CHAPTER – 1 COST - SHEET
Q.No.1) The following extract of costing information relate to commodity A for the
Purchase of Raw Material Rs.48,000
Direct Wages Rs.48,000
Stock on 1-4-2006
Of Raw Material Rs.8,000
Of finished Goods 1,600 quintals Rs.6,400
Stock on 31-3-2007
Of Raw Material Rs.6,800
Of finished Goods 3,200 quintals
Work on cost ( factory overhead ) Rs.16,800
Work – in – progress
1 st April 2006 Rs.1,920
31 st March 2007 Rs.6,400
Office and administrative Overheads Rs.3,200
Sales (Finished Product ) Rs.1,20,000
Advertising, Discount allowed and selling cost is Re.0.40 per quintal. During the year
25,600 Quintals of commodity were produced. Prepare cost sheet.
Q.2 Prepare a cost sheet showing the cost per tonne of paper manufactured by
Bhadrachalam Paper mills in January, 2007 under the different element cost.
Paper mills in January, 2007 under the different element cost.
Direct Materials :
(i ) Paper Pulps 1,000 tons at Rs.80 per ton
(ii)Other Miscellaneous materials 200 tons at Rs.50 per ton
Direct Labour :
220 skilled men for 25 days at Rs.6 per day
110 unskilled men for 25 days at Rs.4 per day
Special Equipment hire charges Rs.10000
Variable at 100 per cent on wages
Fixed at 50 per cent on wages
Administrative Overheads at 10 per cent on works cost
Selling and Distribution Overheads at 20 per cent on works cost
Finished Paper Manufactured 1000 tons
Sales of Waste Rs.2,000
Sales Rs.400 per ton
Q.3. A factory can produce 60,000 units per annum at its optimum (100%) capacity.
The estimated cost of production is as under:
Direct Materials : Rs.3 per unit
Direct Labour : Rs.2 per unit
Fixed : Rs.1,50,000 per annum
Variable : Rs.5 per unit
Semi – variable : Rs.50,000 per annum up to 50% capacity and an
Extra expense of Rs.10,000 for every 25% increase in
capacity or part thereof.
The factory produces only against orders and not for own stock. If the
production program of the factory is as indicated below, and the management
desires to ensure a profit of Rs.1,00,000 for the year, work out the average
selling price at which each unit should be quoted.
First 3 months of the year : 50% of capacity.
Remaining 9 months : 80% of capacity
Ignore selling, distribution and administration overheads.
Q.4. A factory manufactures a uniform type of article and has a capacity of 4,000
units per week. The following information shows the different elements of cost for
three consecutive weeks when the output per week was as below:
Units Direct Direct labour Factory overheads
produced materials (Rs) (Rs) (Partly variable &
partly fixed )
2,000 12,000 6,000 12,500
2,800 16,800 8,400 16,500
3,700 22,200 11,100 21,000
The factory has received an order for 5,000 units and is desires a profit of 16-23%
on selling price. Find out the price at which each unit should be sold.
Q.5) M/S bata shoe Co. manufactures two types of shoes A and B production costs
or the year ended 31st March, 2009 was:
Direct Materials : Rs.15,00,000
Direct Wages : Rs.8,40,000
Production Overheads : Rs.3,60,000
There was no work-in-progress at the beginning or at the end of the year.
It is ascertained that:
Direct Material in type A shoes consists twice as much as that in type B shoes.
The direct wages for type B shoes were 60 % of those for type a shoed.
Production Overheads was the same per pair of A and B type.
Administrative overheads for each type were 150 % of Direct wages.
Production during the year were :
Type A 40,000 pairs of which 36,000 were sold.
Type B 1,20,000 pairs of which 1,00,000 were sold.
Selling cost was Rs.1.50 per pair.
Selling price was Rs.44 for type A and Rs.28 per pair for type B.
Prepare a statement Showing cost and profit.
Q.6 The cost structure of an article, the selling price of which is Rs.45,000 is as
Direct Materials 50%
Direct Labour 20%
An increase of 15% in the cost materials and of 25% in the cost of labour is
anticipated These increased costs in relation to the present selling price would cause
a 25% decrease in the amount of present profit per article
You are required:
1.) To prepare a statement of profit per article at present, and
2.) The revised selling price to produce the same percentage of profit to sales as
Chapter -2: ACTIVITY BASED COSTING
Q.1. A company products three products A, B and C for which the standard costs
And quantities per unit are as follows:
Products A B C
Quantity produced 10,000 20,000 30,000
Direct materials / p.u. (Rs.) 50 40 30
Direct labour / p.u. (Rs.) 30 40 50
Labour hours / p.u. 3 4 5
Machine hours / p.u. 4 4 7
No. of purchase requisitions 1,200 1,800 2,000
No. of set ups 240 260 300
Production overheads split by departments:
Department 1 = Rs. 10, 40,000
Department 2 = Rs. 15,84,000
Department 1 is labour intensive and Department 2 is machine intensive.
Production overhead split by activity:
Production scheduling / machine set up Rs.12, 24,000
Receiving / inspecting Rs. 14,00,000
Number of batches received / inspected = 5,000
Number of batches for scheduling and set –up = 800
You are required to:
(i) Prepare product cost statement under traditional Absorption Costing and
activity Based costing method.
(ii) Compare the results under two methods.
Q.2. A company produces four products viz, P, Q, R and S. the data relating to
production activities are as under:
Product Quantity of Material Direct Machine Direct Labour
Production Cost / labour Hours / unit Cost / unit Rs.
P 1,000 10 1 0.50 6
Q 10,000 10 1 0.50 6
R 1,200 32 4 2.00 24
S 14,000 34 3 3.00 18
Production overheads are as under:
(i) Overheads applicable to machine oriented activity: Rs. 1,49,700
(ii) Overheads relating to ordering materials: Rs.7,680
(iii) Set up costs: Rs.17,400
(iv) Administrative overheads for spare parts: Rs.34,380
(v) Materials handling costs: Rs.30,294
The following further information has been compiled:
Product Number of Number of Number of Number of
Set ups Materials times spare
orders Materials Parts
P 3 3 6 6
Q 18 12 30 15
R 5 3 9 3
S 24 12 36 12
(i) Select a suitable cost diver for each item of overheads expense and calculate the
cost per unit of cost driver.
