Cost Sheet concepts and cost sheet format for BBA & B.Com students as cost accounting basic concepts

1. DR. Teena Shivnani

2. Cost
The amount of Expenditure incurred on or
attributable to a given thing.
Cost represent resources that have been or must be
sacrificed to attain particular objectives.
Cost is a measurement in monetary terms of the
amount of Resources used for the purpose.
November 2, 2016 Cost Accounting / Dr. Teena 2

3. Costing
“Costing is the technique and process of calculating
cost.”
“The proper allocation of expenditure and involves
the collection of costs for every order, job process,
service or unit.”
Thus costing simply means cost finding by any
process or technique.
Cost of Manufacturing a Product + Cost of providing
services.
November 2, 2016 Cost Accounting / Dr. Teena 3

4. Cost Accounting
The method of accounting of material, labour for
manufacturing a product.
Cost accounting is a formal system of accounting for
costs.
“Cost accounting is defined as a system of recording
in accounts of the material used and labour employed
in the manufacturing of a commodity.”
November 2, 2016 Cost Accounting / Dr. Teena 4

5. Cont…..
“Cost accounting is the process of accounting for cost
which begins with the recording of income and
expenditure and end with the preparation of
statistical data.”
Cost accounting means a specialized application of
the principal of accounting in order to ascertain the
cost of producing and marketing any unit of
manufacturing.”
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6. Cost Accountancy
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Costing
Cost
Accounting
Cost
Control
Cost
Audit
Cost AccountancyCost Accountancy
““The application of costing and cost accounting
principal, methods and techniques of the science
arts & practice of cost control.”

7. Cost Control
Besides the ascertain the cost, the aim of cost
accounting is also to control the cost.
To achieve this aim, standard cost or budgeted cost is
determined before starting the production.
During the process of production efforts are made
that the actual cost of the items does not exceed the
pre-determined standard or budgeted cost.
November 2, 2016 Cost Accounting / Dr. Teena 7

8. Cost Audit
 “Cost Audit is the verification of cost accounts and a
check on the principal to the cost accounting plan.”
 Audit is described as the verification of accounts so
as to calculate their accuracy.
 Cost audit is the specific application of auditing
principals and procedure in the field of cost
accounting.
 It is an audit of efficiency and details of
expenditure.November 2, 2016 Cost Accounting / Dr. Teena 8

9. Costing v/s Cost Accounting
“Costing is the technique and process of calculating
cost.”
The method of accounting of material, labour for
manufacturing a product.
Cost accounting is a formal system of accounting for
costs.
November 2, 2016 Cost Accounting / Dr. Teena 9

10. Financial Accounting V/S
Cost Accounting
Both CA & FA are concern with systematic recording
& presentation of Financial Data.
FA is concern with the calculation of profit / loss
earned by business. In CA detailed cost and profit
data of various parts of business like departments,
products etc. are calculate.
The main purpose of CA is to provide detailed cost
information to management.
November 2, 2016 Cost Accounting / Dr. Teena 10

11. Nature of Cost a/c
Cost accounting is the Science, Art, and Practice of
cost accountant.
Science:- as science is based on rules, principals
similarly cost accounting is also based on rules, and
principals.
Art:- it is art because it is based on specific
techniques, methods which will be used according to
the knowledge of accountant.
Practice:- CA is a practice because along with
theoretical knowledge it requires practical training so
that accountant can do his duties perfectly.
November 2, 2016 Cost Accounting / Dr. Teena 11

12. Objective
1. Calculation of cost
2. Cost control and cost reduction
3. Guide to business policy
4. Determination of selling price
November 2, 2016 Cost Accounting / Dr. Teena 12

13. Elements of Costs
A cost is a combination of three elements:-
Material + Labour + Expenses
November 2, 2016 Cost Accounting / Dr. Teena 13
Direct Cost Indirect Cost
Total Cost
Indirect
Material
Indirect
Labour
Indirect
Expenses
DEDLDM

14. Material Cost
It is Cost of commodities supplied to an
undertaking for the production purpose.
MC = Cost of procedure (Pur.) + freight inward +
Municipal Taxes + Material Insurance etc.
November 2, 2016 Cost Accounting / Dr. Teena 14

