Unit Or Output Costing (Cost Sheet & Tender Costing)

Introduction Unit or output costing is used in these industries or factories where standard products are produced from a common process and all the units produced are more or less similar to each other. Unit or output costing is also known as single costing method. Following are the main features of unit or output costing: (i) (ii) (iii) (iv) Production consists of a single product or a few varieties of the same product, Production units should be identical; Production is uniform and on continuous basis, and Per unit cost has to be determined in this method.

Definitions of Unit or Output Costing According to J.R. Batliboi, "Output or single cost method is used in business where a standard product is turned out and it is desired to find out the cost of a basic unit of production." According to Herald J. Wheldon, "Unit of output costing is a method of costing by the units of production, where manufacture is continuous and the units are identical or can be made by means of ratios."

Objectives of Unit or Output Costing The following are the main objectives of unit or output or single costing: (i) (ii) (iii) (iv) (v) (vi) To know the total cost of production as well as the cost per unit of output, To know the profit or loss on the production or output, To classify various cost under relevant categories and its detail analysis, To facilitate the preparation of tender price or quotation price, To control the cost of product through comparative statement study of the cost of two or more periods, and To analyse the effect of each element of cost on total cost.

Methods of Unit of Output Costing Following methods are adopted to calculate the unit or output costing: C C C Cost Sheet, Statement of Cost, and Production Account.

It is to be noted that the fundamental principles of preparing above records of unit of output costing are almost same except that of Performa.

Unit or Output Costing (Cost Sheet & Tender Costing)

Cost Sheet Unit or output costing is one of the important objectives of Cost Accounting. For this, it is essential to classify cost into certain constituents or categories. These are known as elements of cost. Elements of cost are: (i) (ii) (iii) (iv) (i) (ii) (iii) (iv) (v) (vi) Direct Material, Direct Labour, Direct Expenses, and Overheads. Direct Material Direct Labour Direct Expenses Factory Overheads Office and Administrative Overheads Selling and Distribution Overheads Prime Cost Factor Cost or Works Cost Cost of Production Cost of Sales

When all the direct materials, direct labour and direct expenses are aggregated, the resultant sum is the prime cost. If we add factory expenses to the prime cost, this will give the factory or works cost and if in the factory cost, office and administrative expenses are added, the result is to the cost of production. If selling and distribution expenses are added to the cost of production, it gives the cost of sales. It profit is added to the cost of sales, selling price is obtained. This can also be calculated by deducting losses, if any, from the cost of sales. (i) Direct Material: It is the cost of all the materials which directly enter the product and become part of it. Expenses are such as inward components and primary packing materials. Expenses, such as inward freight, custom and insurance charges are also to be treated as direct material cost. Direct Labour Cost: The portion of wages or salaries which can be identified with the charged to a single cost unit is treated as direct labour cost. Direct or Chargeable Expenses: This covers all expenses directly incurred and identifiable to the specific unit of production, for example, royalty on production, special tools, special technical assistance for a particular job. Factory Overheads: They can be classified into: C C Indirect materials, like lubricants, shop supplies, fuels, etc. Indirect labour, like supervision charges, inspection, helpers charges, etc., and

(ii) (iii)

(iv)

C Indirect expenses, like factory rent, taxes and insurance, electric and water supplies, power, depreciation on factory buildings and machines, etc. (v) Office and Administrative Overheads: The cost of office maintenance, formulation of policies, direction of organization and controlling the operation of an undertaking which is not related directly to research development, production, distribution or selling activity or function. Examples of office and administrative overheads are general office expenses, postage,

Unit or Output Costing (Cost Sheet & Tender Costing)

stationery, rent of office, auditor's, lawyer's and director's fee etc. (vi) Selling and Distributing Overheads: The cost incurred in promoting sales and retaining customers. This includes the cost of process which begins with making the packed product available for dispatch and ends with final sale. Examples are advertising, salaries of salesmen, market research expenses, sales office expenses, normal bad debts, discounts and commissions, expenses of warehouse at the selling point, usual loss in selling, freight outwards, etc.

Cost sheet serves the following objectives: (i) (ii) (iii) (iv) (v) (vi) Quantity or units of produced items in a particular period, It reveals the total cost and cost per unit of goods produced, Profit and loss statement may also be added in cost sheet, It discloses the break-up of total cost into different elements of cost, Comparison of old record with new one is also possible in cost sheet, and It acts as a guide to top management for fixation of selling prices and quotations.

Specimen of a Simple Cost Sheet Cost Sheet for the period of Output . Units .. Particulars Direct Materials Direct Labour Direct or Chargeable Expenses Prime Cost Add: Factory or Works Overheads Factory or Works Cost Add: Office and Administrative Overheads Cost of Production Add: Selling and Distribution Overheads Total Cost or Cost of Sales Profit or Loss Sales Total Cost (Rs.) Cost of Per Unit (Rs.) -

Unit or Output Costing (Cost Sheet & Tender Costing)

Accounting Treatment of Stocks Three types of stocks may be of the following : C C C Stocks of raw materials, Stock of work-in-progress, and Stock of finished goods.

Stock of Raw Material : In order to calculate the value of raw materials consumed during the period of output, opening stock raw materials is added to the raw materials purchased and closing stock is subtracted. This is shown below with assumed figures. Rs. Opening stock of raw materials Add : Purchases 10,000 30,000 40,000 Less : Closing stock of raw materials Cost of materials consumed 8,000 32,000

Stock of Work-in-Progress : Stock of Work-in-progress is the stock of semi-finished goods. In cost sheet, opening stock of work-in-progress is added in prime cost along with factory or works overheads and closing stock of work-in-progress in subtracted therefore. Thus opening and closing stocks of work-in-progress are adjusted in factory or works cost as shown below: Rs. Prime cost Add : Factory or works overheads Manufacturing cost Add : Opening stock of work-in-progress Total goods processed during the period Less : Closing stock of work-in-progress Factory or works cost 50,000 25,000 75,000 12,000 87,000 10,000 77,000

Stock of Finished Goods: In cost sheet, finished goods are adjusted after calculating the cost of production. Opening stock of finished goods is added to the cost of production and closing stock of finished goods is subtracted therefore. The resultant figure is called cost of goods sold. This is illustrated below: Rs. Cost of production Add: Less: Opening stock of finished goods Cost of goods available for sale Closing stock of finished goods Cost of goods sold 1,00,000 15,000 1,15,000 8,000 1,07,000

Unit or Output Costing (Cost Sheet & Tender Costing)

The treatment of the stocks of raw materials, work-in-progress and finished goods are illustrated in the following specimen cost sheet: Cost Sheet for the period .. Output Units .. Particulars Opening Stock of Raw Materials Add: Purchases Add: Expenses on Purchases Total Cost (Rs.) Less: Closing Stock of Raw Materials Cost of Materials Consumed Direct Wages Direct Expenses Prime Cost Add: Factory or Works Overheads Add: Opening Stock of Work-in-Progress Less: Closing Stock of Work-in-Progress Factory or Works Cost Add: Office and Administrative Overheads Costs of Production Add: Opening Stock of Finished Goods Less: Closing Stock of Finished Goods Cost of Goods Sold Add: Selling and Distribution Overheads Cost of Sales Profit (or Loss) Sales Cost of Per Unit (Rs.)

Items Excluded from Cost Sheet

Unit or Output Costing (Cost Sheet & Tender Costing)

The following items are of financial nature and thus are not included while preparing of a cost sheet: Cash discount Preliminary expenditure (written off) Provision for taxation Transfer to reserves Income tax paid Capital loss on sale of fixed assets Interest payment Goodwill (written off) Provision for bad debts Donations Payment of dividend Damages payment as per law

Detailed Cost Sheet Specimen of a Cost Sheet of Kartik Limited Company for the month of . Output . Units Particulars Opening stock of raw materials Add: Purchases Carriage inward Customs duty and Octroi Less: Closing stock of raw materials Cost of Direct Materials Consumed Direct labour or Productive wages Direct or Chargeable expenses Prime Cost Add: Works or Factory Overheads: Indirect materials Indirect wages Overtime payment Fuel and Power charges Rent and Taxes Insurance Lighting Supervision Stationery Total Cost (Rs.) Cost Per Unit (Rs.)

