Cost Sheets

Study Note - 12
Cost Sheets

This Study Note includes

● Introduction
● Cost Accumulation
● Cost Collection
● Cost Sheet Formats & Preparation

12.0 Introduction
In the preceding sections, we have dealt with the basic concepts of costs and the various ele-
ments of costs. We have also seen the different steps followed in determination of cost of a
product or rendering a service. Treatment of various costs has been discussed at length. You
are by now very well aware that the term cost has wide connotations and would not mean
anything in isolation. Costs must be understood if they are to be controlled. Measurement of
costs is the first step in the process of control simply because you cannot control unless you
measure. Measurement of cost would mean different when applied to different industries.

The cost has to be measured with respect to the cost centers first and then at a broader level
with respect to the cost unit. The journey towards the aim of determining cost of a product or
service may take various routes. But the logic is same i.e. collect all relevant costs in the process
of converting raw material into finished product and accumulate the total costs.

To put in simple words, to generate any product or service, resources are needed called as
inputs. Theses inputs are used in a process of conversion. The end result is the output which
could either be a product or a service. The resources consume costs. While determining total
cost of resources, the costs of all resources used (directly or indirectly) in the process are accu-
mulated. This requires establishing the relationship between the resource and the product or
service.

Input/ Process - One or many Output -

resources operations - independent or Finished
sequential

Basic raw Labour, staff, facilities, utilities

The process of accumulating costs will differ according to the nature of business and the activi-
ties carried out. The common way to accumulate costs is to prepare cost sheets.

B 158 ACCOUNTING
 12.1 Cost Accumulation
The logic of cost accumulation is to track costs in the same sequence as the resources get used.
See the following flow of activities:

- Raw material & other material are purchased and stored

- The material is used up in process of conversion
- People or machines work upon the material while in the process
- The process results into some products that are finished

The cost data needs to be collected along this whole chain that ends when a final product is
produced. The cost accumulation is done based on the source documents which are used in
booking the costs. Depending upon the type of business, a cost unit is determined for which
costs must be accumulated. The departmentalisation of the business organisation is done to
suit the production process. For example, in a fruit processing industry, the costs would be
accumulated as per different process involved i.e. cutting, pulp formation, blending, purifying
and final packing. As the physical flow of material happens from one process to the other, costs
are also passed on from one process to the next in line.

For the purpose of convenience, a cost tree in the following format explains the composition of
costs.

Total cost

Material Labour Expenses

Direct Indirect Direct Indirect Direct Indirect

As we know all the direct element of cost together make Prime Cost. Sequentially, production
overheads are added to get Factory Cost or Works Cost. Then Administration overheads are
added to the Factory Cost to get Cost of Production. Once the product is ready for sale, the
selling and distribution overheads are added to get Cost of Sales or Cost of Goods Sold. When
this is deducted from Sales revenue we get profit or loss.

Process of accumulation of cost comprises of

- Identification of costs to the cost centers or departments

- Apportionment of service costs to production costs
- Absorption of costs into cost units

ACCOUNTING B 159
 Cost Sheets

12.2 Cost Collection

Cost collection is the process of booking costs against a particular cost account code under a
particular cost center or directly under a cost unit, as the case may be. Source documents are
used to generate the record of the costs incurred or to be incurred. These source documents are
properly authorised and numbered. They act as the primary source of entry. In additions to
these documents there could be other documents and reports such as allocation sheets, labour
utilisation reports, idle time & overtime analysis, scrap reports etc which help in identifying
costs. Let us see how the costs are collected.

Material costs: These costs are identified with cost unit with the help of ‘stores issue sum-
mary’. In case of job costing, there will be job-wise summary prepared on the basis of ‘material
issue notes’. In case of contracts, the summary will be made contract-wise. At times instead of
procuring & storing material, it may be procured and directly used on contract site. ‘Purchase
Invoice’ may be the basis to capture such direct material costs. In case of process industry, the
material is issued to different processes. Here, the costs input to a process may be collected
based on the cost of materials processed in the previous process. A process-wise summary of
material issues is maintained. Some material may get added to a process but may not become
part of final product. The cost of such material is apportioned on the output of that process.
The indirect material costs may be gathered on the basis of consumable issues, scrap reports,
standard parts list etc. Care should be taken to account for material losses. Normal material
losses are to be apportioned to the good units produced, whereas, abnormal losses should be
excluded from computation of cost of good units and should be directly taken to P & L account.

