103_Sample_Chapter.pdf

COST ANALYSIS: COST CLASSIFICATION AND COST SHEET

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 Cost Classification—Basis  Miscellaneous Cost Terms  Cost Sheet/Cost Statement  Cost Sheet—Advantages

Cost analysis and cost classification involve grouping of costs into various logical groups on some suitable basis. Cost analysis and classification are essential for the purpose of cost control and managerial decision making. There are various methods of classification of costs. The method selected is based on the purpose for which it is needed. The important bases of classification are: 1. 2. 3. 4. 5. 6. 7. 8. 9.

By nature or element By relation to cost centre or product By function By behaviour or variability By time By controllability For decision making purpose By payment By normality.

Cost Analysis: Cost Classification and Cost Sheet

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(c) Expenses It includes all costs other than materials and labour cost. It is the cost of various services consumed by an undertaking. It is further classified into direct expenses and indirect expenses. (i) Direct expenses: It includes cost of all services specifically incurred for a product, process, job or cost centre. They are directly identified with a particular cost object. It is conveniently allocated to a particular cost object in whole. It is also called chargeable expenses. It includes excise duty, royalty, hire charges and repairs and maintenance of special equipment required for a job; cost of special drawings, designs, moulds and patterns. (ii) Indirect expenses: Indirect expenses are expenses incurred in relation to two or more products, processes, jobs or cost centres. It is apportioned to various cost objects. It includes rent, rates, taxes, insurance, lighting, depreciation, power, fuel, advertisement and repairs and maintenance.

2.2 BY RELATION TO COST CENTRE On the basis of relation to cost centre, costs are classified as direct costs and indirect costs. (a) Direct Costs Direct costs are incurred in relation to a specific product, process, job or cost centre. They consists of direct materials, direct labour and direct expenses. The total of all direct costs is called prime cost. (b) Indirect Costs Indirect costs are general expenses incurred for two or more products, processes, jobs or cost centres. They are apportioned to various cost objects on suitable basis. They include indirect materials, indirect labour and other indirect expenses. The total of all indirect costs is also called overheads, oncost or burden.

2.3 BY FUNCTION All indirect costs are called overheads and can be classified on functional basis into: (a) (b) (c) (d)

Factory overheads Office and administration overheads Selling overheads Distribution overheads.

(a) Factory Overheads Factory overheads is also called production overheads, works overheads or manufacturing overheads. It includes all indirect expenses in relation to production activity. It includes all indirect materials used in production, indirect labour expended in production, works manager’s salary and allowances, repairs, maintenance, depreciation and insurance of factory building, plant, equipment and machin-

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Cost Accounting

(b) Differential Cost The change in the cost of two alternatives is called differential cost. The increase in the total cost due to increase in output is called ‘incremental cost’. The decrease in the total cost due to decrease in output is called ‘decremental cost’. (c) Relevant Cost and Irrelevant Costs Cost items taken into consideration while making a decision are called relevant costs. Costs which are not necessary for a particular decision making are called irrelevant costs. A cost relevant for a particular decision may be irrelevant for another decision. A cost irrelevant for a decision may be relevant for another decision. For example rent for own premises may be relevant for comparison of profitability with another firm paying rent. But it is irrelevant for computing tax liability of a firm using own building. (d) Opportunity Cost The benefit foregone due to an alternative decision taken is called opportunity cost. For example, a person decides to start a business of his own. For the purpose he resigns his present employment and withdraws his savings kept in a bank deposit. Due to this decision to start a business he foregoes his salary income and interest income. The loss of salary and interest income is opportunity cost for the business.

2.8 BY PAYMENT On the basis of payment involved costs are classified as follows: (a) Out of Pocket Costs or Explicit Costs The costs result in actual outflow of cash, e.g., salary, wages, rent, advertisement, etc. paid. (b) Imputed Costs or Notional Costs or Implicit Costs These expenses are considered for decision making purpose only. They do not result in any cash outflow, e.g., rent for own premises, interest on own capital and depreciation on fully depreciated asset.