Unit or Output Costing (Cost Sheet & Tender Costing)

Canteen and Welfare expenses Repairs Haulage Salaries to factory manager Depreciation of plant and machinery Works expenses Gas and water charges Drawing office salaries Technical director's fees Laboratory expenses Factory telephone expenses Less: Sale of scrap Add: Operating stock of work-in-progress Less: Closing stock of work-in-progress Factory or Works Cost Add: Office and Administrative Overheads: Office salaries Director's fees Office rent and rates Office stationery and Printing charges Salary to managerial staff Depreciation of office furniture Office lighting & Heating charges Establishment charges Director's travelling expenses Postage charges Legal charges Audit fees Depreciation and repair of office equipment and building Cost of Production Add: Selling and Distribution Overheads:

Unit or Output Costing (Cost Sheet & Tender Costing)

Advertising expenses Showroom expenses Bad debts Salaries to salesman's Packing expenses Carriage outward Commission on sales to agents Counting house salaries Cost of catalogues or product Expenses of delivery vans Collection charges Travelling expenses Cost of tenders for product Warehouse expenses Sales manager's salaries Sales director's fees Showroom expenses Sales office expenses Depreciation and Repairs of delivery vans Expenses of sales branches Cost of Sales or Total Cost Profit Sales

Problem (1): The following details are extracted from the accounting books of a manufacturer : Rs. Material Purchased and Consumed Direct Labour Expenses Direct Expenses Factory Depreciation Repairs and Renewals Insurance Rent, Rates and Taxes Electric Consumption 10,000 20,000 5,900 100 200 500 600 100

Unit or Output Costing (Cost Sheet & Tender Costing)

Power Fuel Water Chowkidar's Wages Factory Manager's salary Foreman's Salary Office Stationery General Charges Bank Charges Office Rent Postage & Stamps Telephone & Telegrams Manger's Salary Office Clerk's Salary Advertising Commission to Salesmen Discounts Prepare a Cost Sheet. Solution : Cost Sheet Particulars Materials Consumed Labour Direct Expenses Prime Cost Add: Factory Expenses: Depreciation Repairs and Renewals Insurance Rent, Rates and Taxes Electric Charges Power Fuel Water Chow kidar's Wages Manager's Salary

100 50 50 100 500 100 50 100 150 100 40 10 500 200 100 200 100

(Rs.) 10,000 20,000 5,000

Total Cost (Rs.)

35,000

35,000

100 200 500 600 100 100 50 50 100 500

Unit or Output Costing (Cost Sheet & Tender Costing)

Foreman's Salary Factory or Works Cost Add: Administrative Expenses: Office Stationery General Charges Bank Charges Office Rent Postage and Stamps Telephone and Telegrams Manager's Salary Office Clerk's Salary Cost of Production Add : Selling Expenses: Advertising Commission to Salesmen Discounts Cost of Sales Statement of Cost

100

2,400 37,400

50 100 150 100 40 10 500 200 1,150 38,550

38,950

Where a statement is prepared to show total cost and the profit or loss, but where it is not desired to find out cost per unit, the statement so prepared is the statement of cost. If from this statement the cost per unit has to be calculated then it can be had by dividing the total cost by the number of units produced. The simple type of statement of cost is as under: Problem (2): Prepare a statement of cost from the following particulars for the year 2007: Opening stock of raw materials Purchases of raw materials Closing stock of raw materials Direct labour Factory overheads Office and administrative overheads Solution : Statement of Cost for the year 2007 Particulars Opening Stock of raw materials Add: Purchases of raw materials 20,000 30,000 Total Amount (Rs.) Rs. 20,000 Rs. 30,000 Rs. 15,000 Rs. 15,000 Rs. 12,000 Rs. 7,000

10

Unit or Output Costing (Cost Sheet & Tender Costing)

50,000 Less: Closing stock of raw materials Cost of Materials Consumed Direct Labour Prime Cost Factory Overheads Factory Cost Office and Administrative Overheads Total Cost 15,000 35,000 35,000 15,000 50,000 12,000 62,000 7,000 69,000

Problem (3): A firm manufactured and sold 1000 typewriters. Its summarized Trading and Profit and Loss Account for the year 2007 is as follows: Trading and Profit & Loss Account Rs. To Materials To Direct Wages To Factory Charges To Gross Profit b/d To Management & Staff Salaries To Rent, Rates and Taxes To General Expenses To Selling Expenses For the year 2008, it is estimated that: (a) Prices of materials rose by 20% on the previous year's level. (b) Wage rate have risen by 5%. (c) Factory charges increased by 25%. (d) Office expenditure remained unaffected. Prepare a statement showing the price at which the typewriters should be sold so as to yield a profit of 10% on sales. Solution : Statement Showing the Price of Typewriters for the year 2008 Particulars Materials Direct Wages 96,000 1,26,00 0 2,22,000 Total Amount (Rs.) 60,000 10,000 20,000 30,000 1,50,000 _______ 1,50,000 80,000 1,20,000 50,000 1,50,000 4,00,000 By Gross Profit b/d 4,00,000 1,50,000 By Sales Rs. 4,00,000

11

Unit or Output Costing (Cost Sheet & Tender Costing)

Prime Cost Add : Factory Charges Factory or Works Cost Add : Administrative And General Expenses : Managerial & Staff Salaries Rent, Rates & Taxes General Expenses Add : Selling Expenses Cost of Sales Add : Profit (on 10% Sales Price) Sales Price 60,000 10,000 20,000 Cost of Production

2,22,000 62,500 2,84,500

90,000 3,74,500 30,000 4,04,500 44,945 4,49,445

Problem (4): The following figures have been extracted from accounting records of business concern during a month: Rs. Stock-in-hand 1-4-2006 Raw Materials Finished Goods Stock-in-hand 30-4-2006 Raw Materials Finished Goods Purchases of Raw Materials during the month Work-in-Progress 1-4-2006 Work-in-Progress 30-4-2006 Sales of Finished Goods Direct Wages Works Expenses Office Expenses Selling and Distribution Expenses Prepare a statement of cost for the month of April 2006. Solution : Statement of Cost for the Month of April 2006 Particulars Stock of Raw Materials 1-4-2006 Add: Purchases 25,000 21,900 46,900 Total Amount (Rs.) 26,250 15,750 21,900 8,220 9,100 72,310 17,150 8,344 6,870 4,210 25,000 17,360

12

Unit or Output Costing (Cost Sheet & Tender Costing)

Less: Stock of Raw Materials 31-4-2006 Materials Consumed Add: Direct Wages

26,250 20,650 17,150 Prime Cost 37,800 8,340 46,140

Add: Work Expenses

Add: Work-in-progress 1-4-2006

8,220 56,360

Less: Work-in-progress 30-4-2006 Factory or Works Cost Add: Office Expense

9,100 45,260 6,870 52,130

Add: Stock of Finished goods 1-4-2006

17,360 69,490

Less: Stock of Finished goods 30-4-2006 Cost of Production Add: Selling and Distribution Expenses Total Cost Add: Profit Sales of Finished Goods

15,750 53,740 4,210 57,950 14,360 72,310

Problem (5): 15,000 pens of a factory were manufactured during the month of July, 2008 of which 13,500 pens were sold at Rs. 7 per pen. The following figures are obtained from the costing record: Rs. Raw Materials Consumed Direct Wages 52,000 15,600

Works expenses are allocated to production by means of a machine hour rate. This rate for July, 2008 was Rs. 4 per hour and 1,100 machine hours were per cent works cost and selling overheads at Re. 0.25 per cent. Compile a cost sheet showing: (i) Cost per unit, and

(ii) Profit for the month. Cost Sheet for July, 2008

13

Unit or Output Costing (Cost Sheet & Tender Costing)

Particulars (i) Raw Materials Consumed Direct Wages Prime Cost Add: Works Overheads Factory or Works Cost Add: Office Overheads Cost of Production (ii) Cost of Sales and Profit Cost of Production for 13,500 pens (13,500 x 5.52) Add: Selling Overheads (13,500 x 0.25) Cost of Sales Sales (13,500 x 7) Less: Cost of Sales Profit

Amount (Rs.) 52,000 15,600 67,600 4,400 72,000 10,800 82,800

Cost Per Unit (Rs.) 3.46 1.04 4.50 0.33 4.80 0.72 5.52

74,520

3,375 77,895 94,500 77,895 16,605

Problem (6): In respect of a factory, the following figures have been extracted for the year 2006: Rs. Cost of Materials Wages Factory Overheads Administrative Charges Selling Expenses Distribution Charges Profit 6,00,000 5,00,000 3,00,000 3,36,000 2,24,000 1,40,000 4,20,000 Rs. Material Wages 8,000 5,000

A work order has been executed in 2007 and the following expenses have been incurred.

