Ans 1.

A cost sheet is a document that gives a thorough description of how much it costs to
produce a specific good or service. It includes a complete list of all expenditures related to
the production process, such as those for labour, overhead, and raw materials. A cost sheet
is used to calculate the total cost of manufacturing a product, which is used to calculate the
selling price.

The product's monthly cost statement is as follows based on the information given:

Description Amount

Raw material cost 45,000

Labour cost 15,000

Factory overhead 30,000

Office overhead 7,500

Selling expenses 12,000

Total cost 109,500

We divide the total cost by the number of units produced each month to determine the cost
per unit:

Cost per unit = Total cost / Amount of units manufactured each month
= 109,500 / 3,000 = 36.50 per unit.

We must multiply the required profit by the cost per unit to determine the selling price per
unit:

Selling price per unit is cost per unit plus profit, which comes to 36.50 + (25% multiplied by
36.50) = 45.63 per unit.

Therefore, assuming a 25% profit margin on the total cost, the product's cost per unit is
36.50, and its selling price per unit is 45.63.

Ans 2
Introduction
The crucial step of service costing is figuring out all the expenses related to provide a
service. To generate a precise estimate of the total cost of delivering a service, the
procedure entails tracking down, tabulating, and documenting all costs. Businesses utilise
this data to determine competitive pricing, allocate resources, control costs, evaluate
performance, and develop exact budgets. The ultimate objective of service costing is to
support organisations in making profitable decisions.

Service costing has evolved into a crucial tool for businesses that offer a variety of services
in today's fiercely competitive business environment. Understanding the cost of providing a
service is essential to setting the appropriate rates and maintaining market competitiveness
for all types of services, including professional, financial, and healthcare services.
Businesses can establish competitive pricing that includes all associated costs and makes a
profit by carefully assessing the cost of providing a service.

Another crucial aspect of service costs is efficient resource allocation. Businesses can
determine the resources required to offer each service and allocate those resources
appropriately by examining the costs associated with each service. This facilitates cost
control, better resource use, and increased profitability.

In this post, we'll go into great detail on the value of service costing, the numerous purposes
it fulfils, and the phases that make up the process. For businesses looking to boost
profitability and compete in their sectors, understanding the service costing process is
crucial.

Service costing is the process of discovering, figuring out, and recording all of the costs
associated with providing a service. The primary objective of service costing is to determine
the total cost of delivering a service, which can help firms choose the appropriate prices for
their services. Knowing the precise costs related to providing a service helps businesses
manage resources, monitor and control expenditures, and decide on pricing and profitability.

Function for Service Costing:

1. Service price: Service pricing is established via service costing. Businesses can set a
competitive pricing that covers all associated costs and makes a profit by precisely
estimating the cost of providing a service.

2. Effective resource allocation is made possible by service costs in the company.

Businesses can assess the resources needed to offer each service and distribute those
resources appropriately by analysing the expenses related to each service.

3. Cost management: Service costing aids in the monitoring and management of costs for
enterprises. Businesses can find areas where they can cut expenses and increase
profitability by evaluating all the costs related to providing a service.
4. Performance assessment: Service costing aids companies in assessing the effectiveness
of their services. Businesses can assess the profitability of a service and decide whether to
continue offering it by comparing the costs of delivering that service to the income that
service generates.

5. Budgeting: Service costing aids in the preparation of precise budgets by organisations.

Businesses may effectively budget for the resources needed to offer each service and
guarantee that the service is profitable by determining the expenses related to providing
each service.

Various types of services, such as professional services, financial services, healthcare

services, and many others, can be costly. The following steps are commonly included in the
service costing process:

1. Identify the service: Identifying the service being offered is the first stage in the service
costing process.

2. Identify the cost elements: The second stage is to list every expense involved in rendering
the service. This comprises both direct and indirect costs, such as overhead and
administrative expenditures, as well as costs for labour and commodities.

3. Distribute costs: After all the cost elements have been determined, the expenses must be
distributed to the particular service. This is often done in accordance with the service's
resource utilisation.

4. Determine the whole cost: After all expenses have been allocated, the service's overall
cost may be determined.

5. Establish the cost of the service: Lastly, the cost of the service can be established based
on the targeted profit margin and the total cost of delivering the service.

In summary, service costing is an essential step for companies that offer services.
Businesses can set competitive rates, allocate resources wisely, control expenses, assess
performance, and create precise budgets by knowing exactly how much it costs to provide a
service. For companies aiming to increase profitability and compete in their respective
industries, service costing is a useful tool.

