Cost Accounting: FY BBA Semester II (Academic Year 2024-25)

Module II:

Unit Costing / Cost Sheet / Output Costing

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 The determination of an item's cost is one goal of cost accounting systems. The cost objects
can be anything from a service or product to a specific cost centre. Gathering expenses element
by element, adding them up for a specific volume or time period, and finally arranging them all
on a sheet to get the overall cost for the cost item are all steps in the cost assessment process.
The cost object for cost calculation and cost ascertainment in this chapter will be a product or
service.

A Cost Sheet or Cost Statement is "a document that contains comprehensive cost information."
Cost information is typically conveyed in a cost sheet according to functional classification.
Nevertheless, other classifications may be used in accordance with the need of the users of the
information.

Under the functional classification, costs are divided according to the function for which they
have been incurred. The following are the classification of costs based on functions:

 Production/ Manufacturing Cost

 Administration Cost
 Selling Cost
 Distribution Cost
 Research and Development costs etc.

The costs as classified on the basis of functions are grouped into the following cost heads in a
cost sheet:

 Prime Cost
 Cost of Production
 Cost of Goods Sold
 Cost of Sales

Prime Cost
Prime cost represents the total of direct materials costs, direct employee (labour) costs
and direct expenses. The total of cost for each element has to be calculated separately.

Direct Material Cost xxx

Direct Employees (labour) Cost xxx
Direct Expenses xxx
Prime Cost: xxxx

Direct Material Cost: It is the cost of direct material consumed. The cost of direct material
consumed is calculated as follows:

Opening Stock of Material xxx

Add: Additions/ Purchases xxx
Less: Closing stock of Material (xxx)
Direct materials consumed xxxx

Few examples of items to be added in the cost of raw material:

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 o Freight inwards;
o Insurance and other expenditure directly attributable to procurement;
o Trade discounts or rebates (to be deducted);
o Duties & Taxes (if input tax credit is not available/ availed) etc.
Direct Employee (Labour) Cost: It is the total of payment made to the employees who are
engaged in the production of goods and provision of services. Employee cost is also known as
labour cost; it includes the following:
o Wages and salary;
o Allowances and incentives;

o Payment for overtimes;

o Bonus/ ex-gratia;
o Employer’s contribution to welfare funds such as Provident fund and other similar funds;
o Other benefits (medical, leave with pay, free or subsidised food, leave travel
concession and provisions for retirement benefits) etc.
Direct Expenses: Expenses other than direct material cost and direct employee cost, which
are incurred to manufacture a product or for provision of service and can be directly traced in
an economically feasible manner to a cost object. The following costs are examples for direct
expenses:
o Cost of utilities such as power & fuel, steam etc.;
o Royalty paid/ payable for production or provision of service;
o Hire charges paid for hiring specific equipment;
o Fee for technical assistance and know-how;
o Amortised cost of moulds, patterns, patents etc.;
o Cost for product/ service specific design or drawing;
o Cost of product/ service specific software;
o Other expenses which are directly related with the production of goods
or provision of service.

— Walt Whitman

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 Cost of Production

In a conventional cost sheet, this item of cost can be seen. It is the total of
prime cost and factory related costs and overheads.

Prime Cost xxx

Add : Factory Overheads xxx
Gross Works Costs xxxx
Add: Opening stock of Work-in-process xxx
Less: Closing stock of Work-in-process (xxx)
Factory or Works Costs
Add: Administrative Overheads related with xxx
production
Less: Credit for recoveries* (miscellaneous income) (xxx)
Cost of Production xxxx

Factory Overheads: It is also known as works/production/ manufacturing overheads. It

includes the following indirect costs:
o Consumable stores and spares;
o Depreciation of plant and machinery, factory building etc.
o Lease rent of production assets;
o Repair and maintenance of plant and machinery, factory building etc.
o Indirect employees cost related with production activities;
o Drawing and Designing department cost;
o Insurance of plant and machinery, factory building, stock of raw material & WIP etc.
o Amortized cost of jigs, fixtures, tooling etc.
o Service department cost such as Tool Room, Engineering & Maintenance, Pollution
Control etc.
Stock of Work-in-process: The cost of opening and closing stock of work- in-process (WIP)
is adjusted to arrive at factory/ works cost.
Administrative Overheads: It is the cost related with general
administration. It includes the followings:
o Depreciation and maintenance of, building, furniture etc. of corporate office or general
management.
o Salary of administrative employees, accountants, directors, secretaries etc.
o Rent, rates & taxes, insurance, lighting, expenses etc of administrative office.
o Indirect materials- printing and stationery, office supplies etc.
o Legal charges, audit fees, corporate office expenses like directors’ sitting fees,
remuneration and commission, meeting expenses etc.

