Presentation on Cost Accounting for BBA Students of VI Semester

1. COST ACCOUNTING
CHAPTER 1
NATURE & SCOPE OF COST ACCOUNTING
BY
PROF. SUKU THOMAS SAMUEL
DEPARTMENT OF MANAGEMENT

2. REVISION OF ACCOUNTING BASICS

3. HISTORY OF ACCOUNTING
• Origin traced to ancient civilizations.
• Audit systems introduced Egyptians and Babylonians.
• Roman Empire streamlined accounting practices to generate
financial information.
• Bookkeeping practice evolved in medieval Europe.
• Introduction of double-entry bookkeeping.
• Luca Pacioli work Summa de arithmetica, geometria (Venice 1494)
is the foundation for modern accounting.
• Institute of Accountants in Glasgow petitioned Queen Victoria for a
Royal Charter in July 1854.
• United States the American Institute of Certified Public
Accountants was established in 1887

4. DEFINITION OF ACCOUNTING
Accounting is defined as "the art and the science of
recording, classifying and summarising transactions in a
business".
• Accounting can be considered as an art because it requires creative
judgment and skills. In order to perform accounting functions well,
discipline and training is required.
• Accounting can be considered as a science follows a systematic
and organized path to understanding. It has well defined laws and
principles.

5. BRANCHES OF ACCOUNTING
Financial
Accounting
Cost
Accounting
Managemen
t
Accounting
Deals with bookkeeping and
preparation of final
accounts.
Analysis of cost and
methods to reduce cost.
Using accounting
information to take business
decisions.

6. OBJECTIVES OF ACCOUNTING
Maintenance of
Records
• Maintain systematic record of all financial
transactions.
• Preparation of final accounts.
Estimation of
Profit or Loss
• Comparison of incomes of a business with its
expenses.
• Helps a business to evaluate its profit position.
Determination of
Financial Position
• Estimate the assets and liabilities of the firm.

7. ACCOUNTING EQUATION
Assets
• Economic resources of an enterprise.
• Used by the business in its operations.
• Classified into two types: current and fixed.
Liabilities
• Obligations or debts that an enterprise.
• Should be paid in the future.
• Classified as current and long term.
Capital
• Amount invested by the owner in the firm.
• Must be paid while winding up.

8. ACCOUNTING PROCESS
Transaction
• Journals
Recording
• Ledgers
Classifying
• Final
Accounts
Summarizing

9. Ledgers
Trial
Balance
Trading
Account
Profit & Loss
account
Balance
Sheet
Summary of all
ledgers in a
business
• Income Statement of a
firm
• Profit Position of a firm
Gross Profit Net Profit • Financial
Position
• Assets &
Liabilities
SUMMARIZING OF TRANSACTIONS

10. TYPES OF ACCOUNTS
According to the double entry system of bookkeeping, there are three types of
accounts:
Personal Accounts
Accounts that represent and contain transactions related to individuals or other
organizations.
E.g. Thomas Account
Real Accounts
Accounts which represent and contain transactions related to the assets of the
business.
E.g. Furniture Account.
Nominal Accounts

11. GOLDEN RULES OF ACCOUNTING
Types of Account Golden Rules
Personal Account Debit the receiver; credit the giver.
Real Account Debit what comes in; credit what goes out.
Nominal Account
Debit all expenses and losses; credit all incomes and
gains.

12. TEST YOUR UNDERSTANDING
1. Amazon account
2. Land account
3. Interest paid account
4. Joseph account
5. Drawings account
6. Accountant account
7. Repair account
8. Depreciation account
9. Capital account
10.Wages account
11.Machinery account
12.Commission account
13.Loan account
14.Salary account
15.Mathew account

13. CHAPTER 1
NATURE & SCOPE OF COST ACCOUNTING

14. COST - MEANING
• Dictionary meaning – price paid for something
• Amount of resources given up in exchange for any goods or service
• “Cost is the amount of expenditure incurred or attributable to a given
thing”
- CIMA, UK
• “Cost is a measurement, in monetary terms, of the amount of resources
used for the purpose of production of goods or rendering services”
- ICWA, India

15. COST VS. EXPENSE VS. LOSS
COST EXPENSE LOSS
Amount or equivalent paid or
charged for something
Cost used up in earning
revenues
Excess of expenditure incurred
over revenue earned
Used in present continuous
context.
Used in past context. Used in past context.
Possibility to recoup. Recouped. No possibility to recoup and
expired.

