04 Edu91 Costing Practice Sheets Solutions (Not To Print)

EDU91 | Where Learning Happens BY CA NITIN GURU
Chapter 2: MATERIAL COST- Practice Sheet

SOLUTIONS
Solution 1:
Workings:
Computation of effective quantity of each chemical available for use
Chemical A (kg.) Chemical B (kg.)
Quantity purchased 10,000 8,000
Less: Shortage due to normal breakages 500 320
9,500 7,680
Less: Provision for deterioration 2% 190 153.6
Quantity available 9,310 7,526.4
Statement showing the computation of rate per kg. of each chemical

Chemical A (Rs.) Chemical B (Rs.)
Purchase price 10,000 @ Rs. 10 per kg, 8,000 @Rs. 13 per kg 1,00,000 1,04,000
Add: Basic Custom Duty @10% 10,000 10,400
Add: Railway freight 2,133 1,707
(in the ratio of quantity purchased i.e., 5:4)
Total cost (A) 1,12,133 1,16,107
Effective Quantity (see working) (B) 9,310 kg. 7,526.4 kg.
Rate per kg. (A ÷ B) 12.04 15.43
Solution 2:
Workings:
Consumption is calculated on the basis of material requisitions:
Maximum component usage = 4,500 units (Material requisition on 10-01-20)
Minimum component usage = 1,500 units (Material requisition on 24-01-20)
Lead time is calculated from purchase order date to material received date
Maximum lead time = 21 days (15-12-2019 to 05-01-2020)
Minimum lead time = 14 days (30-12-2019 to 13-01-2020)
Reorder quantity (observed) = 10,000 units.
Date Material Requisition Units

number
06-01-2020 11 3,000
10-01-2020 12 4,500 (Maximum)
15-01-2020 13 2,200
24-01-2020 14 1,500 (Minimum)
28-01-2020 15 4,000
31-01-2020 16 3,200
Calculations:
(i) Re-order level
= Maximum usage × Maximum lead time
= 4,500 units × 21 days = 94,500 units
(ii) Maximum stock level

= Re-order level + Re-order Quantity – (Min. Usage × Min. lead time)
= 94,500 units + 10,000 units – (1,500 units × 14 days)
= 1,04,500 units – 21,000 units = 83,500 units
To get the best out of these notes visit www.edu91.org

Join Us on YouTube www.youtube.com/neerajarora
Join Us on Telegram https://t.me/neerajaroraclasses
(iii) Minimum stock level

= Re-order level – (Avg. consumption × Avg. lead time)
= 94,500 units – (3,000 units × 17.5 days)
= 94,500 units – 52,500 units = 42,000 units
(iv) Store Ledger for the month of January 2020: (Weighted Average Method
Date Receipts Issue Balance
GRN/ Units Rate Amt. MRN/ Units Rate Amt. Units Rate Amt.
MRN (‘000) MR (‘000) (‘000)
01-01-20 - - - - - - - - 3,500 9,810 34,335
05-01-20 008 10,000 9,930 99,300 003 500 9,930 4,965 13,000 9,898 1,28,670
06-01-20 - - - 011 3,000 9,898 29,694 10,000 9,898 98,980
10-01-20 - - - 012 4,500 9,898 44,541 5,500 9,898 54,439
12-01-20 009 10,000 9,780 97,800 004 400 9,780 3,912 15,100 9,823 1,48,327
15-01-20 - - - - 013 2,200 9,823 21,611 12,900 9,823 1,26,716
24-01-20 - - - - 014 1,500 9,823 14,734 11,400 9,823 1,11,982
25-01-20 010 10,000 - - - - 21,400 9,789 2,09,482
28-01-20 - - - - 015 4,000 9,789 39,156 17,400 9,789 1,70,326
31-01-20 - - - - 016 3,200 9,789 31,325 14,200 9,789 1,39,001
[Note: Decimal figures may be rounded-off to the nearest rupee value wherever required)
Value of 14,200 units of stock as on 31-01-2020 (‘000) = Rs. 1,39,001
(v) Value of components used during the month of January 2020:

Sum of material requisitions 011 to 016 (‘000)
= Rs. 29,694 + Rs. 44,541 + Rs. 21,611 + Rs. 14,734 + Rs. 39,156 + Rs. 31,325
= Rs. 1,81,061
(vi) Inventory Turnover Ratio

= Value of materials used = 1,81,061 = 1,81,061 = 2.09
Average stock value (1,39,001+34,335)/2 86,668
Solution 3:
From the point of view of cost of material charged to each job, it is minimum under FIFO and maximum under LIFO
(Refer to Tables). During the period of rising prices, the use of FIFO give rise to high profits and that of LIFO low profits.
In the case of weighted average, there is no significant adverse or favourable effect on the cost of material as well as on
profits.
From the point of view of valuation of closing stock, it is apparent from the above statement, that it is maximum under
FIFO, moderate under weighted average and minimum under LIFO.
It is clear from the tables that the use of weighted average evens out the fluctuations in the prices. Under this method,
the cost of materials issued to the jobs and the cost of material in hands reflects greater uniformity than under FIFO and
LIFO. Thus, from different points of view, weighted average method is preferred over LIFO and FIFO.
Statement of receipts and issues by adopting First-in-First-Out Method

Date Particulars Receipts Issues Balance
Units Rate Value Units Rate Value Units Rate Value

No. (Rs.) (Rs.) No. (Rs.) (Rs.) No. (Rs.) (Rs.)
Jan. 1 Purchase 100 1 100 - - - 100 1 100
Jan. 20 Purchase 100 2 200 - - - 100 1 100
100 2 200
Jan. 22 Issue to Job W 16 - - - 60 1 60 40 1 40

100 2 200
Jan. 23 Issue to Job W 17 - - - 40 1 40 80 2 160
20 2 40
Statement of receipts and issues by adopting Last-In-First-Out method


Jan. 1 Purchase 100 1 100 - - - 100 1 100
Jan. 20 Purchase 100 2 200 - - - 100 1 100
100 2 200
Jan. 22 Issue to Job W 16 - - - 60 2 120 100 1 100
40 2 80
Jan. 23 Issue to Job W 17 - - - 40 2 80 80 1 80
20 1 20
Statement of Receipt and Issues by adopting Weighted Average method


Jan. 1 Purchase 100 1 100 - - - 100 1 100
Jan. 20 Purchase 100 2 200 - - - 200 1.5 300
Jan. 22 Issue to Job W 16 - - - 60 1.5 90 140 1.5 210
Jan. 23 Issue to Job W 17 - - - 60 1.5 90 80 1.5 120
Statement of Material Values allocated to Job W 16, Job 17 and Closing Stock, under aforesaid methods
FIFO LIFO Weighted Average
(Rs.) (Rs.) (Rs.)
Material for Job W 16 60 120 90
Material for Job W 17 80 100 90
Closing Stock 160 80 120
300 300 300
Solution 4:
Working Notes:
(i) Computation of Annual consumption & Annual Demand for raw material ‘D’:
Sales forecast of the product ‘X’ 20,000 units

Less: Opening stock of ‘X’ 1,800 units
Fresh units of ‘X’ to be produced 18,200 units
Raw material required to produce 18,200 units of ‘X’ 72,800 kg
(18,200 units × 4 kg.)
Less: Opening Stock of ‘D’ 2,000 kg
Annual demand for raw material ‘D’ 70,800 kg
(ii) Computation of Economic Order Quantity (EOQ):
EOQ =
2Annualdemandof 'D' Ordering cost

= =
Rs. 25014%
= 2,328 kg.
(iii) Re- Order level:

= ( Maximum consumption per day × Maximum lead time )
= [ { ( Annual consumption of “D”/ 300 days) + 40kg. } × 8 Days ]
= [ { (70,000 kg. / 300 days ) + 40 kg. } × 8 Days ] =2208 kg.
(iv) Minimum consumption per day of raw material ‘D’:

Average Consumption per day= 236 Kg.
Hence, Maximum Consumption per day = 236 kg. + 40 kg. = 276 kg.
So Minimum consumption per day will be
Average Consumption = ( Min.consumption + Max.consumption ) / 2
Or, 236 kg. = (Min.consumption + 276 kg.)
Or, Min. consumption = 472 kg – 276 kg. = 196 kg.
(a) Re-order Quantity :

EOQ – 400 kg. = 2,328 kg. – 400 kg.= 1,928 kg.
(b) Maximum Stock level:

= Re-order level + Re-order Quantity – (Min. consumption per day × Min. lead time)
= 2,208 kg. + 1,928 kg. – (196 kg. × 4 days) = 4,136 kg. – 784 kg. = 3,352 kg.
(c) Minimum Stock level:

= Re-order level – (Average consumption per day × Average lead time)
= 2,208 kg. – (236 kg. × 6 days) = 792 kg.
(d) Impact on the profitability of the company by not ordering the EOQ.
When purchasing the ROQ When purchasing the EOQ

I. Order Quantity 1,928 kg. 2,328 kg.
II. No. of orders a year 70,800kg / 1,928 kg = 36.72 or 37 70,800kg. / 2,328 kg. = 30.41 or 31
orders orders
III. Ordering Cost 37 orders × Rs.1,340= Rs. 49,580 31 orders × Rs. 1,340= Rs. 41,540
IV. Average Inventory 1,928kg. / 2 = 964 Kg. 2,328kg. / 2 = 1,164 kg.
V. Carrying Cost 964 kg. × Rs.35 = Rs. 33,740 1,164 kg. × Rs. 35 = Rs.40,740
VI. Total Cost Rs. 83,320 Rs. 82,280
Extra Cost incurred due to not ordering EOQ = Rs. 83,320 – Rs. 82,280 = Rs. 1,040
Solution 5:
(i) Minimum stock of A
Re-order level – (Average consumption × Average time required to obtain delivery)
= 60,000 kg. – (900units × 12 kg. × 3 weeks) = 27,600 kg.
(ii) Maximum stock of B

Re-order level + Re-order quantity– (Min. Consumption × Min. Re-order period)
= 70,000 kg.+ 8,000 kg– (550units ×8 kg.× 5 weeks).
=78,000–22,000 = 56,000 kg.

(iii) Re-order level of C

Maximum re-order period × Maximum Usage
= 7 weeks × (1,250units × 6 kg.) = 52,500 kg.
OR
= Minimum stock of C+(Average consumption × Average delivery time)
= 25,500 kg.+ [(900 units ×6 kg.)×5 weeks] =52,500 kg.
(iv) Average stock level of A

= (Minimum stock + Maximum stock)/2 (Refer to Working Note)
= (27,600 + 58,800)/2 = 43,200 kg.
Working note:
Maximum stock of A = ROL + ROQ – (Minimum consumption × Minimum re-order period)
= 60,000 kg. + 12,000 kg. – [(550units × 12 kg.) × 2 weeks] = 58,800 kg.
(v) Re-order level of D

Maximum re-order period × Maximum Usage
= 3 weeks × (1,250 units × 5 kg.) = 18,750 kg
(vi) Minimum stock of D

= 18,750 kg. – (900units × 5 kg. × 2 weeks) = 9,750 kg.
Solution 6:
1. Workings:
Consumption is calculated on the basis of material requisitions:
Maximum component usage = 4,500 units (Material requisition on 10-01-20)
Minimum component usage = 1,500 units (Material requisition on 24 -01-20)
Lead time is calculated from purchase order date to material received date
Maximum lead time = 21 days (15-12-2019 to 05-01-2020)
Minimum lead time = 14 days (30-12-2019 to 12-01-2020)
Calculations:
(i) Re-order level
= Maximum usage × Maximum lead time
= 4,500 units × 21 days = 94,500 units
(ii) Maximum stock level

= Re-order level + Re-order Quantity – (Min. Usage × Min. lead time)
= 94,500 units + 10,000 units – (1,500 units × 14 days)
= 1,04,500 units – 21,000 units = 83,500 units
(iii) Minimum stock level

= Re-order level – (Avg. consumption × Avg. lead time)
= 94,500 units – (3,000 units × 17.5 days)
= 94,500 units – 52,500 units
= 42,000 units
(iv) Store Ledger for the month of January 2020:

Date Receipts Issue Balance
GRN/ Units Rate Amt. MRN/ Units Rate Amt. Units Rate Amt. (Rs.
MRN Rs. (Rs. ‘000) MR Rs. (Rs. ‘000) Rs. ‘000)

01-01-20 - - - - - - - - 3,500 9,810 34,335

05-01-20 008 10,000 9,930 99,300 003 500 9,930 4,965 13,000 9,898 1,28,670
06-01-20 - - - - 011 3,000 9,898 29,694 10,000 9,898 98,980
10-01-20 - - - - 012 4,500 9,898 44,541 5,500 9,898 54,439
12-01-20 009 10,000 9,780 97,800 004 400 9,780 3,912 15,100 9,823 1,48,327
15-01-20 - - - - 013 2,200 9,823 21,611 12,900 9,823 1,26,716
24-01-20 - - - - 014 1,500 9,823 14,734 11,400 9,823 1,11,982
25-01-20 010 10,000 9,750 97,500 - - - - 21,400 9,789 2,09,482
28-01-20 - - - - 015 4,000 9,789 39,156 17,400 9,789 1,70,326
31-01-20 - - - - 016 3,200 9,789 31,325 14,200 9,789 1,39,001
[Note: Decimal figures may be rounded-off to the nearest rupee value wherever required)
Value of stock as on 31 01-2020 (‘000) = Rs.1,39,001
(v) Value of components used during the month of January 2020:

Sum of material requisitions 011 to 016 (‘000)
= Rs. 29,694 + Rs. 44,541 + Rs. 21,611 + Rs. 14,734 + Rs. 39,156 + Rs. 31,325 = Rs. 1,81,061
(vi) Inventory Turnover Ratio

= (Value of materials used/ Average stock value) = Rs. 1,81,061/ [Rs. (1,39,001 + 34,335) / 2]
= Rs. 1,81,061/ Rs. 86,668 = 2.09
Solution 7.
(i) Minimum stock of Pi
= 8,000 kg. – (400 units × 5 kg. × 2 weeks) = 4,000 kg.
(ii) Maximum stock of Qu

Re-order level – (Min. Consumption × Min. delivery period) + Re-order quantity
= 4,750 kg. – (350 units × 2 kg. × 3 weeks) + 5,000 kg.
= 9,750 - 2,100 = 7,650 kg.
(iii) Re-order level of Ar

Maximum delivery period × Maximum Usage
= 4 weeks × (450 units × 3 kg.) = 5,400 kg.
OR
= Minimum stock of Ar + (Average consumption × Average delivery time)
= 2,000 kg. + [(400 units × 3 kg.) × 3 weeks] = 5,600 kg.
(iv) Average stock level of Pi

= Minimum stock level of Pi + ½ Re-order quantity
= 4,000 kg. + ½ 10,000 kg. = 4,000 + 5,000 = 9,000 kg.
OR
= Minimum stock + Maximum stock /2
= (4,000 + 16,250 )/ 2 = 10,125 kg.
Working note
Maximum stock of Pi = ROL + ROQ – (Minimum consumption × Minimum delivery period)
= 8,000 kg. + 10,000 kg. – [(350 units × 5 kg.) × 1 week] = 16,250 kg.
Solution 8:
(i) Reorder Quantity (ROQ) = 1,691 kg. ( Refer to working note )
(ii) Reorder level (ROL) = Maximum usage × Maximum re-order period

= 900 kg. × 8 weeks = 7,200 kg.
(iii) Maximum level = ROL + ROQ – (Min. usage × Min. re-order period)
= 7,200 kg. + 1,691 kg. – (200 kg.× 4 weeks)
= 8,091 kg.
(iv) Minimum level = ROL – (Normal usage × Normal re-order period)

= 7,200 kg. – (550 kg. × 6 weeks)
= 3,900 kg.
(v) Average stock level = ½ (Maximum level + Minimum level)

= ½ (8,091 kg. + 3,900 kg.) = 5,995.5 kg.
OR
= Minimum level + ½ (ROQ)
= 3,900 kg + (1/2) 1,691 kg.
= 4,745.5 kg.
Working Note:
Annual consumption of raw material (A) = (550 kg. × 52 weeks) = 28,600 kg.
Cost of placing an order (O) = Rs. 200
Carrying cost per kg. per annum (C) = Rs. 20 × 20% = Rs. 4
√𝟐𝐀𝐎
Economic order quantity (EOQ) =
𝐂
𝟐 ×𝟐𝟖,𝟔𝟎𝟎 𝐤𝐠𝐬 ×𝐑𝐬.𝟐𝟎𝟎
=√ = 1,691 Kg. (Approx)
𝐑𝐬.𝟒
Solution 9.
Working Notes:
Annual requirement (A) = 27,000 units
Cost per order (O) = Rs. 240
Inventory carrying cost (i) = 12.5%
Cost per unit of spare (c) = Rs. 50
Carrying cost per unit (i × c) = Rs. 50 × 12.5% = Rs. 6.25
𝟐 ×𝐀 ×𝐐
Economic Order Quantity (EOQ) = √
𝐢 ×𝐜
(𝟐 × 𝟐𝟕, 𝟎𝟎𝟎 × 𝟐𝟒𝟎)
=√ = 1440 units
𝟔. 𝟐𝟓
(i) Calculation of saving by opting EOQ:
Existing Order policy EOQ Model
No. of orders 9 18.75 or 19
(27,000 / 3,000) (27,000 /1,440)
A. Ordering Cost (Rs.) 2160 4,500
(Rs. 240 × 9) (Rs.240 × [27,000 / 1,440])
B. Carrying cost (Rs.) 9,375 4,500
(3,000 × Rs.6.25)/ 2 (1,440 × Rs.6.25)/2
Total cost (A+B) (Rs.) 11,535 9,000
Savings of Cost by opting EOQ Model = Rs. 11,535 – Rs. 9,000 = Rs. 2,535
(ii) Re-order point under EOQ:

Re-order point/ Re-order level = Maximum consumption × Maximum lead time
Consumption per day = 27,000units / 360days = 75 units
Re-order point/ Re-order level = 75 units × 12 days = 900 units
(iii) Frequency of Orders (in days):

360days / No.of orders a year = 360 days / 19 = 18.95 days or 19 days

Solution 10.
Working:
Calculation of Annual demand of raw material
= 4,000 Litres (per quarter) x 4 (No. of Quarter in a year) x 2 kg. (raw material required for each Litre of paint)
= 32,000 kg.
Calculation of Carrying cost
Storage rate = 2%
Interest Rate = 6%
Total = 8% per annum
Carrying cost per unit per annum = 8% of Rs. 50 = Rs. 4 per unit per annum
𝟐 × 𝐀𝐧𝐧𝐮𝐚𝐥 𝐝𝐞𝐦𝐚𝐧𝐝 (𝐀) × 𝐎𝐫𝐝𝐞𝐫𝐢𝐧𝐠 𝐂𝐨𝐬𝐭 𝐩𝐞𝐫 𝐨𝐫𝐝𝐞𝐫 (𝐎)

(i) EOQ =√
𝐂𝐚𝐫𝐫𝐲𝐢𝐧𝐠 𝐂𝐨𝐬𝐭 𝐩𝐞𝐫 𝐮𝐧𝐢𝐭 𝐩𝐞𝐫 𝐚𝐧𝐧𝐮𝐦 (𝐂)
𝟐 × 𝟑𝟐, 𝟎𝟎𝟎 𝐊𝐠 × 𝐑𝐬 𝟒𝟎
=√ = 800 Kg
𝐑𝐬 𝟒
(ii) Total Annual Inventory Cost

Purchasing cost of 32,000 kg @ Rs. 50 per kg = Rs. 16,00,000
Ordering Cost [(32,000 kg / 800 kg ) × Rs.40) = Rs.1,600
Carrying Cost of Inventory [(15 days / 30 days) × 800 kg × Rs.4] = Rs.1600
Total = Rs.16,03,200
Solution 11:
(a) Re-order level
= Minimum stock + (Average consumption x average delivery time)
= 1,250 units + [625 units x 4 weeks] = 3,750 units
(b) Maximum Stock Level

= Re-order level + Re-order quantity – (Min. consumption x Min. re-order period)
= 3,750 units + 6,750 units – 1,250 units
= 9,250 units
(c) Minimum Stock Level

= Re-order level – (Average consumption x Average delivery time)
= 3,750 units – (625 units x 4 weeks) = 1,250 units
(Note: It has been assumed that average delivery time and minimum delivery time is same i.e. 4 weeks)
(ii) Workings :
Calculations of standard input of Material B
Material Usage Variance (B) = 300 (A)
Material Usage Variance = (SQ – AQ) x SP
Therefore : = (SQ – 70) x Rs. 15 = 300 (A)
= SQ (B) = 50 Kg
(a) Material cost variance
Material cost variance = (SQ x SP) – (AQ x AP)
Material A = (50 x Rs. 12) – (40 x Rs. 15) = 0
Material B = (50 x Rs. 15) – (70 x Rs. 20) = Rs. 650 (A)
= Rs. 650 (A)
(b) Material price variance

Material price variance = (SP – AP) x AQ
Material A = (Rs. 12 - Rs. 15) x 40 = Rs. 120 (A)
Material B = (Rs. 15 - Rs. 20) x 70 = Rs. 350 (A)
= Rs. 470 (A)

(c) Material using variance Material A

Material using variance Material A = (SQ – AQ) x SP
= (50 – 40) x Rs. 12
= Rs. 120(F)
Solution 12:
Annual requirement of raw material in kg. (A) = 2,00,000 units = 40,000 kg.
5 units per kg.
Ordering Cost (Handling & freight cost) (O) = Rs. 1,500

Carrying cost per unit per annum = (Rs. 7.5 × 4) = Rs. 30 per kg.
(i) E.O.Q. = √𝟐𝐱 𝟒𝟎, 𝟎𝟎𝟎 𝐊𝐆𝐒 𝐱 𝐑𝐬. 𝟏𝟓𝟎𝟎/√𝐑𝐬. 𝟑𝟎 = 2,000 Kg.
(ii) Percentage of discount in the price of raw materials to be negotiated:
Particulars Yearly order EOQ
Size of the order 40,000 kg. 2,000 kg.
No. of orders 1 20
Cost of placing orders Rs. 1,500 Rs. 30,000
(1 order × Rs. 1500) (20 orders × Rs. 1500)
Inventory carrying cost Rs. 6,00,000 Rs. 30,000 (2,000

(40,000 kg. × ½ × Rs. 30) kg. × ½ × Rs. 30)
Total Cost Rs. 6,01,500 Rs. 60,000

When order is placed on yearly basis, the ordering cost and carrying cost increased by Rs. 5,41,500 (Rs.
6,01,500 - Rs. 60,000). This increase in total cost should be compensated by reduction in purchase price per
kg. to make yearly order placement rational.
Reduction per kg. in the purchase price of raw material:
= Increased in total cost = Rs. 5,41,500 = Rs. 13.54 per kg.
annual requirement 40,000 kg
Discount in the price of raw material to be negotiated = Rs. 13.54 = 14.10%

Rs. 96
Solution 13:
(i) Computation of Value of Inventory as on 30th September 2019:
Date Particulars Units WAM (Rs.) FIFO (Rs.) LIFO (Rs.)
01-07-19 Opening Stock 25,000 50,00,000 50,00,000 50,00,000
(Rs. 200×25,000) (Rs. 200×25,000) (Rs. 200×25,000)
01-07-19 Purchases 50,000 95,50,000 95,50,000 95,50,000

(Rs. 191×50,000) (Rs. 191×50,000) (Rs. 191×50,000)
30-09-19 Purchases 25,000 52,50,000(Rs.210 52,50,000(Rs.210 52,50,000(Rs.210×
×25,000) ×25,000) 25,000)
01-07-19 Issues/ 68,000 1,34,64,000* 1,32,13,000** 1,34,63,000***
to Consumption
30-09-19 (Balancing
figure)
30-09-19 Closing Stock 32,000 63,36,000 65,87,000 63,37,000
Weighted average rate = Rs. 50,00,000 + Rs. 95,50,000 + 52,50,000 = Rs. 198
(25,000 + 50,000 + 25,000) units
* Rs. 198 x 68,000
** Rs. 200 × 25,000 + Rs. 191 × 43,000 = Rs. 50,00,000 + Rs. 82,13,000

*** Rs. 210 × 25,000 + Rs. 191 × 43,000 = Rs. 52,50,000 + Rs. 82,13,000
(ii) Computation of Profit or Loss for the Quarter ended 30th September 2019
Particulars WAM (Rs.) FIFO (Rs.) LIFO (Rs.)
Sales 1,46,20,000 1,46,20,000 1,46,20,000
Less: Consumption 1,34,64,000 1,32,13,000 1,34,63,000
Less: Administrative Exp. 3,75,000 3,75,000 3,75,000
Profit or Loss 7,81,000 10,32,000 7,82,000
[Assumption: Issue/ consumption pattern was even throughout the quarter]
Solution 14:
(i) (a) Inventory turnover ratio (Refer to working note)
= Cost of Stock of raw materials consumed
Average Stock of raw material
= Rs 1,68,00,000 = 16.8
Rs 10,00,000
(b) Average number of days for which the average inventory is held
= 365 = 365 days = 21.73 days
Inventory Turnover ratio 16.8
Working Note:
Particulars (Rs)
Opening stock of raw material 9,00,000
Add: Material purchases during the year 1,70,00,000
Less: Closing stock of raw material 11,00,000
1,68,00,000
(ii) The Inventory turnover ratio for material X is 16.8 which mean an inventory item takes only 21.73 or 22 days to
issue from stores for production process. The rate is better than the industry rate which is 10 time or 36.5 days. This
inventory turnover ratio indicates better inventory management system and good demand for the final product in
market.
Solution 15:
Calculation of cost per unit:
Particulars Units (Rs)
Listed price of Materials 5,000 2,50,000
Less: Trade discount @ 10% on invoice price (25,000)
2,25,000
Add: CGST @ 6% of Rs 2,25,000 13,500
Add: SGST @ 6% of Rs 2,25,000 13,500
2,52,000
Add: Toll Tax 5,000
Freight and Insurance 17,000
Commission and Brokerage Paid 10,000
Add: Cost of returnable containers:
Amount Deposited Rs 30,000
Less: Amount Refunded Rs 20,000 10,000

2,94,000
Add: Other Expenses @ 2% of Total Cost (2,94,000/98 x 2) 6,000
Total Cost of material 3,00,000
Less: Shortage material due to normal reasons @ 20% 1,000 -
Total cost of material of good units 4,000 3,00,000
Cost per unit (Rs 3,00,000/4,000 units) 75
Note:
(1) GST is payable on net price i.e., listed price less discount.
(2) Cash discount is treated as interest and finance charges; hence it is ignored.
(3) Demurrage is penalty imposed by the transporter for delay in uploading or off-loading of materials. It is an
abnormal cost and not included.
(4) Shortage due to normal reasons should not be deducted from cost to ascertain total cost of good units.
Solution 16:
(i) Calculation of Inventory Turnover ratios and number of days:
Material A (Rs) Material B (Rs)
Opening Stock 30,000 32,000
Add: Purchases 90,000 51,000
1,20,000 83,000
Less: Closing Stock 20,000 14,000
Materials Consumed 1,00,000 69,000
Average inventory: (Opening stock + Closing stock) ÷ 2 25,000 23,000
(a) Inventory Turnover ratio: (Consumption ÷ Average Inventory) 4 times 3 times
(b) Number of days for which the average inventory held (Number of 90 days 120 days
days in a year/IT ratio)
(ii) Comments: Materials A is moving faster than Material B. Or Material A has a less holding period.
Solution 17:
Working Notes
1. Annual production = 40,000 units
2. Raw material required for 40,000 units (40,000 units x 1 kg.) = 40,000 kg.
𝟐 × 𝟒𝟎, 𝟎𝟎𝟎 𝐤𝐠𝐬.× 𝐑𝐬. 𝟏, 𝟎𝟎𝟎
3. EOQ = √ = 2,000 kgs.
𝐑𝐬. 𝟐𝟎
4. Total cost of procurement and storage when the order size is equal to EOQ or 2,000 kg.
No. of order (40,000 kg ÷ 2,000 kg) = 20 times
Ordering Cost (20 orders x Rs 1,000) = Rs 20,000
Carrying Cost (Rs) (1/2 x 2,000 kg x Rs 20) = Rs 20,000
Total Cost Rs 40,000
(i) Re-order point = Safety stock + Lead time consumption

= 1,000 kg. + 40,000 kg. x 36 days
360 days
= 1,000 kg. + 4,000 kg. = 5,000 kg.
(ii) Statement showing the total cost of procurement and storage of raw materials
(After considering the discount)
Order No. of Total cost of Average Stock Total cost of Discount Total cost
size orders procurement storage of raw
materials
Kg. (Rs) Kg. (Rs.) (Rs.) (Rs.)
(1) (2) (3)=(2) x Rs (4) = ½ x (1) (5) = (4) x Rs 20 (6) (7)=((3)+(5)-(6))
1,000
40,000 1 1,000 20,000 4,00,000 40,000 3,61,000
20,000 2 2,000 10,000 2,00,000 32,000 1,70,000
10,000 4 4,000 5,000 1,00,000 20,000 84,000

8,000 5 5,000 4,000 80,000 4,000 81,000

(iii) Number of orders which the company should place to minimize the cost after taking EOQ also into
consideration is 20 orders each of size 2,000 kg. The total cost of procurement and storage in this case comes
to Rs 40,000, which is minimum. (refer to working notes 3 and 4)
Solution 18:
(i) Optimal order quantity i.e. E.O.Q.
𝟐 × 𝟒𝟖, 𝟎𝟎𝟎 × 𝟏, 𝟑𝟓𝟎
=√ = √𝟖𝟔, 𝟒𝟎, 𝟎𝟎𝟎 = 2,939 units
𝟏𝟓
Relevant cost of this order quantity
Ordering Cost = 48,000/2,939 = 16.33, say 17 orders at Rs. 1,350 22,950.00
Carrying Cost = ½ x 2,939 x 15 22,042.50
Relevant Cost 44,992.50
𝟐 × 𝟒𝟖, 𝟎𝟎𝟎 × 𝟖𝟎𝟎

(ii) Revised EOQ =√ = 2,263 units
𝟏𝟓
Relevant Cost of this order quantity
Ordering Cost = 48,000/2.263 = 21.21, says 22 orders at Rs 800 17,600.00
Carrying Cost = ½ x 2,263 x 15 16,972.50
Relevant Cost 34,572.50
Differential Cost = 44,992.50 – 34,572.50 = Rs 10,420
(iii) In case of discount in purchase price, the total cost of Purchase Cost, ordering cost and carrying cost should be
compared.
Original offer at Rs 80 per unit Supplier offered at Rs 72 per unit
Rs Rs
Purchase Cost (48,000 x 80) 38,40,000.00 Purchase Cost (48,000 x 72) 34,56,000.00
Ordering Cost 22,950.00 Ordering Cost 0.00
Carrying Cost 22,042.50 Carrying Cost (1/2 x 48,000 x 3,60,000.00
15)
Total Cost 38,84,992.50 38,16,000.00
This special offer at Rs 72 per unit should be accepted as it saves Rs 68,992.50 as compared to original offer.

Chapter 3: LABOUR COST & DIRECT EXPENSES-

Practice Sheet
SOLUTIONS
Solution 1:
Calculation of total earnings:
= Time taken × Time rate + 50% (Time Allowed – Time Taken) × Time rate
= 6 hrs. × RS 60 + 1/2 × (2 hrs. × Rs 60) or Rs 360 + Rs 60 = Rs 420
Of his total earnings, Rs 360 is on account of the time worked and Rs 60 is on account of his share of the premium bonus.
Solution 2:
Calculation of total earnings:
= Time taken × Rate per hour + Time Saved × Time taken × Rate per hour
Time Allowed
= 6 hours × Rs 60 + 2 hours × 6 hours × Rs 60 = Rs 360 + Rs 90 = Rs 450

8 hours
Solution 3:
Statement of Bonus, total earnings of Employee and hourly earnings under Halsey and Rowan Systems.
SH AH Time Basic Wages Bonus Bonus Total Total Hourly Hourly
Saved (AH x Rs 8) under Under earnings earnings earnings earnings
(B x Rs 8) Halsey Rowan under under under under
System system Halsey Rowan Halsey Rowan
5 xCx8 BxCx8 System system system system
100 A D+E D+F G/B H/B
A B C= (A- D E F G H I J
Hours Hours B) Rs Rs Rs Rs Rs Rs
Hours
8 8 - 64 - - 64 64 8.00 8.00
8 7 1 56 4 7 60 63 8.57 9.00
8 6 2 48 8 12 56 60 9.33 10.00
8 5 3 40 12 15 52 55 10.40 11.00
8 4 4 32 16 16 48 48 12.00 12.00
8 3 5 24 20 15 44 39 14.67 13.00
8 2 6 16 24 12 40 28 20.00 14.00
8 1 7 8 28 7 36 15 36.00 15.00
Solution 4:
Calculation of earnings under different wage schemes:
(i) Day wages:
Worker Day Wages (Rs) Actual Output Labour cost per 100
(Units) pieces (Rs)
A 600 180 333.33
B 600 120 500.00
C 600 100 600.00
Total 1,800 400
Average labour cost to produce 100 pieces:

= Total wages paid × 100 = Rs 1,800 × 100 = Rs 450
Total output 400 units

(ii) Piece rate:

Worker Actual Output Piece rate Wages earned Labour cost per
(Units) (Rs) (Rs) 100 pieces (Rs)
A 180 7.50 1,350 750.00
B 120 7.50 900 750.00
C 100 7.50 750 750.00
Total 400 3,000
Average cost of labour for the company to produce 100 pieces:

= Rs 3,000 ×100 = Rs 750
400 units
(iii) Halsey Scheme:

Worker Actual Std. Actual Time Bonus Rate Total wages Labour cost
Output Time Time Saved Hours per (Rs) per 100
(Units) (Hrs.) (Hrs.) (Hrs.) (50% of hour pieces (Rs)
time (Rs)
saved)
A B C D=B-C E F G=F x (C+E) H=G/A*100
A 180 18 8 10 5 75 975 541.00
B 120 12 8 4 2 75 750 625.00
C 100 10 8 2 1 75 675 675.00
Total 400 2400
Average cost of labour for the company to produce 100 pieces

= Rs 2,400 ×100 = Rs 600
400 units
(iv) Rowan Scheme :

Worker Actual Std. Actual Time Bonus Rate Total wages Labour cost
Output Time Time Saved Hours* per including per 100
(Units) (Hrs.) (Hrs.) (Hrs.) hour bonus (Rs) pieces (Rs)
(Rs)
A B C D=B-C E F G=F x (C+E) H=G/A*100
A 180 18 8 10 4.44 75 933 518.33
B 120 12 8 4 2.67 75 800 666.67
C 100 10 8 2 1.60 75 720 720.00
Total 400 2,453
* Bonus hours = Time Saved × Actual time

Std. Time
Average cost of labour for the company to produce 100 pieces
= Rs 2,453 ×100 = Rs 613.25
400 units
Solution 5:
Workings Notes:
Calculation of Total hours saved:
M J
No. of garments assigned (Pieces.) 15 21
Hour allowed per piece (Hours) 8 8
Total hours allowed (Hours) 120 168

Hours Taken (Hours) 100 140

Hours Saved (Hours) 20 28
(i) Calculation of loss incurred due to incorrect rate selection:

(While calculating loss only excess rate per hour has been taken)
M (Rs.) J (Rs.) Total (Rs.)
Basic Wages 1,200 1,680 2,880
(100 Hrs. × Rs.12) (140 Hrs. × Rs. 12)
Bonus [as per Halsey Scheme] 120 168 288
(50% of Time Saved × Excess (50% of 20 Hrs. × Rs.12) (50% of 28 Hrs. × Rs.12)
Rate)
Excess Wages Paid 1,320 1,848 3,168
(ii) Calculation of loss incurred due to incorrect rate selection had Rowan scheme of bonus payment followed:
Basic Wages 1,200 1,680 2,880
(100 Hrs. × Rs.12) (140 Hrs. × Rs. 12)
Bonus [as per Rowan Scheme] 200 280 480
[(TimeTaken/TimeAllowed) × [(100/120) × 20 × Rs.12] [(140/168) × 28 × Rs.12]
Time Saved × Excess Rate]
Excess Wages Paid 1,400 1,960 3,360
(iii) Calculation of amount that could have been saved if Rowan Scheme were followed:
Wages paid under Halsey 1,320 1,848 3,168
Scheme
Wages paid under Rowan 1,400 1,960 3,360
Scheme
Difference (loss) (80) (112) (192)
(iv) Rowan Scheme of incentive payment has the following benefits, which is suitable with the nature of business in
which JBL Sisters operates:
(a) Under Rowan Scheme of bonus payment, workers cannot increase their earnings or bonus by merely
increasing its work speed. Bonus under Rowan Scheme is maximum when the time taken by a worker on a job
is half of the time allowed. As this fact is known to the workers, therefore, they work at such a speed which
helps them to maintain the quality of output too.
(b) If the rate setting department commits any mistake in setting standards for time to be taken to complete the
works, the loss incurred will be relatively low.
Solution 6:
Workings:
1. Normal working hours in a month = (Daily working hours – lunch break) × no. of days
= (8 hours – 0.5 hours) × 26 days = 195 hours
2. Hours worked by Mr.Z = No. of normal days worked + Overtime + holiday/ Sunday worked
= (21 days × 7.5 hours) + (9.5 hours + 8.5 hours) + (5 hours + 6 hours)
= 157.5 hours + 18 hours + 11 hours = 186.50 hours.
(i) Calculation of earnings per day

Particulars Amount (Rs.)
Basic salary (Rs.1,000 × 26 days) 26,000
Dearness allowance (20% of basic salary) 5,200

31,200
House rent allowance (16% of basic salary) 4,160
Employer’s contribution to Provident fund (12% × Rs.31,200) 3,744
Employer’s contribution to Pension fund (7% × Rs.31,200) 2,184
41,288
No. of working days in a month (days) 26
Rate per day 1,588
Transport allowance per day 50
Earnings per day 1,638
(ii) Calculation of effective wage rate per hour of Mr. Z:

Basic salary (Rs.1,000 × 26 days) 26,000
Additional basic salary for Sunday & holiday (Rs.1,000 × 2 days) 2,000
Dearness allowance (20% of basic salary) 5,600
33,600
House rent allowance (16% of basic salary) 4,480
Transport allowance (Rs.50 × 23 days) 1,150
Overtime allowance (Rs.160 × 2 × 2 hours)* 640
Employer’s contribution to Provident fund (12% × Rs.33,600) 4,032
Employer’s contribution to Pension fund (7% × Rs.33,600) 2,352
Total monthly wages 46,254
Hours worked by Mr. Z (hours) 186.5
Effective wage rate per hour 248
*(Daily Basic + DA) /7.5 hours
= (1,000+200) /7.5 = Rs.160 per hour
(iii) Calculation of wages to be charged to Job no. HT200

= Rs. 248 × 100 hours = Rs. 24,800
Solution 7:
Employee turnover rate using:
(i) Separation Method:
= (No. of workers left + No. of workers discharged/ Average number of workers) × 100
=(40 + 120)/[(3,600 + 3,790) / 2] × 100 = (160/3,695) × 100 = 4.33%
(ii) Replacement Method:

= (No. of workers replaced/ Average number of workers) × 100 = (150 / 3,695) × 100 = 4.06%
(iii) New Recruitment Method:

= (No. of workers newly recruited/ Average number of worker’s) × 100
= [(No. Recruitments - No. of Replacements)/ Average number of worker’s] × 100
= [(350 – 150) / 3,695] × 100 = (200 / 3,695) × 100 = 5.41%
(iv) Flux Method:

= [(No. of separations + No. of accessions)/ Average number of worker’s] × 100

= [(160 + 350)]/[ (3,600 + 3,790) / 2] × 100 = (510/3,695) × 100 = 13.80%
Solution 8.
Employee turnover rate using:
(i) Separation Method:

= (No. of workers left + No. of workers discharged) / Average number of workers × 100
=(40+160) /(3,800+4,200) ÷ 2 ×100= (200 / 4,000 )×100= 5%
(ii) Replacement Method:

= No. of workers replaced / Average number of workers ) × 100 = ( 150 / 4000 ) × 100 = 3.75%
(iii) New Recruitment Method:

= No. of workers newly recruited /Average number of workers ) × 100
= [(600-150 ]/ 4000 ) × 100 = ( 450 / 4000 )× 100 = 11.25%
(iv) Flux Method:

= (No. of separations + No. of accessions) / Average number of workers × 100
= [(200+600)/(3,800+4,200) ÷ 2 ]× 100 = 800 / 4,000 × 100 = 20%
Solution 9:
Labour Turnover Rate (Replacement method) = No. of workers replaced / Average No. of workers
Or, 8/100 = 36/Average No. of workers
Or, Average No. of workers = 450
Labour Turnover Rate (Separation method) = No. of workers separated / Average No. of workers
Or, 6/100 = No. of workers separated / 450
Or, No. of workers separated = 27
Labour Turnover Rate (Flux Method)= [No. of Separations + No. of accession (Joinings)] / Average No. of workers
Or, 14/100 = [27 + No. of accessions (Joinings)] / 450
Or, 100 (27 + No. of Accessions) = 6,300
Or, No. of Accessions = 36
(i) The No. of workers recruited and Joined = 36
(ii) The No. of workers left and discharged = 27
Solution 10.
(a) Working Notes:
1. Total time wages of 50 workers per month:

= No. of working days in the month × No. of working hours per day of each worker
× Hourly rate of wages × No. of workers
= 24 days × 8 hrs. × Rs. 50 × 50 workers = Rs. 4,80,000
2. Time saved per month:

Time allowed per unit to a worker 1.975 hours
No. of units produced during the month by 50 workers 6,120 units
Total time allowed to produce 6,120 units (6,120 × 1.975 hrs) 12,087 hours
Actual time taken to produce 6,120 units (24 days × 8 hrs. × 50 workers) 9,600 hours
Time saved (12,087 hours – 9,600 hours) 2,487 hours
3. Bonus under Halsey scheme to be paid to 50 workers:

Bonus = (50% of time saved) × hourly rate of wages

= 50/100 × 2,487 hours × Rs. 50 = Rs. 62,175

Total wages to be paid to 50 workers are (Rs. 4,80,000 + Rs. 62,175) Rs. 5,42,175, if Z Ltd. considers the introduction of
Halsey Incentive Scheme to increase the worker productivity.
4. Bonus under Rowan Scheme to be paid to 50 workers:

Bonus = (Time taken / Time allowed) × Time saved × hourly rate
= (9,600 hours / 12,087 hours) × 2,487 hours × Rs. 50 = Rs. 98,764
Total wages to be paid to 50 workers are (Rs. 4,80,000 + Rs. 98,764) Rs. 5,78,764, if Z Ltd. considers the introduction of
Rowan Incentive Scheme to increase the worker productivity.
(i) (a) Effective hourly rate of earnings under Halsey scheme:

(Refer to Working Notes 1, 2 and 3)
= (Total time wages of 50 workers + Total bonus under Halsey scheme) / Total hours worked
= (Rs. 4,80,000 + Rs. 62,175) / 9,600 hours = Rs. 56.48
Effective increase in earnings of worker (in %) = [ (Rs. 56.48 - Rs. 50) / Rs.50 ] x 100 = 2.96%
(b) Effective hourly rate of earnings under Rowan scheme:

(Refer to Working Notes 1, 2 and 4)
= (Total time wages of 50 workers + Total bonus under Rowan scheme Total ) / Total hours worked
= (Rs. 4,80,000 + Rs. 96,875) / 9,600 hours = Rs. 60.29
Effective increase in earnings of worker (in %) = [(Rs. 60.29 - Rs. 50) / Rs.50 ] 50 x 100 =20.58%
(ii) (a) Saving in terms of direct labour cost per unit under Halsey scheme: (Refer to Working Note 3)
Labour cost per unit (under time wage scheme) = 1.975 hours × Rs. 50 = Rs. 98.75
Labour cost per unit (under Halsey scheme)
= (Total wages paid under the scheme / Total number of units produced ) = (Rs. 5, 42,175 / 6,120)
= Rs. 88.60
Saving per unit = Rs. 98.75 – Rs. 88.60 = Rs. 10.15
(b) Saving in terms of direct worker cost per unit under Rowan Scheme: (Refer to Working Note 4)
Labour cost per unit under Rowan scheme = Rs. 5,78,764/6,120 units= Rs. 94.57
Saving per unit = Rs. 98.75 – Rs. 94.57 = Rs. 4.18
(iii) Calculation of Productivity:

Normal Production Hours worked/Unit per Hour (9,600/1.975) 4,861
Actual Production Units 6,120
Increase in labour productivity 1,259
% Productivity i.e. increase in production/Normal production 25.9%
Advice: Rowan plan fulfils the company’s assurance of 20% increase over the present earnings of workers. This would
increase productivity by 25.9% only. It will not adjust with the increase in demand by 40%.
Solution 11.
(i) Calculation of Net Wages paid to Worker ‘R’ and ‘S’
Particulars R (Rs.) S (Rs.)
Basic Wages 15,000.00 30,000.00
Dearness Allowance (DA) (50% of Basic Wages) 7,500.00 15,000.00
Overtime Wages (Refer to Working Note 1) 4,500.00 ----
Gross Wages earned 27,000.00 45,000.00
Less: Provident Fund (7% × Rs. 15,000); (7.5% × Rs. 30,000) (1,050.00) (2,250.00)
Less: ESI (2% × Rs. 15,000); (2% × Rs. 30,000) (300.00) (600.00)
Net Wages paid 25,650.00 42,150.00

Calculation of ordinary wage rate per hour of Worker ‘R’ and ‘S’
R (Rs.) S (Rs.)
Gross Wages (Basic Wages + DA) (excluding overtime) 22,500.00 45,000.00
Employer’s contribution to P.F. and E.S.I. 1,350.00 2,850.00
23,850.00 47,850.00
Ordinary wages Labour Rate per hour 119.25 239.25
(Rs. 23,850 ÷ 200 hours); (Rs. 47,850 ÷ 200 hours)
(ii) Statement Showing Allocation of workers cost to each Job

Total Wages Jobs
A B C
Worker R
Ordinary Wages (15:2:3) 23,850.00 17,887.50 2,385.00 3577.50

Overtime 4500.00 4500.00 - --
Worker S
Ordinary Wages (2:1:2) 47,850.00 19,140.00 9,570.00 19,140.00
76,200.00 41,527.50 11,955.00 22,717.50
Working Note:
Normal Wages are considered as basic wages.
Over time = {2 x(Basic wage + D.A.) x 20hours } / 200hours
= 2 x ( Rs.22,500 / 200 ) x 20hours
= Rs. 4,500
Solution 12.
Particulars Nasik Satara
Hours worked 32 hr. 30 hr.
Conversion Costs Rs.5,408 Rs.4,950
Less: Overheads Rs.800 (Rs.25×32 hr.) Rs.750 (Rs.25×30 hr.)
Labour Cost Rs.4,608 Rs.4,200
(i)Finding of Normal wage rate:
Let Wage rate be Rs.R per hour, this is same for both the Nasik and Satara factory. Normal wage rate can be found out
taking total cost of either factory.
Nasik: Rowan Plan

Total Labour Cost = Wages for hours worked + Bonus as per Rowan plan
Rs. 4,608 = Hours worked × Rate per hour + [( Time saved / Time allowed )× Hours worked ×Rate per hour]
Or, Rs. 4,608 = 32 hr. × R + [(40 – 32 )/ 40 ×32 ×R]
Or, Rs. 4,608 = 32R + 6.4R R = Rs. 120
Normal wage = 32 hrs × Rs. 120 = Rs. 3,840
OR
Satara: Halsey Plan

Total Labour Cost = Wages for hours worked + Bonus as per Halsey plan
Rs.4,200 = Hours worked × Rate per hour + (50% ×Hours saved×Rate per hour)
Rs. 4,200 = 30 hr. × R + 50% × (40 hr. – 30 hr.) × R

Rs. 4,200 = 35 R
Or R = Rs. 120
Normal Wage = 30 hrs × Rs. 120 = Rs. 3,600
(ii) Comparison of conversion costs:

Particulars Nasik (Rs.) Satara (Rs.)
Normal Wages (32 x 120) 3,840
(30x120) 3,600
Bonus (6.4 x 120) 768
(5 x 120) 600
Overhead 800 750
5,408 4,950
Solution 13:
Time Time Wages (Rs) Bonus(Rs) Total Wages (Rs) Earning Per Hour (Rs)
Allowed Taken Halsey* Rowan** Halsey Rowan Halsey Rowan
(1) (2) (3) = (2) x Rs (4) (5) (6) (7) (8) (9)
80 = (3) + (4) = (3) + (5) = (6)/(2) = (7)/(2)
24,960 24,960 19,96,800 - - 19,96,800 19,96,800 80.00 80.00
24,960 18,720 14,97,600 2,49,600 3,74,400 17,47,200 18,72,000 93.33 100.00
24,960 12,480 9,98,400 4,99,200 4,99,200 14,97,600 14,97,600 120.00 120.00
24,960 6,240 4,99,200 7,48,800 3,74,400 12,48,000 8,73,600 200.00 140.00
* Bonus under Halsey Plan = 50% of (Time Allowed – Time Taken) × Rate per hour
𝐓𝐢𝐦𝐞 𝐓𝐚𝐤𝐞𝐧
** Bonus under Rowan Plan = x Time Saved x Rate per Hour
𝐓𝐢𝐦𝐞 𝐀𝐥𝐥𝐨𝐰𝐞𝐝
Rowan scheme of bonus keeps checks on speed of work as the rate of incentive increases only upto 50% of time taken to
time allowed but the rate decreases as the time taken to time allowed comes below 50%. It provides incentives for
efficient workers for saving in time but also puts check on careless speed. On implementation of Rowan scheme, the
management of ADV Pvt. Ltd. would resolve issue of the slow speed work while maintaining the skill and precision
required maintaining the quality of product.
Solution 14:
(a) Calculation of total earnings and earnings per hour:

Particulars (a) Time taken is 320 (b) Time taken is 150 hours (c) Time taken is 30 hours
hours
A. Time Allowed 300 hours 300 hours 300 hours
B. Time taken 320 hours 150 hours 30 hours
C. Time Saved (A-B) Nil 150 hours 270 hours
D. Bonus hours Nil 51 hours 81 hours
(Refer the workings)
E. Hours to be paid (B+D) 320 hours 201 hours 111 hours
F. Wages rate per hour Rs 60 Rs 60 Rs 60
G. Total earnings (E×F) Rs 19,200 Rs 12,060 Rs 6,660
H. Earnings per hour (G÷B) Rs 60 Rs 80.40 Rs 222
Workings:
Calculation of bonus hours:
Time saved 150 hours Time saved 270 hours
For first 20% of time allowed i.e. 60 15 15
hours (25% of 60 hours) (25% of 60 hours)
For next 30% of time allowed i..e. 90 36 36
hours (40% of 90 hours) (40% of 90 hours)
For next 30% of time allowed i..e. 90 - 27

hours (30% of 90 hours)

For next 20% of time allowed i..e. 60 - 3
hours (10% of 30 hours)
Bonus hours 51 81
Solution 15:
Workings :
Computation of less productive hours
Actual hours worked (given) 5,75,000
Less : Unproductive training hours 18,000
Actual productive hours 5,57,000
(i) Computation of contribution foregone on account of labour turnover

The potentially productive hours lost are 1,25,000
Sales lost for 1,25,000 hours = (12,18,49,320/5,57,000 hours) x 1,25,000 hours = Rs. 2,73,45,000
Contribution lost for 1,25,000 hours= (2,73,45,000/100) x 25 = Rs. 68,36,250
(ii) Computation of profit forgone on account of labour turnover
Particulars (Rs)
Contribution foregone (as calculated above) 68,36,250
Recruitment cost 5,36,300
Selection cost 2,78,400
Training costs 4,25,000
Settlement cost due to leaving 7,18,800
Profit foregone 87,94,750
Alternatively, the Productive hours lost can be calculated as 1,25,000 hours (delay in vacancy) + 18000 hours
(unproductive training hours) = 1,43,000 hours. So,
𝐑𝐬 𝟏𝟐,𝟏𝟖,𝟒𝟗,𝟑𝟐𝟎
Sales lost for 1,43,000 hours will be x 1,43,000 hours = Rs 3,12,82,680. Therefore , contribution
𝟓,𝟓𝟕,𝟎𝟎𝟎 𝐡𝐨𝐮𝐫𝐬
𝐑𝐬 𝟑,𝟏𝟐,𝟖𝟐,𝟔𝟖𝟎
lost for 1,43,000 hours is x 25 = Rs 78,20,670 (instead of Rs 68,36,250). Accordingly , total profit
𝟏𝟎𝟎
foregone on account of labour turnover will be Rs 97,79,170.
Solution 16:
Workings:
Basic wage rate = Rs 100 per hour
Overtime wage rate before and after working hours = Rs 100 + (Rs 100 × 80%)
= Rs 180 per hour Overtime
wage rate for Sundays and holidays = Rs 100 + (Rs 100 × 150%)
= Rs 250 per hour
Computation of average inflated wage rate (including overtime premium):

Particulars Amount (Rs)
Annual wages for the previous year for normal time (3,00,000 hrs. × Rs 3,00,00,000
100)
Wages for overtime before and after normal working hours (60,000 hrs. × 108,00,000
Rs 180)
Wages for overtime on Sundays and holidays (15,000 hrs. × Rs 37,50,000

250)

Total wages for 3,75,000 hrs. 4,45,50,000
Average Inflated wage rate = Rs 4,45,50,000 = Rs 118.80

3,75,000 hours
(a) Where overtime is worked regularly as a policy due to workers’ shortage

The overtime premium is treated as a part of employee cost and job is charged at an
inflated wage rate. Hence, employee cost chargeable to job ‘Spinning’
= Total hours × Inflated wage rate = 4,500hrs. × Rs 118.80 = Rs 5,34,600
(b) Where overtime is worked irregularly to meet the requirements of production

Basic wage rate is charged to the job and overtime premium is charged to factory overheads as under:
Employee cost chargeable to Job ‘Spinning’ = 4,500hours @ Rs 100 per hour
= Rs 4,50,000
Factory overhead = {400 hrs. × (Rs 100 × 80%)} + {100 hrs. × (Rs 100 × 150%)}
= {Rs 32,000 + Rs 15,000} = Rs 47,000
(c) Where overtime is worked at the request of the customer, overtime premium is also charged to the
job as under :
(Rs)
Job ‘Spinning’ Employee Cost : 4,500 hrs @ Rs 100 = 4,50,000
Overtime premium : 400 hrs. @(Rs 100 x 80%) = 32,000
100 hrs. @ (Rs 100 x 150%) = 15,000
Total = 4,97,000
Solution 19:
Calculation of total normal hours to be paid for Mr. Deep (Semi-skilled):
Day Normal Hours Extra Hours Overtime Hours Equivalent Total Normal
normal hours for hours
overtime
worked
A B C D=Cx2 E=A+B+D
Monday 8 1 1½ 3 12
Tuesday 8 --- --- --- 8
Wednesday 8 1 1½ 3 12
Thursday 8 1 1½ 1 10
Friday 8 1 1½ 3 12
Saturday --- --- --- --- ---
Total 40 4 5 10 54
Calculation of total normal hours to be paid for Mr. Sam (Skilled):
Day Normal hours Extra hours Overtime hours Equivalent Total normal
normal hours for hours
overtime
worked
A B C D=Cx2 E=A+B+D
Monday 8 1 1½ 3 12
Tuesday 8 --- --- --- 8
Wednesday 8 1 1½ 3 12
Thursday 8 1 1½ 1 10

Friday 8 1 1½ 3 12
Saturday 5 3* + 1 1** 2 11
Total 45 8 6 12 65
*Mr. Sam will be paid for equivalent 8 normal working hours at ordinary wage rate, through 5 hours of working is
required on Saturday. Further, extra 9th hour worked will also be paid at ordinary wage rate.
** Overtime of 1 hour worked over and above 9 hours will be paid at overtime rate.
Wages payable:
Mr. Deep Mr. Sam
Basic Wages per hour (Rs 400/8, Rs 600/8) (Rs) 50 75
Dearness allowance per hour (@ 20%) (Rs) 10 15
Hourly rate (Rs) 60 90
Total equivalent normal hours 54 65
Total Wages payable (Rs) 3,240 5,850
Solution 20:
(i) Calculation of effective hourly rate of earnings under Rowan Incentives Plan:
Standard time allowed = 10 hours
Time taken = 8 hours, Time saved = 2 hours
A Basic guaranteed wages (Rs 150 x 8 hours) 1,200
B Add: Bonus for time saved (2/10 x 8 x Rs 150) 240
C Total earnings (A + B) 1,440
D Hours worked 8 hours
E Effective Hourly rate (C÷D) 180
(ii) Let the time taken to complete the job is “T” and the time saved is 10-T
Effective hourly rate under the Halsey Incentive Scheme
= (Rate x Hours Worked) + (Rate x 50% of Time Saved) = Rs 180
Hours Worked
(Rs 150 x T) + Rs 150 x 50% (10 - T) = Rs 180
T
150T + 750 – 75T = 180T
180T – 75T = 750
T = 750 = 7.14 hours
105
Solution 21:
Particulars Noida Patparganj
Hours worked 36 hr. 33.75 hr.
Conversion Costs Rs 6,084 Rs 5,569
Less: Overheads Rs 900 Rs 844
(Rs 25 × 36 hr.) (Rs 25 × 33.75 hr.)
Labour Cost Rs 5,184 Rs 4,725
(i) Finding of Normal wage rate:

Let wage rate be Rs R per hour, this is same for both the Noida and Patparganj factory.
Normal wage rate can be found out taking total cost of either factory.
Noida: Rowan Plan
Total Labour Cost = Wages for hours worked + Bonus as per Rowan Plan
Rs 5,184 = Hours worked x rate per hour + (Time saved/time allowed x Hours worked x Rate per hour)
Or, Rs 5,184 = 36hr. x R + ((45 – 36)/45 x 36 x R)
Or, Rs 5,184 = 36R + 7.2R
R = Rs 120
Normal wage = 36hr. x Rs 120 = Rs 4,320

