date receipts issues balance

QTY rate value QTY rate value QTY rate value

1st march 200 2 400
2nd march 150 2 300 50 2 100

100 2.2 220 150 2.13 320

7th march 100 2.2 220 50 2 100

10th marc 150 2.4 360 200 2.3 460

12th march 100 2.4 240 100 2.2 220
20th marc 180 2.5 450 280 2.39 670
28th march 180 2.5 450
20 2.4 48
220 498 80 2.15 172

question 2
(FIFO method)
date receipts issues balance
QTY rate value QTY rate value QTY rate
1 50 15 750 50 15
2 150 14 2100 200 14.25

3 50 15 750
25 14 350 125 14

4 90 14.5 1305 215 14.209

5 140 16 2240 355 14.915
6 20 14 280 335 14.970
7 5 15 75 340 14.971

8 15 14 210 325 15.015

9 50 15 750 375 15.013

9 15 14 210
90 14 1260
90 14.5 1305
70 16 1120
250 3685 125 15.56
10 90 14.5 1305 215 15.1
11 2 14 28 217 15.1

(weighted average method)

date receipts issues balance
QTY rate value QTY rate value QTY rate
1 50 15 750 50 15
2 150 14 2100 200 14.25

3 75 14.25 1068.75 125 14.25

4 90 14.5 1305 215 14.35

 5 140 16 2240 355 15.00

6 20 14 280 335 15.06

7 5 14.25 71.25 340 15.05

8 15 15.05 225.75 325 15.05

9 50 15 750 375 15.04
9 250 15.04 3760 125 15.05

10 90 14.5 1305 215 14.82

11 2 15.05 30.1 217 14.82

question 2
(weighted average method)
date receipts issues balance
QTY rate value QTY rate value QTY rate
1 300 2
2 200 2.2 440 500 2.08

4 150 2.08 312 350 2.08

6 200 2.3 460 550 2.16

11 150 2.16 324 400 2.16

19 200 2.16 432 200 2.16

22 200 2.4 480 400 2.28

27 250 2.28 570 150 2.28

question 3
(FIFO method)
date receipts issues balance
QTY rate value QTY rate value QTY rate
1 100 5
5 300 6 1800 400 5.75
6 100 5 500
150 6 900
250 1400 150 14.33
8 500 7 3500 650 8.69
10 150 6 900
250 7 1750
400 2650 250 12
12 600 8 4800 850 9.18
14 250 6 1500
250 8 2000
500 3500 350 12.29
balance (LIFO method)
value date receipts issues
750 QTY rate value QTY rate
2850 1 50 15 750
2 150 14 2100

1750 3 75 14

3055 4 90 14.5 1305

5295 5 140 16 2240
5015
5090 6 20 14

4880 7 5 14 70
5 14
5630 8 10 16
9 50 15 750

9 50 15
5 14
1945 130 16
3250 75 14.5
3278
250

balance 10 90 14.5 1305

value 11 2 16 32
750
2850

1781.25

3086.25
 5326.25

5046.25
5117.5

4891.75
5641.75
1881.75

3186.75
3216.85

balance (LIFO mehtod)

value date receipts issues
600 QTY rate value QTY rate value
1040 1
2 200 2.2 440
728
4 150 2.2 330
1188
6 200 2.3 460
864
11 150 2.3 345
432
19 50 2.3 115
912 50 2.2 110
342 100 2 200
200 425
22 200 2.4 480
27 200 2.4 480
50 2 100
balance 250 580
value (LIFO method)
500 date receipts issues
2300 QTY rate value QTY rate value
1
5 300 6 1800
2150 6 250 6 1500
5650 8 500 7 3500
10 400 7 2800
12 600 8 4800
3000 14 500 8 4000
7800

4300
issues balance
value QTY rate value
50 15 750
200 14.25 2850

1050 125 14.4 1800

215 14.44 3105

355 5700 5345

280 335 15.12 5065

340 15.10 5135

70
160 325 15.09 4905
230 375 15.08 5655

750
70
2080
1087.5

3987.5 125 13.34 1667.5

215 13.83 2972.5

217 13.55 2940.5
 balance
QTY rate value
300 2 600
500 2.08 1040

350 2.03 710

550 2.13 1170

400 2.0625 825

200 2 400
400 2.2 880

150 2 300

balance
QTY rate value
100 5 500
400 5.75 2300
150 5.33 800
650 6.62 4300
250 6 1500
850 7.41 6300
350 6.57 2300
question 1
X Y
maximum level 9000 10200
minimum level 2400 1800
reorder level 5400 3600

