Components of Total Cost –

i.Prime Cost = Direct material + Direct labour + Direct expenses.

ii.Works Cost or Factory Cost = Prime cost + Factory overhead.

iii.Cost of Production = Works cost + Administration overhead.

iv.Total Cost or Cost of Sales = Cost of production + Selling and distribution overhead.

InDirect Material + InDirect Labour + InDirect Expenses = OVERHEAD

3.Selling and Distribution Overhead.

Selling overhead is the cost of promoting sales and retaining customers (such as advertisement, samples and free gifts, salaries of salesmen

Distribution cost includes expenditure from time product is completed to its destination reach (such as carriage outwards, insurance of goo
transit, upkeep of delivery vans, warehousing, etc.) includes IDM, IDL & IDE
1 GP RATIO

2 NET PROFIT RATIO

3 ROCE

4 ROI

5 RESIDUAL INCOME

6 CURRENT RATIO

7 QUICK RATIO

8 INVENTORY DAYS

9 RECEIVABLE DAYS

10 PAYABLE DAYS

11 NET WORKING CAPITAL

12 FINANCIAL GEARING

13 INTEREST COVER

14 DIVIDEND COVER
GP/SALES*100

NP/SALES*100

EBIT/Capital Employed OR

Capital Employed = Total assets - current liabilities / total equity + long term debt

NET PROFIT / TOTAL ASSETS-TOTAL LIABILITIES

CONTROLLABLE PROFIT - NOTIONAL INTEREST ON CAPITAL

Notional Interest on Capital = Capital employed / Net Assets* notional cost of capital / interest rate

(CURRENT ASSETS)/ CURRENT LIABILITIES

(CURRENT ASSETS - INVENTORIES - PREPAYMENT)/ CURRENT LIABILITIES

INVENTORY / COST OF SALES *365

RECEIVABLES/CREDIT SALES * 365

PAYABLES/CREDIT PURCAHASES * 365

CURRENT ASSETS-CURRENT LIABILITIES

DEBT/EQUITY

EBIT/INTEREST EXPENSE

NET PROFIT/ DIVIDEND

Net profit margin * asset turnover
 DATA
VARIANCE FORMULAS
STANDAR
AQ BQ
D PROFIT
DATA 280,000.0 278,000.0 178.0

Sales volume profit (AQ – BQ) x Std

356,000.0
variance Profit

Selling price variance (AP – SP) x AQ - 280,000.0

AP AQ SQ

DATA 10.7 77,000.0 70,000.0

Material price (SP – AP) x AQ 484,000.0

Material usage (SQ-AQ) x SP - 119,000.0

SR AR AH

DATA 12.0 11.5 168,000.0

Labour rate (SR – AR) x AH 84,000.0

Labour efficiency (SH-AH) x SR - 168,000.0

BFC AFC AQ

DATA 204,000.0 213,200.0 37,400.0

Fixed overhead
BFC- AFC - 9,200.0
expenditure

Fixed overhead volume

(AQ – BQ) x OAR 20,400.0
variance
ATA
Comments
ACTUAL STANDAR
PRICE D PRICE
18.0 19.0

Sales have declined during the period, that might be due to the cheap
material used or may be due to the increase in the price of the products

Increase in the sales is due to the increase in the selling price which is
showing a positive variance. Increase in price might be due to the decision
of improving the profitability.

SP

17.0

Material price is showing a positive variance as actual price is 10.71. It may

be due to the cheap quality material used or may be due to the bulk
discounts. Reason is to be invetigated further.

Actual quantity used has been increase resulting into adverse variance that
appears to be due to the possible use of cheap quality material.

SH

154,000.0

Labour rate is showing a positive variance means the actual labour cost is
below the standard cost

SH = the standard amount of hours that should have been used for actual
units produced

BQ OAR

34,000.0 6.0
Fixed cost has increased over the budgted fixed cost althought the
production has been below the budgeted volume. Increase might be due to
the over all inflation. Reason is to be invetigated further.

