CA - IPCC. Quality Education beyond your imagination...! Solutions to Assignment Problems in Cost Accounting_31e

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1 CA - IPCC COURSE MATERIAL Quality Education beyond your imagination...! Solutions to Assignment Problems in Cost Accounting_31e Visit Mail : mastermindsinfo@ymail.com Page 1

2 Index S.No. Chapter Name No.of Assignment Problems Pages 1. Cost Sheet Materials Operating Costing Labour-I Labour II Overheads I Overheads II Process Costing Marginal Costing Standard Costing Book Keeping in Cost Accounting Reconciliation Job Costing & Batch Costing Operating Costing Budgetary Control Joint Products & By Products Contract Costing Total 142 2

3 No.1 for CA/CWA & MEC/CEC SOLUTIONS TO ASSIGNMENT PROBLEMS Problem No. 1 MASTER MINDS 2. MATERIALS Given that, Annual requirement (A) = 2, = 24,000 Packets Carrying Cost (C) = 10 10% = Rs.1 per packet p.a Ordering cost (S) = Re.1.20 per order. 2AS a. Economic Order Quantity (EOQ) = = 2 24, C 1 b. Total of holding and carrying costs = Associated cost = 2ASC c. Monthly demand as given = 2,000 Packets 2000 Consumption per day = 30 = Packets per day. 200 Existing stock will last for = = 3 days. = 240 Packets = 2 X 24,000 X1.20 X1 = Rs.240 Conclusion: Immediately, by the time the existing stock will get exhausted a new delivery will be obtained (It takes 3 days for New delivery). Therefore, the new order is to be placed immediately. Problem No. 2 Caculation of EOQ:- Given, Annual Usage (A) = 8,000 units Ordering cost per order(s) = Rs.200 Carrying cost per unit p.a (C) = 400 X 20% = Rs. 80 EOQ = 2AS C = 2 X8,000 X = 200 units. Calculation of total inventory cost p.a. at EOQ: Particulars Amount Purchase cost = 8,000 X ,00,000 Ordering cost A 8,000 XO= X 200 8,000 Q 200 Carrying cost Q 200 XC Xi= X 400 X 20% 8, ,16,000 IPCC_31e_Costing (Problems) _ Materials 3

4 Ph: Calculation of total inventory cost p.a. with quantity discount: Particulars Amount Purchase cost = 8,000 X (400-4%) 30,72,000 Ordering cost A 8,000 XO= X Q 4,000 Carrying cost Q 4,000 XC = X384 X 20% 1,53, Total Rs.32,26,000 Quantity discount offered should not be accepted as it results in increase in total cost of inventory management by Rs. 10,000. Problem No. 3 (i) Given 1kg of M requires 3 kgs of X and quarterly demand = 8000 units of M. Annual requirement of X = 8000 X 4 X 3kgs = kgs of X S ordering Cost = 1,000 per order Carrying Cost C = 20 X 15% = 3 2(1000)(96000) EOQ = = 8000 units. 3 Associated cost = 2 (96000)X1000X3 = Raw Material Cost = X 20 per kg = 19,20,000 Total Cost = 19,44, (ii) If Company accepts discount then order size = = units 4orders Then purchase price = 720 2% = 19.6 Carrying cost = 19.6 X 15% = 2.94 Ordering Cost = 4 orders X 1000 = 4000 Carrying Cost = X 2 1 X 2.94 = 35,280 Raw Material Cost = 96,000 kgs X 19.6 per kg = 18,81,600 Total Cost at Discount = 19,20,880 Discount should be accepted by the company as it results in savings of (19,44,000-19,20,880) = 23,120 A = 5,000 tonnes S = Rs.1,200 CI = 20% P = Rs.1,500 C = 20 1,500X = Problem No. 4 Copy Rights Reserved To MASTER MINDS, Guntur IPCC_31e_Costing (Problems) _ Materials 4