question 2
A B
Reorder level 450 300
minimum level 200 150
maximum level 650 750
average level 425 450

question 1

toal requirement 800 units order per cost 100 carrying cost 20% pa

number of order quantity ordered value of order

1 800 16000
2 400 8000
3 267 5333
4 200 4000
5 160 3200
6 133 2667
7 114 2286
8 100 2000

question2
annual consumption = 12,000 ordering cost = 15 carrying cost 20% cost per unit = 1.25

number of order quantity ordered value of order

1 12,000 15000
2 6000.0 7500
3 4000.0 5000
4 3000.0 3750
5 2400.0 3000
6 2000.0 2500
7 1714.3 2143
8 1500.0 1875
9 1333.3 1667
10 1200.0 1500
11 1090.9 1364
12 1000.0 1250
13 923.1 1154
14 857.1 1071
15 800.0 1000
 by formula, by formula, sqrt(2xaxb/s)
2x 12,000 x 15 divided by (1.25*0.20)
144000
12,000

question 3 (existing inventory policy)

annual requirement= 36,000
installment = 6 every time quantity purchased will be = 6000
What Is EOQ in this case?

annual req 36,000

CPU 1
carrying cost 20%
cost per order 25

900,000

EOQ 3000
no of orders 12

ordering cost 12*25 300

carrying cost 3000/2 1500
value of stock 1500*1 1500

carrying cost 20% of 1500 300

so, total cost would be 300+300= 600

therfore, by EOQ, company would save :

750-600
150

question4
material requirement (per month) = 1500 annualy = 18,000 cost per order is 150

annual req 18,000

cpu 27
carrying cost 20%
cost per order 150

1000000

EOQ 1000
so number of order 18
ordering cost 18*150 2700

quantity in stock 1000/2 500

value of stock will be 500*27 13500

carrying cost is 20% of 13,500 2700

 so total cost would be 5400

basic purchase cost 18000*27 486000

total cost including purchase cost would be = 491400

supplier offers to give 2% discount provided qunatity to be 1200 units every time

selling price after discount would be 27 - 2% of 27 = 26.46

therefore we purchase 1200 units every time at 26.46 per unit

annual requirement 18000

CPU 26.46
carry cost 20%
ordering cost 150
no of orders required 18000/120 15

ordering cost 15*150 2250

carrying cost :
quantity in stock will be 1200/2 600
value of stock will be 600*26.46 15876

carrying cost 20% of 15876 3175

total cost 3175+2250 5425

basic purchase cost would be 18,000 *26.46 476280

so total cost including purchasing cost 476280+5425

481705

question 5
(FIFO method)
date receipts issues balance
QTY rate value QTY rate value QTY
Jan-02 800 62 49600 800
Feb-26 1200 57 68400 2000
Apr-13 2500 59 147500 4500
Jul-10 3000 56 168000 7500
Sep-18 1500 60 90000 9000
nov 1000 65 65000 10000

december 1300

10,000 1300
8,700 800
1200
2500
 3000 1500 1200
7500
300
1000 300 60
1000 65
1300 63.85
800 62 49600 USING FIFO METHOD
500 57 28500
1300 60.08 78100
USING LIFO METHOD

question 6
X Y
maximum usage 900 900
minimum usage 300 300
reorder quantity 4800 7200
reorder period 4-6 weeks 2-4 weeks
normal consumption 600 600
reorder level
maximum consumption x maximum lead time
5400 for X

reorder level
maximum consumption x maximum lead time
3600 for Y

maximum level
reorder level + reorder quantity -( minimum consumption x maximum lead time)
9000 for X
3600 for Y

minimum level
2400 for X
1800 for Y

average stock
5700 for X
6000 for Y

question 7

reorder level 60000

maximum level
minimum level

EOQ
sqrt 2 x A x B sqrt 2 x 90000 x 500 x 100
CxS 60 x 100
 sqrt 15,000,000
EOQ = 3873 ROQ