14

Unit or Output Costing (Cost Sheet & Tender Costing)

Assuming that in 2007 the rate for factory overheads gone up by 20%. Distribution charges have gone down by 10% , and selling and administration charges have each gone up by 120%, at what price the product should be sold so as to earn the same rate of profit as in 2006. Factory overheads are based on direct wages and administration selling and distribution charges on Factory Cost. Solution : Statement of Cost for the year 2006 Particulars Cost of Materials Wages Prime Cost Add: Factory Overhead Factory or Works Cost Add: Administrative Charges Cost of Production Add: Selling expenses Distribution Charges Total Cost Add: Profit Sales Amount (Rs.) 6,00,000 5,00,000 11,00,000 3,00,000 14,00,000 3,36,000 17,36,000 2,24,000 1,40,000 21,00,000 4,20,000 25,20,000

Calculations : Percentage of factory overhead to Wages (3,00,000 x 100 + 5,00,000) = 60 Percentage of Administration overhead to Factory cost (3,36,000 x 100 + 14,00,000) = 24 Percentage of Selling overhead to Factory cost (2,24,000 x 100 + 14,00,000) = 16 Percentage of Distribution overhead to Factory cost (1,40,000 x 100 + 14,00,000) = 10 Statement of Cost for the year 2007 Particulars Cost of Materials Amount (Rs.) 8,000

15

Unit or Output Costing (Cost Sheet & Tender Costing)

Wages Prime Cost Add: Factory Overheads Factory or Works Cost Add: Administrative Charges Cost of Production Add: Selling Charges Distribution Charges Total Cost Add: Profit Sales

5,000 13,000 3,600 (1) 16,600 4,462 (2) 21,062 2,975 (3) 1,494 (4) 25,531 5,106 (5) 30,637

Working notes: (1) (2) (3) (4) (5) 60% of 5,000 = 3,000 + 600 (20% of 3,000) 24% of 16,600 = 3984 + 478 (12% of 3,984) 16% of 16,600 = 2,656 + 319 (12% of 2,656) 10% of 16,600 = 1,660 - 166 (10% of 1,660) Profit @ 20% on Total cost (as per previous year) = 3,600 = 4,462 = 2,975 = 1,494 = 5,106

Production Account According to G.R. Glower and R.G. Williams, "The production account is used to denote a particular form of manufacturing account prepared in conjunction with the financial accounts in order to show the actual cost of producing the goods manufactured during the period." The production account is presented in the form of an account based on double entry system. The basic objective of production account is to show the cost of production along with the cost per unit. The production account, also known as manufacturing account is used for industries or factories producing Pig iron, yarn and cloth, bricks, coal and coke, etc. The information in this account is presented in form of prime cost, factory or works cost, cost of production, Total cost and profit.

Difference between a Cost Sheet and Production Account Following are the main differences between a Cost Sheet and a Production Account: S. No. (i) (ii) (iii) (iv) It is a statement. Cost Sheet Production Account It is an account based on debit and credit system. not provide

They provides basis for comparison between Production accounts do two periods. information for comparison. It is helpful in cost control system.

It is not helpful in cost control system.

It is not based on double entry system of It is based on double entry system of bookbook- keeping. keeping.

16

Unit or Output Costing (Cost Sheet & Tender Costing)

(v) (vi) (vii)

It is a basic statement and other costing It is not so in their case. documents are prepared with its help. It can be production. prepared even during the It is prepared only when production is over.

It is helpful in reconciliation of costing In its case, it is not possible. Profit/Loss with that of financial accounts.

Problem (7) : The following are the balances of the impersonal ledger of a colliery relating to revenue at the end of the year 2007 : Rs. Wages paid for coal production Coal for colliery consumption Timber used in coal production Ropes used in coal production Stores used in coal production Royalties paid General charges 5,80,000 45,000 64,000 12,000 76,000 42,000 70,000 Salaries Coal sold (including colliery) 1,12,000 tons Wages paid for coke making Stores used for coke making Salaries for coke making Coke sold (43,500 tons) 50,000 37,000 8,000 5,40,000 Rs. 36,000 8,84,000

The stock of coal at the beginning of the year amounted to 7,000 tons valued at Rs. 5 per ton and at the end of the year 15,000 tons valued at the same rate. The stock of coke at the beginning of the year amounted to 2,000 tons valued at Rs. 10 per ton and at the end of the year 500 tons valued at the same rate. The total production of the colliery was 1,85,000 tons of coal and 42,000 tons of coke; 65,000 tons of coal being used for coke making. Prepare separate production accounts for coal and coke, showing the cost of each item of expense per ton of coal and coke respectively, taking coal used for coke making at cost price.

Solutions : Production Account of Coal for the year 2007 (Output: 1,85,000 Tons) Particulars To Wages To Coal for colliery consumption To Timber used To Ropes used To Stores used To Royalties To General charges To Salaries Cost Per Amount Ton (Rs.) (Rs.) 3.14 0.24 0.35 0.06 0.41 0.23 0.38 0.19 5.00 Tons To Opening stock 7,000 45,000 64,000 12,000 76,000 42,000 70,000 36,000 9,25,000 (Rs.) 35,000 By Sales 5.00 Tons 1,12,000 9,25,000 (Rs.) 8,84,000 Particulars Cost Per Amount Ton (Rs.) (Rs.) 5.00 9,25,000

5,80,000 By Cost of production

17

Unit or Output Costing (Cost Sheet & Tender Costing)

@ Rs. 5 per ton To Cost of production To Profit 1,85,000 9,25,000 3,24,000

By Coke production account @ Rs.5 per ton By Closing stock @ Rs. 5 per ton 1,92,000 12,84,000 Production Account of Coke for the year 2007

65,000

3,25,000

15,000

75,000

1,92,000 12,84,000 (Output: 42,000 Tons)

Particulars To Coal consumed 65,000 tons @ Rs. 5 per ton To Wages To Stores used To Salaries

Cost Per Amount Ton (Rs.) (Rs.) 7.74 1.19 0.88 0.19 10.00 Tons

Particulars

Cost Per Amount Ton (Rs.) (Rs.) 10.00 4,20,000

3,25,000 By Cost of production 42,000 tons 50,000 37,000 8,000 4,20,000 Amount (Rs.) 20,000 4,20,000 1,05,000 By Sales By Closing stock @ Rs. 10 per ton

10.00 Tons 43,500 500

4,20,000 Amount (Rs.) 5,40,000 5,000

To Opening stock @ Rs. 10 per ton To Cost of production To Profit

2,000 42,000

44,000 Tender Price or Quotation Price

5,45,000

44,000

5,45,000

Quite often the management has to quote prices of its products in advance or has to submit tenders for products to be supplied. For this objective an estimated cost sheet has to be prepared to show the estimated cost of products to be manufactured. In this cost sheet, cost of direct materials, direct labour or wages and overheads are pre-determined on the basis of previous costs after taking in to account the present conditions and also the anticipated changes in the future price. After the total cost has been estimated, a desired profit is added to arrive at the price to be quoted. Such profit may be given as a percentage of cost or percentage of selling price. In order to calculate the amount of profit, it is easy to assume that figure as 100 on which profit percentage is given and then calculate the amount of profit.

Problem (8): Given: Total cost Profit Suppose Cost Profit When cost is Rs. 30,000 = = = = Rs. 30,000 20% of cost Rs. 100 100 x 20% = Rs. 20

18

Unit or Output Costing (Cost Sheet & Tender Costing)

Profit Profit

= =

30,000 X 20 / I00 = Rs. 6,000 Rs. 6,000.