(ii) Using the concept of activity based costing, computer the factory cost per unit of
Q.3. Your Company decides to implement activity based costing (ABC) to the four
products currently made and sold by them. Details of the four products and relevant
information are given below for one period:
Products A B C D
Output in units 120 100 80 120
Cost per unit :
Direct Materials Rs. 40 Rs. 50 Rs. 30 Rs. 60
Direct Labor Rs. 28 Rs. 21 Rs. 14 Rs. 21
Machine hours (per unit ) 4 3 3 3
The four products are similar and are usually produced in production runs of 20
units and sold in batches of 10 units.
The production overheads are currently absorbed by using a machine hour rate, and
the total of the production overhead for the period has been analyzed as follows:
Machine department 10,430
(rent, business, rates, depreciation and supervision )
Set-up costs 5,250
Stores receiving 3,600
Inspection / Quality control 2,100
Materials handling and dispatch 4,620
You have ascertained that the “cost drivers” to be used are as listed below for the
overhead costs shown;
Cost Cost Driver
Set- up costs Number of production runs
Stores receiving Requisitions raised
Inspection /Quality control Number of production runs
Materials handling and dispatch Orders executed
The Number of requisitions raised on the stores was 20 for each product and the
number of orders executed was 42, each order being for a batch of 10 of a product.
You are required to calculate the factory cost per unit of each product under Activity
Q. 6. Family store wants information about the profitability of individual product
Soft drinks, Fresh produce and packaged food. Family store provides the following
data for the year 2005-06 for each product line:
Soft drinks Fresh Packaged
Revenues Rs.7,93,500 Rs.21,00,600 Rs.12,09,900
Cost of goods sold Rs.6,00,000 Rs.15,00,000 Rs.9,00,000
Cost of bottles returned Rs.12,000 Rs.0 Rs.0
Number of purchase orders placed 360 840 360
Number of deliveries received 300 2,190 660
Hours of shelf-Stocking time 540 5,400 2,700
Items sold 1,26,000 11,04,000 3,06,000
Family store also provides the following information for the year 2005-2006
Activity Description of Activity Total cost Cost-allocation Base
Bottles Returning of empty bottles to Rs.12,000 Direct tracing to soft-drink
returns store line
Ordering Placing of orders for purchases Rs.1,56,000 1,560 purchase orders
Delivery Physical delivery and receipt of Rs.2,52,000 3,150 deliveries
Shelf Stocking of goods on store Rs.1,72,800 8,640 hours of shelf
stocking shelves and on-going stocking
Customer Assistance provided
Support To customers including Rs.3,07,200 15,36,000
Check -out Items sold
(i) Family store currently allocates support (all costs other than cost of goods sold) to
product lines on the basis of cost of goods sold of each product line. Calculate the
operating income and operating income as a % of revenues for each product line.
(ii) If family store allocates support costs (all costs other than cost of goods sold to
product line using an activity- based costing system; calculate the operating income
and operating income as a % of revenues for each product line.
(iii) Comment on your answers in requirements (i) and (ii)
Chapter - 3 Overheads
Q.1. You are supplied with the following information and required to work out the
production hour rate of recovery of overheads in departments A,B & C.
Particular Total A B C P Q
Rs. Rs. Rs. Rs. Rs. Rs.
Rent 12,000 2,400 4,800 2,000 2,000 800
Electricity 4,000 800 2,000 500 400 300
Indirect Labour 6,000 1,200 2,000 1,000 800 1,000
Depreciation 5,000 2,500 1,600 200 500 200
Sundries 4,500 910 2,143 847 300 300
31,500 7,810 12,543 4,547 4,000 2,600
Estimated working hours
Expenses of service departments P and Q are apportioned as under :
A B C P Q
P 30% 40% 20% 10%
Q 10% 20% 50% 20%
Q.2. PH Ltd, is a manufacturing company having three production departments, A, B
and C and two service departments X and Y. The following is the budget for
Total A B C X Y
Rs. Rs. Rs. Rs. Rs. Rs.
Direct material 1,000 2,000 4,000 2,000 1,000
Direct wages 5,000 2,000 8,000 1,000 2,000
Factory rent 4,000
Other overheads 9,000
Additional information :
Area (sq. ft.) 500 250 500 250 500
Capital value ( Rs. Lacs) of assets 20 40 20 10 10
Machine hours 1,000 2,000 4,000 1,000 1,000
Horse power of machines 50 40 20 15 25
A technical assessment of the apportionment of expenses of service department is as
A% B% C% X% Y%
Service dept. X 45 15 30 10
Service dept. Y 60 35 5
(i) A statement showing distribution of overheads to various departments.
(ii) A statement showing re-distribution of service department expenses to
(iii) Machine hours rates of the production department A, B, and C.
Q.3. Norma Ltd. Is a retail organization which operates three sales departments and
an administration department in a large supermarket complex. Each sales
department has a manager and its own prescribed gross margin related to selling
price. Exceptionally, the general manager permits the department managers to
reduce the selling price of a product by giving a quantity discount, a special price for
a large order or for an item of out-dated stock.
The following data are given:
Audio & Electrical Furniture
(Rupees) (Rupees) (Rupees)
Stock at November 1
At cost 1,20,000 80,000 2,00,000
At full sales value 2,00,000 1,10,000 2,80,000
Purchases 1,50,000 40,000 1,60,000
Net sales 2,15,000 63,000 2,24,000
Price reductions approved 5,000 3,000 7,000
Expenditure incurred during November was:
Items of Amount Basis of apportionment To sales
expenses Rupees & administration department
Rates 4,000 Area Occupied
Light and heat 2,000 Area Occupied
Advertising 35,250 Sales value for the month before any reduction
Transport 25,850 Sales value for the month before any reduction
Insurance 3,525 Sales value for the month before any reduction
Miscellaneous 1,175 Sales value for the month before any reduction
Canteen 4,125 Numbers of Employees
Salaries and Wages 24,910 See detailed information given below
Depreciation 3,750 See detailed information given below
Administration 2,500 Direct
Other detailed information for November Was:
Salaries & Depreciation No . of Ares
Wages (Rupees) Employees Occupied
(Rupees) (sq. m )
Audio & video 11,900 500 27 600
Electrical appliances 2,000 750 4 200
Furniture 6,000 1,000 15 500
Administration 5,010 1,500 9 300
Total 24,910 3,750 55 1,600
Each month, the total costs of the administration department are apportioned to the
three sales Departments on the basis of the sales values for the month before any
reduction. Using the data given, prepare a tabulated profit and loss statement for
each sales department For November.
