Cost Sheet PDF

CHAPTER a 6 COST SHEET LEARNING OUTCOMES After studying this chapter, you would be able to-  Classify and ascertain Cost on the basis of function.  Prepare Cost Sheet/statement for production of goods and...

CHAPTER a 6 COST SHEET LEARNING OUTCOMES After studying this chapter, you would be able to-  Classify and ascertain Cost on the basis of function.  Prepare Cost Sheet/statement for production of goods and providing of services. CHAPTER OVERVIEW  Cost Sheet Functional Head of Costs in Format of Cost Advantages of Classification Cost Sheet Sheet Cost Sheet 1. INTRODUCTION One of the objectives of cost accounting system is ascertainment of cost for a cost object. The cost objects may be a product, service or any cost centre. Ascertainment of cost includes elementwise collection of costs, accumulation of the costs so collected for a certain volume or period and then arrange all these accumulated costs into a sheet to calculate total cost for the cost object. In this chapter, a product or a service will be the cost object for cost calculation and cost ascertainment.  a 6.2 COST AND MANAGEMENT ACCOUNTING A Cost Sheet or Cost Statement is “a document which provides a detailed cost information. In a typical cost sheet, cost information are presented on the basis of functional classification. However, other classification may also be adopted as per the requirements of users of the information. 2. FUNCTIONAL CLASSIFICATION OF ELEMENTS OF COST Under this classification, costs are divided according to the function for which they have been incurred. The following are the classification of costs based on functions: (i) Production/ Manufacturing Cost (ii) Administration Cost (iii) Selling Cost (iv) Distribution Cost (v) Research and Development costs etc. 3. COST HEADS IN A COST SHEET The costs as classified on the basis of functions are grouped into the following cost heads in a cost sheet: (i) Prime Cost (ii) Cost of Production (iii) Cost of Goods Sold (iv) Cost of Sales  COST SHEET 6.3 a 3.1 Prime Cost Prime cost represents the total of direct materials costs, direct employee (labour) costs and direct expenses. The total of cost for each element has to be calculated separately. Direct Material Cost xxx Direct Employees (labour) Cost xxx Direct Expenses xxx Prime Cost: xxxx (i) Direct Material Cost: It is the cost of direct material consumed. The cost of direct material consumed is calculated as follows: Opening Stock of Material xxx Add: Additions/ Purchases xxx Less: Closing stock of Material (xxx) Direct materials consumed xxxx The valuation of materials purchased and issued for production shall be done as per methods discussed in the ‘Chapter- 2 Material Cost’. Few examples of items to be added in the cost of raw material : (a) Freight inwards; (b) Insurance and other expenditure directly attributable to procurement; (c) Trade discounts or rebates (to be deducted); (d) Duties & Taxes (if input tax credit is not available/ availed) etc. (ii) Direct Employee (Labour) Cost: It is the total of payment made to the employees who are engaged in the production of goods and provision of services. Employee cost is also known as labour cost; it includes the following: (a) Wages and salary; (b) Allowances and incentives;  a 6.4 COST AND MANAGEMENT ACCOUNTING (c) Payment for overtimes; (d) Bonus/ ex-gratia; (e) Employer’s contribution to welfare funds such as Provident fund and other similar funds; (f) Other benefits (medical, leave with pay, free or subsidised food, leave travel concession and provisions for retirement benefits) etc. (iii) Direct Expenses: Expenses other than direct material cost and direct employee cost, which are incurred to manufacture a product or for provision of service and can be directly traced in an economically feasible manner to a cost object. The following costs are examples for direct expenses: (a) Cost of utilities such as power & fuel, steam etc.; (b) Royalty paid/ payable for production or provision of service; (c) Hire charges paid for hiring specific equipment; (d) Fee for technical assistance and know-how; (e) Amortised cost of moulds, patterns, patents etc.; (f) Cost for product/ service specific design or drawing; (g) Cost of product/ service specific software; (h) Other expenses which are directly related with the production of goods or provision of service. 