Or
Patparganj: Halsey Plan
Total Labour Cost = Wages for hours worked + Bonus as per Halsey plan
Rs 4,725 = Hours worked × Rate per hour + (50% × Hours saved × Rate per hour)
Rs 4,725 = 33.75 hr. × R + 50% × (45 hr. – 33.75 hr.) × R
Rs 4,725 = 39.375 R
R = Rs 120
Normal Wage = 33.75 hrs × Rs 120 = Rs 4,050
(ii) Comparison of conversion costs:

Particulars Noida (Rs) Patparganj (Rs)
Normal Wages (36 x 120) 4,320
(33.75 x 120) 4,050
Bonus (7.2 x 120) 864
(5.625 x 120) 675
Overhead 900 844
6,084 5,569
Solution 22:
(i) Computation of wages of each worker under guaranteed hourly rate basis
Actual Hours worked (Hours) Hourly wage rate (Rs) Wages (Rs)
Worker
M 380 90 34,200
N 100 100 10,000
O 540 110 59,400
(ii) Computation of wages of each worker under piece work earning basis
Piece rate per unit Worker-M Worker-N Worker-O
Product
(Rs)
Units Wages (Rs) Units Wages (Rs) Units Wages (Rs)
A 22.50 210 4,725 - - 600 13,500
B 30.00 360 10,800 - - 1,350 40,500
C 45.00 460 20,700 250 11,250 - -
Total 36,225 11,250 54,000
Since each worker’s earnings are more than 50% of basic pay. Therefore, worker-M, N and O will be paid the wages as
computed i.e. Rs 36,225, Rs 11,250 and Rs 54,000 respectively.
Working Notes:
1. Piece rate per unit
Product Standard time per unit (in Piece rate each minute Piece rate per unit (Rs)
minutes) (Rs)
A 15 1.5 22.50
B 20 1.5 30.00
C 30 1.5 45.00

Chapter 4: OVERHEADS: ABSORPTION COSTING

METHOD- Practice Sheet
SOLUTIONS
Solution 1:
Effective Machine hour for four-week period
= Total working hours – unproductive set-up time
= {(48 hours × 4 weeks) – {(4 hours × 4 weeks)}
= (192 – 16 hours) =176 hours.
(i) Computation of cost of running one machine for a four week period
(Rs) (Rs)
(A) Standing charges (per annum)
Rent 5,400
Heat and light 9,720
Forman’s salary 12,960
Other miscellaneous expenditure 18,000
Standing charges (per annum) 46,080
Total expenses for one machine for four week period
𝐑𝐬 𝟒𝟔, 𝟎𝟖𝟎 1,181.54
𝟑 𝐦𝐚𝐜𝐡𝐢𝐧𝐞𝐬 × 𝟏𝟑 𝐟𝐨𝐮𝐫 𝐰𝐞𝐞𝐤 𝐩𝐞𝐫𝐢𝐨𝐝𝐬
Wages (48 hours × 4 weeks × Rs 20 × 3 operators) 11,520.00

Bonus {(176 hours × Rs 20 × 3 operators) × 10%} 1,056.00
Total standing charges 13,757.54
(B) Machine Expenses
Depreciation 400.00
Repairs and maintenance (Rs 60 × 4 weeks) 240.00
Consumable stores (Rs 75 × 4 weeks) 300.00
Power (176 hours × 20 units × Rs 0.80) 2,816.00
Total machine expenses 3,756.00
(C) Total expenses (A) + (B) 17,513.54
𝑹𝒔 𝟏𝟕,𝟓𝟏𝟑.𝟓𝟒
(ii) Machine hour rate = = Rs 99.51
𝟏𝟕𝟔 𝒉𝒐𝒖𝒓𝒔
Solution 2:
(i) Computation of percentage recovery rates of factory overheads and administrative overheads.
Let the factory overhead recovery rate as percentage of direct wages be F and administrative overheads recovery rate as
percentage of factory cost be A.
Factory Cost of Jobs: Direct materials + Direct wages + Factory overhead
For Job 101 = Rs 54,000 + Rs 42,000 + Rs 42,000F
For Job 102 = Rs 37,500 + Rs 30,000 + Rs 30,000F
Total Cost of Jobs:
Factory cost + Administrative overhead
For Job 101 = (Rs 96,000 + Rs 42,000F) + (Rs 96,000+ Rs 42,000F) A = Rs 1,51,500*
For Job-102 = (Rs 67,500 + Rs 30,000F) + (Rs 67,500+ Rs 30,000F) A = Rs 1,06,875**
The value of F & A can be found using the following equations

96,000 + 42,000F + 96,000A + 42,000AF = 1,51,500...eqn (i)
67,500 + 30,000F + 67,500A + 30,000AF = 1,06,875...eqn (ii)

Multiplying equation (i) by 5 and (ii) by 7

4,80,000 + 2,10,000F + 4,80,000A + 2,10,000AF = 7,57,500...eqn (i)
4,72,500 + 2,10,000F + 4,72,500A + 2,10,000AF = 7,48,125...eqn (ii)
- - - - -
7,500 + 7500A = 9,325
7,500A = 9,325 - 7,500

A = 0.25
Now put the value of A in eqn (i) to find the value of F
96,000 + 42,000F + 24,000 + 10,500F = 1,51,500
52,500F = 1,51,500 - 1,20,000
F = 0.6
On solving the above relations: F = 0.60 and A = 0.25
Hence, percentage recovery rates of:
Factory overheads = 60% of wages and
Administrative overheads = 25% of factory cost
Working Note:
𝐒𝐞𝐥𝐥𝐢𝐧𝐠 𝐩𝐫𝐢𝐜𝐞
Total Cost =
(𝟏𝟎𝟎% +𝐏𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐨𝐟 𝐩𝐫𝐨𝐟𝐢𝐭)
𝐑𝐬 𝟏,𝟔𝟔,𝟔𝟓𝟎
* For Job 1 = = Rs 1,51,500
(𝟏𝟎𝟎% +𝟏𝟎%)
𝐑𝐬 𝟏,𝟐𝟖,𝟐𝟓𝟎
* For Job 1 = = Rs 1,06,875
(𝟏𝟎𝟎% +𝟐𝟎%)
(ii) Statement of jobs, showing amount of factory overheads, administrative overheads and profit
Particulars Job 101 (Rs) Job 102 (Rs)
Direct materials 54,000 37,500
Direct wages 42,000 30,000
Prime cost 96,000 67,500
Factory overheads
60% of direct wages 25,200 18,000
Factory cost 1,21,200 85,500
Administrative overheads
25% of factory cost 30,300 21,375
Total cost 1,51,500 1,06,875
Profit (10% and 20% respectively) 15,150 21,375
Selling price 1,66,650 1,28,250
(iii) Selling price of Job 103

Particulars Job 103 (Rs)
Direct materials 24,000
Direct wages 20,000
Prime cost 44,000
Factory overheads
60% of direct wages 12,000
Factory cost 56,000
Administrative overheads
25% of factory cost 14,000
Total cost 70,000
Profit (balancing figure) 10,000
Selling price [Total cost / 87.5%] 80,000
Solution 3:
(a) Overhead Distribution Statement
Production Depts. Service Depts.
Machine shop Packing Gen. Plant Store &

Maintenance
(Rs) (Rs) (Rs) (Rs)
Allocated Expenses:
Indirect labour 4,000 3,000 2,000 5,650
Maintenance material 1,800 700 1,020 1,500
Misc. supplies 400 1,000 150 200
Superintendent’s salary - - 4,000
Cost & payroll salary - - 10,000 -
Total Allocated Overheads 6,200 4,700 17,170 7,350
Apportioned expenses (as 77,720 25,800 2,830 22,650
per schedule below)
Total overheads 83,920 30,500 20,000 30,000
Schedule of Apportioned Expenses

Basis Total Production Depts. Service Depts.
Item Machine Packing Gen. Plant Store &
shop Maintenance
(Rs) (Rs) (Rs) (Rs) (Rs)
Power (7:1:-:2) HP hours 8,000 5,600 800 - 1,600
Rent (5:2:1:4) Floor 12,000 5,000 2,000 1,000 4,000
Space
Fuel and heat (3:6:2:4) Radiator 6,000 1,200 2,400 800 1,600
sections
Insurance (64:20:1:15) Investment 1,000 640 200 10 150
Trade license fees Investment 2,000 1,280 400 20 300
(64:20:1:15)
Depreciation (64:20:1:15) Investment 1,00,000 64,000 20,000 1,000 15,000
Total 1,29,000 77,720 25,800 2,830 22,650
(b) Distribution of Service Department Expenses

Production Depts. Service Depts.
Machine Packing Gen. Plant Store &
shop Maintenance
(Rs) (Rs) (Rs) (Rs)
Total Expense [as per (a)] 83,920 30,500 20,000 30,000
Dist. of Store & Maint. (5:2:3) 15,000 6,000 9,000 (30,000)
Dist. of General plant (4:2:1) 16,571 8,286 (29,000) 4,143
Dist. of Store & Maint. (5:2:3) 2,072 829 1,242 (4,143)
Dist. of General plant (4:2:1) 710 355 (1,242) 177
Dist. of Store & Maint. (5:2:3) 89 35 53 (177)
Dist. of General plant (4:2:1) 35 18 (53) 0
Total 1,18,397 46,023
Solution 4:
(i) Amount of under-absorption of production overheads during the year 2019-20
(Rs)
Total production overheads actually incurred during
the year 2019-20 6,00,000
Less: ‘Written off’ obsolete stores Rs 45,000
Wages paid for strike period Rs 30,000 75,000
Net production overheads actually incurred: (A) 5,25,000
Production overheads absorbed by 48,000 machine
hours @ Rs 10 per hour: (B) 4,80,000
Amount of under – absorption of production overheads:

[(A) – (B)] 45,000
(ii) Accounting treatment of under absorption of production overheads It is given in the statement of the
question that 20,000 units were completely finished and 8,000 units were 50% complete, one third of the
under-absorbed overheads were due to lack of production planning and the rest were attributable to
normal increase in costs.
(Rs)
1. (33 – 1/3% of Rs 45,000) i.e., Rs 15,000 of under-absorbed
overheads were due to lack of production planning.
This being abnormal, should be debited to the Costing
Profit and Loss A/c. 15,000
2. Balance (66–2/3% of Rs 45,000) i.e., Rs 30,000 of
Under - absorbed overheads should be distributed
over work-in-progress, finished goods and cost of
sales by using supplementary rate. 30,000
Total under-absorbed overheads 45,000
Apportionment of unabsorbed overheads of ₹ 30,000 over, work-in progress, finished goods and cost of sales
Equivalent (Rs)
Completed Units
Work-in-Progress
(4,000 units × Rs 1.25) 4,000 5,000
(Refer to working note)
Finished goods
(2,000 units × Rs 1.25) 2,000 2,500
Cost of sales
(18,000 units × Rs 1.25) 18,000 22,500
24,000 30,000
Working Note
Supplementary rate per unit = Rs 30,000 . = Rs 1.25
24,000
Solution 5:
(i) Computation of predetermined overhead rate for each production departments from budgeted data
Production Department Service Department
P1 P2 S1 S2
Budgeted factory overheads for the year in (Rs) 25,50,000 21,75,000 6,00,000 4,50,000
Allocation of service department S1’s costs to 3,00,000 3,00,000 (6,00,000) --

production departments P1 and P2 equally in (Rs)
Allocation of service department S2’s costs to 3,00,000 1,50,000 -- (4,50,000)
production departments P1 and P2 in the ratio of

2:1 in (Rs)
Total 31,50,000 26,25,000 -- --
Budgeted machine hours in department P1 1,05,000 --
(working note 1)
Budgeted labour hours in department P2 -- 1,75,000
(working note 1)
Budgeted machine/ labour hour rate (Rs) 30.00 15.00
(ii) Performance report for July, 2020

(When 4,000 and 3,000 units of products A and B respectively were actually produced)
Budgeted (Rs) Actual (Rs)

Raw materials used in Dept. P1:
A : 4,000 units × Rs 120 4,80,000 4,89,000
B : 3,000 units x Rs 150 4,50,000 4,56,000
Direct labour cost
(on the basis of labour hours worked in department P2)
A : 4,000 units × 2 hrs. × Rs 72 5,76,000 5,91,900
B : 3,000 units × 2.5 hrs. × Rs 75 5,62,500 5,52,000
Overhead absorbed on machine hour basis in Dept. P1:
A : 4,000 units × 1.5 hrs. × Rs 30 1,80,000 1,74,400*
B : 3,000 units × 1 hr. × Rs 30 90,000 1,18,649*
Overhead absorbed on labour hour basis in Dept. P2:
A : 4,000 units × 2 hrs. × Rs 15 1,20,000 1,31,364**
B : 3,000 units × 2.5 hrs. × Rs 15 1,12,500 1,18,548**
25,71,000 26,31,861
* (Refer to working note 4) **(Refer to working note 5)
Working notes:
1.
Product A Product B Total
Budgeted output (in units) 50,000 30,000
Budgeted machine hours in Dept. P1 75,000 30,000 1,05,000
(50,000 x 1.5 hrs) (30,000 x 1 hr)
Budgeted labour hours in Dept. P2 1,00,000 75,000 1,75,000
(50,000 x 2 hrs) (30,000 x 2.5 hrs)
2.
Product A Product B Total
Actual output (in units) 4,000 3,000
Actual machine hours utilized in Dept. P1 6,100 4,150 10,250
Actual labour hours utilised in Dept. P2 8,200 7,400 15,600
3. Computation of actual overhead rates for each production department from actual data
Production Department Service Department
P1 P2 S1 S2
Actual factory overheads for the month of July, 25,50,000 21,75,000 6,00,000 4,50,000
2020 in (Rs)
Allocation of service Dept. S1’s costs to 30,000 30,000 (60,000) -
production Dept. P1 and P2 equally in (Rs)

Allocation of service Dept. S2’s costs to 32,000 16,000 - (48,000)
production Dept. P1 and P2 equally in the ratio

2:1 in (Rs)
Total 2,93,000 2,50,000 -- --
Actual machine hours in Dept. P1 (working note 10.250 --
2)
Actual labour hours in Dept. P2 (working note 2) -- 15,600
Actual machine/ labour hour rate (Rs) 28.59 16.02
4. Actual overheads absorbed (based on machine hours)

A : 6,100 hrs × Rs 28.59 = Rs 1,74,400
B : 4,150 hrs × Rs 28.59 = Rs 1,18,649
5. Actual overheads absorbed (based on labour hours)
A : 8,200 hrs × Rs 16.02 = Rs 1,31,364
B : 7,400 hrs × Rs 16.02 = Rs 1,18,548
Solution 6:
Working Note:
1. Effective machine hour:

= Budgeted working hours – Machine Set-up time
= 2,496 hours – 312 hours = 2,184 hours.
2. Operators’ salary per annum:
Salary (3 operators × Rs 30,000 × 12 months) Rs 10,80,000

Add: Fringe benefits (20% of Rs 10,80,000) Rs 2,16,000
Rs 2,96,000
3. Depreciation per annum
(Rs 24,90,000 – Rs 90,000) / 12 Years = Rs 2,00,000
Computation of Machine hour Rate

Amount p.a. (Rs) Amount per hour (Rs)
Standing charges :
Operators’ Salary 12,96,000 98.90
(Rs 12,96,000/6 Machines) × (1/2,184 Hours)
Departmental and general overheads: 5,50,000 41.97
(Rs 5,00,000 × 110%)
(Rs 5,50,000/6 Machines ) × (1/2,184 Hours)
(A) 18,46,000 140.87
Machine Expenses :
Depreciation = ( Rs 2,00,000/2,184 Hours ) 2,00,000 91.58
Electricity :
During working hours (2,496 hours × 60 units × Rs 6) 8,98,560 411.43
During maintenance hours (416 hours × 10 units× Rs 24,960 11.43
6)
Component replacement cost (2,400 × 52 weeks) 1,24,800 57.14
Machine maintenance cost 2,40,000 109.89
(B) 14,88,320 681.47
Machine Hour Rate (A + B) 822.34
Solution 7:
Computation of Machine Hour Rate
Machines
Basis of
Total (Rs) A (Rs) B (Rs) C (Rs)
Apportionment
(A) Standing Charges
Insurance Depreciation 80,000 30,000 30,000 20,000
Basis (3:3:2)
Indirect Labour Direct Labour 2,40,000 60,000 90,000 90,000
(2:3:3)
Building Floor Space 2,00,000 80,000 80,000 40,000

maintenance (2:2:1)
expenses
Rent and Rates Floor Space 2,40,000 96,000 96,000 48,000
(2:2:1)
Salary of foreman Equal 5,04,000 1,68,000 1,68,000 1,68,000
Salary of attendant Equal 1,44,000 48,000 48,000 48,000
Total standing 14,08,000 4,82,000 5,12,000 4,14,000
charges
Hourly rate for 247.43 262.83 212.53
standing charges
(B) Machine
Expenses:
Depreciation Direct 2,00,000 75,000 75,000 50,000
Spare parts Final estimates 1,32,250 46,000 57,500 28,750
Power K.W. rating 4,00,000 1,50,000 1,00,000 1,50,000
(3:2:3)
Consumable Stores Direct 80,000 30,000 25,000 25,000
Total Machine 8,12,250 3,01,000 2,57,500 2,53,750
expenses
Hourly Rate for 154.52 132.19 130.26
Machine expenses
Total (A + B) 22,20,250 7,83,000 7,69,500 6,67,750
Machine Hour rate 401.95 395.02 342.79
Working Notes:
(i) Calculation of effective working hours:
No. of full off-days = No. of Sunday + No. of holidays
= 52 + 12 = 64 days
No. of half working days = 52 days – 2 holidays = 50 days
No. of full working days = 365 days – 64 days – 50 days = 251 days
Total working Hours = {(251 days × 8 hours) + (50 days × 4 hours)}
= 2,008 hours + 200 = 2,208 hours.
Total effective hours = Total working hours × 90% - 2% for break-down
= 2,208 hours × 90% - 2% (2,208 hours × 90%)
= 1,987.2 hours – 39.74 hours
= 1947.46 or Rounded up to 1948 hours
(ii) Amount of spare parts is calculated as under:

A (Rs) B (Rs) C (Rs)
Preliminary estimates 40,000 40,000 20,000
Add: Increase in price @ 15% 6,000 6,000 3,000
46,000 46,000 23,000
Add: Increase in consumption @ 25% - 11,500 5,750
Estimated cost 46,000 57,500 28,750
(iii) Amount of Indirect Labour is calculated as under:

(Rs)
Preliminary estimates 2,00,000
Add: Increase in wages @ 20% 40,000

2,40,000
(iv) Interest on capital outlay is a finance cost, therefore it has been excluded from the cost accounts.
Solution 8:
Primary Distribution Summary
Item of cost Basis of Total (Rs) P1 P2 P3 S1 S2
apportionment (Rs) (Rs) (Rs) (Rs) (Rs)
Direct wages Actual 2,50,000 -- -- -- 1,87,500 62,500
Rent and rates Floor area 6,25,000 1,25,000 1,56,250 1,87,500 1,25,000 31,250
(4 : 5 : 6 : 4 : 1)
General Light points 7,50,000 1,25,000 1,87,500 2,50,000 1,25,000 62,500
lighting (2 : 3 : 4 : 2 : 1)
Indirect wages Direct wages 1,87,500 56,250 37,500 56,250 28,125 9,375
(6 : 4 : 6 : 3 : 1)
Power Horse Power of 25,00,000 10,00,000 5,00,000 8,33,333 1,66,667 --
machines used
(6 : 3 : 5 : 1)
Depreciation of Value of 5,00,000 1,20,000 1,60,000 2,00,000 10,000 10,000
machinery machinery
(12:16:20:1:1)
Insurance of Value of 2,00,000 48,000 64,000 80,000 4,000 4,000
machinery machinery
(12:16:20:1:1)
50,12,500 14,74,250 11,05,250 16,07,083 6,46,292 1,79,625
Overheads of service cost centres:

Let S1 be the overhead of service cost centre S1 and S2 be the overhead of service cost centre S2.
S1 = 6,46,292 + 0.10 S2
S2 = 1,79,625 + 0.10 S1
Substituting the value of S2 in S1 we get S1 = 6,46,292 + 0.10 (1,79,625 + 0.10 S1)
S1 = 6,46,292 + 17,962.5 + 0.01 S1
0.99 S1 = 6,64,254.5
:S1 = Rs 6,70,964
:S2 = 1,79,625 + 0.10 × 6,70,964
= Rs 2,46,721.4
Secondary Distribution Summary

Particulars Total (Rs) P1 (Rs) P2 (Rs) P3 (Rs)
Allocated and Apportioned overheads as per 41,86,583 14,74,250 11,05,250 16,07,083
primary distribution
S1 6,70,964 1,34,192.8 2,01,289.2 2,68,385.6
S2 2,46,721.4 98,688.6 49,344.3 74,016.5
17,07,131.4 13,55,883.5 19,49,485.1
(i) Overhead rate per hour

P1 P2 P3
Total overheads cost (Rs) 17,07,131.4 13,55,883.5 19,49,485.1
Production hours worked 6,225 4,050 4,100
Rate per hour (Rs) 274.24 334.79 475.48
(ii) Cost of Product X

(Rs)
Direct material 6,250.00
Direct labour 3,750.00

Prime cost 10,000.00
Production on overheads
P1 5 hours × Rs 274.24 = 1,371.20
P2 3 hours × Rs 334.79 = 1,004.37

P3 4 hours × Rs 475.48 = 1,901.92 4,277.49
Factory cost 14,277.49
Solution 9:
Working Notes:
(i) Total Productive hours = Estimated Working hours – Machine Maintenance hours = 2,200 hours – 200 hours =
2,000 hours
(ii) Depreciation per annum =(Rs 1,00,000- Rs 10,000) / 10 years = Rs 9000
(iii) Chemical solution cost per annum = Rs 200 × 50 weeks = Rs10,000
(iv) Wages of attendants (per annum) = (Rs 1,200 × 50 weeks) / 6 machines = Rs 10,000
Calculation of Machine hour rate

Particulars Amount (Rs) (per Amount (Rs) (per hour)
annum)
A. Standing Charge
(i) Wages of attendants 10,000
(ii) Departmental and general works overheads 20,000
Total Standing Charge 30,000
Standing Charges per hour ( 30,000 / 2000 ) 15.00
B. Machine Expense
(iii) Depreciation 9,000 4.50
(iv) Electricity (Rs 0.9×16units×1,900hours) - 13.68
2,000hours
(v) Chemical solution 10,000 5.00
(vi) Maintenance cost 12,000 6.00
Machine operating cost per hour (A + B) 44.18
Solution 10:
Primary Distribution of Overheads
Item Basis Total Amount Production Departments Service Departments
(Rs) X (Rs) Y (Rs) Z (Rs) A (Rs) B (Rs)

Indirect Material Actual 2,50,000 40,000 60,000 90,000 50,000 10,000

Indirect Labour Actual 5,20,000 90,000 1,00,000 1,40,000 1,20,000 70,000
Supervisor’s Salary Actual 1,92,000 - - 1,92,000 - -
Fuel & Heat Radiator Sections 30,000 3,000 6,000 9,000 7,500 4,500
{2:4:6:5:3}
Power Kilowatt Hours 3,60,000 1,05,000 1,20,000 90,000 45,000 -
{7:8:6:3:-}
Rent & Rates Area (Sq. ft.) 3,00,000 88,000 80,000 60,000 48,000 24,000
{22:20:15:12:6}
Insurance Capital Value of 36,000 8,000 12,000 10,000 2,000 4,000
Assets
{4:6:5:1:2}
Canteen Charges No. of Employees 1,20,000 24,000 28,000 48,000 12,000 8,000
{6:7:12:3:2}
Depreciation Capital Value of Assets 5,40,000 1,20,000 1,80,000 1,50,000 30,000 60,000
{4:6:5:1:2}
Total overheads 23,48,000 4,78,000 5,86,000 7,89,000 3,14,500 1,80,500
Re-distribution of Overheads of Service Department A and B
Total overheads of Service Departments may be distributed by simultaneous equation.
Let, the total overheads of A = a and the total overheads of B = b
a = 3,14,500 + 0.10 b (i)
or, 10a - b = 31,45,000 [(i) x10]
b = 1,80,500 + 0.20 a (ii)
or, -0.20a + b = 1,80,500
Solving equation (i) & (ii)

10a - b = 31,45,000
-0.20a + b = 1,80,500
9.8a = 33,25,500
a = Rs 3,39,337
Putting the value of ‘a’ in equation (ii), we get b = 1,80,500 + 0.20 × 3,39,337
b = Rs 2,48,367
Secondary Distribution of Overheads

Production Departments
X (Rs) Y (Rs) Z (Rs)
Total overhead as per primary distribution 4,78,000 5,86,000 7,89,000
Service Department A (80% of Rs 3,39,337) 1,01,801 1,01,801 67,867
Service Department B (90% of Rs 2,48,367) 62,092 99,347 62,092
Total 6,41,893 7,87,148 9,18,959
Solution 11:
Workings:
Particulars Six months 6 operators (Hours)
Normal available hours per month (208 x 6 months x 6 operators) 7,488
Less: Absenteeism hours (18 x 6 operators) (108)
Paid hours (A) 7,380
Less: Leave hours (20 x 6 operators) (120)
Less: Normal idle time (10 x 6 operators) (60)
Effective working hours 7,200

Computation of Comprehensive Machine Hour Rate

Particulars Amount for six months (Rs)
Operators' wages (7,380/8 x100) 92,250
Production bonus (10% on wages) 9,225
Power consumed 40,250
Supervision and indirect labour 16,500
Lighting and Electricity 6,000
Repair and maintenance {(5% × Rs 32,00,000)/2} 80,000
Insurance (Rs 3,60,000/2) 1,80,000
Depreciation {(Rs 32,00,000 × 10%)/2} 1,60,000 (Note:
Sundry Work expenses (Rs 50,000/2) 25,000 Machine
hour
Management expenses (Rs 5,00,000/2) 2,50,000
rate
Total Overheads for 6 months 8,59,225 may be
Comprehensive Machine Hour Rate = Rs 8,59,225/7,200 hours Rs 119.33 calculat
ed
alternatively. Further, presentation of figures may also be done on monthly or annual basis.)
Solution 12:
(i) Statement showing distribution of Overheads
Item of cost Basis of Total P Q R X Y
apportionment (Rs) (Rs) (Rs) (Rs) (Rs) (Rs)
Direct wages Actual 2,800 -- -- -- 2,000 800

Rent and Floor area 10,00 2,000 2,500 3,500 1,000 1,000
Rates (4:5:7:2:2) 0
General Light points 600 200 100 150 50 100

lighting (4:2:3:1:2)
Indirect Direct wages 3,450 1,250 375 1,125 500 200

wages (50:15:45:20:8)
Power Horse Power of 3,500 1,000 800 1,000 200 500

machines used
(10:8:10:2:5)
Depreciation Value of 70,00 20,000 16,000 20,000 4,000 10,000

of machinery machinery 0
(10:8:10:2:5)
Sundries Direct wages 13,80 5,000 1,500 4,500 2,000 800

(50:15:45:20:8) 0
Total 1,04,1 29,450 21,275 30,275 9,750 13,400

50
Secondary Distribution using simultaneous equation method:

Overheads of service cost centres
Let, X be the overhead of service cost centre X
Y be the overhead of service cost centre Y
X = 9,750 + 0.10 Y
Y = 13,400 + 0.10 X

Substituting the value of Y in X we get X = 9,750 + 0.10 (13,400 + 0.10 X)

X = 9,750 + 1,340 + 0.01 X
0.99 X = 11,090
X = Rs 11,202
Y = 13,400 + 0.10 × 11,202
= Rs 14,520.20

Particulars Total (Rs) P (Rs) Q (Rs) R (Rs)
Allocated and Apportioned over-heads as per 29,450.00 21,275.00 30,275.00
primary distribution
X 11,202.00 5,040.90 1,680.30 3,360.60
Y 14,520.20 5,082.07 3,630.05 4,356.06
Total 39,572.97 26,585.35 37,991.66
(ii) Calculation of Overhead recovery rate per hour

P (Rs) Q (Rs) R (Rs)
Total overheads cost 39,572.97 26,585.35 37,991.66
Working hours 13,191 7,598 14,995
Rate per hour (Rs) 3 3.50 2.53
(iii) Cost of Product A

(Rs)
Direct material 65.00
Direct labour 40.00

Prime cost 105.00
P 6 hours x 3 = Rs 18
Q 5 hours x 3.50 = Rs 17.50
R 2 hours x 2.53 = Rs 5.06 40.56
Total cost 145.56
Note: Secondary Distribution can also be done using repeated distribution Method
Solution 13:
(i) Amount of over/ under absorption of production overheads during the period of first six months of the year
2019-20:
Amount (Rs) Amount (Rs)
Total production overheads actually incurred during the 34,08,000
period
Less: Amount paid to worker as per court order 4,50,000
Expenses of previous year booked in the current year 1,00,000
Wages paid for the strike period under an award 4,20,000

Obsolete stores written off 36,000 10,06,000

24,02,000
Less: Production overheads absorbed as per machine hour
rate (3,000 hours × Rs 840*) 25,20,000
Amount of over absorbed production overheads 1,18,000
𝐑𝐬 𝟓𝟎,𝟒𝟎,𝟎𝟎𝟎
*Budgeted Machine hour rate (Blanket rate) = = Rs 840 per hour
𝟔,𝟎𝟎𝟎 𝐇𝐨𝐮𝐫𝐬
(ii) Accounting treatment of over absorbed production overheads: As, 40% of the over absorbed overheads were
due to defective production policies, this being abnormal, hence should be credited to Costing Profit and Loss
Account.
Amount to be credited to Costing Profit and Loss Account
= Rs 1,18,000 × 40% = Rs 47,200.
Balance of over absorbed production overheads should be distributed over Works in progress, Finished goods and Cost
of sales by applying supplementary rate*.
Amount to be distributed = Rs 1,18,000 × 60% = Rs 70,800
𝐑𝐬 𝟕𝟎,𝟖𝟎𝟎
Supplementary rate = = Rs 0.295 per Unit
𝟐,𝟒𝟎,𝟎𝟎𝟎 𝐮𝐧𝐢𝐭𝐬
(iii) Apportionment of over absorbed production overheads over WIP, Finished goods and Cost of sales:
Equivalent Amount (Rs)
completed units
Work-in-Progress (80,000 units × 50% × 0.472) 40,000 18,880
Finished goods (20,000 units × 0.472) 20,000 9,440
Cost of sales (90,000 units × 0.472) 90,000 42,480
Total 1,50,000 70,800
Solution 14:
Calculation of Machine Hour Rate:
Depreciation {(Rs 1,50,000 + Rs 10,000 - Rs 16,000)/10} 14,400

Rates and Rent {(Rs 1,200 x 4) x 1/3} 1,600
General Lighting {(Rs 500 x 12) x 1/3} 2,000
Shop supervisor salary {(Rs 30,000 x 4) x 1/6} 20,000
Insurance Premium 1,200
Repairs 1,400
Power {(2000 x 2) x Rs 750/100} 30,000
Total (A) 70,600

Machine Hours (B) 2,000
Machine Hour Rate {(A)/(B)} 35.30
Solution 15:
(a) Computation of Machine Hour Rate
Basis of Total Department

apportionment (Rs)
A (Rs) B (Rs)
(A) Standing Charges
Insurance Direct 3,000 1,000 2,000
Indirect Labour Direct Labour (2:3) 46,000 18,400 27,600

Building maintenance expenses Floor Space (3:4) 7,000 3,000 4,000
Total standing charges (A) 56,000 22,400 33,600
Hourly rate for standing charges (H1) 10.33 15.50
(B) Machine Expenses:
Power K.W. rating (3:2) 15,000 9,000 6,000
Spare parts Final estimates 9,900 3,300 6,600
Consumable Stores Direct 5,000 2,000 3,000
Depreciation on machinery Final estimates 36,000 12,000 24,000
Total Machine expenses (B) 65,900 26,300 39,600
Hourly Rate for Machine expenses (H2) 12.13 18.27
Total Cost (A + B) 1,21,90 48,700 73,200

0
Machine Hour rate* (H1+H2) 22.46 33.76
*Alternatively, Machine Hour rate can be calculated as total Cost ÷ total effective hours.
Working Notes :
(i) Calculation of effective working hours:
No. of off-days = No. of Sundays + No. of holidays
= 52 + 12 = 64 days
No. of working days = 365 days – 64 days = 301 days Total
working Hours = 301 days × 8 hours
= 2,408 hours
Total effective hours = Total working hours × 90%
= 2,408 hours × 90%
= 2,167.2 or Rounded up to 2,168 hours
(ii) Amount of Indirect Labour is calculated as under:

Particulars (Rs)
Preliminary estimates 40,000
Add: Increase in wages @ 15% 6,000

Estimated total cost of Indirect labour 46,000
(iii) Amount of spare parts is calculated as under:

Particulars A (Rs) B (Rs)
Preliminary estimates 3,000 5,000
Add: Increase in price @ 10% 300 500

3,300 5,500
Add: Increase in consumption @ 20% - 1,100

Estimated cost of spare parts
3,300 6,600
(iv) Amount of Depreciation of machinery is calculated as under:

Particulars A (Rs) B (Rs)
Preliminary estimates 10,000 20,000
Add: Increase in depreciation 2000 4000

{Rs 10,000 x 2 (12-10) /10}
Estimated Depreciation 12,000 24,000
(Current depreciation x 12/10)
Solution 16:
Item of cost Basis of Total P1 P2 P3 S1 S2
apportionment (Rs) (Rs) (Rs) (Rs) (Rs) (Rs)
Direct wages Actual 5,00,000 -- -- -- 3,75,000 1,25,000
Rent and Floor area 12,50,000 2,50,000 3,12,500 3,75,000 2,50,000 62,500
Rates (4 : 5 : 6 : 4 : 1)
General Light points 1,50,000 25,000 37,500 50,000 25,000 12,500
lighting (2 : 3 : 4 : 2 : 1)
Indirect wages Direct wages 3,75,000 1,12,500 75,000 1,12,500 56,250 18,750
(6 : 4 : 6 : 3 :
1)
Power Horse Power of 5,00,000 2,00,000 1,00,000 1,66,667 33,333 -
machines used
(6 : 3 : 5 : 1)
Depreciation Value of 10,00,000 2,40,000 3,20,000 4,00,000 20,000 20,000
of machinery machinery (12 :
16 : 20 : 1 : 1)
Insurance Value of 4,00,000 96,000 1,28,000 1,60,000 8,000 8,000
o machinery (12 :
f machinery 16 : 20 : 1 : 1)
41,75,000 9,23,500 9,73,000 12,64,167 7,67,583 2,46,750
Overheads of service cost centres

Let S1 be the overhead of service cost centre S1 and S2 be the overhead of service cost centre S2.
S1 = 7,67,583 + 0.10 S2
S2 = 2,46,750 + 0.10 S1
Substituting the value of S2 in S1 we get
S1 = 7,67,583 + 0.10 (2,46,750 + 0.10 S1)
S1 = 7,67,583 + 24,675 + 0.01 S1
0.99 S1 = 7,92,258
S1= Rs 8,00,260
S2= 2,46,750 + 0.10 x 8,00,260
= Rs 3,26,776

Particulars Total (Rs) P1 (Rs) P2 (Rs) P3 (Rs)
Allocated and Apportioned over- 31,60,667 9,23,500 9,73,000 12,64,167

heads as per primary distribution

S1 8,00,260 1,60,052 2,40,078 3,20,104

S2 3,26,776 1,30,710 65,355 98,033
12,14,262 12,78,433 16,82,304
(i) Overhead rate per hour

P1 P2 P3
Total overheads cost (Rs) 12,14,262 12,78,433 16,82,304
Production hours worked 6,225 4,050 4,100
Rate per hour (Rs) 195.06 315.67 410.32
(ii) Cost of Product X

(Rs)
Direct material 12,500.00
Direct labour 7,500.00
Prime cost 20,000.00
P1 5 hours x Rs 195.06 = 975.30
P2 3 hours x Rs 315.67 = 947.01
P3 4 hours x Rs 410.32 = 1,641.28 3,563.59
Factory cost 23,563.59
Solution 19:
(a) Primary Distribution of Overheads
Basis Total (Rs) A (Rs) B (Rs) X (Rs) Y (Rs)
Direct Direct 6,00,000 - - 4,00,000 2,00,000
materials
Direct Wages Direct 6,00,000 - - 2,00,000 4,00,000
Factory rent Area 9,00,000 3,00,000 1,50,000 1,50,000 3,00,000
(2:1:1:2)
Power H.P. x 5,10,000 1,50,000 2,40,000 45,000 75,000
(Machine) Machine Hrs.
(10:16:3:5)*
Depreciation Capital Value 2,00,000 50,000 1,00,000 25,000 25,000
(2:4:1:1)
General Light Points 3,00,000 60,000 1,20,000 60,000 60,000
Lighting
(1:2:1:1)
Perquisites Direct Wages 4,00,000 2,00,000 80,000 40,000 80,000
(5:2:1:2)
35,10,000 7,60,000 6,90,000 9,20,000 11,40,000
*{(1,000 x 50) : (2,000 x 40) : (1,000 x 15) : (1,000 x 25)}
(50,000 : 80,000 : 15,000 : 25,000)
(10 : 16 : 3 : 5)
(b) (i) Redistribution of Service Department’s expenses using ‘Simultaneous equation method’
X = 9,20,000 + 0.5Y
Y = 11,40,000 + 0.20X
Substituting the value of X,
Y = 11,40,000 + 0.20 (9,20,000 + 0.05 Y)

= 13,24,000 + 0.01Y
Y – 0.01 Y = 13,24,000
Y = 13,24,000 / 0.99
Y = Rs 13,37,374
The total expenses of Y is Rs 13,37,374 and that of X is Rs 9,86,869 i.e., Rs 9,20,000 + (0.05 x Rs 13,37,374)
Distribution of Service departments’ overheads to Production departments
A (Rs) B (Rs)
Overhead as per primary distribution 7,60,000 6,90,000
Dept- X (55% and 25% of Rs 9,86,869) 5,42,778 2,46,717
Dept- Y (60% and 35% of Rs 13,37,374) 8,02,424 4,68,081
21,05,202 14,04,798
(ii) Redistribution of Service Department’s expenses using ‘Trial and Error Method’:
Service Departments
X (Rs) Y (Rs)
Overheads as per primary distribution 9,20,000 11,40,000
(i) Apportionment of Dept-X expenses to Dept-Y (20% of Rs
9,20,000) --- 1,84,000
--- 13,24,000
(ii) Apportionment of Dept-Y expenses to Dept-X (5% of Rs
13,24,000) 66,200 ---
(i) Apportionment of Dept-X expenses to Dept-Y (20% of Rs
66,200) --- 13,240
(ii) Apportionment of Dept-Y expenses to Dept-X (5% of Rs 13,240) 662 ---
(i) Apportionment of Dept-X expenses to Dept-Y (20% of Rs 662) 132
(ii) Apportionment of Dept-Y expenses to Dept-X (5% of Rs 132) 7
Total 9,86,869 13,37,372
Distribution of Service departments’ overheads to Production departments
A (Rs) B (Rs)
Overhead as per primary distribution 7,60,000 6,90,000
Dept- X (55% and 25% of Rs 9,86,869) 5,42,778 2,46,717
Dept- Y (60% and 35% of Rs 13,37,372) 8,02,423 4,68,080
21,05,201 14,04,797
(iii) Redistribution of Service Department’s expenses using ‘repeated distribution method’:

A (Rs) B (Rs) X (Rs) Y (Rs)
Overhead as per primary distribution 7,60,000 6,90,000 9,20,000 11,40,000

Dept. X overhead 5,06,000 2,30,000 (9,20,000) 1,84,000
apportioned in the ratio (55:25:—:20)
Dept. Y overhead 7,94,400 4,63,400 66,200 (13,24,000)
apportioned in the ratio (60:35:5: —)
Dept. X overhead apportioned in the ratio 36,410 16,550 (66,200) 13,240
(55:25:—:20)

Dept. Y overhead 7,944 4,634 662 (13,240)

Dept. X overhead 364 166 (662) 132
Dept. Y overhead 79 46 7 (132)
Dept. X overhead 4 3 (7) -
21,05,201 14,04,799 - -
Solution 20:
(i) Amount of under-absorption of overheads during the year 2020-21
(Rs)
Total production overheads actually incurred during the year 2020- 35,50,000
21
Less: Wages paid during strike period Rs 2,00,000
Wages of previous year booked in current year Rs 1,00,000 3,00,000
Net production overheads actually incurred: (A) 32,50,000
Production overheads absorbed by 1.50 lakh man-days @ Rs 20 per man- 30,00,000
day: (B)
Amount of under-absorption of production overheads: [(A)–(B)] 2,50,000
(ii) Accounting treatment of under absorption of production overheads: It is given in the statement of the question
that 62,000 units (50,000 sold + 12,000 closing stock – 0 opening stock) were completely finished and 20,000 units
were 65% complete, 40% of the under-absorbed overheads were due to factory inefficiency and the rest were
attributable to increase in cost of indirect materials and indirect labour.
(Rs)
1. (40% of Rs 2,50,000) i.e. Rs 1,00,000 of under – absorbed overheads 1,00,000
were due to factory inefficiency. This being abnormal, should be
debited to the Costing Profit and Loss A/c
2. Balance (60% of Rs 2,50,000) i.e. Rs 1,50,000 of under – absorbed 1,50,000
overheads should be distributed over work-in- progress, finished goods
and cost of sales by using supplementary rate
Total under-absorbed overheads 2,50,000
Apportionment of unabsorbed overheads of Rs 1,50,000 over work-in-progress, finished goods and
cost of sales.
Equivalent (Rs)
Completed units
Work-in-progress (13,000 units × Rs 2) (Refer 20000 * 65% = 13,000 26,000
to Working Note)
Finished goods (12,000 units × Rs 2) 12,000 24,000
Cost of sales (50,000 units × Rs 2) 50,000 1,00,000
75,000 1,50,000
Journal Entry:
Work-in-progress control A/c Dr. Rs 26,000
Finished goods control A/c Dr. Rs 24,000

Cost of Sales A/c Dr. Rs 1,00,000

Costing Profit & Loss A/c Dr. Rs 1,00,000
To Overhead Control A/c Rs 2,50,000
Working Note:
Supplementary overheads absorption rate = Rs 1,50,000 = Rs 2 per unit
75,000 units
Solution 21:
Computation of machine hour rate of new machine
Total (Rs) Per Hour (Rs)
A. Standing Charges
I. Insurance Premium Rs 9,000 x 1/9 1,000
II. Rent 1/10 x Rs 2,400 x 12 months 2,880
3,880 0.97*
B. Machine expenses
I. Repairs & Maintenance (Rs 6,000 ÷ 4,000 hours) 1.50
II. Depreciation ((Rs 10,00,000 – Rs 10,000)/(10 years x 4,000 hours)) 24.75
III. Electricity (8 units x Rs 3.75) 30.00
Machine hour rate 57.22
Working note
Calculation of productive Machine hour rate
Total hours 4,200
Less: non-productive hours 200
Effective Machine Hours 4,000
* Rs 3,880 ÷ 4,000 hours = Rs 0.97
Solution 22:
Primary Distribution of Overheads
Item Basis Total Production Departments Service Departments
Amount
(Rs)
X (Rs) Y (Rs) Z (Rs) A (Rs) B (Rs)
Indirect Actual 5,00,000 80,000 1,20,000 1,80,000 1,00,000 20,000
Materials
Indirect Labour Actual 10,40,000 1,80,000 2,00,000 2,80,000 2,40,000 1,40,000
Supervisor’s Actual 3,84,000 - - 3,84,000 - -
Salary
Fuel & Heat Radiator 60,000 6,000 12,000 18,000 15,000 9,000
Sections
{2:4:6:5:3}
Power Kilowatt Hours 7,20,000 2,10,000 2,40,000 1,80,000 90,000 -
{7:8:6:3}
Rent & Rates Area (Sq. ft.) 6,00,000 1,76,000 1,60,000 1,20,000 96,000 48,000
{22:20:15:12:6}
Insurance Capital Value 72,000 16,000 24,000 20,000 4,000 8,000
of Assets
{4:6:5:1:2}
Canteen No. of 2,40,000 48,000 56,000 96,000 24,000 16,000
Charges employees
{6:7:12:3:2}
Depreciation Capital Value 10,80,000 2,40,000 3,60,000 3,00,000 60,000 1,20,000
of assets
{4:6:5:1:2}
Total 46,96,000 9,56,000 11,72,000 15,78,000 6,29,000 3,61,000
Overheads

Re-distribution of Overheads of service department A and B

Total overheads of service departments may be distributed using simultaneous equation method.
Let, the total overheads of A = ‘a’ and the total overheads of B = ‘b’
a = 6,29,000 + 0.10 b (i)
or, 10a – b = 62,90,000 [(i) x 10]
b = 3,61,000 + 0.20a (ii)
or, -0.20 a + b = 3,61,000
Solving Equation (i) & (ii)
10a – b = 62,90,000
-0.20a + b = 3,61,000
9.8a = 66,51,000
a = 6,78,673
Putting the value of ‘a’ in equation (ii) we get
b = 3,61,000 + 0.20 x 6,78,673
b = 4,96,735
Secondary Distribution of Overheads
Total overhead as per primary distribution 9,56,000 11,72,000 15,78,000
Service Department A (80% of 6,78,673) (3:3:2) 2,03,602 2,03,602 1,35,734
Service Department B (90% of 4,96,735) (5:8:5) 1,24,184 1,98,694 1,24,184
Total 12,83,786 15,74,296 18,37,918

Chapter 5: ACTIVITY BASED COSTING - Practice Sheet

SOLUTIONS
Solution 1:
Statement Showing “Budgeted Cost per unit of the Product”
Activity Cost Activity No. of Activity
Activity (Budgeted) Driver Units of Rate Deposits Loans Credit
(Rs) Activity (Rs) Cards
Driver
(Budget)
ATM Services 8,00,000 No. of ATM 2,00,000 4.00 6,00,000 ---- 2,00,000
Transaction
Computer 10,00,000 No. of
Processing Computer 20,00,000 0.50 7,50,000 1,00,000 1,50,000
processing
Transaction
Issuing 20,00,000 No. of 5,00,000 4.00 14,00,000 2,00,000 4,00,000
Statements Statements
Customer 3,60,000 Telephone 7,20,000 0.50 1,80,000 90,000 90,000
Inquiries Minutes
Budgeted 41,60,000 29,30,000 3,90,000 8,40,000
Cost
Units of Product (as estimated in the budget period) 58,600 13,000 14,000
Budgeted Cost per unit of the product 50 30 60
Working Note
Activity Budgeted Cost Remark
(Rs)
ATM Services:
a) Machine Maintenance 4,00,000 All fixed, no change.
b) Rents 2,00,000 Fully fixed, no change.
c) Currency Replenishment Cost 2,00,000 Doubled during budget period
Total 8,00,000
Computer Processing 2,50,000 Rs 2,50,000 (half of Rs 5,00,000) is fixed and no
change is expected.
7,50,000 Rs 2,50,000 (variable portion) is expected to
increase to three times the current level.
Total 10,00,000
Issuing Statements 18,00,000 Existing
2,00,000 2 lakh statements are expected to be increased
in budgeted period. For every increase of one
lakh statement, one lakh rupees is the budgeted
increase.
Total 20,00,000
Computer Inquiries 3,60,000 Estimated to increase by 80% during the budget
period. (Rs 2,00,000 x 180%)
Total 3,60,000

Solution 2:
(i) Statement Showing “Cost per unit - Traditional Method”
Particulars of costs P Q R
(Rs) (Rs) (Rs)
Direct Materials 90 80 120
Direct Labour [(4, 12, 8 hours) × Rs 20] 80 240 160
Production Overheads [(10, 18, 14 hours) × Rs 6] 60 108 84
Cost per unit 230 428 364
(ii) Statement Showing “Cost per unit - Activity Based Costing”

Products P Q R
Production (units) 3,000 5,000 20,000
(Rs) (Rs) (Rs)
Direct Materials (90, 80, 120) 2,70,000 4,00,000 24,00,000
Direct Labour (80, 240, 160) 2,40,000 12,00,000 32,00,000
Machine Related Costs @ Rs 1.80 per hour 54,000 1,62,000 5,04,000
(30,000, 90,000, 2,80,000)
Setup Costs @ Rs 9,600 per setup 1,92,000 96,000 1,92,000
(20, 10, 20)
Inspection Costs @ Rs 4,800 per inspection 4,80,000 1,92,000 2,88,000
(100, 40, 60)
Purchase Related Costs @ Rs 750 per purchase 45,000 75,000 1,20,000
(60, 100, 160)
Total Costs 12,81,000 21,25,000 67,04,000
Cost per unit (Total Cost ÷ Units) 427.00 425.00 335.20
Workings
Number of Batches, Purchase Orders, and Inspections-
Particulars P Q R Total
A. Production (units) 3,000 5,000 20,000
B. Batch Size (units) 150 500 1,000
C. Number of Batches (A÷B) 20 10 20 50
D. Number of Purchase Order per batch 3 10 8
E. Total Purchase Orders [C × D] 60 100 160 320
F. Number of Inspections per batch 5 4 3
G. Total Inspections [C × F] 100 40 60 200
Total Machine Hours-

Particulars P Q R
A. Machine Hours per unit 10 18 14
B. Production (units) 3,000 5,000 20,000
C. Total Machine Hours [A × B] 30,000 90,000 2,80,000
Total Machine Hours = 4,00,000
Total Production Overheads-
= 4,00,000 hrs. × Rs 6 = Rs 24,00,000
Cost Driver Rates-

Cost Pool % Overheads Cost Driver Cost Driver Cost Driver Rate
(Rs) Basis (Units) (Rs)
Setup 20% 4,80,000 Number of 50 9,600 per Setup
batches

Inspection 40% 9,60,000 Number of 200 4,800 per Inspection

inspections
Purchases 10% 2,40,000 Number of 320 750 per Purchase
purchases
Machine Hours 30% 7,20,000 Machine Hours 4,00,000 1.80 per Machine Hour
Solution 3:
(i) Statement of Operating income and Operating income as a percentage of revenues for each product line
(When support costs are allocated to product lines on the basis of cost of goods sold of each product)
Soft drinks (Rs) Fresh produce Packaged food Total (Rs)
(Rs) (Rs)
Revenues (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Cost of goods sold (COGS) (B) 30,00,000 75,00,000 45,00,000 1,50,00,000
Support cost (30% of COGS) (C) 9,00,000 22,50,000 13,50,000 45,00,000
(Refer working notes)
Total cost: (D) = {(B) + (C)} 39,00,000 97,50,000 58,50,000 1,95,00,000
Operating income: E= {(A)-(D)} 67,500 7,53,000 1,99,500 10,20,000
Operating income as a percentage of 1.70% 7.17% 3.30% 4.97%
revenues:
(E/A) × 100
Working notes:
1. Total support Cost:
(Rs)
Bottles returns 60,000
Ordering 7,80,000
Delivery 12,60,000
Shelf stocking 8,64,000
Customer support 15,36,000
Total support cost 45,00,000
2. Percentage of support cost to cost of goods sold (COGS):

𝐓𝐨𝐭𝐚𝐥 𝐒𝐮𝐩𝐩𝐨𝐫𝐭 𝐂𝐨𝐬𝐭
= x 100
𝐓𝐨𝐭𝐚𝐥 𝐂𝐨𝐬𝐭 𝐨𝐟 𝐠𝐨𝐨𝐝𝐬 𝐒𝐨𝐥𝐝
𝐑𝐬 𝟒𝟓,𝟎𝟎,𝟎𝟎𝟎
= x 100 = 30%
𝐑𝐬 𝟏,𝟓𝟎,𝟎𝟎,𝟎𝟎𝟎
3. Cost for each activity cost driver:

Activity Total Cost Cost-allocation Cost driver rate
(1) (Rs) base (4)=[(2)÷(3)]
(2) (3)
Ordering 7,80,000 1,560 purchase Rs 500 per purchase
orders order
Delivery 12,60,000 3,150 deliveries Rs 400 per delivery
Shelf stocking 8,64,000 8,640 hours of Rs 100 per stocking
shelf-stocking time hour
Customer Support 15,36,000 15,36,000 items Rs 1 per item sold
sold
(ii) Statement of Operating income and Operating income as a percentage of revenues for each product line
(When support costs are allocated to product lines using an activity based costing system)
Soft drinks (Rs) Fresh produce Packaged food Total (Rs)
(Rs) (Rs)

Revenues (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000

Cost & goods sold 30,00,000 75,00,000 45,00,000 1,50,00,000
Bottle return costs 60,000 0 0 60,000
Ordering cost* (360:840:360) 1,80,000 4,20,000 1,80,000 7,80,000
Delivery cost* (300:2190:660) 1,20,000 8,76,000 2,64,000 12,60,000
Shelf stocking cost* (540:5400:2700) 54,000 5,40,000 2,70,000 8,64,000
Customer Support cost* 1,26,000 11,04,000 3,06,000 15,36,000
(1,26,000:11,04,000:3,06,000)
Total cost: (B) 35,40,000 1,04,40,000 55,20,000 1,95,00,000
Operating income C:{(A)- (B)} 4,27,500 63,000 5,29,000 10,20,000
Operating income as a % of revenues 10.78% 0.60% 8.75% 4.97%
* Refer to working note 3
Solution 4:
(i) Traditional Absorption Costing
BABYSOFT- BABYSOFT- BABYSOFT- Total
Gold Pearl Diamond
(a )Production of soaps (Units) 4,000 3,000 2,000 9,000
(b) Direct labour (minutes) 30 40 60 -
(c) Direct labour hours 2,000 2,000 2,000 6,000
(a × b)/60 minutes
Overhead rate per direct labour hour:
= Budgeted overheads ÷ Budgeted labour hours
= Rs 1,98,000 ÷ 6,000 hours
= Rs 33 per direct labour hour
Unit Costs:
BABYSOFT- Gold BABYSOFT- Pearl BABYSOFT- Diamond
(Rs) (Rs) (Rs)
Direct Costs: 5.00 6.67 10.00
- Direct Labour (𝟏𝟎 × 𝟑𝟎) (𝟏𝟎 × 𝟒𝟎) (𝟏𝟎 × 𝟔𝟎)
𝟔𝟎 𝟔𝟎 𝟔𝟎
- Direct Material 167.50 215.50 248.50
(Refer working
note1)
16.50 22.00 33.00
- Production (𝟑𝟑 × 𝟑𝟎) (𝟑𝟑 × 𝟒𝟎) (𝟑𝟑 × 𝟔𝟎)
Overhead: 𝟔𝟎 𝟔𝟎 𝟔𝟎
Total units costs 189.00 244.17 291.50
Number of units 4,000 3,000 2,000
Total Costs 7,56,000 7,32,510 5,83,000
Working note-1
Calculation of Direct material cost
BABYSOFT- Gold BABYSOFT- Pearl BABYSOFT- Diamond
(Rs) (Rs) (Rs)
Essential Oils 120.00 165.00 195.00
(𝟐𝟎𝟎 × 𝟔𝟎) (𝟑𝟎𝟎 × 𝟓𝟓) (𝟑𝟎𝟎 × 𝟔𝟓)
𝟏𝟎𝟎 𝟏𝟎𝟎 𝟏𝟎𝟎
Cocoa Butter 40.00 40.00 40.00
(𝟐𝟎𝟎 × 𝟐𝟎) (𝟐𝟎𝟎 × 𝟐𝟎) (𝟐𝟎𝟎 × 𝟐𝟎)
𝟏𝟎𝟎 𝟏𝟎𝟎 𝟏𝟎𝟎
Filtered Water 4.50 4.50 4.50

(𝟏𝟓 × 𝟑𝟎) (𝟏𝟓 × 𝟑𝟎) (𝟏𝟓 × 𝟑𝟎)

𝟏𝟎𝟎 𝟏𝟎𝟎 𝟏𝟎𝟎
Chemicals 3.00 6.00 9.00
(𝟑𝟎 × 𝟏𝟎) (𝟓𝟎 × 𝟏𝟐) (𝟔𝟎 × 𝟏𝟓)
𝟏𝟎𝟎 𝟏𝟎𝟎 𝟏𝟎𝟎
Total costs 167.50 215.50 248.50
(ii) Activity Based Costing

BABYSOFT- BABYSOFT- BABYSOFT- Total
Gold Pearl Diamond
Quantity (units) 4,000 3,000 2,000 -
Weight per unit (grams) 108 106 117
{(60 x 0.8) {(55 × 0.8) {(65 x 0.8) + 20 -
+20 + 30+ 10} + 20+30+ 12} + 30 + 15+}
Total weight (grams 4,32,000 3,18,000 2,34,000 9,84,000
Direct labour (minutes) 30 40 60 -
Direct labour hours 2,000 2,000 2,000
(𝟒, 𝟎𝟎𝟎 × 𝟑𝟎) (𝟑, 𝟎𝟎𝟎 × 𝟒𝟎) (𝟐, 𝟎𝟎𝟎 × 𝟔𝟎) 6,000
𝟔𝟎 𝟔𝟎 𝟔𝟎
Machine operations per unit 5 5 6 -

Total operations 20,000 15,000 12,000 47,000
Forklifting rate per gram = Rs 58,000 ÷ 9,84,000 grams

= Rs 0.06 per gram
Supervising rate per direct = Rs 60,000 ÷ 6,000 hours
labour hour = Rs 10 per labour hour
Utilities rate per machine operations = Rs 80,000 ÷ 47,000 machine operations
= Rs 1.70 per machine operations
Unit Costs under ABC:

BABYSOFT- BABYSOFT- BABYSOFT-
Gold Pearl Diamond
(Rs) (Rs) (Rs)
Direct Costs:
- Direct Labour 5.00 6.67 10.00
- Direct Material 167.50 215.50 248.50
Production Overhead: 6.48 6.36 7.02
- Forklifting cost (0.06 x 108 (0.06 x 106) (0.06 x 117)
5.00 6.67 10.00
- Supervising cost (𝟏𝟎 × 𝟑𝟎) (𝟏𝟎 × 𝟒𝟎) (𝟏𝟎 × 𝟔𝟎)
𝟔𝟎 𝟔𝟎 𝟔𝟎
- Utilities 8.50 8.50 10.20
(1.70 x 5) (1.70 x 5) (1.70 x 6)
Total units costs 192.48 243.70 285.72
Number of units 4,000 3,000 2,000
Total Costs 7,69,920 7,31,100 5,71,440
(iii) Comments: The difference in the total costs under the two systems is due to the differences in the overheads
borne by each of the products. The Activity Based Costs appear to be more accurate.
Solution 5:
(i) Profit Statement using Absorption costing method:
Particulars PRODUCT Total

X Y Z
A. Sales Quantity 1,00,000 80,000 60,000 2,40,000
B. Selling price per unit 90 180 140
(Rs)
C. Sales Value (Rs) [A×B] 90,00,000 1,44,00,000 84,00,000 3,18,00,000
D. Direct cost per unit (Rs) 50 90 95
E. Direct Cost (Rs) [A×D] 50,00,000 72,00,000 57,00,000 1,79,00,000
F. Overheads:
(i) Machine department 24,00,000 25,60,000 24,00,000 73,60,000
(Rs) (Working note-1)
(ii) Assembly department 30,00,000 16,00,000 9,00,000 55,00,000

(Rs) (Working note-1)
G. Total Cost (Rs) [E+F] 1,04,00,000 1,13,60,000 90,00,000 3,07,60,000
H. Profit (C-G) (14,00,000) 30,40,000 (6,00,000) 10,40,000
(ii) Profit Statement using Activity based costing (ABC) method:

Particulars Product Total
X Y Z
Sales Quantity 1,00,000 80,000 60,000
Selling price per unit (Rs) 90 180 140
Sales Value (Rs) [A×B] 90,00,000 1,44,00,000 84,00,000 3,18,00,000
Direct cost per unit (Rs) 50 90 95
Direct Cost (Rs) [A×D] 50,00,000 72,00,000 57,00,000 1,79,00,000
Overheads:
(Refer working note-3)
Machining services (Rs) 21,00,000 22,40,000 21,00,000 64,40,000
Assembly services (Rs) 24,00,000 12,80,000 7,20,000 44,00,000
Set-up costs (Rs) 4,50,000 3,00,000 1,50,000 9,00,000
Order processing (Rs) 2,20,000 2,40,000 2,60,000 7,20,000
Purchasing (Rs) 1,50,000 1,75,000 75,000 4,00,000
Total Cost (Rs) [E+F] 1,03,20,000 1,14,35,000 90,05,000 3,07,60,000
Profit (Rs) (C-G) (13,20,000) 29,65,000 (6,05,000) 10,40,000
Working Notes:
1.
Products
X Y Z Total
A. Production (units) 1,00,000 80,000 60,000
B. Machine hours per 3 4 5
unit
C. Total Machine hours 3,00,000 3,20,000 3,00,000 9,20,000
[A×B]
D. Rate per hour (Rs) 8 8 8
E. Machine Dept. cost 24,00,000 25,60,000 24,00,000 73,60,000

[C×D]
F. Labour hours per unit 6 4 3

G. Total labour hours 6,00,000 3,20,000 1,80,000 11,00,000

[A×F]
H.Rate per hour (Rs) 5 5 5
I. Assembly Dept. cost 30,00,000 16,00,000 9,00,000 55,00,000
[G×H]
Machine hour rate = Rs 73,60,000/9,20,000hours = Rs 8

Labour hour rate = Rs 55,00,000/11,00,000hours = Rs 5
2. Calculation of cost driver rate:
Cost Pool Amount Cost Driver Quantity Driver rate

(Rs) (Rs)
Machining services 64,40,000 Machine hours 9,20,000 hours 7.00
Assembly services 44,00,000 Direct labour hours 11,00,000 hours 4.00
Set-up costs 9,00,000 Machine set-ups 9,000 set-ups 100.00
Order processing 7,20,000 Customer orders 7,200 orders 100.00
Purchasing 4,00,000 Purchase orders 800 orders 500.00
3. Calculation of activity-wise cost :
Products
X Y Z Total
A. Machining hours 3,00,000 3,20,000 3,00,000 9,20,000
(Refer Working note-1)
B. Machine hour rate (Rs) 7 7 7
C.Machining services cost 21,00,000 22,40,000 21,00,000 64,40,000
(Rs) [A×B]
D. Labour hours 6,00,000 3,20,000 1,80,000 11,00,000
E. Labour hour rate (Rs) 4 4 4
F. Assembly services cost 24,00,000 12,80,000 7,20,000 44,00,000
(Rs) [D×E]
G. Machine set-ups 4,500 3,000 1,500 9,000
H. Rate per set-up (Rs) 100 100 100
I. Set-up cost (Rs) [G×H] 4,50,000 3,00,000 1,50,000 9,00,000
J. Customer orders 2,200 2,400 2,600 7,200
K. Rate per order (Rs) 100 100 100
L. Order processing cost (Rs) 2,20,000 2,40,000 2,60,000 7,20,000
[J×K]
M. Purchase orders 300 350 150 800
N. Rate per order (Rs) 500 500 500
O. Purchasing cost (Rs) 1,50,000 1,75,000 75,000 4,00,000
[M×N]
Solution 6:
(i) Calculation of cost driver rate:
Cost pool Budgeted overheads (Rs) Cost driver Cost driver rate (Rs)
Material procurement 18,42,000 1,200 1,535.00
Material handling 8,50,000 1,240 685.48
Maintenance 24,56,000 17,550 139.94
Set-up 9,12,000 1,450 628.97
Quality control 4,42,000 1,820 242.86
(ii) Calculation of cost for the batch:
Particulars Amount (Rs) Amount (Rs)

Material cost 24,62,000.00
Wages 4,68,500.00
Overheads:
• Material procurement (Rs 1,535×56 orders) 85,960.00
• Material handling (Rs 685.48×84 movements) 57,580.32
• Maintenance (Rs 139.94×1,420 hours) 1,98,714.80
• Set-up (Rs 628.97×60 set-ups) 37,738.20
• Quality control (Rs 242.86×18 inspections) 4,371.48 3,84,364.80

Total Cost 33,14,864.80
No. of units 7,600
Cost per units 436.17
Solution 7:
Working Notes:
(i) Total support cost:
(Rs)
Ordering 7,80,000
Delivery 12,60,000
(ii) Cost for each activity cost driver:

Activity (1) Total cost(Rs) (2) Cost allocation base (3) Cost driver rate (4) = [(2)÷(3)]
Ordering 7,80,000 1,560 purchase orders Rs 500 per purchase order
Shelf-stocking 8,64,000 8,640 hours Rs 100 per stocking hour

Customer support 15,36,000 15,36,000 items sold Rs 1 per item sold
Statement of Total cost and Operating income

Soft Drinks Fresh Packaged Food Total
(Rs) Produce (Rs) (Rs) (Rs)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000

Cost & Goods sold 30,00,000 75,00,000 45,00,000 1,50,00,000

Ordering cost* (360:840:360) 1,80,000 4,20,000 1,80,000 7,80,000
Delivery cost* (300:2190:660) 1,20,000 8,76,000 2,64,000 12,60,000
Shelf stocking cost* (540:5400:2700) 54,000 5,40,000 2,70,000 8,64,000

(1,26,000:11,04,000:3,06,000)
Total cost: (B) 35,40,000 1,04,40,000 55,20,000 1,95,00,000

Operating income C:{(A)- (B)} 4,27,500 63,000 5,29,500 10,20,000
* Refer to working note (ii)
Solution 8:
(a) Computation showing Rates for each Activity
Activity Activity Cost Activity driver Activity Activity Rate
(Rs) Capacity (A/B)
(A) (B)
Marketing Expenses 2,25,000 Number of Customer Contacts 7,50,000 0.30
Website Maintenance Expenses 1,50,000 Number of Customer Online Orders 6,00,000 0.25
Credit Card Processing Fees 1,35,000 Number of Credit card Transactions 2,70,000 0.50
Cleaning Equipment Cost 3,15,000 Number of Square Feet 10,500 30.00

Inspecting and Testing Cost 2,62,500 Number of Tests 52,500 5.00
Setting up machine's Cost 4,50,000 Number of set-ups 900 500.00
Activity based Cost for each Department

Activity Premium Hall (Rs) Recliner Hall (Rs) 7D Hall (Rs) Cafeteria (Rs)
Marketing Expenses 78,750 90,000 45,000 11,250
(2,62,500 x 0.3) (3,00,000 x 0.3) (1,50,000 x 0.3) (37,500 x 0.3)
Website Maintenance Expenses 52,500 61,875 30,000 5,625
(2,10,000 x 0.25) (2,47,500 x 0.25) (1,20,000 x 0.25) (22,500 x 0.25)
Credit Card Processing Fees 37,500 45,000 30,000 22,500
(75,000 x 0.5) (90,000 x 0.5) (60,000 x 0.5) (45,000 x 0.5)
Cleaning Equipment Cost 90,000 1,35,000 67,500 22,500
(3,000 x 30) (4,500 x 30) (2,250 x 30) (750 x 30)
Inspecting and Testing Cost 60,000 90,000 75,000 37,500
(12,000 x 5) (18,000 x 5) (15,000 x 5) (7,500 x 5)
Setting up machine's cost 1,12,500 2,25,000 75,000 37,500
(225 x 500) (450 x 500) (150 x 500) (75 x 500)
Total 4,31,250 6,46,875 3,22,500 1,36,875
(i) Statement of Operating Income and Operating Income percentage for each Department
Particulars Premium Recliner 7D Hall Cafeteria (Rs)
Hall Hall (Rs)
(Rs) (Rs)

Revenues (Given) (A) 11,55,000 18,75,000 9,30,000 5,25,000

Cost of Goods Sold (given) (B1) - - - 4,51,125
Digital Media Cost (given) (B2) 6,19,800 9,46,875 4,02,900 -
Activity Based Cost (as per Workings) (B3) 4,31,250 6,46,875 3,22,500 1,36,875
Operating Cost (B) (B1+ B2 + 10,51,050 15,93,750 7,25,400 5,88,000
B3)
Operating Income/(Loss) (C = A – B) 1,03,950 2,81,250 2,04,600 (63,000)
Percentage of profit/(loss) on sales 9% 15% 22% (12%)
(ii) Contention of Supervisor is valid as operating income of Cafeteria is negative i.e. (Rs 63,000) or percentage of
profit/loss is (12%).
Solution 9:
(i) Total Overhead = Rs (2,52,000 + 80,000 + 60,000 + 40,000 + 10,368) = Rs 4,42,368
Total machine hours = 1,440 × 4 + 1,200 × 3 + 960 × 2 + 1,008 × 1
= 5,760 + 3,600 + 1,920 + 1,008 = 12,288 M. Hrs.
Overhead recovery rate / M.H. = Rs 4,42,368 / 12,288 M.Hrs. = Rs 36
Cost Statement when overheads are absorbed on machine hours rate basis –
Product A B C D
Output in units 1,440 1,200 960 1,008
(Rs) (Rs) (Rs) (Rs)
Cost per unit:
Direct material 84 90 80 96
Direct labour 20 18 14 16
Overhead (@ Rs 36) 144 108 72 36
(4 × Rs 36) (3 × Rs 36) (2 × Rs 36) (1 × Rs 36)
Total cost per unit 248 216 166 148
Total cost 3,57,120 2,59,200 1,59,360 1,49,184
(ii)
(1) Machine department costs of Rs 2,52,000 to be apportioned to set-up cost, store receiving and inspection in 4 : 3 : 2
i.e. Rs 1,12,000, Rs 84,000 and Rs 56,000 respectively.
(2) One production run = 48 units. Hence, the number of production runs of different products:
A= 1440 / 48 = 30 , B = 1200/48 = 25 , C= 960/ 48 =20 , D = 1,008/48 = 21 or total 96 runs.
(3) One batch order is of 24 units. So the number of batches of different products:
A= 1440 / 24 = 60 , B = 1200/24 = 50 , C= 960/ 24 =40 , D = 1,008/24 = 42 or total 192 batches.
(4) Computation of Cost driver rates

Activity Activity Cost (Rs) Cost driver Quantity Cost driver rate
Set-up 80,000 + 1,12,000 No. of production run 96 Rs 2,000 per production
= 1,92,000 run
Store- receiving 60,000 + 84,000 Requisition raised 50 × 4 = 200 Rs 720 per requisition
= 1,44,000
Inspection 40,000 + 56,000 No. of production run 96 Rs 1,000 per production
= 96,000 run
Material handling 10,368 Orders executed (No. 192 Rs 54 per batch
of batches)

(5) Cost statement under Activity Based Costing:

Product A B C D
Output in units 1,440 1,200 960 1,008
(Rs) (Rs) (Rs) (Rs)

Material 1,440 × 84 1,200 × 90 960 × 80 1,008 × 96
= 1,20,960 = 1,08,000 = 76,800 = 96,768
Labour 1,440 × 20 1,200 × 18 960 × 14 1,008 × 16
= 28,800 = 21,600 = 13,440 = 16,128
1,49,760 1,29,600 90,240 1,12,896
Overhead cost:
Set up 2,000 × 30 2,000 × 25 2,000 × 20 2,000 × 21

= 60,000 = 50,000 = 40,000 = 42,000
Store receiving 720 × 50 720 × 50 720 × 50 720 × 50
= 36,000 = 36,000 = 36,000 = 36,000
Inspection 1,000 × 30 1,000 × 25 1,000 × 20 1,000 × 21
= 30,000 = 25,000 = 20,000 = 21,000
Material handling 54 × 60 54 × 50 54 × 40 54 × 42
= 3,240 = 2,700 = 2,160 = 2,268
Total overhead cost 1,29,240 1,13,700 98,160 1,01,268
Total cost 2,79,000 2,43,300 1,88,400 2,14,164
Total cost per unit (Total cost 193.75 202.75 196.25 212.46
/ Output
Solution 10:
Traditional Absorption Costing
X Y Z Total
(a) Quantity (units) 1,200 1,440 1,968 4608
(b) Direct labour per unit (Rs) 18 20 30 -
(c) Direct labour hours (a × b)/Rs 4 5,400 7,200 14,760 27,360
Overhead rate per direct labour hour:

= Budgeted overheads / Budgeted labour hours
= (Rs 50,000 + Rs 40,000 + Rs 28,240 + Rs 1,28,000) / 27,360 hours
= Rs 2,46,240 / 27,360 hours
= Rs 9 per direct labour hour
Unit Costs :
X Y Z
Direct Costs:
- Direct Labour (Rs) 18.00 20.00 30.00

- Direct Material (Rs) 90.00 84.00 176.00
Production Overhead: (Rs) 40.50 45.00 67.50
Total cost per unit (Rs) 148.50 149.00 273.50
2. Calculation of Cost-Driver level under Activity Based Costing

X Y Z Total

Quantity (units) 1,200 1,440 1,968 -
No. of orders (to be rounded off for fraction) 48 58 79 185

(1200 / 25) (1440 / 25) (1968 / 25)
No. of production runs 25 30 41 96

(1200 / 48) (1440 / 48) (1968 / 48)
No. of Inspections (done for each production run) 25 30 41 96
Maintenance hours 1,600 1,600 3,200 6400
Calculation of Cost-Driver rate

Activity Budgeted Cost-driver Cost Driver rate (Rs)
Cost (Rs) level (c) = (a) / (b)
(a) (b)
Material procurement Set-up 50,000 185 270.27
Quality control 40,000 96 416.67
Maintenance 28,240 96 294.17
1,28,000 6,400 20.00
Calculation of total cost of products using Activity Based Costing

Particulars Product
Direct Labour 18.00 20.00 30.00
Direct Material 90.00 84.00 176.00
Prime Cost per unit (A) 108.00 104.00 206.00
Material procurement 10.81 10.89 10.85

[(48 x 270.27)/1200] [(58 x 270.27)/1440] [(79 x 270.27)/1968]
Set-up 8.68 8.68 8.68
[(25 x 416.67)/1200] [(30 x 416.67)/ 1440] [(41 x 416.67)/ 1968]
Quality control 6.13 6.13 6.13
[(25 x 294.17)/1200] [(30 x 294.17)/ 1440] [(41 x 294.17)/ 1968]
Maintenance 26.67 22.22 32.52
[(1,600 x 20)/1200] [(1,600 x 20)/ 1440] [(3,200 x 20)/ 1968]
Overhead Cost per unit (B) 52.29 47.92 58.18
Total Cost per unit (A + B) 160.29 151.92 264.18
Note: Question may also be solved assuming no. of orders for material procurement to be 25 for each product.
Solution 11:
(i) Calculation Cost-Driver’s rate
Activity Overhead cost Cost-driver level Cost driver rate (Rs)
(Rs)
(A) (B) (C) = (A)/(B)
Ordering 64,000 34 + 32 + 14 800

= 80 no. of purchase orders
Delivery 1,58,200 110 + 64 + 52 700
= 226 no. of deliveries
Shelf stocking 87,560 110 + 160 + 170 199
= 440 shelf stocking hours

(ii) Calculation of total cost of products using Activity Based Costing

Particulars Fruit Juices
Apple (Rs) Orange (Rs) Mixed Fruit (Rs)
Material cost 80,000 90,000 1,00,000
(10,000 x Rs 8) (15,000 x Rs 6) (20,000 x Rs 5)
Direct labour cost 50,000 60,000 60,000

(10,000 x Rs 5) (15,000 x Rs 4) (20,000 x Rs 3)
Prime Cost (A) 1,30,000 1,50,000 1,60,000

Ordering cost 27,200 25,600 11,200
(800 x 34) (800 x 32) (800 x 14)
Delivery cost 77,000 44,800 36,400

(700 x 110) (700 x 64) (700 x 52)
Shelf stocking cost 21,890 31,840 33,830

(199 x 110) (199 x 160) (199 x 170)
Overhead Cost (B) 1,26,090 1,02,240 81,430

Total Cost (A + B) 2,56,090 2,52,240 2,41,430
Solution 12:
Working note:
Computation of revenues (at listed price), discount, cost of goods sold and customer level operating activities costs:
Customers
Particular A B C D E
Cases sold: (a) 9,360 14,200 62,000 38,000 9,800
Revenues (at listed price) (Rs): (b) {(a) × 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
Rs 54)}
Discount (Rs): (c) {(a) × Discount per - 8,520 3,10,000 1,44,400 52,920
case} (14,200 (62,000 (38,000 (9,800
cases × cases × cases × cases ×
Rs 0.6) Rs 5) Rs 3.80) Rs 5.40)
Cost of goods sold (Rs): (d) 4,21,200 6,39,000 27,90,000 17,10,000 4,41000
{(a) × Rs 45}
Customer level operating activities costs
Order taking costs (Rs): (No. of purchase × 6,000 10,000 12,000 10,000 12,000
Rs 200)
Customer visits costs 1,200 1,800 3,600 1,200 1,800
(Rs) (No. of customer visits × Rs 300)
Delivery vehicles travel costs (Rs) (Kms 3,200 2,880 4,800 6,400 9,600
travelled by delivery vehicles × Rs 4 per
km.)
Product handling costs (Rs) 18,720 28,400 1,24,000 76,000 19,600

{(a) ×Rs 2}
Cost of expediting deliveries (Rs) - - - - 200
{No. of expedited deliveries
× Rs 100}
Total cost of customer level operating 29,120 43,080 1,44,400 93,600 43,200
activities (Rs)

(i) Computation of Customer level operating income

Customers
Particular A (Rs) B (Rs) C (Rs) D (Rs) E (Rs)
Revenues (At list price) 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
Less: Discount - 8,520 3,10,000 1,44,400 52,920
Revenue 5,05,440 7,58,280 30,38,000 19,07,600 4,76,280
(At actual price)
Less: Cost of goods sold 4,21,200 6,39,000 27,90,000 17,10,000 4,41000
Gross margin 84,240 1,19280 2,48,000 1,97,600 35,280
Less: Customer level operating activities 29,120 43,080 1,44,400 93,600 43,200
costs
Customer level operating income 55,120 76,200 1,03,600 1,04,000 (7,920)
(ii) Comments
Customer D in comparison with Customer C: Operating income of Customer D is more than of Customer C, despite
having only 61.29% (38,000 units) of the units volume sold in comparison to Customer C (62,000 units). Customer C
receives a higher percent of discount i.e. 9.26% (Rs 5) while Customer D receive a discount of 7.04% (Rs 3.80). Though
the gross margin of customer C (Rs 2,48,000) is more than Customer D (Rs 1,97,600) but total cost of customer level
operating activities of C (Rs 1,44,400) is more in comparison to Customer D (Rs 93,600). As a result, operating income
is more in case of Customer D.
Customer E in comparison with Customer A: Customer E is not profitable while Customer A is profitable. Customer E
receives a discount of 10% ( Rs 5.4) while Customer A doesn’t receive any discount. Sales Volume of Customer A and E is
almost same. However, total cost of customer level operating activities of E is far more ( Rs 43,200) in comparison to
Customer A (Rs 29,120). This has resulted in occurrence of loss in case of Customer E.
Solution 13:
Working notes:
1. Total support cost:
(Rs)
Ordering 7,80,000
Delivery 12,60,000
2. Percentage of support cost to cost of goods sold (COGS)

= Total Support Cost x 100
Total Cost of goods sold
= Rs 45,00,000 x 100 = 30%
Rs 1,50,00,000
3. Cost for each activity cost driver:

Activity (1) Total cost Cost allocation base (3) Cost driver rate (4) =
(Rs) [(2) ÷ (3)]
(2)
Customer support 15,36,000 15,36,000 items sold Rs 1 per item sold
(i) Statement of Operating income and Operating income as a percentage of revenues for each product line
(When support costs are allocated to product lines on the basis of cost of goods sold of each product)
Soft Fresh Packaged Total (Rs)

Drinks (Rs) Produce (Rs) Foods (Rs)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Cost of Goods sold (COGS): (B) 30,00,000 75,00,000 45,00,000 1,50,00,000
Support cost (30% of COGS): 9,00,000 22,50,000 13,50,000 45,00,000

(C)
Total cost: (D) = {(B) + (C)} 39,00,000 97,50,000 58,50,000 1,95,00,000
Operating income: (E) 67,500 7,53,000 1,99,500 10,20,000

= {(A)-(D)}
Operating income as a 1.70% 7.17% 3.30% 4.97%
percentage of revenues: (F)=
{(E)/(A)
× 100}
(ii) Statement of Operating income and Operating income as a percentage of revenues for each product line
(When support costs are allocated to product lines using an activity -based costing system)
Soft drinks Fresh Packaged Total
(Rs) Produce Food (Rs)
(Rs) (Rs)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000

Cost & Goods sold 30,00,000 75,00,000 45,00,000 1,50,00,000
Ordering cost* 1,80,000 4,20,000 1,80,000 7,80,000
(360:840:360)
Delivery cost* 1,20,000 8,76,000 2,64,000 12,60,000

(300:2,190:660)
Shelf stocking cost* 54,000 5,40,000 2,70,000 8,64,000

(540:5,400:2,700)

Customer Support 1,26,000 11,04,000 3,06,000 15,36,000

cost* (1,26,000:11,04,00
0:3,06,000)
Total cost: (B) 35,40,000 1,04,40,000 55,20,000 1,95,00,000

Operating income: (C) = 4,27,500 63,000 5,29,500 10,20,000
{(A)- (B)}
Operating income as a % 10.78% 0.60% 8.75% 4.97%
of revenues: (D) = {(C)/(A)
× 100}
Solution 15:
(i) PCP Limited’s
Statement of operating income and gross margin percentage for each of its supermarket segments
Particulars Supermarket A Supermarket B Total
Revenues: (Rs) 11,21,67,000 9,52,87,500 20,74,54,500
(660 × Rs 1,69,950) (1,650 × Rs 57,750)
Less: Cost of goods sold: (Rs) 10,89,00,000 9,07,50,000 19,96,50,000
(660 × Rs 1,65,000) (1650 × RS 55,000)
Gross Margin: (Rs) 32,67,000 45,37,500 78,04,500
Less: Other operating costs: (Rs) 16,55,995
Operating income: (Rs) 61,48,505
Gross Margin 2.91% 4.76 % 3.76%
Operating income % 2.96%
(ii) Operating Income Statement of each distribution channel in April (Using the Activity based Costing information)
Supermarket A Supermarket B
Gross margin (Rs) : (A) 32,67,000 45,37,500
(Refer to (i) part of the answer)
Operating cost (Rs): (B) (Refer to 6,55,600 10,00,395
working note)
Operating income (Rs): (A–B) 26,11,400 35,37,105
Operating income (in %) (Operating income/Revenue) 2.33 3.71
×100
Working note:
Computation of rate per unit of the cost allocation base for each of the five activity areas for the month of April
(Rs)
Store delivery 100 per delivery
[Rs 3,90,500/ (1,100 + 2,805 store deliveries)]
Cartons dispatched 1 per carton dispatch
[Rs 4,15,250/ {(250×1,100) +( 50×2,805)} carton dispatches]
Shelf-stocking at customer store (Rs) 6 per hour
[Rs 64,845/ {(6×1,100) + (1.5×2,805)} hours]
Line item ordering 10 per line item order
[Rs 3,45,400/ {(14×770) + (12×1,980)} line items]
Customer purchase order processing [Rs 4,40,000/ (770 + 1,980 orders)] 160 per order
Computation of operating cost of each distribution channel:

Supermarket A (Rs) Supermarket B (Rs)
Store delivery 1,10,000 2,80,500

(Rs 100 × 1,100 deliveries) (Rs 100 × 2,805 deliveries)

Cartons dispatched 2,75,000 1,40,250
(Rs 1× 250 cartons × 1,100 deliveries) (Rs 1 × 50 cartons × 2,805 deliveries)
Shelf stocking 39,600 25,245
(Rs 6 × 1,100 deliveries × 6 Av. hrs.) (Rs 6 × 2,805 deliveries × 1.5 Av. hrs)
Line item ordering 1,07,800 2,37,600
(Rs 10 × 14 line item x 770 orders) (Rs 10 × 12 line item x 1,980 orders)
Customer purchase 1,23,200 3,16,800
order processing (Rs 160 × 770 orders) (Rs 160 × 1,980 orders)
Operating cost 6,55,600 10,00,395
Solution 16:
(i) (a) Statement of Operating Income and Operating Income as a percentage of revenues for each product
line. (When support costs are allocated to product lines on the basis of cost of goods sold for each product).
Drug A (Rs) Drug B (Rs) Drug C (Rs) Total (Rs)
Revenues: (A) 74,50,000 1,11,75,000 1,86,25,000 3,72,50,000
Cost of goods sold (COGS) (B): 41,44,500 68,16,750 1,20,63,750 2,30,25,000
Support cost (40% of COGS) 16,57,800 27,26,700 48,25,500 92,10,000
(C):
Total Cost (D) – {(B) + (C)} 58,02,300 95,43,450 1,68,89,250 3,22,35,000
Operating income: E = {(A) – 16,47,700 16,31,550 17,35,750 50,15,000
(D)}
Operating Income as a % of 22.12% 14.60% 9.32% 13.46%
revenues: (E/A) x 100)
Working Notes:
1. Total Support cost
Rs
Drug License Fee 5,00,000
Ordering 8,30,000
Delivery 18,20,000
Customer Support 28,20,000
2. Percentage of support cost to cost of goods sold (COGS)

= Total support cost x 100
Total cost of goods sold
= Rs 92,10,000 x 100 = 40%
Rs 2,30,25,000
3. Cost of each activity cost driver:

Activity (1) Total cost (Rs) (2) Cost allocation base (3) Cost driver rate (4) = [(2) ÷ (3)]
Customer 28,20,000 4,70,000 units sold Rs 6 per unit sold
support
(b) Statement of operating Income and operating income as a percentage of revenues for each
product line
(When support costs are allocated to product lines using an activity-based costing system)


Revenues: (A) 74,50,000 1,11,75,000 1,86,25,000 3,72,50,000
Cost & Goods Sold 41,44,500 68,16,750 1,20,63,750 2,30,25,000
Drug License Fee 1,00,000 1,50,000 2,50,000 5,00,000
Ordering Cost* 2,32,400 3,36,150 2,61,450 8,30,000
(560:810:630)
Delivery Cost* 6,17,500 6,50,000 5,52,500 18,20,000
(950:1000:850)
Shelf stocking cost* 6,48,000 9,00,000 16,92,000 32,40,000
(1,75,200 : 1,50,300 : 1,44,500)
Total Cost: (B) 67,93,600 97,54,700 1,56,86,700 3,22,35,000
Operating Income C: {(A) – (B)} 6,56,400 14,20,300 29,38,300 50,15,000
Operating income as a % of 8.81% 12.71% 15.78% 13.46%
revenues
(ii) Comparison on the basis of operating income as per the percentage (%) of revenue:
(a) When support costs are allocated to product lines on the basis of cost of goods sold of each
product.
Operating 22.12% 14.60% 9.32% 13.46%
Income as % of
revenue
On comparing the operating income as a % of revenue of each product, Drug A is the most
profitable product line, though is least but with highest units sold.
(b) When support costs are allocated to product lines using an activity-based costing system.
Operating 8.81% 12.71% 15.78% 13.46%
Income as a % of
revenues
On comparing the operating income as a % of revenue of each product, Drug C is the most
profitable product line, though its unit sold is least but with highest revenue.
Solution 17:
Working note:
Computation of revenues (at listed price), discount, and cost of goods sold and customer level operating activities costs:
Particulars Customers
Aey Bee Cee Dee Eey
Cases sold: (a) 9,360 14,200 62,000 38,000 9,800
Revenues (at listed price) (Rs): (b) {(a) x Rs 64.80} 6,06,528 9,20,160 40,17,600 24,62,400 6,35,040
Discount (Rs): (c) {(a) x Discount per case} - 10,224 3,72,000 1,73,280 63,504
(14,200 (62,000 (38,000 (9,800
cases x cases x cases x Rs cases x Rs
Rs 0.72) Rs 6) 4.56) 6.48)
Cost of goods sold (Rs): (d) {(a) x Rs 54} 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
Customer level operating activities costs
Order taking costs (Rs): 7,200 12,000 14,400 12,000 14,400
(No. of purchase x Rs 240)
Customer visits costs (Rs) (No. of customer visits x 1,440 2,160 4,320 1,440 2,160
Rs 360)
Delivery vehicles travel costs (Rs) (Km. travelled by 3,840 3,456 5,760 7,680 11,520
delivery vehicles x 4.80 per km.)
Product handling costs (Rs) 22,464 34,080 1,48,800 91,200 23,520
{(a) x Rs 2.40}
Cost of expediting deliveries (Rs) - - - - 240

{No. of expedited deliveries x Rs 120}

Total cost of customer level operating activities (Rs) 34,944 51,696 1,73,280 1,12,320 51,840
(i) Computation of Customer level Operating Income

Customers
Particulars Aey (Rs) Bee (Rs) Cee (Rs) Dee (Rs) Eey (Rs)
Revenues (At list price) 6,06,528 9,20,160 40,17,600 24,62,400 6,35,040
Less: Discount - 10,224 3,72,000 1,73,280 63,504
Revenue 6,06,528 9,09,936 36,45,600 22,89,120 5,71,536
(At actual price)
Less: Cost of goods sold (Refer to working note) 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
Gross margin 1,01,088 1,43,136 2,97,600 2,37,120 42,336

Less: Customer level operating activities costs 34,944 51,696 1,73,280 1,12,320 51,840
Customer level operating income 66,144 91,440 1,24,320 1,24,800 (9,504)
(ii) Comments
Customer Dee in comparison with Customer Cee: Operating income of Customer Dee is more than that of
Customer Cee, despite having only 61.29% (38,000 units) of the units volume sold in comparison to Customer
Cee (62,000 units). Customer Cee receives a higher percent of discount i.e. 9.26% (Rs 6) while Customer Dee
receives a discount of 7.04% (Rs 4.56). Though the gross margin of customer Cee (Rs 2,97,600) is more than that
of Customer Dee (Rs 2,37,120) but total cost of customer level operating activities of Cee (Rs 1,73,280 ) is more
in comparison to Customer Dee (Rs 1,12,320). As a result, operating income is more in case of Customer Dee.
Customer Eey in comparison with Customer Aey: Customer Eey is not profitable while Customer Aey is
profitable. Customer Eey receives a discount of 10% (Rs 6.48) while Customer Aey doesn’t receive any discount.
Sales Volume of Customer Aey and Eey is almost same. However, total cost of customer level operating
activities of Eey is far more (Rs 51,840) in comparison to Customer Aey (Rs 34,944). This has resulted in
occurrence of loss in case of Customer Eey.

Solution 18:
(i) Profit Statement using Absorption costing method:
X Y Z
A. Sales Quantity 1,00,000 80,000 60,000 2,40,000
B. Selling price per unit (Rs) 45 90 70
C. Sales value (Rs) [AxB] 45,00,000 72,00,000 42,00,000 1,59,00,000
D. Direct Cost per unit (Rs) 25 45 50
E Direct Cost (Rs) [A x D] 25,00,000 36,00,000 30,00,000 91,00,000
F. Overheads:
(i) Machine department (Rs) 12,00,000 12,80,000 12,00,000 36,80,000
(Working Note-1)
(ii) Assembly Department (Rs) 15,00,000 8,00,000 4,50,000 27,50,000
(Working Note-1)
G. Total Cost (Rs) [E+F] 52,00,000 56,80,000 46,50,000 1,55,30,000
H. Profit (C-G) (7,00,000) 15,20,000 (4,50,000) 3,70,000
(ii) Profit Statement using Activity Based Costing (ABC) method:

X Y Z
A. Sales Quantity 1,00,000 80,000 60,000
B. Selling Price per unit (Rs) 45 90 70
C. Sales Value (Rs) [A x B] 45,00,000 72,00,000 42,00,000 1,59,00,000
D. Direct Cost per unit (Rs) 25 45 50
E. Direct Cost (Rs) [A x D] 25,00,000 36,00,000 30,00,000 91,00,000
F. Overheads: (Refer Working
(i) Note-3) 10,50,000 11,20,000 10,50,000 32,20,000
(ii) Machining Services (Rs) 12,00,000 6,40,000 3,60,000 22,00,000
(iii) Assembly Services (Rs) 2,25,000 1,50,000 75,000 4,50,000
(iv) Set-up Costs (Rs) 1,10,000 1,20,000 1,30,000 3,60,000
(v) Order Processing (Rs) 75,000 87,500 37,500 2,00,000
Purchasing (Rs)
G. Total Cost (Rs) [E+F] 51,60,000 57,17,500 46,52,500 1,55,30,000
H. Profit (Rs) (C-G) (6,60,000) 14,82,500 (4,52,500) 3,70,000
Working Notes:
(1)

Product Total
X Y Z
A. Production (Units) 1,00,000 80,000 60,000
B. Machine hours per unit 3 4 5
C. Total Machine hours [A x B] 3,00,000 3,20,000 3,00,000 9,20,000
D. Rate per hour (Rs) 4 4 4
E. Machine Dept. Cost [C x D] 12,00,000 12,80,000 12,00,000 36,80,000
F. Labour Hours per unit 6 4 3
G. Total Labour Hours [A x F] 6,00,000 3,20,000 1,80,000 11,00,000
H. Rate per Hour (Rs) 2.5 2.5 2.5
I. Assembly Dept. Cost [G x H] 15,00,000 8,00,000 4,50,000 27,50,000
Machine Hour rate = Rs 36,80,000/9,20,000 hours = Rs 4

Labour Hour rate = Rs 27,50,000/11,00,000 hours = Rs 2.5
(2) Calculation of Cost Driver rate

Cost Pool Amount (Rs) Cost Driver Quantity Driver Rate (Rs)
Machining Services 32,20,000 Machine Hours 9,20,000 hours 3.50
Assembly Services 22,00,000 Direct Labour Hours 11,00,000 hours 2.00
Set-up Costs 4,50,000 Matching Set-ups 9,000 set-ups 50.00
Order processing 3,60,000 Customer Orders 7,200 orders 50.00
Purchasing 2,00,000 Purchase Orders 800 orders 250.00
(3) Calculation of Activity-wise Cost

Product Total
X Y Z
A. Machining hours (refer working note-1) 3,00,000 3,20,000 3,00,000 9,20,000
B. Machine hour rate (Rs) (Refer Working 3.5 3.5 3.5
Note-2)
C. Machining Services Cost (Rs) [A x B] 10,50,000 11,20,000 10,50,000 32,20,000
D. Labour Hours (Refer Working Note- 1) 6,00,000 3,20,000 1,80,000 11,00,000
E. Labour Hour rate (Rs) (Refer Working 2 2 2
Note-2)
F. Assembly services Cost (Rs) [D x E] 12,00,000 6,40,000 3,60,000 22,00,000
G. Machine set-ups 4,500 3,000 1,500 9,000
H. Rate per set-up (Rs) (Refer Working Note- 50 50 50
2)
I. Set-up Cost (Rs) [G x H] 2,25,000 1,50,000 75,000 4,50,000
J. Customer Orders 2,200 2,400 2,600 7,200
K. Rate per order (Rs) (Refer Working Note- 50 50 50
2)
L. Order Processing Cost (Rs) [J x K] 1,10,000 1,20,000 1,30,000 3,60,000
M. Purchase Orders 300 350 150 800
N. Rate per order (Rs) (Refer Working Note- 250 250 250
2)
O. Purchasing Cost (Rs) [M x N] 75,000 87,500 37,500 2,00,000

Chapter 6: COST SHEET- Practice Sheet

SOLUTIONS
Solution 1:
Statement of Cost of Arnav Ispat Udyog Ltd. for the year ended 31st March, 2020:
SI. Amount Amount
No. (Rs) (Rs)
(i) Material consumed:
Raw materials purchased 10,00,00,000

Freight inwards 11,20,000
Add: Opening stock of raw materials 18,00,000
Less: Closing stock of raw materials (9,60,000) 10,19,60,600
(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 1,72,000

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
(v) 10,80,83,100
Quality control cost:
Expenses paid for quality control check activities 19,600
Salary paid to quality control staffs 96,200
(vi) 1,15,800
Research & development cost paid for improvement in
production process
(vii) 18,200
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 10,86,05,700
(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
(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.
Solution 2:
Cost sheet of Aditya Industries for month of……
Units produced- 1,94,000
Units sold- 1,60,000
Particulars Amount(Rs) Cost per unit (Rs)
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
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 (Rs 8 × 21,600 hours) 1,72,800
Cost of Production 1,83,78,400 94.73
Add: Value of opening finished stock 9,60,000
Less: Value of closing finished stock (Rs 94.73 × 44,000) (41,68,120)
Cost of Goods Sold 1,51,70,280 94.81
Office and administration expenses paid 26,52,000 16.58
Travelling allowance paid to office staffs 1,21,000 0.75
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

Solution 3:
Statement of Cost of RTA Ltd. for the year ended 31st December, 2020:
PARTICULARS Amount (Rs.) Amount (Rs.)
(i) Material Consumed:
-Raw materials purchased 5,00,00,000
-Freight inward 9,20,600

-Wages paid to factory workers 25,20,000
-Royalty paid for production 1,80,000
-Amount paid for power & fuel 3,50,000
-Job charges paid to job workers 3,10,000 8,40,000
Prime Cost 5,44,40,600
-Stores and spares consumed 1,10,000
-Repairs & Maintenance paid for plant 40,000
& machinery
-Insurance premium paid for plant & 28,200
machinery
-Insurance premium paid for factory 18,800
building
-Expenses paid for pollution control
and engineering & maintenance 36,000 2,33,000

Factory Cost 5,48,73,600
(v)Quality control cost:
-Expenses paid for quality control 18,000
check activities
(vi) Research & development cost paid 20,000
for improvement in production process
(vii) Less: Realisable value on sale of (48,000)

scrap and waste
(viii) Add: Primary packing cost 46,000
Add: Opening stock of finished goods 12,00,000
Less: Closing stock of finished goods (10,50,000)
Cost of Goods Sold 5,50,59,600

(ix) Administrative overheads:
-Depreciation on office building 50,000
-Salary paid to General Manager 6,40,000
-Fee paid to independent directors 1,20,000 8,10,000

(x) Selling overheads:

20,000
-Repairs & Maintenance paid for sales
office building
-Salary paid to Manager-Sales & 5,60,000
Marketing
-Performance bonus paid to sales staffs 1,20,000 7,00,000
(xi) Distribution overheads:

-Packing cost paid for re-distribution of
finished goods 80,000
Solution 4:
Statement of Cost of R Ltd. for the year ended 31st March, 2020:
Particulars
Material Consumed:
- Raw materials purchased 84,00,000
- Carriage inward 1,72,600
Less: Closing stock of raw materials (4,60,000) 87,32,600
Direct employee (labour) cost:
- Direct wages 60,00,000
- Employer’s Contribution towards PF 7,20,000 67,20,000
& ESIS
Direct expenses:
- Consumable materials 4,80,000
- Cost of power & fuel 28,00,000 32,80,000
Prime Cost 8,40,000 1,87,32,600
Works/ Factory overheads:
- Wages to foreman and store keeper
- Other indirect wages to factory staffs
1,35,000 9,75,000
Research & development cost paid for 9,60,000
improvement in production process
Production planning office expenses 12,60,000
Administrative overheads:
- Salary to accountants 7,20,000
- Fees to statutory auditor 1,80,000
- Fees to cost auditor 80,000
- Fee paid to independent directors 9,40,000 19,20,000
Selling overheads& Distribution
overheads:
- Salary to delivery staffs 14,30,000


Profit (balancing figure) 24,02,400
Sales 2,82,60,000
Note: Income tax and Donation to PM National Relief Fund is avoided in the cost sheet.
Solution 5:
Calculation of Cost of Production of Arnav Metallic Ltd. for the period…..
Raw materials purchased 64,00,000
Add: Opening stock 2,88,000
Less: Closing stock (4,46,000)
Material consumed 62,42,000
Wages paid 23,20,000
Prime cost 85,62,000
Repair and maintenance cost of plant & machinery 9,80,500
Quality control cost 86,000
Research & development cost 92,600
Administrative overheads related with factory and production 9,00,000
1,07,17,100
1,05,21,000
Less: Amount realised by selling scrap (9,200)
Add: Primary packing cost 10,200
Notes:
(i) Other administrative overhead does not form part of cost of production.
(ii) Salary paid to Director (Technical) is an administrative cost.
Solution 6:
(i) Calculation of Factory overhead rate.
If the single brand production was in operation, then
1 unit of Luxury = 3 units of Herbal = 6 units of Beauty. Therefore, the factory overhead ratio in the reverse order would
be 5,000:15,000:30,000 or 1:3:6.
The overhead rate will be lowest in case of brand which will be produced in high number. Therefore, in case of Beauty
soap brand, the overhead rate will be:
= 80,000 / (6 x 6,750 + 3 x 14,000 + 1 x 77,500)
= 80,000 / (40,500 + 42,000 + 77,500)
= 80,000 / 1,60,000 = 0.5
So, the overhead rate will be:

Luxury = 0.5 x 6 = Rs. 3
Herbal = 0.5 x 3 = Rs. 1.5
Beauty = 0.5 x 1 = Rs. 0.5
(ii) Statement of Cost of Mix Soap Pvt. Ltd. for the month of June 2021:
Luxury (Rs.) Herbal (Rs.) Beauty (Rs.) Total (Rs.)

Raw material consumed 20,000 47,000 2,40,000 3,07,000

Add: Wages paid 7,500 18,750 1,15,000 1,41,250
Prime cost 27,500 65,750 3,55,000 4,48,250
Add: Factory overheads 20,250 21,000 38,750 80,000
(Rs.3 x 6,750) (Rs.1.5 x 14,000) (Rs.0.5 x 77,500)
Works cost 47,750 86,750 3,93,750 5,28,250

Add: General & 16,000 16,000 16,000 48,000
Administration overheads (1:1:1)
Add: Selling expenses 9,550 17,350 78,750 1,05,650
(Rs.47,750 x (Rs.86,750 x (Rs. 3,93,750 x
0.20) 0.20) 0.20)
Cost of sales 73,300 1,20,100 4,88,500 6,81,900
Profit (Balancing figure) 95,450 89,900 1,31,500 3,16,850
Sales 1,68,750 2,10,000 6,20,000 9,98,750
(Rs.25 x 6,750) (Rs.15 x 14,000) (Rs.8 x 77,500)
Solution 7:
Statement of Cost of A Ltd. for the year ended 31st March, 2021:
Sl. No. Particulars Amount (Rs.) Amount (Rs.)
- Raw materials purchased 10,00,00,000
- Freight inward 11,20,600
- Wages paid to factory workers 29,20,000
- Royalty paid for production 1,72,600
- Amount paid for power & fuel 4,62,000
- Job charges paid to job workers 8,12,000 14,46,600
Prime Cost 10,63,27,200
- Stores and spares consumed 1,12,000
- Repairs & Maintenance paid for plant & machinery 48,000
- Insurance premium paid for plant & machinery 31,200
- Insurance premium paid for factory building 18,100
- Expenses paid for pollution control and engineering &
maintenance 26,600 2,35,900
(v) Quality control cost:
- Expenses paid for quality control check activities 19,600
(vi) Research & development cost paid for improvement in production 18,200

process
(vii) Less: Realisable value on sale of scrap and waste (86,000)
(viii) Add: Primary packing cost 96,000
- Depreciation on office building 56,000
- Salary paid to General Manager 12,56,000
- Fee paid to independent directors 2,20,000 15,32,000
- 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
- Packing cost paid for re-distribution of finished goods 1,12,000
Solution 8:
Cost Sheet for the Month of April 2020
Particulars (Rs.)
Opening stock of Raw Material 20,000
Add: Purchases [Refer Working Note-2] 1,65,000

Less: Closing stock of Raw Material (25,000)
Raw material consumed 1,60,000
Add: Direct labour cost 1,20,000

Prime cost 2,80,000
Add: Factory overheads 1,00,000

Gross Works cost 3,80,000
Add: Opening work-in-progress 20,000

Less: Closing work-in-progress (30,000)
Works Cost 3,70,000
Cost of Production 3,70,000

Add: Opening stock of finished goods 50,000
Less: Closing stock of finished goods (60,000)
Cost of goods sold 3,60,000
Add: General and administration expenses* 18,000

Add: Selling expenses 22,000
Cost of sales 4,00,000
Profit {Balancing figure (Rs. 5,00,000 – Rs. 4,00,000)} 1,00,000

Sales 5,00,000
*General and administration expenses have been assumed as not relating to the production activity.

Working Note:
1. Computation of the raw material consumed
Particulars (Rs.)
Cost of Sales 4,00,000
Less: General and administration expenses (18,000)
Less: Selling expenses (22,000)
Cost of goods sold 3,60,000
Add: Closing stock of finished goods 60,000
Less: Opening stock of finished goods (50,000)
Cost of production/Gross works cost 3,70,000
Add: Closing stock of work-in-progress 30,000
Less: Opening stock of work-in-progress (20,000)
Works cost 3,80,000
Less: Factory Overheads ( Rs.1,20,000 / 120) × 100 (1,00,000)
Prime cost 2,80,000
Less: Direct labour (1,20,000)
Raw material consumed 1,60,000
2. Computation of the raw material purchased

Particulars (Rs.)
Closing stock of Raw Material 25,000
Add: Raw Material consumed 1,60,000
Less: Opening stock of Raw Material (20,000)
Raw Material purchased 1,65,000
Solution 9:
Preparation of Cost Sheet for Super Pen
No. of units produced = 40,000 units No. of units sold = 36,000 units
Particulars Per unit (Rs.) Total (Rs.)
Direct materials (Working note- (i)) 8.00 3,20,000
Direct wages (Working note- (ii)) 4.00 1,60,000
Prime cost 12.00 4,80,000
Production overhead (Working note- (iii)) 1.20 48,000
Factory Cost 13.20 5,28,000
Administration Overhead* (200% of direct wages) 8.00 3,20,000
Cost of production 21.20 8,48,000
Less: Closing stock (40,000 units – 36,000 units) - (84,800)
Cost of goods sold i.e. 36,000 units 21.20 7,63,200
Selling cost 1.00 36,000
Cost of sales/ Total cost 22.20 7,99,200
Profit 7.80 2,80,800
Sales value (Rs. 30 × 36,000 units) 30.00 10,80,000
Working Notes:
(i) Direct material cost per unit of Normal pen = M

Direct material cost per unit of Super pen = 2M

Total Direct Material cost = 2M × 40,000 units + M × 1,20,000 units
Or, Rs. 8,00,000 = 80,000 M + 1,20,000 M
Or, M = Rs. 8,00,000 / 2,00,000 = Rs. 4
Therefore, Direct material Cost per unit of Super pen = 2 × Rs. 4 = Rs. 8
(ii) Direct wages per unit for Super pen =W

Direct wages per unit for Normal Pen = 0.6W
So, (W x 40,000) + (0.6W x 1,20,000) = Rs. 4,48,000
W = Rs. 4 per unit
(iii) Production overhead per unit = Rs.1,92,000 / (40,000 + 1,20,000) = Rs. 1.20
Production overhead for Super pen = Rs. 1.20 × 40,000 units = Rs. 48,000
* Administration overhead is specific to the product as it is directly related to direct labour as mentioned in the question
and hence to be considered in cost of production only.
Assumption: It is assumed that in point (1) and (2) of the Question, direct materials cost and direct wages respectively is
related to per unit only.
Note: Direct Material and Direct wages can be calculated in alternative ways.
Solution 10:
Workings:
1. Calculation of Sales Quantity:
Particular Units
Production units 1,00,000
Less: Defectives (4%×1,00,000 units) 4,000
Less: Closing stock of finished goods 5,000
No. of units sold 91,000
2. Calculation of Cost of Production

Particular Amount (Rs.)
Cost of Goods sold (given) 78,26,000
Add: Value of Closing finished goods 4,30,000
[(Rs. 78,26,000 / 91,000 units) × 5,000 units)
3. Calculation of Factory Cost

Less: Quality Control Cost (2,00,000)
Less: Research and Development Cost (2,50,000)
Add: Credit for Recoveries/Scrap/By-Products/ misc. income (1,00,000 2,44,000
units × 4% × Rs. 61)
Factory Cost 80,50,000
4. Calculation of Gross Factory Cost

Cost of Factory Cost 80,50,000

Less: Opening Work in Process (2,00,000)

Add: Closing Work in Process 5,00,000
Cost of Gross Factory Cost 83,50,000
5. Calculation of Prime Cost

Cost of Gross Factory Cost 83,50,000
Less: Consumable stores & spares (3,50,000)
Less: Lease rental of production assets (2,00,000)
Prime Cost 78,00,000
6. Calculation of Cost of Materials Consumed & Labour cost Let Cost of Material Consumed = M and Labour cost = 0.5M
Prime Cost = Cost of Material Consumed + Labour Cost 78,00,000 = M + 0.5M
M = 52,00,000
Therefore, Cost of Material Consumed = Rs. 52,00,000 and Labour Cost = Rs. 26,00,000
(i) Calculation of Value of Materials Purchased

Cost of Material Consumed 52,00,000
Add: Value of Closing stock 2,92,000
Less: Value of Opening stock (2,42,000)
Value of Materials Purchased 52,50,000
Cost Sheet
Sl. Particulars Total Cost (Rs.)
1. Direct materials consumed:
Opening Stock of Raw Material 2,42,000
Add: Additions/ Purchases [balancing figure as per requirement (i)] 52,50,000
Less: Closing stock of Raw Material (2,92,000)

Material Consumed 52,00,000
2. Direct employee (labour) cost 26,00,000
3. Prime Cost (1+2) 78,00,000
4. Add: Works/ Factory Overheads Consumable stores and spares 3,50,000
Lease rent of production asset 2,00,000
5. Gross Works Cost (3+4) 83,50,000
6. Add: Opening Work in Process 2,00,000
7. Less: Closing Work in Process (5,00,000)
8. Works/ Factory Cost (5+6-7) 80,50,000
9. Add: Quality Control Cost 2,00,000
10. Add: Research and Development Cost 2,50,000
11. Less: Credit for Recoveries/Scrap/By-Products/misc. income (2,44,000)
12. Cost of Production (8+9+10-11) 82,56,000

13. Add: Opening stock of finished goods -

14. Less: Closing stock of finished goods (5000 Units) (4,30,000)
15. Cost of Goods Sold (12+13-14) 78,26,000
16. Add: Administrative Overheads (General) 2,24,000
17. Add: Secondary packing 1,82,000
18. Add: Selling Overheads& Distribution Overheads 4,13,000
19. Cost of Sales (15+16+17+18) 86,45,000
20. Profit 13,65,000
21. Sales 91,000 units@ Rs. 110 per unit 1,00,10,000
Solution 11:
Statement of Cost of Impact Ltd. for the year ended 31st March, 2021:
S.I. No. Particulars Amount (Rs) Amount (Rs)
(i) Material Consumed :
Raw material purchased 5,00,00,000
GST paid under Composition Scheme * 10,00,000
Freight inwards 5,20,000
Less : Trade discounts received (10,00,000)
Add : Opening stock of raw materials 9,00,000
Less : Closing Stock of raw materials 5,60,000 5,08,60,600
(ii) Direct Employee (Labour) Cost :
Wages paid for factory workers 15,20,000
Contribution made towards employees’ PF & ESIS 1,90,000
Production bonus paid to factory workers 1,50,000 18,60,000
(iii) Direct Expenses :
Fee for technical assistance 1,12,000
Amount paid for power & fuel 2,62,000
Job charges paid to job workers 4,50,000 8,24,000
Prime cost 5,35,44,600
Stores and spares consumed 1,10,000
Depreciation on factory building 64,000
Depreciation on plant & machinery 86,000
Repairs & Maintenance paid for plant & machinery 58,000
Insurance premium paid for factory building 28,100
Salary paid to supervisors 1,20,000 4,97,300
Expenses paid for quality control check activities 25,000
(vi) Research & development cost paid for improvement in 48,200
production process
(vii) Administration cost related with production:
-Expenses paid for administration of factory work 1,38,000
-Salary paid to Production control manager 4,80,000 6,18,000

(viii) Less: Realisable value on sale of scrap and waste (66,000)

(ix) Add: Primary packing cost 1,06,000
(x) Administrative overheads:
Depreciation on office building 46,000
Repairs & Maintenance paid for vehicles used by 20,600
directors
Salary paid to Manager- Finance & Accounts 9,60,000
Salary paid to General Manager 13,20,000
Fee paid to auditors 1,80,000
Fee paid to legal advisors 1,20,000
Fee paid to independent directors 2,40,000 28,86,600
(xi) Selling overheads:
Repairs & Maintenance paid for sales office building 50,000
Salary paid to Manager- Sales & Marketing 12,00,000
Payment for maintenance of website for online sales 1,80,000
Performance bonus paid to sales staffs 2,40,000 16,70,000
(xii) Packing cost paid for re-distribution of finished goods 1,12,000
(xiii) Interest and finance charges paid 3,50,000
* GST paid under Composition scheme would be included under cost of material as it is not eligible for input tax credit.
Solution 12:
(a)Cost Sheet of A Ltd. for the month of December 2021
Materials consumed 15,00,000
Wages & Salary 64,00,000
Gratuity & leave encashment 44,20,000 1,08,20,000
Power cost (13,000 kwh × Rs 7) 91,000
Diesel cost (1,000 ltr × Rs 93) 93,000 1,84,000
HEMM hiring charges 13,00,000
AMC cost of CCTV installed at factory premises 18,000
Cost of Production/ Cost of Goods Sold 1,38,22,000
Hiring charges of cars 80,000
Reimbursement of diesel cost 20,000
1,00,000
Add: GST @5% on RCM basis 5,000 1,05,000
Maintenance cost for weighing bridge 7,000
AMC cost of CCTV installed at weigh bridge 6,000 13,000
TA/ DA & hotel bill of sales manager 16,000
(b) Manshift = 180 employees × 26 days = 4,680 manshifts

Computation of earnings per manshift (EMS):
EMS = Total employee benefits paid
Manshift
= Rs 1,08,20,000 = Rs 2,312

4,680
Computation of Output per manshift (OMS):

OMS = Total Output/ Production
Manshift
= 14,560 Tonne = 3.11 tonne
4,680
Solution 13:
(i) Flexible Budget (before promotion)
Particulars Product ‘AYE’ Product ‘ZYE’ Total
Production & Sales (units) 4,000 3,000
Amount (Rs) Amount (Rs) Amount (Rs)
A. Sales Value 8,00,000 5,40,000 13,40,000
(Rs 200×4,000) (Rs 180×3,000)
B. Direct Materials 3,20,000 2,10,000 5,30,000
(Rs 80 × 4,000) (Rs 70 × 3,000)
C. Direct labour 1,60,000 1,05,000 2,65,000
(Rs 40 × 4,000) (Rs 35 × 3,000)
D. Variable Overheads 80,000 75,000 1,55,000
(Rs 20 × 4,000) (Rs 25 × 3,000)
E. Total Variable Cost (B+C+D) 5,60,000 3,90,000 9,50,000
F. Contribution (A-E) 2,40,000 1,50,000 3,90,000
G. Fixed Overhead 40,000 30,000 70,000
(Rs 10 × 4,000) (Rs 10 × 3,000)
H. Profit (F-G) 2,00,000 1,20,000 3,20,000
Profit per unit 50 40
(ii) Flexible Budget (after promotion)

Particulars Product ‘AYE’ Product ‘ZYE’ Total
Production & Sales 4,200 3,150
(units) (4,000×105%) (3,000×105%)
Amount (Rs) Amount (Rs) Amount (Rs)
A. Sales Value 9,24,000 6,23,700 15,47,700
(Rs 220 × 4,200) (Rs 198 × 3,150)
B. Direct Materials 3,36,000 2,20,500 5,56,500
(Rs 80 × 4,200) (Rs 70 × 3,150)
C. Direct labour 1,68,000 1,10,250 2,78,250
(Rs 40 × 4,200) (Rs 35 × 3,150)
D. Variable Overheads 1,00,800 94,500 1,95,300
(Rs 24 × 4,200) (Rs 30 × 3,150)
E. Total Variable 6,04,800 4,25,250 10,30,050
Cost
(B+C+D)
F. Contribution (A-E) 3,19,200 1,98,450 5,17,650
G. Fixed Overhead 42,000 31,500 73,500
(Rs 40,000 × (Rs 30,000 ×
105%) 105%)
H. Profit (F-G) 2,77,200 1,66,950 4,44,150
Profit per unit 66 53
Solution 14:
No. of bags manufactured = 1,000 units
Cost sheet for the month of September 2021
Particulars Total Cost (Rs) Cost per unit (Rs)
1. Direct materials consumed
- Leather sheets 3,20,000 320.00
- Cotton Clothes 15,000 15.00
Add: freight paid on purchase 8,500 8.50
(i) Cost of material consumed 3,43,500 343.50
2. Direct wages (Rs 80 x 2000 hours) 1,60,000 160.00
3. Direct expenses (Rs 10 x 2000 hours) 20,000 20.00
4 (ii) Prime Cost 5,23,500 523.50
5. Factory Overheads: Depreciation on 16,500 16.50
machines {(Rs 22,00,000 x 90%) ÷ 120
months}
Apportioned Cost of factory rent 98,000 98.00
6. (iii) Works/Factory Cost 6,38,000 638.00
7. Less: Realizable value of cuttings (Rs 150 x (5,250) (5.25)
35 kgs.)
8. (iv) Cost of Production 6,32,750 632.75
9. Add: Opening stock of bags 0
10. Less: Closing stock of bags (100 bags x Rs (63,275)
632.75)
11. (v) Cost of Goods Sold 5,69,475 632.75
12. Add: Administrative Overheads:
- Staff Salary 45,000 50.00
- Apportioned rent for administrative office 12,000 13.33
13. Add: Selling and Distribution Overheads
- Staff salary 72,000 80.00
- Apportioned rent for sales office 10,000 11.11
- Freight paid on delivery of bags 18,000 20.00
14 (vi) Cost of sales 7,26,475 807.19
Apportionment of Factory rent:

To factory building {(Rs 1,20,000 ÷ 2400 sq. feet) x 1,960 sq. feet} = Rs 98,000
To administrative office {(Rs 1,20,000 ÷ 2400 sq. feet) x 240 sq. feet} = Rs 12,000
To sales office {(Rs 1,20,000 ÷ 2,400 sq. feet) x 200 sq. feet} = Rs 10,000
Solution 15:
Cost Sheet of ‘Super’
Particulars Per unit Total (Rs)
(Rs)
Direct materials (Working note- (i)) 8.00 4,80,000

Direct wages (Working note- (ii)) 4.00 2,40,000
Prime cost 12.00 7,20,000
Production overhead (Working note- (iii)) 1.20 72,000
Factory Cost 13.20 7,92,000

Administration Overhead (200% of direct wages) 8.00 4,80,000

Cost of production 21.20 12,72,000
Less: Closing stock (60,000 units – 54,000 units) - 1,27,200
Cost of goods sold i.e. 54,000 units 21.20 11,44,800
Selling cost 1.00 54,000
Cost of sales/ Total cost 22.20 11,98,800
Profit 7.80 4,21,200
Sales value (Rs 30 × 54,000 units) 30.00 16,20,000
Working notes:
(i) Direct material cost per unit of ‘Normal’ = M
Direct material cost per unit of ‘Super’ = 2M
Total direct material cost = 2M x 60,000 units + M x 1,80,000 units
Or, Rs 12,00,000 = 1,20,000 M + 1,80,000 M
Or, M = Rs 12,00,000/3,00,000 = Rs 4
Therefore, Direct material cost per unit of ‘Super’ = 2 x Rs 4 = Rs 8
(ii) Direct wages per unit for ‘Super’ = W
Direct wages per unit for ‘Normal’ = 0.6W
So, (W x 60,000) + (0.6W x 1,80,000) = Rs 6,72,000
W = Rs 4 per unit
(iii) Production overhead per unit = Rs 2,88,000/(60,000 + 1,80,000) = Rs 1.20
Production overheads for ‘Super’ = Rs 1.20 x 60,000 units = Rs 72,000
Notes:
1. Administration overheads is specific to the product as it is directly related to direct labour as mentioned in the
question and hence to be considered in cost of production only.
2. Cash discount is treated as interest and finance charges; hence, it is ignored.
3. Penalty paid against the copyright infringement case is an abnormal cost; hence, not included.
Solution 16:
Statement of Cost of G Ltd. for the year ended 31st March, 2021:
Sl. No. Particulars Amount (Rs) Amount (Rs)
- Raw materials purchased 20,00,00,000
- Freight inward 22,41,200
- Wages paid to factory workers 58,40,000
- Royalty paid for production 3,45,200
- Amount paid for power & fuel 9,24,000
- Job charges paid to job workers 16,24,000 28,93,200
Prime Cost 21,26,54,400
- Stores and spares consumed 2,24,000
- Repairs & Maintenance paid for plant & 96,000
machinery

- Insurance premium paid for plant & 62,400

machinery
- Insurance premium paid for factory building 36,200

- Expenses paid for pollution control and
engineering & maintenance 53,200 4,71,800

- Expenses paid for quality control check 39,200
activities
(vi) Research & development cost paid 36,400
improvement in production process
(vii) Less: Realisable value on sale of scrap and (1,72,000)

waste
(viii) Add: Primary packing cost 1,92,000

- Depreciation on office building 1,12,000
- Salary paid to General Manager 25,12,000 26,24,000
- Repairs & Maintenance paid for sales office 36,000
building
- Salary paid to Manager- Sales & Marketing 20,24,000
- Performance bonus paid to sales staffs

7,20,000 27,80,000

- Packing cost paid for re- distribution of
finished goods 2,24,000
Solution 17:
Statement of Cost
First three months (Rs) Remaining nine months (Rs) Total (Rs)
37,500 units 1,68,750 units 2,06,250 units
Direct material 18,75,000 84,37,500 1,03,12,500
Direct employee cost 6,00,000 27,00,000 33,00,000
Indirect – Variable expenses 3,75,000 16,87,500 20,62,500
Indirect – Fixed expenses 8,12,500 24,37,500 32,50,000
Indirect – Semi-variable
expense

- For first three months @ 1,20,000 1,20,000

Rs 40,000 p.m.
- For remaining nine months 6,30,000 6,30,000
@ Rs 70,000* p.m.
Total Cost 37,82,500 1,58,92,500 1,96,75,000
Desired profit - - 10,00,000
Sales value - - 2,06,75,000
Average selling price per 100.24
unit
* Rs 40,000 for 50% capacity + Rs 15,000 for 20% increase in capacity + Rs 15,000 for 5% increase in capacity (because
costs are increased for every 20% increase in capacity or part thereof).