ROL

8623

maximum level minimum level

6000 + 3873-(250 x 5)
8623 2750

question 8
annual requirement 2600
order cost per order 100
carrying cost 15% per annum
normal usage 50 units per week
minimum usage 25 units per week
maximum usage 75 units per week
reorder period 4-6 weeks

annual demand 9000

EOQ = SQ RT of (2 x A x OC/CC) 186.19
ROL maximum consumption x max 536
min level 200

question 9
total requirement = 4000 ordering cost = 7 per unit carrying cost Is 20% per annum
number of orders quantity ordered rate per unit value
20 200 6.2 1240
16 250 6.1 1525
5 800 5.9 4720
2 2000 5.8 11600
1 4000 5.7 22800

example on stock turnover ratio

A B
opening stock 40000 36000
material purchase during the yea 208000 108000

closing stock 24000 48000

calculate
1 cost of material consumed
2 stock turnover ratio
3 number of days stock
4 which item of material is fast moving
 consumption of material = opening stock + purchase - closing stock
224000 for A
96000 for B

average stock = opening stock + closing stock/2

32,000 for A
42,000 for B

stock turnover ratio

7 for A
2.286 for B

number of days stock = 365/str

for A 52.14
for B 159.67

company requires two types of material X and Y

following data is provided
X Y
opening stock 32000 28000
material purchased during the ye 160000 250000
closing stock 20000 44000

calculate
1 cost of material consumed
2 stock turnover ratio
3 number of days stock
4 which item of material is fast moving

consumption of material = opening stock + purchase - closing stock

172000 for X
234000 for Y

average stock = opening stock + closing stock/2

26,000 for X
36,000 for Y

stock turnover ratio

6.62 for X
6.5 for Y

number of days stock = 365/str

for A 55.17
for B 56.15

duirng the year company purchases 450000 material A and 135000 of material B

average stock is A = 45000 , B = 10000

closing stock of A is 5000 more than opening stock and for B it is 2000 more than opening stock

calculate STR and number of days for A and B

consumption of material = opening stock + purchase - closing stock

45000
Stock Turnover Ratio
9.888889 for X
13.3 for Y

OP stock X OP stock Y
closing stock x+5000
x+x+5000 45000
2
42500 opening stock of X
47500 closing stock of X

consumption = 42500 + 450000-47500 = 445000

OP stock Y
closing stock
x + x + 2000 10,000
2
x = 9000 OP

11000 Closing stock

consumption = 9000+135000-11000
133000
 CPU 20 per unit

average stock value carrying cost order cost total cost

8000 1600 100 1700
4000 800 200 1000
2667 533 300 833
2000 400 400 800
1600 320 500 820
1334 267 600 867
1143 229 700 929
1000 200 800 1000

cost per unit = 1.25

average stock value carrying cost order cost total cost

7500 1500 15 1515
3750 750 30 780
2500 500 45 545
1875 375 60 435
1500 300 75 375
1250 250 90 340
1071 214 105 319
938 188 120 308
833 167 135 302
750 150 150 300
682 136 165 301
625 125 180 305
577 115 195 310
536 107 210 317
500 100 225 325
(1.25*0.20)

ordering cost = 6 *25 = 150 qty in stock on average will be 6000/2 value of stock would be 3000*1 = 3000

carrying cost is 20%

 balance
rate value
62 49600
59 118000
59 265500
57.8 433500
58.2 523500
58.85 588500
 18000
65000
83000
FO METHOD

x 500 x 100
ost Is 20% per annum
average stock carrying cost ordering cost
620 124 140
762.5 152.5 112
2360 472 35
5800 1160 14
11400 2280 7
be 3000*1 = 3000 carrying cost will be 20% of stock value, 20% of 3000, that is 600 total cost would be 150 + 600 = 750
basic purchase cost total cost
24800 25064
24400 24664.5
23600 24107
23200 24374
22800 25087
would be 150 + 600 = 750
question 1 on incentive measurement

company pays basic wages at Rs.50 per hour. The standard time to finish a job is 8 hours. There are 2 workers,
Mr.X and Mr. Y. Mr. X completes the job in 7 hpurs while Mr. Y completes the job in 6.5 hours.
calcuate the total wages(including bonus) to be paid to Mr. X and Mr.Y based on -
1. Halsey Bonus system
2. Rowan Bonus system

formula of Halsey Bonus System:

Bonus = 50% of (Time saved X rate per hour)
Total earning will be = (time taken X rate per hour) + bonus
Time saved = standard time – time taken

formula of Rowan Bonus system:

Bonus time = time saved / standard time X time taken X rate per hour

bonus 25 25 bonus 37.5

basic wage 350 basic wages 325
total earni 375 for Mr. X total earnings 362.5 for Mr.Y

efffective rate 53.6 per hour effective rate 55.8 per hour

Rowan system:

bonus bonus
43.75 for Mr X 60.94 for Mr Y
basic wage 350 basic wage 325
total earni 393.75 toal earnin 385.94

effective rate 56.25 per hour effective rate 59.38 per hour

question 2 on incentive measurement

compant pays basic wages

formula of Halsey Bonus System:

Bonus = 50% of (Time saved X rate per hour)
Total earning will be = (time taken X rate per hour) + bonus
Time saved = standard time – time taken

formula of Rowan Bonus system:

Bonus time = time saved / standard time X time taken X rate per hour

MR X MR Y
standard time 9 standard time 9
actual time 8 actual time 7.5
time saved 1 time saved 1.5
rater/hr 60 rater/hr 60

bonus 30 bonus 45
basic wage 480 basic wages 450
total earni 510 total earnings 495

effective rate 63.75 per hour effective rate 66 per hour

Rowan plan system:

MR X MR Y
bonus 53.333 bonus 75
basic wage 480 basic wage 450
total earni 533.333 total earni 525

effective rate 66.667 per hour effective rate 70 per hour

question 3 on incentive measurement

standard time to produce 10 hours, rate per hour is 100

find out by preparing comparative table, showing basic, bonus, total earnings under halsey and rowan plan
he following hours taken in each month
Halsey Rowan Syst
month actual timetime savedrate/hr basic wagebonus total effective
april 12 0 100 1200 0 1200 100
may 10 0 100 1000 0 1000 100
june 9 1 100 900 50 950 105.56
july 8 2 100 800 100 900 112.50
august 7 3 100 700 150 850 121.43
sepetembe 6 4 100 600 200 800 133.33
october 5 5 100 500 250 750 150.00
novemeber 4 6 100 400 300 700 175.00
december 3 7 100 300 350 650 216.67
january 2 8 100 200 400 600 300.00

upto 50% Halsey plan is effective, but time saved beyond 50%, Rowan plan is effective since effective rate is less

question4

A B C
time allowed hours per 100 unit 35 40 42
wages per unit 2 3 4
hourly rate 7 8 10
actual time taken in hours 50 48 46
actual units produced 200 150 125
standard time 70 60 52.5
formula of Halsey Bonus System: 0.42
Bonus = 50% of (Time saved X rate per hour)
Total earning will be = (time taken X rate per hour) + bonus
Time saved = standard time – time taken

formula of Rowan Bonus system:

Bonus time = time saved / standard time X time taken X rate per hour

A B C
Halsey BASIC 350 384 460
BONUS 70 48 32.5 6.5
TOTAL 420 432 492.5

Rowan A B C
BASIC 350 384 460
BONUS 100 76.8 56.95238
TOTAL 450 460.8 516.95

question 5
standard time is 10 hours

workers time taken

A 12
B 10
C 7
hourly wage rate is 2

24 20 14
A B C

question 6 A B C D E F

time allowed 3 4 5 6 7 8
actual hours 5 3 4 5 3 3
basic wages per hours 2 2 3 2 2 2
time saved -2 1 1 1 4 5
bonus 0 1 1.5 1 4 5
total earnings 10 7 13.5 11 10 11

formula of Halsey Bonus System:

Bonus = 50% of (Time saved X rate per hour)
Total earning will be = (time taken X rate per hour) + bonus
Time saved = standard time – time taken
formula of Rowan Bonus system:
Bonus time = time saved / standard time X time taken X rate per hour
are 2 workers,
 Rowan System
bonus total effective
0 1200 100
0 1000 100
90 990 110
160 960 120
210 910 130
240 840 140
250 750 150
240 640 160
210 510 170
160 360 180

e since effective rate is lesser when compared to Halsey plan.

example 1

a company has 3 production departments A, B and C and 2 service departments D and E.

following figures are extracted from the records of the company.

TOTAL A B C D E
floor space (square ft.) 10,000 2,000 2500 3000 2000 500
light points 60 10 15 20 10 5
direct wages 10,000 3000 2000 3000 1500 500
H.P of machines 150 60 30 50 10 0
value of machinery 250,000 60,000 80000 100000 5000 5000

rent and rates 5000 floor space

indirect wages 1500 direct wages
dep. Of machinery 10000 value of machinery
general lighting 600 light points
power 1500 HP of machines
sundaries 10,000 direct wages
(PRIMARY DISTRIBUTION)
particulars amount of overheads basis

direct wages 2000

Rent 5000 5000 area
indirect wages 1500 1500 direct wages
general lighting 600 600 light points
deprication 10000 10000 value of machinery
power expenses 1500 1500 HP
sundry expenses 10000 10000 direct wages