3.2 Cost of Production In a conventional cost sheet, this item of cost can be seen. It is the total of prime cost and factory related costs and overheads. Prime Cost xxx Add : Factory Overheads xxx Gross Works Costs xxxx Add: Opening stock of Work-in-process xxx Less: Closing stock of Work-in-process (xxx)  COST SHEET 6.5 a Factory or Works Costs xxxx Add: Quality Control Cost xxx Add: Research & Development cost (Process related) xxx Add: Administrative Overheads related with production xxx Less: Credit for recoveries (miscellaneous income) (xxx) Add: Packing Cost (Primary packing) xxx Cost of Production xxxx (i) Factory Overheads: It is also known as works/production/ manufacturing overheads. It includes the following indirect costs: (a) Consumable stores and spares; (b) Depreciation of plant and machinery, factory building etc. (c) Lease rent of production assets; (d) Repair and maintenance of plant and machinery, factory building etc. (e) Indirect employees cost related with production activities; (f) Drawing and Designing department cost; (g) Insurance of plant and machinery, factory building, stock of raw material & WIP etc. (h) Amortized cost of jigs, fixtures, tooling etc. (i) Service department cost such as Tool Room, Engineering & Maintenance, Pollution Control etc. (ii) Stock of Work-in-process: The cost of opening and closing stock of work- in-process (WIP) is adjusted to arrive at factory/ works cost. The WIP stock is valued on the basis of percentage of completion in respect of each element of cost. Students may refer the ‘Chapter- Process & Operation Costing’ to know the WIP valuation methods. (iii) Quality Control Cost: This is the cost of resources consumed towards quality control procedures.  a 6.6 COST AND MANAGEMENT ACCOUNTING (iv) Research & Development Cost: It includes only those research and development related cost which is incurred for the improvement of process, system, product or services. (v) Administrative Overheads: It includes only those administration overheads which are related to production. The general administration overhead is not included in production cost. (vi) Credit for Recoveries: The realised or realisable value of scrap or waste is deducted as it reduces the cost of production. (vii) Packing Cost (primary): Packing material which is essential to hold and preserve the product for its use by the customer. (viii) Joint Products and By-Products: Joint costs are allocated between/among the products on a rational and consistent basis. In case of by-products, the net realisable value of by-products is deducted from the cost of production. 3.3 Cost of Goods Sold It is the cost of production for goods sold. It is calculated after adjusting the values of opening and closing stocks of finished goods. It can be calculated as below: Cost of Production xxx Add: Cost of Opening stock of finished goods xxx Less: Cost of Closing stock of finished goods (xxx) Cost of Goods Sold xxxx 3.4 Cost of Sales It is the total cost of a product incurred to make the product available to the customer or consumer. It includes Cost of goods sold, administration and marketing expenses. It is calculated as below:  COST SHEET 6.7 a Cost of Goods Sold xxx Add: Administrative Overheads (General) xxx Add: Selling Overheads xxx Add: Packing Cost (secondary) xxx Add: Distribution Overheads xxx Cost of Sales xxxx (i) Administrative Overheads: It is the cost related with general administration of the entity. It includes the followings: (a) Depreciation and maintenance of, building, furniture etc. of corporate or general management. (b) Salary of administrative employees, accountants, directors, secretaries etc. (c) Rent, rates & taxes, insurance, lighting, office expenses etc. (d) Indirect materials- printing and stationery, office supplies etc. (e) Legal charges, audit fees, corporate office expenses like directors’ sitting fees, remuneration and commission, meeting expenses etc. (ii) Selling Overheads: It is the cost related with sale of products or services. It includes the following costs: (a) Salary and wages related with sales department and employees directly related with selling of goods. (b) Rent, depreciation, maintenance and other cost related with sales department. (c) Cost of advertisement, maintenance of website for online sales, market research etc. (iii) Packing Cost (secondary): Packing material that enables to store, transport, inform the customer, promote and otherwise make the product marketable.  