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*Credit for Recoveries: The realised or realisable value of scrap or waste is deducted as it
reduces the cost of production. This is to be deducted at the point of origination of scrap if the
same can be identified clearly.

Cost of Goods Sold

It is the cost of production for goods sold. It is calculated after adjusting the values of
opening and closing stocks of finished goods. It can be calculated as below:

Cost of Production xxx

Add: Cost of Opening stock of finished goods xxx

Cost of Goods Available for Sale xxxx

Less: Cost of Closing stock of finished goods* (xxx)

Cost of Goods Sold xxxx

*Note: CLOSING STOCK OF FINISHED GOODS IS ALWAYS VALUED AT COST OF

PRODUCTION

Cost of Sales

It is the total cost of a product incurred to make the product available to the customer
or consumer. It includes Cost of goods sold, administration and marketing expenses. It is
calculated as below:

Cost of Goods Sold xxx

Add: Selling Overheads xxx
Add: Packing Cost (secondary) xxx
Add: Distribution Overheads xxx
Cost of Sales xxxx

Selling Overheads: It is the cost related with sale of products or services. It includes
the following costs:
o Salary and wages related with sales department and employees directly
related with selling of goods.
o Rent, depreciation, maintenance and other cost related with sales department.
o Cost of advertisement, maintenance of website for online sales, market
research etc.

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Packing Cost (secondary): Packing material that enables to store, transport, inform the
customer, promote and otherwise make the product marketable.

Distribution Overheads: It includes the cost related with making the goods
available to the customers. The costs are:
(a) Salary and wages of employees engaged in distribution of goods.
(b) Transportation and insurance costs related with distribution.
(c) Depreciation, hire charges, maintenance and other operating costs related with
distribution vehicles etc.

Format of Cost Sheet:

In the books of the company

COST SHEET for the period ( units produced)

PARTICULARS Rs. Rs.
Opening stock of Raw Materials xxx
Add: Purchase of Raw Material xxx
Add: Carriage Inward, Customs, freight etc. paid on purchases xxx
xxx
Less: Closing stock of Raw Materials (xxx)
Raw materials consumed xxx
Add: Direct Labour / Productive Wages / Productive Labour xxx
Add: Direct Expenses xxx
PRIME COST xxx
Add: Factory / Works / Production / Manufacturing Overheads xxx
GROSS FACTORY COST xxx
Add: Opening stock of Work in Progress
(Cost incurred on RM in the previous period.) xxx
xxx
Less: Closing stock of Work in Progress (xxx)
(Cost incurred on Current year RM and not completed)
FACTORY COST xxx
Add: Administrative/Office Overheads xxx
COST OF PRODUCTION xxx
Add: Opening stock of Finished Goods xxx
Goods available for sale (Total Stock of Finished goods) xxx
Less: Closing stock of Finished Goods (xxx)
COST OF GOODS SOLD xxx
Add: Selling & Distribution Overheads (Sales overheads) xxx
COST OF SALES (Total Cost of goods sold) xxx
Add: PROFIT / (LOSS) xxx
SALES xxx

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Important Equations:

1) Opening Stock of FG + Production of FG = Cost of Goods Sold + Closing Stock of FG

2) Opening Stock of RM + Purchase of RM = RM Consumed + Closing Stock of RM

DETAILED LIST OF ITEMS

A FACTORY OVERHEADS
1 Indirect material
2 Indirect labour
3 Factory supervision
4 Factory expenses
5 Factory stationary
6 Repairs and Maintenance of Factory
7 Factory Heat, Fuel . Light, power
8 Factory Insurance and taxes
9 Factory supplies
10 Experimental Expenses
11 Wages of Foreman
12 Storekeeper wages
13 Plant and Machinery insurance
14 Insurance on factory building, raw materials and Work in Progress
15 Oil and water consumption
16 Consumable Stores/ stores and spares
17 Drawing Office Salaries
18 Depreciation of Factory Assets
19 Lease Rent of Production Assets
20 Sale of scrap - subtract while computing Gross factory cost

B ADMINISTRATIVE OVERHEADS
1 Office salaries and expenses
2 Depreciation on Office Appliances/Equipment
3 Lighting or electricity expenses
4 Office Rent and Taxes
5 Management Salary/ Manager salary/ Director's fees
6 Office Printing and stationary
7 Telephone and mobile charges
8 Postage and courier charges

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9 Legal charges
10 Office cleaning expenses
11 Depreciation on Office furniture