Q.4. As a cost accountant of Oberon Ltd., you have prepared budget for sales
quantity, production, Materials, labour utilization and variable overheads for the year
ended 31st December 1999.
Information from the labour utilization budget is shown below:
Department Work force Labour hours Hourly rate
North 20 35,000 Rs. 2.80
East 25 45,000 Rs. 2.60
West 30 55,000 Rs. 2.50
You have produced various estimates for the year‟s fixed costs, some of which can
be easily allocated direct to the three department and some which need to be
apportioned between the three department. The work so far is shown below:
Fixed cost items (Rs.) Allocation or proposed basis
North East West
Plant Depreciation 40,000 20,000 15,000 5,000
Departmental office staff 59,000 15,000 18,000 26,000
Selling & Administration 1,45,000 50,000 40,000 55,000
Factory rent, rates and 70,000 Floor area
Works Canteen 22,500 Number of employees
Warehousing costs 21,000 Materials consumed
Light & heat 10,500 Floor area
Repairs & maintenance 20,000 Net book value of assets weighted
According to average age.
You apportionment of fixed costs will be based on the following information
Floor area Net book Average age of Materials
(m2 ) value of Assets (Years ) Consumed
North 1,200 1,00,000 3 2,60,000
East 1,000 50,000 2 1,20,000
West 600 20,000 5 40,000
(a) Calculate hourly fixed overhead absorption rates for the three departments.
(b) Produce a standard cost card showing how the selling price of a Weber PM2 is
arrived at if the following variable costs are incurred.
Labour: Department North 2 hours
East 4 hours
West 3 hours
Oberon Ltd. Aims for a profit of 35% on sales.
CHAPTER - 5 PROCESS COSTING
Q.1 Product X is obtained after it passes through three distinct processes. You are
required to prepare process accounts from the following information:
Total I II III
Material 15,084 5,200 3,960 5,924
Wages 18,000 4,000 6,000 8,000
Production Overheads 18,000
1,000 Units at Rs. 6/- unit were introduce in process – 1.
Production overheads are to be distributed at 100% of direct wages.
Actual output Normal loss Value of scrap per
Process – I unit
Process - II 950 Units 5% Rs. 4
Process - III 840 Units 10% Rs. 8
750 Units 15% Rs. 10
Also prepare abnormal loss/gain accounts, as well as normal loss account for each
Q.2 Product P passes through three processes. Following are the relevant details:
a. Elements of cost:
Total No. 1 No. 2 No. 3
Rs. Rs. Rs. Rs.
Direct Materials 8,482 2,000 3,020 3,462
Direct Labour 12,000 3,000 4,000 5,000
Direct Expenses 726 500 226 -
Production Overheads 6,000 _ _ _
1,000 units at Rs. 5 each were issued to process No.1
b. Output from each process was:
Process No.1 920 units
Process No.2 870 units
Process No.3 800 units
c. Normal loss was estimated as :
Process No.1 10% of units introduced
Process No.2 5% of units introduced
Process No.3 10% of units introduced
d. The loss in each process represented scrap which could be sold to a merchant at a
value as follows:
Process No.1 Rs. 3 per unit
Process No.2 Rs. 3 per unit
Process No.3 Rs. 6 per unit
f. There was no stock of materials of work in progress in any department at the
beginning or end of the period. The output of each process passes direct to the next
process and finally to finished stock. Production overheads are allocated to each
process on the basis of 50% of the cost of direct labour.
Prepare process Accounts, Normal Loss A/c and Abnormal Loss & Abnormal Gain
Q.3 Product A Passes through three processes before it is transferred to finished
stock. The following information is obtained for the month of July:
Particulars Process - Process - Process - Finished
I II III Stock
Rs. Rs. Rs. Rs.
Opening stock 5,800 8,000 10,000 20,000
Direct materials 40,000 12,000 15,000 _
Direct wages 35,000 40,000 35,000 _
Manufacturing overheads 20,000 24,000 20,000 _
Closing stock 10,000 4,000 15,000 30,000
Profit % on transfer price to next 20% 10% _
Inter process profit for opening _ 1,395 2,690 6,534
Stock in process was valued at prime cost and finished stock has been valued at the
price at which it is received from Process III. Sales during the period were
Rs.4,00,000. Prepare and compute.
1. Process cost accounts showing profit elements at each stage.
2. Actual realized profit, and
3. Stock valuation for balance sheet purpose.
Q.4 From the following information, prepare process account:
1. Opening work-in-progress Stage of completion
(200 Units/ Rs. 800/-) 100% Materials
2. Units introduced: 1050 units
3. Transfer to next process: 1100 units
4. Closing Stock: 150 units Stage of completion
5. Cost incurred during the period:
Material Rs. 1,050
Labour Rs. 2,250
Production Overheads Rs. 1,125
a. The following data relate to process Q :
i. Opening work-in-process 4,000 units
Degree of completion: Materials (100%) Rs.24,000
Labour (60%) Rs.14,400
Overheads (60%) Rs.7,200
ii. Received during the month of April 2005, from Process - P : 40,000 units
iii. Expenses incurred in Process Q during the month: Rs.1,71,000
iv. Closing work-in-process: 3,000 units
Degree of completion:
Materials: 100%, Labour & Overheads: 50%
v. Units scrapped: 4,000 units
Degree of completion :
Materials: 100%, Labour & Overheads: 80%.
vi. Normal loss: 5% of current input.
vii. Spoiled goods realized Rs. 1.50 each on sale.
viii. Completed units are transferred to warehouse
Required to prepare:
1. Equivalent units statement
2. Statement of cost per equivalent unit and total costs.
3. Process Q Account
4. Any other account necessary.
Q.5 The following data are available in respect of process I for February 2006.
