Topics to be covered: Statements of financial information (balance sheet and income statement) —Understanding of annual report —Cash flow statement —Financial statement analysis —Cost concept and management needs —Activity based costing system —Volume-cost-profit analysis —Budgeting and profit planning —Revenue and profit variance analysis —Responsibility accounting —Short run decision analysis
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Topics to be covered:
Statements of financial information (balance sheet and income statement)—Understanding of annual report—Cash flow statement—Financial statement analysis—Cost concept and management needs—Activity based costing system—Volume-cost-profit analysis—Budgeting and profit planning—Revenue and profit variance analysis—Responsibility accounting—Short run decision analysis
Journal & Ledger
Journalise the following transactions in the books of Mr.Malik for the month of December 1995.
Dec 1: Commenced business with cash Rs.1,00,000 and building Rs.50,000.Dec 2: The above cash is deposited in Bank.Dec 3: Received Cash Rs.10,600 from Amit and allowed discount to him Rs.400.Dec 4: Paid Rs.13,900 to Anand after deducting a discount of Rs.10.Dec 5: Received Rs.16,500 from Rajesh in full settlement of Rs.17,000.Dec 6: Paid Rs.24,500 to Ajay by cheque in full settlement of his account of Rs.25,000.Dec7 :Purchased goods worth Rs.20,000 less 10% T.D. and 5% C.D.
from Vijay and paid him the full amount due in the spot.Dec 8: Purchased goods from Vishal for Rs.30,000 at 10% T.D and
5 % C.D., 60% of the amount due paid on the spotDec 9: Received free samples from various parties amounting to
Rs.5,000.Dec 10: One of our debtor to the extent of Rs.2,000 has become
insolvent and only 60% in a rupee could be recovered from him in full settlement of his account.
Dec 11: Goods woth Rs.2,000 lost in fire.Dec 12: Sold goods worth Rs.9,000 to Dinesh at 10% T.D. & 5% C.D.,
40% amount received immediately.Dec 13: Sold goods to Krishna for Rs.30,000 at 10% T.D.Dec 14: Purchased goods from A & Company for Rs.40,000 at 10% T.D.Dec 15: Krishna returned goods worth Rs.5,000 gross.Dec 16: Returned goods worth Rs.4,500 (net) to A & Co. Dec 17: Sold goods to Sujit for Rs.20,000 less 5% T.D. and 3% C.D.Dec 18: Received a cheque from Krishna for Rs.22,000 in full
settlement of his account.Dec 19: Issued a cheque of Rs31,000 to A & Co in full settlememt of
their Account.Dec 20: Purchased 100 shares at Rs.60each, brokerage Rs.500 also
paid.Dec 21: Sold shares of ABC Ltd for Rs.10,000 subject to brokerage of
Rs.500. Dec 22: Purchased machinery for Rs.55,000 and spent Rs.5,000 for its
installation.Dec 23: Sold goods worth Rs.5,000 at 10% C.D.Dec 24: Made cash purchases Rs.1,00,000 of 20% T.D and 10% C.D.Dec 25: Invoiced goods to Bindu for Rs.60,000 off 6% T.D. and received
full amount on the spot.
Dec 26: Paid to Salman Rs.500 as advance against salaries.Dec 27: Borrowed Rs.10,000 from Mahesh.
Journalize the following transactions in the books of Pankaj and prepare the necessary ledger accounts for the month of August 1993:
Aug 1: Commenced business with cash Rs.40,000, Furniture Rs.30,000, Goods Rs.10,000 and building Rs.1,00,000.
Aug 2: Opened bank account with Bank of India by depositing Rs.5,000
Aug 4: Purchased goods worth Rs.5,000 from Pancholi Traders and paid half the amount in cash who allowed us 10% C.D.
Aug 7: Rajesh & Co. purchased goods from us worth rs.2,000 at 10 % T.D. and 10% C.D.
Aug 10: Paid LIC premium of Rs.400 and fire insurance premium of Rs.200.
Aug 15: Invoiced goods to Mr. Maldar worth Rs.1,000
Aug 16: Placed and order with M/s. Lucky Traders for goods worth Rs.10,000
Aug 17 : Cash purchases worth Rs.5,000.
Aug 18: Paid to Tulsidas Parikh Rs.250 being rent of residential premises.
Aug 19: Goods costing rs.100 were distributed as free samples
Aug 25: Received the goods from M/s. Lucky Traders as per our order and paid 1/4th amount in cash less Rs.100 discount.
Aug27: Sold to Kumar, goods worth Rs.4,000 less 2.5% C.D. and received from him 15% amount by cheque.
Aug 31: Withdrew cash from bank Rs.250 for personal use and Rs.500 for office use.
The following balance appeared in the ledger of Mr. Mehta on June 1, 1996.
Cash A/c.: Rs.50,000 Purchases A/c: Rs.20,000Sales A/c: Rs.25,000 Machinery A/c Rs.30,000Capital A/c: Rs.35,000His transactions for the month of June 1996 are as below:
June1: Purchased goods from Mr.Dinesh worth Rs.20,000 with 10% T.D. and 5% C.D.June 3: Sold goods to Mr. Nandu worth Rs.15,000.June 4: Withdrawn from bank Rs.2,000 for meeting office expenses.June 5: Mr. Nandu paid Rs.14,500 in cash and was allowed discount of Rs.500.June 6: Paid carriage on behalf of Anil Rs.100June 7: Sold an old machinery for Rs.2,000June 8: Received Rs.10,000 from Arun as a loan.June 9: Exchanged with Dilip Machinery, by giving equal value of FurnitureRs.10,000.June 10: Purchased investmenst for Rs.10,000 and brokerage paid Rs.50.June 11: Purchased machinery worth Rs.24,000 from A & Co., 1/4th amount paid in cashJune 13: Bought goods worth Rs.10,000 from Sunil on cash basis and he allowed cash discount at 5%.June 14: Wages paid to workers in cash Rs.5,000June 15: Recevied interest from bank Rs.1,000June 18: Vijay invoiced goods to us Rs.3,000. June 22: Received a cheque from B & Co for Rs.10,000 in full settlement of their account.June 25: Paid fire insurance premium Rs.1,000June 29: Paid commission to Mr.Ajay by cash Rs.200.June 30: Old car costing Rs.35,000 was sold for Rs.40,000.
Journalise the following transactions in the books of Mr.Malik for the month of December 1995.
Dec 1: Commenced business with cash Rs.1,00,000 and building Rs.50,000.Dec 2: The above cash is deposited in Bank.Dec 3: Received Cash Rs.10,600 from Amit and allowed discount to him Rs.400.Dec 4: Paid Rs.13,900 to Anand after deducting a discount of Rs.10.Dec 5: Received Rs.16,500 from Rajesh in full settlement of Rs.17,000.Dec 6: Paid Rs.24,500 to Ajay by cheque in full settlement of his account of Rs.25,000.Dec7 :Purchased goods worth Rs.20,000 less 10% T.D. and 5% C.D.
from Vijay and paid him the full amount due in the spot.Dec 8: Purchased goods from Vishal for Rs.30,000 at 10% T.D and
5 % C.D., 60% of the amount due paid on the spotDec 9: Received free samples from various parties amounting to
Rs.5,000.Dec 10: One of our debtor to the extent of Rs.2,000 has become
insolvent and only 60% in a rupee could be recovered from him in full settlement of his account.