2.9 BY NORMALITY Costs are classified into the following two groups: (a) Normal Costs Expenses incurred in a normal business condition is called normal costs. These costs are included in cost of production. (b) Abnormal Costs These costs are occasional and occur due to the happening of some unforeseen event, e.g., loss due to fire, theft, accident etc. These costs are not included in the cost of production. They are debited to costing profit and loss account.

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Cost Accounting

(ii) Production cost centre and service cost centre Production cost centre refers to a place where goods are produced. They actually stand for a production department. Service cost centre stands for divisions which help the production departments by providing various services like maintenance department, time office, boiler house, canteen etc. (iii) Operation and process cost centre Operation cost centre stands for the total activities carried out in a production department is divided into smaller functions or operation in relation to which costs are accumulated, e.g., cutting, welding, machining, boring etc. Process cost centre stands for a department where production is carried on continuously. Costs are collected for a process as a single unit. (h) Profit Centre Profit centre is a place or division in an organisation which brings revenue. (i) Value Added Value added refers to increase in the market value of a product in excess of the cost incurred for altering or changing the composition of the product. (j) Stock-Out Cost Stock-out cost refers to the loss suffered by a company due to stoppage of production due to nonavailability of raw materials. (k) Shut-Down Cost Shut-down cost refers to expenses continued to be incurred even after temporary closure of production facilities, e.g., insurance, security, management expenses like director’s fees, managing director’s salary, salary and wages to skilled employees, Audit fees, etc. The following chart shows classification of costs: Total cost Materials

Direct materials

Other expenses

Labour

Indirect materials

Direct labour

Indirect labour

Direct expenses

Indirect expenses

Prime cost Indirect cost or overheads or oncost

Production overheads

Office and administration overheads

Selling overheads

Distribution overheads

Cost Analysis: Cost Classification and Cost Sheet

Add: Opening stock of finished goods Cost of goods available for sale Less: Closing stock of finished goods Cost of goods sold

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

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Add: Selling and Distribution overheads: Advertisement, free samples, showroom expenses

xxx

Sales office salary and allowances

xxx

Salesmen’s salary and commission

xxx

Travelling expenses (for sales purpose)

xxx

Warehouse rent and rates

xxx

Carriage outward, delivery van expenses

xxx

xxx

xxx

Cost of sales/total cost

xxx

xxx

Profit/loss

xxx

xxx

Sales

xxx

xxx

Advantages of a cost sheet 1. 2. 3. 4. 5. 6. 7. 8.

It helps to ascertain total cost and cost per unit. Costs are classified under proper headings and presented in a logical order. It enables inter-firm and intra-firm comparison of costs. It helps in price fixation. It helps to ascertain profit or loss for a period. It helps in preparing tenders and quotations. It helps in preparing budgets. It enables close watch over cost for cost control.

Production or manufacturing accounts If information for a period relating to cost of production is presented in a ledger format, it is called production account or manufacturing account. All production expenses are debited to this account. Opening stock of work-in-progress is shown on the debit side. Closing stock of work-in-progress is shown on the credit side. The following is a proforma of a production account.

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Cost Accounting

Proforma of production or manufacturing account Total Cost (|)

Particulars To opening work-in-progress

Particulars

xxx By closing stock of work-in-progress

Total Cost (|) xxx

To Materials consumed: Purchase of materials

xxx

Add: Opening stock of materials

xxx

Add: Purchase related expenses

xxx

By production cost c/d (Balancing figure)

xxx

xxx Less: Closing stock of materials

xxx

To Direct labour

xxx xxx

To Production overheads

xxx

Less: Sale of scrap

xxx

To production cost b/d To administration overheads

xxx xxx

xxx

xxx By cost of production xxx (Balancing figure)

xxx

xxx

xxx

Illustration-1 (Computation of materials consumed) Calculate materials consumed from the following information: | Opening stock of raw materials Purchase of raw materials Carriage inward