15. Types of Material Cost
Direct Material cost:- DM cost is that which can be
identify with and allocation to cost unit.
It is become a part of finish product.
E.g. cotton used in textile mill, steel in machines etc.
Indirect Material Cost:- the expenses incurred on
those material which are not directly chargeable to
production are known as IM.
The amount of these exp. are small but they are
important in production process.
E.g. coal, oil, pins, nuts, thread.
November 2, 2016 Cost Accounting / Dr. Teena 15

16. Labour Cost
For conversion of material into finished goods
human effort is needed, such human effort is called
labour.
The cost of remuneration of the employees an
industries.” (salary, wages, bonus etc.)
LC = it includes all provident fund, gratuity, Idle
time, wages for holiday, salary etc.
November 2, 2016 Cost Accounting / Dr. Teena 16

17. Types of Labour Cost
 Direct Labour Cost :- DL cost means the cost
which is directly related to production activity.
E.g. wages, salary.
 Indirect Labour Cost :- it is a general labour
cost but it is not directly linked with production
process. It is helpful in production process.
E.g. storekeeper salary, watchmen, administration
exp. etc.
November 2, 2016 Cost Accounting / Dr. Teena 17

18. Expenses
All costs other than material & labour are termed as
expenses.
The cost of services provided to an undertaking and
the cost of the use of owned assets is known as
expenses.
E.g. Dep., any type of loss of material, Rent of
business. Premises, office expenditure etc.
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19. Types of Expenses
Direct Expenses:-
These are expenses which can be directly allocated to
specific cost centers or cost units.
DE are something also described as “chargeable
expenses.”
E.g. Hiring charges, Job Processing, Depreciation,
Royalty etc.
November 2, 2016 Cost Accounting / Dr. Teena 19

20. Indirect Expenses
Expenses which cannot be allocated to cost unit but
they are part of production process.
These expenses are necessary to run a production
process.
E.g. lighting, Electricity, Insurance, Repair etc.
November 2, 2016 Cost Accounting / Dr. Teena 20

21. Overhead
The term overhead includes Indirect material ,
Indirect labour, Indirect expenses.
Thus all indirect costs are overheads.
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Overheads
Factory O / H,
Manuf. O/H ,
Production O/ H
Office & Adm.O / H Sales &
Distribution O / H

22. Factory / Production O/ H
Factory or works where production is done.
It includes all, which is indirectly linked with
production process. (IM, IL, IE)
Example:-
IM = oil, lubricants etc.
IL = gate keeper salary, store keeper etc.
IE = factory rent, factory insurance, factory lighting
etc.
November 2, 2016 Cost Accounting / Dr. Teena 22

23. Administrative O / H
Office & administration means it is place where
routine as well as policy matters are decided.
This indirect expenses includes general
administrative expenses.
These expenditure are require to run a office. It
means all office expenses.
November 2, 2016 Cost Accounting / Dr. Teena 23

24. Selling & Distribution O / H
Selling & distribution, where products are sold and
finally dispatched to the customer.
Selling overhead means which is incurred for
promoting sales, increase sales, motivate customers.
Distribution overhead are those which start after
production process. It is related for distribution of
finish goods to customers.
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25. Components of Total Cost
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DM + DL + DE
Prime cost
+
Works overhead
Works cost
+
office overhead
Cost of production
+
Selling overhead
Prime Cost / Direct cost
Works or Factory cost
Cost of Production
Cost of sale or Total cost

26. Types of costs
Direct cost :- these are those costs which are
incurred for and conveniently identified with a
particular cost unit, process, or department. The
cost which is directly linked with production
process. E.g. RM, wages, cost of steel etc.
Indirect cost:- it is a general cost and are incurred
for the benefit of a number of cost unit. It is
incurred for group of unit. It cannot be identified
with a particular cost unit. E.g. Depreciation, Rent,
Salary etc.
November 2, 2016 Cost Accounting / Dr. Teena 26

27. Cont……..
Period cost :- It is a fixed cost item it is not
necessary for production and incurred even if there is
no production. These are written off as expenses and
are charged to P&.L. a/c of the period.
Opportunity cost:- it is a cost that measure the
benefit that is lost or sacrificed when choice of one
course of action require that other alternative course
of action be given up.
E.g. company deposit 100000 in bank @ 10% interest
p.a. now second proposal is to invest this amount in
debentures (1000 17% deb. @ 100/-)
Solution :- if company invest 1Lakh in deb. then 17000 –
10000 = 7000/- will be opportunity cost.
November 2, 2016 Cost Accounting / Dr. Teena 27