Dec 11: Goods woth Rs.2,000 lost in fire.Dec 12: Sold goods worth Rs.9,000 to Dinesh at 10% T.D. & 5% C.D.,
40% amount received immediately.Dec 13: Sold goods to Krishna for Rs.30,000 at 10% T.D.Dec 14: Purchased goods from A & Company for Rs.40,000 at 10% T.D.Dec 15: Krishna returned goods worth Rs.5,000 gross.Dec 16: Returned goods worth Rs.4,500 (net) to A & Co. Dec 17: Sold goods to Sujit for Rs.20,000 less 5% T.D. and 3% C.D.Dec 18: Received a cheque from Krishna for Rs.22,000 in full
settlement of his account.Dec 19: Issued a cheque of Rs31,000 to A & Co in full settlememt of
their Account.Dec 20: Purchased 100 shares at Rs.60each, brokerage Rs.500 also
paid.Dec 21: Sold shares of ABC Ltd for Rs.10,000 subject to brokerage of
Rs.500. Dec 22: Purchased machinery for Rs.55,000 and spent Rs.5,000 for its
installation.Dec 23: Sold goods worth Rs.5,000 at 10% C.D.Dec 24: Made cash purchases Rs.1,00,000 of 20% T.D and 10% C.D.Dec 25: Invoiced goods to Bindu for Rs.60,000 off 6% T.D. and received
full amount on the spot.Dec 26: Paid to Salman Rs.500 as advance against salaries.
Dec 27: Borrowed Rs.10,000 from Mahesh.
Journalize the following transactions in the books of Pankaj and prepare the necessary ledger accounts for the month of August 1993:
Aug 1: Commenced business with cash Rs.40,000, Furniture Rs.30,000, Goods Rs.10,000 and building Rs.1,00,000.
Aug 2: Opened bank account with Bank of India by depositing Rs.5,000
Aug 4: Purchased goods worth Rs.5,000 from Pancholi Traders and paid half the amount in cash who allowed us 10% C.D.
Aug 7: Rajesh & Co. purchased goods from us worth rs.2,000 at 10 % T.D. and 10% C.D.
Aug 10: Paid LIC premium of Rs.400 and fire insurance premium of Rs.200.
Aug 15: Invoiced goods to Mr. Maldar worth Rs.1,000
Aug 16: Placed and order with M/s. Lucky Traders for goods worth Rs.10,000
Aug 17 : Cash purchases worth Rs.5,000.
Aug 18: Paid to Tulsidas Parikh Rs.250 being rent of residential premises.
Aug 19: Goods costing rs.100 were distributed as free samples
Aug 25: Received the goods from M/s. Lucky Traders as per our order and paid 1/4th amount in cash less Rs.100 discount.
Aug27: Sold to Kumar, goods worth Rs.4,000 less 2.5% C.D. and received from him 15% amount by cheque.
Aug 31: Withdrew cash from bank Rs.250 for personal use and Rs.500 for office use.
The following balance appeared in the ledger of Mr. Mehta on June 1, 1996.
Cash A/c.: Rs.50,000 Purchases A/c: Rs.20,000Sales A/c: Rs.25,000 Machinery A/c Rs.30,000Capital A/c: Rs.35,000His transactions for the month of June 1996 are as below:
June1: Purchased goods from Mr.Dinesh worth Rs.20,000 with 10% T.D. and 5% C.D.June 3: Sold goods to Mr. Nandu worth Rs.15,000.June 4: Withdrawn from bank Rs.2,000 for meeting office expenses.June 5: Mr. Nandu paid Rs.14,500 in cash and was allowed discount of Rs.500.June 6: Paid carriage on behalf of Anil Rs.100June 7: Sold an old machinery for Rs.2,000June 8: Received Rs.10,000 from Arun as a loan.June 9: Exchanged with Dilip Machinery, by giving equal value of FurnitureRs.10,000.June 10: Purchased investmenst for Rs.10,000 and brokerage paid Rs.50.June 11: Purchased machinery worth Rs.24,000 from A & Co., 1/4th amount paid in cashJune 13: Bought goods worth Rs.10,000 from Sunil on cash basis and he allowed cash discount at 5%.June 14: Wages paid to workers in cash Rs.5,000June 15: Recevied interest from bank Rs.1,000June 18: Vijay invoiced goods to us Rs.3,000. June 22: Received a cheque from B & Co for Rs.10,000 in full settlement of their account.June 25: Paid fire insurance premium Rs.1,000June 29: Paid commission to Mr.Ajay by cash Rs.200.June 30: Old car costing Rs.35,000 was sold for Rs.40,000.
FINAL ACCOUNTS
Q1. From the following trial balance prepare Trading and Profit and Loss Account for the year ending 31st December, 1976 and a Balance Sheet as on that date, after taking into consideration the following adjustments.
Trial Balance Sheet as on 31st December, 1976
Debit Balance Rs. Credit Balance Rs.Opening Stock 20,000 Bills Payable 10,000Sundry Debtors 28,000 Returns Outwards 2,500Purchases 40,000 Sundry Creditors 21,500Wages 8,500 Sales 70,000Salaries 2,700 R.D.D. 400Office Expenses 2,445 Capital A/c 90,000Insurance 1,300 10% Loan (taken Plant & Machinery 30,000 on 1st July, 1976) 3,000Rent 1,800 Commission 1,000Travelling Expenses 1,400 Discount (received) 500Returns Inwards 3,500 Rent (received) 700Land & Building 44,800Bills Receivable 4,000Bank Balance 6,655Furniture 2,400Sundry expenses 800Bad Debts 600Advertisement 700
1,99,600
1,99,600
Adjustments:1) Closing Stock valued at Rs. 15,0002) Outstanding wages Rs. 500, Outstanding Salaries Rs. 3003) Prepaid Insurance Rs. 3004) Depreciate Plant & Machinery at 10% Land and Building at
15% and Furniture at 5%5) Provide Rs. 500 for further bad debts and maintain reserve
for bad and doubtful debts at 5%.6) Provides 5% interest on Capital.7) Travelling expenses includes personal travelling of
proprietor Rs. 400.
Q2. The Trial Balance as on 31st December 1978 of Shrikant Traders is given below:
Debit Balance Rs. Credit Balance Rs.Drawings 350 Capitals 25,000Buildings 20,000 Sale 75,500Plant & Machinery 6,000 Purchase Returns 1,000Cash at bank 550 Sundry Creditors 12,600Purchases 47,500 Discount earned 50Sales returns 1,500 Reserve for bad Carriage Inward 350 debts 750Opening Stock 11,000 Outstanding Wages 6,000 Salaries 100Sundry Debtors 17,600 6% Loan (taken Salaries 2,500 On 01-10-1978) 11,000Postage & Telegram 200Rent & Insurance 400Bad Debts 250Discounts 100Trade Expenses 300Furniture 5,000Commission 500Prepaid Insurance 300Printing & Stationery 700Cash in hand 2,400Patents 2,500
1,26,000 1,26,000
Adjustments:1) Stock as on 31st December 1978 was valued at Rs. 15,000.2) Outstanding Wages Rs. 600 and outstanding rent Rs. 700.3) Provide 10% depreciation on Plant & Machinery and 5%
depreciation on furniture.4) 5% Interest allowed on capital.5) Goods worth Rs. 250 withdrawn by the proprietor for self use.6) Goods worth Rs. 5,000 destroyed by fire and insurance
company admitted a claim for Rs. 4,200.7) Provide 5% R.D.D. at Sundry Debtors.Prepare a Trading Account & Profit and Loss Account for the year ended 31st December 1978 & the Balance Sheet as on that date.
