Process costing

Problem 1

ABC Ltd. is producing the product “P” required to be processed in three continuous
processes. They have laid down the standards to produce 75 litres of finished product as
under:

You are required to prepare the statement of standard cost and standard profit rate per75
litres of finished product.

Solution :
Problem 2:
ABC Ltd. is producing the product “P” required to be processed in three continuous
processes. They have laid down the standards to produce 75 litres of finished product as
under:

You are required to prepare the statement of standard cost and standard profit rate per75
litres of finished product.

Solution :
 JOB COSTING
Problem 1
The information given below has been taken from the costing records
printing works in respect of job number 101.
Materials ₹ 4,010
Wages: A - Department 60 Hours, @ ₹ 3 Per hour
B - Department 40 hours, @ ₹ 2 Per hour
C - Department 20 hours, @ ₹ 5 Per hour
Overhead expenses for these three departments were estimated as
follows:
Variable overheads:
Department A ₹ 5,000 For 5000 labour hours
Department B ₹ 3,000 For 1,500 labour hours
Department C ₹ 2,000 For 500 labour hours
Fixed overheads: - Estimated at ₹ 20,000 For 10,000 Normal working
hours. you are required to calculate the cost of job number 101 and
calculate the price to give profit of 30% on selling price.
Solution :
Particulars ₹ ₹
Direct Material 4010
Direct Wages:
Department A -60 Hours, @ ₹ 3 Per hour 180
Department B -40 hours, @ ₹ 2 Per hour 80
Department C -20 hours, @ ₹ 5 Per hour 100 360
Prime cost
4370
overheads: -Variable
Department A = 5000/5000 x 60
60
Department B = 3000/1500 x 40
80
Department C = 2000/500 x 20
80
Fixed overheads 20000/10000 x 120
240 460
Total
cost
Profit 30% on selling price = 4,830 x 30/70 4830
2070
6900
Selling Price
Problem 2
The following information relates to job number 110 collected from an
Engineering Company:
Estimated material cost and labour cost for the job is ₹ 25,000 and ₹
5,000 Respectively.
Estimated working hours of the Machines
Machine A = 20 hrs.
Machine B = 10 hrs.
Machine hour rate is
Machine A = ₹ 50
Machine B = ₹ 75
The total direct wages ₹ 4,00,000 and factory overhead ₹ 2,40,000 For
the entire shop in the previous year.
Factory cost ₹ 12,50,000 and office expenses ₹ 1,87,500
determine the selling price by adding a 25% profit on sales
SOLUTION:

Particular ₹ ₹
Direct Material 25,000
Direct Wages: 5,000
Prime Cost 30,000
Factory overheads:
Machine expenses
Machine A = 20 x50 1,000
Machine B = 10 x75 750
Factory expenses 3,000
2,40,000/4,00,000 x 5,000 4,750
Factory cost
34,750
office expenses
= 1,87,500/12,50,000 x 34,750 5,213 5,213
Cost of production (or) Total Cost
39,963
Add: Net Profit = (39,963 x 25/75)
13,321
Selling price
53,284

MARGINAL COSTING
Problem 1
A company produces 500 units at a variable cost of $200 per unit. The
price is $250 per unit and there are fixed expenses of $12,000 per
month.

For this question, calculate Break-even point in terms of both units and
sales. Also, show the profit at 90% capacity.

Solution
(i) BEP (units) = Fixed Expenses / C

= ($542,000 + $252,000) / 6

= 792,000 / 6 = 132,000 units

BEP (Sales) = 132,000 x 20 = $2640,000

(ii) Sales for examining profit = $60,000

BEP (units) = (Fixed Exp. + Desired Profit) / C

= (792,000 + 60,000) / 6

= 852,000 / 6

= 142,000 units

BEP Sales = 142,000 x 20 = $2,840,000

PROBLEM 2
For a company, sales are $80,000, variable costs are $4,000, and fixed
costs are $4,000. Calculate the following: (i) PVR, (ii) BEP (Sales), (iii)
Margin of Safety, and (iv) Profit.

Solution
(i) PVR = (C / $) x 100 = (4,000 x 100) / 8,000 = 50%

C = 8,000 - (4,000) = $4,000

(ii) BEP (Sales) = Fixed Cost / PVR

= (4,000 x 100) / 50

= $8,000

(iii) MOS = Actual Sales - BEP Sales

= 8,000 - 8,000

= Nil

OR

MOS = Profit / PVR = 0 / 8,000 = Nil

(iv) Profit = Sales - Variable Cost - Fixed Cost

= 8,000 - 4,000 - 4,000

= Nil