Problem (9): Given: Total Cost Profit Suppose Selling price Profit = 100 x 20% Cost = = = = = = Rs. 30,000 20% of selling price Rs. 100 Rs. 20 Selling price Profit 100 20 = Rs. 80

So when profit is 20% or 1/5 of selling price, it is 20/80 = 1/4 or 25% of cost. When total cost is Rs. 30,000, the profit will be calculated as follows: Profit Profit = = 30,000 X 25% = Rs. 7,500. Rs. 7,500

Problem (10): Given: Selling price Profit Suppose Cost Profit Selling price Selling price = = = = = = Rs. 30,000 20% of cost Rs. 100 100 x 20% = Rs. 20 Cost + Profit 100 + 20 = Rs. 120

So profit of 20% of cost is equal to 20/120 or 1/6 of selling price. Thus, the profit will be calculated as follows: Profit Profit = = Rs. 30,000 X 1/6 = Rs. 5,000 Rs. 5,000

Problem (11): Mr. Kartik furnishes the following data relating to the manufacture of a standard product during the month of March, 2007 : Raw materials consumed Direct labour Machine hours worked Machine hour rate Administrative overheads Selling overhead Unit produced Units sold (i) the cost per unit, Rs. 10,000 Rs. 6,000 600 Hrs. Rs. 5 20% on factory cost Re. 0.50 per unit 15,000 14,000 at Rs. 4 per unit

You are require to prepare a cost sheet from the above, showing:

19

Unit or Output Costing (Cost Sheet & Tender Costing)

(ii)

cost per unit sold and profit for the period. Cost Sheet of Mr. Kartik for the month of March, 2007 Output: 15,000 Units Particulars Total (Rs.) 1,000 6,00 Prime Cost 16,000 3,000 19,000 3,800 Cost of Production 22,800 1,530 Per Unit (Rs.) 0.677 0.44 1.077 0.200 1.277 0.253 1.530

Solution:

Direct materials Direct labour

Production overheads (600 machine hrs. @ Rs. 5 per hour) Factory or Works Cost Administrative overheads (a 20% on factory cost)

Less: Closing stock on 31st March 2007 (1,000 units @ Rs. 1.53 per units) Cost of Goods Sold Selling overhead (@ Re. 0.50 for 14,000 units) Cost of Sales Profit Sales for 14,000 Units

21,270 7,000 28,270 27,730 56,600

1.530 0.500 2.030 1.970 4.000

Problem (12): On the various items of direct cost for the production of 100 units of a product, a firm has expended the following amount: Materials Labour Other Expense Rs. 10,000 Rs. 5,000 Rs. 1,000

The expenses incurred in the factory are to be apportioned as 5% of prime cost. Administrative expenses come to 2% of the factory cost. Expenses for sales and distribution are just the half of both factory and administrative expenses. The firm charges a profit of 10% on the sales price and output is 100 units. Calculate the various costs including the amount of sales and profits. Solution : Statement of Cost Output : 100 Units Particulars Total Cost Cost Per Unit (Rs.) (Rs.)

20

Unit or Output Costing (Cost Sheet & Tender Costing)

Materials Labour Other Expenses

10,000 5,000 1,000 Prime Cost 16,000 16,000 800 Factory Cost 16,800 336 Cost of Production 17,136 568 Cost of Sales 17,704 1,967 Sales and Selling Price 19,671 160.00 160.00 8.00 16,800 3.36 171.36 5.68 177.04 19.67 196.71

Add: Factory Expenses (5% of prime cost)

Add: Administrative Expenses (2% of factory cost)

Add: Selling Expenses (1/2% of Rs. 1,113)

Add: Profit (10% of Sales price)

Problem (13): From the following particulars Prepare a Cost Sheet showing the prime cost, factory cost, administrative cost and selling cost. Also calculate the percentage of factory expenses to wages, percentage of office expenses to factory cost: Rs. Stock of raw material on 1st Jan. 2006 Stock of raw material on 31st Dec. 2006 Purchases of raw materials Wages Factory expenses Office and administrative expenses Selling expenses 20,000 10,000 10,000 5,000 1,000 2,600 1,300

The firm has to send a tender for the supply of goods. It is estimated that the materials required would cost Rs. 5,000 and the wages Rs. 1,250. The tender is to be made at a net profit of 10% on the cost of sales. State the amount of tender based on the percentages you have calculated. Solution : Cost Sheet for the Year 2006 Particulars Stock of raw materials as on 1-1-2006 Add: Purchases of raw material Amount (Rs.) 20,000 10,000 30,000 Less: Stock of raw materials on 31-12-2006 10,000

21

Unit or Output Costing (Cost Sheet & Tender Costing)

Materials Consumed Add: Wages Prime Cost Add: Factory expenses Factory Cost Add: Office and administrative expenses Cost of Production Add: Selling expenses Cost of Sales Calculations for percentages: (1) Percentage of Factory expenses to Wages = (1,000 + 5,000) x 100 = 20% (2) Percentage of Office expenses to Factory cost = (2,600 26,000) x 100 = 10% (3) Percentage of Selling expenses to Factory cost = (1,300 26,000) x 100 = 5%

20,000 5,000 25,000 1,000 26,000 2,600 28,600 1,300 29,900

Statement Showing Tender Price Particulars Direct materials Direct labour 5,000 1,250 Prime Cost Add: Factory expenses (20% of Wages) Factory Cost Add: Adminish'ative expenses ( 10% of Factory cost) Cost of Production Add: Selling expenses (5% of Factory cost): Cost of Sales Add: Profit (10% on the Cost of sales) Tender Price 6,250.00 6,250.00 250.00 6,500.00 650.00 7,150.00 325.00 7,475.00 747.50 8,222,50 Amount (Rs.)

22

Unit or Output Costing (Cost Sheet & Tender Costing)

Problem (14): The following extract of costing information relates to commodity A for the year ending 31 December, 2007. Rs. Purchases of raw materials Direct wages Rent, rates, insurance and factory on cost Factory charges Stock- 1 January, 2007 Raw materials Finished products - 2000 tons Stock 31 December, 2007 Raw materials Finished products - 4,000 tons Work-in-progress 1 January, 2007 Work-in-progress 31 December, 2007 Factory supervision cost Sales of finished products 2,400 8,000 4,000 1,50,000 12,000 8,000 8,000 60,000 50,000 20,000 1,000

Advertising, discount allowed and selling costs Re. 0.40 per ton sold. 32,000 tons of the commodities were produced during the period. Prepare a production statement to ascertain: (a) (b) the cost of the output of the period and the cost per ton of production, and the net profit. Total Amount Cost of Per (Rs.) Ton (Rs.) 8,000 63,000 71,000 Less: Closing Stock (31-12-2007) Materials Consumed Direct wages Prime Cost Factory Overheads: Rent, rates, insurance and factory on cost Factory charges 20,000 1,000 12,000 59,000 50,000 1,09,000

Particulars Opening Stock of raw materials (01-01-2007) Add: Purchases

23

Unit or Output Costing (Cost Sheet & Tender Costing)

Factory supervision cost

4,000

25,000 1,34,000

Less: Work-in-progress (31-12- 2007) Cost of Production Add: Stock of finished products (1-1-2007)

8,000 1,28,400 8,000 1,36,400

Less: Stock of finished products (31-12-2007) (4,000 tons @ Rs. 4.0125 = 16,050) Cost of Goods Sold (30,000 tons)(2) Selling Overhead (@ 40 paise for 30,000 Units) Cost of Sales Profit Selling Price

16,050

1,20,350 12,000 1,32,350 17,650 1,50,000 0.40 4.41 0.59 5.00

Working notes: (1) (2) Cost of production per ton =Rs. 1,28,400 32,000 tons = Rs. 4.0125 Quantity sold = 2,000 tons + 32,000 tons = 34,000 - 4,000 tons = 30,000 tons

Problem (15): The Rajendra Chemicals Company supplies you the following details from its cost records: Rs. Stock of raw materials on 1 September, 2007 Stock of raw materials on 30 September, 2007 Direct wages Indirect wages Sales Work-in-progress on 1-9-2007 Work-in-progress on 30-9-2007 Purchases of raw materials Factory rent, rates and power Depreciation of plant and machinery Expenses on purchases Carriage outward Advertising Office rent and taxes Travellers wages and commission Stock of finished goods on 1-9-2007 65,000 90,000 51,000 3,750 2,00,000 28,000 35,000 75,500 14,000 3,500 2,000 1,000 5,000 2,500 6,500 54,000

24

Unit or Output Costing (Cost Sheet & Tender Costing)

Stock of finished goods on 30-9-2007 Prepare a cost sheet giving the maximum possible break-up of cost and profit. Solution:

31,000

Cost Sheet of Rajendra Chemicals Company for the year ending- 30-9-2007 Particulars Stock of raw materials (1-9-2007) Add: Purchases Expenses on purchases 65,000 75,500 2,000 1,42,500 Less: Stock of raw material (30-9-2007) Materials Consumed Direct wages Prime Cost Add: Work-in-progress (1-9-2007) Factory Overheads: Indirect wages Factory, rent rates and power Depreciation of plant and machinery 3,750 14,000 3,500 21,250 1,52,750 Less: Work-in-progress (30-9-2007) Factory or Works Cost Office and Administrative Overheads: Office rent and taxes Cost of Production Add: Stock of finished goods (1-9-2007) 2,500 1,20,250 54,000 1,74,250 Less: Stock of finished goods (30-9-2007) Cost of Goods Sold Selling and Distribution Overheads: Carriage outward Advertising Travellers wages and commission 12,500 31,000 1,43,250 35,000 1,17,750 90,000 52,500 51,000 1,03,500 28,000 Amount (Rs.)