C SELLING AND DISTRIBUTION OVERHEADS

1 Sales Expenses
2 Sales commission

3 Salesmen travelling
4 Sales promotion / Advertisement
5 Salaries and expenses of Distribution Department
6 Depreciation on Delivery Vans
7 Salesmen Salaries
8 Salaries of Travelling Agents
9 Carriage outward
10 Warehouse Rent and rates
11 Warehouse staff salary
12 Showroom rent and showroom expenses
13 Repairs of Delivery Vans
14 Packaging Charges
15 Deprecation on showroom furniture
D ITEMS NOT INCLUDED IN COST SHEET
1 Cash discount
2 Interest Paid
3 Preliminary expenses written off
4 Goodwill written off
5 Provision for Bad debts
6 Transfer to Reserve
7 Donations
8 Income tax paid
9 Provision for Taxation
10 Dividend Paid
11 Profit or Loss on sale of Fixed asset
12 Damages Payable at Law
13 Bank charges
Note: All the above items are financial in nature and hence will not be included in the
Cost Sheet. BAD DEBTS CAN BE INCLUDED IN COST IF THEY ARE ASSUMED TO
BE RECURRING IN NATURE. They will be shown in selling and distribution overheads.

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Example 1 (Valuation of closing stock)

Prepare a Cost Sheet from the following information of Reliable Ltd. for the year ending
31.3.2022. During the year, the firm manufactured 10,000 units.

Particulars Rs.
Raw materials Purchased 15,50,000
Freight paid on raw materials purchase 40,000
Productive wages paid 7,50,000
Unproductive wages paid 2,20,000
Productive wages outstanding 70,000
Royalty on production (direct) 1,80,000
Fuel and Power 45,000
Factory Rent 63,000
Insurance on machinery 17,000
Loading and Unloading charges on purchase of raw materials 35,000
Loss on sale of old machinery 54,000
Depreciation on machinery 83,000
Lighting – factory 7,000
Lighting – office 3,000
Factory cleaning 4,000
Advertising 37,000
Carriage outwards 13,000
Income tax 60,400
Factory Telephone 8,900
Plant repairs and maintenance 25,000
Office Computer depreciation 1,20,000
Office Stationery 21,000
Travelling Expenses – salesmen 35,000
Travelling Expenses – office staff 18,000
Donations 13,500
Salaries of sales staff 70,000
Opening Stock of Finished Goods 1,20,000
Closing Stock of Finished Goods 500 units
Marketing Research expenses 14,000
Bank charges and interest 3,400
Expenses on office cars 35,000
Office managers salary 54,000
Bad debts 7,000
Sales 36,00,000

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Example 2: (Do it yourself) (Valuation of closing stock)

Following details are extracted from the books of accounts of M/s. Jamuna Enterprises for
the year ending 31.3.2020. During the year, the firm manufactured 10,000 units.

Particulars Rs.
Stock of materials – Opening 1,88,000
Stock of materials – Closing 2,00,000
Materials purchased during the year 8,32,000
Direct wages paid 2,38,400
Indirect wages 16,000
Salaries to administrative staff 40,000
Freight – Inward 32,000
Freight – Outward 20,000
Sales 15,00,000
Cash discount allowed 14,000
Bad debts written off 18,800
Repairs of plant and machinery 42,400
Rent, rates and taxes – Factory 12,000
Rent, rates and taxes – Office 6,400
Office Staff Travelling Expenses 12,400
Closing Stock of Finished Goods 1,000 units
Salesmen’s salaries and commissions 33,600
Depreciation on Plant and Machinery 28,900
Depreciation on Office Furniture 2,400
Director’s fees 24,000
Electricity charges (factory) 48,000
Fuel (for boiler) 64,000
Sale of scrap 500
Opening Stock of Work in Progress 10,500
Closing Stock of Work in Progress 12,500
General Administrative charges 24,800
Manager’s salary 48,000

The manager’s time is shared between the factory and the office in the ratio of 20:80.

From above details you are required to prepare a cost sheet.

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Example 3: (units produced is not given in the question + Valuation of closing stock)

Manjeet manufacturing company submits the following information on 31.3.2021

Particulars Rs.
Sales for the year (25,000 units) 2,75,000
Inventories at the beginning of the year were:
Finished Goods (1,000 units) 7,000
Work in progress 4,000
Purchase of materials 1,10,000
Materials inventory at the beginning of the year 3,000
Materials inventory at the end of the year 4,000
Direct labour 65,000
Factory overheads was 60% of direct labour cost
Inventories at the end of the year were:
Finished Goods (1,500 units) (?)
Work in progress 6,000
Other expenses for the year were:
Selling expenses 10% of sales
Administrative expenses 5% of sales

Prepare Cost sheet with relevant details. Round off Cost per unit up to two decimal points.

