COST SHEET-PROBLEMS & SOLUTION

Question 1:
The following data relates to the manufacture of a standard product during the
month of April, 2008:
Rs.
Raw Materials 1,80,000
Direct Wages 90,000
Machine hours worked (hours) 10,000
Machine hour rate (per hour) 8
Administrative overheads 35,000
Selling overheads (per unit) 5
Units Produced 4,000
Units sold 3,600
Selling price per unit 125

You are required to prepare a cost sheet in respect of the above showing:
(i) Cost per unit (ii) Profit for the month
Solution: i) Cost Sheet Output 4,000 units
Total Cost (Rs.) Cost per unit (Rs.)
Raw materials 1,80,000 45.00
Direct Wages 90,000 22.50
Prime Cost 2,70,000 67.50
Add: Factory overheads (10,00 hrs x Rs. 8 80,000 20.00
per hour)
Cost of production 3,50,000 87.50
Less: Closing stock of finished goods (35,000) --
(4,000 – 3,600 units)
Cost of Goods Sold 3,15,000 87.50
Add: Administrative Overheads 35,000 8.75
Add: Selling overheads (3,600 units x Rs. 18,000 5.00
5 unit)
3,68,000 101.25
Cost of sales (total cost)
ii) Statement of Profit:
Total Cost (Rs.)
Sales revenue (3,600 units @ Rs. 125) 4,50,000
Less: Cost of Sales 3,68,000
Profit 82,000

Question 2:
The following information has been obtained from the records of ABC
corporation for the period from June 1 to June 30, 20x8.
On June 1, 20x8 (Rs.) On June 30, 20x8 (Rs.)
Cost of raw materials 60,000 50,000
Cost of work-in-process 12,000 15,000
Cost of stock of finished goods 90,000 1,10,000
Purchase of raw materials 4,80,000
during June’ 20x8
Wages paid 2,40,000
Factory Overheads 1,00,000
Administrative overheads
(related to production) 50,000
Selling & distribution overheads
Sales 25,000
10,00,000
Prepare a statement giving the following information:
a) Raw materials consumed; b) Prime cost; c) Factory Cost;
d) Cost of Goods sold; and e) Net profit.
Solution:
Statement of Cost & Profit (For the month of June 20x8)
Amount (Rs.)
Opening stock of raw materials 60,000
Add: Purchase of raw materials during June 20x8 4,80,000
Less: Closing stock of raw materials (50,000)
a) Raw material consumed 4,90,000
Add: Direct Wages 2,40,000
b) Prime Cost 7,30,000
Add: Factory Overheads 1,00,000
Works Cost 8,30,000
Add: Opening work-in-process 12,000
Less: Closing work-in-process (15,000)
c) Factory Cost 8,27,000
Add: Administration Overheads 50,000
Cost of production 8,77,000
Add: Opening stock of finished goods 90,000
Less: Closing stock of finished goods (1,10,000)
d) Cost of goods sold 8,57,000
Add: Selling & distribution overheads 25,000
Cost of Sales
8,82,000
e) Net Profit
1,18,000
Sales
10,00,000

Question 3:
Development Company Ltd. manufacture three products A,B and C and sells
them direct through own sales force in three zones X, Y and Z. The overall
control of distribution and sales is taken care of by the Headquarters,
responsible also for sales promotion.
You are presented with the following data for the year ended 31st March 2010.
Zone Product Sales Selling and
Distribution
Expenses
X A 3,00,000 20,400
B 2,00,000 21,000
C 1,00,000 10,600
Total 6,00,000 52,000
Y A 4,00,000 28,400
B 4,00,000 37,600
C 2,00,000 21,000
Total 10,00,000 87,000
Z A 1,00,000 8,400
B 80,000 6,800
C 2,20,000 28,800
Total 4,00,000 44,000
Selling and Sales promotion expenses at the Headquarter are as follows:
 Selling expenses Rs. 36,000
Advertisement expenses Rs. 40,000
Other expenses Rs. 48,000

While advertisement expenses are allocated to zones and products on the

basis of sales, the other two types of expenses are allocated equally to zones
and products.
Cost of sales should be taken as following percentage of sales:
Product A 80%
B 75%
C 70%
You are required to tabulate the above information to present comparative
profit and loss statements for each product and for each zone.
Answer:
Statement showing Profit and Loss for each Product for the year ended 31 st March 2010:

Particulars Product A Product B Product C Total

Sales:
Zone X 3,00,000 2,00,000 1,00,000 6,00,000
Zone Y 4,00,000 4,00,000 2,00,000 10,00,000
Zone Z 1,00,000 80,000 2,20,000 4,00,000
8,00,000 6,80,000 5,20,000 20,00,000
Less: Cost of Sales 6,40,000 5,10,000 3,64,000 15,14,000
(Product A-80%, B-75%, C-
70% of sales)
Gross margin 1,60,000 1,70,000 1,56,000 4,86,000
Less: Selling & Distribution
Expenses
Direct 57,200 65,400 60,400 1,83,000
Indirect: Advertisement 16,000 13,600 10,400 40,000
Selling 12,000 12,000 12,000 36,000
Others 16,000 16,000 16,000 48,000
Profit 58,800 63,000 57,200 1,79,000
 Statement showing Profit and Loss for each Zone for the year ended 31st March 2010:

Particulars Zone X Zone Y Zone Z Total

Sales 6,00,000 10,00,000 4,00,000 20,00,000
Cost of sales:
Product A (3:4:1) 2,40,000 3,20,000 80,000 6,40,000
Product B (200:400:80) 1,50,000 3,00,000 60,000 5,10,000
Product C (100:200:220) 70,000 1,40,000 1,54,000 3,64,000
Total 4,60,000 7,60,000 2,94,000 15,14,000
Gross margin 1,40,000 2,40,000 1,06,000 4,86,000
Less: Selling Expenses
Direct 52,000 87,000 44,000 1,83,000
Indirect: Advertisement 12,000 20,000 8,000 40,000
(6:10:4)
Selling 12,000 12,000 12,000 36,000
Others 16,000 16,000 16,000 48,000
Net profit 48,000 1,05,000 26,000 1,79,000
Note: Normally cost of sales includes cost of goods sold and non-production
overheads like administration and selling and distribution. But here it is
presumed that cost of sales does not include selling and distribution expenses.

Question 4:
A fire occurred in the factory premises on July 31, 2010. The accounting
records have been destroyed. Certain accounting records were kept in another
building. They reveal the following for the period June 1, 2010 to July 31, 2010.
Rs.
Direct materials purchased 2,50,000
Work-in-process inventory, 1-6-2010 40,000
Direct materials inventory, 1-6-2010 20,000
Finished goods inventory, 1-6-2010 37,750
Indirect manufacturing costs 40% of conversion cost
Sales revenues 7,50,000
Direct manufacturing labour 2,22,250
Prime costs 3,97,750
Gross margin percentage based on 30%
revenues
Cost of goods available for sale 5,55,775
The loss is fully covered by insurance company. The insurance company wants
to know the historical cost of the inventories as a basis of negotiating a
settlement, although the settlement is actually to be based on replacement
cost, not historical cost.
Required:
(i) Finished goods inventory, 31-07-2010
(ii) Work-in-process inventory, 31-07-2010
(iii) Direct materials inventory, 31-07-2010
Answer:
Working note:
1. Direct material inventory cost (used during the month)
= Prime cost – Direct manufacturing labour cost
= Rs. 3,97,750 – Rs. 2,22,250
= Rs. 1,75,000
2. Conversion and indirect manufacturing cost:
Conversion cost = (Direct manufacturing Cost + Indirect
manufacturing cost)
Indirect manufacturing cost = 40% of conversion cost
Conversion cost = Direct manufacturing cost + 40% of
conversion cost
0.60 conversion cost = Direct manufacturing cost
Conversion cost = Rs. 2,22,250/0.60
= Rs. 3,70,417/-
Indirect manufacturing cost = 40% x Rs. 3,70,417
= Rs. 1,48,167/-
3. Cost of goods manufactured: Rs.
Cost of goods available for sale 5,55,775
Less: Finished goods 1-06-2010 37,750
 Cost of goods manufactured 5,18,025

i. Finished goods inventory on 31-07-2010: Rs.

Sales revenue 7,50,000
Less: Gross margin (30% of revenue) 2,25,000
Cost of goods sold (a) 5,25,000
Cost of goods available for sale (b) 5,55,775
Finished goods Inventory on 31-07-2010(b)-(a) 30,775

ii. WIP inventory on 31-07-2010: Rs.

Prime cost 3,97,750
Add: Indirect manufacturing cost 1,48,167
Add: Opening work-in-progress on 01-06-2010 40,000
Manufacturing cost 5,85,917
Less: Cost of goods manufactured 5,18,025
Work-in-process inventory on 31-07-2010 67,892

iii. Direct material inventory on 31-07-2010: Rs.

Direct materials inventory on 1-06-2010 20,000
Add: Direct materials purchased 2,50,000
2,70,000
Less: Direct inventory used during the month (WN.1) 1,75,500
Direct material inventory on 31.07.2010 94,500
Question 5:
A re-roller produced 400 metric tons of M.S. bars spending Rs. 36,00,000
towards materials and Rs. 6,20,000 towards rolling charges. Ten percent of the
output was found to be defective, which had to be sold at 10% less than the
price for good production. If the sales realization should give the firm an
overall profit of 12.5% on cost, find the selling price per metric ton of both the
categories of bars. The scrap arising during the rolling process fetched a
realization of Rs. 60,000.