25

Unit or Output Costing (Cost Sheet & Tender Costing)

Cost of Sales Profit Sales

1,55,750 44,250 2,00,000

Problem (16): The following data are available from the cost ledger of Ramesh Industries for the year 2006 : Rs. Plant maintenance Lighting Depreciation on plant Rate and taxes for the works Staff salaries Management salaries Power for plant Rental for leasehold equipments Indirect wages Rectification cost of defectives (Normal) Consumable stores Selling expenses General charges Sale proceeds from Scrap 25,000 6,300 8,100 3,900 32,000 22,000 10,600 9,600 37,100 8,400 17,600 30,000 15,600 4,200

During the year total production was 1,20,000 units. The break-up of prime cost per unit was: materials Rs. 2.20 and wages Rs.l.80. The average selling price was Rs. 6.75 per unit and entire quantity produced during the year was sold out. With effect from January I, 2007, the selling price was reduced to Rs. 6.40 per unit. It was envisaged that production could be enhanced during 2007 by 337 per cent without incurring any overtime on extra shift work or additional selling expenses. You are required to prepare statements showing (i) Actual cost and profit for the year 2006. (ii) Estimated cost and profit for 2007 assuming that the entire production will be sold during the year. Assumptions, if any, required to be made in the above exercise should be clearly stated. Solution: Statement of Cost and Profit of Ramesh Industries For the year 2006 Output: 1,20,000 Units Particulars Materials Wages Prime Cost Variable Charges: Power for plant 10,600 Total Amount (Rs.) 2,64,000 2,16,000 4,80,000 Cost of Per Unit (Rs.) 2.20 1.80 4.00

26

Unit or Output Costing (Cost Sheet & Tender Costing)

Rectification cost of defectives Consumable stores Less: Sale' of scrap Fixed Overheads: Indirect wages Plant maintenance Lighting Depreciation on plants Rates and taxes for works Rental for leasehold equipments Office and Selling Overheads: Staff salaries Management salaries General charges Selling expenses

8,400 17,600 36,200 4,200 Total Variable Cost 37,100 25,000 6,300 8,100 3,900 9,600 Factory or Works Cost 32,000 22,000 15,600 69,600 30,000 Cost of Sales 7,02,000 1,08,000 Sale and Selling Price 8,10,000 0.58 0.25 5.85 0.90 6.75 90,000 6,02,400 0.75 5.02 32,400 5,12,400 0.27 4.27

Profit

Statement of Estimated Cost and Profit Of Ramesh Industries For the year 2007 Estimated Output: 1,60,000 Units Particulars Prime Cost @ Rs. 4.00 per unit Variable charges less scrap value @ Re. 0.27 per unit Variable Cost Fixed Charges: Works (90,000 + 1,60,000) Office (69,000 + 1,60,000) Selling (30,000 + 1,60,000) Cost of Sales Profit Sales (1,60,000 X 6.40) 90,000 69,000 30,000 8,72,200 1,51,800 10,24,000 0.56 0.43 0.19 5.45 0.95 6.40 Total Amt. (Rs.) 6,40,000 43,200 6,83,200 Cost of Per Unit (Rs.) 4.00 0.27 4.27

27

Unit or Output Costing (Cost Sheet & Tender Costing)

Working notes: (i) (ii) Estimated output for 2007 is 1,20,000 4/3 = 1,60,000 units. Variable charges have been assumed to increase in proportion to the volume of output whereas fixed charges have been assumed to remain constant.

Problem (17): The Mahesh Electrical Limited manufacturers X product. A summary of its activities for 2005 is as follows: Units 80,000 Sales Material inventory : 1.1.2005 31.12.2005 Work-in-Progress inventory 1.1.2005 31.12.2005 Finished goods: Material purchases Direct labour Manufacturing overheads Selling expenses General and administration expenses Calculate: (a) (b) (c) The current manufacturing cost for the year 2005. The total cost of goods manufactured (finished), the number of units manufactured (finished) and the cost per unit. The cost of goods sold for the year presuming the company uses the LIFO inventory costing method for its finished goods inventory. 1.1.2005 31.12.2005 16,000 24,000 1,42,000 1,45,000 1,08,000 50,000 40,000 55,000 72,000 64,000 50,000 32,000 Rs. 8,00,000

Solution: Cost Sheet of Mahesh Electrical Limited for the year 2005 Output: 88,000 units (1) Particulars Opening Stock (1-1-2005) Add: Purchases Amount (Rs.) 50,000 1,42,000 1,92,000 Less: Closing Stock (31-12-2005) Materials Consumed Direct Labour 32,000 1,60,000 1,45,000

28

Unit or Output Costing (Cost Sheet & Tender Costing)

Prime Cost Manufacturing Overheads

3,05,000 1,08,000 4,13,000

Add: Opening work-in-progress (1-1-2005)

55,000 4,68,000

Less: Closing work-in-progress (31-12-2005) Factory Cost (Cost of Goods Manufactured) General and Administration Expenses Cost of Production Add: Opening stock of finished goods (1-1-2005)

72,000 3,96,000 40,000 4,36,000 64,000 5,00,000

Less: Closing stock of finished goods (31-12-2005)

1,03,600 (3) 3,96,400

Selling Expenses Cost of Goods Sold Net Profit Sales Working notes: (1) (2) (3) No. of units manufactured during the year 2005 : Sales + Closing stock - Opening Stock 80,000 + 24,000 - 16,000 = 88,000 units Cost of per unit finished goods = 4,36,000 + 88,000 = Rs. 4.95 Valuation of closing finished stock on UFO basis 16,000 units @ Rs. 4/8,000 units @ Rs. 4.95
(2)

50,000 4,46,400 3,53,600 8,00,000

= =

Rs. 64,000 Rs. 39,600 Rs. 1,03,600

Cost of finished stock on 31-12-2005 =

Problem (18): In respect of Rajesh Limited the following particulars have been extracted for the year 2006 : Cost of materials Direct Wages Factory overheads Administrative overheads Selling overheads Distribution overheads Profit Rs. 6,00,000 Rs. 5,00,000 Rs. 3,00,000 Rs. 3,36,000 Rs. 2,24,000 Rs. 1,40,000 Rs. 4,20,000

29

Unit or Output Costing (Cost Sheet & Tender Costing)

A work order has to be executed in 2007 and the estimated expenses are: Materials Rs. 8,000, Wages Rs. 5,000 Assuming that in 2007 the rate of factory overheads has gone up by 20%, distribution. overheads have gone down by 10% and selling and administrative overheads have each gone up by 15% at that price should the product be sold as to earn the same rate of profit as in 2006. Factory overheads are based on wages and administrative, selling and distribution overheads on factory cost. Particular Cost of Materials Direct Wages Prime Cost Factory Overheads (60% of Direct wages) Factory Cost Administrative Overheads (24% of Factory cost) Cost Production Selling Overheads (16% of Factory cost) Distribution Overheads (10% of Factory cost) Cost of Sales Profit (20% on Total cost or Cost of sales) Sales Amount (Rs.) 6,00,000 5,00,000 11,00,000 3,00,000 14,00,000 3,36,000 17,36,000 2,24,000 1,40,000 21,00,000 4,20,000 25,20,000

Statement of Estimated Cost and Profit for Work Order in 2007 Particular Cost of Materials Direct Wages Prime Cost Factory Overheads (60% of Wages = 3,000 + 600 (20% of 3,000) = 3,600) Factory Cost Administration Over heads (24% of Factory cost = 3,984 + 598 (15% of 3,984) = 4,582) Cost of Production Selling Overheads (16% of Factory cost = 2,656 + 398 (15% of 2,656 = 3,054) 24,236 Distribution Overheads 1,494 21,182 3,054 16,600 4,582 Amount (Rs.) 8,000 5,000 13,000 3,600

30

Unit or Output Costing (Cost Sheet & Tender Costing)

(10% of Factory cost = 1,660 - 166 (10% of 1,660) = 1,494) Cost of Sales Profit (20% on Cost of sales = 25,730 X 20 + 100) Tender Price 25,730 5,146 30,876

Problem (19): The following informations relating to the year 2007 have been taken from the books of a Pradeep Chemicals works manufacturing and selling a chemical mixture: Kg. Stock on 1-1-2007 : Stock of raw materials Stock of finished mixture Stock of factory stores Purchases of raw materials Purchases of factory stores Sales' of finished mixture Sales of factory scrap Factory wages Power charges Depreciation of machinery Factory salaries Office salaries Salaries of selling department Direct expenses Office expenses Selling expenses Stock on 31-12-2007 : Stock of raw materials Stock of finished mixture Stock of factory stores 1,200 450 5,550 2,000 500 1,60,000 1,53,000 2,000 1,750 7,250 1,80,000 24,250 9,18,000 8,170 1,68,650 30,400 18,000 72,220 37,220 41,500 28,500 18,200 18,000 Rs.