30600

Example 2

store overhead 400

motive power 1500
electric lighting 200
labor welfare 3000
depreciation 6000
repair and maintenan 1200
general overheads 10,000
rent and taxes 600

apportion the expenses of department X in ratio 4:3:3 and that of department Y in proportion to direct wages, to departm
Production service
Particulars amount A B C X
direct wages 7000 6000 5000 1000
direct materials 3000 2500 2000 1500
employees 200 150 150 50
electricity 8000 6000 6000 2000
light points 10 15 15 5
assets value 50000 30000 20000 10000
area occupied 800 600 600 200

(PRIMARY DISTRIBUTION) Production

particulars amount of overheads basis A

direct material 2500

direct wages 2000
stores overhead 400 120
power 1500 460
electric light 200 40
labour welfare 3000 1000
depreciation 6000 2500
general overheads 10000 3500
repair and maintenance 1200 500
rent and taxes 600 200

27400 8320

ReApportionment of overheads of service deparments to production departments.

Overheads of service departments needs to be apportion again on production departments. Role of service department is
therefore, logically their overheads needs to be shared by production departments.

such reapportionment of overheads from service departments to production department is known as "secondary distributi
now how much overheads each production department should get depends on services taken by them from service depar

in the above example X gives service to A,B,C in the ratio 4:3:3

and department Y overheads are to be distributed in direct wages ratio of A,B,C

(SECONDARY DISTRIBUTION) Production

particulars amount of overheads basis A

overheads as per primary distrubution 8340

redistribution of department X 4:03:03 1640

redistrubtion of department Y Direct wages 1416

27400 total 11396

Service departments gives services not onlt to production department but also to other service departments.
for example, X gives services to A,B,C as well as to Y
similarly, Y gives services to A,B,C as well as X
in such case, we distribute department X first, Y will get some share from X,
then we try to distribute expenses of Y, in that case X again gets some share from Y
therefore, we need to again distrubute expenses of X

to solve such complex situation, we have 2 methods to resolve this issue

1. Repeated distribution method
2. Simultaneous equation method

Example 3
a company has 3 production and 2 service departments

REPEATED DISTRIBUTION METHOD

(SECONDARY DISTRIBUTION) Production
particulars amount of overheads basis A

overheads as per primary distribution 3000

department 1 46.8

department 2 129.36

department 1 12.936
department 2 2.59

department 1 0.26

6534 total 3191.942

SIMULTANEOUS EQUATION METHOD

under simultaneous equation method, we develop two equations, one each for service department
let us assume total overheads of department one be X
let us assume total overheads of department one be Y

department 1 gives share to 2 = 10%

department 2 gives share to 1 = 20%

therefore, X = 234 + 20% of Y

and Y = 300 + 10% of X

x = 234 + 0.20(300+0.10x)
x = 234 + 60 + 0.02x
0.98x = 294
x = 294/0.98
x= 300
put x in any equation to get Y
therefore Y = 330

(SECONDARY DISTRIBUTION) Production

particulars amount of overheads basis A

overheads as per primary distribution 3000

distribution of department 1 (distribution of 300) 60

distribution of department 2 (distrubution of 330) 132

TOTAL 6534 3192

Example 4
REPEATED DISTRIBUTION METHOD
(SECONDARY DISTRIBUTION) Production
particulars amount of overheads basis A

overheads as per primary distribution 400000

distribution of boiler room 23400

distribution of pump room 64680

distribution of boiler room 6468

distribution of pump room 1293.6

distribution of boiler room 129.36

distribution of pump room 25.872

distribution of boiler room 2.5872

distribution of pump room 0.51744

Total 1267000 496000

By simultaneous equation method

let us assume total overheads of bolier house be X

let us assume total overheads of pump house be Y

boiler house gives share to pump house = 10%

pump house gives share to boiler house = 20%

Therefore,
X = 117000+0.20 Y
Y = 150000 + 0.10 X

X = 117000 + 0.20(150000 + 0.10X)

X = 117000 +30000 + 0.02 X
0.98 X = 147000
x = 147000/0.98
150000
 therefore, Y = 165000

Production
Particulars Amount Basis A B C

Overheads as per primary distribution 400000 350000 250000

distribution of boiler house 30000 60000 45000

distribution of pump house 66000 33000 33000

Total 1267000 496000 443000 328000

Example 5

Particulars amount basis

area
value of assets
kilowatt hours
number of employees
 Particulars amount basis
indirect material 4250 actual
indirect wages 3950 actual
powerlight 6000 KWH
rent 2800 area
insurance 1000 value of asset
meal charges 3000 no of employees
depreciation at 6 per 24000 value of asset