5 No.1 for CA/CWA & MEC/CEC MASTER MINDS Statement showing calculation of total cost at different order sizes: Order size No.of orders Ordering cost p.a Carrying cost p.a Materials coat p.a Total cost(m+c.c+o.c) p.a ,000 48,000 60,00,000 60,63, ,000 59,000 59,00,000 59,71,000 1, ,000 1,16,000 58,00,000 59,22,000 2, ,000 2,28,000 57,00,000 59,31,000 3, ,004 3,36,000 56,00,000 59,38,000 Therefore Economical purchase level = 1,000 tonnes (least cost) Note: Number of orders = A EOQ Ordering cost = no.of orders X cost per order Carrying cost = Order size X Price X %of C.C 2 Material cost = Annual demand X price per tone b. EOQ, when price is Rs.1,500 EOQ = 2AS C = Rs.200 Associated cost = 2 ASC = Rs.60,000. Problem No. 5 A = Annual usage S = Ordering cost per order C = Carrying cost per unit per annum = 1,800 x 12 = 21,600 units = Rs.5 = 0.20 x 12m = Rs.2.40 (a) E.O.Q. = 2AS C = 2 x 21,600 x = 300 units (b) Calculation of Reorder point: Given lead time = 2 days Consumption / day = 1,800 units 30 days = 60 units / day Lead time consumption = 2 days x 60 units = 120 units Safety stock = 50% (120 units) 50 = 120 x = 60 units 100 Reorder point = lead time consumption + safety stock = = 180 units IPCC_31e_Costing (Problems) _ Materials 5

6 Ph: (c) Calculation of economic purchase level No.of Orders Order Qty per month O.C per month (No.of order x O.C per order) C.C per month (1/2 x avg inventory x C.C.P.U.P.M) Discount Net Cost (O.C+C.C- Discount) x5= x5= x5= x5= x5= x5= x5= Economical purchase level = 450 Units Problem No. 6 Given, Monthly demand Annual consumption (A) Ordering cost (S) Carrying Cost (C) = 1,000 units of finished goods = 50 units 52 weeks = 2600 units. = Rs.100 = Rs.15 per unit p.a. Particulars Maximum Minimum Average Consumption 75 units 25 units 50 units Delivery period 6 weeks 4 weeks 5 weeks Reorder Quantity (ROQ) = 2AS = C 15 = 186 units. Reorder Level (ROL) = Maximum usage Maximum lead time = 75 6 = 450 units. Maximum level = ROL + ROQ (Minimum usage Minimum lead time) = (25 4) = = 536 units Minimum level = ROL (Normal usage Normal lead time) = 450 (50 5) = = 200 units. Maximum level + Minimum level Average Level = = 2 2 = 368 units Problem No. 7 Given Ordering Cost = Rs.100 Carrying Cost = 20% of Rs.10 = 2 Given Minimum Consumption / Week = 100 kg Maximum Consumption / Week = 450 kg Average Consumption / Week = 275 kg Annual consumption = 52 weeks X Average Consumption 52 X 275 kgs = 14,300 kgs E.O.Q = 2(14,300)100 = 1,196 kgs 2 IPCC_31e_Costing (Problems) _ Materials 6

7 No.1 for CA/CWA & MEC/CEC MASTER MINDS (i) R.O.Q = E.O.Q = 1,196 units. Given Re order period i.e Lead time Minimum = 4 weeks and maximum = 8 weeks Average = = 6 Weeks 2 (ii) R.O.L = Maximum usage X Maximum lead time = 450 kgs X 8 weeks = 3,600 kgs (iii) Maximum Stock level = R.O.L + R.O.Q (Minimum usage X Minimum Lead time) = 3,600 kg + 1,196 units (100 X 4) = 4396 kgs (iv) Minimum Stock level = R.O.L (Average Consumption X Average Lead time) = 3,600 (275 X 6) = 1950 kgs (v) Average Stock level = Minimum + Maximum 2 1, ,396 = = 3173 kgs. 2 Problem No. 8 Given monthly demand = 2000 tubes Annual usage = Normal Usage X 52 weeks = 100 X 52 weeks = 5200 tubes Inventory carrying cost = Rs.500/- X 20% =100 Ordering cost = 100/- per order E.O.Q = 2AS C = 2 (5200)( 100) 100 = units =102 units app a. At E.O.Q Associated Cost = 2 (5200)(100 )(100) = Rs.10,198 RM cost at EOQ = 5200 units X Rs.500 = Rs.26,00,000 Total cost = Rs. 26,10,198 b. If Quantity discount is offered then ordering size = 1500 units 5200 No.of orders = = = 3.5 orders 1500 Therefore ordering cost = 3.5 x 100 = Carrying cost = x100 2 = 7,500 Associated cost = Rs.7,850 R.M cost (5200 X (500-5%)) = Rs. 24,70,000 Total Cost = Rs.24,77,850 c. Savings in cost by accepting offer (a-b) = Rs.1,32,348 Its worth accepting the order at 5% discount. Copy Rights Reserved To MASTER MINDS, Guntur IPCC_31e_Costing (Problems) _ Materials 7

