CONTRACT & PROCESS COSTING

Q1.
The Maharashtra Construction Company undertook the construction of a building at a contract price of Rs.12,00,000. the date of commencement of contract was 1st April,2009. the following cost information is given for the year ended 31st March,2010

Particulars Wages

Rs. 4,40,000

Architect fees
Office & Administration overhead Uncertified work

55,500
1,51,000 55,000

Materials at the site at the end of year

Cash received from the contractee ( Being 90% of the work certified) Materials destroyed by fire

10,000
9,45,000 5,000

Plant and Machinery at cost

2,00,000

(Date of purchase 1st july,2009. the estimated working life of the plant 10years and its estimated scrap value at the end of Rs.20,000.) Supervisor s salary You are required to prepare contract a/c for the year ended 31st March,2010.

Sol:-1 Contract A/c for the year ended 31st March,99

Particular To Materials sent on site To wages To Architects Fees To Office & Admn overhead To Depreciation Rs 3,00,000 4,40,000 55,500 1,51,000 13,500 Particular By P&L a/c: Material Lost By WIP: Work certified Work uncertified Material at site Rs. 5,000 10,50,000 55,000 10,000

To supervisors salary
To balance c/d

60,000
1,00,000 11,20,000 11,20,000 By balance b/d 1,00,000

To P&L a/c To WIP reserve

60,000 40,000 1,00,000

1,00,000

Working Note:
Calculation of P&L= 2/3*1,00,000* 9,45,000/10,50,000= 60,000 Calculation of Deprecation Deprecation 1: cost scrap value working life = 2,00,000 - 20,000 10 = 18,000 For nine months 18,000*9/12=13,500/Calculation of Work CertifiedLet work certified = x Cash received is 90/100*x= 9,45,000 90x= 9,45,000*100 x= 10,50,000

Q2.

Mr. Behram contractor has undertaken two construction two contracts one at Mumbai and another at Thane. The details of the contractor are given below for the year ended 31st March,2010

Particulars Date of commencement

Contract at Mumbai 1st July2009

Contract at Thane 1st Oct2009

Contract price
Direct Labor Materials issued from stores Plants installed at site Direct Expenses Office overheads Materials sold (Cost Rs. 8,000) Material at Site

10,00,000
2,55,000 2,20,000 10,000 2,00,000 40,000 15,000 10,000

15,00,000
1,82,000 2,00,000 15,000 3,50,000 30,000 10,000 ------

Cash received from contractee 4,80,000 (representing 80% of Work Certified) WC Work Not certified 13,000

2,80,000

9,000

Architect fees 7,000 3,000 1 - provide deprecation on plant @ 20% p.a. 2 - during the year material costing Rs. 10,000 were transferred from the thane contract to Mumbai contract. You are required to prepare contract a/c of Mumbai and Thane Contracts.

Sol:-2 Mumbai Contract A/c for the year ended 31st March,98
Particular To material issued To direct labour To plant installed To direct expenses To office overheads To Thane contract To Architect fees To bal c/d Rs 2,20,000 2,55,000 2,00,000 40,000 15,000 10,000 7,000 72,000 8,19,000 To P&L a/c To WIP ( reverse) 38,400 33,600 By bal c/d 8,19,000 72,000 Particular By work certified By material returned By materials sold By materials at site BY Work uncertified By plant site Rs. 6,00,000 10,000 8,000 18,000 13,000 1,70,000

72,000

72,000

Thane Contract A/c for the year ended 31st March,98

Particular To material issued To direct labour To plant installed To direct expenses To office overheads To Architect fees Rs 2,00,000 1,82,000 3,50,000 30,000 10,000 3,000 Particular By work certified By material returned By Mumbai Contract By materials at site BY Work uncertified By plant site By P&L a/c 7,75,000 Rs. 3,00,000 15,000 10,000 16,000 9,000 3,15,000 1,10,000 7,75,000

Working Note: MUMBAI

Calculation of P&L= 2/3*72,000* 4,80,000/6,00,000= 38,400 Calculation of Work CertifiedLet work certified = x Cash received is 80/100*x= 4,80,000 80x= 4,80,000*100 x= 6,00,000 THANE
Let work certified = x Cash received is 80/100*x= 2,40,000 80x= 2,40,000*100 x= 3,00,000

Q4. M/s Everfine constructions commenced a contract for the construction of bunglow on 1st July2009. Originally the contract price was Rs.50,00,000 but finally the same was fixed at Rs. 45,00,000. Their actual expenditure during the year 2009 and estimated expenditure during 2010 till the completion of the contract is under:

Particulars Building materials Labour charges Plant installed at site at cost Materials at site on 31-122010 General expenses Plant returned to stores at cost at the end of year Work certified Work uncertified Cash received

Expenditure upto 31-12-2010 800000 600000 400000 50000 250000 100000 2000000 75000 90% of the WC

Expenditure upto 2009 1300000 600000 --------355000 ----Contract completed ----4500000

The contract is expected to be completed by 30th sept2010. The plant is subject to deprecation at 20% p.a. on the original cost. In order to calculate the correct a/c of profit made on the contract for the year 2009, it was decided to take certain proportion of the estimated profit on completion of the contract to the credit of profit and loss a/c such proportion being cash received to the total contract price. Prepare the contract a/c for the year ending 31st dec2009 and work out the estimated profit on the completion of contract by 30th sept 2010.

