COST & MANAGEMENT A/C

1.MATERIAL COSTING
1. G Ltd. produces a product which has a monthly demand of 4,000 units. The product requires
a component X which is purchased at ₹ 20, for every finished product, one unit of component
is required. The ordering cost is ₹ 120 per order and the holding cost is 10%p.a. you are
required to calculate:

a. Economic order quantity

b. If the minimum lot size to be supplied is 4,000 units, what is the extra cost the company
has to incur?
c. What is the minimum carrying cost the company has to incur?

2. ZED Company supplies plastic crockery to fast food restaurants in metropolitan city. One
of its products is a special bowl, disposable after initial use, for serving soups to its
customers. Bowls are sold in pack 10 pieces at a price of ₹ 50 per pack. The demand for
plastic bowl has been forecasted at a fairly steady rate of 40,000 packs every year. The
company purchases the bowl direct from manufacturer at ₹ 40 per pack with in a three
days lead time. The ordering and related cost is ₹ 8 per order. The storage cost is 10%
per cent per annum of average inventory investment. Required:

a. Calculate Economic Order Quantity.

b. Calculate number of orders needed every year.
c. Calculate the total cost of ordering and storage bowls for the year.
d. Determine when should the next order to be placed? (Assuming that the company
does maintain a safety stock and that the present inventory level is 333 packs with
a year of 360 working days.

3. A company manufactures a product from a raw material, which is purchased at Rs.60 per kg.
The company incurs a handling cost of Rs.60 plus freight of Rs.390 per order. The
incremental carrying cost of inventory of raw material is Rs.0.50 per kg per month. In
addition, the cost of working capital finance on the investment in inventory of raw material
is Rs.9 per kg per annum. The annual production of the product is 1,00,000 units and 2.5 are
obtained from one kg of raw material. Required.

a. Calculate the economic order quantity of raw materials.

b. Advise how frequently orders for procurement should be placed.
c. If the company proposes to rationalize placement of orders on quarterly basis,
what percentage of discount in the price of raw materials should be negotiated?

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4. EXE Limited has received an offer of quantity discounts on his order of materials as under:–
Price per Tonnes
tonne ₹
1,200 Less than 500
1,180 500 and less than 1,000
1,160 1,000 and less than 2,000
1,140 2,000 and less than 3,000
1,120 3,000 and above.
The annual requirement for the material is 5,000 tonnes.
The ordering cost per order is ₹ 1,200 and the stock holding cost is estimated at 20% of
material cost per annum.

a. You are required to compute the most economical purchase level.

b. What will be your answer to the above question if there are no discount offered and the
price per tonne is ₹ 1,500?

5. The quarterly production of a company's product which has a steady market is 20,000
units. Each unit of a product requires 0.5 Kg. of raw material. The cost of placing one
order for raw material is ₹ 100 and the inventory carrying cost is ₹ 2 per annum. The
lead time for procurement of raw material is 36 days and a safety stock of 1,000 kg
of raw materials is maintained by the company. The company has been able to
negotiate the following discount structure with the raw material supplier.

Order quantity in Kgs Discount ₹

Upto 6,000 NIL
6,000 – 8,000 400
8,000 – 16,000 2,000
16,000 – 30,000 3,200
30,000 – 45,000 4,000
You are required to
a. Calculate the re-order point taking 30 days in a month.
b. Prepare a statement showing the total cost of procurement and storage of
raw material after considering the discount of the company elects to place
one, two, four or six orders in the year.
c. State the number of orders which the company should place to minimize
the costs after taking EOQ also into consideration

6. (a) Compute EOQ and total Variable Cost for the following:
Annual Demand 5,000 units
Unit Price ₹ 20.00
Ordering Cost ₹ 16.00
Storage cost 2% p.a.
Interest rate 12% p.a.
Obsolescence 6% p.a.
(b) Determine the total cost that would result for the items if an incorrect price of ₹ 12.80 is
used.

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7. In manufacturing its products, a company uses three raw materials A, B and C in respect of
which the following apply:
Raw Usage Re-order Price per Delivery Order Minimu
materials per unit quantity kg. period level m level
of Kg. ₹ (Weeks) Kg. Kg.
product
Kg.
A 10 10,000 0.10 1 to 3 8,000 -
B 4 5,000 0.30 3 to 5 4,750 -
C 6 10,000 0.15 2 to 4 - 2,000
Weekly production varies from 175 to 225 units, averaging 200. What would you expect the
quantities of the following to be?
a) Minimum stock level of A,
b) Maximum stock level of B,
c) Re-order level of C, and
d) Average stock level of A.

8. Medical Aids Co. manufactures a special product “Aid”. The following particulars were
collected for the year 2015:
a) Monthly demand of AID - 1,000 units.
b) Cost of placing an order - ₹ 100
c) Annual carrying cost per unit ₹ 15
d) Normal usage - 50 units per week.
e) Minimum usage - 25 units per week.
f) Maximum usage - 75 units per week.
g) Re-order period - 4 to 6 weeks
Compute from the above:
(1) Re-order Quantity (2) Re-order Level
(3) Minimum Level (4) Maximum Level
(5) Average Stock Level.

9. P limited produces product ‘P’. It uses annually 60,000 units of a material ‘Rex’ costing Rs.10
per unit. Other relevant information are:
Cost of placing an order : Rs.800 per order
Carrying cost : 15% per annum of average inventory
Re-order period : 10 days
Safety stock : 600 units.
The company operates 300 days in a year.
You are required to calculate:
i. Economic order quantity for material ‘Rex’
ii. Re-order level
iii. Maximum stock level
iv. Average stock level.

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10. Re-order quantity of material ‘X’ is 5,000 kg: maximum usage 50 kg per hour: minimum re-
order period 4 days; daily working hours in the factory is 8 hours. You are required to
calculate the re-order level of material ‘X’.

11. Following details are related to a manufacturing concern:

Re-order Level 1,60,000 units
Economic Order Quantity 90,000 units
Minimum Stock Level 1,00,000 units
Maximum Stock Level 1,90,000 units
Average Lead Time 6 days
Difference between minimum lead time and Maximum lead 4 days
time
Calculate:
a. Maximum consumption per day
b. Minimum consumption per day
12. M/s Tyrotubes trades in four wheeler tyres and tubes. It stocks sufficient quantity of tyres of
almost every vehicle. For the year ended 2017 -18, the report of sales manager revealed that
M/s Tyrotubes experienced stock-out of tyres.
The stock-out data is as follows :
Stock out of tyres 100 80 50 20 10 0
Number of times 2 5 10 20 30 33
The company loses 150 per unit due to stock out and spends 50 per unit on carrying
inventory. Determine the optimum safety stock level.

13. The following data are available in respect of material X for the year ended 31 st march,
2018:
Opening stock Rs.90,000
Purchases during the year Rs.2,70,000
Closing stock Rs.1,10,000
Calculate: (i) Inventory turnover ratio and (ii) the number of days for which the average
inventory is held.

14. An invoice in respect of a consignment of chemicals A and B provides the following

information

Chemical A: 10,000 kg at ₹ 10 per kg. 1,00,000

Chemical B: 8,000 kg at ₹ 13 per kg. 1,04,000

Basic custom duty @ 10% (Credit is not allowed) 20,400

Railway freight 3,840

Total cost 228,240

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 A shortage of 500 kgs. in chemical A and 320 kgs. in chemical B is noticed due to normal
breakages. You are required to determine the rate per kilogram of each chemical, assuming a
provision of 2% for further deterioration.
15. A store keeper has prepared the below list of items kept in the store of the factory.
Item Units Unit cost ₹
A 12,000 30.00
B 18,000 3.00
6,000 35.00
-C
D 750 220.00
E 3,800 75.00
F 400 105.00
G 600 300.00
H 300 350.00
I 3,000 250.00
J 20,000 7.50
K 11,500 27.50
L 2,100 75.00

The store keeper requires your help to classify the items for prioritization.
You are required to APPLY ABC analysis to classify the store items as follows:
Store items which constitutes approximately 70%, 20% and 10% of total value as A, B and C
respectively.

16. The average annual consumption of material is 20,000 kg at a price of ₹ 2 per kg. The
storage cost is 16% on average inventory and the cost of placing one order is ₹ 50. How
much is to be purchased at a time?

17. About 50 items are required every day for a machine. Fixed cost of ₹ 50 per order is incurred
for placing an order. Inventory carrying cost per item amounts to ₹ 0.20 per day. The lead
period is 32 days. Compute:
a. Economic Order Quantity
b. Re-order Level

18. Assume that the following quantity discount schedule for a particular bearing is available to a
retail store:

Order size Discount

(unit)
0-49 0%
50-99 5%
100-199 10%
200 and above 12%

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 The cost of a single bearing with no discount is Rs.30. the annual demand is 250 units.
Ordering cost is Rs.20 per order and annual inventory carrying cost is Rs.4 per unit.
Determine the optimal order quantity and the associated minimal total cost of inventory and
purchasing costs, if shortages are not allowed.

19. A manufacturer requires 9,600 units of a certain component annually. This is currently
purchased from a regular supplier at ₹ 50 per unit. The cost of placing an order is ₹ 60 order
and the annual carrying cost is ₹ 5 per piece. What is the economic order quantity (EOQ) for
placing order? Recently the supplier has expressed his willingness to reduce the price to ₹ 48,
if the total requirements are obtained from him in two equal orders and to ₹ 47, if the entire
quantity required is purchased in one lot. Analyse the cost of the three options and
recommend the best course. A company manufactures 5000 units of a product per month. The
cost of placing an order is ₹ 100. The purchase price of the raw material is ₹ 10 per kg. The
re–order period is 4 to 8 weeks. The consumption of raw materials varies from 100 kg to 450
kg per week, the average consumption being 275 kg. The carrying cost of inventory is 20%
per annum. You are required to calculate:
I. Re-order quantity
II. Re-order level
III. Maximum level
IV. Minimum level
V. Average stock level

20. A Ltd. distributes wide range of Water purifier systems. One of its bestselling items is a
standard water purifier. The management uses the EOQ decision model to determine optimal
number of standard water purifiers to order. Management now wants to determine how much
safety stock to hold.
A Ltd. estimates annual demand (360 working days) to be 18,000 standard water purifiers.
Using the EOQ decision model, the company orders 3,600 standard water purifiers at a time.
The lead-time for an order is 12 days. The annual carrying cost of one standard purifier is ₹
450. Management has also estimated the additional stock out costs would be ₹ 900 for
shortage of each standard water purifier.
A Ltd. has analyzed the demand during 200 past re-order periods. The records indicate the
following patterns:
Demand during lead time 540 560 580 600 620 640 660
Number of times quantity was demanded 6 12 16 130 20 10 6
a. Determine the level of safety stock for standard water purifier that the Alians Ltd.
should maintain in order to minimize expected stock out costs and carrying 'costs.
Carrying costs should be computed on safety stock, which shall remain in hand at
all times during the year.
b. What would be the Alians Ltd.'s new re-order point?

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 2.EMPLOYEE COSTS

1. From the following information, calculate Labour turnover rate and Labour flux
rate:
No. of workers as on 01.01.2022 = 7,600
No. of workers as on 31.12.2022 = 8,400
During the year, 80 workers left while 320 workers were discharged 1,500 workers
were recruited during the year of these, 300 workers were recruited because of exits
and the rest were recruited in accordance with expansion plans.

2. Accountant of your company had computed labour turnover rates for the quarter ended
30th June, as 14%, 8% and 6% under Flux method, Replacement method and
Separation method respectively. If the number of workers replaced during 2nd quarter
of the financial year is 36, find the following:
(i) The number of workers recruited and joined;
(ii) The number of workers left and discharged

3. The management of ABC Ltd. are worried about their increasing labour turnover in the
factory and before analyzing the causes and taking remedial steps, they want to have an idea
of the profit foregone as a result of labour turnover in the last year.
Last year sales amounted to ₹ 83, 03,300 and the P/V ratio was 20 per cent. The total number
of actual hours worked by the direct labour force was 4.45 lakhs. As a result of the delays by
the Personnel Department in filling vacancies due to labour turnover, 1,00,000 potentially
productive hours were lost. The actual direct labour hours included 30,000 hours attributable
to training new recruits, out of which half of the hours were unproductive.

The costs incurred consequent on labour turnover revealed on analysis the following:
₹
Settlement cost due to leaving 43,820
Recruitment costs 26,740
Selection costs 12,750
Training costs 30,490
Assuming that the potential production lost as a consequence of labour turnover could have
been sold at prevailing prices, find the profit foregone last year on account of labour turnover.

4. In a factory two workmen A and B produce the same product from the same material. They are
paid bonus according to the Rowan Plan. The time allotted to the product is 40 hours. A takes
25 hours and B takes 30 hours to finish the product. The factory cost of the product is ₹
193.75 for A and ₹ 205 for B. The factory overhead rate is one rupee per man-hour. Find the
normal rate of wages the cost of materials used for the product.

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5. A worker, whose day work wages is ₹ 25.00 an hour, received production bonus under the
Rowan Scheme. He carried out the following work in a 48-hour week:

Job 1 1500 items at 4 hours per 1,000

Job 2 1,800 items at 3 hours per 1,000
Job 3 9,000 items at 6 hours per 1,000
Job 4 1,500 items for which no standard time was fixed
and it was arranged that the worker would be paid
a bonus of 25%. Actual time on the job was 4
hours.

Job 5 2,000 items at 8 hours per 1,000, each item

estimated to be half finished
Job 2 was carried out on a machine running at 90% efficiency and an extra allowance of l/9th
of actual time was given to compensate the worker. 4 hours were lost due to power cut.
Calculate the earnings of the worker clearly stating your assumptions for the treatment given for
the hours lost due to power cut.

6. A skilled worker in XYZ Ltd. is paid a guaranteed wage rate of ₹ 30 per hour. The
standard time per unit for a particular product is 4 hours. P, a machine man, has been
paid wages under the Rowan Incentive Plan and he had earned an effective hourly
rate of ₹ 37.50 on the manufacture of that particular product.
What could have been his total earnings and effective hourly rate, had he been put on
Halsey Incentive Scheme (50%)?

7. ZED Limited is working by employing 50 skilled workers it is considered the

introduction of incentive scheme-either Halsey scheme (with 50% bonus) or Rowan
scheme of wage payment for increasing the labour productivity to cope up the
increasing demand for the product by 40%. It is believed that proposed incentive
scheme could bring about an average 20% increase over the present earnings of the
workers; it could act as sufficient incentive for them to produce more.
Because of assurance, the increase in productivity has been observed as revealed by
the figures for the month of August, 2023.

Hourly rate of wages (guaranteed) ₹ 30

Average time for producing one unit by one
worker at the previous performance 1.975
hours (This may be taken as time allowed)
Number of working days in the month 24
Number of working hours per day of each worker 8
Actual production during the month 6,120 units
Required:
(i) Calculate the effective rate of earnings under the Halsey scheme and the
Rowan scheme.
(ii) Calculate the savings to the ZED Limited in terms of direct labour cost per piece.

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8. In a unit, 10 men worked as a group. When the production of the group exceeds the standard
output of 200 pieces per hour, each man is paid an incentive for the excess production in
addition to his wages at hourly rates. The incentive is half the percentage the excess
production over standard bears to the standard production. Each man is paid an incentive at
the rate of this percentage of wage rate of ₹ 20 per hour. There is no relation between the
individual workman’s hourly rate and the bonus rate.
In a week, the hours worked are 500 and the total production is 1, 20,000 pieces.
a. Compute the total amount of bonus for the week.
b. Calculate the total earnings of two workers, A and B of the group:
A worked 44 hours and his basic wage rate per hour was ₹ 22.00
B worked 48 hours and his basic wage rate per hour was ₹ 19.00

9. The targeted weekly output of a manufacturing unit employing 20 workers is 400 pieces. The
group is entitled to a bonus which is ₹ 120 per hour upon achievement of a minimum of 80%
of the output target. This incentive rate increases by 2.50 % flat for every 10% of increase in
achievement of targets up to a maximum of 20% at the level of 120% of the output target in
the following manner:
Output target Incentive rate
80% - 90% 10%
90% - 100% 12.5%
100 % - 110% 15%
110 % - 120% 17.5%
120% and above 20%
During the four weeks in February, the actual outputs achieved by the workers are 383
pieces, 442 pieces, 350 pieces and 318 pieces respectively. The average basic piece rate is ₹
5. Compute the amount of incentive earned by the group during each of the four weeks
10. Both direct and indirect labour of a department in a factory are entitled to production bonus in
accordance with a Group Incentive Scheme, the outlines of which are as follows:
a. For any production in excess of the standards rate fixed at 10,000 tonnes per month (of
25 days), a general incentive of ₹ 10 per tonne is paid in aggregate. The total amount
payable to each separate group is determined on the basis of an assumed percentage of
such excess production being contributed by it, namely 70% by Direct Labour, 10% by
Inspection Staff, 12% by Maintenance Staff and 8% by Supervisory Staff.
b. Moreover, if the excess production is more than 20 per cent above the standard, direct
labour also gets a special bonus @ ₹ 5 per tonne for all production in excess of 120% of
standard.
c. Inspection staff are penalized @ ₹ 20 per tonne for any rejection in excess of 1% of
production.
d. Maintenance staffs are also penalized @ ₹ 20 per hour of machine breakdown.

From the following particulars for a month, work out the production bonus earned by each
group:
Actual working days - 20
Production - 11,000 tonnes
Reject ion by customers - 200 tonnes
Machine breakdown - 40 hours.

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11. A company uses an old method of machining a part manufactured for sale. The estimates of
operating details for the year 2022 -23 are as under:
No. of parts to be manufactures and sold: 30,000
Raw materials required per part: 10 kg. @ ₹ 2 per kg.
Average wage rate per worker: ₹ 40 per day of 8 hrs.
Average labour efficiency: 60%
Standard time required to manufacture one part: 2 hrs.
Overhead rate: ₹ 10 per clock hour.
Material handling expenses – 2% of the value of raw materials.

The company has a suggestion box scheme and an award equivalent to three months saving
in labour cost is passed on to the employee whose suggestion is accepted. In response to this
scheme, a suggestion has been received from an employee to use a special Jig in the
manufacture of the aforesaid part. The cost of the Jig, which has life of one year, is ₹ 3,000
and the use of the Jig will reduce the standard time by 12 minutes.
Required:
a. Compute the amount of the award payable to the employee who has given the
suggestion
b. Prepare a statement showing the annual cost of production before and after the
implementation of the suggestion to use the Jig and indicate the annual savings.
c. State the assumptions on which your calculations are based.

12. Mr. X had been allotted a work which had to be completed within 80 hours. He took 74 hours
to complete the work. The company pays incentive bonus of 10% on the hourly rate if
standard time is achieved and a further incentive bonus of 2% on hourly rate for each 1% in
excess of 100% efficiency is payable. The normal wage rate is ₹ 30 per hour. Calculate the
effective wage rate per hour worked and total wages to be paid to Mr. X.

13. J Ltd. pays a basic wage of ₹ 125 per hour to its production workers. The company works 6
days a week in a single shift of 8:00 AM. To 4:30 PM. The company also pays overtime to its
workers apart from basic wages for work beyond its normal working hours. The overtime
rule is as under:

a. No over-time is paid for any work up to 5:30 PM.

b. ₹ 62.50 per hour for any work done after 5:30 PM.
c. The Maximum over-time payment is restricted to ₹ 375 for a day, however, workers are
paid ₹ 80 as diet allowance for work done beyond 8:30 PM.
d. On Sunday or any holiday, workers are paid ₹ 375 provided they work at least for 4
hours.
The extract of attendance for three workers is as follows:

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 Worker A Worker B Worker C
Monday 8:00AM – 6:30 PM 8:00 AM – 7:30 PM 8:00 AM – 9:30 PM
Tuesday (Holiday) 8:00 AM – 5:30 PM 8:00 AM – 12:30 PM Absent
Wednesday 8:00 AM – 10:30 PM 8:00 AM – 5:30 PM 8:00 AM – 11:30 PM
Thursday 8:00 AM – 4:30 PM 8:00 AM – 9:30 PM 8:00 AM – 8:30 PM
Friday 8:00 AM – 11:00 PM 8:00 AM – 4:30 PM 8:00 AM – 4:30 PM
Saturday Absent 8:00 AM – 5:30 PM 8:00 AM – 7:30 PM
Sunday Absent 8:00 AM – 1:30 PM 8:00 AM – 4:30 PM

Required:
(i) Calculate the amount of overtime and diet allowance payable to each worker.
(ii) Calculate the amount and accounting treatment of overtime and diet allowance in
each case:
i. Worker A and C were involved in a specific job work assigned to them.
ii. Overtime was due to under-estimation of sales demand provided by the sales
department.
iii. Overtime was due to make up a shortfall in production due to sudden demand.

14. In India Manufacturing Co., the basic wage rate is ₹ 10 per hour and overtime rates are :

Before and after normal working hours 175% of basic wage rate
Sundays and Holidays 225% of basic wage rate
During the previous year, the following hours were worked:
Normal time 1,00,000 hours
Overtime before and after working hours 20,000 hours
Overtime on Sundays and holidays 5,000 hours
Total 1,25,000 hours
The following hours have been worked on a Job “Z”
Normal 1,000 hours
Overtime before and after working hours 100 hours
Overtime on Sundays and holidays 25 hours
Total 1125 hours
You are required to calculate the labour cost chargeable to jobs ‘Z’ and overhead in each of
the following instances:
(a) Where overtime is worked regularly throughout the year as a policy due to the
labour shortage.
(b) Where overtime is worked irregularly to meet the requirements of production.
(c) Where overtime is worked at the request of the customer to expedite the job.

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15. Calculate the earnings of A and B from the following particulars for a month and allocate the
labour cost to each job X, Y and Z:

A B
(i) Basic Wages ₹ 160
100
(ii) Dearness Allowance 50%
50%
(iii) Contribution to Provident Fund (on basic wages) 8%
8%
(iv) Contribution to Employees’ State Insurance (on basic wages) 2%
2%
(v) Overtime Hours 10
The Normal working hours for the month are 200. Overtime is paid at double the total of
normal wages and dearness allowance. Employer’s contribution to State Insurance and
Provident Fund are at equal rates and employees’ contributions. The two workers were
employed on jobs X, Y and Z

X Y Z
Workers A 40% 30% 30%
Worker B 50% 20% 30%
Overtime was done on job Y.
1. A worker takes 15 hours to complete a piece of work for which time allowed is 20 hours. His
wage rate is ₹ 5 per hour. Following additional information are also available:
Material cost of work ₹ 50
Factory overheads 100% of wages
Calculate the factory cost of work under the following methods of wage payments:
(i) Rowan Plan
(ii) Halsey Plan

2. The rate of change of labour force in a company during the year ending 31st March, 2023
was calculated as 13%,8% and 5% respectively under 'Flux Method', 'Replacement method'
and 'Separation method'. The number of workers separated during the year is 40.
You are required to calculate:
a. Average number of workers on roll.
b. Number of workers replaced during the year.
c. Number of new accessions i.e. new recruitment.
d. Number of workers at the beginning of the year.

3. Two workers ‘A’ and ‘B’ produce the same product using the same material. Their normal
wage rate is also the same. ‘A’ is paid bonus according to Rowan scheme while ‘B’ is paid
bonus according to Halsey scheme. The time allowed to make the product is 120 hours. ‘A’
takes 90 hours while ‘B’ takes 100 hours to complete the product. The factory overhead rate
is ₹ 50 per hour actually worked. The factory cost of product manufactured by ‘A’ is ₹
80,200 and for product manufactured by ‘B’ is ₹ 79,400.
a. Compute the normal rate of wages.
b. Calculate the material cost.
c. Prepare a statement comparing the factory cost of the product as made by two
workers.

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4. The cost accountant of Y Ltd. has computed labour turnover rates for the quarter ended 31st
March, 2022 as 10%, 5% and 3% respectively under ‘Flux method’. ‘Replacement method’
and ‘Separation method’.
If the number of workers replaced during that quarter is 30, find out the number of
(i) Workers recruited and joined,
(ii) Workers left and discharged.

5. Wage negotiations are going on with the recognized Labour Union and the Management
wants you to formulate an incentive scheme with a view to increase productivity.
The case of three typical workers Ram, Shyam and Mohan who produce respectively 180,
120 and 100 units of the company’s product in a normal day of 8 hours is taken up for study.
Assuming that day wages would be guaranteed at ₹ 75 per hour and the piece rate would be
based on a standard hourly output of 10 units calculate the earnings of each of the three
workers and the labour cost per 100 pieces under (a) Halsey, scheme and (b) The Rowan
scheme.

6. Three workers Sachin, Sourav, Rahul produced 80, 100 and 120 pieces respectively of a
product ‘X’ on a particular day in May in a factory. The time allowed for 10 units of Product
X is 1 hour and their hourly rate is ₹ 4.
Calculate followings for each of these three workers:
a. Earnings for the day, and
b. Effective Rate of Earnings per hour under: (i) Straight piece-rate, (ii) Halsey
Premium Bonus and (iii) Rowan Premium Bonus methods of labour
remuneration.

7. Calculate the monthly remuneration of three workers X, Y and Z from the following data:
(a) Standard production per month per worker – 4,000 units
(b) Actual production during the month:
X – 3,400 units ; Y– 3,000 units ; Z– 3,800 units
(c) Piece work rate is ₹ 25 per unit.
(d) Additional production bonus is ₹ 10 for each percentage of actual production
exceeding 80% standard production
(e) Fixed dearness allowance ₹ 1500 per month

8. Mr. X had been allotted a work which had to be completed within 80 hours. He took 74 hours
to complete the work. The company pays incentive bonus of 10% on the hourly rate if
standard time is achieved and a further incentive bonus of 2% on hourly rate for each 1% in
excess of 100% efficiency is payable. The normal wage rate is ` 30 per hour. Calculate the
effective wage rate per hour worked and total wages to be paid to Mr. X.

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9. A Company is undecided as to what kind of wage scheme should be introduced. The
following particulars have been compiled in respect of three workers. Which are under
consideration of the management?

I II III
Actual hours worked 380 100 540

Hourly rate of wages in ₹ 40 50 60

Productions in units Product A

210 - 600
Product B 360 - 1,350
Product C 460 250 -
Standard time allowed per unit of each product is:
A B C
Minutes 15 20 30

For the purpose of piece rate, each minute is valued at ₹ 5.

You are required to calculate the wages of each worker under:
a. Guaranteed hourly rate basis
b. Piece work earning basis, but guaranteed at 75% of basic pay
(Guaranteed hourly rate if his earning are less than 50% of basic pay.)
c. Premium bonus basis where the worker received bonus based on Rowan
scheme.

