COST ANALYSIS: COST CLASSIFICATION
AND COST SHEET
2
Cost Classification—Basis
Miscellaneous Cost Terms
Cost Sheet/Cost Statement
Cost Sheet—Advantages
Cost analysis and cost classification involve grouping of costs into various logical groups on some
suitable basis. Cost analysis and classification are essential for the purpose of cost control and
managerial decision making.
There are various methods of classification of costs. The method selected is based on the purpose
for which it is needed. The important bases of classification are:
1.
2.
3.
4.
5.
6.
7.
8.
9.
By nature or element
By relation to cost centre or product
By function
By behaviour or variability
By time
By controllability
For decision making purpose
By payment
By normality.
Cost Analysis: Cost Classification and Cost Sheet
15
(c) Expenses
It includes all costs other than materials and labour cost. It is the cost of various services consumed
by an undertaking. It is further classified into direct expenses and indirect expenses.
(i) Direct expenses: It includes cost of all services specifically incurred for a product, process, job or
cost centre. They are directly identified with a particular cost object. It is conveniently allocated
to a particular cost object in whole. It is also called chargeable expenses. It includes excise duty,
royalty, hire charges and repairs and maintenance of special equipment required for a job; cost of
special drawings, designs, moulds and patterns.
(ii) Indirect expenses: Indirect expenses are expenses incurred in relation to two or more products,
processes, jobs or cost centres. It is apportioned to various cost objects. It includes rent, rates,
taxes, insurance, lighting, depreciation, power, fuel, advertisement and repairs and maintenance.
2.2 BY RELATION TO COST CENTRE
On the basis of relation to cost centre, costs are classified as direct costs and indirect costs.
(a) Direct Costs
Direct costs are incurred in relation to a specific product, process, job or cost centre. They consists
of direct materials, direct labour and direct expenses. The total of all direct costs is called prime
cost.
(b) Indirect Costs
Indirect costs are general expenses incurred for two or more products, processes, jobs or cost centres.
They are apportioned to various cost objects on suitable basis. They include indirect materials,
indirect labour and other indirect expenses. The total of all indirect costs is also called overheads,
oncost or burden.
2.3 BY FUNCTION
All indirect costs are called overheads and can be classified on functional basis into:
(a)
(b)
(c)
(d)
Factory overheads
Office and administration overheads
Selling overheads
Distribution overheads.
(a) Factory Overheads
Factory overheads is also called production overheads, works overheads or manufacturing overheads.
It includes all indirect expenses in relation to production activity. It includes all indirect materials
used in production, indirect labour expended in production, works manager’s salary and allowances,
repairs, maintenance, depreciation and insurance of factory building, plant, equipment and machin-
18
Cost Accounting
(b) Differential Cost
The change in the cost of two alternatives is called differential cost. The increase in the total cost
due to increase in output is called ‘incremental cost’. The decrease in the total cost due to decrease
in output is called ‘decremental cost’.
(c) Relevant Cost and Irrelevant Costs
Cost items taken into consideration while making a decision are called relevant costs. Costs which
are not necessary for a particular decision making are called irrelevant costs. A cost relevant for a
particular decision may be irrelevant for another decision. A cost irrelevant for a decision may be
relevant for another decision. For example rent for own premises may be relevant for comparison of
profitability with another firm paying rent. But it is irrelevant for computing tax liability of a firm
using own building.
(d) Opportunity Cost
The benefit foregone due to an alternative decision taken is called opportunity cost. For example, a
person decides to start a business of his own. For the purpose he resigns his present employment and
withdraws his savings kept in a bank deposit. Due to this decision to start a business he foregoes
his salary income and interest income. The loss of salary and interest income is opportunity cost for
the business.
2.8 BY PAYMENT
On the basis of payment involved costs are classified as follows:
(a) Out of Pocket Costs or Explicit Costs
The costs result in actual outflow of cash, e.g., salary, wages, rent, advertisement, etc. paid.
(b) Imputed Costs or Notional Costs or Implicit Costs
These expenses are considered for decision making purpose only. They do not result in any cash
outflow, e.g., rent for own premises, interest on own capital and depreciation on fully depreciated
asset.
