SSR CLASSES COST SHEET CA S.S.

RAJAGOPAL FCA GRAD CMA

COST SHEET

PROBLEMS

FOR

PRACTICE

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

SIMPLE COST SHEET PREPARATION

Question No 1

From the following particulars, prepare a cost statement showing the

component of total cost and the profit for the year ended 31st December.

Particulars On 1st January On 31st December

Stock of Raw Materials 4,00,000 5,00,000
Stock of Finished Goods 60,000 1,50,000
Stock of Work-in-progress 1,50,000 1,00,000

Particulars Rs. Particulars Rs.

Raw materials Purchased 47,50,000 Sales for the year 86,00,000
Carriage inwards 1,25,000 Selling expenses 92,500
Wages 17,50,000 General expenses 3,20,000
Works manager salary 3,00,000 Debenture interest 50,000
Salary – Factory Employees 3,00,000 Dividend paid 10,000
Salary – office staff 2,00,000 Income-tax provision 5,000
Salary – salesman 1,00,000 Goodwill written off 1,00,000
Factory Rent & insurance 72,500 Sales tax paid 1,60,000
Powers expenses 95,000 Transfer to Machinery 1,00,000
Replacement Fund
Other production Expenses 4,20,000 Interest on loan 75,000
Bad Debts written off 15,000 Bank charges 5,000
Loose tools written off 10,000 Discount Allowed 27,000

Solution:
Cost sheet

Particulars Amount
Direct materials 4775000
Direct labour 1750000
Prime cost 6525000
Production overheads 1197500
Gross works cost 7722500
Opening WIP 150000
Closing WIP (100000)
Net works cost 7772500
Opening finished goods 60000
Cost of goods available for sale 7832500
Closing finished goods (150000)
Cost of goods sold 7682500

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Income statement

Particulars Amount
Sales 84400000
Cost of goods sold (7682500)
Gross profit 757500
Administrative expenses (525000)
Selling expenses (192500)
Operating profit 40000

Working note 1: Direct materials consumed

Particulars Amount
Opening stock 400000
Purchases 4750000
Carriage inwards 125000
Closing stock (500000)
Direct materials consumed 4775000

Working note 2: Production Overheads

Particulars Amount
Works Manager salary 300000
Salary factory employees 300000
Factory rent 72500
Power expenses 95000
Other production expenses 420000
Loose tools 10000
Total 1197500

Working note 3: Administration overheads

Particulars Amount
Salary office staff 200000
General expenses 320000
Bank charges 5000
Total 525000

Working note 4: Selling overheads

Particulars Amount
Salary salesman 100000
Selling expenses 92500
Total 192500

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Working note 4: Items ignored while preparing cost sheet and

income statement

Items Reasons
Bad debts written off Losses arising due to
inefficiency
Debenture interest Non operating expense
Dividend paid Appropriation of profit
Income tax paid Non operating item
Goodwill written off Write offs
Transfer to Mach replacement fund Appropriation of profits
Interest on loan Non operating expense
Discount allowed [assumed to be cash Non operating expenses
discount]

Question No 2

From the books of accounts of M/s Aryan Enterprises, the following details
have been extracted for the year ending March 31.

Rs.
Stock on Materials – Opening 1,88,000
-Closing 2,00,000
Materials purchased during the year 8,32,000
Direct Wages paid 2,38,400
Indirect wages 16,000
Salaries to administrative Staff 40,000
Frights- inwards 32,000
Frights- Outwards 20,000
Cash Discounts Allowed 14,000
Bad Debts Written off 18,800
Repairs to plant & Machinery 42,400
Rent, Rates & Taxes – Factory 12,000
Rent, Rates & Taxes –office 6,400
Traveling Expenses 12,400
Salesman’s Salaries and commission 33,600
Depreciation Written off-Plant & Machinery 28,400
Depreciation Written off-Furniture 2,400
Directors Fees 24,000
Electricity Charges (factory) 48,000
Fuel (for boiler) 64,000
General Charges 24,800
Manager Salary 48,000

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

The Manager’s time is shared between the factory and the office in the rate
of 20:80
From the above details you are required to prepare:
(a) Prime cost (b) Factory Overhead (c)Factory Cost (d) General Overhead
and (e) Total Cost.

