Cost Sheets

Published on July 2016 | Categories: Documents | Downloads: 42 | Comments: 0 | Views: 1253
of 28
Download PDF   Embed   Report

ICWA_foundation_Accounts

Comments

Content

Cost Sheets

Study Note - 12
Cost Sheets
This Study Note includes
● ● ● ●

Introduction Cost Accumulation Cost Collection Cost Sheet Formats & Preparation

12.0 Introduction
In the preceding sections, we have dealt with the basic concepts of costs and the various elements of costs. We have also seen the different steps followed in determination of cost of a product or rendering a service. Treatment of various costs has been discussed at length. You are by now very well aware that the term cost has wide connotations and would not mean anything in isolation. Costs must be understood if they are to be controlled. Measurement of costs is the first step in the process of control simply because you cannot control unless you measure. Measurement of cost would mean different when applied to different industries. The cost has to be measured with respect to the cost centers first and then at a broader level with respect to the cost unit. The journey towards the aim of determining cost of a product or service may take various routes. But the logic is same i.e. collect all relevant costs in the process of converting raw material into finished product and accumulate the total costs. To put in simple words, to generate any product or service, resources are needed called as inputs. Theses inputs are used in a process of conversion. The end result is the output which could either be a product or a service. The resources consume costs. While determining total cost of resources, the costs of all resources used (directly or indirectly) in the process are accumulated. This requires establishing the relationship between the resource and the product or service. Input/ resources Process - One or many operations - independent or sequential Output Finished

Basic raw

Labour, staff, facilities, utilities

The process of accumulating costs will differ according to the nature of business and the activities carried out. The common way to accumulate costs is to prepare cost sheets.

B 158

ACCOUNTING

12.1 Cost Accumulation
The logic of cost accumulation is to track costs in the same sequence as the resources get used. See the following flow of activities: Raw material & other material are purchased and stored The material is used up in process of conversion People or machines work upon the material while in the process The process results into some products that are finished

The cost data needs to be collected along this whole chain that ends when a final product is produced. The cost accumulation is done based on the source documents which are used in booking the costs. Depending upon the type of business, a cost unit is determined for which costs must be accumulated. The departmentalisation of the business organisation is done to suit the production process. For example, in a fruit processing industry, the costs would be accumulated as per different process involved i.e. cutting, pulp formation, blending, purifying and final packing. As the physical flow of material happens from one process to the other, costs are also passed on from one process to the next in line. For the purpose of convenience, a cost tree in the following format explains the composition of costs. Total cost

Material

Labour

Expenses

Direct

Indirect

Direct

Indirect

Direct

Indirect

As we know all the direct element of cost together make Prime Cost. Sequentially, production overheads are added to get Factory Cost or Works Cost. Then Administration overheads are added to the Factory Cost to get Cost of Production. Once the product is ready for sale, the selling and distribution overheads are added to get Cost of Sales or Cost of Goods Sold. When this is deducted from Sales revenue we get profit or loss. Process of accumulation of cost comprises of Identification of costs to the cost centers or departments Apportionment of service costs to production costs Absorption of costs into cost units

