Study Material 2°4 Semester Problems and Solutions Chapter: Cost Sheet 1, The Directors of a manufacturing company require a statement showing the production results of a business for the month of April, 2018. The cost accounts give the following information: Stock in hand (1.4.2018) z Raw Materials 25,500 Finished goods 17,300 Stock iit hand (30.4.2018) Raw Materials 26,200 Finished goods 15,000 Purchases of Raw Materials 22,000 Work-in-progress (1.4.2018) 8,200 Work-in-progress (30.4.2018) 9,000 Sale of Finished goods 72,000 Direct wages . 17,100 Non-productive wages 800 Stores 100 Office Expenses 3,000 Works Expenses ; 3,000 Selling and Distribution Exps ) 4,200 The following information is required: (a) The value of materials consumed, (b) Works Cost, (c) Tota cost of production, (4) Cost of goods sold, (e) The profit on goods sold, (f) Percentage of works overhead to productive wages, (g) Percentage of office on cost to works cost, (i) Percentage of selling and distribution expenses to sales. Solution: Statement of Cost x ‘Stock of Raw materials (1.4.18) 25,500 Add: Purchases of Raw Materials 22,000 [#7300 Less: Stock of Raw Materials (30.4.18) | __ 26200. Value of Materials Consumed (a) 21,300 Direct Wages | _ 1710 Prime Cost 38400— Work Overheads: z Non-Productive wages 800 stores 100 Works Exps. 3,000 : 3,900 ‘Gross Work Cost 42,300 Add: Work-in-Progress (1.4.18) 8,200 50,500 Less: Work-in-Progress (30.4.18) 9,000 Work Cost (6) 41,500 Office Exps. 3,000 Cost of Production (Office Cost) (c) 44,500 Add: Stock of Finished goods (1.4.18) 17300 61,800 Less: Stock of Finished goods (30.4.18) 15,000 : Cost of Goods Sold (4) |" 46,800 Selling and Distribution Expenses 4200 Cost of Sales |” 51,000 Profit on Goods Sold (e)| . 21,000 Selling Price! 72,000 Calculation of Percentages: ( () Percentage of Works Overhead to Productive Wages Works Overhead «100 ., 3,900%100 Productive Wages T7100 = 22-807% @) Percentage ‘of Office on Cost to Works Cost Office on cost 100 ,, 3,000%100 me Works Cost 41,500” 7226% (A) Percentage of Selling and Distribution Expenses to Sales Selling & Dist. Exps.*100 4,200x100 " “Sales 72,009 = 5:833% 2. XYZ is manufacturing refrigerators and the following details are furnished in respect of its factory operations for the year ended 31 March, 2018.Work-in-Progress in the beginning At Prime Cost Manufacturing Exps. 66,000 Work-in-Progress at the end ‘At Prime Cost Manufacturing Exps. 54,000 Stock of Raw Materials in the beginning a 2,25,000 Purchases of raw materials 4,77,000 Direct Labour 1,71,000 Manufacturing expenses 84,000 Closing stock of raw materials 2,04,000 On the basis of above data, prepare a statement showing the cost of production, Solution: Statement Showing Cost of Production of Refrigerators for the year ending 31st March 2018 z = Raw Materials: Opening Stock 2,258,000 Purchases 4,77,000 7,02,000 Less: Closing Stock of Raw Materials 2,04,000 Cost of Raw Materials Consumed 4,98,000 Direct Labour 1,71,000 6,69,000 Add: Work-in-progress in the beginning . | wip valued 51,000 Prime Cost 7,20,000 Less: Work-in-progress at the end 43,000 Prime Cost : %75,000 Manufacturing exps. 84,000 Add: Work-in-progress in the beginning _ we wht) 15,000 Met | | oe Less: Work-in-progress at the end 9,000 90,000 Cost of Production 7,65,000 Here, Works Cost = Cost of Production 3. Prepare a Cost Statement and determine profit from the following information: Consumable Materials ‘Opening stock Purchases Closing stock Direct Wages Other Direct Charges Factory Overheads Office Overheads Selling and Distribution expenses e 10,000 85,000 4,000 20,000 10,000 100% of Direct Labour 10% of Works Cost %2 per unit sold.wr Units of Finished Product In hand at the