Course Name: 2T7 - Cost Accounting

RTMNU-MBA(Outcome based CBCS)/Semester-II/Summer 2020/Question Bank
2020
Course Name: 2T7 – Cost Accounting

Module 1
Conceptual framework of Cost Accounting: Basic Concepts of Cost Accounting, Objectives,

Importance and Advantages of Cost Accounting, Cost Centre, Cost Unit, Elements of Cost, Classification
and Analysis of Costs, Relevant and Irrelevant Costs, Differential Costs, Sunk Cost, Opportunity Cost. Unit
& Output Costing - Preparation of Cost Sheet and Tender/Quotations.
CO 1: Given the information about basic conceptual framework of cost, the student will be able of
identify/ classify different elements/classification of cost and will be able to prepare cost sheet and
prepare quotations for various business proposals
Question 1:
The following are the costing records for the year 2017 of a manufacturer:
Production 10,000 units;

Cost of Raw Materials 2,00,000
Labour Cost 1,20,000
Factory Overheads 80,000
Office Overheads 40,000
Selling Expenses 10,000
Rate of Profit 25% on the Selling Price.
The manufacturer decided to produce 15,000 units in 2018. It is estimated that the cost of raw materials
will increase by 20%, the labour cost will increase by 10%, 50% of the overhead charges are fixed and
the other 50% are variable. The selling expenses per unit will be reduced by 20%. The rate of profit will
remain the same.
Prepare a Cost Statement for the year 2017 showing the total profit and selling price per unit and also
prepare estimated statement of cost for the year 2018
Solution:-
Statement of Cost & Profit (Cost Sheet)

Production :- 10,000 Units Period :-1 Year
Particulars Per Unit Amount Amount
Raw Material 20.00 2,00,000
(+) Labour 12.00 1,20,000
(=) Prime cost 32.00 3,20,000
(+) Factory on cost
Factory overheads 8.00 80,000
(=) Factory cost 40.00 4,00,000
(+) Office on cost
1
2020
Office overheads 4.00 40,000
(=) Office cost/cost of production 44.00 4,40,000
(+) Selling and distribution on cost
Selling expenses 1.00 10,000
(=) Total cost 45.00 4,50,000
(+) Profit 15.00 1,50,000
Sales 60.00 6,00,000
Estimated statement of cost
Particulars Per Unit Amount

Raw Material(20 x 120% x 15,000) 24.00 3,60,000
(+) Labour(12 x 110% x 15,000) 13.20 1,98,000
(=) Prime cost 37.20 5,58,000
(+) Factory on cost
Factory overheads 6.67 1,00,000
(80,000 x 50% + 4 x 15,000)
(=) Factory cost 43.87 6,58,000
(+) Office on cost
Office overheads 3.33 50,000
(40,000 x 50% + 2 x15,000)
(=) Office cost/cost of production 47.20 7,08,000
(+) Selling and distribution on cost
Selling expenses(1x 80% x 15,000) 0.80 12,000
(=) Total cost 48.00 7,20,000
(+) Profit(25% on Selling Price or 33.33% on 16.00 2,40,000
Costof Sales)
Sales 64.00 9,60,000
Question 2:
The following details are available from a company’s books:
Stock of raw material on 1-1-2019 Rs. 10,800

Stock of finished goods on 1-1-2019 Rs. 28,000
Purchases during the year Rs.2,94,000
Productive wages Rs.1,98,000
Sale of finished goods Rs.5,92,000
Stock of finished goods on 31-12-2019 Rs.30,000
Stock of raw material on 31-12-2019 Rs.13,600
2
2020
Works overhead Rs.43,376
Office expenses Rs.35,524
The company is about to send a tender for large plant. The costing department estimates that the
material required for its production would cost Rs. 20,000 and wages for making the plant would cost
Rs.12,000. Tender is to be made keeping a net profit of 20% on the selling price. State what would be
the amount of the tender, if based on the percentages?
Solution:
Cost sheet for the year ending 31-12-2019
Particulars Amount Rs. Amount Rs.

Stock of raw material (on 1-1-2019) 10,800
Add: Purchases 2,94,000
3,04,800
Less: Stock of raw material (on 31-12-2019) 13,600
Materials consumed 2,91,200
Productive wages 1,98,800
Prime Cost 4,90,000
Works overhead 43,736
Works Cost 5,33,736
Office expenses 35,524
Cost of Production 5,69,260
Add: Stock of finished goods (on l-l-2019) 28,000
5,97,260
Less: Stock of finished goods (on 31-12-2019) 30,000
Cost of Goods Sold 5,67,260
Profit 24,740
Sales 5,92,000
Working Notes:
(a) Percentage of works overheads to productive wages = (43,736/1,98,800 )x100 = 22%

(b) Percentage of office expenses to the works cost = (35,524/5,33,736)x100 = 6.656%
Calculation of Amount of Tender
Particulars Amount Rs.

Material cost 20,000
Wages 12,000
Prime cost 32,000
Works Overhead (22% of wages) 2,640
Works cost 34,640
Office expenses (6.656% of works cost) 2,306
Cost of Production 36,946
Profit 25% of cost or 20% of selling price 9,237
TENDER PRICE 46,183
3
2020
Question 3:
From the following information, prepare a cost sheet for period ended on 31st March 2006.
Rs.
Opening stock of raw material 12,500
Purchases of raw material 1,36,000
Closing stock of raw material 8,500
Direct wages 54,000
Direct expenses 12,000
Factory overheads 100% of direct wages
Office and administrative overheads 20% of works cost
Selling and distribution overheads 26,000
Cost of opening stock of finished goods 12,000
Cost of Closing stock of finished goods 15,000 Profit on cost 20%
Solution:
Cost sheet
Details Amount (Rs.)
Opening ‘stock of raw material 12500
Add: Purchases 136000
148500
Less: Closing stock of raw material 8500 1,40,000

54,000
Direct wages Direct
expenses 12,000
Prime cost 2,06,000

Factory overheads: 100% of direct wages
54,000
2,60,000
Works cost
4
2020
Office and administrative overheads

52,000
20% of works cost, (2,60,000 × 20/100)
3,12 000
Total cost of production
Add : opening stock of finished goods Cost of Goods 12,000
available for sale 3,24,000
Less : Closing stock of finished goods 15,000
Cost of goods sold 3,09,000
Selling and distribution overheads 26,000
Total Cost = cost of sales 3,35,000
67,000
Profit (20% On Cost i.e. 3,35,00 × 20/100)
4,02,000
Sales
Question 4:
In respect of a factory the following particulars have been extracted for the year 2013:
Particulars Rs.
Cost of Materials 6,00,000
Wages 5,00,000
Factory Overheads 3,00,000
Administration Charges 2,24,000
Selling Charges 1,40,000
Distribution Charges 4,20,000
A work order has to be executed in 2014 and the estimated expenses are:
Material Rs. 8,000, Wages Rs. 5,000.
Assuming that in 2014, the rate of factory overheads has gone up by 20%, distribution charges have
gone down by 10% and the Selling & Administration charges have gone each up by 15%, at what price
should the product be sold so as to earn the same rate of profit on the selling price as in 2013?
Factory overheads are based on wages and administration, selling & distribution overheads on factory
cost.
Solution:
Statement of Cost
5
2020
For the year 2013
Direct Materials 6,00,000
Wages 5,00,000
Prime Cost 11,00,000
Factory overheads 3,00,000
Factory or Work Cost 14,00,000
Administration charges 3,36,000
Selling charges 2,24,000
Distribution Charges 1,40,000
Total Cost or Cost of Sales 21,00,000
Profit 4,20,000
Sales 25,20,000
Working Note:
Calculation of Rates:
1. Factory overhead as a percentage of wages = 300000 * 100 = 60%
500000
2. Administration charges as a percentage of factory cost = 336000 * 100 = 24%
1400000
3. Selling charges as a percentage of factory cost = 224000 * 100 = 16%
1400000
4. Distribution charges as a percentage of factory cost = 140000 * 100 = 10%
1400000
5. Profit as a of total cost = 420000 * 100 = 20%
2100000
Statement of Estimated Cost and Profit on work order in 2014

Material 8000
Wages 5000
Prime Cost 13000
Factory Overhead (60% of wages, increased by 20%, i.e. 72%) 3600
Factory Cost 16600
Administration Charges (24% of factory cost, increased by 15%, i.e. 27.6%) 4581
Cost of Production 21181
Selling charges (16% of factory cost, increased by 15%, i.e., 18.4%) 3054
Distribution charges (10% of factory cost, decreased by 10%, 9%) 1494
Cost of Sales 25729
6
2020
Profit (20% on cost of Sales) 5146
Price to be quoted 30875
Question 5:
The data pertaining to Heavy Engineering Ltd. using are as follows at the end of 31.3.2017.
Direct material 9,00,000;

Direct wages 7,50,000;
Selling and distribution overhead 5,25,000;
Administrative overhead 4,20,000,
Factory overhead 4,50,000 and
Profit 6,09,000.
(a) Prepare a cost sheet showing all the details.
(b) For 2017-18, the factory has received a work order. It is estimated that the direct materials
would be Rs.12,00,000 and direct labour cost Rs.7,50,000. What would be the price of work
order if the factory intends to earn the same rate of profit on sales, assuming that the selling
and distribution overhead has gone up by 15%? The factory recovers factory overhead as a
percentage of direct wages and administrative and selling and distribution overheads as a
percentage of works cost, based on the cost rates prevalent in the previous year.
Solution:-
Statement of Cost & Profit (Cost Sheet)

Particulars Amount
(+) Direct Wages 7,50,000
(=) Prime cost 16,50,000
(+) Factory Overheads (60% of wages) 4,50,000
(=) Factory cost (Work Cost) 21,00,000

(+) Administrative Overheads (20% of work Cost) 4,20,000
(=) Office cost/cost of production 25,20,000

(+) Selling and distribution (25% of Work Cost) 5,25,000
(=) Total cost 30,45,000

(+) Profit (1/5 of cost) 6,09,000
Sales 36,54,000
7
2020
Estimated Price of Work Order
Particulars Amount
Direct Wages (or labour) 7,50,000
Factory Overheads (60% of wages) 4,50,000
Works Cost 24,00,000
Administration Overhead (20% of works cost) 4,80,000
Selling & Distribution Overheads 9,60,000
(40% i.e., 25 % + 15% of Works Cost)
Total Cost 38,40,000
Profit (1/5 of Total Cost) 7,68,000
Estimated Sales price 46,08,000
Question 6:
From the under mentioned particulars, prepare a cost sheet of a Brick Works showing Cost and Profit
per 1,000 bricks.
Wages (clay- getting machines, drying, setting, burning, drawing, sorting, loading) – Rs. 1,50,000
Coal – 5,000 tons at Rs. 15 per ton ; Royalties : Rs. 1.50 per 1,000 bricks made
Depreciation of Plant and Machinery at 10% (capital outlay Rs. 3,00,000)
Removable of overburden at One Rupee per 1,000 Bricks
Works Overhead: 10% of wages and coal; Bricks made: 1,01,52,284 (allow for waste at 1 ½% of output)
Stock of Brick on 1st Jan, 2019: 20,00,000 at Rs.30 per 1,000.
Solution:
Cost Sheet for the year ended 31st Dec 2019
Cost /1,000
Gross Output (1,10,52,284 less 1 ½%) waste effective Total Cost
Bricks
Output : 1,00,00,000 Bricks Rs. Rs.
Wages (clay- getting machines, drying, setting, burning, drawing, 1,50,000 15.00
sorting, loading)
Coal (5,000 tons at Rs. 15 per ton) 75,000 7.50
Royalties (Rs. 1.50 per 1,000 Bricks) 15,000 1.50
Prime Cost 2,40,000 24.00
(+) Works Expenses:
Removal of Overburden at Re. 1 per 1,000 Bricks 10,000 1.00
8
2020
Depreciation on Plant and Machinery at 10% on Rs. 3,00,000 30,000 3.00
Works Overhead (10% of Wages & Coal i.e. 2,25,000 x 10/100) 22,500 2.25
3,02,500 30.25
(+) Works Cost:
Office Overhead (2 ½ %of wages and coal: 2,25,000 x5/2 x 1/100 5,625 0.5625
Cost of Production 3,08,125 30.8125
Statement of Profit
Particulars Bricks (in 1,000) Total Amount
st
Stock on 1 January 2,000 60,000
(+ )Output for the year 10,000 3,08,125
12,000 3,68,125
st
(-) Closing Stock on 31 Dec 4,000 1,20,000
Cost of Bricks sold during the year 8,000 2,48,125
Profit on Sales 71,825
Sales (Rs. 40 per 1,000) 3,20,000
Question 7:
PR Ltd. manufactures and sells a typical brand of Tiffin Boxes under its on brand name. The installed
capacity of the plant is 1,20,000 units per year distributable evenly over each month of calendar year.
The Cost Accountant of the company has informed the following cost structure of the product, which is
as follows:
Raw Material Rs.20 per unit
Direct Labour Rs.12 per unit
Direct Expenses ` 2 per unit
Variable Overheads Rs.16 per unit.
Fixed Overhead ` 3,00,000.
Semi-variable Overheads are as follows:
7,500 per month upto 50% capacity & Additional 2,500 per month for every additional 25% capacity
utilization or part thereof.
The plant was operating at 50% capacity during the first seven months of the calendar year 2016, at
100% capacity in the remaining months of the year.
The selling price for the period from 1st Jan, 2016 to 31st July, 2016 was fixed at Rs. 69 per unit. The firm
has been monitoring the profitability and revising the selling price to meet its annual profit target of Rs.
8,00,000. You are required to suggest the selling price per unit for the period from 1st August 2016 to
31st December 2016.
Prepare Cost Sheet clearly showing the total and per unit cost and also profit for the period.
1. from 1st Jan. to 31st July, 2016
9
2020
2. from 1st Aug. to 31st Dec, 2016.
Solution:
Cost Sheet for the period

