Carriaqe Inwards (balancinq fiqure) 36,50
44,50
Less: Closinq Stock of Raw Materials
(10.50)
Direct Materials Consumed 33,90
Add: Direct Labour (oiven) 17,50
PRIME COSI 51,40
Add: Factory Overheads (L7,50 * L75o/o) 10,00
Add: Ooenino Stock of Work-in-Prooress (oiven) 10,s0
71,90
Less: Closinq Stock of Work-in-Progress (14.50)
FACTORY COST / WORXS COST 57,40
Add: Administration Overheads (= Manaqement Exps) (siven) 2,50
COST OF PRODUCTION 59,90
Add: Ooenino Stock of Finished Goods (qiven) 17.ffi
COST OF GOODS AVAILABLE FOR SALE 77,50
Less: Closinq Stock of Finished Goods (oiven) (19.00)
COST OF GOODS SOLD (See Note d below) 58,50
Add: Sellinq and Distribution Overheads (Rs.700 o.u. oiven) 3.50
COST OF SALES 62,00
Add: Profit i Loss (Balancing Figurc) 13,OO
SALES (siven) 75,00
Notes:
(a) The Cost Sheet is completed by Reverse Working. Purchases amount is the balancing figure.
(b) Direct Labour = !75o/o of Factory Overheads (given) Hence, if Direct Labour = L7,50, then Factory Overheads = L7,50
i l75o/o= Rs.10,00 (in 000s).
(c) Selling OH = Rs.700 p.u = Rs.3,50,000 (in total). So, Units Sold = Rs.3,50,000 + Rs.700 = 500 units.
(d) Cost of Goods Sold (excluding Administrative OH) = Rs.11,200 per unit.
Costof GoodsSold LessAOH = 11,200 x Unitssold = Rs.11,200 x 500 units = Rs.56,00,000.
Cost of Goods Sold - Rs.2,50,000 = Rs.55,00,000. Hence, Cost of Goods Sold = Rs.58r50r000.
(e) Rate of Profit = 13,00 + 75,00 = 17.33o/o.
(0 Interest on Working Capital shall not be considered as "Cost" for the purposes of Cost Strcet, since ft may distort cost
comparison across different Firms. However, for decision-making purposes, interest is an essential element of cost and
has to be included to determine relevant costs in a decision.

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Bright Shoe Polish Company manufactures Black and Brown Polish in one standard size of tin retailing at Rs.12.fl1 and
Rs.13.30 inlormation is to vou -
Particulars Openinq Stock Closino Stock Sales
Black Polish 2,400 tins 5,400 tins 72dX!tlns
Brown Polish 8,fl10 tins 3,000 tins 30,0fi) tlns

L.22
Cost Details:
Dlrect Materials: Direct Wages Rs.2,04,000

Polish Rs.2,46,000 Production 0verhead Rs.3,06,000

Tins Rs.l,20,000 Administration and Selling Overhead 8s.1,02,000

The Opening Stock of Black and Brown Polish was valued at its Production Cost. The Cost of Raw Materials for Brown Polish
is 107. high6r thanthat for Black, but there is no difference in the cost of tins. Direct Wages for Brown Polish are 8% higher
than thos6 of BIack polish and Production OH are considered to vary with Direct Wages. Administration and Selling 0H is
absorbed at a uniform rate per tin ol polish sold.
/
Prepare a statement to show the Cost and Profit per tin of polish.

Solution:
Note: In this question, Total Costs are given and product-urise analysis is required to be made, Hence, the ratios for
appoftionment oh various types of costs should be determined first. The workings are given below'

1. Computation of Productiut Quantities

We know that Ooeninq Stock + Productic n - Ctosinq Stock = Sales. So, the are determined as unoer -
Pailicularc BIack Polish Brown Polish
Sales Quantity (in tins) 72,000 30,000
Add: Closing Stock (in tins) 5,400 3,000
77,400 33,000
Less: Openinq Stock (in tins) 2,4N 8,000
Prcduction Quaffit 751000 l5r$00
Since Production Quantfties are 75,000 at rd 25,000 tins respectively, the ratio of production is 3 : 1.

2. Cost for Dircct Materials

Polish Tins
TVoe of Polish Black Brcwn TVoe of Polish Black Btown
Production Ratio as above 3 I Production Ratio as above 3 1

Material Usage rate p.u. 100p/o 110o/o Material Usage rate (equal) 100o/o 100o/o

So, Material Cost (QtW x Rate) 300o/o lt0o/o So, Material Cost (Qtty x Rate) 300o/o 100o/o

Hence, Ratio of Polish Cost apportionment = 3O : 11 Hence, Ratio of Tins Cost apportionment = 3 : 1

It is given that POH varies with Wages. The relationship

Production Ratio as above 3 1 between POH & Wages = Rs.3,06,000 + Rs.2,04,000 =
150o/o of Direct Wages. Hence, POH are taken at 150%
Wage rate per unit 100o/o 108o/o
of Direct Wages, or alternatively apportioned in the same
So, Wages Cost (Qtty x Rate) 300% 108o/o
ratio as Direct Wages i.e. 25 : 9.
Ratio of Direct Wases apportionment = 25 : 9

5. Recognition of AOH & SOH: Conventionally, Administration and Sellitg are regarded as distinct functions. However, in
this queiion, they are given together and o<preCsed as cost per unit sold. Hence, Finished Goods are valued at the Factory
Cost, i.e. without including AOH. Here, AOH is based on units sold (not units produced).

6. of Stocks
Type Opening Stock Value = Qth/ x Rate Closing Stock Value = QttY x Rate
Black 2,400x 8.60 = 20,@0 5,400x8.60= 46,440
Brown 8,000x9.24=73,920 3,000x9.24= 27,720
kandClosingStockisdeterminedonlyafterpreparingtheCostSheetuptoFactory
Cost stage (WN 8). Rlso, Selling OH should not be included in Inventory Valuation, hence, for Stock Valuation
purposes, only Factory Cost is considered.

