Example of Cost Sheet

8/3/2019 Example of Cost Sheet

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1B AS IC C ON CE PTS & PRODUCT COST SHEET

Q uestion 1SV Ltd . Is a m an ufac turin g co mpa ny w hich h as a s ou nd s ys te m o f f in anc ia l a c coun tin g .

T he m a na gem en t o f the com pany the re fo re fee ls tha t there is no need fo r the insta lla tion o f acost accoun ting system . P repa re a report to the m anagem en t b ring ing ou t the d is tinc tionbe tw een cost and financ ia l accoun ting sys tem and the need fo r the in troduction o f a soundc os t a cc ou ntin g s ys tem .Answe rT he M a na gin g D ire cto r,S .V . L td .N ew D elh i

S ub jec t: E stab lishm en t o f a C ost A ccou nting S yste mSir,

D u ring the course o f our d iscuss ion w ith you las t m on th , you m entioned that you rcom pany d id no t requ ire a cos t accoun ting system as it had a sound financ ia l accoun tingsystem . A fte r ou r d iscuss ion w ith you , w e had an opportun ity to s tudy the p roduc ts, p rocessesof m anu factu re , organ isation and se lling and dis tribu tion m ethods o f your com pany-w hich is am anu fac tu ring com pany. W e have com e to the conc lus ion tha t you r com pany ce rta in lyrequ ires a cos t accoun ting sys tem . To s treng then fu rther our view -po in t, w e g ive our report bybrin gin g th e d is tinc tion s be tw een th e tw o sys tem s as be low :

The financ ia l accounting sys tem o f a com pany m a in ly se rves as a usefu l sou rce ofin form a tion to owne r/shareho lders/c red itors and for tax pu rposes . It does no t prov ideadequate he lp to the execu tives w orking in the o rgan isa tion . The in fo rm ation p rov ided by thefinanc ia l accoun ting sys tem serves no usefu l purpose from the v iew -po in t o f p lann ing , con tro land dec is ion m ak ing . The absence of requ ired in form ation renders p lann ing , con tro l anddec is ion m ak ing ex trem ely d ifficu lt. O n the othe r hand, cos t accoun ting sys tem w as evo lvedas a supp lem entary accounting m e thod m ain ly to serve the needs o f m anagem ent. C os taccounting sys tem can p rov ide at a regu la r in te rva l, the needed in fo rm ation to the conce rnedexe cu tive s to pe rform the fun ctio ns o f p lann ing , co ntro l an d d ec is ion m ak in g.

The financ ia l accoun ting sys tem show s the trad ing resu lts o f the com pany as a w ho le ; itdoes not answe r the question why there is an increase or a decrease in pro fit o r loss . Theprin c ip le of m atch ing cos ts w ith revenues unde r a cos ting sys tem not on ly ind ica tes the pro fito r loss o f each produc t, bu t w ou ld a lso show the co rrec t va lue of clos ing inven tory . Thuscos ting sys tem he lps financ ia l accounting sys tem too . U nder financ ia l accounting sys tem the


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1.2 Cost Accounting

financ ia l s ta tem ents a re p repared on ly at the c lose o f the accounting pe riod . S uch s ta tem en tsdo not provide day-to-day cos t in fo rm ation for eva luating the e ffic iency of the conce rn . B utcos t accoun ting sys tem can supp ly eve ry poss ib le cos t in form ation to m anagem en t fo rm anage ria l con tro l. U nde r cost accoun ting sys tem by us ing s tandard cos ting the va riancesbe tw een prede te rm ined and actua l cos ts can be de te rm ined. These va ria tions and the irc au se s sp ea ks a bo ut th e c on ce rn 's o pe ra tin g e ffic ie nc y a nd in effic ie ncy .

In financ ia l accoun ting sys tem no attem pt is genera lly m ade to reco rd data by jobs ,p rocesses , p roducts , depa rtm en ts e tc . It on ly provides in form a tion in te rm s of incom e,expenses, asse ts and liab ilitie s fo r the com pany as a w hole . Thus the ava ilab le in form ation isnot very use fu l fo r the ascerta inm en t o f p rice , con tro l o f cos ts , ascerta inm ent of p roduc tp ro fitab ility e tc . C os t accoun ting sys tem records data in the m anner that he lps theascerta inm ent o f p r ice an d pro fita bility and a lso th e co ntro l o f co sts by us in g va rian ces .

G ove rnm ent in its e fforts to pro tec t consum ers , o ften reso rts to sta tu to ry price contro l.C os t accoun ting sys tem can he lp by prov id ing enough cost in fo rm ation w hich cou ld be utilisedto press upon the governm ent to conv ince for p rice and to a rrive a t a su itab le p rice beforeth eir a rb itra ry fix atio n o f it.

It is appa ren t from the above d iscuss ion that de ta iled and analy tica l in fo rm ation canno tbe had from ex is ting financ ia l accounting sys tem . W e there fo re s trong ly recom mend the needfor the in troduc tion of a sound cost accoun ting sys tem in you r concern .

You rs f ai th fu ll y,X . Y .& Co.

Ch a rt er ed A c co u nt an ts .Quest ion 2(a ) D efin e th e te rm s 'co st ce ntre ' a nd 'co st u nit'.(b ) G iven be low is a l ist of ten indus tr ies . G ive the m ethod o f cos ting and the un it of cost

a ga in st e ac h in du str y.( i) N u rs ing Hom e(ii) R oad Transpo rt( iii) S tee l( iv ) C oa l(v) B icyc les(v i) B rid ge C on stru ctio n( vii) In te rio r D e co ra tio n(v ii i) Adve r ti si ng(ix ) F um itu re(x) Sugar com pany hav ing its ow n sugarcane fie lds .


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Basic Concepts & Product Cost Sheet 1.3

Answe r( a J C os t C en tre

The term cost cen tre is de fined as a loca tion , pe rson o r an item of equ ipm ent o r a g roupof these fo r wh ich costs m ay be ascerta ined and used fo r the purposes of cost con tro l. C os tcen tres can be persona l cos t cen tres , im perso na l cos t cen tres , ope ration cost cen tres andp ro ce ss c os t c en tre s.

C ost U nitThe term cost un it is de fined as a un it o f quan tity o f p roduc t, se rv ice o r tim e (or a

com bination of these) in re la tion to w hich cos ts m ay be asce rta ined o r exp ressed . It can be fo ra job , batch , or p roduc t g roup .(b )Industry M e thod of costing U nit of cost(i) N u rs ing Hom e O pe rating Per Bed per week o r per day(ii) R oad transport O pe rating Per T onne K ilom e te r o r p er m ile(ii i) S tee l P rocess Per Tonne(iv ) Coal S ing le Per un it(v ) B icycles M u ltip le E ach un it(v i) B ridge cons truc tion Contrac t E ach con trac t(v ii) In te rio r D e co ra tio n Job E ach Jo b( vi ii ) Ad ve rt is in g Job E ach Jo b(ix ) Fu rn itu re M u ltip le E ach un it(x ) Sugar com pany hav ing its P rocess Per Q u in ta l/Tonne

o wn s ug ar-ca ne fie ld sQ uestion 3D is tin g uis h b e tw e e n(i) C ost Un it and C os t Cen tre(ii) C ost Cen tre and P ro fit Cen tre(iii) B ill of ma te ria l fr om a ma te ria l r eq uis itio n n ote .


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1.4 Cost Accounting

Answe r(i) D is tinc tion betw een C os t U nit and C os t C en tre

The te rm C ost U n it is de fined as a un it o f quan tity o f p roduc t, se rv ice o r tim e (o r acom bina tion of these ) in re la tion to w hich cos ts m ay be asce rta ined o r exp ressed . It can be fo ra job , ba tch , o r p roduc t g roup .

The te rm Cost C en tre is de fined as a loca tion , pe rson o r an item o f equ ipm en t o r a g roupo f these fo r w hich cos ts m ay be asce rta ined and used fo r the purposes of C ost C on tro l. C os tC en tres can be pe rsona l C ost C en tres , im pe rsona l C os t C entres , opera tion cos t and p rocessC o st C e ntr es .

Thus each sub -un it o f an o rgan isa tion is know n as a C os t C entre , if cos t can beasce rta ined fo r it. In o rder to recove r the cos t incurred by a Cost C entre , it is necessa ry toexp ress it as the cos t o f ou tpu t. T he un it o f ou tpu t in re la tion to wh ich cos t in cu rred by a CostC en tre is exp ressed is ca lled a C ost U nit.(ii) C os t C en tre and P ro fit C en tre

A C os t C en tre is the sm alle s t segm en t o f ac tiv ity or the a rea o f respons ib ility fo r w hichcos ts a re accum ula ted. A P ro fit C en tre is tha t segm en t o f ac tiv ity o f a bus iness w h ich isrespons ib le fo r bo th revenue and expenses and d isc loses the pro fit o f a particu la r segm en t o fact iv ity.

Im po rtan t po in ts o f d is tin c tion be tw een C ost C entre and P rofit C en tre a re as be low :(a ) C ost C entres a re c rea ted fo r accounting conven ience of cos ts and the ir con tro l.

W h ere as a p ro fit ce ntre is c rea te d b eca us e of d ece ntra lisa tio n of op eration s.(b ) A Cost C en tre does no t have ta rge t cos ts bu t e ffo rts a re m ade to m in im ise cos ts ,

bu t each p ro fit cen tre has a p ro fit ta rge t and en joys au thority to adop t such po lic ie sa s a re n ece ssa ry to a ch ie ve its ta rg ets .

(iii) B ill o f M ateria l and M ateria l R equ is ition N oteBil l o f Material : It is a com prehens ive I is t o f m a teria ls w ith exac t descrip tion and

spec ifica tions , requ ired fo r a job o r o the r p roduc tion un its . Th is a lso prov ides in fo rm ationabou t requ ired quantitie s so that if the re is any dev ia tion from the s tanda rds , it can eas ily bede tec ted . It is p repa red by the E ng ineering or P lann ing D epa rtm en t in a s tandard fo rm .

M a te ria l re qu is itio n N ote : It is a fo rm a l w ritten dem and o r reques t, usua lly from theproduc tion departm en t to s to re fo r the supp ly o f spec ified m ate ria ls , s to res e tc . It au tho risesthe s to rekeepe r to is sue the requ is itioned m ateria ls and reco rd the sam e on b in ca rd .

The purpose o f b ill o f m a te ria l is to ac t as a s ing le au tho risa tion fo r the issue o f a llm a te ria ls and s to res item s m en tioned in it. It p rov ides an advance in tim a tion to s to redepa rtm en t abou t the requ irem en ts of m ate ria ls . It reduces pape r w ork . It se rves as a w orko rde r to the p roduc tion departm en t and a docum en t for com puting the cos t o f m ate ria l fo r apa rticu la r jo b o r w ork o rd er to th e co st d ep artm en t.

The pu rpose o f m ate ria l requ is ition no te is to d raw m ate ria l from the s tore by conce rneddepar tments .


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Q uestion 4(a ) M a tc h th e fo llo w in g

(i) T o ta l fixed cost 1 . W ha t cost shou ld be?(ii) To ta l v a riab le cost 2 . Incurred cos t( iii) Un it va riab le cost 3 . I nc rease in p ropo rtion to ou tpu t( iv ) U n it fixed cost 4 . C ost o f convers ion(v) Standard cos t 5 . Wha t costs are e xpected to be(v i) Period cost 6 . Decreases w ith r ise in o utpu t(v ii) Actua l cost 7 . R ema ins constant in to ta l(v iii) Labou r and ove rhead 8 . R ema ins constant pe r un it( ix ) Incremen ta l cos t 9 . C ost n o t ass igned to products(x) Budgeted cost 10 . Added va lue o f a n ew p ro d uc t.

(b ) Ind ica te w he the r the fo llow ing sta tem en ts a re T rue or F alse :(i) A ll cos ts are con tro llab le .(ii) C onve rs ion cos t is equal to d irect wages p lus fac tory ove rhead .(iii) V ariab le cost pe r un it va ries w ith the increase or decrease in the vo lum e o f output .(iv ) D ep rec ia tion is an ou t o f p oc ke t c os t.(v ) An item o f cost tha t is d irec t fo r one bus iness m ay be ind irec t fo r ano ther(v i) F ixed cost pe r un it rem ains fixed .

Answe r(a) C orrec t m atch ings are ind icated as be low :

(i) ----------- (7 )T ota l fixed cost, rem ains cons tan t in to ta l.(ii) -----------(3 )T ota l v aria ble c ost, in cre as es in p ro po rtio n to o utp ut.(iii) ----------(8 )U nit variab le cost, rem ains constan t per un it.(iv ) ----------(6 )U nit fixed cost, decreases w ith rise in ou tpu t.(v ) -----------(1 )S tandard cost, w hat cost shou ld be .