28. Cont…….
Replacement cost:- in simple words,
replacement cost is the current market cost of
replacing an assets.
e.g. machinery purchase 1990 at rs. 10,000/- and
sale in 1998 & new machinery purchase rs.
15,000/- so the replacement cost of Rs. 15,000/.
Marginal cost:- MC is the additional cost of
producing one additional unit. MC or VC is the
same thing. Marginal Costing is a technique of
charging only variable costs to products. It helps
in decision like make or buy, pricing of product
etc…
November 2, 2016 Cost Accounting / Dr. Teena 28

29. Cont.……..
Relevant cost :- whenever we use incident word,
that cost is known as relevant cost. The amount
which is incurred for any specific objective.
It is not depend on situation. In one case a cost may be
relevant but in another case the same cost may be
not relevant.
Irrelevant cost:- the cost which was not effected by
any decision. It means decision will not effect the
cost.
E.g. Journey decision (by own car, bus, train etc.). In
this example traveling exp. will not effect your
decision.November 2, 2016 Cost Accounting / Dr. Teena 29

30. Cont…….
Sunk cost:- A sunk cost is an expenditure made in
the past that cannot be charged and over which
decision will not effected.
These cost are not relevant decision making about the
future. It is cost which is invested by firm in their
fixed assets which will not effect the future decision.
E.g. if firm want to purchase new plant, than loss on
sale of old plant is sunk cost which will not affect
your decision of purchase.
November 2, 2016 Cost Accounting / Dr. Teena 30

31. Cont…….
 Out of pocket costs (Explicit Cost):- there are certain
costs which require cash payment to be made.
Out of pocket cost are those costs that involve cash outlay or
require the utilization of current resources.
Imputed Cost:- it is not actual cost but it is calculated for
taking correct decision. This is specially computed outside
the accounting system for the purpose of decision.
E.g. interest on capital is usually not include in cost. But while
taking decision firm is calculating interest.
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32. Cont……..
Conversion Cost:- it means:-
CC= Per unit cost – Direct material cost
Or it means sum of direct labour & factory overhead cost
in the production.
Or conversion cost is factory cost – direct material cost.
November 2, 2016 Cost Accounting / Dr. Teena 32
DM
DL
DE
Factory O/h
Prime cost
Conversion Cost
PC = DM + DL + DE
CC = DL + DE + F o/h

33. Cont.……..
Product Cost :- these are those cost which are
necessary for production and which will not be
incurred if there is no production.
PC = DM + DL + some factory o/h
Normal cost :- Normal cost is a cost which is normally
incurred on expected lines during the production.
E.g. manager commission is expected Rs. 5000/- (10% of
SP) but it is 6000/- becoz the sale quantity is more.
November 2, 2016 Cost Accounting / Dr. Teena 33

34. Cont.…..
Abnormal cost:-
It is cost which is incurred due to abnormal reasons.
It is over and above the normal cost and treated as a
part of cost of production.
E.g. loss by fire, theft, strike of employees.
November 2, 2016 Cost Accounting / Dr. Teena 34

35. Cont.…….
Fixed cost :- the cost which is remain constant in “Total”
for a certain time period or up to certain limit.
It is not increase or decrease as per production quantity. Or
we can say opposite relationship between cost and
production.
E.g. salary, taxes, insurance etc.
U FC F.C. per unit
1 20000 20000
2 20000 10000
20 20000 1000
200 20000 100
2000 20000 10
November 2, 2016 Cost Accounting / Dr. Teena 35

36. Cont.……
It is expenses incurred on fixed factors which does
not change with the change in level of output over
a given period of time. E.g. Rent, Interest,
Telephone bill etc.
It has no effect with the change in the level of
output.
It is also known as indirect cost.
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FC
Output
Y
O X

37. Variable cost :-
It is cost tend to vary in direct proportion to the
volume of output.
In other words, direct relationship between cost &
production. E.g. Direct material, labour, commission
etc…….
 Total variable cost increase when quantity of
production increase & visa versa.
BUT VARIABLE COST PER UNIT WILL FIXED IN
EACH CONDITION.
November 2, 2016 Cost Accounting / Dr. Teena 37
Cont……………..