18,000 2,30,000 27,000

Sale of raw material scrap

8,000

Closing stock of materials

20,000

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Cost Accounting

Add: Purchase of materials

4,00,000

Add: Import duty and clearing charges

1,00,000

Add: Carriage on purchase

60,000

Add: Transit insurance and handling charges

25,000 6,35,000

Less: Return of defective materials to supplier 40,000 Less: Sale of raw materials scrap

20,000

Less: Stock of materials on 31.3.10

60,000

Cost of materials consumed

1,20,000 5,15,000

Illustration-3 (Computation of prime cost) From the following calculate the prime cost: | Stock on materials on 1.4.09 Purchase of materials

28,000 1,60,000

Expenses in connection with purchases

20,000

Direct materials returned to supplier

20,000

Stock of direct materials on 31.3.10

35,000

Manufacturing wages

90,000

Royalty charges

75,000

Hire and maintenance charges of a special machinery

45,000

Solution Statement showing computation of prime cost: | Materials consumed: Stock on materials on 1.4.09 Add: Purchase of materials

28,000 1,60,000

|

Cost Analysis: Cost Classification and Cost Sheet

Add: Expenses in connection with purchases

20,000 2,08,000

Less: Direct materials returned

20,000

Less: Stock of direct materials on 31.3.10

35,000

55,000

Manufacturing wages

90,000

Direct expenses: Royalty charges

75,000

Hire and maintenance charges of a special machinery

45,000

Prime cost

(Computation of prime cost) From the following information calculate the prime cost: | Opening stock of raw materials

40,000

Purchase of raw materials

7,50,000

Carriage inward

25,000

Closing stock of raw materials

35,000

Carriage outward

30,000

Chargeable expenses

65,000

Indirect expenses

50,000

Factory wages

2,25,000

Factory rent

16,000

Solution Statement showing prime cost: | Materials consumed:

Add: Purchase of raw materials

1,20,000 3,63,000

Illustration-4

Opening stock of materials

1,53,000

40,000 7,50,000

Total |

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Cost Accounting

Add: Carriage inward

25,000 8,15,000

Less: Closing stock of raw materials Factory wages

35,000

7,80,000 2,25,000

Chargeable expenses

65,000 Prime cost

10,70,000

Illustration-5 (Cost sheet with grouping of expenses) From the following information prepare a cost sheet showing (i) Prime cost, (ii) Works cost, (iii) Cost of production, (iv) Cost of sales and (v) Profit: | Purchase of materials

5,35,000

Stock of materials on 1.4.09

28,000

Stock of materials on 31.3.10

32,500

Manufacturing wages

2,85,000

Indirect materials

21,000

Indirect wages

42,700

Office salaries

57,600

Carriage inward

18,300

Chargeable expenses

53,000

Internal transport (factory)

27,500

Drawing office expenses

25,500

Advertisement

44,600

Printing and stationery

16,400

Works manager’s salary

30,000

Carriage outward

18,500

Officer rent, rates and insurance

21,600

Director’s fees

22,000

Cost Analysis: Cost Classification and Cost Sheet

Office equipment and furniture

14,900

Managing director’s Salary (30%)

13,500

Lighting - office

9,000 Cost of production

1,55,000 13,44,300

Selling and distribution overheads: Advertisement

44,600

Salesmen’s salary, allowances and expenses

23,700

Carriage outward

18,500

Warehouse expenses

19,500

Managing director’s salary (30%)

13,500

Free samples distributed

3,700

Packing and forwarding expenses

12,300

1,35,800

Cost of sales/total cost

14,80,100

Profit (bf)

1,69,900

Sales

16,50,000

Illustration-6 (Simple cost sheet with stocks) The following information is taken from the records of Arthi Ltd. for the month of April 2009. 01.04.2009 30.04.2009 | | Stock of raw materials

37,500

41,250

Stock of work-in-progress

28,700

23,200

Stock of finished goods

46,400

53,200

Transactions during the month are: Indirect materials

17,550

Productive wages

97,500

Indirect wages

20,900

Purchase of materials Other factory expenses

1,46,500 24,800

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Cost Accounting

Administration expenses

41,600

Sale of factory scrap

2,400

Advertisement

26,500

Carriage outward

5,000

Sales

4,35,000

Prepare a cost sheet showing (a) Prime cost, (b) Works cost, (c) Cost of production, (d) Cost of sales and (e) Profit.