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1.6 Cost Accounting

(v i) -----------(9 )P eriod cos t, cost not ass igned to products.( vii) - -- -- -- -- -- (2 )A ctu al c ost, in cu rre d co st.( vi ii ) - -- -- -- -- -- (4 )L ab ou r a nd o ve rh ea d, co st o f co nv ersio n.(ix ) ------------(1 0)Increm enta l cost, added va lue of a new product.(x ) ------------- (5 )B udgeted cos t, w hat cos ts are expec ted to be.

(b ) (i) Fa lse(ii) T rue(ii i) Fa lse(iv ) Fa lse(v ) T rue(v i) Fa lse

Q uestion 5L is t do wn a ny e ig ht fa cto rs th at yo u w ill co ns id er b efo re in sta llin g a c o stin g s ys tem .Answe r

The e igh t fac tors w hich m ust be considered before insta lling a C osting Sys tem are listedbe low:(i ) Nature of bus iness: The system of costing to be in troduced shou ld su it the genera l natu re

o f b u si ne s s.(ii) L a yo u t a s pe c ts : The size and layout o f the organ isation shou ld be stud ied by the sys tem

designers.(iii) M ethods and procedu res in vogue : The system designers should a lso s tudy variousm ethods and procedures for the purchase , rece ip ts , storage and issue of m ateria l. They

shou ld a lso study the m ethods of w age paym ent.(iv) Ma na gem en t's e xp ec ta tio ns a nd p olic ie s: The sys tem of costing shou ld be des igned afte r

a care fu l ana lysis o f the organ isationa l operations , m anagem ent's expecta tion and thep olic ie s o f th e co nc ern .

(v ) Te ch n ic a l a s pe c ts : The techn ica l aspects of the bus iness shou ld be s tud ied thorough lyby the designers. They shou ld a lso m ake an attem pt to seek the ass istance and supporto f the superv isory s ta ff and w orkers of the concern for the system .


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(v i) Simpl ici ty o f th e s ys te m: The sys tem of cos ting to be ins ta lled shou ld be easy tounde rs tand and s im ple to opera te . The p rocedu res la id dow n for ope ra ting the sys temsh ou ld be e as ily u nd ers to od b y o pe ra tin g sys te m.

(vii) Fo rm s s ta n da rd is a tio n : Various form s to be used by the cos ting sys tem fo r va riousda ta /in fo rm atio n c olle ctio n a nd d isse min atio n sh ou ld b e s ta nda rd ise d a s far a s p oss ib le .

(viii) Accuracy o f data: The deg ree o f accu racy o f da ta to be supp lied by the sys tem shou ld bedetermined.

Q uestion 6Ou tlin e th e s te ps in vo lv ed in in sta llin g a co sting syste m in a m an ufa ctu rin g u nit. W h at a re

t he essen tia ls o f a n e ffe ctiv e c os tin g s ys tem ?Answe r

The m ain s teps invo lved in ins ta lling a cos ting sys tem in a m anu fac tu ring un it m ay beo utlin ed a s b elo w :(i) The ob jec tives o f in s ta lling a cos ting sys tem in a m anu fac tu ring conce rn and the

expec ta tions o f the m anagem en t from such a sys tem shou ld be iden tified firs t. T hesys tem w ill be a s im ple one in the case o f a s ing le ob jec tive bu t w ill be an e labo ra te onein th e c as e o f m u ltip le o bje ctiv es .

(ii) It is im po rtan t to ascerta in the s ign ifican t variab les o f the m anufac tu r ing un it w hich aream enab le to con tro l and a ffec t the conce rn . F or exam ple , qu ite often the p roduc tion cos tscon tro l m ay be m ore im po rtan t than con tro l o f its m arke ting cos t. U nde r such a s itua tion ,the co stin g sy ste m sh ou ld d ev ote gre ate r a tten tion to c on tro l p ro duc tio n co sts .

(iii) A tho rough s tudy to know abou t the natu re o f bus iness , its techn ica l aspec ts ; p roduc ts ,m ethods and stages o f p roduc tion shou ld a lso be m ade . Such a s tudy w ill fac ilita te inse le ctin g a p ro pe r m eth od o f co stin g fo r m anu fa ctu rin g u nit.

(iv ) A s tudy o f the organ isa tion s truc tu re , its s ize and layou t e tc ., is a lso necessa ry . Th is isu se fu l to m an age me nt to de te rm in e th e sco pe o f re sp on sib ilitie s o f va rio us m an ag ers .

(v ) The cos ting sys tem shou ld be evo lved in consu lta tion w ith the s ta ff and shou ld bein troduced on ly a fte r m ee ting the ir ob jec tions and doub ts , if any . T he co -ope ra tion o fs ta ff is e sse ntia l fo r th e s uc ce ss fu l o pe ra tio n of th e sys te m.

(v i) D eta ils o f reco rds to be m ain ta ined by the cos ting sys tem shou ld be ca re fu lly w orked ou t.The deg ree of accuracy o f the da ta to be supp lied by the sys tem shou ld be de te rm ined.

(v ii) The fo rm s to be used by fo rem an , w orke rs , e tc ., shou ld be s tanda rd ised . T hese fo rm s besu itab ly des igned and m ust ensu re m in im um cle rica l w ork a t a ll s tages .

(v iii) N ecessa ry a rrangem ents shou ld be m ade fo r the flow o f in fo rm a tion /da ta to a llc on ce rn ed m a na ge rs , a t d iffe re nt le ve ls , re gu la rly a nd p ro m ptly .

(ix ) R econc ilia tion o f cos ts and financ ia l accoun ts be ca rried ou t regu la rly , if they a rema in ta in e d s e pa ra te ly .


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1.8 Cost Accounting

(x ) The costing system to be ins ta lled shou ld be easy to unde rs tand and s im ple to ope rate .Essent ia l of a n e ffe ctiv e c os tin g s ys te m: T he e sse ntia l fea tu res th at an effe ctive co stin g

syste m sh ou ld p ossess are a s fo llo ws:(a) C osting sys tem shou ld be ta ilo r m ade, prac tica l, s im p le and capab le of m eeting the

re qu ire me nts o f a b us in es s c on ce rn .(b ) The m ethod of cos ting shou ld be su itab le to the indus try .(c ) N ecessary co -opera tion and pa rtic ipa tion of execu tives from various departm en ts of the

co ncern is e sse ntia l fo r deve lop ing g ood cos t a cco un tin g sys te m.(d) The cost o f in sta lling and ope rating the sys tem shou ld jus tify the resu lts.(e ) The sys tem o f cos ting shou ld not sacrifice the u tility by in troducing m e ticu lous andu n ne ce ss ar y d e ta il s.Q uestion 7D is tin gu is h b etw e en th e fo llo w in g?Con tro llab le costs and uncon tro llab le costs . (M ay, 19 97 , 4 marks )Answe rC o ntro lla ble c os ts a nd u nc on tr olla ble c os ts :

C osts w hich can be in fluenced by the ac tion of a spec ified person in an o rgan isa tion a reknow n as contro llab le cos ts. C os ts w hich rem ains unaffec ted by the ac tion of such pe rson arete rm ed as uncontro llab le . In a bus iness o rgan isa tion heads of each respons ib ility cen tre arerespons ib le to con tro l costs . C os ts w hich they are ab le to contro l a re know n as contro llab leand inc ludes m ateria l, labour and d irec t expenses . C osts wh ich they fa il to con tro l inc ludesfixed co sts a nd a ll a llocate d co sts .

It m ay be no ted that con tro llab le and uncontro llab le cos t concepts a re re la ted to theau thority o f a pe rson in the organ isation . An expend itu re w hich m ay be uncon tro llab le by oneperson m ay be con tro llab le by anothe r. M oreove r, in the long run a ll cos ts m igh t becontrol lable.Q uestion 8(a ) D es crib e b rie fly th e ro le o f th e co st a cc ou nta nt in a manu fa c tu r in g o rgan is a tio n .(b ) D is tin gu ish b etw een :

(i) Variab le cost and d irect cost( ii) E stim ated cost and standard cost.

Answe r(a ) Cost accountan t in a m anufac tu ring organ isa tion p lays severa l im portan t ro les . H e

estab lishes a C ost A ccounting depa rtm ent in h is conce rn . H e ascerta ins the requ irem en to f cost in fo rm ation w hich m ay be use fu l to organ isa tiona l m ange rs at d iffe ren t le ve ls o f


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the h ie ra rchy . H e deve lops a m anual, w hich spec ifies the func tions to be pe rfo rm ed by theC ost A ccoun ting departm en t. T he m anua l a lso con ta ins the fo rm at o f va rious fo rm s w hichw ou ld be u tilised by the conce rn fo r p rocu ring and p rov id ing in fo rm ation to the conce rnedo ffice rs . It a lso spec ifie s the frequency a t w hich the cos t in fo rm ation w ou ld be supp lied toa c on ce rn ed e xe cu tiv e.U sua lly , the func tions pe rform ed by a C ost A ccoun ting departm en t in c ludes cos ta sc erta in m en t, c os t c om p aris on , c os t re du ctio n, c os t c on tro l a nd c os t re po rtin g.C ost as ce rta in me nt, re qu ire s the c la ss ifica tion o f co sts in to d ire ct a nd ind ire ct. F urth er itrequ ires c lass ifica tion o f ind irec t cos ts (know n as ove rheads) in to th ree c lasses v iz ,fa cto ry o ve rh ea ds ; a dm in is tra tio n o ve rh ea ds an d se llin g a nd d is tr ib utio n o ve rh ea d. C os taccountan t sugges ts the bas is wh ich m ay be used by h is subo rd ina tes fo r ca rry ing ou tth e n ec es sa ry c la ss ific atio ns a s s ug ge ste d a bo ve .C ost com parison is the task ca rried ou t by C ost A ccoun tan t fo r con tro lling the cos t o f thep roduc ts m anufac tu red by the conce rn . C ost A ccoun tan t o f the conce rn es tab lishess tanda rds fo r a ll the e lem en ts of cos t and thus a s tanda rd cos t o f the fin ished p roduc t.The s tanda rd cos t so de te rm ined m ay be com pared w ith the ac tua l cos t to de te rm ine theva ria nce s. C ost A cco unta nt as ce rta in s th e re as on s fo r th e o cc urre nce o f th ese v aria nce sfo r ta kin g s uita ble a ctio n.C ost ana lys is m ay a lso be m ade by C ost A ccoun tan t fo r tak ing dec is ions like m ake o r bya nd fo r re vie win g th e c urre nt p erfo rm a nc e.C ost A cc ou nta nt a lso su gg es ts s uita ble te ch niq ue s fo r th e p urp ose of c os t re du ctio n/co stc on tro l, a fte r c arry in g o ut a c os t b en efit a na ly sis .C os t A ccoun tan t a lso p lays a key ro le in the prepa ra tion o f C ost repo rts . These repo rtshe lp the execu tives o f a bus iness conce rn in rev iew ing the ir ow n pe rfo rm ance and iniden tify ing the w eak a reas , w he re enough con tro l m easu re m ay be taken in fu tu re .In b rie f, one m ay say tha t the re is ha rd ly any ac tiv ity in a m anu fac tu r ing o rgan isa tion w ithw hich a C ost A ccoun tan t is no t d irec tly assoc ia ted in som e form or the o ther.

(b ) ( i) V ariab le and d irec t cos t:A va riab le cos t is a cos t tha t changes in to ta l in d irec t p ropo rtion to changes in there la ted to ta l ac tiv ity o r vo lum e. C ost o f m ateria l is an exam ple o f variab le cos t.D irec t cos t is a cos t w hich can be iden tified e ithe r w ith a cos t cen tre or w ith a cos t un it.A n exam ple o f d irec t cos t is the a lloca tion o f d irec t m ate ria ls to a departm en t and then tothe va rious jobs . A ll va riab le cos ts a re d irec t-bu t each d irec t cos t m ay no t be va riab le .( ii) E stim ated cost and standard cost:K oh le r d efin es e stim ate d co sts a s 'th e ex pe cte d c os t o f m an ufa ctu re or a cq uis itio n, o ftenin te rm s o f a un it o f p roduc t com puted on the bas is o f in fo rm ation ava ilab le in advance o fac tua l p roduc tion o r pu rchase ' E stim ated cos t are p rospec tive cos ts s ince they re fe r top re dic tio n o f c os ts .


