Cost Sheets

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Study Note - 12Cost Sheets

This Study Note includes

●●●●● Introduction●●●●● Cost Accumulation●●●●● Cost Collection●●●●● Cost Sheet Formats & Preparation

12.0 Introduction

In the preceding sections, we have dealt with the basic concepts of costs and the various ele-ments of costs. We have also seen the different steps followed in determination of cost of aproduct or rendering a service. Treatment of various costs has been discussed at length. Youare by now very well aware that the term cost has wide connotations and would not meananything in isolation. Costs must be understood if they are to be controlled. Measurement ofcosts is the first step in the process of control simply because you cannot control unless youmeasure. Measurement of cost would mean different when applied to different industries.

The cost has to be measured with respect to the cost centers first and then at a broader levelwith respect to the cost unit. The journey towards the aim of determining cost of a product orservice may take various routes. But the logic is same i.e. collect all relevant costs in the processof converting raw material into finished product and accumulate the total costs.

To put in simple words, to generate any product or service, resources are needed called asinputs. Theses inputs are used in a process of conversion. The end result is the output whichcould either be a product or a service. The resources consume costs. While determining totalcost of resources, the costs of all resources used (directly or indirectly) in the process are accu-mulated. This requires establishing the relationship between the resource and the product orservice.

The process of accumulating costs will differ according to the nature of business and the activi-ties carried out. The common way to accumulate costs is to prepare cost sheets.

Input/resources

Process - One or manyoperations - independent orsequential

Output -Finished

Labour, staff, facilities, utilitiesBasic raw

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12.1 Cost Accumulation

The logic of cost accumulation is to track costs in the same sequence as the resources get used.See the following flow of activities:

- Raw material & other material are purchased and stored- The material is used up in process of conversion- People or machines work upon the material while in the process- The process results into some products that are finished

The cost data needs to be collected along this whole chain that ends when a final product isproduced. The cost accumulation is done based on the source documents which are used inbooking the costs. Depending upon the type of business, a cost unit is determined for whichcosts must be accumulated. The departmentalisation of the business organisation is done tosuit the production process. For example, in a fruit processing industry, the costs would beaccumulated as per different process involved i.e. cutting, pulp formation, blending, purifyingand final packing. As the physical flow of material happens from one process to the other, costsare also passed on from one process to the next in line.

For the purpose of convenience, a cost tree in the following format explains the composition ofcosts.

Direct Indirect Direct Indirect Direct Indirect

Material Labour Expenses

Total cost

As we know all the direct element of cost together make Prime Cost. Sequentially, productionoverheads are added to get Factory Cost or Works Cost. Then Administration overheads areadded to the Factory Cost to get Cost of Production. Once the product is ready for sale, theselling and distribution overheads are added to get Cost of Sales or Cost of Goods Sold. Whenthis is deducted from Sales revenue we get profit or loss.

Process of accumulation of cost comprises of

- Identification of costs to the cost centers or departments- Apportionment of service costs to production costs- Absorption of costs into cost units

Cost Sheets

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12.2 Cost Collection

Cost collection is the process of booking costs against a particular cost account code under aparticular cost center or directly under a cost unit, as the case may be. Source documents areused to generate the record of the costs incurred or to be incurred. These source documents areproperly authorised and numbered. They act as the primary source of entry. In additions tothese documents there could be other documents and reports such as allocation sheets, labourutilisation reports, idle time & overtime analysis, scrap reports etc which help in identifyingcosts. Let us see how the costs are collected.

Material costs: These costs are identified with cost unit with the help of ‘stores issue sum-mary’. In case of job costing, there will be job-wise summary prepared on the basis of ‘materialissue notes’. In case of contracts, the summary will be made contract-wise. At times instead ofprocuring & storing material, it may be procured and directly used on contract site. ‘PurchaseInvoice’ may be the basis to capture such direct material costs. In case of process industry, thematerial is issued to different processes. Here, the costs input to a process may be collectedbased on the cost of materials processed in the previous process. A process-wise summary ofmaterial issues is maintained. Some material may get added to a process but may not becomepart of final product. The cost of such material is apportioned on the output of that process.The indirect material costs may be gathered on the basis of consumable issues, scrap reports,standard parts list etc. Care should be taken to account for material losses. Normal materiallosses are to be apportioned to the good units produced, whereas, abnormal losses should beexcluded from computation of cost of good units and should be directly taken to P & L account.