TOTAL 45000

Example 6

indirect labor 55500

machine shop 25,000
welding ship 15000
paint shop 15500
stores department 0
maitenance departme 0

work out Machine Hour Rate by doing primary and secondary distribution

Production Service
Particulars amount basis machine shop welding shop paintshop stores

indirect labor 55500 direct 25000 15000 155000

rent area 46875 466875 18750 18750
depreciation 300000 value of assets 78947 157895 31579 23684
power and fuel KWH 13333 53334 13333
canteen no. of employees 17500 35000 7000 8750

total 655500 181655 728104 225662 51184

Simultaneous equation method

let total expense ofe department stores be x

let total expense of maintenance stores be y

x = 51184 + 0.15y
y = 28395 + 0.20x

therefore, x = 57158 and y = 39827

Production Service
Particulars amount basis machine shop welding shop paintshop stores

overheads as per primary distribution 181655 308104 86162 51184

redistribution of department X 22863 17147.4 5716

redistribution of department Y 19914 11948 1991

Total 224432 337199.4 93869 0

Machine hours 25000 20000 10000

MHR 8.98 16.86 9.39

Example 6

Production
Particulars amount basis A
Cost audit

cost audit section 209 1 (d) and section 233 (B) of the companies act 2013

deals with books of accounts to be maintained by a body corporate (company)

section 209 1(d)
as per section 209 1(d) in the case of a company pertaining to any class of companies engaged in production, processing, m

section 233 (b)

under section 233 (b), where in the opinion of central government it is necessary to any company under section 209 1(d) in
within the meaning of Cost and Works Account Act 1959

Auditor under this section shall be appointed by Board of Directors of the Company with the prior approval of Central Gov

An audit conducted by an auditor under section 233(b) shall be in addition to an audit conducted by an Auditor under secti

An auditor shall have same powers and duties under section 233(b) as auditor who is doing audit under section 224

Features of Cost Audit

1 Assessing the compliance of the relevant cost accouting record rules as applicable to the product under review
2 Study of costing system to asess where it is adequate for cost ascertainment
3 evaluation of operating and other efficiencies
4 submission of cost audit report in the prescribed form

Since cost audit is carried out under various provisions of companies Act, a thorough and comprehensive knowledge of th
Act including various rules prescribed therein under is essential for conducting an effective cost audit.

cost accounting record rules (CARR)

Under section 209 1(d) of Companies Act, Cost Accounting Record Rules can be broadly divided into 3 parts

1 Part 1 - consist of short title of record rules, date of commencement of the rule, application of the rule
2 Part 2 - consist of schedule 1 of of the rules which states the detailed provisions as to elements of cost such as
3 Part 3 - consist of schedule 2 of the rules which is about the detail formats of various parameters of the perform
CARR 2011 is applicable to every company engaged in production, processing, manufacturing and mining where -

1 Net worth exceeds Rs. 5 crores or

2 aggregate value of turnover during immediate previous year exceeds Rs. 20 crore or
3 or equity or debt securities are listed on any stock exchange

following industries are covered under CARR

1 Cement
2 caustic soda
3 iron and steel
4 aluminium
5 Vanaspati
6 Bulk drugs
7 Pharma
8 Jute
9 Cotton Textile
10 Automobiles
11 tyre and tubes
 Production service
A B C D E

1500 500
1000 1250 1500 1000 250
450 300 450 225 75
100 150 200 100 50
2400 3200 4000 200 200
600 300 500 100 0
3000 2000 3000 1500 500

7550 7200 9650 4625 1575

irect wages, to department A,B and C respectively

service
Y
1000
 1000
50
3000
5
10000
200

Production service
B C X Y

1500 1000
1000 1000
100 80 60 40
360 360 120 180
60 60 20 20
750 750 250 250
1500 1000 500 500
3000 2500 500 500
300 200 100 100
150 150 50 50

6220 5100 4100 3640

of service department is to give services to production department.

n as "secondary distribution" of overheads.

them from service department

Production service
B C X Y

6220 5100 4100 3640

1230 1230

1213 1011

8663 7341
Production service
B C 1 2

2000 1000 234 300 6534

93.6 70.2 -234 23.4

0 323.4
64.68 64.6 64.68 -323.4
64.68 0
25.872 19.404 6.468
0 6.468
 1.29 1.29 1.2936 -6.468
1.2936 0
0.65 0.39