1. Opening stock of work-in-process : 800 units at a total cost of Rs.4,000
2. Degree of completion of opening work-in-process:
3. Input of materials at a total cost of Rs.36,800 for 9,200 units.
4. Direct wages incurred Rs.16,740
5. Production overheads Rs.8,370
6. Units scrapped 1,200 units. The stage of completion of these units was :
7. Closing work-in-process: 900 units. The stage of completion of these units was
8. 7,900 units were completed and transferred to the next process
9. Normal loss is 8% of the total input (Opening stock plus units put in).
10. Scrap value is Rs.4 per unit.
You are required to show the process & other accounts for February 2007.
Chapter-9 Material Cost Control
Q.1 XYZ ltd. manufactures three products P1, P2 and P3. These are made in three
production departments from four materials M1, M2, M3 & M4.
The following information is supplied: Pre-determined product cost details:
Materials Used in Cost per material Products
Department (Rs.) P1 P2 P3
(Unit per product)
M1 D1 0.50 --- 1 2
M2 D2 0.20 1 --- 2
M3 D2 0.25 2 1 ---
M4 D3 0.15 2 2 1
Budgeted details : Rs. Rs. Rs.
Sales for the year (Rs.000) 260 580 450
Sales price each 5 10 6
Stocks : Finished Products (in thousands of products)
At the beginning of the year 1st Jan 5 10 15
At the close of the year – 31st Dec. 10 15 30
Stocks : Raw materials : (‘000 M1 M2 M3 M4
At the beginning of the year 1st Jan 30 40 10 60
At the close of the year – 31st Dec. 40 30 20 60
Required to prepare:
1. The production budget.
2. The purchasing budget.
Q.2 X Ltd. requires 2,500 units of Y per month. The cost per order placed is Rs.150/-
and each unit costs Rs.200. The cost of capital is 18% per annum.
You are required to calculate:
2. Minimum total inventory cost including purchase cost.
3. Number of orders per annum.
4. Inventory cycle.
Q.3 EXE Ltd. has received an offer of quantity discounts on its order of materials as
Price per Tonne Tonnes
1,200 Less than 500
1,180 500 and less than 1000
1,160 1,000 and less than 2000
1,140 2,000 and less than 3000
1,120 3,000 and above.
The annual requirement for the materials is 5,000 tonnes. The ordering cost per
order is Rs.1,200 and the stock holding cost is estimated at 20% of the materials
cost per annum. You are required to compute the most economical purchase level.
Q.4 From the following information you are required to calculate, for each product: (1)
re-order level (2) maximum stock (3) minimum stock (4) average stock.
Product X Product Y
Average Consumption per week 50 50
Minimum requirement per week 25 25
Maximum usage per week 75 75
EOQ 300 500
Replacement time 4 to 6 weeks 2 to 4 weeks
Buffer stock 200 150
Q.5 You are required from the data given below, to calculate for component 697:
a. Re-order level
b. Re-order quantity
c. Minimum level
d. Average stock held
Data: Components 697 is one of thousands of item kept in the stores of a
The maximum stock level has been set at 17,000 units
Expected consumption per month
Maximum: 3,000 units
Minimum: 1,600 units
Estimated delivery period
Maximum – 4 months
Minimum – 2 months
Chapter-10 Operating Costing
Q.1. A cement manufacturing company is facing the problem of transportation from its
quarry. The quarry is situated 25 Kms away and the only means of transport
available is the roadways. The company has received quoatations from some of the
local transporters at Rs.22 Rs.22.50 and Rs.23 per tonne of limestone transported,
with an escalation clause in respect of diesel oil costs.
The quantity of limestone to be transported per month is 24,000 tonnes.
While studying the feasibility of department transport, the following facts came to be
a. Two types of trucks are available in the market, namely, 10 tonners and 8
b. Details of operating costs for the trucks :
10 Tonner 8 Tonnre
Purchase price Rs.2.5 Lakh Rs.2.0 Lakh
Estimated useful life 5 year 5 year
Residual value Rs.40,000 Rs.20,000
Km. per litre of diesel 3Km 4 Km
Estimated repair and maintenance cost per Rs.1,000 P.m Rs.1,600 P.m
Vehicle and road tax per quarter Rs.600 Rs.600
c. cost of diesel per litre
d. cost of finance for purchase of trucks 12% p.a
e. Each vehicle can run 5 trips (up and down) each day, and can run on a an
average for 24 days in a month.
f. Drivers will have to be recruited according to the number of trucks to be
purchased. In addition, one extra driver for every 5 vehicles will be required for the
entire fleet. A driver will cost Rs.400 per month.
g. An additional transport supervisor would be required at a cost of Rs.1,000 per
h. Yet another possibility is to hire sufficient number of trucks (8 tonnes only) from a
transport company at the rate of Rs.6,000 per month pe truck. The transport
company will undertake to pay repairs an maintenance costs as well as vehicle and
road tax. The cement company has to bear the cost of driver, supervisor and other
You are required to advise the board on a appropriate choice among the above
alternatives considering also the option of entrusting the job to the transport
Q.2. Remix p.i.c makes ready-mixed cement and operates a small fleet of vehicles which
delivers the product to customers within its delivery area.
Maintenance records for the previous five year reveal:-
year Mileage of vehicles Maintenance cost (Rs)
1 1,70,000 13,500
2 1,80,000 14,000
3 1,65,000 13,250
4 1,60,000 13,000
5 1,75,000 13,750
Transport statistics reveal:
Number of journey Average tonnage Average distance to
Vehicles Each day (Trips) Carried to customers
customers (Tones) (miles)
1 6 4 10
2 4 4 20
3 2 5 40
4 2 6 30
5 1 8 60
There are five vehicles operating a five day week, for 50 weeks a year.
Inflation can be ignored.
Standard cost data include:-
Driver‟s wages are Rs.150/- each per week.
Supervisor/relief driver‟s wages is Rs.200 per week.