Solution

Cost sheet for the month of April, 2009 Total |

Particulars Materials Consumed: Stock of materials on 1.4.09

37,500

Add: Purchase of materials

1,46,500 1,84,000

Less: Stock of materials on 30.4.09

41,250

Productive wages

1,42,750 97,500

Prime cost

2,40,250

Production overheads: Indirect materials

17,550

Indirect wages

20,900

Other factory expenses

24,800 63,250

Less: Sale of factory scrap

2,400

60,850 3,01,100

Add: Stock of work-in-progress on 1.4.09

28,700 3,29,800

Less: Stock of work-in-progress on 30.4.09

23,200 Works cost

Administration overheads:

3,06,600 41,600

Cost of production

3,48,200

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Cost Accounting

Solution Cost sheet for 6 months ending 31.3.2009 Total (|)

Particular

Ratio

Model ‘A’ (|)

Model ‘B’ (|)

Materials Consumed: Stock of materials On 1.10.08

29,800

Add: Purchase of materials

1,24,500 1,54,300

Less: Stock of materials on 31.3.09

21,970

Direct labour

1,32,330

5:6

60,150

72,180

81,900

4:5

36,400

45,500

96,550

1,17,680

27,600

34,500

1,24,150

1,52,180

21,500

21,500

1,45,650

1,73,680

14,280

21,420

1,59,930

1,95,100

39,983

48,775

1,99,913

2,43,875

2,500

3,000

79.97 (Approx.)

81.29 (Approx.)

Prime cost Factory overheads

62,100

4:5

Works cost Office overheads

43,000

1:1

Cost of production Selling overheads

35,700

2:3

Total cost Profit: 20% on sales (or) 20/80 on cost Sales Number of units produced Selling price per unit

Illustration-8 (Overhead expenses given as %) The following expenses were taken from the account books of Nortan Ltd. for the year ending 31.3.2010: | Direct materials

6,00,000

Direct labour

4,25,000

Direct expenses

65,000

Cost Analysis: Cost Classification and Cost Sheet

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Charge factory overheads at 60% of direct labour, office overheads at 20% on factory cost and selling overheads at 15% of factory cost. Prepare a cost sheet showing profit earned if the company earns a profit of 25% on sales.

Solution Cost sheet for the year ended 31.3.2010 Total (|) Direct materials

6,00,000

Direct labour

4,25,000

Direct expenses

65,000 Prime cost

Factory overheads - 60% of direct labour Works cost Office overheads - 20% on works cost Cost of production Selling overheads - 15% on works cost Total cost Profit - 25% on sales or 25/75 on total cost Sales

10,90,000 2,55,000 13,45,000 2,69,000 16,14,000 2,01,750 18,15,750 6,05,250 24,21,000

Illustration-9 (Finding the value of closing stock of finished goods) The management of Jaihind Ltd. gives you the following information for the year ending 31.3.09. You are required to prepare a cost sheet. | Direct materials

3,75,000

Direct labour

2,40,000

Factory overheads

95,000

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Cost Accounting

Administration overheads

60,000

Selling overheads

36,000

Sales

8,97,000

Additional information: 1. 3,500 units were produced during the year 2. Stock of finished goods 350 units valued at |70,000 as on 01.04.2008 3. Stock of finished goods as on 31.03.2009 are 400 units.