Labour Cost: Salaries and wages summary prepared after the monthly payroll run is the mainbasis for labour cost collection. The summary shows department-wise break up, so that thedirect labour cost of production department is separately known and that for the other indirectdepartments is also available to be charged as overheads. In case of contracting business, labourforce is usually dedicated to various sites. The cost of labour used on different contracts can befound based on wages sheet maintained for each contract site. In addition, the idle time re-ports, overtime reports are used for booking of the costs of idle time & overtime. In case labourersare common to various jobs or contracts or processes, an estimate of the time that they spendon each of them is made and the costs are allocated accordingly.

Expenses: Accounting entries in cash book or journal proper help collect the expenses. Directexpenses which are job or contract or process specific may be collected on the basis of vouch-ers. The indirect expenses are collected and then apportioned in a summarised form usingapportionment sheets.

Collection of Budgeted costs: The cost calculation for the selected cost unit could be either ofactual cost or budgeted cost. While actual costs are collected on the basis of documents ex-

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plained above, the budgeted costs are computed using the standard bill of material, and prede-termined overhead rates. For budgeted direct material, a bill of material is prepared for eachproduct (including sub-assemblies). This is a quantitative estimate. Based on the estimates abudgeted material price is considered to value the material cost. Estimated labour hours arecosted using estimated labour hour rates. Pre-determined overheads are also computed con-sidering the base selected for absorption. Thus an estimate of total cost with full compositionmay be made.

Cost Accountant & cost data collection: The cost accountant must play a pivotal role in ensur-ing that the process of cost data collection is very strong. The cost analysis and reporting willnot be useful for managerial decision-making if the data collection process is wrong. Presenceof a strong and robust Costing system is needed to ensure comprehensive data collection pro-cess. The costs account may carry out periodical checks to evaluate the system and also may dothe internal audit. He can use all his expertise in the process of establishing cost estimateswhich will help in decision making.

Cost data collected must be reported in proper format to make it more informative and mean-ingful. As can be understood, the report must serve the purpose for which it was sought. Acomplete cost sheet may not be always necessary. The production manager may require thecost of production only. The cost report should be able to give this figure separately broken upinto all its elements. The sales and marketing cost may be given for each channel of distribu-tion, customers, regions etc in addition to the product-wise break up.

The cost data should be collected in a manner that will make available cost information to allthose who are responsible for the costs. A cost sheet should give the figures of each element ofcost broken up into direct and indirect and also according to functions like production, admin-istration and Selling & distribution. It is therefore logical that the format of the cost sheet isderived from the requirements for which it is to be used. Apart from exhibiting the total costdeducted logically, it should highlight other cost also, so that comparison with budget can bemade, variances analysed and cost could be controlled to increase profits.

12.3 Cost Sheet formats & Preparation

The cost concept itself being subjective, there is no standard format in which the collected costscan be presented. It has to suit the type of business, need of the details, and management’srequirement of control over costs. Yet a simple way to show the total cost of any cost unit isshown below:

Cost Sheets

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Specimen cost sheet Period from………….. To…………

Cost Units …………

Cost items Amount (Rs) Amount (Rs)

Direct Material Opening stock xxxxxx Add: Purchases xxxxxx Add: Incidental charges xxxxxx Less closing stock xxxxxx xxxxxx Direct labour xxxxxx Direct Expenses xxxxxx PRIME COST xxxxxx Add: Production Overheads xxxxxx Add: Opening work in process xxxxxx Less: Closing work in process xxxxxx xxxxxx FACTORY COST OR WORKS COST xxxxxx Add: Administrative Overheads xxxxxx COST OF GOODS MANUFACTURED xxxxxx Add: Opening Finished goods stock xxxxxx Less: Closing finished goods stock xxxxxx xxxxxx COST OF FINISHED GOODS SOLD xxxxxx Add: Selling & Distribution Overheads COST OF GOODS SOLD xxxxxx