Solution:

Part (a): Prime cost

Particulars Amount
Direct materials 852000
Direct labour 238400
Prime cost 1090400

Working Note 1: Direct Materials consumed

Particulars Amount
Opening stock of Raw materials 188000
Purchases 832000
Freight inwards 32000
Closing stock of Raw materials (200000)
Direct material consumed 852000

Part (b): Factory Overheads

Particulars Amount
Indirect wages 16000
Repairs to Plant and Mach 42400
Rent rates and taxes – Factory 12000
Depreciation on Plant 28400
Electricity charges-Factory 48000
Fuel 64000
Managers salary –Factory [48000 x 9600
20%]
Total Overheads 220400

Part (c): Factory Cost

Particulars Amount
Prime cost 1090400
Production Overheads 220400
Factory cost 1310800

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Part (d): General Overheads

Particulars Amount
Salaries to administrative staff 40000
Freight outwards 20000
Rents rates and taxes-Office 6400
Traveling expenses 12400
Salesmen salaries 33600
Depreciation furniture 2400
Directors fees 24000
General charges 24800
Managers salary [48000 x 80%] 38400
Total cost 202000

Part (e): Total cost

Particulars Amount
Factory cost 1310800
General Overheads 202000
Total cost 1512800

Question No 3

From the following prepare cost sheet and find out the amount of profit:

Rs.
Raw material purchased 24,000
Works overhead 20,000
Stock on 1st January, 2008, Raw Material 4,000
Finished goods (800 quintal )(1.1.2008) 3,200
Work –in –progress:
1ST January ,2008 960
31st January 3,200
Office and administration overheads 1,600
Sales (finished goods) 60,000

Advertising, discount allowed and selling cost is Rs. 0.40 per quintal. During
the month 12,800 quintals of the commodity were produced.

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Solution:
Cost sheet

Particulars Amount
Opening stock of Raw materials 4000
Purchases 24000
Direct materials consumed/Prime cost 28000
Works overhead 20000
Gross works cost 48000
Opening work in progress 960
Closing work in progress (3200)
Net works cost [12800 quintals] 45760
Opening finished goods [800 quintals] 3200
Cost of goods available for sale / Cost of goods sold [ 48960
13600 quin]

Income statement

Particulars Amount
Sales 60000
Cost of goods sold (48960)
Gross profit 11040
Office and administration overheads 1600
Selling overheads [13600 x 0.4] 5440
Operating profit 4000

Question No 4

COMPREHENSIVE LTD gives you the following information-

1.From Financial Rs.000s 2.From inventory Rs.000s Rs.000s

Records Records:
Particulars Particulars of stock As at 31st As at 1st
Dec. Jan
Sales for the year 75,00 Raw Materials 10,60 8,00
Direct Labour 17,50 Finished Goods 19,00 17,60
Management Exp 2,50 W-I-P(50% 14,50 10,50
complete)
Selling Expenses 3,50

From analysis of past data:

(a) Direct Labour would be 175% of works overhead.
(b) Cost of Goods sold (excluding Administration Overhead ) would
be Rs.11,200 per unit
(c) Selling Expenses would be Rs. 700 per unit.

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

You are required to:

1. Compute the value of materials purchase during the year.
2. Determine the rate of profit earned on sales.
Discuss whether interest payment of Rs. 2,00,000 on working Capital would
affect the above rate of profit.

