Process Account

Surya Roshni Manufacturing Company is producing bulbs which passing Through Two Process Following Data during the January Work in Progress Opening Stock 6,000 units of bulbs at a cost of Rs 15,000 Closing Stock 7,000 units of bulbs The degree of completion of both opening and closing WIP was Previous process Cost Process II Material LAbour and Overheads 100% 80% 60%

During the Month, 47,000 Units of bulbs were Transferred From Process I are a cost of Rs 90,000.Other Costs Incurred for the Process II During the Month were: Material Overheads Rs 43,600 Rs 21,250

No losses are expected. However, During the month 3,000 units of bulbs were rejected at inspection and sold as scrap for Rs 1/So Process II account and abnormal loss account using first in first out method is as follow: Solution:

(A) EQUIVALENT UNITS (EU)

QTY.RECONCILATION PARTICULARS
OPENING OF WIP (COMPLETED

EQUIVALENT UNITS MATERIAL (M) % EU ----100 100 100 ----37,000 3,000 7,000 47,000 LABOUR (L) % EU 20 --100 100 80 1,200 --37,000 3,000 5,600 46,800 OVERHEADS (OH) % EU 40 --100 100 60 2,400 --37,000 3,000 4,200 46,600

INPUT 6,000 47,000

OUTPUT 6,000 ---37,000 3,000 7,000 53,000

1 NOW ) 2 FRESH UNITS INTRODUCED 3 FRESH UNITS COMPLETED 4 ABNORMAL LOSS 5 CLOSING WIP TOTAL UNITS (A)

53,000

(B) COST PER UNIT

PARTICULARS COST INCURRED DURING THE PROCESS TOTAL COST (B) EQUIVALENT UNITS (A) COST PER EU (C = B + A) MATERIAL 90,000 90,000 47,000 1.9149 LABOUR 43,600 43,600 46,800 0.9316 OVERHEADS 21,250 21,250 46,600 0.4560 TOTAL 154,850 154,850

3.3025

(C)

Cost appropriation
EU CPEU RS TOTAL

PARTICULARS COST OF COMPLETING OPENING WIP MATERIAL LABOUR OVERHEADS COMPLETING FRESH UNIT ABNORMAL LOSS/GAIN COST OF CLOSING WIP - MATERIAL -I - LABOUR - OVERHEADS

1200 2400 37000 3000 7000 5600 4200

0.9316 0.4560 3.3025 3.3025 1.9149 0.9316 0.4560

1117.92 1094.4

2212 122193 9908

13404.3 5216.96 1915.2

20537

TOTAL COST (B) APPORTIONED PARTICULARS COST OF OPENING WIP B/F (GIVEN) ADD :- COST OF COMPLETING OPENING WIP (C1) ADD :- COST OF COMPLETING FRESH UNITS (C2 )

154850 Amount (Rs) 15000 2212 122193 ___________

COST TFD ( to stock/next process)

139405

Cost tranfer
Process account II Particulars To opening WIP To Transfer from Process I To Material To Labour To Labour and Overheads 53000 units 6000 47000 Rs 15000 90000 43600 21250 Particulars By abnormal loss By Closing WIP By Transfer to finished stock units 3000 7000 43000 Rs 9908 20537 139405

169850

53000

169850

Particulars To Process II

units 3000

Rs 9908

Particulars by Sale of scrap @ 1 By transfer to costing Profit & loss a/c

units 3000

Rs 3000 6908 _____ 9908

_______ ____________ 3000 9908

_______ 3000

Findings:
P.V. Ratio Break Even Point Margin Of Safety

Surya Roshni Limited supplied following information relating to sales and cost of sales of manufacturing company for only. 10,000 units.

Particulars Sales (10,000) Variable Cost Fixed Cost

Amount (Rs.) 1,20,000 45,000 60,000

From the above information we find out: P.V. Ratio, Break Even Point Margin Of Safety.