Particulars 50% capacity utilization (10000 100% capacity utilization – 50000
units P.M) – 35000 units, seven units, Five months
months 1st Jan to 31st July, 2016 1st Aug to 31st Dec, 2016
Raw Materials 7,00,000 10,00,000
Direct Labour 4,20,000 6,00,000
Direct Expenses 70,000 1,00,000
Variable overheads 5,60,000 8,00,000
Fixed Overheads 1,75,000 1,25,000
Semi-Variable Overheads 52,500 62,500
Total Costs 19,77,500 26,87,500
Profit 4,37,500 3,62,500
Sales 24,15,000 30,50,000
Selling Price Per Unit 69.00 61.00
Cost Per Unit 56.50 53.75
Question 8:
L .K . Works can produce 1,20,000 units per annum at its optimum (100%) capacity. The estimated cost
of production are as under: Direct Material = Rs.8 per unit, Direct Labour = Rs.5 per unit. Indirect
Expenses: Fixed = Rs.1,50,000 pa, Variable = Rs.5 per unit. Semi variable expenses are Rs.50,000 pa up to
50 % capacity and extra expenses of Rs.10,000 for every 25% increase in capacity or part thereof.
The factory produced only against orders and not for own stock. If the production programme of the
factory is as indicated below; and the management desires to ensure a profit of Rs.3,00,000 for the year,
work out the average selling price at which unit should be quoted.
First 3 months = 50 % capacity
Remaining 3 months = 80 % capacity
Ignore selling, distribution, and administration overheads.
Solution:
Particulars Amount Amount

Direct Materials (87,000x 8pu) 6,96,000
Direct Labour (87,000 x 5pu) 4,35,000
Indirect Expenses:
Fixed: 1,50,000
10
2020
Variable (87,000 x 5) 4,35,000
Semi Variable: First 3 months (50% Capacity) 50,000 x 3/12
Remaining 9 months (80% capacity) 70000 x 9/12 65,000 6,50,000
Estimated Profit 3,00,000
Estimated Sales Revenue (SPPU @Rs.23.92/-) 20,81,000
Working Note:
Output: First 3 months at 50% capacity = (120000*50/100)*3/12 = 15,000 units
Reaming 9 months at 80 % capacity = (120000*80/100)*9/12 = 72,000 units
Total Units Produced = 15,000+72000 = 87,000 units
Question 9:
M/s. M. T. Shoe Co. manufactures two types of shoes A and B. Production costs for the year ended 31 st
March 2018 were:
Rs.
Direct Material 15, 00,000

Direct Wages 8, 40,000
Production overhead 3, 60,000
--------------
27, 00,000
There was no Work-in-progress at the beginning or at the end of the year. It is

ascertained that
a) Direct material in type A shoes consists twice as much as that in type B shoes.
b) The direct wages for type B shoes were 60% of those for type A shoes.
c) Production overhead was the same pre pair of A and B type.
d) Administrative overhead for each type was 150% of direct wages.
e) Selling cost was Rs. 1.50 per pair.
f) Production during the year were:
Type A 40,000 pairs of which 36,000 were sold
Type B 1, 20,000 pairs of which 1, 00,000 were sold.
g) Selling price was Rs. 44 for type A and Rs. 28 for type B.
Prepare a Statement showing Cost and Profit.
Solution:
Statement of Cost and Profit
For the year ending 31st March 2018
Praticulars Type A Type B

Total (Rs.) Per Pair (Rs.) Total (Rs.) Per Pair (Rs.)
Direct Material 6,00,000 15.00 9,00,000 7.50
11
2020
Direct Wags 3,00,000 7.50 5,40,000 4.50
Prime Cost 9,00,000 22.50 14,40,000 12.00
Production Overhead 90,000 2.25 2,70,000 2.25
Production Cost 9,90,000 24.75 17,10,000 14.25
Administrative Expenses 4,50,000 11.25 8,10,000 6.75
Cost of Production 14,40,000 36.00 25,20,000 21.00
Less: Closing Stock 1,44,000 4,20,000
Cost of Goods Sold 12,96,000 36.00 21,00,000 21.00
Selling Expenses 54,000 1.50 1,50,000 1.50
Cost of Sales 13,50,000 37.50 22,50,000 22.50
Profit 2,34,000 6.50 5,50,000 5.50
Sales 15,84,000 44.00 28,00,000 28.00
Note: Material Cost is to be allocated as follows:-

Let Type B Material Cost = x
So, Type A Material Cost would be = 2x
1,20,000x + 80,000x =15,00,000
x = 15,00,000/2,00,000 = 7.50 per pair
For A Type = Rs. 15
Wages:-
Let x be the labour charges for A type
So, for B type it would be 60x/100
40,000x + 1,20,000 x 6x/10 = 8,40,000
40,000x + 72,000x =8,40,000
x = 7.50 per pair
For B type = 7.50 x 6/10 = 4.50 per pair
Production Overhead:-
Production overhead is to be distributed in the ratio of production as the charge for each pair is same.
Module 2
Marginal Costing And Profit Volume Relationship And Decision Making :- Introduction, Application of
Marginal costing in terms of cost control, profit planning, dropping a product line, fixation of selling
price, make or buy decisions, key or limiting factor, selection of suitable product mix, desired level of
profits, level of activity planning- Break-even-analysis: Application of BEP for various Business problems
CO 2: Given an information about cost, volume and profit for specific product for mention time period, a
student will able to compute Break-even point, Margin of safety, Profit volume ratio, desired profit /
12
2020
desired sales as well as able to evaluate the decision making proposals(suitable product mix / dropping
a product line / fixation of selling price / make or buy decisions/Key Factor Analysis)
Question 1:
Present the following information to show to management:

(i) The marginal product cost and the contribution p.u.
(ii) The total contribution and profits resulting from each of the following sales mix results.
Particulars Product Per unit
`
Direct Materials A 10
Direct Materials B 9
Direct wages A 3
Direct wages B 2
Fixed Expenses – ` 800

(Variable expenses are allotted to products at 100% Direct Wages)
Sales Price ----- A ` 20
Sales Price ----- B `15
Sales Mixtures: (a) 100 units of Product A and 200 of B.
(b) 150 units of Product A and 150 of B.
(c) 200 units of Product A and 100 of B
Solution:
(i) Statement of Marginal Product cost
Sr. No. Particulars A B

RS Rs
I. Selling price 20.00 15.00
II. Variable cost 10.00 9.00
Direct material 3.00 2.00
Direct wages 3.00 2.00
Variable OHs (100% of direct wages)
16.00 13.00
III. Contribution (I – II) 4.00 2.00
(ii) Profit at Mix (a):
Particulars A B Total
I. No. of units 100 200
II. ‘C’ per unit 4 2
13
2020
III. Total contribution (II x I) 400 400 800
IV. Fixed cost 800
V. Profit (III - IV) NIL
(ii) Profit at Mix (b):
III. Total contribution (II x I) 600 300 900
IV. Fixed cost 800
V. Profit (III - IV) 100
Profit at Mix (c):
III. Total contribution (II x 800 200 1000
I)
IV. Fixed cost 800
V. Profit (III - IV) 200
here ‘C’ means ‘Contribution’ .
Question 2:
The following budget has been prepared at 70% level of home market:
Units 4,200
Wages Rs. 12,600
Materials Rs. 21,000
Fixed cost Rs. 7,000
Variable cost Rs. 2,100
Total Rs. 42,700
The selling price in India is Rs. 15. In Sri Lanka about 800 units may be sold only at Rs. 10 and in addition
25 paise per unit will be expenses as freight etc, Do you advise trying for the market in the Sri Lanka?
Solution:
Particulars India Sri Lanka Total

( 4,200 units) (800 units) (5000 units)
Rs. Rs. Rs.
Sales (units x price) (A) 63,000 8,000 71,000
Materials (Rs. 5 per unit) 21,000 4,000 25,000
14
2020
Wages (Rs. 3 per unit) 12,600 2,400 15,000
Variables(Rs. 0.50 per unit) 2,100 400 2,500
Freight (Only for Sri Lanka Rs. --- 200 200
0.25 per unit)
Marginal cost (B) 35,700 7,000 42,700
Contribution (A – B ) 27,300 1,000 28,300
Less: Fixed cost 7,000 --- 7,000
20,300 1,000 21,300
Suggestion: It is advisable to try for the Sri Lankan market at Rs. 10 per unit as by doing so, there is an
increase of Rs. 1000.
Question 3:
Pepsi Company produces a single article. Following cost data is given about its product:‐
Selling price per unit Rs.40

Marginal cost per unit Rs.24
Fixed cost per annum Rs. 16000
Calculate:
(a) P/V ratio, (b) break even sales, (c) sales to earn a profit of Rs. 2,000, (d) Profit at sales of
Rs. 60,000 and (e) New break even sales, if price is reduced by 10%.
Solution:
We know that (S‐v) /S= F + P OR s x P/V Ratio = Contribution So, (A) P/V Ratio =
Contribution/sales x 100
= (40‐24)/40 x 100 = 16/40 x 100 OR 40%

(B) Break even sales
S x P/V Ratio = Fixed Cost
(At break even sales, contribution is equal to fixed

cost) Putting this values: s x 40/100 = 16,000
S = 16,000 x 100 / 40 = 40,000 OR 1000 units
(C) The sales to earn a profit of Rs. 2,000
S x P/V Ratio = F + P
Putting this values: s x 40/100 = 16000 +

2000 S = 18,000 x 100/40
15
2020
S = Rs. 45,000 OR 1125 units

(D) Profit at sales of 60,000
S x P/V Ratio = F + P
Putting this values: Rs. 60,000 x 40/100 = 16000

+ P 24,000 = 16000 + P
24,000 – 16,000 = P
8,000
(E) New break even sales, if sale price is reduced by10%