7. Administration and Se[ing OH: Since these are absorbed at a uniform rate per unit sold, they should be apportioned
in the ratio of units sold, i.e. 72,000: 30,000 i.e. 12 : 5.

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Students'Handbook on Cost Accounting and Financial Management

8. Based on the above workinqs, the Cost Sheet can be prepared as under:
Pafticulars Total Black Polish Brown Polish
Production & Sales OuantiW 75,000 & 72,000 2s.000 & 30.000
p.u Total p.u Total
Direct Materials Polish (in 30 : 11) 2,46,000 2.40 1,80,000 2.64 55,000
Tins (in3:1) 1,20,000 1.20 90,000 1.20 30,000
Direct Waqes (in 25 : 9) 2.04.000 2.00 1.50.000 2.L6 54,000
PRIME COST 5,70,000 s.60 4,20,000 6.00 1,50,000
Add: Production OH (1500/o of Waqes) 3,06.000 3.00 2.25.000 3.24 81,000
Factory Cost of Production 8,76,000 8.60 6,45,000 9.24 2,31,000
Add: Ooeninq Stock of Finished Goods 94,560 8.60 20.ffio 9.24 73.920
9,70,560 8.60 6,65,640 9.24 3,04,920
Less: Closino Stock of Finished Goods (74.160], 8.60 G6,440]- 9.24 (27.720\
COST OF GOODS SOLD 8,96,400 8.60 6,19,200 9.24 2,77,200
Add: . Administrative & SOH (in 12 : 5) 1.02.000 1.00 72,000 1.00 30,000
COST OF SALES 9,98,400 9.60 6,91,200 t0.24 3,07,200
Add: Profit 2,M,600 2.40 L.72.AOO 3.06 91,800
SALES 12,63.000 12.00 8.64.000 13.30 3.99.000

lllustration 6: Preparation of Cost Sheet- Product-wise CGt Analysis and Apportiorurcat ' !t*
SK Engineering Company Limited manufactures two types of auto bearings - Type 'XD' and Type'XE'. The Company's records
show the lollowinq oarticulars for those )r the month of Mav -
Particulars Direct Materials Direct Labour Production Overheads Office Overheads
Amount in Rs. 38.10.000 20,10,000 6,03.000 6.42.300
There was no Work-in-Progress at the beginning or at the end of the month. !t was ascertained that -
o Direct Material Cost per bearing for Type 'XD'was 160% of those for Type'XE'.
r Direct Labour Cost per bearing for Type 'XE' was 40o/o ol those for Type 'XD'.
o Production 0H were absorbed based on Direct Labour Cost and Otfice 0H were absorbed on the basis of Fac-tory Cost.
o Selling and Distribution Overheads were Rs.2 per bearing sold for each type.
o Stock ol Finished Bearings on 1st May was 15,000 bearings at Rs.l5 of Type 'XD'and 20,000 bearings at Rs.8 ol Type 'XE'.
o Production during May was 2,70,000 bearings of Type 'XD' and 3,30,000 bearings of Type 'XE'. Out of May's output, 25,000
bearings of Type 'XD' and 40,000 bearings of Type 'XE' remained in stock on 31st May which was valued at cost of production.

1. Prepare a statement showing Cost ol Production each type of bearings.

2. Prepare a statement showing the Selling Price at which the bearings would be marketed, if the Company desires al20o/o
profit on Selling Price.
Solution:
l. Direct Materials Cost appoftionment 2. Direct Labour Cost aooortionment
Tvpe
Bearinq XD XE Bearino Tvoe XD XE
(a) Production Ratio 2,70,000 3,30,000 (a) Production Ratio 2,70,000 3,30,000
(b) Material Usage rate p.u. 160% l00o/o (b) Labour Cost pu Ratio 100o/o 40o/o
(c) Material Cost Ratio (a x b) 4,32,000 3,30,000 (c) Labour Cost Ratio (a x b) 2,70,000 1,32,000
(d) So, Material Cost Rs.38,10,000 apportioned as 432 : 330 (d) So, Labour Cost Rs.20,10,000 apportioned as 270 : 132
HenceMaterialCostsare Rs.21,60,000 Rs.16,50,000 Hence Labour Costs are Rs.13,50,000 Rs.6,60,000
(e) Material Cost pu (d+a) Rs.8 Rs.5 (e) Labour Cost pu (d+a) Rs.5 Rs,2

3. POH.Appoftionment: Relationship between POH & Wages = Rs.6,03,000 + Rs.20,10,000 = 30o/o ol Direct Wages.
So, POH are taken at 300/o of Direct Wages, or alternatively apportioned in the same ratio as Direct Wages, i.e.27O z L32.

4. Valuation of and Stocks

Tvpe Opening Stock Value = QW x Rate (qiven) Closinq Stock Value = Ottv x Rate (from Cost Sheet)
XD 15,000x15=2,25,000 25,000
15.95 = 3,98,750x
XE 20.000x8=1,60.000 40,000x8.36=3,34,400
Note: Valuation Rate for Closing Stock is determined only after preparing the Cost Sheet upto Cost of Production stage.

t.24
 Basic Cost Concepts

5. of Sales and SOH

Particularc TVoe XD Type XE
Opening Stock (Qtty) 15,000 20,000
Add: Production Otty 2.70.000 3.30.000
2,85,000 3,50,000
Less: Closinq Stock (Ottv) 25,000 40.000
Sales OuantiW 2.60.OOO 3,10,000
SOH at Rs.2 pu Rs.5.20.000 Rs.6.20.000

on the above worki the Cost Sheet can be as under:

Pafticularc Total Tvoe XD Tvoe XE
D.U Total D.U Total
Direct Materials (WN 1) 39,10,000 8.00 21,60,000 5.00 16,50,000
Direct Waoes (WN 2) 20.10.000 s.00 13.50.000 2.00 6.60.000
PRIME COST 59,20,000 13.00 35,10,000 7.00 23,10,000
Add: Production OH (30o/o of Waqes) 6.03.000 1.50 4,05,000 0.60 1.98.000
Factory Cost 64,23,000 14.50 39,15,000 7.60 25,08,000
Add: AOH (6,42,300 + 64,23,000)
= Llo/o of Factorv Cost) 6,42,300 1.45 3,91,500 0.76 2.50.800
Cost of Production 70,65,300 15.95 43,06,500 8.36 27,59,900
Add: Openinq Stock of Fin. Goods (WN 4) 3.85.000 2,25,000 1.50.000
Cost of Goods available for Sale 74,50,300 45,31,500 29,18,800
Less: Closinq Stock of Fin. Goods (WN 4) (7,33,150) r3.98.7s0) (3.34.400)
COST OF GOODS SOLD 67,17,150 1s.90 4L,32,750 8.34 25,84,400
Add: SOH (WN 5) 11,40,000 2.00 5,20,000 2.00 6,20,000
COST OF SATES 80o/o 79,57,t50 t7.90 46,52,750 10.34 32,04,400
Add: Profit 20o/o 19,64,288 4.47 11.63.188 2.58 8,01,100
SALES 10Oo/o 98.21.438 22.37 s8,15,938 t2,92 4O"O5,5OO
Note: Cost of Goods Sold per unit is calculated as Total COGS + Sale Quantity.

Vinayak Ltd is planning to submit a tender lor a new job that requires Materials costing Rs.20,000 and Labour Rs.l2,000. For
estimation of OH, the Company furnishes the following data in respect of the previous year -
Materials Consumed = Rs.2,91,200, Wages Paid = Rs.l,98,800, Works OH = Rs.43,736, AOH = Rs.35,524.

What should be quotation for the new iob if the Gompany desires a profit ol25oh on Total Cost? (Absorb POH based on Dhect
Labour and AOH based on Works Gost).

Solution: Cost Sheet

Pafticulars Last Yr Actuals Relationship For New Job
Direct Materials 2,91,200 Actuals 20,000
Direct Labour 1.98.800 Actuals 12.000
PRIME COST 4,90,000 32,000
Add: Factory Overheads 43,736 POH 43,736 + Labour 1,98,800
So, POH = 22o/o of Labour 22o/o of 12.000 = 2.540
FACTORY COST 5,33,736 34,640
Add: Administration OH 35,524 AOH 35,524 + Works Cost 5,33,736
So, AOH = 6.650/o of Works Cost. 6.650/o of 34.640 = 2.3M
TOTAL COST 5,69,260 36,944
Add: Profit 25o/o on Cost of Rs.36,944 9,236
SALES 46,180
Note: In this question, SOH is not given. Hence, Total Cost is considered upto Cost of Production only.

1.25
 ffi'#fi il . '.:' , . : li i!14i':;iti;:i*;i;i! 0tr
A C6iipanv manutactuiii iiilid,i,"wtrtitr irelolo ai ns.1,600 per unit. The total cost is composed ol lor Direct Materials,
30%
4617olor Direct Wages and 30o/o for Overheads. An increase in material price by 30% and !n w19e rates by 10% is expected in
the forthcoming yeiar, as a result ol which the profit at current selling price may decrease by y'/: d the
present prolit per unit.
you are requircl-to prepare a statement showing current and futureprofit at present Selling Price. What should be the Selling
Price to maintain the present rate of profit?

Let Present Cost be Rs.C and Profit be Rs.P. The breakup of Materials, trboq-q-qH
Particularc ExisUng Proposed
Working Rs. Working Rs.
Direct Materials 0.3c 362 0.3C +30o/o = 0.39C 47t
Direct Wages 0,4c 484 0.4C+ l0o/o=0.44C 532
Overheads 0.3c 362 Same as existing = 0.30C 362
TOTAL COST c 1,208 1.130C 1,365
235
Add: Profit P 392 P Less 40olo = 0.60P
1.600 1,600 1,600 1.500
SELLING PRICE
I{ote: Amount Column is filled up after the following computations'

Comparing ftesefit Situation: C + P = 1,600 (Equation 1)

Comparing Proposed situation: 1.13C + 0.6P = 1,600 (Equation 2)
Multiplying EqpUon 1 by 0.6, 0.60C + 0'6P = 960
Subtracting, we have 0.53C = 640

ThereforeC=640+0.53=Rs.lr2OS.SubstitutinginEquationl,wehave,P=1,600-1,208=Rs.392
Present Percentage of Profit to cost = Rs.392 + Rs.1,208 = 32.45o/o on Cost.
New Cost = 1.13C = 1.13 x 1208 = Rs.1,365
Hence, New Selling Price = New Cost + Profit Margin = Rs.1,365 + 32.45o/o thereon = Rs.tr808.

lI..1': - ':- ,ll&:

in;"d;ii6ctiililg iomplii;'ffiiorv"tivCitreaoi ire charged as ffled percentage basis on Qirpct Labou1.a{
arc charoed on the basis ol Dercentaqe of Factory Cost. The following data is available lor the year ending 3ta March
"''" ol*
Overheads

Particulars Product A Product B

Direct Materials Rs.l9,000 Rs.l5,0fi)
Direct Labour Rs.15,000 Rs.25,fl)0
Sales Rs.60,000 Rs.80,0fl!
Profit 257o on Cost 25o/oonSales Price
Labour,and(b}Percentageof0tflceoHonFac1oryCost.

lefx FOH on Direct and of Cost.