Labour Cost: Salaries and wages summary prepared after the monthly payroll run is the main
basis for labour cost collection. The summary shows department-wise break up, so that the
direct labour cost of production department is separately known and that for the other indirect
departments is also available to be charged as overheads. In case of contracting business, labour
force is usually dedicated to various sites. The cost of labour used on different contracts can be
found based on wages sheet maintained for each contract site. In addition, the idle time re-
ports, overtime reports are used for booking of the costs of idle time & overtime. In case labourers
are common to various jobs or contracts or processes, an estimate of the time that they spend
on each of them is made and the costs are allocated accordingly.

Expenses: Accounting entries in cash book or journal proper help collect the expenses. Direct
expenses which are job or contract or process specific may be collected on the basis of vouch-
ers. The indirect expenses are collected and then apportioned in a summarised form using
apportionment sheets.

Collection of Budgeted costs: The cost calculation for the selected cost unit could be either of
actual cost or budgeted cost. While actual costs are collected on the basis of documents ex-

B 160 ACCOUNTING
plained above, the budgeted costs are computed using the standard bill of material, and prede-
termined overhead rates. For budgeted direct material, a bill of material is prepared for each
product (including sub-assemblies). This is a quantitative estimate. Based on the estimates a
budgeted material price is considered to value the material cost. Estimated labour hours are
costed using estimated labour hour rates. Pre-determined overheads are also computed con-
sidering the base selected for absorption. Thus an estimate of total cost with full composition
may be made.

Cost Accountant & cost data collection: The cost accountant must play a pivotal role in ensur-
ing that the process of cost data collection is very strong. The cost analysis and reporting will
not be useful for managerial decision-making if the data collection process is wrong. Presence
of a strong and robust Costing system is needed to ensure comprehensive data collection pro-
cess. The costs account may carry out periodical checks to evaluate the system and also may do
the internal audit. He can use all his expertise in the process of establishing cost estimates
which will help in decision making.

Cost data collected must be reported in proper format to make it more informative and mean-
ingful. As can be understood, the report must serve the purpose for which it was sought. A
complete cost sheet may not be always necessary. The production manager may require the
cost of production only. The cost report should be able to give this figure separately broken up
into all its elements. The sales and marketing cost may be given for each channel of distribu-
tion, customers, regions etc in addition to the product-wise break up.

The cost data should be collected in a manner that will make available cost information to all
those who are responsible for the costs. A cost sheet should give the figures of each element of
cost broken up into direct and indirect and also according to functions like production, admin-
istration and Selling & distribution. It is therefore logical that the format of the cost sheet is
derived from the requirements for which it is to be used. Apart from exhibiting the total cost
deducted logically, it should highlight other cost also, so that comparison with budget can be
made, variances analysed and cost could be controlled to increase profits.

12.3 Cost Sheet formats & Preparation

The cost concept itself being subjective, there is no standard format in which the collected costs
can be presented. It has to suit the type of business, need of the details, and management’s
requirement of control over costs. Yet a simple way to show the total cost of any cost unit is
shown below:

ACCOUNTING B 161
Cost Sheets

Specimen cost sheet

Period from………….. Cost Units
To………… …………

Amount
Cost items Amount (Rs) (Rs)
Direct Material
Opening stock xxxxxx
Add: Purchases xxxxxx
Add: Incidental charges xxxxxx
Less closing stock xxxxxx xxxxxx

Direct labour xxxxxx

Direct Expenses xxxxxx

PRIME COST xxxxxx

Add: Production Overheads xxxxxx

Add: Opening work in process xxxxxx
Less: Closing work in process xxxxxx xxxxxx

FACTORY COST OR
WORKS COST xxxxxx

Add: Administrative
Overheads xxxxxx

COST OF GOODS
MANUFACTURED xxxxxx
Add: Opening Finished goods
stock xxxxxx
Less: Closing finished goods
stock xxxxxx xxxxxx

COST OF FINISHED
GOODS SOLD xxxxxx

Add: Selling & Distribution

Overheads

COST OF GOODS SOLD xxxxxx

B 162 ACCOUNTING
You can observe the logical way in which the cost flow has been shown in the above chart. The
focus in this specimen is on elements and functions split further into direct and indirect costs
with respect to the cost units. Although the formats could be different, the contents of a cost
sheet must be understood and interpreted correctly so that one can analyse it for control and
decision making. For example if it has to be prepared for a process industry, the format would
reflect the portion up to factory cost for each process separately. Then the administration costs
will be added together. The cost per unit will be computed for every process separately. The
stock for processes subsequent to process one will mean stocks transferred from earlier processes
and stocks transferred to the next processes. The objective here is to compute the cost per process.
The cost sheet format here could be:

Specimen cost sheet

Period from………….. Cost Units
To………… …………

Amount
Cost items Amount (Rs) (Rs)
Direct Material
Opening stock xxxxxx
Add: Purchases xxxxxx
Add: Incidental charges xxxxxx
Less closing stock xxxxxx xxxxxx

Direct labour xxxxxx

Direct Expenses xxxxxx

PRIME COST xxxxxx

Add: Production Overheads xxxxxx

Add: Opening work in process xxxxxx
Less: Closing work in process xxxxxx xxxxxx

FACTORY COST OR
WORKS COST xxxxxx

ACCOUNTING B 163
 Cost Sheets

FACTORY COST OR
WORKS COST xxxxxx

Add: Administrative
Overheads xxxxxx

COST OF GOODS
MANUFACTURED xxxxxx
Add: Opening Finished goods
stock xxxxxx
Less: Closing finished goods
stock xxxxxx xxxxxx

COST OF FINISHED
GOODS SOLD xxxxxx

Add: Selling & Distribution

Overheads

COST OF GOODS SOLD xxxxxx

Depending on number of processes, the working will be shown up to factory cost. Subsequently,
the administration, selling & distribution overheads are added like that shown in the first for-
mat. Some process companies may prepare a different cost sheet for each process. When it is
available process wise, control of process costs and process losses could be better controlled by
the concerned process managers.

12.3.1 Important components of cost sheet :

1) Cost sheet has reference to the job or contract or a batch or production or a service under-
taken to be rendered. If the completion of the job at hand relates to more than one accounting
period, it is better that separate columns are provided to mention figures for those period. The
job or batch reference should also be mentioned on the header.

2) If there is an estimate made for the costs, a separate column must be provided for estimated
costs against which the actual costs should be plotted to get ready comparison. This will make
cost sheets more user-friendly and meaningful.

3) In certain cases, material may not form any significant portion of the total cost and as such
may be treated as an overhead item. In such cases, the prime cost will mainly constitute as
labour and other expenses.

4) Treatment of raw material stocks should be carefully understood. As the costs are to be
linked to the units produced, the material consumption, completion of earlier period’s semi-
finished goods and the finished goods sold needs to be properly computed.

B 164 ACCOUNTING
Raw Material consumed: Opening stock + Purchases – closing stock

One has to go into the depth of this arithmetical formula. Where do we get the figure of pur-
chases from? It is from the suppliers invoices for purchase of stockable material. Students may
refresh their understanding of the ‘valuation of receipts’ as explained in the chapter 9. It also
should include all charges incidental to purchase of goods like carriage, insurance, customs
duty etc which is directly associated with the incoming material.

As we know that the stocks are always valued at cost or market price whichever is less. This
norm has to be applied to the rates of all the items of material in stock, and then the total
valuation of stock is done. The stock ledger records all receipts and issues of the quantity and
rate of material items. The valuation of material issues has to be properly done based on cor-
rectly chosen method of issue pricing. This summary figure as per the issue column should
exactly match with the raw material consumed figure as included in the cost sheet.

The normal losses on account of material shortages must be included in the cost of raw mate-
rial consumed. Care should be taken to remove the abnormal losses there from.

5) Treatment of work in process is another important step. If the format is carefully seen, it will
be noticed that the cost of WIP stocks is adjusted specifically after adding factory overheads!
Why adjusted? And why at that stage only? Please note that cost sheet is prepared for a period
of time for a cost unit. At the beginning of that period, if the job has been carried forward from
the previous period, there may be some partly finished work that is carried forward. At the
same time there may be partly finished production at the end of current period. These stocks
must be adjusted to reflect the cost consumed during the current period. Further, the work in
process is normally valued at Factory cost. It does not include administration overheads as the
production of goods is not yet fully complete. Administration costs are absorbed at the stage of
finished production. Hence the adjustment of WIP stocks is to be done before adding the ad-
ministration overheads.

6) Similarly, the adjustment for the opening and closing stocks of finished goods should be
done. This has to be done after the stage of cost of production.

7) One could have separate columns for total costs and per unit costs side by side. This will
help have a quick glance at the per unit figures. Management at operating level will find this
very helpful.

ACCOUNTING B 165
 Cost Sheets

12.3.2 Cost sheet format for service costing

The cost sheet format for service costing takes into account the requirements of different types
of services. It could be used to find out cost of internal services like boiler house, maintenance
of delivery van fleet etc. In such cases the main purpose is to control the costs. It could also
apply in case of services that are sold such as transport companies, hospitals, hotels, etc. Selling
services and making profit thereon is the main purpose of these services.