New sales price = 40‐10% = 40‐4 = 36
Marginal cost =
Rs. 24
Contribution = Rs. 12
P/V Ratio = Contribution/Sales
= 12/36 x100 OR 33.33%
Now, s x P/V Ratio = F (at B.E.P. contribution is equal to

fixed cost) S x 100/300 = Rs.16000
S = 16000 x 300/100
S= Rs.48,000.
Question 4:
A company has a P/V ratio of 40%. By what percentage must sales be increased to offset the reduction
in selling price?
a. 10% reduction in selling price
b. 20% reduction in selling price
Solution:
If the sales are 100 units @ Rs. 1 per unit then:
Sales Rs. 100
Contribution Rs. 40
Variable Cost Rs. 60
a. If selling price is reduced by 10%
Sale Rs. 90
16
2020
Contribution Rs. 30
Volume of sales to maintain the same contribution will be equal to:
= Contribution * New Sales = 40 * 90 = Rs. 120
New Contribution 30
Thus if the selling price is reduced by 10%, the volume of the sales will have to be increased by 20%.
b. If the selling price is reduced by 20%
New Sales Rs. 80
New Contribution Rs. 20
In order to maintain the same contribution, the volume of sales should be:
= 40 * 80 = Rs. 160
20
Thus if the selling price is reduced by 20%, the sales will have to be increased by 60%.
Question 5:
A company manufactures scooters and sells it at Rs.3,000 each. An increase of 17% in cost of materials
and of 20% of labour cost is anticipated. The increased cost in relation to the present sales price would
cause at 25% decrease in the amount of the present gross profit per unit.
At present, material cost is 50%, wages 20% and overhead is 30% of cost of sales.
You are required to :
(a) Prepare a statement of profit and loss per unit at present and;
(b) Compute the new selling price to produce the same percentage of profit to cost of sales as before.
Solution:
Let X and Y be the cost and profit respectively.
X + Y = 3,000 → (1)
Material = X x 50/100 = 0.5X
Labour = X x 20/100 = 0.2X
Overheads = X x 30/100 = 0.3X
After increase of cost:
Material = 0.5 X x 117/100 = 0.585 X
Labour = 0.2X x 120/100 = 0.240 X
Overheads = 0.300 X
17
2020
= 1.125 X
Profit = Y x 75/100 = 0.75Y

∴ New Equation 1.125X + 0.75Y = 3,000 → (2)
Multiplying Eq. (1) by 0.75 0.75X + 0.75Y = 2,250
0.375X = 750
X = 750/0.375 = ` 2,000
Y = 3,000 – 2,000 = ` 1,000
Statement of cost & profit per unit at present:
Material = 2,000 x 50% = 1,000

Labour = 2,000 x 20% = 400
Overheads = 2,000 x 30% = 600
= 2,000
(+) profit @ 50% of cost = 1,000
= 3,000
Computation of new selling price to get same percentage of profit:
Material = 1,000 x 117/100 = 1,170

Labour = 400 x 120/100 = 480
Overheads = 600
Cost = 2,250
(+) Profit @ 50% = 1,125
New selling price = 3,375
Question 6:
Below is the information of Sai Company:

Sales – Rs. 1,0,000; Variable cost – Rs. , 90,000; Fixed Cost – Rs. 30,000 calculate:
1) P/V Ratio; 2) BEP; 3) MOS ;4) Profit if sales is of Rs. 2,00,000; 5) Sales if profit is Rs. 60,000; 6) MOS if
Sales is of RS. 1,20,000, 7) MOS if profit is Rs. 70,000; 8) Additional sales required to cover an increase
of Rs. 10,000 in sales Manager salary and 9) Sales if P/V ratio is 30%.
Solution:
18
2020
Marginal Cost Statement 1) PVR -Profit volume Ratio P/V ratio
= C x 100
Sales S 1,50,000 S
(-) Variable Cost V 90,000 = 60,000 x 100
Contribution C 60,000 1,50,000
(-) Fixed Cost F 30,000 = 40 %
Profit Pft 30,000 (If C = 40%, that means V = 60%)
3) Margin of Safety (MOS)
2) BEP (in Rs.) = F/ PVR
=Actual Sales – Sales at BEP
= 30,000 / 40%
= 1,50,000 – 75,000
= Rs. 75,000
= 25,000
4) Profit if Sales is of Rs. 2,00,000 5) Sales if Profit is Rs. 60,000

= Fixed Cost + Desired Profit FC + D/P
Marginal Cost Statement Profit Volume Ratio
Sales S 2,00,000 = 30,000 + 60,000 PVR
(-) Variable Cost V 1,20,000 40 %
Contribution C 80,000 = 2,25,000
(-) Fixed Cost F 30,000
Profit Pft 50,000
8) Additional sales required to cover an increase of Rs.
6) MOS if Sales is of Rs. 1,20,000 10,000 in sales Manager salary
=Actual Sales – Sales at BEP = FC + D/P
= 1,20,000 – 75,000 PVR
= 45,000 = 40,000 + 30,000
40%
7) MOS if Profit is of Rs. 70,000 = 1,75,000
Sales = Fixed Cost + Desired Profit
Profit Volume Ratio
= 30,000 + 70,000 9) Sales if P/V ratio is 30%
40% P/V Ratio = C / S x 100
= 2,50,000 30% = 60,000 / Sales x 100
MOS = Actual Sales – Sales at BEP Sales = 60,000 / 30 %
= 2,50,000 – 75,000 Sales = 2,00,000
= 1,75,000
Question 7:
The Dynamic company has three divisions. Each of which makes a different product. The budgeted data
for the coming year are as follows:
A B C
Sales 1,12,000 56,000 84,000
19
2020
Direct Material 14,000 7,000 14,000
Direct Labour 5,600 7,000 22,400
Direct Expenses 14,000 7,000 28,000
Fixed Cost 28,000 14,000 28,000
61,600 35,000 92,400
The Management is considering to close down the division C’. There is no possibility of reducing fixed
cost. Advise whether or not division C’ should be closed down.
Solution:
Statement showing computation of profit before closing down of division C:
Sr. Particulars A B C Total
No.
I. Sales 1,12,000 56,000 84,000 2,52,000
II. Variable cost
Direct Material 14,000 7,000 14,000 35,000
Direct Labour 5,600 7,000 22,400 35,000
Direct expenses 14,000 7,000 28,000 49,000
III. Total Variable Cost 33,600 21,000 64,400 1,19,000
IV. Contribution (i - iii) 78,400 35,000 19,600 1,33,000
V. Fixed cost 70,000
VI. Profit (iv - v) 63,000
Statement showing computation of profit after closing ‘C’:
Sr. No. Particulars A B Total

I. Sales 1,12,000 56,000 1,68,000
II. Variable cost
Direct Material 14,000 7,000 21,000
Direct Labour 5,600 7,000 12,600
Direct expenses 14,000 7,000 21,000
III. Total Variable Cost 33,600 21,000 54,600
IV. Contribution (i - iii) 78,400 35,000 1,13,400
V. Fixed cost 70,000
VI. Profit (iv - v) 43,400
Question 8:
20
2020
A Company manufactures a single product with a capacity of 1,50,000 units per year. The summarized
profitability statement for the year is as under.

Sales (1,00,000 x 15 pu) 15,00,000
Less: Direct Material 3,00,000
Direct Labour 2,00,000
Production Overheads: Variable: 60,000
: Fixed: 3,00,000
Administrative Overheads (Fixed) 1,50,000
Selling & distribution Overheads : Variable 90,000
: Fixed 1,50,000 12,50,000
Profit 2,50,000
You are required to evaluate:
1) What will be the amount of sales required to earn a target profit of 25% on sales, if packing is
improved at a cost of Rs.1 per unit?
2) There is an offer from a large retailer for purchasing 30,000 units per year. Subject to providing a
packing with a different brand name at a cost of Rs.2 per unit. In this case there will be no selling
and distribution overheads. Also this will not in any way affect the company’s existing business.
What will be the BEP from this additional offer?
3) If an expenditure of Rs.3,00,000 is made on advertising, the sales would increase from the
present level to 1,20,000 units at a price of Rs.18 per unit. Will that expenditure is justified?
4) If the selling price is reduced by Rs.2 per unit, there will be 100% capacity utilization. Wii the
reduction in selling price is justified?
Solution:
Total Fixed Cost = 3,00,000+1,50,000+1,50,000 = Rs.6,00,000

Total Variable Cost = 3,00,000+2,00,000+60,000+90,000 = Rs.6,50,000
Variable Cost per unit = 6,50,000 / 1,00,000 = Rs.6.50
Revised Variable cost per unit = 6.50 + 1 = Rs.7.50
Selling Price Per unit = 15,00,000÷ 1,00,000 = Rs.15
P.V. Ratio (Contribution / Sales x 100) = 7.5/15 x100 = 50%
1) Required salesto earn a target profit of 25% on sales:

Let sales = X
Profit is 25% of Sales = 0.25X
Desired Sales = Fixed Cost + Desired Profit / P.V. Ratio
= 6,00,000+0.25x / 0.50
Desired Sales (X) = Rs.24,00,000
2) BEP for Additional 30,000 units.

Fixed cost is being absorbed by existing activity thus only revised variable cost is relevant for BEP.
Current Variable Cost per unit = Rs.6.50
Less: Variable Selling &Distri. OH per unit = Rs.0.90
21
2020
Add: Special packing cost per unit = Rs.2.00
Revised Variable cost per unit = Rs.7.60
BEP for additional 30,000 units = 7.60 x 30,000 = Rs.2,28,000
3) Justification for Advertising cost

New Contribution per unit (S-V) = 18 – 6.5 = Rs.11.50
Total Contribution (1,20,000x 11.50) = 13,80,000
Less: Fixed Cost = 6,00,000
Less: Advertisement Cost = 3,00,000
Profit = 4,80,000
Additional expenditure on advertisement is justified as it results in to additional profit of Rs.2,30,000
(4,80,000 – 2,50,000)
4) Justification of price reduction by Rs.2 per unit

Contribution (S –V)= (13 – 6.5) = Rs.6.5
Total Contribution at 100% capacity (1,50,000 x 6.5) = Rs.9,75,000
Less: Fixed Cost = Rs.6,00,000
Profit = Rs.3,75,000
Profit has increased by Rs.1,25,000. The price reduction is justified.
Question 9:
S. Ltd. Manufactures and markets a single product. The following information is available:
Rs. (Per Unit)

Materials 8.00
Conversion Costs (Variable) 6.00
Dealer’s margin 2.00
Selling Price 20.00
Fixed Cost : Rs. 2,50,000
Present Sales : 80,000 Units
Capacity Utilisation : 60%
There is acute competition. Extra efforts are necessary to sell. Suggestions have been made for
increasing sales:
(i) By reducing sales price by 5% and

(ii) By increasing dealer’s margin by 25% over the existing rate.
Which of the two suggestions would you recommend if the company desire to maintain the present
profit? Give reasons.
Solution:
Calculation of Present Profit (Rs.)
Selling Price Per Unit (A) 20.00
22
2020
Material Cost Per Unit 8.00
Conversion Cost Per Unit 6.00
Dealer’s Margin Per Unit 2.00
Variable Cost Per Unit (B) 16.00
Contribution Per Unit {(A)-(B)} 4.00
Total Contribution (Rs. 4.00 × 80,000 units) 3,20,000
Less : Fixed Cost 2,50,000
Profit 70,000
The present profit can be maintained by keeping total contribution at present level of Rs. 3,20,000.
(i) Reducing Sale Price by 5%

New Selling Price p. u. = Rs. 20 – Re. 1 = Rs. 19
New Dealer’s Margin p. u. = Rs. 19 x 10/100 = Rs. 1.90
New Variable Cost p. u. = Rs. 8 + Rs. 6 + Rs. 1.90 = Rs. 15.90
New Contribution p. u. = Rs. 19 – Rs. 15.90 = Rs. 3.10
Desired Sales (Units) to maintain the Present level of Profit
𝐷𝑒𝑠𝑖𝑟𝑒𝑑 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑅𝑠. 3,20,000

= = = 1,03,226 𝑈𝑛𝑖𝑡𝑠
𝑁𝑒𝑤 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝. 𝑢. 𝑅𝑠. 3.10
(ii) Increasing Dealer’s Margin by 25%