Example 4 (Do it yourself) (Overheads recovery rate + Net profit % on total cost)

The following information was received from the books of Sheetal & Co. for the quarter
ending 31.3.2009.

Particulars Rs.
Stock of material on 31-3-2009 70,000
Stock of material on 1-1-2009 1,00,000
Purchase of materials 8,03,290
Office Travelling expenses 5,100
Carriage inwards 4,500
Carriage outwards 9,150
Drawing office Salaries 7,000
Depreciation on plant 8,000
Factory rent, rates and insurance 11,200
Office rent, rates and insurance 29,100
Showroom expenses 9,000
Productive wages paid 2,27,000
Repairs of machine, plant & tools 10,000
Expenses of Office stationery 11,350
Travelling Salesmen’s salaries and commission 9,000
Depreciation on office furniture 700
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 Director’s fees 8,000
Factory Fuel, gas and water 17,900
Manager’s salary 18,000
Income tax paid 12,000
Donations 4,600
Office Expenses 5,000
Air conditioning charges (office) 4,000
Labour welfare expenses 7,200
Outstanding productive wages 33,000
Sales 13,70,000
Prepare cost sheet assuming manager devotes 2/3 of his time to factory. You are also
required to calculate:
i. Works overhead and its percentage on wages
ii. Net Profit and its percentage on total cost.

Example 5 (Do it yourself) (Simple question)

From the following information relating to Sharma Industries Ltd. for the year ending 31 st
March, 2016, you are required to prepare statement of cost showing:
a) Prime Cost b) Factory Overhead c) Factory Cost d) Total Cost e) Profit or Loss for the
period, assuming the company manufactured 5,000 units and sold 4,500 units.

There was no opening stock of finished goods.

Particulars Rs.
Direct wages 2,40,000
Direct materials purchased 3,22,000
Purchase returns 13,000
Drawing office salaries 3,100
Carriage on direct materials 4,200
Chargeable expenses on materials 2,800
Provision for bad debts 2,400
Office Expenses 6,400
Factory rent and rates 14,600
Depreciation on plant 8,600
Showroom rent 3,000
Misc. Selling Expenses 3,200
Office Lighting 900
Factory Gas and water 3,400
Power 2,800
Factory cleaner 2,000
Salesman Travelling expenses 6,000
Showroom telephone expenses 1,500
Labour welfare expenses 4,600
Sale of scrap 450
Factory Supervision 3,500
Sales 640,000
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Example 6 (Depreciation, Apportionment of overheads, Sales return)

The following figures are extracted from the trial balance of “Go getter Ltd” on 30.9.2019.

Particulars Rs.
Opening Inventories:
Finished Stock 80,000
Raw Materials 1,40,000
Work In Progress 2,00,000
Office Appliances 17,400
Plant and Machinery 4,60,500
Building 2,00,000
Sales 7,68,000
Sales Returns 14,000
Materials Purchased 3,20,000
Freight incurred on raw materials 16,000
Purchase Returns 4,800
Direct Labour 1,60,000
Indirect Labour 18,000
Factory Supervision 10,000
Repairs and Upkeep – factory 14,000
Heat, Light and Power 65,000
Rates and taxes 6,300
Miscellaneous Factory Expenses 18,700
Sales Commission 33,600
Sales Travelling 11,000
Sales Promotion 22,500
Distribution Dept – Salaries and Expenses 18,000
Office Salaries and Expenses 8,600
Interest on Borrowed Funds 2,000
Closing Inventories :
Finished Goods 1,15,000
Raw Materials 1,80,000
Work in Progress 1,92,000
Accrued Expenses :
Direct Labour 8,000
Indirect Labour 1,200
Interest on Borrowed Funds 2,000

Other Information:
a) Depreciation to be provided on:
Office appliance @ 5%, Plant @ 10% and Building @ 4%.
b) Heat, light and Power as well as Depreciation on building is to be distributed to factory,
office and selling & distribution in the ratio of 8 : 1 : 1.
c) Rates and taxes are apportioned in the ratio of 2:1 to factory and office respectively.
Prepare a detailed Cost sheet and find the final profit.
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Example 7 (Do it yourself) (Simple question)

Popeye Company is a metal and wood cutting manufacturer, selling products to the home
construction market. Consider the following data for the month of October, 2018.