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1.10 Cost Accounting

S tanda rd C ost m eans a p re -de te rm ined cos t. It a ttem pts to show w hat the cos t shou ld befo r c le arly d efin ed c on dition s a nd c ircu msta nce s. S ta nd ard c os ts re pre se nt' p lan ne d co sto f a p roduc t. They a re expec ted to be ach ieved unde r a pa rticu la r p roduc tion processu n de r n o rma l c o nd it io n s.'A lthough pre -de te rm ina tion is the essence o f bo th s tanda rd cos ts and es tim ated cos ts ,b ut the y d iffe r fro m e ach o the r in th e fo llo win g re sp ec ts :( i) D iffe rence in com puta tion(ii) D iffe rence in em phas is( iii) D iffe rence in use(iv ) D iffe rence in reco rds(v ) A pp lic ab ility

Q uestion 9Enum era te the m ain ob jectives o f int roduct ion o f a Cost A ccoun ting System in a

manu factu ring o rganisa tion . (N ov, 2002, 3 marks )Answe r

The m ain ob jec tives o f in troduc tion o f a Cos t A ccoun ting Sys tem in a m anu fac tu ringo rg an iz atio n a re a s fo llo ws :(i) A sce rta inm en t o f cos t(ii) D ete rm ination o f se lling p rice(iii) C os t con tro l and cos t reduc tion(iv ) A sce rta inm en t o f p ro fit o f e ach a ctiv ity(v ) A ss is ting in m anage ria l dec is ion m ak ingQ ue stio n 10W rite sho rt no tes on any tw o of th e f ol low ing?(i) C onvers ion cos t ( ii) S unk cos t (iii) O pportun ity cos t (M a y, 2 00 3, 4 marks )Answe r(i) C onvers ion cost:

I t is the cos t in cu rred to conve rt raw m ate ria ls in to fin ished goods. I t is the sum o f d irec tw ag es , d ire ct e xp en se s a nd m a nu fa ctu rin g o ve rh ea ds .

(ii) Sunk cost:H is to r ica l cos ts o r the cos ts in cu rred in the pas t a re know n as sunk cos t. T hey p lay noro le in the cu rren t dec is ion m ak ing p rocess and a re te rm ed as irre levan t cos ts . F or


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exam ple , in the case o f a dec is ion re la ting to the rep lacem en t o f a m ach ine , the w rittendow n va lue o f the ex is ting m ach ine is a sunk cos t, and there fore , no t cons ide red.

(iii) O pp ortu nity c os t:It re fe rs to the va lue of sac rifice m ade o r bene fit o f oppo rtun ity fo regone in accep ting ana lte rna tive cou rse o f ac tion . F or exam p le , a firm financ ing its expans ion p lan byw ithd raw ing m oney from its bank depos its . In such a case the loss o f in te res t on the bankde po sit is th e op po rtu nity co st fo r c arry in g o ut th e e xp an sio n p la n.

Q ue stio n 11W rite sho rt no tes on Cost C entre (M ay 19 95 , 4 marks )Answe r

C o st C e ntre : It is de fined as a loca tion , pe rson o r an item o f equ ipm ent o r a g roup o fthese fo r w hich cos ts a re asce rta ined and used fo r cos t con tro l. C os t cen tres a re o f tw o typesv iz , im p ers on al a nd p ers on al.

A cos t cen tre w hich cons is ts o f a loca tion o r an item of equ ipm en t o r a g roup o f these isca lled an im pe rsona l cos t cen tre . A cos t cen tre w h ich cons is ts of a pe rson o r a group o fpe rson is know n as a persona l cos t cen tre .

In a m anu fac tu r ing conce rn the re a re tw o type of cos t cen tres v iz ., p roduc tion andse rv ice . P roduc tion cos t cen tres a re those w he re produc tion ac tiv ity is ac tua lly ca rr ied ou tw he reas se rv ice cos t cen tres a re those sec tions w hich a re anc illa ry and rende r se rv ice top ro du ctio n c os t c en tr es .Q ue stio n 12Nam e the va rious repo rts (E labora tion not needed) tha t m ay be prov ided by the C ostA c co u ntin g D e p ar tm e n t of a b ig m anufactu ring com pany fo r the use o f it s e xecu ti ve s .

(May , 19 98 , 5 marks )Answe rVarious repo rts tha t m ay be p rov ided by the Cost A ccoun ting Depa rtm ent o f a b igm anu fac tu r ing C om pany fo r the use o f its execu tives a re as under:(i) C os t Shee ts(ii) S ta te men ts o f m ate ria l co nsu mp tio n(iii) S ta te m en ts o f la bo ur u tilis atio n(iv ) O ve rheads incu rred com pared w ith budge ts(v ) Sa les e ffec ted com pared w ith budge ts(v i) R eco nc ilia tion o f a ctu al p ro fit w ith es tim ate d p ro fit(v ii) T he to ta l co st o f in ve nto ry ca rr ie d


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(v iii) The to ta l cos t o f abnorm ally spo iled w ork in fac tory and abnorm al losses in s tores(ix ) L ab our tu rno ver s ta tem ents(x ) E xpenses incurred on resea rch and deve lopm ent com pared w ith budge ted am ounts .Q ue stio n 13

S ta te the un it o f co st a nd m eth od o f co stin g g en era lly u se d fo r a cco un tin g p urp ose in th efo llow in g c a se s :(i) B rick-works (ii) B i-cyc le(iii) O il re fin ing m ill and (iv ) R oad transpo rt com pany

(Nov , 19 97 , 2 marks )Answe rIndust ry /Product(i) B rick - w orks(ii) B i-cyc le(iii) O il re fin ing m ill(iv ) R oad transport com panyQ ue stio n 14

Wh at is m ea nt b y P ro fit C en tre ?

Uni t o f cost1 ,0 0 0 b ric ksEa ch b ic yc lePer-TonnePer- tonne-km

Method of Cost ingS in gle o r o utp utMult ip leProcessOperat ing

(Nov , 1997,4 marks )Answe r

P r ofit C e n tr e: It is de fined as an activ ity cen tre o f a bus iness o rgan isa tion . C hie f o f sucha cen tre is fu lly respons ib le fo r a ll costs , revenues and profitab ility o f its operation . The m ainob jec tive of p ro fit cen tre is to m ax im ise the cen tre 's p ro fit. C re ation o f p ro fit ce ntre s fac il ita tesm ana ge ment co ntro l a nd im plem en ta tion of the ob jec tives of respo ns ib ility a cco un ting . A pro fitcen tre m ay have a num be r of cost cen tres .Q ue stio n 15

What is mean t b y cost centre? (M ay, 1997, Nov. ,2002, 4 marks )Answe rC o st C e ntre

It is the sm alle st a rea of respons ib ility or segm en t of ac tiv ity fo r w h ich cos ts a reaccum u la ted . It can be de fined as a location ; pe rson or an item of equ ipm ent or a group ofthese for w hich cos ts are asce rta ined and used fo r the pu rpose of cos t con tro l. C os t cen tresare of tw o typ es v iz .. , p erso na l and im perso na l.

P ersona l cos t cen tre : It is a cos t cen tre w hich cons is ts of a person or a group o f persons .


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Im pe rsona l cos t cen tre : It is a cos t cen tre wh ich cons is ts o f a location or an item ofequ ipm en t or a group o f these .

In a m anu factu ring conce rn the re a re tw o types o f cos t cen tres v iz ., p roduc tion ands erv ic e c os t c en tr es .Q ue stio n 16

H ow does a p ro du ctio n a cc ou nt d iffe r fro m a cost s hee t (M ay, 2000 , 3 marks )Answe r

T he fo l/o win g a re th e p oin ts o f d iffe re n ce b e tw e e n a p ro du ctio n a cc ou nt a nd a c o st s h ee t.(i) P roduc tion Account is based on doub le en try sys tem whe reas cost sheet is no t based ond ou ble e ntry s ys te m.(ii) P roduc tion Account cons is ts o f tw o parts . The firs t part show s cos t o f the com ponent and

to ta l p roduc tion cos t. The second part shows the cos t o f sa les and pro fit fo r the period .C ost Shee t presents the e lem ents of cos ts in a c lass ified m anner and the cos tascerta ined at d iffe ren t s ta tes such as prim e cos t; w orks cos t; cost o f p roduc tion ; cos t o fgoods so ld ; cos t o f sa les and to ta l cos t.

(iii) P roduc tion Account show s the cos t in aggrega te and thus fac ilita tes com parison w ithothe r financ ia l accounts . C ost shee t show s the cos t in a deta iled and ana ly tica l m annerw hich fa cilita tes co mparison of cos t for th e p urp ose of cos t con tro l.

(iv ) P roduc tion A ccoun t is no t use fu l fo r p reparing tenders or quota tions . Es tim ated cos tshee ts can be p repared on the bas is of ac tua l cos t shee ts and these are use fu l fo rp re pa rin g te nd ers o r q uo ta tio ns .

Q ue stio n 17D is cu ss co st c la ss ifica tio n b ase d o n va riab ility a nd co ntro l/a bility . (N ov, 2 004 , 4 marks )

Answe rC o st c la ss ific atio n b as ed o n v aria bility

F ixed cost - These a re cos ts , w hich do not change in to ta l desp ite changes of a cos t drive r. Afixed cost is fixed on ly in re la tion to a g iven re levan t range o f the cos t drive r and a g iven tim espan. R ent, insurance , dep rec ia tion of fac tory bu ild ing and equ ipm ent are exam ples of fixedcos ts w here the fina l p roduc t p roduced is the cost ob jec t.V aria ble co sts - These are cos ts w hich change in to ta l in p roportion to changes o f cos t dr ive r.D irec t m ateria l, d irec t labou r are exam ples of variab le cos ts , in cases w here the fina l p roduc tp ro duce d is the cos t o bje ct.S em i-va riab le costs - These are partly fixed and partly variab le in re la tion to ou tpu t e .g .te le ph on e a nd e le ctr ic ity b ill.C o st c la ss ific atio n b as ed o n c on tro lla bility


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C on tro llab le co sts - Are incu rred in a particu la r responsib ility cen te r and re la te to a de finedtim e span. They can be in fluenced by the action o f the executive heading the responsib ilityc en te r e .g . d ire ct c os ts .U nco ntro llab le co sts - Are costs are in fluenced by the action of the responsib ility cen term anager e.g . expenditu re incu rred by the tool room are con tro llab le by the fo rem an in chargeof tha t section , bu t the share o f tool room expend itu re wh ich are apportioned to the m achineshop are no t contro llab le by m ach ine shop forem an.Q ue stio n 18

D is cu ss th e e ss en tia l of a good cost accoun ting system ? (M ay, 2004 , 2 marks )Answe r

E ssen tia ls o f a good cost accou nting syste m: It should be ta ilor-made, p ractica l, s im p le and capab le o f m ee ting the requ irem en ts of a

b us in es s c on ce rn . The data used by the system should be accurate , othe rw ise it may dis tort the ou tput o f

system. Cost of insta ll ing & ope ratin g the syste m sh ou ld justify th e re su lts . Cost accounting system shou ld have the support o f top m anagem ent o f the conce rn . The sys tem shou ld have the necessary support from a ll the use r's departm ents.Q ue stio n 19Expla in :(i) S unk C osts(ii) P re -p roduction C osts(iii) R esea rch and D eve lopm en t C osts(iv ) T ra in ing Costs (Nov, 2000 , 2 x 4 = 8 marks )Answe r(i ) S un k C os ts : These are h is to rica l costs wh ich are incurred in the past. These costs were

incurred fo r a decis ion m ade in the past and cannot be changed by any decis ion tha t w illbe made in fu ture. In o ther words, these costs p lays no ro le in decis ion making , in thecurren t pe riod . W hile conside ring the rep lacem ent of a p lant, the dep rec iated book va lueof the o ld p lan t is irre levan t, as the am ount is a sunk cost which is to be w ritten o ff a t thetim e o f re pla cem en t.

(ii) P re -p ro du ctio n C os ts : These costs fo rm s the part of deve lopm en t cost, incurred inm aking a tria l produc tion run , p re lim inary to fo rm al p roduction. These costs are incurredwhen a new facto ry is in the p rocess o f estab lishment o r a new project is undertaken or anew product line or p roduct is taken up , bu t the re is no estab lished or form al p roduction


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to w h ich such costs m ay be charged . These costs are no rm ally treated as defe rredrevenue expenditu re (except the portion w hich has been cap ita lised ) and charged to thec os ts o f fu tu re p ro du ctio n.