16. COST
EXPENSE LOSS
RECORDED IN INCOME
STATEMENT
RECORDED IN BALANCE SHEET
EXPIRED UNEXPIRED

17. COSTING & COST ACCOUNTING
COSTING
• Determination of cost.
• Executed with the use of simple techniques – arithmetic process,
memorandum statement etc.
COST ACCOUNTING
• Reference to the subject as a whole
• Comprises of the concepts, principles, methodologies, practices, formats,
statements etc.

18. COST ACCOUNTING
“The application of costing and cost accounting principles, methods and
techniques to science, art and practice of cost control and the
ascertainment of profitability”
- CIMA, UK
“Cost accounting is the application of accounting and costing principles,
methods and techniques in the ascertainment of costs and the analysis of
saving/or excess cost incurred as compared with previous experience or
with standards”.
- H.J. Wheldon
• Formal accounting mechanism by which the cost are identified.
• Include principles, conventions, techniques and systems.
• Helps to plan and control utilization of resources.

19. ADVANTAGES OF COST ACCOUNTING
1. Ascertainment of cost: Cost information is the basis for
determination of the price of product or service.
2. Cost control: Scientific judgment of the cost helps to have an
effective control over the expenses to be incurred by a business.
3. Cost reduction: Reduction of cost refers to permanent reduction
in the cost without compromising on the quality.
4. Assisting management: Decision making is a very important
process for the top-level management and its activities.

20. DISADVANTAGES OF COST ACCOUNTING
1. Lack of uniform procedures: Cost accounting lacks uniform
practices and processes and unified processes and practices.
2. Varies from industry to industry: Practices of cost accounting vary
from industry to industry.
3. Cost accounting practices are costly: Implementation of process,
procedures and methods are cost accounting is a costly affair for
the business.
4. Too many concepts and conventions: Has too many concepts and
conventions.
5. Data centric subject: Depends on the information.

21. COST CENTRE
“A production or service, function, activity or item of equipment whose
costs may be attributed to cost units. A cost center is the smallest
organizational sub-unit for which separate cost allocation is
attempted.”
- CIMA, UK
• Smallest segment of an organization/ department.
• Used for collection of cost.
• Improves reporting of cost.
• Helps in easier monitoring of cost.
• Increases accountability.

22. COST CENTRE
Two types of cost centers:
1. Production Cost Centers
• Cost centres directly involved in the manufacturing operations.
2. Service Cost Centers
• Service cost centres are incidental to the production process.
• Do not produce products directly.
• Any cost which is incurred or charged to service cost centres must
be reapportioned to production cost centres.

23. COST UNIT
• Refers to the unit of quantity of
product, service or time (or
combination of these) in relation to
which costs may be ascertained or
expressed.
• Refers to the final products
manufactured by the organization.
• The unit of output (or a unit of
service provided) which absorbs the
cost center’s overhead cost.
Product / Service Cost Unit
Shoes Pair
Cotton Bale
Steel Tonne
Crude oil Barrel
Hotel Room rent / day
Carpet Square foot

24. CLASSIFICATION BASED ON INDENTIFIABILITY
Based on traceability to the cost center/ process/ work job/ cost unit,
cost can be classified as DIRECT and INDIRECT COST.
• Direct cost is directly related to a cost unit/ process or
department. It is convenient to identify and specific to the
manufacturing or production process.
• Indirect Cost is incurred for the benefit of direct cost process /
departments. It cannot be traced or identified directly and benefits
several departments/ processes.

25. CLASSIFICATION BASED ON ACTIVITY
Based on changes in level of activity or volume of production cost
can be classified as FIXED COST, VARIABLE COST and SEMI VARIABLE
COST.
• Fixed Cost is the total cost remains the same irrespective of level
of production. For fixed cost, cost / unit reduces with increase in
level of output.
• Variable Cost is the cost that varies with the level of activity. For
variable Cost / unit remains the same, total cost will change with
output.
• Semi variable Cost is the cost includes both fixed and variable

26. CLASSIFICATION BASED ON CONTROL
Based on regulation of the cost, cost can be classified as
Controllable and Non-controllable Cost.
• Controllable Cost is cost that can be regulated by the
management authority.
• Non-controllable Cost is cost that cannot be influenced by the
management authority.