Actual production is below the budgeted production hence volume variance

is adverse. Utilization of resources looks to be inefficient
 bud

8100 210

dm 18 280000 5040000 90720000

dl -130 -947000 123110000

moh -70 4093000 -2.87E+08

4345000

ac 30444 17000 1.790824 1021

var 8142
 Cost sheet Format
Amount
Opening stock
+purchases
-closing stock
Raw material consumed -
+Direct material 11,111.00

+Direct labour 823,000.00

+Direct expenses
Prime cost 834,111.00
+Indirect material
+Indirect labour
+Indirect expenses 19,000.00
Factory cost/conversion cost 19,000.00
+Opening WIP
-Closing WIP
Work cost 19,000.00
+Office and administrative overheads 35,000.00
Cost of Production 54,000.00
+Opening stock of Finished goods
-Closing stock of Finished goods
Cost of goods sold 54,000.00
+Selling and distribution overheads 22,000.00
Cost of sales/Total cost 76,000.00
Profit

Q-5

contribution format - Income statement

Qty Rate Amount

Sales (4000x480) 4,000.00 480.00 1,920,000.00
Net contribution 130.00 520,000.00
Net operating income 377,000.00

Traditional format - Income statement

 Qty Rate Amount
Sales (4000x480) 4,000.00 480.00 1,920,000.00
Less: Cost of goods sold 4,000.00 - - 1,000,000.00
Gross margin 920,000.00
Less: Selling & admin expenses - 20,000.00
Net operating income - 100,000.00
 Q-2
Total variable cost 374,000.00
Total cost 816,000.00
Average total cost/ unit 65.00

activity level Total Variable

3,600 198,000
6,800 374,000
Working
variable cost/unit (198000/3 55

Name of Cost Variable Cost

Factory rental
Direct materials x
Bolts x
Paint x
Sales commissions x
Advertising
Clerical Staff Salary
Depreciation

DM+DL lab + man oh DM+DL+MOH

prime cost conversion cost product cost
834,111 19,000 853,111

Q-8
PROUCT COST
Direct material 186,000.00

Indirect Labor 13,000.00

Direct labor 92,000.00

TOTAL PRODUCT COST 370,000.00

 PERIOD COST
Administrative wages & salar 82,000.00
Sales staff salaries 42,000.00
Corporate HQ building rent 57,000.00
Marketing 146,000.00
0
TOTAL PERIOD COST 327,000.00
 Q-2
ANS QUESTION
ANS DEP
ANS WAGES FOR PRODUC
Factory elec bill
Total fixed Total cost Tomato
442,000 640,000 sales commisssion
442,000 816,000

Direct Materials
Fixed Cost Direct Labor Manuf. Overhead
x x
x
x
x

x
x x

SELL & AD Q-6

Period cost
57,000
A (OPTION C)
Q-4

B (OPTION B)
 SALES 210000
COS 132300
77700

ANSWER
ADMIN COST
DIRECT LABOR
Manufacturin Over Head
Direct material
selling cost

Period Cost
x

x
x
x

Prime cost

direct mateial Indirect mateial

Yes NO
COST OF GLUE

Manufacturing over head Fixed

Yes NO
 MARGINAL COSTING

Qty Rate Amount

Selling price 36250 8.00 290,000.00
Less: Variable cost of production -
Gross Contribution 8.00 290,000.00
Less: Variable cost-Selling -
Less: Variable cost-Admin
Net contribution 8.00 290,000.00

Fixed production cost

Fixed selling expenses
Fixed admin expenses
Total fixed expenses - -
Net profit 8.00 20,000.00
 MARGINAL COSTING

Qty Rate Amount

Selling price 31900 8.36 266,684.00
Less: Variable cost of production - 102,080.00
Gross Contribution 8.36 164,604.00
Less: Variable cost-Selling -
Less: Variable cost-Admin
Net contribution 8.36 164,604.00

Fixed production cost - 154,000.00

Fixed selling expenses
Fixed admin expenses
Total fixed expenses - - 154,000.00
Net profit 8.36 10,604.00
 ABSORPTION COSTING

Qty Rate Amount

Selling price -

Less: Variable cost of production -

Less: Fixed production cost of production -
Gross profit - -

Less: Variable cost-Selling -

Less: Variable cost-Admin
Less: Fixed selling expenses
Less: Fixed admin expenses
Total operating expenses - -