38. Cont……..
It is the expenses incurred on variable factors which
change with the change in output over a given period of
time. E.g. wages, power, fuel etc.
Initially VC increase at decreasing rate, then constant
rate, and ultimately at increasing rate.
It is also known as direct cost.
November 2, 2016 Cost Accounting / Dr. Teena 38
VC
OutputO
Y
X

39. Semi variable cost :-
The cost which include both fixed and variable
components.
Up to one limit it is fixed after that it increase as
the quantity of production is increase.
E.g. Supervisor salary, Telephone expenditure
electricity expenses etc.
Shut Down Cost:- There are the costs which will still
be incurred although a plant is shut down
temporarily.
E.g. Rent, rates, depreciation, Maintenance of plant
etc.
November 2, 2016 Cost Accounting / Dr. Teena 39

40. Controllable & Uncontrollable Cost
Controlled Cost:- costa are said to be controllable when
the amount of the cost incurred can be influenced by the
action of a specified member (Manager or Supervisor) of
an under taking.
E.g.:- Advertising, Bonuses, Direct materials, Donations
Uncontrollable Costs:- Cost which cannot be influenced
by the action of a specified member of an undertaking are
known as uncontrollable costs. All most all costs are
controllable at some level of Management.
E.g.:- rent that a landlord charges for use of the company's
premises.
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41. Audio on Costs
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42. Methods / Types of Costing
1. Job order costing:-
 This methods applies where work is undertaken to
customers special requirement.
 Cost unit in job order costing is taken to be a job or
work order for which cost are separately collected
and computed.
 A job (small or big) comprises a specific quantity of
a product as per customer specification.
E.g. Painting, interior decoration etc.
November 2, 2016 Cost Accounting / Dr. Teena 42

43. Cont.….
2. Single, output or Unit costing:-
This method of cost calculation is used when
production is uniform and consists of a single or two,
three verities of the same product.
The cost per unit is found by dividing the cost by no
of unit produced.
E.g. Brick, steel etc.
November 2, 2016 Cost Accounting / Dr. Teena 43

44. Cont……
2. Contract Costing :- the difference between job and
contract is that job is small and contract is big. The
cost unit here is a contract which is of a long duration
and may continue over more than one financial year.
E.g. construction of building etc.
3. Batch Costing :- In this method, the cost of a batch
or group of identical products is calculate and
therefore each batch of product is a cost unit for
which cost are calculate.
E.g. readymade garments, toys, shoes etc.
November 2, 2016 Cost Accounting / Dr. Teena 44

45. Cont……
4. Process Costing :-
Costs are accumulated for each process.
Here raw material has to pass through a number of
process in a particular sequence to completion stage.
The finished product of one process is passed on to
the next process raw material.
In order to arrive at cost per unit, the total cost of
process is divided by the no. of units produced.
E.g. textile mills, soap, sugar etc.
November 2, 2016 Cost Accounting / Dr. Teena 45

46. Cont…
Operating or Service Costing :-
it is used in undertaking which provides services
instead of manufacturing product.
This method is used for providing social / public
services.
E.g. transport, electricity, hotel, hospital etc.
November 2, 2016 Cost Accounting / Dr. Teena 46

47. Cont……
Multiple / Composite Costing :-
It is an application of more than one method of cost
calculation with respect of the same product.
This method is used in industries where no of
components are separately manufacture and then
assembled into a final product.
E.g. manufacturing air conditioner, refrigerator,
scooter , car etc.
November 2, 2016 Cost Accounting / Dr. Teena 47

48. Techniques of Costing
1. Standard Costing :-
 This is very valuable techniques of controlling cost.
 In this method standard cost is pre-determined as
target of performance and than actual performance
measured against standard.
 The difference between standard and actual cost
are analyzed to know the reason for the difference
so that corrective action taken.
November 2, 2016 Cost Accounting / Dr. Teena 48

49. Cont.……..
Marginal Costing :-
In this techniques, separation of cost into fixed cost +
variable cost.
This is so because marginal costing regards only
variable costs.
This techniques is used to study the effect on profit of
changes in volume or type of output.
Total Absorption Costing :- it is a traditional method
of costing whereby total costs are charged to products.
This is in complete contrast to marginal costing
where only variable cost are charged to product.
November 2, 2016 Cost Accounting / Dr. Teena 49