Depreciation, on a straight line basis with no residual value:
Loading equipment Rs.1,00,000 5 Year
Vehicles (each) Rs.30,000 5 Year
Petrol cost 30 P. per mile.
Repair cost 7 ½ P. per mile
Vehicle licences cost Rs.400 p.a. for each vehicle
Insurance cost Rs.600 p.a. in total
Tyres costs Rs.3,000 p.a. in total
Miscellaneous costs,Rs.2,250 p.a. in total.
you are required to calculate a standard rate per tonne/mile of operating vehicles.
Q.3 Taj group of Hotels runs a chain of hotels throughout the world. It has its head
office in Bombay. The management has been preparing its budget for the next year
and first hotel has selected in Hotel Taj, Bombay. The hotel does not remain fully
occupied always .However much depends on seasons. For this purpose, the year is
divided in three parts, summer, winter and monsoon each season of 4 months.
There are three types of rooms – ordinary, deluxe and aristocrat.
The management has made the estimate for the coming year.
Laundry Charges 4,00,000
Bed Sheet etc; 2,50,000
Municipal Taxes ,rates 6,00,000
The charges mentioned above are fixed irrespective of capacity utilization,
whereas charges mentioned below depend solely on the capacity utilization.
(i) Rs. 20 per day in each season for ordinary room
(ii) Rs. 25 per day in each season for Deluxe room
(iii) Rs. 30 per day in each season for aristocrat room
b. Salary of room attendant
(i) Rs. 40 per day ordinary room in summer
(ii) Rs. 50 per day deluxe room in summer
(iii) Rs. 60 per day aristocrat room in summer
(iv) Rs.30,40&50 respectively for ordinary room, deluxe room and aristocrat room
respectively in winter and monsoon.
c. Light refreshment
(i) Rs.35 per day –for summer
(ii) Rs.45 per day –for winter
(iii) Rs.60 per day-for monsoon
d. Other expenses – Rs.20 per day room
The capacity utilization, as such, is very uncertain. However based on past
experience, following could be the best possible estimates:
In summer, the utilization is maximum and all 150 ordinary rooms remain occupied.
in the case of deluxe room and aristocrat rooms ,the utilization is 90 and 60 i.e.
90% and 80% respectively.
In winter, utilization is 80% and 60% and 40% respectively for ordinary, deluxe and
aristocrat rooms. In monsoon utilization is only 60%, 40% and 20% respectively.
In addition, each hotel has to bear the change of head office expenses,
proportionately. It is estimated that head office expenses would be Rs. 20,00,000/-
and that the Bombay branch will bear 10% of total head office expenses.
It is the management‟s policy to add 25% to the cost and further that aristocrat
room charges should be 3 tomes the ordinary room charge and deluxe room should
be twice the ordinary room change.
You required to work out various rates for the next year .Also work out thee rates if
deluxe room charge should be triple of ordinary room in charge in all season but in
aristocrat room case, charge should be 3.5 times in summer, 5 times in winter and 8
times in summer as compared to ordinary room charge.( Assume 360 days for
Chapter-12 Budgetary control
Q.1 A manufacturing company submits the following figures for the first quarter to
Particulars Product-X Product-Y Product-Z
Sales in (unit)
Jan-2005 25,00 30,00 1,00,000
Feb-2005 0 0 1,00,000
Mar-2005 20,00 25,00 1,00,000
Selling price per unit 0 0 Rs.40
Target for 1st quarter-2006
sales quantity increase 20% 10% 10%
sales price increase Nil 10% 25%
stock position 1st Jan2006
percent of Jan 2006 sales 50% 50% 50%
stock position 31stmarch
2006 20,000 25,000 50,000
stock position Jan & Feb
percentage of subsequent 50% 50% 50%
You are required to prepare the sales and production budget for the 1st quarter of
2006. Show working clearly.
Q.2 You are required, from the data given below, to prepare next years budget for
Standard cost data are as follows:
X 24 kilos at Rs. 2 48
30 kilos at Rs. 2 60
Y 10 kilos at Rs. 5 50
8 kilos at Rs. 5 40
Z 5 kilos at Rs. 6 30
10 kilos at Rs. 6 60
Unskilled 10 hours at Rs. 3 per hour 30
5 hours at Rs. 3 per hour 15
Skilled 6 hours at Rs. 5 per hour 30
5 hours at Rs. 5 per hour 25
Production overheads are absorbed on the basis of direct labour hours while other
overhead is recovered on the basis of 20% of production cost. Profit is calculated at
20% of sales price.
Budgeted data for the year:
X Y Z
Rupees Rupees Rupees
Stock at standard price:
1st January 60,000 1,25,000 72,000
31st December 70,000 1,35,000 75,000
Production overheads: Rs.9,00,000
Labour hours: 75,000
Aye (Rs.) Bee (Rs.)
Finished goods at production cost
Opening stock 1,52,000 2,56,000
Closing stock 1,90,000 3,52,000
Sales at standard sales price 13,68,000 15,36,000
Q.3 ACE Ltd. manufactures three products A, C and E in two production departments F
and G, in each of which are employed two grades of labour. The cost accountant is
preparing the annual budgets for the next year and he has asked you to prepare,
using the data given below, the labour cost budget.
Product – Product – Product – C
A B (Rs.000)
1st January next year 720 540 1,800
31st December next year 600 570 1,000
All stocks are valued at standard costs per 24 15 20
Standard profit calculated as percentage 20% 25% 16.2/3%
Total Product– A Product – B Product – C
(Rs.,000) (Rs.000) (Rs.000) (Rs.000)
Budgeted sales are
South 6,600 1,200 1,800 3,600
West 5,100 1,500 1,200 2,400
North 6,380 1,500 800 4,080
18,080 4,200 3,800 10,080
Normal rejection of production 10% 20% 5%
Standard labour times per unit rate and standard rates per hour:
Rate Hours per Unit
Product - A Product - B Product - C
Department – F
Grade – 1 1.80 2.0 3.0 1.0
Grade - 2 1.60 1.5 2.0 1.5
Department – G
Grade – 1 2.00 3.0 1.0 1.0
Grade - 2 1.80 2.0 1.5 2.5
Q.4 The expenses budgeted for production of 10,000 units in a factory are furnished
Variable overheads 20
Fixed overheads (Rs. 1,00,000) 10
Variable overheads (Direct) 5
Selling expenses (10% Fixed) 13
Distribution Expenses (20% Fixed) 7
Administrative Expenses (50,000) 5
Total cost of sale per unit (to make and 155
Prepare a budget for production of:
a. 8,000 units
b. 6,000 units
Also, calculate the budgetary allowance for 7,000 units.