Particularc Product A Product B
Direct Materials 19,000 15,000
Dired Labour 15,000 25,000
Prime Cost 34,000 40,000
Add: FOH 15.000 x 25,000 x
Factory Cost 34,000 + 15,000 x 40,000 + 25,000 x
(40,000 + 25,000 x) y
Add: AOH (i.e. Office OH) (34,000 + 15,000 x) y
Total Cost (Sales - Profit) 50,000-12,000=481000 80,000-20,000=60,OOO
Add: Profit 25o/o on Cost = 20o/o on Sales = 12,000 25o/o on Sales of 80,000 = 20,0(X)
Sale Price (oiven) 60,000 80,000
In the above question, SOH is not given. Hence, Factory Cost + AOH = Total Cost.
The Total Cost as derived above (for Product A and Product B) is equated with Cost determined using x and y.

L.26
 Basic Cost Concepts

Product A: Factory Cost + AOH = Total Cost. Product B: Factory Cost + AOH = TotalCost.
So, (34,000 + 15,000 x) + (34,000 + 15,000 x) y = 48,000 so, (40,000 + 25,000 x) + (40,000 + 25,000 x) y = 60,000
By taking (34,000 + 15,000x) as common factor, we have By taking (40,000 + 25,000x) as common factor, we have
+ 15.000 x) (1+ v) = 48.000............Equation 1

Dividing Equation 1 by Equation 2 [to eliminate / cancel (1+y)] and further simpliffing, we have,
(34,000 +15,000 x) _ (34 + 15x) _ _48 _ 4
(40,000 +25,000 x) (40 + 25x) 50 5

On cross multiplication, we have (34 + 15x) 5 = (40 + 25x) 4. This means 170 + 75x= 160 + 100x.
On solving, -25x = -10. So, x = t0125 = 0.4.

Substituting x = 0.4 in Equation 1, we have (34 + 15x0,4)(1 + y; = 46.

40 (1 + Y) = 48. So, (1+y) = 1.2, Thus, V = O.2

Answer: (a) Factory OH = 40o/o on Direct Labour, and (b) Office OH = 20o/o on Factory Cost.

fufiatisr t0rMre g$atim*EsnrationdGlespercen@pd@ ll$

In an Engineering Company, the Factory 0H are recovered on a fixed percentage basis on Direct Wages and the Administrative
OH are absorbed on a lixed percentage basis on Factory Cost, The Company has furnished the following data relating to two
undertaken bv it in a
Particulars Job 101 (in Rs.) Job 102 fin Rs.)
Direct Materials 54,00Q 37,500
Direct Wages 42,000 30,000
Selling Price 1,66,650 1,28,250
Profit Percentaqe on Total Cost 10% 20o/o

1. Compute of percentage recovery rates of Factory Overheads and Administrative Overheads.

2. Calculate of the amount of Factory Overheads, Administrative Overheads and Profit for each of the two jobs.
3. Using the above recovery rates, fix the Selling Price of Job 103. The additionaldata being - (a) Direct Materials Rs.24,fi)0,
Direct Wages Rs.20,000 and Profit on Selling Price 12.57o.

Solution: Let the Production OH be xolo on Direct Wages and Administration OH be yo/o on Works Cost. The Cost Sheet of
Job 101 and Job 102 are as under -
Particu!ars Iob 1Ol Iob 1O2 Iob 103
Working
- Rs, Workinq Rs. Rs.
Direct Materials 54,000 54,000 37,500 37,500 24,000
Direct Waqes 42.000 42.OOO 30,000 30.000 20.000
Prime Cost 96,000 95,000 67,500 57,500 44,000
Add: Production OH 42.000x 25,200 30.000x 18.000 600/o on DL= 12,000
Factoqy Cost 95,000 + 42,000x 1,2L,200 67,500 + 30,000 x 85,500 56,000
Add: Admin OH (96.000 + 42.000x) v 30.300 (67,500 + 30,000 x) y 2t.375 25o/o on WC=14,000
Tota! cost (Note 2) 1,51,500 1,51,500 (I{ote 2) 1,06,875 1,06,875 70,000
Add: Profit (Note 2) 15.150 15,150 (Itote 2) 2L.375 21.375 (Note 3) 10.000
Sellino Price (oiven) 1,66,650 1,56,650 (qiven) 1,28,250 1.28.250 8O,OOO
Note:
1. Initially "Working" Column is filled up. After determining x and y as per Simultaneous Equatlons below, the amounts
columns of lob 101 and Job 102 are filled up. Finally, using the percentage relationships, Job 103 column is filled up.

2. Costs and Profits for Job 101 and Job 102 are
Job 101 Job 102
We know that Cost
+ Profit = Sales We know that Cost+ Profit = Sales
in terms of percentage, L00o/o + l0o/o = 110o/o in terms of percentage, t0oo/o + 20o/o = L2Oo/o
i
If SP = 1.65.650. Cost = 1.56.650 110o/o = 1,51,500 *
If SP = 1.28.250, Cost = L,28,250 L20o/o = 1,06,875
3. -
For Job 103 Profit is 12.5olo on Sales. So, Cost is 100o/o 12.5o/o = 87.5o/o. Since this Cost is Rs.70,000 (as derived in
Cost Sheet above), Profit = 12.5o/o + 87.5o/o on Cost of Rs.70,000 = Rs.10,000.

r.27
Students'Handbook on Cost Accounting and Financial Management

Simultaneous Equations:
In the above question, SOH is not given. Hence, Factory Cost + AOH = Total Cost.
The Total Cost as derived above (for Job 101 and Job 102) is equated with Cost determined using x and y.

Job 101: Factory Cost + AOH = Total Cost, Job 102: Factory Cost + AOH = Total Cost.
so, (96,000 + 42,000 x) + (96,000 + 42,000 x)y = 1,51,500 So, (67,500 + 30,000x) + (57,500 + 30,000 x) y = 1,06,875
By taking (96,000 + 42,000 x) as common factor, we have By taking (67,500+ 30,000x) as common factor, we have
+ 42,000 x) (1+ y) = 1,51,500............Equation 1 67,500 + 30,000 x) (1+ y) = 1,06,875............Equation 2

Dividing Equation 1 by Equation 2 [to eliminate / cancel (1+y)] and fufther simplifying, we have,
(96,000 + 42,000 x) (96 +
_ 42x)
_ 1,51,500
242.4
(67,500 + 30,000 x) (67.5 + 30x) 1,06,875 L7t.0

On cross multiplication & simpliflcation, we have 16,416 + 7,182x = L6,362 + 7,272x.