10. Sunshine Ltd. wants to ascertain the profit lost during the year 2017-18 due to increased
labour turnover. For this purpose, it has given you the following information:
(1) Training period of the new recruits is 50,000 hours. During this period their
productivity is 60% of the experienced workers. Time required by an experienced
worker is 10 hours per unit.
(2) 20% of the output during training period was defective. Cost of rectification of a
defective unit was ₹ 25.
(3) Potential productive hours lost due to delay in recruitment were 1, 00,000 hours.
(4) Selling price per unit is ₹ 180 and P/V ratio is 20%.
(5) Settlement cost of the workers leaving the organization was ₹ 1,83,480.
(6) Recruitment cost was ₹ 1,56,340
(7) Training cost was ₹ 1,13,180

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 3.OVERHEADS
1. Self-help Ltd. has gensets and produces its own power. Data for power costs are as follows:-

Horse power hours Production Service departments

departments
A B X Y
Needed production capacity 10,000 20,000 12,000 8,000
Used during the month of May 8,000 13,000 7,000 6,000
During the month of May costs for generating power amounted to ₹
9,300: of this ₹ 2,500 was considered to be fixed cost. Service Department X renders
service to A, B and Y in the ratio 13:6:1, while Y renders service to A and B in the
ratio 31:3. Given that the direct labour hours in Departments A and B are 1650 hours
and 2175 hours respectively, find the Power Cost per labour hour in each of these two
Departments.

2. X, Y, and Z ltd., manufactures a number of sizes of product: They have grouped various sizes
into four main groups called A. B. and D. If the company manufactures only one group in the
factory, r monthly production can be either 5,000 Nos. of A, or 10,000 Nos. B, or 15,000
Nos. of C, or 30,000 Nos. of D.
From the following information relating to the month of June find profit/loss made on each
group of product showing prime cost, works cost and total cost.

Product Group A B C D
Actual production (Nos.) 675 1,800 4,050 9,450
Cost: Direct labour ₹ 3,000 5,500 7,500 21,000
Direct material ₹ 3,500 6,500 9,500 27,500
Selling Price per unit ₹ 30 20 15 12
Overhead expenses for the month is ₹ 81,000. Selling and distribution cost is calculated @
10% of works cost. Overhead expenses are to be apportioned to each product on equivalent
basis.

3. Deccan Manufacturing Ltd. has three production departments. Service departments' costs are
distributed to these production departments using the "Step Ladder Method" of distribution.
Estimates of factory overhead costs to be incurred by each department in the forthcoming year are as
follows. Data required for distribution is also shown against each department:
Department Factory overhead ₹ Direct Labour Hours No. of Employees Area
Sq.m.
Production:
X 1,93,000 4,000 100 3. 000
Y 64,000 3,000 125 1,500
Z 83,000 4,000 85 1,500
Service:
P 45,000 1,000 10 500
Q 75,000 5,000 50 1,500

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 R 1,05,000 6,000 40 1,000
S 30,000 3,000 50 1,000

The overhead costs of the four service departments are distributed in the same order, viz., P, Q, R and
S respectively on the four basis:
Department Basis
P Number of Employees
Q Direct Labour Hours
R Area in square meters
S Direct Labour Hours
(a) Distribute the overhead costs of the service departments to the three production departments;
(b) Calculate the overhead recovery rate per direct labour hour for each of the production
departments.

4. The Union Ltd. has the following account balances and distribution of direct charges on 31 st
March, 2022.
Total Production Depts. Service Depts.
Machine Packing General Stores
Shop Plant
Allocated ₹ ₹ ₹ ₹ ₹
Overheads:
Indirect labour 2,90,000 80,000 60,000 40,000 1,10,000
Maintenance 99,000 34,000 16,000 21,000 28,000
Material
Misc. supplies 59,000 15,000 29,000 9,000 6,000
Supervisor’s 1,60,000 -- -- 1,60,000 --
salary
Cost & payroll 8,00,000 -- -- 8,00,000 --
salary
Overheads to be apportioned:
Power ₹ 7,80,000
Rent 7,20,000
Fuel and Heat 6,00,000
Insurance 1,20,000
Taxes 84,000
Depreciation 12,00,000

The following data were compiled by means of the factory survey made in the previous year:
Departements Floor Space Radiator No. of Investment H.P.
Section employees hours
Machine Shop 2,000 Sq. ft. 45 20 80,00,000 3,500
Packing 800 Sq. ft. 90 12 24,00,000 500
General Plant 400 Sq. ft. 30 4 8,00,000 -
Stores & 1,600 Sq. ft. 60 8 16,00,000 1,000
maintenance

Page 16 of 129
 Expenses charged to the stores departments are to be distributed to the other departments by
the following percentages:
Machine shop 50%; Packing 20%; General Plant 30%;
General Plant overheads is distributed on the basis of number of employees.
(a) Prepare an overhead distribution statement with supporting schedules to show
computations and basis of distribution.
(b) Determine the service department distribution by simultaneous equation method.

5. Vision Ltd. manufactures luggage trolleys for airports. The factory, in which the company
undertakes all of its production, has two production departments- ‘Fabrication’ and
‘Assembly’, and two service departments- ‘Stores’ and ‘Maintenance’.
The following information have been extracted from the company’s budget for the financial
year ended 31st March, 2022:
Allocated Overhead Costs ₹
Fabrication Department 15,52,000
Assembly Department 7,44,000
Stores Department 2,36,000
Maintenance Department 1,96,000
Other Overheads `
Factory rent 15,28,000
Factory building insurance 1,72,000
Plant & machinery insurance 1,96,000
Plant & Machinery Depreciation 2,65,000
Subsidy for staffs’ canteen 4,48,000
Direct Costs ₹ ₹
Fabrication Department:
Material 63,26,000
Labour 8,62,000 71,88,000
Assembly Department:
Material 1,42,000
Labour 13,06,000 14,48,000

The following additional information is also provided:

Fabrication Assembly Stores Maintenance
Department Department Department Department

Floor area (square 24,000 10,000 2,500 3,500

meters)
Value of plant 16,50,000 7,50,000 75,000 1,75,000
&machinery ₹
No. of stores 3,600 1,400 --- ---
requisitions
Maintenance hours 2,800 2,300 400 ---
required
No. of employees 120 80 38 12

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 Machine hours 30,00,000 60,0000
Labour hours 70,000 26,00,000
Required:
a. Prepare a table showing the distribution of overhead costs of the two service
departments to the two production departments using step method; and
b. Calculate the most appropriate overhead recovery rate for each department.
c. Using the rates calculated in part (b) above, calculate the full production costs of the
following job order: Job number IGI2014
Direct Materials ₹ 1,15,200
Direct Labour:
Fabrication Department 240 hours @ ₹ 18 per hour
Assembly Department 180 hours @ ₹ 18 per hour
Machine hours:
Fabrication Department 210 hours
Assembly Department 150 hours

6. You are given the following information of the three machines of a manufacturing
department of X Ltd.:
Preliminary estimates of expenses
Total (per annum)
Machines
A B C
₹ ₹ ₹ ₹
Depreciation 20,000 7,500 7,500 5,000
Spare parts 10,000 4,000 4,000 2,000
Power 40,000
Consumable stores 8,000 3,000 2,500 2,500
Insurance of machinery 8,000
Indirect labour 20,000
Building maintenance expenses 20,000
Annual interest on capital outlay 50,000 20,000 20,000 10,000
Monthly charge for rent and rates 10,000
Salary of foreman (per month) 20,000
Salary of Attendant (per month) 5,000
The foreman and the attendant control all the three machines.

The following additional information is also available:

Machines
A B C
Estimated Direct Labour Hours 1,00,000 1,50,000 1,50,000
Ratio of K.W. Rating 3 2 3
Floor space (sq. ft.) 40,000 40,000 20,000
There are 12 holidays besides Sundays in the year, of which two were on Saturdays. The
manufacturing department works 8 hours in a day but Saturdays are half days. All machines
work at 90% capacity throughout the year and 2% is reasonable for breakdown.

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 You are required to calculate predetermined machine hour rates for the above machines after
taking into consideration the following factors:

• An increase of 15% in the price of spare parts.

• An increase of 25% in the consumption of spare parts for machine ‘B’ & ‘C’ only.
• 20% general increase in wages rates.

7. Sree Ajeet Ltd. having fifteen different types of automatic machines furnishes information as
under for 2022-2023
(i) Overhead expenses: Factory rent `₹ 1,80,000 (Floor area 1,00,000 sq.ft.), Heat and
gas ₹ 60,000 and supervision ₹ 1,50,000.
(ii) Wages of the operator are ₹ 200 per day of 8 hours. Operator attends to one
machine when it is under set up and two machines while they are under operation.

In respect of machine B (one of the above machines) the following particulars are furnished:
(i) Cost of machine ₹ 1,80,000, Life of machine- 10 years and scrap value at the end of its
life ₹ 10,000
(ii) Annual expenses on special equipment attached to the machine are estimated as ₹
12,000
(iii) Estimated operation time of the machine is 3,600 hours while set up time is 400 hours
per annum
(iv) The machine occupies 5,000 sq.ft. of floor area.
(v) Power costs ₹ 5 per hour while machine is in operation.
Estimate the comprehensive machine hour rate of machine B. Also find out machine costs to
be absorbed in respect of use of machine B on the following two work orders
Work order- Work order-
1 2
Machine set up time (Hours) 15 30
Machine operation time (Hours) 100 190

8. The following particulars refer to process used in the treatment of material subsequently,
incorporated in a component forming part of an electrical appliance:
a. The original cost of the machine used (Purchased in June 2018) was
₹ 10,000. Its estimated life is 10 years, the estimated scrap value at the end of its life
is ₹ 1,000, and the estimated working time per year (50 weeks of 44 hours) is 2,200
hours of which machine maintenance etc., is estimated to take up 200 hours. No other
loss of working time expected, setting up time, estimated at 100 hours, is regarded as
productive time. (Holiday to be ignored).
b. Electricity used by the machine during production is 16 units per hour at cost of a 900
paisa per unit. No current is taken during maintenance or setting up.
c. The machine required a chemical solution which is replaced at the end of week at a
cost of ₹ 20 each time.
d. The estimated cost of maintenance per year is ₹ 1,200.
e. Two attendants control the operation of machine together with five other identical
machines. Their combined weekly wages, insurance and the employer's contribution
to holiday pay amount ₹ 120.

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 f. Departmental and general works overhead allocated to this machine for the current
year amount to ₹ 2,000.
You are required to calculate the machine hour rate of operating the machine.
9. J.K. Enterprises undertake three different jobs A, B and C. All of them require the use of a special
machine and also the use of a computer. The computer is hired and the hire charges work out to ₹
4,20,000 per annum. The expenses regarding the machine are estimated as follows :
Rent for the quarter ₹ 17,500
Depreciation per annum 2,00,000
Indirect charges per annum 1,50,000

from During the first month of operation, the following details were taken
the job register :
Job A B C
Number of hours the machine was used:
Without the use of the computer 600 900 -
With the use of the computer 400 600 1,000

You are required to compute the machine hour rate for the firm as a whole for the month
(a) When the computer was used, and
(b) When the computer was not used.
(b) For the individual jobs A, B and C.

10. X Ltd. recovers overheads at a. pre-determined rate of ₹ 50 per man-day. The total
factory overheads incurred and the man-days actually worked were ₹79 lakhs and 1.5
lakhs days respectively. During the period 30,000 units were sold. At the end of the
period 5,000 completed units were held in stock but there was no opening stock of
finished goods. Similarly, there was no stock of uncompleted units at the beginning of
the period but at the end of the period there were 10,000 uncompleted units which may
be treated as 50% complete.
On analyzing the reasons, it was found that 60% of the unabsorbed overheads were
due to defective planning and the balance were attributable to increase in overhead cost.
How would unabsorbed overheads be treated in cost accounts?

11. APP Limited is a manufacturing concern and recovers overheads at a pre-determined rate of
₹ 30 per man-day.
The following additional information of a period are also available for you:

Total factory overheads incurred ₹

51,00,000

Man-days actually worked 1,50,000

Sales (in units) 50,000

Stock at the end of the period:

Page 20 of 129
 Completed units 5,000

Incomplete units (50% completed) 10,000

There was no opening stock of finished goods and works in progress.
On analysing the situation, it was discovered that 60% of the unabsorbed overheads were
due to defective planning and balance were attributable to increase in overhead costs.
How would you treat unabsorbed overheads in cost accounts?

12. World Class Manufacturers – a small scale enterprise, produces a single product and has
adopted a policy to recover the production overheads of the factory by adopting a single
blanket rate based on machine hours. The annual budgeted production overheads for the year
2022-23 are ₹ 44,00,000 and budgeted annual machine hours are 2,20,000.
For a period of first six months of the financial year 2022-23, following information were
extracted from the books:
Actual production overheads ₹ 24,88,200
Amount included in the production overheads:
Paid as per court’s order ₹ 1,28,000
Expenses of previous year booked in current year ₹ 1,200
Paid to workers for strike period under an award ₹ 44,000
Obsolete stores written off ₹ 6,700
Production and sales data of the concern for the first six months are as under:
Production:
Finished goods 24,000 units
Works-in-progress
(50% complete in every respect) 18,000 units
Sale:
Finished goods 21,600 units
The actual machine hours worked during the period were 1,16,000 hours. It is revealed
from the analysis of information that ¼ of the under/ over absorption was due to
defective production policies and the balance was attributable to increase/decrease in
costs.
Required:
(i) Determine the amount of under/over absorption of production overheads for the six
month period of 2022-23.
(ii) Show the accounting treatment of under/ over absorption of production overheads,
and
(iii) Apportion the under/ over absorbed overheads over the items.
1. ABC Ltd. has three production departments P1, P2 and P3 and two service departments S1
and S2. The following data are extracted from the records of the Company for the
month of October, 2023:
Rent and rates ₹
General lighting 62,500
7,500
Indirect Wages 18,750

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 Power 25,000
Depreciation on machinery 50,000
Insurance of machinery 20,000
Other Information:
P1 P2 P3 S1 S2
Direct wages ₹ 37,500 25,000 37,500 18,750 6,250
HP of machines 60 30 50 10 -
Cost of Machinery ₹ 3,00,000 4,00,000 5,00,000 25,000 25,000
Floor space (Sq. ft) 2,000 2,500 3,000 2,000 500
Number of light points 10 15 20 10 5
points
Production hours worked 6,225 4,050 4,100 - -
Expenses of the service departments S 1 and S2 are reapportioned as below:
P1 P2 P3 S1 S2
S1 20% 30% 40% - 10%
S2 40% 20% 30% 10% -
Required:
a. Compute overhead absorption rate per production hour of each production department.
b. Determine the total cost of product X which is processed for manufacture in
department P1, P2 and P3 for 5 hours, 3 hours and 4 hours respectively, given that
its direct material cost is ₹ 625 and direct labour cost is ₹ 375.

2. Avon Ltd. has three production departments and two service departments. Following details
relating to overheads analysed to production and service departments is made available to you.
Production department A ₹ 48,000
B 42,000
C 30,000
Service department PQR 14,040
STU 18,000
The expenses of service department are apportioned as
follows:
Production departments Service

A B C PQR STU
Service department PQR 20% 40% 30% - 10%
Service department STU 40% 20% 20% 20% -
You are required to allocate the service department costs over the production departments
using the simultaneous equation method.

3. The following particulars refer to process used in the treatment of material subsequently,
incorporated in a component forming part of an electrical appliance:
a. The original cost of the machine used (Purchased in June 2023) was
₹1, 00,000. Its estimated life is 10 years, the estimated scrap value at the end of its life is
₹ 10,000, and the estimated working time per year (50 weeks of 44 hours) is 2,200 hours
of which machine maintenance etc., is estimated to take up 200 hours. No other loss of

Page 22 of 129
 working time expected, setting up time, estimated at 100 hours, is regarded as productive
time. (Holiday to be ignored).
b. Electricity used by the machine during production is 16 units per hour at cost of ₹ 9 per
unit. No current is taken during maintenance or setting up.
c. The machine required a chemical solution which is replaced at the end of week at a cost
of ₹ 200 each time.
d. The estimated cost of maintenance per year is ₹ 12,000.
e. Two attendants control the operation of machine together with five other identical
machines. Their combined weekly wages, insurance and the employer's contribution to
holiday pay amount ₹ 1200.
f. Departmental and general works overhead allocated to this machine for the current year
amount to ₹20,000.
You are required to CALCULATE the machine hour rate of operating the machine.

4. E – books is an online book retailer. The Company has four departments. The two sales
departments are Corporate Sales and Consumer Sales. The two support-departments are
Administrative (Human resources, Accounting), and information systems. Each of the sales
departments conducts merchandising and marketing operations independently.

The following data are available for October, 2023:

Departments Revenues Number of Processing Time
Employees used (in minutes)
Corporate Sales ₹ 16,67,750 42 2,400
Consumer Sales ₹ 8,33,875 28 2,000
Administrative - 14 400
Information systems - 21 1,400

Cost incurred in each of four departments for October, 2023 are as follows:
Corporate sales ₹ 12, 97,751
Consumer sales ₹ 6, 36,818
Administrative ₹ 94,510
Information systems ₹ 3,04,720
The company uses number of employees as a basis to allocate Administrative costs and
processing time as a basis to allocate Information systems cost.
Required:
(i) Allocate the support department costs to the sales department using the direct
method.
(ii) Rank the support departments based on percentage of their services rendered
to other support departments. Use this ranking to allocate support costs based
on the step-down allocation method.
(iii) How could you have ranked the support departments differently?
(iv) Allocate the support department costs to two sales departments using the
reciprocal allocation method.

5. An engine manufacturing company has two production departments:

(i) Snow mobile engine and
(ii) Boat engine

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 and two service departments;
(i) Maintenance and
(ii) Factory office.
Budgeted cost data and relevant cost drivers are as follows:
Departmental costs: ₹
Snow mobile engine 6, 00,000
Boat mobile engine 17, 00,000
Factory office 3, 00,000
Maintenance 2, 40,000
Cost drivers:
Factory office department: No. of employees
Snow mobile engine department 1,080 employees
Boat engine department 270 employees
Maintenance department 150 employees
1,500 employees
Maintenance department: No. of work
orders
Snow mobile engine department 570 orders
Boat engine department 190 orders
Factory office department 40 orders
800 orders
Required
(i) Compute the cost driver allocation percentage and then use these percentage to
allocate the service department costs by using direct method.
(ii) Compute the cost driver allocation percentage and then use these percentage to
allocate the service department costs by using non-reciprocal method/step
method.

6. From the details furnished below you are required to compute a comprehensive machine
hours rate:
Original purchase price of the machine
(Subject to depreciation at 10% p.a. on original cost) ₹ 3,24,000
Normal working hours for the month
(The machine works to only 75% of capacity) 200 hours
Wages of Machine man ₹ 125 per day (of 8 hours)
Wages for a Helper (Machine attendant) ₹ 75 per day (of 8 hours)
Power cost for the month for the time worked ₹ 15,000
Supervision charges apportioned for the machine
Centre for the month ₹ 3,000
Electricity & Lighting for the month ₹ 7,500
Repairs & maintenance including consumable stores per month ₹17,500
Insurance of plant & Building (apportioned) for the year ₹ 16,250

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 Other general expenses p.a. ₹ 27,500

The workers are paid a fixed Dearness allowance of ₹ 1,575 per month. Production bonus
payable to workers in terms of an award is equal to 33.33% of basic wages and dearness
allowance. Add 10% of the basic wages and dearness allowance against leave wages and
holiday with pay to arrive at a comprehensive labour-wage for debit to production.

7. PQR Ltd. Has its own power plant, which has two users, Cutting Department and Welding
Department. When the plans were prepared for the power plant, top management decided
that its practical capacity should be 1,50,000 machine hours. Annual budgeted practical
capacity fixed costs are ₹ 9,00,000 and budgeted variable costs are ₹ 4 per machine-hour.

The following data are available:

Cutting Welding Total
Actual usage 60,000 40,000 1,00,000
Practical capacity 90,000 60,000 1,50,000

Required:

a. Allocate the power plant’s cost to the cutting and the welding department using a single
rate method in which the budgeted rate is calculated using practical capacity and costs
are allocated based on actual usage.

b. Allocate the power plant’s cost to the cutting and welding departments, using the dual rate
method in which fixed costs are allocated based on practical capacity and variable costs
are allocated based on actual usage.

c. Allocate the power plant’s cost to the cutting and welding departments using the dual rate
method in which the fixed-costs rate is calculated using practical capacity, but fixed costs
are allocated to the cutting and welding department based on actual usage. Variable costs
are allocate based on actual usage.

8. XYZ Ltd. has five departments A, B, C, D and E. Of these departments A, B and C are
production departments while D and E are service departments.

The overheads incurred during the year 2023 were:

Rent ₹ Rent and Taxes ₹3,00
10,800 0
Depreciation on Building 54,000 Lighting 12,800
Depreciation on other 42,000 Power 16,500
assets
Insurance on Building 9,600 Stores Overhead 5,400
Insurance on Plants 8,400 Subsidy to Canteen 5,600

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Apportionment of costs to the departments after taking into account the following further
information:
A B C D E
Area (in Sq. Ft.) 300 4000 4000 2000 2000
Number of employees 80 110 60 30 20
Value of assets other than 150000 190000 180000 100000 80000
building ₹
Number of light points 15 10 7 5 3
Horse power of machines 400 300 200 200 ----
Value of materials consumed ₹ 90000 80000 60000 --- 40000

If service departments D and E given the service in the ratio of 3:2:1 and 2:2:1 respectively to
the production departments A,B and C, and Machine Hours produced as 1000, 1500 and 750
hours in the production departments A,B and C respectively, compute Machine Hour Rate.

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 4.ACTIVITY BASED COSTING

1. Bank of NZ operated for years under the assumption that profitability can be increased by
increasing Rupee volumes. But that has not been the case. Cost analysis has revealed the
following:

Activity Activity Cost Activity Activity Capacity

Driver
Providing ATM Service ₹ 1,00,000 No. of 2,00,000
Transactions
Computer Processing ₹ 10,00,000 No. of 25,00,000
Transactions
Issuing Statements ₹ 8,00,000 No. of Statements 5,00,000
Customer Inquiries ₹ 3,60,000 Telephone Minutes 6,00,000

The following annual information on three products was also made available:
Activity Driver Checking Accounts Personal Gold
Loans Visa
Units of Product 30,000 5,000 10,000
ATM Transactions 1,80,000 0 20,000
Computer Transactions 20,00,000 2,00,000 3,00,000
Number of Statements 3,00,000 50,000 1,50,000
Telephone Minutes 3,50,000 90,000 1,60,000

Required
(i) Calculate rates for each activity.
(ii) Using the rates computed in requirement (i), calculate the cost of each product.

2. Trimake Limited makes three main products, using broadly the same production methods and
equipment for each. A conventional product costing system is used at present, although and
Activity Based Costing (ABC) system is being considered.

Details of the three products, for typical period are:

Product Labour Hours Machine Hours per Material per Volumes
per unit unit unit
X ½ 1½ ₹ 20 750
Y 1½ 1 ₹ 12 1,250
Z 1 3 ₹ 25 7,000
Direct labour costs ₹ 6 per hour and production overheads are absorbed on a machine hour
basis. The rate for the period is ₹ 28 per machine hour.

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a. You are required to calculate the cost per unit for each product using conventional
methods.
Further analysis shows that the total of production overheads can be divided as follows:
Costs relating to set-ups 35%
Costs relating machinery 20%
Costs relating materials handling 15%
Costs relating to inspection 30%
Total production overhead 100%

The following activity volumes are associated with the product line for the period as a whole.
Product Number of Set- Number of movements of Number of
ups materials Inspections
X 75 12 150
Y 115 21 180
Z 480 87 670
670 120 1,000
b. You are required to calculate the cost per unit for each product using ABC principles;

3. The budgeted overheads and cost driver volumes of XYZ are as follows.
Cost Pool Budgeted Overheads Cost Driver Budgeted Volume

Material procurement ₹ 5,80,000 No. of orders 1,100

Material handling ₹ 2,50,000 No. of movements 680
Set-up ₹ 4,15,000 No. of set ups 520
Maintenance ₹ 9,70,000 Maintenance hours 8,400
Quality control ₹ 1,76,000 No. of inspection 900
Machinery ₹7,20,000 No. of machine hours 24,000
The company has produced a batch of 2,600 components of AX-15, its material cost was ₹1,
30,000 and labor cost ₹ 2, 45,000. The usage activities of the said batch are:
Material orders 26
Maintenance hours 690
Material movements 18
Inspection 28
Set ups 25
Machine hours 1,800
a. Calculate – cost driver rates that are used for tracing appropriate amount of overheads to
the said batch
b. Ascertain the cost of batch of components using activity Based Costing.

Page 28 of 129
4. MK Ltd. manufactures four products, namely A, B, C and D using the same plant and process. The
following information relates to a production period:

Product A B C D
Output in Units 720 600 480 504
The four products are similar and are usually produced in production runs of 24 units and sold in
batches of 12 units.
The total overheads incurred by the company for the period are as follows:
Machine operation and maintenance ₹ 63,000
cost
Setup costs 20,000
Store receiving 15,000
Inspection 10,000
Material handling and dispatch 2,592
During the period the following cost drivers are to be used for the overhead cost:
Cost Cost driver
Set up cost Number of production runs
Stores receiving Requisitions raised
Inspection Number of production runs
Material handling and dispatch Orders executed
It is also determined that:

 Machine operation and maintenance cost should be apportioned between setup cost, store
receiving and inspection activity in the ratio 4: 3: 2.
 Number of requisition raised on store is 50 for each product and the no. of orders executed is 192.
Calculate the total overhead cost per unit of each product using activity based costing after finding
activity wise overheads allocated to each product.

5. Fruitolay had decided to increase the size of the store. It wants the information about the
probability of the individual product lines : Lemon, grapes and papaya. It provides the following
data for the 2018 for each product line:

Lemon Grapes Papaya

Revenues ₹ 79,350 ₹ 2,10,060 ₹ 1,20,990
Cost of goods sold ₹ 60,000 ₹ 1,50,000 ₹ 90,000
Cost of bottles returned ₹ 1,200 Nil Nil
Number of purchase orders placed 36 84 36

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 Number of deliveries received 30 219 66
Hours of shelf stocking time 54 540 270
Items sold 12,600 1,10,400 30,600

Fruitolay also provides the following information for the year 2018:
S.No. Activity Description of Activity Total Cost allocation
costs basis
₹ 1,200 Direct tracing to
1. Bottle returns Returning of empty bottles to the store
product line
2. Ordering Placing of orders of purchases 15,600 156 purchase orders

3. Delivery Physical delivery and the receipts of 25,200 315 deliveries

merchandise
4. Shelf stocking Stocking of merchandise on store 17,280 864 hours of time
shelves and ongoing restocking

5. Customer Assistance provided to customers 30,720 153600 items sold

support including bagging and checkout

Required:
a. Fruitolay currently allocates store support costs to the product line on the basis of the cost of
goods sold of each product line. Calculate the operating income and operating income as the
percentage of revenue
b. If Fruitolay allocates store support costs to the product lines on the basis of ABC system, calculate
the operating income and operating income as the percentage of revenue of each product line.

