Cost Accounting

Chapter#5 Financial Statements

Q#6: As-Salam Hosiery House presents you the following data relating to the operations for the
year ended on December 31, 20_____:
Rs.
Purchases of Materials 267,400
Purchases returns and allowances 8,100
Direct labor cost incurred 113,950
Factory overhead cost incurred 92,800
Inventories:
Material inventory, January 1, 20…….. 28,400
Material inventory, December 31, 20……… 18,200
Work in process inventory increased by 12,250
Finished goods inventory deceased by 15,350
Required: Prepare Cost of good manufactured and sold Statement.

Solution:
As-Salam Hosiery House
Cost of goods manufactured and sold statement
For the year ended December 31, 20…………
RS. RS.
OPENING RAW MATERIAL 28,400
+ Purchases 267,400
- Return (8,100)
Net Purchases 259,300
Cost of Direct Material Available For Use 287,700
- Closing Raw Material (18,200)
Cost of Direct Material Used 269,500
+ DIRECT LABOR 113,950
Prime Cost 383,450
+ FOH 92,800
Current Manufacturing Cost 476,250
- WIP Increased By (12,250)
Cost of Goods Manufactured 464,000
+ Finished Goods Decreased By 15,350
Cost of Goods Sold 479,350
Q#8: Cost accountant of Al-Muhayamin Manufacturing Company has prepared following
summary:
Rs. Rs.
Inventories at 1st September, 20…….
Raw materials 40,000
Work in process 12,000
Fuel 2,000
Factory repair parts 2,800
Finished goods 14,000 70,800
Raw material purchased 58,000
Fuel Purchased 5,200
Direct labor 83,100
Miscellaneous factory overhead 2,300
Repairs to factory 4,200
Depreciation of plant 2,700
Superintendence 1,200
Transportation out 1,100
Purchase discount lost 800
Indirect factory labor 2,000 160,600
Inventories at 31st September, 20……..
Raw Materials 36,000
Work in process 15,000
Fuel 3,400
Factory repair parts 2,600
Finished goods 12,000 69,000
Required: A statement of cost of goods sold in proper form.
Solution:
Al-Muhayamin & Co
Cost of goods Manufactured and Sold Statement
For the year ended 31st September 20…….
RS. RS.
OPENING RAW MATERIAL 40,000
+ Purchases 58,000
Cost of Direct Material Available For Use 98,000
- Closing Raw Material (36,000)
Cost of Direct Material Used 62,000
+ DIRECT LABOR 83,100
Prime Cost 145,100
+ FOH 8200
Fuel used 3800
Factory repair parts used 4400 16,400
Current Manufacturing Cost 161,500
+ Opening WIP Inventory 12,000
 Cost of Goods Available for Manufacturing 173,500
- Closing WIP Inventory (15,000)
Cost of Goods Manufactured 158,500
+ OPENING FINISHED GOODS 14,000
Cost of Goods Available for Sale 172,500
- CLOSING FINISHED GOODS (12,000)
Cost of Goods Sold 160,500

WORKING:
FUEL USED
Opening Fuel 2000
+ Purchases 5200
- Closing Fuel (3400)
Fuel Used 3800
FACTORY REPAIR PARTS USED
Opening FRP 2800
+ Purchases 4200
- Closing FRP (2600)
FRP Used 4400
ACTUAL FACTORY OVERHEAD
Miscellaneous FOH 2300
Depreciation of Plant 2700
Superintendence 1200
Indirect Factory Labor 2000
Actual FOH 8200

Q#10: During the month of July Aleem industry put into process Rs. 75,000 of raw materials.
The Mixing Department used 10,000 labor hours at a cost of Rs. 50,000 and Finishing
Department used 4,000 labor hours at a cost of Rs. 10.00 per hour. Factory overhead is applied at
a rate of Rs. 3.00 per labor hour in the Mixing Department and Rs. 6.00 per labor hour in the
Finishing Department.