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You can observe the logical way in which the cost flow has been shown in the above chart. Thefocus in this specimen is on elements and functions split further into direct and indirect costswith respect to the cost units. Although the formats could be different, the contents of a costsheet must be understood and interpreted correctly so that one can analyse it for control anddecision making. For example if it has to be prepared for a process industry, the format wouldreflect the portion up to factory cost for each process separately. Then the administration costswill be added together. The cost per unit will be computed for every process separately. Thestock for processes subsequent to process one will mean stocks transferred from earlier processesand stocks transferred to the next processes. The objective here is to compute the cost per process.The cost sheet format here could be:

Specimen cost sheet Period from………….. To…………

Cost Units …………

Cost items Amount (Rs) Amount

(Rs) Direct Material Opening stock xxxxxx Add: Purchases xxxxxx Add: Incidental charges xxxxxx Less closing stock xxxxxx xxxxxx Direct labour xxxxxx Direct Expenses xxxxxx PRIME COST xxxxxx Add: Production Overheads xxxxxx Add: Opening work in process xxxxxx Less: Closing work in process xxxxxx xxxxxx FACTORY COST OR WORKS COST xxxxxx

Cost Sheets

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Depending on number of processes, the working will be shown up to factory cost. Subsequently,the administration, selling & distribution overheads are added like that shown in the first for-mat. Some process companies may prepare a different cost sheet for each process. When it isavailable process wise, control of process costs and process losses could be better controlled bythe concerned process managers.

12.3.1 Important components of cost sheet :

1) Cost sheet has reference to the job or contract or a batch or production or a service under-taken to be rendered. If the completion of the job at hand relates to more than one accountingperiod, it is better that separate columns are provided to mention figures for those period. Thejob or batch reference should also be mentioned on the header.

2) If there is an estimate made for the costs, a separate column must be provided for estimatedcosts against which the actual costs should be plotted to get ready comparison. This will makecost sheets more user-friendly and meaningful.

3) In certain cases, material may not form any significant portion of the total cost and as suchmay be treated as an overhead item. In such cases, the prime cost will mainly constitute aslabour and other expenses.

4) Treatment of raw material stocks should be carefully understood. As the costs are to belinked to the units produced, the material consumption, completion of earlier period’s semi-finished goods and the finished goods sold needs to be properly computed.

FACTORY COST OR WORKS COST xxxxxx Add: Administrative Overheads xxxxxx COST OF GOODS MANUFACTURED xxxxxx Add: Opening Finished goods stock xxxxxx Less: Closing finished goods stock xxxxxx xxxxxx COST OF FINISHED GOODS SOLD xxxxxx Add: Selling & Distribution Overheads COST OF GOODS SOLD xxxxxx

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Raw Material consumed: Opening stock + Purchases – closing stock

One has to go into the depth of this arithmetical formula. Where do we get the figure of pur-chases from? It is from the suppliers invoices for purchase of stockable material. Students mayrefresh their understanding of the ‘valuation of receipts’ as explained in the chapter 9. It alsoshould include all charges incidental to purchase of goods like carriage, insurance, customsduty etc which is directly associated with the incoming material.

As we know that the stocks are always valued at cost or market price whichever is less. Thisnorm has to be applied to the rates of all the items of material in stock, and then the totalvaluation of stock is done. The stock ledger records all receipts and issues of the quantity andrate of material items. The valuation of material issues has to be properly done based on cor-rectly chosen method of issue pricing. This summary figure as per the issue column shouldexactly match with the raw material consumed figure as included in the cost sheet.

The normal losses on account of material shortages must be included in the cost of raw mate-rial consumed. Care should be taken to remove the abnormal losses there from.

5) Treatment of work in process is another important step. If the format is carefully seen, it willbe noticed that the cost of WIP stocks is adjusted specifically after adding factory overheads!Why adjusted? And why at that stage only? Please note that cost sheet is prepared for a periodof time for a cost unit. At the beginning of that period, if the job has been carried forward fromthe previous period, there may be some partly finished work that is carried forward. At thesame time there may be partly finished production at the end of current period. These stocksmust be adjusted to reflect the cost consumed during the current period. Further, the work inprocess is normally valued at Factory cost. It does not include administration overheads as theproduction of goods is not yet fully complete. Administration costs are absorbed at the stage offinished production. Hence the adjustment of WIP stocks is to be done before adding the ad-ministration overheads.