The stock of finished mixture at the end of 207 is to be valued at the factory cost of the mixture for that year. The purchase price of raw materials remained unchanged throughout 2007. Prepare a Production Statement. Solution: Statement of Production of Pradeep Chemicals Works (For the year ending 31st December, 2007)

31

Unit or Output Costing (Cost Sheet & Tender Costing)

Particulars

Kg.

Amount (Rs.)

32

Unit or Output Costing (Cost Sheet & Tender Costing)

Stock of raw materials (on 1-1-2007) Add: Purchases of raw materials

2,000 1,60,000 1,62,000

2,000 1,80,000 1,82,000 1,350 (1) 1,80,650 1,68,650 28,500

Less: Stock of raw materials (on 31-12-2007) Materials Consumed Factory wages Direct expenses Prime Cost Factory Overheads : Factory stores consumed Power charges Depreciation on machinery Factory salaries

1,200 1,60,800

3,77,800

25,950 (2) 30,400 18,000 72,220 5,24,370

Less : Factory scrap sold Factory or Works Cost Office and Administrative Overheads: Office salaries Office expenses Cost of Production Add: Opening stock of finished mixture (on 1-1-2007)

7,800 (3) 1,53,000

8,170 5,16,200

37,220 18,200 1,53,050 500 1,53,500 5,71,620 1,750 5,71,620 1,518 (4) 5,71,852

Less: Closing stock of finished mixture (on 31-12-007) Cost of Finished Mixture Sold Selling and Distribution Overheads: Salaries of selling dept. Selling expenses Cost of Sales Profit Sales

450 1,53,050

41,500 18,000 6,31,352 2,86,648 1,53,050 9,18,000

Working notes :

33

Unit or Output Costing (Cost Sheet & Tender Costing)

(1) Valuation of closing stock of raw material on 31-12-2007 :

= R . 1,8 ,0 0 s 0 0 ,2 0 k . = R 1 5 1 0 g s. ,3 0 k . 1,6 ,0 0 g 0 0

(2) Factory stores consumed = (7,250 + 24,250 5,550) = Rs. 25,950 (3) Calculation of Factory scrap sold in Kg.: Sales of finished mixture in kg. Add: Closing Stock of finished mixture 1,53,050 450 1,53,500 Less: Opening Stock o finished mixture Finished mixture produced in Kg. Factory scrap sold (balance figure in Kg.1,60,800 - 1,53,000) Materials consumed in Kg. (4) Closing Stock of finished mixture :
= R 5,16, 200 s. 450 kg. = R 1,518 (approx.) s. kg. 1,53,000

500 1,53,000 7,800 1,60,800

Problem (20): From the following particulars prepare a Cost Sheet showing the total cost per ton for the period ended 31St December, 2007: Rs. Raw materials Productive wags Direct expenses Unproductive wages Factory rent and taxes Factory lighting Factory heating Power Haulage Director's fee (works) Director's fee (office) Factory cleaning Sundry office expenses Estimating expenses Factory stationery Office stationery Solution : Cost Sheet for the year 2007 33,000 Loose tools written off 35,000 Rent and taxes (office) 3,000 Water supply Rs. 600 500 500 1,200 500 400 300 2,000 1,000 200 100 300 1,500 700 50 1,500

10,000 Factory insurance 7,500 2,200 1,500 4,400 3,000 1,000 2,000 500 200 800 750 900 Office insurance Legal expenses Rent of warehouse Depreciation of plant and machinery Depreciation of office building Depreciation of delivery vans Bad debts Advertising Sales department salaries Up-keeping of delivery vans Bank charges Commission on sales

34

Unit or Output Costing (Cost Sheet & Tender Costing)

Output : 14,775 tons Particulars Raw materials Productive wags Direct expenses Prime Cost Factory or Work Overheads: Unproductive wages Factory rent and taxes Factory lighting Factory heating Power Haulage Director's fee (works) Factory cleaning Estimating expenses Factory stationery Loose tools written off Water supply Factory insurance Depreciation of pant and machinery 10,500 7,500 2,200 1,500 4,400 3,000 1,000 500 800 750 600 1,200 1,100 2,000 Factory or Works Cost Office and Administrative Overheads: Director's fee (office) Sundry office expenses Office stationery Rent and taxes (office) Office insurance Legal expenses Depreciation of office building Bank charges 2,000 200 900 500 500 400 1,000 50 Office and Administrative Cost 5,550 1,13,600 37,050 1,08,050 Amount (Rs.) 33,000 35,000 3,000 71,000

35

Unit or Output Costing (Cost Sheet & Tender Costing)

Selling Overheads: Rent of warehouse Depreciation of delivery vans Bad debts Advertising Sales department salaries Commission on sales Up-keeping of delivery vans 300 200 100 300 1,500 1,500 700 Total Cost Cost of per ton = 1,18,200 + 17,775 = Rs. 8 per ton. Problem (21): The following is the costing information of production for the half year ended 30th June, 2005 : Rs. Purchases of raw materials Direct wages Rent, taxes, insurance and works on cost Carriage inwards Stock on 1-1-2005 : Raw materials Finished product 1,600 tons Stock on 30-6-2005 : Raw materials Finished product 3,200 tons Work-in-progress 1-1-2005 Work-in-progress 30-6-2005 Cost of factory supervision Sales of finished products 22,000 17,600 24,464 35,200 5,280 17,600 8,800 3,30,000 1,32,000 1,10,000 44,000 1,584 4,600 1,18,200

Advertising, discounts allowed and selling expenses @ 75 paise per ton, Sold 25,600 tons of commodity were produced during the half year period. You are required to prepare cost sheet and calculate: (i) (ii) (iii) (iv) (v) The value of raw materials used, The cost of the output for the period, The cost of the turnover for the period, The net profit for the period, and The net profit per ton of the commodity.

Solution :

36

Unit or Output Costing (Cost Sheet & Tender Costing)

Cost Sheet for the half year ended 30 June, 2005 Particulars Stock of raw materials on 1-1-2005 Add: Purchases Amount (Rs.) 22,000 1,32,000 1,54,000 Less: Stock of raw materials 30-6-2005 (i) Materials Consumed Direct Wages Carriage inwards Prime Cost Factory or Works Overhead: Rent, taxes, insurance and Works on cost Factory supervision Work-in-progress on 1-1-2005 44,000 8,800 5,280 58,080 2,99,200 Less: Work-in-progress on 30-6-2005 (ii) Cost of Output Cost of Turnover for the period will be calculated as follows: Opening stock of finished goods on 1-1-2005 Add: Cost of output 17,600 2,81,600 2,99,200 Less: Closing stock of finished goods on 30-6-2005 35,200 2,64,000 Add: Advertising, discounts and selling expenses (@ 75 paise per ton on 24,000 tons) (iii) Cost of Turnover Sales Cost of turnover (iv) Net Profit for the period (v) Net Profit per ton (Rs. 48,000 + 24,000 (1) ) 2,82,000 3,30,000 2,82,000 48,000 2.0 18,000 17,600 2,81,600 24,464 1,29,536 1,10,000 1,584 2,41,120

37

Unit or Output Costing (Cost Sheet & Tender Costing)

Working note: (1) Calculation of total tons for net profit. Opening stock(1-1-2005) Add: Finished goods produced Tons 1,600 25,600 27,200 Less: Closing stock (30-6-2005) Total Tons 3,200 24,000

Problem (22): From the following particulars, you are required to prepare a statement showing (a) The cost of material consumed (b) Prime cost (c) Factory cost (d) Total cost (e) The percentage of factory on cost to productive wages, and (f) The percentage of general on cost to factory cost. Rs. Stock of finished goods 31-12-2005 Stock of raw material 1-1-2005 Purchase of raw materials Productive wages Stock of finished goods 31 Dec. 2005 Stock of raw materials 31 Dec. 2005 Sales of finished goods Works overhead charges Office and general charges
st st

72,800 33,280 7,59,200 5,16,800 78,000 35,360 15,39,200 1,29,200 70,161

The company is about to send a tender for a large plant. The costing department estimates that the materials required would cost Rs. 52,000 and the wages to workmen for making the plant would cost Rs. 31,200. The tender is to be made at a net profit of 25% on the selling price. Show what the amount of tender would be if based on the above percentage. Solution: Statement of Cost for the year 2005 Particulars Raw Materials Opening stock on 1-1-2005 Add: Purchases of raw materials 33,280 7,59,200 7,92,480 Less: Closing Stock on 31-122005 (a) Cost of Materials Consumed 35,360 7,57,120 Amount (Rs.)