Solution:
Cost sheet

Particulars Amount
Direct materials [Balancing fig] 3390000
Direct labour 1750000
Prime cost 5140000
Production overheads [direct labour/175%] 1000000
Gross works cost 6140000
Opening WIP 1050000
Closing WIP (1450000)
Net works cost 5740000
Opening finished goods 1760000
Closing finished goods (1900000)
Cost of goods sold 5600000

Income statement

Particulars Amount
Sales 7500000
Cost of goods sold (5600000)
Gross profit 1900000
Administration expenses (250000)
Selling expenses (350000)
Operating profit 1300000
Note:
 Units sold = Selling expenses/selling expenses per unit = 350000/700 =
500 units
 Cost of goods sold = 500 units x 11200 = 5600000

MULTI PRODUCT COST SHEET

Question No 5

Honest Engineering Works has a Machining shop in which it manufactures

two Auto parts P1 and P2 out of forgings F1 and F2.
For the quarter ending December, the following cost data are available:

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Rs.
Consumption of Raw Materials-F1 1,50,000
Consumption of Raw Materials-F2 2,00,000
Wages & Salaries 1,53,000
Repairs & Maintenance 15,000
Stores & Spares 12,000
Powers 16,000
Insurance 8,000
Depreciations 50,000
Factory Overheads 68,000
Administrative Overhead 64,400
Distribution Overheads 75,000
Total cost 8,11,400

You are given the following further information:

(i) Production and sale of P1 and P2 were as under:
P1 P2
Production (pieces) 6,000 4,000
Sale of above pieces (Rupees) 4, 80,000 5, 20,000

(ii) Direct wages paid were Rs. 36,000 in case of P1 and Rs. 32,000 for P2.
This basis is used for apportioning Wages and Salaries and Factory
Overheads.

(iii) Following machine hours were utilized in production of these products:

P1 550
P2 450

(iv) Stores and Spares, Repairs & Maintenance, Power. Insurance and
Depreciation are charged to cost of both the products on the basis of
machine hours used.

(v) Administrative Overheads are apportioned on the basis of respective

conversion costs while distribution overheads on the basis of their sales
realizations.

(vi) All the products was sold out

Required:
Prepare cost sheets of both the product and work out profit earned on each
of them.

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Solution:
Cost sheet

Particulars P1 P2
Direct materials 150000 200000
Direct wages 36000 32000
Prime cost 186000 232000
Production Overheads 136550 117450
Gross works cost/Net works cost/cost of goods sold 322550 349450

Income statement

Particulars Basis of apportionment P1 P2

Sales Given 480000 520000
Cost of goods sold 322550 349450
Gross profit 157450 170550
Administration Conversion (34510) (29890)
overheads cost:172550:149450
Selling overheads Sales value: 48:52 (36000) (39000)
Operating profit 86940 101660

Working note1: Production overheads

Particulars Basis of apportionment P1 P2

Salaries Direct wages: 36:32 45000 40000
[153000-68000]
Stores and spares Machine hrs: 550:450 6600 5400
Repairs and maintenance Machine hrs: 550:450 8250 6750
Power Machine hrs: 550:450 8800 7200
Insurance Machine hrs: 550:450 4400 3600
Depreciation Machine hrs: 550:450 27500 22500
Factory overheads Direct wages: 36:32 36000 32000
Total 136550 117450

Working note 2: conversion cost

Conversion cost = Gross works cost – Drect materials

P1 = 322550 – 150000 = 172550
P2 = 349450 – 200000 = 149450

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Question No 6

AB & Co. manufacture two types of pens P and Q. The cost data for the year
ended 30th September, is as follows:

Rs.
Direct Materials 4,00,000
Direct Wages 2,24,000
Production Overhead 96,000
7,20,000

It further ascertained that:

(i) Direct materials in type P cost twice as much direct materials in Type Q
(ii) Direct Wages for Type Q were 60% of those for type P.
(iii) Production overhead was of same rate for both types.
(iv) Administration overheads for each were 200% of direct Labour.
(v) Selling costs were 50 paisa per pen for both types.
(vi) Production during the year:
Type P 40,000
Type Q 1,20,000
(vii) Sales during the year :
Type P 36,000
Type Q 1,00,000
(viii) Selling prices were Rs. 14 per pen for type P and Rs. 10 per for Type
Q.
Prepare a statement showing per unit Cost of production, Total Cost, Profit
and also Total Sales Value and profit separately for two types of pen and Q.