2186.092 1155.886

Production service
B C 1 2

2000 1000 234 300

120 90

66 66

2186 1156
Production service
B C Boiler roo pump room

350000 250000 117000 150000

46800 35100 -117000 11700

0 161700
32340 32340 32340 -161700
32340 0
12936 9702 -32340 3234
0 3234
646.8 646.8 646.8 -3234
646.8 0
258.72 194.04 -646.8 64.68
0 64.68
12.936 12.936 12.936 -64.68
12.936 0
5.1744 3.8808 -12.936 1.2936
0 1.2936
0.25872 0.51744 0.25872
443000 328000
 Production Service
X Y Z P Q
4000 4000 3000 2000 1000
100000 120000 80000 60000 40000
4000 4400 1600 1500 500
90 120 30 40 20
 Production Service
X Y Z P Q
950 1200 200 1500 400
900 1100 300 1000 650
2000 2200 800 750 250
800 800 600 400 200
250 300 200 150 100
900 1200 300 400 200
6000 7200 4800 3600 2400

11800 14000 7200 7800 4200

Service
maintenance

18750
7895

1750

28395
Service
maintenance

28395

Production Service
B C X Y
production, processing, manufacturing or mining activities, such particulars relating to utilization of material or labour or to other items

under section 209 1(d) include in its books of accounts the particulars referred to, central government may by order direct that an aud

approval of Central Government

by an Auditor under section 224 of Companies Act

under section 224

e product under review

hensive knowledge of the Indian Companies

tion of the rule

elements of cost such as material, utilities etx
arameters of the performance
mining where -
or labour or to other items of cost as may be prescribed

by order direct that an audit the compant shall be conducted by an auditor who shall be a cost accountant
Cost audit

cost audit section 209 1 (d) and section 233 (B) of the companies act 2013

deals with books of accounts to be maintained by a body corporate (company)

section 209 1(d)
as per section 209 1(d) in the case of a company pertaining to any class of companies engaged in production, processing, m

section 233 (b)

under section 233 (b), where in the opinion of central government it is necessary to any company under section 209 1(d) in
within the meaning of Cost and Works Account Act 1959

Auditor under this section shall be appointed by Board of Directors of the Company with the prior approval of Central Gov

An audit conducted by an auditor under section 233(b) shall be in addition to an audit conducted by an Auditor under secti

An auditor shall have same powers and duties under section 233(b) as auditor who is doing audit under section 224

Features of Cost Audit

1 Assessing the compliance of the relevant cost accouting record rules as applicable to the product under review
2 Study of costing system to asess where it is adequate for cost ascertainment
3 evaluation of operating and other efficiencies
4 submission of cost audit report in the prescribed form

Since cost audit is carried out under various provisions of companies Act, a thorough and comprehensive knowledge of th
Act including various rules prescribed therein under is essential for conducting an effective cost audit.

cost accounting record rules (CARR)

Under section 209 1(d) of Companies Act, Cost Accounting Record Rules can be broadly divided into 3 parts

1 Part 1 - consist of short title of record rules, date of commencement of the rule, application of the rule
2 Part 2 - consist of schedule 1 of of the rules which states the detailed provisions as to elements of cost such as
3 Part 3 - consist of schedule 2 of the rules which is about the detail formats of various parameters of the perform

CARR 2011 is applicable to every company engaged in production, processing, manufacturing and mining where -

1 Net worth exceeds Rs. 5 crores or

2 aggregate value of turnover during immediate previous year exceeds Rs. 20 croreor
3 or equity or debt securities are listed on any stock exchange

following industries are covered under CARR

 1 Cement
2 caustic soda
3 iron and steel
4 aluminium
5 Vanaspati
6 Bulk drugs
7 Pharma
8 Jute
9 Cotton Textile
10 Automobiles
11 tyre and tubes

advantages of cost audit

A Advantages to Management
1 detail iformation about efficiency
2 helps in price fixation
3 profit planning
4 fixation of responsibilities
5 helps in inventory valuation
6 assist in financial audit

B advatanges to comsumers
1 price effective product
2 good quality product

C advantages to government
1 provides basic information about the cost
2 allocation of scarce resources is possible
3 fixation of wage policy
4 fixation of tarrifs
5 Better contol over taxes

cost audit acts as an efficiency audit

cost audit is generally termed as efficeincy audit since it focusses on various parts of the organization
areas covered by cost audit along with the issues under each area menitioned below:

1 capacity utilization analysis

a Under utilization of capacities
b Idle capacity
c non productive assets (NPA)
d Outsourcing, sub-contacting VS internal Capacity
e Plant break down analysis
f Sope for expansion and its likely cost benefit analysis

2 Productivity analysis
a Operational Cycle time analysis
b input and output analysis as per standards and budget set by company
 c Energy Audit
d study of wastages, spoilages, defectives

3 Product/service profitability
a product turnover - trend in %
b capital employed
c gross margin % to sales
d gross margin % to capital employed
e net margin % to sales
f net margin % to capital equity
g foreign exchange rates variation

4 market / customer analysis

a Market distribution - indigenous VS overseas
b study of cost of service per customer
c cost of supply chainVS benefits of suppy chain
d impact of dumping of product

5 working capital analysis

a movement of debtors VS credit sales
b debtors collection period analysis, ageing analysis
c overseas debtors and its impact on Foreign exchange fluctuations
d Inventory turnover, Movement of inventory
e cash flow analysis - impact on profitability and liquidity

6 manpower analysis
a manpower pyramid - ratio of top management to middle management to junior level
b Idle man hours ratio to total man hour, its impact on productivity
c Manpower absenteeism
d Cost of training
e labour turnover

7 Application of Mangement accounting tools

a activity based costing
b target costing
c lifecycle costing
d value engineering
e balance scorecard

date qty rate value qty rate value qty

1 60
2 35 5 175 25
6 15 5 75 10
14 120 5.5 600 130
10 5.5 50
80 5.5 440
 90 490 40

calculate ROL, Consumption of material is 100-200. delivery period of 14-28

max 200
lead time 28

ROL 5600

COST AUDIT

Cost audit involves examination of cost records, cost books of accounts, cost st
documents with a view to satisfy the auditor that these represents true and fai

According to CIMA Chartered Institute of Management accountants (London), c

of correctness of cost accounts and of the adherance to cost accounting plan

Institute of Cost accountants of India (ICAI) defines cost audit as system of audi
for the review , examination and appraisal of cost accounting records required

Thus the concept and scope of cost audit as defined by ICAI is more specific and
efficiency of operations. So cost audit more often is called as efficiency audit.

In the initial years, main objective of cost audit was to meet Governm
price mechanism in core industried like cement, sugar, textile, jute e

Cost audit helps to ascertain whether an organization cost accounting records a

view of cost of production, processing, manufacturing and mining of a product.
Government in helping tp formulate tariff and taxation policies.

Objectives of cost audit

1 Verification of cost accounts

2 Ensuring that the prescribed procedures of cost accounting record rules are du
3 determining inventory valuation
4 facilitating the fixation of prices of goods and services
5 periodical reconciliation between cost records and financial records
6 ensuring optimum utilization of human resource, physical tangible assets, and fi
7 detection and correction of abnormal losses of material and time
8 Verification of cost under each cost centre as per the cost unit used to measure
ged in production, processing, manufacturing or mining activities, such particulars relating to utilization of material or labour or to othe

mpany under section 209 1(d) include in its books of accounts the particulars referred to, central government may by order direct that

e prior approval of Central Government

ucted by an Auditor under section 224 of Companies Act

audit under section 224

e to the product under review

omprehensive knowledge of the Indian Companies

ded into 3 parts

application of the rule

s as to elements of cost such as material, utilities etx
ious parameters of the performance

ng and mining where -

nt to junior level

rate value
5 300
5 125
5 50
5.46 710
 5.5 220

cost books of accounts, cost statements, and the related

at these represents true and fair view of the cost of prod.

gement accountants (London), cost audit is the verification

ance to cost accounting plan

nes cost audit as system of audit introduced by Government of India

st accounting records required to be maintained by specified industries.

ned by ICAI is more specific and it lays emphasis on evaluation of the

n is called as efficiency audit.

cost audit was to meet Government requirements for regulating the

ke cement, sugar, textile, jute etc.

zation cost accounting records are so maintained as to give true and fair
turing and mining of a product. Cost audits are also of assisstance to
axation policies.

accounting record rules are duly adhered to detection of frauds and errors.

nd financial records
e, physical tangible assets, and financial resources
material and time
r the cost unit used to measure.
aterial or labour or to other items of cost as may be prescribed

t may by order direct that an audit the compant shall be conducted by an auditor who shall be a cost accountant