Chapter 7: COST ACCOUNTING SYSTEM-

Practice Sheet
SOLUTIONS
Solution 1:
(a) Stores Ledger Control Account
(Rs) (Rs)
To Balance b/d 25,000 By Work in Process Control A/c 30,000
To Creditors/ Bank A/c 75,000 By Production OH Control A/c 4,000
By Balance c/d 66,000
1,00,000 1,00,000
(b) Wages Control Account

(Rs) (Rs)
To Bank A/c 25,000 By Work in Process Control A/c 20,000
(Paid to direct workers) 5,000 ( Charged to Batches) 5,000
To Bank A/c (Paid to indirect By Production OH Control A/c 5,000
workers) By Production OH Control A/c
(Non-productive wages)
30,000 30,000
(c) Production Overhead Control Account

(Rs) (Rs)
To Balance b/d 3,000 By Work in Process Control A/c 30,000
(Prepaid amount) (150% of Direct Wages)
To Stores Ledger Control A/c 4,000
To Wages Control A/c 10,000
(Rs 5,000 + Rs 5,000)
To Bank A/c 12,000
To Costing P&L A/c* 1,000
(Over-absorption, balancing figure)
30,000 30,000
(d) Work-in-Process Control Account

(Rs) (Rs)
To Balance b/d 20,000 By Finished Goods Control A/c 65,000
To Stores Ledger Control A/c 30,000 By Balance c/d 40,000
To Wages Control A/c 20,000 ( Physical Value)
To Production OH Control A/c
(150% of direct wages) 30,000
To Costing P&L A/c 5,000
(Stock Gains)

1,05,000 1,05,000
(e) Finished Goods Control Account

(Rs) (Rs)
To Balance b/d 35,000 By Cost of Goods Sold* A/c 80,000
To Work-in-Process Control A/c 65,000 By Balance c/d 20,000
1,00,000 1,00,000
* Alternatively, Costing Profit & Loss Account
(f) Costing Profit & Loss Account

(Rs) (Rs)
To Finished goods control A/c or By Sales A/c 1,00,000
Cost of Goods Sold A/c 80,000 By Production OH Control A/c 1,000
To Selling & distribution OH A/c 6,000 By Work-in-Process Control A/c 5,000
To Balance c/d 20,000 (Stock gain)
1,06,000 1,06,000
Notes:
(1) Materials transferred between batches will not affect the Control Accounts.
(2) Non-production time of direct workers is a production overhead and therefore will not be charged to work-in-
Process control A/c.
(3) Production overheads absorbed in work-in-Process Control A/c equals to ₹ 30,000 (150% of ₹ 20,000).
(4) In the work-in-Process Control A/c the excess physical value of stock is taken resulting in stock gain. Stock gain
is transferred to Profit & Loss A/c.
Solution 2:
Journal entries are as follows:
DR. (Rs) CR. (Rs)
Stores Ledger Control A/c…………………………… Dr. 6,00,000
To Payables (Creditors) A/c 3,00,000
To Cash or Bank 3,00,000
Work-in-Process Control A/c…………………… Dr. 4,00,000
To Stores Ledger Control A/c 4,00,000
Wages Control A/c………………………………………. Dr. 2,00,000
To Bank A/c 2,00,000
Factory Overhead Control A/c…………………… Dr. 1,00,000
To Wages Control A/c 1,00,000
Work-in-Process Control A/c……………………… Dr. 1,00,000
Factory Overhead Control A/c………………… Dr. 80,000
To Bank A/c 80,000
Work-in-Process Control A/c…………………… Dr. 1,00,000
To Factory Overhead Control A/c 1,00,000
Selling and Dist. Overhead Control A/c………………. Dr. 40,000
To Bank A/c 40,000
Finished Goods Control A/c…………………… Dr. 5,00,000
To Work-in-Process Control A/c 5,00,000
Cost of Sales A/c………………………………………… Dr. 5,40,000

To Finished Goods Control A/c 5,00,000

To Selling and Distribution Control A/c 40,000
Receivables (Debtors) A/c……………………………… Dr. 3,75,000
Bank or Cash A/c………………………………………… Dr. 3,75,000
To Sales A/c 7,50,000
Bank A/c…………………………………………………... Dr. 2,00,000
To Receivables (Debtors) A/c 2,00,000
Payables (Creditors) A/c………………………………... Dr. 2,00,000
To Bank A/c 2,00,000
Solution 3:
Profit and Loss Statement of Go-getter Company
for the year ended 30th September, 2020
(Rs) (Rs)
Gross Sales 7,68,000
Less: Returns and rebates (14,000) 7,54,000
Less: Cost of Sales [Refer to Schedule (i)] (7,14,020)
Net Operating Profit 39,980
Less: Interest on borrowed funds (2,000+2,000) (4,000)
Net Profit 35,980
(i) Schedule of Cost of Sales

(Rs) (Rs)
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 (Rs 1,60,000 + Rs 8,000) 1,68,000
Prime Cost 4,59,200
Factory Overheads:
Indirect employee cost (Rs 18,000 + Rs 1,200) 19,200
Factory Supervision 10,000
Repairs and factory up-keeping expenses 14,000
Heat, Light and Power (Rs 65,000 × 8/10) 52,000
Rates and Taxes (Rs 6,300 × 2/3rd) 4,200
Miscellaneous Factory Expenses 18,700
Depreciation of Plant (10% of Rs 4,60,500) 46,050
Depreciation of Buildings (4% of Rs 2,00,000 × 8/10) 6,400 1,70,550
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
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 Schedule (iii)] 18,870
Add: Selling and Distribution Expenses [See Schedule (ii)] 92,400

(ii) Schedule of Selling and Distribution Expenses

(Rs)
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

(Rs)
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
Solution 4:
(i) Statement of Profit as per financial records (for the year ended March 31, 2020)
(Rs.) (Rs.)
To Opening stock of Finished Goods 1,06,250 By Sales 45,60,000
To Work-in-process 92,000 By Closing stock of finished Goods 91,300
To Raw materials consumed 16,80,000 By Work-in-Process 82,400

To Direct labour 12,20,000 By Rent received 92,000
To Factory overheads 8,44,000 By Interest received 76,000
To Administration overheads 3,96,000
To Selling & distribution overheads 1,44,000
To Dividend paid 2,44,000

To Bad debts 36,000
To Profit 1,39,450
49,01,700 49,01,700
Statement of Profit as per costing records (for the year ended March 31,2020)
(Rs.)
Sales revenue (A) 45,60,000
(12,615 units)
Cost of sales:
Opening stock 1,50,000
(625 units × Rs.240)
Add: Cost of production of 12,405 units 43,28,140
(Refer to working note 2)

(Rs.43,28,140 × 415 units )/12,405 Units

Production cost of goods sold (12,615 units) 43,33,345
Selling & distribution overheads 75,690
(12,615 units × Rs.6)
Cost of sales: (B) 44,09,035
Profit: {(A) – (B)} 1,50,965
(ii) Statement of Reconciliation

(Reconciling the profit as per costing records with the profit as per financial records)
(Rs.) (Rs.)
Profit as per Cost Accounts 1,50,965
Add: Administration overheads over absorbed 1,68,540
(Rs. 5,64,540 – Rs. 3,96,000)
Opening stock overvalued 43,750
(Rs.1,50,000 – Rs.1,06,250)
Interest received 76,000
Rent received 92,000
Factory overheads over recovered (Rs.8,54,000 – Rs. 8,44,000) 10,000 3,90,290
5,41,255
Less: Selling & distribution overheads under recovery 68,310
(Rs. 1,44,000 – Rs. 75,690)
Closing stock overvalued 53,495
(Rs.1,44,795 – Rs.91,300)
Dividend 2,44,000
Bad debts 36,000 (4,01,805)
Profit as per financial accounts 1,39,450
Working notes:
1. Number of units produced
Units
Sales 12,615
Add: Closing stock 415
Total 13,030
Less: Opening stock (625)
Number of units produced 12,405
2. Cost Sheet
(Rs.)
Raw materials consumed 16,80,000
Direct labour 12,20,000
Factory Overheads (70% of direct wages) 8,54,000
Factory cost 37,54,000
Add: Opening work-in-process 92,000
Less: Closing work-in-process (82,400)
Factory cost of goods produced 37,63,600

Administration overheads 5,64,540

(15% of factory cost)
Cost of production of 12,405 units 43,28,140
Cost of production per unit:
=(Total Cost of Production / No. of units produced)
=(Rs. 43,28,140 / 12,405units ) = Rs.348.90
Solution 5:
Memorandum Reconciliation Accounts
Dr. Cr.
(Rs.) (Rs.)
To Net Loss as per Costing 6,94,000 By Administration overheads 1,20,000
books over recovered in cost accounts
To Factory overheads under 80,000 By Interest on investment not 1,92,000
Absorbed in Cost Accounts included in Cost Accounts
To Depreciation under 1,00,000 By Transfer fees in 48,000
charged in Cost Accounts Financial books
To Income-Tax not provided 1,08,000 By Stores adjustment 28,000
Cost Accounts (Credit in financial books)
To Interest on Loan Funds in 4,90,000 By Dividend received in 64,000
Financial Accounts financial books
By Net loss as per 10,20,000
Financial books
14,72,000 14,72,000
Solution 6:
Cost Ledger Control Account
Particulars (Rs.) Particulars (Rs.)
To Stores Ledger control A/c 1,30,000 By Balance b/d 68,50,000
To Costing Profit & Loss A/c 17,10,000 By Stores Ledger control A/c 12,50,000
By Wages Control A/c 6,00,000
To Balance c/d 77,10,000 By Manufacturing overhead 8,50,000
control A/c
95,50,000 95,50,000
Store Ledger Control Account

To Balance b/d 30,00,000 By WIP Control A/c 13,50,000
To Cost Ledger control A/c 12,50,000 By Cost Ledger control A/c (return) 1,30,000
By Balance c/d 27,70,000
42,50,000 42,50,000
WIP Control Account

To Balance b/d 15,00,000 By Finished Stock Control A/c 22,50,000

To Stores Ledger control A/c 13,50,000

To Manufacturing overhead control 8,50,000 By Balance c/d 18,50,000

A/c
41,00,000 41,00,000
Finished Stock Control Account

To Balance b/d 25,00,000 By Cost of Sales A/c 17,50,000
To WIP Control A/c 22,50,000
To Cost of Sales A/c (sales return) 90,000 By Balance c/d 30,90,000
48,40,000 48,40,000
Manufacturing Overhead Control Account

To Cost Ledger Control A/c 8,50,000 By Balance b/d 1,50,000
To Wages Control A/c 2,00,000 By WIP Control A/c 8,50,000
By Costing P&L A/c (under recovery) 50,000
10,50,000 10,50,000
Wages Control Account

To Cost Ledger Control A/c 6,00,000 By WIP Control A/c 4,00,000
By Manufacturing overhead control 2,00,000
A/c
6,00,000 6,00,000
Cost of Sales Account

To Finished Stock Control A/c 17,50,000 By Finished Stock Control A/c (sales 90,000
return)
By Costing Profit & Loss A/c 16,60,000
17,50,000 17,50,000
Trial Balance
Particulars Dr. Cr.
(Rs.) (Rs.)
Stores Ledger Control A/c 27,70,000
WIP Control A/c 18,50,000
Finished Goods Control A/c 30,90,000
Cost Ledger Control A/c 77,10,000
77,10,000 77,10,000
Working:
Costing P&L Account
To Cost of Sales A/c 16,60,000 By Cost Ledger control A/c 17,10,000
To Manufacturing overhead control 50,000
A/c
17,10,000 17,10,000

Solution 7:
(Rs) (Rs)
To Store Ledger Control A/c 65,000 By Opening Balance 34,25,00
To Balance c/d 47,10,000 By Store ledger control A/c 6,25,000
By Manufacturing Overhead Control 4,25,000
A/c 3,00,000
By Wages Control A/c
47,75,000 47,75,000
Stores Ledger Control Account

(Rs) (Rs)
To Opening Balance 15,00,000 By Work in Process Control A/c 6,75,000
To Cost ledger control A/c 6,25,000 By Cost Ledger control A/c (Returns) 65,000
21,25,000 21,25,000

(Rs) (Rs)
To Transfer to Cost Ledger Control 3,00,000 By Work in Process Control A/c 2,00,000
A/c By Manufacturing OH Control A/c 1,00,000
3,00,000 3,00,000
Work-in-Process Control Account

(Rs) (Rs)
To Opening Balance 7,50,000 By Finished Goods Control A/c 11,25,000
To Stores Ledger Control A/c 2,00,000 By Balance c/d 9,25,000
To Manufacturing OH Control A/c 4,25,000
20,50,000 20,50,000
Finished Goods Control Account

(Rs) (Rs)
To Opening Balance 12,50,000 By Cost of Sales 8,75,000
To Work-in-Process Control A/c 11,25,000 By Balance c/d 15,45,000
To Cost of Sales A/c (Sales Return) 45,000
24,20,000 24,20,000
Manufacturing Overhead Control Account

(Rs) (Rs)

To Cost ledger control A/c 4,25,000 By Opening Balance 75,000

To Wages Control A/c 1,00,000 By Work-in-Process Control A/c 4,25,000
BY Under recovery c/d 25,000
5,25,000 5,25,000

(Rs) (Rs)
To Finished Stock Ledger Control A/c 8,75,000 By Finished Stock Ledger Control A/c 45,000
To Wages Control A/c (Sales return)
8,75,000 8,75,000
Trial Balance
(Rs) (Rs)
Stores Ledger Control A/c 13,85,000
WIP Control A/c 9,25,000
Finished Stock Ledger Control A/c 15,45,000
Manufacturing Overhead Control A/c 25,000
Cost of Sales A/c 8,30,000
Cost ledger control A/c --- 47,10,000
47,10,000 47,10,000
Solution 8:
(i) Amount of under absorption of production overheads:
Particular Amount (Rs.) Amount (Rs.)
Total production overheads actually incurred 8,80,000
Less: Amount paid to worker as per court order 50,000
Wages paid for the strike period under an award 38,000
Stores written off 22,000
Expenses of previous year booked in the current year 18,500 1,28,500
7,51,500
Less: Production overheads absorbed as per machine hour rate 5,17,500
(45,000 hours × Rs.11.50*)
Amount of under- absorbed production overheads 2,34,000
*Budgeted Machine hour rate (Blanket rate) = Rs. 10,35,000 / 90,000 = Rs. 11.50 per hour
(ii) Accounting treatment of under absorbed production overheads:
(a) As 1/3rd of the under absorbed overheads were due to defective production planning, this being abnormal, hence
should be debited to Costing Profit and Loss Account.
Amount to be debited to Costing Profit and Loss Account
= Rs. 2,34,000 × 1/3 = Rs. 78,000.
(b) Balance of under absorbed production overheads should be distributed over Finished goods and Cost of sales by
applying supplementary rate*.
Amount to be distributed = Rs. 2,34,000 × 2/3 = Rs.1,56,000
*Supplementary rate = Rs. 1,56,000 / 30,000 units = Rs. 5.20 per unit

(iii) Apportionment of under absorbed production overheads over Finished goods and Cost of sales:
Particular Units Amount (Rs.)
Finished goods (3,000 units × Rs.5.20) 3,000 15,600
Cost of sales (27,000 units × Rs.5.20) 27,000 1,40,400
Total 30,000 1,56,000
Solution 9:
Particulars (Rs in ‘000) Particulars (Rs in ‘000)
To Costing P&L A/c 1,35,000 By Balance b/d 1,62,000
To Building Construction A/c 13,200 By Stores Ledger control A/c 12,000
To Balance c/d 1,44,900 By Wages Control A/c 45,000
By Factory overhead control A/c 48,000
By Royalty A/c 1,500

By Selling, Distribution and 7,500
Administration overheads
By Costing P&L A/c 17,100
2,93,100 2,93,100

To Balance b/d 24,000 By WIP control A/c 15,000
To Cost Ledger control A/c 12,000 By Factory overheads 1,800
control A/c
By Building construction A/c 1,200
By Factory overhead control A/c 1,500
(bal. fig.) (loss)
36,000 36,000

To Cost Ledger control A/c 45,000 By Factory overhead control 12,000

A/c
By Building Construction A/c 3,000
By WIP Control A/c (bal. fig.) 30,000
45,000 45,000

Factory Overhead Control Account

To Stores Ledger control A/c 1,800 By Building Construction A/c 6,000
To Wages Control A/c 12,000 By WIP Control A/c (bal. fig.) 54,900
To Cost Ledger control A/c 48,000 By Costing P&L A/c (under- 2,400
absorption)
To Stores Ledger control A/c 1,500

(loss)
63,300 63,300
Royalty Account
To Cost Ledger control A/c 1,500 By WIP Control A/c 1,500
1,500 1,500
Work-in-process Control Account

To Balance b/d 6,000 By Finished goods control A/c 99,900
(bal. fig.)
To Factory overhead control 54,900
A/c
To Royalty A/c 1,500 By Balance c/d 7,500
1,07,400 1,07,400

To Balance b/d 1,29,000 By Cost of Goods Sold A/c 1,08,000
(Refer working note)
To WIP control A/c 99,900 By Balance c/d 1,20,900

2,28,900 2,28,900
Cost of Goods Sold Account

Particulars (Rs in ‘000) Particulars (Rsin ‘000)
To Finished Goods control A/c 1,08,000 By Cost of sales A/c 1,08,000
1,08,000 1,08,000
Royalty Account

1,500 1,500

To Balance b/d 6,000 By Finished goods control A/c 99,900
(bal. fig.)
To Factory overhead control 54,900
A/c
1,07,400 1,07,400

To WIP control A/c 99,900 By Balance c/d 1,20,900

2,28,900 2,28,900

Particulars (Rs in ‘000) Particulars (Rsin ‘000)
1,08,000 1,08,000
Building Construction Account

To Balance b/d 3,000 By Cost Ledger control A/c 13,200
To Factory overhead 6,000

control A/c
13,200 13,200
Trial Balance
Particulars Dr. Cr.
(Rs in ‘000) (Rs in ‘000)
Stores Ledger Control A/c 16,500
WIP Control A/c 7,500


1,44,900 1,44,900
Workings:
Cost of Goods sold = Rs 13,50,00,000 x 80 = Rs 10,80,00,000

100
Solution 10:
To Costing P&L A/c 2,70,000 By Balance b/d 3,24,000
To Building Construction A/c 26,400 By Stores Ledger Control A/c 24,000
To Balance c/d 2,89,800 By Wages Control A/c 90,000
By Factory overhead control 96,000
A/c
5,86,200 5,86,200

To Cost Ledger control A/c 24,000 By Factory overheads control 3,600
A/c
By Factory overhead control 3,000
A/c (loss) (Bal. fig)
72,000 72,000

To Balance b/d 12,000 By Finished goods control A/c 1,99,800
To Factory overhead control A/c 1,09,800
2,14,800 2,14,800

To WIP control A/c 1,99,800 By Balance c/d 2,41,800

4,57,800 4,57,800

To Cost of Goods Sold A/c 2,16,000 By Costing P&L A/c 2,31,000
To Selling, Distribution and 15,000
Administration A/c
2,31,000 2,31,000
Costing P&L Account

To Factory overhead control A/c 4,800
To Cost Ledger control A/c 34,200
2,70,000 2,70,000

26,400 26,400
Factory Overhead Control Account

To Wages Control A/c 24,000 By WIP Control A/c 1,09,800
To Cost Ledger control A/c 96,000 By Costing P&L A/c 4,800
To Stores Ledger control A/c (loss) 3,000
1,26,600 1,26,600

To Cost Ledger control A/c 90,000 By Factory overhead control 24,000
A/c
By WIP Control A/c 60,000
90,000 90,000
Royalty Account
3,000 3,000



2,16,000 2,16,000
Selling, Distribution and Administration Overhead Control Account

To Cost Ledger control A/c 15,000 By Cost of sales A/c 15,000
15,000 15,000
Trial Balance
Particulars Dr. Cr.
(Rs in ‘000) (Rs in ‘000)
2,89,800 2,89,800
Working Note:
Cost of Goods sold = 2,70,000 × 80/100 = Rs 2,16,000
Solution 11:
To costing P&L A/c 2,70,000 By balance b/d 3,24,000
To Building Construction 26,400 By Stores Ledger Control 24,000
A/c A/c
To balance c/d 2,89,800 By Wages Control A/c 90,000
By Factory Overhead 96,000
control A/c
5,86,200 5,86,200

To Cost Ledger control A/c 24,000 By Factory overheads control A/c 3,600
By Factory overhead control A/c (loss) 3,000

(bal. fig.)
72,000 72,000

To Cost Ledger control A/c 90,000 By Factory overhead control A/c 24,000

By WIP Control A/c (bal. fig.) 60,000

90,000 90,000
Factory Overhead control Account

To Wages Control A/c 24,000 By Costing P&L A/c 4,800
To Cost Ledger control A/c 96,000 By WIP Control A/c (bal. fig) 1,09,800
To Stores Ledger control A/c (loss) 3,000
1,26,600 1,26,600
Royalty Account
3,000 3,000
Work in process Control Account

To Balance b/d 12,000 By Finished goods control A/c 1,99,800

(bal. fig)
To Factory overhead control A/c 1,09,800
2,14,800 2,14,800
Finished Goods control A/c


To WIP control A/c 1,99,800 By Balance c/d 2,41,800
4,57,800 4,57,800

2,16,000 2,16,000
Selling, Distribution and Administration Overhead Control Account


To Cost Ledger control A/c 15,000 By Cost of sales A/c 15,000
15,000 15,000

To Cost of Goods Sold A/c 2,16,000 By Costing P&L A/c 2,31,000
To Selling, Distribution and Administration 15,000
A/c
2,31,000 2,31,000
Costing P&L Account

To Cost Ledger control A/c 34,200

2,70,000 2,70,000



26,400 26,400
Trial Balance
Particulars Dr. Cr.
(Rs in ‘000) (Rs in ‘000)

2,89,800 2,89,800
Working Note:
Cost of goods sold: Rs 2,70,000 x 80 / 100 = Rs 2,16,000

Chapter 8: RECONCILIATION OF COST & FINANCIAL

STATEMENTS- Practice Sheet
SOLUTIONS
Solution 1:
Memorandum Reconciliation Account
Dr. Cr.
(Rs.) (Rs.)
To Net Loss as per Costing 6,94,000 By Administration overheads 1,20,000
books over recovered in cost accounts
To Factory overheads under 80,000 By Interest on investment not 1,92,000
Absorbed in Cost Accounts included in Cost Accounts
To Depreciation under 1,00,000 By Transfer fees in 48,000
charged in Cost Accounts Financial books
To Income-Tax not provided 1,08,000 By Stores adjustment 28,000
Cost Accounts (Credit in financial books)
To Interest on Loan Funds in 4,90,000 By Dividend received in 64,000
Financial Accounts financial books
By Net loss as per 10,20,000
Financial books
14,72,000 14,72,000
Solution 2:
Costing Profit and Loss Account
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Direct Material consumed 22,40,000 By Sales 48,00,000

To Direct Wages 12,00,000 By Closing Work-in-process 96,000
Prime Cost 34,40,000 By Closing Finished stock 3,10,154
(Rs. 41,28,000 - Rs. 96,000) × 100
52,000 units
To Factory overheads (20% of primecost) 6,88,000
41,28,000
To Administrative overheads (Rs. 4.80 × 2,49,600
52,000* units)
To Selling & distribution overheads 3,07,200
(Rs.6.40 × 48,000 units)
To Net profit (balancing figure) 5,21,354
52,06,154 52,06,154
* Units produced = Units sold + Closing stock - Opening stock = 48,000 + 4,000 - 0 = 52,000 units
Financial Profit and Loss Account

Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Direct Material consumed 20,00,000 By Sales 48,00,000
To Direct Wages 12,00,000 By Dividend received 40,000

To Factory overheads 6,40,000 By Interest on fixed deposit 8,000

To Administrative overheads 2,80,000 By Closing Work-in-process 96,000
To Selling & distribution overheads 3,84,000 By Closing Finished stock 3,20,000
To Bad debts 32,000
To Preliminary expenses 16,000
To Legal charges 4,000
To Net profit (balancing figure) 7,08,000
52,64,000 52,64,000
Reconciliation Statement
Particulars Amount (Rs.) Amount (Rs.)
Net profit as per Financial Profit & Loss A/c 7,08,000
Add: Administrative overheads (2,80,000 - 2,49,600) 30,400
Selling & Distribution overheads (3,84,000 - 3,07,200) 76,800
Bad debts 32,000
Preliminary expenses 16,000
Legal charges 4,000 1,59,200
8,67,200
Less: Difference in value of materials consumed (22,40,000 - 20,00,000) 2,40,000
Factory overheads (6,88,000 - 6,40,000) 48,000
Dividend received 40,000
Interest on fixed deposit 8,000
Closing stock (3,20,000 - 3,10,154) 9,846 (3,45,846)
Profit as per Costing Profit & Loss A/c 5,21,354
Solution 3:
Statement of Reconciliation
Net profit as per Cost accounts 10,20,000
Add:
Administration Overheads over- 1,20,000
absorbed
Interest on investments 1,92,000
Transfer fees 48,000
Stores adjustment 28,000
Dividend received 64,000 4,52,000
Less:
Factory Overheads under-absorbed 80,000
Depreciation under charged 1,00,000
Income-tax provided 1,08,000
Interest on loan funds 4,90,000 (7,78,000)
Net profit as per Financial accounts 6,94,000

Solution 4:
(i) Statement of Profit as per financial records
(for the year ended March 31, 2020)
(₨) (₨)
To Opening stock of Finished 1,06,250 By Sales 45,60,000
Goods
To Work-in-process 92,000 By Closing stock of finished 91,300
Goods
To Raw materials consumed 16,80,000 By Work-in-Process 82,400
To Direct labour 12,20,000 By Rent received 92,000
To Factory overheads 8,44,000 By Interest received 76,000
To Administration overheads 3,96,000
To Selling & distribution 1,44,000

overheads
To Dividend paid 2,44,000
To Bad debts 36,000
To Profit 1,39,450
49,01,700 49,01,700
Statement of Profit as per costing records

(for the year ended March 31, 2020)
(₨)
Sales revenue (A) 45,60,000
(12,615 units)
Cost of sales:
Opening stock 1,50,000
(625 units × ₨ 240)
Add: Cost of production of 12,405 units (Refer to 43,28,140
working note 2)
𝟒𝟑,𝟐𝟖,𝟏𝟒𝟎 × 𝟒𝟏𝟓 𝐮𝐧𝐢𝐭𝐬

( 𝟏𝟐,𝟒𝟎𝟓 𝐮𝐧𝐢𝐭𝐬 )
Production cost of goods sold (12,615 units) 43,33,345

Selling & distribution overheads (12,615
75,690
units × ₨ 6)
Cost of sales (B) 44,09,035
Profit {(A) – (B)} 1,50,965

(ii) Statement of Reconciliation

(₨) (₨)
Profit as per Cost Accounts 1,50,965
Add: Administration overheads over absorbed 1,68,540
(₨ 5,64,540 – ₨ 3,96,000)
Opening stock overvalued 43,750
(₨ 1,50,000 – ₨ 1,06,250)
Interest received 76,000
Rent received 92,000
Factory overheads over recovered 10,000

(₨ 8,54,000 – ₨ 8,44,000) 3,90,290
5,41,255
Less: Selling & distribution overheads under 68,310
recovery
(₨ 1,44,000 – ₨ 75,690)
Closing stock overvalued (Rs 1,44,795 – Rs 53,495
91,300)
Dividend 2,44,000
Bad debts 36,000 (4,01,805)

Working notes:
Profit as per financial accounts 1,39,450
1. Number of units produced

Units
Sales 12,615
Add: Closing stock 415
Total 13,030
Less: Opening stock (625)
Number of units produced 12,405
2. Cost Sheet
(₨)
Raw materials consumed 16,80,000
Factory overheads (70% 8,54,000
of direct wages)
Factory cost 37,54,000

Add: Opening work-in-process 92,000
Less: Closing work-in-process (82,400)
Factory cost of goods produced 37,63,600
Administration overheads (15% of factory cost) 5,64,540
Cost of production of 12,405 units 43,28,140
Cost of production per unit:
Total cost of production = ₨ 43,28,140 = ₨ 348.90

No. of units produced 12,405 units
Solution 6:
Statement of Reconciliation
(Rs) (Rs)
Net Profit as per Cost Accounts 3,60,740
Add:
Over recovery of selling overheads in cost accounts 10,250
Rent received credited in financial accounts 5,450 15,700
376,440
Less:
Over valuation of closing stock in cost accounts 7,300
Bad debts provided in financial accounts 3,250
Income tax provided in financial accounts 15,900
Loss on sale of capital asset debited in financial accounts 5,800
Under recovery of administration overheads in cost accounts 3,600 35,850
Profit as per Financial Accounts 3,40,590

Chapter 9: CONTRACT COSTING- Practice Sheet

SOLUTIONS
Solution 1:
Calculation of Estimated Profit:
(Rs)
Total expenditure to date 22,50,000
Estimated further expenditure to complete the contract (including
contingencies) 2,50,000
25,00,000
Estimated profit on contract (Balancing figure) 7,50,000

Contract price 32,50,000
Solution 2:
Contract Account
Particulars (Rs) Particulars (Rs)
To Material issued 2,51,000 By Machine (Working note 1) 2,46,000
To Wages 5,65,600 By Material (in hand) 35,400
To Foreman’s salary 81,300 By Works cost 10,49,000
To Machine 2,60,000 (balancing figure)
To Supervisor’s salary (Rs 8,000 × 9)/2 36,000
To Administrative charges 1,36,500
13,30,400 13,30,400
To Works cost 10,49,000 By Value of work certified 10,00,000

To Costing P&L A/c (Notional profit) 2,13,250 By Cost of work uncertified (Working 2,62,250
Note 2)
12,62,250 12,62,250
Working notes:
1. Written down value of Machine:
= Rs 2,60,000 - Rs 15,000 x 146 days = Rs 14,000
7 Years 365 days
Hence the value of machine after the period of 146 days = Rs 2,60,000 – Rs 14,000 = Rs 2,46,000
2. The cost of 2/3rd of the contract is Rs 10,49,000
∴ Cost of 100% of the contract is Rs 10,49,000 x 3 = Rs 15,73,500
2
∴Cost of 50% of the contract which has been certified by the architect is Rs 7,86,750. Also the cost of 1/3rd of
the contract, which has been completed but not certified by the architect is Rs 2,62,250.
Solution 3:
Contract No. 1551 Account for the year ended 31st March, 2021
Dr. Cr.
Particulars Amount (Rs.) Particulars Amount(Rs.)
To Work in progress b/d: By Material returned to stores 90,000

Work certified 36,00,000 By Material returned to 60,000
suppliers
Work uncertified 60,000 By Stock (Materials) c/d 90,000

To Stock (Materials) b/d 45,000 By Work in progress c/d:

To Material purchased 4,80,000 - Work certified 1,05,00,000
To Material issued 15,00,000 - Work uncertified 1,20,000
To Wages paid 21,00,000
Less: Opening O/s (30,000)
Add: Closing O/s 60,000 21,30,000
To Drawing and maps 1,80,000
To Sundry expenses 45,000
To Electricity charges 75,000
To Plant hire expenses 1,80,000
To Sub-contract cost 60,000
To Notional profit c/d (balancing 25,05,000
figure)
1,08,60,000 1,08,60,000
Dr. Contractee’s Account Cr.

Particulars Amount (Rs.) Particulars Amount (Rs.)
To Balance c/d 73,50,000 By Balance b/d 25,20,000
(Rs. 1,05,00,000 × 70%) (70% of Rs. 36,00,000)
By Bank A/c 48,30,000

73,50,000 73,50,000
Solution 4.
Workings:
(i) Percentage of work certified:
(Value of workcertified / Contract price) × 100
= (Rs. 2,00,000 / Rs. 5,00,000) ×100 = 40%
(ii) Value of material and labour used in the contract:
Material purchased 1,00,000
Less: Material on hand (30-06-2020) (25,000) 75,000
Wages paid 45,000
Add: Wages accrued (30-06-2020) 5,000 50,000
1,25,000
Price of materials and wages has been increased by 25%, the value before price increase is:
(Rs. 1,25,000 / 125) × 100 = Rs. 1,00,000
(iii) Calculation of Value of work certified:
The value of the contract would be increased by 25% of the price increased beyond 5%.
Price increased beyond 5% = Rs. 25,000 – 5% of Rs. 1,00,000 = Rs. 20,000
Value of contract would be increased by 25% of Rs. 20,000 = Rs. 5,000
Therefore, the revised contract value = Rs. 5,00,000 + Rs. 5,000 = Rs. 5,05,000
Calculation of the Value of work certified after taking the effect of escalation clause:
Revised contract value × Percentage of work certified
= Rs. 5,05,000 × 40% = Rs. 2,02,000

Solution 5:
GVL Ltd.
Contract A/c
(April 1, 2018 to March 31, 2019)
Particulars Amount Particulars Amount
(Rs) (Rs)
To Materials Issued 18,24,000 By Plant returned to Stores (Working 2,40,000
Note 1)
To Labour 12,20,000 By Materials at Site 1,20,000
Add: Outstanding 96,000 13,16,000
To Plant Purchased 9,00,000 By W.I.P.
Certified 51,00,000
Uncertified 1,60,000 52,60,000
To Expenses 4,00,000 By Plant at Site (Working Note 2) 4,80,000
Less: Prepaid 90,000 3,10,000
To Notional Profit c/d 17,50,000
61,00,000 61,00,000
GVL Ltd.
Contract A/c
(April 1, 2018 to September 30, 2019)
(For Computing estimated profit)
Particulars Amount (Rs) Particulars Amount (Rs)
To materials issued 50,80,000 By Materials at site 3,00,000
(Rs 18,24,000 + Rs 32,56,000)
To Labour Cost 28,90,000 By Plant returned to stores on 2,40,000
(Rs 12,20,000 + Rs 96,000 + Rs 31-03-2019.
14,24,000* + Rs 1,50,000)
To plant purchased 9,00,000 By Plant returned to stores on 4,32,000
30.03.2019 (Working Note 3)
To Expenses 12,00,000 By Contractee A/c 1,08,50,000
(Rs 3,10,000 + Rs 7,90,000 + Rs
1,00,000)
To Estimated profit 17,52,000
1,18,22,000 1,18,22,000
• Labour paid in 2019-20 : Rs 15,20,000 – Rs 96,000 = Rs 14,24,000
Working Notes
(Rs)
1. Value of plant returned to stores on 31.03.2019
Historical Cost of the plant returned 3,00,000
Less : Depreciation @ 20% of WDV for one year (60,000)
2,40,000
2. Value of plants at site 31.03.2019
Historical cost of plants at site (Rs 9,00,000 – Rs 3,00,000) 6,00,000
Less : Depreciation @ 20% on WDV for one year (1,20,000)
4,80,000

3. Value of plants returned on stores on 30.09.2019

Value of plant (WDV) on 31.03.2019 4,80,000
Less : Depreciation @ 20% of WDV for a period of 6 months (48,000)
4,32,000
4. Expenses paid for the year2018-19
Total Expenses paid 4,00,000
Less : Pre-paid at the end (90,000)
3,10,000
Solution 6:
Contract A/c
(April 1, 2018 to March 31, 2019)
Particulars Amount Particulars Amount (Rs)

(Rs)
To Materials Issued 6,84,000 By Machine returned to Stores (Working Note 1) 84,375
To Labour Rs 4,57,500 By Materials at Site 45,000

Add: Outstanding Rs 34,500 4,92,000 By W.I.P.:
To Machinery Purchased 3,37,500 Certified
Rs 19,12,500
To Expenses Rs 1,50,000 Uncertified 19,72,500
Rs 60,000
Less: Prepaid Rs (33,750) 1,16,250 By Machine at Site
(Working Note 2) 1,68,750
To Notional Profit c/d 6,40,875

22,70,625 22,70,625
Contract A/c
(April 1, 2018 to December 31, 2019)
(For Computing estimated profit
Particulars Amount (Rs) Particulars Amount(Rs)
To Materials Issued 19,05,000 By Material at Site 1,12,500

(Rs 6,84,000 + Rs 12,21,000)
To Labour Cost 11,14,500 By Machinery returned to Stores on 31.03.2019 84,375
(Rs 4,57,500 + Rs 34,500 +
Rs 5,70,000* + Rs 52,500)
To Machinery purchased 3,37,500 By Machinery returned to Stores on 31.12.2019 1,37,109
(Working Note 3)
To Expenses 4,12,500 By Contractee A/c 40,68,750
(Rs 1,50,000 + Rs 2,62,500)
4,12,500 By Contractee A/c 40,68,750
To Estimated profit 6,33,234
44,02,734 44,02,734
Labour paid in 2019-20: Rs 6,04,500 – Rs 34,500 = Rs 5,70,000

Working Notes
(Rs)

1. Value of the Machinery returned to Stores on 31.03.2019

Historical Cost of the Machine returned 1,12,500
Less: Depreciation @ 25% of WDV for one year (28,125)
84,375
2. Value of Machinery at Site 31.03.2019
Historical Cost of Plant at Site (Rs 3,37,500 – Rs 1,12,500) 2,25,000
Less: Depreciation @ 25% on WDV for one year (56,250)

1,68,750
3. Value of Machinery returned to Stores on 31.12.2019
Value of Plant (WDV) on 31.3.2019 1,68,750
Less: Depreciation @ 25% of WDV for a period of 9 months (31,641)

1,37,109
Solution 7:
RN Builders Ltd.
Contract Account (2019-20)
Particulars (Rs) Particular s (Rs)
To Materials issued 36,00,000 By Material sold 7,25,000

To Wages paid 30,00,000 By Plant sold 1,15,000
Add: Outstanding 2,50,000 32,50,000 By Plant at site c/d 3,10,000
To Plant 10,00,000 By Material at site c/d 1,70,000
To Sundry Expenses 2,90,000 By Work-in-progress c/d
Less: Prepaid (25,000) 2,65,000 Work 87,50,000

certified
(` 70,00,000 ÷ 80%)
To Establishment charges 5,85,000 Work 10,95,000 98,45,000
uncertified
To Costing P & L A/c 1,25,000
(` 7,25,000 – ` 6,00,000)
To Notional profit (Profit for the 23,40,000

year)
1,11,65,000 1,11,65,000
Calculation of Estimated Profit

Particulars (Rs) (Rs)
(1) Material consumed (36,00,000+ 1,25,000– 7,25,000) 30,00,000
Add: Further consumption 34,30,000 64,30,000
(2) Wages: 32,50,000
Add: Further cost (34,93,000 – 2,50,000) 32,43,000
Add: Outstanding 3,32,000 68,25,000

(3) Plant used (10,00,000– 1,15,000) 8,85,000
Add: Further plant introduced 12,50,000
Less: Closing balance of plant (1,50,000) 19,85,000
(4) Establishment charges 5,85,000
Add: Further charges for nine months (5,85,000 x 9/12) 4,38,750 10,23,750
(5) Sundry expenses 2,90,000
Add: Further expenses 2,75,000 5,65,000
(6) Reserve for contingencies 4,32,000
Estimated profit (balancing figure) 27,39,250
Contract price 2,00,00,000
Solution 9:
Contract A/c
Particulars Amount (Rs) Particulars Amount
(Rs)
To opening work in By materials returned to 35,000
progress store
- Work certified 2,50,000 By materials returned to 50,000
suppliers
- Work uncertified 10,000 2,60,000 By costing P&L (Loss on 20,000
sale of materials)
To Material at site 35,000 By materials sold 20,000
To Materials purchased 2,00,000 By materials at site 25,000
To stores 8,00,000 By works cost (bal. fig.) 17,02,000
To wages 1,50,000
Add: Closing o/s wages 22,000
Less: Opening o/s (15,000) 1,57,000
wages
To Plant supervisor 80,000
salary
(2,40,000 x 1/3)
To Drawing and maps 50,000
To sundry expenses 30,000
To electricity charges 40,000
To Plant hire expenses 75,000
Add: O/s at end 15,000
Less: O/s at beginning (20,000) 70,000
To sub-contract 40,000
To Depreciation 90,000
5,00,000 – 20,000 x 270
4 360
18,52,000 18,52,000
To works cost 17,02,000 By work-in-progress
To costing P&L 6,10,750 Work Certified 21,00,000
(Notional profit)
Work uncertified 23,12,750
2,12,750

23,12,750 23,12,750
Working notes:
Calculation of value of work uncertified
Cost incurred till date 17,02,000
Estimated total cost (17,02,000/80%) 21,27,500
Cost of work certified till date (21,27,500 x 14,89,250
70%)
Cost of uncertified work (17,02,000 – 2,12,750
14,89,250)
Solution 10:
Computation of Notional Profit (Rs)
Value of work certified 4,89,600
Less: Cost of work certified
(Rs 4,00,000 – Rs 30,200) 3,69,800
Notional profit 1,19,800
Computation of Estimated Profit (Rs)

Contract price 5,44,000
Less: Estimated total cost
Cost of work to date 4,00,000
Estimated further expenditure to complete the contract 22,000 4,22,000
Estimated profit

Chapter 10: PROCESS COSTING - Practice Sheet

SOLUTIONS
Solution 1:
Process – I Account
Particulars Per Unit Total Particulars Per Unit Total
(Rs) (Rs) (Rs) (Rs)
To Material 625 1,50,000 By process – II A/c 1,150 2,76,000
To Labour 334 80,000 (Transfer to Process – II )
To Other exp. 108 26,000
To Indirect exp. * 83 20,000
1,150 2,76,000 1,150 2,76,000
Process- II Account
Particulars Units Amount (Rs) Particulars Units Amount (Rs)
To process- I A/C 1,150 2,76,000 By process – II A/c 2,700 6,48,000
To Material 208 50,000 (Transfer to Process – III)
To Labour 834 2,00,000
2,700 6,48,000 2,700 6,48,000
Process- III Account

To process- II A/C 2,700 6,48,000 By Finished Stock A/c 3,200 7,68,000
To Material 83 20,000 (Transferred)
To Labour 250 60,000
3,200 7,68,000 3,200 7,68,000
* Apportionment of Indirect expenses among Process-I, Process-II and Process-III Total Wages to processes (I + II +III) =
Rs 80,000 + Rs 2,00,000 + Rs 60,000 = Rs 3,40,000
Apportionment to:
Process- I = Rs 85,000 × Rs 80,000 = Rs 20,000;

Rs 3,40,000
Process- II = Rs 85,000 × 2,00,000 = Rs 50,000 and

Rs 3,40,000
Process- III = Rs 85,000 × Rs 60,000 = Rs 15,000

Rs 3,40,000
Solution 2:
Statement of Equivalent Production Units (Under FIFO Method)

Particulars Input Particulars Output Equivalent Production
units Units % Equivalent
units
Opening W-I-P 1,000 From opening W-I-P 1,000 40 400
Units introduced 10,000 From fresh inputs 8,000 100 8,000

Units completed 9,000

(Transferred to next
process)
Normal Loss {10% 1,100 -- --
(1,000 + 10,000 units)}
Closing W-I-P 800 75 600
Abnormal loss 100 100 100
(Balancing figure)
11,000 11,000 9,100
Computation of cost per equivalent production unit:

Cost of the Process (for the period) Rs 19,30,000
Less: Scrap value of normal loss (Rs 10 × 1,100 units) (Rs 11,000)
Total process cost Rs 19,19,000
Cost per equivalent unit = Rs 19,19,000 = Rs 210.88

9,100 units
Statement of Evaluation
Particulars Equivalent Units Cost per EU Amount
(EU) (Rs) (Rs)
(i) Opening W-I-P completed during 400 210.88 84,352
the period
Add: Cost of W-I-P at the beginning -- -- 1,10,000
Complete cost of 1,00 units of 1,000 194.35 1,94,352
opening W-I-P
(ii) Completely processed units 8,000 210.88 16,87,040
(iii) Abnormal Loss 100 210.88 21,088
(iv) Closing W-I-P 600 210.88 1,26,528
(The difference in total amount may arise due to rounding off error)
Solution 3:
Statement of Equivalent Production Units (Under FIFO Method)
units Units % Equivalent
units
Opening W-I-P 1,000 From Opening W-I-P 1,000 40 400
Units introduced 10,000 From fresh inputs 8,000 100 8,000
Units completed 9,000
(Transferred to next
process)
Normal Loss {10% 1,100 -- --
(1,000 + 10,000 units)}
Closing W-I-P 800 75 600
Abnormal loss 100 100 100
(Balancing figure)
11,000 11,000 9,100
Computation of cost per equivalent production unit:

Cost of the Process (for the period) Rs 19,30,000
Less: Scrap value of normal loss (Rs 10 × 1,100 units) (Rs 11,000)
Total process cost Rs 19,19,000
Cost per equivalent unit = Rs 19,19,000 = Rs 210.88

9,100 units
Statement of Evaluation

Particulars Equivalent Units Cost per EU Amount

(EU) (Rs) (Rs)
(i) Opening W-I-P completed during the 400 210.88 84,352
period
Add : Cost of W-I-P at the beginning - - 1,10,000
Complete cost of 1000 units of opening 1000 194.35 1,94,352
W-I-P
(ii) Completely processed units 8,000 210.88 16,87,040
(iii) Abnormal Loss 100 210.88 21,088
(iv) Closing W-I-P 600 210.88 1,26,528
(The difference in total amount may arise due to rounding off error)
Solution 4:
Process – I Account
Particulars Total Cost Profit Particulars Total Cost Profit
(Rs) (Rs) (Rs) (Rs) (Rs) (Rs)
Opening Stock 7,500 7,500 -- Process- II A/c* 54,000 40,500 13,500
Direct material 15,000 15,000 -- (Transferred)
Direct Wages 11,200 11,200 -- Closing stock 3,700 3,700 --
Prime Cost 33,700 33,700
Overheads 10,500 10,500 --
Total Cost 44,200 44,200
Profit** 13,500 -- 13,500
57,700 44,200 13,500 57,700 44,200 13,500
*Transfer Price = Total cost – Closing stock = 44,200 – 3,700 = Rs 54,000

75% 75%
** Profit on Transfer = 54,000 x 25% = Rs 13,500
Process – II Account
Opening Stock 9,000 7,500 1,500 Finished stock A/c** 1,12,500 75,750 36,750
T/f from process-I 54,000 40,500 13,500 (Transferred)
Direct material 15,750 15,750 -- Closing stock* 4,500 3,750 750
Direct Wages 11,250 11,250 --
Prime Cost 90,000 75,000 15,000
Overheads 4,500 4,500 --
Total Cost 94,500 79,500 15,000
Profit*** 22,500 -- 22,500
1,17,000 79,500 37,500 1,17,000 79,500 37,500
*Cost of Closing stock = Rs 75,000 x Rs 4,500 = Rs 3,750

Rs 90,000
**Transfer Price = Total cost – Closing stock = 94,500 – 4,500 = Rs 1,12,500
80% 80%
***Profit on transfer = 1,12,500 x 20 % = Rs 22,500
Finished stock Account

Opening Stock 22,500 14,250 8,250 Costing P & L A/c 1,40,00 82,425 57,575
Process – II 1,12,500 75,750 36,750 Closing Stock* 11,250 7,575 3,675

Profit 16,250 -- 16,250
1,51,250 90,000 61,250 1,51,250 90,000 61,250
*Cost of Closing stock = Cost of transfer from Process –II x Value of closing stock
Transfer price from process –II
(As per instruction given in the question)
= Rs 75,750 x Rs 11,250 = Rs 7,575
Rs 1,12,500
Solution 5:
(i) Calculation of equivalent units of production:

Input Units Output Units Equivalent Units
Details Particulars Material Conversion Cost
% Units % Units
Unit 10,000 Finished output 8,000 100 8,000 100 8,000
Introduced Closing W-I-P 2,000 100 2,000 25 500
Total 10,000 Total 10,000 10,000 8,500
(ii) Calculation of cost per equivalent unit

Direct Material Conversion Costs
Total cost (Rs) 33,000 17,000
Equivalent units 10,000 8,500
Cost per equivalent unit (Rs) 3.30 2.00
(iii) The cost of closing work in process (W-I-P):

Costs Equivalent Rate (Rs) Total Cost (Rs)
units
Direct material 2,000 3.30 6,600
Conversion costs 5000 2.00 1,000
Total 7,600
The cost of finished products:

Costs Equivalent Rate (Rs) Total Cost (Rs)
units
Direct material 8,000 3.30 26,400
Conversion costs 8,000 2.00 16,000

Total 42,400
Solution 6:
(i) Calculation of equivalent units of production:

% Units % Units
Beginning 16,000 From beginning 16,000 40 6,400 80 12,800
WIP WIP
Unit Completed output 76,000 100 76,000 100 76,000
Introduced 1,00,000 Closing W-I-P 24,000 90 21,600 40 9,600
Total 1,16,000 Total 1,16,000 1,04,000 98,400
(ii) Calculation of cost per equivalent unit for conversion costs

Particulars Amount
(Rs)
Factory overheads 3,91,160
5,74,040
Equivalent units 98,400
Cost per equivalent unit (Rs) 5.83
Solution 7:
(i) Statement of equivalent production (Average cost method)
Details Particulars Material Labour & O.H.
% Units % Units
Opening 4,000 Completed and 14,000 100 14,000 100 14,000
WIP
transferred
Unit
Introduced 16,000 Closing W-I-P 6,000 100 6,000 33-1/3 2,000
20,000 20,000 20,000 16,000
(ii) Statement showing cost for each element

Particulars Material(Rs) Labour (Rs) Overhead Total (Rs)
(Rs)
Cost of opening work-in-process 6,000 1,000 1,000 8,000
Cost incurred during the month 25,600 15,000 15,000 55,600
Total cost: (A) 31,600 16,000 16,000 63,600
Equivalent units: (B) 20,000 16,000 16,000

Cost per equivalent unit: (C) = (A ÷ B) 1.58 1 1 3.58
(iii) Statement of apportionment of cost

1. Value of units completed and 50,120
transferred (14,000 units × Rs 3.58)
2. Value of Closing W-I-P:
- Materials (6,000 units × Rs 1.58) 9,480
- Labour (2,000 units × Rs 1) 2,000
- Overheads (2,000 units × Rs 1) 2,000 13,480
(iv) Process-I Cost Account

Particulars Units (Rs) Particulars Units (Rs)
To Opening W-I-P 4,000 8,000 By Completed units 14,000 50,120
To Material 16,000 25,600
To Labour -- 15,000 By Closing W-I-P 6,000 13,480
To Overhead -- 15,000
20,000 63,600 20,000 63,600
Solution 8:
(i) Statement of Equivalent Production
Particulars Units Particulars Units Equivalent Units
Sugarcane Labour O.H.
% Units % Units
Opening 4,500 Completed and 39,500 100 39,500 100 39,500
WIP transferred to
Process- II
Unit 1,00,000 55,000 -- -- -- --
Normal Loss (55%*
Introduced
of 1,00,000)
Abnormal Loss 1,000 100 1,000 80 800
Closing W-I-P
9,000 100 9,000 80 7,200
1,04,500 1,04,500 49,500 47,500
*100 kg of sugarcane extracts only 45 litre of juice.