Solution:
Cost sheet
Production P = 40000
Production Q = 120000
Particulars Pen P Pen Q
Per Amount Per Amount
unit unit
Direct materials 4 160000 2 240000
Direct labour 2 80000 1.2 144000
Prime cost 6 240000 3.2 384000
Production overheads 0.6 24000 0.6 72000
Gross works cost/Net works 6.6 264000 3.8 456000
cost
Closing finished goods (6.6) (26400) (3.8) (76000)
Cost of goods sold 6.6 237600 (3.8) 380000

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Income statement
Sales P = 36000
Sales Q = 100000

Particulars Pen P Pen Q

Per unit Amount Per unit Amount
Sales 14 504000 10 1000000
Cost of goods sold (6.6) (237600) (3.8) (380000)
Gross profit 7.4 266400 6.2 620000
Administration expenses (4.44) (160000) (2.88) (288000)
[direct wages x 200%]
Selling expenses (0.5) (18000) (0.5) (50000)
Operating profit 2.46 88400 2.82 282000

Working note 1: Apportionment of direct materials

 Let direct material cost per unit of type Q be x so the direct material of
type P is 2x.
 Total material cost = 80000x + 120000x = 200000x
 200000x = 400000; x=2.
 Material cost P = 80000 x 2 = 160000; Material cost Q = 120000 x 2 =
240000.

Working note 2: Apportionment of direct wages

 Let direct wage cost per unit of type P be x so the direct material of type
Q is 0.6x.
 Total wage cost = 40000x + 72000x = 112000x
 112000x = 224000; x=2.
 Wage cost P = 40000 x 2 = 80000; Wage cost Q = 72000 x 2 = 144000.

Working note 3: Apportionment of Production Overheads

 Let Production overhead cost per unit of type P and Q be x.

 Total Production overhead cost = 40000x + 120000x = 160000x
 160000x = 96000; x=0.6.
 Production overhead cost P = 40000 x 0.6 = 24000; Production overhead
cost Q = 120000 x 0.6 = 72000.

Question No 7

Evershine Shoe Polish Ltd manufactures black and brown polish in one
standard size of tin rating at Rs. 10.80 and Rs. 12.00 respectively. The
following data is given to you.

Particulars Rs. Particulars Rs.

Direct Materials Direct Wages 2,44,800

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Polish 7,38,000 Production Overhead 3,67,200

Tins 2,88,000 Administration &
selling Overhead 1,22,400

Product wise information in tins-

Particulars Sales Opening Stock Closing Stock

Block Polish (tins) 1,44,000 4,800 10,800
Brown Polish (tins) 60,000 16,000 6,000

1. The Opening Stock of Black and Brown Polish were at their production
cost of Rs. 8.04 per tin and Rs. 8.64 per tin respectively.
2. The cost of Raw Material for Brown polish is 10% higher then that for
Black polish but there is no difference in the cost of tins.
3. Direct wages for Brown are 8% higher then those for Black polish.
4. Production Overheads are considered to very with Direct Wages.
5. Administration & Selling OH are absorbed at a uniform rate per tin of
polish sold.

Prepare a statement to show the cost and profit per tin of polish.