Chapter-13 STANDARD COSTING
Q. 1 Stick-well Ltd. is operating a standard costing technique. Standards for one
batch revealed the following:
Materials Quantity Price Total Cost
A 30 4 120
B 25 2.4 60
C 45 4 180
Output 90 360
In a particular period, when five batches were produced, records revealed the
Materials Quantity Price Total Cost
A 180 4.5 810
B 160 3 480
C 260 3 780
Output 450 2,070
You are required to compute the materials cost variances:
Q.2 From the following details, compute the labour cost variances.
Standard Data (500 units) Actual data (600 units)
Type Hours Rate Total Type Hours Rate Total
Skilled 300 3 900 Skilled 248 4 992.00
Skilled 120 2 240 Skilled 93 1.5 139.50
Unskilled 180 1 180 Unskilled 279 1 279.00
600 1320 620 1410.50
Q.3 X Ltd. manufactures product X which requires 2 hours of skilled men, 3 hours of
semi-skilled men and 5 hours of unskilled men per unit at Rs.5, 3 & 2 per hour
respectively. During January 2003, the production department reported output of
5000 units of product X. The labour cost incurred was as detailed below:
Type Hours paid for Rate per hour
Skilled 9,000 Rs.7
Semi-skilled 17,000 Rs.2.75
Unskilled 30,000 Rs.1.50
The total hours paid for included 1000 idle hours due to machine break down etc.
out of which 500 hours pertained to skilled men, 400 hours pertained to semi-skilled
men and balance to unskilled men.
1. Calculate labor cost variances.
2. Recalculate the labor cost variances, given that the break up of 1000 idle hours is
Q.4 From the following information about sales calculate necessary sales variances.
Product Standard Actual
No. Rate in Total No Rate in Total
Rs. Per Rs. Rs. Per Rs.
A 5,000 5 25,000 6,000 6 36,000
B 4,000 6 24,000 5,000 5 25,000
C 3,000 7 21,000 4,000 8 32,000
12,000 70,000 15,000 93,000
The company‟s budgeted market share was 20% and the actual market size was
Q.6 Vinak Ltd. has furnished you the following information for the month of August
Output (units) 30,000 32,500
Hours 30,000 33,000
Fixed overheads 45,000 50,000
Working days 25 26
Calculate the fixed overheads cost variances.
Q.7 A company produces a single product from a single material, It operates a standard
cost system and furnishes you the following information.
Particulars Standard Actual
Production 8,000 6,000
Total Quantity – kg 16,000 13,000
Total Amount 32,000 27,000
Total hours 2,400 2,000
Total amount 3,000 3,000
Variable overheads expenses:
Total Amount 2,400 2,200
You are required to compute the necessary variances.
Q.8 Modern Toys Ltd. had budgeted the following for a month:
Toy A 900 units at Rs.50 per unit
Toy B 600 units at Rs.100 per unit
Toy C 1500 units at Rs.75 per unit
As against this the actual sales were:
Toy A 1000 units at Rs.55 per unit
Toy B 700 units at Rs.95 per unit
Toy C 1100 units at Rs.78 per unit
The standard costs per unit of A, B, C were Rs.45/- Rs.85/- and Rs.65/- respectively
whereas actual costs per unit were Rs.50/-, Rs.80/- and Rs.70/- respectively.
Compute necessary sales and profit variances.
Q.9 The standard profit per unit of Y is Rs.3/-, ascertained as follows:
Standard costs per unit
Materials (4 kg at Rs.1.50) 6.00
Labor (5 hours at Rs.0.80) 4.00
Overheads – variable at Rs.0.30 per hour 1.50
Fixed at Rs.0.50 per hour 2.50
Total cost per unit 14.00
Profit per unit 3.00
Selling price 17.00
The standard cost statement has been drawn up on the basis of production and
sales of 4000 units per month as against the available capacity of 5000 units. For
the month of March, 2003, the following profit and loss emerged:-
Sales (3,500 units) 66,000
Less: Cost of goods produced:
Materials at Rs.1.40 per kg 21,000
Labor at Rs.0.85 per hour 15,640
Variable overheads 5,200
Fixed overheads 10,500 52,340
Actual profit 13,660
1. The number of days worked in the March were 23 as against the normal 25 days
2. Failure of power led to idleness of 1,000 hours.
You are required to reconcile the actual and standard profits on the basis of
variances. Also calculate all possible ratios.
Q.10 X Ltd. manufactures product X, the standard production cost of which is as given
Direct material 5 kg at Rs.2/- per kg
Direct labor 2 hours at Rs.3/- per hour
Variable overheads 2 hours at Rs.0.50/- per hour
Fixed overheads 2 hours at Rs.1/- per hour
The budget for current year was based on production and sale of 5000 units to be
sold at Rs.30 per unit. As against this, the company sold 6000 units at Rs.28 per
unit. During the year the company manufactured 8000 units and further, it had 2002
incomplete units which are estimated to be80%, 60% complete as regards material,
labor and overheads respectively. The company had opening stock of 500 units.
During the year, the company incurred expenses as detailed below:
Direct material 50,000 kg purchased at Rs.1.8 per kg
Direct labor 9,000 hours at Rs.3.5 per hour
Variable overheads Rs.4000/-
Fixed overheads Rs.12,000/-
You are required to calculate sales and profit variances.
Q. 11 X Ltd. operates standard costing system. The following variances were reported
for the Month of May, 2003.
Materials price variances 300 (A)
Materials mix variances 200 (F)
Usage variances 500 (A)
Labor rate variances 300 (F)
Idle time variances 150 (A)
Labor mix variances 250 (A)
Standard material cost Rs.10,200
Actual labor cost Rs.8,700
Overheads efficiency variances 400 (A)
You are required to calculate:
a. Labor time variances
b. Material yield variances
c. Actual material cost
d. Standard labor cost
It is known that standard rate of pay (average) is 50% of fixed overheads rate.