2.9 BY NORMALITY
Costs are classified into the following two groups:
(a) Normal Costs
Expenses incurred in a normal business condition is called normal costs. These costs are included
in cost of production.
(b) Abnormal Costs
These costs are occasional and occur due to the happening of some unforeseen event, e.g., loss due
to fire, theft, accident etc. These costs are not included in the cost of production. They are debited
to costing profit and loss account.
20
Cost Accounting
(ii) Production cost centre and service cost centre Production cost centre refers to a place where
goods are produced. They actually stand for a production department.
Service cost centre stands for divisions which help the production departments by providing various
services like maintenance department, time office, boiler house, canteen etc.
(iii) Operation and process cost centre Operation cost centre stands for the total activities carried
out in a production department is divided into smaller functions or operation in relation to which
costs are accumulated, e.g., cutting, welding, machining, boring etc.
Process cost centre stands for a department where production is carried on continuously. Costs are
collected for a process as a single unit.
(h) Profit Centre
Profit centre is a place or division in an organisation which brings revenue.
(i) Value Added
Value added refers to increase in the market value of a product in excess of the cost incurred for
altering or changing the composition of the product.
(j) Stock-Out Cost
Stock-out cost refers to the loss suffered by a company due to stoppage of production due to nonavailability of raw materials.
(k) Shut-Down Cost
Shut-down cost refers to expenses continued to be incurred even after temporary closure of production facilities, e.g., insurance, security, management expenses like director’s fees, managing director’s
salary, salary and wages to skilled employees, Audit fees, etc.
The following chart shows classification of costs:
Total cost
Materials
Direct
materials
Other expenses
Labour
Indirect
materials
Direct
labour
Indirect
labour
Direct
expenses
Indirect
expenses
Prime cost
Indirect cost or overheads or oncost
Production
overheads
Office and administration
overheads
Selling
overheads
Distribution
overheads
Cost Analysis: Cost Classification and Cost Sheet
Add: Opening stock of finished goods
Cost of goods available for sale
Less: Closing stock of finished goods
Cost of goods sold
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
23
Add: Selling and Distribution overheads:
Advertisement, free samples, showroom expenses
xxx
Sales office salary and allowances
xxx
Salesmen’s salary and commission
xxx
Travelling expenses (for sales purpose)
xxx
Warehouse rent and rates
xxx
Carriage outward, delivery van expenses
xxx
xxx
xxx
Cost of sales/total cost
xxx
xxx
Profit/loss
xxx
xxx
Sales
xxx
xxx
Advantages of a cost sheet
1.
2.
3.
4.
5.
6.
7.
8.
It helps to ascertain total cost and cost per unit.
Costs are classified under proper headings and presented in a logical order.
It enables inter-firm and intra-firm comparison of costs.
It helps in price fixation.
It helps to ascertain profit or loss for a period.
It helps in preparing tenders and quotations.
It helps in preparing budgets.
It enables close watch over cost for cost control.
Production or manufacturing accounts
If information for a period relating to cost of production is presented in a ledger format, it is called
production account or manufacturing account. All production expenses are debited to this account.
Opening stock of work-in-progress is shown on the debit side. Closing stock of work-in-progress is
shown on the credit side. The following is a proforma of a production account.