Q. No.3) From the following balances taken from the ledger of M/s. AVON ENTERPRISES prepare the Manufacturing, Trading
and Profit and Loss Account for the year ended 31st December, 1990 and Balance Sheet as on that date after - Considering the adjustments indicated below :
Debit Balances Rs. Credit Balances
Rs.
Drawings 50,000 Capital A/c 3,60,000Purchases 10,52,500 Scrap Sales 7,500Rates and Taxes 12,500 Sundry Salaries 50,000 Creditors 52,500Factory lighting and Sales 12,56,500Heating 10,000Factory insurance 3,000Advertisements 10,000Bad debts written Off 5,000Tax (Personal) 1,000Sundry expenses 1,700Raw material30,000Finished goods
25,000 55,000Postages & telegram
6,500
Wages 22,500Factory building 1,00,000Furniture & Fixtures 25,000Plant & Machinery 50,000Sundry Debtors 93,5004% National Defence bonds Facevalues Rs. 15,000) 10,000Cash & Bank Bal 18,300Technical knowhow 1,00,000
16,76,500 16,76,500
Adjustments :-
1) Stock - in - trade as at 31-12-1990Raw Materials 25,000Finished Goods 20,000
2) Purchase invoices aggregating Rs.12,500 were omitted to be entered in the Purchase Day book.
3) An amount of Rs.2,500/- received in respect of income on personal investments of the proprietor was wrongly credited to Sundry Debtors account.
4) Provide depreciation @ 5% p.a on Buildings, @ 15% on furniture & fixtures & @ 20% on Plant and Machinery.
5) During the year machinery having book value of 10,000/- was sold for Rs.6,500 on 1-1-90. Sale proceeds thereof were wrongly included in sales.
6) Rates and taxes included rent of the proprietor’s house Rs.3,500/-
7) Write off further bad debt of Rs.1,000 and maintain reserve @ 2%.
8) 1/10th Technical knowhow fees is to be amortised.
Q4. From the following particulars of Jaydeep, prepare Manufacturing, Trading and Profit & Loss Account for the year ended 31-12-1982, after giving effect to adjustments indicated below :
Debit Balance Rs. Credit Balance
Rs.
Drawing Account 50,000 Capital A/c Purchases 10,52,500 1-1-1982 3,66,000Rent & Taxes 12,500 Sales 12,66,500Salaries 50,000 Cash Discount 7,500Carriage 10,000 Creditors 52,500Fuel and Coal 7,000Factory Insurance 3,000Advertisement 10,000Factory Power 8,000Bad debts written Off 5,000Cash Discount 1,000Sundry Expenses 1,750Opening StocksRaw materials
30,000
Finished goods 25,000 55,000Patents 6,000
Postage & Telegrams
6,500
Wages 17,500
Factory Buildings 1,00,000
Furniture & Fixtures 25,750
Plant & Machinery 47,500
Sundry Debtors 93,500
4% Govt. Pro-notes
Subscribed on 1-1-1982 10,000
Cash in hand 22,750
Cash in bank 97,250
16,92,500 16,92,500
Adjustments :-Stock-in-trade – 31-12-1982 :Raw Material Rs.25,000Finished goods Rs.20,0001) Depreciation to be provided :
Plant and Machinery 10% Patents 10%Buildings 2 1/2% Furniture 5%
2) Provided 2 1/2% for Doubtful debts on debtors. 3) Purchase invoices aggregating Rs.12,500 were omitted
be entered in the purchase Day Book.4) Debtors include Rs.2,500 due from the proprietor.5) An amount of Rs.2,500 received in respect of the
private loan advanced by the proprietor was wrongly credited to Sundry Debtors account.
6) Purchase invoices of the value of Rs. 37,500 were entered in the purchase day book on 29th Dec. 1982, but the goods in respect thereof were received on 3-1-1983.
7) An amount of Rs.1,750 received from debtor was wrongly credited to Sales Account.
8) The annual interest on Government Promissory Notes accrued due on 31-12-1982, but was collected in 1983.
Q5. Mr. Chetan the proprietor of Miracle Groups gives the following Trial Balance for the year ended on 31st March, 2001.
Particulars Dr. (Rs.) Cr.(Rs.)Motor Vehicles 5,00,000Plant and Machinery 20,00,000Returns 60,000 75,000IDBI Bonds 5,00,000Interest on IDBI Bonds 55,000Bad Debts 25,000Provision for Doubtful Debts 15,000Life Insurance Premium of Mr. Chetan
20,000
Bills of Exchange 2,52,500 2,50,000Debtors and Creditors 15,00,000 10,00,000Rent (Factory Rs. 62,500) 2,24,000Printing and Stationery 1,03,500Discount 12,500 47,500Insurance 1,27,500Sales 1,01,85,00
0Carriage on Finished Goods Sold 86,750Power and Fuel 3,57,750Wages 6,98,000Raw Material Purchased 83,23,500Withdrawls / Capital 1,00,000 20,00,000Opening Stock:Finished Goods 5,45,000Raw Material 1,27,000Work in Progress 64,500Cash in Hand 50,000Bank Overdraft 20,50,000
1,56,77,500
1,56,77,500
Following further information is also given:1) Stock at Cost on 31/03/2001
Finished Goods 10,00,000Raw Materials 2,25,000Work in Progress 1,25,000The Market Value of Finished Goods as on 31/3/2001 was Rs. 12,50,000.
2) Provide Depreciation on Plant & Machinery @ 25% p.a. and on Motor Vehicles @ 20% p.a.
3) General Insurance Prepaid was Rs. 22,500 while factory rent outstanding was Rs. 32,500 on 31/03/2001.
4) Material costing Rs. 75,000 was destroyed by fire and insurance company admitted the claim to the extent of Rs. 50,000 on 28th March, 2001 and finished goods costing Rs. 37,500 has been distributed as free samples on same date.
5) Rs. 50,000 has to be written of as bad debts. Create provision for doubtful debts and discount on debtors @ 5% and 2% respectively.
6) Purchase include Rs. 20,000 being machinery purchased on 1/10/2000.
7) During the year Bills Receivable of Rs. 20,000 has been dishonoured and no entry has been passed for this in the books.
Q6. From the following trial balance as on 31-3-1984 and after considering the other information, you are required to prepare Manufacturing, Trading & Profit & Loss Account of M/s. Venus Manufactures for the year ended on 31st March, 1984 :
Debit Balances Rs. Credit Balance
Rs.