New Dealer’s Margin p. u. = Rs. 2 + 25% of Rs. 2 = Rs. 2.50
New Variable Cost p. u. = Rs. 8 + Rs. 6 + Rs. 2.50 = Rs. 16.50
New Contribution p. u. = Rs. 20 – Rs. 16.50 = Rs. 3.50
Desired Sales (Units) required to maintain the Present level of Profit
𝐷𝑒𝑠𝑖𝑟𝑒𝑑 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑅𝑠. 3,20,000
= = = 91,429 𝑈𝑛𝑖𝑡𝑠
𝑁𝑒𝑤 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝. 𝑢. 𝑅𝑠. 3.50
Analysis:
From the analysis of the above it is observed that, Brea-even Point is lower under
Second Proposal and hence, Second Proposal is recommended.
Module 3
Operating Costing:-Concept of operating Costing Features of operating costing: Transport costing

(Standing charge, Repair and Maintenance Charge and Running charges and log sheet), Canteen,
Hospital and hotels costing.
CO 3: Given information about relevant expenses, a student will be able to classify the cost by nature
and estimate cost of operating a service
Question 1:
Mr. Sohan Singh has started transport business with a fleet of 10 taxies. The various expenses incurred
by him are given below:
23
2020
(i) Cost of each taxi ` 75,000
(ii) Salary of office Staff ` 1,500 p.m.
(iii) Salary of Garage’s Supervisor ` 2,000 p.m.
(iv) Rent of Garage ` 1,000 p.m
(v) Drivers Salary (per taxi) ` 400 pm.
(vi) Road Tax and Repairs per taxi ` 2,160 p.a.
(vii) Insurance premium @ 4% of cost p.a.
The life of a taxi is 3,00,000 km. and at the end of which it is estimated to be sold at ` 15,000. A taxi runs
on an average 4,000 Km. per month of which 20% it runs empty, petrol consumption 9 Km. per litre of
petrol costing ` 6.30 per litre. Oil and other sundry expenses amount to ` 10 per 100 Km.
Calculate the effective cost of running a taxi per kilometre. If the hire charge is ` 1.80 per Kilometre, find
out the profit that Mr.Shoan may expect to make in the first year of operation.
Solution:
Statement Showing Computation of Effective Cost and Profit for the Year
Fixed expenses: 1,500 12,800
Salary of staff 2,000
Salary of garage supervisor 1,000
Rent of garage 4,000
Driver Salary (10 x 400) 1,800
Road tax and repairs (2,160 x 10/12) 2,500
Insurance premium (75,000 x 4 % x 10/12)
Fixed cost of 10 taxi’s per month 0.32
Cost per taxi = ` 12,800/10 = ` 1,280
Cost per km = 1280/4,000 = 0.32
Running Costs:
Depreciation [(75,000-15,000) / 3,00,000] 0.20
Petrol (6.3/9) 0.70
Oil & sundry expenses (10/100) 0.10
1.32
Effective cost per Km = 1.32 x (100/80) 1.65
Profit for year = (1.80 – 1.65) x 10 x 3,200 x 12
= Rs. 57,600
Question 2:
The Kangaroo Transport operates a fleet of lorries. The records for lorry L-14 reveal the following
information for September, 2019:
24
2020
Days maintained 30
Days operated 25
Days Idle 05
Total hours operated 300
Total Kms covered 2,500
Total tones carried 200 ( 4 tonne-load per trip, journey empty)
The following information is made available:
1. Operating costs for the month: Petrol Rs.400, oil Rs.170, grease Rs.90, wages to driver Rs.550,
wages to khalasi Rs.350.
2. Maintenance costs for the month: Repairs Rs.170, overhead Rs.60, Tyres Rs.150, Garage charges
Rs.100.
3. Fixed costs for the month based on the estimates for the year : Insurance Rs.50, Licence, Tax etc.
Rs. 80,
4. Interest Rs.40, other overheads Rs.190.
5. Capital costs: Cost of acquisition Rs.54,000
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
Solution:
Cost sheet for September 2019 (Lorry-14)
Particulars Rs. Rs.

A. Operating costs
Petrol 400
Oil 170
Grease 90
Wages to Driver 550
Wages to Khalasi 350 1560
B. Maintenance costs
Repairs 170
Overhead 60
Tyres 150
Garage charges 100 480
C. Fixed costs
Insurance 50
Licence, tax etc 80
25
2020
Interst 40
Other overheads 190 360
D. Depreciation
Rs. 54,000-Rs. 36,000/ 5 years = Rs. 3600/12 300
Total cost for the month 2,700
Performance Statement:
a) Cost per day maintained Rs. 2700/30 days Rs. 90

b) Cost per day operated Rs. 2700/25 days Rs. 108
c) Cost per kilometer Rs. 2700/2500 Rs. 1.08
d) Cost per hour Rs. 2700/300 hours Rs. 9
e) Commercial tone-kms
Outward = 4 tonnes x 25 days x 50 kms 5000
Return = 0x25x50 nil
Total 5000
Cost per commercial tone-km (Rs. 2700/5000) Re. 0.54
Question 3:
The Union Transport Company has been given a twenty kilometer long route to ply a bus. The bus costs
the company Rs. 1,00,000. It has been insured at 3% per annum. The annual road tax amounts to Rs.
2,000. Garage rent is Rs. 400 per month. Annual repair is estimated to cost Rs. 2,360 and the bus is likely
to last for five years. The salaries of the driver and the conductor are Rs. 600 and Rs. 200 per month
respectively in addition to 10% of the takings as commission to be shared equally by them. The
manager’s salary is Rs. 1,400 per month and stationery will cost Rs. 100 per month. Petrol and oil will
cost Rs. 50 per 100 kilometres. The bus will make three round trips per day carrying on an average 40
passengers in each trip. Assuming 15% profit on takings and that the bus will ply on an average 25 days
in a month, prepare operating cost statement on a full year basis and also calculate the bus fare to be
charged from each passenger per kilometer.
Solution:
Union Transport Company Statement showing operating cost of the bus per annum:
A – Standing Charges:
Manager’s salary (` 1,400 *12) = 16,800
Driver’s salary (`600 *12) = 7,200
Conductor’s salary (` 200 *12) = 2,400
Road tax = 2,000
Insurance (3% of ` 1,00,000) = 3,000
Garage rent (` 400 *12) = 4,800
26
2020
Stationery (` 100 * 12) = 1,200
Depreciation (`1,00,000/5 years) = `20,000
B – Maintenance Costs –
Repairs =`2,360
C – Running charges:
Petrol and oil (36,000 km. * `50)/100 = `18,000
Total costs (A+B+C) =77,760

Add: 10% of takings for commission of driver and conductor
15% Profit – desired on takings
25% on total takings = 33-1/3 of cost 25,920
`1,03,680
Calculation of total distance covered: (20 km. *2 *3 *25 *12) = 36,000 km. per annum.
Calculation of bus fare to be charged:
Effective passenger – kilometers:
(2 *20 km *3 trips *40 passengers *25 days *12 months) = 14,40,000.
Rate to be charged per km. from each passenger:= ` 1,03,680 /14,40,000 = Re. 0.072.
Question 4:
Shanker has been promised a contract to run a tourist car on a 20 km. long mute for the chief executive
of a multinational firm. He buys a car costing Rs.1,50,000. The annual cost of insurance and taxes are Rs.
4,500 and Rs.900 respectively. He has to pay Rs.500 per month for a garage where he keeps the car
when it is not in use.
The annual repair costs are estimated at Rs.4,000. The car is estimated to have a life of 10 years, at the
end of which the scrap value is likely to be Rs.50,000.
He hires a driver who is to be paid Rs.300 per month plus 10% of the takings as commission. Other
incidental expenses are estimated at Rs.200 per month. Petrol and oil will cost Rs.100 per 100 kms. The
car will make 4 round trips each day. Assuming a profit of 15% on takings is desired and that the car will
be on the road for 25 days on an average per month what should he charge per round-trip?
Solution:
Working Notes:
1. Total km. in a month:
One Round Trip = 20 km. outward + 20 km. Inward = 40 km. Total km. = 40 km. x 4 x 25 days = 4,000 km.
2. No. of round trips in a month = 25 x 4 = 100.
3. Petrol & Oil will cost Rs.100 per 100 km. i.e., Re. 1 per one km.
Particulars Basis of Amount per Per k.m.
Apportionment month
a. Standing Charges: Rs. Rs.
Depreciation 1,50,000 – 50,000 10,000
27
2020
10
Insurance 4,500
Taxes 900
Garage rent 500*12 6000
Annual repairs 4000
Driver’s Salary 300*12 3600
Incidental Exp. 200*12 2400
31,400/12 2,167
b. Variable Expenses
Petrol & Oil 4000*1.00 per km 1000
Total Cost (excluding Commission) A + B = 6,617
Total Takings = T
Driver’s Commission = 10% of T i.e. 0.10 T
Profit = 15% of T i.e. 0.15 T
4. Driver’s Commission + Profit = 0.10 T + 0.15 T = 0.25 T.

5. Total Takings per month = Total Cost + Driver’s Commission + Profit.
T = 6,617 + 0.10 T + 0.15 T.
T = 6,617 + 0.25 T
T – 0.25 T = 6,617
0.75 T = 6,617 or T = Rs. 6,617 x 100/75
T = Rs.8, 822. 67 per month.
Charge per round trip = Rs.8,822.67/100 = Rs.88.23 say Rs.89.
Question 5:
Janata Transport Co. has been given a route 20 km. long for running buses. The company has a fleet of
10 buses each costing Rs. 50,000 and having a life of 5 years without any scrap value.
From the following estimated expenditure and other details calculate the bus fare to be charged from
each passenger.
(i) Insurance charges 3 % p.a.
(ii) Annual tax for each bus Rs.1,000
(iii) Total garage charges Rs.1,000
(iv) Driver’s salary for each bus Rs.50 p.m
(v) Conductor’s salary for each bus Rs.100 p.m
(Vi) Annual repairs to each bus Rs.1,000
(vii) Commission to be shared by the driver and conductor equally: 10% of the takings
(viii) Cost of stationary Rs.500 p.m.
(ix) Manager’s salary Rs.2,000 p.m.
(x) Accountant’s salary Rs.1,500 p.m.
(xii) Petrol and oil Rs.25 per 100 km
28
2020
Each bus will make 3 round trips carrying on an average 40 passengers on each trip. The bus will run on
an average for 25 days in a month. Assuming 15% profit on takings, calculate, the bus fare to be charged
from each passenger.
Solution:
Particulars Amount
(Rs.)
Insurance (50,000 x 3% x 10/12) 1,250
Tax (1,000 x 10/12) 833.33
Garage charges 1,000
Drivers salary (150 x 10) 1,500
Conductor salary (100 x 10) 1,000
Repairs (1,000 x 10/12) 833.33
Cost of stationary 500
Managers salary 2,000
Accountant salary 1,500
Depreciation (50,000 x 10/5 x 1/12) 833.33
Petrol * (30,000/100) x 25 7,500
Commission of conductor & driver 35,000 x 3,500
(10/100)
29,750
(+) Profit @ 15% on takings (35,000 x 15/100) 5,250
35,000
* 10 x 20 x 3 x 2 x 25 = 30,000
Let Rs. X be the takings
X = 26,250 + (10/100 X) + (15/100 X)
100 X = 26,25,000 + 25 X
⇒ X = 35,000
Fare per passenger Km = 35,000 / (30,000 x 40)
= 0.0292 = Re. 0.03
Question 6:
Mr. Shyam owns a fleet of taxies and the following information is available from the records maintained
by him for 10 Taxies.
Cost of each Taxi Rs. 20,000 Garage Rent Rs. 600 p.m.
Salary of Manager Rs. 600 p.m. Insurance Premium 5%
Salary of Accountant Rs. 500 p.m. Annual Tax Rs. 600 per taxi
Salary of Cleaners Rs. 200 p.m. Drivers Salary RS. 200 p.m. Per Taxi
Salary of Mechanic Rs. 400 p.m. Annual Repairs Rs. 1,000 Per Taxi
Total life of a taxi is about 2,00,000 kms. A Taxi runs in all 3,000 Kms in a month of which 30 %, it runs
empty.
29
2020
Petrol consumption is one litre for 10 kms @ Rs. 1.80 per litre. Oil and other sundries are Rs. 5 per 100
kms. Calculate the operating cost of running a Taxi per km.
Solution:
Operating Cost Sheet Units – 3,000 kms
Operating units 2,100 kms
Fixed cost per month for 10 Taxies
Manager’s Salary 600 600
Accountant’s Salary 500 500
Salary of Cleaners 200 200
Salary of Mechanic 400
400
Garage Rent 600
Total Fixed Cost 600
Fixed cost per month Per Taxi: 2,300 2,300
230.00
10
Insurance Premium 83.33
Taxes 50.00
Drivers’ Salary 200.00
Variable Cost per month:
Depreciation 300.00
Petrol 540.00
Repairs 83.33
Oil 150.00
Total Cost 1,636.66
Operating cost per km per Taxi 1636.66
2100 0.78 paise
The operating cost per km to run one taxi is 0.78 paise.
Question 7:
Universal Transport Company supplies the following details in respect of a truck of 5 tonne capacity
Cost of truck Rs. 90,000
Estimated life 10 years
Diesel, oil, grease Rs. 15 per trip each way
Repairs and maintenance Rs. 500 p.m.
Driver’s wages Rs. 500 p.m.
Cleaner’s wages Rs. 250 p.m.
Insurance Rs. 4,800 per year
Tax Rs.2,400 per year
30
2020
General supervision charges Rs. 4,800 per year
The truck carries goods to and from the city covering a distance of 50 kms. each way.
On outward trip freight is available to the extent of full capacity and on return 20% of capacity.
Assuming that the truck runs on an average 25 days a month, work out:
(a) Operating cost tonne-km.
(b) Rate for tonne per trip that the company should charge if a profit of 50% on freight is to be earned.
Solution:
Particulars Amount
Repairs & Maintenance 500
Drivers wages 500
Cleaners wages 250
Insurance 400
Tax 200
Supervision charge 400
Depreciation [(90,000/10) x (1/12)] 750
Diesel, oil, grease (15 x 2 x 25) 750
3,750
(+) 50% profit on freight (100% on cost) 3,750
7,500
Tonne Kms = 25 [(50x 5) + (20/100 x 50 x 5)] = 7,500