a 6.8 COST AND MANAGEMENT ACCOUNTING (iv) Distribution Overheads: It includes the cost related with making the goods available to the customers. The costs are : (a) Salary and wages of employees engaged in distribution of goods. (b) Transportation and insurance costs related with distribution. (c) Depreciation, hire charges, maintenance and other operating costs related with distribution vehicles etc. 4. COST SHEET/STATEMENT 4.1 Presentation of Cost Information The cost items in the cost statement shall be presented on ‘basis of relevant classification’. Specimen Format of Cost Sheet for a Manufacturing entity Particulars Total Cost per Cost (`) unit (`) 1. Direct materials consumed: Opening Stock of Raw Material xxx Add: Additions/ 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. Add: 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. Add: Quality Control Cost xxx 11. Add: Research and Development Cost xxx  COST SHEET 6.9 a 12. Add: Administrative Overheads (relating to xxx production activity) 13. Less: Credit for Recoveries/Scrap/By-Products/ (xxx) misc. income 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 Cost sheet/statement for services is also prepared but the format and presentation may differ as per the information requirement. Format and presentation has been discussed in “Service Costing” chapter. 4.2 Treatment of various items of Cost in Cost Sheet/Statement (i) Abnormal costs: Any abnormal cost, where it is material and quantifiable, shall not form part of cost of production or acquisition or supply of goods or provision of service. Examples of abnormal costs are: (a) Cost pertaining to or arising out of a pandemic e.g. COVID-19 (b) Cost associated with employees due to sudden lockdown. (ii) Subsidy/Grant/Incentives: Any such type of payment received/ receivable are reduced from the cost objects to which such amount pertains. (iii) Penalty, fine, damages, and demurrage: These types of expenses are not form part of cost.  a 6.10 COST AND MANAGEMENT ACCOUNTING (iv) Interest and other finance costs: Interest, including any payment in the nature of interest for use of non-equity funds and incidental cost that an entity incurs in arranging those funds. Interest and finance charges are not included in cost of production. Interest and Financing Charges shall be presented in the cost statement as a separate item of cost of sales. 4.3 Advantages of Cost Sheet or Cost Statements The main advantages of a Cost Sheet are as follows: (i) It provides the total cost figure as well as cost per unit of production. (ii) It helps in cost comparison. (iii) It facilitates the preparation of cost estimates required for submitting tenders. (iv) It provides sufficient help in arriving at the figure of selling price. (v) It facilitates cost control by disclosing operational efficiency. ILLUSTRATION 1 The following data relates to the manufacture of a standard product during the month of April: Particulars (`) Raw materials ` 1,80,000 Direct wages ` 90,000 Machine hours worked (hours) 10,000 Machine hour rate (per hour) `8 Administration overheads (general) ` 35,000 Selling overheads (per unit) `5 Units produced 4,000 Units sold 3,600 Selling price per unit ` 125  COST SHEET 6.11 a You are required to PREPARE a cost sheet in respect of the above showing: (i) Cost per unit (ii) Profit for the month SOLUTION (i) Cost Sheet Output: 4,000 units Particulars Total Cost per Cost (`) (unit) (`) Raw materials 1,80,000 45.00 Direct wages 90,000 22.50 Prime cost 2,70,000 67.50 Add: Factory overheads (10,000 hrs × ` 8 per hour) 80,000 20.00 Cost of Production 3,50,000 87.50 Less: Closing Stock of finished goods (4,000 – (35,000) -- 