Thus, normal loss = 100 – 45 = 55%

Particulars Sugarcane(Rs) Labour (Rs) Overhead Total (Rs)
(Rs)
Cost of opening work-in-process 50,000 15,000 15,000 1,10,000
Cost incurred during the month 5,00,000 2,00,000 2,00,000 13,00,000
Total cost: (A) 5,50,000 2.15,000 2.15,000 14,10,000

Cost per equivalent unit: (C) = (A ÷ B) 11.111 4.526 13.579 29.216
(iii) Statement of Distribution of cost

1. Value of units completed and transferred 11,54,032
( 39,500 units × Rs 29.216)
2. Value of abnormal loss:
- Sugarcane (1,000 units × Rs 11.111) 11,111
- Labour (800 units × Rs 4.526) 3,621
- Overheads (800 units × Rs 13.579) 10,863 25,595
- Sugarcane(9,000 units × Rs 11.111) 99,999
- Labour (7,200 units × Rs 4.526) 32,587
- Overheads (7,200 units × Rs 13.579) 97,769 2,30,355
(iv) Process-I A/c

To Opening W-I-P: By Normal Loss 55,000 -
- Sugarcane 4,500 50,000 By Abnormal Loss 1,000 25,613
[Rs25,595 + Rs 18
(difference due to
approximation)]
- Labour -- 15,000 By Process – II A/c 39,500 11,54,032

- Overhead -- 45,000 By Closing W-I-P 9,000 2,30,355
To Sugarcane introduced 1,00,000 5,00,000
To Direct Labour 2,00,000
To Overheads 6,00,000
1,04,500 14,10,000 1,04,500 14,10,000
Solution 9:
Process I : Statement of Equivalent Production and Cost
Input Particulars Output Equivalent Production
(Units (Units)
Materials Labour Overheads
(%) Units (%) Units (%) Units
40,000 Completed 30,000 100 30,000 100 30,000 100 30,000
Closing 10,000 100 10,000 50 5,000 50 5,000
WIP
40,000 40,000 40,000 35,000 35,000
Particulars Materials Labour Overhead Total

Cost incurred (Rs) 3,00,000 3,50,000 2,45,000 8,95,000
Equivalent units 40,000 35,000 35,000 -
Cost per equivalent 7.50 10.00 7.00 24.50
unit (Rs)
Process-I Account


To Materials 40,000 3,00,000 By Process-II A/c 30,000 7,35,000
(30,000 units x Rs
24.5)
To Labour 3,50,000 By Closing WIP* 10,000 1,60,000
To Overhead 2,45,000
40,000 8,95,000 40,000 8,95,000
* (Material 10,000 units × Rs 7.5) + (Labour 5,000 units × Rs 10) + (Overheads 5,000 units × Rs 7)
= Rs 75,000 + Rs 50,000 + Rs 35,000 = Rs 1,60,000
Process II : Statement of Equivalent Production and Cost

(Units) (Units)
30,000 Completed 28,000 100 28,000 100 28,000 100 28,000
Normal loss 200 - - -
Closing WIP 1,800 100 1,800 25 450 25 450
30,000 30,000 29,800 28,450 28,450

Process-I Cost 7,35,000 -- -- 7,35,000
Cost incurred (Rs) -- 71,125 85,350 1,56,475
Equivalent units 29,800 28,450 28,450 --
Cost per equivalent 24.6644 2.5000 3.0000 30.1644
unit (Rs)
Process-II Account
To Process-I A/c 30,000 7,35,000 By Normal loss 200 --
A/c
To Packing -- 80,000 By Finished Goods 28,000* 9,24,604
Material Stock A/c
To Direct Wages -- 71,125 By Closing WIP 1,800** 46,871
To Factory -- 85,350
Overhead
30,000 9,71,475 30,000 9,71,475
* 28,000 × Rs 30.1644 = Rs 8,44,603 + Rs 80,000 (Packing Material Cost) = Rs 9,24,604
** 1,800 units × Rs 24.6644 + 450 units × (Rs 2.5 + Rs 3) = Rs 46,871
Solution 10:
Total direct wages
= Rs 42,000 + Rs 54,000 + Rs 48,000 = Rs 1,44,000
Percentage absorption of production overhead on the basis of direct wages
= [2,88,000 / 1,44,000 ] x 100= 200%
(i) Process-I A/c

Particulars Units Amt.(Rs) Particulars Units Amt.(Rs)
To Materials 7,000 1,40,000 By Normal loss 350 3,500
(5% of 7,000)

To Other materials - 62,000 By Process-II* 6,600 3,35,955

To Direct wages - 42,000 By Abnormal loss* 50 2,545
To Direct expenses - 14,000
To Production OH - 84,000
(200% of Rs 42,000)
7,000 3,42,000 7,000 3,42,000
* Rs (3,42,000 - 3,500)/ (7,000 - 350)units = Rs 50.9022
Process-II A/c
To Process-I A/c 6,600 3,35,955 By Normal loss 660 6,600
(10% of 6,600)
To Other materials - 1,36,000 By Process-III** 5,200 5,63,206

To Direct wages - 54,000 By Abnormal 740 80,149
loss**
To Direct expenses - 16,000

To Production OH - 1,08,000
(200% of ₹54,000)
6,600 6,49,955 6,600 6,49,955

** Rs(6,49,955 - 6,600)/ (6,600 - 660)units = Rs 108.3089
Process-III A/c
To Process-I A/c 5,200 5,63,206 By Normal loss 260 2,600
(5% of 5,200)
To Other materials - 84,200 By Product-X*** 4,800 8,64,670

To Direct wages - 48,000
To Direct expenses - 14,000 By Product-Z# 600 21,000
(₹35×600)
(200% of ₹48,000)
To Abnormal gain*** 460 82,864

5,660 8,88,270 5,660 8,88,270
*** Rs (8,05,406 - 2,600 - 21,000)/ (5,200 - 260 - 600)units = Rs 180.1396
# Realisable value = Rs 135 – (85+15) = Rs 35
(ii) By-Product Process A/c

To Process-III A/c 600 21,000 By Product-Z 600 81,000
To Processing cost - 51,000
To Selling expenses - 9,000
600 81,000 600 81,000
Solution 11:
(i) Calculation of Raw Material inputs during the month:
Quantities Entering Process Litres Quantities Leaving Process Litres

Opening WIP 1,600 Transfer to Finished Goods 8,400

Raw material input 8,320 Process Losses 1,200
(balancing figure)
Closing WIP 320
9,920 9,920
(ii)Calculation of Normal Loss and Abnormal Loss/Gain:

Litres
Total process losses for month 1,200
Normal Loss (10% input) 832
Abnormal Loss (balancing figure) 368
(iii) Calculation of values of Raw Material, Labour and Overheads added to the process:
Material Labour Overheads
Cost per equivalent unit Rs 46.00 Rs 14.00 Rs 18.00
Equivalent units (litre) (refer the working 7,488 7,744 7,872
note)
Cost of equivalent units Rs 3,44,448 Rs 1,08,416 Rs 1,41,696
Add: Scrap value of normal loss (832 units × Rs 15) Rs 12,480 -- --
Total value added Rs 3,56,928 Rs 1,08,416 Rs 1,41,696
Workings:
Statement of Equivalent Units (litre):
Input Details Units Output details Units Equivalent Production
Units (%) Units (%) Units (%)

Opening WIP 1,600 Units
completed:
Units introduced 8,320 - Opening 1,600 -- -- 480 30 640 40

WIP
- Fresh 6,800 6,800 100 6,800 100 6,800 100

inputs
Normal loss 832 -- -- -- -- -- --
Abnormal loss 368 368 100 368 100 368 100
Closing WIP 320 320 100 96 30 64 20
9,920 9,920 7,488 7,744 7,872
(iv) Process Account for the month

Litres Amount Litres Amount
(Rs) (Rs)
To Opening WIP 1,600 1,06,560 By Finished goods 8,400 6,55,200
[8400 x Rs 78]
To Raw Materials 8,320 3,56,928 By Normal loss 832 12,480
[832 x Rs 15]

To Wages -- 1,08,416 By Abnormal loss 368 28,704

[368 x Rs 78]
To Overheads -- 1,41,696 By Closing WIP 320 17,216
[(320 x Rs 46) +
(320 x .30 x Rs 14) +
(320x .20 x Rs 18)]
9,920 7,13,600 9,920 7,13,600
Solution 12:
Statement of production
Operation Input Rejections Output
Total % of output
1 1,80,000 60,000 50 1,20,000
2 1,98,000 18,000 10 1,80,000
3 1,44,000 24,000 20 1,20,000
(i) Determination of input required to obtain 500 pieces of finished output:

Particulars No. of pieces
Output required after operation 3 500
Add: Rejection in operation 3 (20%) 100
Input required in operation 1 990

(ii) Calculation of cost of raw material:
To produce 500 pieces of final output, 990 pieces of inputs are required at operation 1. Thus, to get a finished piece of
0.5 kg. of output, the weight of input required is:
(0.5 / 500 )× 990 = 0.99 kg.
The cost of raw material would be Rs 80 × 0.99 kg. = Rs 79.20
Solution 13:
(i) Statement of Equivalent Production (FIFO Method)
Input Output Equivalent Production
Particulars Units Particulars Units Material Labour & Overhead

(%) Units (%) Units
Opening WIP 16,000 Transfer to next Process:
Introduced 3,64,000 Opening WIP completed 16,000 -- -- 40 6,400
Introduced & completed 3,00,000 100 3,00,000 100 3,00,000
Normal loss 19,000 -- -- -- --
5% (16,000 + 3,64,000)

Abnormal loss 9,000 100 9,000 80 7,200

Closing WIP 36,000 100 36,000 70 25,200
3,80,000 3,80,000 3,45,000 3,38,800
(ii) Computation of Cost per unit

Particulars Material Labour Overhead
(Rs) (Rs) (Rs)
Input of Materials 14,75,000 -- --
Expenses -- 6,81,200 3,40,600
Total 14,75,000 6,81,200 3,40,600
Less: Sale of Scrap (95,000) -- --
(19,000 units x Rs 5)
Net cost (A) 13,80,000 6,81,200 3,40,600
Equivalent Units (B) 3,45,000 3,38,800 3,38,800
Cost Per Unit (A/B) 4.0000 2.0106 1.0053
Total cost per unit = Rs (4.0000 + 2.0106 + 1.0053) = Rs 7.0159
(iii) Value of units transferred to next process:

Opening W-I-P 1,50,000
Add: Labour (6,400 units × Rs 2.0106) 12,868
Overhead (6,400 units × Rs 1.0053) 6,434 1,69,302
New introduced (3,00,000 units × Rs 7.0159) 21,04,770
22,74,072
Solution 14:
(i) Statement of Equivalent Production (Using FIFO method)
Units Units
Material Labour & O.H.
% Units % Units
Opening WIP 10,000 Completed and

transferred to
Process-II
Units introduced 55,000 - From opening 10,000 - 30 3,000

WIP
- From fresh inputs 33,500 100 33,500 100 33,500
43,500 33,500 36,500
Normal Loss 3,250 - -

{5% (10,000 +55,000
units)}
Abnormal loss 6,250 100 6,250 60 3,750
(9,500 – 3,250)
Closing WIP 12,000 100 12,000 90 10,800

65,000 65,000 51,750 51,050
(ii) Abnormal Loss A/c

To Process-I A/c 6,250 29,698 By Cost Ledger Control A/c 6,250 53,125
(Refer Working Note-2) (6,250 units × Rs 8.5)
To Costing Profit - 23,427
& Loss A/c
6,250 53,125 6,250 53,125
Working Notes:
1. Computation of Cost per unit
Particulars Materials Labour Overhead
(Rs) (Rs) (Rs)
Input costs 2,20,000 26,500 61,500
Less: Realisable value of normal (27,625) -- --
scrap (3,250 units x Rs 8.5)
Net cost 1,92,375 26,500 61,500
Equivalent Units 51,750 51,050 51,050
Cost Per Unit 3.7174 0.5191 1.2047
Total cost per unit = Rs (3.7174 + 0.5191 + 1.2047) = Rs 5.4412
2. Valuation of Abnormal Loss

(Rs)
Materials (6,250 units × Rs 3.7174) 23,233.75
Labour (3,750 units × Rs 0.5191) 1,946.63
Overheads (3,750 units × Rs 1.2047) 4,517.62
29,698
Solution 15:
(i) Statement of Equivalent Production (Weighted Average method)
Units Units
% Units % Units
Opening WIP 3,000 Completed and 36,000 100 36,000 100 36,000
Transferred to Process-II
Units introduced 42,000 Normal Loss 1,800 -- -- -- --
(4% of 45,000 units)
Abnormal loss (Balancing 3,000 100 3,000 70 2,100

figure)
Closing WIP 4,200 100 4,200 50 2,100
45,000 45,000 43,200 40,200

Particulars Materials (Rs) Labour (Rs) Overhead (Rs) Total (Rs)

Cost of opening work- in-process 1,80,500 32,400 90,000 3,02,900

Less: Realisable Value of normal scrap (1,12,500) -- -- (1,12,500)
(Rs 62.50 × 1,800 units)
Total cost: (A) 36,72,000 4,82,400 16,08,000 57,62,400
Cost per equivalent unit: (C) = (A ÷ B) 85.00 12.00 40.00 137.00
Statement of Distribution of cost

1. Value of units completed and transferred: (36,000 units × Rs 137) 49,32,000
2. Value of Abnormal Loss:

- Materials (3,000 units × Rs 85) 2,55,000
- Labour (2,100 units × Rs 12) 25,200
- Overheads (2,100 units × Rs 40) 84,000 3,64,200
- Materials (4,200 units × Rs 85) 3,57,000
- Labour (2,100 units × Rs 12) 25,200
(iii) Process-I A/c

To Opening W.I.P:
Materials 3,000 1,80,500 By Normal Loss 1,800 1,12,500
Labour -- 32,400 (Rs 62.5 × 1,800
Overheads -- 90,000 units)
To Materials introduced 42,000 36,04,000 By Abnormal loss 3,000 3,64,200

To Labour 4,50,000 By Process-I A/c 36,000 49,32,000
To Overheads 15,18,000 By Closing WIP 4,200 4,66,200
45,000 58,74,900 45,000 58,74,900
(iv) Normal Loss A/c

To Process-I A/c 1,800 1,12,500 By Cost Ledger 1,800 1,12,500

Control A/c
1,800 1,12,500 1,800 1,12,500
(v) Abnormal Loss A/c

To Process-I A/c 3,000 3,64,200 By Cost Ledger Control 3,000 1,87,500
A/c (Rs 62.5 × 3,000
units)

By Costing Profit & 1,76,700

Loss A/c (Bal. Figure)
3,000 3,64,200 3,000 3,64,200
Solution 16:
(i)
Dr. Process-1 Account Cr.
Particulars Units Total (Rs) Particulars Units Total (Rs)
To Raw Material Consumed 10,000 7,50,000 By Normal Loss A/c @ 500 6,750
13.5
” Direct Wages -- 3,00,000 ” Process 2 @ 133.5 9,000 12,01,500
” Direct -- 1,50,000 ” By Abnormal 500 66,750

Expenses Loss @ 133.5
“ Manufacturing Overheads 75,000
10,000 12,75,000 10,000 12,75,000
Cost per unit of completed units and abnormal loss:
= Rs 12,75,000 - Rs 6,750
10,000units- 500units = Rs 133.5
(ii)
To Process-I A/c 9,000 12,01500 By Normal Loss A/c @ 900 1,30,500
145
” To Direct Wages -- 5,60,000 ” By Finished Stock A/c 8,200 21,04,667
[bal fig]
” Direct Expenses -- 3,64,000
” Manufacturing Overheads -- 84,000
” To Abnormal gain 100 25,667
(Rs 256.67 × 100 units)
9,100 22,35,167 9,100 22,35,167
Cost per unit of completed units and abnormal gain:
= ( Rs 22,09,500 – Rs 130500 )/ 8,100units = Rs 256.67
Dr. Finished Goods A/c Cr.

To Process II A/c 8,200 21,04,667 By By Cost of Sales 8,000 20,53,333
” By Balance c/d 200 51,334
8,200 21,04,667 8,200 21,04,667
(iii) Normal Loss A/c

Dr. Cr.
Particular s Units Total (Rs) Particulars Units Total (Rs)
To Process I 500 6,750 By By abnormal Gain II 100 14,500
Process II 900 1,30,500 By Cash 500 6,750
By Cash 800 1,16,000

1400 1,37,250 1400 1,37,250
(iv) Abnormal Loss A/c

Dr. Cr.
To Process I 500 66,750 By By Cost Ledger Control 500 6,750

A/c
By Costing P& L A/C 60,000
(Abnormal Loss)
66,750 66,750
(v) Abnormal Gain A/c

Dr. Cr.
To Normal Loss A/c @ 145 100 14,500 By Process II 100 25,667
To Costing P & L A/C 11,167
100 25,667 100 25,667
Solution 17:
% Units % Units
Opening WIP 1,000 Completed and
Units transferred to 35,000 100 35,000 100 35,000
introduced 40,000 Process-2
Normal Loss (10% of 4,000 - - - -
40,000)
Abnormal loss 500 100 500 60 300
(Balancing figure)
Closing W-I-P 1,500 100 1,500 60 900
41,000 41,000 37,000 36,200
(ii) Calculation of value of output transferred to Process-2 & Closing WIP

1. Value of units completed and transferred (35,000 units × 1,12,08,750
Rs 320.25) (Refer working note)
- Materials (1,500 units x Rs 268.51) 4,02,765
- Conversion cost (900 units × Rs 51.74) 46,566 4,49,331
Workings: Cost of each element

Particulars Materials Conversion Total
(Rs) (Rs) (Rs)
Cost of opening work-in-process 2,55,000 31,020 2,86,020
Cost incurred during the month 96,80,000 18,42,000 1,15,22,000

Total cost: (A) 99,35,000 18,73,020 1,18,08,020

Equivalent units: (B) 37,000 36,200
Cost per equivalent unit: (C) = (A ÷ B) 268.51 51.74 320.25
Solution 18:
Input Details Units Output Units Equivalent Production
Particulars Material- A Consumable Labour &
s Overheads
% Units % Units % Units
Units transferred 75,000 Units transferred 68,000 100 68,000 100 68,000 100 68,000
from Process-A to Process-C
Normal loss (6% 4,500 - - - - - -
of 75,000 units)
Closing W-I-P 3,000 100 3,000 70 2,100 50 1,500
Abnormal Gain (500) 100 (500) 100 (500) 100 (500)
75,000 75,000 70,500 69,600 69,000
(ii) Calculation of Cost per Unit

Particulars Amount Units Per Unit (Rs)
(Rs)
(i) Direct Material:
Value of units transferred from Process-A 3,09,000
Less: Value of normal loss
(4,500 units × Rs 6) (27,000)
2,82,000 70,500 4.00
(ii) Consumables added in Process-B 2,43,600 69,600 3.50
(iii) Labour 1,38,000 69,000 2.00
(iii) Overhead 1,03,500 69,000 1.50
Total Cost per equivalent unit 11.00
(iii) Calculation of value of Work-in-Process and units transferred to Process-C

Particulars Units Rate Amount
(Rs) (Rs)
Value of Closing W-I-P:
Material from Process-A 3,000 4.00 12,000
Consumables 2,100 3.50 7,350
Labour 1,500 2.00 3,000
Overhead 1,500 1.50 2,250
24,600
Value of units transferred to Process-C 68,000 11.00 7,48,000
Solution 19:
Units Units
% Units % Units
transferred
t
o next Process

Units introduced 25,000 Abnormal loss 1,000 100 1,000 100 1,000
(Balancing figure)
Closing WIP 10,000 100 10,000 75 7,500
30,000 30,000 30,000 27,500

(Rs) (Rs) (Rs) (Rs)
Cost of opening work-in-progress 10,000 5,000 5,000 20,000
Cost incurred during the month 50,000 22,500 22,500 95,000
Total cost: (A) 60,000 27,500 27,500 1,15,000
Equivalent units: (B) 30,000 27,500 27,500 -
Cost per equivalent unit: (C) = (A ÷ B) 2 1 1 4
(iii) Statement of Distribution of cost

Value of units completed and transferred 76,000
(19,000 units × Rs 4)
Value of Abnormal Loss:
- Materials (1,000 units × Rs 2) 2,000
- Labour (1000 units × Rs 1) 1,000
- Overheads (1000 units × Rs 1) 1,000 4,000
Value of Closing W-I-P:
- Materials (10,000 units × Rs 2) 20,000
- Labour (7,500 units × Rs 1) 7,500
- Overheads (7,500 units × Rs 1) 7,500 35,000
(iv) Process P A/c

To Opening W.I.P: By Abnormal loss 1,000 4,000
- Materials 5,000 10,000 By Completed units 19,000 76,000
- Labour -- 5,000 By Closing WIP 10,000 35,000
- Overheads -- 5,000
To Materials 25,000 50,000

introduced

To Direct Labour -- 22,500
To Overheads -- 22,500
30,000 1,15,000 30,000 1,15,000
Solution 20:
Process- I Account
To Raw Materials 2,000 12,000 By Normal loss (200 units × Rs 2) 200 400
To Direct raw material - 17,000 By Process – II 1,840 46,000

(1,840 units x Rs 25)

To Direct Expenses - 2,400
To Abnormal gain A/c 40 1,000
(40 units × Rs 25)
2,040 46,400 2,040 46,400
Working :
Cost per unit = Rs 45,400 - Rs 400 = Rs 25 per unit
2,000 units – 200 units
Normal loss = 2,000 units x 10% = 200 units
Abnormal gain = (200 units + 1,840 units) – 2000 = 40 units
Process- II Account
To Process - I 1,840 46,000 By Normal loss (92 units × Rs 5) 92 460
To Direct raw material - 19,000 By Process- III 1,740 87,000

(1,740 units ×Rs 50)
To Direct wages - 12,000 By Abnormal loss A/c 8 400
(8 units ×Rs 50)
1,840 87,860 1,840 87,860
Working:
Cost per unit = Rs 87,860 - Rs 460 = Rs 50 per unit
Rs 1,840 units – 92 units
Normal loss = 1,840 units × 5% = 92 units
Abnormal gain = 1840 – (92 units + 1,740 units) = 8 units
Process- III Account

Particulars Units Amount(Rs) Particulars Units Amount (Rs)

To Process- II 1,740 87,000 By Normal loss 174 1,740
(174 units × Rs 10)
To Direct raw material - 11,000 By Finished goods 1,580 1,42,200
stock
(1,580 units ×Rs 90)
To Abnormal gain A/c 14 1,260
(14 units ×₹ 90)
1,754 1,43,940 1,754 1,43,940
Workings :
Cost per unit = Rs 1,42,680 - Rs 1,740 = Rs 90 per unit
1,740 units – 174 units
Normal loss = 1,740 units × 10% = 174 units
Abnormal gain = (174 units + 1,580 units) – 1,740 = 14 units
Abnormal Loss Account

To Process- II 8 400 By sale proceeds of scrap @ ₹ 5 per unit 8 40
By Costing Profit & Loss A/c (loss transferred) 360
Total 8 400 Total 8 400
Abnormal Gain Account

Particulars Units Amount (Rs) Particulars Units Amount(Rs)
To normal loss By Process- I 40 1,000

Process I 40 80 By Process- III 14 1,260
Process II 14 140
To Costing Profit & Loss A/c (profit transferred) 2,040
Total 54 2,260 Total 54 2,260
Solution 21:
(i) Statement of equivalent production (Average cost method)
Units Units Material Labour &
O.H.
% Units % Units
transferred
Units introduced 32,000 Closing WIP 12,000 100 12,000 1/3rd 4,000
40,000 40,000 40,000 32,000


Particular Materials Labour Overhead Total
(Rs) (Rs) (Rs) (Rs)
Cost of opening work-in- process 1,20,000 20,000 20,000 1,60,000

Total cost: (A) 6,32,000 3,20,000 3,20,000 12,72,000
Cost per equivalent unit: (C) = (A ÷ 15.8 10 10 35.8
B)
(iii) Statement of apportionment of cost

1. Value of units completed and transferred (28,000 10,02,400
units × Rs 35.8)

- Materials (12,000 units × Rs 15.8) 1,89,600
- Labour (4,000 units × Rs 10) 40,000
(iv) Process-I Cost Account

To Opening W-I-P 8,000 1,60,000 By Completed units 28,000 10,02,400
To Materials 32,000 5,12,000 By Closing W-I-P 12,000 2,69,600
To Labour -- 3,00,000
To Overhead -- 3,00,000
40,000 12,72,000 40,000 12,72,000
Solution 23:
(i) Process I
Statement of Equivalent Production Cost
Input (Units) Particulars Output Equivalent Production
Units Materials Labour Overheads
40,000 Completed 30,000 100 30,000 100 30,000 100 30,000
Closing WIP 10,000 100 10,000 50 5,000 50 5,000
40,000 40,000 40,000 35,000 35,000

Cost incurred (Rs) 6,00,000 7,00,000 4,90,000 17,90,000
Equivalent units 40,000 35,000 35,000
Cost per equivalent unit (Rs) 15 20 14 49
Process-I Account


To Materials 40,000 6,00,000 By Process-II A/c 30,000 14,70,000
(30,000 units × Rs 49)
To Labour 7,00,000 By Closing WIP* 10,000 3,20,000
To Overhead 4,90,000
40,000 17,90,000 40,000 17,90,000
* (Material 10,000 units × Rs 15) + (Labour 5,000 units × Rs 20) + (Overheads 5,000 units × Rs 14)
= Rs 1,50,000 + Rs 1,00,000 + Rs 70,000 = Rs 3,20,000
(ii) Process II
Statement of Equivalent Production and Cost
Input (Units) Particulars Output Equivalent Production
Units Materials Labour Overheads
30,000 Completed 28,000 100 28,000 100 28,000 100 28,000
Normal loss 200 -- -- --
Closing WIP 1,800 100 1,800 25 450 25 450
30,000 30,000 29,800 28,450 28,450

Process-I Cost 14,70,000 -- -- 14,70,000
Cost incurred (Rs) -- 1,42,250 1,70,700 3,12,950
Equivalent units 29,800 28,450 28,450 --
Cost per equivalent unit (Rs) 49.3289 5.00 6.00 60.3289
Process-II Account
To Process-I A/c 30,000 14,70,000 By Normal loss A/c 200 --
To Packing Material -- 1,60,000 By Finished Goods 28,000* 18,49,209
Stock A/c
To Direct Wages -- 1,42,250 By Closing WIP 1,800** 93,741
To Factory -- 1,70,700
Overhead
30,000 19,42,950 30,000 19,42,950
* 28,000 × Rs 60.3289 = Rs 16,89,209 + Rs 1,60,000 (Packing Material Cost)
= Rs 18,49,209
** 1,800 units × Rs 49.3289 + 450 units × (Rs 5 + Rs 6) = Rs 93,741
Solution 24:
(i) Process – I Account
To Materials 10,000 80,000 By Normal Loss (5% of 500 2,500
10,000)
To wages - 60,000 By process-II A/c 9,650 1,93,000
(Rs 20* x 9,650 units)
To Manufacturing OH 52,500
To Abnormal Gain A/c 150 3,000
(Rs 20* x 150 units)
150 3,000 150 3,000
Solution 25:
(i) Calculation of raw material inputs during the month:
Quantities Entering Process Litres Quantities Leaving Process Litres
Opening WIP 900 Transfer to Finished Goods 4,200
Raw material input (balancing figure) 5,260 Process Losses 1,800
Closing WIP 160
6,160 6,160
(ii) Calculation of Normal Loss and Abnormal Loss/Gain

Particulars Litres
Total process losses for month 1,800
Normal Loss (10% input) 526
Abnormal Loss (balancing figure) 1,274
(iii) Calculation of values of Raw Material, Labour and Overheads added to the process:
Cost per equivalent unit Rs 23.00 Rs 7.00 Rs 9.00
Equivalent units (litre) (refer the working note) 4,734 4,892 4,966
Cost of equivalent units Rs 1,08,882 Rs 34,244 Rs 44,694

Add: Scrap value of normal loss (526 units × Rs 20) Rs 10,520 - -
Total value added Rs 1,19,402 Rs 34,244 Rs 44,694
Workings:
Statement of Equivalent Units (litre):
Input Details Units Output details Units Equivalent Production
Units (%) Units (%) Units (%)
Opening WIP 900 Units completed:
Units introduced 5,260 - Opening WIP 900 - - 270 30 360 40
- Fresh inputs 3,300 3,300 100 3,300 100 3,300 100
Normal loss 526 - - - - - -
Abnormal loss 1,274 1,274 100 1,274 100 1,274 100
Closing WIP 160 160 100 48 30 32 20
6,160 6,160 4,734 4,892 4,966
(iv) Process Account for Month

Litres Amount (Rs) Litres Amount (Rs)
To Opening WIP 900 29,970 By Finished goods 4,200 1,63,800
To Raw Materials 5,260 1,19,402 By Normal loss 526 10,520
To Wages - 34,244 By Abnormal loss 1,274 49,686
To Overheads - 44,694 By Closing WIP 160 4,304
6,160 2,28,310 6,160 2,28,310
Solution 26:
(i) Statement of Equivalent Production (Average cost method)

(Units) Units
(%*) Units** (%)** Units** (%)* Units**
40,000 Completed 28,000 100 28,000 100 28,000 100 28,000
WIP 12,000 100 12,000 33-1/3 4,000 33-1/3 4,000
40,000 40,000 40,000 32,000 32,000
* Percentage of Completion ** Equivalent Units
(ii) Statement showing Cost for each element

Particulars Materials Labour Overheads Total
Cost of opening 12,00,000 2,00,000 2,00,000 16,00,000
work-in progress
(Rs)
Cost incurred during 51,20,000 30,00,000 30,00,000 1,11,20,000
the month (Rs)
Total cost (Rs): (A) 63,20,000 32,00,000 32,00,000 1,27,20,000
Cost per equivalent 158 100 100 358
unit (Rs): C = (A÷B)
(iii) Statement of Apportionment of Cost

(Rs) (Rs)
Value of output transferred: (A) (28,000 units x Rs 358) 1,00,24,000
Value of closing work -in- progress: (B)
Material (12,000 units x Rs 158) 18,96,000
Labour (4,000 units x Rs 100) 4,00,000
Overheads (4,000 units x Rs 100) 4,00,000 26,96,000
Total Costs: (A + B) 1,27,20,000
(iv) Process-A Account

To Opening WIP 8,000 16,00,000 By Completed 28,000 1,00,24,000
Units
To materials 32,000 51,20,000 By Closing WIP 12,000 26,96,000
To Labour 30,00,000
To overhead 30,00,000
40,000 1,27,20,000 40,000 1,27,20,000

Chapter 11: JOINT & BY PRODUCT - Practice Sheet

SOLUTIONS
Solution 1:
Average cost per unit = Total joint costs = Rs 60,000 = Rs 60
Units produced 1,000 units
The joint costs apportioned @ Rs 60 are as follows:

Products Units Cost per unit (Rs) Value (Rs)
A 500 60 30,000
B 200 60 12,000
C 300 60 18,000
60,000
Solution 2:
Calculation of Net joint costs to be allocated:
Joint Costs 10,00,000
Less: Net Realizable value of by-product (50,000× 5) 2,50,000
Net joint costs to be allocated 7,50,000
Therefore, amount of joint product cost that Smile company would allocate to the product-B by using the physical
volume method to allocate joint production costs:
= Physical quantity of Product-B × Net joint costs to be allocated
Total Quantity
= 1,20,000 units × Rs 7,50,000 = Rs 5,00,000
1,80,000 units
Solution 3:
(i) Estimated Net Realisable Value Method:
Buttermilk Butter
Sales Value 8,40,000 76,80,000
(Rs 30 × 28 × 1000) (Rs 480 × 16 × 1000)
Less: Post split-off cost (Further
processing cost) -- (1,20,000)
Net Realisable Value 8,40,000 75,60,000
Apportionment of Joint Cost of Rs 5,10,000 45,90,000
51,00,000* in ratio of 1:9
* [(Rs 100 × 50 × 1000) + Rs 1,00,000] = Rs 51,00,000
(ii) Incremental revenue from further processing of Butter into Ghee
(Rs 480 × 16 × 1000 - Rs 360 × 20 × 1000) Rs 4,80,000
Less: Incremental cost of further processing
of Butter into Ghee Rs 1,20,000
Incremental operating income from further processing Rs 3,60,000
The operating income of ‘Buttery Butter’ will be reduced by ₹ 3,60,000 in February if it sells 20 tonne of Butter to
‘Healthy Bones’, instead of further processing of Butter into Ghee for sale. Thus, ‘Buttery Butter’ is advised not to accept
the offer and further process butter to make Ghee itself.
Solution 4:

Product A can be sold at the split-off point, because the question says that "Products B and C must be processed further
before they can be sold." Since product A is not included in that, we know that Product A can be sold at the split-off
point. Furthermore, the cost to process Product A after the split-off point is Rs 150,000, whereas the additional revenue
to be earned by processing it further is only Rs 75,000 (Rs 50 increase in selling price per unit multiplied by the 1,500
units produced during September). Therefore, Product A will not be processed further, and we use the sales value at
split-off for A for allocating the joint costs. The sales value at the split-off for A is Rs 100 × 1,500 units, or Rs 1,50,000.
Since Product B must be processed further, we use its net realizable value for the joint cost allocation. The net realizable
value of Product B is Rs 5,25,000 (Rs 175 selling price after further processing × 3,000 units produced) – Rs 1,50,000 in
further processing costs = Rs 3,75,000.
Product C, the by-product, must also be processed further to be sold. The net realizable value of Product C is Rs 75,000
(Rs 50 sales price after further processing × 4,500 units produced – Rs 1,50,000 in further processing costs = Rs 75,000.
Joint production costs total Rs 8,40,000. Since the by-product C is accounted for as a reduction to the joint costs, the
joint costs to be allocated are Rs 7,65,000 (Rs 8,40,000 minus the Rs 75,000 NRV of Product C), to be allocated between
Product A (sales value Rs 1,50,000) and Product B (net realizable value Rs 3,75,000). So, the total on which the allocation
of the joint costs is based is Rs 1,50,000 + 3,75,000 = Rs 5,25,000. Product A represents 28.571% of the total (Rs 1,50,000
÷ Rs 5,25,000).
Since Product A has no further processing costs, the total cost of Product A is equal to its allocated joint costs, which are
28.571% of the net joint costs of Rs 7,65,000, or Rs 2,18,568.
Solution 5:
(i) (a) Statement of Joint Cost allocation of inventories of X, Y and Z
(By using Net Realisable Value Method)
PRODUCTS TOTAL
X Y Z
(Rs.) (Rs.) (Rs.) (Rs.)
Final sales value of total 10,98,000 13,20,750 11,41,500 35,60,250

production (366 × Rs.3,000) (587 × Rs.2,250) (761 × Rs.1,500)
(Working Note 1)
Less: Additional cost -- -- (6,20,000) (6,20,000)
Net realisable value 10,98,000 13,20,750 5,21,500 29,40,250
(at split-off point)
Joint cost allocated 4,66,797 5,61,496 2,21,707 12,50,000
(Working Note 2)
Cost of goods sold as on March 31, 2020 (By using Net Realisable Value Method)
Products Total
X Y Z
(Rs.) (Rs.) (Rs.) (Rs.)
Allocated Joint cost 4,66,797 5,61,496 2,21,707 12,50,000

Additional costs -- -- 6,20,000 6,20,000
Cost of goods available for sale 4,66,797 5,61,496 8,41,707 18,70,000

(CGAS)
Less: Cost of ending inventory 2,29,571 57,385 27,692 3,14,648
(Working Note 1) (CGAS×49.18%) (CGAS × 10.22%) (CGAS × 3.29%)

Cost of goods sold 2,37,226 5,04,111 8,14,015 15,55,352
Working Notes
1. Total production of three products for the year 2019-2020
Products Quantity sold in tones Quantity of ending Total production Ending inventory
inventory in tons percentage (%)
(1) (2) (3) (4) = [(2) + (3)} (5) = (3)/ (4)
X 186 180 366 49.18
Y 527 60 587 10.22
Z 736 25 761 3.29
Joint cost apportioned to each product:

(Total Joint cost/ Total Net Realisable Value) × Net Realisable Value of each product
Total cost of Product X = (Rs. 12,50,000/ Rs. 29,40,250) × Rs.10,98,000 = Rs. 4,66,797
Total cost of Product Y = (Rs. 12,50,000/ Rs. 29,40,250) × Rs.13,20,750 = Rs.5,61,496
Total cost of Product Z = (Rs. 12,50,000/ Rs. 29,40,250) × Rs.5,21,500 = Rs.2,21,707
Solution 6:
(i) Statement of Joint Cost allocation of inventories of X, Y and Z
Products Total (Rs.)
X (Rs.) Y (Rs.) Z (Rs.)
Final sales value of total 4,50,000 9,60,000 15,00,000 29,10,000

production (Working Note 1) (15,000 x Rs. 30) (15,000 x Rs. 64) (30,000 x Rs. 50)
Less: Additional cost -- 6,60,000 11,00,000 17,60,000
Net realisable value (at split-off 4,50,000 3,00,000 4,00,000 11,50,000
point)
Joint cost allocated (Working 2,34,000 1,56,000 2,08,000 5,98,000
Note 2)
(ii) Calculation of Cost of goods sold and Closing inventory

X (Rs.) Y (Rs.) Z (Rs.)
Allocated joint cost 2,34,000 1,56,000 2,08,000 5,98,000
Add: Additional costs - 6,60,000 11,00,000 17,60,000

Cost of goods sold (COGS) 2,34,000 8,16,000 13,08,000 23,58,000
Less: Cost of closing inventory 78,000 -- 3,27,000 4,05,000
(Working Note 1) (COGS × 100/3%) (COGS × 25%)
Cost of goods sold 1,56,000 8,16,000 9,81,000 19,53,000
(iii) Comparative Statement of Gross Profit

X (Rs.) Y (Rs.) Z (Rs.)
Sales revenue 3,00,000 9,60,000 11,25,000 23,85,000
(10,000 x Rs. 30) (15,000 x Rs. 64) (22,500 x Rs. 50)
Less: Cost of goods sold 1,56,000 8,16,000 9,81,000 19,53,000

Gross Profit 1,44,000 1,44,000 1,44,000 4,32,000

Working Notes:
1. Total production of three products for the year 2019-2020
Products Quantity sold in Quantity of closing Total production Closing inventory percentage
litres inventory in litres (%)
(1) (2) (3) (4) = [(2) + (3)} (5) = (3)/ (4)
X 10,000 5,000 15,000 100/3
Y 15,000 -- 15,000 --
Z 22,500 7,500 30,000 25
2. Joint cost apportioned to each product:

= (Total Joint cost / Total Net Realisable Value) x Net Realisable Value of each product
Joint cost of product X = (Rs. 5,98,000 / Rs. 11,50,000 ) x Rs. 4,50,000 = Rs. 2,34,000
Joint cost of product Y = (Rs. 5,98,000 / Rs. 11,50,000 ) x Rs. 3,00,000 = Rs. 1,56,000
Joint cost of product Z = (Rs. 5,98,000 / Rs. 11,50,000 ) x Rs. 4,00,000 = Rs. 2,08,000
Solution 7:
Comprehensive Cost Statement
Particulars Total Cost Product-M Product-N
(Rs.) (Rs.) (Rs.)
No. of units produced * 5,400 units 810 units
Cost of raw material (Rs. 80 × 6,750 units) 5,40,000
Processing cost:
- Labour cost (Rs. 2,25,000 × 66%) 1,48,500
- Other costs (Rs. 2,25,000 - 1,48,500) 76,500
Total joint cost 7,65,000
(i) Apportionment of joint costs between the joint
products
Labour cost in the ratio of 100:80 1,48,500 82,500 66,000
(1,48,500 x (1,48,500 x 80)/
100)/ 180) 180)
Other joint costs (including material) in the ratio of 6,16,500 5,36,087 80,413
output (6,16,500 x (6,16,500 x 810) /
(5,400:810) 5,400) / 6,210 6,210
(ii) Total product cost 7,65,000 6,18,587 1,46,413
* No. of units produced of Product M = 6750 units x 80% = 5400 units
No. of units produced of Product N = 6750 units x 12% = 810 units
Solution 8:
Total Joint Cost
Amount (Rs.)
Direct Material 30,000
Direct Labour 9,600
Variable Overheads 12,000
Total Variable Cost 51,600
Fixed Overheads 32,000
Total joint cost 83,600
Apportionment of Joint Costs:

Particulars Product-A Product-B

I. (i) Apportionment of Joint Rs.38,000 Rs.45,600
Cost on the basis of [(Rs.83,600 / (100 + 120 [(Rs.83,600 / (100 + 120 units)
‘Physical Quantity’ units) × 100] × 120]
(ii) Apportionment of Joint
Cost on the basis of
‘Contribution Margin
Method’:
- Variable Costs (on basis of physical units) Rs.23,455 Rs.28,145

[(Rs.51,600 / (100+120 [(Rs. 51,600 / (100+120 units)
units) × 100] × 120]
Contribution Margin 36,545 -4,145

(Rs.600×100 – 23,455) (Rs.200×120 – 28,145)
Fixed Costs* Rs. 32,000
Total apportioned cost Rs. 55,455 Rs. 28,145
II. (iii) Profit or Loss:
When Joint cost apportioned on basis of physical units
A. Sales Value Rs. 60,000 Rs. 24,000
B. Apportioned joint cost on basis of ‘Physical Rs. 38,000 Rs. 45,600
Quantity’:
A-B Profit or (Loss) 22,000 (21,600)
When Joint cost apportioned on basis of ‘Contribution Margin Method’
C Apportioned joint cost on basis of Rs. 55,455 Rs. 28,145
‘Contribution Margin Method’
A-C Profit or (Loss) Rs. 4,545 Rs. (4,145)
* The fixed cost of Rs. 32,000 is to be apportioned over the joint products A and B in the ratio of their contribution
margin but contribution margin of Product B is Negative so fixed cost will be charged to Product A only.
Solution 9:
Calculation of quantity produced
Dept I (kg) Dept II (kg) Dept III (kg)
Input 4,00,000 2,00,000 1,60,000
(50% of 4,00,000 kg.) (40% of 4,00,000 kg.)
Weight (lost) or (40,000) (40,000) 1,60,000
added (10% of 4,00,000 kg.) (1/5th of 2,00,000 kg.)
3,60,000 1,60,000 3,20,000

Production of A 2,00,000 1,60,000 --
Production of B 1,60,000 -- 3,20,000
(i) Statement of apportionment of joint cost of dept I

Product A Product B
Output (kg) 2,00,000 1,60,000
Selling price per kg (`) 8 4
Sales value (`) 16,00,000 6,40,000

Share in Joint cost (5:2) 12,50,000 5,00,000

(Rs 17,50,000 × 5 ÷ 7) (Rs 17,50,000 × 2 ÷ 7)
(ii) Statement of cost per kg

Product A Product B
Output (kg) 1,60,000 3,20,000
Share in joint cost (`) 12,50,000 5,00,000
Joint Cost per kg (`) (A) 7.8125 1.5625
Further processing cost (`) 2,60,000 3,00,000
Further processing cost per kg (`) (B) 1.625 0.9375
Total cost per kg (`) {(A)+(B)} 9.4375 2.5000
(iii) Statement of profit

Product A Product B
Output (kg) 1,60,000 3,20,000
Sales (kg) (1,50,000) (3,00,000)
Closing stock (kg) 10,000 20,000
(Rs) (Rs)
Sales 15,00,000 12,00,000
(1,50,000 kg × Rs 10) (3,00,000 kg × Rs 4)
Add: closing stock (at full cost) 94,375 50,000

(10,000 kg × Rs 9.4375) (20,000 kg × Rs 2.5)
Value of production 15,94,375 12,50,000

Less: Share in joint cost 12,50,000 5,00,000
Further processing cost 2,60,000 3,00,000
Profit 84,375 4,50,000
(iv) Profitability statement before and after processing

Product A Product B
Before (Rs) After (Rs) Before (Rs) After (Rs)
Sales Value 16,00,000 6,40,000
Share in joint costs 12,50,000 5,00,000
84,375 4,50,000
Profit 3,50,000 1,40,000
(as per iii above) (as per iii above)
Product A should be sold at split off point and product B after processing because of higher profitability.
Solution 12:
Total Joint Cost
Direct Material 60,000
Direct Labour 19,200
Variable Overheads 24,000
Total Variable Cost 1,03,200
Fixed Overheads 64,000
Total joint cost 1,67,200

Apportionment of Joint Costs:

Product – Ghee Product – Cream
(i) Apportionment of Joint Cost on Rs 76,000 Rs 91,200
the basis of ‘Physical Quantity’ 𝟏,𝟔𝟕,𝟐𝟎𝟎 𝟏,𝟔𝟕,𝟐𝟎𝟎
( x 200) ( x 240)
𝟐𝟎𝟎+𝟐𝟒𝟎 𝐥𝐢𝐭𝐫𝐞 𝟐𝟎𝟎+𝟐𝟒𝟎 𝐥𝐢𝐭𝐫𝐞
(ii) Apportionment of Joint Cost on
the basis of ‘Contribution
Margin Method’:
- Variable Cost (on the basis Rs 46,909 Rs 56,291
𝟏,𝟎𝟑,𝟐𝟎𝟎 𝟏,𝟎𝟑,𝟐𝟎𝟎
of physical units) ( x 200) ( x 240)
𝟐𝟎𝟎+𝟐𝟒𝟎 𝐥𝐢𝐭𝐫𝐞 𝟐𝟎𝟎+𝟐𝟒𝟎 𝐥𝐢𝐭𝐫𝐞
Contribution Margin 73,091 -8,291
(Rs 600 x 200 – 46,909) (Rs 200 x 240 – 56,291)
Fixed Costs* Rs 64,000
Total apportioned cost Rs 1,10,909 Rs 56,291
II (iii) Profit or Loss:
When Joint cost apportioned on basis of physical units
A Sales Value Rs 1,20,000 Rs 48,000
B Apportioned joint cost on basis Rs 76,000 Rs 91,200
of ‘Physical Quantity’:
A-B Profit or (Loss) 44,000 (43,200)
When Joint Cost apportioned on basis of ‘Contribution Margin Method’
C Apportioned Joint cost on basis Rs 1,10,909 Rs 56,291
of ‘Contribution Margin
Method’
A-C Profit or (Loss) Rs 9,091 Rs (8,291)
*The fixed cost of Rs 64,000 is to be apportioned over the joint products- Ghee and Cream in the ratio of their
contribution margin but contribution margin of Product – Cream is negative so fixed cost will be charged to Product -
Ghee only.

Chapter 12: SERVICE COSTING - Practice Sheet

SOLUTIONS
Solution 1:
Calculation of Cost per annum
Particulars Arts (Rs) Commerce Science Total
(Rs) (Rs) (Rs)
Teachers’ salary (W.N-1) 16,80,000 21,00,000 25,20,000 63,00,000
Re-apportionment of Economics & Mathematics (84,000) 1,45,091 (61,091) -
teachers’ salary (W.N- 2)
Principal’s salary (W.N-3) 1,24,800 1,87,200 2,88,000 6,00,000
Lab assistants’ salary (W.N-4) - - 1,72,800 1,72,800
Salary to library staff (W.N-5) 43,200 28,800 57,600 1,29,600
Salary to peons (W.N-6) 31,636 94,909 47,455 1,74,000
Salary to other staffs (W.N-7) 38,400 1,15,200 57,600 2,11,200
Examination expenses (W.N- 8) 86,400 2,59,200 1,29,600 4,75,200
Office & Administration expenses (W.N- 7) 1,21,600 3,64,800 1,82,400 6,68,800
Annual Day expenses (W.N-7) 36,000 1,08,000 54,000 1,98,000
Sports expenses (W.N- 7) 9,600 28,800 14,400 52,800
Total Cost per annum 20,87,636 34,32,000 34,62,764 89,82,400
(i) Calculation of cost per student per annum

(Rs) (Rs) (Rs)
Total Cost per annum 20,87,636 34,32,000 34,62,764 89,82,400
No. of students 120 360 180 660
Cost per student per annum 17,397 9,533 19,238 13,610
(ii) Calculation of profitability

(Rs) (Rs) (Rs)
Total Fees per annum 12,000 12,000 12,000
Cost per student per annum 17,397 9,533 19,238
Profit/ (Loss) per student per annum (5,397) 2,467 (7,238)
No. of students 120 360 180
Total Profit/ (Loss) (6,47,640) 8,88,120 (13,02,840) (10,62,360)
(iii) Computation of fees to be charged to earn a 10% profit on cost

Particulars Arts (Rs) Commerce Science
(Rs) (Rs)
Cost per student per annum 17,397 9,533 19,238
Add: Profit @10% 1,740 953 1,924
Fees per annum 19,137 10,486 21,162
Fees per month 1,595 874 1,764
Working Notes:
1. Teacher’s Salary
Particulars Arts (Rs) Commerce Science (Rs)
(Rs)

No. of teachers 4 5 6
Salary per annum (Rs) (Rs 35,000 x 12) 4,20,000 4,20,000 4,20,000
Total Salary 16,80,000 21,00,000 25,20,000
2. Re-apportionment of Economics and Mathematics teachers’ salary

Economics Mathematics
Particulars Arts Commerce Science Commerce
No. of classes 832 208 940 160
Salary (84,000) 84,000 (61,091) 61,091
reapportionment (Rs)
( 𝐑𝐬. 𝟏,𝟎𝟒𝟎
𝟒,𝟐𝟎,𝟎𝟎𝟎
x 𝟐𝟎𝟖) ( 𝐑𝐬. 𝟏,𝟏𝟎𝟎
𝟒,𝟐𝟎,𝟎𝟎𝟎
x 𝟏𝟔𝟎)
3. Principal’s salary has been apportioned on the basis of time spent by him for administration of classes.
4. Lab attendants’ salary has been apportioned on the basis of lab classes attended by the students.
5. Salary of library staffs are apportioned on the basis of time spent by the students in library.
6. Salary of Peons are apportioned on the basis of number of students. The peons’ salary allocable to higher secondary
classes is calculated as below:
Amount (Rs)
Peon dedicated for higher secondary 1,20,000
(1 peon × Rs 10,000 × 12 months)
Add: 15% of other peons’ salary 54,000
{15% of (3 peons × Rs 10,000 × 12 months)}
1,74,000
7. Salary to other staffs, office & administration cost, Annual day expenses and sports expenses are apportioned on the
basis of number of students.
8. Examination expenditure has been apportioned taking number of students into account (It may also be apportioned
on the basis of number of examinations).
Solution 2:
(i) Calculation of total cost for ‘Professionals Protection Plus’ policy
1. Marketing and Sales support:
- Policy development cost 11,25,00
- Cost of marketing 45,20,000
- Sales support expenses 11,45,000 67,90,000
2. Operations:
- Policy issuance cost 10,05,900
- Policy servicing cost 35,20,700
- Claims management cost 1,25,600 46,52,200
3. IT Cost 74,32,000
4. Support functions
- Postage and logistics 10,25,000
- Facilities cost 15,24,000
- Employees cost 5,60,000
- Office administration cost 16,20,400 47,29,400
Total Cost 2,36,03,600
𝐓𝐨𝐭𝐚𝐥 𝐂𝐨𝐬𝐭 𝐑𝐬. 𝟐,𝟑𝟔,𝟎𝟑,𝟔𝟎𝟎

(ii) Calculating of Cost per policy = =
𝐍𝐨. 𝐨𝐟 𝐩𝐨𝐥𝐢𝐜𝐢𝐞𝐬 𝟓𝟐𝟖
= Rs 44,703.79

𝐓𝐨𝐭𝐚𝐥 𝐂𝐨𝐬𝐭 𝐑𝐬 𝟐.𝟑𝟔 𝐜𝐫𝐨𝐫𝐞

(iii) Cost per rupee of insured value = =
𝐓𝐨𝐭𝐚𝐥 𝐢𝐧𝐬𝐮𝐫𝐞𝐝 𝐯𝐚𝐥𝐮𝐞 𝐑𝐬 𝟏,𝟑𝟐𝟎 𝐜𝐫𝐨𝐫𝐞
= Rs 0.0018
Solution 3:
Cost Statement of Ignus Thermal Power Station
Total units generated 20,00,000 kWh
Per annum (Rs) Per kWh (Rs)
Fixed Costs
Plant supervision 6,00,000
Depreciation (5% of Rs 5,00,00,000 p.a.) 25,00,000
Total fixed cost: (A) 71,00,000 3.55
Variable costs:
Operating labour 30,00,000
Lubricants, spares and stores 8,00,000
Repairs & maintenance 10,00,000
Coal cost (Refer to working note) 17,00,000
Total variable cost: (B) 65,00,000 3.25
Total cost [(A) + (B)] 1,36,00,000 6.80
Working Note:
Coal cost (20,00,000 kwh. ÷ 5 kWh) × Rs 4.25 per kg. = Rs 17,00,000
Solution 4:
(i) Calculation of total project cost per day of concession period:
Activities Amount (Rs in
Lakh)
Site clearance 170.70
Land development and filling work 9,080.35
Sub base and base courses 10,260.70
Bituminous work 35,070.80
Bridge, flyovers, underpass, Pedestrian subway, footbridge, etc. 29,055.60
Drainage and protection work 9,040.50
Traffic sign, marking and road appurtenance 8,405.00
Maintenance, repairing and rehabilitation 12,429.60
Environmental management 982.20
Total Project cost 1,14,495.25
Administration and toll plaza operation cost 1,120.00
Total Cost 1,15,615.25
Concession period in days (25 years × 365 days) 9,125
Cost per day of concession period (Rs in lakh) 12.67
(ii) Computation of toll fee:

Cost to be recovered per day = Cost per day of concession period + 15% profit on cost
= Rs 12,67,000 + Rs 1,90,050 = Rs 14,57,050
𝐑𝐬 𝟏𝟒,𝟓𝟕,𝟎𝟓𝟎
Cost per equivalent vehicle =
𝟕𝟔.𝟒𝟒𝟒 𝐔𝐧𝐢𝐭𝐬 (𝐫𝐞𝐟𝐞𝐫 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐧𝐨𝐭𝐞)
= Rs 19.06 per equivalent vehicle
Vehicle type- wise toll fee:

S.No. Type of vehicle Equivalent cost [A] Weight Toll fee per
(B) vehicle [A×B]
1. Two wheelers Rs 19.06 1 19.06
2. Car and SUVs Rs 19.06 4 76.24
3. Bus and LCV Rs 19.06 6 114.36
4. Heavy commercial vehicles Rs 19.06 9 171.54
Working Note:
The cost per day has to be recovered from the daily traffic. The each type of vehicle is to be converted into equivalent
unit. Let’s convert all vehicle types equivalent to Two-wheelers.
S.No. Type of vehicle Daily traffic Weight Ratio Equivalent Two
volume [A] [B] wheeler [A×B]
1. Two wheelers 44,500 0.05 1 44,500
2. Car and SUVs 3,450 0.20 4 13,800
3. Bus and LCV 1,800 0.30 6 10,800
4. Heavy commercial vehicles 816 0.45 9 7,344
Total 76,444
Solution 5:
Working Notes:
Total Distance (in km.) covered per month

Bus route Km. per trip Trips per day Days per month Km. per month
Delhi to Chandigarh 250 2 8 4,000
Delhi to Agra 210 2 10 4,200
Delhi to Jaipur 270 2 6 3,240
11,440
Passenger- km. per month

Total seats available per Capacity utilised Km. per Passenger- Km. per
month (at 100% capacity) (%) Seats trip month
Delhi to 800 90 720 250 1,80,000
Chandigarh & Back (50 seats × 2 trips × 8 days) (720 seats × 250 km.)
Delhi to Agra & 1,000 85 850 210 1,78,500
Back (50 seats × 2 trips × 10 days) (850 seats × 210 km.)
Delhi to Jaipur & 600 100 600 270 1,62,000
Back (50 seats × 2 trips × 6 days) (600 seats × 270 km.)
Total 5,20,500
Monthly Operating Cost Statement

(Rs) (Rs)
(i) Running Costs
Diesel {(11,440 km ÷ 4 km) × Rs 56} 1,60,160
Lubricant oil {(11,440 km ÷ 100) × Rs 10} 1,144 1,61,304
(ii) Maintenance Costs
Repairs & Maintenance 1,000
(iii) Standing charges
Salary to driver 24,000
Salary to conductor 21,000
Salary of part-time accountant 5,000
Insurance (Rs 4,800 ÷12) 400