Sandpaper 5,000
Carriage inward and freight on Raw Material 1,75,000
Lubricants and coolants 12,500
Miscellaneous indirect manufacturing labour 1,00,000
Direct manufacturing labour 7,50,000
Direct materials (1.10.2018) 1,00,000
Direct materials (31.10.2018) 1,25,000
Finished Goods (1.10.2018) 2,50,000
Finished Goods (31.10.2018) 3,75,000
Work in progress (1.10.2018) 25,000
Work in progress (31.10.2018) 35,000
Plant leasing costs 1,35,000
Depreciation on plant equipment 90,000
Property taxes on plant equipment 10,000
Fire insurance on plant equipment 7,500
Direct materials purchased 11,50,000
Sales revenues 34,00,000
Marketing promotions 1,50,000
Marketing salaries 2,50,000
Distribution costs 1,75,000
Customer service costs 2,50,000

Prepare Cost sheet and find out the profit for the month of October 2018.

Example 8 (Estimated cost sheet, change in cost components)

Anmol engineering Works Ltd. Manufactured and sold 1000 sewing machines in 2018.
Following are the particulars obtained from the records of the company.
Particulars Rs. (in Rs. 000)
Cost of materials 80,000
Wages paid 1,20,000
Manufacturing expenses 50,000
Salaries of managerial staff 60,000
Office Rent, rates and insurance 10,000
Selling expenses 30,000
General Administration expenses 20,000
Sales 4,00,000

The Company plans to manufacture 1200 sewing machines in 2019. You are required to

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submit a statement showing the price at which machines would be sold so as to show a profit
of 10% on the selling price.

The following additional information is supplied to you:

a) The price of materials will rise by 20% of the previous year’s cost per unit
b) Wages rates will rise by 5%.
c) Manufacturing expenses per unit will rise in the same proportion as 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.

Example 9 (Multi product cost sheet, calculation of combined ratios for apportionment
of various costs)

Mohini Shoes Co. manufactures two types of shoes A and B. Production costs for the year
ended March 31st, 2018 were:

Particulars Rs.
Direct materials 15,00,000
Direct Wages 8,40,000
Production overheads 3,60,000
Total 27,00,000

There was no work in progress at the beginning or at the end of the year.
It is ascertained that:

i) Direct material in type A shoes consists of twice as much as that in type B shoes.
ii) The direct wages for type B shoes were 60% of those of type A shoes.
iii) Production overhead was the same per pair of A and B type.
iv) Administrative overhead for each type was 150% of direct wages
v) Selling cost was Rs. 1.50 per pair.
vi) Production during the year were
Type A: 40,000 pairs of which 36,000 were sold
Type B: 1,20,000 pairs of which 1,00,000 were sold
vii) Selling price was Rs. 44 for type A and Rs. 28 for type B per pair.

Prepare statement showing total and per unit cost and profit.

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Example 10 (Estimated cost sheet, overheads recovery rate)

In respect of a factory, the following particulars have been extracted for the year 2017:

Cost of materials 6,00,000

Wages 5,00,000
Factory overheads 3,00,000
Administration charges 3,36,000
Selling charges 2,24,000
Distribution charges 1,40,000
Profit 4,20,000

A special work order No. 125 has to be executed in 2018 and the estimated expenses are:
Material Rs. 8,000, wages Rs. 5,000.
The company has a policy of recovering Factory overheads on wages. Administration,
selling and distribution overheads are recovered based on factory cost.
Assuming that, in 2018, the Recovery rate of factory overheads has gone up by 20%,
distribution charges have gone down by 10% and administration and selling charges have
each gone up by 15%, at what price should the product be sold so as to earn the same rate
of profits as in 2017?

Example 11 (Similar to example 10) (Do it yourself)

Following figures are extracted from the records of a Company for the year 2015-16:
Particulars Rs.
Direct Materials 60,000
Direct Wages 50,000
Works Overheads 30,000
Administrative Overheads 33,600
Selling Overheads 22,400
Distribution Overheads 14,000
Profit 52,500

One material has been manufactured and supplied to Mr. X, in 2016-17 for which following
expenses were incurred:
Direct Material 4,000
Direct Wages 2,000

In 2016-17 works overhead increased by 20%, distribution overhead decreased by 10% and
administrative and selling overhead each were increased by 12.5%.

The company has a policy of recovering Factory overheads on wages. Administration,

selling and distribution overheads are recovered based on factory cost.

At What price the above supply should be billed to Mr. X so as to earn the same rate of
profit on selling price as earned in 2015-16.
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Example 12: (Estimate cost sheet, profit on sales):
Following is the production A/c of Ojas Manufacturing Company who has produced 1,000
units during the year 2015-16.