ACCOUNTING

B 159

Cost Sheets

12.2 Cost Collection
Cost collection is the process of booking costs against a particular cost account code under a particular cost center or directly under a cost unit, as the case may be. Source documents are used to generate the record of the costs incurred or to be incurred. These source documents are properly authorised and numbered. They act as the primary source of entry. In additions to these documents there could be other documents and reports such as allocation sheets, labour utilisation reports, idle time & overtime analysis, scrap reports etc which help in identifying costs. Let us see how the costs are collected. Material costs: These costs are identified with cost unit with the help of ‘stores issue summary’. In case of job costing, there will be job-wise summary prepared on the basis of ‘material issue notes’. In case of contracts, the summary will be made contract-wise. At times instead of procuring & storing material, it may be procured and directly used on contract site. ‘Purchase Invoice’ may be the basis to capture such direct material costs. In case of process industry, the material is issued to different processes. Here, the costs input to a process may be collected based on the cost of materials processed in the previous process. A process-wise summary of material issues is maintained. Some material may get added to a process but may not become part of final product. The cost of such material is apportioned on the output of that process. The indirect material costs may be gathered on the basis of consumable issues, scrap reports, standard parts list etc. Care should be taken to account for material losses. Normal material losses are to be apportioned to the good units produced, whereas, abnormal losses should be excluded from computation of cost of good units and should be directly taken to P & L account. Labour Cost: Salaries and wages summary prepared after the monthly payroll run is the main basis for labour cost collection. The summary shows department-wise break up, so that the direct labour cost of production department is separately known and that for the other indirect departments is also available to be charged as overheads. In case of contracting business, labour force is usually dedicated to various sites. The cost of labour used on different contracts can be found based on wages sheet maintained for each contract site. In addition, the idle time reports, overtime reports are used for booking of the costs of idle time & overtime. In case labourers are common to various jobs or contracts or processes, an estimate of the time that they spend on each of them is made and the costs are allocated accordingly. Expenses: Accounting entries in cash book or journal proper help collect the expenses. Direct expenses which are job or contract or process specific may be collected on the basis of vouchers. The indirect expenses are collected and then apportioned in a summarised form using apportionment sheets. Collection of Budgeted costs: The cost calculation for the selected cost unit could be either of actual cost or budgeted cost. While actual costs are collected on the basis of documents exACCOUNTING

B 160

plained above, the budgeted costs are computed using the standard bill of material, and predetermined overhead rates. For budgeted direct material, a bill of material is prepared for each product (including sub-assemblies). This is a quantitative estimate. Based on the estimates a budgeted material price is considered to value the material cost. Estimated labour hours are costed using estimated labour hour rates. Pre-determined overheads are also computed considering the base selected for absorption. Thus an estimate of total cost with full composition may be made. Cost Accountant & cost data collection: The cost accountant must play a pivotal role in ensuring that the process of cost data collection is very strong. The cost analysis and reporting will not be useful for managerial decision-making if the data collection process is wrong. Presence of a strong and robust Costing system is needed to ensure comprehensive data collection process. The costs account may carry out periodical checks to evaluate the system and also may do the internal audit. He can use all his expertise in the process of establishing cost estimates which will help in decision making. Cost data collected must be reported in proper format to make it more informative and meaningful. As can be understood, the report must serve the purpose for which it was sought. A complete cost sheet may not be always necessary. The production manager may require the cost of production only. The cost report should be able to give this figure separately broken up into all its elements. The sales and marketing cost may be given for each channel of distribution, customers, regions etc in addition to the product-wise break up. The cost data should be collected in a manner that will make available cost information to all those who are responsible for the costs. A cost sheet should give the figures of each element of cost broken up into direct and indirect and also according to functions like production, administration and Selling & distribution. It is therefore logical that the format of the cost sheet is derived from the requirements for which it is to be used. Apart from exhibiting the total cost deducted logically, it should highlight other cost also, so that comparison with budget can be made, variances analysed and cost could be controlled to increase profits.

12.3 Cost Sheet formats & Preparation
The cost concept itself being subjective, there is no standard format in which the collected costs can be presented. It has to suit the type of business, need of the details, and management’s requirement of control over costs. Yet a simple way to show the total cost of any cost unit is shown below:

ACCOUNTING

B 161

Cost Sheets

Specimen cost sheet Period from………….. Cost To………… …………

Units

Cost items Direct Material Opening stock Add: Purchases Add: Incidental charges Less closing stock Direct labour Direct Expenses PRIME COST Add: Production Overheads Add: Opening work in process Less: Closing work in process FACTORY COST OR WORKS COST Add: Administrative Overheads COST OF GOODS MANUFACTURED Add: Opening Finished goods stock Less: Closing finished goods stock COST OF FINISHED GOODS SOLD Add: Selling & Distribution Overheads COST OF GOODS SOLD