3,600 units) Cost of Goods Sold 3,15,000 87.50 Add: Administration overheads (general) 35,000 9.72 Add: Selling Overheads (3,600 units × ` 5 unit) 18,000 5.00 Cost of sales (total Cost) 3,68,000 102.22 (ii) Statement of Profit Particulars Total Cost (`) Sales revenue (3,600 units @ ` 125) 4,50,000 Less: Cost of sales 3,68,000 Profit 82,000  a 6.12 COST AND MANAGEMENT ACCOUNTING ILLUSTRATION 2 The following information has been obtained from the records of ABC Corporation for the period from June 1 to June 30. On June 1 On June 30 (`) (`) Cost of raw materials 60,000 50,000 Cost of work-in-process 12,000 15,000 Cost of stock of finished goods 90,000 1,10,000 Purchase of raw materials during June 2020 4,80,000 Wages paid 2,40,000 Factory overheads 1,00,000 Administration overheads (related to 50,000 production) Selling & distribution overheads 25,000 Sales 10,00,000 PREPARE a statement giving the following information: (a) Raw materials consumed; (b) Prime cost; (c) Factory cost; (d) Cost of goods sold; and (e) Net profit.  COST SHEET 6.13 a SOLUTION Statement of Cost & Profit (for the month of June) (`) Opening stock of raw materials 60,000 Add: Purchase of raw materials during the month of June 4,80,000 Less: Closing stock of raw materials (50,000) (a) Raw materials consumed 4,90,000 Add: Direct wages 2,40,000 (b) Prime cost 7,30,000 Add: Factory overheads 1,00,000 Works cost 8,30,000 Add: Opening work-in-process 12,000 Less: Closing work-in-process (15,000) (c) Factory cost 8,27,000 Add: Administration overheads 50,000 Cost of production 8,77,000 Add: Opening stock of finished goods 90,000 Less: Closing stock of finished goods (1,10,000) (d) Cost of goods sold 8,57,000 Add: Selling & distribution overheads 25,000 Cost of sales 8,82,000 (e) Net Profit 1,18,000 Sales 10,00,000  a 6.14 COST AND MANAGEMENT ACCOUNTING ILLUSTRATION 3 Arnav Inspat Udyog Ltd. has the following expenditures for the year ended 31st March 2023: Sl. (` ) (` ) No. (i) Raw materials purchased 10,00,00,000 (ii) GST paid on the above purchases @18% 1,80,00,000 (eligible for input tax credit) (iii) Freight inwards 11,20,600 (iv) Wages paid to factory workers 29,20,000 (v) Contribution made towards employees’ PF & ESIS 3,60,000 (vi) Production bonus paid to factory workers 2,90,000 (vii) Royalty paid for production 1,72,600 (viii) Amount paid for power & fuel 4,62,000 (ix) Amount paid for purchase of moulds and patterns (life is equivalent to two years production) 8,96,000 (x) Job charges paid to job workers 8,12,000 (xi) Stores and spares consumed 1,12,000 (xii) Depreciation on: Factory building 84,000 Office building 56,000 Plant & Machinery 1,26,000 Delivery vehicles 86,000 3,52,000  COST SHEET 6.15 a (xiii) Salary paid to supervisors 1,26,000 (xiv) Repairs & Maintenance paid for: Plant & Machinery 48,000 Sales office building 18,000 Vehicles used by directors 19,600 85,600 (xv) Insurance premium paid for: Plant & Machinery 31,200 Factory building 18,100 Stock of raw materials & WIP 36,000 85,300 (xvi) Expenses paid for quality control check activities 19,600 (xvii) Salary paid to quality control staffs 96,200 (xviii) Research & development cost paid for improvement in production process 18,200 (xix) Expenses paid for pollution control and engineering & maintenance 26,600 (xx) Expenses paid for administration of factory work 1,18,600 (xxi) Salary paid to functional mangers: Production control 9,60,000 Finance & Accounts 9,18,000 Sales & Marketing 10,12,000 28,90,000 (xxii) Salary paid to General Manager 12,56,000 (xxiii) Packing cost paid for: Primary packing necessary to maintain quality 96,000 For re-distribution of finished goods 1,12,000 2,08,000  a 6.16 COST AND MANAGEMENT ACCOUNTING (xxiv) Interest and finance charges paid (for usage of non- equity fund) 7,20,000 (xxv) Fee paid to auditors 1,80,000 (xxvi) Fee paid to legal advisors 1,20,000 (xxvii) Fee paid to independent directors 2,20,000 (xxviii) Performance bonus paid to sales staffs 1,80,000 (xxix) Value of stock as on 1st April, 2022: Raw materials 18,00,000 Work-in-process 9,20,000 Finished goods 11,00,000 38,20,000 (xxx) Value of stock as on 31st March, 2023: Raw materials 9,60,000 