27. CLASSIFICATION BASED ON TIME
Based on the time of computation of the cost, it can be classified as
HISTORICAL COST and PREDETERMINED COST.
• Historical Cost is cost ascertained after occurrence. It is
determined based on the occurrence and can be verified based on
the records.
• Predetermined Cost is estimated costs are called as
predetermined cost and are computed in advance.

28. CLASSIFICATION BASED ON NORMALITY
Based on occurrence of the cost it can be classified as NORMAL
COST and ABNORMAL COST.
• Normal Cost is cost that are normal for a given level of output and
are routine part of production cost. It is charged to Trading
account.
• Abnormal cost is cost that are not usual to occur at a given level
of output and is not a part of the routine production cost. It is
charged to P/L Account

29. CLASSIFICATION OF COST
DECISION MAKING

30. CLASSIFICATION OF COST – DECISION MAKING
• Cost which are specially computed
• Cost categories used for by the management for the
purpose of decision making.
• Calculation or computation required to take better
business decisions.
• May not be recorded or disclosed in the books of
accounts.

31. CLASSIFICATION OF COST – DECISION MAKING
SUNK COST
– Cost that already incurred.
– Cannot be changed by management decision.
Example: Marketing study carried out and product failed.
Microsoft writes off $7.6B, admits failure of Nokia acquisition
'Monumental mistake' by former CEO Steve Ballmer comes home to
roost
Source: https://www.computerworld.com/article/2945371/microsoft-writes-off-
76b-admits-failure-of-nokia-acquisition.html

32. CLASSIFICATION OF COST
DECISION MAKING
REPLACEMENT COST
– Market cost of replacing an asset.
Example: Cost of replacing production process from
labor intrinsic to machinery intrinsic
In 2016, Bata India invested Rs 300 crore over three years to
modernize its manufacturing facilities at West Bengal, Bihar
Karnataka and strengthen its retail network. Bata India added over
100 new retail stores, 31 franchisee stores & renovated more than
90 stores across India with these changes
Source: https://www.business-standard.com/article/companies/bata-india-
shifts-gears-to-rural-market-116080401029_1.html

33. CLASSIFICATION OF COST – DECISION MAKING
DIFFERENTIAL COST
– Also known as incremental cost.
– Increase or decrease in the total cost
that results from an alternate course
of action.
– Calculated by subtracting the cost of
one alternative from the cost of
another.
Example: Shift in saloon operation due to COVID
situation.
Haircut, Salon at Home: How to Book Urban
Company's Grooming Services in Lockdown 3.0
Source: https://www.news18.com/news/tech/haircut-salon-at-
home-how-to-book-urban-companys-grooming-services-in-
lockdown-3-0-2607047.html

34. CLASSIFICATION OF COST – DECISION MAKING
MARGINAL COST
– Also known as variable cost.
– Extra cost incurred in producing one additional unit of the
product. Helps management in decision making such as make
or buy pricing of products selection of sales mix etc.
OPPORTUNITY COST
– Sacrificial cost involved in accepting an alternate alternative.

35. CLASSIFICATION OF COST – DECISION MAKING
Imputed cost
– Also known as notional cost.
– Calculated for the purpose of decision making.
– Hypothetical cost which are specially computed outside the
accounting system
Example:
Rent of a building owned by a company. Rent for building already
owned by a company may not result in outflow of cash if the
management does not consider rent as an expense it may lead to
improper pricing of the product.

36. CLASSIFICATION OF COST – DECISION MAKING
CONVERSION COST
– Total cost of converting a raw material into a finished product.
– Sum of direct labour and factory overhead cost in the
production of a product

37. METHODS OF COSTING

38. METHODS OF COSTING
• Refers to the techniques and processes employed in
the ascertainment of costs.
• Different methods of costing.
• Methods depend on:
– Nature and type of industry.
– Policy of the company.
– Managerial needs.

39. METHODS OF COSTING – JOB COSTING
• Costs are collected and accumulated for each job
separately
• Each job requires different approach/ work pattern/
process.
• Maintained separate to identity, analyze and segregate
costs.

