COST ACCOUNTING-MMS

FORMAT OF COST SHEET Opening stock of Raw Material Add: Raw material purchased Less: Closing Stock of Raw Material Raw Material Consumed Direct Labor Direct Expenses. PRIME COST Add: Factory Overheads: Indirect Material Indirect Labor Indirect Expenses GROSS WORKS COST/FACTORY COST Add: Opening WIP Less: Closing WIP COST OF GOODS MANUFACTURED Add: Opening stock of Finished Goods COST OF GOODS AVAILABLE FOR SALE Less: Closing stock of Finished Goods COST OF SALES/COST OF GOODS SOLD

XX XX XX ZZ XX XX ZZ XX XX XX ZZ XX XX ZZ XX XX ZZ

FORMAT OF INCOME STATEMENT Particulars Sales Less: Cost of Goods Sold Gross Margin Less: Selling, General and Administrative Overheads Operating Income Less:Income Tax Profit after Tax Amount

1. Alexandria Aluminum Company, a manufacturer of recyclable soda cans, had the following inventory balances at the beginning and end of 2005: Inventory classification Raw material Work in Progress Finished goods January1,2005 December31,2005 Rs.60,000 Rs.70,000 1,20,000 1,15,000 1,50,000 1,65,000

During 2005, the company purchased Rs.2,50,000 of raw material and spent Rs.4,00,000 on labour. Manufacturing overheads were as follows: Indirect material Indirect labour Depreciation on plant and equipment Utilities Other Rs.10,000 Rs.25,000 Rs.100,000 Rs.25,000 Rs.30,000

Sales revenue was Rs.11,05,000/- for the year. Administrative and Selling expenses for the year amounted to Rs.1,10,000/- The firms tax rate is 40% Required: 1. Prepare a schedule of cost of goods manufactured 2. Prepare a schedule of cost of goods sold 3. Prepare an income statement. 2. Data pertaining to X Ltd which produces a single product is given as:
Particulars Sales material inventory(1-1-08) material inventory(31-12-08) WIP(1-1-08) WIP(31-12-08) Finished Goods (1-1-08) Finished Goods (31-12-08) Material Purchases Direct Labor Manufacturing overhead Selling Exp General Exp Prepare a cost sheet and Income statement Units 80,000 ` 800,000 40,000 32,000 55,000 72,000 64,000 151,265 152,000 145,000 108,000 50,000 40,000

16,000 34,000

3. Vijay Ltd manufactures Product X.On 1st Jan 2007 it had:

WIP RM
` 57400 ` 116200

Info available for the YE 31st Dec,2007 is : (all figs in `) Direct Materials 906900 Direct labor 326400 Freight on Raw Mtl purchased 55700 Indirect labor 121600 Other Factory O/H 317300 Stock of RM on 31.12.2007 96400 WIP on 31.12.2007 78207 Sales (150000 units) 3000000 Indirect mtls 213900 Assume 5000 units of FG were there on 1st Jan 2007 which are to be valued at the same price as closing stock (which is 15000 units on 31-12-2007) Prepare a statement of cost and profit.

4. A factory uses job costing. The following cost data is obtained from its books for the year ended 31st-December-2003. Direct Material Direct Wages Selling and Distribution overheads Administration overheads Factory overheads Required: Prepare a cost sheet indicating Prime Cost, Works Cost, Production Cost, Cost of Sales and Sales Value if the sales value is marked up so as to yield a net income of 29% on cost of sales In 2004, the factory receives an order for a number of jobs. It is estimated that direct materials required will be Rs.1,20,000/- and direct labour Rs.75,000/- What should be the price for these jobs if the factory intends to earn the same rate of profit on cost of sales assuming that the selling and distribution overheads have gone up by 15%? The factory recovers factory overheads as a percentage of direct wages and administration and selling and distribution overheads as a percentage of Works cost, based on rates prevailing for 2003. 9,00,000/7,50,000/5,25,000/4,20,000/4,50,000/-