(iii) Research and Deve lopmen t C os ts : Research cos ts are the cos ts incurred for thed iscove ry o f new ideas o r p rocesses by experim ent or o therw ise and for us ing the resu ltso f such experim en ta tion on a com merc ia l bas is . R esea rch costs are defined as the cos tsof search ing for new or im proved produc ts , new app lica tions o f m ate ria ls , o r im provedm e th od s, p ro ce ss es, s ys te m s o r s erv ic es.D eve lopm en t cos ts , a re the cos ts of the p rocess w hich beg ins w ith the im plem enta tion o fthe dec is ion to p roduce a new or im proved p roduc t or to em p loy a new or im provedm ethod and ends w ith the com mencem en t of form al p roduction of that p roduct by tha tme thod .

(iv) T ra in in g C os ts : These cos ts com prises of - w ages and sa larie s of the tra inees o rlearners, pay and allow ances o f the tra in ing and teach ing s ta ff, paym en t of fees e tc, fo rtra in ing o r for a ttend ing courses of s tud ies sponso red by ou ts ide agenc ies and cos t o fm ate ria ls , too ls an d eq uipm ents u sed for tra in in g. C osts incurred for run nin g the tra in ingdepartm ent, the losses a ris ing due to the in itia l low er produc tion , ex tra spo ilage e tc .o cc urin g w hile p ro vid in g tra in in g fa cilitie s to th e n ew re cru its .A ll these cos ts are booked under separa te s tand ing order num bers fo r the variousfunc tions . U sua lly the re is a serv ice cost cen tre , know n as the T ra in ing S ection , to w hicha ll the tra in ing cos ts are a lloca ted. The to ta l cos t o f tra in ing sec tion is thereafte ra pp ortio ne d to p ro du ctio n c en te rs .

Q ue stio n 2 0Enum era te the facto rs w hich a re to be cons ide red be fore ins ta lling a system of cost

a cc ou ntin g in a manu factu ring o rgan iza tion . (N ov, 19 99 , 5 marks )Answe r

Facto rs wh ich are to be cons ide red before ins ta lling a sys tem of cost accoun ting in am a nu fa ctu rin g o rg an iz atio n a re :(i) The ob jec tives of in s ta lling a sys tem o f cos t accounting shou ld be de fined , tha t is

w he ther the sys tem is m ean t fo r con tro l o f cos t o r for p rice fixa tion(ii) The organ ization o f the com pany shou ld be s tud ied to unde rs tand the au thority and

r es po ns ib ilitie s o f th e m a na ge rs .(iii) T he te ch nica l a spec ts an d flow process sh ou ld b e ta ken in to co ns id era tio n.(iv ) The p roduc ts to be m anufac tu red shou ld be s tud ied.(v ) The m arke ting se t up to be looked in to fo r dev is ing su itab le con tro l reports .(v i) The poss ib ility o f in tegra ting cos t accoun ting sys tem w ith financ ia l accounting sys tem

s ho uld b e e xa m in ed .


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(v ii) The p rocedu re fo r co lle c tion and ve rifica tion of re liab ility o f the in fo rm ation shou ld bes tud ied.

(v iii) The deg ree o f de ta ils o f in form ation requ ired a t each leve l o f m anagem en t shou ld beexamined .

(ix ) The m ax im um am oun t of in form ation that w ou ld be suffic ien t and how the sam e shou ldb e se cu re d w ith ou t to o m uch c le rica l la bo ur, e sp ec ia lly th e po ss ib ility o f co lle ction o f d ataon a separa te p rin ted fo rm des igned fo r each p rocess ; a lso the poss ib ility o f ins truc tionas rega rds filling up o f the fo rm s in w riting to ensu re tha t these w ou ld be fa ith fu lly carriedout .

(x ) H ow the accu racy of the data co llec ted can be ve rified? W ho shou ld be m aderespons ib le fo r m ak ing such ve rifica tion w ith rega rd to each ope ration and the fo rm o fc ertific ation th at s ho uld b e g ive n in dic ate ve rifica tio n tha t h e ha s c arried o ut.

(x i) The m anner in wh ich the bene fits o f in troduc ing C ost A ccoun ting cou ld be exp la ined tova rious pe rsons in the conce rn , spec ia lly those incharge o f p roduc tion depa rtm en t andan awareness c rea ted fo r the necess ity o f p rom ptitude , frequency and regu la rity inc olle ctio n o f c os tin g d ata .

Q ue stio n 2 1You have been asked to ins ta ll a costing system in a m anu factu ring com pany. W ha t

p rac tica l d ifficu lties w ill you expect and how w ill you p ropose to ove rcom e the sam e?(M a y, 2 00 4, 4 marks )

Answe rThe p rac tica l d ifficu ltie s w ith w hich a C os t A ccoun tan t is usua lly con fron ted w ith w hile

in sta lling a co stin g s ys te m in a m anu fa ctu ring co mp any a re as fo llow s:(i ) Lack o f to p m an ag em en t su pp ort: In s ta lla tion o f a cos ting sys tem do no t rece ive the

suppo rt o f top m anagem en t. T hey cons ide r it as an in te rfe rence in the ir w o rk . Theybe lie ve tha t such , a sys tem w ill in vo lve additiona l paperwo rk . They a lso have am isconcep t in the ir m inds tha t the sys tem is m ean t fo r keep ing a check on the ir ac tiv itie s .

(ii) R esis ta nce fro m co st a cco un tin g de pa rtm en ta l s ta ff: The sta ff re s is ts because o f fear o flo os in g th eir jo bs a nd im porta nc e a fte r the im ple me nta tion of the n ew sys te m.

(iii) N on coopera tion from user depa rtm ents : The fo rem en , supe rv iso r and o the r s ta ffm em be rs m ay no t coope ra te in prov id ing requ is ite data , as th is w ou ld no t on ly add tothe ir respons ib ilitie s bu t w ill a lso inc rease pape r w ork o f the en tire team as w ell.

( iv) Shortage of t ra in ed s ta ff : S in ce c os t a cc ou ntin g s ys te m 's in sta lla tio n in vo lv es s pe cia lis edw ork , the re m ay be a sho rtage o f tra ined s ta ff.

T o o ve rc om e th es e p ra ctic al d iffic ultie s, n ec es sa ry s te ps re qu ire d a re : To se ll the idea to top m anagem en t - To conv ince them o f the u tility o f the sys tem .


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R es istance and non coopera tion can be ove rcom e by behav iora l app roach . To dea l w ithth e s ta ff c on ce rn ed e ffe ctiv ely .

P roper tra in ing shou ld be g iven to the s ta ff a t each leve l R egu lar m ee tings shou ld be he ld w ith the cos t accoun ting sta ff, user departm ents , s ta ff

and to p m ana ge men t to c la rify the ir do ub ts / m isg iv ing s.Q ue stio n 2 2

D is tin g uis h b e tw e e n c o ntr olla b le & uncon tro llab le costs? (N ov, 2001, 2 marks )Answe r

C o ntr olla ble c os ts a nd U n co ntro lla ble c os ts :Contro llab le costs are the costs wh ich can be in fluenced by the ac tion o f a spec ified

m em be r of the und erta king . C ontro llab le co sts in curre d in a pa rticu lar re spon sib ility cen tre canbe in flue nced b y the a ctio n o f the exe cu tive hea din g that respo ns ib ility ce ntre .

U ncontro llab le cos ts a re the cos ts w hich canno t be in fluenced by the action o f a spec ifiedm em be r o f a n u nd erta kin g.Q ue stio n 2 3

Define Exp lic it cos ts . H ow is it d iffe rent from im plic it costs? (M ay, 2001 , 2 marks )Answe r

E xplic it c o sts : These cos ts a re a lso known as out o f pocke t cos ts. They re fe r to thosecos ts w hich invo lves im med ia te paym ent of cash . Sa la rie s, w ages, pos tage and te legram ,in te res t on loan etc . a re som e exam ples o f exp lic it cos ts because they invo lve im media te cashpaym ent. These paym ents are reco rded in the books of account and can be easily m easured.

Ma in p o in ts of di f ference: T he fo llow in g a re the m ain po in ts o f d iffe rence betw ee n exp lic ita nd im p lic it c os ts .(i) Im plic it cos ts do not invo lve any im media te cash paym ent. As such they are a lso known

as im pu ted cos ts o r econom ic cos ts .(ii) Im p lic it cos ts are no t reco rded in the books of account bu t ye t, they are im po rtan t fo r

ce rta in types of m anageria l dec is ions such as equ ipm en t rep lacem ent and re la tivep ro fita bility o f tw o a lte rn ativ e c ou rs es o f a ctio n.

Q ue stio n 2 4(a ) Wh at a re th e e ss en tia ls o f a Cos t A ccoun ting System? (M ay, 1 99 6, (6 marks )(b ) N arra te the essentia l fac to rs to be cons ide red w hile des ign ing and insta lling a Cos t

A ccoun ting Sys tem . (M ay, 199 6, 10 marks )Answe r(a) E ssen tia ls o f a Good C os t A ccoun ting S ystem

The essentia l fea tu res of a good C ost A ccoun ting sys tem are as fo llow s:


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( i) T he C ost A ccoun ting Sys tem shou ld be ta ilo r m ade , p rac tica l, s im ple and capab leo f m eeting th e re qu irem en ts o f a b us in es s co nce rn .

( ii) T he m ethod of cos ting shou ld be su itab le to the indus try and se rve its ob jec tives .( iii) T he C osting Sys tem shou ld rece ive co -ope ra tion and partic ipa tion o f execu tives

fr om v ar io us d ep ar tm e nts .( iv ) T he cos t o f in s ta lling and ope ra ting the sys tem shou ld jus tify the resu lts .(v ) T he sys tem o f cos ting shou ld no t sacrifice the u tility by in troduc ing m eticu lous and

u n ne c es s ar y d e ta ils .(v i) T he sys tem shou ld cons ide r the o rgan isa tiona l s truc tu re of the bus iness and it

s ho uld b e de sig ne d a s a s ub -sys te m o f th e o ve ra ll o rg an isa tio n.(v ii) T here shou ld be a ha rm on ious re la tionsh ip be tw een cos ting and financ ia l accoun tsdepa rtm ents . U nnecessa ry dup lica tion shou ld be avo ided . A s ing le in teg ra teda cc ou ntin g sys tem m ay b e d es ign ed .

(v iii) T he sy stem sh ou ld p ro vid e a deq ua te ch ecks o n o rd erin g, re ce ip ts , s toc kin g, iss uin gand record ing of m ateria ls . T he p ric ing m ethod and the issue o f m ate ria ls shou ld beef f ic ient.

( ix ) T he cos ting sys tem shou ld ensu re p rope r reco rd ing of w o rke r's tim e and the irw ages. W ages shou ld be de te rm ined from w age analys is shee ts . P rope r a tten tionshou ld be paid in p repa ring payro lls and in the paym en t o f w ages. The treatm en t o fid le tim e, ov er-tim e a nd h olid ay-p ay sh ou ld n ot be o ve rlo ok ed .

(x ) T he cos t accoun ting sys tem shou ld ensure that ove rheads are co llec ted ,a cc um u la te d, a llo ca te d a nd a pp ortio ne d s uita bly .

(b ) E ssen tia l fac to rs fo r d es ign ing a cos t accou ntin g sys temThe essen tia l fac to rs to be cons ide red w hile des ign ing a C ost A ccoun ting Sys tem are asfo l lows:( i) A thorough unde rs tand ing o f - O rgan isationa l s truc tu re ; m anu fac tu r ing procedure ,

and process ; se lling and d is tr ibu tion p rocedu re ; and type of cos t in fo rm ationrequ i red.

( ii) S e lec tion o f a su itab le cos ting techn ique (S tanda rd or ac tua l, m a rg ina l o rabsorp t ion)( iii) P ric ing m ethod su itab le , fo r the m ate ria l, to be issued to p roduc tion .

( iv ) M ethod su itab le fo r book ing labou r cos t on jobs .(v ) A sound p lan shou ld be dev ised for the co lle c tion , a lloca tion , appo rtionm ent and

a bs or ptio n o f o ve rh ea ds .(v i) D ec id ing on w ays o f trea ting w as te , sc rap and id le tim e.(v ii) D es ign ing o f su itab le fo rm s to be used fo r co lle c ting and d issem ina tion o f C ost

data / in format ion .


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(v iii) In troduc tion o f budgeta ry con tro l techn ique so tha t ac tua l pe rfo rm ance m ay bec om p are d w ith b ud ge ta ry fig ure s, fo r m e as urin g e ffic ie nc y o r p erfo rm a nc e.

E s se n tia l fa c to rs fo r in s ta llin g a C os t A cc ou ntin g S ys te m.T he es se ntia l fa ctors fo r in sta llin g a C ost A cco unting S ys te m are lis te d a s b elo w:(i) The ob jec tives o f in s ta lling a Costing Sys tem and the expec ta tions o f the m anagem en t

from the sys tem shou ld be iden tified firs t. The sys tem w ill be a s im ple one in the case o fa s ing le ob jec tive bu t w ill be an e labo ra te one in the case o f m ultip le ob jec tives .