Drawing Account 38,000 Capital A/c 4,40,000Land 20,000 Bills Payable 60,000Building 50,000 Sales of Plant & Machinery 1,00,000 finished goods 14,80,000Loose tools 10,000 Returns 10,000Bills receivable 20,000 Discount 500Bank balance 16,000 Creditors 90,000Cash on hand 1,000Opening Stock (Raw Materials) 40,000Purchases of Raw Materials 11,00,000Returns 14,000Wages 66,000Carriage inward 6,000Carriage outward 7,600Power and Fuel 17,200Salaries 44,000Rent 2,200Debtors 4,49,000
Advertisement Expenses 5,000Bad Debts 1,000Water Charges 4,800Stores 2,000Furniture 4,000Stationary & Printing
4,000
General Expenses 35,800Insurance 7,700Repairs to Machinery
3,200
Extension to Building
12,000
20,80,500 20,80,500
Other information :-1) Stock of raw materials as on 31-3-1984 was Rs.20,000.
There was no opening and closing stock of finished goods.2) Depreciate Plant & Machinery at 10%, Loose tools at 10%,
furniture at 10%, Building at 5%. Extension to Building was completed on 1-1-1984.
3) Provide for doubtful debts at 5% and for discount on sundry debtors at 2%.
4) The concern owes Rs.6,000 for wages and Rs.4,000 for salaries.
5) Rent amounting to Rs.200 for March is not paid.6) Insurance amounting to Rs.1,500 is for the next year.7) Bill water charges for the last quarter for Rs.1,500 was
received in May 1985 and has remained unadjusted.
Q7. From the following information, prepare Manufacturing, Trading & P & L A/c for the year ended 31st December, 1990 and Balance Sheet as at that date of M/s. M & Co.
Debit Balances Rs. Credit Balances
Rs.
M’s Drawing 36,000 M’s Capital 3,29,800Purchases-Raw Returns outward 10,000Materials 1,90,000 Sundry creditors 80,000Freehold property 1,20,000 Provision for
Plant & Machinery 2,00,000 doubtful debts 1,000Salaries 24,000 Interest on Office expenses 5,000 investments 2,000Furniture & Fixtures 10,000 Sales 4,40,000Discount allowed 1,200 Bills Payable 10,000Sundry debtors 52,000Investment at cost in 10% Govt. Bonds 40,000Bank balance 10,600B. R. 6,000Petty cash in hand 2,400Opening stock:Raw materials 16,000Work in progress 26,000Finished goods 38,000Advance againstPurchase of Machinery 20,000Wages 30,000Postage & Telephones
3,000
Insurance premium 3,600Power & Fuel 10,800Bad debts 3,000Office rent 5,400Freight inward 10,000Loose tools 5,000Office electricity 4,800
8,72,800 8,72,800
Additional Information :1) Stock as on 31st December, 1990
Raw materials Rs.20,000 Work in progress Rs.17,500 Finished goods Rs.76,000.
2) Outstanding expenses were wages Rs.3,000 and Salaries Rs.1,800. Insurance premium prepaid was Rs.500/- but it was included in office expenses.
3) A new machine was purchased on 30-9-90. No payment was made in settlement of the net balance due as per the bill which was Rs.10,000. No entries for the acquisition of the machine were passed in the books of account.
4) Depreciate machinery at 10% p.a. and furniture and fixtures at 15% p.a. Loose tools were valued at Rs.3,800 as on 31-12-90.
5) Write off Rs.2,000 out of the debtors as bad and provide for doubtful debts at 5% on the debtors.
6) The manager is entitled to commission @ 5% of the N.P. after charging the commission.
7) BR included dishonoured bill of Rs.2000, 50% of which is turned out as bad.
8) Goods supplied to proprietor Rs.2000 wrongly included in debtors.
9) Sales include goods at Sales Price Rs. 6,000 sent on approval at cost +20% 50% of goods are approved.
10) Petty cash balance on 31.12.90 was Rs. 400.11) Furniture with book value 4000 was sold for Rs. 5,000 but
proceeds were included in sales.
Q8. From the following trial balance of Mohan as on 31st March, 1984 and the adjustments given thereafter, you are required to prepare the Trading and Profit & Loss Account for the year ended on 31st March, 1984 and the balance sheet as on that date.
Trial Balance of Mohan as on 31st March, 1984
Debit Balances Rs. Credit Balances Rs.Drawing 38,000 Capital as on Cash 2,000 1-4-1983 2,00,000Stock as on Bank of Baroda 80,0001-4-1983 80,000 Returns Carriage Outwards 10,000Outwards 14,000 Sales 6,00,000Bad debts 4,000 Interest Wages 1,10,000 Received 3,000Power and fuel at Loan received Rs. 4,000 p.m. 44,000 from Ganga onReturns inwards 12,000 1-1-1984 @ Purchases 3,60,000 8% p.a. 80,000Rent @ Rs. Commission 2,000 p.m. 22,000 Received 36,000Salesman’s Creditors 59,000Commission @ Discount 2,0005% of sales 24,000Insurance paid
From 1-4-1983 To 31-5-1984 14,000Loan given to Nayan On 1-4-1983@ 10% p.a. 40,000Carriage inwards 20,000Salaries 42,000Interest on bank over draft 5,000Investments 26,000Plant & Machinery
90,000
Furniture 6,000Delivery Van (purchased on 1-10-1983) 24,000Office equipment 8,000Debtors 84,000Discount 1,000
10,70,000 10,70,000
Following information is also furnished :1) Stock on 31-3-1984 is worth Rs. 1,50,000. It includes
goods worth Rs. 10,000 which were received on 29-3-1984 but the bill for which was not received till 31-3-1984.
2) Goods worth Rs.20,000 were supplied to customers on 30-3-1984 but sales invoices were not prepared till 31-3-1984.
3) Wages for March 1984 amounting to Rs.10,000 were paid on 7th April, 1984.
4) Commission received in advance amounted to Rs. 4,000.5) Provide Rs.7,000 for bad debts.6) Provide depreciation :-
@ 20% per annum on delivery van.@ 15% per annum on furniture and office equipment.@ 10% per annum on plant and Machinery.
7) On scrutiny of bank statements, it was found that the bank had debited Mohan’s Account with Rs.500 as bank commission in March, 1984, but entry for the same was recorded in the cash book on 14th May, 1984.
8) On 31st March, 1984, Mohan received a cheque for Rs.8,000 as dividend on investment. However, the entry for this was passed on 5th April, 1984.
COMPANY ACCOUNTS
Q.NO.1 Following is trial Balance of KITTU LTD 31-12-95 DEBIT CREDIT
Calls in Arrears 25,000 10 % Pref. Shares of 100
8,00,000
Opening Stock 4,50,000 Equity Shares of 10 each
12,00,000
Purchases 28,20,000
Sales 36,25,000
Freight 70,000 12$ Debentures (1-10-95
Salaries [ 11 months ] 1,65,000 Secured on Building ) 6,00,000Office rent & Taxes 6,000 Tax Provision [ L. Year ] 2,50,000Travelling Expenses 8,000 Creditors 5,00,000Printing & Stationary 10,000 Profit & Loss 1,00,000Postage & Telegram 7,000 General Reserve 2,00,000Building 10,00,00
0Furniture & Fittings 2,40,000Delivery Van 1,80,000Carriage outward 9,000Advance Tax [L. Year ] 2,40,000Advance Tax [C. Year ] 2,50,000Debtors 4,50,000Bank Balance 3,40,000Investments [ 12% government Securities Face Value 1025000Purchased on 1-8-95 10,05,00
072,75,00
072,75,00
0[1] Closing Stock Rs.5,68,000[2] Sale include 1,25,000 being sales on behalf of consignors on
which 4% commission is due.[3] Directors remuneration is 5 % of net profit before tax.[4] Last years income tax assessment was completed for Rs.2,25,000
[5] Provide 10,000 for Audit Fees & 4,000 for Professional charges payable to Auditor.[6] Depreciation Building - 2.5 %, furniture - 10 % Delivery Van - 20%[7] Income tax Provision is to be made 40 % of Net Profit.[8] Proposed dividend 12 % and transfer 50,000 To General Reserve.