Amount (Rs) xxxxxx xxxxxx xxxxxx xxxxxx

Amount (Rs)

xxxxxx xxxxxx xxxxxx xxxxxx

xxxxxx xxxxxx xxxxxx

xxxxxx

xxxxxx

xxxxxx

xxxxxx xxxxxx xxxxxx xxxxxx

xxxxxx

xxxxxx

B 162

ACCOUNTING

You can observe the logical way in which the cost flow has been shown in the above chart. The focus in this specimen is on elements and functions split further into direct and indirect costs with respect to the cost units. Although the formats could be different, the contents of a cost sheet must be understood and interpreted correctly so that one can analyse it for control and decision making. For example if it has to be prepared for a process industry, the format would reflect the portion up to factory cost for each process separately. Then the administration costs will be added together. The cost per unit will be computed for every process separately. The stock for processes subsequent to process one will mean stocks transferred from earlier processes and stocks transferred to the next processes. The objective here is to compute the cost per process. The cost sheet format here could be:

Specimen cost sheet Period from………….. Cost To………… …………

Units

Cost items Direct Material Opening stock Add: Purchases Add: Incidental charges Less closing stock Direct labour Direct Expenses PRIME COST Add: Production Overheads Add: Opening work in process Less: Closing work in process FACTORY COST OR WORKS COST

Amount (Rs) xxxxxx xxxxxx xxxxxx xxxxxx

Amount (Rs)

xxxxxx xxxxxx xxxxxx xxxxxx

xxxxxx xxxxxx xxxxxx

xxxxxx

xxxxxx

ACCOUNTING

B 163

Cost Sheets
FACTORY COST OR WORKS COST Add: Administrative Overheads COST OF GOODS MANUFACTURED Add: Opening Finished goods stock Less: Closing finished goods stock COST OF FINISHED GOODS SOLD Add: Selling & Distribution Overheads COST OF GOODS SOLD xxxxxx

xxxxxx

xxxxxx

xxxxxx xxxxxx xxxxxx xxxxxx

xxxxxx

Depending on number of processes, the working will be shown up to factory cost. Subsequently, the administration, selling & distribution overheads are added like that shown in the first format. Some process companies may prepare a different cost sheet for each process. When it is available process wise, control of process costs and process losses could be better controlled by the concerned process managers. 12.3.1 Important components of cost sheet : 1) Cost sheet has reference to the job or contract or a batch or production or a service undertaken to be rendered. If the completion of the job at hand relates to more than one accounting period, it is better that separate columns are provided to mention figures for those period. The job or batch reference should also be mentioned on the header. 2) If there is an estimate made for the costs, a separate column must be provided for estimated costs against which the actual costs should be plotted to get ready comparison. This will make cost sheets more user-friendly and meaningful. 3) In certain cases, material may not form any significant portion of the total cost and as such may be treated as an overhead item. In such cases, the prime cost will mainly constitute as labour and other expenses. 4) Treatment of raw material stocks should be carefully understood. As the costs are to be linked to the units produced, the material consumption, completion of earlier period’s semifinished goods and the finished goods sold needs to be properly computed.
ACCOUNTING

B 164

Raw Material consumed: Opening stock + Purchases – closing stock One has to go into the depth of this arithmetical formula. Where do we get the figure of purchases from? It is from the suppliers invoices for purchase of stockable material. Students may refresh their understanding of the ‘valuation of receipts’ as explained in the chapter 9. It also should include all charges incidental to purchase of goods like carriage, insurance, customs duty etc which is directly associated with the incoming material. As we know that the stocks are always valued at cost or market price whichever is less. This norm has to be applied to the rates of all the items of material in stock, and then the total valuation of stock is done. The stock ledger records all receipts and issues of the quantity and rate of material items. The valuation of material issues has to be properly done based on correctly chosen method of issue pricing. This summary figure as per the issue column should exactly match with the raw material consumed figure as included in the cost sheet. The normal losses on account of material shortages must be included in the cost of raw material consumed. Care should be taken to remove the abnormal losses there from. 5) Treatment of work in process is another important step. If the format is carefully seen, it will be noticed that the cost of WIP stocks is adjusted specifically after adding factory overheads! Why adjusted? And why at that stage only? Please note that cost sheet is prepared for a period of time for a cost unit. At the beginning of that period, if the job has been carried forward from the previous period, there may be some partly finished work that is carried forward. At the same time there may be partly finished production at the end of current period. These stocks must be adjusted to reflect the cost consumed during the current period. Further, the work in process is normally valued at Factory cost. It does not include administration overheads as the production of goods is not yet fully complete. Administration costs are absorbed at the stage of finished production. Hence the adjustment of WIP stocks is to be done before adding the administration overheads. 6) Similarly, the adjustment for the opening and closing stocks of finished goods should be done. This has to be done after the stage of cost of production. 7) One could have separate columns for total costs and per unit costs side by side. This will help have a quick glance at the per unit figures. Management at operating level will find this very helpful.