beginning of the period 1000 (Value %16,000) Produced during the period In hand at the end of the period 10,000 2,000 Also find out the selling price per unit on the basis that profit margin is uniformly made to yield a wofit of 20 percent ofthe selling price. There was no work-in-progress either at the beginning or atthe end of the period. Solution: Cost Sheet for the Period ended March 31, 2018 (Output 10,000 units) Total | Per Unit & @ ‘Consumable Materials Opening Stock 10,000 ‘Add: Purchases £85,000 95,000, Less: Closing Stock 4,000 91,000 9.10 Direct Wages 20,000 2.00 Other Direct Expenses 10,000 1.00 Prime Cost [~1,21,000 12.10 Factory Overheads: 100% of Direct Wages 20,000 2.00 Works Cost [~ 141,000 14.10 Office Overheads: 10% of Works Cost 14,100 Lal Cost of Production (10,000 Units) | 1,55,100 1551 Add: Opening Stock of Finished Goods (1000 units) 16,000 1,71,100 Less: Closing’ Stock of Finished Goods i (2000 units @ %15,51 per unit!ie. Cost of Production per unit) 31,020 31,020 ‘ost of Goods Sold (9000 units) Add: Selling and Distribution Overheads @ %2 per unit (@2 x 9000 units) at Cost of Sales Profit (20% of Selling Price ie, 25% of Cost) Selling Price (er Unit Selling Price 2272600 units ne. £21.96)4, From the following particulars prepare a statement in such form as you consider most suitable for showing | clearly all elements of cost : ' € z Opening stock of raw materials 25,000 Carriage on goods sold ti Purchase of raw materials 70,000 Rent and rates of workshop po Raw materials retumed to suppliers 2,000 Fuel, gas, water etc. ion Closing stock of raw materials 18800 Repairs to plant ao Wages paid to : Depreciation on machinery 4 Productive workers 18,000 Office expenses 0 Non-productive workers 2,000 Direct chargeable expenses 0 Salaries paid to office staff 5,000. Advertising 120 | Carriage on raw materials purchased ‘500. Abnormal loss of raw materials 1200 IN.B.U,B.Com.(tfons)) Solution Statement of Cost. z z Materials consumed : ‘Opening stock 25,000 Purchases 70,000 Carriage on purchases 500 95,500 Less : Returns 2,000 93,500 Less : Abnormal loss (see Note) 1/200 92,300 Less : Closing stock 18,800 | 73.500 Productive wages 18,000 Direct chargeable expenses 800 Prime cost 92,300 Works overhead : Non-productive wages 000 Rent and rates of workshop 2,500 Fuel, gas, water etc. too Repairs to plant ‘600 Depreciation on machinery 1400 | __ 7.500 Works cost 39,800 Office overhead : Salaries to office staff 5 Offce expenucs 00 | 65 Cost of production 7,06,300 Selling and distribution overhead: Carriage on goods sold ‘Advertising Too | _ 2700 Cost of sales Tem ‘The toliowing particulars are available tor the previous year’s production of fans for M/s. Eastern Engineering, co. @ Total production 1,000 units. G Total cost of raw materials consumed © 12,000. Git) Total cost of direct labour € 20,000. ie) Total works overhead expenses € 40,000. (®) Total general overhead expenses © 36,000. (o) Total selling and distribution overhead expenses © 16,000. (ei) Total sale price for 800 units sold © 1,12,640. On the basis of the undernoted instructions prepare a detailed price quotation per unit of fan for the current year: (@) Cost of raw materials and direct labour are to increase by 10% and 15% respectively over the previous year’s level () Works overhead, general overhead, as well as selling and distribution overhead are to be charged at the same respective percentages as in the previous year. (© Profit is to be estimated at the same percentage on total cost a is eared in the previous year,| | | | Working notes are important for the solution. calculation of quoted pri Cost Sheet for the year Total | Per x z Raw materials consumed 12,000 |” 1209 Direct labour 20,000 | 20.00 Prime cost 32,000 | 3209 Works overhead expenses 40,000 | 4000 Works cost 72,000 [72.00 General overhead expenses 36,000 | 36-00 Cost of production 1,08,000 | 108-00 Less : Closing stock (200 units) @ € 108 21,600 = Cost of goods sold (800 units) 86,400 | 10800 Selling and distribution overhead expenses (on 800 units) 16,000 | 2000 Cost of sales 1,02,400_ | 12800 Profit (balancing figure) 10240 | 1280 Sales 712,640 [| _14080 Estimated Price to be quoted per unit for the year z Raw materials : /,99x @ 12 1320 Direct labour : 15/199 @ 20, 2300 Prime cost i 3620 Works overhead (@ 200% of direct labour) (see Note'1) 4600 Works cost 8220 General overhead (@ 50% of wotks cost) (see Note 2) 4110 Cost of production | 12330 Selling and distribution overhead (@ 185% of cost of goods sold) (see Note'3) 281 Total cost weit Profit @ 10% on total cost (see Note 4) u46t Price to be quoted 16072 Working Notes : (2) Percentage of works overhead on direct abours £42999 109» 200% (2) Percentage of general overhead on works cost= £50000 — % 100 = 50%, (Percentage of sling and distribution expenses on cost of goods sold = $16000 Fea *100= 185%. © 10240 (8) Fereentage of profit on cost» TEE «100 = 10%, Be careful about increase/decrease of cost inP. Ltd. a manufacturer of fans, manufactured and sold 2,000 fans during the year ended 31.3.17. Following is the profit and loss account of the company during the year. Profit and Loss Account for the year ended 31.3.17 z z To Opening stock of raw materials 20,000 By Sales 6,00,000 Purchases of raw materials 1,30,000 Closing stock of raw materials 30,000 » Wages 1,80,000 ” Manufacturing expenses 75,000 % Gross profit c/d 2,25,000 630,000 630,000 To Rent, rates and taxes 20,000 By Gross profit b/d 2.25000 » Administration expenses 1,00,000 » Dividend received 3,000 » Selling and distribution expenses 45,000 Preliminary expenses written off 8,000 ” Donation 5,000 » Net profit e/d 50,000 2,28,000 2,268,000 The estimates made by the company for the year ending 31.3.18 are as under : (a) The production and sales of fans will increase by 50%, (b) The price of material per fan would increase by 20%, (©) The labour cost per fan would go up by 10%. (d@) Of the manufacturing ex; nses % 15,( are fip ar ar i tion wi be inthe same proportion of mater consumed and nape ie Te vasa poston wl () Administration ‘expenses are to be charged at the same Tespective percentage ‘in_the previous year. (f) Selling and distribution expenses per fan would remain unchanged. (g) Selling price per fan will decrease by 10%, price Working Notes: (1) Percentage of variable manufacturing expenses to prime cost : 3.69, (2) Percentage of administration expenses to works cost; $490 ppp, * 100 = 267/5% (G) Raw material cost perfan in 2017-18 : € 60 +20% thereof = © 72. (4) Labour cost per fanin 2017-18: 90+ 10% thereof = & 99, (5) Selling price per fan in 2017-18: €300~ 10% thereof = 270, (6) Dividend received is a non-operating income, Preliminary expenses and donation are non-cost items. These items have, therefore, been excluded from the cost sheet. Example of items not to be considered at Cost Sheet: Int. paid on bank loan, Int. on debentures, Loss on sale of fixed assets, Income Tax paid, Goodwill written off, Patent written off, Preliminary Exp written off, Transfer to Teserve, Donation, Discount received, Dividend received, Profit on sale of fixed assets, Bad debt recovered, Interest received.solution Outpt : 2,000 Fans Cost Sheet Period: Year ended 31.3.17 Total | Perunit z z aw materials consumed : ‘Opening stock 20,000 Purchases during the year 330,000 1,50,000 Lass: Closing stock '30,000 | 1,20,000 6000 Wages —— |_1180,000 |" _ 90.00 Prime cost 3,00,000 |, 15000 