6. Traditional Ltd. is a manufacturer of a range of goods. The unit cost structure of its different products is
as follows:
Particulars A B C
Direct materials 50 40 40
Direct labour@ ₹ 10 30 40 50
/ hour
Production
Activity Cost Pool 30Driver
Cost 40 Associated Cost50
overheads
Stores
TotalReceiving
cost Purchase
110 Requisitions 120 ₹ 2,96,000 140
Inspection
Production quantityNumber
10,000of Production runs 20,000 8,94,000 30,000
Dispatch
in units Orders Executed 2,10,000
Machine Setup Number of setups 12,00,000

The following information is also supplied: Availab

le:
Details Product A Product B Product C
No. of Setups 360 390 450 Page 30 of 129
No. of Orders Executed 180 270 300
No. of Production runs 750 1,050 1,200
No. of Purchase Requisitions 300 450 500
 Traditional Ltd. was absorbing overheads on the basis of direct labour hours. A newly appointed
management accountant has suggested that the company should introduce ABC system identified cost
drivers and cost pools as follows:
You are required to calculate activity based production cost of all the three products.

7. MST Limited has collected the following data for its two activities. It calculates activity cost
rates based on cost driver capacity.
Activity Cost Driver Capacity Cost ₹

Power Kilowatt hours 50,000 kilowatt hours 40,00,000

Quality Inspections Number of 10,000 Inspections 60,00,000

Inspections
The company makes three products M, S and T.

For the year ended March 31, 20X 9, the following consumption of cost drivers was
reported:
Product Kilowatt hours Quality Inspections

M 10,000 3,500

S 20,000 2,500

T 15,000 3,000

Required:
a. PREPARE a statement showing cost allocation to each product from each activity.
b. CALCULATE the cost of unused capacity for each activity.
c. STATE the factors the management considers in choosing a capacity level to
compute the budgeted fixed overhead cost rate.

1. ABC Ltd. Manufactures two types of machinery equipment Y and Z and applies/absorbs
overheads on the basis of direct-labour hours. The budgeted overheads and direct-labour
hours for the month of December, 2018 are ₹ 12, 42,500 and 20,000 hours respectively.
The information about Company’s products is as follows:
Equipment Equipment
Y Z
Budgeted Production volume 2,500 units 3,125 units
Direct material cost ₹ 300 per unit ₹450 per unit

Page 31 of 129
 Direct labour cost
Y : 3 hours @ Rs.150 per hour ₹ 450
Z : 4 hours @ Rs.150 per hour ₹ 600

ABC Ltd.’s overheads of ₹ 12,42,500 can be identified with three major activities:
Order Processing ₹ 2,10,000
Machine processing ₹ 8,75,000
Product inspection ₹ 1,57,500
These activities are driven by number of orders processed, machine hours worked, and
inspection hours, respectively. The data relevant to these activities is as follows:
Orders Machine hours worked Inspection hours
processed
Y 350 23,000 4,000
Z 250 27,000 11,000

Total 600 50,000 15,000

Required:
(i) Assuming use of direct-labour hours to absorb/apply overheads to production, compute
the unit manufacturing cost of the equipment Y and Z, if the budgeted manufacturing
volume is attained.
(ii) Assuming use of activity-based costing, compute the unit manufacturing costs of the
equipment Y and Z, if the budgeted manufacturing volume is achieved.
(iii) ABC Ltd.’s selling prices are based heavily on cost. By using direct-labour hours as an
application base, calculate the amount of cost distortion (under-costed or over-costed) for
each equipment.

2. PQR Pens Ltd. manufactures two products - 'Gel Pen' and 'Ball Pen'. It furnishes the
following data for the year 2017:
Product Annual Total Machine Total number of Total number
Output Hours Purchase orders of set-ups
(Units)
Gel Pen 5,500 24,000 240 30
Ball Pen 24,000 54,000 448 56

The annual overheads are as under:

Particulars ₹
Volume related activity costs 4,75,020
Set up related costs 5,79,988
Purchase related costs 5,04,992
Calculate the overhead cost per unit of each Product - Gel Pen and Ball Pen on the basis of:
(i) Traditional method of charging overheads
(ii) Activity based costing method and

Page 32 of 129
 (iii) Find out the difference in cost per unit between both the methods.

3. XYZ Ltd. produces and sells sophisticated glass items- ‘A’ and ‘B’. in connection with both
the products the following information are revealed from the cost records for the month
February 2018:

Product A B
Output (units) 60,000 15,000
Sales ₹ 37,80,000 20,55,000
Cost Structure:
Direct Material per unit ₹ 18.75 45.00
Direct wages per unit ₹ 10.00 13.00
Direct Labour hours 30,000 9,750
No. of quantity produced per batch 240 50
Setup time per batch in hours 2 5

The indirect costs for the month are as under:

₹
Cleaning and maintenance wages 2,70,000
Designing Costs 4,50,000
Set up costs 3,00,000
Manufacturing operation’s costs 6,37,500
Shipment costs 81,000
Distribution costs 3,91,500
Factory administration costs 2,55,000
At present the company adopts the policy to absorb indirect costs applying direct labour hour
basis and enjoying a good position in the market with regard to product B, but facing a stiff
price competition with regard to product A. the cost accountant of the company, after making
a rigorous analysis of the data, decided to shift from the absorption technique based on direct
labour hours to activity cost driver basis and also to treat cleaning and maintenance wages as
direct cost.

The cost accountant identified ₹ 1, 20,000 for product A and the balance of cleaning and
maintenance wages for product B.
The data relevant to activities and products are as follows:
Activity Cost driver Product A Product B
Designing Square feet 30 70
Manufacturing Moulding machine 9,000 3,750
operations hours
Shipments Number of 100 100
shipments
Distribution Cubic feet 45,000 22,500
Set up of moulding Set up hours
machine
Factory Direct labour hours
administration

Page 33 of 129
 You are required:
a. To compute the total manufacturing cost and profits of both the products by applying
direct labour basis of absorption
b. To compute the total manufacturing cost and profits of both the products by applying
activity based costing.

4. A company manufacturing two products furnishes the following data for a year:
Product Annual Total Total number Total
output Machine of purchase number of
(Units) hours orders set-ups
A 5,000 20 160 20
B 60,000 1,20,000 384 44

The annual overheads are as under:

Volume related activity costs ₹ 5, 50,000
Set up related costs ₹ 8, 20,000
Purchase related costs ₹ 6, 18,000
You are required to calculate the cost per unit of each Product A and B based on:
a. Traditional method of charging overheads
b. Activity based costing method.

5. A company produces four products, viz. P, Q, R and S. The data relating to production
activity are as under.
Quantity of Material cost/ Direct labour Machine Direct Labour
Product production unit ` hours/unit hours/ unit cost/ unit `
P 4,500 12 2 1.50 8
Q 13,640 15 2 0.75 9
R 2,340 25 5 2.50 27
S 18,350 21 4 4.00 25

Production overheads are as under: `

Overheads applicable to machine oriented activity 1,65,900
Overheads relating to ordering materials 8,760
Set up costs 21,400
Administration overheads for spare parts 44,690
Material handling costs 25,545

The following further information have been compiled:

No. of set No. of materials No. of times materials No. of spare
Product up orders handled parts
P 3 3 6 6
Q 18 12 30 15

Page 34 of 129
 R 5 3 9 3
S 24 12 36 12

Required:
a. Select a suitable cost driver for each item of overhead expense and calculate the cost
per unit of cost driver.
b. Using the concept of activity based costing, compute the factory cost per unit of each
product.

5.COST SHEET
Proforma Cost Sheet

____ Company Limited

Cost Sheet of Product ______
(For the period ended on ______)

Particulars Total Cost per

Cost ₹ unit ₹
1. Direct materials consumed:

Page 35 of 129
 Opening Stock of Raw Material xxx
Add: Purchases xxx
Less: Closing stock of Raw Material (xxx)
xxx
2. Direct employee (labour) cost xxx
3. Direct expenses xxx
4. Prime Cost (1+2+3) xxx
5. Works/ Factory Overheads xxx
6. Gross Works Cost (4+5) xxx
7. Add: Opening Work in Process xxx
8. Less: Closing Work in Process (xxx)
9. Works/ Factory Cost (6+7-8) xxx
10. Quality Control Cost xxx
11. Research and Development Cost xxx
Administrative Overheads (relating to production
12. activity) xxx
Less: Credit for Recoveries/Scrap/
13. By-Products / misc. income (xxx)
14. Add: Packing cost (primary) xxx
15. Cost of Production (9+10+11+12-13+14) xxx
16. Add: Opening stock of finished goods xxx
17. Less: Closing stock of finished goods (xxx)
18. Cost of Goods Sold (15+16-17) xxx
19. Add: Administrative Overheads (General) xxx
20. Add: Marketing Overheads
- Selling Overheads xxx
- Distribution Overheads xxx
21. Cost of Sales (18+19+20) xxx

1. The following particulars have been extracted from the books of M. Manufacturing Co. Ltd.,
Calcutta, for the year ended 31 March, 2023.

Stock of materials as on 1 April, 2022 ₹ 47,000

Stock of materials as on 31 March, 2023 50,000
Materials purchased 2,08,000
Drawing office salaries 9,600
Counting house salaries 14,000
Carriage inwards 8,200
Carriage outwards 5,100
Cash discounts allowed 3,400

Page 36 of 129
 Bad debts written off 4,700
Repairs of plant, machinery and tools 10,600
Rent, rates, taxes and insurance (factory) 3,000
Rent, rates, taxes and insurance (office) 1,000
Travelling expenses 3,100
Travelling salaries and commission 8,400
Production wages 1,40,000
Depreciation on plant and tools 7,100
Depreciation written off on furniture 600
Directors’ fee 6,000
Gas and water charges (factory) 1,500
Gas and water charges (office) 300
General charges 5,000
Manager’s salary 12,000

Out of 48 working hours in a week, the time devoted by the manager to the factory and office
was on an average 40 hours and 8 hours respectively throughout the accounting year. You are
required to prepare a Cost Sheet.

2. From the following particulars, Prepare a cost Sheet and show the cost and profit per 1,000
Plastic Toys, manufactured by LEO Toy Manufacturers Ltd., during the year 2022.

Materials:
Basic raw material 1,400 tonnes at ₹ 5 per tonne.
Stores ₹ 5,000
Labour:
Direct ₹ 16,000
Indirect ₹ 3,000
Overheads:
Works 25% of direct labour
Administration 10% of works cost
Production for the year 10,00,000 Toys
Stock, 1st January, 1995 2,00,000 Toys
Stock, 31st December, 1995 3,00,000 Toys
Sales for the year 9,00,000 Toys
Selling price ₹ 50 per 1,000 toys.

The company wants to quote for a tender for the supply of 2, 00,000 toys.
Calculate the quotation amount taking into account the expected increase in the material cost
by 10% and the increase in wages by 5%. The quotation should fetch a 20% profit on sales.
The other expenses remain constant per unit.

Page 37 of 129
3. The following figures are extracted from the books of an Iron foundry after the close of the
year:
Raw materials:
Opening stock ₹
14,000
Purchases during the year 1,00,000
Closing stock 10,000
Direct wages 20,000
Works overhead 50% on direct wages

Stores overhead on materials: 10% on the cost of materials. 10% of the castings were rejected
being not up to specification and a sum of ₹ 800 was realized from sale of scrap, 10% of the
finished castings were found to be defective in manufacture and were rectified by expenditure
of additional works overhead charged to the extent of 20% on the proportionate direct wages.
The total gross output of castings during the year: 2000 tons. Find out the manufacturing cost
of the saleable casting per ton.

4. The books and records of AX Manufacturing Company present the following data for the
month of August, 2018.
Direct labour cost ₹ 16,000 (160% of factory overhead)
Cost of goods sold ₹ 56,000.

August August 31
1
Raw materials ₹ 8,000 ₹ 8,600
Work-in-progress 8,000 12,000
Finished goods 14,000 18,000
Other data:
Selling expenses 3,400
General and administration expenses 2,600
Sales for the month 75,000

You are required to prepare a statement showing cost of goods manufactured and sold and
profit earned.

5. The cost structure of an article, the selling price of which is ₹ 45,000, is as follows:
Direct materials 50%
Direct labour 20%
Overheads 30%
An increase of 15% in the cost of materials and of 25% in the cost of labour is anticipated.
These increased costs in relation to the present selling price would cause a 25% decrease in
the amount of present profit per article. You are required:
(i) To prepare a statement of profit per article at present; and
(ii) To ascertain the revised selling price to produce the same percentage of profit to sale
as before.

Page 38 of 129
6. MN Ltd., produces two types of products M & N. The expenditure incurred for the year
ended 30th June, 2018 were:
Total M N
Direct materials ₹ 14,000 4,000 10,000
Direct labour ₹ 9,300
Direct expenses ₹ 3,000

The following additional information is available:

a) Direct labour per unit for M type was 30% of those for N type.
b) Direct expenses for M and N type are equal to 25% and 20% of their respective direct
material cost.
c) Factory expenses are 20% and 10% of direct labour for M and N.
d) Administrative expenses are ₹ 1800, to be apportioned on the basis of their respective
quantities sold.
e) The total number of units produced and sold for M and N were 200 and 250.
f) There was no opening or closing work in progress of any types.
g) Profit was 20% of selling price in case of M and 10% of cost in case of N.
h) The selling and distribution expenses were ₹ 2 per unit sold.
Prepare a statement showing the total cost and profit earned and selling price per unit.

7. Maximum Production capacity of K Ltd. is 28,000 units per month.

Element of Cost 16,000 units 18,000 units 20,000 units

Direct Material ₹ 12,80,000 14,40,000 16,00,000
Direct labour 17,60,000 19,80,000 22,00,000
Total factory overheads 22,00,000 23,70,000 25,40,000
Required to CALCULATE the selling price per unit at 24,000 units by considering profit at
the rate of 25% on sales.

8. A Ltd. Co. has capacity to produce 1, 00,000 units of a product every month. Its works cost at
varying levels of production is as under:
Level in % 10 20 30 40 50 60 70 80 90 100
Works cost per unit in 400 390 380 370 360 350 340 330 320 310
₹

It’s fixed administration expenses amount to ₹ 1, 50,000 and fixed marketing expenses
amount to ₹ 2, 50,000 per month respectively. The variable distribution cost amounts to ₹ 30
per unit.

Page 39 of 129
 It can sell 100% of its output at ₹ 500 per unit provided it incurs the following further
expenditure:
a. It gives gift items costing ₹ 30 per unit of sale;
b. It has lucky draws every month giving the first prize of ₹ 50,000; 2nd prize of
₹ 25,000, 3rd prize of ₹ 10,000 and three consolation prizes of ₹ 5,000 each to
customers buying the product.
c. It spends ₹ 1,00,000 on refreshments served every month to its customers;
d. It sponsors a television programme every week at a cost of ₹ 20, 00,000 per month.

It can market 30% of its output at Rs.550 per unit without incurring any of the expenses
referred to in (a) to (d) above.
Prepare a cost sheet for the month showing total cost and profit at 30% and 100% capacity
level
1. Jai Electricals manufacturers two types of fans – Major and Minor models. From the
following information prepare a statement showing cost and profit per fan sold. There were
no stocks.
Major Minor
Labour ₹ 15,600 ₹ 62,920
Materials 27,300 1,08,680
Factory overheads are recovered at 80% on labour and office overheads at 15% on factory
cost. The selling price of both models is ₹ 1,000 per fan. 78 Major and 286 Minor fans were
sold.

2. From the following figures, CALCULATE cost of production and profit for the month of
March 2023.
Amount ₹ Amount ₹
st
Stock on 1 March Purchase of raw materials 28,57,000
- Raw materials 6,06,000 Sale of finished goods 1,34,00,000
- Finished goods 3,59,000 Direct wages 37,50,000
st
Stock on 31 March Factory expenses 21,25,000
- Raw materials 7,50,000 Office and administration 10,34,000
expenses
- Finished goods 3,09,000 Selling and distribution 7,50,000
expenses
Work-in-process: Sale of scrap 26,000
st
- On 1 March 12,56,000
st
- On 31 March 14,22,000
3. From the following data of Arnav Metallic Ltd., CALCULATE Cost of production:
Amount ₹
Repair & maintenance paid for plant & machinery 9,80,500
Insurance premium paid for inventories 26,000
Insurance premium paid for plant & machinery 96,000

Page 40 of 129
 Raw materials purchased 64,00,000
Opening stock of raw materials 2,88,000
Closing stock of raw materials 4,46,000
Wages paid 23,20,000
Value of opening Work-in-process 4,06,000
Value of closing Work-in-process 6,02,100
Quality control cost for the products in manufacturing process 86,000
Research & development cost for improvement in production 92,600
process
Administrative cost for:
- Factory & production 9,00,000
- Others 11,60,000
Amount realized by selling scrap generated during the 9,200
manufacturing process
Packing cost necessary to preserve the goods for further processing 10,200
Salary paid to Director (Technical) 8,90,000

4. The following information relate to a manufacturing concern for the year ended 31.3 2023:
Raw Material (opening) ₹ 2,28,000
Raw Material (closing) 3,05,000
Purchases of Raw Material 42,25,000
Freight Inwards 1,00,000
Direct wages paid 12,56,000
Direct wages-outstanding at the end of the year 1,50,000
Factory Overheads 20% of prime cost
Work-in-progress (opening) 1,92,500
Work-in-progress (closing) 1,40,700
Administrative Overheads (related to production) 1,73,000
Distribution Expenses ₹ 16 per unit
Finished Stock (opening)- 1,217 Units 6,08,500
Sale of scrap of material 8,000
The firm produced 14,000 units of output during the year. The stock of finished goods at the
end of the year is valued at cost of production. The firm sold 14,153 units at a price of ₹
618 per unit during the year.
PREPARE cost sheet of the firm.
5. M.L. Auto Ltd. is a manufacturer of auto components and the details of its expenses for the
year 2022 are given below:

₹
(i) Opening Stock of Material 1,50,000

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 (ii) Closing Stock of Material 2,00,000
(iii) Purchase of Material 18,50,000
(iv) Direct Labour 9,50,000
(v) Factory Overhead 3,80,000
(vi) Administrative Overhead 2,50,400

During 2019, the company has received an order from a car manufacturer where it estimates
that the cost of material and labour will be ₹ 8,00,000 and ₹ 4,50,000 respectively. M.L.
Auto Ltd. charges factory overhead as a percentage of direct labour and administrative
overhead as a percentage of factory cost based on previous year's cost.
Cost of delivery of the components at customer's premises is estimated at ₹45,000.
You are required to:
I. Calculate the overhead recovery rates based on actual costs for 2022.
II. Prepare a detailed cost statement for the order received in 2023 and the price to be
quoted if the company wants to earn a profit of 10% on sales.

6.COST ACCOUNTING SYSTEM

 Maintenance of books of accounts is known as Accounting System.

Page 42 of 129
 If we keep cost books separately for the nominal account heads and production flow only it is
known as Non -Integrated method or Cost Control method. To enable Double Entry Book
Keeping we use the Cost ledger Control Account for personal and real account heads of a
transaction. It is the connecting account between cost books and financial books.

 The main accounts which are usually prepared when a separate cost ledger is maintained are:
a. Cost ledger control A/c
b. Stores ledger control A/c
c. Work-in-progress control A/c
d. Finished goods control A/c
e. Wage control A/c
f. Manufacturing/Production/Works Overheads A/c
g. Administrative Overhead A/c
h. Selling & Distribution Overhead A/c
i. Cost of sales A/c
j. Costing Profit & Loss A/c

 Journal Entries as per Non – Integrated System:

1. For cash and credit purchase of raw materials:

Stores Ledger Control A/c Dr
To Cost Ledger Control A/c
2. For carriage inwards:
Stores Ledger Control A/c Dr
To Cost Ledger Control A/c

3. For Purchase Returns:

Cost Ledger Control A/c Dr
To Stores Ledger Control A/c

4. For issue of Direct Materials

Work in Progress Ledger Control A/c Dr
To Stores Ledger Control A/c
5. For issue of Indirect Materials
Overheads Control A/c Dr
To Stores Ledger Control A/c

6. For returns from departments

Stores Ledger Control A/c Dr
To Work in Progress Ledger Control A/c

7. For normal loss in storage

Overheads Control A/c Dr
To Stores Ledger Control A/c

8. For Abnormal loss in storage

Costing Profit and Loss A/c Dr
To Stores Ledger Control A/c
Page 43 of 129
9. For transfer of raw materials between jobs or departments
* No entry shall be required in the control accounts as it provides summaries over a
specified period.
* However in case of Jobs ledger or Departmental Ledger
Receiving Job No.-----A/c Dr
To Giving Job No…. A/c

10. For Payment of Wages

Wages Control A/c Dr
To Cost Ledger Control A/c

11. For Direct Wages recognized

Work in progresss Control A/c Dr
To Wages Control A/c
12. For Indirect wages
Overheads Control A/c Dr
To Wages Control A/c

13. For Direct Expenses Incurred

Work in Progress Control A/c Dr
To Cost Ledger Control A/c

14. For Indirect Expenses Incurred

Overheads Control A/c Dr
To Cost Ledger Control A/c

15. For Recovery of Factory Overheads

Work in Progress Control A/c Dr
To Factory Overheads Control A/c

16. For Recovery of Administration Overheads related to Production

Finished Goods Control A/c Dr
To Administrative Overheads Control A/c

17. For Recovery of Administration Overheads related to sales

Cost of Sales A/c Dr
To Administrative Overheads Control A/c

18. For Recovery of Selling and Distribution Overheads

Cost of Sales A/c Dr
To Selling and Distribution overheads Control A/c

19. For Completed units of output

Finished Goods Control A/c Dr
To Work in Progress Control A/c
20. For Cash and Credit Sales of Finished goods
Cost Ledger Control A/c Dr
To Sales A/c
Page 44 of 129
21. For Sales Returns at Selling Price
Sales A/c Dr
To Cost Ledger Control A/c

22. For Sales Returns at Cost Price

Finished Goods Control A/c Dr
To Cost of Sales A/c

23. For Purchase of Special materials

Work in Progress Control A/c Dr
To Cost Ledger Control A/c

24. For Materials issued to Capital Work in Progress

Capital Work In Progress A/c Dr
To Stores Ledger Control A/c

25. For Wages attributable to Capital Work In Progess

Capital Work In Progress A/c Dr
To Wages Control A/c

26. For Expenses Related to Capital Work In Progess

Capital Work In Progress A/c Dr
To Cost Ledger Control A/c

27. For Factory Overheads Recovered by Asset internally Created

Capital Work In Progress A/c Dr
To Factory Overheads Control A/c

28. For recognition of internally built assets on Completion

Cost Ledger Control A/c Dr
To Capital Work In Progress A/c

29. For Over recovery of Overheads

Overheads Control A/c Dr
To Costing Profit and Loss A/c

30. For Under recovery of Overheads

Costing Profit and Loss A/c Dr
To Overheads Control A/c

31. For recognition of Cost of goods sold

Cost of Sales A/c Dr
To Finished Good Control A/c

32. For Transfer of sales

Sales A/c Dr
To Costing Profit and Loss A/c

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 33. For Transfer of COS
Costing Profit and Loss A/c Dr
To Cost of Sales A/c

34. For Profit earned

Costing Profit and Loss A/c Dr
To Cost Ledger Control A/c
35. For Loss Incurred
Cost Ledger Control A/s Dr
To Costing Profit and Loss A/c.

 If Cost control method is adopted we shall arrive at two separate profits namely Profit as per
Cost books and Profit as per financial books. The summary of items explaining the
differences between the two profits is known as Profit Reconciliation Statement. The
reasons for the difference in profits include:
a. Difference in Valuation of inventory items.
b. Items of purely financial nature ignored in cost books:
1) Interest on loans or bank mortgages.
2) Expenses and discounts on issue of shares, debentures etc.
3) Other capital losses i.e., loss by fire not covered by insurance etc.
4) Losses on the sales of fixed assets and investments
5) Goodwill and preliminary expenses written off
6) Income tax, donations, subscription
7) Interest received on bank deposits, loans and investments
8) Dividends received
9) Profits on the sale of fixed assets and investments
c. Recovery of overheads resulting in over or under recovery
d. Notional charges for own resources taken in cost accounts.

 Memorandum Reconciliation is an Account format in a “T” Columnar Style representing

the changes in profit as per Cost Accounting records with the Financial Profit for the period.

 Integrated System tries to eliminate duplication of efforts by maintaining a single set of

records for both cost and financial transactions. Real and personal account heads are also
recorded wherever applicable in addition to the nominal and the production flow transactions.

 Journal Entries as per Integrated System:

▪ For Account heads pertaining to Real and Personal accounts the respective account
head is used.
▪ Cost ledger Control Account is Eliminated and Costing Profit and Loss Account is not
prepared.
▪ Production flow related entries are retained

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 ▪ Control Accounts are used for Material, Work In Progress and Finished Goods.
▪ Wages Control A/c and Factory Overheads Control A/c are also prepared to reflect
incidence and recovery.
▪ Administration Expenses A/c and Selling Expenses A/c are prepared at cost incurred
as integration shall be till factory related activities with cost requirements and there
after financial accounting norms are applied.
▪ Detailed Trial Balance shall arise and hence Profit & Loss Account and Balance Sheet
can be prepared.
Practical Problems:
1. Record the following transactions in the journal of a company under (i) Non-integrated
system, and (ii) Integrated System.
1. Credit purchases ₹14,00,000
2. Wages paid 13,00,000
3. Productive wages 12,50,000
4. Unproductive wages 50,000
5. Stores issued to production order 13,50,000
6. Works expenses paid 1,60,000
7. Works expenses charged to production 1,61,000
8. Finished goods transferred from production order 7,00,000
9. Administration expenses paid 52,000
10. Administration expenses charged to production 50,000

2. C & Co. operated an integral system of accounting. You are required to pass the Journal
Entries for the following transactions that took place for the year ended 30-6-23.
(Narrations are not required).
1. Raw materials purchased (50% on credit) ₹8,00,000
2. Materials issued to production 4,00,000
3. Wages paid (50% direct) 2,00,000
4. Wages charged to production 1,00,000
5. Factory overheads incurred 80,000
6. Factory overheads charged to production 1,00,000
7. Selling and distribution overheads incurred 40,000
8. Finished goods at cost 5,00,000
9. Sales (50% credit) 7,50,000
10. Closing stock Nil
11. Receipts from debtors 2,00,000
12. Payments to creditors 3,00,000
st
3. The following are the balances in the Cost Ledger of X Ltd. on 1 January 2022.