Road tax (Rs 15,915 ÷12) 1,326.25

Permit fee 315
Depreciation {(Rs 12,00,000 × 20%) ÷ 12} 20,000 72,041.25
Total costs per month before Passenger Tax (i)+(ii)+(iii) 2,34,345.25
Passenger Tax* 93,738.10
Add: Profit* 1,40,607.15
Total takings per month 4,68,690.50
*Let, total takings be X then
X = Total costs per month before passenger tax + 0.2 X (passenger tax) + 0.3 X (profit)
X = Rs 2,34,345.25 + 0.2 X + 0.3 X
0.5 X = Rs 2,34,345.25 or, X = Rs 4,68,690.50
Passenger Tax = 20% of Rs 4,68,690.50 = Rs 93,738.10
Profit = 30% of Rs 4,68,690.50 = Rs 1,40,607.15
Calculation of Rate per passenger km. and fares to be charged for different routes
𝐓𝐨𝐭𝐚𝐥 𝐭𝐚𝐤𝐢𝐧𝐠𝐬 𝐩𝐞𝐫 𝐌𝐨𝐧𝐭𝐡
Rate per Passenger-Km. =
𝐓𝐨𝐭𝐚𝐥 𝐏𝐚𝐬𝐬𝐞𝐧𝐠𝐞𝐫−𝐊𝐦. 𝐩𝐞𝐫 𝐌𝐨𝐧𝐭𝐡
𝐑𝐬 𝟒,𝟔𝟖,𝟔𝟗𝟎.𝟓𝟎
= = Rs 0.90
𝟓,𝟐𝟎,𝟓𝟎𝟎 𝐏𝐚𝐬𝐬𝐞𝐧𝐠𝐞𝐫−𝐊𝐦.
Bus fare to be charged per passenger.
Delhi to Chandigarh = Rs 0.90 × 250 km = Rs 225.00
Delhi to Agra = Rs 0.90 × 210 km = Rs 189.00
Delhi to Jaipur = Rs 0.90 × 270 km = Rs 243.00
Solution 6:
(i) Statement showing the expenses of operating a single bus and the fleet of 25 buses for a year
Particulars Per bus per annum (Rs) Fleet of 25 buses per annum (Rs)
Running costs : (A)
Diesel (Refer to working note 1) 2,21,056 55,26,400
Repairs & maintenance costs: (B) 20,500 5,12,500
Fixed charges:
Driver's salary 1,44,000 36,00,000
( Rs 12,000 × 12 months)
Cleaners salary 96,000 24,00,000
(Rs 8,000 × 12 months)
Licence fee, taxes etc. 8,400 2,10,000
Insurance 15,600 3,90,000
Depreciation
(Rs 20,00,000 – Rs 1,60,000)/16yrs. 1,15,000 28,75,000
Total fixed charges: (C) 3,79,000 94,75,000

Total expenses: (A+B+C) 6,20,556 1,55,13,900
(ii) Average cost per student per month in respect of students coming from a distance of:
(a) 2 km. from the school Rs 219.12
{Rs 6,20,556 / (236 students × 12 months)}
(Refer to Working Note 2)
(b) 4 km. from the school (Rs 219.12 × 2) Rs 438.24
(c) 8 km. from the school (Rs 219.12 × 4) Rs 876.48
(iii) Calculation of minimum bus fare to be recovered from the students during the year 2020:

Statement showing the expenses of operating a single bus in year 2020

Particulars Per bus per annum (Rs)
Running costs : (A)
Diesel (Refer to working note 3) 66,318.80
Repairs & maintenance costs: (B) 15,375
(Rs 20,500 x 0.75)
Fixed charges:
Driver's salary 1,17,000
{Rs 12,000 × 3 months + (75% of Rs 12,000 × 9 months)}
Cleaners salary 78,000
{Rs 8,000 × 3 months + (75% of Rs 8,000 × 9 months)}
Licence fee, taxes etc. 8,400
Insurance 15,600
Depreciation
(Rs 20,00,000 – Rs 1,60,000)/16yrs. 1,15,000
Total fixed charges: (C) 3,34,000

Total expenses: (A+B+C) 4,15,691.80
Minimum bus fare to be recovered:

(a) 2 km. from the school Rs 146.78
{Rs 4,15,691.8 / (236 students × 12 months)}
(Refer to Working Note 2)
(b) 4 km. from the school (Rs 146.78 × 2) Rs 293.56
(c) 8 km. from the school (Rs 146.78 × 4) Rs 587.12
Working Notes:
1. Calculation of diesel cost per bus:
No. of trips made by a bus each day 4
Distance travelled in one trip both ways (8 km. × 2 trips) 16 km.
Distance travelled per day by a bus (16 km. × 4 shifts) 64 km.
Distance travelled during a month (64 km. × 22 days) 1,408 km.
Distance travelled per year (1,408 × 10 months) 14,080 km.
No. of litres of diesel required per bus per year 2,816 litres
(14,080 km. ÷ 5 km.)
Cost of diesel per bus per year (2,816 litres × Rs 78.50) Rs 2,21,056
2. Calculation of equivalent number of students per bus:

Bus capacity of 2 trips (40 students × 2 trips) 80 students
1/4th fare students (15% × 80 students) 12 students
½ fare students (30% × 80 students × 2) (equivalent to 1/4th 48 students
fare students)
Full fare students (55% × 80 students × 4) (equivalent to 1/4th 176 students
fare students)

Total students equivalent to 1/4th fare students 236 students
3. Calculation of diesel cost per bus in Year 2020:

Distance travelled during a month (64 km. × 22 days) 1,408 km.
Distance travelled during the year 2020 (1,408 × 3 months) 4,224 km.
No. of litres of diesel required per bus per year 844.8 litres
(4,224 km. ÷ 5 km.)
Cost of diesel per bus per year (844.8 litres × Rs 78.50) Rs 66,316.80
Solution 7:
(i) Operating Cost Sheet for the month of August, 2020
(A) Fixed Charges:
Manager’s salary (Rs 60,000 × 60%) 36,000
Drivers’ Salary (Rs 20,000 × 30 drivers) 6,00,000
Helpers’ wages (Rs 12,000 × 25 helpers) 3,00,000
Insurance (Rs 8,40,000 ÷ 12 months) 70,000
Road licence (Rs 6,00,000 ÷ 12 months) 50,000
Garage rent (Rs 9,00,000 ÷ 12 months) 75,000
Routine mechanical services 3,00,000
Electricity charges (for office, garage and washing station) 55,000
Depreciation of vehicles 6,00,000
Apportioned workshop expenses 88,000
Total (A) 21,74,000
(B) Variable Charges:
Loading and unloading charges (Working Note 1) 7,65,000
Consumable Stores 1,35,000
Cost of diesel (Working Note 2) 14,04,000
Lubricant, Oil etc. 1,15,000
Replacement of Tyres, Tubes & other parts 4,25,000
Total (B) 28,44,000
(C) Total Cost (A + B) 50,18,000
(D) Total Ton-Kms. (Working Note 3) 9,43,200
(E) Cost per ton-km. (C ÷ D) 5.32
(ii) Calculation of Chargeable Freight

Cost per ton-km. Rs 5.32
Add: Profit @ 25% on freight or 33⅓% on cost Rs 1.77
Chargeable freight per ton-km. Rs 7.09
Working Notes:

1. Wages paid to loading and unloading labours

Numbers of vehicles available per day × No. of days × trips × wages per trip
(20 vehicles × 90%) × 25 days × 2 trips × Rs 850
18 × 25 × 2 × 850 = Rs 7,65,000
2. Cost of Diesel:
Distance covered by each vehicle during August, 2020
= 100 k.m. × 2 × 25 days × 90% = 4,500 km.
Consumption of diesel = (4,500k.m. × 20vehicles)/ 5k.m. = 18,000 litres
Cost of diesel = 18,000 litres × Rs 78 = Rs 14,04,000.
3. Calculation of total ton-km:

Total Ton-Km. = Total Capacity × Distance covered by each vehicle × Average Capacity Utilisation ratio.
= [(5 × 9 MT) + (6 × 12MT) + (7 × 15 MT )+(2 × 20 MT)] × 4,500k.m. ×(90% + 70% )/ 2
=(45 + 72 + 105 + 40 ) + 4,500 k.m. × 80%
= 262 × 4,500 × 80%.
= 9,43,200 ton-km.
Solution 8:
(i) Calculation of Absolute Ton-km for the next month:
Journey Distance (in km) Weight- Ton-km Weight- Ton-km Total
Up Down
(in MT) (in MT)
(a) (b) (c) = (a)×(b) (d) (e) = (a)×(d) (f) = (c)+(e)
Delhi to Kochi 2,700 15 40,500 7 18,900 59,400

Delhi to Guwahati 1,890 13 24,570 0 0 24,570
Delhi to Vijayawada 1,840 16 29,440 0 0 29,440
Delhi to Varanasi 815 11 8,965 0 0 8,965
Delhi to Asansol 1,280 13 16,640 5 6,400 23,040
Delhi to Chennai 2,185 11 24,035 9 19,665 43,700
Total 10,710 79 1,44,150 21 44,965 1,89,115
Total absolute Ton-Km = 1,89,115 ton-km
(ii) Calculation of cost per ton-km:

A. Running cost:
- Diesel Cost {Rs 15 × (10,710 × 2)} 3,21,300

- Engine oil cost ( Rs 4,200 / 14,000 km) × 21,420 km) 6,426
- Cost of loading of goods {Rs 200 × (79 + 21)} 20,000

- Depreciation (Rs 20,00,000 / 7,20,000km) × 21,420km 59,500 4,07,226
B. Repair & Maintenance Cost (Rs 12,000 / 10,000km) × 21,420km 25,704
C. Standing Charges
- Drivers’ salary (Rs 20,000 × 5 trucks) 1,00,000

- Cleaners’ salary (Rs 7,000 × 5 trucks) 35,000

- Supervision and other general expenses 15,000 1,50,000

Total Cost (A + B + C) 5,82,930
Total absolute ton-km 1,89,115
Cost per ton-km 3.08
Solution 9:
(i) Calculation of Operating Cost per month for each vehicle
Ramgarh (Rs) Pratapgarh (Rs) Devgarh (Rs) Total(Rs)
A. Running Costs:
- Cost of diesel (Working Note- 2) 1,68,480 95,472 2,49,600 5,13,552
- Servicing cost (Working Note- 3) 45,000 - 45,000 90,000
2,13,480 95,472 2,94,600 6,03,552
B. Fixed Costs:
- Salary to drivers 96,000 72,000 1,20,000 2,88,000
(4 drivers × (3 drivers × (5 drivers ×
Rs 24,000) Rs 24,000) Rs 24,000)
- Salary to cleaners 48,000 36,000 60,000 1,44,000
(4 cleaners × (3 cleaners × (5 cleaners ×
Rs 12,000) Rs 12,000) Rs 12,000)
- Allocated garage parking fee 16,800 12,600 21,000 50,400
(4 vehicles × Rs (3vehicles× Rs (5vehicles× Rs

4,200) 4,200) 4,200)
- Depreciation (Working Note- 4) 36,733 32,800 38,542 1,08,075
- Fess & taxes 5,600 6,400 --- 12,000
2,03,133 1,59,800 2,39,542 6,02,475
Total [A + B] 4,16,613 2,55,272 5,34,142 12,06,027
Operating Cost per vehicle 1,04,153 85,091 1,06,828 (Rs 1,00,502 (Rs
(Rs 4,16,613 ÷ (Rs 2,55,272 ÷ 5,34,142 ÷ 12,06,027 ÷
4 vehicles) 3vehicles) 5 vehicles) 12 vehicles)
(ii) Vehicle operating cost per litre of milk

(Total Operating Cost per month)/ (Total milk carried a month) = Rs 12,06,027 / 79,80,000Litres (WorkingNote - 5) = Rs
0.15
Working Notes:
1. Distance covered by the vehicles in a month
Route Total Distance (in K.M.)
Ramgarh (4 vehicles × 3 trips × 2 × 24 km. × 30 days) 17,280
Pratapgarh (3 vehicles × 2 trips × 2 × 34 km. × 30 days) 12,240
Devgarh (5 vehicles × 4 trips × 2 × 16 km. × 30 days) 19,200
2. Cost of diesel consumption

Ramgarh Pratapgarh Devgarh
Total distance travelled 17,280 12,240 19,200
(K.M.)
Mileage per litre of diesel 8 kmpl 10 kmpl 6 kmpl
Diesel consumption (Litre) 2,160 1,224 3,200
(17,280 ÷ 8) (12,240 ÷ 10) (19,200 ÷ 6)

Cost of diesel consumption @ 1,68,480 95,472 2,49,600

Rs 78 per litre (Rs)
3. Servicing Cost
Total distance travelled (K.M.) 17,280 12,240 19,200
Covered under free service warranty No Yes No
No. of services required 3 2 3
(17,280 k.m. ÷ 5,000 (12,240 k.m. ÷ 5,000 (19,200 k.m. ÷ 5,000
k.m.) k.m.) k.m.)
Total Service Cost (Rs) 45,000 (Rs 15,000 × 3) --- 45,000 (Rs 15,000 × 3)
4. Calculation of Depreciation
No. of vehicles 4 3 5
Cost of a vehicle (Rs) 11,02,000 13,12,000 9,25,000
Total Cost of vehicles (Rs) 44,08,000 39,36,000 46,25,000
Depreciation per month (Rs) 36,733 32,800 38,542
(Rs 44,08,000 ×10%) (Rs 39,36,000 ×10%) (Rs 46,25,000 ×10%)
/12months /12months /12months
5. Total volume of Milk Carried

Route Milk Qty. (Litre)
Ramgarh (10,000 ltr. × 0.7 × 4 vehicles × 3 trips × 30 days) 25,20,000
Pratapgarh (10,000 ltr. × 0.7 × 3 vehicles × 2 trips × 30 days) 12,60,000
Devgarh (10,000 ltr. × 0.7 × 5 vehicles × 4 trips × 30 days) 42,00,000
79,80,000
Solution 10:
Workings:
Calculation of number of Patient days
100 Beds × 120 days = 12000
40 Beds × 80 days = 3,200
Extra beds = 400
Total = 15,600
(i) Statement of Profitability

Income for the year (Rs 200 per patient per day × 15,600 patient days) 31,20,000
Variable Costs:
Doctor Fees (Rs 30,000 per month × 12) 3,60,000
Food to Patients (Variable) 4,40,000
Caretaker Other services to patients (Variable) 1,25,000
Laundry charges (Variable) 1,40,000
Medicines (Variable) 2,80,000
Bed Hire Charges (Rs 50 × 400 Beds) 20,000

Total Variable costs (13,65,000)

Contribution 17,55,000
Fixed Costs:
Rent (Rs 50,000 per month × 12) 6,00,000
Supervisor (2 persons × Rs 5,000 × 12) 1,20,000
Nurses (4 persons × Rs 3,000 × 12) 1,44,000
Ward Boys (2 persons x Rs 1500 x12) 36,000
Repairs (Fixed) 28,000
Cost of Oxygen 75,000
Administration expenses allocated 71,000
Total Fixed Costs (10,74,000)
Profit 6,81,000
Calculation of Contribution and profit per Patient day

Total Contribution = Rs 17,55,000
Total Patient days = 15,600 days
Contribution per Patient day = Rs 17,55,000 / 15,600 days = Rs 112.50

Total Profit = Rs 6,81,000
Total Patient days = 15,600 days
Profit per Patient day = Rs 6,81,000 / 15,600 days = Rs 43.65
(ii) Breakeven Point = Fixed Cost / Contribution per Patient day
= Rs 10,74,000 / Rs 112.50 = 9,547 patient days
Solution 11:
Statement of Cost
Particulars (Rs)
A. Apportionment of capital cost (Rs 900 crores / 10years) × (1/12 months) 7,50,00,000
B. Other Costs
Salary to Collection Personnel (3 Shifts × 5 persons per shift × 30 days 90,000
× Rs 200 per day)
Salary to Supervisor (3 Shifts × 2 persons per shift × 30 days 63,000

× Rs 350 per day)
Salary to Security Personnel (2 Shifts × 2 persons per shift × 30 days 24,000

× Rs 200 per day)
Salary to Toll Booth Manager (3 Shifts × 1 person per shift × 30 days 45,000
× Rs 500 per day)
Electricity 1,50,000
Telephone 1,00,000
4,72,000
C. Maintenance cost 50,00,000
Total (A + B + C) 8,04,72,000
(1) Calculation of cost per kilometre:

= Total Cost / Total km. = Rs 8,04,72,000 / 120km. = Rs 6,70,600
(2) Calculation of toll rate per vehicle:

= Total Cost+ 25% profit / Vehicles per month = (Rs 8,04,72,000 + Rs 2,41,41,600) / 1,00,00,000 vehicles = Rs 10.46
Working:
Vehicles per month = ( Total estimated vehicles / 10 year ) × ( 1 month / 12 months)
= (120crore / 10 years ) × ( 1 month / 12months) = 1 Crore vehicles
Solution 12:
Working Notes:
(i)Total Room days in a year
Season Occupancy (Room-days) Equivalent Full Room charge days
Season – 80% Occupancy 200 Rooms × 80% × 6 28,800 Room Days × 100%
months × 30 days in a month = = 28,800
28,800 Room Days
Off-season – 40% Occupancy 200 Rooms × 40% × 6 14,400 Room Days × 50%
months × 30 days in a month = = 7,200
14,400 Room Days
Total Room Days 28,800 + 14,400 = 43,200 36,000 Full Room days
Room Days
(ii) Lighting Charges:

It is given in the question that lighting charges for 8 months is Rs 110 per month and during winter season of 4 months it
is Rs 30 per month. Further it is also given that peak season is 6 months and off season is 6 months.
It should be noted that – being Hill station, winter season is to be considered as part of Off season. Hence, the non-winter
season of 8 months include – Peak season of 6 months and Off season of 2 months.
Accordingly, the lighting charges are calculated as follows:
Season Occupancy (Room-days)
Season & Non-winter – 80% Occupancy 200 Rooms × 80% × 6 months × Rs 110 per month = Rs
1,05,600
Off- season & Non-winter – 40% Occupancy (8 – 6 months) 200 Rooms × 40% × 2 months × Rs 110 per month = Rs
17,600
Off- season & -winter – 40% Occupancy months) 200 Rooms × 40% × 4 months × Rs 30 per month = Rs
9,600
Total Lighting charges Rs 1,05,600+ Rs 17,600 + Rs 9,600 = Rs 132,800
Statement of total cost:

(Rs)
Staff salary 8,00,000
Repairs to building 3,00,000
Laundry 1,40,000
Interior 2,50,000
Miscellaneous Expenses 2,00,200
Depreciation on Building (₹ 300 Lakhs × 80% × 5%) 12,00,000
Depreciation on Furniture & Equipment (₹ 300 Lakhs × 20% × 15%) 9,00,000
Room attendant’s wages (₹ 15 per Room Day for 43,200 Room Days) 6,48,000
Lighting charges 1,32,800
Total cost 45,71,000

Add: Profit Margin (20% on Room rent or 25% on Cost) 11,42,750

Total Rent to be charged 57,13,750
Calculation of Room Rent per day:

Total Rent / Equivalent Full Room days = Rs 57,13,750/ 36,000 = Rs 158.72
Room Rent during Season – Rs 158.72
Room Rent during Off season = Rs 158.72 × 50% = Rs 79.36
Solution 13:
(i) Statement of Expenses of operating bus/ buses for a year
Particulars Rate (Rs) Per Bus per annum Fleet of 5 buses
(Rs) p.a. (Rs)
(i) Standing Charges:
Driver’s salary 9,000 p.m. 1,08,000 5,40,000
Cleaner’s salary 6,000 p.m. 14,400 72,000
Licence fee, taxes etc. 8,600 p.m. 8,600 43,000
Insurance 10,000 p.m. 10,000 50,000
Depreciation (15,00,000 – 3,00,000) ÷ 12 yrs 1,00,000 p.a. 1,00,000 5,00,000
(ii) Maintenance Charges:
Repairs & maintenance 35,000 p.a. 35,000 1,75,000
(iii) Operating Charges:
Diesel (Working Note 1) 2,92,500 14,62,500
Total Cost [(i) + (ii) + (iii)] 5,68,500 28,42,500
Cost per month 47,375 2,36,875
Total no. of equivalent students (Working Note 2) 150 750
Total Cost per half fare equivalent student Rs 316 Rs 316
(ii) Average cost per student per month:

A. Students coming from distance of upto 5 km. from school
= Total cost per month / Total no. of equivalent students = Rs 47,375 / 150 students = Rs 316
B. Students coming from a distance beyond 4 km. from school

= Cost of per half fare student × 2 = Rs 316 × 2 = Rs 632
Working Notes:
1. Calculation of diesel cost per bus:
Distance travelled in a year : (8 round trip × 10 km. × 25 days × 9 months)
Distance travelled p.a. : 18,000 km.
Cost of diesel (per bus p.a.) : [18,000 km / 4 kmpl] x Rs 65 = Rs 2,92,500
2. Calculation of Equivalent number of students per bus:

Seating capacity of a bus 50 students
Half fare students (50% of 50 students) 25 students
Full fare students (50% of 50 students) 25 students
Total number of students equivalent to half fare students
Full fare students (25 students × 2) 50 students
Add: Half fare students 25 students
Total Equivalent number of students in a trip 75 students
Total number of equivalent students in two trips (Senior + Junior) 150 students
Solution 14:
(i) Annual Cost Statement of four vehicles
(Rs)
Diesel {(4,21,632 km. ÷ 4 km) × Rs 60) (Refer to Working Note 1) 63,24,480
Oil & sundries {(4,21,632 km. ÷ 100 km.) × Rs 525} 22,13,568

Maintenance {(4,21,632 km. × Rs 0.75) + Rs 18,000} (Refer to Working Note 2) 3,34,224

Drivers' salary {(Rs 22,000 × 12 months) × 4 trucks} 10,56,000
Licence and taxes (Rs 15,000 × 4 trucks) 60,000
Insurance 80,000
Depreciation {(Rs 29,00,000 ÷ 10 years) × 4 trucks} 11,60,000
General overhead 1,10,840
Total annual cost 1,13,39,112
(ii) Cost per km. run

𝐓𝐨𝐭𝐚𝐥 𝐜𝐨𝐬𝐭 𝐨𝐟 𝐕𝐞𝐡𝐢𝐜𝐥𝐞𝐬
Cost per kilometre run = (Refer to WN 1)
𝐓𝐨𝐭𝐚𝐥 𝐤𝐢𝐥𝐨𝐦𝐞𝐭𝐫𝐞 𝐭𝐫𝐚𝐯𝐞𝐥𝐥𝐞𝐝 𝐚𝐧𝐧𝐮𝐚𝐥𝐥𝐲
𝐑𝐬 𝟏,𝟏𝟑,𝟑𝟗,𝟏𝟏𝟐
= = Rs 26.89
𝟒,𝟐𝟏,𝟔𝟑𝟐 𝐊𝐦𝐬.
(iii) Freight rate per tonne km (to yield a profit of 30% on freight)
𝐓𝐨𝐭𝐚𝐥 𝐚𝐧𝐧𝐮𝐚𝐥 𝐜𝐨𝐬𝐭 𝐨𝐟 𝟑 𝐯𝐞𝐡𝐢𝐜𝐥𝐞𝐬
Cost per tonne km. = (Refer to WN 1)
𝐓𝐨𝐭𝐚𝐥 𝐞𝐟𝐟𝐞𝐜𝐭𝐢𝐯𝐞 𝐭𝐨𝐧𝐧𝐞𝐬 𝐤𝐦𝐬.𝐩𝐞𝐫 𝐚𝐧𝐧𝐮𝐦
𝐑𝐬 𝟏,𝟏𝟑,𝟑𝟗,𝟏𝟏𝟐
= = Rs 7.04
𝟏𝟔,𝟏𝟎,𝟒𝟗𝟔 𝐊𝐦𝐬.
𝐑𝐬. 𝟕.𝟎𝟒
Freight rate per tonne km. ( ) x 1 = Rs 10.06
𝟎.𝟕
Working Notes:
1. Total kilometre travelled and tonnes kilometre (load carried) by four trucks in one year
Truck number One way No. of Trips Total distance Load carried per Total effective
distance in kms covered in km per trip / day in tonnes km
day tonnes
1 48 4 384 6 1,152
2 120 1 240 9 1,080
3 90 2 360 8 1,440
4 60 4 480 8 1,920
Total 1,464 5,592
Total kilometre travelled by four trucks in one year

(1,464 km. × 24 days × 12 months) = 4,21,632
Total effective tonnes kilometre of load carried by four trucks during one year
(5,592 tonnes km. × 24 days × 12 months) = 16,10,496
2. Fixed and variable component of maintenance cost:

𝐃𝐢𝐟𝐟𝐞𝐫𝐧𝐜𝐞 𝐢𝐧 𝐦𝐚𝐢𝐧𝐭𝐚𝐢𝐧𝐞𝐧𝐜𝐞 𝐜𝐨𝐬𝐭
Variable maintenance cost per km =
𝐃𝐢𝐟𝐟𝐞𝐫𝐧𝐜𝐞 𝐢𝐧 𝐃𝐢𝐬𝐭𝐚𝐧𝐜𝐞 𝐭𝐫𝐚𝐯𝐞𝐥𝐥𝐞𝐝
𝐑𝐬 𝟏,𝟑𝟖,𝟏𝟓𝟎−𝐑𝐬 𝟏,𝟑𝟓,𝟓𝟐𝟓
=
𝟏,𝟔𝟎,𝟐𝟎𝟎 𝐤𝐦𝐬−𝟏,𝟓𝟔,𝟕𝟎𝟎 𝐤𝐦𝐬
= Rs 0.75
Fixed maintenance cost = Total maintenance cost–Variable maintenance cost
= Rs 1,38,150 – 1,60,200 kms × Rs 0.75 = Rs 18,000
Solution 15:
Working Notes:
1. Total Distance (in km.) covered per month
Bus route Km. per trip Trips per day Days per Km. per
month month
Delhi to Hisar 160 2 9 2,880
Delhi to Aligarh 160 2 12 3,840
Delhi to Alwar 170 2 6 2,040

Total 8,760
2. Passenger- km. per month

Total seats available per Capacity Km. Passenger-
month (at 100% utilised per Km. per
capacity) trip month
(%) Seats
Delhi to Hisar & 900 90 810 160 1,29,600
Back (50 seats x 2 trips x 9 (810 seats ×
days) 160 km.)
Delhi to Aligarh 1,200 95 1,140 160 1,82,400

& Back (50 seats x 2 trips x 12 (1,140 seats
days) × 160 km.)
Delhi to Alwar & 600 100 600 170 1,02,000

Back (50 seats x 2 trips x 6 (600 seats ×
days) 170 km.)
Total 4,14,000
Monthly Operating Cost Statement

Particulars (Rs) (Rs)
(i) Running Costs
Diesel {(8,760 km / 5 km) x Rs 90} 1,57,680.00
Lubricant oil {(8,760 km / 100) x Rs 30} 2,628.00 1,60,308.00

(ii) Maintenance Costs
Repairs & Maintenance 5,000.00
(iii) Standing charges
30,000.00
Salary to driver
Salary to conductor 26,000.00
Salary of part-time accountant 7,000.00
Insurance (Rs 6,000 ÷12) 500.00
Road tax (Rs 21,912 ÷12) 1,826.00
Permit fee 500.00
Depreciation {(Rs 15,00,000 x 30%) ¸ 12} 37,500.00 1,03,326.00
Total costs per month before Passenger Tax (i)+(ii)+(iii) 2,68,634.00
Passenger Tax* 1,07,453.60

Add: Profit* 1,61,180.40
Total takings per month 5,37,268.00
*Let total takings be X then,
X = Total costs per month before passenger tax + 0.2 X (passenger tax) + 0.3 X (profit) X = Rs
2,68,634 + 0.2 X + 0.3 X

0.5 X = Rs 2,68,634 or, X = Rs 5,37,268

Passenger Tax = 20% of Rs 5,37,268 = Rs 1,07,453.60 Profit
= 30% of Rs 5,37,268 = ` 1,61,180.40
Calculation of Rate per passenger km. and fares to be charged for different routes
Rate per Passenger-Km. = Total takings per month
Total Passengers – Km. per month
Rs 5,37,268
= 4,14,000 Passenger-Km. = RS 1.30 (approx.)
Bus fare to be charged per passenger:
Delhi to Hisar = Rs 1.30 x 160 km = Rs 208.00

Delhi to Aligarh = Rs 1.30 x 160 km = Rs 208.00
Delhi to Alwar = Rs 1.30 x 170 km = Rs 221.00
Solution 18:
Working Notes:
Calculation of Depreciation per month:
Particulars CNG Car EV Car
A Car purchase price (Rs) 9,20,000 15,20,000
B Less: Govt. subsidy (Rs) -- (1,50,000)
C Less: Residual value (Rs) (95,000) (1,70,000)
D Depreciable value of car (Rs) [A-B-C] 8,25,000 12,00,000
E Life of the car 15 years 10 years
F Annual depreciation (Rs) [D÷E] 55,000 1,20,000
G Depreciation per month (Rs) [F÷12] 4,583.33 10,000
Fuel/ Electricity consumption cost per month:

A Average distance covered in a month (KM) 1,500 1,500
B Mileage (KM) 20 240
C Qty. of CNG/ Full charge required [A÷B] 75 kg. 6.25
D Electricity Consumption [C×30kwh] - 187.5
E Cost of CNG per kg (Rs) 60 -
F Power cost per Kwh (Rs) - 7.60
G CNG Cost per month (Rs) [C×E] 4,500 -
H Power cost per month (Rs) [D×F] - 1,425
Amortised cost of Tyre replacement:
A Life of vehicle 15 years 10 years
B Replacement interval 5 years 5 years

C No. of time replacement required 2 times 1 time
D Cost of tyres for each replacement (Rs) 16,000 16,000
E Total replacement cost (Rs) [C×D] 32,000 16,000
F Amortized cost per year (Rs) [E÷A] 2,133.33 1,600
E Cost per month (Rs) [F÷12] 177.78 133.33
Amortised cost of Battery replacement:


A Life of vehicle 15 years 10 years
B Replacement interval 8 years 8 years
C No. of time replacement required 1 time 1 time
D Cost of battery for each replacement (`) 12,000 5,40,000
E Total replacement cost (`) [C×D] 12,000 5,40,000
F Amortised cost per year (`) [E÷A] 800 54,000
E Cost per month (`) [F÷12] 66.67 4,500
Calculation of Operating cost per month:

Particulars CNG Car (Rs) EV Car (Rs)
A Running cost: 4,500 1,425
Fuel cost/ Power consumption cost [Refer WN-2]
B Maintenance cost:
Annual Maintenance cost [Annual cost ÷12] 666.67 433.33
Annual Insurance cost [Annual cost ÷12] 633.33 1,216.67
Amortized cost of Tyre replacement [Refer WN-3] 177.78 133.33
Amortized cost of Battery replacement [Refer WN-4] 66.67 4,500
1,544.45 6,283.33
C Fixed cost:
Depreciation [Refer WN-1] 4,583.33 10,000
Driver’s salary 20,000 20,000
Garage rent 4,500 4,500
Share of Office & Administration cost 1,500 1,500
30,583.33 36,000
D Operating cost per month [A+B+C] 36,627.78 43,708.33
Solution 19:
(i) Statement of Expenses of operating a mini bus in a year
Particulars Rate (Rs) Per Bus per
annum (Rs)
(A) Standing Charges:
Driver’s Salary 20,000 p.m. 2,40,000
Lady attendant’s salary 10,000 p.m. 1,20,000
Average Cleaner’s salary (50%) 15,000 p.m. 90,000
Insurance Charge 30,000 p.a. 30,000
License fee, taxes etc. 5,080 p.m. 60,960
Average Garage Rent 24,000 p.m. 36,000
Depreciation {(15,00,000 – 3,00,000) ÷ 8} 1,50,000 1,50,000
p.a.
(B) Maintenance Charges:
Repairs & maintenance including engine oil and lubricants (Working 28,560 p.a.
Notes 1)
(C) Operating Charges:
Diesel (Working Note 2) 5,76,000
Total Cost (A + B + C) 13,31,520
Cost per month 1,10,960

(ii) Average Cost per employee per month:

A. Employee coming from distance of upto 15 km
= Total cost per month = 1,10,960 = Rs 1,541.11
Total no. of equivalent employee 72*
B. Employee coming from a distance beyond 15km

= 1541.11 x 2 = Rs 3,082.22
*Considering half fare employees as a base
Full fare employees (12 x 2) 24 employees
Add: Half fare employees (Working Note 3) 12 employees
Total Equivalent number of employees per month 36 employees
Total Equivalent number of employees per month 72 employees
(Morning + afternoon shift of company)
Working Notes:
1. Calculation of Repairs and maintenance cost of a bus:
Distance travelled in a year
(4 trip x 2 shifts x 30 Km. x 20 days x 12 months)
Distance travelled p.a.: 57,600 Km.
Repairs and maintenance cost per bus per annum
= 57,600 Km x Rs 2,856 per bus
5,760 Km
= Rs 28,560 per annum
2. Calculation of diesel cost per bus per annum
Distance travelled in a year = 57,600 Km
Diesel cost per Bus per annum
= 57,600 Km x Rs 80
8 Km
= 5,76,000
3. Calculation of equivalent number of employees per bus:
Selling capacity of a bus 30 employees
Occupancy (80% of a capacity) 24 employees
Half fare employees (50% of 24 employees) 12 employees
Full fare employees (50% of 24 employees) 12 employees
[Note: Total Equivalent number of employees per month (Morning + Afternoon shift of
company can also be calculated considering full fare employees as a base. In that case the
number will be 36. Then fare for employees coming from distance beyond 15 Km will be
1,10,960/36 = Rs 3,082.22 and employees coming from distance upto 15 km will be
3,082.22/2 = Rs 1,541.11]
Solution 20:
Working Notes:
(i) Total room days in a year
Season Occupancy (Room-days) Equivalent Full Room charge days
Season – 80% Occupancy 200 Rooms × 80% × 6 months 28,800 Room Days × 100%
× 30 days in a month = 28,800 = 28,800
Room Days
Off-season – 40% Occupancy 200 Rooms × 40% × 6 months 14,400 Room Days × 50% = 7,200
× 30 days in a month = 14,400
Room Days
Total Room Days 28,800 + 14,400 = 43,200 36,000 Full Room days
Room Days

(ii) Lighting Charges:

It is given in the question that lighting charges for 8 months is Rs 110 per month and during winter season of
4 months it is Rs 30 per month. Further it is also given that peak season is 6 months and off season is 6
months.
It should be noted that – being Hill station, winter season is to be considered as part of Off season. Hence, the
non-winter season of 8 months include – Peak season of 6 months and Off season of 2 months.
Accordingly, the lighting charges are calculated as follows:
Season Occupancy (Room-days)
Season & Non-winter – 80% Occupancy 200 Rooms × 80% × 6 months × Rs 110 per month
= Rs 1,05,600
Off- season & Non-winter – 40% Occupancy (8 – 6 200 Rooms × 40% × 2 months × Rs 110 per month
months) = Rs 17,600
Off- season & - winter – 40% Occupancy 200 Rooms × 40% × 4 months × Rs 30 per month
months) = Rs 9,600
Total Lighting charges Rs 1,05,600+ Rs 17,600 + Rs 9,600 = Rs 1,32,800
Statement of total cost:

(Rs)
Staff salary 8,00,000
Repairs to building 3,00,000
Laundry 1,40,000
Interior 2,50,000
Miscellaneous Expenses 2,00,200
Depreciation on Building (Rs 300 Lakhs × 80% × 5%) 12,00,000
Depreciation on Furniture & Equipment (Rs 300 Lakhs × 20% × 15%) 9,00,000
Room attendant’s wages (Rs 15 per Room Day for 43,200 Room Days) 6,48,000
Lighting charges 1,32,800
Total cost 45,71,000
Add: Profit Margin (20% on Room rent or 25% on Cost) 11,42,750
Total Rent to be charged 57,13,750
Calculation of Room Rent per day:
Total Rent / Equivalent Full Room days = Rs 57,13,750/ 36,000 = Rs 158.72
Room Rent during Season – Rs 158.72
Room Rent during Off season = Rs 158.72 × 50% = Rs 79.36
Solution 21:
(i) Calculation of total project cost per day of concession period:
Activities Amount (Rs in lakh)
Site clearance 341.00
Land development and filling work 9,160.00
Sub base and base courses 10,520.00
Bituminous work 32,140.00

Bridge, flyovers, underpasses, Pedestrian subway, footbridge, etc. 28,110.00
Drainage and protection work 9,080.00
Traffic sign, marking and road appurtenance 8,810.00
Maintenance, repairing and rehabilitation 12,850.00
Environmental management 1,964.00
Total Project cost 1,12,975.00
Administration and toll plaza operation cost 1,200.00
Concession period in days (21 years × 365 days) 7,665
Cost per day of concession period (Rs in lakh) 14.90
(ii) Computation of toll fee:

Cost to be recovered per day = Cost per day of concession period + 15% profit on cost.
= Rs 14,90,000 + Rs 2,23,500 = Rs 17,13,500
Cost per equivalent revenue = Rs 17,13,500 / 76,444 units (Refers working note)
= Rs 22.42 per equivalent vehicle.
Vehicle type-wise toll fee:

SI. No. Types of vehicle Equivalent Cost (A) Weight (B) Toll fee per vehicle
(A x B)
1. Two wheelers Rs 22.42 1 22.42
2. Car and SUVs Rs 22.42 4 89.68
3. Bus and LCV Rs 22.42 6 134.52
4. Heavy commercial vehicles Rs 22.42 9 201.78
Working Note:
The cost per day has to be recovered from the daily traffic. The each type of vehicle is to be converted into equivalent
unit. Let’s convert all vehicle types equivalent to Two-wheelers.
SI. No. Types of vehicle Daily traffic Weight Ratio (B) Equivalent Two-
volume (A) wheeler (A x B)
1. Two wheelers 44,500 0.05 1 44,500
2. Car and SUVs 3,450 0.20 4 13,800
3. Bus & LCV 1,800 0.30 6 10,800
4. Heavy commercial vehicles 816 0.45 9 7,344
Total 76,444

Chapter 13: STANDARD COSTING- Practice Sheet

SOLUTIONS
Solution 1:
The variances may be calculated as under:
(a) Standard cost = Std. Qty × Std. price = 50 units × Rs 1.00 = Rs 50
(b) Actual cost = Actual qty. × Actual price = 45 units × Rs 0.80 = Rs 36
Variances:
(i) Price variance = Actual qty (Std. price – Actual price)
= 45 units (Rs 1.00 – Rs 0.80) = Rs 9 (F)
(ii) Usage variance = Std. price (Std. qty – Actual qty.)
= Rs 1 (50 units – 45 units) = Rs 5 (F)
(iii) Material cost variance = Standard cost – Actual cost
(Total variance) = Rs 50 – Rs 36 = Rs 14 (F)
Solution 2:
(a) Std. labour cost (Rs)
(1,000 hours × Rs 50) 50,000
(b) Actual wages paid 36,000
(c) Actual rate per hour: Rs 36,000/900 hours = Rs 40
Variances
(i) Labour Rate variance = Actual time (Std. rate – Actual rate)
= 900 hours (Rs 50 – Rs 40) = Rs 9,000 (F)
(ii) Efficiency variance = Std. rate per hr. (Std. time – Actual time)
= Rs 50 (1,000 hrs. – 900 hrs.) = Rs 5,000 (F)
(iii) Total labour cost variance = Std. labour cost – Actual labour cost
= {(Rs 50 × 1,000 hours) – Rs 36,000}
= (Rs 50,000 – Rs 36,000) = Rs 14,000 (F)
Solution 3:
Working Notes:
Budget Standard for Actual Actual
Hours Rate Amount Hours Rate Amount Hours Rate Amount
Skilled 2 6 12 20,000 6 1,20,000 18,000 7 1,26,000
Semi-Skilled 3 4 12 30,000 4 1,20,000 33,000 3.5 1,15,500
Un-Skilled 5 3 15 50,000 3 1,50,000 58,000 4 2,32,000
10 39 1,00,000 3,90,000 1,09,000 4,73,500
Idle Hours Hours Worked

Skilled 500 17,500
Semi-Skilled 700 32,300
Unskilled 800 57,200
2,000 1,07,000
(a) (i) Labour Cost Variance = (SH×SR – AH × AR)

Skilled 20,000 × 6 – 18,000 × 7 = Rs 6,000 (A)
Semi-Skilled 30,000 × 4 – 33,000 × 3.5 = Rs 4,500 (F)
Unskilled 50,000× 3 – 58,000 × 4 = Rs 82,000 (A)
Total Rs 83,500 (A)
(ii) Labour Rate Variance = (SR – AR) × AH Paid

Skilled (6 – 7) × 18,000 = Rs 18,000 (A)
Semi-Skilled (4 – 3.5) × 33,000 = Rs 16,500 (F)

Unskilled (3 – 4) × 58,000 = Rs 58,000 (A)

Total Rs 59,500 (A)
(iii) Labour Efficiency Variance = (SH – AH) × SR

Skilled (20,000 –17,500) ×6 = Rs 15,000 (F)
Semi- Skilled (30,000 –32,300) ×4 = Rs 9,200 (A)
Unskilled (50,000 –57,200) ×3 = Rs 21,600 (A)
Total Rs 15,800 (A)
(iv) Labour Idle Time Variance = (Idle Hours × SR)

Skilled 500 × 6 = Rs 3,000 (A)
Semi- Skilled 700 × 4 = Rs 2,800 (A)
Unskilled 800 × 3 = Rs 2,400 (A)
Total Rs 8,200 (A)
(v) Labour Mix Variance = (RSH – AH Worked )×SR

Revised Std. hours (RSH) = Std. Hours ×Total Actual Hours
Total Std. hours
Skilled ( 20,000 × 1,07,000 – 17,500) × 6 = Rs 23,400 (F)

1,00,000
Semi- Skilled ( 30,000 × 1,07,000 – 32,300) × 4 = Rs 800 (A)
1,00,000
Unskilled ( 50,000 × 1,07,000 - 57,200) × 3 = Rs 11,100 (A)

1,00,000
Total Rs 11,500 (F)
(vi) Labour Yield Variance = (SH – RSH) × SR

Skilled ( 20,000 - 20,000 × 1,07,000 ) × 6 = Rs 8,400 (A)
1,00,000
Semi- Skilled ( 30,000 - 30,000 × 1,07,000 ) × 4 = Rs 8,400 (A)
1,00,000
Unskilled ( 50,000 - 50,000 × 1,07,000 ) × 3 = Rs 10,500 (A)
1,00,000
Total Rs 27,300 (A)
(b) Labour Rate Variance = (SR – AR) ×AH Paid

Skilled (6 – 5.5) ×5,000
(6 – 7) ×13,000 = Rs 10,500 (A)
Semi- Skilled (4 – 3.5) ×33,000 = Rs 16,500 (F)
Unskilled (3 – 4) × 58,000 = Rs 58,000 (A)
Total Rs 52,000 (A)
Solution 4:
Workings:
1. Standard hours (SH) for actual hours produced are calculated as below:
Skilled = 1,800 × 1,280 = 1,152 hrs.
2,000
Semi-skilled = 1,800 × 480 = 432 hrs.
2,000
Unskilled = 1,800 × 240 = 215 hrs.
2,000
2. Actual hours (AH) paid are calculated as below:

Category No. of Worker Hours in a week Total Hours
Skilled 28 40 1,120

Semi-Skilled 18 40 720
Unskilled 4 40 160
2,000
3. For 40 hours week total Revised standard hours (RSH) will be calculated as below:
Category No. of Worker Hours in a week Total Hours
Skilled 32 40 1,280
Semi-Skilled 12 40 480
Unskilled 6 40 240
2,000
Calculations:
Category of workers SH x SR AR x SR AH x AR RSH x SR
Skilled 1,152 x 3 = 3,456 1,120 x 3 = 3,360 1,120 x 4 = 4,480 1,280 x 3 = 3,840
Semi-Skilled 432 x 2 = 864 720 x 2 = 1,440 720 x 3 = 2,160 480 x 2 = 960
Unskilled 216 x 1 = 216 160 x 1 = 160 160 x 2 = 320 240 x 1 = 240
Total Rs 4,536 Rs 4,960 Rs 6,960 Rs 5,040
(i) Labour Cost Variance = Std. Cost for hours worked – Actual cost paid
= (SH × SR) – (AH × AR)
= Rs 4,536 – 6,960 = Rs 2,424 (A)
(ii) Labour Rate Variance = AH (SR – AR) or (AH × SR) – (AH × AR)
Skilled = 3,360 – 4,480 = Rs 1,120 (A)
Semi-skilled = 1,440 – 2,160 = Rs 720 (A)
Unskilled = 160 - 320 = Rs 160 (A) 2,000 (A)
(iii) Labour Efficiency Variance = SR (SH – AH) or (SR × SH) – (SR × AH)
Skilled = 3,456 – 3,360 = Rs 96 (F)
Semi-skilled = 864 – 1,440 = Rs 576 (A)
Unskilled = 216 – 160 = Rs 56 (F) Rs 424 (A)
(iv) Labour Mix Variance = SR (RSH – AH) or (SR × RSH) – (SR × AH)
Skilled = 3,840 – 3,360 = Rs 480 (F)
Semi-skilled = 960 – 1,440 = Rs 480 (A)
Unskilled = 240 - 160 = Rs 80 (F) Rs 80 (F)
(v) Labour Yield Variance = SR (SH – RSH) or (SR × SH – SR × RSH)
Skilled = 3,456 - 3,840 = Rs 384 (A)
Semi-skilled = 864 - 960 = Rs 96 (A)
Unskilled = 216 - 240 = Rs 24 (A) Rs 504 (A)
Check
(i) LCV = LRV + LEV
Rs 2,424 (A) = Rs 2,000 (A) + Rs 424 (A)
(ii) LEV = LMV + LYV
Rs 424 (A) = Rs 80 (F) + Rs 504 (A)
Solution 5:
(i) Fixed Overhead Cost Variance:
= Overhead absorbed for actual production – Actual overhead incurred
= ( Rs 15,00,000 x 7,800) - Rs 15,60,000 = 0
7,500
(ii) Fixed Overhead Expenditure Variance:
= Budgeted overhead – Actual overhead
= Rs 15,00,000 - Rs 15,60,000 = Rs 60,000 (A)
(iii) Fixed Overhead Volume Variance:
= Absorbed overhead – Budgeted overhead
= ( Rs 15,00,000 x 7,800) - Rs 15,00,000 = Rs 60,000 (F)
7,500
(iv) Fixed Overhead Efficiency Variance:
= Std. Rate (Std. hours for actual production - Actual hours)

= Rs 15,00,000 {(2 hours × 7,800 hours) -16,000 hours}

7,500 × 2
= Rs 100 (15,600 - 16,000) = Rs 40,000 (A)
(v) Fixed Overhead Capacity Variance:
= Std. Rate (Actual hours - Budgeted hours)
= Rs 15,00,000 (16,000 hours – 15,000 hours)
7,500 × 2
= 100 (16,000- 15,000) = Rs 1,00,000 (F)
Solution 6:
Standard for 10 Units Actual for 10 Units
Material Qty. Rate Amount Qty. Rate Amount
Units (Rs) (Rs) Units (Rs) (Rs)
X 600 15 9,000 640 17.50 11,200
Y 800 20 16,000 950 18.00 17,100
Z 1,000 25 25,000 870 27.50 23,925
Total 2,400 50,000 2,460 52,225
1. Material Cost Variance = Standard cost – Actual cost

= Rs 50,000 – Rs 52,225
MCV = Rs 2,225 (A)
2. Material Price Variance = (Std. Price – Actual Price) × Actual Qty.

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

Material X = (600 – 640) × 15 = Rs 600 (A)
Material Y = (800 – 950) × 20 = Rs 3,000 (A)
Material Z = (1,000 – 870) × 25 = Rs 3,250 (F)
MUV = Rs 350 (A)
Check MCV = MPV + MUV

Rs 2,225 (A) = Rs 1,875 (A) + Rs 350 (A)
4. Material Mix Variance = (Revised Std. Qty. – Actual Qty.) × Std. Price
Material X = (615* – 640) × 15 = Rs 375 (A)
Material Y = (820* – 950) × 20 = Rs 2,600 (A)
Material Z = (1,025 – 870) × 25 = Rs 3,875 (F)
MMV = Rs 900 (F)
*Revised Standard Quantity (RSQ) is calculated as follows:
Material X = 2460 × 600 = 615 units
2400
Material Y = 2460 × 800 = 820 units
2400
Material Z = 2460 × 1,000 = 1,025 units
2400
5. Material Yield Variance= (Std. Qty - Revised Std. Qty.) × Std. Price
Material X = (600 - 615) × 15 = Rs 225 (A)
Material Y = (800 - 820) × 20 = Rs 400 (A)
Material Z = (1,000 - 1,025) × 25 = Rs 625 (A)
MYV = Rs 1,250 (A)
Check,
MUV = MMV + MYV (Or MRUV)

Rs 350 (A) = Rs 900 (F) + Rs 1,250 (A)

or
MCV = MPV + MMV + MYV (Or MRUV)
Rs 2,225 (A) = Rs 1,875 (A) + Rs 900 (F) + Rs 1,250 (A)
Solution 7:
Production/ Overhead volume variance (only for fixed overhead)
Fixed Overhead Volume Variance:
= Absorbed overhead – Budgeted Overhead
= (Rs 5 × 15,000 units) – (Rs 5 × 20,000 units)
= Rs 75,000 - Rs 1,00,000 = Rs 25,000 (Adverse)
Overhead expense variances

For variable overhead:
= AQ (SR – AR)
= 15,000 units (Rs 10 - Rs 10) = Nil
For fixed overhead:

= Budgeted Overhead – Actual Overhead
= (Rs 5× 20,000 units) – (Total overhead – Variable overhead)
= (Rs 5× 20,000 units) – (Rs 3,00,000 - Rs 10 × 15,000 units)
= Rs 1,00,000 – (Rs 3,00,000 - Rs 1,50,000)
= Rs 1,00,000 – Rs 1,50,000 = Rs 50,000 (Adverse)
Solution 8:
(i) Actual Price of Material A
Let Actual Price of Material A be ‘X’
Material Price Variance (A) = Rs 105 (A)
Material Price Variance = (SP – AP) × AQ
(20 – X) × 70 = 105 (A)
1,400 – 70X = -105
X = 1,505 ÷ 70 = 21.5
Therefore X (Actual Price) = Rs 21.5
(ii) Actual Quantity of Material B

Let Actual Quantity of Material B be ‘X ‘
Material Cost Variance = (SQ× SP) – (AQ× AP)
Material Cost Variance = 275 (A)
{(60 × 20) – (70 × 21.5)} + {(40 × 30) – (‘X’ × 30)} = 275 (A)
{(1,200 – 1,505) + (1,200 – 30X)} = -275
(895 – 30X) = -275
X = 1,170 ÷ 30 = 39 units
(iii) Material Price Variance = (SP – AP) × AQ

Material A = (20 – 21.5) × 70 = Rs 105 (A)
Material B = (30 – 30) × 39 = Rs 0
Total = Rs 105 (A)
(iv) Material Usage Variance = (SQ– AQ) × SP

Material A = (60 – 70) × 20 = Rs 200 (A)
Material B = (40 – 39) × 30 = Rs 30 (F)
Total = Rs 170 (A)
(v) Material Mix Variance = (RSQ– AQ) × SP

Material A = (109×60 100 – 70) × 20 = Rs 92 (A)
Material B = (109×40 100 – 39) × 30 = Rs 138 (F)
Total = Rs 46 (F)

(vi) Material Yield Variance = (SQ – RSQ) × SP

Material A = (60 -109×60 100) × 20 = Rs 108 (A)
Material B = (40 – 109×40 100) × 30 = Rs 108 (A)
Total = Rs 216 (A)
Solution 9:
Working Notes:
Budget Actual
1. Working hours per month 24,000 20,160
2. Production units per month = (Budget 24,000 ÷ 4 hrs, Actual given) 6,000 5,305
3. Standard fixed overhead rate per unit = Rs 1,44,000 ÷ 6,000 = Rs 24
4. Standard fixed overhead rate per hour = Rs 1,44,000 ÷ 24,000 = Rs 6
5. Standard fixed overhead rate per day = Rs 1,44,000 ÷ 25 = Rs 5,760
Fixed Overhead Variances:

Actual Fixed overhead incurred = Rs 1,42,000 (given)
Budgeted fixed overhead for the period = Rs 1,44,000.
Standard fixed overhead for actual production
= (Standard output for actual time × Standard Fixed Overhead per unit)
= 5,305 × Rs 24 = Rs 1,27,320.
Variances:
(i) F.O. Expenditure Variance = (Budgeted fixed overhead – Actual fixed overhead)
= 1,44,000 – 1,42,000 = Rs 2,000 (F)
(ii) Total Volume Variance = (Standard fixed overhead – Budgeted fixed overhead)
= 1,27,320 – 1,44,000 = Rs 16,680 (A)
(iii) Fixed overhead variance = (Standard fixed overhead – Actual Fixed overhead)
= 1,27,320 – 1,42,000 = Rs 14,680 (A)
Alternatively: Expenditure Variance + Volume Variance = 2,000 (F) + 16,680 (A) = Rs 14,680 (A)
Solution 10:
For fixed overhead variances:
Actual F.O. incurred (given) Rs 12,000
Budgeted F.O. for the period Rs 10,000
Standard F.O. for production (Standard output for actual time × Standard Fixed Overhead per unit)
2,100 units × {Rs 10,000 ÷ 2,000 units} Rs 10,500
(i) Fixed Overhead Variance = Standard F.O. – Actual F.O.

= Rs 10,500 – Rs 12,000
= Rs 1,500 (A)
(ii) F.O. Expenditure Variance = Budgeted F.O – Actual F.O.
= Rs 10,000 – Rs 12,000
= Rs 2,000 (A)
(iii) F.O. Volume Variance = Standard F.O – Budgeted F.O.
= Rs 10,500 – Rs 10,000
= Rs 500 (F)
Solution 11:
(i) Material Cost Variance (A + B) = {(SQ × SP) – (AQ × AP)}
Rs 3,625 = (SQ × SP) – Rs 59,825
(SQ × SP) = Rs 63,450
(SQA × SPA) + (SQB × SPB) = Rs 63,450
(940 kg × SPA) + (705 kg × Rs 30) = Rs 63,450
(940 kg × SPA) + Rs 21,150 = Rs 63,450
(940 kg × SPA) = Rs 42,300

SPA = Rs 42,300
940kg
Standard Price of Material-A = Rs 45
Working Note:
SQ i.e. quantity of inputs to be used to produce actual output
= 1,480 kg = 1,645 kg
90%
SQA = 800 kg × 1,645kg = 940 kg
(800+600)
SQB = 600 kg × 1,645kg = 705 kg
(800+600)
(ii) Material Price Variance (A + B) = {(AQ × SP) – (AQ × AP)}

Rs 175 = (AQ × SP) – Rs 59,825
(AQ × SP) = Rs 60,000
(AQA × SPA) + (AQB × SPB) = Rs 60,000
(900 kg × Rs 45 (from (i) above))
+ (AQB × Rs 30) = Rs 60,000
Rs 40,500 + (AQB × Rs 30) = Rs 60,000
(AQB × Rs 30) = Rs 19,500
AQB = 19,500 = 650 kg
30
Actual Quantity of Material B = 650 kg.