Hence, 54 = 90x and x = 0.6 or 6o0/o

Substituting x = 0.6 or 600/o in Equation 1, we have (96,000 + 42,000)<0.6)(1 + y) = 1,51,500.

t,2L,200 (1 + y) = 1,51,500. So, (1+y) = 1.25, Thus, y = 0.25 or25o/o

Hence, Production OH = 600/o on Direct Labour and Administration OH = 25o/o on Factory Cost.

lltt|ffiffir*il * ,,Y.aiiCkl* ffidiffiiffiru:r:iii,iiri ,- ',1', ' ': :;:''';:;;'

Maximum production capacity of JK Ltd is 5,20,000 units per annum. Details of estimated cost o, production are -
o Direct Materia! Rs.15 per unit.
o Direct Wages Rs.9 per unit (subiect to a minimum of Hs.2,50,000 per month).
o Fixed Overheads Hs.9,60,000 per annum.
o Variable Overheads Rs.8 per unit.
. Semi-Variable Overheads are Rs.5,60,000 per annum up to 50o/o capacity and additional Rs.1,50,0fl) per annum for every
257o increase in capacity or a part of it.

JK Limited worked at 600/o capacity for the first 3 months during the year 2008, but it is expected to work at 90o/o capacity for the
remaining nine months.
The Selling Price per unit was Rs.44 during the first 3 months.
Calculate what Selling Price per unit should be fixed for the remaining nine months to yield a total profit of Rs.15,62,5fi1 for the
whole year.

Solution: Profit Statement

Pafticularc First 3 months Next 9 months
1. Ouantitv 5,20,000 x 3lL2 x 600/o = 78,000 units 5.20.000 x 9ll2 x 90o/o = 3.51.000 unib
2. Direct Materials Rs.15 ou 78,000x15=11,70,000 3.51.000 x 15 = 52.65,000
3. Direct Labour 78,000x9, or 2,50,000 x 3, whichever is 3,51,000x9, or 2,50,000 x 9, whichever is
hiqher, So, 7,50,000 hisher, So, 31,59,000
4. Fixed OH 9.60.000 x3lL2 = 2.40,000 9.50.000 x9lL2 = 7.20.000
5. Variable OH Rs.8 ou 78,000x8=6,24,000 3,51,000x8=28,08,000
6. Semi-Variable OH 5,60,000 x 3lt2 = 1,40,000 x 9ltZ = 4,20,000
5,60,000
1,50,000 x3lt2 =37,500 x 9112 = 2.25.000
1.50.000 x 2
7. Total Cost (2 to 6) 29,61.sOO L,25,97,OOO
8. Sellino Price o.u. Given = Rs.rl4 (bal. fio) (1.35.89.000 + 3.51.000) = Rs.39
9. Sales Value 78.000 \. 44 = 34.32.000 (Cost + Profit) = 1,36,89,000
10. Profit 34,32,000 - 29,51,500 = 4,7O,5OO Required 15,62,500 - 4,70,500 = l10,9]pq(
I{ote: Profit already earned in first 3 months is Rs.4,70,500. Hence, additional profit required during next 9 months is
calculated, and then the Desired Selling Price is calculated by Reverse Working.

1.28
 Basic Cost Concepts

ffi:l *ffiiY* : iaiidi i'klsbns i::ijl:til$ffi

A has an installed capacity of 1,50,000 units p.a. lts cost structute is given below -
Variable Costs Rs.l0 per unit
Labour (subject to a minimum of Rs.1,00,000 pet month) Rs.l0 per unit
Overheads Rs.4 per unit
Fixed Overheads oer annum Rs.1,92,300

Semi-Variable Overheads Rs.60,000 per annum al7loh capacity, which increases by Rs.4,000 per annum for every 5olo increase
in capacity utilisation for the year as a whole.
The capacig utilisation lor the next year is estimated al7lo/o for three months, 80% lor six months and 90o/o for the remaining
part of the year. ll the Gompany is planning to have a profit ol20Yo on the Selling Price, calculate the Selling Price per unit.

Solution:
1. of Semi Variable OH: Note: Production per month = 1,50,000 + 12 = 12,5QQ units
Pafticularc First 3 months Next 5 months Last 3 months
(a) Capacity 75o/o 80o/o 90o/o
(b) No. of additional 5olo Nil 75o/o to 80o/o = 5olo once 75o/o to 90o/o = 15o/o = 5olo three times
(c) Semi Variable Costs Rs.60,000 p.a. x3lL2 Rs.(60,000 + 4,000) p.a. x x3/L2 =
Rs.(60,000 + 4,000x 3) p.a.
= Rs.15r00O 6112 = Rs.32,000 Rs.18,000
Note: In the above calculation, it is presumed that Semi-Variable OH arise uniformly during the year. Alternatively, the
following treatments are also permissible for Semi-Variable OH -
o Since 90o/o is reached at some time during the year (i.e. during the last three months), the average SVOH for the entire
y€Etr = 9oolo Capacity = Rs.60,000 + Rs.4,000 x 3 = Rs.72,000.
o Average Capacity Utilisation during the entire year = [See 2(b) below] 1,21,875 units * 1,50,000 units = 81.25olo.
Hence, SVOH for the entire y€?r = Rs.60,000 + Rs.4,000 x 2 times 5olo = Rs.68,000.