Prepare Trading, Profit & Loss and Balance Sheet as at that date.
Q.NO.2 Following is the trial balance of NOICO LTDDEBIT CREDIT
Advance Tax [ L. Year ] 3,65,000 Share Capital 30,00,000
Intrim dividend 1,73,000 General Reserve 3,00,000Directors fees 20,000 Tax Provision [ L. Year ] 4,40,000Prepaid Insurance 30,000 Profit & Loss 5,74,000Debenture Interest 75,000 15% Debentures O.B 10,00,00
0Bank Balance 2,26,000 Gross Profit 10,50,00
0T.D.S. Int on Investments 16,000 Share Premium 2,50,000Investments [M.Value 474000]
5,00,000 Creditors 20,00,000
Debtors [ 55000 due for more Outstanding Expenses 36,000 Than 6 Months ] 24,55,00
0Interest on Investments 50,000
Stock 16,60,000
Vehicles [Cost 1,50,000] 1,00,000Furniture [Cost 2,00,000 ] 1,60,000Machinery [ Cost 30,00,000 ] 21,20,00
0Land-Building[Cost 10,00,000]
8,00,000
87,00,000
87,00,000
[1] Depreciation for the year charged against trading account :[a] Land & Building -.50,000 [b] Plant & Machinery - 3,00,000 [c]
Furniture - 16,000
[2] Directors remuneration 15,000 & 1,00,000 staff salaries was charged to Trading Account.
[3] Income Tax Assessment for last year completed resulting in a gross demand of .3,40,000
[4] Tax Provision for Current Year should be kept at Rs.3,00,000.[5] Directors recommend transfer of Rs.2,00,000 to Debenture
Redemption Fund, Rs.3,50,000 to General Reserve and a final dividend of 10% .Prepare Profit and Loss account and Balance Sheet.
COST ACCOUNTING
Prof. Amit Godse’s
Lecture Notes
COST SHEET
What do you mean by cost?Cost for a layman means price of a commodity. However, from the view point of the manufacturer. Cost means the total amount of expenditure incurred to produce a marketable commodity. It includes all expenditure incurred for procuring the raw material, and continues till the final finished product is sold.These costs are incurred at different stages and each such cost is of a varying nature and purpose.
What is cost sheet?The structured format in which such costs are p0resented is cost sheet. In simple words cost sheet is a logical listing of various
costs. While preparing cost sheet various types of costs are grouped together depending upon their nature, and are presented in a structured format.
Following is the structure of cost-sheet?
Total cost Per Unit
Particulars Rs. Rs. Cost
Direct Material Costs:
Opening Stock of materials xxx
(+) Purchases xx
(+) Carraige inwards xx
(+) Customs duty / Dock charges/ Freight
xx
(-) Closing Stock (xx)
(-) Sale of raw material scrap (xx) xxx
Direct wages xx
Direct Expenses / Chargeable exps xx
Prime costs xxx
(+) Factory Expenses / Over heads. xx
xxx
(+) Opening Stock (WIP) xx
(-) Closing Stock (WIP) (xx)
(-) Sale of scrap. (Processed scrap) (xx)
Factory cost xxx
(+) Office / Administrative Overheads xx
Cost of Production xxx
(+) Opening Stock (FG) xx
(-) Closing Stock (FG) (xx)
Cost of Goods Sold xxx
(+) Selling / Distribution Overheads xx
Cost of Sales xxx
(+) Profit xx
Sales xxx
Factory Overheads include:
Factory rent, Factory lighting, works manager’s salary, motive power, power, Fuel, Heat, Water charges, laboratory expenses, Depredation on P/M, depredation Factory Bldg, Repairs, Maintenance of Factory, Indirect /Unproductive wages, Estimation expenses, technical director’s fees, royalties on production, Loose tools w/off, factory stationery, supervisor’s salary, service department’s expenses, and all other factory related expenses.
Office / Administrative Expenses include:Office rent, Taxes, Staff Salary, office lighting, office cleaning, Printing, and Stationery, postage, Telegram, conveyance (office), depreciation on office furniture Building, depreciation on office equipments, office repairs, general expenses, legal expenses, audit fees.
Selling distribution overheads include:Advertisement, showroom expenses, travelling expenses, commission on sales, sales man’s salary, packing expenses, servicing expenses, carriage outwards, insurance of ware house, salary to sales dept, delivery van expenses including depredation and al sales related expenses.
Specific exclusions from cost sheet:Following expenses appearing in Financial Accounts are completely
excluded in cost sheet:
I. Interest on loans, debentures, fixed deposits.II. Share issue expenses, discount on issue underwriting
commission, share transfer expenses.III. Fines and penalties.IV. Cash discountV. Loss on sale of fixed assets / investments.VI. Compensation or damages paid.VII. Baddebts written off / Provision for RBD.VIII. Income tax paid, Provision for income tax.IX. Goodwill /Preliminary expenses / Discount on issue of shares/
debentures written off.X. Charities / Donation.
XI. Dividend declared.XII. Transfer to reserves / sinking fund etc.
Following expenses appearing in Financial Accounts is excluded in Cost Account:
I. Rent from property.II. Profit on sale of fixed assets / investments etc.III. Interests on investments/ dividends etc.IV. Discount received.V. Any other gains a part from sales, sale of scrap.
Q1. The books and records of the Kunal Manufacturing Company presents the following data for the month of August, 1987.Direct Labour cost Rs. 16,000 (160% of factory overhead)Cost of goods sold Rs. 56,000Inventory accounts showed these opening and closing balances:
August 1 August 31Rs. Rs.
Raw materials 8,000 8,600Work in progress 8,000 12,000Finished goods 14,000 18,000Selling expenses 3,400General and administration expenses
2,600
Purchase of Finished Goods 5,000
You are required to prepare a statement showing cost of goods
manufactured and sold and profit earned. Sales was Rs. 65,000.
Q2. Prepare a cost sheet showing the cost per tonne of paper manufactured by BHADRACHALAM PAPER MILLS in January, 1991 under the different elements of cost.