Solution:
Cost sheet
Production Black = 150000
Production Brown = 50000

Particulars Black Brown

Per Amount Per Amount
unit unit
Direct materials - Polish 3.6 540000 3.96 198000
Direct materials - Tins 1.44 216000 1.44 72000
Direct labour 1.2 180000 1.296 64800
Prime cost 6.24 936000 6.696 334800
Production overheads [150% of 1.8 270000 1.944 97200
wages]
Gross works cost/Net works 8.04 1206000 8.64 432000
cost
Opening finished goods 8.04 38592 8.64 138240
Cost of goods available for 8.04 1244592 8.64 570240
sale
Closing finished goods (8.04) (86832) (8.64) (51840)
Cost of goods sold 8.04 1157760 8.64 518400

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Income statement
Sales Black = 144000
Sales Brown = 60000

Particulars Black Brown

Per Amount Per Amount
unit unit
Sales 10.8 1555200 12 720000
Cost of goods sold (8.04) (1157760) (8.64) (518400)
Gross profit 2.76 397440 3.36 201600
Administration (0.6) (86400) (0.6) (36000)
expenses
Operating profit 2.16 311040 2.76 165600

Working note 1: Apportionment of direct materials-Tins

 Let direct material cost per unit of Black be x so the direct material of
Brown is also x.
 Total material cost = 150000x + 50000x = 200000x
 200000x = 288000; x=1.44.
 Material cost Black = 150000 x 1.44 = 216000; Material cost Brown =
50000 x 1.44 = 72000.

Working note 2: Apportionment of direct materials-Polish

 Let direct material cost per unit of Black be x so the direct material of
Brown is 1.1x.
 Total material cost = 150000x + 55000x = 205000x
 205000x = 738000; x=3.6.
 Material cost Black = 150000 x 3.6 = 540000; material cost Brown =
55000 x 3.6 = 198000.

Working note 3: Apportionment of direct wages

 Let direct wages cost per unit of Black be x so the direct labour cost of
Brown is 1.08x.
 Total direct wage cost = 150000x + 54000x = 204000x
 204000x = 244800; x=1.2.
 Direct wage cost of Black = 150000 x 1.2 = 180000; Direct wages of
Brown = 54000 x 1.2 = 64800.

Working note 4: Apportionment of administration and selling exp

 Let administration and selling cost per unit of Black and Brown be x.
 Total administration and selling cost = 144000x + 60000x = 204000x
 204000x = 122400; x=0.6.

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

 Administration and selling cost of Black = 144000 x 0.6 = 86400;

administration and selling cost of Brown = 60000 x 0.6 = 36000.

Working note 5: Calculation of units produced

Particulars Black Brown

Opening stock 4800 16000
Production [balancing figure] 150000 50000
Closing stock (10800) (6000)
Sales 144000 60000

Question No 8

ABC Ltd. manufactures two products P and Q. From the following information
for a year, prepare a cost sheet showing the total cost and cost per unit for
both product.
(1) Direct Materials = Rs. 6,75,000. Direct Materials used per unit in
product P was 3 times that of product Q.
(2) Direct Labour = Rs. 9,90,000. Direct Wages per unit in Product
Q were 2/3rd that of product P
(3) Production OH =Rs.1,95,000. Production OH per unit of both
products was the same.
(4) Administration OH= 100% of prime cost of the products
(5) Selling and Distribution cost = Rs. 6 per unit of products P and
Q.
(6) Production and sales were :

Production Quantity Sales Quantity and Selling Price

Product P 35,000 units 32,000 units at Rs. 100 per unit
Product Q 30,000 Unit 25,000 Units at Rs.65 per unit

Solution:
Cost sheet
Production P = 35000
Production Q = 30000
Particulars P Q
Per Amount Per Amount
unit unit
Direct materials 15 525000 5 150000
Direct labour 18 630000 12 360000
Prime cost 33 1155000 17 510000
Production overheads 3 105000 3 90000
Gross works cost/Net works 36 1260000 20 600000
cost
Closing finished goods (36) (108000) (20) (100000)
Cost of goods sold 36 1152000 20 500000

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Income statement
Sales P = 32000
Sales Q = 25000