6) Similarly, the adjustment for the opening and closing stocks of finished goods should bedone. This has to be done after the stage of cost of production.

7) One could have separate columns for total costs and per unit costs side by side. This willhelp have a quick glance at the per unit figures. Management at operating level will find thisvery helpful.

Cost Sheets

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12.3.2 Cost sheet format for service costing

The cost sheet format for service costing takes into account the requirements of different typesof services. It could be used to find out cost of internal services like boiler house, maintenanceof delivery van fleet etc. In such cases the main purpose is to control the costs. It could alsoapply in case of services that are sold such as transport companies, hospitals, hotels, etc. Sellingservices and making profit thereon is the main purpose of these services.

As we know, material costs constitute a lower proportion of the total costs and the proportionof labour and other expenses is higher. As most of the costs are indirect, it is difficult to accu-mulate costs in the traditional format as shown above, neither is it useful. Hence, the emphasisis on variability of expenses. The cost collection is also done in the same manner. All items ofcosts are bifurcated into:

- Fixed or standing costs and

- Maintenance expenses

- Other Variable or running expenses

Based on this bifurcation a cost sheet is prepared. In most of the services, the cost unit is acomposite unit such as per passenger-kilometer, per patient-bed, per Kilo-Watt-Hour, per room-day etc. In such cases it is necessary that quantity of the cost units is properly mentioned in thecost sheet so that per unit cost can be correctly calculated.

Here are some examples of contents of cost sheets for different services:

a) Transport: The costs are shown under the heads of fixed expenses, running expensesand maintenance expenses. The fixed expenses will be time related such as salaries,garage rent, insurance etc. The maintenance charges will be like tyres & tubes, repairs,etc. The operating expenses will mainly include petrol, diesel & fuel oil, drivers & clean-ers’ wages etc. The cost unit data will comprise of mileage run, tonnage carried, days onroad etc. The specimen cost sheet format is shown below:

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b) Boiler house: It generates steam that is used in production activity. Main items of costsare fuel & labour, power, fuel handling, ash removal, water softening, maintenance etc.The cost unit will be cubic feet.

Specimen cost sheet - Transport service Period from………….. To…………

Vehicle no xx

Vehicle no yy

Amount (Rs)

Amount (Rs)

Cost items Operating costs Petrol xxxxxx xxxxxx Diesel xxxxxx xxxxxx Engine oil xxxxxx xxxxxx Drivers' wages xxxxxx xxxxxx Cleaners' wages xxxxxx xxxxxx Depreciation xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Maintenance costs Tyres and tubes xxxxxx xxxxxx Painting, denting xxxxxx xxxxxx Cleaning & overhauls xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Fixed costs Garage rent xxxxxx xxxxxx Insurance xxxxxx xxxxxx Taxes xxxxxx xxxxxx Road permits xxxxxx xxxxxx General supervision xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Grand total xxxxxx xxxxxx Cost units Mileage run xxxxxx xxxxxx Days on road xxxxxx xxxxxx Load carried (tonnes) xxxxxx xxxxxx Capacity utilisation % xxxxxx xxxxxx Total Tonne-miles xxxxxx xxxxxx Cost per tonne-mile xxxxxx xxxxxx

Insurance

Cost Sheets

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Specimen cost sheet - Boiler House Period from………….. To…………

Total cost

Cost per 1000 hours

Steam produced in 1000 hours ………. Less: used in boiler house………… Less: lines losses Net production

Cost items Amount (Rs)

Amount (Rs)

Fuel & Labour Fuel oil xxxxxx xxxxxx Electric power xxxxxx xxxxxx Fuel handling xxxxxx xxxxxx Ash removal & disposal xxxxxx xxxxxx Direct wages xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Water Storage xxxxxx xxxxxx Softening xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Maintenance Boiler cleaning xxxxxx xxxxxx Coal bunkers xxxxxx xxxxxx Economisers xxxxxx xxxxxx Mechanical stokers xxxxxx xxxxxx Service pipes xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Fixed Costs Supervision Rent Depreciation Sub-total xxxxxx xxxxxx Grand total xxxxxx xxxxxx

c) Power House: The main components of cost are steam production and electricity gen-eration. The former comprises of coal, water, wages, maintenance etc and he later con-tains steam consumption, wages, supervision etc. Cost units will be for steam producedand electricity generated.