38

Unit or Output Costing (Cost Sheet & Tender Costing)

Productive wags (b) Prime Cost Works overhead charges (c) Factory or Works Cost Office and General expenses (d) Total Cost (e) Percentage of factory on cost to Productive wags is 25% (1) (f) Percentage of general on cost to Factory cost is 5% (2) Working notes: (1) (1,29,220 + 5,16,880) x 100 = 25% (2) (70,161 + 14,03,220) x 100 = 5% Particulars Materials consumed Productive wages Prime Cost Works overheads charges (25% of Productive wages) Factory or Works Cost Office and General expenses (5% of the Factory cost) Total Cost Net profit (25% of Selling price or 33112% of cost) Tender Price

5,16,880 12,74,000 1,29,220 14,03,220 70,161 14,73,381 25% 5%

Amount (Rs.) 52,000 31,200 83,200 7,800 (1) 91,000 4,550 (2) 95,550 31,850 (3) 1,27,400

Working notes: (1) 31,200 x 25 100 = 7,800 (2) 91,000 x 5 100 = 4,550 (3) 95,550 x 25 100 = 31,850

Problem (23): From the following figures calculate the : (a) Cost of materials consumed, (b) Value of output of manufactured goods, and (c) Percentage of gross profit on sales. Trading Account

39

Unit or Output Costing (Cost Sheet & Tender Costing)

Particular To Stock finished goods To Stock of raw materials To Purchases To Wages To Carriage inward To Gross profit

Amount (Rs.) 1,28,000 38,400 3,84,000 6,40,600 32,000 2,68,800 15,00,800 By Sales

Particular

Amount (Rs.) 13,44,000 1,12,000 44,800

By Closing stock of finished goods By Closing stock of raw materials

15,00,000

Solution : Statement of Cost Particular Opening stock of raw materials Add: Purchases Less: Closing stock of raw materials (a) Cost of Materials Consumed Carriage inward Wages (b) Value of Output en: Manufactured Goods (c) Percentage of gross profit on Sale (2,68,800 13,44,000) 100 = 20% Amount (Rs.) 38,400 3,84,000 4,22,400 44,800 3,77,600 32,000 6,40,600 10,50,200 20%

Problem (24): From the following information, prepare Pig Iron Production Account showing the cost per ton of each: Stock on 1st January, 2007 : Coal Coke Limestone Iron stone Sundries Pig Iron Purchase during the years: Coal Coke Limestone Rs. 4,720 3,580 1,450 3,930 3,930 12,500 21,880 29,470 4,080

40

Unit or Output Costing (Cost Sheet & Tender Costing)

Iron stone Sundries Sales of slag General works charges Sales of Pig Iron Wages Stock on 31st December 2007 : Coal Coke Limestone Iron stone Sundries Pig Iron The total production of Pig Iron amounts to 32,000 tons. Solution: Production Account for Pig Iron

18,690 7,810 10,500 4,500 1,20,000 17,000 3,600 2,050 1,530 3,620 3,010 21,500

Output: 32,000 Tons Particulars To Coal consumed To Coke consumed To Limestone consumed To Iron stone consumed To Sundries used To wages To General works charges Cost Per tons (Rs.) 0.72 0.97 0.12 0.59 0.27 0.53 0.14 3.34 By Opening stock of Pig Iron To Cost of production To Profit Amount (Rs.) 23,000 31,000 4,000 19,000 8,730 17,000 4,500 1,07,230 12,500 96,730 32,270 1,41,500 1,41,500 By Sales By Closing stock of Pig Iron 3.34 1,07,230 1,20,000 21,500 Particulars By Sales of slag By Cost of production Cost Per tons (Rs.) 0.33 3.01 Amount (Rs.) 10,500 96,730

Problem (25): A manufacturer was required to quote for a contract for the supply of 1,000 electric fans. From the following data, prepare a statement showing the price to be quoted to give the same percentage of net profit on turnover as was realized during the six months. Rs.

41

Unit or Output Costing (Cost Sheet & Tender Costing)

Opening stock of raw materials Closing stock of raw materials Purchases of materials Factory wages Factory expenses Establishment expenses Completed Stock in hand I October, 2006 Completed Stock in hand 1 October, 2007 Sales
st st

35,000 4,900 52,500 95,000 17,500 10,000 Nil 35,000 1,89,000

The number of fans manufactured during the six months was 4,000 including those sold and those in stock at the close of the period. The fans to be quoted for are of uniform quality and make, and similar to those manufactured during the six months. The cost of factory labour had increased by 10 percent and material cost by 15 per cent. Solution: Statement of Cost for the Manufacture of 4,000 Electric Fans Particulars Opening stock of raw Materials Purchases of material Amount (Rs.) 35,000 52,500 87,500 Closing stock Materials Consumed Factory wages Prime Cost Factory expenses Factory Cost Establishment expenses Total Cost Add: Completed opening stock on 1-10-2006 Cost of Fans Manufactured Less: Completed closing stock on 01-10-2007 Cost of Sales Profit (10% on Sales) Sales 4,900 82,600 95,000 1,77,600 17,500 1,95,100 10,000 2,05,100 Nil 2,05,100 35,000 1,70,100 18,900 1,89,000

Tender Price for 1,000 Electric Fans

42

Unit or Output Costing (Cost Sheet & Tender Costing)

Particulars Materials (1/4 of Rs. 82,600 + 15% of 20,650) Wages (1/4 of Rs. 95,000 + 10% of 23,750) Prime Cost Factory expenses (1/4 of Rs. 17,500) Factory Cost Establishment expenses (1/4 of Rs. 10,000) Total Cost Add: Profit (10% on Sales) Tender Price

Amount (Rs.) 23,748 26,125 49,873 4,375 54,248 2,500 56,748 6,305 63,053

Problem (26): From the following particulars, you are required to prepare a statement showing (a) the cost of material used (b) the works cost (c) total cost (d) the percentage of works overheads to wages (e) the percentage of general overheads to work cost: Rs. Stock of finished goods 1 January, 2007 Stock of raw materials 1 January, 2007 Purchases Wages Sales of finished goods Stock of finished goods 31st December 2007 Stock of raw materials 31s1 December, 2007 Works overheads Office and general expenses
st st

56,000 25,600 5,84,000 3,97,600 11,84,000 60,000 27,200 87,402 71,048

The company is about to send a tender for a large plant. The costing department estimate that the materials required would cost Rs. 40,000 and the wages to workmen for making the plant would cost Rs. 24,000. The tender is to be made at a net profit of 20 per cent on the sales. Show that the amount of tender would be if based on the above percentages. Solution: Statement of Cost for the Year ended 31st December, 2007 Particulars Stock of raw materials (on 1st January, 2007) Purchases Amount (Rs.) 25,600 5,84,000 6,09,600 Less: Stock of raw materials 31st December 2007 (a) Materials Consumed 27,200 5,82,400

43

Unit or Output Costing (Cost Sheet & Tender Costing)

Wages Prime Cost Works overheads (b) Factory or Works Cost Office and General expenses (c) Total Cost Add : Stock of finished goods 1st January, 2007

3,97,600 9,80,000 87,402 10,67,402 71,048 11,38,450 56,000 11,94,450

Less: Stock of finished goods 31St December, 2007 Cost of Goods Sold Profit Sales (a) Percentage of works overheads to Wages 21.98% or 22% (approx.) (e) Percentage of general overheads to Works Cost 6.6%

60,000 11,34,450 49,550 11,84,000 22% 6.6%

Statement Showing Tender Price Particulars Materials Wages Prime Cost Work overheads (22% of wages) Factory or Works Cost General overheads (6.6% of works cost) Total Cost Add: Profit (20% of the Sales = 73,852 X 20 80) Tender Price Amount (Rs.) 40,000 24,000 64,000 5,280 69,280 4,572 73,852 18,463 92,315

Problem (27): Below is mentioned the expenditure in the manufacture of A: Three months ended 31-12-2006 Raw materials Fuel 28,000 6,900

44

Unit or Output Costing (Cost Sheet & Tender Costing)

Electric power Direct wages Repairs of factory Haulage Light and water charges of factory Rent of factory Rates and insurance Salaries and general expenses Administrative expenses Depreciation charges Tons Manufactured - 17,200.