Stores Ledger Control Account ₹ 4,500 -

Work-in-progress Ledger Control Account 10,200 -
Finished Goods Ledger Control Account 6,800 -
Cost Ledger Control Account - 21,500

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 Summary of transactions during the year : ₹
Materials purchased 20,000
Materials issued to jobs 18,000
Materials issued for repairs in factory 1,000
Direct wages paid 15,000
Indirect wages paid 5,000
Factory expenses paid 6,000
Administration expenses paid 15,000
Selling expenses paid 7,000
Cost of finished goods purchased 56,000
Cost of finished goods sold 70,000
Sales 1,00,000
Prepare control accounts and Costing Profit and Loss Account in the Cost Ledger assuming
that the overheads recovered and incurred are the same and that administration overheads are
charged to finished goods.

4. The balance in a company’s Work-in-progress Control Account as on 31st March 2023 was
₹ 5,00,000. During the following month, the transactions that took place were as thus:

Direct wages incurred ₹

60,000
Direct materials issued 2,80,000
Completed work billed at cost 5,25,000
Factory overhead incurred 1,20,000
Special purchases for job 12,000
Sub-contract charges 8,000
Direct expenses 9,000
Materials returned to Stores 4,000
You are required to write up the ledger account and state what is its final balance.

5. D and Co. supplies you the following cost ledger balances as on 1st January 2022:

Stores control A/c ₹ 8,500 -

Work-in-progress A/c 6,500 -
Finished goods A/c 7,100 -
Cost ledger control A/c - 22,000
Works overhead A/c - 100

Transactions during the year 2022 were:

Purchases 40,000
Stores issued to production 38,000
Stores issued for repairs 1,000

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 Wages – Productive 45,000
Un-productive 4,500
Wages for repairs 800
Works expenses (rent, light, etc.) 15,000
Works overhead recovered 21,000
Administration expenses 4,500
Administration overhead recovered 5,000
Goods sold 1,30,000
Finished goods in stock on 31 December 2022 5,000
Work-in-progress n 31 December, 2022 3,100

You are required to write up the cost books and prepare Profit and Loss Account.

6. Cost Ledger of Beta Ltd. shows the following balances as on 31st March:
Dr. Cr.
₹. ₹
Stores Ledger control Account 6,02,870 -
Work-in-progress Control Account 2,44,730 -
Finished Stock Ledger Control 5,03,890 -
Account
Manufacturing Overhead Control - 21,050
Account
Cost Ledger Control Account - 13,30,440

During the next three months, the following items arose:

Finished product (at cost) ₹ 4,21,670

Manufacturing overhead incurred 1,83,020
Raw materials purchased 2,46,000
Factory wages 1,01,060
Indirect labour 43,330
Cost of sales 3,71,780
Materials issued to production 2,54,630
Sales returned at cost 10,760
Materials returned to suppliers 5,800
Manufacturing overhead charged to production 1,54,400

You are required to write up the accounts and schedule the balances stating what each
balance represents.
7. MML Ltd. operates on historic job cost accounting system, which is not integrated with
financial accounts. At the beginning of a month, the opening balances in cost ledger
were.
8.
₹ (in lakhs)
Stores Ledger Control Account 120

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 Work-in-Progress Control Account 35
Finished Goods Control Account 465
Building Construction Account 22
Cost Ledger Control Account 642

During the month, the following transactions took place:

Material Purchased 90
Issued to production 130
Issued to general maintenance 8
Issued to building construction 4
Wages Gross wages paid: 190
- Indirect wages 75
- For building construction 13
Works Overheads Actual amount incurred (excluding items 215
shown above)
Absorbed in building construction 20
Under absorbed 8
Royalty paid 5
Selling, distribution 25
and administration
overheads
Sales 570

At the end of the month, the stock of raw material and work-in-progress was ₹ 60 lakhs
₹ 37 lakhs respectively. The loss arising in the raw material account is treated as factory
overhead. The building under construction was completed during the month. Company’s
gross profit margin is 20% on sales.
Prepare the relevant control accounts to record the above transactions in the cost ledger of
company.

9. From the following data write up the various accounts as you envisage in the cost ledger
and prepare a trial balance as on 31st March, 2023:
(a) Balance as on 1st April 2022: ₹ (thousands)
Material Control 1,240
Work-in-progress 625

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 Finished Goods 1,240
Production Overhead 84 (Dr.)
Administration Overhead 120 (Cr.)
Selling and Distribution overhead 65 (Dr.)
General Ledger Control 3,134
(b) Transactions for the year ended 31st March 2022:
Materials:
Purchases 4,801
Issued to:
Jobs 4,774
Maintenance works 412
Administration office 34
Selling department 72
Direct wages 1,493
Indirect wages 650
Carriage inward 84
Production overhead:
Incurred 2,423
Absorbed 3,591
Administration overheads:
Incurred 740
Allocated to production 529
Allocated to sales 148
Sales overheads:
Incurred 642
Absorbed 820
Finished goods produced 9,584
Finished goods sold 9,773
Sales realization 12,430

10. The following information have been extracted from the cost records of JKL
Manufacturing Company Ltd:

Stores:
Opening Balance ₹ 90,000
Purchases 4,80,000

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 Transfer from WIP 2,40,000
Issue to WIP 4,80,000
Issue for repairs 60,000
Deficiency found in stock 18,000
Work-in-Progress: Opening 1,80,000
Balance
Direct wages applied 1,80,000
Overhead charged 7,20,000
Closing Balance 1,20,000
Finished Production:
Entire production is sold at a profit of 10% on cost from work-in -
progress
Wages Paid 2,10,000
Overhead Incurred 7,50,000

Prepare Stores Ledger Control A/c., Work-in-Progress Control A/c., Overheads Control
A/c. and Costing Profit & Loss A/c.

11. Given below is the Trading and Profit and Loss Account of a Company for the year ended
31st March, 2022:

₹ ₹
To Materials 27,40,000 By Sales 60,00,000
To Wages 15,10,000 (60,000 units)
To Factory Expenses 8,30,000 By Stock (2,000 units) 1,60,000
To Admn. Expenses 3,82,400 By Work-in- Progress
To Selling Expenses 4,50,000 Materials 64,000
To Preliminary Wages 36,000
Expenses Factory Expenses 20,000 1,20,000
Written off 60,000 By Dividend received 18,000
To Net Profit 3,25,600 _______
62,98,000 62,98,000
The Company manufactures standard units. In the Cost Accounts:
(i) Factory expenses have been allocated to production at 20% of Prime Cost;
(ii) Administrative expenses at ₹ 6 per unit produced; and
(iii) Selling expenses at ₹ 8 per unit sold.
Prepare the Costing Profit and Loss Account of the company and reconcile the same with
the profit disclosed by the Financial Accounts
12. C Limited has furnished its Profit and Loss Account for the year and the statement of
Reconciliation between profits as per Cost and Financial Books.

Profit and Loss account for the year ended 31st March, 2023

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 Particulars Amount Particulars Amount

To Opening Stock: By Sales 17,80,000

Raw Materials 95,500 By Closing Stock:
W.I.P. 45,000 Raw Materials 99,000
Finished goods 78,000 W.I.P. 58,000
To Purchases 6,42,000 Finished goods 80,000
To Direct wages 2,22,000 By Dividend received on
To Factory overheads 2,45,000 shares 1,65,000
To Administrative exp. 1,98,500
To Selling exp. 3,42,000
To Goodwill written off 80,000
To Interest on loans 50,000
To Legal charges 42,000
To Net profit 1,42,000

Total 21,82,000 Total 21,82,000

Reconciliation Statement as at 31st March, 2018 is given below:

Amount Amount

Profits as per financial records Add: 1,42,000

Raw Material – Closing stock 1,500
W.I.P. – Opening Stock 2,000
Finished goods – Operating Stock 3,000
Finished goods – Closing Stock 1,000
Goodwill written off 80,000
Interest on loans 50,000

Legal charges 42,000 1,79,500

3,21,500
Less:
Raw Material – Opening Stock 2,500
W.I.P. – Closing Stock 3,500
Dividend received on shares 1,65,000 1,71,000

Profits as per cost records 1,50,500

You are required to draw up the following accounts in the cost ledger of ABC Pvt. Ltd.:

(i) Material control account

(ii) W.I.P. control account

(iii Finished goods control account

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 )

(iv) Cost of sales account

(v) Costing profit and loss account

13. A manufacturing company has disclosed net loss of ₹ 48,700 as per their cost accounting
records for the year ended 31st March, 2023. However their financial accounting records
disclosed net profit of ₹ 35,400 for the same period. A scrutiny of data of both the sets of
books of accounts revealed the following informations:

₹
Factory overheads under absorbed 30,500
Administrative overheads over absorbed 65,000
Depreciation charged in financial accounts 2,25,000
Depreciation charged in cost accounts 2,70,000
Income-tax provision 52,400
Transfer fee (credited in financial accounts) 10,200
Obsolescence loss charged in financial accounts 20,700
Notional rent of own premises charged in cost accounts 54,000
Value of opening stock:
in cost accounts 1,38,000
in financial accounts 1,15,000
Value of closing stock:
in cost accounts 1,22,000
in financial accounts 1,12,500
Prepare:
(a) Reconciliation Statement
(b) Memorandum Reconciliation Statement by taking costing loss as base.

14. The following incomplete accounts are furnished to you for the month ended 31st March,
2023.
Dr. Stores Control Account Cr.

1.03.23 To Balance b/d 54,000

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 Work in Progress Control Account
Dr. Cr.
1.03.23 To Balance b/d 6,000
Dr. Finished Goods Control Account Cr.

1.03.23 To Balance b/d 75,000

Dr. Factory Overhead Control Account Cr.

Total debits for 45,000
March,23
Dr. Fixed Overhead Applied Account Cr.

Dr. Cost of Goods Sold Account Cr.

Dr. Creditors Account Cr.

1.03.23 By Balance b/d 30,000

Additional Information:
(a) The factory overheads are applied by using a budgeted rate based on direct labour
hours. The budget for overheads for 2022-23 is ₹ 6,75,000 and budget of direct
labour hours is 4,50,000.
(b) The balance in the account of creditors on 31.03.2023 is ₹ 15,000 and payments
made to creditors in March, 2023 amount to ₹ 1,05, 000.
(c) The finished goods inventory as on 31st March, 2023 is ₹ 66,000.
(d) The cost of goods sold during the month was ₹ 1,95,000.
(e) On 31st March, 2023, there was only one unfinished job in the factory. The cost
records show that ₹ 3,000 (1,200 direct labour hours) of direct labour cost and ₹
6,000 of direct material cost had been charged.
(f) A total of 28,200 direct labour hours were worked in March, 2023. All factory
workers earn same rate of pay.
(g) All actual factory overheads incurred in March, 2023 have been posted.

You are required to find:

(i) Materials purchased during March, 2023.
(ii) Cost of goods completed in March, 2023.
(iii) Overheads applied to production in March, 2023.
(iv) Balance of work in progress on 31st March, 2023.

1. The following balances were extracted as on 31st Dec 2018

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 Raw materials control account ₹ 42,000
Work-in-progress control account 16,000
Finished stock control account 24,000
Nominal ledger control account ₹82,000
82,000 82,000
Further transactions took place during the following quarter as follows:
Factory overhead-allocated to WIP ₹ 11,500
Goods finished-at cost 38,800
Raw materials purchased 32,400
Direct wages-allocated to WIP 19,300
Cost of goods sold 46,000
Raw materials-issued to production 21,000
Raw materials-credited by suppliers 1,200
Inventory audit-raw material losses 1,000
WIP rejected (with no scrap value) 1,300
Customer’s returns(at cost) of finished goods 3,400
Prepare all the Ledger Accounts in Cost Ledger

2. The financial books of a company reveal the following data for the year ended 31 st March,
2018:
Opening Stock: ₹
Finished goods 625 units 53,125
Work-in-process 46,000
01.04.2017 to 31.03.2018:
Raw materials consumed 8,40,000
Direct Labour 6,10,000
Factory overheads 4,22,000
Administration overheads 1,98,000
Dividend paid 1,22,000
Bad Debts 18,000
Selling and Distribution Overheads 72,000
Interest received 38,000
Rent received 46,000
Sales 12,615 units 22,80,000
Closing Stock: Finished goods 415 units 45,650
Work-in-process 41,200
The cost records provide as under:
 Factory overheads are absorbed at 70% of direct wages.
 Administration overheads are recovered at 15% of factory cost.
 Selling and distribution overheads are charged at ₹ 3 per unit sold.
 Opening Stock of finished goods is valued at ₹ 120 per unit.
 The company values work-in-process at factory cost for both Financial and Cost
Profit Reporting.
Required:

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 a. Prepare statements for the year ended 31st March, 2018 show
(a) The profit as per financial records
(b) The profit as per costing records.
b. Present a statement reconciling the profit as per costing records with the profit
as per Financial Records.

3. The following figures are extracted from the Financial Accounts of Anishka Ltd. For the year
ended 30-04-2018:
₹ ₹
Sales (20,000 units) 50,00,000
Materials 20,00,000
Wages 10,00,000
Factory Overheads 9,00,000
Administrative Overheads 5,20,000
Selling and Distribution Overheads 3,60,000
Finished Goods (1,230 units) 3,00,000
Work-in-progress:
Materials 60,000
Labour 40,000
Factory Overheads 40,000
1,40,000
Goodwill Written off 4,00,000
Interest paid on capital 40,000

In the costing records, Factory Overhead is charged at 100% of Wages, Administration

Overhead 10% of factory cost and Selling and Distribution Overhead at the rate of ₹ 20 per
unit sold.
Prepare a statement reconciling the profit as per Cost Records with the profit as per Financial
Records.

4. R Limited showed a net loss of ₹ 35,400 as per their cost accounts for the year ended
31st March, 2018. However, the financial accounts disclosed a net profit of ₹ 67,800
for the same period.

The following information were revealed as a result of scrutiny of the figures of cost
accounts and financial accounts:

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 Administrative overhead under recovered ₹ 25,500
Factory overhead over recovered 1,35,000
Depreciation under charged in Cost Accounts 26,000
Dividend received 20,000
Loss due to obsolescence charged in Financial 16,800
IncomeAccounts
tax provided 43,600
Bank interest credited in Financial Accounts 13,600
Value of opening stock:
In Cost Accounts 1,65,000
In Financial Accounts 1,45,000
Value of closing stock:
In Cost Accounts 1,25,500
In Financial Accounts 1,32,000
Goodwill written-off in Financial Accounts 25,000
Notional rent of own premises charged in Cost 60,000
Accounts
Provision for doubtful debts in Financial 15,000
Accounts
a. Prepare a reconciliation statement by taking costing net loss as base.
b. Also show the Memorandum reconciliation Account.

5. Pass the journal entries for the following transactions in a double entry cost accounting
system.
(a) Issue of materials: Direct Rs.6,50,000
Indirect 1,60,000
(b) Allocation of wages and salaries: Direct 2,00,000
Indirect 40,000
(c) Overheads absorbed in jobs: Factory 1,50,000
Administration 50,000
Selling 30,000
(d) Under/over absorbed overheads: Factory (over) 20,000
Administration (under) 10,000

6. The following figures have been extracted for the first year of its operation:

Direct Material Consumption ₹ 50,00,000

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 Direct Wages 30,00,000
Factory Overheads 16,00,000
Administrative Overheads 7,00,000
Selling and Distribution Overheads 9,60,000
Bad Debts 80,000
Preliminary Expenses written off 40,000
Legal Charges 10,000
Dividends Received 1,00,000
Interest Received on Deposits 20,000
Sales (1,20,000 units) 1,20,00,000
Closing Stocks:
Finished Goods (4,000 units) 3,20,000
Work in Progress 2,40,000
The cost accounts for the same period reveal that the direct material consumption was
₹ 56, 00,000. Factory overhead is recovered at 20% on prime cost. Administration overhead
is recovered at ₹ 6 per unit of production. Selling and distribution overheads are recovered at
₹ 8 per unit sold. Prepare the Profit and Loss Accounts both as per financial records and as
per cost records. Reconcile the profits as per the two records.
7. The financial books of a company reveal the following data for the year ended 31.3. 2018:
Opening Stock: ₹
Finished goods 875 units 74,375
Work-in-process 32,000
Raw materials consumed 7,80,000
Direct Labour 4,50,000
Factory overheads 3,00,000
Goodwill 1,00,000
Administration overheads 2,95,000
Dividend paid 85,000
Bad Debts 12,000
Selling and Distribution Overheads 61,000
Interest received 45,000
Rent received 18,000
Sales 14,500 units 20,80,000
Closing Stock: Finished goods 375 units 41,250
:Work-in-process 38,667
The cost records provide as under:
- Factory overheads are absorbed at 60% of direct wages.
- Administration overheads are recovered at 20% of factory cost.
- Selling and distribution overheads are charged at ₹ 4 per unit sold.
- Opening Stock of finished goods is valued at ₹ 104 per unit.
- The company values work-in-process at factory cost for both Financial and Cost Profit
Reporting.

Required statements for the year ended 31st March, 2018 to show
a. The profit as per financial records and costing records.

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 b. Present a statement reconciling the profit as per costing records with the profit as per
Financial Records.

8. The following figures have been extracted from the cost records of a manufacturing unit:

Stores: opening balance 32,000

Purchase of material 1,58,000
Transfer from work in progress 80,000
Issues to work in progress 1,60,000
Issues to repairs and maintenance 20,000
Deficiencies found in stock taking 6,000
WIP – opening balance 60,000
Direct wages applied 65,000
Overheads applied 2,40,000
Closing balance of WIP 45,000

Finish products: Entire output ¡s sold at a profit of 10% on actual cost from work-in-progress.
Wages incurred ₹ 70,000, overhead incurred ₹ 2,50,000.
Items not included ¡n cost records: Income from investment ₹ 10,000, Loss on sale of capital
assets ₹ 20,000.
Draw up Store Control account, Work-in-progress Control account, Costing Profit and Loss
account, Profit and Loss account and Reconciliation statement.

9. The Trading and Profit and Loss Account of a company for the year ended 31-03-2016 is as
under:
Trading and Profit and Loss Account

In the Cost Accounts:

(i) Factory expenses have been allocated to production at 20% of Prime Cost.
(ii) Administrative expenses absorbed at 10% of factory cost.
(iii) Selling expenses charged at 10 per unit sold.

Prepare the Costing Profit and Loss Account of the company and reconcile the Profit/Loss
with the profit as shown in the Financial Accounts.
7.UNIT&BATCH COSTING

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1. Arnav Confectioners (AC) owns a bakery which is used to make bakery items like pastries,
cakes and muffins. AC use to bake at least 50 units of any item at a time. A customer has
given an order for 600 muffins. To process a batch of 50 muffins, the following cost would
be incurred:

Direct materials- Rs.500

Direct wages- Rs.50
Oven set- up cost Rs.150

AC absorbs production overheads at a rate of 20% of direct wages cost. 10% is added
to the total production cost of each batch to allow for selling, distribution and administration
overheads.
AC requires a profit margin of 25% of sales value.
Determine the selling price for 600 muffins.

2. M/s. KBC Bearings Ltd. is committed to supply 48,000 bearings per annum to M/s. KMR
Fans on a steady daily basis. It is estimated that it costs Rs.1 as inventory holding cost per
bearing per month and that the set up cost per run of bearing manufacture is Rs.3,200
(i) What would be the optimum run size of bearing manufacture?
(ii) What would be the interval between two consecutive optimum runs?
(iii) Find out the minimum inventory cost?

3. A Company has an annual demand from a single customer for 50,000 litres of a paint
product. The total demand can be made up of a range of colour to be produced in a
continuous production run after which a set-up of the machinery will be required to
accommodate the colour change. The total output of each colour will be stored and Rs. then
delivered to the customer as s single load immediately before production of the next colour
commences. The Set up costs are Rs.100 per set up. The Service is supplied by an outside
company as required.
The Holding costs are incurred on rented storage space which costs Rs.50 per sq. meter per
annum. Each square meter can hold 250 Litres suitably stacked.
You are required to calculate
(i) Calculate the total cost per year where batches may range from 4,000 to 10,000 litres
in multiples of 1,000 litres and hence choose the production batch size which will
minimize the cost.
(ii) Use the economic batch size formula to calculate the batch size which will minimise
total cost.

4. Wonder Ltd. has a capacity of 1,20,000 Units per annum as its optimum capacity. The
production costs are as under

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Direct Material – Rs. 90 per unit
Direct Labour- Rs.60 per unit
Overheads:
Fixed: Rs.30,00,000 per annum
Variable: Rs.100 per unit
Semi Variable: Rs.20,00,000 per annum upto 50% capacity and an extra amount of
Rs.4,00,000 for every 25% increase in capacity or part thereof.
The production is made to order and not for stocks.
If the production programme of the factory is as indicated below and the management
desires a profit of Rs.20,00,000 for the year work out the average selling price at which
each unit should be quoted.
First 3 months: 50% capacity
Remaining 9 months: 80% capacity
Ignore Administration, Selling and Distribution overheads.

8.JOB COSTING

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1. In a factory using Job Costing Method, an abstract from the work-in-progress as at 30 th
September was prepared as under:

Job No. Materials Direct labour Factory

overheads applied
₹ ₹ ₹
115 1,325 400 hours 800 640
118 810 250 hours 500 400
120 765 300 hours 475 380
2,900 1,775 1,420
Materials used in October were as follows:

Material Requisition Job No. Cost ₹

No.
54 118 300
55 118 425
56 118 515
57 120 665
58 121 910
59 124 720
3,535

A summary of labour hours developed during October is as under:

Job No. Number of hours
Shop A Shop B
115 25 25
118 90 30
120 75 10
121 65 -
124 20 10
275 75
Indirect labour:
Waiting for material 20 10
Machine breakdown 10 5
Idle time 5 6
Overtime premium 6 5
316 101
A shop credit slip was issued in October that material issued under Requisition No. 54
was returned back to stores as being not suitable. A Material Transfer Note issued in October
indicated that material issued under Requisition No. 55 for Job 118 was directed to Job 124.
The hourly rate in Shop A per labour hour is ₹ 3 while at Shop B, it is ₹ 2 per hour.
The factory overhead is applied at the same rate as in September. Jobs 115, 118 and 120 were
completed in October.
You are asked to complete the factory cost of the completed jobs. It is the practice of
the management to put 10% on the factory cost to cover administration and selling overheads

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 and invoice the job to the customer on a total cost plus 20% basis. What would be the invoice
price of these three jobs?
2. A factory uses job costing. The following data are obtained from its books for the year 31
December 2022:
Particulars ₹
Direct materials 90,000
Direct wages 75,000
Selling and distribution overheads 52,500
Administration overheads 42,000
Factory overheads 45,000
Profit 60,900
a) Prepare a Job Cost Sheet indicating the Prime cost, Works cost, Production cost,
Cost of sales and Sales value.
b) In 2023, the factory receives an order for a number of jobs. It is estimated that direct
materials required will be Rs.1,20,000 and direct labour will cost ₹ 75,000. What
should be the price for these jobs if factory intends to earn the same rate of profit on
sales assuming that the selling and distribution overheads have gone up by 15%? The
factory recovers factory overheads as a percentage of direct wages and administration
and selling and distribution overheads as a percentage of works cost, based on cost
rates prevailing in the previous year.

3. Mayur Engineering, engaged in job work, has completed all jobs in hand on 30 th December,
2022, except Job No. 447. The cost sheet on 30 th December showed direct materials and
direct labour costs of ₹ 40,000 and ₹ 30,000 respectively as having been incurred on job No.
447.
The costs incurred by the business on 31 December, 2022, the last day of the accounting year,
were as follows:
Direct materials (Job 447) ₹ 2,000
Direct labour (Job 447) ₹ 8,000
Indirect labour ₹ 2,000
Miscellaneous factory overhead ₹ 3,000
It is the practice of business to make the jobs absorb factory overheads on the basis of 120%
of direct labour cost.
Calculate the value of work-in-progress of Job No. 447 on 31st December, 2022.

4. In an engineering company, the factory overheads are recovered on a fixed percentage basis
on direct wages and the administrative overheads are absorbed on a fixed percentage basis on
factory cost.

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 The company has furnished the following data relating to two jobs undertaken by it in a
period:

Job 101 Job 102

₹ ₹
Direct materials 54,000 37,500
Direct wages 42,000 30,000
Selling price 1,66,650 1,28,250
Profit percentage on Total Cost 10% 20%
Required:
(i) Computation of percentage recovery rates of factory overheads and administrative
overheads.
(ii) Calculation of the amount of factory overheads, administrative overheads and profit for
each of the two jobs.
(iii) Using the above recovery rates fix the selling price of job 103. The additional data being

Direct materials ₹ 24,000

Direct wages ₹ 20,000
Profit percentage on selling price 12-½%

5. Dream house (P) Ltd. is engaged in building two residential housing projects in the
city. Particulars related to two housing projects are as below:
HP-1 HP-2
Work in Progress on 1st April 2022 ₹ 7,80,000 ₹ 2,80,000
Materials Purchased 6,20,000 8,10,000
Land purchased near to the site to open an office - 12,00,000
Brokerage and registration fee paid on the above purchase - 60,000
Wages paid 85,000 62,000
Wages outstanding as on 31st March, 2023 12,000 8,400
Donation paid to local clubs 5,000 2,500
Plant hire charges paid for three years effecting from 1st 72,000 57,000
April 2022
Value of materials at site as on 31st March, 2023 47,000 52,000
Contract price of the projects 48,00,000 36,00,000
Value of work certified 20,50,000 16,10,000
Work not certified 1,90,000 1,40,000
A concrete mixture machine was bought on 1st April 2022 for ₹ 8,20,000 and used for
180 days in HP-1 and for 100 days in HP-2. Depreciation is provided @ 15% p.a. (this
machine can be used for any other projects)
PREPARE contract account for the two housing projects showing the notional profit or
loss on each project for the year ended 31st March, 2023.

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6. Y & Co. undertook a contract for ₹ 15,00,000 on an arrangement that 80% of the value of
work done as certified by the architects of the contractee, should be paid immediately and the
remaining 20% be retained until the contract is completed.

In 2020 the amounts expended were: Materials ₹ 1,80,000; Wages ₹ 1,70,000; Carriage ₹
6,000 Cartage ₹ 1,000 Sundry expenses ₹ 3,000. The work was certified for ₹ 3,75,000 and
80% of this was paid as agreed.

In 2021 the amounts expended were: Materials ₹ 2,20,000, Wages Rs.2,30,000, Carriage
Rs.23,000. Cartage Rs.2,000 and Sundry expenses Rs.4,000. Three-fourths of the contract
was certified as done by 31 December 2021 and 80% of this received accordingly. The value
of unused and work-in-progress was ascertained at Rs.20,000.