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Specimen cost sheet - Power House Period from………….. To…………

Total cost

Cost per KWH

Electricity generated in KWH ………. Less: lines losses Net production

Cost items Amount (Rs)

Amount (Rs)

Steam production costs Coal bunkers xxxxxx xxxxxx Water xxxxxx xxxxxx Wages xxxxxx xxxxxx Maintenance of boilers xxxxxx xxxxxx Depreciation xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Less: used for heating purposes Steam used for electricity generation xxxxxx xxxxxx xxxxxx xxxxxx Electricity Generation costs Wages xxxxxx xxxxxx Stores xxxxxx xxxxxx Maintenance of power generators xxxxxx xxxxxx Repairs xxxxxx xxxxxx Transmission lines xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Grand total xxxxxx xxxxxx

d) Canteen: Here the cost will be labour, consumption of provision such as vegetables,meat, fruits, and other costs like depreciation, maintenance, power & electricity etc. Incase canteen is an internal service, it is subsidised. The company contributes a portionof the costs. From total costs subsidy is reduced and then the net costs are reflected.

Cost Sheets

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Similarly one can develop cost sheets for other services like education, BPO, consulting etc.The basic idea is to be able to correctly report costs for the selected cost unit. In case of services,comparison with budgets will enable the management to control cost of services in a betterway.

Miscellaneous Examples

Specimen cost sheet - Canteen Period from………….. To………… Total cost

Cost per meal

Number of meals Less: meals consumed by staff Net costs

Cost items Amount (Rs)

Amount (Rs)

Provisions Meat, fish, eggs xxxxxx xxxxxx Vegetables xxxxxx xxxxxx Fruits xxxxxx xxxxxx Milk xxxxxx xxxxxx Tea, coffee xxxxxx xxxxxx Bread, cakes xxxxxx xxxxxx others xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Wages & salaries Cooks xxxxxx xxxxxx Cleaning staff xxxxxx xxxxxx Helpers & servers xxxxxx xxxxxx Supervision xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Services Steam, Gases xxxxxx xxxxxx Electricity & lights xxxxxx xxxxxx Power xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Fixed Costs Rent xxxxxx xxxxxx Depreciation xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Grand total xxxxxx xxxxxx

Net Meals

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Q 1

Following data is available from the cost records of a company for the month of Feb 2007:1) Opening stock of job as on 1st Feb 2007

Job no 410: Direct material Rs 80, Direct wages Rs 150 and factory overheads Rs 200

Job no 411: Direct material Rs 420, Direct wages Rs 450 and factory overheads Rs 400

2) Direct material issued during the month of February 2007 was:Job no 410 Rs 120

Job no 411 Rs 280

Job no 412 Rs 225

Job no 413 Rs 3003) Direct labour details for February 2007 were

Job no Hours Amount (Rs)

410 400 600

411 200 450412 300 675

413 100 225

4) Factory overheads are applied to jobs on production according to direct labour hourrate which is Rs 2 per hour.

5) Factory overhead incurred in February 2007 were Rs 2100

6) Job numbers 410 & 411 were completed during the month. They were billed to thecustomers at a price which included 15% of the price of the job for selling & distributionexpenses and another 10% of the price for profit.

Prepare:

a) Job cost sheet for job number 411 and 410b) Determine the selling price for the jobs

c) Calculate the value of work in process

Remarks :1) The Jobs completed given in the problem are 410 & 411.Whereas the Job cost sheet

asked to prepare are for Job 411 and 412.Hence changes being made in Qu. to thateffect.

2) The Factory overheads actually incurred are 2100.This amount to be apportioned onthe basis of labour hours. So the rate to be considered as Rs. 2.1per unit =(2100/1000)and not Rs 2 per unit. If we consider the above mentioned point the calculations for JobSheets & for the work in progress will change accordingly.

3) Work in progress is to be calculated for the incomplete jobs hence job no.412 and 413should only be included in the calculations of work in progress.

Cost Sheets

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Note 1 S & D and profit are given in indirect way.