1,340 63,500 2,400 1,060 400 2,000 300 7,000 5,000 2,500

Prepare a cost sheet, showing the cost per item and total cost per ton for the period. Solution : Cost Sheet for the three months Particulars Raw materials Direct wages Prime Cost Factory Overheads: Fuel Electric power Repairs Haulage Light and water charges Rent of factory Rates and insurance Depreciation charges of factory 6,900 1,340 2,400 1,060 400 2,000 300 2,500 Factory Cost Office and Administrative Overheads: Salaries and general expenses Administration expenses 7,000 5,000 Total Cost Calculation of Cost of per ton = 1,20,400 -7 17,200 = Rs. 7.0 12,000 1,20,400 7.0 16,900 1,08,400 Amount (Rs.) 28,000 63,500 91,500

45

Unit or Output Costing (Cost Sheet & Tender Costing)

Problem (28): The accounts of a factory show the following information during the year ended 30th June, 2006 : Rs. Materials used Productive wages Factory and general expenses Administrative expenses 3,00,000 2,50,000 50,000 30,000

The factory and general expenses relate to the factory only. You are required to prepare the following statements showing: (a) (b) (c) (d) Cost of Production, Percentage of factory and general expenses to productive wags, Percentage of administrative expenses to factory cost, The price the company should quote, on the basis of the above information, for the production of a machine requiring materials valued at Rs. 1,000 and wages Rs. 500, so that the price will yield a profit of 25 per cent on the selling price.

Solution: Particulars Materials used Productive wages Prime Cost Factory 'and general expenses (a) Factory Cost or Cost of Production Administrative Expenses Total Cost (b) Percentage of factory and general expenses to Productive wages (50,000 + 2,50,000) X 100 = 20% (c) Percentage of administrative expenses to Factory cost (30,000 + 6,00,000) X 100 = 5% Amount (Rs.) 3,00,000 2,50,000 5,50,000 50,000 6,00,000 30,000 6,30,000 20%

5%

Statement of Tender Price Particulars Materials Wages Amount (Rs.) 1,000 500

46

Unit or Output Costing (Cost Sheet & Tender Costing)

Prime Cost Factory and general expenses ( 20% of Productive wages) Factory Cost Administrative expenses (5% of Factory cost) Total Cost Add: Profit 25% on Selling price ( 1680 25 + 75) Tender Price

1,500 100 1,600 80 1,680 560 2,240

Problem (29): In 2002 the account of a company manufacturing cars, disclosed following particulars : Rs. Materials used Direct wages Factory overhead expenses Establishment and general expenses 16,00,000 17,40,000 2,82,000 2,78,000

You are asked to prepare a cost sheet showing the price at which the company should sale its car during 2003, assuming: (a) (b) (c) (d) That it is estimated that each car will require materials worth Rs. 2,900 and expenditure in direct wages Rs. 1,200. That during 2003, the factory overhead expenses will bear the same ratio to direct wages as in 2002. That the percentage of establishment and general expenses on factory will be the same in 2003 as in 2002. That the company has decided to earn a profit of 10 percent on the selling price. Particulars Materials used Direct Wages Prime Cost Factory overhead expenses (Percentage with Direct wages = 16.2% ) Factory or Works Cost Establishment and General expenses (Percentage with Factory cost = 7.7% ) Total Cost Solution : Statement of Tender Price of Car for the year 2003 Amount (Rs.) 16,00,000 17,40,000 33,40,000 2,82,000 36,22,000 2,78,000 39,00,000

47

Unit or Output Costing (Cost Sheet & Tender Costing)

Particulars Materials Direct wages Prime Cost Factory overhead expenses (16.2% of Direct wages = (1200X16.2 +100) Factory Cost Establishment and General expenses (7.7% of Factory cost = 4294 X 7.7 + 100 ) Total Cost Profit (10% on Selling price = 4625 X 10 + 100) Tender Price for Car

Amount (Rs.) 2,900 1,200 4,100 194 4,294 331 4,625 514 5,139

Problem (30): From the following particulars, write up the Item No. 25 account and find out the value of the tender: Rs. Materials used Productive wages Direct Expenses 3,000 2,300 250

Provide 60 percent of productive wages for works on cost and 121/2 per cent on works cost for office on cost. Profit to be realized 15 per cent on the tender price. Solution : Statement for Value of the Tender of Item No. 25 Particulars Materials used Productive wages Direct expenses Prime Cost Works-on-cost (60% of Productive wages) (2,300 60 100 = 1,380) Factory or Works Cost Office-on-cost (12 per cent on Works cost) (6,930 12.5) 100 = 866 6,930 866 Amount (Rs.) 3,000 2,300 250 5,550 1,380

48

Unit or Output Costing (Cost Sheet & Tender Costing)

Total Cost Profit (15% on Tender price) (7,795 15) 100 Tender Price

7,796 1,376 9,172

Problem (31): Mahesh Company Limited manufactured and sold 1,000 Refrigerators in the year ending 3pt March, 2005. The summarized Trading and Profit and Loss Account is set out below: Rs. To Raw materials To Direct wages To Manufacturing exp. To Gross profit c/d 80,000 1,20,000 50,000 1,50,000 4,00,000 _______ 4,00,000 By Sales Rs. 1,20,000

To Management and staff salaries To Rent rates and insurance To Selling expenses To General expenses To Net profit

60,000 10,000 30,000 20,000 30,000 1,50,00

By Gross profit b/d

1,50,000

______ 1,50,00

For the year ending 3pt March, 2005, it is estimated that: (a) (b) (c) (d) (e) (f) The output and sales will be 1,200 Refrigerators. The prices of materials will rise by 20 per cent on the previous year's level. The wage rates will rise by 5 per cent. Manufacturing expenses will rise in proportion to the combined costs of materials and wages. Selling cost per unit will remain unchanged. Other expenses will remain unaffected by the rise in output.

You are required to submit a statement for the Board of Directors showing the price at which refrigerators should be marketed so as to show a profit of 10 per cent on selling price. Solution : Cost Sheet for 1,000 Refrigerators

49

Unit or Output Costing (Cost Sheet & Tender Costing)

Particulars Raw materials Direct wages Prime Cost Manufacturing expenses Factory Cost Office Overheads: Salaries to management and staff Rent, rates and insurance General expenses Cost of Production Selling expenses Total Cost Profit Sales

Total Cost (Rs.) 80,000 1,20,000 2,00,000 50,000 2,50,000

Cost of Per Refrigerator (Rs.) 80 120 200 50 250

60,000 10,000 20,000 3,40,000 30,000 3,70,000

60 10 20 340 30 370

30,000 4,00,000

30 400

Statement of Tender Price for 1,200 Refrigerators Particulars Materials (80,000 1,000 = 80 + 20% of 80 = 96 1,200) Direct wages (1,20,000 1,000 = 120 + 5% of 120 = 126 1,200) Prime Cost .Manufacturing expenses ( 2,66,400 25 + 100) Factory or Works Cost Rent, rates and insurance Management and staff salaries General expenses Cost of Production Selling expenses (30,000 X 1200 + 1000 = 36,000) 36,000 30.00 Amount (Rs.) 1,15,200 1,51,200 2,66,400 66,600 3,33,000 10,000 60,000 20,000 4,23,000 Cost of Per Refrigerator (Rs.) 96.00 126.00 222.00 55.50 277.50 8.33 50.00 16.67 352.50

50

Unit or Output Costing (Cost Sheet & Tender Costing)

Total Cost Profit 10% on Selling price (4,59,000 X 10 + 90 = 51,000) Sale of Price for Refrigerator

4,59,000 51,000 5,10,000

382.50 42.50 425.00

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Unit or Output Costing (Cost Sheet & Tender Costing)