Solution (i) Valuation of stock of finished goods on current cost basis: Cost Sheet for the year ending 31.3.2009 Units Direct materials

Total |

3,500

3,75,000

-

2,40,000

3,500

6,15,000

-

95,000

3,500

7,10,000

-

60,000

3,500

7,70,000

350

70,000

3,850

8,40,000

400

88,000

3,450

7,52,000

-

36,000

Cost of sales

3,450

7,88,000

Profit (bf)

-

1,09,000

Sales

3,450

8,97,000

Direct labour Prime cost Factory overheads Works cost Administration overheads Cost of production Add: Opening stock of finished goods

Less: Closing stock of finished goods Cost of goods sold Selling overheads

Cost Analysis: Cost Classification and Cost Sheet

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(ii) Valuation of stock of finished goods on average cost basis: Cost sheet for the year ending 31.3.2009 Units Cost of production (Same as in (i))

Total |

3,500

7,70,000

350

70,000

3,850

8,40,000

400

87,272

3,450

7,52,728

-

36,000

Cost of sales

3,450

7,88,728

Profit (bf)

-

1,08,272

Sales

3,450

8,97,000

Add: Opening stock of finished goods

Less: Closing stock of finished goods Cost of goods sold Selling overheads

Note: Valuation of closing stock of finished goods: (i)

(ii)

Cost of production during the year Number of units produced during the year 7,70,000 = |220 = 3,500 Value of closing Stock = 400 × 220 = |88,000

Current cost of production per unit =

Cost of production + Value of opening stock Units produced + Opening stock units 8,40,000 = |218.18 (Approx.) = 3,850 Value of closing stock = 400 × 218.18 = |87,272 Average cost of production per unit =

Illustration-10 (Finding the missing information) The books of Adarsh Manufacturing Company presents the following data for the month of April, 2001. Direct Labour Cost |17,500 being 175% of works overhead and cost of goods sold excluding administration expenses |56,000. Inventory accounts showed the following opening and closing balances:

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Cost Accounting

April 1 | Raw materials

April 30 |

8,000

10,600

Work-in-progress

10,500

14,500

Finished goods

17,600

19,000

Other data: Selling expenses

3,500

General and administration expenses

2,500

Sales for the month

75,000

You are required to: (i) Compute the value of raw materials purchased (ii) Prepare a cost statement showing the various elements of cost and also the profit. (CA-Inter)

Solution (i)

Computation of value of materials purchased |

|

Cost of goods sold

-

56,000

Add: Closing stock of raw materials

-

10,600

Closing stock of work-in-progress

-

14,500

Closing stock of finished goods

-

19,000 1,00,100

Less: Opening stock of raw materials

8,000

Opening stock of work-in-progress

10,500

Opening stock of finished goods

17,600

Direct labour

17,500

Works overhead (17,500×100/175)

10,000

63,600

-

36,500

Raw materials purchase

Cost Analysis: Cost Classification and Cost Sheet

Note: (1) All items added in the cost sheet till cost of goods sold is deducted. (2) All items deducted in the cost sheet till cost of goods sold is added. (3) Since administration cost is not included in cost of goods sold, it is not deducted. (ii) Cost statement for the month of April 2001 Total | Materials consumed: Opening stock of raw materials

8,000

Add: Purchase of materials

36,500 44,500

Less: Closing stock of raw materials

10,600

Direct labour

33,900 17,500

Prime cost Factory overheads (17,500×100/175)

51,400 10,000 61,400

Add: Opening stock of work-in-progress

10,500 71,900

Less: Closing stock of work-in-progress

14,500

Works cost General and administration overheads

57,400 2,500

Cost of production Add: Opening stock of finished goods

59,900 17,600 77,500

Less: Closing stock of finished goods

19,000

Cost of goods sold Selling expenses

58,500 3,500

Cost of sales

62,000

Profit (bf)

13,000

Sales

75,000

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Cost Accounting

Illustration-11 (Finding missing information) The following data relate to XYZ Ltd.