50. Cont.……..
Uniform Costing :- It is not a separate technique or
method of costing like standard costing.
It simply denote a situation in which a number of
firms adopt a uniform set of costing principal.
This help to compare the performance of one firm
with that of other firm.
Budgetary Control :-
A budget is a firm business plan in financial form and
budgetary control is a technique to the control of total
expenditure on material wages, and overhead as per
business plan.
November 2, 2016 Cost Accounting / Dr. Teena 50

51. Class Test
What do you mean by Cost, costing, cost accounting, cost
accountancy, cost audit, cost control ?
What are the elements of cost? Discuss in detail.
Draw a format of Cost sheet/Total Cost
Define the followings:-
Opportunity cost
Replacement Cost
Sunk Cost
Conversion cost
 Fixed Cost & Variable Cost
 Job order costing
Contract costing
 Multiple Costing
 Process Costing

52. Installation of a costing system
 Steps :-
1. Primary investigation should be made relating to
the technical aspects of the business.
2. The methods of purchase, storage issue, should be
examine and modified as per requirement.
3. The method of honorium / wages of labour should
be examine and modified if require as per new
plans.
4. Accounting record should be design on minimum
clerical labour and expenditure.
5. The size & output of the factory should be studied
November 2, 2016 Cost Accounting / Dr. Teena 52

53. Cont…..
6. The system should be effective in cost control and
cost reduction.
7. System should be simple and easy to operate.
8. The installation and operation of system should be
economical
9. The system should be introduced gradually.
November 2, 2016 Cost Accounting / Dr. Teena 53

54. Introduction of Unit Cost
It is one of important method to calculate total cost of
production.
Single or output costing is employed in case of
industries where the production is uniform and
Continued affairs.
E.g. breweries; brick works quarries, dairies, cement
works, sugar mills, paper mills, etc.
Definition:
“Unit costing is a method of costing by the per unit of
production where manufacturing is continuous and
the units are identical or can be made so by means of
Ratio.”
November 2, 2016 Cost Accounting / Dr. Teena 54

55. Uses of Unit Costing
When unit costing method is adopted, statement of
cost or cost sheet is prepared for determination of the
total cost and the per unit cost of the units produced
during a certain period.
Cost sheet is a statement showing total cost of
various items under various heads.
November 2, 2016 Cost Accounting / Dr. Teena 55

56. Cost Sheet : Meaning
Cost sheet is a document which provides estimated
detailed cost in respect of a cost centre or a cost unit.
It analyses and classifies in a tabular form the
expenses on different items for a particular period.
It may be prepared on the basis of actual data
(Historical Cost sheet) or on the basis of estimated
data (Estimated cost Sheet).
Ascertainment of future costs and making
comparisons with past records helps the management
in fixing up the selling price of the products.
November 2, 2016 Cost Accounting / Dr. Teena 56

57. Cost sheet Opening stock of RM …….
+ Purchases, Carriage Inward ……..
- Closing stock of RM …….
Cost of raw material consumed ----------
Direct labour ………..
Direct Exp. ………..
Prime Cost -----------
Add:- factory o/h, Production o/h, Manuf. o/h,
works o/f
Add:- opening stock of WIP ………..
Less:- closing stock of WIP ………..
Works cost -----------
Add:- office overhead ………..
Cost of Production
Add :- opening stock of Finish Goods …………
Less:- closing stock of Finish goods ..………..
Cost of Goods sold ----------
Add:- Selling overhead ……………
Total Cost/ Cost of Sales ---------------
November 2, 2016 Cost Accounting / Dr. Teena 57

58. November 2, 2016 Cost Accounting / Dr. Teena 58
COST SHEET – FORMAT
Opening Stock of Raw Material
Add: Purchase of Raw materials
Add: Purchase Expenses
Less: Closing stock of Raw Materials
Raw Materials Consumed
Direct Wages (Labour)
Direct Charges
Prime cost (1)
Add :- Factory Over Heads:
Factory Rent, Power
Indirect Material
Indirect Wages
Supervisor Salary
Drawing Office Salary
Factory Insurance, Factory Asset Depreciation
Works cost Incurred
Add: Opening Stock of WIP
Less: Closing Stock of WIP
Works cost (2)