P Q
Particulars
Per unit Amount Per unit Amount
Sales 100 3200000 65 1625000
Cost of goods sold (36) (1152000) (20) (500000)
Gross profit 64 2048000 45 1125000
Administration expenses (36.09) (1155000) (20.4) (510000)
[prime cost x 100%]
Selling expenses (6) (192000) (6) (150000)
Operating profit 21.91 701000 18.6 465000

Working note 1: Apportionment of direct materials

 Let direct material cost per unit of type Q be x so the direct material of
type P is 3x.
 Total material cost = 105000x + 30000x = 135000x
 135000x = 675000; x=5.
 Material cost P = 105000 x 5 = 525000; Material cost Q = 30000 x 5 =
150000.

Working note 2: Apportionment of direct wages

 Let direct wage cost per unit of type P be x so the direct material of type
Q is 2/3 x.
 Total wage cost = 35000x + 20000x = 55000x
 55000x = 990000; x=18.
 Wage cost P = 35000 x 18 = 630000; Wage cost Q = 20000 x 18 =
360000.

Working note 3: Apportionment of Production Overheads

 Let Production overhead cost per unit of type P and Q be x.

 Total Production overhead cost = 35000x + 30000x = 65000x
 65000x = 195000; x=3.
 Production overhead cost P = 35000 x 3 = 105000; Production overhead
cost Q = 30000 x 3 = 90000.

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

COST SHEET RECONSTRUCTION

Question No 9

The books and records of Acme Manufactures present the following data for
the month of January,
Direct Labour cost Rs.16,000 (160% of Factory overhead)
Cost of goods sold Rs.56,000
Inventory accounts showed the following opening and closing balance

January 1 January 31
Rs. Rs.
Raw materials 8,000 8,600
Work –in –progress 8,000 12,000
Finished goods 14,000 18,000
Selling exp. 3,400
General and Administration Exp. 2,600
Sales for the month 75,000

You are required to prepare a cost sheet showing cost of goods manufacture
and sold and profit earned.

Solution:
Cost sheet

Particulars Amount
Direct materials [balancing figure] 38000
Direct labour 16000
Prime cost 54000
Factory overheads [16000/160%] 10000
Gross works cost 64000
Opening WIP 8000
Closing WIP (12000)
Net works cost 60000
Opening finished goods 14000
Closing finished goods (18000)
Cost of goods sold 56000

Income statement

Particulars Amount
Sales 75000
Cost of goods sold (56000)
Gross profit 19000

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Administration expenses (2600)

Selling expenses (3400)
Operating profit (13000)

Direct materials purchased

Particulars Amount
Opening stock 8000
Purchases [balancing figure] 38600
Closing stock (8600)
Direct materials consumed 38000

Question No 10

On June, 30, a flash flood damaged the warehouse and factory of ABC
Corporation completely destroying the work–in-Progress inventory. There
was no damage to either the raw materials or finishing goods inventories. A
physical verification taken after the food revealed the following valuations:

Raw Materials Rs. 62,000

Work-in-progress ??
Finished Goods Rs. 1,19,000

The inventory on Jan.1, consisted to the following:

Raw Materials Rs. 30,000
Work-in-progress Rs.1,00,000
Finished Goods Rs. 1,40,000
Rs. 2,70,000

A review of the book and records disclosed that the profit margin historically
approximated 25% of sales. The sales of the first six months of the year
were Rs. 3,40,000. Raw Materials Purchased were Rs. 1,15,000. Direct
Labour costs for this period were Rs. 80,000 and manufacturing overhead
has historically been 50% of Direct Labour.

Compute the cost of work-in-progress inventory lost at June30, by preparing

a statement of cost and profit.