Production Account
Particulars Rs. Particulars Rs.
To Raw Materials consumed 2,18,200 By Prime Cost 3,63,200
To Direct wages 1,45,000
3,63,200 3,63,200
To Prime Cost 3,63,200 By Factory Cost 4,05,750
To Factory Overheads 42,550
4,05,750 4,05,750
To Factory Cost 4,05,750 By Cost of Production 4,25,400
To Administrative Overheads 19,650
4,25,400 4,25,400
To Cost of Production 4,25,400 By Cost of sales 4,62,650
To Selling & Distribution o/h 37,250
4,62,650 4,62,650
To Cost of sales 4,62,650 By Sales 4,87,000
To Net Profit 24,350
4,87,000 4,87,000

From the above data, you are required to prepare an estimated cost sheet for the year 2016-
17 wherein the company estimates a production of 2000 units. The following is the additional
information provided by the company :

a) Out of the total Production during the year, 1500 units are likely to be sold.
b) Raw material cost has gone up by Rs. 1.80 per unit.
c) Direct wages cost has gone up by 20%.
d) Factory overheads are to be taken at a recovery rate based on direct wages.
e) Total Administrative cost has increased by 20%.
f) Selling and Distribution Costs per unit has gone up by Rs. 0.75.
g) The Company wants the same rate of profit on sales as the previous year.

(F.Y. B.Com – Mid term – September 2017)

If you think the cost of education is high, think about ignorance.

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Example 13: (Do it yourself)
Marco Company Ltd. Manufactures two types of shoes. The following is the cost sheet for
a Company for the financial year 2021-22.

PARTICULARS
Type A Type B Total
Production during the year 40,000 pairs 1,20,000 pairs
Rs. Rs. Rs.
Raw Materials Consumed 6,00,000 9,60,000 15,60,000
Add : Direct Wages 3,00,000 6,00,000 9,00,000
PRIME COST 9,00,000 15,60,000 24,60,000
Add : Factory Overheads 1,60,000 4,80,000 6,40,000
FACTORY COST 10,60,000 20,40,000 31,00,000
Add : Administrative Overheads 4,50,000 9,00,000 13,50,000
COST OF PRODUCTION 15,10,000 29,40,000 44,50,000
Less
Closing stock of Finished Goods
:
(valued at cost of production) 1,51,000 4,90,000 6,41,000
COST OF GOODS SOLD 13,59,000 24,50,000 38,09,000
Add : Selling Overheads 1,08,000 3,00,000 4,08,000
COST OF SALES 14,67,000 27,50,000 42,17,000
Add : PROFIT 2,93,400 8,25,000 11,18,400
SALES 17,60,400 35,75,000 53,35,400

During the year 2021-22, the company was operating at 80% of the total shoe making
capacity. Considering the fall in demand of Type A Product and increase in the demand of
Type B Product, the company has decided to discontinue the production of Type A in the year
2022-23.The company now estimates that the company will work at 90% of the total capacity
during the year 2022-23. The company also gives you the following information:
1. Due to improved quality of raw materials, the cost is likely to go up by 25% from the
previous year level.
2. The labour cost is also likely to increase by 20% from the previous year level due to
inflation.
3. The Factory overheads in the previous year include Fixed Factory overheads which
have been fully absorbed @ Rs. 1 per unit for both the products. The Balancing values
are towards variable overheads, which are expected to see an increase @ 33 1/3% in
the following year.
4. There is no change in the Administrative overheads in the following year.
5. The company has estimated that 90% of the production of Product B will be sold. The
selling expense per unit is expected to increase by Rs. 1/- per unit.
6. The company tells you that the company wants to earn the same rate of profit on sales
for Product B as that in 2021-22.
You are required:
i. To make the Estimated Cost sheet of Product B for the year 2022-23. Previous year
closing stock should not be considered while making estimates for the year 2022-23.
ii. To assume that the company absorbs Factory Overheads based on machine hours
and each pair of Type B shoes takes 1.5 machine hours to produce. Calculate the
composite machine hour rate for the year 2022-23.
(Mid term exam – FYBBA – April 2023)

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 Example 14:

Jaipur Bedsheets Private Limited (JBPL) manufactures hand artisan bedsheets, which are
sold across the country. The sales are much higher in the second half of the year, as the
bedsheets are sold in large numbers as gift products on Diwali and New Year’s. From the
following given data, the management of JBPL wants you to prepare Cost sheets for the first
and last six months of the year separately, displaying the Total cost and cost per unit in each
of these periods.