24
Cost Accounting
Proforma of production or manufacturing account
Total Cost
(|)
Particulars
To opening work-in-progress
Particulars
xxx By closing stock of
work-in-progress
Total Cost
(|)
xxx
To Materials consumed:
Purchase of materials
xxx
Add: Opening stock of materials
xxx
Add: Purchase related expenses
xxx
By production cost c/d
(Balancing figure)
xxx
xxx
Less: Closing stock of materials
xxx
To Direct labour
xxx
xxx
To Production overheads
xxx
Less: Sale of scrap
xxx
To production cost b/d
To administration overheads
xxx
xxx
xxx
xxx By cost of production
xxx (Balancing figure)
xxx
xxx
xxx
Illustration-1
(Computation of materials consumed)
Calculate materials consumed from the following information:
|
Opening stock of raw materials
Purchase of raw materials
Carriage inward
18,000
2,30,000
27,000
Sale of raw material scrap
8,000
Closing stock of materials
20,000
26
Cost Accounting
Add: Purchase of materials
4,00,000
Add: Import duty and clearing charges
1,00,000
Add: Carriage on purchase
60,000
Add: Transit insurance and handling charges
25,000
6,35,000
Less: Return of defective materials to
supplier
40,000
Less: Sale of raw materials scrap
20,000
Less: Stock of materials on 31.3.10
60,000
Cost of materials consumed
1,20,000
5,15,000
Illustration-3
(Computation of prime cost)
From the following calculate the prime cost:
|
Stock on materials on 1.4.09
Purchase of materials
28,000
1,60,000
Expenses in connection with purchases
20,000
Direct materials returned to supplier
20,000
Stock of direct materials on 31.3.10
35,000
Manufacturing wages
90,000
Royalty charges
75,000
Hire and maintenance charges of a special
machinery
45,000
Solution
Statement showing computation of prime cost:
|
Materials consumed:
Stock on materials on 1.4.09
Add: Purchase of materials
28,000
1,60,000
|
Cost Analysis: Cost Classification and Cost Sheet
Add: Expenses in connection with purchases
20,000
2,08,000
Less: Direct materials returned
20,000
Less: Stock of direct materials on 31.3.10
35,000
55,000
Manufacturing wages
90,000
Direct expenses:
Royalty charges
75,000
Hire and maintenance charges of a special machinery
45,000
Prime cost
(Computation of prime cost)
From the following information calculate the prime cost:
|
Opening stock of raw materials
40,000
Purchase of raw materials
7,50,000
Carriage inward
25,000
Closing stock of raw materials
35,000
Carriage outward
30,000
Chargeable expenses
65,000
Indirect expenses
50,000
Factory wages
2,25,000
Factory rent
16,000
Solution
Statement showing prime cost:
|
Materials consumed:
Add: Purchase of raw materials
1,20,000
3,63,000
Illustration-4
Opening stock of materials
1,53,000
40,000
7,50,000
Total |
27
28
Cost Accounting
Add: Carriage inward
25,000
8,15,000
Less: Closing stock of raw
materials
Factory wages
35,000
7,80,000
2,25,000
Chargeable expenses
65,000
Prime cost
10,70,000
Illustration-5
(Cost sheet with grouping of expenses)
From the following information prepare a cost sheet showing (i) Prime cost, (ii) Works cost, (iii)
Cost of production, (iv) Cost of sales and (v) Profit:
|
Purchase of materials
5,35,000
Stock of materials on 1.4.09
28,000
Stock of materials on 31.3.10
32,500
Manufacturing wages
2,85,000
Indirect materials
21,000
Indirect wages
42,700
Office salaries
57,600
Carriage inward
18,300
Chargeable expenses
53,000
Internal transport (factory)
27,500
Drawing office expenses
25,500
Advertisement
44,600
Printing and stationery
16,400
Works manager’s salary
30,000
Carriage outward
18,500
Officer rent, rates and insurance
21,600
Director’s fees
22,000
Cost Analysis: Cost Classification and Cost Sheet
Office equipment and furniture
14,900
Managing director’s Salary (30%)
13,500
Lighting - office
9,000
Cost of production
1,55,000
13,44,300
Selling and distribution overheads:
Advertisement
44,600
Salesmen’s salary, allowances and
expenses
23,700
Carriage outward
18,500
Warehouse expenses
19,500
Managing director’s salary (30%)
13,500
Free samples distributed
3,700
Packing and forwarding expenses
12,300
1,35,800
Cost of sales/total cost
14,80,100
Profit (bf)
1,69,900
Sales
16,50,000
Illustration-6
(Simple cost sheet with stocks)
The following information is taken from the records of Arthi Ltd. for the month of April 2009.
01.04.2009 30.04.2009
|
|
Stock of raw materials
37,500
41,250
Stock of work-in-progress
28,700
23,200
Stock of finished goods
46,400
53,200
Transactions during the month are:
Indirect materials
17,550
Productive wages
97,500
Indirect wages
20,900
Purchase of materials
Other factory expenses
1,46,500
24,800
31
32
Cost Accounting
Administration expenses
41,600
Sale of factory scrap
2,400
Advertisement
26,500
Carriage outward
5,000
Sales
4,35,000
Prepare a cost sheet showing (a) Prime cost, (b) Works cost, (c) Cost of production, (d) Cost of
sales and (e) Profit.