(ii) It is im po rtan t to ascerta in the s ign ifican t va riab les o f the m anu fac tu ring un it w hich a ream enab le to con tro l and a ffec t the conce rn . F or exam ple , qu ite often the p roduc tion cos tscon tro l m ay be m ore im po rtan t than con tro l o f its m arke ting cos t. U nde r such a s itua tion ,the co stin g sy ste m sh ou ld d ev ote g re ate r a tte ntio n to co ntro l p ro duc tio n co st.

(iii) A tho rough s tudy o f the na tu re o f bus iness , its techn ica l aspec ts , p roduc ts , m ethods andstages o f p roduc tion shou ld be m ade . Th is w ill he lp in se lec ting a p roper m e thod o fcos t ing .

(iv ) A S tudy o f the organ isa tion s truc tu re , its s ize and layou t e tc ., is a lso necessa ry . T h is isu se fu l to m an age me nt to de te rm in e th e sco pe o f re sp on sib ilitie s o f va rio us m an ag ers .

(v ) The cos ting sys tem shou ld be evo lved in consu lta tion w ith the s ta ff and shou ld bein troduced on ly a fte r m ee ting the ir ob jec tions and doub ts , if any . T he co -ope ra tion o fs ta ff is e sse ntia l fo r th e s uc ce ss fu l o pe ra tio n of th e sys te m.

(v i) D eta ils o f the reco rds to be m ain ta ined by the cos ting sys tem shou ld be ca re fu lly w orkedou t. The deg ree o f accu racy o f the da ta to be supp lied by the sys tem shou ld bedetermined.

(v ii) The fo rm s to be used by fo rem an , w orke rs e tc ., shou ld be s tandard ised . These fo rm s besu itab ly des igned and m ust ensu re m in im um cle rica l w ork a t a ll s tages .

(v iii) N ecessa ry a rrangem ents shou ld be m ade fo r the flow of in fo rm a tion /da ta to a llc on ce rn ed m a na ge rs , a t d iffe re nt le ve ls , re gu la rly a nd p ro m ptly .

(ix ) R econc ilia tion o f cos ts and financ ia l accoun ts be ca rried ou t regu la rly , if they a rema in ta in e d s e pa ra te ly .

(x ) The cos ting sys tem to be ins ta lled shou ld be easy to unde rs tand and s im ple to ope ra te .Q ue stio n 2 5

Wh at a re th e m ain o bje ctiv es o f Cost Accoun ting? (M ay, 2 001 , 2 marks )Answe r

The m ain ob jec tives of C ost A ccoun ting a re as fo llow s:(i) A sce rta inm en t o f cos t.


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(ii) D ete rm ination o f se lling p rice .(iii) C os t con tro l and cos t reduc tion .(iv ) A sce rta inm en t o f p ro fit o f e ach a ctiv ity .(v ) A ss is ting m anagem en t in dec is ion m ak ing .Q ue stio n 2 6

E xpla in co ntro lla ble an d n on -co ntro llab le co sts w ith illu stra tio ns. (M ay, 2 00 1,2 m arks)Answe rC o ntro lla ble a nd n on -C on tro lla ble c os tsC on tro llab le cos ts : These a re the cos ts w hich can be in fluenced by the ac tion o f a spec ifiedp er so n in a n o rg an is atio n. I n every o rgan isa tion , the re a re a num be r o f depa rtm en ts w hich a reca lled respons ib ility cen tres , each unde r the charge o f a spec ified leve l o f m anagem en t. C os tsincu rred in these respons ib ility cen tres a re in fluenced by he action o f the incha rge o f therespons ib ility cen tre . Thus any cos t tha t an o rgan isationa l un it has the au tho rity to incur m ayb e id en tifie d a s c on tro lla ble c os t.N o n-c on tr olla ble c os ts : These a re the cos ts wh ich canno t be in fluenced by the ac tion o f aspec ified m em be r o f an unde rtak ing . Fo r exam ple , expend itu re incu rred by the 'Too l R oom ' iscon tro llab le by the Too l R oom M anage r bu t the sha re o f Too l R oom expenditu re , w h ich isappo rtioned to the M ach ine S hop canno t be con tro lled by the m anage r o f the M ach ine S hop.H ow eve r, th e d is tin ction be tw een co ntro llab le a nd n on -co ntro llab le co sts is n ot ve ry sh arp an dis som etim es le ft to ind iv idua l judgm ent to spec ify a cos t as con tro llab le o r non-con tro llab le inre la tio n to a p artic ula r in div id ua l m a na ge r.Q ue stio n 2 7

D is cu ss the fo ur d iffere nt m eth od s o f c os tin g a lo ng with th eir a pp lic ab ility to c on ce rn edindustry? (N ov, 19 99 , 4 marks )Answe r

F ou r d iffe re nt m eth od s o f co stin g a lo ng w ith th eir a pp lica bility to c onc ern ed in du stry h aveb ee n d is cu sse d as b elo w:1 . Job C osting : The ob jec tive unde r th is m ethod o f cos ting is to asce rta in the cos t o f each

job o rde r. A job ca rd is p repa red for each job to accum ula te cos ts . The cos t o f the job isde te rm ined by add ing a ll cos ts aga ins t the job it is in cu rred. Th is m ethod o f cos ting isu se d in p rin tin g pre ss , fo un drie s a nd ge ne ra l e ng ine erin g w orksh op s, a dve rtis in g e tc .

2 . Ba tch C os ting: T his sys tem o f cos ting is used w he re sm all com ponen ts /pa rts o f the sam ek ind a re requ ired to be m anu fac tu red in la rge quan titie s . H ere ba tch o f s im ila r p roduc ts is


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trea ted as a job and cos t o f such a job is ascerta ined as d iscussed unde r 1 , above . If in acyc le m anufac tu r ing un it, rim s are produced in batches of 2 ,50 0 un its each , then the cos tw ill be de te rm ined in re la tion to a ba tch of 2 ,50 0 un its .

3 . C ontract Costing: If a job is very b ig and takes a long tim e fo r its com ple tion , thenm ethod used for cos ting is know n as C on trac t C osting . H ere the cost o f each contrac t isascerta ined sepa rate ly . It is su itab le fo r firm s engaged in the cons truc tion of b ridges ,ro ad s, b uild in gs e tc .

4 . O perating Costing : The m e thod o f Costing used in service rende ring unde rtak ings isknown as ope rating cos ting . Th is m e thod o f cos ting is used in undertakings liketransp ort, su pp ly of w ate r, te leph on e se rv ices , ho sp ita ls , nursing h om es e tc.

Q ue stio n 2 8D is tin g uis h b e tw e e n:M a rg in al C os tin g a nd D iffe re ntia l C os tin g

Answe rM a rg in al C os tin g a nd D iffe re ntia l C os tin gM arg ina l C osting is de fined as the 'Ascerta inm en t o f m arg ina l cos ts and of the e ffec t on

pro fit o f changes in vo l um e or type of ou tpu t by d iffe ren tia ting be tw een fixed costs andv ar ia ble c os ts '.

D iffe ren tia l C osting is de fined as the techn ique o f cos ting w hich uses d iffe ren tia l cos tsan d/or d iffe ren tia l re venu es for asce rta in in g the accep ta bility o f an a lte rna tive . T he techn iqu em ay be term ed as increm enta l cos ting when the d iffe rence is in crease in cos ts anddecrem enta l cos ting w hen the d iffe rence is decrease in cos ts . The m ain po in ts o f d is tinc tionbe tw een m arg ina l cos ting a nd diffe ren tia l co stin g are as be low :(a) The techn ique o f m arg ina l cos ting requ ires a c lea r d is tinc tion betw een variab le cos ts and

fixed cos ts w he reas no such d is tinc tion is m ade in the case o f d iffe ren tia l cos ting .(b ) In m arg ina l cos ting , m arg in o f con tribu tion and contribu tion ra tio a re the m ain yard s ticks

for perform ance eva lua tion and fo r dec is ion m aking w he reas unde r d iffe ren tia l cos tsana lys is , d iffe re ntia l co sts a re com pa red w ith th e increm enta l or decre men ta l reve nue (asthe case m ay be) for arr iv ing a t a dec is ion .

(c ) D iffe ren tia l cos t ana lysis is poss ib le in both absorp tion cos ting and m arg ina l cos ting ,w he re as m arg ina l co stin g in itse lf is a d is tinc t techn iqu e.

(d) M arg ina l cos t m ay be inco rpo ra ted in the cos t accounting sys tem whe reas d iffe ren tia lc os ts a re w ork ed o ut s ep ara te ly .

Q ue stio n 2 9S pe cify th e m e th od s o f c os tin g a nd c os t u nits a pp lic ab le to th e fo llo win g in du strie s:

(i) Toy m ak ing


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(ii) C emen t(iii) R ad io(iv ) B icyc le(v) Sh ip bu ild ing(vi) Hosp ita l (N ov, 1 99 8, 3 marks )Answe rIndustry(i) T oy m a kin g( ii) C eme nt( iii) R a d io( iv ) B ic yc le(v ) S hip b uild in g( vi ) Hosp it al

Method of cost ingBatchUn i tMult ip leMult ip leContrac tOperat ing

Uni t of costP e r b atc hPer tonne or per bagP er R adio o r per batchPe r B ic yc leP er S hipPer B ed pe r day o rP er patien t pe r day

Q ue stio n 3 0H ow does a P ro du ctio n A cc ou nt d iffe r fro m a Cost Shee t (N ov, 1 99 8, 3 marks )

Answe rThe fo llow ing are the po in ts of d iffe rence betw een a P roduc tion A ccount and a C ost Sheet.(i) P roduc tion Account is based on doub le en try sys tem whe reas cos t sheet is not based on

d ou ble e ntry s ys te m.(ii) P roduc tion Account cons is ts of tw o parts . The firs t part show s cos t o f the com ponen ts

and to ta l p roduc tion cos t. The second pa rt show s the cos t o f sa les and p rofit fo r theperiod. C ost sheet p resents the e lem en ts o f cos ts in a class ified m anner and the cos t isascerta ined at d iffe ren t stages such as prim e cos t; w o rks cos t o f p roduc tion ; cost o fgoods so ld ; cos t o f sa les and to ta l cos t.

(iii) P roduc tion accoun t show s the cos t in agg regate and thus fac ilita tes com parison w ithothe r financia l accounts . C ost shee t show s the cos t in de ta il and analytica l m anne r w hichfac ilita tes co mpa rison o f cos t for th e p urp ose o f cos t con tro l.

(iv ) P roduc tion accoun ts is no t use fu l fo r p reparing tenders or quota tions . E s tim ated cos tshee ts can be p repared on the bas is of ac tua l cos ts sheets and these a re use fu l fo rp re pa rin g te nd ers o r q uo ta tio ns .


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Q uestion 31A fac to ry uses a job cos ting sys tem . T he fo llow ing cost data a re ava ilab le from the books

for the yea r ended 31 st M a rc h, 1 98 9:

D ir ec t M a te ria lD ire ct W a ge sProf i tS e llin g a nd D is trib utio n O v erh ea dA dm in is tr ativ e O v e rh e adF ac to ry O v er he ad

R s.9,00,0007,50,0006,09,0005,25,0004,20,0004,50,000

Requi red(a ) P repare a C os t S he et ind ica tin g th e p rim e co st, w orks co st, pro du ctio n co st, co st o f sa les

a nd sa le s va lu e.(b ) In 1989-90, the facto ry has rece ived an orde r fo r a number o f jobs. It is es tim ated that

the d irect m ate ria ls is w ou ld be R s. 12 ,00 ,000 and d irec t labou r w ould cost R s. 7 ,50 ,000 .W ha t wou ld be the p rice fo r these jobs if the facto ry in tends to ea rn the same ra te o fpro fit on sa les, assum ing tha t the se lling and d is tribu tion ove rhead has gone up by 15% .The facto ry recove rs facto ry ove rhead as a percentage o f d irect wages andadm in is tra tive and se lling and d is tr ibu tion ove rheads as a percentage o f w orks co st,based on the cos t ra tes p reva len t in the p rev ious yea r.