ACCOUNTING

B 165

Cost Sheets

12.3.2 Cost sheet format for service costing The cost sheet format for service costing takes into account the requirements of different types of services. It could be used to find out cost of internal services like boiler house, maintenance of delivery van fleet etc. In such cases the main purpose is to control the costs. It could also apply in case of services that are sold such as transport companies, hospitals, hotels, etc. Selling services and making profit thereon is the main purpose of these services. As we know, material costs constitute a lower proportion of the total costs and the proportion of labour and other expenses is higher. As most of the costs are indirect, it is difficult to accumulate costs in the traditional format as shown above, neither is it useful. Hence, the emphasis is on variability of expenses. The cost collection is also done in the same manner. All items of costs are bifurcated into: Fixed or standing costs and Maintenance expenses Other Variable or running expenses

Based on this bifurcation a cost sheet is prepared. In most of the services, the cost unit is a composite unit such as per passenger-kilometer, per patient-bed, per Kilo-Watt-Hour, per roomday etc. In such cases it is necessary that quantity of the cost units is properly mentioned in the cost sheet so that per unit cost can be correctly calculated. Here are some examples of contents of cost sheets for different services: a) Transport: The costs are shown under the heads of fixed expenses, running expenses and maintenance expenses. The fixed expenses will be time related such as salaries, garage rent, insurance etc. The maintenance charges will be like tyres & tubes, repairs, etc. The operating expenses will mainly include petrol, diesel & fuel oil, drivers & cleaners’ wages etc. The cost unit data will comprise of mileage run, tonnage carried, days on road etc. The specimen cost sheet format is shown below:

B 166

ACCOUNTING

Specimen cost sheet - Transport service Period from………….. Vehicle no Vehicle no To………… xx yy Amount Amount (Rs) (Rs) Cost items Operating costs Petrol xxxxxx xxxxxx Diesel xxxxxx xxxxxx Engine oil xxxxxx xxxxxx Drivers' wages xxxxxx xxxxxx Cleaners' wages xxxxxx xxxxxx Depreciation xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Maintenance costs Tyres and tubes xxxxxx xxxxxx Painting, denting xxxxxx xxxxxx Cleaning & overhauls xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Fixed costs Garage rent xxxxxx xxxxxx Insurance xxxxxx xxxxxx Insurance Taxes xxxxxx xxxxxx Road permits xxxxxx xxxxxx General supervision xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Grand total Cost units Mileage run Days on road Load carried (tonnes) Capacity utilisation % Total Tonne-miles Cost per tonne-mile xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx

b) Boiler house: It generates steam that is used in production activity. Main items of costs are fuel & labour, power, fuel handling, ash removal, water softening, maintenance etc. The cost unit will be cubic feet.
ACCOUNTING

B 167

Cost Sheets
Specimen cost sheet - Boiler House Cost per Period from………….. Total 1000 To………… cost hours Steam produced in 1000 hours ………. Less: used in boiler house………… Less: lines losses Net production Amount Amount (Rs) (Rs) Cost items Fuel & Labour Fuel oil xxxxxx xxxxxx Electric power xxxxxx xxxxxx Fuel handling xxxxxx xxxxxx Ash removal & disposal xxxxxx xxxxxx Direct wages xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Water Storage xxxxxx xxxxxx Softening xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Maintenance Boiler cleaning xxxxxx xxxxxx Coal bunkers xxxxxx xxxxxx Economisers xxxxxx xxxxxx Mechanical stokers xxxxxx xxxxxx Service pipes xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Fixed Costs Supervision Rent Depreciation Sub-total xxxxxx xxxxxx Grand total xxxxxx xxxxxx

c) Power House: The main components of cost are steam production and electricity generation. The former comprises of coal, water, wages, maintenance etc and he later contains steam consumption, wages, supervision etc. Cost units will be for steam produced and electricity generated. B 168
ACCOUNTING