Solution:
Cost sheet and Income statement

Particulars Amount
Opening stock of raw materials 30000
Purchases 115000
Closing stock of raw materials (62000)
Direct materials consumed 83000

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Direct labour 80000

Prime cost 163000
Production overhead [50% x 80000] 40000
Gross works cost 203000
Opening WIP 100000
Closing WIP [balancing figure] (69000)
Net works cost 234000
Opening finished goods 140000
Closing finished goods (119000)
Cost of goods sold 255000
Gross profit 85000
Sales 340000

Question No 11

A fire occurred in the factory premises on Oct. 31, The accounting records
have been destroyed. Certain accounting records were kept in another
building. They reveal the following for the period Sep.1, to Oct.31,.

Rs.
(i)Direct materials purchased 2,50,000
(ii) Work-in-Process inventory ,1.9. 40,000
(iii) Direct materials inventory,1.9. 20,000
(iv) Finished goods inventory,1.9. 37,750
(v) indirect manufacture costs 40% of conversion cost
(vi) Sales revenues 7,50,000
(vii) Direct manufacture Labour 2,22,250
(viii) Prime cost 3,97,750
(ix) Gross margin percentage based on revenue 30%
(x) cost of goods available for sale 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, not
historical cost.
Required:
(i) Finished goods inventory, 30.10.
(ii) Work-in-process inventory, 31.10.
(iii) Direct materials inventory,31.10.

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Solution:

Part 1: Finished goods inventory

Particulars Amount
Net works cost [balancing figure] 518025
Opening finished goods 37750
Cost of goods available for sale 555775
Closing finished goods [balancing fig] (30775)
Cost of goods sold 525000
Gross profit 225000
Sales 750000

Part 2: WIP Inventory

Particulars Amount
Direct materials [balancing figure] 175500
Direct labour 222250
Prime cost 397750
Production overheads 148167
Gross works cost 545917
Opening WIP 40000
Closing WIP [balancing figure] (67892)
Net works cost 518025

Working note: production overheads

 Let production overhead be x

 Conversion cost = direct labour + production overhead = 222250 + x
 Production overhead = 40% of conversion cost
 X = 40% [222250+x]
 X = 88900 + 0.4x
 0.6x = 88900
 x = 88900/0.6 = 148167

Part 3: Raw material inventory

Particulars Amount
Opening stock 20000
Purchases 250000
Closing stock [balancing figure] (94500)
Direct materials consumed 175500

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

SELLING PRICE DETERMINATION

Question No 12

A firm has purchased a plant to manufacture a new product, the cost data for
which is given below:

Estimated Annual Production 24,000 units

Estimate Annual Sales 24,000 units
Estimate Cost Rs.
Material 4.00 per unit
Direct Labour 0.60 per unit
Factory Overhead 24,000 per year
Administrative Expenses 28,800 per year
Selling Expenses 15% of sales

Calculate the selling price if profit per unit is Rs. 1.02.

Solution:

Particulars Computation Amount

Direct materials 24000 x 4 96000
Direct labour 24000 x 0.6 14400
Prime cost 110400
Factory overheads 24000
Total manufacturing cost 134400
Administration overheads 28800
Selling expenses [15% of sales] 33120
Total costs 196320
Profit 24000 x 1.02 24480
Sales 220800

Selling price = 220800/24000 = 9.20

Working note: Sales computation

 Let sales be x
 Total cost = manufacturing + administration + selling = 134400 + 28800
+ 0.15x
 Sales = total cost + profit
 X = 163200 + 0.15x + 24480
 0.85x = 187680
 x = 187680/0.85 = 220800

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

Question No 13 [do this sum after job costing]

A Company manufactures radios, which are sold at Rs. 1,600 per unit. The
total cost is composed of 30% for Direct Materials, 40% for Direct Wages and
30% for overheads. Increase in materials price by 30% and in wage rates by
10% is expected in the forthcoming year, as a result of which the profit at
current selling price may decrease by 40% of the present profit per unit. You
are required to prepare a statement showing current and future profit at
present selling price. What should be the selling price to maintain the present
rate of profit?