Solution
Cost sheet for the month of April, 2009
Total |
Particulars
Materials Consumed:
Stock of materials on 1.4.09
37,500
Add: Purchase of materials
1,46,500
1,84,000
Less: Stock of materials on 30.4.09
41,250
Productive wages
1,42,750
97,500
Prime cost
2,40,250
Production overheads:
Indirect materials
17,550
Indirect wages
20,900
Other factory expenses
24,800
63,250
Less: Sale of factory scrap
2,400
60,850
3,01,100
Add: Stock of work-in-progress on 1.4.09
28,700
3,29,800
Less: Stock of work-in-progress on 30.4.09
23,200
Works cost
Administration overheads:
3,06,600
41,600
Cost of production
3,48,200
34
Cost Accounting
Solution
Cost sheet for 6 months ending 31.3.2009
Total
(|)
Particular
Ratio
Model
‘A’ (|)
Model
‘B’ (|)
Materials Consumed:
Stock of materials
On 1.10.08
29,800
Add: Purchase of materials
1,24,500
1,54,300
Less: Stock of materials on 31.3.09
21,970
Direct labour
1,32,330
5:6
60,150
72,180
81,900
4:5
36,400
45,500
96,550
1,17,680
27,600
34,500
1,24,150
1,52,180
21,500
21,500
1,45,650
1,73,680
14,280
21,420
1,59,930
1,95,100
39,983
48,775
1,99,913
2,43,875
2,500
3,000
79.97
(Approx.)
81.29
(Approx.)
Prime cost
Factory overheads
62,100
4:5
Works cost
Office overheads
43,000
1:1
Cost of production
Selling overheads
35,700
2:3
Total cost
Profit: 20% on sales (or) 20/80 on cost
Sales
Number of units produced
Selling price per unit
Illustration-8
(Overhead expenses given as %)
The following expenses were taken from the account books of Nortan Ltd. for the year ending
31.3.2010:
|
Direct materials
6,00,000
Direct labour
4,25,000
Direct expenses
65,000
Cost Analysis: Cost Classification and Cost Sheet
35
Charge factory overheads at 60% of direct labour, office overheads at 20% on factory cost and selling
overheads at 15% of factory cost.
Prepare a cost sheet showing profit earned if the company earns a profit of 25% on sales.
Solution
Cost sheet for the year ended 31.3.2010
Total
(|)
Direct materials
6,00,000
Direct labour
4,25,000
Direct expenses
65,000
Prime cost
Factory overheads - 60% of direct
labour
Works cost
Office overheads - 20% on works
cost
Cost of production
Selling overheads - 15% on works
cost
Total cost
Profit - 25% on sales or 25/75 on
total cost
Sales
10,90,000
2,55,000
13,45,000
2,69,000
16,14,000
2,01,750
18,15,750
6,05,250
24,21,000
Illustration-9
(Finding the value of closing stock of finished goods)
The management of Jaihind Ltd. gives you the following information for the year ending 31.3.09.
You are required to prepare a cost sheet.
|
Direct materials
3,75,000
Direct labour
2,40,000
Factory overheads
95,000
36
Cost Accounting
Administration overheads
60,000
Selling overheads
36,000
Sales
8,97,000
Additional information:
1. 3,500 units were produced during the year
2. Stock of finished goods 350 units valued at |70,000 as on 01.04.2008
3. Stock of finished goods as on 31.03.2009 are 400 units.
Solution
(i) Valuation of stock of finished goods on current cost basis:
Cost Sheet for the year ending 31.3.2009
Units
Direct materials
Total
|
3,500
3,75,000
-
2,40,000
3,500
6,15,000
-
95,000
3,500
7,10,000
-
60,000
3,500
7,70,000
350
70,000
3,850
8,40,000
400
88,000
3,450
7,52,000
-
36,000
Cost of sales
3,450
7,88,000
Profit (bf)
-
1,09,000
Sales
3,450
8,97,000
Direct labour
Prime cost
Factory overheads
Works cost
Administration overheads
Cost of production
Add: Opening stock of finished goods
Less: Closing stock of finished goods
Cost of goods sold
Selling overheads
Cost Analysis: Cost Classification and Cost Sheet
37
(ii) Valuation of stock of finished goods on average cost basis:
Cost sheet for the year ending 31.3.2009
Units
Cost of production (Same as in (i))
Total
|
3,500
7,70,000
350
70,000
3,850
8,40,000
400
87,272
3,450
7,52,728
-
36,000
Cost of sales
3,450
7,88,728
Profit (bf)
-
1,08,272
Sales
3,450
8,97,000
Add: Opening stock of finished goods
Less: Closing stock of finished goods
Cost of goods sold
Selling overheads
Note:
Valuation of closing stock of finished goods:
(i)
(ii)
Cost of production during the year
Number of units produced during the year
7,70,000
= |220
=
3,500
Value of closing Stock = 400 × 220 = |88,000
Current cost of production per unit =
Cost of production + Value of opening stock
Units produced + Opening stock units
8,40,000
= |218.18 (Approx.)
=
3,850
Value of closing stock = 400 × 218.18 = |87,272
Average cost of production per unit =
Illustration-10
(Finding the missing information)
The books of Adarsh Manufacturing Company presents the following data for the month of April,
2001.
Direct Labour Cost |17,500 being 175% of works overhead and cost of goods sold excluding administration expenses |56,000. Inventory accounts showed the following opening and closing balances:
38
Cost Accounting
April 1
|
Raw materials
April 30
|
8,000
10,600
Work-in-progress
10,500
14,500
Finished goods
17,600
19,000
Other data:
Selling expenses
3,500
General and administration expenses
2,500
Sales for the month
75,000
You are required to:
(i) Compute the value of raw materials purchased
(ii) Prepare a cost statement showing the various elements of cost and also the profit.
(CA-Inter)
Solution
(i)
Computation of value of materials purchased
|
|
Cost of goods sold
-
56,000
Add: Closing stock of raw materials
-
10,600
Closing stock of work-in-progress
-
14,500
Closing stock of finished goods
-
19,000
1,00,100
Less: Opening stock of raw materials
8,000
Opening stock of work-in-progress
10,500
Opening stock of finished goods
17,600
Direct labour
17,500
Works overhead (17,500×100/175)
10,000
63,600
-
36,500
Raw materials purchase
Cost Analysis: Cost Classification and Cost Sheet
Note:
(1) All items added in the cost sheet till cost of goods sold is deducted.
(2) All items deducted in the cost sheet till cost of goods sold is added.
(3) Since administration cost is not included in cost of goods sold, it is not deducted.
(ii)
Cost statement for the month of April 2001
Total
|
Materials consumed:
Opening stock of raw materials
8,000
Add: Purchase of materials
36,500
44,500
Less: Closing stock of raw materials
10,600
Direct labour
33,900
17,500
Prime cost
Factory overheads (17,500×100/175)
51,400
10,000
61,400
Add: Opening stock of work-in-progress
10,500
71,900
Less: Closing stock of work-in-progress
14,500
Works cost
General and administration overheads
57,400
2,500
Cost of production
Add: Opening stock of finished goods
59,900
17,600
77,500
Less: Closing stock of finished goods
19,000
Cost of goods sold
Selling expenses
58,500
3,500
Cost of sales
62,000
Profit (bf)
13,000
Sales
75,000
39
40
Cost Accounting
Illustration-11
(Finding missing information)
The following data relate to XYZ Ltd.
Inventories
Beginning
|
Finished goods
Ending
|
1,10,000
95,000
Work-in-progress
70,000
80,000
Raw materials
90,000
95,000
Additional information:
Cost of goods available for sale
6,84,000
Total goods processed during the period
6,54,000
Factory overheads
1,67,000
Direct materials used
1,93,000
Requirements:
(i) Determine raw materials purchased.
(ii) Determine the direct labour cost incurred.