(iii) (AQ × AP) = Rs 59,825
(AQA × APA) + (AQB × APB) = Rs 59,825
(900 kg × APA) + (650 kg (from (ii)
Above ) × Rs 32.5) = Rs 59,825
(900 kg × APA) + Rs 21,125 = Rs 59,825
(900 kg × APA) = Rs 38,700
APA = 38,700 = 43
900
Actual Price of Material-A = Rs 43
(iv) Total Actual Quantity of Material-A and Material-B

= AQA + AQB = 900 kg + 650 kg (from (ii) above)
= 1,550 kg
Now,
Revised SQA = 800 kg × 1,550 kg = 886 kg
(800+600)
Revised SQB = 600 kg × 1,550 kg = 664 kg
(800+600)
(v) Material Mix Variance (A + B) = {(RSQ × SP) – (AQ × SP)}
= {(RSQA × SPA) + (RSQB × SPB) – 60,000}
= (886 kg (from (iv) above) × Rs 45 (from (i) above))
+ (664 kg (from (iv) above) × Rs 30) - Rs 60,000
= (39,870 + 19,920) – 60,000 = Rs 210 (A)
Solution 12:
(i) Material Variances
Qty. Price Amount Qty. Price Amount Qty. Price Amount
Material 0.5 60 30 5,000 60 3,00,000 5,700 58 3,30,600
Material Cost Variance = (SQ×SP – AQ ×AP)
3,00,000 – 3,30,600 = Rs 30,600(A)
Material Price Variance = (SP – AP) AQ

(60 -58) 5,700 = Rs 11,400 (F)

Material Usage Variance = (SQ – AQ) SP
(5,000 – 5,700) 60 = Rs 42,000 (A)
(ii) Variable Overheads variances

Variable overhead cost Variance = (Standard variable overhead – Actual Variable Overhead)
Standard Variable Overheads: 10,000 units × 10 = 1,00,000
(1,00,000 – 1,12,200) = Rs 12,200(A)
Variable overhead Efficiency Variance = (Standard Hours – Actual Hours) × Standard Rate per Hour
Let Actual Hours be ‘X’
(10,000 – X) × 10 = 2,000 (A)
1,00,000 – 10X = -2,000
X = 1,02,000 ÷ 10
Therefore, Actual Hours (X) = 10,200
Variable overhead Expenditure Variance = (Variable Overhead at Actual Hours - Actual Variable Overheads)
10,200 × 10 – 1,12,200 = Rs 10,200 (A)
(iii) Labour variances

Qty. Price Amount Qty. Price Amount Qty. Price Amount
Labour 1 20 20 10,000 20 2,00,000 10,200 22 2,24,400
Actual Rate = Rs 2,24,400 ÷ 10,200 hours = Rs 22
Labour Cost Variance = (SH × SR) – (AH × AR)
10,000× 20 – 10,200 × 22 = Rs 24,400 (A)
Labour Rate Variance = (SR – AR) × AH
(20 – 22) × 10,200 = Rs 20,400 (A)
Labour Efficiency Variance = (SH – AH) × SR
(10,000 – 10,200) × 20 = Rs 4,000 (A)
Solution 13:
(i) Material Usage Variance = Std. Price (Std. Quantity – Actual Quantity)
= Rs 90 (9,000 kg. – 8,900 kg.)
= Rs 9,000 (Favorable)
(ii) Material Price Variance = Actual Quantity (Std. Price – Actual Price)
= 8,900 kg. (Rs 90 – Rs 92) = Rs 17,800 (Adverse)
(iii) Material Cost Variance = Std. Material Cost – Actual Material Cost
= (SQ × SP) – (AQ × AP)
= (9,000 kg. × Rs 90) – (8,900 kg. × Rs 92)
= Rs 8,10,000 – Rs 8,18,800
= Rs 8,800 (Adverse)
(iv) Labour Efficiency Variance = Std. Rate (Std. Hours – Actual Hours)
= Rs 80[(9000/10) x 800hrs. – 7,000 hrs.)
= Rs 80 (7,200 hrs. – 7,000 hrs.)
= Rs 16,000 (Favorable)
(v) Labour Rate Variance = Actual Hours (Std. Rate – Actual Rate)
= 7,000 hrs. (Rs 80 – Rs 84)
(vi) Labour Cost Variance = Std. Labour Cost – Actual Labour Cost
= (SH × SR) – (AH × AR)
= (7,200 hrs. × Rs 80) – (7,000 hrs. × Rs 84)
= Rs 5,76,000 – Rs 5,88,000
(vii) Variable Cost Variance = Std. Variable Cost – Actual Variable Cost
= (7,200 hrs. × Rs 20) – Rs 1,40,000

(viii) Fixed Overhead Cost Variance = Absorbed Fixed Overhead – Actual Fixed Overhead
= (Rs 250/10) x 9000kgs.) – Rs 2,60,000
= Rs 2,25,000 – Rs 2,60,000 = Rs 35,000 (Adverse)
Solution 14:
(i) Material Usage Variance = Std. Price (Std. Quantity – Actual Quantity)
= Rs 90 (18,000 kg. – 17,800 kg.)
= Rs 18,000 (Favourable)
(ii) Material Price Variance = Actual Quantity (Std. Price – Actual Price)
= 17,800 kg. (Rs 90 – Rs 92) = Rs 35,600 (Adverse)
(iii) Material Cost Variance = Std. Material Cost – Actual Material Cost
= (SQ × SP) – (AQ × AP)
= (18,000 kg. × Rs 90) – (17,800 kg. × Rs 92)
= Rs 16,20,000 – Rs 16,37,600
(iv) Labour Efficiency Variance = Std. Rate (Std. Hours – Actual Hours)
= Rs 100 (1,800 units × 8 – 14,000 hrs.)
= Rs 100 (14,400 hrs. – 14,000 hrs.)
= Rs 40,000 (Favourable)
(v) Labour Rate Variance = Actual Hours (Std. Rate – Actual Rate)
= 14,000 hrs. (Rs 100 – Rs 104)
(vi) Labour Cost Variance = Std. Labour Cost – Actual Labour Cost
= (SH × SR) – (AH × AR)
= (14,400 hrs. × Rs 100) – (14,000 hrs. × Rs 104)
= Rs 14,40,000 – Rs 14,56,000
(vii) Variable Cost Variance = Std. Variable Cost – Actual Variable Cost
= (14,400 hrs. × Rs 15) – Rs 2,17,500
(viii) Fixed Overhead Cost Variance = Absorbed Fixed Overhead – Actual Fixed Overhead
= (1,800 units × Rs 400) - Rs 7,68,000
= Rs 7,20,000 – Rs 7,68,000 = Rs 48,000 (Adverse)
Solution 15:
Material Variances:
Material SQ SP SQ × SP RSQ RSQ × SP AQ AQ × SP AP AQ × AP
(WN-1) (Rs) (Rs) (WN-2) (Rs) (Rs) (Rs) (Rs)
A 940 kg. 90.00 84,600 886 kg. 79,740 900 kg. 81,000 86.00 77,400
B 705 kg. 60.00 42,300 664 kg. 39,840 650 kg. 39,000 65.00 42,250
1645 kg 1,26,900 1550 kg 1,19,580 1550 kg 1,20,000 1,19,650

WN-1: Standard Quantity (SQ):

Material A – {[800 kg./(0.9 × 1,400 kg.)] × 1,480 kg. } = 939.68 or 940 kg
Material B – {[600 kg./(0.9 × 1,400 kg.)] × 1,480 kg. } = 704.76 or 705 kg
WN- 2: Revised Standard Quantity (RSQ):

Material A – {(800 kg./ 1,400 kg.) × 1,550 kg. } = 885.71 or 886 kg
Material A – {(600 kg./ 1,400 kg.) × 1,550 kg. } = 664.28 or 664kg
(a) Material Cost Variance (A + B) = {(SQ × SP) – (AQ × AP)} = {1,26,900 – 1,19,650} = 7,250 (F)
(b) Material Price Variance (A + B) = {(AQ × SP) – (AQ × AP) = {1,20,000 – 1,19,650} = 350 (F)
(c) Material Mix Variance (A + B) = {(RSQ × SP) – (AQ × SP)} = {1,19,580 – 1,20,000} = 420 (A)
(d) Material Yield Variance (A + B) = {(SQ × SP) – (RSQ × SP)} = {1,26,900 – 1,19,580} = 7,320 (F)
Labour Variances:
Labour SH SR SH × SR RSH RSH × SR AH AH × SR AR AH × AR
(WN3) (Rs) (Rs) (WN-4) (Rs) (Rs) (Rs) (Rs)
Skilled 1,116 hrs 75.00 83,700 1144 85,800 1,200 90,000 71.00 85,200
Unskilled 893 hrs 44.00 39,292 916 40,304 860 37,840 46.00 39,560
2,009 hrs 1,22,992 2,060 1,26,104 2,060 1,27,840 1,24,760
WN- 3: Standard Hours (SH):

Skilled labour - {[(0.95 × 1000hr.)/(0.90 × 1,400 kg.)] × 1,480kg. } = 1,115.87 or 1,116 hrs.
Unskilled labour - {[(0.95 × 800hr.)/(0.90 × 1,400 kg.)] × 1,480kg. } = 892.69 or 893 hrs.
WN- 4: Revised Standard Hours (RSH):

Skilled labour - [(1,000 hr./1800 hr.) × 2,060hr.] = 1,144.44 or 1,144 hrs.
Unskilled labour - [(800 hr./1800 hr.) × 2,060hr.] = 915.56 or 916 hrs.
(e) Labour Cost Variance (Skilled + Unskilled) = {(SH × SR) – (AH × AR)} = {1,22,992 – 1,24,760} = 1,768 (A)
(f) Labour Efficiency Variance (Skilled + Unskilled) = {(SH × SR) – (AH × SR)} = {1,22,992 – 1,27,840} = 4,848(A)
(g) Labour Yield Variance (Skilled + Unskilled) = {(SH × SR) – (RSH × SR)}= {1,22,992 – 1,26,104} = 3,112 (A)
Solution 16:
Budgeted Production 30,000 hours ÷ 6 hours per unit = 5,000 units
Budgeted Fixed Overhead Rate = Rs 45,00,000 ÷ 5,000 units = Rs 900 per unit Or
= Rs 45,00,000 ÷ 30,000 hours = Rs 150 per hour.
(i) Material Cost Variance = (Std. Qty. × Std. Price) – (Actual Qty. × Actual Price)
= (4,800 units × 10 kg. × Rs 100) - Rs 52,50,000
= Rs 48,00,000 – Rs 52,50,000
= Rs 4,50,000 (A)
(ii) Labour Cost Variance = (Std. Hours × Std. Rate) – (Actual Hours × Actual rate)
= (4,800 units × 6 hours × Rs 55) – Rs 15,50,000
= Rs 15,84,000 – Rs 15,50,000
= Rs 34,000 (F)
(iii) Fixed Overhead Cost Variance = (Budgeted Rate × Actual Qty) – Actual Overhead
= (Rs 900 × 4,800 units) – Rs 47,00,000
= Rs 3,80,000 (A) OR
= (Budgeted Rate × Std. Hours) – Actual Overhead
= (Rs 150 × 4,800 units × 6 hours) – Rs 47,00,000
= Rs 3,80,000 (A)

(iv) Variable Overhead Cost Variance = (Std. Rate × Std. Hours) – Actual Overhead
= (4,800 units × 6 hours × Rs 100) - Rs 29,30,000
= Rs 28,80,000 - Rs 29,30,000
= Rs 50,000 (A)
Solution 17:
Workings:
Calculation of budgeted hours
Budgeted hours = (52 x 25 x 8) x 85% = 8,840 hours
(i) Variable overheads variance

(a) Variable overhead expenditure variance
= Std. overhead for Actual hours – Actual variable Overhead
= [(Rs 1,06,080 / 8,840) × 8,100 ] – Rs 1,02,000
= 4800 A
(b) Variable overhead efficiency variance
Std. rate per hour × (Std. hours for actual production – Actual hours)
= ( Rs 1,06,080 / 8,840 ) (8,800 hours – 8,100 hours)
= 8400 F
(ii) Fixed overhead variances

(a) Fixed overhead budget variance
= Budgeted overhead – Actual overhead
= Rs 2,21,000 – Rs 2,00,000
= 21,000 F
(b) Fixed overhead capacity variance
= Std rate x (Actual hours – budgeted hours)
= ( Rs 2,21,000 / 8,840 ) x (8,100 – 8,840)
= 18,500 A
(c) Fixed overhead efficiency variance
= Std rate x (Std hours for actual production – Actual hours)
= [Rs 2,21,000 / 8,840 ] x (8,800 – 8,100)
= 17,500 F
(iii) Control Ratios

(a) Capacity Ratio
= ( Actual hours / Budgeted hours ) x 100
= ( 8,100 / 8,840 ) × 100 = 91.63%
(b) Efficiency Ratio
= ( Standard hours / Actual hours ) x 100
= (8,800 / 8,100) × 100 = 108.64 %
(c) Activity Ratio
= (Standard hours / Budgeted hours) × 100
= ( 8,800 / 8,840 ) x 100 = 99.55%
Solution 18:
(1) Fixed Overhead Expenditure Variance
= Budgeted Fixed Overheads – Actual Fixed Overheads
= Rs 12,000 – Rs 12,800 (as calculated below) = Rs 800 (A)

(2) Fixed Overhead Cost Variance= Absorbed Fixed Overheads – Actual Fixed Overheads
2,800 (A) = Rs 10,000 – Actual Overheads Actual Overheads = Rs 12,800
(3) Actual Hours for Actual Production = Rs 12,800/ Rs 8 = 1,600 hrs.
(4) Fixed Overhead capacity Variance

= Budgeted Fixed Overheads for Actual Hours– Budgeted Fixed Overheads
= Rs 5 x 1600 hrs. – Rs 12,000 = Rs 4,000 (A)
(5) Standard Hours for Actual Production

= Absorbed Overheads/ Std. Rate
= Rs 10,000/ Rs 5 = 2,000 hrs.
(6) Fixed Overhead Efficiency Variance

= Absorbed Fixed Overheads – Budgeted Fixed Overheads for Actual Hours
= Rs 10,000 – Rs 5 x 1,600 hrs. = Rs 2,000 (F)
Working Note:
(i) Fixed Overhead Volume Variance = Absorbed Fixed Overheads – Budgeted Fixed Overheads
2,000 (A) = Absorbed Fixed Overheads – Rs 12,000
Absorbed Fixed Overheads = Rs 10,000
(ii) Standard Rate/ Hour = Rs 5 (Rs 12,000/2,400 hrs.)
Solution 19:
Basic Calculation
Material Standard for 640 kg. output Actual for 680 kg. output
Qty. Kg. Rate (Rs) Amount (Rs) Qty Kg. Rate (Rs) Amount (Rs)
A 480 50 24,000 540 60 32,400
B 320 60 19,200 260 50 13,000
Total 800 43,200 800 45,400
Less: Loss 160 - - 120 - -
640 43,200 680 45,400
Std. cost of actual output = Rs 43,200 × 680/640 = Rs 45,900
Calculation of Variances
(i) Material Cost Variance = (Std. cost of actual output – Actual cost)
= (45,900– 45,400) = Rs 500 (F)
(ii) Material Price Variance = (SP – AP) × AQ

Material A = (50 – 60) × 540 = Rs 5400 (A)
Material B = (60 – 50)) × 260 = Rs 2600 (F) MPV = Rs 2800 (A)
(iii) Material Usage Variance (MUV) = (Std. Quantity for actual output – Actual Quantity) × Std. Price
Material A = [ (480 × 680) / 640 – 540) × 50 = Rs 1,500 (A)
Material B = [ (320 ×680) / 640 – 260) × 60 = Rs 4,800 (F)
MUV = Rs 3,300 (F)
(iv) Material Mix Variance = SP × (RAQ – AQ) A

= Rs 50× (480 Kg – 540 Kg) = Rs 3,000 (A)
B = Rs 60 × (320 Kg. – 260 Kg.) = Rs 3,600 (F)
Total = Rs 3,000 (A) + Rs 3,600 (F) = Rs 600 (F)
(v) Material Yield Variance = SP × (SQ – RAQ) A

= Rs 50 × (510 Kg. – 480 Kg) = Rs 1,500 (F)

B = Rs 60 × (340 Kg. – 320 Kg.) = Rs 1,200 (F)

Total = Rs 1,500 (F) + Rs 1,200 (F) = Rs 2,700 (F)
Solution 20:
Working:
No. of units produced 1,000 units
Std. input per unit 30 kg.
Std. quantity (Kg.) 30,000 kg.
Add: Excess usage 7,200 kg
Actual Quantity 37,200 kg.
Add: Closing Stock 10,000 kg.
Less: Opening stock 5,000 kg.
Quantity of Material purchased 42,200 kg.
(i) Direct Material Price Variance:

= Actual Quantity purchased (Std. Price – Actual Price)
= 42,200 kg.(Rs 350 – Rs 365) = 6,33,000 (Adverse)
Direct Material Usage Variance:
= Std. Price (Std. Quantity – Actual Quantity)
= Rs 350 (30,000 kg. – 37,200 kg.) = Rs 25,20,000 (Adverse)
(ii) Direct Labour Rate Variance:
= Actual hours (Std. Rate – Actual Rate)
= 5,300 hours (Rs 80 – Rs 82) = Rs 10,600 (Adverse)
Direct Labour Efficiency Variance:
= Std. Rate (Std. hours – Actual hours)
= Rs 80 (1,000 units × 5 hours – 5,300 hours) = Rs 24,000 (Adverse)
Solution 21:
(i) Material price variance: = Actual Quantity Consumed (Std. Price – Actual Price)
𝐑𝐬. 𝟏,𝟖𝟕,𝟎𝟎𝟎
= 22,000 pcs. [Rs 9 - ] = Rs 11,000 (Favourable)
𝟐𝟐,𝟎𝟎𝟎 𝐩𝐜𝐬
(ii) Material usage variance:
= Std. price per piece (Std. Quantity – Actual Quantity Consumed)
= Rs 9 (1,900 units × 10 pcs. – 22,000 pcs.) = Rs 27,000 (Adverse)
(iii) Labour rate variance:

= Actual HoursPaid (Std. rate – Actual rate)
𝐑𝐬. 𝟓𝟏,𝟓𝟎𝟎
= 5,150 Hours [Rs 12 - ] = ₹ 10,300 (Favourable)
𝟓,𝟏𝟓𝟎 𝐇𝐨𝐮𝐫𝐬
(iv) Labour efficiency variance:

= Std. rate per hour (Std. hours – Actual Hours Worked )
= Rs 12 (1,900 units × 2.5 hours – 5,150 hours) = Rs 4,800 (Adverse)
(v) Fixed overhead expenditure variance:

= Budgeted Overhead – Actual Overhead
= Rs 84,000 – Rs 92,000 = Rs 8,000 (Adverse)
(vi) Fixed overhead efficiency variance:

= Std. rate per hour (Std. hours - Actual Hours Worked )
= Rs 16 (1,900 units × 2.5 hours - 5,150 hours) = Rs 6,400 (Adverse)
Or,
Fixed overhead efficiency variance on the basis of units
= Std. rate per unit (Actual output – Standard output for actual hours)

= Rs 40 (1,900 units - 5,150 hours / 2.5 hours) = Rs 6,400 (Adverse)
(vii) Fixed overhead capacity variance:

= Std. rate per hour (Actual Hours Worked – Budgeted hours)
𝐑𝐬.𝟖𝟒,𝟎𝟎𝟎
= Rs 16 [5,150 Hours - ] = Rs 1,600 (Adverse)
𝐑𝐬.𝟏𝟔
Or,
Fixed overhead capacity variances on the basis of units
= Std. rate per unit (Standard output for actual hours – Budgeted output)
= Rs 40 (2,060 units - Rs 84,000 / Rs 40) = Rs 1,600 (Adverse)
Solution 22:
Calculations of standard input of Material B
Material Usage Variance (B) = 300 (A)

Material Usage Variance = (SQ – AQ) x SP
Therefore : = (SQ – 70) x Rs 15 = 300 (A)
= SQ (B) = 50 Kg
(a) Material cost variance
Material cost variance = (SQ x SP) – (AQ x AP)
Material A = (50 x Rs 12) – (40 x Rs 15) = 0
Material B = (50 x Rs 15) – (70 x Rs 20) = Rs 650 (A) = Rs 650 (A)
(b) Material price variance

Material price variance = (SP – AP) x AQ
Material A = (Rs 12 - Rs 15) x 40 = Rs 120 (A)
Material B = (Rs 15 - Rs 20) x 70 = Rs 350 (A) = Rs 470 (A)
(c) Material using variance Material A

Material using variance Material A = (SQ – AQ) x SP
= (50 – 40) x Rs 12
= Rs 120(F)
Solution 23:
(a) Basic Calculations:
Standard hours per unit = Budgeted hours / Budgeted Units = 25,000 / 50,000 = 0.50 hrs
Std. hrs. for actual output = 54,000 units x 0.50hr = 27,000 hrs.
Standard overhead rate per hour = Budgeted overhead / Budgeted hours
For fixed overhead = 65,000 / 25,000 = 2.60 per hr

Std. F.O. rate per day = Rs 65,000 ÷ 25 days = Rs 2,600
Recovered overhead = Std. hrs. for actual output × Std. rate
= 27,000 hrs. × Rs 2.60 = Rs 70,200
Standard overhead = Actual hours × Std. rate

For fixed overhead = 28,000 hrs. × Rs 2.60 = Rs 72,800
Revised budgeted hours = [Budgeted hours / Budgeted days] x Actual days
= [25,000 / 25] x 26 = 26,000 hrs.
Revised budgeted overhead (for fixed overhead) = 26,000 hrs. × Rs 2.60 = Rs 67,600

Calculation of variances
(i) F.O. Cost Variance = Recovered Overhead – Actual Overhead
= Rs 70,200 – Rs 54,000 = Rs 16,200 (F)
(ii) F.O. Expenditure Variance = Budgeted Overhead – Actual Overhead

= Rs 65,000 – Rs 54,000 = Rs 11,000 (F)
(iii) F.O. Volume Variance = Recovered Overhead – Budgeted Overhead

= Rs 70,200 – Rs 65,000 = Rs 5,200 (F)
(iv) F.O. Efficiency Variance = Recovered Overhead – Standard Overhead

= Rs 70,200 – Rs 72,800 = Rs 2,600 (A)
(v) F.O. Capacity Variance = Standard Overhead – Revised Budgeted Overhead

= Rs 72,800 – Rs 67,600 = Rs 5,200 (F)
(vi) F.O. Calendar Variance = (Actual days – Budgeted days) x Std. rate per day
= (26 – 25) × Rs 2,600 = Rs 2,600 (F)
Solution 24:
(i) Material Cost , price and usage variance
Material cost variance ( on the basis of consumed quantity)
= SQ × SP – AQ Consumed × AP
= (5 kg. × 62,000 units × Rs 15) - (3,20,000 kg. × Rs 14)
= Rs 46,50,000 - Rs 44,80,000
= Rs 1,70,000 (F)
Alternatively,
Material Cost Variance (on the basis of purchased quantity)
= SQ × SP – AQ Purchase × AP
= 3,10,000 × Rs 15 – 3,50,000 × Rs 14
= Rs 2,50,000 (A)
Material Price Variance (on the basis of consumed quantity)

= AQ Consumed × SP – AQ Consumed × AP
= (3,20,000 kg. × Rs 15) - (3,20,000 kg. × Rs 14)
= Rs 3,20,000 (F)
Alternatively,
Material Price Variance (on the basis of purchased quantity)
= (SP – AP) × AQPurchase
= (Rs 15 - Rs 14) × 3,50,000 = Rs 3,50,000 (F)
Material Usage Variance = SP × SQ – SP × AQ Consumed

= (Rs 15 × 5 kg. × 62,000 units) – (Rs 15 × 3,20,000 kg.)
= Rs 46,50,000 – Rs 48,00,000
= Rs 1,50,000 (A)
(ii) Labour cost Variance = SH × SR – AH × AR

= 2,48,000 hours × Rs 20 – 2,20,000 hours × Rs 21
= Rs 49,60,000 – Rs 46,20,000
= Rs 3,40,000 (F)
Rate Variance = (SR – AR) × AH

= (Rs 20 – Rs 21) × 2,20,000 = 2,20,000 (A)
Efficiency Variance = (SH – AH) × SR

= (2,48,000 – 2,20,000) × Rs 20
= 5,60,000 (F)
(iii) Hours Saved = 2,48,000 – 2,20,000 = 28000 hrs.

Bonus Rate = Rs 20 × 50% = Rs 10
Bonus = 28,000 × Rs 10 = Rs 2,80,000
Solution 25:
1. (i) Material Variances
Budget Std. for actual Actual
Quantity Price Amount Quantity Price Amount Quantity Price Amount

(Meter) (Rs) (Rs) (Meter) (Rs) (Rs) (Meter) (Rs) (Rs)
1 60 60 10,000 60 6,00,000 11,400 58 6,61,200

Material Cost Variance = (SQ × SP – AQ × AP)
= 6,00,000 – 6,61,200 = Rs 61,200 (A)
Material Price Variance = (SP – AP) AQ
= (60 - 58) 11,400 = Rs 22,800 (F)
Material Usage Variance = (SQ – AQ) SP
= (10,000 – 11,400) 60 = Rs 84,000 (A)
(ii) Variable Overheads variances

Variable overhead cost Variance
= Standard variable overhead – Actual Variable Overhead
= (10,000 units × 2 hours × Rs 10) – 2,24,400 = Rs 24,400 (A)
Variable overhead Efficiency Variance

= (Standard Hours – Actual Hours) × Standard Rate per Hour
Let Actual Hours be ‘X’, then:

(20,000 – X) × 10 = 4,000 (A)
2,00,000 – 10X = - 4,000
X = 2,04,000 ÷ 10
Therefore, Actual Hours (X) = 20,400
Variable overhead Expenditure Variance
= Variable Overhead at Actual Hours - Actual Variable Overheads
= 20,400 × Rs 10 – 2,24,400 = Rs 20,400 (A)
(iii) Labour variances
Budget Std. for actual Actual
Hours Rate( Amount Hours Rate Amount Hours Rate Amount

Rs) (Rs) (Rs) (Rs) (Rs) (Rs)
2 20 40 20,000 20 4,00,000 20,400 22* 4,48,800
*Actual Rate = Rs 4,48,800 ÷ 20,400 hours = Rs 22
Labour Cost Variance = (SH × SR) – (AH × AR)

= 4,00,000 – 4,48,800 = Rs 48,800 (A)
Labour Rate Variance = (SR – AR) × AH

= (20 – 22) × 20,400 = Rs 40,800 (A)
Labour Efficiency Variance = (SH – AH) × SR

= (20,000 – 20,400) × 20 = Rs 8,000 (A)

Solution 28:
Working Notes:
Calculation of Standard Man hours
When 100 workers work for 1 hour, the standard output is 50 units.
Standard man hours per unit = 100 hours/50units = 2 hours per unit
Calculation of standard man hours for actual output:
= 1,920units x 2 hours = 3,840 hours.
Calculation of actual cost
Type of Workers No of Actual Hours Rate Amount Idle Hours (5% of Actual hours
Workers Paid (Rs) (Rs) hours paid) Worked
Group ‘A’ 10 400 12.40 4,960 20 380
Group ‘B’ 30 1,200 12 14,400 60 1,140
Group ‘C’ 60 2,400 11.40 27,360 120 2,280
100 4,000 46,720 200 3,800
Calculation of Standard wage Rate:
Labour Efficiency Variance = 480F
(Standard hours for Actual production – Actual Hours) x SR = 480F
(3,840 – 3,800) x SR = 480
Standard Rate (SR) = Rs 12 per hour
Total Labour Cost Variance
= (Standard hours x Standard Rate) – (Actual Hours x Actual rate)
= (3,840 x 12) – 46,720 = 640A
Total Labour Rate Variance
= (Standard Rate – Actual Rate) x Actual Hours
Group ‘A’ = (12 – 12.40) 400 = 160 A
Group ‘B’ = (12 – 12) 1,200 0
Group ‘C’ = (12 – 11.40) 2,400 = 1,440 F
1,208 F
Total Labour Gang Variance
= Total Actual Time Worked (hours) × {Average Standard Rate per hour of Standard Gang -Average Standard Rate per
hour of Actual Gang@}
@ on the basis of hours worked
= 3,800 × (12- 3,840×12)
3,800
=0
[Note: As the number of workers in standard and actual is the same, there is no difference in mix ratio, so labour gang
variance will be NIL]
Total Labour Yield Variance
= Average Standard Rate per hour of Standard Gang × {Total Standard Time (hours) - Total Actual Time worked (hours)}
= 12 x (3,840 – 3,800)
= 480F
Total Labour idle time variance
= Total Idle hours x standard rate per hour
= 200 hours x 12
= 2,400A
Solution 29:
Working Notes
Fixed Overheads = Budgeted Fixed Overheads = Rs 12,00,000 Rs 10
Budgeted Output 1,20,000 units
Fixed Overheads element in Semi-Variable overheads i.e. 60% of Rs 1,80,000 Rs 1,08,000
Fixed Overheads = Budgeted Fixed Overheads = Rs 1,08,000 Rs 0.90
Budgeted output 1,20,000 units

Standard rate of Absorption of Fixed Overheads per units (Rs 10 + Rs 0.90) Rs 10.90
Fixed overheads absorbed on 8,000 units @ Rs 10.90 Rs 87,200
Budgeted Variable Overheads Rs 6,00,000
Add: Variable element in Semi-variable overheads 40% of Rs 1,80,000 Rs 72,000
Total Budgeted Variable Overheads Rs 6,72,000
Standard variable Cost per unit = Budgeted Variable Overheads = Rs 6,72,000 Rs 5.60
Budgeted Output 1,20,000 units
Standard Variable Overheads for 8,000 units @ Rs 5.60 Rs 44,800
Budgeted Annual Fixed Overheads (Rs 12,00,000 + 60% of Rs 1,80,000) Rs 13,08,000
Possible Fixed Overheads = Budgeted Fixed Overheads x Actual days Rs 1,03,550
Budgeted days
= Rs 1,09,000 x 19 days
20 days
Actual Fixed Overheads (Rs 1,10,000 + 60% of Rs 19,200) Rs 1,21,520
Actual Variable Overheads (Rs 48,000 + 40% of Rs 19,200) Rs 55,680
Computation of Variances
Overhead Cost Variable = Absorbed Overheads – Actual Overheads
= (Rs 87,200 + Rs 44,800) – (Rs 1,21,520 + Rs 55,680)
= Rs 45,200 (A)
Fixed Overhead cost Variance = Absorbed Fixed Overheads – Actual Fixed Overheads
= Rs 87,200 – Rs 1,21,520
= Rs 34,320 (A)
Variable Overhead Cost Variance = Standard Variable Overheads for Production – Actual Variable Overheads
= Rs 44,800 – Rs 55,680
= Rs 10,880 (A)
Fixed Overhead Volume Variance = Absorbed Fixed Overheads – Budgeted Fixed Overheads
= Rs 87,200 – Rs 1,09,000
= Rs 21,800 (A)
Fixed Overhead Expenditure Variance = Budgeted Fixed Overheads – Actual Fixed Overheads
= Rs 10.90 × 10,000 units – Rs 1,21,520
= Rs 12,520 (A)
Calendar Variance = Possible Fixed Overheads – Budgeted Fixed Overheads
= Rs 1,03,550 – Rs 1,09,000
= Rs 5,450 (A)
OR
Calendar Variance = (Actual days – Budgeted days) x Standard fixed overhead rate per day
Standard fixed overhead rate per day = 1308000/20*12 = Rs 5450
Fixed Overhead Calendar Variance = (19-20) x 5450 = 5450(A)
Solution 30:
SR – Standard Labour Rate per hour
AR – Actual Labour rate per hour
SH – Standard Hours
AH – Actual Hours
(i) Labour rate variance = AH (SR – AR)
-1,53,846 = 25,641 (12 – AR)
- 6 = 12 – AR
AR = Rs 18
(ii) Labour Efficiency = SH/AH x 100 = 105.3
SH = AH x 105.3/100 = 25,641 x 105.3/100
SH = 26,999.973
SH = 27,000 hours
(iii) Labour Efficiency variance = SR (SH – AH)

= 12 (27,000 – 25,641)
= Rs 16,308 (F)
(iv) Standard Labour Cost per unit = 27,000 x 12/9,000 = Rs 36
(v) Actual Labour Cost per unit = 25,641 x 18/9,000 = Rs 51.282
Solution 31:
Budgeted Production 30,000 hours ÷ 6 hours per unit = 5,000 units
Budgeted Fixed Overhead Rate = Rs 90,00,000 ÷ 5,000 units = Rs 1,800 per unit
= Rs 90,00,000 ÷ 30,000 hours = Rs 300 per hour.
(i) Material Cost Variance = (Std. Qty. × Std. Price) – (Actual Qty. × Actual Price)
= (4,800 units × 10 kg. × Rs 200) – Rs 1,05,00,000
= Rs 96,00,000 – Rs 1,05,00,000
= Rs 9,00,000 (A)
(ii) Labour Cost Variance = (Std. Hours × Std. Rate) – (Actual Hours × Actual rate)
= (4,800 units × 6 hours × Rs 110) – Rs 31,00,000
= Rs 31,68,000 – Rs 31,00,000
= Rs 68,000 (F)
(iii) Fixed Overhead Cost Variance= (Budgeted Rate × Actual Qty) – Actual Overhead
= (Rs 1,800 × 4,800 units) – Rs 94,00,000
= Rs 7,60,000 (A)
OR = (Budgeted Rate × Std. Hours) – Actual Overhead
= (Rs 300 × 4,800 units × 6 hours) – Rs 94,00,000
= Rs 7,60,000 (A)
(iv) Variable Overhead Cost Variance= (Std. Rate × Std. Hours) – Actual Overhead
= (4,800 units × 6 hours × Rs 200) - Rs 58,60,000
= Rs 57,60,000 - Rs 58,60,000
= Rs 1,00,000 (A)

Chapter 14: MARGINAL COSTING- Practice Sheet

SOLUTIONS
Solution 1:
(i) Calculation of Contribution to sales ratio at existing sales mix:
Products Total
A B C
Selling Price (Rs) 300 400 200
Less: Variable Cost (Rs) 150 200 120
Contribution per unit (Rs) 150 200 80
P/V Ratio 50% 50% 40%
Sales Mix 40% 35% 25%
Contribution per rupee of sales (P/V 20% 17.5% 10% 47.5%
Ratio × Sales Mix)
Present Total Contribution (Rs 60,00,000
× 47.5%) Rs 28,50,000
Less: Fixed Costs Rs 18,00,000
Present Profit Rs 10,50,000
Present Break-Even Sales (Rs 18,00,000/0.475) Rs 37,89,473.68
(ii) Calculation of Contribution to sales ratio at proposed sales mix:

Products Total
A B E
P/V Ratio 50% 50% 50%
Sales Mix 45% 30% 25%
Contribution per rupee of sales (P/V 22.5% 15% 12.5% 50%
Ratio × Sales Mix)
Proposed Total Contribution (Rs 64,00,000
× 50%) Rs 32,00,000
Proposed Profit Rs 14,00,000
Proposed Break-Even Sales (Rs 18,00,000/0.50) Rs 36,00,000
(iii) The proposed sales mix increases the total contribution to sales ratio from 47.5% to 50% and the total profit from Rs
10,50,000 to Rs 14,00,000. Thus, the proposed sales mix should be accepted.
Solution 2:
(i) Computation of PV ratio, contribution and break-even sales for existing product mix
Products
S T U Total
P/V Ratio (Contribution/Selling 50% 50% 40%
price)
Sales Mix 35% 35% 30%
Contribution per rupee of sales 17.5% 17.5% 12% 47%
(P/V Ratio × Sales Mix)

Present Total Contribution (Rs Rs 28,20,000

60,00,000 × 47%)
Present Break Even Sales (Rs Rs 38,29,787
18,00,000/0.47)
(ii) Computation of PV ratio, contribution and break-even sale for proposed product mix
Products
S T M Total
P/V Ratio (Contribution/Selling 50% 50% 50%
price)
Sales Mix 50% 25% 25%
Contribution per rupee of sales 25% 12.5% 12.5% 50%
Present Total Contribution (Rs Rs 32,00,000
64,00,000 × 50%)
Present Break Even Sales (Rs Rs 36,00,000
18,00,000/0.50)
Solution 3:
Sales Volume 5,00,000 Units
Computation of existing contribution
Particulars Per unit (Rs) Total (Rs In lakhs)

Sales 680 3,400
Fixed Cost 200 1,000
Profit 50 250
Contribution 250 1,250
Variable Cost (Sales – Contribution) 430 2,150
(i) Break even sales in units = (Fixed Cost / Contribution per unit)
= Rs 10,00,00,000/ Rs 250 = 4,00,000 units
Break even sales in rupees = 4,00,000 units × Rs 680 = Rs 2,720 lakhs
OR
P/V Ratio = (250 / 680) × 100 = 36.76%
B.EP (Rupees) = [Fixed Cost / (P/V Ratio)] = 10,00,00,000/36.76% = Rs 2,720 lakhs (approx.)
(ii) Number of units sold to achieve a target profit of Rs 700 lakhs:

Desired Contribution = Fixed Cost + Target Profit
= 1,000 L + 700 L = 1,700 L
Number of units to be sold = (Desired Contribution/ Contribution per unit) = 17,00,00,000/250 = 6,80,000 units
(iii) Profit if selling price is increased by 10% and sales volume drops by 10%:
Existing Selling Price per unit = Rs 680
Revised selling price per unit = Rs 680 × 110% = Rs 748
Existing Sales Volume = 5,00,000 units

Revised sales volume = 5,00,000 units – 10% of 5,00,000 = 4,50,000 units.
Statement of profit at sales volume of 4,50,000 units @ Rs 748 per unit

Particulars Per unit (Rs) Total (Rs In lakhs)
Sales 748 3,366
Less: Variable Costs 430 1,935
Contribution 318 1,431
Less: Fixed Cost 1,000
Profit 431
(iv)Volume to be achieved to earn target profit of Rs 700 lakhs with revised selling price and reduction of 10% in variable
costs and Rs 170 lakhs in fixed cost:
Revised selling price per unit = Rs 748
Variable costs per unit existing = Rs 430
Revised Variable Costs
Reduction of 10% in variable costs = Rs 430 – 10% of 430
= Rs 430 – Rs 43
= Rs 387
Total Fixed Cost (existing) = Rs 1,000 lakhs
Reduction in fixed cost = Rs 170 lakhs
Revised fixed cost = Rs 1,000 lakhs – Rs 170 lakhs = Rs 830 lakhs
Revised Contribution (unit) = Revised selling price per unit – Revised Variable Costs per units
Revised Contribution per unit = Rs 748 – Rs 387 = Rs 361
Desired Contribution = Revised Fixed Cost + Target Profit
= Rs 830 lakhs + Rs 700 lakhs = Rs 1,530 lakhs
No. of units to be sold = (Desired Contribution / Contribution per unit) = Rs 15,30,00,000/ Rs 361 = 4,23,823 units
Solution 4:
Working Notes:
(1) Calculation of Cost of Goods Sold (COGS):
COGS = DM + DL + FOH + AOH
COGS = {0.3 COGS + 0.15 COGS + (0.10 COGS + Rs 2,30,000) + (0.02 COGS + Rs 71,000)}
Or, COGS =0.57 COGS + Rs 3,01,000
Or, COGS =Rs 3,01,000/0.43= Rs 7,00,000
(2) Calculation of Cost of Sales (COS):

COS = COGS + S&DOH
COS = COGS + (0.04 COS + Rs 68,000)
Or, COS =Rs 7,00,000 + (0.04 COS + Rs 68,000)
Or, COS =Rs7,68,000 /0.96 = Rs 8,00,000
(3) Calculation of Variable Costs:

Direct Material- (0.30 × Rs 7,00,000) Rs 2,10,000
Direct Labour- (0.15 × Rs 7,00,000) Rs 1,05,000
Factory Overhead- (0.10 × Rs 7,00,000) Rs 70,000
Administration OH- (0.02 × Rs 7,00,000) Rs 14,000
Selling & Distribution OH (0.04 × Rs 8,00,000) Rs 32,000
Rs 4,31,000
(4) Calculation of total Fixed Costs:

Factory Overhead- Rs 2,30,000

Administration OH- Rs 71,000
Selling & Distribution OH Rs 68,000
Rs 3,69,000
(5) Calculation of P/V Ratio:

P/V Ratio = (Contribution/sales) × 100 = (Sales - Variable Costs / sales ) × 100
= [(Rs 185 × 5,000units) - Rs 4,31,000 ) × 100 / Rs 185 × 5,000 units = 53.41%
(i) Break-Even Sales
= (Fixed Costs)/(P/V Ratio) = Rs 3,69,000/53.41% = Rs 6,90,882
(ii)Profit earned during the last year
= (Sales – Total Variable Costs) – Total Fixed Costs
= (Rs 9,25,000 – Rs 4,31,000) – Rs 3,69,000
= Rs 1,25,000
(iii) Margin of Safety (%)
= (Sales – Break even sales / sales) × 100
= (Rs 9,25,000 – Rs 6,90,882/ Rs 9,25,000) × 100 = 25.31%
(iv) Profit if the sales were 10% less than the actual sales:
Profit = 90% (Rs 9,25,000 – Rs 4,31,000) – Rs 3,69,000
= Rs 4,44,600 – Rs 3,69,000 = Rs 75,600
Solution 5:
Workings:
Statement Showing Profit on Sale of 90,000 units
(Rs) (Rs)
Selling Price per unit 80

Less: Variable Cost per unit
Material 32
Conversion Cost 24
Dealers’ Margin 8 64
Contribution per unit 16
Total Contribution (90,000 units × Rs 16) 14,40,000

Less: Fixed Cost 10,00,000
Profit 4,40,000
In both the proposed suggestions, the fixed costs remain unchanged. Therefore, the present profit of Rs 4,40,000 can be
maintained by maintaining the total contribution at the present level i.e. Rs 14,40,000.
(i) Reducing Selling Price by 5%

New Selling Price (Rs 80 − 5% of Rs 80) = Rs 76 New Dealer's Margin (10% of Rs 76) =
Rs 7.60 New Variable Cost (Rs 32 + Rs 24 + Rs 7.60) = Rs 63.60
New Contribution per unit (Rs 76 − Rs 63.60) =Rs 12.40
Level of sales required for present level of Profits = Total Contribution Required /New Contribution per unit
Rs 14,40,000 / Rs 12.40
= 1,16,129 units
(ii) Increasing Dealer’s Margin by 20%

New Dealer’s Margin after increasing it by 20% = Rs 8 + (20% of Rs 8)
= Rs 9.60

New Variable Cost (Rs 32 + Rs 24 + Rs 9.60) = Rs 65.60 Contribution (Rs 80 − Rs 65.60) = Rs 14.40
Level of sales required for present level of Profits = Total Contribution Required / New Contribution per unit
= Rs 14,40,000 / Rs 14.40 = 1,00,000 units
Conclusion:
The second proposal, i.e., increasing the Dealer's Margin is recommended because:
1. The contribution per unit is higher which is Rs 14.40 in comparison to Rs 12.40 in the first proposal; and
2. The sales (in units) required to earn the same level of profit are lower. They are at 1,00,000 units as against 1,16,129
units in the first proposal. This means a lower sales effort and less finance would be required for implementing proposal
(ii) as against proposal (i).
Of course, under proposal (ii) the company can earn higher profits than at present level if it can increase its sales beyond
1,00,000 units.
Solution 6:
Workings:
(1) Contribution per unit = Selling price per unit – Variable cost per unit
= Rs 50 – {Rs (16,00,000 + 4,00,000 + 8,00,000) ÷ 80,000 units}
= Rs 50 – Rs 35 = Rs 15
(2) Profit-Volume (P/V) Ratio = (Contribution per unit / Selling price per unit) × 100 = Rs 15/ Rs 50 × 100 = 30%
Calculations:
(i) The number of units to be sold for neither loss nor gain i.e. Break-even units:
=Fixed Overheads / Contribution per unit = Rs 7,20,000 / Rs 15 = 48,000 units
(ii) The sales needed to earn a profit of 20% on sales:

As we know S = V + F + P
(S = Sales; V = Variable Cost; F = Fixed Cost; P = Profit)
Suppose Sales units are x then
Rs 50x = Rs 35 x + Rs 7,20,000 + Rs 10x
Rs 50x – Rs 45x = Rs 7,20,000
Or, x = Rs 7,20,000 / Rs 5= 1,44,000 units
Therefore, Sales needed = 1,44,000 units Rs 50 = Rs 72,00,000 to earn a profit of 20% on sales.
(iii) Calculation of extra units to be sold to earn present profit of Rs 4,80,000 under the following proposed selling price:
When selling price is reduced by
20% (Rs) 25% (Rs)
Selling price per unit 40.00 37.50
(Rs 50 × 80%) (Rs 50 × 75%)
Less: Variable Cost per unit 35.00 35.00
Contribution per unit 5.00 2.50
Desired Contribution:
Fixed Overheads 7,20,000 7,20,000
Desired Profit 4,80,000 4,80,000
12,00,000 12,00,000
a. Sales unit for desired contribution 2,40,000 units 4,80,000 units
Desired Contribution Rs 12,00,000 Rs 12,00,000
Contribution per unit Rs 5 Rs 2.5
b. Units presently sold 80,000 units 80,000 units
c. Extra units to be sold {(a) – (b)} 1,60,000 units 4,00,000 units
(iv) Sales price to bring down BEP to 10,000 units:

B.E.P (Units) = Fixed Cost / Contribution per unit
Or, Contribution per unit = Rs 7,20,000 / 10,000units = Rs 72
So, Sales Price (per unit) = Variable Cost + Contribution = Rs 35 + Rs 72 = Rs 107

(b) (i) Calculation of Direct expenses

Particulars Job A (Rs) Job B (Rs) Job C (Rs)
Product blueprint cost 2,80,000 -- --
Hire charges paid for machinery -- 80,000 --
License fee paid for software -- -- 1,00,000
Total Direct expenses 2,80,000 80,000 1,00,000
(ii)
Particulars Jan. Feb. March April May June Total (Rs)
Batch output (in pieces) 210 200 220 180 200 220 1,230
Sale value @ Rs 80 16,800 16,000 17,600 14,400 16,000 17,600 98,400
Material cost 6,500 6,400 6,800 6,300 7,000 7,200 40,200
Direct wages 1,200 1,400 1,500 1,400 1,500 1,600 8,600
Chargeable expenses* 6,000 6,720 6,720 6,210 7,800 8,000 41,450
Total cost 13,700 14,520 15,020 13,910 16,300 16,800 90,250
Profit per batch 3,100 1,480 2,580 490 (300) 800 8,150
Total cost per piece 65.2 72.6 68.3 77.3 81.5 76.4 73.4
Profit per piece 14.8 7.4 11.7 2.7 (1.5) 3.6 6.6
Overall position of the order for 1,200 pieces

Sales value of 1,200 pieces @ Rs 80 per piece Rs 96,000
Total cost of 1,200 pieces @ Rs 73.4 per piece Rs 88,080
Profit Rs 7,920
* Chargeable expenses x Direct labour hours for batch
Direct labour hour for the month
Solution 7:
Contribution to sales ratio (P/V ratio) = 37%
Variable cost ratio = 100% - 37% = 63%
Variable cost = Rs 10,00,000 x 63% = Rs 6,30,000
After decrease in selling price and fixed cost, sales quantity has not changed. Thus, variable cost is Rs 6,30,000.
Revised Contribution to sales = 30%
Thus, Variable cost ratio = 100% - 30% = 70%
Thus, Revised sales = Rs 6,30,000 / 70% = Rs 9,00,000
Revised, Break-even sales ratio = 100% - 40% (revised Margin of safety) = 60%
(i) Revised fixed cost = revised breakeven sales x revised contribution to sales ratio
= Rs 5,40,000 (Rs 9,00,000 x 60%) x 30% = Rs 1,62,000
(ii) Revised sales = Rs 9,00,000 (as calculated above)
(iii) Revised Break-even point = Revised sales x Revised break-even sales ratio
= Rs 9,00,000 x 60%
= Rs 5,40,000

Solution 8:
Workings:
1. Statement showing computation of Breakeven of merged plant and other required information
S.No. Particulars Plan A Plant B Merged Plant
Before After Before After (100%)
(90%) (100%) (60%) (100%) (Rs)
(Rs) (Rs) (Rs) (Rs)
(i) Sales 63,00,000 70,00,000 48,00,000 80,00,000 1,50,00,000
(ii) Variable cost 39,60,000 44,00,000 22,50,000 37,50,000 81,50,000
(iii) Contribution (i - ii) 23,40,000 26,00,000 25,50,000 42,50,000 68,50,000
(iv) Fixed Cost 13,00,000 13,00,000 15,00,000 15,00,000 28,00,000
(v) Profit (iii - iv) 10,40,000 13,00,000 10,50,000 27,50,000 40,50,000
2. PV ratio of merged plant = (Contribution / Sales) x 100

= (Rs 68,50,000 / Rs 1,50,00,000 )x 100 = 45.67 %
(i) Break even sales of merged plant = (Fixed Cost / P/V Ratio)
= Rs 28,00,000 / 45.67%
= Rs 61,30,939.34 (approx.)
Capacity utilization = (Rs 61,30,939.34 / Rs 1,50,00,000 ) × 100 = 40.88%
(ii) Profitability of the merged plant at 80% capacity utilisation

= (Rs 1,50,00,000 x 80%) x P/v ratio – fixed cost
= Rs 1,20,00,000 x 45.67% – Rs 28,00,000
= Rs 26,80,400
(iii) Sales to earn a profit of Rs 60,00,000

Desired sales = (Fixed Cost + desired profit) / P/V Ratio
= (Rs 28,00,000 + Rs 60,00,000 ) / 45.67%
= Rs 1,92,68,666 (approx.)
(iv) Increase in fixed cost

= Rs 28,00,000 x 5% = Rs 1,40,000
Therefore, percentage increase in sales price
= (Rs 1,40,000 / Rs 1,92,68,666 ) x 100 = 0.726% (approx.)
Solution 9:
(i) Statement Showing “Calculation of Contribution/ unit”
Particulars X Y Z
(Rs) (Rs) (Rs)
Selling Price (A) 312 400 240
Variable Cost:
Direct Material 160 120 80
Direct Labour
Dept. A (Rate x Hours) 24 40 20
Dept. B (Rate x Hours) 48 120 88
Variable Overheads 8 20 12
Total Variable Cost (B) 240 300 200
Contribution per unit (A - B) 72 100 40

Hours in Dept. A 6 10 5
Contribution per hour 12 10 8
Rank I II III
Existing Hours = 10,000 x 6hrs. + 12,000 x 10 hrs. + 20,000 x 5 hrs. = 2,80,000 hrs. Best possible product mix (Allocation of
Hours on the basis of ranking)
Produce ‘X’ = 12,000 units
Hours Required = 72,000 hrs (12,000 units × 6 hrs.)
Balance Hours Available = 2,08,000 hrs (2,80,000 hrs. – 72,000 hrs.)
Produce ‘Y’ (the Next Best) = 16,000 units
Hours Required = 1,60,000 hrs (16,000 units × 10 hrs.)
Balance Hours Available = 48,000 hrs (2,08,000 hrs. – 1,60,000 hrs.)
Produce ‘Z’ (balance) = 9,600 units (48,000 hrs./ 5 hrs.)
(ii) Statement Showing “Contribution”

Product Units Contribution/ Unit (Rs) Total Contribution (Rs)
X 12,000 72 8,64,000
Y 16,000 100 16,00,000
Z 9,600 40 3,84,000
Total 28,48,000
Solution 10:
(i) Variable cost per unit = Change in Total cost / Change in units
= (Rs 3.50 × 5,000 units) - (Rs 3.75 × 4,000 units) / (5,000 × 4,000)
= (Rs 17,500 – Rs 15,000) / 1,000 = Rs 2,500/1000 = Rs 2.5
(ii) Fixed cost = Total Cost – Variable cost (at 5,000 units level)
= Rs 17,500 – Rs 2.5 × 5,000 = Rs 5,000
(iii) Contribution per unit = Fixed cost / BEP (in units) = Rs 5,000 / 6,000 units = 0.833
P/V Ratio = Contribution per unit / Sale price per unit = 0.833 / 2.5 + 0.833 = 25%
Solution 11:
Selling Price = Rs 500 Profit = Rs 125 No of Sticks = 5,000
Particular Current Year (Rs) Next Year (Rs)
Direct Material 150 157.50
(150 + 5%)
Direct Wages 50 60
(50+20%)
Works Overheads 62.50 62.5
(125 × 50%)
Selling Expenses 12.50 12.5
(50 × 25%)
Total Variable Cost 275 292.50
Fixed Cost (62.5 × 5,000) = 3,12,500; 5,00,000 5,50,000
(37.5 × 5,000) = 1,87,500
Let: Lowest Price Quoted = K

Now, Sales = Target Profit (5,000 units × Rs 125) + Variable Cost + Fixed Cost
Or, = (5,000 × 500) + (2,000 × K) = 6,25,000 + 20,47,500 + 5,50,000
Or, K = Rs 361.25
So, Lowest Price that can be quoted to earn the profit of Rs 6,25,000 (same as current year) is Rs 361.25
Solution 12:
Break- even point (in units) is 50% of sales i.e. 24,000 units.
Hence, Break- even point (in sales value) is 24,000 units × ₨ 400 = ₨ 96,00,000
(i) Break even sales = Fixed Cost / P/V Ratio
Or, ₨ 96,00,000 = Fixed Cost / 25%
Or, Fixed Cost = ₨ 96,00,000 × 25%

= ₨ 24,00,000
So Fixed Cost for the year is ₨ 24,00,000
(ii) Contribution for the year = (48,000 units × ₨ 400) × 25% = ₨ 48,00,000
Profit for the year = Contribution – Fixed Cost
= ₨ 48,00,000 - ₨ 24,00,000
= ₨ 24,00,000
(iii) Target net profit is ₨ 22,00,000
Hence, Target contribution = Target Profit + Fixed Cost
= ₨ 22,00,000 + ₨ 24,00,000
= ₨ 46,00,000
Contribution per unit = 25% of ₨ 400 = ₨ 100 per unit
No. of units = ₨ 46,00,000 / Rs 100 per unit = 46,000 units
So, 46,000 units to be sold to earn a target net profit of ₨ 22,00,000 for a year.
(iv) Let desired total Sales (Number of units × Selling price) be x then desired profit is 25% on Cost or 20% on Sales
i.e. 0.2 x
Desired Sales = [Fixed cost + Desired Profit] / PV Ratio
X = [ ₨ 24,00,000 + 0.2 x ] / 25%
or, 0.25 x = ₨ 24,00,000 + 0.2 x

or, 0.05 x = ₨ 24,00,000 or, x
= ₨ 4,80,00,000
No. of units to be sold = ₨ 4,80,000 / Rs 400 = 1,20,000 units
(v) If Break- even point is to be brought down by 4,000 units then Break-even point will be 24,000 units – 4,000
units = 20,000 units
Let Selling price be ₨ x and fixed cost and variable cost per unit remain unchanged
i.e. ₨ 24,00,000 and ₨ 300 respectively.
Break- even point:
Sales revenue = Total cost
20,000 x = (20,000 × ₨ 300) + ₨ 24,00,000
Or, 20,000 x = ₨ 60,00,000 + ₨ 24,00,000
Or x = ₨ 84,00,000 / 20,000 = ₨ 420
Selling Price should be ₨ 420

Hence, selling price per unit shall be ₨ 420 if Break-even point is to be brought down by 4,000 units.
Solution 13:
(i) Contribution = Rs 375 – Rs 175 = Rs 200 per unit
𝐅𝐢𝐱𝐞𝐝 𝐂𝐨𝐬𝐭 𝐑𝐬 𝟔𝟓,𝟎𝟎,𝟎𝟎𝟎
Break even Sales Quantity = = = 32,500 units
𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 𝐌𝐚𝐫𝐠𝐢𝐧 𝐩𝐞𝐫 𝐔𝐧𝐢𝐭 𝐑𝐬 𝟐𝟎𝟎

𝐂𝐚𝐬𝐡 𝐅𝐢𝐱𝐞𝐝 𝐂𝐨𝐬𝐭 𝐑𝐬 𝟓𝟎,𝟎𝟎,𝟎𝟎𝟎

Cash Break even Sales Qty = = = 25,000 Units
𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 𝐌𝐚𝐫𝐠𝐢𝐧 𝐩𝐞𝐫 𝐔𝐧𝐢𝐭 𝐑𝐬 𝟐𝟎𝟎
𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧/𝐔𝐧𝐢𝐭 𝐑𝐬 𝟐𝟎𝟎
(ii) P/V Ratio = x 100 = x 100 = 53.33%
𝐒𝐞𝐥𝐥𝐢𝐧𝐠 𝐏𝐫𝐢𝐜𝐞/𝐔𝐧𝐢𝐭 𝐑𝐬 𝟑𝟕𝟓
(iii) No. of Units that must be sold to earn an Income (EBIT) of Rs 5,00,000
𝐅𝐢𝐱𝐞𝐝 𝐂𝐨𝐬𝐭+𝐃𝐞𝐬𝐢𝐫𝐞𝐝 𝐄𝐁𝐈𝐓 𝐋𝐞𝐯𝐞𝐥 𝟔𝟓,𝟎𝟎,𝟎𝟎𝟎+𝟓,𝟎𝟎,𝟎𝟎𝟎
= 35,000 Units
𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 𝐌𝐚𝐫𝐠𝐢𝐧 𝐩𝐞𝐫 𝐔𝐧𝐢𝐭 𝟐𝟎𝟎
(iv) After Tax Income (PAT) = Rs 5,00,000
Tax Rate = 40%
𝐑𝐬 𝟓,𝟎𝟎,𝟎𝟎𝟎
Desired level of profit before Tax = x 100 = Rs 8,33,333
𝟔𝟎
𝐅𝐢𝐱𝐞𝐝 𝐂𝐨𝐬𝐭 + 𝐃𝐞𝐬𝐢𝐫𝐞𝐝 𝐏𝐫𝐨𝐟𝐢𝐭
Estimate Sales Level =
𝐏/𝐕𝐑𝐚𝐭𝐢𝐨
𝐑𝐬 𝟔𝟓,𝟎𝟎,𝟎𝟎𝟎+𝐑𝐬 𝟖,𝟑𝟑,𝟑𝟑𝟑
= = Rs 1,37,50,859
𝟓𝟑.𝟑𝟑%
Solution 14:
(i) Fixed cost for the year
Total Sales (43,200 units x Rs 150 per unit) = Rs 64,80,000
Break Even Sales = Rs 64,80,000 x 25% = Rs 16,20,000
Fixed cost = Break Even Sales x P/V ratio
= Rs 16,20,000 x 20% = Rs 3,24,000
(ii) Profit earned for the year

Profit = (Total Sales x P/V ratio) - Fixed cost
= (Rs 64,80,000 x 20%) - Rs 3,24,000
= Rs 9,72,000
(iii) Margin of Safety in units
Margin of Safety (units) = Profit
Cont. per unit
= Rs 9,72,000 = 32,400 units

Rs 30
(iv) No of units to be sold to earn a profit of Rs 12,00,000
Desired Sales = Fixed Cost + Desired Profit
Cont. per unit
= Rs 3,24,000 + Rs 12,00,000
Rs 30
= 50,800 units
Solution 15:
(i) Variable cost in rupees for year 2019 and 2020
In 2019, PV ratio = 40%
Variable cost ratio = 100% - 40% = 60%
Variable cost in 2019 = Rs 5,00,000 x 60% = Rs 3,00,000
In 2020, sales quantity has not changed. Thus, variable cost in 2020 is Rs 3,00,000.
(ii) Sales for year 2020 in Rupees
In 2020, P/V ratio = 25%
Thus, Variable cost ratio = 100% - 25% = 75%
Thus, sales in 2020 = Rs 3,00,000 /75% = Rs 4,00,000
(iii) Break even sales for year 2020 in Rupees

At break-even point, fixed cost is equal to contribution.