Net profit - -
2593.742
Simple average

Receipts Issues
Date Particulars
Qty. (unit) Rate Amt. Qty. (unit) Rate
Aug. 1 Balance b/d - - - - -
Aug. 4 Requisition slip no… - - - 200.00 4.00
Aug. 5 Goods Rec. Note no…. 200.00 4.25 850.00 - -
Aug.10 Requisition slip no….. - - - 400.00 4.13
Aug.12 Goods Rec. note no….. 150.00 4.10 615.00 - -
Aug.15 Req. slip no - - - 100.00 4.11
Aug.19 Req. slip no - - - 100.00 4.11
Aug.20 Goods rec. note no…. 300.00 4.50 1,350.00 - -
Aug.25 Goods rec. note no…. 400.00 4.00 1,600.00 - -
Aug.30 Req. slip no - - - 250.00 4.15

Weighted Average

Receipts Issues
Date Particulars
Qty. (unit) Rate Amt. Qty. (unit) Rate
Aug. 1 Balance b/d - - - - -
Aug. 4 Requisition slip no… - - - 200.00 4.00
Aug. 5 Goods Rec. Note no 200.00 4.25 850.00 -
Aug.10 Requisition slip no… - - - 400.00 4.10
Aug.12 Goods Rec. note no….. 150.00 4.10 615.00 -
Aug.15 Req. slip no - - - 100.00 4.10
Aug.19 Req. slip no - - - 100.00 4.10
Aug.20 Goods rec. note no 300.00 4.50 1,350.00 -
Aug.25 Goods rec. note no 400.00 4.00 1,600.00 -
Aug.30 Req. slip no - - - 250.00 4.21

LIFO

Receipts Issues
Date Particulars
Qty. unit Rate Amt. Qty. (unit) Rate
Aug. 1 Balance b/d - - - - -
Aug. 4 Requisition slip no - - - 200.00 4.00

Aug. 5 Goods Rec. Note no 200.00 4.25 850.00 - -

Aug.10 Requisition slip no… - - - 300.00 4.00

100.00 4.25
Aug.12 Goods Rec. note no 150.00 4.10 615.00 - -

Aug.15 Req. slip no - - - 100.00 4.25

Aug.19 Req. slip no - - - 100.00 4.10
Aug.20 Goods rec. note no 300.00 4.50 1,350.00 - -

Aug.25 Goods rec. note no 400.00 4.00 1,600.00 - -

Aug.30 Req. slip no - - - 50.00 4.10
200.00 4.50

Receipts Issues
Date Particulars
Qty.(unit) Rate Amt. Qty. (unit) Rate
Aug. 1 Balance b/d - - - - -
Aug. 4 Requisition slip no… - - - 200.00 4.00

Aug. 5 Goods Rec. Note no…. 200.00 4.25 850.00 - -

Aug.10 Requisition slip no….. - - - 300.00 4.00

100.00 4.25
Aug.12 Goods Rec. note no….. 150.00 4.10 615.00 - -

Aug.15 Req. slip no - - - 100.00 4.25

Aug.19 Req. slip no - - - 100.00 4.10
Aug.20 Goods rec. note no…. 300.00 4.50 1,350.00 - -

Aug.25 Goods rec. note no…. 400.00 4.00 1,600.00 - -

Aug.30 Req. slip no - - - 50.00 4.10

200.00 4.50

A) Total inventory cost Qty Rate

Purchase cost 12,000 800 9,600,000
Interest cost 9,600,000 0 960,000
Total inventory cost 10,560,000

B) EOQ =(2*12000*1500)/15 2,400,000

SQRT(G64) 1,549
Avergae daily requirement 12,000.00 365.00
Safety stock =33.00*3 99.00

1 No of orders =12,000/1549 12,000 1,549 8

2 Time of inventory equilibriu =1549/5 1,549 5 7,746
3 Days after each order is to b =7746/365 7,746 365 21

4 Total cost
Purchase price 12,000 800 9,600,000
Interest cost 9,600,000 10% 960,000
Carrying cost =((1549)/2+9 874 15 13,103
Ordering cost 8 1,500 11,619
Total cost 10,584,721

