STAGES OF CALCULATING COST

Introduction.

Calculating cost refers to the process of determining the total amount of money needed to
produce a product, deliver a service, or complete a project. It involves taking into account
various expenses and costs associated with the production, delivery, or completion of a particular
task or project.

In calculating cost, our focus will be on depreciation\maintenance of a good or product.

Depreciation shows the expenses of using an asset over time and it is unrelated to its physical
condition.

I. DEFINITION OF DEPRECIATION.

Depreciation is an accounting method used to allocate the cost of an asset over its useful life. It
represents the decrease in the value of an asset over time due to wear and tear, obsolescence, or
other factors. Depreciation can be calculated as follows;

2. STAGES IN CALCULATING COST.

2.1. Annual Depreciation

Annual depreciation refers to the amount of depreciation for an asset over one year. It is
calculated as;

Annual depreciation [AD] = purchase cost

No of given years

For example, if a machine cost 10,000 FRS and has a useful life of 5 years, the annual
depreciation would be. Purchase cost
No of given years = 10000
5 = 2000 FRS
2.2 Monthly Depreciation.

Monthly depreciation refers to the amount of depreciation that occurs in a month for an asset. To
calculate monthly depreciation. We divide the Annual depreciation by 12. The formula is as
follows;

Monthly Depreciation [MD] = Annual Depreciation.

12
From the example above, the monthly depreciation would be

Monthly depreciation [MD] =Annual Depreciation

12

Therefore Monthly depreciation is 2000

12 =166.67 FRS

2.3 Weekly Depreciation.

Weekly depreciation is the amount of depreciation that occurs in a week for an asset. To
calculate weekly depreciation, we divide monthly depreciation by the numbers of weeks usually
4 per month. It is calculated as follows;

Weekly Depreciation [WD] = Monthly Depreciation weeks.

No of weeks [4]
From the example above the monthly depreciation is 166.67 FRS so the weekly depreciation will
be Monthly depreciation
4
= 166.67
4
= 41.6675 FRS

2.4 Daily Depreciation.

Daily depreciation is the amount of depreciation that occurs for every day an asset is in use. To
calculate daily depreciation, the formula will be;

Daily Depreciation [DD] = Weekly Depreciation divided

No of working days [5-7]
Therefore; DD is 41.67
5 = 8.33 FRS
Or

41.67
7 = 5.95 FRS
2.5 Hourly Depreciation.

Hourly depreciation is the amount of depreciation that occurs for every hour an asset is in use. It
is calculated as.

Hourly Depreciation [HD] =Daily Depreciation

No. of working hours.
= 8.33
12 = 1.59
Or

= 5.95
12 =0.4958

Example

As a secretary to the Rector of national Polytechnic Bambui, you have been asked to prepare a
brochure on academic and professional set up of the institution. The brochure will contain 6
pages [rector] only and will be produced in 12000 copies.

The procedure to be used is the offset with following the costs elements;

Plates 100 FRS for 3000 pages

Ink 150 FRS for 1000 pages

Other products 100 FRS for 1000 pages

Papers, 1000 FRS for ream of 500 papers

Time, 20 minutes to produce a plate on the typewriter and the typist is paid 1250frs per hour

Running of copies, 1000 FRS for 1000 pages

Running time on the offset machine is 35 minutes

The offset machine was bought at 550 000 Fcfa to be depreciated in 10 years, used for 200 days
a year and 5 hours a day.

Work required. Calculate the cost of the above operation.

 Solution
COST ELEMENT Sub Total TOTAL

1.Raw Materials
 Total No. of papers=12 000x6= 72 000 144 000
Cost of paper = 1000x72000/500 2 400
 Plate = 72000x100/3000 = 10 800
 Ink = 72000x150/1000 = 72 000
 Others = 72000x100/100 = 164 400
2.Man power
 Time of typing = 20 minutes
Secretary’s pay = 1250\h 417
Cost of typing = 1250x20/60 72 000 72 417
Running = 72000x10000/1000 236 817
Total cost of operation= 3.29
Cost of 72000 papers= 19.74
Cost of a copy [6 pages]=
 Depreciation 55000
AD=550 000/10=55000 275
DD=55000/200=275 55
HD=275/5=55 94.3
MD=55/35x60=94.3

Conclusion.

Administrations calculate cost to know it structures in order to minimize cost and increase
probability of the enterprise. In this respect, administrators must lay emphasis on the cost of
executing an activity.