In 2022, the amounts expended were: Materials Rs.1,26,000; Wages Rs.1,70,000; Cartage
Rs.6,000; Sundry expenses Rs.3,000, and on 30 June the whole contract was completed.
Show how the Contract Account as also the Contractee’s Account would appear for each of
these years in the books of the contractor, assuming that balance due to him was received on
completion of the contract.
7. Flex Limited commenced a contract on 1-7-2022. The total contract price was Rs.5,00,000
but Flex Limited accepted the same for Rs.4,50,000. It was decided to estimate the total profit
and to take to the credit of Profit and Loss Account that proportion of estimated profit on
cash basis, which the work completed, bore to the total contract. Actual expenditure till 31-
12-2022 and estimated expenditure in 2023 are given below:
Actuals Till Estimate for
31-12-22 2023
Rs. Rs.
Materials 75,000 1,30,000
Labour 55,000 60,000
Plant purchased (original cost) 40,000 -
Misc. expenses 20,000 35,500
Plant returned to stores on 31-12-17 at original cost 10,000 25,000
as at 30-9-18
Materials at site 5,000 Nil
Work certified 2,00,000 Full
Work uncertified 7,500 Nil
Cash received 1,80,000 Full
The plant is subject to annual depreciation @ 20% of original cost. The contract is likely to
be completed on 30-9-2023.
You are required to prepare the cont22ract Account for the year ended 31-12-22. Working
should be clearly given. It is the policy of the company to charge depreciation on time basis.

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8. A and B, contractors, obtained a contract to build houses, the contract price being Rs.4,00,000.
Work commenced on 1st January, 2022 and upon it the following expenditure was incurred
during the year – plant and tools Rs.20,000; stores and materials Rs.72,000; wages Rs.65,000;
sundry expenses Rs.5,300 and establishment charges Rs.11,700.
Certain materials costing Rs.12,000 were unsuited to the contract and were sold for Rs.14,500.
A portion of the plant was scrapped and sold for Rs.2,300.
The value of the plant and tools on site on 31 st December, 2022 was Rs.6,200 and the value of
the stores and materials on hand Rs.3,400, cash received on account was Rs.1,40,000
representing 80% of the work certified. The cost of the work done but not certified was
Rs.21,900; this was certified later for Rs.25,000.
A and B decided to estimate what further expenditure would be incurred in completing the
contract to compute from this estimate and the expenditure already incurred the total profit
that would be made on the contract and to take to the credit of Profit and Loss Account for the
year 2022 that proportion of the total which corresponded to the work certified by 31 st
December.
The estimate was as follows:
a) That the contract would be completed by 30th September, 2023.
b) That the wages on the contract in 2023 would amount to Rs.71,500.
c) That the cost of the stores and materials required in addition to those in stock on 31 st
December, 2022 would be Rs.68,600 and that further contract expenses would
amount to Rs.6,000.
d) That a further Rs.25,000 would have to be paid out on plant and tools and that a
residual value of the plant and tools on 30th September 2023 would be Rs.3,000.
e) That the establishment charges would cost the same per month as in 2022.
f) That 2.5 per cent of the total cost of the contract would be due to defects, temporary
maintenance and contingencies.
Prepare Contract Account for the year ended 31st December, 2022.
9. A contractor undertook a contract for Rs.5,00,000 on 1-7-2023 for the construction of a
library building. On 30-6-2023, when the accounts were closed, the following details about
the contract were gathered:
Particulars Rs.
Materials purchased 1,00,000
Wages paid 45,000
General expenses 9,000
Plant purchased 60,000
Materials in hand on 30-6-23 25,000
Wages accrued on 30-6-23 5,000
Work certified 2,00,000
Work uncertified 15,000
Cash received 1,50,000
Plant depreciation 6,000

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 The above contract contained an escalation clause which reads as follows: “In the
event of prices of materials and rates of wages increase by more than 5%, the contract price
would be increased accordingly by 25% of the rise in the cost of materials and wages beyond
5% in each case”. It was found that since the date of signing the agreement, the prices of
materials and wage rates increased by 25%. The value of work certified does not take into
account the effect of the above clause. Prepare the Contract Account.

10. A contractor commenced a contract on 1–7–2022. The costing records concerning the said
contract reveal the following information as on 31–3–2023:
Amount
Rs.

Material sent to site 7,74,300

Labour paid 10,79,000
Labour outstanding as on 31–3–2023 1,02,500
Salary to Engineer 20,500 per month
Cost of plant sent to site (1–7–2022) 7,71,000
Salary to Supervisor 9,000 per month

(3/4 time devoted to contract)

Administration & other expenses 4,60,600

Prepaid Administration expenses 10,000
Material in hand at site as on 31–3–2023 75,800

Plant used for the contract has an estimated life of 7 years with residual value at the end of
life Rs.50,000. Some of material costing Rs.13,500 was found unsuitable and
sold for Rs.10,000. Contract price was Rs.45,00,000.
On 31–3–2023 two third of the contract was completed. The architect issued certificate
covering 50% of the contract price and contractor has been paid Rs.20,00,000 on account.
Depreciation on plant is charged on straight line basis.
Prepare Contract Account.

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11. QR Construction Ltd. commenced a contract on April 1, 2022. The total contract was for
Rs.27,12,500. It was decided to estimate the total profit and to take to the credit of P/L A/c
the proportion of estimated profit on cash basis which work completed bear to the total
contract. Actual expenditure in 2022 -23 and estimated expenditure in 2023–24 are given
below:

2022–23 2023–24
Actuals Rs. Estimated Rs.

Materials issued
4,56,000 8,14,000
Labour: Paid
3,05,000 3,80,000
: Outstanding at end
24,000 37,500
Plant purchased
2,25,000 –
Expenses : Paid
1,00,000 1,75,000
: Outstanding at the end
– 25,000
: Prepaid at the end
22,500 –
Plant returned to stores (at historical
75,000 1,50,000
cost)
(on Dec. 31, 2017)
30,000 75,000
Material at site
12,75,000 Full
Work–in–progress certified
40,000 –
Work–in–progress uncertified
10,00,000 Full
Cash received

+-The plant is subject to annual depreciation @ 20% of WDV cost. The contract is
likely to be completed on December 31, 2023.
Required:

(i) Prepare the Contract A/c for the year 2022-23

(ii) Estimate the profit on the contract.

12. Hut–to–Palace Ltd. undertook a contract in last year. In the agreement between the Hut-to-
Palace Ltd. and the contractee, there is a clause stating that Hut-to-Palace, will receive
total cost plus 40% as contract consideration. The following are the details of the contract
as on 31st March, 2023:

Particulars Rs.
Total expenditure to date 17,64,525
Estimated further expenditure to complete the 8,38,645
contract
Value of work certified 21,07,500
Cost of work not certified 3,11,075
Progress payment received from the contractee 14,75,250

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 From the above information calculate the
i. Notional profit for the management of Hut-to-Palace Ltd.
ii. What would be the estimated profit from the contract if management of Hut-to-
Palace Ltd has come to know that the contractee has liquidity crunch and it is not
able to pay further payments.
1. AP Ltd. received a job order for supply and fitting of plumbing materials. Following
are the details related with the job work:
Direct Materials
AP Ltd. uses a weighted average method for the pricing of materials

issues. Opening stock of materials as on 12th August 2020:

- 15mm GI Pipe, 12 units of (15 feet size) @ `600 each

- 20mm GI Pipe, 10 units of (15 feet size) @ ` 660 each
- Other fitting materials, 60 units @ ` 26 each
- Stainless Steel Faucet, 6 units @ ` 204 each
- Valve, 8 units @ ` 404
each Purchases:

On 16th August 2020:

- 20mm GI Pipe, 30 units of (15 feet size) @ ` 610 each
- 10 units of Valve @ ` 402
each On 18th August 2020:
- Other fitting materials, 150 units @ ` 28 each
- Stainless Steel Faucet, 15 units @ `

209 each On 27th August 2020:

- 15mm GI Pipe, 35 units of (15 feet size) @ ` 628 each
- 20mm GI Pipe, 20 units of (15 feet size) @ ` 660 each
- Valve, 14 units @ ` 424 each

Issues for the hostel job: On

12th August 2020:

- 20mm GI Pipe, 2 units of (15 feet size)

- Other fitting materials, 18

units On 17th August 2020:

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 - 15mm GI Pipe, 8 units of (15 feet size)
- Other fitting materials, 30

units On 28th August 2020:

- 20mm GI Pipe, 2 units of (15 feet size)
- 15mm GI Pipe, 10 units of (15 feet size)
- Other fitting materials, 34 units
- Valve, 6 units

On 30th August 2020:

- Other fitting materials, 60 units
- Stainless Steel Faucet, 15 units
Direct Labour:
Plumber: 180 hours @ `100 per hour (includes 12 hours overtime)
Helper: 192 hours @ `70 per hour (includes 24 hours overtime)
Overtimes are paid at 1.5 times of the normal wage rate.

Overheads:
Overheads are applied @ `26 per labour hour.
Pricing policy:
It is company’s policy to price all orders based on achieving a profit margin of
25% on sales price.
You are required to
(a) CALCULATE the total cost of the job.
(b) CALCULATE the price to be charged from the customer.

2. A Ltd. is a pharmaceutical company which produces vaccines for diseases like Monkey
Pox, Covid-19 and Chickenpox. A distributor had given an order for 1,600 Monkey
Pox Vaccines. The company can produce 80 vaccines at a time. To process a batch of
80 Monkey Pox vaccines, the following costs would be incurred:
Direct Materials 4,250
Direct wages 500
Lab set-up cost 1,400
The Production Overheads are absorbed at a rate of 20% of direct wages and 20% of total
production cost is charged in each batch for Selling, distribution and administration
Overheads. The company is willing to earn profit of 25% on sales value.
You are required to determine:
(i) Total Sales value for 1,600 Monkey Pox Vaccines

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 (ii) Selling price per unit of the Vaccine.

3. PNME Ltd. manufactures two types of masks- 'Disposable Masks' and ‘Cloth Masks'.
The cost data for the year ended 31stMarch, 2022 is as follows:

`
Direct Materials 12,50,000
Direct Wages 7,00,000
Production Overhead 4,00,000

Total 23,50,000
It is further ascertained that:
 Direct material cost per unit of Cloth Mask was twice as much of Direct material
cost per unit of Disposable Mask.
 Direct wages per unit for Disposable Mask were 60% of those for Cloth Mask.
 Production overhead per unit was at same rate for both the types of the masks.
 Administration overhead was 50% of Production overhead for each type of mask.
 Selling cost was ` 2 per Cloth Mask.
 Selling Price was ` 35 per unit of Cloth Mask.
 No. of units of Cloth Masks sold- 45,000
 No. of units of Production of
Cloth Masks: 50,000
Disposable Masks: 1,50,000
You are required to prepare a cost sheet for Cloth Masks showing:
(i) Cost per unit and Total Cost.
(ii) Profit per unit and Total Profit.

4. TSK Limited manufactures a variety of products. The annual demand for one of its
products- Product 'X' is estimated as `1,35,000 units. Product 'X' is to be manufactured
done in batches. Set up cost of each batch is ` 3,375 and inventory holding cost is ` 5 per
unit. It is expected that demand of Product 'X' would be uniform throughout the year.

Required:
(i) Calculate the Economic Batch (EBQ) for Product 'X'.
(ii) Assuming that the company has a policy of manufacturing 7,500 units of Product 'X'
per batch, calculate the additional cost incurred as compared to the cost incurred as
per Economic Batch Quantity (EBQ) as computed in (i) above.

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5. In a manufacturing company, the overhead is recovered as follows:
Factory Overheads: a fixed percentage basis on direct wages and
Administrative overheads: a fixed percentage basis on factory cost.
The company has furnished the following data relating to two jobs undertaken by it in
a period.
Job 1 Job 2
(`) (`)
Direct materials 1,08,000 75,000
Direct wages 84,000 60,000
Selling price 3,33,312 2,52,000
Profit percentage on total cost 12% 20%

You are required to:

(i) Compute the percentage recovery rates of factory overheads and
administrative overheads.
(ii) Calculate the amount of factory overheads, administrative overheads
and profit for each of the two jobs.
(iii) Using the above recovery rates, determine the selling price to be
quoted for job 3. Additional data pertaining to Job 3 is as follows:
Direct materials 68,750
Direct wages 22,500
Profit percentage on selling 15%
price

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 9.PROCESS & OPERATION COSTING

1. A product passes through three processes to completion. In January 2019 the cost of
production was given as below:
Processes
I II III
Material ₹ 2,000 ₹ 3,020 ₹ 3,462
Wages 3,500 4,226 5,000
Production overheads 1,500 2,000 2,500

1,000 units were issued to Process I at ₹ 5 each.

Normal loss in Process I 10%, Process II 5% and Process III 10%.
Wastage realizes ₹ 3 per unit, ₹ 5 per unit and ₹ 6 per unit in Process I, II and III
respectively. Actual production: Process I is 920 units, Process II is 870 units and Process III
800 units. Prepare the necessary accounts.
2. A product passes through three processes, A, B and C. 10,000 units at a cost of ₹ 1 were
issued to process A. The other direct expenses were:

Process A Process B Process C

Sundry materials ₹ 1,000 ₹ 1,500 ₹ 1,480
Direct labour 5,000 8,000 6,500
Direct expenses 1,050 1,188 1,605
The wastage of Process A was 5% and Process B 4%. The wastage of process A was sold at
₹ 0.25 per unit, that of B at ₹ 0.50 per unit and that of C at ₹ 1.00 per unit. The overhead
charges were 168% of direct labour. The final product was sold at ₹ 10.00 per unit, fetching a
profit of 20% on sales. Find the percentage of wastage in Process C.

3. A product passes through three processes A, B and C. The details of expenses incurred on the
three processes during the year 2018 were as under:

Processes: A B C
Units introduced 10,000
Cost per unit ₹ 100
Sundry materials ₹ 10,000 ₹ 15,000 ₹ 5,000
Labour 30,000 80,000 65,000
Direct expenses 6,000 18,150 27,200
Selling price per unit of output 120 165 250

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 Management expenses during the year were ₹ 80,000 and selling expenses were ₹ 50,000.
These are not allocable to the processes. Actual output of the three processes was: A – 9,300
units, B – 5,400 units and C – 2,100 units. Two-thirds of the output of Process A and one-half
of the output of Process B was passed on to the next process and the balance was sold. The
entire output of Process C was sold. The normal loss of the three processes, calculated on the
input of every process was: Process A – 5%, B – 15% and C – 20%. The loss of Process A
was sold at ₹ 2 per unit, that of B at ₹ 5 per unit and of Process C at ₹ 10 per unit. Prepare
the three Process Accounts and the Profit and Loss Account.

4. A product passes through three processes A, B and C. normal wastage in each process is as
follows:
Process A 3%
Process B 5%
Process C 8%
Wastage of Process A was sold at 25 paise per unit, that of Process B at 50 paise per unit and
that of Process C at 100 paise per unit. 10,000 units were issued to Process A in the beginning
of October 2018 at a cost of ₹ 1 per unit. The other expenses were as follows:
Process A Process B Process C
Sundry materials ₹ 1,000 ₹ 1,500 ₹ 500
Labour 5,000 8,000 6,500
Direct expenses 1,050 1,188 2,009
Actual output was: 9,500 units 9,100 units 8,100 units
Prepare the Process Accounts, assuming that there was no opening or closing stocks. Also
give the Abnormal Wastage and Abnormal Gain Accounts.
5. M Ltd. produces a product-X, which passes through three processes, I, II and III. In
Process-III a by-product arises, which after further processing at a cost of `85 per unit,
product Z is produced. The information related for the month of August 2020 is as
follows:

Process- Process- Process-III

Normal loss 5%I II10% 5%
Materials introduced (7,000 units) 1,40,00 - -
Other materials added 0
62,000 1,36,00 84,200
Direct wages 42,000 0
54,000 48,000
Direct expenses 14,000 16,000 14,000
Production overhead for the month is `2,88,000, which is absorbed as a
percentage of direct wages.
The scrapes are sold at `10 per unit

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 Product-Z can be sold at `135 per unit with a selling cost of `15

per unit No. of units produced:

Process-I- 6,600; Process-II- 5,200, Process-III- 4,800 and Product-

Z- 600 There is not stock at the beginning and end of the month.

You are required to PREPARE accounts for:

(i) Process-I, II and III
(ii) By product process

6. During January 1,000 units costing Rs.6000 were introduced in process I. there was no work
in progress at the beginning of January. At the end of January 250 units were incomplete and
150 units had been scrapped. The normal process loss was 10% of input. It was estimated that
the incomplete units had other cost details were:
Direct materials introduced Rs.2,700
Direct wages 3,200
Production overhead 1,600
Value of scrap is Rs.2 each. The units scrapped had passed through the process and is 100%
complete as regards materials, labour and overhead. Prepare process account and other
relevant statements.

7. RP Ltd furnishes you the following information relating to process B for the month of October:
Opening work-in-progress Nil
Units produced, 10,000 units @ ₹ 3 each
Expenses debited to the process ₹
Direct materials 14,650
Labour 21,148
Overheads 42,000
Normal loss in process 1% of input
Closing work in progress 350 units
Degree of completion: materials – 100% labour and overheads – 50%
Finished output 9,500 units
Degree of completion of abnormal loss;
Materials 100%; labour and overheads – 80%
Units scrapped as normal loss were sold at Rs.1 per unit
All the units of abnormal loss were sold at Rs.2.50 per unit.
Prepare process account, normal loss account and abnormal loss account.

8. The following data available in respect of process 3 for the month of April:
Direct materials added in process Rs.7,760
Direct labour Rs.3,860
Production overhead Rs.7,680

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 Transfer from process 2: 4,200 units valued at Rs.15,600
Transfer to process 4: 3,650 units
Stock at 1st April: 600 units valued at Rs.6,300
DOC ₹
Materials added in process 60% 2000
Labour 50% 1000
Overhead 40% 900
th
Stock at 30 April: 80% Labout – 70% overhead – 60%
Units scrapped degree of completion: 350 units
Material added in process – 80% Labour – 70% overhead – 60%
Units scrapped Degree of completion: 350 units
Material added in process – 100% labour – 80% overhead – 80%
Normal loss is 10% of throughput.
All units scrapped can be sold for Rs.1 per unit

You are required to prepare:

a) A statement showing the cost per unit of production and the value of the output
b) An account for process 3:
c) An abnormal loss or normal gain account.

9. From the following information for August 2018 prepare:

a) Statement of equivalent Production
b) Statement of cost, and
c) Process II Account.

Opening stock 600 units: ₹ 1,050.

Degree of completion: Material 80%, labour 60%, overheads 60%.
Transfer from process I: 11,000 units ₹ 5,500.
Transfer to process III: 8,800 units.
Direct materials added in process II ₹ 2,410.
Direct labour ₹ 7,155.
Production overhead ₹ 9,540.
Units scrapped: 1,200.
Degree of completion: Materials 100%, labour and overhead 70% each.
Closing stock 1,600 units.
Degree of completion: Materials 70%, Labour 60%. Overheads 60%.
There was a normal loss in the process of 10% of production.
Units scrapped realized at ₹ 0.50 per unit.

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10. The following information is given for Process I of B Ltd. The Average Method of pricing
work-in-progress is used:

₹
Work-in-progress on January 1:
Materials on 500 units 900
Labour on 500 units 1,000
Factory overheads on 500 units 400
Production costs for January:
Materials 2,400 units 7,800
Labour 9,150
Factory overheads 6,125
Total cost for January 23,075

2,500 total units completed.

Work-in-process on January 31:
400 units, 25% completed as to material, labour and overheads.
Write up the Process I account for January.

11. A Limited produces a product which passes through two process before it is completed and
transferred to finished stock. The following data relate to September, 2018.

Finished
Particulars Process I Process II stock
Opening stock 3000 3600 9000
direct materials 6000 6300
Direct wages 4480 4500
factory overheads 4200 1800
closing stock 1480 1800 4500
inter process profit included in 600 3300
Opening stock

Output of Process I is transferred to Process II at 25% profit on the transfer price. Output of
Process II is transferred to finished stock at 20% profit on the transfer price. Stocks in process
are valued at Prime cost. Finished stock is valued at the price at which it is received from
Process II. Sales during the period were Rs.56,000.
Prepare Process Cost Accounts and Finished Stock Account showing the profit element at each
stage.
12. A product passes from Process- I and Process- II. Materials issued to Process- amounted to ₹
40,000, Wages ₹ 30,000 and manufacturing overheads were
₹ 27,000. Normal loss anticipated was 5% of input. 4,750 units of output were produced and

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 transferred-out from Process-I. There were no opening stocks. Input raw material issued to
Process I were 5,000 units. Scrap has no realizable value.
You are required to show Process- I account, value of normal loss and units transferred to
Process-II.
13. RST Limited processes Product Z through two distinct processes – Process- I and Process-II
On completion, it is transferred to finished stock. From the following information for the year
20X1-X2, prepare Process- I, Process- II and Finished Stock A/c:

Particulars Process- I Process- II

Raw materials used 7,500 units --
Raw materials cost per unit ₹ 60 --

Transfer to next process/finished stock 7,050 units 6,525 units

Normal loss on inputs 5% 10%

Direct wages ₹ 1,35,750 ₹ 1,29,250

Direct Expenses 60% of Direct wages 65% of Direct wages

Manufacturing overheads 20% of Direct wages 15% of Direct wages

Realizable value of scrap per unit ₹ 12.50 ₹ 37.50

6,000 units of finished goods were sold at a profit of 15% on cost. Assume that there was no
opening or closing stock of work-in-process.
14. A Ltd. produces product ‘AXE’ which passes through two processes before it is completed
and transferred to finished stock. The following data relate to October 20X4 :

Process- Process- Finished

I II Stock
Opening stock 7,500 9,000 22,500
Direct materials 15,000 15,750 --
Direct wages 11,200 11,250 --
Factory overheads 10,500 4,500 --
Closing stock 3,700 4,500 11,250
Inter-process profit included in opening -- 1,500 8,250
stock
Output of Process- I is transferred to Process- II at 25% profit on the transfer price.

Output of Process- II is transferred to finished stock at 20% profit on the transfer price. Stock
in process is valued at prime cost. Finished stock is valued at the price at which it is received
from process II. Sales during the period are ₹ 1,40,000.

Prepare Process cost accounts and finished goods account showing the profit element at each
stage.

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15. A company produces a component, which passes through two processes. During the month of
April, 20X5, materials for 40,000 components were put into Process I of which 30,000 were
completed and transferred to Process II. Those not transferred to Process II were 100%
complete as to materials cost and 50% complete as to labour and overheads cost. The Process
I costs incurred were as follows :
Direct material ₹ 15,000
Direct wages 18,000
Factory overheads 12,000
Of those transferred to Process II, 28,000 units were completed and transferred to finished
goods stores. There was a normal loss with no salvage value of 200 units in Process II. There
were 1,800 units, remained unfinished in the process with 100% complete as to materials and
25% complete as regard to wages and overheads.
No further process material costs occur after introduction at the first process until the end of
the second process, when protective packing is applied to the completed components. The
process and packing costs incurred at the end of the Process II were:
Packing materials ₹ 4,000
Direct wages ₹ 3,500
Factory overheads ₹ 4,500
Required:
a. Prepare Statement of Equivalent Production, Cost per unit and Process I A/c.
b. Prepare Statement of Equivalent Production, Cost per unit and Process II A/c.

16. Akash Ltd. manufactures chemical solutions for the food processing industry. The manufacturing
takes place in a number of processes and the company uses FIFO method to value work-in-process
and finished goods. At the end of the last month, a fire occurred in the factory and destroyed some
of paper containing records of the process operations for the month.
Akash Ltd. needs your help to prepare the process accounts for the month during which the
fire occurred. You have been able to gather some information about the month’s operating
activities but some of the information could not be retrieved due to the damage. The
following information was salvaged:
• Opening work-in-process at the beginning of the month was 800 litres, 70%
complete for labour and 60% complete for overheads. Opening work-in-process was
valued at ₹ 26,640.
• Closing work-in-process at the end of the month was 160 litres, 30% complete for
labour and 20% complete for overheads.
• Normal loss is 10% of input and total losses during the month were 1,800 litres
partly due to the fire damage.
• Output sent to finished goods warehouse was 4,200 litres.
• Losses have a scrap value of ₹ 15 per litre.
• All raw materials are added at the commencement of the process.

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 • The cost per equivalent unit (litre) is ₹ 39 for the month made up as follows:
Raw Material ₹ 23
Labour 7
Overheads 9
39
Required:
a. Calculate the quantity (in litres) of raw material inputs during the month.
b. Calculate the quantity (in litres) of normal loss expected from the process and
the quantity (in litres) of abnormal loss / gain experienced in the month.
c. Calculate the values of raw material, labour and overheads added to the
process during the month.
d. Prepare the process account for the month.