C) Total cost Qty Rate

Purchase price 12,000 800 9,600,000
Discount 8 700 - 5,425
Interest cost 9,600,000 10% 960,000
Carrying cost =((1549)/2+9 874 15 13,103
Ordering cost 8 1,500 11,619
Total cost 10,579,296
Issues Balance
Amt. Qty. (unit) Rate Amt.
- 500.00 4.00 2,000.00
800.00 300.00 4.00 1,200.00
- 500.00 4.13 2,062.50
1,650.00 100.00 4.13 412.50
- 250.00 4.11 1,028.25
411.30 150.00 4.11 616.95
411.30 50.00 4.11 205.65
- 350.00 4.31 1,507.45
- 750.00 4.15 3,115.50
1,039.00 500.00 4.15 2,077.00

Issues Balance
Amt. Qty. (unit) Rate Amt.
- 500.00 4.00 2,000.00
800.00 300.00 1,200.00
500.00 2,050.00
1,640.00 100.00 410.00
250.00 1,025.00
410.00 150.00 615.00
410.00 50.00 205.00
350.00 1,555.00
750.00 3,155.00
1,051.75 500.00 2,103.25

Issues Balance
Amt. Qty. (unit) Rate Amt.
- 500.00 4.00 2,000.00
800.00 300.00 4.00 1,200.00

- 300.00 4.00 1,200.00

200.00 4.25 850.00
1,200.00 4.25 425.00
425.00 100.00
- 100.00 4.25 425.00
150.00 4.10 615.00
425.00 150.00 4.10 615.00
410.00 50.00 4.10 205.00
- 50.00 4.10 205.00
300.00 4.50 1,350.00
- 50.00 4.10 205.00
300.00 4.50 1,350.00
400.00 4.00 1,600.00
 205.00 100.00 4.50 450.00
900.00 400.00 4.00 1,600.00

Issues Balance
Amt. Qty. (unit) Rate Amt.
- 500.00 4.00 2,000.00
800.00 300.00 4.00 1,200.00

- 300.00 4.00 1,200.00

200.00 4.25 850.00
1,200.00 4.25 425.00
425.00 100.00
- 100.00 4.25 425.00
150.00 4.10 615.00
425.00 150.00 4.10 615.00
410.00 50.00 4.10 205.00
- 50.00 4.10 205.00
300.00 4.50 1,350.00
- 50.00 4.10 205.00
300.00 4.50 1,350.00
400.00 4.00 1,600.00
205.00 100.00 4.50 450.00
900.00 400.00 4.00 1,600.00
Economic Order Quantity (EOQ): Right quantity that should be ordered at each time when fresh orders are placed

EOQ can be calculated using the following formula

EOQ =
Where
A= Annual Consumption
B = Buying cost per order
C= carrying cost Per unit.
B)

Re-ordering Level =
Minimum Stock Level =
Maximum Stock Level =
Danger Level =
Average Stock Level =
Average stock=
der Quantity (EOQ): Right quantity that should be ordered at each time when fresh orders are placed. It is called so, because

calculated using the following formula

t per order
st Per unit.
EOQ
=(2*12000*1500)/15
SQRT(G64)
Avergae daily requirement
Safety stock

Maximum Consumption x Maximum Re-Order Period

Re-ordering Level–(Normal Consumption x Normal Re-Order Period)
Reordering Level + Re-ordering Quantity – (Minimum Consumption x Minimum Re-ordering Period)”
Average consumption x Max. re-order period for emergency purchases
Minimum Stock Level + 1/2 of Re-Order Quantity
1/2 (Minimum Stock Level + Maximum Stock Level
s called so, because ordering this size is most economical for the business.