5. The following details are given in respect of manufacturing unit for the month of April 2005: a. Opening Work in Progress 5000 units Material (100% complete) 18,750/Labour (60% complete) 7,500/Overheads(60% complete) 3,750/b. Units introduced in the process 17,500 units c. 17,500 units are transferred to the next process d. Process costs for the period are : Material 2,50,000/Labour 1,95,000/Overheads 97,500/e. The stage of completion of units in closing W.I.P is estimated to be : Material 100%, Labour 50% and Overheads 50%. You are required to prepare a statement of equivalent units of production. Also find the value of: Output transferred Closing Work in process using weighted average cost method. 6. Ashwin is just married and got a hefty cash gift from his father with a suggestion that he venture into some business of his own rather than work for somebody else. Accordingly, Ashwin plans to invest about Rs.10,00,000/- in some business. On consulting with his friends, he gets an idea that food business is the most profitable. His friends also suggest that the ideal place for any business is Mumbai. Ashwin decides to make his own analysis of the situation. He zeroes in on two choices- Mumbai and Pune. He prefers Pune because his wife hails from Pune. In the process of hunting for information, Ashwin realizes that although Mumbai is very vibrant, it is prohibitive in terms of set up costs. But this difficulty is offset to a certain extent by availability of cheap labour and ease of sourcing materials. But he realizes that eating out as a concept is more likely to catch on in smaller towns and therefore any future prospects are brighter if he chooses Pune. With all these in mind he sets out to make a rough estimate of likely costs and revenues which is reproduced below: Particulars Mumbai Pune Rent 4,00,000 1,80,000 Salary to staff 1,00,000 70,000 License fee and other 50,000 20,000 charges Depreciation on furniture 50,000 45,000 and interiors He decided to calculate the unit variable costs as a function of number of plates served where again he makes an approximation for meals and snacks. He makes a rough estimation of sales and costs as follows:

Particulars Mumbai Meals Snacks Sales mix 4 9 Unit Selling Price 27 17 Unit costs 18 11

Pune Meals 2 27 21

Snacks 7 17 12

After he collected the above details, he is not quite sure how he should proceed. He recollected vaguely about break even point but did not know how to use it. Please guide Ashwin on what he should do. Your report must cover the following: a. How many units of sale must happen in Mumbai to break even? b. How many units in Pune? c. Is the break even a sufficient indicator as to the choice of location in this case? d. What other information would Ashwin require if he is to make up his mind on a choice of location? With the existing information, can you come to any conclusion? 7. From the following information prepare a production budget and raw material budget for product Alpha for the six month period January to June,2005. a. Opening stock on hand 40,000 units b. Expected closing stock at the end of each month is 25% of the next months sales. c. Anticipated sales for the months of January July are as follows: Month January February March April may June July Sales (in units) 100,000 150,000 125,000 160,000 180,000 120,000 140,000

Each unit of alpha requires 1 unit of beta and 2 units of gamma. The opening stock of beta and gamma are 50,000 units and 70,000 units respectively. The desired closing stock in the month of June is 90% of the opening stock. Prepare a monthly production budget and a six monthly raw material budget. 8. Prabhu is about to meet his prospective father-in-law. He is quite nervous because, as per the feedback from his fiance this father-in-law will not be impressed with just tamil music. He is a harder nut to crack and has a head for numbers. Prabhus task is cut out. He needs to convince his future father-in-law that he can buy a house in some time and run his household. The following information is available to him: Annual income(Salary) Rs.6,00,000/ Projected monthly expenses Rs.30,000/-(Prabhu wishes and prays that his future wife is not a shopping freak!!!)

Annual expenses(Insurance Premium-payable in March) Rs.40,000/Income from Fixed Securities(Recd during September and March) Rs.3600/- halfyearly A property at a decent location costs Rs.30,00,000/- and a 10% down payment is required at the time of booking. Assume that there is a 10% inflation in property prices. Assume repayment(EMI) of Rs.780/- per lakh for a loan of 20 years. Assume 5% increase in salary every year. Ignore the effects of taxation. DO NOT ASSUME that you can borrow any money from your future father-in-law. You are required to show a budgeted year wise cash flow for the next four years. 9.