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Problems and Solutions

Problem 1. From the following details calculate prime cost, factory cost, cost of production, cost of sales and profit from the following particulars :

OfficeRepairs and Renewals:Factory PlantOffice PremisesTransfer to ReserveDividend Paid 2,500 3,5001,0002,0001,000 Salesmen’s SalariesTravelling ExpensesAdvertisingWarehouse ChargesSalesCarriage Outward

Income-tax

2,5001,0003,0001,0003,80,000800

15,000

 

Solution : Statement of Cost and Profit

 

Problem 2. The following information has been obtained from the records of Narmatha Corporation Ltd for the period from January 1 to June 30, 2003.

 

1. 1.2003$ 30.6.2003$
Cost of Raw MaterialsCost of Work in ProgressCost of Stoclz of finished Goods

Transactions during six months are :

Purchase of Raw Materials

Wages Paid

Factory-Overheads

Administration Overheads

Selling and Distribution Overhead

Sales

30,00012,00060,000

1,50,000

3,30,000

92,000

60,000

30,000

12,50,000.

25,00015,00055,000

Prepare Cost Sheet.
Solution
: Statement of Cost

$
Opening Stock of Raw MaterialsAdd : Purchase of Raw MaterialsLess : Closing Stock of Raw Materials

Cost of Materials Consumed

Direct Wages

Prime Cost

Add : Factory Overheads

Factory Cost Incurred

Add : Opening Work-in-progress

Less : Closing Work-in-progress

Factory (or) Manufacturing or Works Cost

30,0005,50,0005,80,000

25,000

5,55,000

3,30,000

8,85,000

92,000

9,77,000

12,000

9,89,000

15,000

9,74,000


Income Statement

Particulars $ $
SalesLess : Cost of Goods Sold :Opening Stock of Finished Goods

Add : Factory Cost of the year

Less : Closing Stock of Finished Goods

Gross Profit

Less : Indirect Expenses :

Administration Expenses

Selling and Distribution Expenses

Net Profit

60,0009,74,00010,34,000

55,000

60,000

30,000

12,50,0009,79,0002,71,000

90,000

1,81,000

Problem 3. Suriyat & Co Ltd requires a statement showing the result of its production,operation for Sep. 2002. Cost records give the following information.

  Raw Materials

Finished Goods

Work in Progress

1.9.2002$1,00,000

71,500

31,000

30.9.2002$1,23,500

42,000

34,500

Transactions during the month of Sep. 2002 :

Purchase of Raw MaterialsDirect WagesWorks’ Expenses

Administration Expenses

Sale of Factory Scrap

Selling and Distribution Expenses

Sales

$88,00070,000

39,500

13,000

2,000

15,000

2,84,000

Solution :                                            Statement of Cost

$ $
        Opening Stock of Raw MaterialsAdd: Purchase of Raw Materials 

 

Less : Closing Stock of Raw Materials

Value of Material Consumed

Add : Direct Wages

 

 

Prime Cost

Add: Factory Overhead :

Works Expenses

Less : Sale of Factory Scrap

 

Total factory cost

Add : Opening Stock of work –in- progress

 

 

 

 

 

 

 

 

 

 

 

 

 

39,500

2,000

1,00,00088,0001,88,000

 

1,23,500

64,500

70,000

1,34,500

 

 

 

 

 

 

 

37,500

 

1,72,000

31,000

2,03,000

Less : Closing Stock of Work-in-progress                                                          34,500

Works Cost                                                                                                         1,68,500

Add : Administration Expenses                                                                                     13,000

Cost of Production                                                                                              1,81,500

Add : Opening Stock of Finished Goods                                                            71,500

2,53,000

Less : Closing Stock of Finished Goods                                                             42,000

Cost of Goods to be sold                                                                                     2,11,000

Add : Selling and Distribution Expenses                                                            15,000

Cost of Sales                                                                                                        2,26,000

 

Profit                                                                                                                    58,000

Sales                                                                                                                      2,84,000

Problem 4. Mr. Gopal furnishes the following data related to the manufacturing of a product during the month of April 2004.

 Raw .Materials ConsumedDirect Labour Charges

Machine Hours Worked

Machine Hour Rate (Rs.)

Administrative Overheads

Selling Overheads

Units Produced

Units Sold

@ Rs. 4 per unit

$

15,000

9,000

900

5

20% on works cost

Res.0.50 per unit

17,100

16,000

You are required to prepare a cost sheet from the above showing (i) the cost of production per unit (ii) profit per unit sold and profit for the period

 Solution :                                                        Cost Sheet

ParticularsRaw Material Consumed

Direct Labour

Direct Expenses

 

Prime Cost

Add : Factory Overheads 900 x 5 =

Works Cost of 17,100 units

Add: Admn. Overhead 20% on Works Cost

 

Cost of Production 17,100 units

($ 34,200/17,100 units = $ 2 per unit)

Amount$15,000

9,000

Nil

 

24,000

4,500

 

28,500

5,700

 

34,200

Cost per Unit$

 

 

 

 

 

 

 

 

 

2.00

Add: Opening Stock of Finished Goods                                            Nil

Less: Closing Stock of Finished Goods 1,100 units at $ 2                 2,200

 

Cost of Goods Sold 16,000 units                                           32,000

Add: Selling Overheads 16,000 x 0.50 =                                            8,000               0.50

 

Cost of Sales 16,000 units                                                      40,000             2.50

Sales 16,000 x 4 = 64,000

 

Profit on 16,000 units                                                                         24,000

 

Problem 5. The following extracts of costing information relate to product z for the year ending 31.3.2003.