1. The following are the details in respect of Process A and Process B of a processing
factory:
Process A Process B
Materials ₹ 40,000 --
Labour 40,000 ₹ 56,000
Overheads 16,000 40,000
The output of Process A is transferred to Process B at a price calculated to give a profit
of 20% on the transfer price and the output of Process B is charged to finished stock at
a profit of 25% on the transfer price. The finished stock department realized ₹ 4,
00,000 for the finished goods received from Process B. PREPARE process accounts
and CALCULATE total profit, assuming that there was no opening or closing work-in-
progress.
2. A Company manufacturing chemical solution that passes through a number of processes
uses FIFO method to value Work-in-Process and Finished Goods. At the end of month of
September, a fire occurred in the factory and some papers containing records of the
process 'operations for the month were destroyed. The Company desires to prepare
process accounts for the month during which the fire occurred. Some information could
be gathered as to operating activities as under:
a. Opening Work-in-Process at the beginning of the month of 1,100 litres - 40%
complete for labour and 60% complete for Overheads. Opening Work-in-Process
was valued at ₹ 48,260.
b. Closing Work-in-Process at the end of the month was 220 litres, 40% complete for
Labour and 30% complete for Overheads.
c. Normal loss is 10% of input and total losses during the month were 2,200 litres partly
due to firm, damage. Assume degree of completion of abnormal losses is 100%.
d. Output sent to Finished Goods Warehouse was 5,900 litres.
e. Losses have a scrap value of ₹ 20 per litre.
f. All Raw Materials are added at the commencement of the process.
g. The Cost per equivalent Unit(litre) is ₹ 53 for the month consisting :
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 Particulars ₹
Raw Material 35
Labour 8
Overheads 10
Total 53
You are required to:
(i) Calculate the quantity (in litres) of Raw Material input during the month.
(ii) Calculate the quantity (in litres) of Normal Loss and Abnormal loss/Gain
experienced in the month.
(iii) Calculate the values of Raw Materials, Labour and Overheads added to the process
during the month.
(iv) Prepare the Process Account for the month.
3. ABC Ltd. produces an item which is completed in three processes - X, Y and Z. The
following information is furnished for process X for the month of March, 2018 :
Opening work-in-progress (5,000 units):
Materials Rs.35,000
Labour Rs.13,000
Overheads Rs.25,000
Units introduced into process X (55,000 units):
Materials Rs.20,20,000
Labour Rs.8,00,000
Overheads Rs.13,30,000
Units scrapped: 5,000 units Degree of completion:
Materials 100%
Labour & Overheads 60%

Closing work-in-progress (5,000 units): Degree of completion:

Materials 100%
Labour & Overheads 60%
Units finished and transferred to Process Y: 50,000 units
Normal loss: 5% of total input (including opening works-in progress) Scrapped units fetch
Rs.20 per unit.
Presuming that average method of inventory is used, prepare
a. Statement of Equivalent production
b. Statement of Cost for each element
c. Statement of distribution of cost
d. Abnormal loss account

4. KMR Ltd. produces product AY, which passes through three processes ‘XM’, ‘YM’ and
‘ZM’. The output of process ‘XM’ and ‘YM’ is transferred to next process at cost plus 20
percent each on transfer price and the output of process ‘ZM’ is transferred to finished
stock at a profit of 25 percent on transfer price. The following information are available in
respect of the year ending 31st March, 2017:

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 Process- Process- Process- Finished
XM (`) YM (`) ZM (`) Stock (`)
Opening Stock 30,000 54,000 80,000 90,000
Material 1,60,000 1,30,000 1,00,000 -
Wages 2,50,000 2,16,000 1,84,000 -
Manufacturing Overheads 1,92,000 1,44,000 1,33,000 -
Closing Stock 40,000 64,000 78,000 1,00,000
Inter process profit included in Nil 8,000 20,000 40,000
Opening Stock

Stock in processes is valued at prime cost. The finished stock is valued at the price at
which it is received from process ‘ZM’. Sales of the finished stock during the period was
Rs.28,00,000.
You are required to prepare:
(i) All process accounts and
(ii) Finished stock account showing profit element at each stage

5. From the following information for the month of January, 2013, prepare Process-III cost
accounts.
Opening WIP in Process-III 1,600 units at Rs.24,000
Transfer from Process-II 55,400 units at Rs.6,23,250
Transferred to warehouse 52,200 units
Closing WIP of process-III 4,200 units
Units scrapped 600 units
Direct material added in process-III Rs.2,12,400
Direct wages 96,420
Production overheads 56,400
Degree of completion:
Opening stock Closing stock Scrap
Material 80% 70% 100%
Labour 60% 50% 70%
Overheads 60% 50% 70%
The normal loss in the process was 5% of the production and scrap was sold @ Rs.5 per
unit

6. Following details are related to the work done in Process-I of Walker Ltd. during the
month of January, 2014:
Opening work-in progress (1,500 units)

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 Materials 60,000
Labour 35000
Overheads 30000
Materials introduced in process-I (35000 units) 1400000
Direct labour 346000
Overheads 637000
Units scrapped: 1,800 units
Degree of completion:
Materials 100%
Labour and overheads 80%
Closing work in progress: 1500 units
Degree of completion:
Materials 100%
Labour and overheads 80%

Units finished and transferred to Process-II: 32,000 units Normal Loss: 5% of total input
including opening work in progress. Scrapped units fetch Rs.8per piece.
You are required to prepare:
a. Statement of equivalent production
b. Statement of costs
c. Statement of distribution of costs and
d. Process-I account, Normal and Abnormal loss Accounts.

7. Prepare a process account from the following information.

Opening stock Nil
Input units 10,000
Input costs
Material Rs. 5,150
Labour Rs. 2, 700
Normal loss 5% of input
Scrap value of units of loss Re.1 per unit
Output to finished goods 8,000 units
Closing stock 1000 units
Completion of closing stock 50% for labour
80% for material

8. The following details are extracted from the costing records of an oil refinery for the
week ended 30th September, 2018.
Purchase of 1000 tonnes of copra Rs.4,00,000.
Crushing plant Refinery Finishing

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 plant
Rs. Rs. Rs.
Cost of labour 5,000 2,000 3,000
Electric power 1,200 7,20 4,800
0
Sundry material 200 4,000 ---
Repairs to machinery and plant 5,600 6,60 2,800
0
Steam 1,200 9,00 900
0
Factory expenses 2,640 1,320 4,400
Cost of casks -- ---- 15,000

600 tons of crude oil was produced.

500 tonnes of oil was produced by refining process.
496 tonnes of refined oil was finished for delivery.
Copra sack sold Rs.800.

350 tonnes of copra residue sold Rs.22,000. Loss in weight in crushing 50 tonnes. 90
tonnes by-product was obtained from refining process valued at Rs.13,500.
You are required to show the accounts in respect of each of the following stages of
manufacture for the purpose of arriving at the cost per tonne of each process and also the
total cost per tonne of finished oil.
(a) Copra crushing process; (b) Refining process; (c) Finishing process.

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 10.JOINT PRODUCTS & OPERATION COSTING

 Joint Products: When more than one output is obtained from joint processing of raw
materials and they have comparatively equal realizable values in an active market they are
called joint products.

 By Product: If the output obtained is incidental to manufacture and has lower economic
value it is known as by product.

 Joint Cost: Expenses incurred till the point of separation are known as joint costs and needs
to be apportioned to all outputs logically.

 The methods available for apportionment are:

1. Physical unit’s method - the quantity obtained is used as the basis to apportion joint costs.
Can be used only if selling prices are identical or as per company’s policy.

2. Selling prices at split off point – the ratio of selling prices per unit is taken as the basis to
share common joint cost. This method is appropriate when quantities are equal.

3. Sales value at split off point method- the best method when further processing of products
are not taken up always. The sales value is obtained by multiplying the quantity with selling
price at split off point.

4. Average Cost method: Total Joint Cost is divided with total quantity of Joint Products to get
Average cost per unit, which is applied to all products.

5. Contribution Margin Method: The Joint Cost is segregated into Variable Cost and Fixed
Cost. The Joint Variable cost is apportioned using average method or physical units method.
Find Contribution per unit after deducting all variable costs from selling price of each
product. Use the contribution to apportion the fixed joint costs.

6. Net realizable value method: the amount that can be realized from the sales revenue post
further processing towards joint cost is obtained and the ratio of NRV is taken to apportion
the joint cost.
Statement of NRV
Particulars Product 1 Product 2 Product 3
Quantity Xx Xx Xx
Selling price after further processing Xx Xx Xx
Sales value after processing Xx Xx Xx
Less: Profit Xx Xx Xx
Total Cost Xx Xx Xx

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 Less: Selling and Administration expenses Xx Xx Xx
Cost of production Xx Xx Xx
Less: Further processing cost Xx Xx Xx
Net realisable value towards Joint Cost Xx Xx Xx

7. Constant Margin Net Realizable value method: - we find the value of production
(Production quantity multiplied with selling price). On deducting the common joint cost
and the total of further processing costs we get the gross profit earned by the company,
which is then converted to a percentage of sale value of production quantity. We consider
profit as per the calculated percentage for all products and find NRV as shown above. The
joint cost is apportioned on the basis of the calculated NRV. This method may not be
suitable if all the participating products do not earn the same profit percentage. Joint cost
could also be negative.

 Further Processing Decision: When a decision on further processing of the joint products is
to be taken, we find the incremental revenue from further processing and subtract the further
processing costs to get benefit from further processing. If the benefit is positive accept further
processing else sell at split off point only to maximize revenue.
Apportionment of Joint Cost over By products:
 If the by product has no active market it is appropriate to credit the revenue of the by
product to the joint cost account and apportion the remaining joint cost over other joint
products.

 If the realization from the by product is done periodically and not immediately it can be
treated as miscellaneous income in the costing profit and loss account.

 If the by product is further processed and has an active market use reverse cost method.
Find the sales value from by product and find NRV as shown above. The NRV shall
represent the amount of joint cost to be taken by the by products and the balance joint
cost is apportioned to the main product.
Problems:
1. A factory is engaged in the production of chemical Bomex and in the course of its
manufacture, a by-product Brucil is produced, which after further processing has a
commercial value. For the month of April, 2018, the following are the summarized cost data:
Separate Expenses
Joint Bomex Brucil
Expenses
Materials Rs. 1,00,000 Rs.6,000 Rs.4,000
Labour 50,000 20,000 18,000
Overheads 30,000 10,000 6,000
Selling price per unit 98 34
Estimated profit per unit on sale
of Brucil 4

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 The factory uses reverse cost method of accounting for by-products whereby the sales value
of by-products after deduction of the estimated profit, post separation costs and selling and
distribution expenses relating to the by-products is credited to the joint process cost account.
You are required to prepare statement showing:
(i) Joint cost allocable to Bomex,
(ii) Product-wise and overall profitability of the factory for April, 2018.

2. ABB Chemicals Ltd. electrolysis common salt to obtain three joint products – caustic soda,
chlorine and hydrogen. During a costing period, the expenditure relating to the inputs for the
common process amounted to Rs.3,50,000. After separation expenses amounting to Rs.1,
60,000, Rs.75,000 and Rs.10,000 were incurred for caustic soda, chlorine and hydrogen
respectively. The entire production was sold and Rs.3, 75,000, Rs.2, 50,000 and Rs.60,000
were realized for caustic soda, chlorine and hydrogen respectively. The selling expenses were
estimated at 5% of realizations from sale. The management expected profits @ 15%; 10%
and 5% of realizations from sale of caustic soda, chlorine and hydrogen respectively.
Draw a columnar statement showing the apportionment of joint costs and the profitability of
each product.
3. The Sunshine Oil Company purchases crude vegetable oil. It does refining of the same. The
refining process results in four products at the split off point: M, N, O and P. Product O is
fully processed at the split off point. Product M, N and P can be individually further refined
into ‘Super M’, ‘Super N’ and ‘Super P’. In the most recent month (Oct,2018), the output at
split off point was:
Product M 3,00,000 gallons
Product N 1,00,000 gallons
Product O 50,000 gallons
Product P 50,000 gallons
The joint cost of purchasing the crude vegetable oil and processing it were Rs.40,00,000.
Sunshine had no beginning or ending inventories. Sales of Product O in October were
Rs.20,00,000. Total output of products M, N and P was further refined and then sold. Data
related to October, 2018 are as follows:

Further Processing Costs to Sales

Make Super Products
Super M’ Rs. 80,00,000 Rs. 1,20,00,000
Super N’ 32,00,000 40,00,000
Super P’ 36,00,000 48,00,000

Sunshine had the option of selling products M, N and P at the split off point. This alternative
would have yielded the following sales for the October, 2018 production:

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 Product M Rs.20,00,000
Product N 12,00,000
Product P 28,00,000

You are required to answer:

a. How the joint cost of Rs.40,00,000 would be allocated between each product under each
of the following methods (a) sales value at split off; (b) physical output (gallons); and (c)
estimated net realizable value?
b. Could Sunshine have increased its October, 2018 operating profits by making different
decisions about the further refining of product M, N or P? Show the effect of any change
you recommend on operating profits.

4. ABC Ltd. operates a simple chemical process to convert a single material into three separate
items, referred to here as X, Y and Z. All three end products are separated simultaneously at a
single split-off point.
Product X and Y are ready for sale immediately upon split off without further processing or
any other additional costs. Product Z, however, is processed further before being sold. There
is no available market price for Z at the split-off point.
The selling prices quoted here are expected to remain the same in the coming year. During
2012-13, the selling prices of the items and the total amounts sold were:
X – 186 tons sold for Rs.1,500 per ton
Y – 527 tons sold for Rs.1,125 per ton
Z – 736 tons sold for Rs. 750 per ton
The total joint manufacturing costs for the year were Rs.6,25,000. An additional
Rs.3,10,000 was spent to finish product Z.
There were no opening inventories of X, Y or Z at the end of the year, the following
inventories of complete units were on hand:
X 180 tons Y 60 Tons Z 25 tons
There was no opening or closing work-in-progress.
Required:
Compute the cost of inventories of X, Y and Z for Balance Sheet purposes and cost of goods
sold for income statement purpose as of March 31, 2013, using:
a. Net realizable value (NRV) method of joint cost allocation
b. Constant gross-margin percentage NRV method of joint-cost allocation.
c. Compare the gross-margin percentages for X, Y and Z using two methods.

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5. Pokemon Chocolates manufactures and distributes chocolate products. It purchases Cocoa
beans and processes them into two intermediate products:
 Chocolate powder liquor base
 Milk-chocolate liquor base
These two intermediate products become separately identifiable at a single split off point.
Every 500 pounds of cocoa beans yields 20 gallons of chocolate – powder liquor base and 30
gallons of milk-chocolate liquor base.
The chocolate powder liquor base is further processed into chocolate powder. Every
20 gallons of chocolate-powder liquor base yields 200 pounds of chocolate powder. The
milk-chocolate liquor base is further processed into milk-chocolate. Every 30 gallons of milk-
chocolate liquor base yields 340 pounds of milk chocolate.
Production and sales data for October, 2018 are:

Cocoa beans processed 7,500 pounds

Costs of processing Cocoa beans to split off point
(including purchase of beans)
Rs.7,12,500
Production Sales Selling price
Chocolate powder 3,000 pounds 3,000 Rs.190
Milk chocolate 5,100 5,100 Rs. 237.50

The October, 2018 separable costs of processing chocolate-powder liquor into

chocolate powder are Rs.3, 02,812.50. The October 2018 separable costs of processing milk-
chocolate liquor base into milk-chocolate are Rs. 6, 23,437.50.
Pokemon full processes both of its intermediate products into chocolate powder or
milk-chocolate. There is an active market for these intermediate products. In October, 2018
Pokemon could have sold the chocolate powder liquor base for Rs.997.50 a gallon and the
milk-chocolate liquor base for Rs.1,235 a gallon.
(i) Calculate how the joint cost of Rs.7,12,500 would be allocated between the
chocolate powder and milk-chocolate liquor bases by the following methods:
(a) Sales value at split off point
(b) Physical measure (gallons)
(c) Estimated net realizable value, (NRV) and
(d) Constant gross-margin percentage NRV.
(ii) What is the gross-margin percentage of the chocolate powder and milk-chocolate
liquor bases under each of the methods?
(iii) Could Pokemon have increased its operating income by a change in its decision to
fully process both of its intermediate products?

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6. In the course of manufacture of the main product ‘P’, by products ‘A’ and ‘B’ also emerge.
The joint expenses of manufacture amount to Rs.1, 19, 550. All the three products are
processed further after separation and sold as per details given below:

Main By-products
products
‘P’ ‘A’ ‘B’
Sales Rs. 90,000 60,000 40,000
Costs incurred after Rs. 6,000 5,000 4,000
separation
Profit as percentage on % 25 20 15
sales
Total fixed selling expenses are 10% of total cost of sales which are apportioned to the
three products in the ratio of 20: 40: 40.
(i) Prepare a statement showing the apportionment of joint costs to the main product and the
two-by-products.
(ii) If the by-product ‘A’ is not subjected to further processing and is sold at the point of
separation for which there is a market, at Rs.58,500 without incurring and selling
expenses, would you advise its disposal at this stage?

7. Three joint products are produced by passing chemicals through two consecutive
processes. Output from process 1 is transferred to process 2 from which the three
joint products are produced and immediately sold. The data regarding the processes
for April, 2018 is given below:

Process Process 2
Direct material 2,500 kilos at Rs. 4 per Rs.10,000 1 –
Direct
kilo labour Rs. 6,250 Rs.6,900
Overheads Rs.4,500 Rs.
Normal Loss 10% of input – 6,900
Scrap value of loss Rs.2 per kilo –
Output 2,300 kilos Joint products
A – 900 Kilos
B – 800 Kilos
C – 600 Kilos
There were no opening or closing stocks in either process. The selling prices of the
output from process 2 were Rs.24 per kilo; Rs.18 per kilo and Rs.12 per kilo
respectively. Required:
(a) Prepare an account for process 1 together with any Loss or Gain Accounts you
consider necessary to record the month’s activities.
(b) Calculate the profit attributable to each of the joint products by apportioning
the total costs from process 2
(i) According to weight of output;

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 (ii) By the market value of production.

8. A company produces two joint product X and Y, from the same basic materials. The
processing is completed in three departments.
Materials are mixed in department I. At the end of this process X and Y get
separated. After separation X is completed in the department II and Y is finished in
department III. During a period 2,00,000 kgs of raw material were processed in department
I, at a total cost of Rs. 8,75,000, and the resultant 60% becomes X and 30% becomes Y
and 10% normally lost in processing.
In department II 1/6 of the quantity received from department I is lost in
processing. X is further processed in department II at a cost of Rs.1,80,000.
In department III further new material added to the material received from department
I and weight mixture is doubled, there is no quantity loss in the department and further
processing cost (with material cost) is Rs. 1,50,000.
The details of sales during the year:
Product X Product Y

Quantity sold (kgs) 90,000 1,15,000

Sales price per kg Rs.10 Rs.4

There were no opening stocks. If these products sold at split-off-point, the

selling price of X and Y would be Rs.8 and Rs.4 per kg respectively.
Required:
(i) Prepare a statement showing the apportionment of joint cost to X and Y in
proportion of sales value at split off point.
(ii) Prepare a statement showing the cost per kg of each product indicating
joint cost, processing cost and total cost separately.
(iii) Prepare a statement showing the product wise profit for the year.
(iv) On the basis of profits before and after further processing of product X and
Y, should the products be further processed or not.

9. A company purchases raw material worth Rs.11.04 lakhs and processes them into four
products P, Q, R and S, which could have a unit sale value of Rs.3, Rs.9, Rs.16 and Rs.60
respectively at split-off point, as they could be sold as such to other processes. However,
during a year, the company decided to further process and sell products P, Q and S, while R
was not to be processed further but sold at split-off point to other processes. The processing
of raw materials into four products costs Rs.28 lakhs to the company.
The other data for the year were as under:

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 Produc Output Sales Additional Processing
t (units) (Rs. in lakhs) Costs after split-off
(all variable costs)
(Rs. in lakhs).
P 10,00,000 46.00 12.00
Q 20,000 4.00 2.40
R 10,000 1.60 -
S 18,000 12.00 0.40
You are required to work out the following information for decision-making:
a. If the joint costs are allocated amongst the four products on the basis of ‘Net Realizable
Value’ at split-off point, what should be the company’s annual income?
b. If the company had sold off all the other three products at split-off stage, identify the
increase/decrease in the company’s annual income as compared to (a) above.
c. What sales strategy could the company have planned to maximize its profit in the year?
d. Identify the net increase in income if the strategy at (c) is adopted, as compared to (a)
above.

10. Inorganic Chemicals purchases salt and processes it into more refined products such as
Caustic Soda, Chlorine and PVC. In the month of July, Inorganic Chemicals purchased Salt
for Rs.40,000. Conversion of Rs.60,000 were incurred up to the split off point, at which time
two sealable products were produced. Chlorine can be further processed into PVC. The July
production and sales is as follows:
Production Sales Selling
Quantity price
Caustic Soda 1,200 tons 1,200 tons Rs.50 per ton
Chlorine 800 — —

PVC 500 500 200

All 800 tons of Chlorine were further processed, at an incremental cost of Rs.20,000 to yield
500 tons of PVC. There was no beginning or ending inventories of Caustic Soda, Chlorine or
PVC in July. There is active market for Chlorine. Inorganic Chemicals could have sold all its
July production of Chlorine at Rs.75 per ton. Required:
(i) To calculate how joint cost of Rs.1,00,000 would be apportioned between Caustic
Soda and Chlorine under each of following methods:
a) Sales value at split – off point
b) Physical unit method, and
c) Estimated net realizable value.

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 (ii). Lifetime Swimming Pool Products offers to purchase 800 tons of Chlorine in August
at Rs.75 per ton. This sale of Chlorine would mean that no PVC would be produced
in August. How the acceptance of this offer for the month of August would affect
operating income?
11. A firm manufactures three joint products A, B and C and by-product X by processing a
common stock of raw material which costs Rs.8 per kg.
The details of output market price and the initial processing cost for an input of 10,000 kg of
raw material are as follows:
Product Outpu Current Initial processing cost.
t Market
(kg.) Price/kg
A 5,000 Rs.18 Direct Labour: 1000 hrs. @ Rs.20/hr.
B 2,500 20 Variable overhead : 80% of direct
C 1,50 24 labour
X 500 4 Fixed overheads : Rs. 21,000
The company apportions common cost among joint products on physical unit’s basis.
All the products including the by-products can be processed further and sold at higher market
price, with some sales promotion effort.
The estimated further processing cost, marketing cost and final selling price are:

Product Further Further Final

Processing Marketing Price/ kg
Cost per Kg Cost per kg
A Rs.4 Rs.2 Rs.28
B 5 2 26
C 6 2 34
X 2 1 6
a. Find the Cost of the joint products at the point of separation after initial processing.
Comment on the method of apportioning joint costs.
b. Profit or Loss if the products are sold without further processing.
c. Which of the products have to be processed further for maximizing profits?

1. SV chemicals Limited processes 9,00,000 kgs. of raw material in a month purchased

at Rs.95 per kg in department X. The input output ratio of department X is 100:
90. Processing of the material results in two joint products being produced ‘P1’ and
‘P2’ in the ratio of 60: 40.
Product ‘P1’ can be sold at split off stage or can be further processed in department Y
and sold as a new product ‘YP1’. The input output ratio of department Y is 100: 95.
Department Y is utilized only for further processing of product ‘P1’ to product
‘YP1’.

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 Individual departmental expenses are as follows:
Dept. X (` lakhs) Dept. Y (` lakhs)
Direct Materials 95.00 14.00
Direct Wages 80.00 27.00
Variable Overheads 100.0 35.00
Fixed Overheads 75.00 0 52.00
Total 350.00 128.00
Further, selling expenses to be incurred on three products are:
Particulars Amount (` in lakhs)
Product ‘P1’ 28.38
Product ‘P2’ 25.00
Product ‘YP1’ 19.00
Selling price of the products ‘P1’ and ‘P2’ at split off point is Rs.110 per kg
and Rs.325 per kg respectively. Selling price of new product ‘YP1’ is Rs.150 per
kg.
You are required to:
(i) PREPARE a statement showing apportionment of joint costs, in the ratio of
value of sales, net of selling expenses.
(ii) PREPARE a Statement showing profitability at split off point.
(iii) PREPARE a Statement of profitability of ‘YP1’.
DETERMINE that would you recommend further processing of P1?
2. A Ltd. produces 'M' as a main product and gets two by products - 'P' and 'Q' in the course
of processing.
Following information are available for the month of October, 2018:
M P Q
Cost after separation - Rs. 60,000 Rs. 30,000
No. of units produced 4500 2500 1500
Selling price (per unit) Rs.170 Rs.80 Rs.50
Estimated Net profit to sales - 30% 25%
The joint cost of manufacture upto separation point amounts to Rs.2,50,000.
Selling expenses amounting to Rs.85,000 are to be apportioned to the three products in
the ratio of sales units.
There is no opening and closing stock.
Prepare the statement showing:
a. Allocation of joint cost.
b. Product wise overall profitability and
c. Advise the company regarding results if the byproduct ' P' is not further
processed and is sold at the point of separation at ` 60 per unit without
incurring selling expenses.

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 3. A company manufactures one main product (M 1) and two by-products B1 and B2. For the
month of January 2019, following details are available: Total Cost upto separation Point `
2,12,400
M1 B1 B2
Cost after separation - Rs.35,000 Rs.24,000
No. of units produced 4,000 1,800 3,000
Selling price per unit ` 100 ` 40 ` 30

Estimated net profit as percentage to - 20% 30%

sales value
Estimated selling expenses as 20% 15% 15%
percentage to sales value
There are no beginning or closing inventories.
Prepare statement showing:
a. Allocation of joint cost; and
b. Product-wise and overall profitability of the company for January
2019.
4. A factory producing article A also produces a by-product B which is further processed
into finished product. The joint cost of manufacture is given below:
Material Rs.5,000
Labour Rs.3,000
Overhead Rs.2,000
Rs.10,000
Subsequent cost in ` are given below:
A B
Material 3,000 1,500
Labour 1,400 1,000
Overhead 600 500
5,000 3,000
Selling prices are A Rs.16,000
B Rs.8,000
Estimated profit on selling prices is 25% for A and 20% for B.
Assume that selling and distribution expenses are in proportion of sales prices. Show
how you would apportion joint costs of manufacture and prepare a statement showing
cost of production of A and B.

5. A Factory produces two products, ‘A’ and ‘B’ from a single process.
The joint processing cost’s during a particular month are:
Direct Material : ₹ 30,000
Direct Labour : ₹ 9,600
Variable Overheads : ₹ 12,000
Fixed Overheads : ₹ 32,000
Sales: A – 100 units @ ₹ 600 per unit; B – 120 units @ ₹ 200 per unit
Apportion joints costs on the basis of:
(i) Physical Quantity of each product.
(ii) Contribution Margin method, and
(iii) Determine Profit or Loss under both the methods.

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6. KL Limited produces two products—J and K—together with a by-product L from a single
main process (process I). Product J is sold at the point of separation for ₹ 55 per kg, whereas
product K is sold for ₹ 77 per kg after further processing into product K2. By-product L is
sold without further processing for ₹ 19.25 per kg.
Product J : 500 kg
Product K : 350 kg
Product L : 100 kg
Toxic waste : 50 kg
The toxic waste is disposed at a cost of ₹ 16.50 per kg, and arises at the end of processing.
Process II which is used for further processing of product K into product K2, has the
following cost structure:
Fixed costs : ₹ 2,64,000 per week
Variable cost : ₹ 16.50 per kg processed
The following actual data relate to the first week of the month:
Process I
Opening Work-in-progress : Nil
Material input : 40,000 kg costing ₹ 6,60,000
Direct Labour : ₹ 4,40,000
Variable Overheads : ₹ 1,76,000
Fixed Overheads : ₹ 2,64,000
Outputs:
Product J : 19,200 kg
Product K : 14,400 kg
Product L : 4,000 kg
Toxic waste : 2,400 kg
Closing Work-in-progress : Nil
Process II
Opening Work-in-progress : Nil
Input of product K : 14,400 kg
Output of product K2 : 13200 kg
Closing Work-in-progress (50% converted and conversion costs were incurred in accordance
with the planned cost structure) : 1,200 kg
Required:
(i) Prepare Process I account for the first week of the month using the final sales value
method of attribute the pre-separation costs to join products.
(ii) Prepare The toxic waste account and Process II account for the first week of the month.
(iii) Comment on the method used by the JKL Limited to attribute the pre-separation costs to
joint products.
(iv) Advise the management of JKL Limited whether or not, on purely financial grounds, it
should continue to process product K into product. K2:
(a) If product K could be sold at the point of separahon for ₹ 47.30 per kg; and
(b) If thé 60% of the weekly fixed costs of Process II were avoided by not processing product
K further.

7. The yield of a certain process is 80% as to the main product, 15% as to the by-product and
5% as to the process loss. The material put in process (5,000 units) cost ₹ 23.75 per unit and
all other charges are ₹ 14,250 of which power cost accounted for 33 1/3%. It is ascertained
that power is chargeable as to the main product and by – product in the ratio of 10:9.
Required: Draw up a statement showing the cost of the by-product.