59. November 2, 2016 Cost Accounting / Dr. Teena 59
Add:- Administration Over Heads:-
Office Rent , Asset Depreciation
General Charges, Audit Fees
Bank Charges
Counting house Salary
Other Office Expenses
Cost of Production (3)
Add: Opening stock of Finished Goods
Less: Closing stock of Finished Goods
Cost of Goods Sold
Add:- Selling and Distribution OH:-
Sales man Commission
Sales man salary
Traveling Expenses
Advertisement
Delivery man expenses
Sales Tax, Bad Debts
Cost of Sales (5)
Profit (balancing figure)
Sales

60. Factory overhead
1. Cost of cotton waste
2. Machine oil, grease
3. Lubricating oil
4. Store consumed for repair & maintaince work
5. Loss of store items
6. Non productive wages, non manufacturing wages
7. Salary of foreman
8. Salary of store keeper, inspector, supervisor
9. Wages of factory watchman
10. Salary of works manager
11. Fees to technical staff / director
12. Cost of idle time of factory labour
13. Workman compassion
14. Other factory expenses
15. Depreciation on plant
November 2, 2016 Cost Accounting / Dr. Teena 60

61. Office overhead
1. Depreciation, repairs
2. Insurance of office furniture , building
3. Salaries of office staff
4. Salary and fees of director
5. General manager salary
6. Printing, stationary, postage, telephone exp.
7. Rent, rates & taxes
8. Office lighting, heating & cleaning expenses
9. Audit fees
10. Legal expenses , general expenses
11. Establishment expenses
12. Bank charges
13. Director traveling expenses
14. All other office expenses
November 2, 2016 Cost Accounting / Dr. Teena 61

62. Selling overhead
1. Advertisement
2. Salary to sales staff
3. Commission on sale
4. Brokerage on sales
5. Sales office expenses
6. Salary and commission to sales manager
7. Depreciation, maintenance of sales office
8. Decoration expenses of showroom
9. Cost of preparing tender
10. Free sample cost
11. Rent, rates of showroom
12. Stock shortage
November 2, 2016 Cost Accounting / Dr. Teena 62

63. Distribution Overhead
1. Rent of warehouse
2. Carriage outward & other transport expenses
3. Depreciation, repair of delivery vans
4. Petrol exp of delivery vans
5. Salary of warehouse staff
6. General packing expenses
7. Wastage of goods in transit
8. Other warehouse expenses
November 2, 2016 Cost Accounting / Dr. Teena 63

64. Items not included in Cost
1. Transfer to Reserve & funds
2. Donation & subscription
3. Dividend, income tax
4. Underwriting commission
5. Preliminary expenses, bonus
6. Interest on debenture
7. Bank deposits
8. Gratuity or pension
9. Transfer fees
10. Loss by theft, fire
11. Abnormal idle time wages
November 2, 2016 Cost Accounting / Dr. Teena 64

65. TREATMENT OF WIP IN COST
SHEET
While preparing the cost sheet, the amount of
opening & closing stock of WIP should be considered.
If WIP is valued at Prime Cost, these values should be
adjusted in the statement in cost sheet after
determining the Prime Cost.
The amount of opening stock should be added and the
amount of closing stock should be subtracted.
November 2, 2016 Cost Accounting / Dr. Teena 65

66. ACCOUNTING OF FINISHED GOODS
In cost sheet, cost of goods produced during a certain
period is calculated.
When all the direct expenses, factory overheads &
administrative overheads are added to this cost, it is
known as the ‘Cost of Production’.
Cost of production is found for all the goods
produced, whether they are sold or not, but in order
to find the profit we required the cost of production
of those goods only which have been sold.
Cost of Production + O/S of FG – C/S of FG = Cost of
Good Sold
November 2, 2016 Cost Accounting / Dr. Teena 66

67. Scrap or Wastage
In the process of production some units of the whole
production is obtained as wastage or scrap.
In the statement of cost sheet this scrap value should
be subtracted from the factory o/h or from factory
cost.
If the loss due to scrap or defective units is abnormal
then the amount of this abnormal loss is not subtract
from factory o/h. but it is transferred directly to the
P.&.L a/c.
November 2, 2016 Cost Accounting / Dr. Teena 67

