Contract Process Problems

CONTRACT & PROCESSCONTRACT & PROCESS

COSTINGCOSTING

Q1.

The Maharashtra Construction Company undertook the construction of a building at a contract price of Rs.12,00,000. the date of commencement of contract was 1st April,2009. the following cost information is given for the year ended 31st March,2010

Particulars Rs.

Wages 4,40,000

Architect fees 55,500

Office & Administration overhead 1,51,000

Uncertified work 55,000

Materials at the site at the end of year 10,000

Cash received from the contractee( Being 90% of the work certified)

9,45,000

Materials destroyed by fire 5,000

Plant and Machinery at cost 2,00,000

(Date of purchase– 1st july,2009. the estimated working life of the plant 10years and its estimated scrap value at the end of Rs.20,000.)Supervisor ‘s salary

You are required to prepare contract a/c for the year ended 31st March,2010.

Sol:-1Contract A/c for the year ended 31st March,99

Particular Rs Particular Rs.

To Materials sent on site

3,00,000 By P&L a/c: Material Lost

5,000

To wages 4,40,000 By WIP: Work certified 10,50,000

To Architect’s Fees 55,500 Work uncertified 55,000

To Office & Admn overhead

1,51,000 Material at site 10,000

To Depreciation 13,500

To supervisor’s salary 60,000

To balance c/d 1,00,000

11,20,000 11,20,000

To P&L a/c 60,000 By balance b/d 1,00,000

To WIP reserve 40,000

1,00,000 1,00,000

Working Note:Calculation of P&L-= 2/3*1,00,000* 9,45,000/10,50,000= 60,000 Calculation of Deprecation -Deprecation 1: cost – scrap value

working life= 2,00,000 - 20,000

10= 18,000

For nine months 18,000*9/12=13,500/-Calculation of Work Certified-Let work certified = xCash received is 90/100*x= 9,45,000

90x= 9,45,000*100x= 10,50,000

Q2.

Mr. Behram contractor has undertaken two construction two contracts one at Mumbai and another at Thane. The details of the contractor are given below for the year ended 31st March,2010

Particulars Contract at Mumbai Contract at Thane

Date of commencement 1st July’2009 1st Oct’2009

Contract price 10,00,000 15,00,000

Direct Labor 2,55,000 1,82,000

Materials issued from stores 2,20,000 2,00,000

Plants installed at site 10,000 15,000

Direct Expenses 2,00,000 3,50,000

Office overheads 40,000 30,000

Materials sold (Cost Rs. 8,000)

15,000 10,000

Material at Site 10,000 ------

Cash received from contractee (representing 80% of Work Certified) WCWork Not certified

4,80,000

13,000

2,80,000

9,000

Architect fees 7,000 3,0001 - provide deprecation on plant @ 20% p.a.2 - during the year material costing Rs. 10,000 were transferred from the thane contract to Mumbai contract.You are required to prepare contract a/c of Mumbai and Thane Contracts.

Sol:-2Mumbai Contract A/c for the year ended 31st March,98

Particular Rs Particular Rs.

To material issued 2,20,000 By work certified 6,00,000

To direct labour 2,55,000 By material returned 10,000

To plant installed 2,00,000 By materials sold 8,000

To direct expenses 40,000 By materials at site 18,000

To office overheads 15,000 BY Work uncertified 13,000

To Thane contract 10,000 By plant site 1,70,000

To Architect fees 7,000

To bal c/d 72,000

8,19,000 8,19,000

To P&L a/c 38,400 By bal c/d 72,000

To WIP ( reverse) 33,600

72,000 72,000

Thane Contract A/c for the year ended 31st March,98

Particular Rs Particular Rs.

To material issued 2,00,000 By work certified 3,00,000

To direct labour 1,82,000 By material returned 15,000

To plant installed 3,50,000 By Mumbai Contract 10,000

To direct expenses 30,000 By materials at site 16,000

To office overheads 10,000 BY Work uncertified 9,000

To Architect fees 3,000 By plant site 3,15,000

By P&L a/c 1,10,000

7,75,000 7,75,000

Working Note: MUMBAICalculation of P&L-= 2/3*72,000* 4,80,000/6,00,000= 38,400Calculation of Work Certified-Let work certified = xCash received is 80/100*x= 4,80,000

80x= 4,80,000*100x= 6,00,000

THANELet work certified = xCash received is 80/100*x= 2,40,000

80x= 2,40,000*100x= 3,00,000

Q4. M/s Everfine constructions commenced a contract for the construction of bunglow on 1st July’2009. Originally the contract price was Rs.50,00,000 but finally the same was fixed at Rs. 45,00,000. Their actual expenditure during the year 2009 and estimated expenditure during 2010 till the completion of the contract is under:

Particulars Expenditure upto 31-12-2010 Expenditure upto 2009

Building materials 800000 1300000

Labour charges 600000 600000

Plant installed at site at cost 400000 -----

Materials at site on 31-12-2010

50000 -----

General expenses 250000 355000

Plant returned to stores at cost at the end of year

100000 -----

Work certified 2000000 Contract completed

Work uncertified 75000 -----

Cash received 90% of the WC 4500000

The contract is expected to be completed by 30th sept’2010. The plant is subject to deprecation at 20% p.a. on the original cost.In order to calculate the correct a/c of profit made on the contract for the year 2009, it was decided to take certain proportion of the estimated profit on completion of the contract to the credit of profit and loss a/c such proportion being cash received to the total contract price.Prepare the contract a/c for the year ending 31st dec’2009 and work out the estimated profit on the completion of contract by 30th sept’ 2010.