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8. ABC Company produces a Product 'X' that passes through three processes: R, S and T.
Three types of raw materials, viz., J, K, and L are used in the ratio of 40:40:20 in
process
R. The output of each process is transferred to next process. Process loss is 10% of total
input in each process. At the stage of output in process T, a by-product 'Z' is emerging and
the ratio of the main product 'X' to the by-product 'Z' is 80:20. The selling price of
product 'X' is `60 per kg.
The company produced 14,580 kgs of product ‘X’
Material price : Material J @ ` 15 per kg;
Material K @ ` 9 per kg.
Material L@ ` 7 per kg
Process costs are as follows:
Process Variable cost per kg Fixed cost of Input
R 5.00(`) (`)
42,000
S 4.50 5,000
3.40 4,800
The by-product 'Z' cannotT be processed further and can be sold at ` 30 per kg at the split-
off stage. There is no realizable value of process losses at any stage.
Required:
Present a statement showing the apportionment of joint costs on the basis of the sales
value of product 'X' and by-product 'Z' at the split- off point and the profitability of
product 'X' and by-product 'Z.

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 11.SERVICE COSTING

1. ABC Hospital runs a Critical Care Unit (CCU) in a hired building. CCU consists of 35 beds
and 5 more beds can be added, if required.
a. Rent per month - Rs.75,000
b. Supervisors – 2 persons at Rs.25,000 Per month each
c. Nurses - 4 persons at Rs.20,000 per month each
d. Ward Boys – 4 persons at Rs.5,000 per month each
e. Doctors paid Rs.2, 50,000 per month paid on the basis of number of patients
attended and the time spent by them.
Other expenses for the year are as follows:
a. Repairs (Fixed) – Rs.81,000
b. Food to Patients (Variable) – Rs.8, 80,000
c. Other services to patients (Variable) – Rs.3, 00,000
d. Laundry charges (Variable) – Rs.6,00,000
e. Medicines (Variable) – Rs.7,50,000
f. Other fixed expenses – Rs.10, 80,000
g. Administration expenses allocated – Rs.10,00,000

It was estimated that for 150 days in a year 35 beds are occupied and for 80 days only 25
beds are occupied.
The hospital hired 750 beds at a charge of Rs.100 per bed per day, to accommodate the flow
of patients. However, this does not exceed more than 5 extra beds over and above the normal
capacity of 35 beds on any day.
You are required to –
a. Calculate profit per Patient day, if the hospital recovers on an average Rs.2,000 per
day from each patient
b. Find out Breakeven point for the hospital.

2. Following are the data pertaining to Info tech Pvt. Ltd, for the year 20X6-X7

Salary to Software Engineers (5 persons) 15,00,000

Salary to Project Leaders (2 persons) 9,00,000
Salary to Project Manager 6,00,000
Repairs & maintenance 3,00,000
Administration overheads 12,00,000
The company executes a Project XYZ, the details of the same as are as follows:
 Project duration – 6 months
 *One Project Leader and three Software Engineers were involved for the entire
duration of the project, whereas Project Manager spends 2 months’ efforts, during the
execution of the project.
 Travel expenses incurred for the project – Rs.1,87,500

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  Two Laptops were purchased at a cost of Rs.50,000 each, for use in the project and
the life of the same is estimated to be 2 years
Prepare Project cost sheet
3. AD Higher Secondary School (AHSS) offers courses for 11 th & 12th standard in three
streams i.e. Arts, Commerce and Science. AHSS runs higher secondary classes along with
primary and secondary classes but for accounting purpose it treats higher secondary as a
separate responsibility centre. The Managing committee of the school wants to revise its fee
structure for higher secondary students. The accountant of the school has provided the
following details for a year:

Teachers’ salary (15 teachers × Rs.35,000 × 12 months) Rs.63,00,000

Principal’s salary 14,40,000
Lab attendants’ salary (2 attendants × Rs.15,000 × 12 months) 3,60,000
Salary to library staff 1,44,000
Salary to peons (4 peons × Rs.10,000 × 12 months) 4,80,000
Salary to other staffs 4,80,000
Examinations expenditure 10,80,000
Office & Administration cost 15,20,000
Annual day expenses 4,50,000
Sports expenses 1,20,000

Other information:
Standard 11 & 12 Primary &
Arts Commerce Science Secondary
No. of students 120 360 180 840
Lab classes in a year 0 0 144 156
No. of examinations in a year 2 2 2 2
Time spent at library per student 180 120 hours 240 hours 60 hours
per year hours
Time spent by principal for 208 312 hours 480 hours 1,400 hours
administration hours
Teachers for 11 & 12 standard 4 5 6 -
(ii) One teacher who teaches economics for Arts stream students also teaches commerce
stream students. The teacher takes 1,040 classes in a year, it includes 208 classes for
commerce students.
(iii) There is another teacher who teaches mathematics for Science stream students also
teaches business mathematics to commerce stream students. She takes 1,100 classes
a year; it includes 160 classes for commerce students.
(iv) One peon is fully dedicated for higher secondary section. Other peons dedicate their
15% time for higher secondary section.
(v) All school students irrespective of section and age participates in annual functions
and sports activities.
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 Required:
(i) CALCULATE cost per student per annum for all three streams.
(ii) If the management decides to take uniform fee of Rs.1,000 per month from all
higher secondary students, CALCULATE stream wise profitability.
(iii) If management decides to take 10% profit on cost, COMPUTE fee to be charged
from the students of all three streams respectively.

4. S Life care Ltd. operates in life insurance business. Last year it has launched a new term
insurance policy for practicing professionals ‘Professionals Protection Plus’. The
company has incurred the following expenditures during the last year for the policy:
Policy development cost ₹11,25,000
Cost of marketing of the policy 45,20,000
Sales support expenses 11,45,000
Policy issuance cost 10,05,900
Policy servicing cost 35,20,700
Claims management cost 1,25,600
IT cost 74,32,000
Postage and logistics 10,25,000
Facilities cost 15,24,000
Employees cost 5,60,000
Office administration cost 16,20,400
Number of policy sold Rs. 528
Total insured value of policies Rs.1,320 crores
Required:
a. CALCULATE total cost for Professionals Protection Plus’ policy segregating
the costs into four main activities namely (a) Marketing and Sales support, (b)
Operations, (c) IT and (d) Support functions.
b. CALCULATE cost per policy.
c. CACULATE cost per rupee of insured value

5. ‘RP’ Resorts (P) Ltd. offers three types of rooms to its guests, viz deluxe room,
super deluxe room and luxury suite. You are required to COMPUTE the tariff to be
charged to the customers for different types of rooms on the basis of following
information:
Types of Room Number of Rooms Occupancy
Deluxe Room 100 90%
Super Deluxe Room 60 75%
Luxury Suite 40 60%
Rent of ‘super deluxe’ room is to be fixed at 2 times of ‘deluxe room’ and that of
‘luxury suite’ is 3 times of ‘deluxe room’.

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 Annual expenses are as follows:
Particulars Amount Rs. in
Staff salaries 680.00
Lighting, Heating and Power 300.00
Repairs, Maintenance and Renovation 180.00
Linen 30.00
Laundry charges 24.00
Interior decoration 75.00
Sundries 30.28
An attendant for each room was provided when the room was occupied and he was paid
Rs.500 per day towards wages. Further, depreciation is to be provided on building @
Rs.900 lakhs, furniture and fixtures @ 10% on RS.90 lakhs and air conditioners @ 10%
on Rs.75 lakhs. Profit is to be provided @ 25% on total taking and assume 360 in a year.
6. Happy Transport Service is a Delhi based national goods transport service provider,
owning four trucks for this purpose. The cost of running and maintaining these trucks
are as follows:
Particulars Amount
Diesel cost Rs.13.75 per km.
Engine oil Rs.4,200 for every 13,000 km.
Repair and maintenance Rs.12,000 for every 10,000 km.
Driver’s salary Rs.18,000 per truck per month
Cleaner’s salary Rs.7,500 per truck per month
Supervision and other general expenses Rs.12,000 per month
Cost of loading of goods Rs.150 per Metric Ton (MT)
Each trucks were purchased for Rs.20 lakhs with an estimated life of 7, 20,000 km.
During the next month, it is expecting 6 bookings, the details are as follows.

No. Journey Distance in Weight Up in Weight Down in

km MT MT1
1 Delhi to Kochi 2,700 14 6
2 Delhi to Guwahati 1,890 12 0
3 Delhi to Vijayawada 1,840 15 0
4 Delhi to Varanasi 815 10 0
5 Delhi to Asansol 1,280 12 4
6 Delhi to Chennai 2,185 10 8

Required
a. CALCULATE the total absolute Ton-km for the vehicles.
b. CALCULATE the cost per ton-km.

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7. DKG Airlines owns single passenger aircraft and operates between Melbourne and
Delhi only. Flight leaves Melbourne on Monday and Thursday and departs from
Delhi on Wednesday and Saturday. DKG Airlines cannot afford any more flight
between Melbourne and Delhi. Only economical class seats are available on its flight
and all tickets are booked by travel agents. The following information is collected.

Seating capacity per plane 360

Average passengers per flight 250
Flights per week 4
Flights per year 208
Average one-way fare Rs.50,000
Variable fuel cost Rs.28,00,000 per flight
Food service to passengers (not charged to Passengers) Rs.2,600 per passenger

Commission to travel agents 15% of fare

Fixed annual lease cost allocated to each flight Rs.15,30,000 per flight
Fixed ground services (maintenance, check in, Rs.1,70,000 per flight
Baggage handling cost) allocated to each flight
Fixed salaries of flight crew allocated to each flight Rs.6,50,000 per flight
For the sake of simplicity assume that fuel cost is unaffected by the actual number of
passengers on a flight.
Required:
(i) CALCULATE the operating income that DKG Airlines makes on each way flight
between Melbourne and Delhi?
(ii) The market research department of DKG Airlines indicates that lowering the average
one-way fare to Rs.48,000 and increase in agents’ commission to 17.5% will
increase the average number of passenger per flight to 275. DECIDE whether DKG
Airlines should lower its fare or not?

8. A transport company has a fleet of three trucks of 10 tonnes capacity each plying in
different directions for transport of customer's goods. The trucks run loaded with
goods and return empty. The distance travelled, number of trips made and the load
carried per day by each truck are as under:

Truck No. One way No. of trips Load carried

Distance per day per trip / day tonnes
1 16 Km 4 6
2 40 2 9
3 30 3 12

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 The analysis of maintenance cost and the total distance travelled during the last two
years is as under.
Year Total distance travelled Maintenance Cost Rs.
1 1,60,200 46,050
2 1,56,700 45,175
The following are the details of expenses for the year under review:
Diesel Rs.65 per litre. Each litre gives 4 km per litre of diesel
on an average.
Driver's salary Rs.24,000 per month
License and taxes Rs.25,000 per annum per truck
Insurance Rs.45,000 per annum for all the three vehicles
Purchase Price Rs.30, 00,000, Life 10 years. Scrap value at the end of
per truck life is Rs.1, 00,000.
Oil and sundries Rs.250 per 100 km run.
General Overhead Rs.1,15,600 per annum
The vehicles operate 24 days per month on an average. On the basis of commercial tone-
km, you are required to:
a. PREPARE an Annual Cost Statement covering the fleet of three vehicles
b. CALCULATE the cost per km. run.
c. DETERMINE the freight rate per tonne km. to yield a profit of 10% on freight.

9. CALCULATE a suggested fare per passenger-km from the following information for a
Mini Bus:
i. Length of route: 30 km
ii. Purchase price Rs. 4,00,000
iii. Part of above cost met by loan, annual interest of which is Rs.10,000 p.a.
iv. Other annual charges: Insurance Rs.15,000, Garage rent Rs.9,000, Road tax
R s . 3,000 , Repairs & maintenance Rs.15,000, Administrative charges
Rs.5,000.
v. Running Expenses: Driver & Conductor Rs.5,000 p.m., Repairs/Replacement
of tyre-tube Rs.3,600 p.a., Diesel and oil cost per km Rs.5.
vi. Effective life of vehicle is estimated at 5 years at the end of which it will
have a scrap value of Rs.10,000.
vii. Mini Bus has 20 seats and is planned to make Six number two way trips for 25
days per month.
viii. Provide profit @ 20% of total revenue.

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10. A Club runs a library for its members. As part of club policy, an annual subsidy of up to
Rs.5 per member including cost of books may be given from the general funds of the
club. The management of the club has provided the following figures for its library
department.

Number of Club members 5,000

Number of Library members 1,000
Library fee per member per month Rs.100
Fine for late return of books Rs.1 per book per day
Average No. of books returned late per month 500
Average No. of days each book is returned late 5 days
Number of available old books 50,000 books
Cost of new books Rs.300 per book
Number of books purchased per year 1,200 books
Cost of maintenance per old book per year Rs.10

Staff details Number Per Employee Salary per

Librarian 01 month
Rs.10,000
Assistant Librarian 03 7,000
Clerk 01 4,000
You are required to calculate:
i. The cost of maintaining the library per year excluding the cost of new books;
ii. The cost incurred per member per month on the library excluding cost of new
books
iii. The net income from the library per year.
iv. If the club follows a policy that all new book so must be purchased out of
library revenue
v. What is the maximum number of books that can be purchased per year
vi. How many excess books are being purchased by the library per year?
vii. Comment on the subsidy policy of the club.

11. Iron ore is transported from two mines A and B and unloaded at plots in a railway station.
A is at distance of 10 km and b is at a distance of 15 km. From the railhead plots. A fleet
of lorries of 5 tonnes carrying capacity is used for the transport of ore from the mines.
Records reveal that the lorries average speed of 30 km per hour when running and
regularly take 30 minutes per load while at mine B loading time average 20 minutes per
load. Driver’s wages, depreciation, insurance and taxes cost ₹9 per hour operated. Fuel,
oil, tyres, repairs and maintenance cost Rs.1.20 per km.

Draw up a statement showing the cost per tonne kilometer of carrying iron ore from each
mine.

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12. Assam Transport co. operates a fleet of lorries. The records of Lorry L-25 reveal the
following information for September 2018:

Days maintained 30
Days operated 25
Days idle 5
Total kms covered 2500
Total tonnage carried 200 (4 tonne-load per trip, return journey
empty)

The following further information is made available:

a) Operating Costs for the month:
i. Petrol - Rs.400
ii. Oil - Rs.170,
iii. Grease Rs.90,
iv. Wages to driver –Rs.550,
v. Wages to cleaner – Rs.350.

b) Maintenance Costs for the month:

i. Repairs Rs.170
ii. Overhaul Rs.60,
iii. Tyres Rs.150,
iv. Garage charges Rs.100.

c) Fixed Cost for the month based on the estimates for the year:
i. Insurance Rs.50,
ii. License, Tax etc. Rs.80,
iii. Interest Rs.40,
iv. Other overheads Rs.190.

d) Capital costs:
i. Cost of acquisition Rs.54,000
ii. Residual value at the end of 5 years life is Rs.36,000.

Prepare a Cost sheet and Performance Statement showing:

a) Cost per day maintained;
b) Cost per day operated;
c) Cost per kilometer;
d) Cost per hour;
e) Cost per commercial tonne- kms.

13. A company is considering three alternative proposals for conveyance facilities for its
sales personnel who have to do considerable traveling, approximately 20,000 kilometers
every year.
The proposals are as follows:
a. Purchase and maintain its own fleet of cars. The average cost of a car is Rs.1,00,000.
b. Allow the Executive use his own car and reimburse expenses at the rate of
Rs.1.60 paise per kilometer and also bear insurance costs.

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 c. Hire cars from an agency at Rs.20,000 per year per car. The Company will have to
bear costs of petrol, taxes and tyres.

The following further details are available:

• Petrol Rs.0.60 per km;
• Repairs and maintenance Rs.0.20 per km;
• Tyres Rs.0.12 per km.; Insurance Rs.1,200 per car per annum;
• Taxes Rs.800 per care per annum;
• Life of the car: 5 years with annual mileage of 20,000 kms.
• Resale value: Rs.20,000 at the end of the fifth year.

Work out the relative costs of three proposals and rank them
14. A company wants to outsource the operation of its canteen to a contractor. The company
will provide space for cooking, free electricity and furniture in the canteen. The
contractor will have to provide lunch to 300 workers of which 180 are vegetarian (Veg)
and the rest are non-vegetarian (Non-Veg). In the case of non-veg meals, there will be a
non-veg item in addition to the veg items. A contractor who is interested in the contract
has analyzed the costs likely to be incurred. His analysis is given below:
Cereals Rs.8 per plate
Veg items Rs.5 per plate
Non-veg items Rs.15 per plate
Spices Rs.1 per plate
Cooking oil Rs.4 per plate
One cook Salary Rs.13,000 per month
Three helpers Salary Rs.7,000 per month per head
Fuel Two commercial cylinders per month,
price
Rs.1000 each.

On an average the canteen will remain open for 25 days in a month. The contractor wants
to charge the non-veg meals at 1.50 times of the veg meals.
You are required to calculate:
a. The price per meal (veg and non-veg separately) that contractor should quote
if he wants a profit of 20% on his takings.
b. The price per meal (separately for veg and non-veg) that a worker will be
required to pay if the company provides 60% subsidy for meals out of welfare
fund.

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 12.STANDARD COSTING

1. A Limited operates a System of Standard Costing. The Company manufactures a Chemical

Product by mixing three ingredients Chemical A, B and C and processes the same. The
Standard Cost data for the product are as follows:

Chemical Percentage of total Input Standard Cost per Kg

A 50% ₹ 40
B 30% ₹ 60
C 20% ₹ 95

Loss during processing is 5% of input and this has no realizable value.

During the month of May 2018 10,200 kg of finished product was obtained from the Inputs
as per details:
Chemica Quantity purchased and issued Actual Cost
l
A 5,200 ₹ 2,34,000
B 3,600 ₹ 2,19,600
C 1,700 ₹ 1,58,100
You are required to calculate Material Cost Variances.

2. Following details relating to Product S during the month of May are available
Standard cost per unit of S 50Kg at ₹ 50 per Kg
Actual Production 100 units
Material Price Variance ₹ 9,800 Adverse
Material Usage Variance ₹ 4,000 Favorable
Actual material Cost ₹ 42 per Kg
Calculate the actual quantity of material used during the month of May.

3. Gemini chemicals Ltd. Provides the following information from its records:
Material Quantity in kgs Rate/kg
A 8 ₹6
B 4 ₹4
12

During April 2018, 1,000 kgs of GEMCO were produced. The actual data are:
Material Quantity in kgs Rate/kg
A 760 ₹7
B 500 ₹5
1,260
Calculate Material Cost Variances.

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4. XYZ Limited produces an article and uses a mixture of material X and Y. The standard
quantity and price of materials for one unit of output is as under:
Material Quantity Price ₹
X 20 KG 100 per kg.
Y 8 KG 150 per kg.

During a period, 1500 units were produced. The actual consumption of materials and prices
are given below:
Material Quantity Price ₹
X 31,000 kg 110 per kg.

Y 12,000 kg 160 per kg.

Calculate:
a. Standard cost for actual output
b. Material cost variance
c. Material Price variance
d. Material usage variance

5. Beta Ltd. is manufacturing Product N. This is manufactured by mixing two materials namely
Material P and Material Q. The Standard Cost of Mixture is as under:
Material P 150 ltrs. @ ₹ 40 per ltr.
Material Q 100 ltrs. @ ₹ 60 per ltr.
Standard loss @ 20% of total input is expected during production.
The cost records for the period exhibit following consumption:
Material P 140 ltrs. @ ₹ 42 per ltr,
Material Q 110 ltrs. @ ₹ 56 per ltr,
Quantity produced was 195 ltrs.
Calculate:
a. Material Cost Variance
b. Material Usage Variance.
c. Material Price Variance

6. The standard material cost to produce one tonne of chemical X is:

300 kg. of material A @ ₹ 10 per kg.
400 kg. of material B @ ₹ 5 per kg.
500 kg. of material C @ ₹ 6 per kg.

During a period, 100 tonnes of chemical X were produced from the usage of;
35 tonnes of material A at a cost of ₹ 9,000 per tonne
42 tonnes of material B at a cost of ₹ 6,000 per tonne
53 tonnes of material C at a cost of ₹ 7,000 per tonne

Calculate material variances.

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7. The standard material cost for 100 kg. of Chemical D is made up of:
Chemical A 30 kg. @ ₹ 4.00 per kg.
Chemical B 40 kg. @ ₹ 5.00 per kg.
Chemical C 80 kg. @ ₹ 6.00 per kg.
In a batch, 500 kg. of Chemical D were produced from a mix of:
Chemical A 140 kg. at a cost of ₹ 588
Chemical B 220 kg. at a cost of ₹ 1,056
Chemical C 440 kg. at a cost of ₹ 2,860

How do the yield, mix and the price factors contribute to the variance in the actual cost per
100 kg. of Chemical D over the standard cost?

8. BK Chemicals Ltd. manufactures BXE by mixing three raw materials. For each batch of 100
kg. of BXE, 125 kg. of raw materials are used. In June, 60 batches and actual particulars for
June are as follows:
Standard Actual Quantity of
Raw Mix. % Price per kg. Mix. % Price per raw material
materials kg. purchased
₹ ₹ Kg.
A 50 20 60 21 5,000
B 30 10 20 8 2,000
C 20 5 20 6 1,200
Calculate Material variances.

9. A group of workers consisting of 30 men above 30 years of age, 15 females above 30 years
of age, and 10 youth of age between 20-30 are paid standard hourly rates as follows:
Male ₹ 80 per hour Female ₹ 60 per hour Youth ₹ 40 per hour
In a normal working week of 40 hours, the group is expected to produce 2,000 units of
output. During a week, the group consisting of 40 males, 10 females and 5 youth produced
1,600 units. They were paid wages @ ₹ 70 for male, ₹ 65 for females and ₹ 30 for youth per
hour. 4 hours were lost due to abnormal idle time.
The Actual and Standard Hours are as follows:
Category Standard hours Actual hours
Male 1200 1600
Female 600 400
Youth 400 200

10. 100 skilled workmen, 40 semi-skilled workmen and 60 unskilled workmen were to work for
30 weeks to get a job completed. Standard weekly wage rates were ₹ 60,
₹ 36 and ₹ 24 respectively. The job was actually completed in 32 weeks by 80 skilled, 50
semi-skilled and 70 unskilled workmen who were paid ₹ 65, and ₹ 20 respectively as
weekly wages.
Find out the labour cost variance, labour rate variance, labour mix variance and labour
efficiency variance.

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11. Standard hours for manufacturing two products M and N are 15 hours per unit and 20 hours
per unit respectively. Both products require identical kind of labour and the standard wage
rate per hour is ₹ 5. In the year 2018, 10,000 units of M and 15,000 units of N were
manufactured. The total of labour hours actually worked were 4,50,500 and the actual wage
bill came to ₹ 23,00,000. This included 12,000 hours paid for @ ₹ 7 per hour and 9,400
hours paid for @ ₹ 7.50 per hour, the balance having been paid at ₹ 5 per hour. You are
required to compute labour variances.

12. The standard labour component and the actual labour component engaged in a week for a job
are under:
Skilled Semi-skilled Unskilled
workers workers workers
(a) Standard number of workers in
the gang 32 12 6
(b) Standard wage rate per hour ₹
3 2 1
(c) Actual number of workers
employed in the gang during 28 18 4
the week
(d) Actual wage rate per hour ₹
4 3 2
During the 40-hour working week, the gang produced 1,800 standard labour hours of work.
Calculate the different labour variances.

13. The details regarding the composition and the weekly wage rates of labour force engaged on
a job scheduled to be completed in 30 weeks are as follows:
Standard Actual
Category of No. of Weekly wage rate No. of Weekly wage
labourers labourers per labourer labourers rate per
labourer
₹ ₹
Skilled 75 60 70 70
Semi-skilled 45 40 30 50
Unskilled 60 30 80 20
The work is actually completed in 32 weeks.
Calculate the various labour variances.

14. The budgeted labour force for producing 1,000 articles of ‘X’ is:
Total Total standard
standard cost
hours ₹.
30 men @ ₹ 40 per hour for 50 hrs. 1,500 60,000
20 women @ ₹ 30 per hour for 30 hrs. 600 18,000
30 boys @ ₹ 20 per hour for 20 hrs. 600 12,000

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 The actual data and related work force are as follows:

Articles produced 1,000

Total standard Total standard
hours cost
`
25 men @ ₹ 45 per hour for 50 hrs. 1,250 56,250
30 women @ ₹ 30 per hour for 30 hrs. 900 27,000
10 boys @ ₹ 20 per hour for 15 hrs. 150 3,000

Calculate labour variances

15. A company planned to produce 2,000 units of a product in a week of 40 hours by employing
65 skilled workers. Other relevant information are as follows:
• Standard wages rate ₹ 45 per hour
• Actual production 1800 units
• Actual number of worker employed 50 workers in a week of 40 hours
• Actual wages rate ₹ 50 per hour
Abnormal time loss due to machinery breakdown 100 hours.
Calculate Labour cost variances.

16. In a factory of ZED LTD, where Standard Costing is followed, the budgeted fixed overheads
for a budgeted production of 4800 units is ₹ 24,000. For a certain period actual (FOH)
expenditure was ₹ 22,000 resulting in a fixed overhead volume variance of ₹ 3,000 (Adv.)
Calculate the actual production of ZED LTD. for the period.

17. The following information are provided to you for a month in respect of a workshop:
Overhead cost variance ₹ 1,400 adverse
Overhead volume variance ₹ 1,000 adverse
Budgeted hours 1,200 hrs.
Budgeted overhead ₹ 6,000
Actual rate of recovery of overheads ₹ 8 per hour
You are required to compute:
a. Overhead expenditure variance
b. Actual overheads incurred
c. Actual hours for actual production

18. Calculate the relevant overhead variances.

Particulars Budgeted Actual

Output (units) 30,000 32,500
Hours 30,000 33,000
Fixed overhead ₹ 45,000 ₹ 50,000
Variable overheads ₹ 60,000 ₹ 68,000
Working days 25 26

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19. A manufacturing company operates a costing system and showed the following data in
respect of the month of November, 2018.

Particulars Budgeted Actual

Output (units) 800 900
Man Hours 4,000 4,200
Fixed overhead ₹ 2,400 ₹ 2,500
Working days 20 22

You are required to calculate fixed overhead variances from the above data.

20. AB Ltd. has furnished the following information:

Budget Actual
Number of working days 25 27
Production in units 20,000 22,000
Fixed overheads ₹ 30,000 ₹ 31,000

Budgeted fixed overhead rate is ₹ 1.00 per hour.

In July 2018, the actual hours worked were 31,500.
Find Fixed Overhead Variances.

21. QS Limited has furnished the following information:

Standard overhead absorption rate per unit ₹ 20
Standard rate per hour ₹4
Budgeted production 12000 units
Actual production 15560 units
Actual working hours 74000
Actual overheads amounted to ₹ 2,95,000, out of which ₹ 62,500 are fixed. Overheads are
based on the following flexible budget:
Production (units) Total Overheads ₹
8,000 1,80,000
10,000 2,10,000
14,000 2,70,000

Calculate following overhead variances on the basis of hours :

a. Variable overhead efficiency variance.

b. Variable overhead expenditure variance.
c. Fixed overhead efficiency variance.
d. Fixed overhead capacity variance.