68. SPOILAGE & DEFECTIVES
Spoilage consists of goods that do not meet
production standards. Such goods are either sold for
their salvage value or discarded without further
processing.
The cost of normal spoilage will be borne by good
units. The cost of abnormal spoilage is transferred to
costing P.&.L. a/c.
Goods that do not meet production standards and
must be processed further in order to be saleable as
goods units are known as defectives.
The entire cost of abnormal defectives is charged to
costing P.&.L. a/c.
November 2, 2016 Cost Accounting / Dr. Teena 68

69. Q:- 1 Direct Material 57000
Direct labour 28500
Factory rent 2500
Office rent 500
Plant repair 1000
Plant depreciation 1250
Factory lighting 400
Factory manager salary
2000
Office salary 1600
Director remuneration 1500
Telephone & postage 200
Printing 100
Legal charges 150
Advertisement 1500
Salesman salary 2500
Showroom rent 500
Sales 116000
November 2, 2016 Cost Accounting / Dr. Teena 69

70. Example 2
Opening stock of material on 1st
April 2004 47000/-
Closing stock of material on 31st
March 2005 45000/-
Material Purchase 208000
Drawing office salary 9600
Counting sales salary 14000
Carriage inward 8200
Carriage outward 5100
Sales 487000
Bad debts written off (part of selling o/h) 4700
Repairs of plant & machinery 8600
Factory rent, rates, taxes 3000
Office rent, rates, taxes 1000
Traveling expenses 3700
Traveling salary & commission 7800
Production wages 1,45,000
Dep. Written off on plant 9100
Dep. Written off on office furniture 600
Director fees 6000
Gas & water charges (factory) 1000
Gas & water charges (office) 300
General charges 5000
Manager salary (factory) 11250
Manager salary (office ) 6750
November 2, 2016 Cost Accounting / Dr. Teena 70

71. Example 3
The following information for 2003-04:-
Cost of material 1,50,000/-
Direct wages = 1,25,000/-
Factory o/h = 75,000/-
Administrative o/h = 84,000/-
Selling o/h = 56,000/-
Distribution o/h = 35,000/-
Profit = 1,05,000/-
A work under has to be executed in 2004 -05 which will need raw
material worth rs. 4000/- and wages rs. 2,500/-. It is expected that
rate of factory o/h would go up by 20% and that of selling o/h by
12.5% while the rate of distribution o/h is expected to go down by
10%. Administrative o/h will remain constant. At what price the
product to be sold so as to earn profit of 15% on selling price.
Factory o/h is based on direct wages and the remaining o/h on
factory cost.
November 2, 2016 Cost Accounting / Dr. Teena 71

72. Example 4
Direct material = 500 tones @ Rs. 50/- per tone
= 100 tones @ 30/- per tone.
Direct Labour = 80 skilled men @ 8/- per day for 25 days and 40
unskilled men @ 3/- per day for 25 days
Direct Expenses = 3000/- , special dyes = 1000/-
Works o/h = variable @ 100% on direct wages
= fixed @ 60% on direct wages
Administrative o/h = 10% of works cost
Selling o/h = 15% on works cost
Profit = 10% on total cost
Finished product = 400 tones
Sale of waste = 800/-
There is no WIP at the beginning or at the end of the month. The
scrap value of the special equipment after utilization in
manufacturing is nil. Selling rate should be worked out to the
nearest rupee.
November 2, 2016 Cost Accounting / Dr. Teena 72

73. Example 5
Opening stock of raw material = 35,000
Purchases of material = 2,50,000
Closing stock of raw material = 25,000
Direct wages = 50,000
Works overhead 50% of direct wages
Store overhead 10% of the cost of raw material
10% of the material were rejected and rs. 2000/-
realized from the sale as scrap. 10% of the finished
goods were found to be defective and were rectified
by additional works overhead charges to the extent to
the 20% on the direct wages. The gross output was
1000 kg. find out the manufacturing cost of the
saleable per kg.
November 2, 2016 Cost Accounting / Dr. Teena 73

74. Ex. 6 Proportionate expenditure
Material used 64000/-
Wages paid 56,000/-
Factory overhead 60% of wages
Out of the material issued rs. 800/- worth of material
have been returned to the store and rs. 400/-
transferred to other jobs.
10% of the production has been scrapped as bad a
further 20% has been brought up to the specification
by increasing the factory overhead to 20% of the
wages.
If the scrapped production fetches only rs. 470/- find
out manufacturing or factory cost per unit of the
finished product. The total production is 100 units.
November 2, 2016 Cost Accounting / Dr. Teena 74