8 Ph: Given Normal Maximum Minimum Usage 100 / week 200 / week 50 / week Lead time R.O.L = Maximum Reorder period x Maximum usage = 8 x 200 = 1600 tubes Max. level of stock = R.O.L + R.O.Q (Minimum usage x minimum lead time) = (6 x 50) = 1402 tubes Mini Level of stock = R.O.L (Average usage x Average Lead time) = 1600 (100 x 7) = 900 tubes Problem No. 9 (a) Re-ordering level: Maximum usage per week Maximum delivery period. Re-ordering level for component A = 75 units X 6 weeks = 450 units Re-ordering level for component B = 75 units X 4 weeks = 300 units (b) Minimum level: Re-order level (Normal usage Average period) Minimum level for component A = 450 units (50 units 5 weeks) = 200 units Minimum level for component B = 300 units (50 units 3 weeks) = 150 units (c) Maximum level: Re-order level + Re-order quantity (Min. usage Minimum period) Maximum level for component A = (450 units units) (25 units 4 weeks) = 650 units Maximum level for component B = (300 units units) (25 units 2 weeks) = 750 units (d) Average stock level: ½ (Minimum + Maximum) stock level Average stock level for component A = ½ (200 units units) = 425 units. Average stock level for component B = ½ (150 units units) = 450 units. Given Opening Stock Purchases Closing Stock R.M Consumed = Rs = Rs.2,70,000 = Rs.1,10,000 Problem No. 10 = Opening Stock + Purchase Closing stock = 90, ,70,000 1,10,000 = 2,50,000 (i) I.T.R = = Cost of Raw Material Consumed Average Stock Level 2,50,000 =2.5 times 90,000+ 1,10,000 2 Copy Rights Reserved To MASTER MINDS, Guntur (ii) No. of days for which average inventory held 365 days = = 146 days I.T.R IPCC_31e_Costing (Problems) _ Materials 8

9 No.1 for CA/CWA & MEC/CEC MASTER MINDS Particulars Raw Material Price A Problem No. 11 Quantity Price Quantity Price 10 per kg 1,00, kg 1,04,000 Add: 10% - 10,000-10,400 Less: Normal Loss units Add: Railway freight (W.N.1) Less: 2% further deterioration - 1,10,000-1,14, ,500 1,10,000 7,680 1,14,400-2,133-1,707 9,500 1,12,133 7,680 1,16, ,310 1,12,133 7,526 1,16,107 W.N.1: Railway freight Expenditure is divided on the basis of quantity of Chemical A and B. i.e. in the Ratio of 10:8 = 2133 and 1707 Cost per kg of chemical A & B Cost Quantity = 1,12,133 and ,16,107 = and THE END B IPCC_31e_Costing (Problems) _ Materials 9