Specimen cost sheet - Power House Period from………….. Total Cost per To………… cost KWH Electricity generated in KWH ………. Less: lines losses Net production Amount Amount (Rs) (Rs) Cost items Steam production costs Coal bunkers xxxxxx xxxxxx Water xxxxxx xxxxxx Wages xxxxxx xxxxxx Maintenance of boilers xxxxxx xxxxxx Depreciation xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Less: used for heating purposes Steam used for electricity generation xxxxxx xxxxxx xxxxxx xxxxxx Electricity Generation costs Wages xxxxxx xxxxxx Stores xxxxxx xxxxxx Maintenance of power generators xxxxxx xxxxxx Repairs xxxxxx xxxxxx Transmission lines xxxxxx xxxxxx Sub-total xxxxxx xxxxxx Grand total xxxxxx xxxxxx

d) Canteen: Here the cost will be labour, consumption of provision such as vegetables, meat, fruits, and other costs like depreciation, maintenance, power & electricity etc. In case canteen is an internal service, it is subsidised. The company contributes a portion of the costs. From total costs subsidy is reduced and then the net costs are reflected.

ACCOUNTING

B 169

Cost Sheets
Specimen cost sheet - Canteen Period from………….. To………… Total cost Number of meals Less: meals consumed by staff Net costs Meals Amount (Rs) Cost items Provisions Meat, fish, eggs xxxxxx Vegetables xxxxxx Fruits xxxxxx Milk xxxxxx Tea, coffee xxxxxx Bread, cakes xxxxxx others xxxxxx Sub-total xxxxxx Wages & salaries Cooks xxxxxx Cleaning staff xxxxxx Helpers & servers xxxxxx Supervision xxxxxx Sub-total xxxxxx Services Steam, Gases xxxxxx Electricity & lights xxxxxx Power xxxxxx Sub-total xxxxxx Fixed Costs Rent xxxxxx Depreciation xxxxxx Sub-total xxxxxx Grand total xxxxxx

Cost meal

per

Amount (Rs) xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx

Similarly one can develop cost sheets for other services like education, BPO, consulting etc. The basic idea is to be able to correctly report costs for the selected cost unit. In case of services, comparison with budgets will enable the management to control cost of services in a better way. Miscellaneous Examples
ACCOUNTING

B 170

Q1 Following data is available from the cost records of a company for the month of Feb 2007: 1) Opening stock of job as on 1st Feb 2007 Job no 410: Direct material Rs 80, Direct wages Rs 150 and factory overheads Rs 200 Job no 411: Direct material Rs 420, Direct wages Rs 450 and factory overheads Rs 400 2) Direct material issued during the month of February 2007 was: Job no 410 Job no 411 Job no 412 Job no 413 Job no 410 411 412 413 Rs 120 Rs 280 Rs 225 Rs 300 Hours 400 200 300 100 Amount (Rs) 600 450 675 225

3) Direct labour details for February 2007 were

4) Factory overheads are applied to jobs on production according to direct labour hour rate which is Rs 2 per hour. 5) Factory overhead incurred in February 2007 were Rs 2100 6) Job numbers 410 & 411 were completed during the month. They were billed to the customers at a price which included 15% of the price of the job for selling & distribution expenses and another 10% of the price for profit. Prepare: a) Job cost sheet for job number 411 and 410 b) Determine the selling price for the jobs c) Calculate the value of work in process Remarks : 1) The Jobs completed given in the problem are 410 & 411.Whereas the Job cost sheet asked to prepare are for Job 411 and 412.Hence changes being made in Qu. to that effect. 2) The Factory overheads actually incurred are 2100.This amount to be apportioned on the basis of labour hours. So the rate to be considered as Rs. 2.1per unit =(2100/1000) and not Rs 2 per unit. If we consider the above mentioned point the calculations for Job Sheets & for the work in progress will change accordingly. 3) Work in progress is to be calculated for the incomplete jobs hence job no.412 and 413 should only be included in the calculations of work in progress.