As we know, material costs constitute a lower proportion of the total costs and the proportion
of labour and other expenses is higher. As most of the costs are indirect, it is difficult to accu-
mulate costs in the traditional format as shown above, neither is it useful. Hence, the emphasis
is on variability of expenses. The cost collection is also done in the same manner. All items of
costs are bifurcated into:

- Fixed or standing costs and

- Maintenance expenses

- Other Variable or running expenses

Based on this bifurcation a cost sheet is prepared. In most of the services, the cost unit is a
composite unit such as per passenger-kilometer, per patient-bed, per Kilo-Watt-Hour, per room-
day etc. In such cases it is necessary that quantity of the cost units is properly mentioned in the
cost sheet so that per unit cost can be correctly calculated.

Here are some examples of contents of cost sheets for different services:

a) Transport: The costs are shown under the heads of fixed expenses, running expenses
and maintenance expenses. The fixed expenses will be time related such as salaries,
garage rent, insurance etc. The maintenance charges will be like tyres & tubes, repairs,
etc. The operating expenses will mainly include petrol, diesel & fuel oil, drivers & clean-
ers’ wages etc. The cost unit data will comprise of mileage run, tonnage carried, days on
road etc. The specimen cost sheet format is shown below:

B 166 ACCOUNTING
 Specimen cost sheet - Transport service
Period
from………….. Vehicle no Vehicle no
To………… xx yy
Amount Amount
(Rs) (Rs)
Cost items
Operating costs
Petrol xxxxxx xxxxxx
Diesel xxxxxx xxxxxx
Engine oil xxxxxx xxxxxx
Drivers' wages xxxxxx xxxxxx
Cleaners' wages xxxxxx xxxxxx
Depreciation xxxxxx xxxxxx
Sub-total xxxxxx xxxxxx
Maintenance costs
Tyres and tubes xxxxxx xxxxxx
Painting, denting xxxxxx xxxxxx
Cleaning &
overhauls xxxxxx xxxxxx
Sub-total xxxxxx xxxxxx
Fixed costs
Garage rent xxxxxx xxxxxx
Insurance
Insurance xxxxxx xxxxxx
Taxes xxxxxx xxxxxx
Road permits xxxxxx xxxxxx
General supervision xxxxxx xxxxxx
Sub-total xxxxxx xxxxxx

Grand total xxxxxx xxxxxx

Cost units
Mileage run xxxxxx xxxxxx
Days on road xxxxxx xxxxxx
Load carried (tonnes) xxxxxx xxxxxx
Capacity utilisation % xxxxxx xxxxxx
Total Tonne-miles xxxxxx xxxxxx
Cost per tonne-mile xxxxxx xxxxxx

b) Boiler house: It generates steam that is used in production activity. Main items of costs
are fuel & labour, power, fuel handling, ash removal, water softening, maintenance etc.
The cost unit will be cubic feet.

ACCOUNTING B 167
Cost Sheets

Specimen cost sheet - Boiler House

Period Cost per
from………….. Total 1000
To………… cost hours
Steam produced in 1000 hours ……….
Less: used in boiler house…………
Less: lines losses
Net production
Amount Amount
Cost items (Rs) (Rs)
Fuel & Labour
Fuel oil xxxxxx xxxxxx
Electric power xxxxxx xxxxxx
Fuel handling xxxxxx xxxxxx
Ash removal &
disposal xxxxxx xxxxxx
Direct wages xxxxxx xxxxxx
Sub-total xxxxxx xxxxxx
Water
Storage xxxxxx xxxxxx
Softening xxxxxx xxxxxx
Sub-total xxxxxx xxxxxx
Maintenance
Boiler cleaning xxxxxx xxxxxx
Coal bunkers xxxxxx xxxxxx
Economisers xxxxxx xxxxxx
Mechanical stokers xxxxxx xxxxxx
Service pipes xxxxxx xxxxxx
Sub-total xxxxxx xxxxxx
Fixed Costs
Supervision
Rent
Depreciation
Sub-total xxxxxx xxxxxx

Grand total xxxxxx xxxxxx

c) Power House: The main components of cost are steam production and electricity gen-
eration. The former comprises of coal, water, wages, maintenance etc and he later con-
tains steam consumption, wages, supervision etc. Cost units will be for steam produced
and electricity generated.