Assume selling price as 100

Less: S & D @ 15% (15)

Less: Profit @ 10% (10)

Balance has to be the factory cost 75

S & D price will be 15/75 of factory costs

480

300

Profit will be 10/75 of factory cost 320

200

Answer 1:

Job Cost sheets for the month of February 2007 Job 411 Job 410

Direct material issued

280

120

Direct labour spent

450

600

Prime Cost

730

720

Factory Overheads @ Rs 2.1 per hour

420

840 Add: Opening WIP (material + labour + overheads)

1,270

430

Factory Cost

2,420

1990 Add; Selling & distribution overheads (note 1)

484 398

Cost of Sales 2904

2388

Profit (note 1)

323

265

Billing Price for the job

3,227

2653

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Computation of Work in Process for February 2007

Opening balance as on 1st February Job 410 430

Job 411 1,270

1,700

Material issued during the month of February Job 410

120

Job 411 280

Job 412 225

Job 413 300

925

Direct Labour Job 410 600

Job 411 450

Job 412 675

Job 413 225

1,950

Factory overheads on 1000 hours @ Rs 2.1

2,100

6,675

Less: factory cost of completed jobs Job 411 (2,420)

Job 410 (1990)

(4410)

Closing Work In Process as on 28th February 2007

2265

Another way to calculate WIP isJob 412 and 413 are in progress & WIP includes only incomplete Jobs.Direct Material (225+300) 525Direct Labour (675+225) 900Factory Overheads (2.1 *(300+100) 840Total WIP 2265

Cost Sheets

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Other details Process Direct labour Overheads Foundry 200 Hrs @ Rs 10 Rs 15 per Labour

Hour Machining 100 Hrs @ Rs 5 Rs 20 per Labour

Hour Assembly 100 Hrs @ Rs 15 Rs 10 per Labour

Hour A comparison of actual costs with estimated cost discloses that material and overheads have exceeded

the estimates by 20% whereas the estimated labour cost is 10% more than the actual. Show the varianceswith respect to the estimates

Cost sheets for the Batch number 2007/01 Standard batch size 1000 pieces Actual Estimated Variance F/A Direct material issued 1250 * 50

62500 52083

(10417) A

Direct labour spent

Foundry 200 * 10

2,000 2,200

200 F

Machining 100 * 5

500 550

50 F

Assembly 100 * 15

1,500 1,650

150 F

Prime Cost

66500 56483

(10017) A Factory Overheads applied

Foundry 200 * 15

3,000 2,500

(500) A

Machining 100 * 20

2,000 1,667

(333) A

Assembly 100 * 10

1,000 833

(167) A

Factory Cost 72500 61483

(11017) A Cost per Unit (factory cost / 1000) 72.5 61.48 11.02

Q 2Prepare cost sheet for an engineering company which produces standard components inbatches of 1000 pieces each. A batch passes through three processes viz. Foundry, Machin-ing & AssemblyThe materials used for a batch number 2007/01 were: Foundry 1300 tonnes @ Rs 50 pertonne of which 50 tonnes were sent back to stores.

Answer 2 :

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Q 3

An advertising agency has received an enquiry for which you are supposed to submit thequotation. Bill of material prepared by the production department for the job states the follow-ing requirement of material:

Paper 10 reams @ Rs 1800 per reamInk and other printing material Rs 5000Binding material & other consumables Rs 3000

Some photography is required for the job. The agency does not have a photographer as anemployee. It decides to hire one by paying Rs 10000 to him. Estimated job card prepared byproduction department specifies that service of following employees will be required for thisjob:

Artist (Rs 12000 per month) 80 hoursCopywriter (Rs 10000 per month) 75 hoursClient servicing (Rs 9000 per month) 30 hours

The primary packing material will be required to the tune of Rs 4000. Production overheads40% of direct cost, while the S & D overheads are likely to be 25% on production cost. Theagency expects a profit of 20% on the quoted price. The agency works 25 days in a month and6 hours a day.

Cost Sheets

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Quotation for a printing Job

Amount Rs

Amount Rs

Direct material required:

Paper 10 *1800 18,000

Ink & other printing material 5,000

Binding material & consumables 3,000

Primary packing material 4,000

30,000

Direct labour spent

Artist (12000/(25*6))*80 6,400

Copywriter (10000/(25*6))*75 5,000

Client servicing (9000/(25*6))*30 1,800

13,200

Photographer's charges 10,000

Prime Cost 53,200

Factory Overheads applied @ 40% on direct cost

21,280

Production cost 74,480

S & D overheads applied @ 25% on production cost

18,620

Total Cost 93,100

Profit ( 20% on price i.e. 25% on cost) 23,275

Price to be quoted 116,375

Answer 3 :

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Q 4The following figures were extracted from the trial balance of a company as on 31st December2006.