Work-in-process 8,70,000 Finished goods 18,00,000 36,30,000 Amount realized by selling of scrap and waste generated during manufacturing process – ` 86,000/- From the above data you are required to PREPARE Statement of cost for Arnav Ispat Udyog Ltd. for the year ended 31st March, 2023, showing (i) Prime cost, (ii) Factory cost, (iii) Cost of Production, (iv) Cost of goods sold and (v) Cost of sales. SOLUTION Statement of Cost of Arnav Ispat Udyog Ltd. for the year ended 31st March, 2023: Sl. Particulars (`) (`) No. (i) Material Consumed: Raw materials purchased 10,00,00,000 Freight inwards 11,20,600 Add: Opening stock of raw materials 18,00,000 Less: Closing stock of raw materials (9,60,000) 10,19,60,600  COST SHEET 6.17 a (ii) Direct employee (labour) cost: Wages paid to factory workers 29,20,000 Contribution made towards employees’ PF & ESIS 3,60,000 Production bonus paid to factory workers 2,90,000 35,70,000 (iii) Direct expenses: Royalty paid for production 1,72,600 Amount paid for power & fuel 4,62,000 Amortised cost of moulds and patterns 4,48,000 Job charges paid to job workers 8,12,000 18,94,600 Prime Cost 10,74,25,200 (iv) Works/ Factory overheads: Stores and spares consumed 1,12,000 Depreciation on factory building 84,000 Depreciation on plant & machinery 1,26,000 Repairs & Maintenance paid for plant & machinery 48,000 Insurance premium paid for plant & machinery 31,200 Insurance premium paid for factory building 18,100 Insurance premium paid for stock of raw materials & WIP 36,000 Salary paid to supervisors 1,26,000 Expenses paid for pollution control and engineering & maintenance 26,600 6,07,900 Gross factory cost 10,80,33,100 Add: Opening value of W-I-P 9,20,000 Less: Closing value of W-I-P (8,70,000) Factory Cost 10,80,83,100  a 6.18 COST AND MANAGEMENT ACCOUNTING (v) Quality control cost: Expenses paid for quality control check activities 19,600 Salary paid to quality control staffs 96,200 1,15,800 (vi) Research & development cost paid for improvement in production process 18,200 (vii) Administration cost related with production: -Expenses paid for administration of factory work 1,18,600 -Salary paid to Production control manager 9,60,000 10,78,600 (viii) Less: Realisable value on sale of scrap and waste (86,000) (ix) Add: Primary packing cost 96,000 Cost of Production 10,93,05,700 Add: Opening stock of finished goods 11,00,000 Less: Closing stock of finished goods (18,00,000) Cost of Goods Sold 10,86,05,700 (x) Administrative overheads: Depreciation on office building 56,000 Repairs & Maintenance paid for vehicles used by directors 19,600 Salary paid to Manager- Finance & Accounts 9,18,000 Salary paid to General Manager 12,56,000 Fee paid to auditors 1,80,000 Fee paid to legal advisors 1,20,000 Fee paid to independent directors 2,20,000 27,69,600  COST SHEET 6.19 a (xi) Selling overheads: Repairs & Maintenance paid for sales office building 18,000 Salary paid to Manager- Sales & Marketing 10,12,000 Performance bonus paid to sales staffs 1,80,000 12,10,000 (xii) Distribution overheads: Depreciation on delivery vehicles 86,000 (xiii) Packing cost paid for re-distribution of finished goods 1,12,000 1,98,000 (xiv) Interest and finance charges paid 7,20,000 Cost of Sales 11,35,03,300 Note: GST paid on purchase of raw materials would not be part of cost of materials as it is eligible for input tax credit. SUMMARY  Cost Sheet: A Cost Sheet or Cost Statement is “a document which provides a detailed cost information. In a typical cost sheet, cost information are presented on the basis of functional classification. However, other classification may also be adopted as per the requirements of users of the information.  Direct Expenses: Expenses other than direct material cost and direct employee cost, which are incurred to manufacture a product or for provision of service and can be directly traced in an economically feasible manner to a cost object.  Prime Cost: Prime cost represents the total of direct materials costs, direct employee (labour) costs and direct expenses.  Cost of Production: Cost of production consists of cost of materials consumed, direct employee (labour) costs, direct expenses, production overheads, quality control costs, primary packing cost, R&D and administration cost relating to production.  