Manufacturing expenses Fixed 15,000 Variable 60,000 | __75,000 3750 Works cost 375,000 | 18750 Office and administration expenses : Rent, rates and taxes 20,000 ‘Administration expenses 3,00,000 |/_1,20,000 60:00 Cost of production 495,000 | __24750 Salling and distribution expenses \ 45,000 2:50 Cost of sales 540,000 | 270-00 Profit (balancing figure) 60,000 30-00 Sales 600,000 | 30000 Budgeted Output and Sales : 3,000 Fans Estimated Cost Sheet Period : Year ended 31.3.18 Total] _Perunit z z Raw materials 216000 | 7200 Wages 2,97,000-| 99.00 Prime cost 513,000 | __171-00 Manufacturing expenses : Fixed 15,000 Variable : 20% of & 513,000 1,02,600 3920 Works cost 21020 Office and administration expenses : Rent, rates and taxes 20,000 tration expenses : 26%/3% of works cost 1,68,160 Seting £254 9f Production and distribution expenses Cost > ie of sales 5a Sales 270007. The cost structure of an article, the selling price of which is Rs. 8,000 is: Direct Materials 50% of total cost Direct Labour 30% of total cost Overhead Balance Profit 20% on selling price (a) If the material price and labour rates increase by 20% and 10%, respectively, and overhead remains fixed, what will be the profit percentage on the same selling price? (b) In the above case, what should be the selling price if the profit thereon shall remain at 20% on selling price? Solution : Comparative Statement of Cost, Profit and Selling Price TT firticipated Condition Particulars Present condition | Selling Price Constant | Selling Price Changed Rs. Bs. Direct Materials 3,200 + 20% = 3,840 3,840 Direct Labour 1,920 + 10% = 2,112 2112 Overhead 1,280 + Nil = 1,280 1,280 Total cost 6400 7,232 7,232 Profit 1,600 768 1,808 Selling Price 8,000 8,000 9,040 Percentage of Profit on Sale 20% 9.6% 20% Note: Cost = Sales - Profit = Rs. (8000 ~ 1,600) = Rs. 6,400. Use of equation 8. A company manufactures radios which are sold at Rs. 1,600per unit. The total cost is composed of 30% for direct materials, 40% for direct wages ad 30% for overheads. An increase in material price by 30% and in wage rates by 10% is expected in the next year, as a result of which the profit at current selling price may decrease by 40% of the present profit per unit. You are required to prepare a statement showing current and future profit at present selling price. How much should selling price be increased to maintain the present rate of profit? Solution : Let x be the total cost and y be the profit. Since Cost + Profit = Sales, x + y'= Rs. 1,600..... -() Statement of Present and Future Cost of Radio Cost elements Present cost _| Increase in cost _| Future expected cost Rs. Rs. Rs. Direct Materials 0.30x 0.09x 0.39x Direct Labour 0.40x 0.04x 0. a Overheads 0.30x = 0.30x x 0.13x 1.13x.The increase in cost is 0.13x and decrease in profit is 40%, selling price remainin unchanged: The increase in cost and reduction in profit can be represented by the follow equation : 1.13x + 0.60y = 1,600... 2) Multiplying equation (1) by 0.60 and subtracting it from equation (2), we get 0.60x + 0.60 y 960. 13x + 0.60y 1,600 () 0.53 x’ (-) 640 of, x= Rs, 1,207.50 or Cost = Rs. 1,207.55 Substituting the value of x in equation (1), we get 1,207.55 + y = 1,600 or Profit = Rs. 392.45 -Current Profit = 3o29. x 100 = 325% of cost iis ai Future Profit = 0.60 x 392.45 = Rs, 235.47 Statement of revised Selling Price to maintain the current rate of profit Rs. Direct Material Rs. (0.39 x 1207.55) 470.94 Direct Labour Rs. (0.44 x 1207.55) 531.32 Overheads Rs. (0.30 x 1207.55) 362.27 Total Cost 1,364.53 Profit, (0.325 x 1364.53) 443.47 Revised Selling Price 1,808.00 . from Rs, 1,600.to Rs. 1,80 Thus, the selling price should be increased by Rs. 208 i. maintain the present rate of profit.