40. METHODS OF COSTING – BATCH COSTING
• Involves transferring costs to a batch of
products.
• Each batch is a quantity of identical units.
• Applied when production is continuous.
• On completion, the total cost and number
of units in the batch is calculated.
• Then, the unit cost, selling price and
profitability of each unit is computed.
Example: Process food industry.

41. METHODS OF COSTING – PROCESS COSTING
• Costs are collected and accumulated
according processes
• Ascertain the costs of each operation or
stage of manufacture.
• Total cost determined based on respective
process through which the units pass.
• Ideal where the final product must go
through various process.
Example: Bottling of mineral water

42. METHODS OF COSTING – OPERATION COSTING
• Mix of job costing and process costing.
• Initially has identical processing for a
group of products.
• Finished using more product-specific
procedures.
• Applicable to the more complex
manufacturing environments.
Example: Manufacture of variants of same model of
car.

43. METHODS OF COSTING – UNIT COSTING
• Also known as output or single output
costing.
• Followed in businesses which produces
a single product on large scale
continuously
• Products are having uniform
homogeneous character.
• Helps in ascertainment of cost per unit.
• Cost Per Unit = Total Cost / Number of
Units Produced
Example: Electricity is measured in Kilowatts

44. METHODS OF COSTING – OPERATING COSTING
• Method of ascertaining the costs of
providing or operating a service.
• Varied nature of activities carried
out by the service undertakings.
• Total cost of rendering the service is
calculated.
Example: Stay at Hotel.

45. METHODS OF COSTING – UNIFORM COSTING
• Application of the same accounting and
costing principles, methods or procedures
uniformly.
• Various undertakings in the same industry
follow uniform practice.
• Application of a specific technique.
Example: Hotel industry

46. METHODS OF COSTING – MULTIPLE
COSTING
• Also known as composite costing.
• Product comprises of different assembled
parts.
• Cost has to be ascertained for the
component and finished product.
• Involves different or multiple methods of
costing.
Example: Plane manufacture

47. ELEMENTS OF COST

48. ELEMENTS OF COST
• Used in differentiating and bifurcating the cost.
• Elements of cost helps in recording cost.
• Helps in further reporting and analysis.
• Helps the management to control the costs better.
• Helps the management to implement decisions better.
• Provides with necessary data for management.
Three elements – Material, Labour and Expense.
Each element if further divided into direct and indirect.

49. MATERIAL COST
The cost of the commodities supplied to an undertaking is
called as Material Cost.
• Cost of material or the commodity used by the
organization
• Consumed as a part for its production process.
• Further divided into direct or indirect.
Example: Milk, water, tea powder, sugar etc. for making tea.

50. MATERIAL COST
Direct Material
• Raw material/input from which a product is to be produced
or manufactured.
• Varies according to the level of output.
For example: Wood is the direct material for furniture.
Indirect Material
• Material required to produce a product.
• Does not form a part of a finished product.
• Needed as part of production process.
For example: Nails are used in furniture.

51. LABOUR COST
Labour is the cost incurred in the form of remuneration
paid to the employees or labours of the organization.
• Workforce required to convert material into finished
product.
• Proportion to the total or overall cost - forms a major
component.
• Fair compensation needs to be paid & ensured by law.
• Compensation depends upon number of factors.
• Classified as Direct & Indirect cost.

52. LABOUR COST
Direct Labour Cost
• Cost incurred on those employees who directly take part in
the manufacturing process
• Easily identified with the individual cost center.
Example: Teachers in the department.
Indirect Labour Cost
• Cost incurred on those employees who do not directly take
part in the manufacturing process
• Cannot identified with the individual cost center.
Example: salary for college payroll employee.

53. EXPENSES
The cost of service provided to an undertaking and the
national cost of the use of owned asset.
• Costs of services provided to the organisation.
• Cost of all other material and labour.
• Needed to support the existing production process.
Example: Food for labour working in a factory
• Classified as direct or indirect.

54. EXPENSES
Direct Expenses
• Expenses directly identifiable with a process.
• Expenses which can be directly identified with the individual
cost centers.
Example: repair charges of machinery.
Indirect Expenses
• Expenses cannot be associated exclusively with a process.
• Expenses which cannot be directly identified with the
individual cost centres.
Example: telephone expenses.