10 Ph: SOLUTIONS TO ASSIGNMENT PROBLEMS Problem No.1 Calculation of passenger km:- Onward: 25 days x 3 trips x 20 km x 12 months 18,000 x 40 passengers 7,20,000 pass. Km. Return: 25 days x 3 trips x 20 km x 12 months 18,000 x 40 passengers 7,20,000 pass. Km 14,40,000 Kilometers 36,000kms Calculation of Total cost: 3. OPERATING COSTING Particulars Amount Depreciation (1,00,000 / 5) 20,000 Insurance (1,00,000 x 3%) 3,000 Annual Road tax 2,000 Garage rent (400 x 12m) 4,800 Annual repairs 2,360 Salary to driver & conductor (800 x 12m) 9,600 Manager Salary (1,400 x 12m) 16,800 Stationery (100 x 12m) 12,000 Petrol & oil cost (3600 x 50 / 100) 18,000 Total cost before commission 77,760 (+) commission (10% on takings) 10,368 Total Cost 88,128 (+) Profit (15% on takings) 15,552 Total takings 1,03,680 Fare/ pass. Km 1,03,680 14,40,000 Rs / pass.km Problem No. 2 Calculation of Total kms. covered per month: Bus Route Km. per trip Trips per day Days per month Km. per month Delhi to Chandigarh ,000 Delhi to Agra ,200 Delhi to Jaipur ,240 11,440 Calculation of Passenger kms. per month: Total seats Capacity Km. per Passenger available per month utilized trip Km. per (100% capacity) % Seats month Delhi to Chandigarh & 800 * ,80,000 Back IPCC_31e_Costing (Problems) _ Operating Costing 10

11 No.1 for CA/CWA & MEC/CEC MASTER MINDS Delhi to Agra & Back ,78,500 Delhi to Jaipur & Back 600 # ,62,000 Total 5,20,500 * 50 seats X 2 trips X 8 days = seats X 2 trips X 10 days = 1,000 seats # 50 seats X 2 trips X 6 days = 600 seats Now, the operating cost can be found out as under: Monthly Operating Cost Statement Variable Costs Rs. Rs. (i) Running Costs: Diesel [(11,440 km 4 km) X Rs. 46] 1,31,560 Lubricant oil [(11,440 km 100) Rs. 10] ,32,704 (ii) Maintenance Costs: Repairs & Maintenance 1,000 (iii) Standing charges: Salary of driver 2,800 Salary of conductor 2,200 Salary of part-time accountant 200 Insurance (Rs. 4,800 12) 400 Road tax (Rs. 1,500 12) 125 Permit fee 315 Depreciation (Rs. 6,00,000 20%) 12 10,000 16,040 Total costs per month (i)+(ii)+(iii) 1,49,744 Profit and Passenger 100% of cost (Note below) 1,49,744 Total takings per month 2,99,488 Passenger km. per month 5,20,500 Rate per passenger km. = (Rs. 2,99,488 5,20,500) = Rs say Rs Proposed fare to be charged per passenger km. Delhi to Chandigarh = Rs km = Rs Delhi to Agra = Rs km = Rs Delhi to Jaipur = Rs km = Rs Note: 1. Passenger tax = 20% of total takings 2. Profit = 30% of total takings 3. Passenger tax + Profit = 50% of total takings 4. Cost (balance) = 50% 5. Total takings = 100% 6. Item 3 as a % of item 4 = 100% Passenger tax (20% of Rs. 2,99,488) = Rs. 59, Profit (30% of Rs. 2,99,488) = Rs. 89, Rs. 1,49, IPCC_31e_Costing (Problems) _ Operating Costing 11

12 Ph: Problem No.3 Step-I: Calculation of total km & passenger kms: Guntur to Tirupathi 10 days X 250 kms X 2 = 5000 km X 50 pass X 90% = 2,25,000 pass. km Guntur to Kalahasthi 10 days X 200 kms X 2 = 4000 km X 50 pass X 80% = 1,60,000 pass. km Local Trip: 5 days X 60 km = 300 km X 50 pass = 4,00,000 pass. km 9300 km 4,00,000 pass. km Step-II: Calculation of total cost for the month: Particulars Amount Depreciation (3,50,000 X 25% X 1/12) 7,292 Drivers Salary 1,200 Conductors Salary 1,000 Part time clerk Salary 400 Insurance (1800 X 1/12) 150 Diesel Consumption (9,300 X 8/4) 18,600 Token tax 200 Permit fee 1,000 Lubricant oil (9,300 X 100 / 200) 4,650 Repairs & Maintenance 1,500 Total cost before passenger tax (46.67%) 35,992 (+) Passenger tax (20% on takings) (20%) 15,424 Total cost (66.67%) 51,416 (+) Profit (1/3 on takings) (33.33%) 25,704 Total takings (100%) 77,120 Step-III: Fare / Passengers km 77,120 4,00,000 pass.km=rs / pass. km Fare / Passenger from Guntur to Tirupathi = 250 p. km x Rs Fare / Passenger from Guntur to Kalahasthi = 200 p. km x Rs Problem No.4 Step-I: Calculation of absolute ton km: Vehicles x trips x km x tons x capacity 30 x 5 x 6 x 5 T x 50% 2,250 T.km x 30 days 67,500 T.km 40 x 5 x 6 x 3 T x 50% 1,800 T.km x 30 days 54,000 T.km IPCC_31e_Costing (Problems) _ Operating Costing 12