B 168 ACCOUNTING
 Specimen cost sheet - Power House
Period from………….. Total Cost per
To………… cost KWH
Electricity generated in KWH ……….
Less: lines losses
Net production
Amount Amount
Cost items (Rs) (Rs)
Steam production
costs
Coal bunkers xxxxxx xxxxxx
Water xxxxxx xxxxxx
Wages xxxxxx xxxxxx
Maintenance of boilers xxxxxx xxxxxx
Depreciation xxxxxx xxxxxx
Sub-total xxxxxx xxxxxx
Less: used for heating
purposes
Steam used for
electricity generation xxxxxx xxxxxx
xxxxxx xxxxxx
Electricity Generation
costs
Wages xxxxxx xxxxxx
Stores xxxxxx xxxxxx
Maintenance of power
generators xxxxxx xxxxxx
Repairs xxxxxx xxxxxx
Transmission lines xxxxxx xxxxxx
Sub-total xxxxxx xxxxxx

Grand total xxxxxx xxxxxx

d) Canteen: Here the cost will be labour, consumption of provision such as vegetables,
meat, fruits, and other costs like depreciation, maintenance, power & electricity etc. In
case canteen is an internal service, it is subsidised. The company contributes a portion
of the costs. From total costs subsidy is reduced and then the net costs are reflected.

ACCOUNTING B 169
 Cost Sheets

Specimen cost sheet - Canteen

Period from………….. Cost per
To………… Total cost meal
Number of meals
Less: meals consumed by staff
Net costs
Meals
Amount Amount
Cost items (Rs) (Rs)
Provisions
Meat, fish, eggs xxxxxx xxxxxx
Vegetables xxxxxx xxxxxx
Fruits xxxxxx xxxxxx
Milk xxxxxx xxxxxx
Tea, coffee xxxxxx xxxxxx
Bread, cakes xxxxxx xxxxxx
others xxxxxx xxxxxx
Sub-total xxxxxx xxxxxx
Wages & salaries
Cooks xxxxxx xxxxxx
Cleaning staff xxxxxx xxxxxx
Helpers & servers xxxxxx xxxxxx
Supervision xxxxxx xxxxxx
Sub-total xxxxxx xxxxxx
Services
Steam, Gases xxxxxx xxxxxx
Electricity & lights xxxxxx xxxxxx
Power xxxxxx xxxxxx
Sub-total xxxxxx xxxxxx
Fixed Costs
Rent xxxxxx xxxxxx
Depreciation xxxxxx xxxxxx
Sub-total xxxxxx xxxxxx
Grand total xxxxxx xxxxxx

Similarly one can develop cost sheets for other services like education, BPO, consulting etc.
The basic idea is to be able to correctly report costs for the selected cost unit. In case of services,
comparison with budgets will enable the management to control cost of services in a better
way.
Miscellaneous Examples

B 170 ACCOUNTING
Q1
Following data is available from the cost records of a company for the month of Feb 2007:
1) Opening stock of job as on 1st Feb 2007
Job no 410: Direct material Rs 80, Direct wages Rs 150 and factory overheads Rs 200
Job no 411: Direct material Rs 420, Direct wages Rs 450 and factory overheads Rs 400
2) Direct material issued during the month of February 2007 was:
Job no 410 Rs 120
Job no 411 Rs 280
Job no 412 Rs 225
Job no 413 Rs 300
3) Direct labour details for February 2007 were
Job no Hours Amount (Rs)
410 400 600
411 200 450
412 300 675
413 100 225
4) Factory overheads are applied to jobs on production according to direct labour hour
rate which is Rs 2 per hour.
5) Factory overhead incurred in February 2007 were Rs 2100
6) Job numbers 410 & 411 were completed during the month. They were billed to the
customers at a price which included 15% of the price of the job for selling & distribution
expenses and another 10% of the price for profit.
Prepare:
a) Job cost sheet for job number 411 and 410
b) Determine the selling price for the jobs
c) Calculate the value of work in process

Remarks :
1) The Jobs completed given in the problem are 410 & 411.Whereas the Job cost sheet
asked to prepare are for Job 411 and 412.Hence changes being made in Qu. to that
effect.
2) The Factory overheads actually incurred are 2100.This amount to be apportioned on
the basis of labour hours. So the rate to be considered as Rs. 2.1per unit =(2100/1000)
and not Rs 2 per unit. If we consider the above mentioned point the calculations for Job
Sheets & for the work in progress will change accordingly.
3) Work in progress is to be calculated for the incomplete jobs hence job no.412 and 413
should only be included in the calculations of work in progress.