ASSIGNMENT

In view of the upcoming one week exhibition scheduled as from the 15th of the next month at the
esplanade of the organization, your manager intends to prepare and present a speech at the
opening ceremony. The original copy of the speech has to be prepared, typed and printed on 3
pages [A4 size papers-recto only] to be kept by the manager. This original document will be
multiplied into copies for distribution to the 500 guests invited to attend the opening ceremony.
Thus, one original copy printed and 500 copies photocopied. Elements required for the operation
are recorded on appendix 1.
Work required.

a) With the help of a tabulated model, calculate the cost of the operation with the help of
data from the appendix 1 below.
b) What is the cost of 1 copy of the speech

Appendix 1. Elements for administrative cost

 A ream [500 sheets] of A4 size paper cost 3500frs

 The telephone data used by the manager to transmit the instruction and the draft of the
speech is estimated at 600 FRS.
 The ink used to print the original copy using the printer is estimated at 45 FRS.
 The tube of the ink used to photocopy the rest of the 500 copies of the speech was bought
for 15000 FRS. [the tube of the ink can be used to photocopy 500 copies of A4 pages]
 The telephone data used by you to download the instructions and the draft as well as
further inquiries is estimated at 375 FRS.
 The manager used 45 minutes to record a voice note of the draft speech and instructions
on the telephone. The telephone was acquired for 150000 FRS. Meanwhile, a guarantee
period for the telephone is 10years. The monthly salary of the manager is 280000 FRS.
The telephone is often used for 4 hours per day.
 You used 30 minutes to download, listen to the instruction and the draft speech from your
office telephone that was bought for 120000 FRS with a 10 years guarantee period. Your
monthly salary is 120000FRS. The phone is often used for 4 hours a day.
 You used 90 minutes to type, format and send the print command of the speech using the
computer that was acquired for 24000 FRS with a 10 years guarantee period. The
computer is often used for 2 hours a day.
 You used 4 minutes to print the original copy of the speech using the laser printer that
was bought for 150000 FRS for a guarantee period of 10 years. The computer is often
used 2 hours a day.
 Clerical staff who is paid 1200frs per hour, will use an estimate of 90 minutes to
photocopy all 500 copies of the 3 paged speech using the digital photocopier that was
 acquired for 270000frs with a 9 years guarantee period. It is often used 5 hours a day.
Thereafter, she will use 90 minutes to bind all the copies of the speech.
 The organization works 300dyas per year, 25 days per month and 8 hours per day.

SOLUTION

a. Determination of the cost of the operation.

COST OF CALCULATIONS Sub Total

ELEMENT total
1. Materials a. Papers for 3 paged original copy and 500 photocopies;
Paper 500 papers=3500frs
1503 papers=[3500/500]x1503=10521 10521
b. Ink for 3 paged original and 500 photocopies;
Ink for original copy=45frs
Ink Photocopy ink=[15000/5000]x1500= 4500frs
Total for ink=4500+45=4545 4545
c. Data for preparing and downloading the draft and instructions;
Manager’s telephone data=375frs
Data connectivity Office telephone data=600frs
Total=[600+375]=975frs
975 16041

2. Labor
Manager Manager ;
Monthly salary=280000frs
Daily salary=280000/25=11200frs
Hourly salary=1120/8=1400frs
Salary for operation=[1400/60]x45=1050 1050
Management Management Assistant;
Assistant Monthly salary=120000frs
Daily salary=120000/25=4800frs
Hourly salary=4800/8=600frs
Salary for operation=[30mins+90+4]
[600/60]x1240frs
Clerical staff Clerical staff; 1240
Hourly wage=1200frs
3. Equipmen Wages for the operation=[1200/60]x180=3600frs 3600
t Manager’s telephone;
Manager’s Cost of telephone=150000frs 5890
telephone Guarantee period=10 years
 Annual depreciation=150000/10=15000frs
Daily depreciation=15000/300=50
Hourly depreciation=50/4=12.5
Depreciation in 45 minutes=[12.5/60]x45=9.375 9.375
Office telephone;
Cost of telephone=120000frs
Office telephone Guarantee period=10 years
Annual dep=120000/10=12000frs
Daily dep=12000/300=400
Hourly dep= 400/4=100 50
30 minutes depreciation=[100/60]x30=50
Computer;
Cost=240000frs
Guarantee=10 years
Computer Annual depreciation=240000/10=24000
Daily depreciation=24000/300=80
Hourly depreciation =80/2=40 60
90 minutes depreciation=[40/60]x90=60frs
Printer;
Cost=150000frs
Guarantee period=10 years
Printer Annual depreciation=150000/10=15000frs
Daily depreciation=15000/3000=50
Hourly depreciation =50/2=25 1.7frs
4 minutes depreciation=[25/60]x4=1.7frs

Photocopier;
Cost=270000frs
Guarantee period=9 years
Photocopier Annual depreciation=270000/9=30000
Daily depreciation=30000/300=100
Hourly depreciation =100/5=20 30
90 minutes depreciation=[20/60x90=30frs 9516.7
31447.7

Total
B. Determination of the cost of one copy
Total cost of the operation=31448 FRS

Total number of copy=501 FRS

Cost of one copy=31448/501=63FRS