2. Statement and Revenues for the

Pafticularc First 3 months Next 6 months last 3 months Total
(a) Capacity 75o/o 80o/o 90o/o
(b) Production Quantity 12500 x 75o/ox3 12500x800/ox6= 12500x900/ox3= 1,2t,875
= 28,125 units 60,000 units 33,750 units units
(c) Variable Costs at Rs.10 p.u. 2,81,250 6,00,000 3,37,500 12,L9,750
(d) Labour at Rs.10 p.u. (minimum
Rs.1 Lakh per month) (See Note) 3,00,000 6,00,000 3,37,500 12,37,500
(e) Variable OH at Rs.4 pu t,12,500 2,40,000 1,35,000 4,87,500
(f) Fixed Overheads (given) 1,92,300
(g) Semi-Variable OH (WN 1) 15,000 32,000 18,000 65,000
(h) Total Costs 32rO1,O5O
(i) Add: Profit U5s on Revenue 1/4tr on Cost 8.00.263
(j) Desired Revenue (h + i) 40,01,313
k. Sellins Price p.u. (i + b) 32.83
Note: Labour Cost will be taken at actual cost based on production or Rs.1 Lakh per month, whichever is higher.

*lstffifiB#, #*$ If E. 'iiEdrr ffiip6::." '" ; ::,.trSFl

A Factory can produce 60000 units D.a. at 1007o capacity. The estimated cost of is as under -
Direct Material Rs.18 per unit
Direct Labour Rs.l2 per unit
lndirect Expenses Fixed Rs.9,00,000 per annum
Variable Rs.30 per unit
SemiVariable Rs.3,00,000 per annum upto 50o/o of capacity and an extra amount of Rs.60,000 for
20olo increase in capacity or part thereof.
lf the production programme ol the Factory is as indicated below, and the Management desires to ensure a prolit ol Rs.2,76,0fl1
for the year, work out the Average Selling Price at which each unit should be quoted.
o Firstthree months of theyear50To of thecapaci$
o Remaining nine months 80o/o of the capacity

1.29
Students' Handbook on Cost Accounting and Financial Management

Solution:
1. of Semi Variable OH: Note: month = 60,000 + 12 = 5,000 units.
Pafticularc Firct 3 months Next 9 months Tota!
(a) CapaciU 50o/o 80o/o
(b) No. of additional 20olo Nil 500/o to 800/o = 20olo two times
(c) Semi Variable Costs Rs.3,00,000 p.a. x3l12 = 1Rs.3,00,000 + (Rs.60,000 x 2)l p.a. x9112
Rs.75,OOO = Rs.3r15r00o Rs.3,9O,OOO
Note: In the above calculation, it is presumed that Semi-Variable OH arise uniformly during the year. Alternatively, the
following treatments are also permissible for Semi-Variable OH -
. Since 80o/o is reached at some time during the year (i.e. during the last nine months), the average SVOH for the entire
y€dr = 80o/o Capacity = Rs.3,00,000 + Rs.60,000 x 2 times = Rs.4,20,000,
. Average Capacity Utilisation during the entire year = [See 2(b) below] 43,500 units + 60,000 units = 72.5o/o. Hence,
SVOH for the entire y€or = Rs.3,00,000 + Rs.60,00C x 2 times = Rs.4,20,000.

2. Statement of easts and Revenues for the

(a) Capacity 50o/o 80o/o

(b) Production Quantity 5,000x50o/ox3= 5,000x80o/ox9=36,000 43,500 units
7,500 units units
(c) Material Costs at Rs.18 p.u. 1,35,000 6,48,000 7,83,000
(d) l-abour Costs at Rs.12 p.u. 90,000 4,32,000 5,22,000
(e) Variable OH at Rs.30 pu 2,25,000 10,90,000 13,05,000
(D Fixed Overheads (given) 9,00,000
(g) Semi-Variable OH (WN 1)
(h) Total Costs
(i) Add: Desired Profit (Given)
0) Desired Revenue (h + i)
k. Sellino Price o.u. (i + b

fl*$ffi:
A incurred the last
Pafticulars Rs. Rs.
Direct Material Consumed 12,00,000
Manufacturing Wages 7,00,000
ManufacturingOverhead: Fixed 3,60,000
Variable 2.50.000 6,10,000
Total 25.10.000
!n the next year, the following changes are expected in production and cost o! production -
o Production wil! increase due to recruitment of 600/o mole workers in the factory.
o Overall Efliciency wil! decline by 10% on account of recruitment of new workers.
. There will be an increase ol201o in Fixed Overhead and 60% in Variable Overhead.
o The cost of Direct Material will be decreased by 60lo

o The Company desires to earn a profit of 10% on Selling Price.

Ascertain the Cost of Production and Selling Price for the next year.

Solution:
1. Direct Material Cost = (Rs.12,00,000 + 600lo due to Output Increase) Less 60lo Price Decrease
= (Rs.12,00,000 + Rs.7,20,000) x 94o/o = Rs.1&O+800.

2. Direct Labour Cost = (Rs,7,00,000 + 600/o due to Output Increase) + l0o/o increase due to Efficiency Fall
= (Rs.7,00,000 + Rs.4,20,000) x 110o/o = Rs.12r32r000.
Note: Since Efficiency declines, workers now take 10o/o mor€ time to compete the output. So, Labour Cost increases by 100/o.

1.30
 Basic Cost Concepts

3. cost Sheet for

Particularc Computation Rs.
Direct Materials wN1 19,04,800
Direct Labour wN2 12,32,000
Fixed OH Rs.3,60,000 + 20o/o 4,32,000
Variable OH Rs.2.50,000 + 600/o 4.00,000
Total Cost of Production 38,6&8OO
Add: Required Profit 1/10th on Price = 1/9s on Cost 4,29,867
Desired Sales Value 42,98,667

ffi#*i * part lpiHu$ms,, troGr

anu,miipinsurance and finance
i1;2 Ariid Lto is in inb buaineC; ot iitting cars. lt atso sells as of its overall business strategy. The
information is available for the
Particulars Physicalunits Sales Value
Sales of Cars 10,000 Cars Rs.30,000 Lakhs
Sales ol lnsurance 6,000 Policies Rs. 1,500 Lakhs
Sales of Finance 8,000 Loans Rs.19,200 Lakhs

The Revenue Earnings lrom each line of business before expenses are as follows -
Sale of Cars - 3% of Sales Value, Sale of Insurance - 20o/o of Sales Value, Sale ol Finance '21o ol Sales Value.