Following is the data for the full year ended on 31st March, 2023

Particulars Amount

Direct Material cost 95,00,000

Direct Labour 40,00,000

Rent of Storage Godown (Additional space was hired for the first 6
months which costed Rs50000 per month, besides the regular 12,00,000
godown)
Labour overtime (incurred only in the second half of the year) 4,00,000

Packaging cost (incurred in proportion to units produced) 8,00,000

Other Factory Overheads (It is a Fixed cost. However it was 20%
6,60,000
higher in the second half of the year)

Also, take into consideration the following data

1. Opening stock at the beginning of the year was 4000 bed sheets. The Company has
targeted to produce 50000 bed sheets in the year 2022-23, which is evenly spread
throughout the year and the stock at end of the year is targeted at 12000 bed sheets. Sales
in the second semi annual period (1 Oct – 31 Mar) is expected to be double of the first
semi annual period (1 Apr – 30 Sept)
2. Direct Material cost per unit in the second half of the year was 10% cheaper than the first
half, due to fluctuation in prices
3. Direct Labour cost per unit has remained constant throughout the year
4. Administration Overhead is charged at 40% of Prime Cost
5. The Company values its stock on FIFO basis. Last year (2021-22), the cost of production
per unit was Rs400.
6. The Company is able to sell the bedsheets at a price of Rs650 per bedsheet, without
incurring any selling and distribution costs due to its strong goodwill in the market.

You may round off your answers to two decimal places.

Prepare a Cost sheet displaying cost per unit and total cost for the periods

a)First Six Months (1 Apr – 30 Sept)

b)Second Six months (1 Oct – 31 Mar)

(Mid term exam – FYBBA – March 2024)

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Example 15: (Do it yourself)
Bharat Pharmaceuticals have successfully Tested 2 Vaccines for Covid treatment,
Defeatcovid' and 'Cohit'. The following are the details of the costs incurred during the month
of Jan 2021. The Company wants you to prepare a cost sheet and compute the Price at which
each of the vaccinations can be sold to the masses.

Particulars Rs. (Total Cost )

Direct Material 1,16,00,000
Direct Labour 78,00,000
Production Overhead 58,20,000
Research & Development, Quality control and Testing cost 60,00,000

It was ascertained that:

a) The Company has confirmed sales order for 6,70,000 units of Defeatcovid and 4,80,000
units of Cohit. The company plans to keep a stock at January end of 40,000 units of
Defeatcovid and 35,000 units of Cohit. The stock at the beginning of the month was 10,000
units of Defeatcovid and 15,000 units of Cohit.
b) Direct Material cost per vaccine for Cohit is 1.5 times than that for Defeatcovid.
c) Direct Labour cost per vaccine for Defeatcovid is 40% of those for Cohit.
d) Production Overhead be absorbed as a percentage of Prime Cost.
e) Research and Development cost, Quality control and Testing cost are believed to be
Administrative in nature. They are incurred uniformally on the two vaccines and hence to
be absorbed at same level per unit of both vaccines produced.
f) Production cost is assumed to be uniform over the period and hence opening and closing
stocks are to be valued at the cost of production applicable in the month of January.
g) Selling Overheads are Rs. 7 per unit.
h) The Company desires to earn a profit of 1/6 of Sales Realisation.

(FYBBA Final Exam – Sem 2- April 2021)

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 Example 16: (Do it yourself)
Aaskra Private Limited is engaged in the manufacture of Trusoe Brand of shoes. The
company has the capacity to produce 10,000 pairs of shoes operating at 100% capacity. The
cost incurred for the current level of production of Drake Black Shoes are given below.

Particulars Rs. Rs.

Cost of Materials Consumed 25,00,000
Direct wages 15,00,000
Factory Overheads :
a) Fixed 60,000
b) Variable 2,00,000 2,60,000
Administrative Overheads 2,76,000
Selling and Distribution Overheads
a) Fixed 58,000
b) Variable 4,00,000 4,58,000
Total 49,94,000
Add: Profit 4,06,000
Sales 54,00,000

Considering the change in the market demand, the management has decided to hence
diversify and manufacture two types of shoes, namely Drake Black and Dawn White in the
ratio of 2:1 and also reduce its operations to 90% Capacity. No additional capital investment
is envisaged.

The company provides you with the following information for the revised production
requirements:
i) The Raw Material cost is expected to rise by 10%. Dawn White will consume twice the
material required for Drake Black.
ii) Due to a probability of short supply of labour, the company estimates that direct wages will
also see a rise of 20%. Dawn White requires only 70% of the amount of labour compared
to Drake Black.
iii) The company has a policy to absorb variable factory overheads as a percentage of prime
cost. This rate is expected to go up by 20%.
iv) Variable Selling and Distribution Overheads per unit are expected to fall by 20%.
v) All Fixed Overheads are to be distributed based on units produced/sold.
vi) The Details of Closing Stock (in units) are as follows:
a) Drake Black 1,000
b) Dawn white 750
The company has a policy of rounding off the cost of production per unit to the nearest
rupee for valuation purposes.
vii) Drake Black and Dawn White are expected to fetch a selling Price of Rs. 600 and 850
respectively.
You are required to make a product wise cost sheet and show the various costs and profit
that will be earned. Working notes form part of your answer.
(Final Examination – FYB Com (H) – January 2022)