Inventories Beginning | Finished goods

Ending |

1,10,000

95,000

Work-in-progress

70,000

80,000

Raw materials

90,000

95,000

Additional information: Cost of goods available for sale

6,84,000

Total goods processed during the period

6,54,000

Factory overheads

1,67,000

Direct materials used

1,93,000

Requirements: (i) Determine raw materials purchased. (ii) Determine the direct labour cost incurred. (iii) Determine the cost of goods sold. (B.Com. (Hons.), Delhi University)

Solution (i) Computation of raw materials purchased | Direct materials used Add: Closing stock of raw materials

1,93,000 95,000 2,88,000

Less: Opening stock of raw materials Raw materials purchase

90,000 1,98,000

Cost Analysis: Cost Classification and Cost Sheet

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(ii) Determination of labour cost incurred | Total goods processed during the period Less: Opening stock of work-in-progress

6,54,000 70,000 5,84,000

Less: Factory overheads Prime cost

1,67,000 4,17,000

Less: Direct materials used

1,93,000

Direct labour cost

2,24,000

(iii) Determining the cost of goods sold | Cost of goods available for sale Less: Closing stock of finished goods Cost of goods sold

2.13

6,84,000 95,000 5,89,000

EXERCISES

I. Objective Type Questions A. State whether the following statements are true or false 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Cost centre is a place where direct materials are expended. Direct materials enter the finished product. The total of direct labour, direct expenses and production overheads is called conversion cost. Hire charges paid for a special machinery is part of production overheads. Royalty payable on production is production overheads. Imputed cost results in outflow of cash. Semi-variable cost is also called step cost. The total of all direct expenses is called prime cost. Valued added refers to cost incurred in the production of a product. Variable cost per unit increases due to increase in production. Fixed cost is also called period cost.

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Cost Accounting

12. 13. 14. 15.

Standard cost is a predetermined cost. Fixed costs are generally uncontrollable. Sunk costs result in cash payment. Office overheads are unavoidable costs.

(Ans: True - 2, 3, 7, 8, 11, 12, 13, 15; False - 1, 4, 5, 6, 9, 10, 14) B. Fill in the blanks 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Prime cost refers to total of all expenses. . Works cost is the total of prime cost and . Costs which result in actual payment of cash is called cost. Period cost or time cost is . The benefit foregone due to an alternative decision is called . Labour cost incurred for conversion of raw materials into finished goods is called cost. Bad debts is an example of . Costs remaining constant per unit is called Place, a person, a machine or a group of these in relation to which cost is ascertained is called . . The division which brings or earns revenue for a business is called . Costs which can be influenced by managerial action is called . Travelling expenses incurred specifically for a particular job is called . Expenses incurred for two or more jobs or cost centres is called Increase in the market value of a product in excess of costs incurred for changing or altering its composition is known as . . The difference in the total cost between two levels of production is called

(Ans: 1. Direct, 2. Factory overheads, 3. Out of pocket cost, 4. Fixed, 5. Opportunity cost, 6. Direct labour, 7. Policy, 8. Variable cost, 9. Cost centre, 10. Profit centre, 11. Controllable cost, 12. Direct expenses, 13. Indirect expenses, 14. Value added, 15. Differential cost)

II. Theory Questions A. Short answer type questions 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

What is cost centre? Explain the various types of cost centre. Explain direct materials. What is direct labour? What is direct expense? Give few examples. What is prime cost? Explain opportunity cost. What is policy cost? What is imputed cost? What is cost classification? Define out-of-pocket cost.

Cost Analysis: Cost Classification and Cost Sheet

11. 12. 13. 14. 15.

43

Define semi-variable cost. All costs are controllable, comment. What is value added? Explain. What is conversion cost? What is cost sheet?

B. Long answer type questions 1. Write short notes on: (a) Cost centre; (b) Opportunity cost; (c) Notional cost; (d) Out of pocket cost; and (e) Policy cost. 2. What do you understand by cost classification? Explain the various cost elements on the basis of variability. 3. Explain the functionwise classification of overheads. 4. Explain cost sheet. What are its uses? 5. All costs are controllable. Explain. 6. Explain what do you understand by chargeable expenses and state its treatment in cost accounts. (CA-Inter) 7. Explain various costs used in decision making and explain their characteristics. (B.Com. (Hons), Delhi University) 8. What is the purpose of classifying costs?