ACCOUNTING B 171
Cost Sheets

Answer 1:
Job Cost sheets for the month of February 2007
Job 411 Job 410

Direct material issued 280 120

Direct labour spent 450 600

Prime Cost 730 720

Factory Overheads @ Rs 2.1 per hour 420 840

Add: Opening WIP (material + labour
+ overheads) 1,270 430

Factory Cost 2,420 1990

Add; Selling & distribution overheads
(note 1) 484 398

Cost of Sales 2904 2388

Profit (note 1) 323 265

Billing Price for the job 3,227 2653

Note 1
S & D and profit are given in indirect
way.

Assume selling price as 100

Less: S & D @ 15% (15)

Less: Profit @ 10% (10)

Balance has to be the factory cost 75

S & D price will be 15/75 of factory

costs 480 300

Profit will be 10/75 of factory cost 320 200

B 172 ACCOUNTING
 Computation of Work in Process for February 2007

Opening balance as on 1st February Job 410 430

Job 411 1,270 1,700

Material issued during the month of

February Job 410 120

Job 411 280

Job 412 225

Job 413 300 925

Direct Labour Job 410 600

Job 411 450

Job 412 675

Job 413 225 1,950

Factory overheads on 1000 hours @ Rs

2.1 2,100

6,675

Less: factory cost of completed jobs Job 411 (2,420)

Job 410 (1990) (4410)

Closing Work In Process as on 28th

February 2007 2265
Another way to calculate WIP is
Job 412 and 413 are in progress & WIP includes only incomplete Jobs.
Direct Material (225+300) 525
Direct Labour (675+225) 900
Factory Overheads (2.1 *(300+100) 840
Total WIP 2265

ACCOUNTING B 173
Cost Sheets

Q2
Prepare cost sheet for an engineering company which produces standard components in
batches of 1000 pieces each. A batch passes through three processes viz. Foundry, Machin-
ing & Assembly
The materials used for a batch number 2007/01 were: Foundry 1300 tonnes @ Rs 50 per
tonne of which 50 tonnes were sent back to stores.
Other details
Process Direct labour Overheads
Foundry 200 Hrs @ Rs 10 Rs 15 per Labour
Hour
Machining 100 Hrs @ Rs 5 Rs 20 per Labour
Hour
Assembly 100 Hrs @ Rs 15 Rs 10 per Labour
Hour
A comparison of actual costs with estimated cost discloses that material and overheads have exceeded
the estimates by 20% whereas the estimated labour cost is 10% more than the actual. Show the variances
with respect to the estimates
Answer 2 :
Cost sheets for the Batch number 2007/01
Standard batch size 1000 pieces
Actual Estimated Variance F/A

Direct material issued 1250 *

50 62500 52083 (10417) A
Direct labour spent

Foundry 200 * 10 2,000 2,200 200 F

Machining 100 * 5 500 550 50 F

Assembly 100 * 15 1,500 1,650 150 F

Prime Cost 66500 56483 (10017) A

Factory Overheads applied

Foundry 200 * 15 3,000 2,500 (500) A

Machining 100 * 20 2,000 1,667 (333) A

Assembly 100 * 10 1,000 833 (167) A

Factory Cost 72500 61483 (11017) A

Cost per Unit (factory cost /

1000) 72.5 61.48 11.02

B 174 ACCOUNTING
Q3

An advertising agency has received an enquiry for which you are supposed to submit the
quotation. Bill of material prepared by the production department for the job states the follow-
ing requirement of material:

Paper 10 reams @ Rs 1800 per ream

Ink and other printing material Rs 5000
Binding material & other consumables Rs 3000

Some photography is required for the job. The agency does not have a photographer as an
employee. It decides to hire one by paying Rs 10000 to him. Estimated job card prepared by
production department specifies that service of following employees will be required for this
job:

Artist (Rs 12000 per month) 80 hours

Copywriter (Rs 10000 per month) 75 hours
Client servicing (Rs 9000 per month) 30 hours

The primary packing material will be required to the tune of Rs 4000. Production overheads
40% of direct cost, while the S & D overheads are likely to be 25% on production cost. The
agency expects a profit of 20% on the quoted price. The agency works 25 days in a month and
6 hours a day.