In 2020, Break-even sales = 100% - 15% = 85%

Break-even sales = Rs 4,00,000 - 85% = Rs 3,40,000
(iv) Fixed Cost for year 2020

Fixed cost = B.E. sales - P/V ratio
= Rs 3,40,000 - 25% = Rs 85,000
Solution 16:
Working :
𝟔,𝟓𝟎𝟎 𝐮𝐧𝐢𝐭𝐬
Margin of Safety (%) =
𝟔,𝟓𝟎𝟎 𝐮𝐧𝐢𝐭𝐬+𝟑,𝟓𝟎𝟎 𝐮𝐧𝐢𝐭𝐬
= 0.65 or 65%
𝐑𝐬 𝟒𝟖,𝟏𝟖,𝟒𝟓𝟎
Total sales =
𝟎.𝟔𝟓
= Rs 74,13,000
(i) Profit = Total Sales – Total Cost
= Rs 74,13,000 - Rs 56,78,000
= Rs 17,35,000
𝐏𝐫𝐨𝐟𝐢𝐭
(ii) Profit Volume (P/V) Ratio = x 100
𝐌𝐚𝐫𝐠𝐢𝐧 𝐨𝐟 𝐒𝐚𝐟𝐞𝐭𝐲 𝐢𝐧 𝐫𝐮𝐩𝐞𝐞 𝐯𝐚𝐥𝐮𝐞
𝐑𝐬 𝟏𝟕,𝟑𝟓,𝟎𝟎𝟎
= x 100 = 36%
𝐑𝐬 𝟒𝟖,𝟏𝟖,𝟒𝟓𝟎
(iii) Break – even Sales (in Rs) = Total Sales x [100 – Margin of Safety %]
= Rs 74,13,000 x 0.35
= Rs 25,94,550
Or = BEP units x Selling Price per unit
= 3,500 units x Rs 741.30
= Rs 25,94,550
(iv) Fixed Costs = Contribution – Profit

= Sales Value x P/V Ratio - Profit
= Rs 74,13,000 x 36% - Rs 17,35,000
= Rs 26,68,680 - Rs 17,35,000
= Rs 9,33,680
Or = Break even sales x P/V Ratio

= Rs 25,94,550 x 36% = Rs 9,34,038
Solution 17:
Computation of Profit Volume Ratio
(Rs in ‘000)
Sales Profit P/V Ratio
Factory
Change in Profit/ Change

Actual Over / Budgeted Actual Over / Budget in Sales
(Under) Sales (Under) Profit
Budget Budget
North 1,100 (400) 1,500 135 (180) 315 45%
East 1,450 150 1,300 210 90 120 60%
South 1,200 (200) 1,400 330 (110) 440 55%
(i) Computation of Fixed Costs (Rs in ‘000)

Factory Actual P/V Ratio Contribution Actual Fixed Cost
Sales Profit

(1) (2) (3) = (1) × (2) (4) (5) = (3) - (4)

North 1,100 45% 495 135 360
East 1,450 60% 870 210 660
South 1,200 55% 660 330 330
Total 3,750 2,025 675 1,350
(ii) Computation of Break-Even Sales

Factory Fixed Cost (a) P/V Ratio Break-even Sales
(b) (a) / (b)
North 360 45% 800
East 660 60% 1,100
South 330 55% 600
2,500
Break-even Sales (Company as Whole) = Fixed Cost
Composite P / V Ratio *
= Rs 13,50,000
54%
= Rs 25,00,000
Solution 19:
(i) Computation of PV ratio, contribution, profit and break-even sales for existing product mix
Products
S T U Total
P/V Ratio (Contribution/Selling price) 50% 50% 40%
Sales Mix 25% 35% 40%
Contribution per rupee of sales (P/V Ratio × Sales Mix) 12.5% 17.5% 16% 46%
Present Total Contribution (Rs 1,20,00,000 × 46%) Rs 55,20,000
Present Break Even Sales (Rs 36,00,000/0.46) Rs 78,26,087
(ii) Computation of PV ratio, contribution, profit and break-even sale for proposed product mix
Products
S T M Total
Sales Mix 40% 35% 25%
Contribution per rupee of sales (P/V Ratio x Sales Mix) 20% 17.5% 12.5%
50%
Proposed Total Contribution (Rs 1,28,00,000 x 50%) Rs 64,00,000
Proposed Break- Even Sales (Rs 36,00,000/0.50) Rs 72,00,000

Solution 20:
Variable cost per Unit = Rs 16
Fixed Cost per unit = Rs 4, Total Fixed Cost = 2,00,000 units x Rs 4 = Rs 8,00,000
Total Cost per Unit = Rs 20
Selling price Per Unit = Total Cost + Profit = Rs 20 + Rs 4 = Rs 24
Contribution per unit = Rs 24 – Rs 16 = Rs 8
(i) Present Break-even Sales (Quantity) = Fixed Costs = Rs 8,00,000
Contribution margin per unit Rs 8
= 1,00,000 units
Present Break-even Sales (Rs) = 1,00,000 units x Rs 24 = Rs 24,00,000
(ii) Present P/V ratio = 8/24 x 100 = 33.33%
(iii) Revised Selling Price per unit = Rs 24 – 10% of Rs 24 = 21.60
Revised Contribution per Unit = Rs 21.60 – Rs 16 = Rs 5.60
Revised P/V ratio = 5.60 x 100 = 25.926%
21.60
Revised Break-even point (Rs) = Fixed Cost = 8,00,000 = Rs 30,85,705

P/V ratio 25.926%
Or
Revised Break-even point (units) = Fixed cost = 8,00,000 = 1,42,857 units
Contribution margin per unit 5.60
Revised Break-even Point (Rs) = 1,42,857 units x Rs 21.60 = Rs 30,85,711
(iv) Present profit = Rs 8,00,000

Desired Profit = 120% of Rs 8,00,000 = Rs 9,60,000
Sales to earn a profit of Rs 9,60,000
Total contribution required = 8,00,000 + 9,60,000 = Rs 17,60,000
Fixed cost + Desired profit = 8,00,000 + 9,60,000 = 3,14,286 units
Contribution per unit 5.60
Revised sales (in Rs) = 3,14,286 units x Rs 21.60 = Rs 67,88,578
Solution 21:
Working Notes:
(1) Calculation of Cost of Goods Sold (COGS):
COGS = DM + DL + FOH + AOH
COGS = {0.3 COGS + 0.15 COGS + (0.10 COGS + Rs 3,45,000) + (0.02 COGS + Rs 1,06,500)}
Or COGS = 0.57 COGS + Rs 4,51,500
Or COGS = Rs 4,51,500/0.43 = Rs 10,50,000
(2) Calculation of Cost of Sales (COS):
COS = COGS + S&DOH
COS = COGS + (0.04 COS + Rs 1,02,000)
Or COS = Rs 10,50,000 + (0.04 COS + Rs 1,02,000)
Or, COS = Rs 11,52,000/0.96 = Rs 12,00,000
(3) Calculation of variable costs:
Direct Material – (0.30 x Rs 10,50,000) Rs 3,15,000
Direct labour – (0.15 x Rs 10,50,000) Rs 1,57,500
Factory Overhead – (0.10 x Rs 10,50,000) Rs 1,05,000
Administration OH – (0.02 x Rs 10,50,000) Rs 21,000
Selling & Distribution OH – (0.04 x Rs 12,00,000) Rs 48,000
Rs 6,46,500
(4) Calculation of total fixed costs:
Factory Overheads Rs 3,45,000
Administration OH Rs 1,06,500
Selling & Distribution OH Rs 1,02,000
Rs 5,53,500

(5) Calculation of P/V Ratio:

P/V Ratio = Contribution/Sales x 100 = Sales – Variable Costs/Sales x 100
= ((Rs 185 x 7,500 units) – Rs 6,46,500)/Rs 185 x 7,500 units x 100
= ((Rs 13,87,500 – Rs 6,46,500)/Rs 13,87,500) x 100 = 53.41%
(i) Break – Even Sales = Fixed Costs = 5,53,500 = Rs 10,36,323
P/v Ratio 53.41%
(ii) Profit earned during the last year = (Sales – Total Variable Costs) – Total Fixed Costs
= (Rs 13,87,500 – Rs 6,46,500) – Rs 5,53,500
= Rs 1,87,500
(iii) Margin of Safety (%) = Sales – Breakeven sales/Sales x 100
= Rs 13,87,500 – Rs 10,36,323 / Rs 13,87,500 x 100 = 25.31%
(iv) Profit if the sales were 10% less than the actual sales:
Profit = 90% (Rs 13,87,500 – Rs 6,46,500) – Rs 5,53,500
= Rs 1,13,400
Solution 22:
(i) Computation of PV ratio, contribution and break-even sales for existing product mix
Products
Total
S T U
Sales Mix 25% 35% 40%
Contribution per rupee of sales

12.5% 17.5% 16% 46%
Present Total Contribution (Rs 1,20,00,000 × 46%) Rs 55,20,000
Present Break Even Sales (Rs 36,00,000/0.46) Rs 78,26,087

Computation of PV ratio, contribution and break-even sale for proposed product mix
Products
S T M Total

Sales Mix 40% 35% 25% 50%
Contribution per rupee of sales
20% 17.5% 12.5%
(P/V Ratio x Sales Mix)
Proposed Total Contribution (Rs 1,28,00,000 x 50%) Rs 64,00,000

Proposed Break Even Sales (Rs 36,00,000/0.50) Rs 72,00,000

Chapter 15: BUDGET & BUDGETARY CONTROL -

Practice Sheet
SOLUTIONS
Solution 1:
Working Note:
Calculation of total annual production
Units
Sales in 4 quarters 1,53,750
Add: Closing balance 12,250
1,66,000
Less: Opening balance (6,000)
Total number of units to be produced in the next year 1,60,000
(i) Production Budget (in units)

Particulars I units II units III units IV units Total units
Sales 30,000 37,500 41,250 45,000 1,53,750
Production in current quarter 24,000 30,000 33,000 36,000
(80% of the sale of current quarter)
Production for next quarter 7,500 8,250 9,000 12,250
(20% of the sale of next quarter)
Total production 31,500 38,250 42,000 48,250 1,60,000
(ii) Raw material consumption budget in quantity

particulars I II III IV Total
Units to be produced in each 31,500 38,250 42,000 48,250 1,60,000
quarter: (A)
Raw material consumption p.u. 2 2 2 2
(kg.): (B)
Total raw material consumption 63,000 76,500 84,000 96,500 3,20,000
(Kg.) : (A × B)
(iii) Raw material purchase budget (in quantity)

Qty. (kg.)
Raw material required for production 3,20,000
Add : Closing balance of raw material 5,000
3,25,000
Less : Opening balance (10,000)
Material to be purchased 3,15,000
Raw material purchase budget (in value)

Quarters % of annual Qty. of Material Rate per Amount (Rs)
requirement kg. (Rs)
(1) (2) (3) (4) (5) = (3 x 4)

I 30 94,500 2 1,89,000
(3,15,000 kg. × 30%)
II 50 1,57,500 3 4,72,500
(3,15,000 kg. × 50%)
III 20 63,000 4 2,52,000
(3,15,000 kg. × 20%)
Total 3,15,000 9,13,500
(iv) Priced Stores Ledger Card

(of the raw material using FIFO method)
Quarters
I II III IV
Kg. Rat Value Kg. Rate Value Kg. Rate Value Kg. Rat Value
e e
(Rs) (Rs) (Rs) (Rs) (Rs) (Rs) (Rs) (Rs)
Opening 10,000 2 20,000 41,500 2 83,000 1,22,500 3 3,67,500 38,500 3 1,15,500
Balance
(A) 63,000 4 2,52,000
Purchases: 94,500 2 1,89,000 1,57,500 3 4,72,500 63,000 4 2,52,000 - - -
(B)
Consumptio 63,000 2 1,26,000 41,500 2 83,000 84,000 3 2,52,000 38,500 3 1,15,500
n: (C)
35,000 3 1,05,000 58,000 4 2,32,000
Balance (D) 41,500 2 83,000 1,22,500 3 3,67,500 38,500 3 1,15,500 5,000 4 20,000
(D) = (A) + 63,000 4 2,52,000
(B) – (C)
Solution 2:
Maximum Capacity in a budget period
= 50 Employees × 8 Hrs. × 5 Days × 4 Weeks = 8,000 Hrs.
Budgeted Hours
40 Employees × 8 Hrs. × 5 Days × 4 Weeks = 6,400 Hrs.
Actual Hrs. = 6,000 Hrs. (given)
Standard Hrs. for Actual Output = 7,000 Hrs.
Budget No. of Days = 20 Days = 20 Days (4 Weeks x 5 Days)
Actual No. of Days = 20 – 1 = 19 Days
𝐒𝐭𝐚𝐧𝐝𝐚𝐫𝐝 𝐇𝐫𝐬. 𝟕,𝟎𝟎𝟎 𝐡𝐨𝐮𝐫𝐬

1. Efficiency Ratio = x 100 = x 100 = 116.67%
𝐀𝐜𝐭𝐮𝐚𝐥 𝐇𝐫𝐬. 𝟔,𝟎𝟎𝟎 𝐡𝐨𝐮𝐫𝐬
𝐒𝐭𝐚𝐧𝐝𝐚𝐫𝐝 𝐇𝐫𝐬. 𝟕,𝟎𝟎𝟎 𝐡𝐨𝐮𝐫𝐬

2. Activity Ratio = x 100 = x 100 = 109.375%
𝐁𝐮𝐝𝐠𝐞𝐭𝐞𝐝 𝐇𝐫𝐬. 𝟔,𝟒𝟎𝟎 𝐡𝐨𝐮𝐫𝐬
𝐀𝐯𝐚𝐢𝐥𝐚𝐛𝐥𝐞 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐝𝐚𝐲𝐬 𝟏𝟗 𝐃𝐚𝐲𝐬

3. Calendar Ratio = x 100 = x 100 = 95%
𝐁𝐮𝐝𝐠𝐞𝐭𝐞𝐝 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐝𝐚𝐲𝐬 𝟐𝟎 𝐃𝐚𝐲𝐬
𝐁𝐮𝐝𝐠𝐞𝐭𝐞𝐝 𝐡𝐨𝐮𝐫𝐬
4. Standard Capacity Usage Ratio = x 100
𝐌𝐚𝐱. 𝐩𝐨𝐬𝐬𝐢𝐛𝐥𝐞 𝐢𝐧 𝐭𝐡𝐞 𝐛𝐮𝐝𝐠𝐞𝐭𝐞𝐝 𝐩𝐞𝐫𝐢𝐨𝐝
𝟔,𝟒𝟎𝟎 𝐡𝐨𝐮𝐫𝐬
= x 100 = 80%
𝟖,𝟎𝟎𝟎 𝐡𝐨𝐮𝐫𝐬
𝐀𝐜𝐭𝐮𝐚𝐥 𝐡𝐨𝐮𝐫𝐬 𝐰𝐨𝐫𝐤𝐞𝐝

5. Actual Capacity Usage Ratio = x 100
𝐌𝐚𝐱. 𝐩𝐨𝐬𝐬𝐢𝐛𝐥𝐞 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐡𝐨𝐮𝐫𝐬 𝐢𝐧 𝐚 𝐩𝐞𝐫𝐢𝐨𝐝

𝟔,𝟎𝟎𝟎 𝐡𝐨𝐮𝐫𝐬
= x 100 = 75%
𝐀𝐜𝐭𝐮𝐚𝐥 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐡𝐨𝐮𝐫𝐬

6. Actual Usage of Budgeted Capacity Ratio = x 100
𝐁𝐮𝐝𝐠𝐞𝐭𝐞𝐝 𝐇𝐨𝐮𝐫𝐬
𝟔,𝟎𝟎𝟎 𝐡𝐨𝐮𝐫𝐬
= x 100 = 93.75%
Solution 3:
1. Statement Showing Sales Budget for 2020-21
Division Product X Product Y Total
Qty. Rate Amt. (Rs) Qty. Rate Amt. (Rs) Amt. (Rs)
(Rs) (Rs)
East 1,0201 20 20,400 8153 40 32,600 53,000
West 1,4302 20 28,600 1,2254 40 49,000 77,600
Total 1,200 49,000 1,000 81,600 1,30,600
Workings
1. 800 × 112.5% +120 = 1,020 units
2. 1,200 × 107.5% + 140 = 1,430 units
3. 600 × 122.5% + 80 = 815 units
4. 1,000 × 112.5% + 100 = 1,225 units
Statement Showing Sales Budget for 2019-20

(Rs) (Rs)
East 800 18 14,400 600 42 25,200 39,600
West 1,200 18 21,600 1,000 42 42,000 63,600
Total 2,000 36,000 1,600 67,200 1,30,200
Statement Showing Actual Sales for 2019-20

(Rs) (Rs)
East 1,000 18 18,000 400 42 16,800 34,800
West 1,400 18 25,200 800 42 33,600 58,800
Total 2,400 43,200 1,200 50,400 93,600
Solution 4:
(i) Calculation of Budgeted profit for the FY 2019-20
60,000 units
Per unit (Rs) Amount (Rs)
Sales 800.00 4,80,00,000
(A)
Variable Costs:
- Direct Material 300.00 1,80,00,000
- Direct Wages 100.00 60,00,000
- Variable Overheads 100.00 60,00,000
- Direct Expenses 60.00 36,00,000
- Variable factory expenses (75% of Rs 80 p.u.) 60.00 36,00,000
- Variable Selling & Dist. exp. (80% of Rs 40 32.00 19,20,000
p.u.)

Total Variable Cost (B) 652.00 3,91,20,000

Contribution (C) = (A – B) 148.00 88,80,000
Fixed Costs:
- Office and Admin. exp. (100%) -- 12,00,000
- Fixed factory exp. (25%) -- 12,00,000
- Fixed Selling & Dist. exp. (20%) -- 4,80,000
Total Fixed Costs (D) -- 28,80,000
Profit (C – D) -- 60,00,000
(ii) Expense Budget of P Ltd. for the FY 2020-21 at 50% & 60% level
60,000 units 72,000 units
Per Amount Per unit Amount (Rs)
unit (Rs) (Rs)
(Rs)
Sales (A) 880.00 5,28,00,000 880.00 6,33,60,000
Variable Costs:
- Direct Material 360.00 2,16,00,000 360.00 2,59,20,000
- Direct Wages 120.00 72,00,000 120.00 86,40,000
- Variable Overheads 120.00 72,00,000 120.00 86,40,000
- Direct Expenses 72.00 43,20,000 72.00 51,84,000
- Variable factory expenses (75% of Rs 80 p.u.) 72.00 43,20,000 72.00 51,84,000
- Variable Selling & Dist. exp. (80% of Rs 40 p.u.) 38.40 23,04,000 38.40 27,64,800
Total Variable Cost (B) 782.40 4,69,44,000 782.40 5,63,32,800
Contribution (C) = (A – B) 97.60 58,56,000 97.60 70,27,200
Fixed Costs:
- Office and Admin. exp. (100%) -- 13,80,000 -- 13,80,000
- Fixed factory exp. (25%) -- 13,80,000 -- 13,80,000
- Fixed Selling & Dist. exp. (20%) -- 5,52,000 -- 5,52,000
Total Fixed Costs (D) -- 33,12,000 -- 33,12,000
Profit (C – D) -- 25,44,000 -- 37,15,200
Solution 5:
(i) Production Budget of ‘X’ for the Second Quarter
Particulars Bags (Nos.)
Budgeted Sales 1,50,000
Add: Desired Closing stock 33,000
Total Requirements 1,83,000
Less: Opening stock (45,000)
Required Production 1,38,000
(ii) Raw–Materials Purchase Budget in Quantity as well as in Rs for 1,38,000 Bags of ‘X’
Particulars ‘Y’ Mtr. ‘Z’ Mtr. Empty Bags Nos.
Production Requirements 2.5 7.5 1.0
Per bag of ‘X’ 3,45,000 10,35,000 1,38,000
Requirement for Production (1,38,000 × 2.5) (1,38,000 × 7.5) (1,38,000 × 1)
Add: Desired Closing Stock 78,000 1,41,000 84,000
Total Requirements 4,23,000 11,76,000 2,22,000
Less: Opening Stock (96,000) (1,71,000) (1,11,000)
Quantity to be purchased 3,27,000 10,05,000 1,11,000
Cost per mtr./Bag Rs 160 Rs 30 Rs 110
Cost of Purchase (Rs) 5,23,20,000 3,01,50,000 1,22,10,000

(iii) Computation of Budgeted Variable Cost of Production of 1 Bag of ‘X’

Particulars (Rs)
Raw – Material
Y 2.5 mtr @160 400.00
Z 7.5 mtr @30 225.00
Empty Bag 110.00
Direct Labour (Rs 70× 9 minutes / 60 minutes) 10.50
Variable Manufacturing Overheads 60.00
Variable Cost of Production per bag 805.50
Solution 6:
Workings:
Statement Showing “Total Variable Cost for the year”

Estimated Sales Revenue 3,02,40,000
Less: Desired Profit Margin on Sale @ 20% 60,48,000
Estimated Total Cost 2,41,92,000
Less: Fixed Selling and Distribution Overheads 69,12,000
Total Variable Cost 1,72,80,000
Statement Showing “Variable Cost per unit”

Particulars Variable Cost p.u. (Rs)
Direct Materials:
A: 6 Kg. @ Rs 160 per kg. 960
B: 3 Kg. @ Rs 100 per kg. 300
Labour Cost:
Machine Shop: 4 hrs. @ Rs 140 per hour 560
Assembly Shop: 2 hrs. @ Rs 70 per hour 140
Factory Overheads: 20% of (Rs 560 + Rs 140) 140
Variable Selling & Distribution Expenses 60
Total Variable Cost per unit 2,160
(i) Calculation of number of units of product proposed to be sold and selling price per unit:
Number of Units Sold = Total Variable Cost / Variable Cost per unit
= Rs 1,72,80,000 / Rs 2,160
= 8,000 units
Selling Price per unit = Total Sales Value / Number of Units Sold
= Rs 3,02,40,000 / 8,000 units
= Rs 3,780
(ii) Production Budget (units) :

Particulars Units
Budgeted Sales 8,000
Add: Closing Stock 3,000

Total Requirements 11,000
Less: Opening Stock (2,500)

Required Production 8,500
(iii) Materials Purchase Budget (Kg.)

Particulars Material Material
A B
Requirement for Production 51,000 25,500
(8,500 units × 6 Kg.) (8,500 units × 3 Kg.)

Add: Desired Closing Stock 8,000 5,500
Total Requirements 59,000 31,000

Less: Opening Stock (7,500) (4,000)
Quantity to be purchased 51,500 27,000
Solution 7:
(i) Product-wise Profitability Statement for the FY 2019-20:
Particulars Product-X (Rs) Product-Y (Rs) Total (Rs)
Output (units) 8,000 4,000
Selling price per unit 600 550
Sales value 48,00,000 22,00,000 70,00,000
Direct material 11,20,000 6,30,000 17,50,000
(Rs 140×8,000) (Rs 157.50×4,000)
Direct wages 7,20,000 5,30,000 12,50,000

(Rs 90×8,000) (Rs 132.5×4,000)
Variable factory overheads 5,47,200 4,02,800 9,50,000

(76%of 7,20,000) (76%of 5,30,000)
Other variable costs 3,20,000 2,80,000 6,00,000

(Rs 40×8,000) (Rs 70×4,000)
Contribution 20,92,800 3,57,200 24,50,000
Fixed factory overheads - - 12,00,000
Other fixed costs - - 4,00,000
Profit 8,50,000
(ii) Preparation of Budget for the FY 2020-21:

Particulars Product-X (Rs) Product-Y (Rs) Total (Rs)
Output (units) 6,400 3,600
(8,000×80%) (4,000×90%)
Selling price per unit 480 440

(600×80%) (550×80%)
Sales value 30,72,000 15,84,000 46,56,000

Direct material 8,96,000 5,67,000 14,63,000
(Rs 140×6,400) (Rs 157.50×3,600)

Direct wages per unit 6,91,200 5,72,400 12,63,600

(Rs 108×6,400) (Rs 159×3,600)
Variable factory overheads 5,25,312 4,35,024 9,60,336

(76%of 6,91,200) (76%of 5,72,400)
Other variable costs 2,56,000 2,52,000 5,08,000

(Rs 40×6,400) (Rs 70×3,600)
Contribution 7,03,488 (2,42,424) 4,61,064

Fixed factory overheads - - 12,00,000
Other fixed costs (110%of - - 4,40,000
Rs 4,00,000)
Profit/ (Loss) (11,78,936)
Solution 8:
(i) Preparation of Production Budget (in units)
October November December January
Demand for the month (Nos.) 40,000 35,000 45,000 60,000
Add: 20% of next month’s demand 7,000 9,000 12,000 13,000
Less: Opening Stock (9,500) (7,000) (9,000) (12,000)

Vehicles to be produced 37,500 37,000 48,000 61,000
(ii) Preparation of Purchase budget for Part-X

October November December
Production for the month (Nos.) 37,500 37,000 48,000
Add: 40% of next month’s production 14,800 19,200 24,400
(40% of 37,000) (40% of 48,000) (40% of 61,000)
52,300 56,200 72,400
No. of units required for production 2,09,200 2,24,800 2,89,600
(52,300 × 4 units) (56,200 × 4 units) (72,400 × 4 units)
Less: Opening Stock (48,000) (59,200) (76,800)
(14,800 × 4 units) (19,200 × 4 units)
No. of units to be purchased 1,61,200 1,65,600 2,12,800
(iii) Budgeted Gross Profit for the Quarter October to December

October November December Total
Sales in nos. 40,000 35,000 45,000 1,20,000
Net Selling Price per unit* (Rs) 14,57,070 14,57,070 14,57,070
Sales Revenue (Rs in lakh) 5,82,828 5,09,974.50 6,55,681.50 17,48,484

Less: Cost of Sales (Rs in lakh) 4,57,120 3,99,980 5,14,260 13,71,360
(Sales unit × Cost per unit)
Gross Profit (Rs in lakh) 1,25,708 1,09,994.50 1,41,421.50 3,77,124
* Net Selling price unit = Rs 17,14,200 – 15% commission on Rs 17,14,200 = Rs 14,57,070.
Solution 9:
(i) Statement Showing “Flexible Budget for 3,200 units Activity Level”

Sales (Rs 12,00,000 x 3,200 units) 9,60,000

4,000 units
Less: Variable Cost
Direct Material (3,200 units × 3 kg. p.u. × Rs 30 per kg.) 2,88,000
Direct Labour (3,200 units × 1 hr. p.u. × Rs 72 per hr.) 2,30,400
Variable Overhead (3,200 units × 1 hr. p.u. × Rs 44 per hr.) 1,40,800 (6,59,200)
Contribution 3,00,800
Less: Fixed Overhead 1,80,000
Profit 1,20,800
(ii) Computation of Variances

Material Usage Variance = Standard Cost of Standard Quantity for Actual Production – Standard Cost of Actual Quantity
= (SQ × SP) – (AQ × SP)
Or
= (SQ – AQ) × SP
= [(3,200 units × 3 kg.) – 10,000 kg.] × Rs 30.00
= Rs 12,000 (A)
Labour Rate Variance = Standard Cost of Actual Time – Actual Cost
= (SR × AH) – (AR × AH)
Or
= (SR – AR) × AH
= [(Rs 72- Rs 2,25,600 / 3,100 hrs.) x 3,100 hrs.]
= Rs 2,400 (A)
Solution 10:
(1) Statement of Cost
For first 6 For further For remaining Total
months 3 months 3 months
6,00,000 x 6,00,000 x 6,00,000 x

6/12 x 50% 3/12 x 75% 3/12
= 1,50,000 = 1,12,500 = 1,50,000 4,12,500
units units units units
Direct Material 90,00,000 67,50,000 90,00,000 2,47,50,000

Direct labour 45,00,000 33,75,000 45,00,000 1,23,75,000
Indirect – Variable Expenses 22,50,000 16,87,500 22,50,000 61,87,500
Indirect – Fixed Expenses 32,75,000 16,37,500 16,37,500 65,50,000
Indirect Semi-variable expenses
- For first six months @ 5,00,000 per 2,50,000

annum
- For further three months @ 6,50,000* 1,62,500
per annum
- For further three months @ 8,50,000** 2,12,500 6,25,000
per annum
Total Cost 1,92,75,000 1,36,12,500 1,76,00,000 5,04,87,500

Desired Profit 25,00,000

Sales value 5,29,87,500
Average Sales price per Toy 128.45

* Rs 5,00,000+ [3 times (from 60% to 75%) x 50,000] = Rs 6,50,000
** Rs 6,50,000+ [1 time (from 75% to 80%) x 50,000] + [2 times (from 80% to 100%) × 75,000] = Rs 8,50,000
(2) (a) Company Should accept the offer as it is above its targeted sales price of Rs 128.45 per toy.
(b) Company Should accept the offer as it is above its targeted sales price of Rs 128.45 per toy.
Solution 11:
Flexible Budget
Activity Level 60% 80% 100%
Production (units) 6,000 8,000 10,000
(Rs) (Rs) (Rs)
Sales @ Rs 100 per unit 6,00,000 8,00,000 10,00,000
Variable Cost 2,10,000 2,80,000 3,50,000
(@ Rs 35 (Rs 30 + Rs 5) per unit)
Contribution (A) 3,90,000 5,20,000 6,50,000

Fixed Cost (part of semi-variable cost) 60,000 60,000 60,000
Other Fixed Cost 1,00,000 1,25,000 1,25,000
Total Fixed Cost (B) 1,60,000 1,85,000 1,85,000
Operating Profit (A – B) 2,30,000 3,35,000 4,65,000
Solution 12:
Expense Budget of KLM Ltd.
Particulars 50,000 Units 35,000 Units 70,000 Units
(Rs) (Rs) (Rs)
Direct Material 62,50,000 43,75,000 87,50,000
(50,000 x 125) (35,000 x 125) (70,000 x 125)
Direct Labour 25,00,000 17,50,000 35,00,000
(50,000 x 50) (35,000 x 50) (70,000 x 50)
Variable Overhead 20,00,000 14,00,000 28,00,000
(50,000 x 40) (35,000 x 40) (70,000 x 40)
Direct Expenses 7,50,000 5,25,000 10,50,000
(50,000 x 15) (35,000 x 15) (70,000 x 15)
Selling Expenses (Variable)* 10,00,000 7,00,000 14,00,000
(50,000 x 20) (35,000 x 20) (70,000 x 20)
Selling Expenses (Fixed)* (5 x 50,000) 2,50,000 2,50,000 2,50,000
Factory Expenses (Fixed) (15 x 50,000) 7,50,000 7,50,000 7,50,000
Administration Expenses (Fixed) (8 x 50,000) 4,00,000 4,00,000 4,00,000
Distribution Expenses (Variable)** 8,50,000 5,95,000 11,90,000
(17 x 50,000) (17 x 35,000) (17 x 70,000)
Distribution Expenses (Fixed)** (3 x 50,000) 1,50,000 1,50,000 1,50,000
1,49,00,000 1,08,95,000 2,02,40,000
*Selling Expenses: Fixed cost per unit = Rs 25 x 20% = Rs 5
Fixed Cost = Rs 5 x 50,000 units = Rs 2,50,000
Variable Cost Per unit = Rs 25 – Rs 5 = Rs 20
**Distribution Expenses: Fixed cost per unit = Rs 20 x 15% = Rs 3

Fixed Cost = Rs 3 x 50,000 units = Rs 1,50,000

Variable cost per unit = Rs 20 – Rs 3 = Rs 17
Solution 13:
(i) Statement of Flexible Budget for the both the products:
Particulars Product X (Rs) Product Y (Rs)
Before new proposal After new proposal Before new proposal After new proposal
Sales unit 2,000 2,200 2,500 2,750
(110% of 2,000) (110% of 2,500)
Sales price per unit 140 140 200 200
Sales Value (A) 2,80,000 3,08,000 5,00,000 5,50,000
Variable cost:
Raw material 60,000 66,000 1,00,000 1,10,000
(30 x 2,000) (30 x 2,200) (40 x 2,500) (40 x 2,750)
Direct labour 40,000 44,000 35,000 38,500
(20 x 2,000) (20 x 2,200) (14 x 2,500) (14 x 2,750)
Variable overhead 30,000 39,600 25,000 30,250
(15 x 2,000) (15 x 120% x 2,200) (10 x 2,500) (10 x 110% x 2,750)
Total variable cost (B) 1,30,000 1,49,600 1,60,000 1,78,750
Fixed cost (C) 50,000 66,000 60,000 77,000
Profit (A - (B+C)) 1,00,000 92,400 2,80,000 2,94,250
(ii) Advise:
a) If both the products are independent then proposal for Product-Y is accepted as the profit for the Product-Y is
increased to Rs 2,94,250 from Rs 2,80,000.
b) If both the products are not independent then proposal for both the products is accepted as profit for both the
products will increase to Rs 3,86,650 from Rs 3,80,000.
Solution 14:
Budget Showing Current Position and Position for 2020-21
Position for 2019-20 Position for 2020-21
A B Total A B C Total
(A+B) (A+B+C)
Sales (units) 2,00,000 1,00,000 – 1,50,000 50,000 2,00,000 –
(Rs) (Rs) (Rs) (Rs) (Rs) (Rs) (Rs)
(A) Sales 64,00,000 56,00,000 1,20,00,00 48,00,000 28,00,000 56,00,000 1,32,00,000
0
Direct Material 16,00,000 12,00,000 28,00,000 12,00,000 6,00,000 12,80,000 30,80,000
Direct wages 8,00,000 8,00,000 16,00,000 6,00,000 4,00,000 8,00,000 18,00,000
Factory 8,00,000 8,00,000 16,00,000 6,00,000 4,00,000 8,00,000 18,00,000
overhea
d (variable)
Other variable costs 800,000 4,80,000 12,80,000 6,00,000 240,000 8,00,000 16,40,000
(B) Marginal Cost 40,00,000 32,80,000 72,80,000 30,00,000 16,40,000 36,80,000 83,20,000
(C) Contribution (A- 24,00,000 23,20,000 47,20,000 18,00,000 11,60,000 19,20,000 48,80,000
B)
Fixed costs
– Factory 16,00,000 16,00,000
– Others 12,80,000 12,80,000
(D) Total fixed cost 28,80,000 28,80,000
Profit (C – D) 18,40,000 20,00,000

Comments: Introduction of Product C is likely to increase profit by Rs 1,60,000 (i.e. from Rs 18,40,000 to Rs 20,00,000) in
2020-21 as compared to 2019-20 even if the demand for Product A & B falls. Therefore, introduction of product C is
recommended.
Solution 15:
Revenue Budget (Flexible Budget) of Maharatna Ltd. for the Year 2022
Particulars PY 2021 CY 2022
A Sales Volume (Tonnes) 4,20,000 4,70,400
[112%×4,20,000]
B Selling Price per tonne (Rs) 23,000 23,000
(Rs in lakh) (Rs in lakh)
C Sales value [A×B] 96,600 1,08,192
D Raw material Cost:
(i) Qty. of Material 9,66,000 10,81,920
[2.3 tonnes × A] (tonnes)
(ii) Price per tonne (Rs) 4,500 4,500
(iii) Total raw material cost (Rs in lakh) 43,470 48,686.40
[(i)×(ii)]
E Wages & Salary Cost:
(i) Wages to casual employees (15% 2,386.80 2,508.47
× 6,000 = 900 employees) [900 × 26 × 12 × Rs 850] [900 × 26 × 12 × Rs 893.33]
(ii) Salary to permanent employees (85% 47,736 51,316.20
× 6,000 = 5,100 employees) [5100 × 26 × 12 × Rs 3,000] [(5100 × 26 × 6 ×
Rs 3,000) + (5100 × 26 × 6
× Rs 3,450)]
(iii) Total wages & salary [(i)+(ii)] 50,122.80 53,824.67
F Power cost:
(i) For production (units) 4,20,000 4,70,400
[60% × 7,00,000] [112% × 4,20,000]
(ii) For employees & offices (units) [40% 2,80,000 2,80,000
× 7,00.000]
(iii) Total Power consumption (units) 7,00,000 7,50,400
[(i)+(ii)]
(iv) Power rate per unit (Rs) 6.00 6.00
[Rs42,00,000 ÷ 7,00,000]
(v) Total power cost [(iii)×(iv)] 42 45.024
G Safety and maintenance Cost 60 67.20
[112% × 60,00,000]
H Diesel cost 1.2 -
I Car Hire charge:
(i) Car hire charge 6 6
(ii) Fuel reimbursement cost - 1.38
[115% × 1.2]
(iii) GST@5% on RCM basis - 0.369
[5%×(i+ii)]
(iv) Total Car hire charge cost [(i)+(ii)+(iii)] 6 7.749
J Depreciation 8,040 6,834
[85% × 8040]
K Total Cost [Sum of D to J] 1,01,742 1,09,465.043
L Profit/ (Loss) [C-L] (5,142) (1273.043)
Solution 16:
Workings

Statement showing “Total Variable Cost for the year”

Estimated Sales Revenue 1,51,20,000
Less: Desired Profit Margin on Sale @ 20% 30,24,000
Estimated Total Cost 1,20,96,000
Less: Fixed Selling and Distribution Overheads 34,56,000
Total Variable Cost 86,40,000
Statement showing “Variable Cost per Unit”
Particulars Variable Cost p.u. (Rs)

Direct materials:
A: 6 Kg. @ Rs 80 per Kg. 480
B: 3 Kg. @ Rs 50 per Kg. 150
Labour Cost:
Machine Shop: 4 hrs. @ Rs 70 per hour 280
Assembly Shop: 2 hrs. @ Rs 35 per hour 70
Factory Overheads: 20% of (Rs 280 + Rs 70) 70
Variable Selling & Distribution Expenses 30
Total Variable Cost per unit 1,080
Calculation of number of units of product proposed to be sold and selling price per unit:
Number of units sold = Total Variable cost/Variable cost per unit
= Rs 86,40,000 / Rs1,080
= Rs 8,000 units
Selling price per unit = Total Sales Value/ Number of Units Sold
= Rs 1,51,20,000 / 8,000 units
= Rs 1,890
Production Budget (Units)
Particulars Units
Budgeted Sales 8,000
Add: Closing Stock 3,000
Total requirements 11,000
Less: Opening Stock (2,500)
Required Production 8,500
Materials Purchase Budget (Kg.)
Particulars Material A Material B

Requirement for production 51,000 25,500
(8,500 units x 6 kg.) (8,500 units x 3 kg.)
Add: Desired Closing Stock 8,000 5,500
Total Requirements 59,000 31,000
Less: Opening Stock (7,500) (4,000)
Quantity to be purchased 51,500 27,000

Chapter 16: UNIT, JOB & BATCH COSTING –

Practice Sheet
SOLUTIONS
Solution 1:
𝟐𝑫𝑺
(a) Optimum production run size (Q) = √
𝑪
where,
D = No. of units to be produced within one year.
S = Set-up cost per production run
C = Carrying cost per unit per annum.
𝟐𝐃𝐒 𝟐 𝐱 𝟐𝟒,𝟎𝟎𝟎 𝐱 𝐑𝐬 𝟑𝟐𝟒
=√
𝐂
=√ 𝟎.𝟏𝟎 𝐱 𝟎.𝟏𝟐
= 3,600 bearings.
(b) Total Cost (of maintaining the inventories) when production run size (Q) are 3,600 and 6,000 bearings
respectively
Total cost = Total set-up cost + Total carrying cost.
When run size is 3,600 When run size is 6,000
bearings bearings
Total set up cost = 24,000 x Rs 324 = Rs 2,160 = 24,000 x Rs 324 = Rs 1,296
3,600 6,000
Or,
No. of setups = 6.67 (7 setups)
= 7 x 324 = Rs 2,268
Total Carrying cost ½ x 3,600 x 0.10P x 12 = Rs ½ x 6,000 x 0.10P x 12 = Rs
2,160 3,600
Total Cost Rs 4,320 / Rs 4,428 Rs 4,896
Rs 576/ Rs 468 is the excess cost borne by the firm due to run size not being economic batch quantity.
(c) Inventory holding cost at EBQ = 1/2 Q × C
(when Q = 3,600 bearings) = 1/2 × 3,600 bearings × 0.10P × 12
= Rs 2,160
Solution 2:
Factory Cost Statement of Completed Job
Month Job Materials Direct Factory Overheads Factory Cost
No. Labour (80% of direct
labour cost)
(Rs) (Rs) (Rs) (Rs) (Rs)
September 115 1,325 800 640 2,765
October 115 -- 125 100 225
Total 1,325 925 740 2,990
September 118 810 500 400 1,710
October 118 515 330 264 1,109
Total 1,325 830 664 2,819
September 120 765 475 380 1,620
October 120 665 245 196 1,106
Total 1,430 720 576 2,726
Invoice Price of Complete Job

Job No. 115 118 120

(Rs) (Rs) (Rs)

Factory cost 2,990.00 2,819.00 2,726.00
Administration and selling overheads
@ 10% of factory cost 299.00 281.90 272.60
Total Cost 3,289.00 3100.90 2,998.60
Profit (20% of total cost) 657.80 620.18 599.72
Invoice Price 3,946.80 3,721.08 3,598.32
Assumption: - Indirect labour costs have been included in the factory overhead which has been recovered as 80% of the
labour cost.
Solution 3:
(i) Calculation of Overhead Recovery Rate:
Factory Overhead Recovery Rate = ( Factory Overhead 2019 -20 )/( Direct Labour Cost 2019 - 20 ) × 100
= (Rs 30,80,000 / Rs 90,50,000 ) × 100 = 34% of Direct labour
Administrative Overhead Recovery Rate:

= ( Administrative Over heading 2019 - 20 )/ [Factory Costs in 2019 -20(W.N.)] × 100
= (Rs 20,50,400 / Rs 2,96,80,000) × 100 = 6.91% of Factory Cost
Working Note:
(i) Calculation of Factory Cost in 2019-20
Opening Stock of Material 15,00,000
Add: Purchase of Material 1,80,50,000
Less: Closing Stock of Material (20,00,000)
Material Consumed 1,75,50,000
Direct Labour 90,50,000
Factory Overhead 30,80,000
(ii) Job Cost Sheet for the order received in 2020-21

Material 80,00,000
Labour 40,50,000
Factory Overhead (34% of Rs 40,50,000) 13,77,000
Administrative Overhead (6.91% of Rs 9,27,806
1,34,27,000)
Cost of delivery 4,50,000
Add: Profit @ 25% of Sales or 33.33% of 49,34,935
cost
Sales value (Price to be quoted for the 1,97,39,741
order)
Hence the price to be quoted is Rs 1,97,39,741
Solution 4:
(i) Computation of optimum run size
𝟐×𝐃×𝐒
Optimum run size or Economic Batch Quantity (EBQ) =√
𝐂
Where, D = Annual demand i.e. 5.5% of 18,00,00,000 = 99,00,000 units

S = Set-up cost per run = Rs 33,500

C = Inventory holding cost per unit per annum
= Rs 6.25 × 12 months = Rs 75
299,00,000units₹33,500
= EBQ = = 94,042.5 units or 94,043 units
Rs 75
(ii) Calculation of Total Cost of set-up and inventory holding

Batch size No. of set- ups Set-up Cost (Rs) Inventory holding Total Cost (Rs)
cost (Rs)
A .80,000 units 124 41,54,000 30,00,000 71,54,000
(99,00,000/80,000) (124 × Rs 33,500) (80,000 × Rs 75)/2
B. 94,043 units 106 35,51,000 35,26,612.5 70,77,612.50
(99,00,000/80,000) (106 × Rs 33,500) (94,043 × Rs 75)/2
Extra Cost (A – B) 76,387.50
Solution 5:
(a) Calculation of Total Cost for the Job:
Direct Material Cost:
-15mm GI Pipe (Working Note- 1) 11,051.28
-20mm GI Pipe (Working Note- 2) 2,588.28
-Other fitting materials (Working Note- 3) 3,866.07
-Stainless steel faucet 3,113.57
15 units × [(6× Rs 204 +15× Rs 209)/21 units)
-Valve 2,472.75 23,091.95
6 units × [(8× Rs 404 +10× Rs 402+ 14 × Rs 424 )] /21 units)
Direct Labour:
-Plumber 18,600.00
[(180 hours × Rs 100) + (12 hours ×
Rs 50)]
-Helper 14,280.00 32,880.00
[(192 hours × Rs 70) + (24 hours × Rs 35)]
-Overheads[Rs 26 × (180 + 192) hours] 9,672.00
Total Cost 65,643.95
(b) Price to be charged for the job work:

Amount (Rs)
Total Cost incurred on the job 65,643.95
Add: 25% Profit on Job Price 21,881.32
[(65,643.95/75%) × 25%]
87,525.27
Working Note:
1. Cost of 15mm GI Pipe
Date Amount (Rs)
17-08-2020 8 units × Rs 660 4,800.00
28-08-2020 10 units ×[(4×Rs 600+35× Rs 628)/39 units] 6,251.28
11,051.28
2. Cost of 20mm GI Pipe

Date Amount (Rs)
12-08-2020 2 units × Rs660 1,320.00

28-08-2020 2 units ×[(8×Rs660+30×Rs 610+20× Rs660)/58 1,268.28

units]
2588.28
3. Cost of Other fitting materials

Date Amount (Rs)
12-08-2020 18 units × Rs 26 468.00
17-08-2020 30 units × Rs 26 780.00
28-08-2020 34 units ×[(12×Rs26+150×Rs 28)/162 units] 946.96
30-08-2020 60 units ×[(12×Rs26+150×Rs 28)/162 units] 1,671.11
3,866.07
Solution 6:
(i) Production Statement
For the year ended 31st March, 2020
Amount (Rs)
Direct materials 18,00,000
Direct wages 15,00,000
Prime Cost 33,00,000
Factory overheads 9,00,000
Selling and distribution overheads 10,50,000
Profit 12,18,000
Sales value 73,08,000
Calculation of rates:
1) Percentage of factory overheads to direct wages = [Rs 9,00,000 / Rs 15,00,000] x 100 = 60%
2) Percentage of administration overheads to cost of production = [Rs 8,40,000 / Rs 42,00,000] x 100 = 20%
3) Selling & distribution overheads = Rs 10,50,000 x 115% = Rs 12,07,500
Selling & distribution overhead % to cost of production = [Rs 12,07,500 / Rs 42,00,000] x 100 = 28.75%
4) Percentage of profit to sales = [Rs 12,18,000 / Rs 73,08,000] x 100 = 16.67% or, 1/6
Solution 7:
(i) Computation of Optimum Run size of ‘Stents’ or Economic Batch Quantity (EBQ)
√𝟐𝐃𝐒
Economic Batch Quantity (EBQ) =
𝐂
Where, D = Annual demand for the Stents
= 4,00,00,000 × 2.5% = 10,00,000 units
S = Set- up cost per run = Rs 225
C = Carrying cost per unit per annum
= Rs 1.50 × 12 = Rs 18
𝟐 × 𝟏𝟎, 𝟎𝟎, 𝟎𝟎𝟎 × 𝑹𝒔 𝟐𝟐𝟓
EBQ = √
𝟏𝟖
= 5,000 units of Stents
(ii) Minimum inventory holding cost

Minimum Inventory Cost = Average Inventory × Inventory Carrying Cost per unit per annum
= (5,000 ÷ 2) × Rs 18
= Rs 45,000

(iii) Calculation of the extra cost due to manufacturing policy

When run size is 4,000 units When run size is 5,000 units i.e. at
EBQ
Total set up cost (10,00,000 /4,000) × Rs 225 (10,00,000 / 5,000) × Rs 225
= Rs 56,250 = Rs 45,000
Total Carrying cost ½ × 4,000 × Rs 18 ½ × 5,000 × Rs 18

= Rs 36,000 = Rs 45,000
Total Cost Rs 92,250 Rs 90,000

Extra cost = Rs 92,250 - Rs 90,000 = Rs 2,250
Solution 8:
Job Cost Sheet
Customer Details ——— Job No._________________
Date of commencement —— Date of completion _________
Direct materials 120
Direct wages:
Deptt. A Rs 4.00 × 4 hrs. Rs 16.00
Deptt. B Rs 4.00 × 7 hrs. Rs 28.00
Deptt. C Rs 4.00 × 2 hrs. Rs 8.00
Deptt. D Rs 4.00 × 2 hrs. Rs 8.00 60
Chargeable expenses 20
Prime cost 200
Overheads
Deptt. A = Rs 12,000 × 100 =100% of Rs 16 Rs 16
Rs 12,000
Deptt. B = Rs 6,000 × 100 = 75% of Rs 28 Rs 21
Rs 8,000
Deptt. C = Rs 9,000 × 100 = 90% of Rs 8 Rs 7.20
Rs 10,000
= Rs 9,000 × 100 = 90% of Rs 8 = Rs 7.20
Rs 10,000
Deptt. D = Rs 17,000 × 100 = 85% of Rs 8 Rs 6.80 51.00
Rs 20,000
Works cost 251.00
Selling expenses = Rs 90,000 ×100 = 30% of work cost 75.30
Rs 3,00,000
Total cost 326.30
Profit (20% profit on selling price i.e 25% of total cost) 81.58
Selling price 407.88
Solution 9:
𝟐𝐃𝐒
Economic Batch Quantity (EBQ) = √
𝐂

Where, D = Annual demand for the product

S = Setting up cost per batch
C = Carrying cost per unit of production
(i) Computation of EBQ :
𝟐 × 𝟏𝟗, 𝟎𝟎, 𝟎𝟎𝟎 × 𝐑𝐬 𝟓, 𝟐𝟎𝟎
= √
𝐑𝐬 𝟏𝟓
= 1,14,775 bottles
(ii) Computation of saving in cost by adopting EBQ:

Batch Size No. of Batch Set-Up Cost Carrying Cost Total Cost
1,60,000 bottles 12 62,400 1,20,000 1,82,400
(Rs 5,200 x 12) (Rs 1.5 × ½ × 1,60,000)
1,14,775 bottles 17 88,400 86,081.25 1,74,481.25
(Rs 5,200 x 17) (Rs 1.5 × ½ × 1,14,775)
Savings 7,918.75
Solution 10:
Calculation of Job Price
Direct materials 1,87,00,000
Direct wages (Rs 80 × 2,400 hours) 1,92,000
𝐑𝐬 𝟒𝟖,𝟎𝟎,𝟎𝟎𝟎 4,80,000
Production overheads ( x 𝟐, 𝟒𝟎𝟎 hrs. )
𝟐𝟒,𝟎𝟎𝟎 𝐡𝐫𝐬.
Production cost 1,93,72,000
Selling and administration overheads 96,860
𝐑𝐬 𝟏𝟖,𝟎𝟎,𝟎𝟎𝟎
( x 𝟏, 𝟗𝟑, 𝟕𝟐, 𝟎𝟎𝟎 )
𝟑𝟔,𝟎𝟎,𝟎𝟎,𝟎𝟎𝟎
Total cost of sales 1,94,68,860
Profit mark-up @ 20% 38,93,772
Price for the job 2,33,62,632
Solution 11:
(a) Optimum production run size (Q)
𝟐𝑫𝑺 √𝟐 × 𝟗𝟔, 𝟖𝟎𝟎 × 𝑹𝒔 𝟓𝟖𝟖
=√ = = 6,160 bearings .
𝑪 𝟎. 𝟐𝟓 × 𝟏𝟐
(b) Calculation of Extra Cost

Total Cost (of maintaining the inventories) when production run size (Q) are 6,160 and 8,800 bearings respectively.
Total cost = Total set-up cost + Total carrying cost.
Particulars When run size is 6,160 When run size is 8,800
bearings bearings
Total set up cost = 96,800 × Rs 588 = Rs 9,240 = 96,800 × Rs 588 = Rs 6,468

6,160 8,800
Or,
No. of setups = 15.71 (16 setups)
= 16 x Rs 588 = Rs 9,408
Total Carrying cost ½ × 6,160 × 0.25 × 12 ½ × 8,800 × 0.25 × 12

= Rs 9,240 = Rs 13,200
Total Cost Rs 18,480/ Rs 18,648 Rs 19,668
Rs 1,188/ Rs 1,020 is the extra cost incurred by the company due to run size not being optimum run size.

Solution 13:
(i) Computation of Optimum Run size of ‘Stents’ or Economic Batch Quantity (EBQ)
Economic Batch Quantity (EBQ) =

2DS
C
Where, D = Annual demand for the Stents
= 1,00,00,000 × 10% = 10,00,000 units
S = Set - up cost per run
= Rs 450
C = Carrying cost per unit per annum
= Rs 3 × 12 = Rs 36
𝟐 × 𝟏𝟎, 𝟎𝟎, 𝟎𝟎𝟎 × 𝐑𝐬 𝟒𝟓𝟎
EBQ =√
𝐑𝐬 𝟑𝟔
= 5,000 units of Stents
(ii) Minimum inventory holding cost
Minimum Inventory Cost = Average Inventory × Inventory Carrying Cost per unit per annum
= (5,000 ÷ 2) × Rs 36
= Rs 90,000
(iii) Calculation of the extra cost due to manufacturing policy

When run size is 6,000 When run size is 5,000 units i.e., at
units EBQ
Total Set up cost = 10,00,000 x Rs 450 = 10,00,000 x Rs 450
6,000 5,000
= Rs 75,000 = 90,000
Total Carrying Cost = ½ x 6,000 x Rs 36 = ½ x 5,000 x Rs 36
= 1,08,000 = Rs 90,000
Total Cost Rs 1,83,000 Rs 1,80,000
Extra cost = Rs 1,83,000 - Rs 1,80,000 = Rs 3,000
Solution 14:
(i) Calculation of Overhead Recovery Rate:
Factory Overhead Recovery rate = Factory Overhead in 2020-21 x 100
Direct labour cost in 2020-21
= 30,80,000 x 100 = 34% of Direct labour
Rs 90,50,000
Administrative Overhead Recovery rate = Administrative Overhead in 2020 – 21 x 100
Factory cost in 2020-21 (W.N.)
= Rs 20,50,400 x 100 = 6.91% of Factory Cost
Rs 2,96,80,000
Working Note: Calculation of Factory Cost in 2020-21

Opening Stock of Material 15,00,000
Add: Purchase of Material 1,80,50,000
Less: Closing Stock of Material (20,00,000)
Material Consumed 1,75,50,000

Direct Labour 90,50,000

Factory Overhead 30,80,000
(ii) Job Cost Sheet for the order received in 2021-22

Material 80,00,000
Labour 40,50,000
Factory Overhead (34% of Rs 40,50,000) 13,77,000
Administrative Overhead (6.91% of Rs 1,34,27,000) 9,27,806
Cost of delivery 9,50,000
Add: Profit @ 25% of Sales or 33.33% of cost 51,01,602
Sales value (Price to be quoted for the order) 2,04,06,408
Hence the price to be quoted is Rs 2,04,06,408.
Solution 15:
𝟐 ×𝑫 ×𝑺
(i) Optimum run size or Economic Batch Quantity (EBQ) = √
𝑪
Where, D = Annual Demand i.e. 2.15% of 8,00,00,000 = 17,20,000 units
S = Set up cost per run = Rs 4500
C = Inventory holding cost per unit per annum
= Rs 2.5 x 12 months = Rs 30
𝟐 × 𝟏𝟕, 𝟐𝟎, 𝟎𝟎𝟎 𝒖𝒏𝒊𝒕𝒔 × 𝑹𝒔 𝟒, 𝟓𝟎𝟎
EBQ = √ = 22.716 units
𝑹𝒔 𝟑𝟎
(ii) Calculation of total cost of set-up and inventory holding

Batch Size No. of set-ups Set-up Cost Inventory holding cost (Rs) Total Cost (Rs)
(Rs)
A 20,000 units 86 3,87,000 3,00,000 6,87,000
(17,20,000/20,000) (86 x Rs 4,500) ((20,000 x Rs 30)/2)
B 22,716 units 76 3,42,000 3,40,740 6,82,740
(17,20,000/22,716) (76 x Rs 4,500) ((22,716 x Rs 30)/2)
Extra Cost (A – B) 4,260


04 Edu91 Costing Practice Sheets Solutions (Not To Print)

Uploaded by

Document Information

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

04 Edu91 Costing Practice Sheets Solutions (Not To Print)

Uploaded by

Copyright:

Available Formats

EDU91 | Where Learning Happens BY CA NITIN GURU

Chapter 2: MATERIAL COST- Practice Sheet

Statement showing the computation of rate per kg. of each chemical

Date Material Requisition Units

(ii) Maximum stock level

To get the best out of these notes visit www.edu91.org

(iii) Minimum stock level

(v) Value of components used during the month of January 2020:

(vi) Inventory Turnover Ratio

Statement of receipts and issues by adopting First-in-First-Out Method

Units Rate Value Units Rate Value Units Rate Value

To get the best out of these notes visit www.edu91.org

Statement of receipts and issues by adopting Last-In-First-Out method

Units Rate Value Units Rate Value Units Rate Value

Statement of Receipt and Issues by adopting Weighted Average method

Units Rate Value Units Rate Value Units Rate Value

Sales forecast of the product ‘X’ 20,000 units

(ii) Computation of Economic Order Quantity (EOQ):

To get the best out of these notes visit www.edu91.org

(iii) Re- Order level:

(iv) Minimum consumption per day of raw material ‘D’:

(a) Re-order Quantity :

(b) Maximum Stock level:

(c) Minimum Stock level:

When purchasing the ROQ When purchasing the EOQ

(ii) Maximum stock of B

To get the best out of these notes visit www.edu91.org

(iii) Re-order level of C

(iv) Average stock level of A

(v) Re-order level of D

(vi) Minimum stock of D

(ii) Maximum stock level

(iii) Minimum stock level

(iv) Store Ledger for the month of January 2020:

To get the best out of these notes visit www.edu91.org

01-01-20 - - - - - - - - 3,500 9,810 34,335

(v) Value of components used during the month of January 2020:

(vi) Inventory Turnover Ratio

(ii) Maximum stock of Qu

(iii) Re-order level of Ar

(iv) Average stock level of Pi

(ii) Reorder level (ROL) = Maximum usage × Maximum re-order period

To get the best out of these notes visit www.edu91.org

= 900 kg. × 8 weeks = 7,200 kg.

(iv) Minimum level = ROL – (Normal usage × Normal re-order period)

(v) Average stock level = ½ (Maximum level + Minimum level)

(ii) Re-order point under EOQ:

(iii) Frequency of Orders (in days):

To get the best out of these notes visit www.edu91.org

𝟐 × 𝐀𝐧𝐧𝐮𝐚𝐥 𝐝𝐞𝐦𝐚𝐧𝐝 (𝐀) × 𝐎𝐫𝐝𝐞𝐫𝐢𝐧𝐠 𝐂𝐨𝐬𝐭 𝐩𝐞𝐫 𝐨𝐫𝐝𝐞𝐫 (𝐎)

(ii) Total Annual Inventory Cost

(b) Maximum Stock Level

(c) Minimum Stock Level

(b) Material price variance

To get the best out of these notes visit www.edu91.org

(c) Material using variance Material A

Ordering Cost (Handling & freight cost) (O) = Rs. 1,500

Inventory carrying cost Rs. 6,00,000 Rs. 30,000 (2,000

Total Cost Rs. 6,01,500 Rs. 60,000

Discount in the price of raw material to be negotiated = Rs. 13.54 = 14.10%

01-07-19 Purchases 50,000 95,50,000 95,50,000 95,50,000

To get the best out of these notes visit www.edu91.org

Average Stock of raw material