III. Practical Problems A. Short answer type questions 1. Compute materials consumed from the following: | Opening stock of materials

20,000

Purchase of materials

1,25,000

Carriage on purchases

15,000

Sale of materials scrap

7,000

Closing stock of materials

18,000

(Ans: Materials consumed |1,35,000) 2. Compute materials consumed from the following: | Purchase of direct materials

3,50,000

Carriage inward

27,000

Carriage outward

18,000

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Cost Accounting

Sale of factory scrap

10,000

Sale of direct materials scrap

15,000

Materials returned to supplier

30,000

Indirect materials

25,000

Opening stock of direct materials

50,000

Closing stock of direct materials

40,000

(Ans: Materials consumed |3,42,000) 3. Compute prime cost: | Opening Stock of materials

35,000

Purchase of materials

4,10,000

Import duty and Clearing charges

1,50,000

Other purchase expenses

25,000

Closing stock of materials

30,000

Factory wages

2,40,000

Factory overheads

1,60,000

Royalty paid on production

1,20,000

Hire charges for special machinery

40,000

(Ans: Prime cost |9,90,000) 4. Find the gross cost of goods processed during the period: | Prime cost

80,000

Factory overheads

45,000

Opening stock of work-in-progress

30,000

Closing stock of work-in-progress

25,000

Office overheads

70,000

(Ans: Gross cost of goods processed |1,55,000) Note: Gross cost of goods processed = Prime Cost + Factory Overheads + Opening Stock of Work-in-Progress.

Cost Analysis: Cost Classification and Cost Sheet

45

5. Find the net works cost: | Prime cost

1,50,000

Production overheads

60,000

Opening stock of work-in-progress

27,000

Closing stock of work-in-progress

30,000

(Ans: Net works cost |2,07,000) 6. Prepare a cost sheet from the following: | Raw materials consumed

80,000

Wages

20,000

Works expenses charged at 100% of wages, office overheads charged at 25% on works cost and selling overheads at 10% on works cost. (Ans: Cost of sales |1,62,000) 7. Calculate profit and sales from the following: | Cost of sales

5,00,000

Profit 20% on sales

(Ans: Profit |1,25,000; Sales - |6,25,000) 8. In a factory a standard product is manufactured. From the following particulars prepare a cost sheet showing total cost and profit made: | Raw materials consumed

30,000

Labour

60,000

Works overhead is charged at 40% of works cost and office overheads is taken at 20% of total cost. The standard product sold during the period is 180 units at |1200 each. (B.Com., Bharathidasan University) (Ans: Total cost |1,87,500; Total profit - |28,500; Cost per unit |1041.67; Profit per unit |158.33)

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Cost Accounting

Note : (a) Works cost = 40/60 on prime cost (b) Office overheads = 20/80 on works cost. 9. The following information is taken from the records of X Ltd. for the year ending 31.3.2010: Raw materials consumed

|20,000

Direct wages

|16,000

Production overheads

150% of direct wages

Office overheads

25% on works cost

Selling overheads

|2 per unit sold

Opening stock of finished goods

500 units valued at |4,000

Units produced during the period

|10,000

Units sold during the period

9,500 units at |10 per unit.

Prepare a cost sheet. (Ans: Cost of production - |75,000; Closing stock - 1,000 units; Value - |7,500; Cost of sales-|90,500; Profit - |4,500) B. Comprehensive questions 1. Simple cost sheet-with detailed cost elements From the following particulars taken from the books of United Engineering Ltd., prepare a cost sheet for the year ending 31.3.2010. | Stock of materials on 1.4.2009