2,400,000
1,549
12,000.00 365.00
=33.00*3 99.00
DATE PARTICULARS
1. Purchase of Raw Materials
Dr. Material Inventory
Cr. Accounts Payable / Cash
2. When Direct or Indirect Material return to supplier
Dr. Account Payable
Cr. Material Inventory
3. When direct Material is issued to production
Dr. Work in process Inventory
Cr. Material Inventory
4. When direct material is returned to stores from production
Dr. Material Inventory
Cr. Work in Process Inventory
5. When Indirect Material is issued or consumed
Dr. Manufacturing/ Factory overheads
Cr. Material Inventory
6.When Indirect Material is returned to stores
Dr. Material Inventory
Cr. Manufacturing/ Factory overheads
7. When Supplies are used in selling or administrative activities
Dr. Selling or Administrative Expense Control
Cr. Material Inventory
8. Inventory Scrap and Spoilage
a.Normal Wastage
Dr. Production Overhead
Cr. Work in process inventory
b. Abnormal Wastage
Dr. Costing Profit and Loss A/c
Cr. Work in Process Inventory
9. Transferring goods to finished stock
Dr. Finished Goods
Cr. Work in Process Inventory
10. Delivery of finished goods to Customer
Dr. Cost of Goods Sold
Cr. Finished goods inventory
DR. CR.

- -
DATE PARTICULARS
1.When Payroll is recorded
Dr. Payroll
Cr. Accrued Payroll
Cr. Other Funds Payable
2. When Payment is made of accrued pay roll
Dr. Accrued Payroll
Cr. Cash/Bank
3. When direct labour is used for production
Dr. Work in process
Cr. Payroll
4. When indirect labour is used
Dr. Factory Overhead Control
Cr. Payroll
5. When labour is used for selling and administrative activities
Dr. Selling or Administrative Expense Control
Cr. Payroll

LABOUR TURNOVER MEASUREMENT

1•Addition Method: takes number of employees added during a particular period is considered
Labour Turnover = Number of additions/Average number of workers during the period X 1

2•Separation Method: takes number of employees left during the period is considered.
Labour Turnover = Number of separations/Average number of workers during the period X

3•Replacement Method: takes number of employees replaced is considered

Labour Turnover = Number of replacements/Average number of workers during the period

4•Flux method: both additions & separation is considered. or replacements & separation.
Labor Turnover = [Number of separation + Number of replacement] /Average number of workers d
 DR CR

particular period is considered for computing.

workers during the period X 100

period is considered.
workers during the period X 100

considered
of workers during the period X 100

ents & separation.

/Average number of workers during the period X 100
Illustration 6.
Calculate the total earnings under
Rowan Plan from the following
information .
Time taken =6 hours, time Rate
=OMR 10 per hour, Time Allowed =8
hours
Solution:
Solution:
Total Earnings = Time Taken x Hourly Rate + __

Total Earnings under Rowan Plan =

6 hours ×OMR 10+ 8−6/ 8 × (6
hours ×OMR10)
Illustration: 1
Calculate the earnings of workers Asim and Wasim under Straight Piece Rate System and Taylor's Differential Piece Rate Syste
Standard time allowed 50 units per hour.
Normal time rate per hour OMR.100.
Differentials to be applied.
80% of Piece rate below standard.
120% of Piece rate at or above standard.
In a day of 8 hours Asim produced 300 units and Wasim produced 450 units.
Calculation of Piece Rates :
Standard production per hour = 50 units.
Standard production for 8 hours = 50 x 8 = 400 units.
Rate per hour = Omr.100.
Piece Rate per unit = 100 /50 = Omr.2 per unit
Straight Piece Rate System
Asim for 300 units @ Omr.2 = 300 x 2 = Omr.600
Wasim for 450 units @ Omr.2 = 450 x 2 = Omr.900
Differential Piece Rate System
Low Piece Rate at 80% differential = 2 x 80%
High Piece Rate at 120% differential = 2 x 120%
Standard production in 8 hours = 8 x 50 units per hour = 400 units
Earnings
Asim produced 300 units (below standard)
Therefore low Piece rate of Omr1.60 applicable = 300 x 1.60 = Omr.480
Wasim produced 450 units (above standard)
Therefore high Piece rate of Omr.2.40 applicable = 450 x 2.40 = Omr.1080
x Hourly Rate + __Time Saved ___ x T x R
Illustratio
n2
From the following particulars calculate the wages of 3 workers Amar, Ali and Ahmed under Merrick’s differential piece rate.
Solution:
Wage calculation under Merrick’s Differential Piece Rate
Efficiency of each worker as a percentage of standard
Amar = 24/30 x 100 = 80= Below 83%
Ali = 27/30 x 100 = = Above 83% but below 100%
Ahmed = 36= Above 100 %
Calculation of Wages
Amar = 24 units x.400 = Omr. 9.6
Ali = 110% of normal wage rate = 110% x 0.400 x27 units
= Omr. 11.88
Ahmed = 120% of normal piece rate = 120% x 0.400 x 36 un = Omr.17.28