Answer(a ) C OST SH EETFor the jobs ca rried ou t by the conce rn for the yea r end ing on 31 st M arc h, '89

Rs.D irec t M ate ria l 9 ,00 ,000D ire ct W a ge s 7,50,000PR IM E C OST 16 ,50 ,000F a cto ry O v e rh e ad 4,50,000W OR KS C OST 21,00,000Adm in is tra tive O ve rhead 4 ,20 ,000PR OD UC TIO N C OST 25 ,20,000Se lling and D is tribu tion O verhead 5 ,25 ,000COST OF SALES 30 ,45 ,000


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Pro fit 6 ,09 ,000SALES VALUE 36 ,54 ,000(b ) C OST S HE ET

F or the Jobs ca rried out during the year 1989 -90

D ir ec t M a te ria lD ir ec t L a bo u rP RIM E C OS TF a cto ry O v e rh e ad(R efe r to W o rk in g N ote -1 )W ORKS CO STAdm in is tr at iv e O v e rh e ad(R efe r to W o rk in g N ote -2 )P RO DU CT IO N C OS T 1S ellin g a nd D is trib utio n O v er he ad(R efe r to W o rk in g N ote -3 )COSTS OF SALESProf it(R efe r to W o rk in g N ote -4 )S ALE S V AL UE

Rs.12 ,00 ,0007,50,00019 ,50 ,0004,50,000

24,00,0004,80,000

28,80,0006,90,000

35 ,70 ,0007,14,000

42 ,84 ,000W o rk in g N ote s1 . F a c to ry O ve rhead

(to b e ch arge d du rin g 1 98 9-9 0)= P erc en ta ge o f d ire ct w ag es

= Facto ry ove rhead o f 1988 - 89 x 100D ire ct w a ge s

= RsA,50 ,000 x 100Rs.7,50,000

= 60% of D irect W ages of 1989 -90 .

1 P ro du ctio n C ost h ere is a m isn om er, in fac t W o rks C os t itse lf is th e P ro duc tio n C ost.


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2 . Adm in is tr at iv e O v e rh e ad(to b e ch arge d du rin g 1 98 9-9 0)

= 60% of R s. 7 ,50 ,000= R s. 4 ,5 0,0 00 .= Pe rcen tage o f W orks C ost

A d m in is tra tive ove rhead o f 19 88 - 8 9= Works cos t o f 1988 - 89

3. S ellin g a nd D is trib utio n O v erh ea d(to b e ch arge d du rin g 1 98 9-9 0)

= Rs.4 ,20 ,000 x 100Rs.21,00,000

= 20% of works cos t o f 1989-90= 2 0% of R s. 24 ,0 0,000= R s. 4 ,8 0,0 00= Pe rcen tage o f W orks C ost

S e llin g a n d D is tr ib ut io n= Ove rhead of 1988 - 89 x 100

W orks cos t o f 1988 - 89

= Rs. 5 ,25 ,000 x 100Rs.21,00,000= 25% of W orks Cost o f 1989 -90= 25% of R s. 24 ,00 ,000= R s. 6 ,00 ,0 00

T ota l S elling a nd D is trib ution O verhea d inc lud ing 1 5% in crea se = Rs. 6 ,0 0,0 00 +1 5% ofR s. 6 ,0 0,0 00 = R s. 6 ,9 0,0 00 .

4. P ro fit (f or 1 98 9- 90 )A t the rate o f prof i t o f 1988-89

=_P_ r o_ fi_ t x 100S ale s v alu e

= Rs.6 ,09 ,000 x 100Rs.36,54,000


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Rs . 3 6 ,5 4 ,0 0 0= 1 6.6 7% of S ales V alue= 20% of C ost o f Sa les= 2 0% of R s. 3 5,7 0,0 00 = Rs . 7 ,1 4 ,0 0 0

Q ue stio n 3 2T he b oo ks o f A da rsh M an ufac tu rin g C om pa ny pre se nt th e fo llow in g d ata fo r the m on th o f

A p ril, 1 99 2.D ire ct lab ou r co st R s. 1 7,5 00 b ein g 175% of wo rk s o v er he a ds .Cos t o f g oo ds s old e xc lu din g a dm in is tra tiv e e xp en se s R s. 5 6,0 00 .Inv ento ry a cco un ts sh ow ed the fo llo win g o pe nin g a nd c los in g b ala nce :

Apri l 1 Apri l 30

Raw ma te ria lsW o rk s in p ro gre ssF in is he d g oo dsO the r d ata a re :S e llin g e x pe n se sG e ne ra l a nd a dm in is tra tio n e xp en se sS ale s fo r th e m on th

R s.8,000

10,50017,600

Rs.10,60014,50019,000

R s.3,5002,500

75,000Y ou are requ ired to(i) C ompu te the va lue of ma t er ia ls pu rchased(ii) P repare a cost s ta tem en t show ing the va rious e lem en ts o f cos t and also the p rofit

ea rned .Answe r(i) C om putation o f the value of m ateria ls pu rchased

Less : O pen ing s tock of fin ished goodsC os t o f g oo ds m a nu fa ctu re d

Rs.56,00019,00075 ,00017,60057,400

C ost o f goods so ldAdd : C los ing stock of fin ished goods


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Add: C lo si ng s to ck o f w o rk s- in -p ro g re ss

Less: Op en in g s to ck o f w o rk -in -p ro gr es sW orks C ostLess: Facto ry O ve rhead : (10 0 of D irec t Labour cos t]175P rim e C os tLess: D i re ct L a bo u rR aw m a te ria ls c on su m edAdd: C lo sin g sto ck o f ra w m a te ria lsR a w ma te ria ls a va ila bleLess: O pen ing s tock of ra w m ateria lsV alu e o f m ate ria ls p urch as ed(ii) C os t S ta tem en t S how ing the va rious e lem en ts o f C os t and P ro fit E arned

Rs.Raw m ateria l consum ed 33 ,900(R efe r to S ta te me nt (/) a bo ve )D irec t labou r cos t 17 ,500P rim e Cost 51 ,400Add: Factory O verheads 10 ,000W orks Cost 61 ,400Add: Open ing W ork-in -p rogress 10 ,500

71 ,900Less: C los ing W ork-in -p rogress 14 ,500Cost o f goods m anufac tu red 57 ,400Add: Open ing s tock-o f fin ished goods 17 ,600

75 ,000Less: C los ing stock of fin ished g oods 19 ,000Cost o f G oods Sold 56 ,000Add: Gene ra l a nd adm in is tra tion expenses 2 ,500Add: Selling expenses 3 ,500

14 ,50071 ,90010 ,50061 ,40010 ,000

51 ,40017 ,50033 ,90010 ,60044 ,5008 ,00036 ,500


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C ost o f S ale sP ro fit (B alance figu re R s. 7 5,0 00 - R s. 6 2,00 0)Sales

62 ,00013 ,00075 ,000

Q uestion 33P op e ye C om pany is a m eta l and w ood cu tting m anu fac ture , se lling p roducts to the hom e

co nstru ctio n m arke t. C on sid er th e fo llow in g d ata fo r th e m on th of O c to be r, 2 00 4.R s.

SandpaperMa te ria l- ha n dlin g c o stsL ub ric an ts a nd C o ola ntsM is ce lla ne ou s in dir ec t m a nu fa ctu rin g la bo urD ire ct m a nu fa ctu rin g la bo urD ire ct m a te ria ls , O c to be r 1, 2004D ire ct m a te ria ls , O c to be r 31 , 2004F in is he d g oo ds , O cto be r 1, 2004F in is he d g oo ds , O cto be r 3 1,2 00 4W o rk -in -p ro ce ss , O cto be r 1, 2004Wo r k- in -p ro c es s, O c to b er 31 , 2004P la n t- le a sin g c o stsD e p re c ia tio n -p la n t e q uipmentP ro pe rty ta xe s o n p la nt e qu ip m en tF ire in su ra nc e o n p la nt e qu ip m en tD ir ec t m a te ria ls p u rc h as e dS a le s r ev e nu e sMa r ket in g p romo t io n sMa rk e tin g s a la rie sD is tr ib u tio n c o stsC u stome r- se rv ic e c o sts

5,0001,75,000

12,5001,00,0007,50,0001,00,0001,25,0002,50,0003,75,000

25,00035,000

1,35,00090,00010,0007,500

11,50,00034,00,0001,50,0002,50,0001,75,0002,50,000

Requi red(i) P repare an incom e sta tem en t w ith a s ep ara te s up po rtin g s ch ed ule o f cost o f goods

manufactured.


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(ii) F o r a ll m anu factu ring item s, ind ica te by V or F w he ther each is bas ica lly a v ar ia ble c os to r a fixed cost (w here the cos t ob ject is a produc t un it). (N ov, 2004 , 6+2=8 marks )An swe r( i) P ope ye com pany 'S chedu le fo r cos t o f goods m anu fa c tu red '

fo r the m on th end ing O ct 200 4Rs. R s.

D i re c t ma t e ria lsBeg inn ing Inven tory 1 ,00 ,000Purchase of D irect Materia ls 11 ,50 ,000Cost o f d irec t m ateria ls ava ilab le for use 12 ,50 ,000Ending inven tory 1 ,25 ,000D irect materia ls used 11 ,25 ,000(V )D irect manufactu ring labour 7 ,50 ,000(V )In dire ct m a nu fa ctu rin g c os tsSand Paper 5 ,000(V )Materia l-hand ling cost 1 ,75 ,000(V )Lubrican ts and coo lan ts 12 ,500(V )M isc . ind irect m fg labour 1 ,00 ,000(V )P lan t leas ing cos t 1 ,35 ,000(F )Depreciat ion-plant & equ ipm ent 90 ,000 (F)P r ope rt y t ax -p la n t & equ ipment 10 ,000 (F)F i re insu rance -p lan t & equ ipment 7 ,500 (F) 5 ,35 ,000Manufac tu ring cos t incurred during the month of 24 ,10 ,000O cto be r, 2 00 4Add : Op. work-in -p rogress 25 ,000

24,35 ,000Less : C I. W ork-in -p rogress 35 ,000Cost o f goods manufactu red (to incom e sta tem ent) 24 ,00 ,000


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(ii) P opeye C om pany : Incom e S ta tem en t fo r the m onth end ing O ct 31 ,2 004Rs. R s.

Revenues 34 ,00 ,000C ost o f goods so ld :Beg inn ing fin ished goods 2 ,50 ,000Cost o f goods manufac tu red 24 ,00 ,000Cost of goods a va ilab le for sa le 26 ,5 0 ,000End ing fin ished goods 3 ,75 ,000 22 ,75 ,000G ro ss M a rg in 11 ,25 ,000M ark etin g, D is trib utio n a nd C us to m er S erv ic e C os ts :Marke ting p rom otions 1 ,5 0 ,000M arke ting sa la ries 2 ,50 ,000D is tribu tion cos ts 1 ,75 ,000Custom e r se rv ice cos t 2 ,50 ,000 8 ,25 ,000Opera ting Incom e 3 ,00 ,000Q ue stio n 3 4

A fire occurred in the facto ry p rem ises on O c tobe r 31 , 2003 . The accoun ting reco rdshave been destroyed . C erta in accounting reco rds w ere kept in ano the r bu ild ing . T hey revea lth e fo llo win g fo r th e p erio d S ep te m be r 1, 2 00 3 to O ctob er 31 , 2003 .(i) D ir ec t m a te ria ls p urc ha se d(ii) W o rk in p ro ce ss in ve nto ry , 1 .9 .2 00 3(iii) D ire ct m a te ria ls in ve nto ry , 1 .9 .2 00 3(iv ) F in is he d g oo ds in ve nto ry , 1 .9 .2 00 3(v ) In dir ec t m a nu fa ctu rin g c os ts(v i) S ale s r ev en ue s(v ii) D ire ct m a nu fa ctu rin g la bo ur(v iii) P rim e c os ts(ix ) G ro ss m arg in p erce ntag e b ase d o n re ve nu es(x ) C os t of G oo ds a va ila ble fo r s ale

Rs.2,50,000Rs.40,000Rs.20,000Rs.37,750

40% o f c on ve rs io n c os tR s . 7 ,5 0 ,0 0 0R s . 2 ,2 2 ,2 5 0R s . 3 ,9 7 ,7 5 0

30%Rs. 5,55,775


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The loss is fu lly cove red by insurance com pany. The insurance com pany w an ts to knowthe his to ric al co st of the inven to ries as a b as is fo r n eg otia tin g a se ttle me nt, a ltho ug h these ttle men t is ac tua lly to be b as ed o n re pla ce men t c os t, n ot h is torica l co st.Requi red(i) F in ish ed g oo ds in ve nto ry , 3 1,1 0,20 03(ii) W o rk -in -p ro ce ss in ve nto ry , 3 1.1 0.2 00 3(iii) D irect m a te ria ls inven to ry , 31 .10 .2003 (N ovem ber, 2003 , 3+3+2 = 8 marks )Answe rW o rkin g n ote s1 . D irect m ate ria l inven tory cost (used during the m on th):