Inventories: July 1 July 31

 Materials 24,000 27,000
Material in process 9,000 10,000
Labor in process 12,000 8,000
Factory overhead in process 8,000 6,000
Finished goods 16,000 20,000
Aleem industry produced 40,000 units of product during the month.
Required: A schedule showing cost of work put in process, cost of goods manufactured and cost
of goods sold. Also find out unit cost of materials, labor and overhead for the July production.
Aleem Industry
Cost of Goods Manufactured and Sold Statement
For the year ended July 20………
RS. RS.
OPENING RAW MATERIAL 24,000
+ Purchases 78,000
Cost of Direct Material Available For Use 102,000
- Closing Raw Material (27,000)
Cost of Direct Material Used 75,000
+ DIRECT LABOR
Mixing Department 50,000
Finishing Department (4,000×10.00) 40,000 90,000
Prime Cost 165,000
+ FOH
Mixing Department (10,000×3.00) 30,000
Finishing Department (4,000×6.00) 24,000 54,000
Current Manufacturing Cost 219,000
+ Opening WIP Inventory 29,000
Cost of Goods Available for Manufacturing 248,000
- Closing WIP Inventory (24,000)
Cost of Goods Manufactured 224,000
+ OPENING FINISHED GOODS 16,000
Cost of Goods Available for Sale 240,000
- CLOSING FINISHED GOODS (20,000)
Cost of Goods Sold 220,000
Per Unit Cost:
Material Labor FOH
Opening WIP 9,000 12,000 8,000
+ New Put into process 75,000 90,000 54,000
Total in process 84,000 102,000 62,000
- Closing in process (10,000) (8,000) (6,000)
Finished Cost 74,000 94,000 56,000
Per unit cost = Finished goods/ Units produced
Material per unit cost = 74,000/40,000 = 1.85
Labor …………… = 94,000/40,000 = 2.35
FOH……………. = 56,000/40,000 = 1.4
 During the month of July Nimra industry put into process Rs. 112,500 of raw materials.
The Mixing Department used 6,000 labor hours at a cost of Rs. 75,000 and Finishing
Department used 4,000 labor hours at a cost of Rs. 15.00 per hour. Factory overhead is
applied at a rate of Rs. 7.50 per labor hour in the Mixing Department and Rs. 9.00 per
labor hour in the Finishing Department.

Inventories: July 31 July 1

Materials 40,500 36,000
Material in process 15,000 13,500
Labor in process 12,000 18,000
Factory overhead in process 9,000 12,000
Finished goods 30,000 24,000
Nimra industry produced 50,000 units of product during the month.
Required: A schedule showing cost of work put in process, cost of goods manufactured and cost
of goods sold. Also find out unit cost of materials, labor and overhead for the July production.
Solution:
Nimra Industry
Cost of Goods Manufactured and Sold Statement
For the year ended July 20………
RS. RS.
OPENING RAW MATERIAL 36,000
+ Purchases 117,000
Cost of Direct Material Available For Use 153,000
- Closing Raw Material (40,500)
Cost of Direct Material Used 112,500
+ DIRECT LABOR
Mixing Department 75,000
Finishing Department 60,000 135,000
Prime Cost 247,500
+ FOH
Mixing Department 45,000
Finishing Department 36,000 81,000
Current Manufacturing Cost 328,500
+ Opening WIP Inventory 43,500
Cost of Goods Available for Manufacturing 372,000
- Closing WIP Inventory (36,000)
Cost of Goods Manufactured 336,000
+ OPENING FINISHED GOODS 24,000
Cost of Goods Available for Sale 360,000
- CLOSING FINISHED GOODS (30,000)
Cost of Goods Sold 330,000
Per Unit Cost
Material Labor FOH
Opening WIP 13,500 18,000 12,000
+ New Put into process 112,500 135,000 81,000
Total in process 126,000 153,000 93,000
- Closing in process (15,000) (12,000) (9,000)
Finished Cost 111,000 141,000 84,000

Per unit cost = Finished goods/ Units produced

Material per unit cost = 111,000/50,000 = 2.22
Labor …………… = 141,000/50,000 = 2.82
FOH……………. = 84,000/50,000 = 1.68

 During the month of July Al-Jabbar industry put into process Rs. 50,000 of raw materials.
The Mixing Department used 12,000 labor hours at a cost of Rs. 30,000 and Finishing
Department used 2,000 labor hours at a cost of Rs. 9.00 per hour. Factory overhead is
applied at a rate of Rs. 3.30 per labor hour in the Mixing Department and Rs. 4.00 per
labor hour in the Finishing Department.