65,700

Stock of materials on 31.3.2010

48,500

Purchase of materials

3,79,000

Productive wages

2,83,000

Hire charges and maintenance of a special equipment

46,000

Royalty paid

84,000

Carriage on purchases

21,500

Carriage outward

24,900

Indirect materials

34,000

Indirect wages

30,000

Foreman salary

20,000

Cost Analysis: Cost Classification and Cost Sheet

47

Depreciation, repairs and maintenance Of Plant and machinery

42,000

Of office furniture and equipment

27,500

Drawing office salaries

18,000

Motive power, fuel and oil

39,000

Lubricants and cotton waste

13,400

Office salaries

52,000

Printing and stationery

11,300

Warehouse expenses

26,000

Advertisement

31,600

Travelling expenses General

12,700

Sales promotion

17,500

Samples and gifts

14,000

Bad debts written off

10,000

General manager’s salary

60,000

General manager’s salary to be apportioned in the ratio of 4 : 3 : 3 to factory, office and sales departments. Sale of finished goods amounted to |15,00,000. (Ans: Prime cost - |8,30,700; Works cost - |10,51,100; Cost of production - |11,72,600; Cost of sales - |13,14,600; and Profit - |1,85,400) 2. Simple cost sheet with opening and closing stocks From the following particulars, prepare a cost sheet for the year ending 31.03.2010: 1.4.2009

31.3.2010

|

|

Stock of materials

22,750

26,300

Stock of work-in-progress

18,200

15,700

Stock of finished goods

37,600

34,500 |

Purchase of raw materials

6,20,000

Carriage inward

21,400

Factory manager salary

25,000

Depreciation of plant and machinery

27,100

Office rent, rates and insurance

14,600

48

Cost Accounting

Salesman travelling expenses

21,900

Carriage outward

13,800

Debenture interest

16,500

Directors fee

24,000

General manager salary

25,000

Transfer to general reserve

20,000

Wages

3,70,000

Power expenses

1,15,000

Office salaries

28,000

General expenses

17,300

Dividend paid

35,000

Warehouse expenses

29,000

Income tax

41,000

Goodwill written off

10,000

Bank charges

6,000

Printing and stationery

12,500

Sales for the year

16,00,000

(Ans: Prime cost - |10,07,850; Works cost - |11,77,450; Cost of production - |13,04,850; Cost of goods sold - |13,07,950; Cost of sales - |13,72,650; Profit |2,27,350) 3. Dev Ltd. provides the following particulars for the month of August, 2009. Prepare a cost sheet: 1.8.2009

31.8.2009

|

|

Stock of raw materials

75,000

60,000

Stock of work-in-progress

27,000

36,500

Stock of finished goods

50,000

62,000

Transactions during the month of August 2009: | Purchase of raw materials

2,50,000

Factory expenses

82,000

Depreciation of plant and machinery

41,000

Selling and distribution overheads

27,500

Cost Analysis: Cost Classification and Cost Sheet

Direct labour

49

1,70,000

Sale of factory scrap

16,000

Office overheads

34,500

Sales

6,00,000

(Ans: Prime cost - |4,35,000; Works cost - |5,32,500; Cost of production - |5,67,000; Cost of goods sold - |5,55,000; Cost of sales - |5,82,500; Profit - |17,500) 4. Apportionment of Common Expenses TV Ltd. produces television sets in two models - Deluxe and Premium. information is taken from their records for the year ending 31.3.2010. 1.4.2009

31.3.2010 |

|

Deluxe

Premium

Deluxe

Premium

70,000

40,000

90,000

80,000

1,65,000

1,10,000

2,10,000

1,70,000

Stock of work-in-progress Stock of finished goods

The following

Purchase of materials - |12,00,000; Direct labour - |7,50,000. Materials consumed were in proportion of 5 : 7 and wages incurred were in the ratio of 2 : 3 for the two models. Factory overheads is charged at 80% of direct labour, Administration overheads charged at 25% on works cost and selling and distribution overheads estimated at 15% on works cost. The company wants to earn a profit of 25% on sales. Find the profit of each model for the year 2009. (Ans: Profit - Deluxe: |4,61,000; Premium - |6,66,000) 5. Valuation of Closing Stock Sri Ram Ltd. produces a standard product. It furnished the following cost information for 6 months ending 30.9.09: | Materials consumed

80,000

Direct labour

55,000

Factory overheads

33,000

Selling overheads at |2 per unit Number of units produced 4,200 Number of units sold - 4,000 at |45 per unit