ACCOUNTING

B 171

Cost Sheets
Answer 1:

Job Cost sheets for the month of February 2007 Job 411 Job 410

Direct material issued Direct labour spent Prime Cost Factory Overheads @ Rs 2.1 per hour Add: Opening WIP (material + labour + overheads) Factory Cost Add; Selling & distribution overheads (note 1) Cost of Sales Profit (note 1) Billing Price for the job Note 1 S & D and profit are given in indirect way. Assume selling price as Less: S & D @ 15% Less: Profit @ 10% Balance has to be the factory cost S & D price will be 15/75 of factory costs Profit will be 10/75 of factory cost 100 (15) (10) 75

280 450 730 420 1,270 2,420 484 2904 323 3,227

120 600 720 840 430 1990 398 2388 265 2653

480 320

300 200

B 172

ACCOUNTING

Computation of Work in Process for February 2007

Opening balance as on 1st February

Job 410 Job 411

430 1,270 1,700

Material issued during the month of February Job 410 Job 411 Job 412 Job 413

120 280 225 300 925

Direct Labour

Job 410 Job 411 Job 412 Job 413

600 450 675 225 1,950

Factory overheads on 1000 hours @ Rs 2.1

2,100 6,675

Less: factory cost of completed jobs

Job 411 Job 410

(2,420) (1990) (4410)

Closing Work In Process as on 28th February 2007
Another way to calculate WIP is Job 412 and 413 are in progress & WIP includes only incomplete Jobs. Direct Material (225+300) Direct Labour (675+225) Factory Overheads (2.1 *(300+100) Total WIP
ACCOUNTING

2265

525 900 840 2265 B 173

Cost Sheets
Q2 Prepare cost sheet for an engineering company which produces standard components in batches of 1000 pieces each. A batch passes through three processes viz. Foundry, Machining & Assembly The materials used for a batch number 2007/01 were: Foundry 1300 tonnes @ Rs 50 per tonne of which 50 tonnes were sent back to stores. Other details Process Direct labour Overheads Foundry 200 Hrs @ Rs 10 Rs 15 per Labour Hour Machining 100 Hrs @ Rs 5 Rs 20 per Labour Hour Assembly 100 Hrs @ Rs 15 Rs 10 per Labour Hour A comparison of actual costs with estimated cost discloses that material and overheads have exceeded the estimates by 20% whereas the estimated labour cost is 10% more than the actual. Show the variances with respect to the estimates

Answer 2 :

Cost sheets for the Batch number 2007/01 Standard batch size 1000 pieces Actual Estimated Direct material issued 1250 * 50 Direct labour spent Foundry 200 * 10 Machining 100 * 5 Assembly 100 * 15 Prime Cost Factory Overheads applied Foundry 200 * 15 Machining 100 * 20 Assembly 100 * 10 Factory Cost Cost per Unit (factory cost / 1000)

Variance

F/A

62500

52083

(10417)

A

2,000 500 1,500 66500

2,200 550 1,650 56483

200 50 150 (10017)

F F F A

3,000 2,000 1,000 72500

2,500 1,667 833 61483

(500) (333) (167) (11017)

A A A A

72.5

61.48

11.02
ACCOUNTING

B 174

Q3 An advertising agency has received an enquiry for which you are supposed to submit the quotation. Bill of material prepared by the production department for the job states the following requirement of material: Paper 10 reams @ Rs 1800 per ream Ink and other printing material Binding material & other consumables

Rs 5000 Rs 3000

Some photography is required for the job. The agency does not have a photographer as an employee. It decides to hire one by paying Rs 10000 to him. Estimated job card prepared by production department specifies that service of following employees will be required for this job: Artist (Rs 12000 per month) 80 hours Copywriter (Rs 10000 per month) 75 hours Client servicing (Rs 9000 per month) 30 hours The primary packing material will be required to the tune of Rs 4000. Production overheads 40% of direct cost, while the S & D overheads are likely to be 25% on production cost. The agency expects a profit of 20% on the quoted price. The agency works 25 days in a month and 6 hours a day.