55. ELEMENTS OF COST

56. DIVISION OF COST
• Elements of costs are divided into different categories for
evaluation and decision-making purposes
• Indirect costs are referred to as overheads.
Overheads
• Refers to all indirect expenses of running a business.
• Not linked to the manufacture of a product or rendering a
service.
• Ongoing expenses supporting the business.
Example: Telephone bill in a factory producing tiles.

57. DIVISION OF COST
Prime Cost
Direct Material + Direct Labour + Direct Expense
Overhead Cost
Indirect Material + Indirect Labour + Indirect Expense

58. DIVISION OF COST

59. COST SHEET

60. ELEMENTS OF COST

61. DIVISION OF COST
Prime Cost
Direct Material + Direct Labour + Direct Expense
• Sum of all the direct elements of costs.
• Signified the total direct costs of production.
• Businesses need to calculate the prime cost of each
product.
• Ensures product lines are generating a profit.

62. DIVISION OF COST
DIRECT
MATERIAL
DIRECT
LABOUR
DIRECT
EXPENSES
PRIME COST
FACTORY
OVERHEAD
FACTORY COST
ADM.
OVERHEAD
SELLING & DIST.
OVERHEAD
COST OF PRODCUTION
PRIME COST
FACTORY COST
COST OF
PRODUCTION
TOTAL COST

63. COST SHEET
• Statement representing the various costs incurred.
• Cost representation at different stages of business
operations.
• Prepared in a tabular format.
• Determines the total cost or expenditure made by the
organization.
• Also represents cost of each unit of a product or service.
• Shows the various elements of cost.
• Prepared at regular intervals.

64. COST SHEET
FORMAT
Particulars Total Cost Cost/ Unit
Direct Material ***** *****
Direct Labour ***** *****
Direct Expenses ***** *****
PRIME COST ***** *****
Factory/ Works overhead ***** *****
FACTORY/ WORKS COST ***** *****
Office & Admin overhead ***** *****
COST OF PRODUCTION ***** *****
Selling & Distribution overhead ***** *****
TOTAL COST/ COST OF SALES ***** *****
Profit or Loss ***** *****
Sales ***** *****

65. COST SHEET - EXCLUSIONS
• Financial expenses are excluded from cost sheet:
– Cash discount
– Interest paid
– Preliminary expenses written off
– Goodwill written off
– Donations
– Income tax paid
– Dividend paid

66. Preparation of cost sheet

67. COST SHEET
“A document which provides for the assembly of the detailed cost
of a cost centre or cost unit”
- CIMA UK
• Also know as production statement.
Purpose:
– Presents total cost and cost per unit of goods produced.
– Break up of cost element wise.
– Helps in comparative study.
– Helps management to fix the price.

68. COST SHEET
FORMAT
Particulars Total Cost Cost/ Unit
Direct Material ***** *****
Direct Labour ***** *****
Direct Expenses ***** *****
PRIME COST ***** *****
Factory/ Works overhead ***** *****
FACTORY/ WORKS COST ***** *****
Office & Admin overhead ***** *****
COST OF PRODUCTION ***** *****
Selling & Distribution
overhead
***** *****
TOTAL COST/ COST OF SALES ***** *****
Profit or Loss ***** *****
Sales ***** *****

69. COST SHEET PREPARATION
Identify and classify the different items in respective
Prime cost, Factory OH , Administrative overhead,
Selling & Distribution Overhead

70. COST SHEET PREPARATION
IDENTIFY THE FOLLOWING ITEMS
Name of Item Cost sheet classification
Purchase of Raw material Prime cost
Direct Wages Prime cost
Office appliances maintenance Administration overhead
Plant & Machinery maintenance Factory overhead
Factory building rent Factory overhead
Factory supervisors salary Factory overhead
Sales commission Selling and Distribution Overhead
Factory lighting Factory overhead
Taxes Administration overhead