Cost per tonne km = 3,750 / 7,500 = 0.50
(+) Profit @ 50% on freight = 0.50
= 1.00
Question 8:
A chemical factory runs its boiler on furnace oil obtained from Indian Oil and Bharat Petroleum, whose
depots are situated at a distance of 12 and 8 miles from the factory site. Transportation of furnace oil is
made by the company’s own tanker Lorries of 5 tonnes capacity each. Onward trip are made only on full
load and the Lorries return empty. The filling in time takes an average of 40 mins for Indian Oil and 30
mins for Bharat Petroleum. But the emptying time in the factory is 40 mins for all. Form the records
available it is seen that the average speed of the company’s lorries works out to 24 miles per hour. The
varying operating charges are Rs.6 per mile covered and fixed charges are Rs.12 per hour of operation.
Calculate the cost per tonne –mile for each source.
Solution:
31
2020
Particulars Indian Oil Bharat Petroleum
Distance Covered (per trip) 24 miles 16 miles
Time per Trip (Mins)
Running time (@ 24 mph): 60 mins 40 mins
Filling in Time 40 mins 30 mins
Emptying Time 40 mins 40 mins
Total Time in Mins 140 mins 110 mins
Fixed Cost (@ 7.5 / hr)1 Rs.17.50 Rs.13.75

Variable Cost (Rs.0.60 / mile)2 Rs.14.40 Rs.9.60
Total Cost Rs.31.90 Rs.23.35
Effective tonne- mile (12 x 5 tones) (8 x 5 tones)

= 60 = 40
Cost per mile per tonne (total 31.90 / 60 23.35 / 40
Cost / Tonne –miles) = 0.53 paise = 0.58 paise
Working note:
1. Fixed cost is calculated on time basis:
a. Indian Oil = Rs.7.50 (140mins/ 60 mins) = Rs. 17.50
b. Bharat Petroleum = Rs.7.50 (110 mins/ 60 mins) = Rs.13.75
2. Variable cost is calculated on mileage basis:
a. Indian Oil = 24 miles @ Rs.0.60 per mile = Rs.14.40
b. Bharat Petroleum = 16 miles @ Rs.0.60 per mile = Rs.9.60
Question 9:
XY & Co. Limited owns a fleet of ten trucks each costing Rs. 60,000. The company has employed one
manager to whom it pays Rs. 450 p.m., an accountant who gets Rs. 250 p.m. and a peon who gets Rs.
100 p.m. The company has got its trucks insured @ 2% per annum, total tax is Rs. 1,200 per truck. The
other expenses are as follows:
Rs.
Driver’s salary 200 per month

Cleaner’s salary 80 per month
Mechanic’s salary 300 per month
Repairs & Maintenance 1200 per year for one truck
Diesel consumption 3 kms per liter at Re. 0.90 per liter
The estimated life of the truck is 5 years.
Other Information:
Distance traveled by each truck per day 200 kms.
Normal Loading capacity 100 quintals
Wastage in loading capacity 10%
Percentage of truck laid up for repair 5%
Effective days in month 25
Calculate (a) cost per quintal kilometer (b) cost per kilometer of running a truck.
Solution:
32
2020
Total Number of Quintal kilometers of a truck
𝑄𝑢𝑖𝑛𝑡𝑎𝑙𝑠 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑥 𝐷𝑖𝑠𝑡𝑎𝑛𝑐𝑒 𝑝𝑒𝑟 𝑑𝑎𝑦 𝑥 𝐸𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝑑𝑎𝑦𝑠 𝑖𝑛 𝑀𝑜𝑛𝑡ℎ 𝑥 𝐿𝑜𝑎𝑑𝑖𝑛𝑔 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑥 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑜𝑓 𝑡𝑟𝑢𝑐𝑘 𝑎𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒
100 x 200 x 25 x 90% x 95%
5,00,000 x 90% x 95% = 4,27,500 Quintal kms. For a truck
Total number of kms. covered during the Month by one truck
Distance travelled x Effective days per month x percentage of truck available
200 x 25 x 95%
= 4750 kms per truck per month
Operating Cost Statement
Fixed Expenses per month (for 10 Trucks) Rs.

Managers salary 450
Accountant’s salary 250
Peon salary 100
Mechanic’s salary 300
Total for 10 trucks 1100
Per Truck Rs.
Fixed Expenses for one truck (1100 ÷ 10) 110.00
Driver’s salary per truck 200.00
Cleaner’s salary 80.00
Repair and Maintenance 100.00
Insurance {(60000 x 2) ÷ (100 x 12)} 100.00
Annual Tax (1200/12) 100.00
Depreciation (60000 ÷ 5 x 12) 1000.00
Total 1690.00
Per Km Per quintal km

(Paise) (Paise)
Fixed expenses 35.6 0.395
Variable Expense per truck
For 3 km. Diesel required
1 liter cost 90p
For 1 km. diesel required = 90/3
For 5000 kms. for one truck
90 31.6 0.350
3
𝑥 5000 = 1500
Total 67.2 0.745
Note: Diesel consumption value has been taken for 5000 km per truck because it has been
assumed that during the time of repairs there will be consumption of diesel. Hence 5000km for
truck has been calculated as follows:
33
2020
No. of truck x Distance travelled x Effective days in a month
1 x 200 x 25 = 5000 kms.
Module 4
Budgeting and Budgetary Control – Concept of Budgeting and Budgetary Control, Essential features,
Merits and Limitations of Budgetary Control. Types of Budgets, Static and Flexible Budgeting,
Preparation of Cash Budget, Sales Budget, Production Budget and Master Budget
CO 4: Given information about Expenses & Income / Receipt & Payment / Projected Sales, a student will
be able to prepare relevant functional level budgets for an organisation
Question 1:
ABC Ltd. a newly started company wishes to prepare Cash Budget from January. Prepare a cash budget
for the first six months from the following estimated revenue and expenses
Month Total Sales Materials Wages Overheads

` ` `
Production Selling &
` Distribution
`
January 20,000 20,000 4,000 3,200 800
February 22,000 14,000 4,400 3,300 900
March 28,000 14,000 4,600 3,400 900
April 36,000 22,000 4,600 3,500 1,000
May 30,000 20,000 4,000 3,200 900
June 40,000 25,000 5,000 3,600 1,200
Cash balance on 1st January was `10,000. A new machinery is to be installed at `20,000 on credit, tobe
repaid by two equal installments in March and April, sales commission @5% on total sales is to bepaid
within a month following actual sales.`10,000 being the amount of 2nd call may be received in March.
Share premium amounting to `2,000is also obtained with the 2nd call. Period of credit allowed by
suppliers — 2months; period of credit allowed to customers — 1month, delay in payment of overheads
1 month. Delay in payment of wages½ month. Assume cash sales to be 50% of total sales.
Solution:
Cash Budget for the First 6 Months
34
2020
Particulars Jan Feb Mar Apr May Jun
Opening Balance (A) 10,000 18,000 29,800 27,000 24,700 33,100
Add: Receipts (B)
Cash Sales (50%) 10,000 11,000 14,000 18,000 15,000 20,000
Collection from debtors - 10,000 11,000 14,000 18,000 15,000
Share call money (including share - - 12,000 - - -
premium)
Total (A+B) 20,000 39,000 66,800 59,000 57,700 68,100
Less: Payments
Materials - - 20,000 14,000 14,000 22,000
Wages 2,000 4,200 4,500 4,600 4,300 4,500
Overheads - 4,000 4,200 4,300 4,500 4,100
Sales Commission - 1,000 1,100 1,400 1,800 1,500
Installment of Machinery purchase - - 10000 10000 - -
Total Payments(C) 2,000 9,200 39,800 34,300 24,600 32,100
Closing Balance (A+B-C) 18,000 29,800 27,000 24,700 33,100 36,000
Note: According to credit terms wages to be taken at half of the current month plus half of the previous
month.
Question 2:
A factory engaged in manufacturing plastic buckets is working at 40% capacity and produces 10,000
buckets per month. The present cost break up for one bucket is as under:
Materials Rs.10
Labour Rs.3
Overheads Rs.5 (60% fixed)
The selling price is Rs.20 per bucket. If it is desired to work the factory at 50% capacity the selling price
falls by 3%. At 90% capacity the selling price falls by 5% accompanied by a similar fall in the price of
material.
You are required to prepare a statement the profit at 50% and 90% capacities and also calculate the
break‐ even points at this capacity production
Solution:
Particulars Capacity
40% 50% 90%
Production & sales units 10,000 12,500 22,500
Selling price per unit 20 19.40 19.00
Sales amount 2,00,000 2,42,000 4,27,500
Marginal cost
Material Rs. 10 per unit at 1,00,000 1,25,000 2,13,750
40%, 50% and
35
2020
(at 90%- Rs. 9.50 p.u)
Labour 30,000 37,500 67,500
Variable overhead (Rs.2 20,000 25,000 45,000
p.u)
Total 1,50,000 1,87,500 3,26,250
Contribution 50,000 55,000 1,01,250
(-) Fixed cost 30,000 30,000 30,000
Profit 20,000 25,000 71,250
Contribution per unit 5.00 4.40 4.50
BEP in units (F/C) 6,000 6,818 6,667
Working notes:
Selling price at 50% - (Rs.20-Rs.20x3%) = Rs.20 -0.6=Rs.19.40
Selling price at 90% - (Rs.20-Rs.20x5%) =Rs.20-1.00= Rs.19.00
Selling amount = production &sales units x Selling price per unit
Overhead Rs. 5 (60% fixed) = Rs. 3 is fixed and Rs. 2 is variable
= Rs. 3 x 10000= Rs.30,000 fixed cost
Question 3:
S.K. Brothers wish to approach the bankers for temporary overdraft facility for the period from October
2010 to December 2010. During the period of this period of these three months, the firm will be
manufacturing mostly for stock. You are required to prepare a cash budget for the above period.
Month Sales (Rs.) Purchases (Rs.) Wages (Rs.)
August 3,60,000 2,49,600 24,000
September 3,84,000 2,88,000 28,000
October 2,16,000 4,86,000 22,000
November 3,48,000 4,92,000 20,000
December 2,52,000 5,36,000 30,000
 50% of credit sales are realized in the month following the sales and remaining 50% in the
second following
 Creditors are paid in the month following the month of purchase
 Estimated cash as on 1‐10‐2010 is Rs.50,000.
Solution:
CASH BUDGET For 3 months from October to December 2010
Particulars October (Rs.) November(Rs.) December(Rs.)
36
2020
Receipts:
Opening balance 50,000 1,12,000 (94,000)
Collection from 3,72,000 3,00,000 2,82,000