ACCOUNTING

B 175

Cost Sheets Answer 3 :
Quotation for a printing Job Amount Amount Rs Rs Direct material required: Paper 10 *1800 Ink & other printing material Binding material & consumables Primary packing material Direct labour spent Artist (12000/(25*6))*80 Copywriter (10000/(25*6))*75 Client servicing (9000/(25*6))*30 6,400 5,000 1,800 13,200 18,000 5,000 3,000 4,000 30,000

Photographer's charges Prime Cost Factory Overheads applied @ 40% on direct cost Production cost S & D overheads applied @ 25% on production cost Total Cost Profit ( 20% on price i.e. 25% on cost) Price to be quoted

10,000 53,200

21,280 74,480 18,620 93,100 23,275 116,375

B 176

ACCOUNTING

Q4 The following figures were extracted from the trial balance of a company as on 31st December 2006.

Particulars Inventories Raw material WIP FG Office Appliances Plant and machinery Buildings Sales Sales returns Material purchased Freight on materials Purchase returns Direct labour Indirect labour Factory supervision Factory repairs & upkeep Heat, light & power Rates & taxes Misc factory expenses Sales commission sales travelling Sales promotion Distribution department salaries 7 wages Office salaries Interest on borrowed funds

Debit Rs 140000 200000 80000 17400 460500 200000

Credit Rs

768000 14000 320000 16000 4800 160000 18000 10000 14000 65000 6300 18700 33600 11000 22500 18000 8600 2000

Further details are given as follows: Closing inventories are Material Rs 180000, WIP Rs 192000 & FG Rs 115000 Accrued expenses are direct labour Rs 8000, indirect labour Rs 1200 & interest Rs 2000 Depreciation should be provided as 5% on Office Appliances, 10% on machinery and 4% on buildings Heat, light and power are to be distributed in the ratio of 8:1:1 among factory, office and distribution respectively Rates & taxes apply as 2/3rd to the factory and 1/3rd to office Depreciation on building to be distributed in the ratio of 8:1:1 among factory, office and distribution respectively Prepare a cost sheet showing all important components and also a condensed P & L account for the year.

ACCOUNTING

B 177

Cost Sheets
Answer 4: Important aspect of this is proper classification of the given items of expenses and costs into prime cost, factory costs and S & D costs. The understanding of the concept of costs is very well tested in this type of a problem. Remember that interest on borrowed capital is not a part of cost and hence should be directly taken to P & L account. The cost sheet is shown below:

Cost Sheet showing Cost of Sales for the year 2006 Amount Particulars Amount Rs Rs Direct materials Opening stock Add: Purchases Add: freight Less: returns Less: Closing stock Direct Labour Add: accrued Prime cost Factory Overheads Indirect labour Accrued indirect labour Factory supervision Repairs & upkeep Heat, light & power Rates & taxes Misc. Factory expenses Depreciation on plant & Machinery Depreciation on buildings Add: Opening WIP Less: Closing WIP Factory Cost

140,000 320,000 16,000 (4,800) (180,000) 160,000 8,000 168,000 459,200 18,000 1,200 10,000 14,000 52,000 4,200 18,700 46,050 6,400 170,550 200,000 (192,000) 178,550 637,750 291,200

B 178

ACCOUNTING

Administration overheads Heat light & power Rates & taxes Depreciation on buildings Depreciation on office appliances Office salaries Add: opening FG stock Less: closing FG stock Cost of production of saleable units Selling & Distribution Overheads Heat & light Depreciation on buildings Sales commission Sales travelling Sales promotion Distribution department expenses Cost of sales

6,500 2,100 800 870 8,600 18,870 80,000 (115,000) (16,130) 621,620 6,500 800 33,600 11,000 22,500 18,000 92,400 714,020

Condensed P & L account for the year ended 31-12-2006 Sales Income Less Returns 768,000 (14,000) 754,000

Cost of sales as above Interest on borrowings ( 2000+2000) Net profit

714,020 4,000 35,980

Q5 Prakash Transport company has been given a route of 20 km long to run a bus. The bus costs Rs 1250000 with an estimated useful life of 5 years. It is insured @ 3% pa of the cost. Annual tax amounted to Rs 25000. The garage rent is Rs 5000 per month. Annual repairs cost is estimated as Rs 50000.