= P rim e cos t - D irec t m anufac tu ring labou r cost= R s. 3 ,97 ,7 50 - R s. 2 ,22 ,2 50 = R s . 1 ,7 5,5 0 0

2 . C onve rs ion and ind irec t m anu factu ring cost:Co nv ers io n c os t = (D ire ct m an ufa ctu rin g c os t + In dire ct m a nu fa ctu rin g c os t)B ut In dire ct m a nu fa ctu rin g co st = 4 0% of convers ion cos tO r C on ve rs ion cos t = D ire ct m a nu fa ctu rin g c os t + 40% of convers ion cos tO r 0 .6 0 con vers io n cos t = D ire ct m a nu fa ctu rin g c os tO r Conve rs ion cos t _ D irec t m anu fac tu ring cos t

0.60R s . 2 ,2 2 ,2 5 0=----0.60

= Rs . 3 ,7 0 ,4 1 7= 40% x Rs . 3 ,7 0 ,4 1 7= R s . 1 ,4 8 ,1 6 7

O r In dire ct m a nu fa ctu rin g c ost

3. Cos t o f g o od s manufa c tu re d

C ost o f goods ava ilab le for sa leLess : F in is he d g oo ds 1 .9 .2 00 3C os t o f g oo ds m an ufa ctu re d

Rs.5 ,55 ,77537 ,750

5 ,18,025


32/52


(i) F in ished g ood s inven to ry , 31 .10 .2 003

S a le s re ve nu eLess : G ro ss m a rg in(3 0% o f re ve nu e)C ost o f goods so ld : (a )C ost o f goods ava ilab le fo r sa le : (b )F in is he d g ood s in ve nto ry , 3 1.1 0.2 00 3: {(b )- (a )}

Rs.7 ,50 ,0002 ,25 ,000

5 ,25 ,0005 ,55 ,77530 ,775

(ii) W o rk -in -p ro ce ss in ve nto ry , 3 1.1 0.2 00 3:

P rim e c os tAdd : In dire ct m a n ufa ctu rin g c os t(R efe r to w ork ing note 2 )Add : Op en in g w o rk -in -p ro ce ss , 1 .9 .2 0 03M an ufac tu r in g co st to a cco un t fo rLess : C os t o f g oo ds m a nu fa ctu re dW o rk -in -p ro ce ss in ve nto ry , 3 1 .1 0 .2 0 03

Rs.3 ,97 ,7501 ,48 ,167

40 ,0005 ,85 ,9175 ,18 ,02567 ,892

(iii) D ire ct m a te ria l in ve nto ry , 3 1.1 0.2 00 3

D ir ec t m a te ria ls in ve nto ry , 1 .9 .2 0 03Add : D ire ct m a te ria ls p ur ch as ed

Rs.20 ,000

2 ,50 ,0002 ,70 ,0001 ,75 ,500ess: D ire ct m ate ria l in ve nto ry (u se d d uring th e m on th )

(R efe r to w ork in g n ote 1 )D ir ec t m a te ria l in ve nto ry , 3 1 .1 0 .2 0 03Q ue stio n 3 5

A Com pany manu factu res rad ios , wh ich a re so ld a t R s. 1 ,600 pe r un it. The to ta l cost iscomposed of 30% fo r d irect m a te ria ls , 40% fo r d irect w ages and 30% fo r ove rheads. Anincrease in m ate ria l p rice by 30% and in wage ra tes by 10% is expec ted in the fo rthcom ingyea r, as a resul t o f wh ich the p ro fit a t cu rren t se lling p rice m ay decrease by 40% o f th ep resen t p ro fit per un it. Y ou a re requ ired to p repa re a s ta tem ent show ing cu rren t and fu tu rep ro fit a t p re se nt s ellin g p ric e.


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H ow m uch S elling P rice should be increased to m ain ta in the p resen t ra te o f profit?(M a y, 2 00 1, 4 marks )

Answe rLe t X be the cost, Y be the profit and Rs. 1 ,600 se lling price pe r un it o f radio

m anu factu red by a com pany. H enceX+Y=1,600 (I)

S ta tem en t o f p resen t and fu tu re C ost of a rad ioP resen t cost Inc rease in An tic ipa ted

Particu lars cost fu ture costR s. (R s .) (R s.)(a ) (b ) (c ) = (a ) + (b )

D irect m ateria l 0 .3 X 0.09 X 0.39 XD irect labour 0 .4 X 0.04 X 0.44 XOverheads 0 .3 X 0.30 XTotal X 0.13 X 1.13 XAn increase in mate ria l price and wage ra tes resu lted in to a decrease in cu rren t p rofit by 40pe rce nt a t p re sen t s ellin g price ; th ere fore w e have :1 .1 3 X + 0 .6 Y = 1,60 0 -----------------(ii)O n solv ing (I) and (ii) we ge t:X = Rs. 1 ,207.55Y = Rs. 392 .45Curren t pro fit R s. 392 .45 or 32.5% of costFutu re p ro fit R s. 235 .47

S ta tem en t o f re vised se llin g p ric e to m ain ta inthe p resen t ra te o f p ro fit

D ire ct m ate ria l c os t(0.39 x Rs . 1 ,2 0 7.5 5 )D ire ct la bo ur c os t(0.44 x R s . 1 20 7.5 5)Overheads

Rs.470.94

531.32

362.27


34/52


(0.30 X Rs . 1 .2 0 7.5 5 )T ota l c os tProf i t(3 2.5 % of to ta l c o st)Re vis ed s ellin g p ric e

1,364.53443.47

1,808.00Quest ion 36

In an eng inee ring com pany, the factory ove rheads a re recove red on a f ix ed pe rcen tagebas is on d irect wages and the adm in is tra tion ove rheads a re abso rbed on a f ix ed pe rcen tageb as is o n fa cto ry co st.

The com pany has fu rn ished the fo llow ing data re la ting to two jobs undertaken by it in aper iod:

Job 101 Job 102R s. R s.

D irect M a teria ls 54 ,000 37 ,500D irect W ages 42 ,000 30,000Se lling P rice 1,66 ,650 1 ,28 ,250P ro fit Pe rcen tage on to ta l cos t 10% 20%Requi red:(i) C om pu ta tion of percen tage recove ry ra tes o f fa ctory o ve rh ea ds a nd a dm in is tra tive

overheads.(ii) C alc ula tio n of th e a mo un t o f fac tory o verh ea ds, ad min is tra tive ov erh ead s a nd p ro fit fo r

each o f th e tw o jo bs .(iii) U sing the above recove ry ra tes fix the se lling p rice of job 1 03. T he a dd itio na l d ata b ein g.

D irect M a te ria ls R s. 24 ,000D ire ct W a ge sP ro fit P erc en ta ge o n S ellin g P ric e

Rs.20,00012 -112%

(May , 19 95 , 1 6 marks )Answe r(i ) Let fac tory ove rhead recovery ra te , as percen tage o f d irec t w ages be F and

adm in is tra tive overhea ds re covery ra te , as p ercen ta ge of fac tory co st b e A .


35/52


Fac tory C ost o f Jobs :Job 101 = Rs. 96 ,000 + R s. 42 ,000FJob 102 = Rs. 67 ,5 00 + R s. 30 ,000F

To ta l C os t o f P roduc tion o f Jobs :Job 1 01 = (R s.9 6,0 00 + R s.4 2,0 00F ) + (R s.9 6,00 0 + R s.4 2,0 00 F)A = R s.1 ,5 1 ,5 00Job 1 02 = (R s.6 7,5 00 + R s.30 ,0 00 F) + (R s.6 7,50 0 + R s.3 0,0 00F )A = R s.1 ,0 6,87 5(R efe r to W ork ing N ote)O n s olv in g a bo ve re la tio ns :F = 0 .60 and A = 0 .25

H ence pe rcen tage recovery ra tes o f fac to ry ove rheads and adm in is tra tive ove rheads a re 6 0%a nd 2 5% re sp ec tiv ely .W ork ing N ote :

T ota l co st o f p ro duc tio n (R s.)S e ll in g p ri ce

Job 1011 ,51 ,300

(R s. 1 ,66 ,6501110%)

Job 1021 ,06 ,875

(R s. 1 ,28 ,2501120%)( 100% + P e rc en ta ge o f p ro fit)(i i) S ta tem ent of jobs , show ing am oun t o f f ac to ry

O ve rheads , adm in is tra tive overheads and pro fitJob 101 Job 102

Rs. Rs.D irec t M ate ria ls 5 4 ,000 37 ,5 00D irec t W age 42 ,000 30 ,000P rim e C ost 96 ,000 67 ,5 00Fa cto ry O v er he a ds60% of D irec t W ages 25 ,200 18 ,000Facto ry C os t 1 ,21 ,200 85 ,5 00Adm in is tr ativ e O v er he a ds25% of Fac to ry C os t 30 ,300 21 ,375To ta l C os t 1 ,5 1 ,5 00 1 ,06 ,85 7P ro fit (d iffe rence f igure ) 15 ,150 21 ,375Se lling P rice 1 ,66 ,65 0 1 ,28 ,25 0


36/52


(i ii) S e lling p rice of Job 103

D i re c t Ma t e ri al sD ire ct W a ge sP rim e C os tFa cto ry o ve rh ead s (6 0% of D irec t W ag es)F ac to ry C o stA dm in is tra tive O ve rhe ad s (2 5% of F ac to ry C ost)T ota l C os tP ro fit M a rg in (d iffe re nc e fig ure )

[ To ta l cos t ]S ellin g P ric e 87.5%

Rs.24 ,00020 ,00044 ,00012 ,00056 ,00014 ,00070 ,00010 ,00080 ,000

Q ue stio n 3 7D is tingu ish betw een Con tro llab le and Uncon tro llab le costs . (M ay, 2003 , 2 marks )

Answe rC ontro llab le cos ts and U ncontro llab le cos ts : D irec t cos ts com pris ing of d irec t labou r,

d irec t m ateria l, d ire c t expenses and som e of the overheads are gene ra lly con tro llab le by shopflo o r ma n ag emen t.

U ncontro llab le costs are those cos ts wh ich canno t be in fluenced by the ac tion o f aspecified m em ber o f an unde rtak ing e .g . share to too l room expenditu re w hich is apportionedto m ach ine shop is not to be contro lled by the m ach ine shop fo rem an.Q ue stio n 3 8

A m anu factu ring com pany has an insta lled capac ity of 1 ,20 ,000 units pe r annum . Thecos t s tr u ctu r e of th e pro du ct m an ufac ture d is a s u nd er:

R s.(i) Va riab le cos t per un it -

MaterialsL ab ou r (S ubjec t to a minimum of R s. 5 6,0 10 p er m on th)Ove rheads

883


37/52


(ii) F ixed ove rheads R s. 1,68 ,750 pe r annum(iii) S em i-va riab le ove rheads - Rs . 48 ,000 pe r annum at 60% capac ity , w hich inc rease by

R s. 6,000 pe r annum fo r increase o f eve ry 10% of the capac ity u tilisa tion o r any partthe reo f, fo r the yea r as a whole.The capac ity utilisa tion for the next yea r is es tim ated a t 60% for tw o m onths, 75% fo r s ixm on ths and 80% for the rem ain ing part of th e y ea r. If the com pany is p lann ing to have aprof i t of 25% on the se lling price , ca lcu la te the se lling p rice pe r un it. A ssum e tha t the rea re no open ing and clos ing s tocks. (N ov, 19 97 , 12 marks )

Answe rS tatem en t o f S elling P rice and P ro fit

Mater ia l8 9,0 00 u nits x Rs. 8 p.u.(R efe r to w ork in g n ote 1 )L ab ou r c os t(R efe r to w ork ing note 2 )Va ria b le o ve rh e ad s( 89 ,0 0 0 u n its x Rs. 3 )Sem i- va ri ab le o ve rh e ad s(R efe r to w ork ing note 3 )F ix ed o ve rh e ad sT ota l c os tA d d: P ro fit @ 25% of s ellin g p ric e o r33-1 /3% on costT ota l s ale s v alu eS elling p rice pe r u nit(R s . 2 5.8 1.0 00 /8 9,0 00 u nits )

R s .7,12,000

7,28,000

2,67,000

60 ,000

1,68,75019 ,35 ,750

6.45 ,25025 ,81 ,000

29.00

Wo rkin g n ote s1 . C apacity u tilisa tion (for the nex t yea r)

60% of capac ity fo r firs t tw o m on ths = 2 m on th sx 6 ,000 un its = 1 2 ,0 0 0 u nits


38/52


75% capacity for next s ix m onths = 6 rnonthsx 7 ,5 00 un its = 4 5,0 00 u nits80% of capacity for the rem ain ing four m onths = 4 rnonthsx 8 ,0 00 un its = 3 2,0 00 un itsTota l capac ity u tilisa tion 89 ,000 un itsC it till t' 89 ,000 un its 100 = 74-1/6 0/0apac y u lis a Io n = x /(1 ,20 ,000 un it s

2 . C alcu la tion of la bo ur co st (su bje ct to a minimum of R s. 5 6,0 00 p .m .)R s .