Debtors
Total Receipts(A) 4,22,000 4,12,000 1,88,000
Payments:
Payments to 2,88,000 4,86,000 4,92,000

Creditors
Wages 22,000 20,000 30,000
Total payments(B) 3,10,000 5,06000 5,22,000
Closing Balance(A‐B) 1,12,000 (94,000) ‐3,34,000
Working Note : Collection from debtors
Particulars October (Rs.) November(Rs.) December(Rs.)
Sales
August 1,80,000 ‐
September 1,92,000 1,92,000 ‐
October ‐ 1,08,000 1,08,000
November ‐ 1,74,000
3,72,000 3,00,000 2,82,000
Question 4:
For production of 10,000 units the following are budgeted expenses:
Per Unit
Rs.
Direct Materials 48
37
2020
Direct Labour 24
Variable Overheads 20
Fixed Overheads (Rs.1,20,000) 12
Variable Expenses (Direct) 4
Selling Expenses (10% fixed) 12
Administration Expenses (Rs.40,000 fixed) 4
Distribution Expenses (20% fixed) 4
128
Prepare a Flexible budget for production of 7,000 units and 9,000 units.
Solution :
Flexible Budget
Particulars 10000 Units 7000 Units 9000 Units

CPU Total CPU Total CPU Total
A) Marginal Cost:
Direct Material 48 4,80,000 48 3,36,000 48 4,32,000
Direct Labour 24 2,40,000 24 1,68,000 24 2,16,000
Variable Expenses 4 40,000 4 28,000 4 36,000
Variable overheads 20 2,00,000 20 1,40,000 20 1,80,000
Selling expenses(90% of ` 12) 10.80 1,08,000 10.80 75,600 10.80 97,200
Distribution expenses (80% of 4) 3.20 32,000 3.20 22,400 3.20 28,800
Total (A) 110.00 11,00,000 110.00 7,70,000 110.00 9,90,000
B) Fixed Cost:
Fixed Overheads 12.00 1,20,000 1,20,000 1,20,000 1,20,000
Selling expenses 1.20 12,000 12,000 12,000 12,000
Administration overheads 4.00 40,000 40,000 40,000 40,000
Distribution expenses 0.80 8,000 8,000 8,000
Total (B) 18.00 1,80,000 1,80,000 1,80,000
Grand Total (A+B) 128.00 12,80,000 9,50,000 9,50,000
Question 5:
From the following budgeted figures, prepare a cash budget in respect of three months up to June 30th.
38
2020
Months Sales Material Wages Overheads
Jan 60,000 40,000 11,000 6,200
Feb 56,000 48,000 11,600 6,600
Mar 64,000 50,000 12,000 6,800
Apr 80,000 56,000 12,400 7,200
May 84,000 62,000 13,000 8,600
June 76,000 50,000 14,000 8,000
Expected cash balance on 1st April is Rs. 20,000
Additional information:
a) Material and overheads are to be paid during a month following the month of supply.
b) Wages are to be paid during the month in which they are incurred
c) Term of Sales: The term of credit sales are payments by the end of the month following the
month of sales; half of the sales are paid when due; the other half to be paid during the next
month
d) 5% of Sales commission is to be paid within the month following actual sales
e) Preference dividend of Rs. 30,000 is to be paid on 1st May
f) Share call money for Rs. 25,000 is due on 1st April and 1st June
g) Plant and machinery worth Rs. 10,000 is to be installed in the month of January and the
payment is to be made in the month of June.
Solution:
Cash Budget
Particulars April May June
To balance b/d 20,000 32,600 (-)5,600
(+) Expected Cash receipt
Cash Sales Nil Nil Nil
Recovery from Debtors 60,000 72,000 82,000
Share call money 25,000 Nil 25,000
(TECR) Total Expected Cash Receipt 1,05,000 1,04,600 1,01,400
(-)Expected Cash Payments:

Cash Purchases Nil Nil Nil
Payment to Creditors 50,000 56,000 62,000
Wages 12,400 13,000 14,000
Overheads 6,800 7,200 8,600
Sales Commission 3,200 4,000 4,200
Preference Dividend Nil 30,000 Nil
Plant & Machinery Nil Nil 10,000
(TECP) Total Expected Cash Payment 72,400 1,10,200 98,800
Closing balance (TECR – TECP) 32,600 (-) 5,600 2,600
39
2020
O/D
Working Notes:
a) Sales b) Commission
Jan – 60,000 30,000 Feb
60,000 30,000 Mar Feb - 56,000 - 2,800 Mar
Feb – 56,000 28,000 Mar Mar - 64,000 - 3,200 Apr
56,000 28,000 Apr Apr - 80,000 - 4,000 May
Mar - 64,000 32,000 Apr 60,000 May - 84,000 - 4,200 June
32,000 May June - 76,000 - 3,800 July
Apr- 80,000 40,000 May 72,000
40,000 June
May – 84,000 42,000 June 82,000
42,000 July
June - 76,000 38,000 July
38,000 Aug
Question 6:
Prepare a Cash Budget for the three months ending 30th June, 2016 from the information given below:
MONTH SALES MATERIALS WAGES OVERHEADS

February 14,000 9,600 3,000 1,700
March 15,000 9,000 3,000 1,900
April 16,000 9,200 3,200 2,000
May 17,000 10,000 3,600 2,200
June 18,000 10,400 4,000 2,300
(b) Credit terms are:

Sales / Debtors : 10% sales are on cash, 50% of the credit sales are collected next month and the
balance in the following month.
Creditors: Materials 2 months
Wages 1/4 month
Overheads 1/2 month.
(c) Cash and bank balance on 1st April, 2016 is expected to be ` 6,000.
(d) Other relevant information are:
(i) Plant and machinery will be installed in February 2016 at a cost of ` 96,000. The monthly installment
of `2,000 is payable from April onwards.
(ii) Dividend @ 5% on preference share capital of ` 2,00,000 will be paid on 1st June.
(iii) Advance to be received for sale of vehicles ` 9,000 in June.
40
2020
(iv) Dividends from investments amounting to ` 1,000 are expected to be received in June.
Solution:
Cash Budget for the 3 Months Ending 30th June 2016 (Amount in Rs.)

Opening Balance 6,000 3,950 3,000
Add: Receipts :
Cash Sales 1,600 1,700 1,800
Collection from debtors [see note(1)] 13,050 13,950 14,850
Advance for sale of vehicles - - 9,000
Dividends from Investments - - 1,000
Total (A+B) 20,650 19,600 29,650
Less: Payments
Materials 9,600 9,000 9,200
Wages (see note2) 3,150 3,500 3,900
Overheads 1,950 2,100 2,250
Installment of Plant & Machinery 2,000 2,000 2,000
Preference Dividend - - 10,000
Total (C) 16,700 16,600 27,350
Closing Balance (A+B-C) 3,950 3,000 2,300
Working Notes:
(i) Computation of Collection from Debtors (Amount in `)
Month Total Sales Credit Feb Mar Apr May June
Sales
Feb 14,000 12,600 - 6,300 6,300 - -
Mar 15,000 13,500 - - 6,750 6,750 -
Apr 16,000 14,400 - - - 7,200 7,200
May 17,000 15,300 - - - - 7,650
13,050 13,950 14,850
Question 7:
Prepare a cash Budget in respect of 6 months from July to December 2018 form the information given.
Month Sales Materials Wages Production Admin Selling Distribution
OH OH OH OH
April 1,00,000 40,000 10,000 4,400 3,000 1,600 1,800
May 1,00,000 60,000 11,200 4,800 2,900 1,700 2,100
June 80,000 40,000 8,000 5,600 3,000 1,500 1,900
July 1,00,000 60,000 8,000 4,300 2,900 1,700 2,100
August 1,20,000 70,000 10,000 5,600 3,000 1,900 2,500
41
2020
September 1,40,000 80,000 10,000 5,400 3,000 2,000 2,600
October 1,60,000 90,000 10,000 5,800 3,000 2,350 2,850
November 1,80,000 1,00,000 11,000 6,000 3,100 2,150 2,750
December 2,00,000 1,10,000 11,600 6,400 3,200 2,300 3,100
Additional Information;
1) Cash Balance as on 1st July 2018 expected to be Rs.1,50,000
2) Plant & Machinery to be installed in August 2018 at a cost of Rs.40,000 to be paid in September
3) Expenditure towards R & D amounting to Rs.10,000 has been approved to be paid @ Rs.2,000
per month from August onwards.
4) Cash sales of Rs.2,000 per month are expected.
5) A Sales commission of 5% on credit sales is to be paid within the month following the sales.
6) Period of credit allowed by suppliers is 3 month and allowed to customers is 2 months. Delay in
payment of wages and overheads are 1 month.
7) Income tax of Rs.1,00,000 is due in October 2018. Preference share dividend of 10% on
Rs.2,00,000 is to be paid in November2018.
8) 10% calls on ordinary share capital of Rs.4,00,000 is due in July and September 2018.
9) Dividend form investment amounting to Rs.30,000 is expected in November 2018.
Solution:
Cash Budget for the period July 2018 to December 2018
Particulars July August September October November December
Opening Balance 1,50,000 2,48,000 2,44,000 2,75,000 2,05,000 2,53,000
Receipts:
Cash Sales 2,000 2,000 2,000 2,000 2,000 2,000
Credit Sales Recovered 1,20,000 80,000 1,00,000 1,20,000 1,40,000 1,60,000
Dividend Income 30,000
Call Money 40,000 40,000
Total Receipts (A) 3,12,000 3,30,000 3,86,000 3,97,000 3,77,000 4,15,000
Payments:
Creditors 40,000 60,000 40,000 60,000 70,000 80,000
Wages 8,000 8,000 10,000 10,000 10,000 11,000
Sales Commission 4,000 5,000 6,000 7,000 8,000 9,000
Production OH 5,600 4,300 5,600 5,400 5,800 6,000
Admin OH 3,000 2,900 3,000 3,000 3,000 3,100
Selling OH 1,500 1,700 1,900 2,000 2,350 2,150
Distri. OH 1,900 2,100 2,500 2,600 2,850 2,750
Plant & Machinery 40,000
R & D Exp. 2,000 2,000 2,000 2,000 2,000
Income Tax 1,00,000
Preference Dividend 20,000
Total Payments (B) 64,000 86,000 1,11,000 1,92,000 1,24,000 1,16,000
42
2020
Closing Balance (A-B) 2,48,000 2,44,000 2,75,000 2,05,000 2,53,000 2,99,000
Question 8:
A company expects to have Rs. 37,500 cash in hand on 1st April, and requires you to prepare an
estimate of cash position during the three months, April, May & June. The following information is
supplied to you:
Months Sales Purchases Wages Factory Exp. Office Exp. Selling Exp.
Rs. Rs. Rs. Rs. Rs. Rs.
February 75,000 45,000 9,000 7,500 6,000 4,500
March 84,000 48,000 9,750 8,250 6,000 4,500
April 90,000 52,500 10,500 9,000 6,000 5,250
May 1,20,000 60,000 13,500 11,250 6,000 6,570
June 1,35,000 60,000 14,250 14,000 7,000 7,000
Other Information:
1. Period of credit allowed by suppliers 2 months.
2. 20% of sales is for cash and period of credit allowed to customers for credit is 1 month.
3. Delay in payment of all expenses – 1 month.
4. Income tax of Rs. 57,500 is due to be paid on June 15th
5. The company is to pay dividends to shareholders and bonus to workers of Rs. 15,000 and Rs.
22,500 respectively in the month of April.
6. Plant has been ordered to be received and paid in May. It will cost Rs. 1,20,000.
Solution:
Cash Budget