Solution:

Let total cost be x and profit be y

Particulars Present cost Expected cost

Materials 0.3x 0.39X
Labour 0.4x 0.44x
overheads 0.3x 0.3x
Total cost x 1.13x

 Selling price = cost + profit

 Current: x + y = 1600
 Expected: 1.13 x+ 0.6y = 1600
 Solving the aforesaid equations we get x= 1207.55; y = 392.45

Statement of current and future profit

Particulars Present cost Expected cost

Materials 0.3x=362.26 0.39X=470.94
Labour 0.4x=483.02 0.44x=531.32

overheads 0.3x=362.27 0.3x=362.27

Total cost X= 1207.55 1.13x=1364.53
Profit Y=392.45 0.6y=235.47
Selling price 1600 1600

Selling price to maintain the same rate of profit

 Existing rate of profit on cost = 392.45/1207.55 x 100 = 32.5%

 Expected profit at the same existing rate = 1364.53 x 32.5% = 443.47
 New selling price to maintain the existing rate of profit = 1364.53 +
443.47 = 1808

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

COST SHEET ALTERNATIVE FORMATS

Alternative 1

Opening Stock of Raw Materials XX

+ Purchases XX
- Closing Stock of Raw Materials (XX)
Direct Materials Consumed XX
+ Direct Wages XX
+ Direct Expenses XX
Prime Cost XX
+ Production Overheads XX
Gross Works Cost XX
+ Opening WIP XX
- Closing WIP (XX)
Networks Cost XX
+ Opening Finished Goods XX
Cost of Goods Available for Sale XX
- Closing Finished Goods (XX)
Cost of Goods Sold XX
+ Administration Overheads XX
+ Selling & Distribution Overheads XX
Cost of Sales XX
+ Profit XX
Sales XX

Alternative 2

Opening Stock of Raw Materials XX

+ Purchases XX
- Closing Stock of Raw Materials (XX)
Direct Materials Consumed XX
+ Direct Wages XX
+ Direct Expenses XX
Prime Cost XX
+ Production Overheads XX
Gross Works Cost XX
+ Opening WIP XX
- Closing WIP (XX)
Works Cost or Factory Cost XX

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

+ Quality Control Cost

+ Research and Development Cost XX
+ Administration Overheads [Factory XX
related]
+ Primary Packing XX
- Sales of Scrap and By product income (XX)
Cost of Production XX
+ Opening Finished Goods XX
Cost of Goods Available for Sale XX
- Closing Finished Goods (XX)
Cost of Goods Sold XX
+ Administration Overheads (General) XX
+ Selling & Distribution Overheads (incl XX
Secondary Packing)
Cost of Sales XX
+ Profit XX
Sales XX

TYPES OF PROFIT

Gross Profit Gross profit is the profit arrived at after deducting

Manufacturing cost from the sales. Gross profit = Sales
– Manufacturing Cost of goods sold.
Operating Profit Operating profit is the profit arrived at after deducting
all operating cost from sales. Operating cost are those
cost incurred for carrying out the Manufacturing ,
administration and selling operations of an entity.
Operating Profit = Sales – Operating cost or Gross
Profit – Administration and selling expenses. This profit
is also called as Costing profit or EBIT or operation
income. This chapter helps us to understand the
computation of operating profit.\
Net Profit There are expenses the company incurs which are non-
operating. These are called as financial expenses.
These are ignored while computing the operating
profit. Net profit is computed by deducting these
financial expenses from operating profit.

Items not to be considered as while preparing cost sheet:

 Non-operating income like rent, interest received, dividend received etc
 Profit or loss of capital nature like profit or loss on sale of asset,
investment etc.
 Appropriation of profits like dividend payment, transfer to reserves etc
 Income tax payments

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SSR CLASSES COST SHEET CA S.S.RAJAGOPAL FCA GRAD CMA

 Losses arising due to inefficiency of a particular activity like Bad debts,

fines, penalties etc
 Write offs like discount, goodwill and preliminary expenses
 Any other item not arising from normal course of business

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