a 6.20 COST AND MANAGEMENT ACCOUNTING  Primary Packing Cost: Cost incurred on packing materials which are essential to hold and preserve the product for further processing or its use by consumer.  Secondary Packing Cost: Cost incurred on packing materials which is used to store, transport, and promote the product.  Cost of Goods Sold: Cost of production adjusted with opening and closing inventories of finished goods.  Administrative overheads: Cost incurred of all activities relating to general management and administration of an entity.  Marketing overheads: Marketing overheads comprise of selling overheads and distribution overheads.  Selling Overheads: Expenses related to sale of products or services.  Distribution overheads: Costs incurred in handling a product or service from the time it is ready to dispatch or delivery until it reaches the ultimate consumer.  Cost of Sales: It is the total cost of a product incurred to make the product available to the customer or consumer. It is the aggregate of cost of goods sold, administrative costs, marketing costs and other separate line items of cost which could not form part of cost of production. TEST YOUR KNOWLEDGE Multiple Choice Questions (MCQs) 1. Generally, for the purpose of cost sheet preparation, costs are classified on the basis of: (a) Functions (b) Variability (c) Relevance (d) Nature  COST SHEET 6.21 a 2. Which of the following does not form part of prime cost: (a) Cost of packing (b) Cost of transportation paid to bring materials to factory (c) GST paid on raw materials (input credit cannot be claimed) (d) Overtime premium paid to workers. 3. A Ltd. received an order, for which it purchased a special frame for manufacturing, it is a part of: (a) Direct Materials (b) Direct expenses (c) Factory Overheads (d) Administration Overheads 4. Salary paid to plant supervisor is a part of (a) Direct expenses (b) Factory overheads (c) Quality control cost (d) Administration cost 5. Depreciation of director’s laptop is treated as a part of: (a) Administration Overheads (b) Factory Overheads (c) Direct Expenses (d) Research & Development cost. 6. A manufacture has set-up a lab for testing of products for compliance with standards, salary of this lab staffs are part of: (a) Works overheads (b) Quality Control Cost (c) Direct Expenses (d) Research & Development Cost.  a 6.22 COST AND MANAGEMENT ACCOUNTING 7. Audit fees paid to auditors is part of: (a) Administration Cost (b) Production cost (c) Selling & Distribution cost (d) Not shown in cost sheet. 8. Salary paid to factory store staff is part of: (a) Factory overheads (b) Production Cost (c) Direct Employee cost (d) Direct Material Cost. 9. Canteen expenses for factory workers are part of: (a) Factory overhead (b) Administration Cost (c) Marketing cost (d) None of the above. 10. A company pays royalty to State Government on the basis of production, it is treated as: (a) Direct Material Cost (b) Factory Overheads (c) Direct Expenses (d) Administration cost. Theoretical Questions 1. DESCRIBE how costs are classified on the basis of function. 2. EXPLAIN the treatment of administration overheads. 3. STATE the advantages of a cost sheet.  COST SHEET 6.23 a Practical Problems 1. The books of Adarsh Manufacturing Company present the following data for the month of April: Direct labour cost ` 17,500 being 175% of works overheads. Cost of goods sold excluding administrative expenses ` 56,000. Inventory accounts showed the following opening and closing balances: April 1 (`) April 30 (`) Raw materials 8,000 10,600 Work-in-progress 10,500 14,500 Finished goods 17,600 19,000 Other data are: (` ) Selling expenses 3,500 General and administration expenses 2,500 Sales for the month 75,000 You are required to: (i) FIND out the value of materials purchased. (ii) PREPARE a cost statement showing the various elements of cost and also the profit earned. 