The expenses ol the are as follows

Salesman Salaries Rs.200 Lakhs Documentation Cost per lnsurance Policy Rs.l00
Rent Rs.1(X) Lakhs Documentation Cost lor each Loan Rs.2fil
Electrici$ Rs.100 Lakhs Direct Sales Expenses per Car Rs.5,000
Advertisinq Rs.200 Lakhs
lndirect Costs have to be allocated in the ratio of physical units sold. You are required -
. Make a Cost Sheet for each product allocating the Direct and Indirect Costs, and also showing the product-wise profit and
TotalProfit.
. Galculate the percentage of prolit to revenue earned from each line of business.

Solution: in Rs. Lal(hs

Particularc Carc Insurance Finance Total
Sales Value 30,000.00 1,500.00 19,200.00 50,700.00
Revenue Earnings at 3o/o,20o/o,2o/o 900.00 300.00 384.00 1,584.00
Less: Direct Costs
Sales Exp (Rs.5,000 x 10,000 Cars) 500.00 500.00
Documentation (Rs.100 x 6,000) 6.00 6.00
Documentation (Rs.200 x 8,000) 16.00 16.00
Gross Profit 400.oo 294.00 368.00 1,062.00
less: Indirect Costs (in 10 : 6 : 8)
Salesman Salaries 83.33 50.00 66.67 200.00
Rent 4L.67 25.00 33.33 100.00
Electricity 41.67 25.00 33.33 100.00
Advedisino 83.33 50.00 66.67 200.00
Net Profit 1s0.oo LM.OO 168.00 462.00
o/o of Net Profit to Revenue Earninqs 16.67olo 48.OOo/o 43.75o/o 29.L6o/o

Note: For a Dealer in Cars, Insurance Policies and Loans, the entire sales value of the products / seruices do not constitute
its Income. Only the Commission Portion thereof (called Revenue Eamings in this question), constitutes Dealer's Income.

1.31
Students'Handbook on Cost Accounting and Financial Management

data for the month of October.

Particulars Rs. Particulars Rs.
Sandpaper 5,000 Plant Leasing Costs 1,35,000
Material Handling Costs 1,75,000 Depreciation - Plant Equipment 90,000
Lubricants and Coolants 12,500 Property Taxes on Plant Equipment 10,000
Misc. lndirect Manufacturing Labour 1,00,000 Fire lnsurance on Plant Equipment 7,500
Direct Manfacturing Labour 7,50,000 Direct Materials Purchased 11,50,000
Direct Materials, 1sr October 1,00,000 Sales Revenues 34,00,000
Direct Materials, 31 a October 1,25,000 Marketing Promotions 1,50,000
Finished Goods, lsr October 2,50,000 Marketing Salaries 2,50,000
Finished Goods, 31st October 3,75,000 Distribution Costs 1,75,000
Work-in-Process, 1 st October 25,000 Customer Service Costs 2,50,000
Work-in-Process, 31 st October 35.000
1. Prepare an lncome Statement with separate supporting schedule of Cost of Goods Manufactured.
2. For all manulacturing items, indicate by V or F, whether each is basically a Variable Cost or a Fixed Cost (where the cost
object is a product unit)

Solution: 1. Statement of cost of Goods for October

Particularc Rs. Nature
Opening Stock of Raw Materials 1,00,000
Add: Purchases & Carriage Inwards 11.50000
12,50,000
Less: Closing Stock of Raw Materials (1,2s,000)
Direct Materials Consumed / Raw Materials Consumed 11,25,000 Variable
Add: Direct Manufacturinq Labour 7,50.000 Variable
PRIME COST 18,75,000
Add: Factory Overheads
Sandpaper 5,000 Variable
Material Handling Costs 1,75,000 Variable
Lubricants and Coolants 12,500 Variable
Misc. Indirect Manufacturing Labour 1,00,000 Variable
Plant Leasing Cost 1,35,000 Fixed
Depreciation on Plant Equipment 90,000 Fixed
Property Tax on Plant Equipment 10,000 Fixed
Fire Insurance on Plant Equipment 7.500 Fixed
Total Factory Overheads 5,35,000
Opening Stock of Work-in-Progress 25.000
2435,A00
Closing Stock of Work-in-Progress (3s.000)
FACTORY COST OF GOODS MANUFACTURED 24,Oo,OOO

2. Income Statement for

Pafticularc Rs. Rs.
Sales Revenue 34,00,000
Less: Cost of Goods Sold: Opening Stock of Finished Goods 2,50,000
Add: Cost of Goods Manufactured 24,00,000
Less: Closinq Stock of Finished Goods r3.7s.000) 22,75,000
GROSS PROFIT 11,25,000
Less: Selling and Distribution OH: Marketing Promotion 1,50,000
Marketing Salaries 2,50,000
Distribution Costs 1,75,000
Customer Service Costs 2_50_000 8.25.000
NET PROFIT 3,00,000

1.32
 Basic Cost Concepts

StueffiionlT',lrcome"ShEmed-lMi,ondsellirqPrioe. ." i I'105

A R+roller produced 400 metric tons of MS bars spending Rs.36,00,000 towards Material and Rs.6,20,000 towards Rolling
Charges, Ten percent of the output was found to be defective, which had to be sold at 10% less than the price for good
production. If the sales realization should give the Firm an overall profit of 12.5o/o on cost, find the Selling Price per Metric Ton
of both the categories ol bars. The scrap arising during the rolling process fetched a realization of Rs.60,000.