Sol:-4 Contract A/c for the year ended 31st Dec 2009

Particular Rs Particular Rs.

To building materials 800000 By WIP a/c:

To labour charges 600000 Work certified 2000000

To deprecation 40000 Work Uncertified 75000

To General Exp 250000 Material at site 50000

To bal C/d 435000

2125000 2125000

To P& L A/c 204000 By bal b/d 435000

To WIP reserve 231000

435000 435000

Particulars Actual Estimated Total

Materials 800000 1300000 2100000

Labour 600000 600000 1200000

Dep plant (4lacs*6/12*20%)

40000 45000 85000

Genreal Exp 250000 355000 605000

Total Estimated cost 3990000

Statement of total contract

Estimated profit= contract price – total estimated cost = 4500000 – 3990000 = 540000 Profit transferred to P& L A/c: Estimated profit* Cash Received

Contract Price510000* 1800000

4500000 = 204000

Working Note; Cal of dep on plant for the estimated period of 9 months Book Value issued 400000-Plant returned to stores at cost at the end of the year 100000

300000300000*20%*9/12= 45000

Process costing

Q1- The Andhra products ltd, manufacture and sell their chemical produced by consecutive processes. The product of the three processes are dealt with as under;

Particulars Process 1 Process 2 Process 3

Transferred to next process

66 2/3% 60% ----

Transferred to warehouse of sales

33 1/3% 40% 100%

In each process 4% of the total weight put in is lost and 6% is scrap which from process 1 realised Rs. 6 per ton from process 2 Rs.10 per ton and from process 3 Rs. 12 per tonThe following particulars relate to OCT’89RM used :Process1- 2800 tons @ 40 per tonProcess2- 320 tons @ 64 per tonProcess 3- 2520 tons @ 28 per tonManufacturing Wages and ExpensesProcess1- Rs. 20608Process2- Rs. 12560Process 3- Rs. 11580Prepare process accounts

Particulars Qty Amt Particulars Qty Amt

To RM 2800 112000 By loss in wt 112 ---

To Wages & Exp 20608 By sale of scrap 168 1008

By process 2 a/c 1680 87733

By warehouse a/c 840 43867

2800 132608 2800 132608

To process 1 a/c 1680 87733 By loss in wt 80

To materials 320 20480 By sale of scrap 120 1200

To wages & Exp 12560 By process 3 a/c 1080 71743

By warehouse a/c 720 47830

2000 120773 2000 120773

To process 2 a/c 1080 71743 By loss in wt 144

To materials 2520 70560 By sale of scrap 216 2592

To wages & Exp 11580 By finished stock 3240 151291

3600 153883 3600 153883

Process 2 a/c

Process 1 a/c

Process 3 a/c

Q2-

Particulars

Rate per unit Rs.10

Normal Loss 10% of input

Sale of normal loss units Rs.3 per unit

Output Rs.75

Wages incurred Rs. 600

Units of raw materials introduced 100 units

Calculate Abnormal Loss units and its value

Sol 2- Process a/c Particular Units Amt Particular Units Amt

To RM 100 1000 By Normal Loss 10 30

To wages 600 By abnormal loss 15 262

By output of the process

75 1308

100 1600 100 1600

Working Note:Normal Cost of normal output= 1600-30= Rs. 1570Normal Output:Units introduced 100Less- Normal loss units 10 90 unitsAbnormal Loss Units Normal Output 90Less – Actual Output 75 15 unitsValue of abnormal loss units= Normal cost of normal output x abnormal loss units Normal output 1570 x 15= Rs. 262 approx. 90

Q3- A product passes through 2 processes A & B prepare the Process A/c’s

Particulars Process A Process B

10000 units introduced at cost Rs 20000 ----

Material Consumed 24000 12000

Direct labour 28000 16000

Manufacturing exp 8000 8566

Normal wastages on input 5% 10%

Scrap value of normal wastage (Rs. 100 per units)

40 50

Output (Units) 9400 8500

Also prepare the abnormal wastage/ effectives a/c’s as the case may be with each process a/c

Particulars Qty Amt Particulars Qty Amt

To cost of Input 10000 20000 By normal loss a/c 500 200

To materials 24000 By Abnormal wastage a/c

100 840

To direct labour 28000 By process b A/c 9400 78960

To process A a/c 9400 78960 By Normal Loss 940 470

To materials 12000 By finished stock a/c

8500 115600

To direct labour 16000

To manufacturing exp 8566

To Abnormal effectives

40 544

Process B a/c

Process A a/c

Calculation of cost per unit for process A a/c:

Process ACost per unit= Total Cost - Scrap value of normal loss units Total input qty – Normal loss Units = 80000 – 200 = 79800 = 8.40

10000 – 500 9500Cost of Abnormal Wastage = 100 x 8.40 = 840

Process BCost per unit= Total Cost - Scrap value of normal loss units Total input qty – Normal loss Units = 115526 – 470 = 115056 = 13.60

9400 – 940 8460Cost of Abnormal Wastage = 40 x 13.60 = 544

preparation of Normal & Abnormal Loss A/c

Particulars Qty Amt Particulars Qty Amt

To process A A/c 500 200 By sale of Normal Loss :-

To process B A/c 940 470 Process A 500 200

Process B 900 450

By Abnormal Loss Effective

40 20

1440 670 1440 670

To process A A/c 100 840 By sales 100 40

By P & L -- 800

100 840 100 840

To normal loss a/c 40 20 By process B a/c 40 544

To P & L - 524

40 544 40 544

Abnormal Wastage a/c

Normal Loss a/c

Abnormal Effectives a/c