Chapter – 14 Marginal Costing
Q.1 From the following information, you are asked to compute:
1. Break-even point in value and volume
2. P/V ratio.
3. Margin of safety
4. Margin of safety ratio
Sales value 20,00,000
Material cost 4,00,000
Labour cost 5,00,000
Variable manufacturing expenses 1,00,000
Variable selling and distribution expenses 2,00,000
Factory supervisor 12,000
Office manager 18,000
Other office employees 60,000
Repairs and maintenance Rs.90,000
Depreciation, rate and taxes Rs.30,000
General and administrative expenses Rs.90,000
Salesman‟s Commission 5% of sales
(not included in selling and distribution expenses)
Selling price per unit Rs.100/-
Fixed selling and distribution overheads Rs.1,90,000
Q.2 The budgeted sales of the products of the company are as follows:
X Y Z
Budgeted sales in unit 10,000 15,000 20,000
Budgeted sales price per unit 4 4 4
Budgeted variable costs per unit 2.5 3 3.5
Budgeted fixed expenses 12,000 9,000 7,500
From the above information, you are required to compute the following for each
a. The budgeted profit
b. The budgeted break even sales
c. The budgeted margin of safety in terms of sales value.
Q.3 The Asian Industries specialize in the manufacture of small capacity motors. The
cost structure of the motor is as under:
Variable overhead 75% of labor cost
Fixed overheads of the company amounted to Rs.2.30 lakhs per annum. The sale
price of the motor is Rs.230 each.
a. Determine the number of motors that have to be manufactured and sold in a year
in order to break-even.
b. How many motors have to be made and sold to make a profit of Rs.1 lakh per
c. If the sales price is reduced by Rs.15 each, how many motors have to be sold to
Q.4 X Ltd. manufactures a standard product, the marginal costs (Per unit) of which are
Direct materials Rs.160.00
Direct wages Rs.120.00
Variable overheads Rs.20.00
Its annual budget includes the following:
Output: 40,000 units
Recently, the top management of the organization has started thinking in terms of
revising its budget and some alternatives in the form of proposals (Stated below)
where discussed in its last board meeting.
Proposal – І
The organization expects a profit of Rs.48,00,000/- and want to know the selling
price to be quoted for that purpose. It is estimated that (a) an increase in
advertising expenditure of Rs.9,44,000/- would result in a 10% increase in sales
quantity and (b) fixed production overheads and marketing overheads would
increase by Rs.2,00,000 and Rs.1,36,000/- respectively.
Proposal – ІІ
The organization expects that, with an additional advertise expenditure; sales
quantity would go up by 20% and a profit margin of 15% would be obtained. Under
the circumstances, fixed production overheads and marketing overheads are
expected to increase by Rs.2,00,000 respectively. The organization wants to know
the additional expenditure on advertisement required with a view to achieving the
You are required to prepare forecast statements for each of these alternatives and
determine the selling price per unit to be quoted (Proposal – І) and the additional
expenditure on advertisement required (Proposal – ІІ)
Q.5 Ever Forward Ltd. is manufacturing and selling two products:- Splash and Flash at
selling price of Rs.3 and Rs.4 respectively. The following sales strategy has been
outlined for the year 2004.
(1) Sales planned for year will be Rs.7.20 lakhs in the case of Splash and Rs.3.50 in
the case of Flash.
(2) To meet the competition, the selling price of Splash will be reduced by 20% and
that of Flash by 12.5%.
(3) Break-even is planned at 60% of the total sales of each product.
(4) Profit for the year to be achieved is planned as Rs.69,120 in the case of Splash
and Rs.17,500 in the case of Flash. This would be possible by launching a cost
reduction programme and reducing the present annual fixed expenses of
Rs.1,35,000 allocated as Rs.108,000 to Splash and Rs.27,000 to Flash.
You are required to present the proposal in financial terms giving clearly the
(a) Number of units to be sold of Splash and Flash to break even as well as the total
number, of units of Splash and Flash to be sold during the year.
(b) Reduction in fixed expenses product-wise that is envisaged by the Cost
Q.6 The particulars two plants producing an identical product with the same selling
price are as under:
Plant - A Plant - B
Capacity utilization 70% 60%
(Rs. In lakhs) (Rs. In Lakhs)
Sales 150 90
Variable costs 105 75
Fixed costs 30 20
It has been decide to merge Plant B with Plant A; the additional fixed expenses
involved in the merger will amount to Rs.2 Lakhs p.a.
a. Find the break-even point of plant A and plant B before the merger and the
break-even point of merged plant.
b. Find the capacity utilization of the integrated plant required to earn a profit of
Q.7 Kalyan University conducts a special course of „Computer Applications‟ for a month
during summer. For this purpose, it invites applications from graduates. An entrance
Test is given to the candidates and based on same, a final selection of a hundred
candidates is made. An entrance test consists of four objective types of
examinations and is spread over four days, one examination per day. Each
candidate is charged a fee of Rs.50/- for taking up the entrance test. The following
data was gathered for the past two years.
Statement of Net revenue from the Entrance Test for the course on “Computer
Gross Revenue (Fees collected) 1,00,000 1,50,000
Valuation 40,000 60,000
Question booklets 20,000 30,000
Hall rent at Rs.2,000 per day 8,000 8,000
Honorarium to chief administrator 6,000 6,000
Supervision charges (One supervisor for every 100
candidates at the rate of Rs.50 per day) 4,000 6,000
General administrative expenses 6,000 6,000
TOTAL COST 84,000 1,16,000
Net Revenue 16,000 34,000
You are required to compute:
a. The budgeted net revenue if 4,000 candidates take up the entrance test in 2004.
b. The break-even number of candidates.
c. The number of candidates to be enrolled if the net income desired is Rs.20,000/-
Q.8 X company has been so far producing and selling following three products.