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Example 17: (Do it yourself)

Woodworks Manufacturing Pvt. Ltd. In engaged in making different types of furniture. The
most prominent segment which manufactures Stools, Chairs and Tables were told to submit
a detailed cost sheet to the Management for the Financial Year 2021-22. The following data
was made available to you:

Particulars Rs.
Total Raw Material Cost 4,62,000
Total Labour :
Cutting of wood 68,000
Smoothening of wood (as a % of Direct Labour) 27,200
Assembling of Furniture Rs. 50 per piece

Other information is as follows:

1. The general trend that has been observed is that 1 table is equivalent to 4 stools and
2 chairs are equivalent to 1 table for the purpose of cost of Raw materials.
2. The direct labour applied in stools and Chairs each, is half of that applied in tables.
3. Over and above indirect labour, other production overheads are recovered based on
the previous year trend. The Direct Labour (Cutting) in the previous year was 54,000
and the other production overheads amounted to Rs. 81,000.
4. The Administrative Overheads for the year amounted to Rs. 48,000 which are borne
on the basis of units produced among all three products.
5. The details of stock in nos. are as under:

Particulars Stools Chairs Tables

Stock at the end of the year 50 40 10
Stock at the beginning of the year 40 @ Rs 35 @ 900 5 @ Rs.
600 p.u. p.u. 1700 p.u.
Sales for the year 590 295 55

6. The Selling and Distribution Overheads consist of Showroom Rent, which is Rs.
47,000 and agent commission which is Rs. 10 per unit.
7. Please round off the Cost of Production per unit to the nearest rupee if necessary.
Being the Cost Accountant of the company, you are required to make the Product wise
Cost Sheet in the required format to present to the Management showing total cost and
Sales Revenue if the company earns a profit of 15% on Sales.

(Mid term Examination – FYBCom (H) – November 2022)

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Example 18: (Do it yourself)

PMS manufacturing Company manufactures two products by the name of Beta and Zeta
through two different machines. The following is the information provided by the company
for the year 2017-18:
Factory Overhead Rs.
Fixed:
Lighting 15,000
Factory Rent 1,00,000
Manager’s Salary 24,000
Variable:
Power for machines 93,750
Lubricants for machinery 7,500
Other variable overheads 25,000
Total 2,62,250

Other information pertaining to the company for the year 2017-18 are as follows:

Particulars Beta Zeta

Units produced 50,000 75,000
Time taken per unit 1 hour 1 hour
Light points 6 9
Area 2,000 sq. feet 3,000 sq. feet

Additional Information:
1. The Raw material cost is expected to be Rs. 7,00,000 in the following year. The raw
material used in one unit of Beta is twice as that used in one unit of Zeta.
2. The company pays the labour force on piece rate system. The piece rate was Rs. 4 per
unit in the previous year. This rate is expected to rise by 25%.
3. The company estimates that the fixed factory overheads are likely to rise by 20% and the
variable overheads are expected to increase by 10%.
4. The company also tells you that there will be no change in the production levels in the
following year but the sales are likely to go down to 40,000 and 60,000 units for Beta and
Zeta respectively.
5. The factory manager dedicates equal time to both the departments where Beta and Zeta
are produced.
6. The administrative overheads in the Previous year were Rs. 3,15,000. No change is
expected in these overheads. The company apportions this overhead based on units
produced.
7. Selling and distribution overheads are Rs. 2 per unit and the company wants to earn a
profit of 20% on sales in the following year.

You are required to prepare an estimated product wise cost sheet for the following year with
detailed bifurcation of expenses wherever necessary. Working notes form part of your answer.
(FYB.Com (H) – Mid term exam – September 2019)

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Example 19: (Do it yourself)

The accounts of ABC Manufactures for the year ended 21-3-2024 shows the following.

Particulars Amount (Rs.)

Stock of materials as on 1.4.2023 30,000

Wages paid to Direct Workers 55,000
Interim Dividend Paid 12,000
Purchase of Raw Materials 87,000
Heating and lighting 6,000
Carriage on Purchases of Raw Materials 3,000
Wages Payable 5,000
Technical Director’s Fees 10,000
Stock of Materials as on 31.3.2024 40,000
Show room Expenses 15,000
After-sales Service Expenses 10,000

Additional Information:

Administration Overheads is 20% of Cost of Production. Profit is 20% on Cost of sales.

Prepare a cost sheet showing:

1. Cost of Raw Materials Consumed

2. Prime Cost
3. Factory (Works) cost
4. Cost of Production
5. Total Cost
6. Profit or Loss
(Final exam – FYBBA – May 2024)

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