 Purchase of Raw Materials

Direct Wages

Stock of Raw Materials on 1.4.2002

Stock of Finished Goods on 1.4.2002 (1,600 units)

Stock of Raw Material on 31.3.2003

Stock of Finished Goods [3200 units] at Current Cost of Production

Works Overheads

Work in Progress on 1.4.2002

Work in Progress on 31.3.2003

Office on Cost

Sales (Finished Product)

$48,000

40,000

8,000

6,400

8,800

12,840

16,800

1,920

6,400

3,200

1,20,000

Selling and Distribution Cost is 40 paise per unit. During the year 25,600 units were produced. Calculate the cost of production and extend the cost sheet to show the profit also.

 Solution :                                Cost Sheet for the year ended 31.3.2003

Particulars                                                                  TC

$                      $

Raw Material Used :

Opening Stock                                                                        8,000

Add: Purchases                                                                                    48,000

56,000

Less: Closing Stock                                                                            8,800

47,200

Add: Direct Wages                                                                              40,000

Prime Cost                                                                                          87,200

Add: Factory Overheads                                                                     16,800

Factory Cost                                                                                       1,04,000

Add: Opening stock of work in progress (1.4.2002)                           1,920

1,05,920

Less : Closing Stock of Work in Progress (3 1.3.2003)                      6,400

Works Cost                                                                                         99,520             3.89

Add : Office on Cost                                                                          3,200               0.12

Cost of Production (25,600 units)                                                      1,02,720          4.01

Add : Opening Stock (1,600 units)                                                     6,400

(27,200 units)                                                                                      1,09,120

Less : Closing Stock 3,200 units                                                         12,840

Cost of Goods Sold                                                                            96,280             4.01

Add : Selling cost @ 40 paise per unit                                                9,600               0.40

(24,000 * .40)                                                              1,05,880          4.41

Profit 14,120 0.59

Sales                                                                            1,20,000          5.00

 

Problem 6. RCH Ltd is manufacturing refrigerators. The following details are furnished in respect of its factory operations for the year ended 31-12-2002.

 

            Work in Progress 1.1.2002            At Prime Cost

Manufacturing Expenses

          Work in Progress 31.12.2002

           At Prime Cost

          Manufacturing Expenses

         Opening Stock of Raw Materials

         Purchase of Raw Material

         Direct Labour

         Manufacturing Expenses

Closing Stock of Raw Material

61,00020,000

 

 

54,000

9,000

 81,000

 

 

 

63,000

3,25,000

5,00,000

2,31,000

96,000

2,24,000

On the basis of above data, prepare a statement showing the cost of production. Also indicate separately the amount of manufacturing expenses which enter the cost of production.

Solution :                                                        Cost Sheet

                                                                                    $                                  $

Raw Material

Opening Stock                                                            3,25,000

Add : Purchases                                                                       5,00,000

8,25,000

 

Less : Closing Stock of Raw Material                                    2,24,000

Value of Raw Material Consumed                                                     6,01,000

Add : Direct Labour                                                                                        2,31,000

8,32,000

Add: Work in Progress in the beginning                                                                     61,000

8,93,000

‘Less : Work in Progress at the end                                                                              54,000

Prime Cost                                                                                          7,17,000

Add : Manufacturing Expenses :

Relating to Opening Work in Progress                                   20000

Add : Relating to 2002                                                                        96000

116000

Less : Relating to Closing Work in Progress                                      9000                107000

Cost of Production                                                                                                     824000

 

Problem 7. The following details are available from the costing records of Himalaya & Co Ltd.

Stock of Raw Materials on 1.1.2003Stock of Finished Goods on 1.1.2003

Purchases during the year

Productive Wages

Sale of Finished Goods

Stock of Finished Goods on 31.12.2003

Stock of Raw Materials on 31.12.2003

Works Overheads

Office and General Expenses

12,80028.000

2,92,000

1,98,000

5,92,000

30,000

13,600

43,736

35,524

The Company is about to send a tender for plant. The costing department estimates that the materials required would cost $ 20,000 and wages for making the plant would cost $ 12,000. Tender is to be made keeping a net profit of 20% on selling price. State what would be the amount of the tender if based on the percentages.