71. COST SHEET PREPARATION
IDENTIFY THE FOLLOWING ITEMS
Name of Item Cost sheet classification
Sales travelling Selling and Distribution Overhead
Freight incurred on material Prime cost
Office rent Administration overhead
Sales promotion Selling and Distribution Overhead
Office Salary and expenses Administration overhead
Managers salary (Factory) Factory overhead
Depreciation – Plant Factory overhead
Work-in- Progress Factory overhead
Marketing salaries Selling and Distribution Overhead

72. COST SHEET PREPARATION
IDENTIFY THE FOLLOWING ITEMS
Name of Item Cost sheet classification
Distribution cost Selling and Distribution Overhead
Customer service cost Selling and Distribution Overhead
Rates and Insurance (office) Administration overhead
Lubricating Oil Factory overhead
Factory repairs and Maintenance Factory overhead
Running Expenses of Machine Factory overhead
Labour amenities Factory overhead
Carriage outward Selling and Distribution Overhead
Indirect wages Factory overhead

73. COST SHEET PREPARATION
IDENTIFY THE FOLLOWING ITEMS
Name of Item Cost sheet classification
Sundry office expenses Administration overhead
Salesmen Salaries Selling and Distribution Overhead
Advertising Selling and Distribution Overhead
Directors fees Administration overhead
Bad debts written off Selling and Distribution Overhead
Consumables Factory overhead
Carriage inward Prime cost
Expenditure on sales depot Selling and Distribution Overhead
Printing Administration overhead

74. COST SHEET PREPARATION
IDENTIFY THE FOLLOWING ITEMS
Name of Item Cost sheet classification
Rent for showroom Selling and Distribution Overhead
Legal charges Administration overhead
Plant depreciation Factory overhead
Directors salary Administration overhead
Bad debts written off Selling and Distribution Overhead

75. COST SHEET PREPARATION
QUESTION 1
Prepare a Cost sheet of the
following data relating to the
manufacture of bulbs.
The numbers of bulbs
manufactured in a month is 1,000
and a profit margin of 20% on the
total cost of good is expected on
the sale of bulbs.
Particulars Amount
Direct materials consumed 20,000
Direct labour 8,000
Indirect labour (in factory) 2,500
Supervision costs (in factory) 1,000
Factory rent 1,600
Factory lighting 600
Factory maintenance
consumables
100
Depreciation of machine 500
Office OH 8,000
Office salary 2,000
Misc. office expenses 1,000

76. PREPARATION OF COST SHEET
Question 2

77. QUESTION 2
Prepare a Cost sheet of the
following data relating to the
manufacture of bulbs.
The numbers of bulbs
manufactured in a month is
1,000.
Particulars Amount
Materials used for manufacture 5,500
Materials used for packaging 1,000
Materials used for selling 150
Materials used in factory 75
Materials used in office 125
Direct labour cost for production 1,000
Labour for supervision at factory 200
Factory direct expenses 500
Factory indirect expenses 100
Office expenses 125
Office equipment depreciation 75
Factory depreciation 175
Selling expenses 350
Material freight cost 500
Advertising 125

78. TREATMENT OF STOCK

79. COST SHEET – TREATMENT OF STOCK
Stock in a firm is of three types:
a. Stock of raw material.
b. Stock of work in progress.
c. Stock of finished goods.

80. COST SHEET – Treatment OF STOCK
Stock of Raw material
• Material consumed during the production process.
• Part of the prime cost.
Treat when raw materials levels are declared:
Particulars Amount
Opening stock of raw materials ****
Add: Purchase ***
Less: Closing stock of raw materials ****
Cost of materials consumed ****

81. COST SHEET – TREATMENT OF STOCK
Stock of Work in Progress
• Goods that are semi finished.
• Part of factory overhead
Treat when work in progress levels are declared:
Particulars Amount
Prime Cost *****
Add: Factory overhead ****
Add: Opening stock of work in progress ****
Less: Closing stock work in progress ****
Factory/ Works Cost *****

82. COST SHEET – TREATMENT OF STOCK
Stock of Finished goods
• Considered along with administration overheard.
• Adjusted after calculation of cost of production.
Treat when finished goods levels are declared:
Particulars Amount
Factory/ Works Cost *****
Add: Office and administration overhead ****
Cost of production *****
Add: Opening stock of finished goods ****
Less: Closing stock of finished goods ****
Cost of Goods sold *****