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22. The following information is available from the cost records of a Company for the month of
July, 2018:
Material purchased 22,000 pieces ₹ 90,000
Material consumed 21,000 pieces
Actual wages paid for 5,150 hours ₹ 25,750
Fixed Factory overhead incurred ₹ 46,000
Fixed Factory overhead budgeted ₹ 42,000
Units produced 1,900

Standard rates and prices are:

Direct material ₹ 4.50 per piece
Standard input 10 pieces per unit
Direct labour rate ₹ 6 per hour
Standard requirement 2.5 hours per unit
Overheads ₹ 8 per labour hour
You are required to calculate the following variances:
a. Material price variance
b. Material usage variance
c. Labour rate variance
d. Labour efficiency variance
e. Fixed overhead expenditure variance
f. Fixed overhead efficiency variance
g. Fixed overhead capacity variance.

23. Aaradhya Ltd. manufactures a commercial product for which the standard cost per unit is as
follows:
Material 5 kg @ ₹ 4 per kg 20.00
Labour 3 hours @ ₹10 per hour 30.00
Overheads: - Variable 3 hours @ ₹1 per hour 3.00
- Fixe 3 hours @ ₹ 0.50 per 1.50
d hour
Total 54.50

During Jan. 20X8, 600 units of the product were manufactured at the cost shown below:
Materials Purchased 5,000 kg @ ₹ 4.10 per kg 20,500
Materials Used 3,500 kg
Direct Labour 1,700 hours @ ₹ 9 per hour 15,300
Variable overheads 1,900
Fixed Overheads 900
Total 38,600
The flexible budget required 1,800 direct labour hours for operation at the monthly activity
level used to set the fixed overhead rate.
Compute all variances.

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 13.MARGINAL COSTING

1. The sports material manufacturing company budgeted the following data for the coming year.
Sales (10,000 units) ₹ 1,00,000
Variable cost 40,000
Fixed cost 50,000

Find out
(a) P/V Ratio, B.E.P and Margin of Safety
(b) Evaluate the effect of
(i) 20% increase in physical sales volume
(ii) 5% increase in variable costs
(iii) 10% decrease in fixed costs
(iv) 10% decreases in selling price and 10% increase in sales volume
(v) ₹ 5,000 variable cost decrease accompanied by ₹ 15,000 increase in fixed costs.

2. Given:
₹
Sale price 20 Per unit
Variable manufacturing cost 11 Per unit
Variable selling cost 3 Per unit
Fixed factory overheads 5,40,000 Per year
Fixed selling costs 2,52,000 Per year

Calculate:
a) Break-even point
b) Sales required to earn a profit of ₹ 60,000.
c) Sales required to earn a profit of 10% of sales.

3. The following information is given to you relating two business units M and N.
Business M Business N
₹ ₹
Selling price per unit 10 10
Variable cost per unit 2 6
Fixed cost per year 50,000 25,000

You are required to:

a) Calculate break-even point of each business in units.
b) Compute the profit of each business if sales in units are 10 percent above the break-
even point.
c) Which business would fare better if sales dropped to 5,000 units? Why?
d) Which business would fare better if the market collapsed and price per unit fell to
₹5? Why?

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4. An organization manufactures a single product which is sold for ₹ 80 per unit. The
organization’s total monthly fixed costs are ₹ 99,000 and it has a contribution to sales ratio of
45%. This month it plans to manufacture and sell 4,000 units. What is the organization’s margin
of safety this month (in units)?

5. B Limited has earned net profit of ₹ 1, 00,000 and its overall P/V ratio and margin of safety
are 25% and 50% respectively. What is the total fixed cost of the company?

6. S plans to sell a toy at the State Fair. He purchases these toys at ₹ 50 each with the privilege
of returning all unsold toys. The booth rental is ₹ 2000, payable in advance. The toys will be
sold at ₹ 90 each.

Find out:
i. How many toys must be sold to break-even?
ii. How many toys must be sold to obtain a profit of ₹ 2500? (Ignore income tax)
iii. How many toys must be sold to yield a profit of 20% of sales? (Ignore income tax).
iv. How many toys must be sold to yield a net income (after taxes) of ₹ 1640 assuming
income tax rate of 30%?

7. Two companies which have the following operating details decide to merge:
Company I Company II
Capacity utilization 90% 60%
Sales ₹ in lakhs 540 300
Variable cost ₹ in lakhs 396 225
Fixed cost ₹ in lakhs 80 50

Assuming proposal is implemented, calculate:

a) Break-even sales of the merged plant and the capacity utilization at that stage,
b) Profitability of the merged plant at 80% capacity utilization.
c) Sales turnover of the merged plant to earn a profit of ₹ 75 lakhs.
d) When the merged plant is working at a capacity to earn a profit of ₹ 75 lakhs, what
percentage increase in selling price is required to sustain an increase of 5% in fixed
overhead.

8. The following results of a company for the last two years are as follows:
Year Sales Profit
202 ₹ ₹
1 2,00,000 20,000
202 ₹ 3,00,000 ₹
2 40,000

You are required to calculate:

i. P/V Ratio
ii. B.E.P
iii. The sales required to earn a profit of ₹ 40,000
iv. Profit when sales are ₹ 2,50,000
v. Margin of safety at a profit of ₹ 50,000 and
vi. Variable costs of the two periods.
vii. Percentage of Margin of safety

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9. Find the break-even point, in terms of percentage of installed capacity, for the data given
below: Current capacity 90%
Sales (at 100% capacity) ₹ 1, 80,000
Variable costs 60% of sales
Fixed costs ₹ 36, 000

10. A company manufactures a single product which it sells for ₹ 20 per unit. The product has a
contribution to sales ratio of 40%. The company’s weekly break- even point is sales revenue
of ₹ 18, 000. What would be the profit in a week when 1,200 units are sold?

11. A company determines its selling price by marking up variable costs 60%. In addition, the
company uses frequent selling price mark downs to stimulate sales. If the mark downs
average 10%, what is the company’s contribution margin ratio?

12. Product Z has a profit-volume ratio of 28%. Fixed operating costs directly
attributable to product Z during the quarter II of the financial year 2022 - 23 will be ₹ 2,
80,000. Calculate the sales revenue required to achieve a quarterly profit of ₹ 70,000.

13. Mr. X has ₹ 2,00,000 investments in his business firm. He wants a 15 per cent return on
his money. From an analysis of recent cost figures, he finds that his variable cost of
operating is 60% of sales, his fixed costs are ₹ 80,000 per year. Show computations to
answer the following questions:
a. What sales volume must be obtained to break even?
b. What sales volume must be obtained to get 15 per cent return on investment?

14. Following information are available for the year 2022 and 2023 of PIX Limited:
Year 2022 2023
Sales ₹ 32, 00,000 ₹ 57, 00,000
Profit/ (Loss) ₹ ( 3,00,000) ₹ 7, 00,000
Calculate –
(a) P/V ratio,
(b) Total fixed cost, and
(c) Sales required to earn a Profit of ₹ 12,00,000.

15. MNP Ltd sold 2, 75,000 units of its product at ₹ 37.50 per unit. Variable costs are
₹ 17.50 per unit (manufacturing costs of ₹ 14 and selling cost ₹ 3.50 per unit). Fixed
costs are incurred uniformly throughout the year and amount to
₹ 35, 00,000 (including depreciation of ₹ 15, 00,000). There are no beginning or
ending inventories.

Required:
a. Estimate breakeven sales level quantity and cash breakeven sales level quantity.
b. Estimate the P/V ratio.
c. Estimate the number of units that must be sold to earn an income (EBIT) of ₹ 2,
50,000.
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 d. Estimate the sales level achieve an after-tax income (PAT) of ₹ 2, 50,000.
Assume 40% corporate Income Tax rate.
16. The following figures are related to LM Limited for the year ending 31st March, 2023:
Sales - 24,000 units @ ₹ 200 per unit; P/V Ratio 25% and Break-even Point 50% of sales.

You are required to calculate:

a. Fixed cost for the year
b. Profit earned for the year
c. Units to be sold to earn a target net profit of ₹ 11,00,000 for a year.
d. Number of units to be sold to earn a net income of 25% on cost.
e. Selling price per unit if Break-even Point is to be brought down by 4,000 units.

17. Two manufacturing companies which have the following operating details decide to merge:
Company 1 Company 2
Capacity utilization % 90 60
Sales (₹ lakhs) 540 300
Variable Costs (₹ 396 225
lakhs)
Fixed Costs (₹ lakhs) 80 50

Assuming that the proposal is implemented, calculate:

a. Break even sales of the merged plant and the capacity utilization at that stage.
b. Profitability of the merged plant at 80% capacity utilization.
c. Sales turnover of the merged Plant to earn a profit of ₹ 75 lakhs.
d. When the merged Plant is working at a capacity to earn a profit of ₹ 75 lakhs what
percentage increase in selling price is required to sustain an increase of 5% in fixed
overheads.

18. A Company produces product B which is sold at a price of ₹ 80. Its variable cost is ₹ 32 per
unit. The company’s fixed cost is ₹ 11, 52,000 per annum. The company operates at a margin
of safety of 40%. Find the profit per annum.

The company proposes to add another product Q whose selling price is ₹ 50 and the variable
cost is ₹ 10 per unit. The company’s fixed costs will increase to ₹ 13, 33,200. The sales mix
will be 7:3 calculate the breakeven point in value and in units for B and Q.

19. A Limited manufactures and sells four types of products P, Q, R and S. fixed cost of
operations ₹ 1, 59,000 per month. Budgeted sales ₹ 6, 00,000 per month. From the details
given calculate the present BEP and proposed BEP.

Products Present sales mix Operating costs Proposed sales mix

A 33 1/3% 60% 25%
B 41 2/3% 68% 40%
C 16 2/3% 80% 30%

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 D 8 1/3 % 40% 5%

20. The product mix of a company is as under:

A B
Units 36,000 12,000
Selling price ₹5 ₹ 10
Variable cost ₹4 ₹ 3

Fixed costs – ₹ 30, 000.

You are required to calculate the breakeven point in units. Find the shift in BEP in units if the
company discontinues A and substitutes with C, which has a selling price of ₹ 12; variable
costs of ₹ 6 and quantity of 6,000 units.

21. Following is the information of Excel Limited:

Particulars Amount
Fixed Factory Overheads ₹ 60,000
Fixed selling Overheads ₹ 12,000
Variable manufacturing Cost ₹ 12
per unit
Variable selling cost per unit ₹ 3
Selling price per unit ₹ 24

From the above information calculate the break-even point in terms of sales and in units

22. Surya Ltd has a total turnover of ₹ 10 lakhs. It is enjoying 30% margin of safety. Its total
variable cost is 60% of sales. Determine Fixed Cost and BEP in Sales

23. The profit volume ratio of X Ltd. is 50% and the margin of safety is 40%. You are required to
calculate the net profit if the sales volume is ₹ 1,00,000

24. Solve and complete the table

Particulars A B C
Number of units sold ? 20,000 10,000
Selling price per unit ₹ 30 ? 40
Variable cost of 85 85 ?
sales %
Contribution ? ₹ 50,000 ₹ 75,000
Fixed Cost ₹ 1,20,000 ₹ 10,000 ?
Profit / Loss ₹ 40,000 ? ₹ 20,000

25. From the following data, you are required to calculate break-even point and net sales value at
this point:
Direct material cost per unit ₹ 10
Direct labour cost per unit ₹ 5
Fixed Overhead ₹ 50,000

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 Variable overheads @ 60% on direct labour
Selling price per unit ₹ 25
Trade discount 4%
If sales are 10% and 25% above the break even volume, determine the net profit
26. Mahindra Ltd. sells two products, J and K. The sales mix is 4 units of J and 3 units of K. The
contribution margins per unit are ₹ 40 for J and ₹ 20 for K. Fixed costs are ₹ 6, 16,000 per
month

1. A company, with 90% Capacity utilization, is manufacturing a product and makes a sale of
₹ 9,45,000 at ₹ 30 per unit. The cost data is as under:
Materials - ₹ 9 .00 per unit
Labour - ₹ 7,00 per unit
Semi variable cost (including variable cost of ₹ 4.25 per unit) - ₹ 2,10,000.
Fixed cost is ₹ 94,500 upto 90% level of output (capacity). Beyond this, an additional
amount of ₹ 15,000 will be incurred.
You are required to calculate:
a. Level of output at break-even point
b. Number of units to be sold to earn a net income of 10% of sales
c. Level of output needed to earn a profit of ₹ 1,41,375 .

2. A manufacturing concern was operating at margin of safety of 40% in the year 2022, and
was selling its product at ₹ 75 per unit. Variable cost ratio to sales was 80% and fixed
costs amounted to ₹ 5,40,000.
In the year 2023, the concern anticipates an increase in the variable costs and fixed
costs by 15% and 5% respectively.
You are required to:
Find out the selling price to be fixed in the year 2023 keeping in view that concern is
willing to maintain the same P/V ratio as it was in the year 2022.

3. A company is producing an identical product in two factories. The following are the details in
respect of both factories:

Factory X Factory Y
Selling price per unit ₹ 50 50
Variable cost per unit ₹ 40 35
Fixed cost ₹ 2,00,000 3,00,000
Depreciation included in above fixed cost ₹ 40,000 30,000
Sales in units 30,000 20,000
Production capacity (units) 40,000 30,000

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 You are required to determine:
a. Break Even Point (BEP) each factory individually.
b. Cash breakeven point for each factory individually.
c. BEP for company as a whole, assuming the present product mix is in sales ratio.
d. Consequence on profit and BEP if product mix is changed to 2:3 and total demand
remain same.

4. The following information was obtained from the records of a manufacturing unit:

Particulars ₹ ₹
Sales 80,000 units @ ₹.25 20,00,000
Material consumed 8,00,000
Variable Overheads 2,00,000
Labour Charges 4,00,000
Fixed Overheads 3,60,000 17,60,000
Net Profit 2,40,000

Calculate:
i The number of units by selling which the company will neither lose nor gain
anything.
ii The sales needed to earn a profit of 20% on sales.
iii The extra units which should be sold to obtain the present profit if it is
proposed to reduce the selling price by 20% and 25%.
iv The selling price to be fixed to bring down its Break-even Point to 10,000
units under present conditions.

5. A company has introduced a new product and marketed 20,000 units. Variable cost of the
product is ₹ 20 per units and fixed overheads are ₹ 3,20,000.
You are required to:
i. Calculate selling price per unit to earn a profit of 10% on sales value, BEP and
Margin of Safely?
ii. If the selling price is reduced by the company by 10%, demand is expected to
increase by 5,000 units, then what will be its impact on Profit, BEP and
Margin of Safety?
iii. Calculate Margin of Safety if profit is Rs.64,000.

6. M.K. Ltd. manufactures and sells a single product X whose selling price is ₹ 40 per unit and
the variable cost is ₹ 16 per unit.

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 (i) If the Fixed Costs for this year are ₹ 4,80,000 and the annual sales are at 60% margin of
safety, calculate the rate of net return on sales, assuming an income tax level of 40%

(ii) For the next year, it is proposed to add another product line Y whose selling price would
be ₹ 50 per unit and the variable cost ₹ 10 per unit. The total fixed costs are estimated at
₹ 6,66,600. The sales mix of X : Y would be 7 : 3. At what level of sales next year,
would M.K. Ltd. break even? Give separately for both X and Y the break-even sales in
rupee and quantities.

7. The Following detail are available:

Sales - ₹ 5,00,000

Direct Materials - ₹ 2,50,000

Direct Labour - ₹ 1,00,000

Variable Overheads - ₹ 40,000

Capital Employed - ₹ 4,00,000

The new Sales Manager who has joined the company recently estimates for next year a
profit of about 23% on capital employed, provided the volume of sales is increased by 10%
and simultaneously there is an increase in Selling Price of 4% and an overall cost reduction in
all the elements of cost by 2%.
Required
Find out by computing in detail the cost and profit for next year, whether the proposal
of Sales Manager can be adopted.
8. An Automobile manufacturing company ‘B’ produces different models of cars. The budget in
respect of a model for the month of August , 2023 is as under:
Budgeted output 40,000 units
Variable costs:- ₹ In lakhs ₹ In lakhs
Materials 264.00
Labour 52.00
Direct expenses 124.00 440.00
Fixed costs:
Specific 90.00
Allocated 112.50 202.50
Total costs 642.50
Profit 57.50
Sales revenue 700.00
Calculate:

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 a. Profit with 10% increase in selling price with a 10% reduction in sales volume.
b. Volume to be achieved to maintain the original profit after a 10% rise in material
costs, at the originally budgeted selling price per unit.

14.BUDGET AND BUDGETTARY CONTROL

1. ABX Ltd. produces and sells a single product. Sales budget for calendar year 2018 by
quarters is as under:
Quarter No. of units to be sold
I 12,000
II 15,000
III 16,500
IV 18,000

The year is expected to open with an inventory of 4,000 units of finished products and close
with an inventory of 6,500 units.
Production is customarily scheduled to provide for two-thirds of the current quarter’s sales
demand plus one-third of the following quarter’s demand. Thus, production anticipates sales
volume by about one month. The standard cost details for one unit of the product are as
follows:
• Direct materials 10 lbs @ 50 paise per lb.
• Direct labour 1 hour 30 minutes @ Rs. 4 per hour
• Variable overheads I hour 30 minutes @ Rs. 1 per hour
• Fixed overheads1 hour 30 minutes @ Rs. 2 per hour based on a budgeted
production volume of 90,000 direct labour hours for the year.
a. Prepare a Production Budget for 2018, by quarters, showing the number of units to be
produced and the total costs of direct material, direct labour, variable overhead and fixed
overheads.
b. If the budgeted selling price per unit is Rs. 17, what should be the budgeted profit for the
year as a whole?
c. In which quarter of the year is the company expected to break-even.

2. The following details apply to an annual budget for a manufacturing company:

Quarter 1st 2nd 3rd 4th
Working days 65 60 55 60
Production (units per working day) 100 110 120 105

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 Raw material purchases (% of weight
of annual total)
30% 50% 20% -
Budgeted purchase price (per kg.) Rs. 1 1.05 1.125 -

Quantity of raw material per unit of production: 2 kg, Budgeted opening stock of raw
material – 4,000 kg (cost Rs. 4,000) Budgeted closing stock of raw material: 2,000 kg.
Issues are priced on FIFO basis.

Calculate the following budgeted figures:

a) Quarterly and annual purchases of raw material, by weight and value.
b) Closing quarterly stocks by weight and value.

3. Solo products Ltd. manufactures and sells a single product and has estimated a sales
revenue of Rs.126 lakhs this year based on a 20% profit on selling price. Each unit of
the product requires 3 1bs of material P and 1-1/2 lbs of material Q for manufacture as
well as a processing time of 7 hours in the Machine shop and 2-1/2 hours in the
Assembly Section. Overheads are absorbed at a blanket rate of 33-1/3% on direct
labour. The factory works 5 days of 8 hours a week in a normal 52 weeks a year. On an
average statutory holidays, leave and absenteeism and idle time amount to 96 hours, 80
hours and 64 hours respectively, in a year.

The other details are as under:

Purchase Price Material P 6 per lb.

Material Q 4 per lb.
Labour rate Machine shop 4 per hour
Assembly Shop 3.20 per hour
Number of Employees Machine Shop 600
Assembly shop 180
Opening stock Finished goods 20,000 units
Material P 54,000 lbs
Material Q 33,000 lbs
Closing stock (Estimated) Finished goods 25,000 units
Material P 30,000 lbs
Material Q 66,000 lbs

You are required to calculate:

a. The number of units of the product proposed to be sold.

b. Purchases to be made of materials P and Q during the year in Rupees.
c. Capacity utilization of Machine Shop and Assembly Section, along with your
comments.

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4. Following is the sales budget for the first six months of the year 2018 in respect of PQR
Ltd. :
Month Sales Units
Jan 10,000
Feb 12,000
March 14,000
April 15,000
May 15,000
June 16,000

Finished goods inventory at the end of each month is expected to be 20% of

budgeted sales quantity for the following month. Finished goods inventory was 2,700
units on January 1, 2018. There would be no work-in-progress at the end of any month.
Each unit of finished product requires two types of materials as detailed
below:
 Material X: 4 kgs @ Rs. 10/kg
 Material Y: 6 kgs @ Rs. 15/kg

Material on hand on January 1, 2018 was 19,000 kgs of material X and 29,000 kgs of
material Y. Monthly closing stock of material is budgeted to be equal to half of the
requirements of next month’s production.
Budgeted direct labour hour per unit of finished product is ¾ hour.
Budgeted direct labour cost for the first quarter of the year 2018 is Rs. 10,89,000.
Actual data for the quarter one, ended on March 31, 2018 is as under:
Production quantity - 40,000 units
Direct Material Cost:
Material X - 1,65,000 kgs @ Rs. 10.20 per kg
Material Y - 2,38,000 Kgs @ Rs. 15.10 per kg
Actual Direct Labour hours worked 32,000
Actual Direct Labour Cost Rs. 13,12,000
Required:

(a) Prepare the following budgets:

(i) Monthly production quantity for the quarter one.

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 (ii) Monthly raw material consumption quantity budget from January,
2018 to April, 2018.
(iii) Materials purchase quantity budget for the quarter one.

(b) Compute the following variances :

(i) Material cost variance
(ii) Material price variance
(iii) Material usage variance
(iv) Direct labour cost variance
(v) Direct labour rate variance
(vi) Direct labour efficiency variance

5. D Limited provides the following details:

Standard working hours 8 hours per day of 5 days per week
Maximum capacity 50 employees
Actually working 40 employees
Standard hours expected to be earned per 4 8,000
week
Actual hours expected to be worked per 4 6,400
week
Actual hours worked 6,000
Standard hours earned 7,000

The related period is 4 weeks and there was one special holiday due to National Event.
Calculate the following ratios:
a. Efficiency ratio
b. Activity ratio
c. Calendar ratio
d. Standard Capacity Usage Ratio
e. Actual Capacity usage ratio
f. Actual usage of budgeted capacity ratio

6. G Ltd. manufactures two products called ‘M’ and ‘N’. Both products use a common raw
material Z. The raw material Z is purchased @ Rs. 36 per kg from the market. The company
has decided to review inventory management policies for the forthcoming year.
The following information has been extracted from departmental estimates for the year ended
31st March 2018 (the budget period):

Product M Product N
Sales (units) 28,000 13,000
Finished goods stock increase by year-end 320 160
Post-production rejection rate (%) 4 6
Material Z usage (per completed unit, net of wastage) 5 kg 6 kg

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 Material Z wastage (%) 10 5

Additional information:
• Usage of raw material Z is expected to be at a constant rate over the period.
• Annual cost of holding one unit of raw material in stock is 11% of the
material cost.
• The cost of placing an orders is Rs. 320 per order.
• The management of G Ltd. has decided that there should not be more than 40
orders in a year for the raw material Z.

Required:
(i) PREPARE functional budgets for the year ended 31st March 2018 under the
following headings:
(a) Production budget for Products M and N (in units).
(b) Purchases budget for Material Z (in kgs and value).
(ii) CALCULATE the Economic Order Quantity for Material Z (in kgs).
(iii) If there is a sole supplier for the raw material Z in the market and the supplier do not
sale more than 4,000 kg. of material Z at a time. Keeping the management purchase
policy and production quantity mix into consideration, CALCULATE the maximum
number of units of Product M and N that could be produced.

7. Gaurav Ltd. is drawing a production plan for its two products Minimax (MM) and Heavy
high (HH) for the year 20X8-X9. The company’s policy is to hold closing stock of
finished goods at 25% of the anticipated volume of sales of the succeeding month. The
following are the estimated data for two products:

Minimax (MM) Heavy high

(HH)
Budgeted Production units 1,80,000 1,20,000
Direct material cost per unit Rs. 220 Rs. 280
Direct labour cost per unit Rs. 130 Rs. 120
Manufacturing overhead Rs. 4,00,000 Rs. 5,00,000

The estimated units to be sold in the first four months of the year 20X8-X9 are as under:

April May June July

Minimax 8,000 10,000 12,000 16,000
Heavy high 6,000 8,000 9,000 14,000

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 PREPARE production budget for the first quarter in month-wise

8. S Ltd. has prepared budget for the coming year for its two products A and B.
Product A Product B

Production & Sales unit 6,000 units 9,000 units

Raw material cost per unit Rs. 60.00 Rs.
42.00

Direct labour cost per unit 30.00 18.00

Variable overhead per unit 12.00 6.00

Fixed overhead per unit 8.00 4.00

Selling price per unit 120.00 78.00

After some marketing efforts, the sales quantity of the Product A & B can be
increased by 1,500 units and 500 units respectively but for this purpose the variable
overhead and fixed overhead will be increased by 10% and 5% respectively for the
both products.
You are required to PREPARE flexible budget for both the products:
(a) Before marketing efforts
(b) After marketing efforts.

9. RST Limited is presently operating at 50% capacity and producing 30,000 units.
The entire output is sold at a price of ` 200 per unit. The cost structure at the 50%
level of activity is as under:
Rs.
Direct Material 75 per unit
Direct Wages 25 per unit
Variable Overheads 25 per unit
Direct Expenses 15 per unit
Factory Expenses (25% fixed) 20 per unit
Selling and Distribution Exp. (80% variable) 10 per unit
Office and Administrative Exp. (100% fixed) 5 per unit
The company anticipates that the variable costs will go up by 10% and fixed
costs will go up by 15%.
You are required to prepare an Expense budget, on the basis of marginal
cost for the company at 50% and 60% level of activity and find out the profits at
respective levels.

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10. XY Co. Ltd manufactures two products viz., X and Y and sells them through two
divisions, East and West. For the purpose of Sales Budget to the Budget Committee,
following information has been made available for the year 2018-19:

Budgeted Sales Actual Sales

Produc
t East Division West Division East Division
West
Division
X 400 units @ Rs. 600 units @ Rs.9 500 units @Rs. 9 700 units
9 @ Rs. 9
Y 300 units @ Rs. 500 units @ Rs. 200 units @ Rs. 400 units
21 21 21 @ Rs. 21

Adequate market studies reveal that product X is popular but underpriced. It is expected
that if the price of X is increased by ` 1, it will, find a ready market. On the other hand, Y
is overpriced and if the price of Y is reduced by ` 1 it will have more demand in the
market. The company management has agreed for the aforesaid price changes. On the
basis of these price changes and the reports of salesmen, following estimates have been
prepared by the Divisional Managers:
Percentage increase in sales over budgeted sales
Produc East Division West Division
t
X + 10% + 5%
Y + 20% + 10%

With the help of intensive advertisement campaign, following additional sales (over and
above the above mentioned estimated sales by Divisional Mangers) are possible:

Product East Division West

Division
X 60 units 70 units
Y 40 units 50 units

You are required to prepare Sales Budget for 2019-20 after incorporating above estimates
and also show the Budgeted Sales and Actual Sales of 2018-19.

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