(iii) Determine the cost of goods sold.
(B.Com. (Hons.), Delhi University)
Solution
(i)
Computation of raw materials purchased
|
Direct materials used
Add: Closing stock of raw
materials
1,93,000
95,000
2,88,000
Less: Opening stock of raw
materials
Raw materials purchase
90,000
1,98,000
Cost Analysis: Cost Classification and Cost Sheet
41
(ii)
Determination of labour cost incurred
|
Total goods processed during the
period
Less: Opening stock of
work-in-progress
6,54,000
70,000
5,84,000
Less: Factory overheads
Prime cost
1,67,000
4,17,000
Less: Direct materials used
1,93,000
Direct labour cost
2,24,000
(iii)
Determining the cost of goods sold
|
Cost of goods available for sale
Less: Closing stock of finished
goods
Cost of goods sold
2.13
6,84,000
95,000
5,89,000
EXERCISES
I. Objective Type Questions
A. State whether the following statements are true or false
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Cost centre is a place where direct materials are expended.
Direct materials enter the finished product.
The total of direct labour, direct expenses and production overheads is called conversion cost.
Hire charges paid for a special machinery is part of production overheads.
Royalty payable on production is production overheads.
Imputed cost results in outflow of cash.
Semi-variable cost is also called step cost.
The total of all direct expenses is called prime cost.
Valued added refers to cost incurred in the production of a product.
Variable cost per unit increases due to increase in production.
Fixed cost is also called period cost.
42
Cost Accounting
12.
13.
14.
15.
Standard cost is a predetermined cost.
Fixed costs are generally uncontrollable.
Sunk costs result in cash payment.
Office overheads are unavoidable costs.
(Ans: True - 2, 3, 7, 8, 11, 12, 13, 15; False - 1, 4, 5, 6, 9, 10, 14)
B. Fill in the blanks
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Prime cost refers to total of all
expenses.
.
Works cost is the total of prime cost and
.
Costs which result in actual payment of cash is called
cost.
Period cost or time cost is
.
The benefit foregone due to an alternative decision is called
.
Labour cost incurred for conversion of raw materials into finished goods is called
cost.
Bad debts is an example of
.
Costs remaining constant per unit is called
Place, a person, a machine or a group of these in relation to which cost is ascertained is called
.
.
The division which brings or earns revenue for a business is called
.
Costs which can be influenced by managerial action is called
.
Travelling expenses incurred specifically for a particular job is called
.
Expenses incurred for two or more jobs or cost centres is called
Increase in the market value of a product in excess of costs incurred for changing or altering
its composition is known as
.
.
The difference in the total cost between two levels of production is called
(Ans: 1. Direct, 2. Factory overheads, 3. Out of pocket cost, 4. Fixed, 5. Opportunity cost,
6. Direct labour, 7. Policy, 8. Variable cost, 9. Cost centre, 10. Profit centre, 11. Controllable cost,
12. Direct expenses, 13. Indirect expenses, 14. Value added, 15. Differential cost)
II. Theory Questions
A. Short answer type questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
What is cost centre? Explain the various types of cost centre.
Explain direct materials.
What is direct labour?
What is direct expense? Give few examples.
What is prime cost?
Explain opportunity cost.
What is policy cost?
What is imputed cost?
What is cost classification?
Define out-of-pocket cost.
Cost Analysis: Cost Classification and Cost Sheet
11.
12.
13.
14.
15.
43
Define semi-variable cost.
All costs are controllable, comment.
What is value added? Explain.
What is conversion cost?
What is cost sheet?
B. Long answer type questions
1. Write short notes on: (a) Cost centre; (b) Opportunity cost; (c) Notional cost; (d) Out of
pocket cost; and (e) Policy cost.
2. What do you understand by cost classification? Explain the various cost elements on the basis
of variability.
3. Explain the functionwise classification of overheads.
4. Explain cost sheet. What are its uses?
5. All costs are controllable. Explain.
6. Explain what do you understand by chargeable expenses and state its treatment in cost
accounts.