Direct Materials:i) Paper pulps 1,000 tons @ Rs. 80 per tonii) Other miscellaneous materials 200 tons @ Rs.. 50 per tonDirect Labouri) 220 skilled men for 25 days @ Rs. 6 per dayii) 110 unskilled men for 25 days @ Rs. 4 per dayDirect Expenses:i) Special equipment hire charges Rs. 10,000ii) Special dyes Rs. 5,000Works Overhead:`i) Variable @ 100 per cent on wagesii) Fixed @ 50 per cent on direct wagesAdministrative Overhead @ 10 per cent on works costSelling and distribution overhead @ 20 per cent on works cost.Finished paper manufactured 1,000 tonsSales of Waste Rs. 2,000.Sales Rs. 400 per ton.
Q3. Swadeshi Electronics Ltd. furnished to you the following information for the year ended 31st March, 1996.:
Production and Sales 15,000 unitsSales Rs. 12,75,000Direct Wages Rs. 2,70,000Direct Materials Rs. 3,30,000Factory Overheads Rs. 2,25,000Administrative Overheads Rs. 1,05,000Sales Overheads Rs. 90,000
On account of intense competition following changes are estimated in the subsequent year:I. Production and Sales activity will be increased by one third.II. Material rate will be lower by 25%. However there will be
increase in consumption by 20% due to quality difference.III. Direct Wages cost would be reduced by 20% due to
automation.
IV. Out of the above factory overheads, Rs. 45,000 are of fixed nature. The remaining factory expenses are variable in proportion to the number of units produced.
V. Total administrative overheads will be lower by 40%.VI. Sales overheads per unit would remain the same.VII. Sale price per unit would be lower by 20%.Prepare a statement of cost for both the years ending 31st March, 1996 and 31st March, 1997 showing maximum possible details of cost.
Q4. M/S. BATA SHOE CO. Manufactures two types of shoes A and B, Production costs for the year ended 31st March. 1989 were:
Rs.Direct Materials 15,00,000Direct Wages 8,40,000Production Overheads 3,60,000
27,00,000There was no Work-in-progress at the beginning or at the end of the year. It is ascertained that:I. Direct Material in type A shoes consists twice as much as that
in type B shoes.II. The direct wages for type B shoes were 60% of those for type
A shoes.III. Production overhead was the same per pair of A and B type.IV. Administrative overheads for each type was 150% of direct
wages.V. Production during the year were:
Type A 40,000 Pairs of which
36,000 Were sold.
Type B 1,20,000
Pairs of which
1,00,000 Were sold.
I. Selling cost was Rs. 1.50 per pair.II. Selling price was Rs. 44 for type A and Rs. 28 pr pair for type
B.Prepare a statement showing cost and profit.
Q5. A factory manufactures a uniform type of article and has a capacity of 6,000 units per week. The following information shows the different elements of cost for three consecutive weeks when the output has changed every week.
Units produced
Direct materials
Direct labour
Factory Overheads (partly
variable & partly fixed).
2,000 12,000 6,000 12,500
2,800 16,800 8,400 16,500
3,700 22,200 11,100 21,000
The factory has received an order for 5,000 units and it desires a profit of 16-2/3% on selling price. Find out the price at which each unit should be sold.
Q6. Domestic appliances manufactures Pressure Cookers. For the year ending 31st December, 1999, expenses incurred are as follows for an output of 2000 units.
Rs.
Raw materials consumed 2,00,000
Direct wages 1,00,000
Factory overheads 1,60,000
Administrative overheads 46,000
Selling overheads (10% of sales value)
70,200
Distribution overheads 36,000
During the year, 200 units were unsold.For the year 2000, the following changes were estimated:
I. Raw materials price would rise by 10% but consumption per unit would decrease by 5%.
II. Direct wages would rise by 3.5%.
III. Of the factory overheads Rs. 60,000 are fixed and would remain at the same level but the variable there of would be in same proportion to Direct wages as in 1999.
IV. Administrative overheads would rise by 20%.
V. Selling overheads as a percentage of sales value would remain at the same level and distribution overheads would remain same per unit as in 1999.
VI. The output and sales would be 3000 pressure cookers.
VII. Expected profit in the year 2000 is 40% of sales.
From the above information prepare:
A. Cost-sheet of the year 1999 and projected cost sheet of the year 2000 showing per unit and total cost.
B. Working note for the projected cost sheet.
C. Projected sales price.
Q7. Vaijnath Polymers manufactures and sells a typical branch of tiffin boxes under its own brand name. The installed capacity of the plant is 1,20,000 units per year distributable evenly over each month of calendar year. The cost Accountant of the company has informed you about the cost structure of the product which is as follows:
Raw Materials Rs. 20 per unit
Direct Labour Rs. 12 per unit
Direct Expenses Rs. 2 per unit
Variable Overheads Rs. 16 per unit
Fixed Overheads for the year
Rs. 3,00,000
Semi-Variable Overheads are as follows:
I. Rs. 7,500 per month upto 50% capacity and
II. Additional Rs. 2,500 per month for every additional 25% capacity utilization or part thereof.
The plant was operating at 50% capacity during the first seven
months of the calendar year 1999 and at 100% capacity in the
remaining months of the year.The selling price for the period from
1st January 1999 to 31st July, 1999 was fixed at Rs. 69 per unit. The
firm has been monitoring the profitability and revising the selling
price to meet its annual profit target of Rs. 8 lacs.
You are required to suggest the selling price per unit for the period from 1st August, 1999 to 31st December 1999.
Prepare cost sheet clearly showing the total and per unit cost and also profit for the period:
a) From 1st January 1999 to 31st July 1999.
b) From 1st August 1999 to 31st December 1999.
Operating Costing
Q.1. A cement manufacturing company is facing the problem of
transportation from its quarry. The quarry is situated 25 Kms away and
the only means of transport available is the roadways. The company
has received quoatations from some of the local transporters at Rs.22
Rs.22.50 and Rs.23 per tonne of limestone transported, with an
escalation clause in respect of diesel oil costs.
The quantity of limestone to be transported per month is 24,000
tonnes.
While studying the feasibility of department transport, the following
facts came to be recognized:
a. Two types of trucks are available in the market, namely, 10 tonners
and 8 tonners
b. Details of operating costs for the trucks :
Purchase price
Estimated useful life
Residual value
Km. per litre of diesel
Estimated repair and maintenance cost
per truck
Vehicle and road tax per quarter
10
Tonner
8 Tonnre
Rs.2.5 Lakh
5 year
Rs.40,000
3Km
Rs.1,000
P.m
Rs.600
Rs.2.0 Lakh
5 year
Rs.20,000
4 Km
Rs.1,600
P.m
Rs.600
c. cost of diesel per litre
d. cost of finance for purchase of trucks 12% p.a
e. Each vehicle can run 5 trips (up and down) each day, and can run on
a an average for 24 days in a month.
f. Drivers will have to be recruited according to the number of trucks to
be purchased. In addition, one extra driver for every 5 vehicles will be
required for the entire fleet. A driver will cost Rs.400 per month.
g. An additional transport supervisor would be required at a cost of
Rs.1,000 per month.
h. Yet another possibility is to hire sufficient number of trucks (8
tonnes only) from a transport company at the rate of Rs.6,000 per
month pe truck. The transport company will undertake to pay repairs
an maintenance costs as well as vehicle and road tax. The cement
company has to bear the cost of driver, supervisor and other
operational costs.
You are required to advise the board on a appropriate choice among
the above alternatives considering also the option of entrusting the job
to the transport operators.