Labour cos t o f firs t tw o m onths12 ,000 un its x R s. 8 = R s. 9 6,0 00But m in im um here isLabour cos t o f nex t s ix m onths45 ,000 un its x R s. 8 = Rs . 3 ,6 0 ,0 0 0Labour cos t o f last four m onths32 ,000 un its x R s. 8T ota l la bo ur c ost

1,12,000

3,60,000

2,56,0007,28,000

3. Calculat ion of s em i-v aria ble o ve rh ea ds (p er a nn um ):

Sem i- va ria ble o ve rh ea dsa t 6 0% ca pa cityS em i-v aria ble o ve rh ea ds fo r a dd itio na l14 -1 /6% capacity are the sam e as that for20% of the capac ity u ti Iisa tion for the w hole year

Rs.48,000

Q uestion 39T he fo llow in g fig ures are e xtra cte d from th e T ria l B ala nce of Goget ter Co. on 30 th Sep tember ,1986:

Rs. R s.Inventories:

F in is he d S to ckR aw Ma te ria ls

80,0001,40,000


39/52


Work-in-ProcessO f fice App li ancesPlant & MachineryBui ldingsSalesS ales R eturn and R ebatesMa te ria ls Pu rchasedF re ig ht in cu rre d o n M ate ria lsP u rc ha se R e tu rn sD ir ec t L ab ou rIn dir ec t L ab ou rFacto ry Super vis io nR epairs and U pkeep F actoryHeat, Ught and Pow erRates and TaxesM is ce lla ne ou s fa cto ry e xp en se sSa le s comm is s ionSa le s T ra vellin gSa le s P romo tio n

2,00,00017,400

4,60,5002,00,000

7,68,00014,000

3,20,00016,000

4,8001,60,00018,00010,00014,00065,0006,300

18,70033,60011,00022,500

D is trib utio n D ep tt-S ala rie s a nd E xp en se sO ffic e S ala rie s a nd E xp en se sIn te re st o n B orro we d F un dsF urth er d eta ils a re a va ila ble a s fo llow s:(i )

18,0008,6002,000

(ii)

C l osi ng I nven to r ies :F in ished Goods 1,15,000Raw Materia ls 1,80,000W ork-in-P rocess 1,92,000Accrued expenses onD ir ec t L ab ou r 8,000Ind irect Labour 1,200Interest on Borrowed Funds 2,000


40/52


(iii) D eprec ia tion to be p ro vided on:O f fi ce App lia n c esP la nt a nd Ma ch in eryBui ld ings

5%10%4%

(iv ) D is tr ib u tio n o f th e fo llo w in g c os ts :H ear, L igh t and P ow er to F ac to ry , O ffic e and D is tribu tio n in th e ra tio 8 :1 :1 .R ates an d T axes tw o-th irds to F ac to ry an d o ne-th ird to O ffic e.D ep re cia tio n o n B uild in gs to F ac to ry , O ffic e a nd S ellin g in th e ra tio 8 : 1 : 1 .W ith the he lp o f the ab ov e in fo rm ation , y ou are requ ire d to prepare a c o nd e ns e d p ro fita nd lo ss s ta te m en t o f Goget te r Co. fo r the year ended 30 th September , 1986 a lo ng w iths up po rtin g s ch ed ule s o f:(i) C os ts o f Sales .(ii) S ellin g and D is tribu tion E xpe ns es ,(iii) A dm in is tra tio n E x pe ns es .

Answe rP ro fit and Loss S tatem en t o f G ogetter C om pany

fo r the year ended 30 th S ep te m be r, 1 98 6

G ros s S ale sLess : ReturnsLess : C ost of S alesR efer to S chedu le (i)N et O pe ratin g P rofit:Less : In tere st on B orrow ed F unds,N et P rofit.

Rs .7,68,00014,000

Rs .

7,54,0007,14,020

39,9804,00035,980

(i ) S chedu le o f C ost o f Sa lesRs . R s .

1,40,000a w Ma te ria l(In v en to ry o p. Ba la n ce )


41/52

Add : Ma te ria l P u rc ha se dF re ig ht o n M a te ria l

Less: P ur ch as e R e tu rn sLess: C lo sin g R aw M ate ria l

InventoriesM a te ria l u se d in p ro du ctio nD ir ec t L a bo u rFa cto ry O v er he a dsI nd ir ec t L a bo u rF ac to r y Super v is io nR epairs a nd F actory U pkeepH eat, L igh t and P ow erR ate s a nd T axe sM is ce lla ne ou s F ac to ry E xp en se sD ep re cia tio n o f P la ntD e pre cia tio n o f B u ild in gsG ross W orks C ost

Add : Op en in g w o rk -in -p ro ce ss In ve nto ry

Less: C lo sin g w o rk -in -p ro ce ss In ve nto ryW orks C ost

Add : Adm in is tr at io n E x pe ns e s[S ee S ch ed ule (iii)]T ota l C os t o f o utpu t

Add : O pe nin g F in is he d G oo ds In ve nto ry

Less: C lo sin g fin is he d g oo ds in ve nto ryC ost o f p roduction of goods so ld

Add : S ellin g a nd D is tr ib utio n E xp en se s[S ee S ch ed ule (ii)]C ost o f S ales


3,20,00016 ,0004 ,800 3 ,31 ,200

1,80,0002,91,2001,68,000

19 ,20010 ,00014 ,00052 ,0004 ,20018 ,70046 ,0506 ,400 1 170 1550

6,29,7502 100 10008,29,7501 192 10006,37,75018 1870

6,56,62080 1000

7,36,6201 115 10006,21,62092 ,400

7 114 1020


42/52


( i i ) S che du le o f S elling a nd D istrib utio n E xp en sesSa le s Comm is sio nSa le s T r av e ll in gS a le s P romot io nD istrib utio n D ep tt.- S ala rie s a nd E xp en se sH eat, L igh t and P ow erDe pr ec ia tio n o f B u ild in gs

Rs.33,60011,00022,50018,0006,500~92,400

(iii) S chedu le o f Adm in is tra tion Expenses

O ffice S ala rie s a nd E xp en se sD ep re cia tio n o f O ffic e A pp lia nc esDe pr ec ia tio n o f B u ild in gsH eat, L igh t and pow erR ates and Taxes

Rs.8,600870800

6,5002,10018,870

Q ue stio n 4 0The c o st s tr uc tu re of a n a rtic le th e s ellin g p ric e of w hich is R s. 4 5,0 00 is a s fo llo ws:D i re c t Ma t er ia lsD ire ct L ab ou rOverheads

50%20%30%

A n in cre as e of 15% in the case of m a te ria ls a nd of 25% in the cos t of la bo ur is a ntic ip ate d.T hese increased cos ts in re la tion to the p resen t se lling price w ou ld cause a 25% d ec re ase inth e a mo un t of p ro fit p e r a rtic le .Y o ur a re re qu ire d(1 ) To p repare a sta tement of p ro fit p er a rtic le a t pre se nt, a nd(2 ) The rev ised se lling price to p roduce the sam e percentage of p ro fit to s ale s as b efo re .Answe rW o rkin g N ote s1 . Le t 'x ' be the to ta l cost and 'y ' be the profit fo r an artic le w hose se lling price is R s. 45 ,000

H ence x + y =Rs. 45 ,000 (A )


43/52


2. S ta tem en t Show ing P resent and an tic ipa ted cos t per a rtic leItem P resen t Cos t Inc rease An tic ipa ted cost

Rs. % Rs. Rs.(1 ) (2 ) (3 ) (4 ) (5 )= (2 ) + (4 )D irec t M ate ria l C os t 0 .5 x 15 0 .075 x 0 .5 75 xD irec t Labou r 0 .2 x 25 0 .050x 0 .250xO ve rheads 0 .3 x 0 .300x

x 0 .125 x 1 .125 x3 . The increase in the cos t o f d irec t m a te ria l and d irec t labou r has reduced the p ro fit b y 25

pe r cen t (as se lling p rice rem ained unchanged ). T he increase is cos t and reduc tion inp ro fit ca n b e re pre se nte d b y th e fo llow in g re la tion :1 . 125x + 0 .75y = R s. 45 ,000 (8 )

4 . O n so lv ing re la tions (A ) and (8 ) as ob ta ined under w ork ing no tes 1 and 3 above w e ge t.W e ge tx = R s. 30 ,000Y = R s. 15 ,000

(a ) P resen t S ta tem en t o f P ro fit P e r A rtic leRs. R s.

D ire ct M a te ria l C os tD ire ct L ab ou r C os tOve rheadsT ota l C os tProf i tS e llin g P ric e

0.5x0.2x0.3x

15 ,0006 ,0009 ,00030 ,00015 ,00045 ,000

No te : P ro fit as a percen tage o f C ost P rice = 50%(R s. 1 5,0 00 IR s. 3 0,0 00 ) x 100P ro fit as a percen tage o f S elling P rice = 3 3-1 /3%(R s. 1 5,0 00 IR s. 4 5,0 00 ) x 100


44/52


(b ) S ta tem en t o f R evise d S ellin g P riceRs. R s.

D ire ct M ate ria l C os tD ire ct Lab ou r C ostOverheadsT otal A ntic ip ate d C os tP rofit (3 3-1 /3 % of se llin g p r ic e )S ellin g P ric e( R s. 3 3 ,7 5 0 x 1 00 ) 6 6.6 6

0.575x0.250x0.300x

17,2507,5009,000

33,75016,87550,625

Q ue stio n 4 1Two workm en, V ishnu and Sh iva , p roduce the same product us ing the same m ateria l.

T he ir no rm a l w age ra te is a lso the sam e. V ishnu is pa id bonus acco rd ing to the Rowansys tem , wh ile Sh iva is pa id bonus acco rd ing to the H alsey system . The tim e a llow ed to m akethe p roduct is 100 hours . V ishnu takes 60 hours w hile S hiva takes 80 hours to com ple te thep roduct. The facto ry ove rhead ra te is Rs. 10 per m an-hour actua lly w orked. The factory costfor the p roduct for V ishnu is R s. 7 ,280 and fo r Sh iva it is R s. 7 ,600 .Y o u a re r eq uir ed :(a ) to find the no rm al ra te o f wages ;(b ) to find the cost of materials;(c ) to p repa re a sta tem en t com paring the facto ry cost o f the p roducts as made by the tw o

workmen .Answe rW o rkin g N ote s1 . Le t X be the Cost of m ate ria l and Y be the norm a l rate o f wages per hou r.

F acto ry C ost o f W orkm an V ishnuRs.

Mate ria l C ost XWagesBonus[40X60 ] Y100Overheadsi.e.O r

60Y24Y

600X + 60Y + 24Y + R s. 60 0 = R s. 7 ,2 80X + 84Y = Rs. 6 ,680 (i)


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Mate ria l C os tWagesBonus[20X 50] Y100Overheadsi.e.O r

F ac to ry C os t o f W orkm an S hivaRs.X80Y10Y

800X+ 80Y + 10Y + Rs. 800=Rs. 7 ,600X + gOY = Rs. 6 ,800 (ii)

2 . On so lv ing the above re la tions (i) and (ii), the value of X and Y comes to Rs. 500/- andR s.2 0 per hour.

3 . Bonus pa id to V ishnu = 24Y = Rs. 480Bonus pa id to Shiva = 10Y = Rs. 200(a ) The normal rate of wages comes to Rs. 20 /- per hour (Re fer to Work ing Notes (i)

a nd (ii)(b ) The cost of materia l comes to Rs. 5 ,000 on substitu ting the val u e of Y in e ither of

th e above re lations (i) or (ii).(c ) C om parative S tatem ent o f the Fac to ry C ost o f the

p ro du ct m a de by the tw o w orkm en .Vishnu

Rs .5,0001200

(6 0 x R s. 20 )480

ShivaR s.

5,0001,600

(8 0 x R s. 2 0)200

M ate ria l c os tD ire ct W a ge sBonus(R efe r to W ork ing N ote (3 )F ac to ry o ve rh ea dF ac to ry c os tQ ue stio n 4 2

A Ltd. Co. h as ca

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