(CA-Inter)
7. Explain various costs used in decision making and explain their characteristics.
(B.Com. (Hons), Delhi University)
8. What is the purpose of classifying costs?
III. Practical Problems
A. Short answer type questions
1. Compute materials consumed from the following:
|
Opening stock of materials
20,000
Purchase of materials
1,25,000
Carriage on purchases
15,000
Sale of materials scrap
7,000
Closing stock of materials
18,000
(Ans: Materials consumed |1,35,000)
2. Compute materials consumed from the following:
|
Purchase of direct materials
3,50,000
Carriage inward
27,000
Carriage outward
18,000
44
Cost Accounting
Sale of factory scrap
10,000
Sale of direct materials scrap
15,000
Materials returned to supplier
30,000
Indirect materials
25,000
Opening stock of direct materials
50,000
Closing stock of direct materials
40,000
(Ans: Materials consumed |3,42,000)
3. Compute prime cost:
|
Opening Stock of materials
35,000
Purchase of materials
4,10,000
Import duty and Clearing charges
1,50,000
Other purchase expenses
25,000
Closing stock of materials
30,000
Factory wages
2,40,000
Factory overheads
1,60,000
Royalty paid on production
1,20,000
Hire charges for special machinery
40,000
(Ans: Prime cost |9,90,000)
4. Find the gross cost of goods processed during the period:
|
Prime cost
80,000
Factory overheads
45,000
Opening stock of work-in-progress
30,000
Closing stock of work-in-progress
25,000
Office overheads
70,000
(Ans: Gross cost of goods processed |1,55,000)
Note: Gross cost of goods processed = Prime Cost + Factory Overheads + Opening Stock of
Work-in-Progress.
Cost Analysis: Cost Classification and Cost Sheet
45
5. Find the net works cost:
|
Prime cost
1,50,000
Production overheads
60,000
Opening stock of work-in-progress
27,000
Closing stock of work-in-progress
30,000
(Ans: Net works cost |2,07,000)
6. Prepare a cost sheet from the following:
|
Raw materials consumed
80,000
Wages
20,000
Works expenses charged at 100% of wages, office overheads charged at 25% on works cost and
selling overheads at 10% on works cost.
(Ans: Cost of sales |1,62,000)
7. Calculate profit and sales from the following:
|
Cost of sales
5,00,000
Profit 20% on sales
(Ans: Profit |1,25,000; Sales - |6,25,000)
8. In a factory a standard product is manufactured. From the following particulars prepare a
cost sheet showing total cost and profit made:
|
Raw materials consumed
30,000
Labour
60,000
Works overhead is charged at 40% of works cost and office overheads is taken at 20% of total
cost. The standard product sold during the period is 180 units at |1200 each.
(B.Com., Bharathidasan University)
(Ans: Total cost |1,87,500; Total profit - |28,500; Cost per unit |1041.67; Profit per unit
|158.33)
46
Cost Accounting
Note :
(a) Works cost = 40/60 on prime cost
(b) Office overheads = 20/80 on works cost.
9. The following information is taken from the records of X Ltd. for the year ending 31.3.2010:
Raw materials consumed
|20,000
Direct wages
|16,000
Production overheads
150% of direct wages
Office overheads
25% on works cost
Selling overheads
|2 per unit sold
Opening stock of finished goods
500 units valued at |4,000
Units produced during the period
|10,000
Units sold during the period
9,500 units at |10 per unit.
Prepare a cost sheet.
(Ans: Cost of production - |75,000; Closing stock - 1,000 units; Value - |7,500; Cost of
sales-|90,500; Profit - |4,500)
B. Comprehensive questions
1. Simple cost sheet-with detailed cost elements
From the following particulars taken from the books of United Engineering Ltd., prepare a
cost sheet for the year ending 31.3.2010.