Q.2. Remix p.i.c makes ready-mixed cement and operates a small fleet of
vehicles which delivers the product to customers within its delivery
area.
General data:
Maintenance records for the previous five year reveal:-
year Mileage of vehicles Maintenance cost
(Rs)
1
2
3
4
5
1,70,000
1,80,000
1,65,000
1,60,000
1,75,000
13,500
14,000
13,250
13,000
13,750
Transport statistics reveal:
Vehicle
s
Number of
journey Each day
(Trips)
Average tonnage
Carried to
customers
(Tones)
Average distance to
customers
(miles)
1
2
3
4
5
6
4
2
2
1
4
4
5
6
8
10
20
40
30
60
There are five vehicles operating a five day week, for 50 weeks a year.
Inflation can be ignored.
Standard cost data include:-
Driver’s wages are Rs.150/- each per week.
Supervisor/relief driver’s wages is Rs.200 per week.
Depreciation, on a straight line basis with no residual value:
Loading equipment
Vehicles (each)
Cost Life
Rs.1,00,000
Rs.30,000
5 Year
5 Year
Petrol cost 30 P. per mile.
Repair cost 7 ½ P. per mile
Vehicle licences cost Rs.400 p.a. for each vehicle
Insurance cost Rs.600 p.a. in total
Tyres costs Rs.3,000 p.a. in total
Miscellaneous costs,Rs.2,250 p.a. in total.
you are required to calculate a standard rate per tonne/mile of
operating vehicles.
Q.3 Taj group of Hotels runs a chain of hotels throughout the world. It has
its head office in Bombay. The management has been preparing its
budget for the next year and first hotel has selected in Hotel Taj,
Bombay. The hotel does not remain fully occupied always .However
much depends on seasons. For this purpose, the year is divided in
three parts, summer, winter and monsoon each season of 4 months.
There are three types of rooms – ordinary, deluxe and aristocrat.
The management has made the estimate for the coming year.
Depreciation 15,000
Salaries 25,00,000
Transportation 1,50,000
Laundry Charges 4,00,000
Bed Sheet etc; 2,50,000
Municipal Taxes ,rates 6,00,000
The charges mentioned above are fixed irrespective of capacity
utilization, whereas charges mentioned below depend solely on the
capacity utilization.
a. Lighting
(i) Rs. 20 per day in each season for ordinary room
(ii) Rs. 25 per day in each season for Deluxe room
(iii) Rs. 30 per day in each season for aristocrat room
b. Salary of room attendant
(i) Rs. 40 per day ordinary room in summer
(ii) Rs. 50 per day deluxe room in summer
(iii) Rs. 60 per day aristocrat room in summer
(iv) Rs.30,40&50 respectively for ordinary room, deluxe room and
aristocrat room respectively in winter and monsoon.
c. Light refreshment
(i) Rs.35 per day –for summer
(ii) Rs.45 per day –for winter
(iii) Rs.60 per day-for monsoon
d. Other expenses – Rs.20 per day room
The capacity utilization, as such, is very uncertain. However based on
past experience, following could be the best possible estimates:
In summer, the utilization is maximum and all 150 ordinary rooms
remain occupied. in the case of deluxe room and aristocrat rooms ,the
utilization is 90 and 60 i.e. 90% and 80% respectively.
In winter, utilization is 80% and 60% and 40% respectively for
ordinary, deluxe and aristocrat rooms. In monsoon utilization is only
60%, 40% and 20% respectively.
In addition, each hotel has to bear the change of head office expenses,
proportionately. It is estimated that head office expenses would be Rs.
20,00,000/- and that the Bombay branch will bear 10% of total head
office expenses.
It is the management’s policy to add 25% to the cost and further that
aristocrat room charges should be 3 tomes the ordinary room charge
and deluxe room should be twice the ordinary room change.
You required to work out various rates for the next year .Also work out
thee rates if deluxe room charge should be triple of ordinary room in
charge in all season but in aristocrat room case, charge should be 3.5
times in summer, 5 times in winter and 8 times in summer as
compared to ordinary room charge.( Assume 360 days for computation
purpose)
Overheads
Q.1. PH Ltd, is a manufacturing company having three production
departments, A, B and C and two service departments X and Y. The following is
the budget for December 2005:
Direct material
Direct wages
Factory rent
Power
Depreciation
Other
overheads
Total
Rs.
A
Rs.
B
Rs.
C
Rs.
X
Rs.
Y
Rs.
4,00
0
2,50
0
1,00
0
9,00
0
1,00
0
5,00
0
2,000
2,000
4,000
8,000
2,000
1,000
1,000
2,000
Additional information :
Area (sq. ft.)
Capital value ( Rs. Lacs) of assets
Machine hours
Horse power of machines
500
20
1,000
50
250
40
2,000
40
50
0
2
0
4,00
0
2
0
250
10
1,000
15
500
10
1,000
25
A technical assessment of the apportionment of expenses of service
department is as under:
Service dept. X
Service dept. Y
A
%
B % C % X % Y %
45
60
15
35
30
5
10
Required:
(i) A statement showing distribution of overheads to various
departments.
(ii) A statement showing re-distribution of service department
expenses to production Department.
(iii) Machine hours rates of the production department A, B, and
C.
Q.2. Norma Ltd. Is a retail organization which operates three sales
departments and an administration department in a large supermarket
complex. Each sales department has a manager and its own
prescribed gross margin related to selling price. Exceptionally, the
general manager permits the department managers to reduce the
selling price of a product by giving a quantity discount, a special price
for a large order or for an item of out-dated stock.
The following data are given:
Audio &
video
Equipment
(Rupees)
Electrica
l
Applianc
es
(Rupees)
Furniture
(Rupees)
Stock at November 1
At cost
At full sales value
Transactions during
November
Purchases
Net sales
Price reductions
approved
1,20,000
2,00,000
1,50,000
2,15,000
5,000
80,00
0
1,10,00
0
40,000
63,00
2,00,000
2,80,000
1,60,000
2,24,000
7,000
0
3,00
0
Expenditure incurred during November was:
Items of
expenses
Amoun
t
Rupees
Basis of apportionment To sales
& administration department
Rates
Light and heat
Advertising
Transport
Insurance
Miscellaneous
Canteen
Salaries and
Wages
Depreciation
Administration
4,000
2,000
35,250
25,850
3,525
1,175
4,125
24,910
3,750
2,500
Area Occupied
Area Occupied
Sales value for the month before any
reduction
Sales value for the month before any
reduction
Sales value for the month before any
reduction
Sales value for the month before any
reduction
Numbers of Employees
See detailed information given below
See detailed information given below
Direct
Other detailed information for November Was:
Audio & video
equipment
Electrical
appliances
Furniture
Salaries &
Wages
(Rupees)
Depreciati
on
(Rupees)
No . of
Employee
s
Ares
Occupie
d
(sq.
m )
11,900
2,000
500
750
27
4
600
200
Administration 6,000
5,010
1,000
1,500
15
9
500
300
Total 24,910 3,750 55 1,600
Each month, the total costs of the administration department are
apportioned to the three sales Departments on the basis of the sales
values for the month before any reduction. Using the data given,
prepare a tabulated profit and loss statement for each sales department
For November.