Particulars Debit Rs Credit Rs Inventories Raw material WIP FG

140000 200000 80000

Office Appliances 17400 Plant and machinery 460500 Buildings 200000 Sales 768000 Sales returns 14000 Material purchased 320000 Freight on materials 16000 Purchase returns 4800 Direct labour 160000 Indirect labour 18000 Factory supervision 10000 Factory repairs & upkeep 14000 Heat, light & power 65000 Rates & taxes 6300 Misc factory expenses 18700 Sales commission 33600 sales travelling 11000 Sales promotion 22500 Distribution department salaries 7 wages 18000 Office salaries 8600 Interest on borrowed funds 2000

Further details are given as follows:Closing inventories are Material Rs 180000, WIP Rs 192000 & FG Rs 115000Accrued expenses are direct labour Rs 8000, indirect labour Rs 1200 & interest Rs 2000Depreciation should be provided as 5% on Office Appliances, 10% on machinery and 4% onbuildingsHeat, light and power are to be distributed in the ratio of 8:1:1 among factory, office and distri-bution respectivelyRates & taxes apply as 2/3rd to the factory and 1/3rd to officeDepreciation on building to be distributed in the ratio of 8:1:1 among factory, office and distri-bution respectivelyPrepare a cost sheet showing all important components and also a condensed P & L account forthe year.

Cost Sheets

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Answer 4:

Important aspect of this is proper classification of the given items of expenses and costs intoprime cost, factory costs and S & D costs. The understanding of the concept of costs is very welltested in this type of a problem. Remember that interest on borrowed capital is not a part ofcost and hence should be directly taken to P & L account. The cost sheet is shown below:

Cost Sheet showing Cost of Sales for the year 2006

Particulars Amount Rs Amount Rs

Direct materials Opening stock 140,000 Add: Purchases 320,000 Add: freight 16,000

Less: returns

(4,800)

Less: Closing stock

(180,000)

291,200 Direct Labour 160,000

Add: accrued 8,000

168,000

Prime cost

459,200 Factory Overheads Indirect labour 18,000 Accrued indirect labour 1,200 Factory supervision 10,000 Repairs & upkeep 14,000 Heat, light & power 52,000 Rates & taxes 4,200 Misc. Factory expenses 18,700 Depreciation on plant & Machinery 46,050 Depreciation on buildings 6,400 170,550 Add: Opening WIP 200,000

Less: Closing WIP

(192,000)

178,550

Factory Cost

637,750

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Administration overheads Heat light & power 6,500 Rates & taxes 2,100 Depreciation on buildings 800 Depreciation on office appliances 870 Office salaries 8,600 18,870 Add: opening FG stock 80,000

Less: closing FG stock

(115,000)

(16,130) Cost of production of saleable units

621,620

Selling & Distribution Overheads Heat & light 6,500 Depreciation on buildings 800 Sales commission 33,600 Sales travelling 11,000 Sales promotion 22,500 Distribution department expenses 18,000

92,400

Cost of sales 714,020

Condensed P & L account for the year ended 31-12-2006 Sales Income 768,000

Less Returns

(14,000)

754,000

Cost of sales as above

714,020 Interest on borrowings ( 2000+2000)

4,000

Net profit

35,980

Q 5Prakash Transport company has been given a route of 20 km long to run a bus. The bus costs Rs1250000 with an estimated useful life of 5 years. It is insured @ 3% pa of the cost. Annual taxamounted to Rs 25000. The garage rent is Rs 5000 per month. Annual repairs cost is estimatedas Rs 50000.

Cost Sheets

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The driver is paid a salary of Rs 7500 per month and the conductor is paid Rs 5000 per month inaddition to a 10% of takings as commission to be shared equally by them.

Office stationery would Rs 1000 pm and office salaries Rs 10000 pm.