2. From the following particulars, you are required to PREPARE monthly cost sheet of Aditya Industries: (` ) Opening Inventories: - Raw materials 12,00,000 - Work-in-process 18,00,000 - Finished goods (10,000 units) 9,60,000  a 6.24 COST AND MANAGEMENT ACCOUNTING Closing Inventories: - Raw materials 14,00,000 - Work-in-process 16,04,000 - Finished goods ? Raw materials purchased 1,44,00,000 GST paid on raw materials purchased (ITC 7,20,000 available) Wages paid to production workers 36,64,000 Expenses paid for utilities 1,45,600 Office and administration expenses paid 26,52,000 Travelling allowance paid to office staffs 1,21,000 Selling expenses 6,46,000 Machine hours worked- 21,600 hours Machine hour rate- ` 8.00 per hour Units sold- 1,60,000 Units produced- 1,94,000 Desired profit- 15% on sales 3. 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 Works cost per unit ( `) 10% 400 20% 390 30% 380 40% 370 50% 360 60% 350 70% 340 80% 330 90% 320 100% 310  COST SHEET 6.25 a Its 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. 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 `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. 4. The following figures are extracted from the Trial Balance of G.K Co. on 31 st March: Dr. Cr. (`) (`) Inventories: Finished Stock 80,000 Raw Materials 1,40,000 Work-in-Process 2,00,000 Office Appliances 17,400 Plant & Machinery 4,60,500 Building 2,00,000  a 6.26 COST AND MANAGEMENT ACCOUNTING Sales 7,68,000 Sales Return and Rebates 14,000 Materials Purchased 3,20,000 Freight incurred on Materials 16,000 Purchase Returns 4,800 Direct employee cost 1,60,000 Indirect employee cost 18,000 Factory Supervision 10,000 Repairs and factory up-keeping expenses 14,000 Heat, Light and Power 65,000 Rates and Taxes 6,300 Miscellaneous Factory Expenses 18,700 Sales Commission 33,600 Sales Travelling 11,000 Sales Promotion 22,500 Distribution Deptt.—Salaries and Expenses 18,000 Office Salaries and Expenses 8,600 Interest on Borrowed Funds 2,000 Further details are available as follows: (i) Closing Inventories: Finished Goods 1,15,000 Raw Materials 1,80,000 Work-in-Process 1,92,000 (ii) Outstanding expenses on: Direct employee cost 8,000 Indirect employee cost 1,200 Interest on Borrowed Funds 2,000  COST SHEET 6.27 a (iii) Depreciation to be provided on: Office Appliances 5% Plant and Machinery 10% Buildings 4% (iv) Distribution of the following costs: Heat, Light and Power to Factory, Office and Distribution in the ratio 8 : 1 : 1. Rates and Taxes two-thirds to Factory and one-third to Office. Depreciation on Buildings to Factory, Office and Selling in the ratio 8 : 1 : 1. With the help of the above information, you are required to PREPARE a condensed Profit and Loss Statement of G.K Co. for the year ended 31 st March along with supporting schedules of: (i) Cost of Sales. (ii) Selling and Distribution Expenses. (iii) Administration Expenses ANSWERS Answers to the MCQs 1. (a) 2. (a) 3. (b) 4. (b) 5. (a) 6. (b) 7. (a) 8. (a) 9. (a) 10. (c) Answers to the Theoretical Questions 1. Please refer paragraph 2 2. Please refer paragraph 3.4 3. Please refer paragraph 4.3  a 6.28 COST AND MANAGEMENT ACCOUNTING Answers to the Practical Problems 1. (i) Computation of the value of materials purchased To find out the value of materials purchased, reverse calculations from the given data can be presented as below: Particulars (`) Cost of goods sold 56,000 Add: Closing stock of finished goods 19,000 Less: Opening stock of finished goods (17,600) Cost of production 57,400 Add: Closing stock of work-in-progress 14,500 Less: Opening stock of work-in-progress (10,500) Works cost 61,400  `17,500 100  (10,000) Less: Factory overheads:    175  Prime cost 51,400 Less: Direct labour (17,500) Raw material consumed 33,900 Add: Closing stock of raw materials 10,600 Raw materials available 44,500 Less: Opening stock of raw materials ( 8,000) Value of materials purchased 36,500  COST SHEET 6.29 a (ii) Cost statement (`) Raw material consumed [Refer to statement (i) above] 33,900 Add: Direct labour cost 17,500 Prime cost 51,400 Add: Factory overheads 10,000 Works cost 61,400 Add: Opening work-in-progress 10,500 Less: Closing work-in-progress (14,500) Cost of production 57,400 Add: Opening stock of finished goods 17,600 Less: Closing stock of finished goods (19,000) Cost of goods sold 56,000 Add: General and administration expenses 2,500 Add: Selling expenses 3,500 Cost of sales 62,000 Profit (Balance figure ` 75,000 – ` 62,000) 13,000 Sales 75,000 2. Cost sheet of Aditya Industries for month of…… Units produced- 1,94,000 Units sold- 1,60,000 Particulars (`) Cost per unit (`) Raw materials purchased 1,44,00,000 Add: Opening value of raw materials 12,00,000 Less: Closing value of raw materials (14,00,000) Materials consumed 1,42,00,000 73.19  a 6.30 COST AND MANAGEMENT ACCOUNTING Wages paid to production workers 36,64,000 18.89 Expenses paid for utilities 1,45,600 0.75 Prime Cost 1,80,09,600 92.83 Factory overheads (` 8 × 21,600 hours) 1,72,800 Add: Opening value of W-I-P 18,00,000 Less: Closing value of W-I-P (16,04,000) Cost of Production 1,83,78,400 94.73 Add: Value of opening finished stock 9,60,000 Less: Value of closing finished stock (` (41,68,120) 94.73 × 44,000) Cost of Goods Sold 1,51,70,280 94.81 Office and administration expenses 26,52,000 16.58 paid Travelling allowance paid to office 1,21,000 0.75 staffs Selling expenses 6,46,000 4.04 Cost of Sales 1,85,89,280 116.18 Add: Profit 32,80,461 20.50 2,18,69,741 136.68 3. Cost Sheet (For the month) Level of Capacity 30% 100% 30,000 units 1,00,000 units Per Total Per Total unit (`) unit (`) (`) (`) Works Cost 380.00 1,14,00,000 310.00 3,10,00,000 Add: Fixed 5.00 1,50,000 1.50 1,50,000 administration expenses  COST SHEET 6.31 a Add: Fixed marketing 8.33 2,50,000 2.50 2,50,000 expenses Add: Variable 30.00 9,00,000 30.00 30,00,000 distribution cost Add: Special Costs: - Gift items costs — — 30.00 30,00,000 - Customers’ prizes* — — 1.00 1,00,000 - Refreshments — — 1.00 1,00,000 - Television programme — — 20.00 20,00,000 sponsorship cost Cost of sales 423.33 1,27,00,000 396.00 3,96,00,000 Profit (Balancing figure) 126.67 38,00,000 104.00 1,04,00,000 Sales revenue 550.00 1,65,00,000 500.00 5,00,00,000 *Customers’ prize cost: Amount (`) 1 Prize st 50,000 2nd Prize 25,000 3 Prize rd 10,000 Consolation Prizes (3 × `5,000) 15,000 Total 1,00,000 4. Profit and Loss Statement of G.K Co. for the year ended 31st March (`) (`) Gross Sales 7,68,000 Less: Returns and rebates (14,000) 7,54,000 Less: Cost of Sales (excluding interest on (7,14,020) borrowed funds) [Refer to Schedule (i)] Net Operating Profit 39,980 Less: Interest on borrowed funds (4,000) (2,000+2,000) Net Profit 35,980  a 6.32 COST AND MANAGEMENT ACCOUNTING (i) Schedule of Cost of Sales (`) (`) Raw Material (Inventory opening balance) 1,40,000 Add: Material Purchased 3,20,000 Add: Freight on Material 16,000 Less: Purchase Returns (4,800) 3,31,200 4,71,200 Less: Closing Raw Material Inventory (1,80,000) Materials consumed in Production 2,91,200 Direct employee cost (`1,60,000 + `8,000) 1,68,000 Prime Cost 4,59,200 Factory Overheads: Indirect employee cost (`18,000 + `1,200) 19,200 Factory Supervision 10,000 Repairs and factory up-keeping expenses 14,000 Heat, Light and Power (`65,000 × 8/10) 52,000 Rates and Taxes (`6,300 × 2/3 rd) 4,200 Miscellaneous Factory Expenses 18,700 Depreciation of Plant (10% of `4,60,500) 46,050 Depreciation of Buildings (4% of `2,00,000 × 6,400 1,70,550 8/10) Gross Works Cost 6,29,750 Add: Opening Work-in-Process inventory 2,00,000 Less: Closing Work-in-Process inventory (1,92,000) Cost of production 6,37,750  COST SHEET 6.33 a Add: Opening Finished Goods inventory 80,000 Less: Closing Finished Goods inventory (1,15,000) Cost of Goods Sold 6,02,750 Add: Administration Expenses [See 18,870 Schedule (iii)] Add: Selling and Distribution Expenses 92,400 [See Schedule (ii)] Cost of Sales (excluding interest on 7,14,020 borrowed funds) Alternatively, Interest on borrowed funds of ` 4,000 (` 2,000 + ` 2,000) may be added to arrive at cost of sales. (ii) Schedule of Selling and Distribution Expenses (`) Sales Commission 33,600 Sales Travelling 11,000 Sales Promotion 22,500 Distribution Deptt.—Salaries and Expenses 18,000 Heat, Light and Power 6,500 Depreciation of Buildings 800 92,400 (iii) Schedule of Administration Expenses (`) Office Salaries and Expenses 8,600 Depreciation of Office Appliances 870 Depreciation of Buildings 800 Heat, Light and Power 6,500 Rates and Taxes 2,100 18,870