ACCOUNTING

B 179

Cost Sheets
The driver is paid a salary of Rs 7500 per month and the conductor is paid Rs 5000 per month in addition to a 10% of takings as commission to be shared equally by them. Office stationery would Rs 1000 pm and office salaries Rs 10000 pm. Diesel will cost @ Rs 30 per liter and the bus would travel a distance of 5 km per liter. The bus will make 3 round trips carrying on an average 40 passengers on each trip. Assuming a profit of 15% on takings, calculate the fare to be charged from each passenger. The bus will operate for 25 days in a month. Answer 5 :

Computation of passenger fare - Prakash transport company Amount Rs P.A. pa Amount Rs Operating costs Diesel Depreciation (1250000/5) Repairs Commission - driver & conductor Sub-total Fixed costs Insurance 3% of 1250000 Taxes Garage Rent (5000*12) Driver's salary (7500*12) Conductor's salary (5000*12) Office stationery (1000*12) Office salaries (10000*12) Sub-total 37,500 25,000 60,000 90,000 60,000 12,000 120,000 404,500 216,000 250,000 50,000 122,733 638,733

B 180

ACCOUNTING

Grand total Profit @ 15% on takings Total takings Cost units No of round trips To & Fro per trip km per trip Days on road Average passengers carried No of months Total passenger miles 3 2 20 25 40 12

1,043,233 184,100 1,227,333

1,440,000

Price per passenger km

0.85

ACCOUNTING

B 181

Cost Sheets

Diesel No of km per liter No of km pa No of liters required Per liter rate Rs Total Cost of diesel 5 36,000 7,200 30 216,000

Commission & profit are given in indirect way. Assume total takings as Less: commission @ 10% Less: Profit @ 15% Balance has to be the total cost Cost before commission Commission (10/75*920500) Profit (15/75*920500)
Q6 The city pride Theatre has revealed the following estimates of their cinema hall. Salary 1 manager Rs 8000 pm, 10 door keepers Rs 2000 pm, 2 operators Rs 4000 pm, 4 booking clerks Rs 2500 pm Annual expenses: Electricity Rs 1200000 Carbon Rs 300000 Misc. expenses Rs 150000

100 (10) (15) 75 920,500 122,733 184,100

B 182

ACCOUNTING

Advertising Rs 750000 (it would earn income of Rs 25000 on advertisements shown in the hall) Hire of films Rs 1500000 per film on 15 films Administration expenses Rs 80000 The premises cost Rs 60 lacs and are to be depreciated over 15 years. Projector and other equipments cost Rs 25 Lacs and to be depreciated @ 25% pa. The plan is to have 3 daily shows on all 360 days in a year. The capacity is 625 seats divided into Lower class Upper class and Balcony 250 250 125

20% of the seats are estimated to be vacant. The weightages to be given to the three classes are in the ratio of 1:2:3. If the management wishes to earn a profit of 25% on gross proceeds, find out the rates to be charged for each class. Round off to nearest rupee. Answer 6: In this case it is important to note the weights given. This is to express each class in equivalent units so that calculations can be made accordingly.

ACCOUNTING

B 183

Cost Sheets
Computation of Cinema Ticket Rates - City Pride Cinema Hall Amount Rs pa Operating costs Electricity Carbon Misc. Expenses Advertising (750000-25000) Hiring of films (1500000*15) Fixed costs Salary of manager (1*8000*12) Door keepers (10*2000*12) Operators (2*4000*12) Booking clerks (4*2500*12) Depreciation on premises (60/15) Depreciation on projecting equipments (25*25%) Grand total Profit @ 25% on gross proceeds (i.e. 1/3 of cost) Gross earnings Cost units No of shows in a year (3*360) No of equivalent seats Lower class (1*250) Upper class (2*250) Balcony (3*125) Total seats Less: 20% vacant seats 1080 1,200,000 300,000 150,000 725,000 22,500,000 24,875,000

Amount Rs

96,000 240,000 96,000 120,000 400,000 625,000 1,577,000 26,452,000 8,817,333 35,269,333

250 500 375 1,125 (225)
ACCOUNTING

B 184

Net chargeable seats No of Man-shows in a year (900*3*360) Earnings per man-show(gross earnings/manshows) Rats of the ticket per seat Lower class (1 x 36.29) Upper class(2 x 36.29) Balcony (3 x 36.29)

900 972,000 36.29

36.29 72.57 108.86

ACCOUNTING

B 185

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close