Diesel will cost @ Rs 30 per liter and the bus would travel a distance of 5 km per liter. The buswill make 3 round trips carrying on an average 40 passengers on each trip. Assuming a profitof 15% on takings, calculate the fare to be charged from each passenger. The bus will operatefor 25 days in a month.

Computation of passenger fare - Prakash transport company

Amount Rs

pa Amount Rs Operating costs

Diesel

216,000 Depreciation (1250000/5)

250,000

Repairs

50,000 Commission - driver & conductor

122,733

Sub-total

638,733 Fixed costs

Insurance 3% of 1250000

37,500

Taxes

25,000

Garage Rent (5000*12)

60,000

Driver's salary (7500*12)

90,000 Conductor's salary (5000*12)

60,000

Office stationery (1000*12)

12,000

Office salaries (10000*12)

120,000

Sub-total

404,500

Answer 5 :

P.A.

��������� B 181

Grand total

1,043,233

Profit @ 15% on takings

184,100

Total takings

1,227,333 Cost units

No of round trips

3

To & Fro per trip

2

km per trip

20

Days on road

25 Average passengers carried

40

No of months

12

Total passenger miles

1,440,000

Price per passenger km

0.85

Cost Sheets

���������B 182

Q 6

The city pride Theatre has revealed the following estimates of their cinema hall.

Salary 1 manager Rs 8000 pm, 10 door keepers Rs 2000 pm, 2 operators Rs 4000 pm, 4 bookingclerks Rs 2500 pm

Annual expenses:Electricity Rs 1200000Carbon Rs 300000Misc. expenses Rs 150000

Diesel

No of km per liter

5

No of km pa

36,000

No of liters required

7,200

Per liter rate Rs

30

Total Cost of diesel

216,000 Commission & profit are given in indirect way.

Assume total takings as

100

Less: commission @ 10%

(10)

Less: Profit @ 15%

(15) Balance has to be the total cost

75

Cost before commission

920,500 Commission (10/75*920500)

122,733

Profit (15/75*920500)

184,100

��������� B 183

Advertising Rs 750000 (it would earn income of Rs 25000 on advertisements shownin the hall)Hire of films Rs 1500000 per film on 15 filmsAdministration expenses Rs 80000

The premises cost Rs 60 lacs and are to be depreciated over 15 years. Projector and other equip-ments cost Rs 25 Lacs and to be depreciated @ 25% pa.

The plan is to have 3 daily shows on all 360 days in a year. The capacity is 625 seats divided into

Lower class 250Upper class 250andBalcony 125

20% of the seats are estimated to be vacant. The weightages to be given to the three classes arein the ratio of 1:2:3.

If the management wishes to earn a profit of 25% on gross proceeds, find out the rates to becharged for each class. Round off to nearest rupee.

Answer 6:In this case it is important to note the weights given. This is to express each class in equivalentunits so that calculations can be made accordingly.

Cost Sheets

���������B 184

Computation of Cinema Ticket Rates - City Pride Cinema Hall

Amount

Rs pa Amount

Rs Operating costs

Electricity

1,200,000

Carbon

300,000

Misc. Expenses

150,000

Advertising (750000-25000)

725,000

Hiring of films (1500000*15)

22,500,000

24,875,000 Fixed costs

Salary of manager (1*8000*12)

96,000

Door keepers (10*2000*12)

240,000

Operators (2*4000*12)

96,000

Booking clerks (4*2500*12)

120,000

Depreciation on premises (60/15)

400,000 Depreciation on projecting equipments (25*25%)

625,000

1,577,000

Grand total

26,452,000

Profit @ 25% on gross proceeds (i.e. 1/3 of cost)

8,817,333

Gross earnings

35,269,333 Cost units

No of shows in a year (3*360)

1080 No of equivalent seats

Lower class (1*250)

250

Upper class (2*250)

500

Balcony (3*125)

375

Total seats

1,125

Less: 20% vacant seats

(225)

��������� B 185

Net chargeable seats

900

No of Man-shows in a year (900*3*360)

972,000 Earnings per man-show(gross earnings/man-shows)

36.29

Rats of the ticket per seat

Lower class (1 x 36.29)

36.29

Upper class(2 x 36.29)

72.57

Balcony (3 x 36.29)

108.86