 Solution :                                Cost sheet for the year ended 31.12.2003

                                                                                                $                      $

Opening Stock of Raw Materials                               12,800

Add : Purchases during the year                                             2,92,000

3,04,800

Less: Closing Stock of Materials                                            13,600

Value of Material Consumed                                                                          2,91,200

Productive Wages                                                                                           1,98,000

Prime Cost                                                                                                      4,90,000

Add: Works Overheads                                                                                   43,735

Factory Cost                                                                                                   5,33,736

Add: Office and General Overheads                                                              35,524

Cost of Production                                                                                         5,69,260

Add: Opening Stock of Finished Goods                                                        28,000

5,97,260

Less: Closing Stock of Finished Goods                                                         30,000

Cost of Goods Sold                                                                                        5,67,260

 

Profit                                                                                                   24,740

Sales                                                                                                    5,92,000

Workings:

(i) Percentage of factory overheads to productive wages
43,736 / 1,98,000 * 100 = 22%

 (ii) Percentage of office on cost to factory cost
35,524 / 5,33,736 * 100 = 6.66%

MaterialsProductive wages

Prime Cost

Factory Overheads (22% on Wages)

Factory Cost

Office on Cost (6.66% on Factory Cost)

Total Cost

Profit (20% on Selling Price)

Tender price

20,00012,000

32,000

2,640

34,640

2,307

36,947

9,237

46,184

Problem 8. The following is the trading profit and loss Ale and other details. You are required to prepare a cost sheet showing the price at which the coolers should be marketed in order to earn a profit of 10% on selling price.

 Trading Account

 To Cost of Materials

To Direct Wages

To Other Manufacturing Cost

To Gross Profit

 

 

To Office Salaries

To Rent and Insurance

To Selling Expenses

To General Expenses

To Net Profit

      $80,000            By Sales

1,20,000         (1000 Coolers)

50,000

1,50,000

4,00,000

 

60,000            By Gross Profit

10,000

30,000

20,000

30,000

1,50,000

        $4,00,000

 

 

 

4,00,000

1,50,000

 

 

 

 

1,50,000

For the year ending 31.12.2003 it is estimated that

 

(i)                 Output and sales will be 1,200 coolers.

(ii)               Prices of material will rise by 20% on the 2002 level.

(iii)             Wages will increase by 5%.

(iv)              Manufacturing cost will rise in proportion to the prime cost.

(v)                Selling expenses per unit remain unaffected.

(vi)              Other expenses will remain constant.

 

Solution :                                     Cost sheet for the year ending 31.12.2003

                                                                                                                          Output for 1,000

Particulars                                                                                      CPU                                                                                                          $

Cost of Materials                                                                             80.00

Direct Wages                                                                                 120.00

Prime Cost                                                                                     200.00

Manufacturing Expenses                                                                50.00

Factory Cost                                                                                  250.00

Office Salaries                                                                                60.00

Rent and Insurance                                                                         10.00

General Expenses                                                                           20.00

Cost of Production                                                                        340.00

Selling Expenses                                                                            30.00

Cost of Sales or Total Cost                                                          370.00

Profit                                                                                              30.00

Sales                                                                                            400.00

Total Cost$

80,000

1,20,000

2,00,000

50,000

2,50,000

60,000

10,000

20,000

3,40,000

30,000

3,70,000

30,000

4,00,000

Estimated cost sheet for the year ending 31.12.2004

                                                                                   [Estimated output of 1,200 coolers]

Particulars                                                                                       CPU

                                                                                                          $

Materials                                                                         80.00

Add: 20% increase                                                          16.00        96.00

Wages                                                                            120.00

Add: 5% increase                                                         6.00               126.00

Prime Cost                                                                                          222.00

Manufacturing Expenses (25% on Prime Cost)                                    55.50

Works Cost                                                                                         277.50

Add: Administration Overheads

Office Salaries                                                                                     50.00

Rent and Insurance                                                                                8.33

Other Expenses (Constant)                                                                  16.67

Cost of Production                                                                             352.50

Selling Expenses (Constant per unit)                                                  30.00

Cost of Sales or Total Cost                                                                382.50

Profit (10% on selling Price)                                                               42.50

Sales                                                                                                   425.00

Total Cost

  $

 

1,15,200

 

1,51,200

2,66,400

66,600

3,33,000

 

60,000

10,000

20,000

4,23,000

36,000

4,59,000

51,000

5,10,000

Workings:

Computation of Profit 10% on Selling Price

If selling price is $ 100 then profit is $ 10 and cost is $ 90 (100-10) if cost is $ 90 then profit is $ 10.

If Cost is $ 382.50, then profit is 382.50/90 * 10 = 42.50

Total Profit = $ 42.50 x 12,00 = $ 51,000.

 

Problem 9. Compute works cost from the following where indirect wages are 50% of direct wages; indirect materials are 50% of direct materials and indirect expenses are 100% of direct expenses.

 

Direct Expenses

Direct Wages

Direct Materials

$  10,000

$  30,000

$  10,000

 

Solution :                                                                    Cost Sheet

Particulars

Direct Materials

Direct Wages

Direct Exp~nses

Prime Cost

indirect materials

Indirect Wages

Indirect Expenses

Works Cost

$                                             $

10,000

30,000

10,000

50,000

5,000

15,00

10,000                                30,000

80,000