Statement of Marginal Cost for the 10,000 units Particular

Sales

Amount (Rs)
1,20,000

Per Units
12

Less: Variable Cost Contribution Less: Fixed Cost Profit

45,000 75,000 60,000 15,000

4.5 7.5

1.5

80000 60000 40000 20000 0 Column2 Column3 Profit Less: Fixed Cost Contribution Less: Variable Cost Sales

Sales Less: Variable Cost Contribution Less: Fixed Cost Profit

Sales Less:Variable cost Contribution Less: Fixed cost Profit

120000 45000 75000 60000 15000

12 4.5 7.5

1.5

1) P.V Ratio Of Company is as follows:

P.V. Ratio = Contribution / Sales x 100

Therefore, P.V. Ratio = 75,000 / 120,000 x 100 P.V. Ratio = 62.5 %

2) Break Even Point Of Company is as follows: For B.E.P it is necessary to find out B.E.S of the company So, B.E.S. = Fixed cost / P.V. Ratio i.e, B.E.S = 60,000 / 62.5 % B.E.S = Rs 96,000/- per month Now B.E.P = B.E.S / Selling price per unit i.e B.E.P = 96,000 / 12 B.E.P = 8,000 Unit per month

3) Margin of Safety of January is as follows: Formula for M.O.S is = Sales B.E.S. M.O.S = 120,000 96,000 So, M.O.S = Rs 24,000 /-

From the given information we also evaluate the effect of following on P.V. Ratio, B.E.P and Margin of Safety.

a) 10% Increase in variable cost. b) 10% Decrease in Variable cost. c) 10% Increase in fixed cost and, 10% Decrease in fixed cost. d) 5% Decrease in selling price. e) 10% Increase in Selling Price and 10% Decrease in units. According to the information we evaluate the first condition i.e. If sale and fixed cost is same and 10% Increase in variable cost.

So, we find what its effect on P.V. Ratio, B.E.P and M.O.S: Revised Marginal Cost Statement were: Particulars Sale Less: Variable Cost (10% Increase) Contribution Fixed Cost Profit 70500 60000 10500 1.05 7.05 Amount (In Rs) 1,20,000 49,500 Per Unit Price 12/4.95/-

So Revised P.V. Ratio = Contribution / Sales x 100 Therefore, P.V. Ratio = 67200 / 120,000 x 100 i.e. P.V. Ratio = 58.75 % Now Company Revised B.E.P according to change in variable cost is as follows: B.E.P = B.E.S / Selling price per unit So, B.E.P = B.E.S (Fixed Cost / P.V. Ratio) / S.p.u

Therefore, B.E.P = (60000 / 58.75 %) / 12 B.E.P = 8511Units Now Company Revised M.O.S according to change in variable cost is as follows: M.O.S = Sales B.E.S So, M.O.S = Sales - (Fixed Cost / P.V. Ratio) M.O.S =120,000 - (60000 / 58.75% ) i.e. M.O.S = 120000 102128 B.E.P = Rs.17872/According to the information we evaluate our Second condition i.e. Particulars Sale Less: Variable Cost (10% decrease) Contribution Fixed Cost Profit 79,500 60000 19,500 1.95 7.95 If sale and fixed cost is same and 10% Decrease in variable cost. Amount (In Rs) 1,20,000 40,500 Per Unit Price 12/4.05

So Revised P.V. Ratio = Contribution / Sales x 100 Therefore, P.V. Ratio = 79,500 / 120,000 x 100 i.e. P.V. Ratio = 66.25 % Now Company Revised B.E.P according to change in variable cost is as follows: B.E.P = B.E.S / Selling price per unit

So, B.E.P = B.E.S (Fixed Cost / P.V. Ratio) / S.p.u Therefore, B.E.P = (60000 / 66.25 %) / 12 B.E.P = 7547 Units Now Company Revised M.O.S according to change in variable cost is as follows: M.O.S = Sales B.E.S So, M.O.S = Sales - (Fixed Cost / P.V. Ratio) M.O.S =120,000 - (60000 / 66.25 % ) i.e. M.O.S = 120000 90566 B.E.P = Rs.29434 /According to the information we evaluate the Third condition i.e. If sale and fixed cost is same and 10% Increase and 10 % Decrease in fixed cost.