Inventories: July 1 July 31

Materials 16,000 18,000
Material in process 6,000 7,000
Labor in process 6,500 5,000
Factory overhead in process 7,200 6,000
Finished goods 12,400 14,000
Al-Jabbar industry produced 25,000 units of product during the month.
Required: A schedule showing cost of work put in process, cost of goods manufactured and cost
of goods sold. Also find out unit cost of materials, labor and overhead for the July production.
Solution:
Al-Jabbar Industry
Cost of Goods Manufactured and Sold Statement
For the year ended July 20………
RS. RS.
OPENING RAW MATERIAL 16,000
+ Purchases 52,000
Cost of Direct Material Available For Use 68,000
- Closing Raw Material (18,000)
Cost of Direct Material Used 50,000
+ DIRECT LABOR
Mixing Department’ 30,000
Finishing Department 18,000 48,000
Prime Cost 98,000
 + FOH
Mixing Department (10,000×3.00) 39,600
Finishing Department (4,000×6.00) 8,000 47,600
Current Manufacturing Cost 145,600
+ Opening WIP Inventory 19,700
Cost of Goods Available for Manufacturing 165,300
- Closing WIP Inventory (18,000)
Cost of Goods Manufactured 147,300
+ OPENING FINISHED GOODS 12,400
Cost of Goods Available for Sale 159,700
- CLOSING FINISHED GOODS (14,000)
Cost of Goods Sold 145,700
Per Unit Cost:
Material Labor FOH
Opening WIP 6,000 6500 7,200
+ New Put into process 50,000 48,000 47,600
Total in process 56,000 54,500 54,800
- Closing in process (7,000) (5,000) (6,000)
Finished Cost 49,000 49,500 48,800
Per unit cost = Finished goods/ Units produced
Material per unit cost = 49,000/25,000 = 1.96
Labor …………… = 49,500/25,000 = 1.98
FOH……………. = 48,800/25,000 = 1.95

Q 13: On May 31, 200F a fire broke out in factory of Al-Musawwer Manufacturing Company
Limited. Consequently the processing building and in process inventory were completely
destroyed but the storeroom could be saved.
After the fire a physical inventory was taken. Raw materials were valued at Rs.30,000, finished
goods at Rs.50,000 and supplies at Rs.5,000.
Inventories on January 1, 200F consisted of:
Raw materials Rs. 20,000
Work in process 40,000
Finished goods 60,000
Supplies 2,000
The financial statements reveal following figures of sales and gross profit for the last five years:
Sales Gross Profit
200A Rs.650,000 Rs.220,000
200B Rs.700,000 Rs.230,000
200C Rs.750,000 Rs.250,000
200D Rs.800,000 Rs.270,000
200E Rs.850,000 Rs.280,000
Sales for the first five months of 200F were Rs.45,000. Raw materials purchased were
Rs.175,000. Freight on purchases was Rs.7,000. Direct labour for the five months was
Rs.80,000. For the past five years factory overhead was at 60% of direct labour.

Required: Compute the value of work in process inventory lost by fire.