Conclusion,
In conclusion, service costing is a vital process for businesses that provide services. It
involves identifying and documenting all the expenses associated with providing a service to
determine the total cost of delivering that service. The primary goal of service costing is to
enable businesses to set competitive prices for their services that cover all expenses and
generate a profit.

Service costing also helps businesses allocate resources effectively, monitor and control
costs, evaluate service performance, and create precise budgets. This process is especially
crucial for businesses that offer costly services, such as professional services, financial
services, healthcare services, and many others.

The service costing process typically involves identifying the service being offered, listing all
cost elements involved in rendering the service, distributing costs to the particular service,
determining the overall cost of the service, and establishing the service's cost based on the
targeted profit margin and the total cost of delivering the service.

By performing service costing, businesses can make informed decisions about pricing,
resource allocation, cost management, performance assessment, and budgeting. Overall,
service costing is an essential tool that enables businesses to increase profitability and stay
competitive in their respective industries.

Ans 3.

(a). We must first determine the annual costs related to the machinery, then divide those
costs by the total number of working hours per year to arrive at the machine hour rate.

Annual costs:
Machine cost plus installation costs equals 480000 + 20000, or Rs. 5,000.
Lubricating oil costs Rs. 40 per day.
Electricity costs per hour equal 15 units at a rate of 10 rupees each, or Rs. 150.
Daily cost of consumables = Rs. 100

Total costs for each hour:

Lubricating oil price per hour = 40/10 = 4 rupees.
Electricity costs per hour equal Rs. 150/60, or Rs. 2.5.
Consumables per hour are priced at Rs. 100/10, or Rs.

Total costs per hour equal Rs. 4 + Rs. 2.5 + Rs. 10 + total Rs. 16.5

Total annual costs / Total number of working hours equals Rs. 5,00,000 / (10 * 2000) = Rs.
25 per hour for a machine.

The machine hour charge is therefore Rs. 25 per hour.

(b)
.Introduction

Determining the cost of production is essential for manufacturing businesses to maintain

efficiency and profitability. The machine hour rate and the labour hour rate are the two
methods for calculating production costs. Labour hour rate indicates the cost of labour per
hour of use, whereas machine hour rate evaluates the cost of operating and maintaining
machinery per hour. The key distinction between the two approaches is that whereas the
labour hour rate solely takes into account direct labour costs, the machine hour rate also
accounts for indirect costs related to machinery. Both approaches offer a complete picture of
production costs in this way, and any manufacturing company needs to calculate these costs
in order to make educated judgments about pricing and resource allocation.

For manufacturing companies, there are two ways to figure out their cost of production:
machine hour rate and labour hour rate.

The cost of running and maintaining a machine per hour of use is known as the machine
hour rate. It covers costs including the price of the equipment, installation fees, lubrication
oil, energy, and supply stores. The machine hour rate formula is as follows:

Machine hour rate is calculated as follows: Total annual expenses / Total working hours

The cost of labour per hour of use is, however, represented by the work hour rate. It covers
things like salaries, benefits, and training fees. The following is the labour hour rate formula:

Total labour costs / total labour hours equals the labour hour rate.

The fundamental distinction between the two is that labour hour rate is used to determine the
cost of manpower, whereas machine hour rate is used to determine the cost of operating
and maintaining machines. When machinery is the main factor in the manufacturing process,
the machine hour rate is utilised; when labour is the main factor, the labour hour rate is
employed.

Another distinction is that, while the labour hour rate solely takes into account direct costs
associated with labour, the machine hour rate takes into account both direct and indirect
costs. The machine hour rate includes indirect costs like power, consumable stores, and
installation fees, whereas the labour hour rate does not.

In conclusion, calculating the cost of production involves using both the machine hour rate
and the labour hour rate. Labour hour rate is used to determine the cost of labour, whereas
machine hour rate is used to determine the cost of operating and maintaining machines.

Conclusion

manufacturing firms have two options for determining their cost of production: machine hour
rate or labour hour rate. The cost of running and maintaining machinery is calculated using
the machine hour rate, whereas the cost of employing people is calculated using the labour
hour rate. In addition, while the labour hour rate only takes into account the direct costs
related to labour, the machine hour rate accounts for both direct and indirect costs. In
conclusion, it is critical for businesses to comprehend and make use of both rates in order to
precisely calculate the cost of production and establish fair prices for their products or
services.