Solution:
1. ComDutataon of Desined Sales Value 2. ComDutation of Sale Price Der Ton
Particularc Rs. Let Price of Good Output be Rs.P per ton.
Cost of Materials 36,oo,ooo (a) o/o of Output 90% Good 10o/o Defective
Less: ScrapRealisation 60,000 (b) Quantity of Output 360 tons 40 tons
Net Cost of Materials 35,40,000 (c) Price per ton P P Less 10o/o = 0.9P
Add: Rollino Charoes 6.20.000 (d) Total Sales Value (b X c) 360P 36P
Total Cost 41,60,000 (e) Total Sales Value = 396 P = Rs.46,80,000
Add: Profit (12.5olo on Cost) 5,20,000 So, Normal Sales Price per ton = P = 46,80,000 + 396 = Rs.11,818.18
Desired Sales Value 46.80.000 So. Sales Price of Defectives = 0.9 x P = 0.9 x 11.818.18 = Rs.10,535.35

kseaton 1& Prspamilionof lrcolru Sbternent uffir supporting'Sche{tubs N 86

The are extracted from the Trial Balance of On 30ttt
Particulars Rs. Particulars Rs.
lnventories Finished Stock 80,000 Direct Labour 1,60,000
Raw Materials 1,4o,ooo lndirect Labour 18,000
Work-in-Prograss 2,00,000 Hepairs and Upkeep - Factory 14,000
Office Appliances 17,400 Heat, Light and Power 65,000
Plant & Machinery 4,60,500 Rates and Taxes 6,300
Buildings 2,00,000 Miscellaneous Factory Expenses 18,700
Sales 7,68,000 Sales Commission 33,600
Sales Return and Rebates 14,000 Sales Travelling 11,000
Materials Purchased 3,20,000 Sales Promotion 22,500
Freight incurred on Materials 16,000 Distribution Department Salaries and Expenses 18,000
Purchase Returns 4,800 Otfice Salaries and expenses 8,600
FactorY Suoervision 10.000 lnterest on Borrowed funds 2.000

Further details are available as follows:

1 . Closing lnventories: Finished Goods Rs.1 ,15,000, Raw Materials Rs.1 ,80,000, Work - in- Process Rs.1 ,92,000
2. Accrued Expenses on: Direct Labour Rs.8,000, lndirect Labour Rs.1,200, lnterest on Borrowed Funds Rs.2,000
3. Depreciation to be provided on: Otfice Appliances 57o, Plant and Machinery 10%, Buildings 47o
4. Distribution of the following costs:
o Heat, Light and Power -twethirds to Factory, and one-third to Otfice.
o Rates and Taxes two - thirds to Factory and one-third to Office.
. Depreciation on Buildings to Factory, Office and Selling in the ratio 8:1:1

With the above data, prepare a condensed Profit and Loss Statement of Gogetter Company for the year ended 3CItt September
along with suppoiling schedules of - (1) Cost of Sales, (2) Selling and Distribution Expenses, and (3) Administration Expenses

Solution:
I.
1. Schedule of Sellanq and Distribution 2. Schedule of Administrative
Particularc Rs. Pafticularc Rs.
Sales Commission 33,600 Office Salaries and Expenses 8,600
Sales Travelling 11,000 Depreciation of Office Appliances 870
Sales Promotion 22,500 Depreciation of Buildings 800
Distribution Department - Salaries & Expenses 18,000 Heat, Light and Power 6,500
Heat, Light and Power 6,500 Rates and Taxes 2,100
Deoreciation of Buildinos 800 Total 18,870
Total 92,400

1.33
3
 3. of cost of sales
Patticulars Rs. Rs.
Opening Stock of Raw Materials 1,40,000
Add: Materialpurchased 3,20,000
Add: Freight on Material 16,000
Less: Purchase Returns (4.800) 3,31,200
4,71,200
Less: Closinq Stock of Raw Materials 1.80.000
Direct Materials Consumed 2,9L,2OO
Add: Direct Labour 1.68.000
Prime Cost 4F9,2OO
Add: Factory Overheads
Indirect Labour 19,200
Factory Supervision 10,000
Repairs and Factory UPkeeP 14,000
Heat, Light and Power 52,000
Rates and Taxes 4,200
Miscellaneous Factory ExPenses 18,700
Depreciation on Plant 46,050
Depreciation on Buildinqs 6,400 1.70.550
Gross Works Cost 6,29,750
Add: Ooenino Stock of Work-in-Process 2. 00.000
8,29,750
Less: Closinq Stock of Work-in-Process 1.92.000
Works Cost 6,37,750
Add: Administrative Expenses (WN 2) 18,870
Cost of Production 6,56,620
Add: Ooenino Stock of Finished Goods 80,000
Cost of Goods available for sale 7,36,620
[.ess: Closino Stock of Finished Goods 1-15.000
Cost of Goods Sold 6,2Lr620
Add: Sellinq and Distribution Expenses (WN 1) 92,400
Cost of Sales 7,L4,O20

4. Profit and Loss Statement of ended 3oth

Rs. Rs.
Gross Sales 7,68,000
Less: Sales Returns (14.000) 7,54,000
Less: Cost of Sales (wN 3) 7,14,020
Net Operating Profit 39,980
Less: Interest on Borrowed funds (Paid Rs.2,000 + Payable Rs.2,000) 4,000
Net Profit 35,980

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The following cost relationships are found to exist in Heramba Ltd. Draw up the Product Cost Sheet if unit profit is Rs.1,000.
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1. Direct Material 12.5o/o of Selling Price, 2. Direct Labour 17.5o/o of Selling Price, 3. POH - 50o/o of Prime Cost,
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4. Administration O.H - 40o/o of Works Cost, 5. Profit is 20o/o of Cost of Sales'

tulooshik tootings is engagid in the manufacture of special tools as per customers' requirements. Their accounts for the
previous year show the following information.