Q.3. As a cost accountant of Oberon Ltd., you have prepared budget
for sales quantity, production, Materials, labour utilization and variable
overheads for the year ended 31st December 1999.
Information from the labour utilization budget is shown below:
Department Work force Labour hours Hourly rate
North
East
West
20
25
30
35,000
45,000
55,000
Rs. 2.80
Rs. 2.60
Rs. 2.50
You have produced various estimates for the year’s fixed costs, some
of which can be easily allocated direct to the three department and
some which need to be apportioned between the three department. The
work so far is shown below:
Fixed cost items (Rs.) Allocation or proposed basis
Of apportionment
North East
West
Plant Depreciation
Departmental office
staff
Selling & Administration
Factory rent, rates and
insurance
40,00
0
59,00
0
1,45,00
20,000 15,000 5,000
15,000 18,000 26,000
50,000 40,000 55,000
Floor area
Works Canteen
Warehousing costs
Light & heat
Repairs & maintenance
0
70,00
0
22,50
0
21,00
0
10,500
20,00
0
Number of employees
Materials consumed
Floor area
Net book value of assets weighted
According to average age.
You apportionment of fixed costs will be based on the following information
North
East
West
Floor
area
(m2 )
Net book
value of
assets
(Rupees)
Average age
of
Assets (Years
)
Materials
Consumed
(Rupees)
1,200
1,000
600
1,00,000
50,000
20,000
3
2
5
2,60,000
1,20,000
40,000
Required:
(a)Calculate hourly fixed overhead absorption rates for the three
departments.
(b)Produce a standard cost card showing how the selling price of a Weber
PM2 is arrived at if the following variable costs are incurred.
Materials: Rs.28.50
Labour: Department North 2 hours
East 4 hours
West 3 hours
Variable Overheads
Oberon Ltd. Aims for a profit of 35% on sales.
ACTIVITY BASED COSTING
Q.1. A company products three products A, B and C for which the
standard costs
And quantities per unit are as follows:
Products A B C
Quantity produced
Direct materials / p.u. (Rs.)
Direct labour / p.u. (Rs.)
Labour hours / p.u.
Machine hours / p.u.
No. of purchase requisitions
No. of set ups
10,000
50
30
3
4
1,200
240
20,000
40
40
4
4
1,800
260
30,000
30
50
5
7
2,000
300
Production overheads split by departments:
Department 1 = Rs. 10, 40,000
Department 2 = Rs. 15,84,000
Department 1 is labour intensive and Department 2 is machine
intensive.
Production overhead split by activity:
Production scheduling / machine set up Rs.12, 24,000
Receiving / inspecting Rs. 14,00,000
Rs. 26,24,000
Number of batches received / inspected = 5,000
Number of batches for scheduling and set –up = 800
You are required to:
(i) Prepare product cost statement under traditional Absorption
Costing and activity Based costing method.
(ii) Compare the results under two methods.
Q.2. A company produces four products viz, P, Q, R and S. the data
relating to production activities are as under:
Produc
t
Quantity
of
Productio
n
Materia
l
Cost /
unit
Direct
labour
Hours/
unit
Machine
Hours / unit
Direct
Labour
Cost / unit
Rs.
P 1,000 10 1 0.50 6
Q
R
S
10,000
1,200
14,000
10
32
34
1
4
3
0.50
2.00
3.00
6
24
18
Production overheads are as under:
(i) Overheads applicable to machine oriented activity: Rs. 1,49,700
(ii) Overheads relating to ordering materials: Rs.7,680
(iii) Set up costs: Rs.17,400
(iv) Administrative overheads for spare parts: Rs.34,380
(v) Materials handling costs: Rs.30,294
The following further information has been compiled:
Produc
t
Number of
Set ups
Number of
Materials
orders
Number of
times
Materials
handled
Number of
spare
Parts
P
Q
R
S
3
18
5
24
3
12
3
12
6
30
9
36
6
15
3
12
Required:
(i) Select a suitable cost diver for each item of overheads expense and
calculate the cost per unit of cost driver.
(ii) Using the concept of activity based costing, computer the factory
cost per unit of each product.
Q.3. Your Company decides to implement activity based costing (ABC)
to the four products currently made and sold by them. Details of the
four products and relevant information are given below for one period:
Products A B C D
Output in units 120 100 80 120
Cost per unit :
Direct Materials
Direct Labor
Machine hours (per unit )
Rs. 40
Rs. 28
4
Rs. 50
Rs. 21
3
Rs. 30
Rs. 14
3
Rs. 60
Rs. 21
3
The four products are similar and are usually produced in production
runs of 20 units and sold in batches of 10 units.
The production overheads are currently absorbed by using a machine hour rate, and the
total of the production overhead for the period has been analyzed as follows:
Machine department
(rent, business, rates, depreciation and supervision )
Set-up costs
Stores receiving
Inspection / Quality control
Materials handling and dispatch
Rs.
10,430
5,250
3,600
2,100
4,620
You have ascertained that the “cost drivers” to be used are as listed
below for the overhead costs shown;
Cost Cost Driver
Set- up costs Number of production
runs
Stores receiving Requisitions raised
Inspection /Quality control Number of
production runs
Materials handling and dispatch Orders executed
The Number of requisitions raised on the stores was 20 for each
product and the number of orders executed was 42, each order being
for a batch of 10 of a product.
You are required to calculate the factory cost per unit of each product
under Activity Based costing.
Q. 6. Family store wants information about the profitability of
individual product lines:
Soft drinks, Fresh produce and packaged food. Family store provides
the following data for the year 2005-06 for each product line:
Revenues
Cost of goods sold
Cost of bottles returned
Number of purchase orders
placed
Number of deliveries received
Hours of shelf-Stocking time
Items sold
Soft drinks Fresh
produce
Packaged
food
Rs.7,93,500
Rs.6,00,000
Rs.12,000
36
0
30
0
54
0
1,26,00
0
Rs.21,00,60
0
Rs.15,00,00
0
Rs.0
84
0
2,19
0
5,40
0
11,04,00
0
Rs.12,09,90
0
Rs.9,00,000
Rs.0
360
660
2,700
3,06,000
Family store also provides the following information for the year 2005-2006
Activity Description of Activity Total
cost
Cost-allocation Base
Bottles
returns
Ordering
Delivery
Shelf
stocking
Returning of empty bottles
to store
Placing of orders for
purchases
Physical delivery and
receipt of
Goods
Stocking of goods on store
Rs.12,000
Rs.1,56,0
00
Rs.2,52,0
00
Rs.1,72,8
Direct tracing to soft-
drink line
1,560 purchase orders
3,150 deliveries
8,640 hours of shelf
stocking
Customer
Support
shelves and on-going
restocking
Assistance provided
To customers including
Check -out
00
Rs.3,07,2
00
time
15,36,000
Items sold
(i) Family store currently allocates support (all costs other than cost of
goods sold) to
product lines on the basis of cost of goods sold of each product line.
Calculate the operating income and operating income as a % of
revenues for each product line.
(ii) If family store allocates support costs (all costs other than cost of
goods sold to product line using an activity- based costing system;
calculate the operating income and operating income as a % of
revenues for each product line.
(iii) Comment on your answers in requirements (i) and (ii)
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