Answer:
Computation of Selling Price: Rs. Rs.
Cost of Materials 36,00,000
Less: Scrap 60,000 35,40,000
Rolling charges 6,20,000
Total cost 41,60,000
Add Profit (12.5% on cost) 5,20,000
Sales value 46,80,000

Let X = Output
(360 x X) + (40 x 0.90X) = 396 MT
396 MT = Rs. 46,80,000
Output (effective) = 360MT+9 / 10x40MT =396 MT
Selling price per MT of good output = Rs.46,80,000/396
= Rs. 11,818.18 per MT
Selling price of defective per MT = 0.9 x Rs. 11,818.18
= Rs. 10,636.36
Question 6:
Vasudev Ltd. gives the following information:
From financial records:
Rs.’000
(i) Sales for the year 100,00
(ii) Direct labour 21,00
(iii) Management expenses 3,00
(iv) Selling expenses 5,00

From inventory records:

As on 31st March As on 1st April
(i) Raw materials 12,60 10,00
(ii) Finished goods 21,00 19,60
(iii) W-I-P (50% complete) 16,00 12,00

From analysis of past data:

(i) Direct labour would be 175% of works overheads.
(ii) Cost of Goods Sold (excluding Administration Overheads) would be
Rs. 13,200, per unit
(iii) Selling expenses would be Rs. 1,000 per unit

You are required to:

(i) Compute the value of materials purchased during the year.
(ii) Determine the rate of profit earned on sales.
(iii) Discuss whether interest payment of Rs. 3,50,000 on working capital would
affect the above rate of profit.’
Answer:
Cost sheet for the year ended 31st March Rs.’000
Particulars Reference Amount
Opening stock of raw materials (given) 10,00
Add: Purchases & carriage inwards (balance figure) 41,00
Less: Closing stock of raw materials (given) 12,60
Cost of RM consumed 38,40
Add: Direct labour (given) 21,00
PRIME COST 59,40
Add: Factory overheads (21,00 ÷ 175%) 12,00
Add: Opening Stock of W-I-P (given) 12,00
Less: Closing stock of W-I-P (given) 16,00
FACTORY COST / WORKS COST 67,40
Add: Administration overheads (Mgmt. Exp.) (given) 3,00
COST OF PRODUCTION 70,40
Add: Opening stock of finished goods (given) 19,60
Less: Closing stock of finished goods (given) 21,00
COST OF GOODS SOLD (See note) 69,00
Add: Selling and Distribution overhead (given) 5,00
COST OF SALES 74,00
Add: Profit / Loss (balancing figure) 26,00
SALES 10,000

Notes:
(i) The cost sheet is completed by Reverse Working. Purchases amount
is the balancing figure.
(ii) Direct labour = 175% of factory overhead (given). Hence, if direct
labour = 21,00,000, then Factory Overhead = 21,00,000 ÷ 175% = Rs.
12,00,000.
(iii) Selling OH = Rs. 1,000 p.u. = Rs. 5,00,000 (in total). So, Units sold = Rs.
5,00,000 ÷ Rs. 1,000 = 500 units.
(iv) Cost of Goods Sold (excluding Administrative OH
Cost of Goods Sold less AOH = 13,200 p.u. x 500 units = Rs. 66,00,000
Cost of Goods Sold – Rs. 3,00,000 = Rs. 66,00,000
Hence, Cost of Goods Sold = Rs. 69,00,000
(v) Rate of profit = 26,00 ÷ 100,00 = 26%
 (vi) Interest on working capital shall not be considered as “Cost” since it
may distort cost comparison. However, for decision-making
purposes, interest is an essential element of cost and has to be
included to determine relevant costs in a decision.
Question 7:
A company produces a boat that sells for Rs.1,800. An increase of 7-1/2 % in
the cost of materials and 6-1/4% in the cost of labour is anticipated. What
must be the selling price to produce the same percentage of gross profit as
before? The only data available are:
a. The material cost has been 50% of the cost of sales
b. The wages cost has been 20% of the cost of sales
c. The overhead has been 30% of the cost of sales

The anticipated increased costs in relation to the present sales price would
cause a 25% decrease in the amount of the present gross profit. Prepare a
statement of profit and loss per unit, showing the new selling price desired,
and new cost per unit.

Answer:
Cost of sales + profit = sales
If x is the cost of sales, y is the profit, then x + y = 1,800
Present cost Anticipated increase Total
structure
Materials 50% = 0.5x 71/2% of 0.5x = 0.0375x 0.5375 x
Wages 20% = 0.2x 61/4% of 0.2x = 0.0125x 0.2125 x
Overhead 30% = 0.3x 0.3000 x
Total cost of sales 100% x 0.0500x 1.0500 x

Increase in cost of sales = 0.05x = 1/20 x

Reduction in profit 25% of Y =¼y
Increase in costs is equal to the reduction in the amount of profit.
Hence, (1/20) x=¼Y
 X = 5y
Substituting 5y + y = 1,800
Y = 300
X = 1500

Profit = Rs.300 original = 20 % of cost of sales

Cost of sales original = Rs.1,500
Anticipated increase = 1/20 x = 1500/20 = 75
Present cost of sales = 1,575
To have 20% on cost of sales = 315
Selling price = Rs. 1,575 + 315 = Rs. 1,890.
Now the selling price should be = Rs. 1,890

New cost structure:

Material = 750 + 71/2% = 806.25
Wages = 300 + 61/4% = 318.75
Overhead = 450.00
Cost of sales = 1,575.00
Profit = 315.00
Sales = 1,890.00
% profit on cost = 20 %