Rs. Rs. Rs.
Opening Balance (Cash) 37,500 11,700 (-) 91,050
Receipts:
Cash Sales (20% of Sales) 18,000 24,000 27,000
Debtors (80% of previous month sales) 67,200 72,000 96,000
Total: (a) 1,22,700 1,07,700 31,950
Payments:
43
2020
Creditors (2 moths previous purchase) 45,000 48,000 52,500
Wages (previous month) 9,750 10,500 13,500
Factory Expenses (previous month) 8,250 9,000 11,250
Office Expenses (previous month) 6,000 6,000 6,000
Selling Expenses (previous month) 4,500 5,250 6,570
Dividend to Shareholders 15,000 - -
Bonus to workers 22,500 - -
Purchase to plant - 1,20,000 -
Income Tax - - 57,500
Total: (b) 1,11,000 1,98,750 1,47,320
Closing Balance (a – b) 11,700 (-) 91,050 (-) 1,15,370
The company needs overdraft facilities in May and June to the extent of Rs. 91,050 and Rs. 1, 15,370
respectively.
Question 9:
A department of Company X attains sales of Rs.6,00,000 at 80% of its normal capacity and its expenses
are given below:
Administration Costs:
Office salaries Rs. 90,000
General Expenses 2% of sales
Depreciation Rs.7,500
Rates and Taxes Rs.8,750
Selling Costs:
Salaries 8% of sales
Travelling Expenses 2% of sales
Sales Office 1% of sales
General Expenses 1% of sales
Distribution Costs:
Wages Rs.15, 000
Rent 1% of sales
Other Expenses 4% of sales
Draw up Flexible administration, selling and Distribution costs budget, operating at 90%,100% and 110%
of normal capacity.
Solution:
Flexible Budget
Particulars 80% 90% 100% 110%
44
2020
Sales 6,00,000 6,75,000 7,50,000 8,25,000
Administration Costs
Office Salaries 90,000 90,000 90,000 90,000
General Expenses (2% of sales) 12,000 13,500 15,000 16,500
Depreciation 7,500 7,500 7,500 7,500
Rates & Taxes 8,750 8,750 8,750 8,750
Total (a) 1,18,250 1,19,750 1,21,250 1,22,750
Selling Costs
Salaries ( 8% of sales) 48,000 54,000 60,000 66,000
Travelling expenses (2% of sales) 12,000 13,500 15,000 16,500
Sales office (1% of sales) 6,000 6,750 7,500 8,250
General Expenses (1% of sales) 6,000 6,750 7,500 8,250
Total (b) 72,000 81,000 90,000 99,000
Distribution Costs
Wages 15,000 15,000 15,000 15,000
Rent (1% of sales) 6,000 6,750 7,500 8,250
Other expenses 4% 24,000 27,000 30,000 33,000
Total ( c ) 45,000 28,750 52,500 56,250
Grand total (a + b + c) 2,35,250 2,49,500 2,63,750 2,78,000
Module 5
Standard Costing & Variance Analysis: Introduction, Meaning and limitations of Standard Costing,
Standard costing as a management Tool, Historical costing, Estimated Costing and Standard Costing,
Standard Cost and Budgeted Cost, Determination of Standard Cost for Direct Material, Direct Labour
Cost. Variance Analysis: Direct Material Variance – Material Cost Variance, Material Rate Variance,
Material Quantity Variance, Material Mix Variance, and Material Yield Variance, Direct labour Variance –
Labour Cost Variance, Labour Rate Variance, Labour efficiency Variance, Labour Mix Variance, Idle Time
Variance and Labour Yield Variance.
CO 5: Given information about standard and actual performance, the student will be able to determine
Direct Material and Direct Labour Variances.
Question 1:
The standard quantity and standard price of raw material required for one unit of product A are given as
follows:
Quantity (kg.) S.P. (Rs.)
Material X 2 3
Material Y 4 2
The actual production and relevant data are as follows:
Material X - 1,100 kgs. @ Rs. 3,410
Material Y - 1,800 kgs. @ Rs. 3,960
45
2020
Calculate Variances. Actual production was 500 units.
Solution:
Analysis of Given Data
Materi Standard Data Actual Data

al
Quantity Price Value Quantity Price Value
(Kg.) (Rs.) (Rs.) (Kg.) (Rs.) (Rs.)
X 1000 (500 x 2) 3.00 3,000 1,100 3.10 3,410
Y 2000 (500 x 4) 2.00 4,000 1,800 2.20 3,960
3000 7,000 2,900 7,370
Material SQSP (Rs.) RSQSP (Rs.) AQSP (Rs.) AQAP (Rs.)

X 966.67 x 3 = 2,900 1,100 x 3
Y 1933.33 x 2 = 3,867 1,800 x 2
Total 7,000 6,767 6,900 7,370
Where (1) SQSP = Standard Cost of Standard Material = Rs. 7,000

(2) RSQSP = Revised Standard Cost of Material = Rs. 6,767
(3) AQSP = Standard Cost of Actual Material = Rs. 6,900
(4) AQAP = Actual Cost of Material = Rs. 7,370
Computation of Variances :
(a) Material Sub-usage variance = (1) – (2) = 7,000 – 6,767 = 233 (F)
(b) Material Mix variance = (2) – (3) = 6,767 – 6,900 = 133 (A)
(c) Material Usage variance = (1) – (3) = 7,000 – 6,900 = 100 (F)
(d) Material price variance = (3) – (4) = 6,900 – 7,370 = 470 (A)
(e) Material cost variance = (1) – (4) = 7,000 – 7,370 = 370 (A)
Question 2:
A manufacturing concern, which has adopted standard costing, furnished the following information
regarding Standard Material for 70 kg finished product: 100 kg.
Price of materials: Re. 1 per kg.
Actual Output: 2,10,000 kg.
Material used: 2,80,000 kg.
Cost of material: Rs. 2,52,000.
Calculate:
46
2020
(a) Material Usage Variance (b) Material Price Variance (c) Material Cost Variance
Solution:
1) Standard quantity for 70 kg standard output
Standard quantity of material = 100 kg.
2,10,000 kg. of finished products
(2,10,000 x 100)/70 = 3,00,000 kg
2) Actual price per kg = Rs. 2,52,000/2,80,000 = Re. 0.90
(a) Material Usage Variance = Standard Rate (Standard quantity for actual output – Actual quantity)
=Re. 1 (3,00,000 – 2,80,000) =Re. 1 x 20,000 =Rs. 20,000 (favorable)
(b) Material Price Variance =Actual quantity(Standard price ‐Actual Price)
=2,80,000 (Re.1 – Re.0.90) = 2,80,000x0.10= Rs. 28,000 (favorable)
(c) Material Cost Variance = (Standard quantity for actual output x standard rate) – (Actual quantity
x Actual rate)
=(3,00,000x 1) – (2,80,000 x 0.90) = 3,00,000 x 2,52,000 = Rs. 48,000 (favorable)
Verification:
MCV = MPV + MUV

Rs. 48,000 (F) = Rs.28,000 (F) + Rs.20,000 (F)
Question 3:
India Ltd. Manufactures a particular product, the standard direct labour cost of which is Rs. 120
per unit whose manufacture involves the following:
Type of workers Hours Rate (Rs.) Amount (Rs.)
A 30 2 60
B 20 3 60
50 120
During a period, 100 units of the product were produced, the actual labour cost of which
was as follows:
47
2020
Type of workers Hours Rate (Rs.) Amount (Rs.)
A 3,200 1.50 4,800
B 1,900 4.00 7,600
5,100 12,400
Calculate: (1) Labour cost variance (2) Labour Rate variance (3) Labour Efficiency
variance (4) Labour mix variance.
Solution:
Standard for 100 units Actual for 100 units

Type of Worker
Hours Rate Amount Hours Rate Amount
A 3,000 2 6,000 3,200 1.50 4,800
B 2,000 3 6,000 1,900 4.00 7,600
Total 5,000 12,000 5,100 12,400
 LCV: SC ‐AC
LCV = 12,000 ‐ 12,400 = Rs. 400 (A)
 LRV: (SR ‐ AR) x AH

A = (2 ‐ 1.50) x 3,200 = Rs. 1,600 (F)
B = (3 ‐ 4) x 1,900 = Rs. 1,900 (A)
= Rs. 300 (A)
 LEV: (SH ‐ AH) x SR
A = (3,000 ‐ 3,200) x 2 = Rs. 400 (A)
B = (2,000 ‐ 1,900) x 3 = Rs. 300 (F)
= Rs. 100 (A)
Question 4:
The standard cost of a certain drug is:

40% of Material A at Rs. 20 per lb.
48
2020
60% of Material B at Rs. 30 per lb.
Standard loss expected in production is 10%. In certain period 90lbs of Material A at Rs. 18 per lb and
110 lbs of Material B at Rs. 34 per lb were used. Good production realized was 182 lbs. calculate the
different material variances.
Solution:
1. M.P.V = AQ(SP-AP)
Rs.
Material A: 90(20 - 18) = 180 (F)
Material B: 110(30 - 34) = 440 (F)
Rs. 260 (A)
2. M.U.V = SP(SQ for Actual Output- AQ)
Material A: 20 (80.88 - 90) = 182.4 (A)

Material B: 30 (121.33 - 110) = 339.9 (F)
Rs. 157.5 (A)
Note: If 90 is output, standard material of A = 40

If 182 is output, standard material of A = 40 * 182 = 80.88
90
If 182 is output, standard material of B = 60 * 182 = 121.33
90
3. M.C.V = (SP * SQ) – (AP*AQ)
A: (20 * 80.88) – (18 * 90) = 2.4 (A)

B: (30 * 121.33) – (34 * 110) = 100.1 (A)
Rs. 102.5 (A)
CHECK: MCV = MPV + MUV
102.5 (A) = 260 (A) + 157.5 (F)
MMV = SP (SQ – AQ)
A: 20(80-90) = 200 (A)
B: 30(120-110) = 300 (F)
Rs. 100 (F)
M.Y.V = Average SP(Actual loss on Actual Output – Standard loss on Actual Output)
Average SP of Standard Mix = 80*20+120*30 = Rs. 28.8
200-10%
Therefore, M.Y.V = 28.8(18-20) = Rs. 57.6 Or Rs. 57.5 (F) Because Actual loss is less
Check: MUV = MMV + MYV

Rs. 157.5 (F) = Rs. 100 (F) + Rs. 57.5 (F)
Question 5:
Using the following information calculate each of three labour variance for each department.
Dept X Dept Y
49
2020
Gross wages direct (Rs.) 28,080 19,370
Standard hours produced 8,640 6,015
Standard rate per hour (Rs.) 3 3.40
Actual hours worked 8,200 6,395
Solution:
Dept. X : Computation of Required Values
SRSH (1) SRAH (2) ARAH (3)

3 x 8640 3 x 8200
Rs. 25,920 Rs. 24,600 Rs. 28080
1. SRSH = Standard Cost of Standard Labour

2. SRAH = Standard Cost of Actual Labour
3. ARAH = Actual Cost of Labour

a. Labour Efficiency Variance = (1) – (2) = Rs. 1,320 (F) [Rs. (25,920 – 24,600)]
b. Labour Rate Variance = (2) – (3) = Rs. 3,480 (A) [Rs. (24,600 – 28,080)]
c. Labour Cost Variance = (1) – (3) = Rs. 2,160 (A) [Rs. (25920 – 28,080)]
Dept. Y Computation of Required Values

SRSH (1) (`) SRAH (2) (`) ARAH (3) (`)
3.4 x 6,015 3.4 x 6,395
Rs. 20,451 Rs. 21,743 Rs. 19,370
a. Labour efficiency variance = (1) – (2) = 1,292 (A)

b. Labour rate variance = (2) – (3) = 2,373 (F)
c. Labour Cost Variance = (1) – (3) = 1,081 (F)
Question 6:
The standard mix of a product is :
X – 600 units @15 paise per unit Y – 800 units @ 20 paise per unit Z – 1,000 units @ 25paise per unit
Ten units of the finished product should be obtained from this mix. During the month of February, 201,
ten mixes were completed and the consumption was:
X – 640 units @ 20 paise per unit Y – 960 units @ 15 paise per unit Z – 840 units @ 30 paise per unit
50
2020
Actual output was 90 units. Calculate Material Price Variance, Material usage Variance, Material ix
Variance, Material Yield Variance.
Solution:
Work Note
1) Calculation of Revised X = 600 x 2,440 Y = 800 X 2,440 Z = 1,000 X 2,440

standard Quality 2,400 2,400 2,400
(RSQ) = 610 = 813 = 1,017
2) Standard Cost of Standard Material 3) Actual cost of Actual Material