Particular
Sales Less: Variable Cost Contribution Less: Fixed Cost (10 % Increase) Profit

Amount (Rs)
1,20,000 45,000 75,000 66,000

Per Units
12 4.5 7.5

9000

0.9

If Sale, Variable Cost is same than P.V. Ratio remain same i.e. P.V. Ratio = 62.5 % Now we evaluate the B.E.P and M.O.S.

B.E.P = B.E.S. / S.P.u. B.E.S = Fixed Cost / P.V. Ratio

B.E.P. = (66,000 / 62.5 %) / 12 B.E.P. = 105,600 / 12 = 8800 units

And, M.O.S. = Sales B.E.S. M.O.S = 120,000 105600 M.O.S. = Rs. 14,400 /-

Particular
Sales Less: Variable Cost Contribution Less: Fixed Cost (10 % Decrease) Profit

Amount (Rs)
1,20,000 45,000 75,000 54000

Per Units
12 4.5 7.5

21000

2.1

If Sale, Variable Cost is same than P.V. Ratio remain same i.e. P.V. Ratio = 62.5 % Now we evaluate the B.E.P and M.O.S. B.E.P = B.E.S. / S.P.u. B.E.S = Fixed Cost / P.V. Ratio

B.E.P. = (54,000 / 62.5 %) / 12 B.E.P. = 86,400 / 12 = 7200 units

And, M.O.S. = Sales B.E.S.

M.O.S = 120,000 86,400 M.O.S. = Rs. 33,600 /According to the information we evaluate the Fourth condition i.e. If 5% Increase in selling price.

Revised Statement of Marginal Cost for the 10,000 units

Particular
Sales Less: Variable Cost Contribution Less: Fixed Cost Profit

Amount (Rs)
1,26,000 45,000 81,000 60,000 21,000

Per Units
12.6 4.5 8.1

2.1

1) P.V Ratio Of Company is as follows:

P.V. Ratio = Contribution / Sales x 100

Therefore, P.V. Ratio = 81,000 / 126,000 x 100 P.V. Ratio = 64.3%

2) Break Even Point Of Company is as follows: For B.E.P it is necessary to find out B.E.S of the company So, B.E.S. = Fixed cost / P.V. Ratio i.e, B.E.S = 60,000 / 64.3 %

B.E.S = Rs 93,313 /- per month Now B.E.P = B.E.S / Selling price per unit i.e B.E.P = 93,313 / 12 B.E.P = 7776 Unit per month

3) Margin of Safety of January is as follows: Formula for M.O.S is = Sales B.E.S. M.O.S = 126,000 93,313 So, M.O.S = Rs 32,687 /According to the information we evaluate the Fourth condition i.e. 10% Increase in Selling Price and 10% Decrease in units.

Sales = 10 % Decrease in units i.e. 10,000 10 % = 9,000 /S.P.U= 10 % Increase in Price i.e. 12 + 10% = Rs. 14.67 /-

Revised Statement of Marginal Cost for the 9000 units

Particular
Sales Less: Variable Cost Contribution Less: Fixed Cost Profit

Amount (Rs)
1,32,000 45,000 87,000 60,000 27000

Per Units
14.67 5 9.67

1) P.V Ratio Of Company is as follows:

P.V. Ratio = Contribution / Sales x 100

Therefore, P.V. Ratio = 87000 / 132000 x 100 P.V. Ratio = 66%

2) Break Even Point Of Company is as follows: For B.E.P it is necessary to find out B.E.S of the company So, B.E.S. = Fixed cost / P.V. Ratio i.e, B.E.S = 60,000 / 66 % B.E.S = Rs 90,909/- per month Now B.E.P = B.E.S / Selling price per unit i.e B.E.P = 90,909 / 14.67 B.E.P = 6197 Unit per month

3) Margin of Safety of January is as follows: Formula for M.O.S is = Sales B.E.S. M.O.S = 132,000 90,909 So, M.O.S = Rs 41091 /-