Sol:-4 Contract A/c for the year ended 31st Dec 2009
Particular
To building materials To labour charges To deprecation To General Exp To bal C/d To P& L A/c To WIP reserve

Rs
800000 600000 40000 250000 435000 2125000 204000 231000

Particular
By WIP a/c: Work certified Work Uncertified Material at site

Rs.

2000000 75000 50000 2125000

By bal b/d

435000

435000 Statement of total contract

Particulars Materials Actual 800000 Estimated 1300000

435000
Total 2100000

Labour
Dep plant (4lacs*6/12*20%) Genreal Exp

600000
40000 250000

600000
45000 355000

1200000
85000 605000

Estimated profit= contract price total estimated cost = 4500000 3990000 = 540000 Profit transferred to P& L A/c: Estimated profit* Cash Received Contract Price 510000* 1800000 4500000 = 204000 Working Note; Cal of dep on plant for the estimated period of 9 months Book Value issued 400000 -Plant returned to stores at cost at the end of the year 100000 300000 300000*20%*9/12= 45000

Process costing

Q1The Andhra products ltd, manufacture and sell their chemical produced by consecutive processes. The product of the three processes are dealt with as under;
Particulars Transferred to next process Transferred to warehouse of sales Process 1 66 2/3% 33 1/3% Process 2 60% 40% Process 3 ---100%

In each process 4% of the total weight put in is lost and 6% is scrap which from process 1 realised Rs. 6 per ton from process 2 Rs.10 per ton and from process 3 Rs. 12 per ton The following particulars relate to OCT89 RM used : Process1- 2800 tons @ 40 per ton Process2- 320 tons @ 64 per ton Process 3- 2520 tons @ 28 per ton Manufacturing Wages and Expenses Process1- Rs. 20608 Process2- Rs. 12560 Process 3- Rs. 11580 Prepare process accounts

Particulars To RM To Wages & Exp

Qty 2800

Amt 112000 20608

Particulars

Qty 112 168 1680 840 2800

Amt --1008 87733 43867 132608

Process 1 a/c
By loss in wt By sale of scrap By process 2 a/c By warehouse a/c 2800 To process 1 a/c 1680 132608

Process 2 a/c
87733 By loss in wt 80

To materials
To wages & Exp

320

20480
12560

By sale of scrap
By process 3 a/c By warehouse a/c

120
1080 720 2000

1200
71743 47830 120773

2000 To process 2 a/c To materials To wages & Exp 3600 1080 2520

120773

Process 3 a/c
71743 70560 11580 153883 By loss in wt By sale of scrap By finished stock 144 216 3240 3600 2592 151291 153883

Q2Particulars Rate per unit Rs.10

Normal Loss
Sale of normal loss units Output Wages incurred

10% of input
Rs.3 per unit Rs.75 Rs. 600

Units of raw materials introduced

Calculate Abnormal Loss units and its value

100 units

Sol 2Particular
To RM To wages

Process a/c
Units
100

Amt
1000 600

Particular
By Normal Loss By abnormal loss By output of the process

Units
10 15 75 100

Amt
30 262 1308 1600

100

1600

Working Note: Normal Cost of normal output= 1600-30= Rs. 1570 Normal Output: Units introduced 100 Less- Normal loss units 10 90 units Abnormal Loss Units Normal Output 90 Less Actual Output 75 15 units Value of abnormal loss units= Normal cost of normal output x abnormal loss units Normal output 1570 x 15= Rs. 262 approx. 90

Q3A product passes through 2 processes A & B prepare the Process A/cs
Particulars 10000 units introduced at cost Rs Material Consumed Process A 20000 24000 Process B ---12000

Direct labour
Manufacturing exp

28000
8000

16000
8566

Normal wastages on input

Scrap value of normal wastage (Rs. 100 per units) Output (Units)

5%
40 9400

10%
50 8500

Also prepare the abnormal wastage/ effectives a/cs as the case may be with each process a/c

Particulars To cost of Input To materials To direct labour To process A a/c To materials To direct labour

Qty 10000

Amt 20000 24000 28000

Particulars By normal loss a/c By Abnormal wastage a/c By process b A/c By Normal Loss By finished stock a/c

Qty 500 100 9400 940 8500

Amt 200 840 78960 470 115600

Process A a/c

Process B a/c
9400 78960 12000 16000

To manufacturing exp
To Abnormal effectives 40

8566
544

Calculation of cost per unit for process A a/c:

Process A Cost per unit= Total Cost - Scrap value of normal loss units Total input qty Normal loss Units = 80000 200 = 79800 = 8.40 10000 500 9500 Cost of Abnormal Wastage = 100 x 8.40 = 840 Process B Cost per unit= Total Cost - Scrap value of normal loss units Total input qty Normal loss Units = 115526 470 = 115056 = 13.60 9400 940 8460 Cost of Abnormal Wastage = 40 x 13.60 = 544 preparation of Normal & Abnormal Loss A/c

Particulars

Qty

Amt

Particulars

Qty

Amt

Normal Loss a/c

To process A A/c To process B A/c 500 940 200 470 By sale of Normal Loss :Process A Process B 500 900 200 450

By Abnormal Loss Effective 1440 670

40 1440

20 670

Abnormal Wastage a/c

To process A A/c 100 840 By sales By P & L 100 840 100 -100 40 800 840

Abnormal Effectives a/c

To normal loss a/c To P & L 40 40 20 524 544 40 544 By process B a/c 40 544