X = 600 x 0.15 = Rs. 90 X = 640 x 0.20 = Rs. 128
Y = 800 x 0.20 = Rs. 160 Y = 960 x 0.15 = Rs. 144
Z = 1,000 x 0.25 = Rs. 250 Z = 840 x 0.30 = Rs. 252
2,400 Rs. 500 2,440 RS. 524
Analysis of Material Variance

1) Total Material Variance: = (SC - AC) x AY 4)Material Mix Variance = (RQ –AQ) x SP
= (5 – 5.822) x 90 X = (610 - 640) x 0.15 = Rs.4.50 (A)
= Rs. 74 (A) Y = (813 - 960) x 0.20 = Rs. 29.40 (A)
2) Material Price Variance = (SP – AP) x AQ Z = (1,107 - 840) x 0.25 = Rs. 44.25 (A)
X = (0.15 - 0.20) x 640 = RS. 32 (A) = Rs. 10.35 (F)
Y = (0.20 - 0.15) x 960 = Rs. 48 (F) 5)Material Yield Variance = (AY – SY)x SC
Z = (0.25 - 0.30) x 840 = Rs. 42 (A) = Rs. 26 (A) = (90 – 100) x Rs. 5
3) Material Usage Variance = (SQ – RQ) x SP = 50 (A)
X = (600 - 610) x 0.15 = Rs. 1.50 (A) Total Material Variance = Rs. 74 (A)
Y = (800 - 813) x 0.20 = Rs. 2.60 (A) SC = 500 = Rs. 5 per unit
Z = (1,017- 840) x 0.25 = Rs. 4.25 (A) = RS. 3.35 (A) 100
AC = 524 = Rs. 5.822 per unit
90
Question 7:
Given Information:
Material Standard Quantity Price Total

(Kg.) Rs Rs
A 500 6.00 3,000
B 400 3.75 1,500
C 300 3 900
51
2020
1,200 5,400
Less: 10% Normal loss 120
1,080 5,400
Material Actual Quantity Price Total

(Kg.) Rs Rs
A 400 6.00 2,400
B 500 3.60 1,800
C 500 2.80 1,120
1,300 5,320
Less: 10% Normal loss 220
1,080 5,320
Calculate:
a. Material Cost Variance
b. Material Price Variance
c. Material Mix Variance
d. Material Yield Variance
e. Material Usage Variance
Solution:
Computation of Required Values
SQSP (1) RSQSP (2) AQSP (3) AQAP (4)

A 3,000 541.67 x 6 = 3,250 400 x 6 = 2,400 2,400
B 1,500 433.33x3.75= 1,625 500 x 3.75 = 1,875 1,800
C 900 325 x 3 = 975 400 x 3 = 1,200 1,120
5400 5,850 5,475 5,320
Computation of RSQ:
For A = (500/ 1,200 ) x 1,300 = 541.67 units.
For B = (400 /1,200) x 1,300 = 433.33 units.
For C = (300/ 1,200) x 1,300 = 325.00 units.
Where
52
2020
1. SQSP = Standard Cost for Standard Material = ` 5,400
2. RSQSP = Revised Standard Cost of Material = ` 5,850
3. AQSP = Standard Cost of Actual Material = ` 5,475
4. AQAP = Actual Cost of Material = ` 5,320
Computation of Required Variances

a. Material Yield Variance = (1) – (2) = ` 450 (A) [`(5,400 – 5,850)]
b. Material Mix Variance = (2) – (3) = ` 375 (F) [`(5,850 – 5,475)]
c. Material usage variance = (1) – (3) = `75 (A) [`(5,400 – 5,475)]
d. Material price variance = (3) – (4) = `155 (F) [`(5,475 – 5,320)]
e. Material cost variance = (1) – (4) = `80 (F) [`(5,400 – 5,320)]
Question 8:
The Standard mix to produce one unit of product is as follows:

Material Units Rate per unit Amount
A 60 15.00 900
B 80 20.00 1,600
C 100 25.00 2,500
Total 240 5,000
During the month of April 2018 10 units were actually produced and consumption was as follows:
Material Units Rate per unit Amount

A 640 17.50 11,200
B 950 18.00 17,100
C 870 27.50 23,925
Total 2,460 52,225
Calculate all Material Variances and verify them.
Solution:
Material Standard for 10 units Actual for 10 units

Units Rate Amount Units Rate Amount
A 600 15 9,000 640 17.50 11,200
B 800 20 16,000 950 18.00 17,100
C 1000 25 25,000 870 27.50 23,925
Total 2,400 50,000 2,460 55,225
53
2020
1. Material Cost Variance = Standard Cost - Actual Cost
= 50,000 – 52,225 = Rs.2,225 (A)
2. Material Price Variance = (Std. Price – Actual Price) x Actual Qty

Material A = (15 – 17.50) x 640 = Rs.1,600 (A)
Material B = (20 – 18 ) x 950 = Rs.1,900 (F)
Material C = (25 – 27.50) x 870 = Rs.2,175 (A)
MPV = Rs.1,875 (A)
3. Material Usage Variance = (Std. Qty – Actual Qty) x Std Price

Material A = (600 – 640) x 15 = Rs.600 (A)
Material B = (800 – 950) x 20 = Rs.3,000 (A)
Material C = (1,000 – 970 ) x25 = Rs.3,250 (F)
MUV = Rs.350 (A)
4. Material Mix Variance = (Revised Std Qty – Actual Qty ) x Std Price
Revised Standard quantity (RSQ) is calculated as:

Material A = 2460 / 2400 x 600 = 615 units
Material B = 2460 / 2400 x 800 = 820 units
Material C = 2460 / 2400 x 1,000 = 1,25 units
MMV = Material A = (615 – 640 ) x 15 = Rs.375 (A)

Material B = (820 – 950 ) x 20 = Rs. 2,600 (A)
Material C = (1,025 – 870 ) x 25 = Rs.3,875 (F)
MMV = Rs.900 (F)
5. Material Yield Variance:
Standard Yield = (Actual Usage of Material / Std usage per unit of output)
= 2,460 / 240 = 10.25 units
Standard cost per unit of output = Rs.50,000 / 10 units = Rs.5,000
Material Yield Variance = (Actual Yield – Std Yield) x SP

= ( 10- 10.25 ) x 5,000 = Rs.1,250 (A)
Verification:
Material Cost
Variacne (MCV)
Rs.2,225 (A)
Material Price Material Usage

Variance (MPV) Variance (MUV)
Rs.1,875 (A) Rs.350 (A)
54
Material Mix MAterial Yield
Variance (MMV) Variance (MYV)
Rs.900 (F) Rs.1,250 (A)
2020
Question 9:
A Chemical Company gives you the following standard and actual data relating to a batch of the
Chemical X – 461. You are required to calculate:
(a) Material Cost Variance

(b) Material Price Variance
(c) Material Yield Variance
(d) Labour Cost Variance
(e) Labour Rate Variance.
Standard Rate:
Rs.
Material A: 450 Kgs. @ Rs. 20: 9,000
Material B: 360 Kgs. @ Rs. 10: 3,600
Labour: 2,400 hours @ Rs. 2.50 per hour: 6,000
Fixed Overheads: @ Rs. 6 per hour: 14,400
33,000
Actual Rate:
Rs.
Material A: 450 Kgs. @ Rs. 19: 8,550
Material B: 360 Kgs. @ Rs. 11: 3,960
Labour: 2,500 hours @ Rs. 3 per hour: 7,500
Fixed Overheads actually spent 11,500
31,510
Actual process loss being 100 units, actual output = 710 units.
Solution:
Standard Actual
Material Quantity Kg. Rate Rs. Amount Rs. Quantity Kg. Rate Rs. Amount Rs.
A 450 20 9,000 450 19 8,550
B 360 10 3,600 360 11 3,960
810 12,600 810 12,510
Material Variances:
(a) Material Cost Variance:

MCV = SC for Actual Output – Actual Output
= 12,600 – 12,510
= Rs. 90 (F)
(b) Material Price Variance:
MPV = AQ (SR – AR)
Material A = 450 (20 -19) = Rs. 450 (F)
Material B = 360 (10 -11) = Rs. 360 (A)
Rs. 90 (A)
(c) Material Yield Variance:
55
2020
There is no difference in the standard and actual loss. Thus, it is presumed that there
is no Material Yield Variance.
Labour Variances:
(d) Labour Cost Variance:

LCV = SC of Labour for Actual Output – Actual Cost of Labour
= 6,000 – 7,500
= Rs. 1,500 (A)
(e) Labour Rate Variance:
LRV = AT (SR – AR)
= 2,500 (2.50 – 3)
= Rs. 1,250 (A)
56

Course Name: 2T7 - Cost Accounting

Uploaded by

Copyright:

Available Formats

Course Name: 2T7 - Cost Accounting

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Course Name: 2T7 - Cost Accounting

Uploaded by

Copyright:

Available Formats

RTMNU-MBA(Outcome based CBCS)/Semester-II/Summer 2020/Question Bank

Course Name: 2T7 – Cost Accounting

Conceptual framework of Cost Accounting: Basic Concepts of Cost Accounting, Objectives,

Production 10,000 units;

Statement of Cost & Profit (Cost Sheet)

Estimated statement of cost

Production :- 15,000 Units Period :-1 Year

Particulars Per Unit Amount

Stock of raw material on 1-1-2019 Rs. 10,800

Cost sheet for the year ending 31-12-2019

Particulars Amount Rs. Amount Rs.

(a) Percentage of works overheads to productive wages = (43,736/1,98,800 )x100 = 22%

Particulars Amount Rs.

Details Amount (Rs.)

Opening ‘stock of raw material 12500

Add: Purchases 136000

Less: Closing stock of raw material 8500 1,40,000

Prime cost 2,06,000

Office and administrative overheads

available for sale 3,24,000

Less : Closing stock of finished goods 15,000

Cost of goods sold 3,09,000

Selling and distribution overheads 26,000

Total Cost = cost of sales 3,35,000

Statement of Estimated Cost and Profit on work order in 2014

Direct material 9,00,000;

Statement of Cost & Profit (Cost Sheet)

(=) Factory cost (Work Cost) 21,00,000

(=) Office cost/cost of production 25,20,000

(=) Total cost 30,45,000

Cost Sheet for the period

Particulars Amount Amount

Direct Material 15, 00,000

There was no Work-in-progress at the beginning or at the end of the year. It is

Statement of Cost and Profit

For the year ending 31st March 2018

Praticulars Type A Type B

Note: Material Cost is to be allocated as follows:-

Present the following information to show to management:

Fixed Expenses – ` 800

(i) Statement of Marginal Product cost

Sr. No. Particulars A B

Particulars India Sri Lanka Total

Selling price per unit Rs.40

Fixed cost per annum Rs. 16000

= (40‐24)/40 x 100 = 16/40 x 100 OR 40%

S x P/V Ratio = Fixed Cost

(At break even sales, contribution is equal to fixed

Putting this values: s x 40/100 = 16000 +

S = Rs. 45,000 OR 1125 units

Putting this values: Rs. 60,000 x 40/100 = 16000

(E) New break even sales, if sale price is reduced by10%

Now, s x P/V Ratio = F (at B.E.P. contribution is equal to

Profit = Y x 75/100 = 0.75Y

Statement of cost & profit per unit at present:

Material = 2,000 x 50% = 1,000

Computation of new selling price to get same percentage of profit:

Material = 1,000 x 117/100 = 1,170

(2 20 km 3 trips 40 passengers 25 days *12 months) = 14,40,000.