|
Stock of materials on 1.4.2009
65,700
Stock of materials on 31.3.2010
48,500
Purchase of materials
3,79,000
Productive wages
2,83,000
Hire charges and maintenance of a special equipment
46,000
Royalty paid
84,000
Carriage on purchases
21,500
Carriage outward
24,900
Indirect materials
34,000
Indirect wages
30,000
Foreman salary
20,000
Cost Analysis: Cost Classification and Cost Sheet
47
Depreciation, repairs and maintenance
Of Plant and machinery
42,000
Of office furniture and equipment
27,500
Drawing office salaries
18,000
Motive power, fuel and oil
39,000
Lubricants and cotton waste
13,400
Office salaries
52,000
Printing and stationery
11,300
Warehouse expenses
26,000
Advertisement
31,600
Travelling expenses
General
12,700
Sales promotion
17,500
Samples and gifts
14,000
Bad debts written off
10,000
General manager’s salary
60,000
General manager’s salary to be apportioned in the ratio of 4 : 3 : 3 to factory, office and sales
departments. Sale of finished goods amounted to |15,00,000.
(Ans: Prime cost - |8,30,700; Works cost - |10,51,100; Cost of production - |11,72,600; Cost
of sales - |13,14,600; and Profit - |1,85,400)
2. Simple cost sheet with opening and closing stocks
From the following particulars, prepare a cost sheet for the year ending 31.03.2010:
1.4.2009
31.3.2010
|
|
Stock of materials
22,750
26,300
Stock of work-in-progress
18,200
15,700
Stock of finished goods
37,600
34,500
|
Purchase of raw materials
6,20,000
Carriage inward
21,400
Factory manager salary
25,000
Depreciation of plant and machinery
27,100
Office rent, rates and insurance
14,600
48
Cost Accounting
Salesman travelling expenses
21,900
Carriage outward
13,800
Debenture interest
16,500
Directors fee
24,000
General manager salary
25,000
Transfer to general reserve
20,000
Wages
3,70,000
Power expenses
1,15,000
Office salaries
28,000
General expenses
17,300
Dividend paid
35,000
Warehouse expenses
29,000
Income tax
41,000
Goodwill written off
10,000
Bank charges
6,000
Printing and stationery
12,500
Sales for the year
16,00,000
(Ans: Prime cost - |10,07,850; Works cost - |11,77,450; Cost of production - |13,04,850; Cost
of goods sold - |13,07,950; Cost of sales - |13,72,650; Profit |2,27,350)
3. Dev Ltd. provides the following particulars for the month of August, 2009. Prepare a cost
sheet:
1.8.2009
31.8.2009
|
|
Stock of raw materials
75,000
60,000
Stock of work-in-progress
27,000
36,500
Stock of finished goods
50,000
62,000
Transactions during the month of August 2009:
|
Purchase of raw materials
2,50,000
Factory expenses
82,000
Depreciation of plant and machinery
41,000
Selling and distribution overheads
27,500
Cost Analysis: Cost Classification and Cost Sheet
Direct labour
49
1,70,000
Sale of factory scrap
16,000
Office overheads
34,500
Sales
6,00,000
(Ans: Prime cost - |4,35,000; Works cost - |5,32,500; Cost of production - |5,67,000; Cost of
goods sold - |5,55,000; Cost of sales - |5,82,500; Profit - |17,500)
4. Apportionment of Common Expenses
TV Ltd. produces television sets in two models - Deluxe and Premium.
information is taken from their records for the year ending 31.3.2010.
1.4.2009
31.3.2010
|
|
Deluxe
Premium
Deluxe
Premium
70,000
40,000
90,000
80,000
1,65,000
1,10,000
2,10,000
1,70,000
Stock of work-in-progress
Stock of finished goods
The following
Purchase of materials - |12,00,000; Direct labour - |7,50,000. Materials consumed were in
proportion of 5 : 7 and wages incurred were in the ratio of 2 : 3 for the two models. Factory
overheads is charged at 80% of direct labour, Administration overheads charged at 25% on
works cost and selling and distribution overheads estimated at 15% on works cost.
The company wants to earn a profit of 25% on sales. Find the profit of each model for the
year 2009.
(Ans: Profit - Deluxe: |4,61,000; Premium - |6,66,000)
5. Valuation of Closing Stock
Sri Ram Ltd. produces a standard product. It furnished the following cost information for 6
months ending 30.9.09:
|
Materials consumed
80,000
Direct labour
55,000
Factory overheads
33,000
Selling overheads at |2 per unit
Number of units produced 4,200
Number of units sold - 4,000 at |45 per unit