Q.

1 The following is an extract of the records of receipts and issues of material in a

factory during the month of June 2003
June 1 Opening balance at Rs. 150 per unit 200 units
June 4 Issues 20 units
June 7 Issues 40 units
June 11 Receipts at Rs. 170 per unit 100 units
June 15 Returned from Department 20 units
June 20 Issues 50 units
June 22 Issues 150 units
June 26 Issues 20 units
June 29 Receipt at Rs. 178 per unit 50 units

You are requested to ascertain the value of the closing stock of the material under first in first out
method.
Ans. FIFO method
Date Receipt Issues Balance
Qty Rate Amount Qty Rate Amount Qty Rate Amount
1/6/03 200 150 30000
4/6/03 20 150 3000 180 150 27000
7/6/03 40 150 6000 140 150 21000
11/6/03 100 170 17000 140 150 21000
100 170 17000
15/6/03 20 150 3000 160 150 24000
100 140 17000
20/6/03 50 150 7500 110 150 16500
100 170 17000
22/6/03 110 150 16500
40 170 6800 60 170 10200
26/6/03 20 170 3400 40 170 6800
29/6/03 50 178 8900 40 170 6800
50 178 8900

Q.2 The budgeted overhead expenses for a Machine shop are Rs.144000 for budgeted
machine hour of 2880. The following are the actual results in a month:
Overhead incurred Rs. 14500 , Machine hours worked 250.
You are requested to calculated the under or over absorption of overheads.
Ans. Absorption rate = Budgeted Overhead/Budgeted machine hour
= 144000/2880= Rs. 50 per machine hour.
Overhead absorbed = machine hour worked X Absorption rate=250 X 50 = 12500.
Overhead under absorption = 14500 – 12500 = 2000/-.
Q 3. (i) Calculate the contribution per unit and (ii) state which of the alternative product mixes
you would recommend to the management and why.
Product A B
Direct materials per unit Rs. 18 Rs. 15
Direct labour per unit 12 hours at Rs. 1.25 per hour 10 hours at Rs. 1.25 per hour
Selling price per unit 75 65
Fixed overheads
Rs. 2000
Variable overheads 200
% of direct labour
Alternative product mix (i) 200 units of A and 300 units of B
(ii) 250 units of A and 250 units of B
Ans. Product A Product B
Sale price 75 65
Dir Mat per unit 18 15
Direct Labour 15 12.50
Var. Overhead(200% of D/L) 30 25.00
Total Variable Cost 63 52.50
Contribution per unit 12.00 12.50
Mix I: A B
Unit 200 200
Cont. per unit 12.00 12.50
Total cont. 2400 3750 6150
Fixed overhead 2000
Profit 4150
Mix II:
Unit 250 250
Cont. per unit 12.00 12.50
Total cont. 3000 3125 6125
Fixed overhead 2000
Profit 4125
Therefore Mix I is recommended as it yields maximum profit.

Q.4 The cost accounts of Excel ltd. Show the following figures for 2003-04:
Rs.
Materials used 5400000
Manual and Machine Labour wages 1600000
directly chargeable
Works overhead 1200000
Administrative overhead 1640000
What price should the company quote to manufacture a product which it is estimated will
require an expenditure of Rs. 500000 in material and Rs. 100000 in wages so that it will
yield a profit of 25% on the S.P?
Ans. 2003-04 Price to be quoted
Material 5400000 500000
Wages 1600000 100000
Prime Cost 7000000 600000
Works Overhead (75% of wages) 1200000 75000
Works Cost 8200000 675000
Admn overhead (20% of Works cost) 1640000 135000
Total cost 9840000 810000
1
Profit 25% on SP i.e. 33 % of CP 270000
3
Sale price 1080000

Q.5 A publishing house purchases 2000 units of a particular item per year at a unit cost
of Rs. 20, the ordering cost per order is Rs. 50 and the inventory carrying cost is 25%. Find
the optimal order quantity and the minimum total cost including purchase cost. If a 3%
discount is offered by the supplier for purchases in lots of 1000 or more, should the
publishing house accept the order?

Ans. EOQ without discount:

EOQ = 2AB/CS= 2 X Annual consumption X Buying cost per order
Cost per order X Storage and carrying cost

= 2 X 2000 X 50/20 X 25% = 200 units

No. or orders to be placed = 2000 / 200 = 10 orders
Average inventory = 200/2 = 100
Ordering cost (10 X 50 ) = 500
Carrying cost of average inventory (100 X 5)= 500
Purchase cost (2000 X 20) = 40000
Total = 500+500+40000=41000

EOQ with discount:

Unit cost after discount = 20-3% of 20=19.40
Carrying cost = 25% of 19.40=4.85
Lot size = 1000 units i.e. 2 orders
Ordering cost (2 X 50) = 100
Carrying cost of average inventory (500X4.85) = 2425
Purchase cost (2000 X 19.40) = 38800
Total = 100+2425+38800=41325
Q6. A limited company manufactures and sells four types of products under the brand
names P, Q, R and S respectively. The sales mix in value comprises 33-1/3%, 41-2/3%, 16-
2/3% and 8-1/3 of P, Q, R and S respectively. The total sales (100%) are Rs. 60000 per
month.
Operating costs are:
P = 60% of selling price
Q = 68% of selling price
R = 80% of selling price
 S = 40% of selling price
Fixed cost: Rs. 14700 per month.
Calculate the break even point for the products on an overall basis i.e. total.
Ans. P Q R S Total

33-1/3 41-2/3 16-2/3 8-1/2

Sales value 20000 25000 10000 5000 60000
Variable cost 12000 17000 8000 2000 39000
Contribution 8000 8000 2000 3000 21000
Fixed cost 14700
Profit 6300
Break even point for the products on overall basis:
B.E.Sales=Fixed Cost ÷P/V ratio=14700÷0.35=42000

Q7. The following information is given for a factory in 2008:

Direct Material used Rs. 200000
Direct Wages 150000
Factory Expenses 90000
Office and Administrative Exp. 88000

On the basis of the above, ascertain the cost of a job to be done in 2009. Materials
required will be Rs.1000 and wages amounting to Rs.2000 will be spent on the job. What
will be the quotation if a profit of 20% on selling price is desired?