Information about selling price and the cost is given below:
X Y Z
Selling price Rs.14.00 Rs.16.00 Rs.13.00
Materials Rs.5.00 Rs.10.00 Rs.2.00
Labor Rs.2.00 Rs.1.00 Rs.3.00
Variable overheads Rs.1.00 Rs.0.50 Rs.1.50
Fixed overheads Rs.5.00 Rs.2.50 Rs.7.50
Net profit (loss) Rs.1.00 Rs.2.00 Rs.(1.00)
The company at present has been producing 5000 units of X, 8000 units of Y and
1000 units of Z. As product Z has been consistently fetching sizeable amount of loss
only, the company virtually is putting no worth noting effort to augment the sales of
the same. In fact it is seriously thinking of dropping this product. The fixed
overheads in all amount to Rs. 50,500/- p.a. and they are apportioned to the three
products on the basis of labor cost.
You are required to state profit implications of dropping product Z.
Q.9 A multi-product company has the following costs and output data for the last year:-
X Y Z
Sales mix (in value) 40% 35% 25%
Selling price Rs.20 Rs.25 Rs.30
Variable cost per unit Rs.10 Rs.15 Rs.18
Total fixed costs Rs.1,50,000
Total sales Rs.5,00,000
The company processes to replace product Z with product S.
Estimated cost and output data are:
X Y S
Sales mix (in value) 50% 30% 20%
Selling price Rs.20 Rs.25 Rs.28
Variable cost per unit Rs.10 Rs.15 Rs.14
Total fixed costs Rs.1,60,000
Total sales Rs.4,50,000
Analyze the proposed change and suggest what decision the company should take.
Also state the break-even point for the company as a whole in the two situations.
Q.10 Tours Ltd. produces three products A, B and C from the same manufacturing
facilities. The cost and the other details of the three products are as follows:
A B C
Selling price/unit (Rs.) 200 160 100
Variable cost/unit (Rs.) 120 120 40
Maximum production per month (unit) 5000 or 8000 or 6000 or
Maximum demand per month (units) 2000 4000 2400
Processing hours can not be increase beyond 200 hours per month. Fixed cost is
You are required to:
a. Compute the most profitable product mix.
b. Compute the overall break-even sales of the company for the month based on the
mix calculated in (a) above.
Q.11 A firm can produce three different products from the same raw material using the
same production facilities. The requisite labor is available in plenty at Rs.8 per hour
for all products. The supply of raw materials, which is imported at Rs.8 per Kg. is
limited to 10,400 Kgs. for the budget period. The variable overheads are Rs.5.60 per
hour. The fixed overheads are Rs.50,000. The selling commission is 10% on sales.
a. From the following information, you are required to suggest the most suitable
sales mix, which will maximize the firm‟s profits. Also determine the profit that will
be earned at that level:
Product Market Selling price Labor hours Raw material
demand per unit Rs. required required per
(units) per Unit Unit
X 8,000 30 1 0.7
Y 6,000 40 2 0.4
Z 5,000 50 1.5 1.5
b. Assume, in above situation, if additional 4,500 kgs of raw materials is made for
production, should the firm go in for further production, if it will result in additional
fixed overheads of Rs.20,000 and 25% increase in the rates per hour for labor and
Q.12 The Management of M/s. Rama Ltd. Has prepared the following estimates of
working results for the year ending 31st December,2003, for the purpose of
preparing the budget for the year ending 31st December 2004.
Direct materials per unit 8.00
Direct wages per unit 20.00
Variable overheads per unit 6.00
Selling price per unit 62.50
Fixed overheads per annum Rs. 3,37,500
Sales per annum Rs. 12,50,000
It is expected that during the year 2004, the material prices and the variable
overheads will go up by 10% and 5% respectively. As a result of reorganization of
production methods, the overall direct labor efficiency will increase by 12% but the
wage rate will go up by 5%. The fixed overheads are expected to increase by
Rs.62,500/-. The marketing manager states that market will not absorb any increase
in the selling price. However, he is of the view that if advertisement expenditure is
increased, the sales quantity will increase as under;
Advertisement expenses 40,000 97,000 1,60,000 2,30,000
Additional Units of sales 2,000 4,000 6,000 8,000
You are required to;
a. Present an income statement for the year 2003.
b. Evaluate the four alternative proposals put forth by the marketing manager,
determine the best output and sales level to be budgeted and prepare an overall
income statement for 2004 at that level of output and sales:
Q.No.6) An agriculturists has 480 hectares of land on which he grows potatoes,
tomatoes peas and carrots. Out of the total area of land, 340 hectares of land
suitable for all the 4 vegetables but the remaining 140 hectares is suitable only for
growing peas and carrots. Labor for all kinds of farm work is available in plenty.
The market requirement is that all the 4 types of vegetables must be produced with
a minimum of 5,000 boxes of any one variety. The farmer has decided the area
devoted to any crop should be in term of complete hectares and not in fractions.
The only other limitation is that not more than 1,13,750 boxes any one vegetable
can be sold.
The relevant data concerning the production, market prices and costs are as below:
Potatoes Peas Carrot Tomatoes
Annual Yield : Boxes per hectare 350 100 70 180
Costs: Direct Material per hectare (Rs.) 952 432 384 624
Direct Labour: (Rs.)
- Growing per hectare 1,792 1,216 744 1056
- Harvesting and packing per box 7.20 6.56 8.80 10.40
- Transport per box 10.40 10.40 8 19.20
Market Price per Box (rs.) 30.76 31.74 36.80 44.55
Fixed expenses per annum:
Growing Rs.1,24,000 Harvesting Rs.75,000 Transport
General administration Rs.1,50,000.
It is possible to make the land presently suitable for peas and carrot, viable for
growing potatoes and tomatoes is certain development work in undertaken. This
work will involve capital expenditure of Rs.6,000 per hectare which bank is prepared
to finance at 15% interest per annum. If such improvement is undertaken, the
harvesting cost of entire crop of tomatoes will decrease on an average by Rs.2.60
1. Calculate, with in the given constraints, the area to be cultivated in respect of
each crop to achieve the maximum total profit and the amount of such profit
before the land development work in undertaken.
2. Assuming that the other constraints continue, advice whether the land
development scheme should be undertaken and if so the maximum total
profit that would be achieved after the said development scheme is