ACCOUNTING B 175
Cost Sheets

Answer 3 :

Quotation for a printing Job

Amount Amount
Rs Rs

Direct material required:

Paper 10 *1800 18,000

Ink & other printing material 5,000

Binding material & consumables 3,000

Primary packing material 4,000 30,000

Direct labour spent

Artist (12000/(25*6))*80 6,400

Copywriter (10000/(25*6))*75 5,000

Client servicing (9000/(25*6))*30 1,800 13,200

Photographer's charges 10,000

Prime Cost 53,200

Factory Overheads applied @ 40% on

direct cost 21,280

Production cost 74,480

S & D overheads applied @ 25% on
production cost 18,620

Total Cost 93,100

Profit ( 20% on price i.e. 25% on cost) 23,275

Price to be quoted 116,375

B 176 ACCOUNTING
Q4
The following figures were extracted from the trial balance of a company as on 31st December
2006.

Particulars Debit Rs Credit Rs

Inventories
Raw material 140000
WIP 200000
FG 80000
Office Appliances 17400
Plant and machinery 460500
Buildings 200000
Sales 768000
Sales returns 14000
Material purchased 320000
Freight on materials 16000
Purchase returns 4800
Direct labour 160000
Indirect labour 18000
Factory supervision 10000
Factory repairs & upkeep 14000
Heat, light & power 65000
Rates & taxes 6300
Misc factory expenses 18700
Sales commission 33600
sales travelling 11000
Sales promotion 22500
Distribution department salaries 7 wages 18000
Office salaries 8600
Interest on borrowed funds 2000
Further details are given as follows:
Closing inventories are Material Rs 180000, WIP Rs 192000 & FG Rs 115000
Accrued expenses are direct labour Rs 8000, indirect labour Rs 1200 & interest Rs 2000
Depreciation should be provided as 5% on Office Appliances, 10% on machinery and 4% on
buildings
Heat, light and power are to be distributed in the ratio of 8:1:1 among factory, office and distri-
bution respectively
Rates & taxes apply as 2/3rd to the factory and 1/3rd to office
Depreciation on building to be distributed in the ratio of 8:1:1 among factory, office and distri-
bution respectively
Prepare a cost sheet showing all important components and also a condensed P & L account for
the year.

ACCOUNTING B 177
 Cost Sheets

Answer 4:

Important aspect of this is proper classification of the given items of expenses and costs into
prime cost, factory costs and S & D costs. The understanding of the concept of costs is very well
tested in this type of a problem. Remember that interest on borrowed capital is not a part of
cost and hence should be directly taken to P & L account. The cost sheet is shown below:

Cost Sheet showing Cost of Sales for the year 2006

Amount
Particulars Amount Rs Rs

Direct materials
Opening stock 140,000
Add: Purchases 320,000
Add: freight 16,000

Less: returns (4,800)

Less: Closing stock (180,000) 291,200

Direct Labour 160,000

Add: accrued 8,000 168,000

Prime cost 459,200

Factory Overheads
Indirect labour 18,000
Accrued indirect labour 1,200
Factory supervision 10,000
Repairs & upkeep 14,000
Heat, light & power 52,000
Rates & taxes 4,200
Misc. Factory expenses 18,700
Depreciation on plant &
Machinery 46,050
Depreciation on buildings 6,400
170,550
Add: Opening WIP 200,000

Less: Closing WIP (192,000) 178,550

Factory Cost 637,750

B 178 ACCOUNTING
 Administration overheads
Heat light & power 6,500
Rates & taxes 2,100
Depreciation on buildings 800
Depreciation on office appliances 870
Office salaries 8,600
18,870
Add: opening FG stock 80,000

Less: closing FG stock (115,000) (16,130)

Cost of production of saleable
units 621,620
Selling & Distribution Overheads
Heat & light 6,500
Depreciation on buildings 800
Sales commission 33,600
Sales travelling 11,000
Sales promotion 22,500
Distribution department
expenses 18,000 92,400

Cost of sales 714,020

Condensed P & L account for the year ended 31-12-2006

Sales Income 768,000

Less Returns (14,000) 754,000

Cost of sales as above 714,020

Interest on borrowings (
2000+2000) 4,000

Net profit 35,980

Q5
Prakash Transport company has been given a route of 20 km long to run a bus. The bus costs Rs
1250000 with an estimated useful life of 5 years. It is insured @ 3% pa of the cost. Annual tax
amounted to Rs 25000. The garage rent is Rs 5000 per month. Annual repairs cost is estimated
as Rs 50000.

ACCOUNTING B 179
 Cost Sheets

The driver is paid a salary of Rs 7500 per month and the conductor is paid Rs 5000 per month in
addition to a 10% of takings as commission to be shared equally by them.