Illustration: 1
Calculate the earnings of workers Asim and Wasim under Straight Piece Rate System and Taylor's Differential Piece Rate Syste
Standard time allowed 50 units per hour.
Normal time rate per hour OMR.100.
Differentials to be applied.
80% of Piece rate below standard.
120% of Piece rate at or above standard.
In a day of 8 hours Asim produced 300 units and Wasim produced 450 units.
Calculation of Piece Rates :
Standard production per hour = 50 units.
Standard production for 8 hours = 50 x 8 = 400 units.
Rate per hour = Omr.100.
Piece Rate per unit = 100 /50 = Omr.2 per unit
Straight Piece Rate System
Asim for 300 units @ Omr.2 = 300 x 2 = Omr.600
Wasim for 450 units @ Omr.2 = 450 x 2 = Omr.900
Differential Piece Rate System
Low Piece Ra#NAME?
High Piece R#NAME?
Standard production in 8 hours = 8 x 50 units per hour = 400 units
Earnings
Asim produced 300 units (below standard)
Therefore low Piece rate of Omr1.60 applicable = 300 x 1.60 = Omr.480
Wasim produced 450 units (above standard)
Therefore high Piece rate of Omr.2.40 applicable = 450 x 2.40 = Omr.1080

Illustration 3
Standard Hours allowed to produce 40 units - 8 hours, Standard wage Rate OMR 20 per hour, X, Y and Z completed the task in
Solution:
Calculation of piece rate
Piece Rate = OMR 20 X8) /40 = OMR4 per piece
Earning under Gantt Task and Bonus System
X's earnings = 10 hours ×OMR20 = OMR.200
Y's earnings = 8 hours ×OMR20 × 120% = OMR 192
Z's earnings = 40 units ×OMR 4 × 120% = OMR.192

Illustration 4

Calculate the total earnings of the worker under Halsey Premium Plans:

Standard Time 12 hours

Hourly Rate OMR. 3

Time Taken 8 hours
Solution:
Earnings under Halsey Premium Plan:

Standard T = 12 hours

Time Taken= 8 hours

Time SavedErr:501
Rate per ho= OMR 3
Total Earnin= T x R + 50% (S – T ) R
Total Earnin= 8 x 3 + 50% (12- 8 ) 3
= 24 + 6 = OMR 30

Illustration: 5
From the following particulars calculate total earnings of a worker under Halsey-Weir Plan :
Solution:
Standard Time =10 hours
Time Taken =8 hours
Hourly Rate = OMR.2 per hour
Solution
Earnings Under Hals.ey-Weir Premium Plan :
Standard Time
Time Taken
Time Saved
Rate per hour
Total earnings = TxR+30% (S - T) R
Total Earnings = 8 x2 + 30% ( 10- 8) 2 = OMR 17.2
Merrick’s differential piece rate. Piece rate is 400 baisa per unit, standard output 30 units per day of 8 hours. Outputs: Amar – 24 units, A

lor's Differential Piece Rate System from the following particulars:

, X, Y and Z completed the task in 10 hours, 8 hours and 6 hours respectively. Calculate the earnings under Gantt Task and Bonus system
puts: Amar – 24 units, Ali – 27 units and Ahmed – 36 units.

ask and Bonus system

•Types of Idle Time
•Normal idle time: which cannot be avoided tea break changing cloths etc.
•Abnormal idle time Can be avoided; for example: break down of machine, shortage or raw ma
chine, shortage or raw material, faulty planning etc.,