Solution:
Al-Musawwer Industry
Cost of Goods Manufactured and Sold Statement
For the year ended January 20………
RS. RS.
OPENING RAW MATERIAL 20,000
+ Purchases 175,000
+ Freight in 7,000 182,000
Cost of Direct Material Available For Use 202,000
- Closing Raw Material (30,000)
Cost of Direct Material Used 172,000
+ DIRECT LABOR 80,000
Prime Cost 252,000
+ FOH 48,000
(60% of direct labour cost)
Current Manufacturing Cost 300,000
+ Opening WIP Inventory 40,000
Cost of Goods Available for Manufacturing 340,000
- Closing WIP Inventory (50,000)
Cost of Goods Manufactured 290,000
+ OPENING FINISHED GOODS 60,000
Cost of Goods Available for Sale 350,000
- CLOSING FINISHED GOODS (50,000)
Cost of Goods Sold 300,000
The value of work in process inventory lost by fire is Rs.50,000.
Supporting calculation:
Total sales of last five years = Rs. 3,750,000
Total gross profit of last five years = Rs. 1,250,000
Average gross profit rate = last 5 years gross profit/ last 5 years sales × 100
= 1,250,000/3,750,000×100
= 33.33%
Cost of goods sold percentage = 100-33.33%
= 66.67%
Cost of goods sold for last five months = 450,000×66.667%
= 300,000
Q-17. Following information were taken from records of Al-Fattah Company limited for the year
ended December 31,20-------:

Materials inventory increased by Rs.17,000 during the year. Remaining inventories were as
follow:
Inventories January 1 December 31
Materials in process Rs.8,270 Rs.8,760
Labour in process Rs.6,540 Rs.6,840
FOH in process Rs.8,830 Rs.9,390
Finished goods 40 Units Rs.12,400 25 Units
Purchases during the year were Rs.93,100, purchases returns Rs.6,000 and freight on purchases
Rs.3,400. Factory overhead is applied to production at the rate of 140% of direct labour cost.
Cost of materials used was 35% of current manufacturing cost. Number of finished units sold
during the year was 665. At the end of year actual factory overhead cost totaled Rs.80,475.
Required:

a) Calculate number of units manufactured during the year.

b) Prepare cost of goods manufactured statement.
c) Calculate cost per unit manufactured during the year.
d) Calculate value of ending finished goods inventory.
e) Prepare cost of goods sold statement.
f) Calculate cost per unit manufactured during previous year.

Solution:
(a) Number of units manufactured during the year:

Units sold 665

+ units of finished goods at the end 25
Total number of units available for sale 690
- units of finished goods at start (40)
Number of units manufactured 650

(b) Cost of goods manufactured statement:

Al-Fattah Company Limited

Cost of goods manufactured statement
For the year ended December 31.20______
RS. RS.
Purchases 93,100
- Purchases Return (6,000)
+ Freight in 3,400
Net purchases 90,500
- Material inventory increased by (17,000)
Cost of Direct Material Used 73,500
 + DIRECT LABOR 56,875
Prime Cost 130,375
+ FOH 79,625
(140% of direct labour cost)
Current Manufacturing Cost 210,000
+ Opening WIP Inventory 23,640
Cost of Goods Available for Manufacturing 233,640
- Closing WIP Inventory (24,990)
Cost of Goods Manufactured 208,650

Supporting Calculation:
Current manufacturing cost = Cost of direct material used / 35%
= 73,500/35%
= 210,000
Conversion Cost = 210,000-23,500
= 130,500
Proportion between direct labour and FOH = 100:140
Direct labour = 136,500×100/240 = 56,875
FOH = 136,500×140/240 = 79,625

(c) Cost per unit manufactured during the year:

Cost of goods manufactured / units manufactured
208,650 / 650 = Rs.321
(d) Value of ending finished goods inventory:
Units in ending finished goods inventory × per unit cost
25 × 321 = Rs.8,025
(e) Cost of goods sold statement:
Cost of goods sold statement
RS. RS.
Cost of Goods Manufactured 208,650
+ OPENING FINISHED GOODS 12,400
Cost of Goods Available for Sale 221,050
- CLOSING FINISHED GOODS (8,025)
Cost of Goods Sold at normal 213,025
- OVERAPPLIED FOH (850)
Cost of goods sold at actual 212,175

(f) Cost per unit manufactured during previous year:

Cost of finished goods at beginning / finished goods units at beginning
12,400 / 40 = 310