Office stationery would Rs 1000 pm and office salaries Rs 10000 pm.

Diesel will cost @ Rs 30 per liter and the bus would travel a distance of 5 km per liter. The bus
will make 3 round trips carrying on an average 40 passengers on each trip. Assuming a profit
of 15% on takings, calculate the fare to be charged from each passenger. The bus will operate
for 25 days in a month.
Answer 5 :

Computation of passenger fare - Prakash transport

company
Amount Rs
P.A.
pa Amount Rs

Operating costs

Diesel 216,000
Depreciation
(1250000/5) 250,000

Repairs 50,000
Commission - driver &
conductor 122,733

Sub-total 638,733
Fixed costs

Insurance 3% of 1250000 37,500

Taxes 25,000

Garage Rent (5000*12) 60,000

Driver's salary (7500*12) 90,000

Conductor's salary
(5000*12) 60,000
Office stationery
(1000*12) 12,000
Office salaries
(10000*12) 120,000

Sub-total 404,500

B 180 ACCOUNTING
 Grand total 1,043,233

Profit @ 15% on takings 184,100

Total takings 1,227,333

Cost units

No of round trips 3

To & Fro per trip 2

km per trip 20

Days on road 25
Average passengers
carried 40

No of months 12

Total passenger miles 1,440,000

Price per passenger km 0.85

ACCOUNTING B 181
 Cost Sheets

Diesel

No of km per liter 5

No of km pa 36,000

No of liters required 7,200

Per liter rate Rs 30

Total Cost of diesel 216,000

Commission & profit are given in

indirect way.

Assume total takings as 100

Less: commission @ 10% (10)

Less: Profit @ 15% (15)

Balance has to be the
total cost 75

Cost before commission 920,500

Commission
(10/75*920500) 122,733

Profit (15/75*920500) 184,100

Q6

The city pride Theatre has revealed the following estimates of their cinema hall.

Salary 1 manager Rs 8000 pm, 10 door keepers Rs 2000 pm, 2 operators Rs 4000 pm, 4 booking
clerks Rs 2500 pm

Annual expenses:
Electricity Rs 1200000
Carbon Rs 300000
Misc. expenses Rs 150000

B 182 ACCOUNTING
Advertising Rs 750000 (it would earn income of Rs 25000 on advertisements shown
in the hall)
Hire of films Rs 1500000 per film on 15 films
Administration expenses Rs 80000

The premises cost Rs 60 lacs and are to be depreciated over 15 years. Projector and other equip-
ments cost Rs 25 Lacs and to be depreciated @ 25% pa.

The plan is to have 3 daily shows on all 360 days in a year. The capacity is 625 seats divided into

Lower class 250

Upper class 250
and
Balcony 125

20% of the seats are estimated to be vacant. The weightages to be given to the three classes are
in the ratio of 1:2:3.

If the management wishes to earn a profit of 25% on gross proceeds, find out the rates to be
charged for each class. Round off to nearest rupee.

Answer 6:
In this case it is important to note the weights given. This is to express each class in equivalent
units so that calculations can be made accordingly.

ACCOUNTING B 183
Cost Sheets

Computation of Cinema Ticket Rates - City Pride Cinema Hall

Amount Amount
Rs pa Rs
Operating costs

Electricity 1,200,000

Carbon 300,000

Misc. Expenses 150,000

Advertising (750000-25000) 725,000

Hiring of films (1500000*15) 22,500,000 24,875,000

Fixed costs

Salary of manager (1*8000*12) 96,000

Door keepers (10*2000*12) 240,000

Operators (2*4000*12) 96,000

Booking clerks (4*2500*12) 120,000

Depreciation on premises (60/15) 400,000

Depreciation on projecting equipments
(25*25%) 625,000 1,577,000

Grand total 26,452,000

Profit @ 25% on gross proceeds (i.e. 1/3 of cost) 8,817,333

Gross earnings 35,269,333

Cost units

No of shows in a year (3*360) 1080

No of equivalent seats

Lower class (1*250) 250

Upper class (2*250) 500

Balcony (3*125) 375

Total seats 1,125

Less: 20% vacant seats (225)

B 184 ACCOUNTING
 Net chargeable seats 900

No of Man-shows in a year (900*3*360) 972,000

Earnings per man-show(gross earnings/man-
shows) 36.29
Rats of the ticket per seat

Lower class (1 x 36.29) 36.29

Upper class(2 x 36.29) 72.57

Balcony (3 x 36.29) 108.86

ACCOUNTING B 185