83. PREPARATION OF COST SHEET
Question 3

84. QUESTION 3
ABC Ltd has provided
the following
information:
Prepare the cost sheet
from the above-
mentioned details.
Particulars Amount
Stock of raw material on 1 Jan 2020 75,000
Stock of raw material on 31 Jan 2020 91,500
Direct wages 52,500
Indirect wages 2,750
Sales 2,00,000
Work in progress on 1 Jan 2020 28,000
Work in progress on 31 Jan 2020 35,000
Purchase of raw material 66,000
Factory rent 15,000
Depreciation of machinery 3,500
Purchase expenses 1,500
Carriage outward 2,500
Advertising 3,500
Office rent 2,500
Salesmen commission 6,500
Stock of finished goods on 1 Jan 2020 54,000

85. PREPARATION OF COST SHEET
Question 4

86. QUESTION 4
Following information has
been obtained from the
records of a manufacturing
concern.
Prepare Cost sheet for the
year 2015.
Particulars 1-1-2015 31-12-2015
Stock of Raw materials 30,000 35,000
Work in progress 15,000 20,000
Stock of finished good 43,700 54,000
Particulars Amount
Indirect wages 9,720
Sales 3,25,000
Factory Rent & Rates 7,830
Office salaries 15,030
General Expenses 13,500
Office Rent 2,000
Rent of Show Room 1,200
Purchase of Raw material 1,20,000
Productive wages 90,000
Plant Repair 3,420
Depreciation on Plant 8,360
Factory Lighting 7,380

87. PREPARATION OF COST SHEET
Question 5

88. QUESTION 5
From the books of Accounts of
XYZ Enterprises, the following
details were extracted for the
year ending March 2020.
The managers time is shared
between factory and office in
the ratio of 20:80
Prepare the cost of sheet from
the following.
Particulars Amount
Opening stock of materials 1,88,000
Closing stock of materials 2,00,000
Materials purchased 8,32,00
Direct wages 2,38,400
Indirect wages 16,000
Salary for administrative staff 40,000
Freight charges inwards 32,000
Freight charges outwards 20,000
Sales 15,79,800
Cash discount allowed 14,000
Bad debts written off 18,800
Repairs for machinery 42,400
Factory rent 12,000
Office rent 6,400
Travelling expenses 12,400
Salesmen salary 33,600
Plant machinery depreciation 28,900
Furniture depreciation 2,400
Directors fee 24,000
Factory electricity 48,000
Fuel 64,000
Sale of scrap 500

89. PREPARATION OF COST SHEET
Question 6

90. QUESTION 6
Bharat Engineering Company
manufactured and sold 1,000
sewing machines in 2020. The
following are the details
obtained from the records of the
company:
The company plans to
manufacture 1,200 sewing
machines in 2021. You are
required to submit a statement
showing the price at which
machines would be sold at to
record a profit of 10% on the
selling price.
Particulars Amount
Cost of material 80,000
Wages paid 1,20,000
Direct manufacturing expenses 10,000
Factory expenses 50,000
Salaries 60,000
Rent 10,000
Selling expenses 30,000
General expenses 20,000
Sales 4,00,000
The following information has been provided to you:
a. Price of materials will rise by 20% compared to
previous level.
b. Wage rate will rise by 5%.
c. Factory expenses will rise in proportion to the
combined cost of materials and wages.
d. Selling expenses per unit will remain unchanged.
e. Other expenses will remain unaffected by the rise in
output.

91. PREPARATION OF COST SHEET
Question 7

92. QUESTION 7
The following are the details
of the expenses of PQRS Ltd
for the year 2020 for the
manufacture of 800 units:
Prepare the cost sheet for
2021 based on the above
provided information and the
below mentioned conditions.
• The output and sales were 1,000 units.
• The price of material will increase by 25% on the previous
year level.
• Wages during the year will increase by 12.5%.
• Manufacturing cost will increase in proportion to
combined cost of material and wages.
• Other expenses will remain unaffected by the increase of
output.
• A profit of 10% is expected from the selling price/ unit.
Particulars Amount
Cost of material 32,000
Direct wages 48,000
Manufacturing charges 20,000
Sales 1,60,000
Office salary 24,000
Rent 4,000
Selling expense 8,000
General expenses 12,000
Profit 12,000

93. THANK YOU