Ans. Cost Sheet for the period ending 2008

Direct Material used Rs. 200000

Direct Wages 150000
Prime Cost Rs. 350000
Factory Expenses 90000 (60% of Direct Wages)
Factory Cost Rs. 440000
Office and Administrative Exp. 88000 (20% of Factory Cost)
Cost of Production Rs. 528000

Cost Sheet for the period 2009

Material Rs.1000
Wages Rs.2000
Prime Cost Rs.3000
Factory OH (60% on Dir. Wages) Rs.1200
Factory Cost Rs.4200
Admn. Overhead(20% on Fy.Cost) Rs. 840
Cost of Production Rs.5040
Profit Rs. 260
Selling Price Rs.6300 (5040 X 100/80)
Q8. A product passes through two distinct processes A and B and thereafter it is
transferred to finished stock. From the following information, you are required to prepare
Process Accounts.

Process A (Rs.) Process B (Rs.)

Material consumed 12000 6000
Direct Labour 14000 8000
Manufacturing Expenses 4000 4000
Input in Process A(units) 10000
Input in Process A(Value) 10000
Output (units) 9400 8300
Normal wastage (%age of 5% 10%
input)
Value of normal wastage 8 10
(per 100 units)

Ans. Process Account A

Particular Unit Rate Amount Particular Unit Rate Amount

To Unit 10000 10000 By 500 Rs.8 per 40
introduced Normal 100 units
Loss
To 12000 By 100 4.2 420
Materials Abnormal
Waste
To Labour 14000
To 4000 By 9400 39540
Overhead Transfer
to
Process B
Total 10000 40000 10000 40000

Working:
Cost Rs.40000 Input 10000
Less: Scrap Rs.40 Normal Loss 500
Rs.39960 ÷ 9500 =4.2
Process Account B

Particular Unit Rate Amou Particular Unit Rate Amount

nt
To Transfer 9400 39540 By Normal 940 10/100 94
from Process A Loss
To Materials 6000 By Abnormal 160 6.8 1088
Waste
To Labour 8000
To Overhead 4000 By Transfer to 8300 56358
Process B
Total 9400 57540 9400 57540

Working:
Cost Rs.57540 Input 9400
Less: Scrap Rs.94 Normal Loss 940
Rs.57446 ÷ 8460 = 6.8

Q9. From the following data, which product would you recommend for manufacture in a
factory and why?

Per unit of Product A Product B

Standard manufacturing time 2 hrs. 3 hrs.
Direct Material Rs.50 Rs.30
Direct labour @Rs.10/Hr. Rs.20 Rs.30
Variable OH @Rs.6/hr. R.12 Rs.18
Selling price Es.200 Rs.240

Total machine hours available in the factory are 60000.

Ans.
Product A Product B
Direct Material Rs.50 Rs.30
Direct labour @Rs.10/Hr. Rs.20 Rs.30
Variable OH @Rs.6/hr. R.12 Rs.18
Prime Cost Rs.82 Rs.78
Selling price Rs.200 Rs.240
Contribution 118 162
P/V Ratio 118/200= 59% 162/240=67.5%
Contribution per hour 118/2=59 162/3=54
When Machine Hour is Recommended
limiting factor
Q10. From the following data relate to the manufacturing of an article during the month of July
2007

Raw Material consumed Rs.52000

Machine hours worked Rs.15600
Machine hours rate Rs.1100 hours
Office overhead 15 per cent of works cost
Selling overheads 25 paise per unit sold
Units produced 15000 units
Units sold 13500 units
Selling price Rs.7 per unit

Complete a cost sheet showing (a) Cost per unit (b) Profit for the period.

Ans.

Particulars Total Per Unit

Raw Material consumed Rs.52000 Rs.3.46
Direct labour Rs.15600 Rs.1.04
Prime Cost Rs.67600 Rs.4.50
Works Overhead(Machine Rs.4400 Rs.0.29
Hr.1100@Rs.4)
Works Cost Rs.72000 Rs.4.79
Office overhead (15% on Works) Rs.10800 Rs.0.72
Cost of Production 15000 units Rs.82800 Rs.5.51
Less: Closing Stock 1500 unit Rs.8265 Rs.5.51
Cost of Goods Sold 13500 units Rs.74535 Rs.5.51
Selling overheads (@0.25/unit) 3375 Rs.0.25
Cost of Sales Rs.77910 Rs.5.76
Profit Rs.16590 Rs.1.24
Selling price 13500 @Rs.7 Rs.94500 Rs.7.00

Q11. From the following details find out:

a. Profit volume ratio b. Profit when sales are Rs.20000 and c. New Break Even Point if
Selling Price is reduced by 20%.

Fixed Expenses Rs.4000 and Break Even Point Rs.10000

Ans. a. if BEP = Total Fixed Cost/ PV Ratio
Then PV Ratio = Total Fixed Cost/BEP= 4000/10000=40%

b. PV Ratio = Contribution/Sales
40 = Fixed Cost + Profit
100 20000
Profit = Rs. 4000
c. BEP = Fixed Cost/PV Ratio= Fixed Cost X Sales = 4000 X 20000 X 80 = 8000
Fixed Cost + Profit 8000 X 100