13 No.1 for CA/CWA & MEC/CEC MASTER MINDS 50 x 5 x 6 x 2 T x 50% 1,500 T.km x 30 days 45,000 T.km 40 x 5 x 6 x 4 T x 50% 2,400 T.km x 30 days 72,000 T.km 2,38,500 T.km (-) 10% laid up for repairs 23,850 T.km 2,14,650 T.km Step-II: Calculation of total cost for the month: Salary to superintendent (1,800 x 50%) 900 Salary to foremen (4 x 600) 2,400 Wages for drivers (200 x 100) 20,000 Wages for labourers (80 x 300) 24,000 Consumables 20,000 Petrol 80,000 Lubricants 10,000 Replacement of tyres 6,000 Garage Rent 2,500 Gas 800 Miscellaneous 15,000 Workshop Expenses 15,000 Total Cost 1,96,600 Step-III: Calculation of cost % T.km Cost / T.km 1,96,600 Rs. 0.92/ T.km 2,14,650 Copy Rights Reserved To MASTER MINDS, Guntur Problem No.5 Step-I: Calculation of total km & Tons km: Vehicle Journey x distance x days x weeks km x tones T.km 1 6 x 10 km x 5 x 50 15,000 x 4T 60,000 T.km 2 4 x 20 km x 5 x50 20,000 x 4T 80,000 T.km 3 2 x 40 km x 5 x 50 20,000 x 5T 1,00,000 T.km 4 2 x 30 km x 5 x 50 15,000 x 6T 90,000 T.km 5 1 x 60 km x 5 x 50 15,000 x 6T 90,000 T.km Onward 85,000 km 4,20,000 T.km (+) Return 85,000 km 0 T.km Total 1,70,000 km 4,20,000 T.km IPCC_31e_Costing (Problems) _ Operating Costing 13

14 Ph: Step-II: Calculation of Total cost for the year: Maintenance Cost ( for 1,70,000 kms) 1,35,000 Drivers wages (600 x 50 weeks x 5 drivers) 1,50,000 Supervisors Salary (800 x 50 weeks) 40,000 Depreciation on loading equipment (1,00,000/5 Years) 20,000 Depreciation on Vehicles ( 30,000 x 5 ) 5 Years 30,000 Petrol (1,70,000 x Rs. 8) 13,60,000 Repairs (1,70,000 x Rs. 1) 1,70,000 Insurance (2,400 x 5 vehicles) 12,000 License Cost (1,600 x 5 vehicles) 8,000 Tyres Cost 18,000 Miscellaneous Cost 17,000 Total Cost 19,60,000 Step-III: Calculation of cost / Tons km Cost / Tons km = 19,60,000 4,20,000T.km = Rs. 4.67/T.km Problem No. 6 (i) Total equivalent single room suites Nature of suite Occupancy Equivalent single room suites Single room suites % = 36,000 36,000 1 = 36,000 Double rooms suites % = 14,400 14, = 36,000 Triple rooms suites % = 6,480 6,480 5 = 32,400 Total 1,04,400 (ii) Statement of total cost: Rs. Staff salaries 14,25,000 Room attendant s wages 4,50,000 Lighting, heating and power 2,15,000 Repairs and renovation 1,23,500 Laundry charges 80,500 Interior decoration 74,000 Sundries 1,53,000 25,21,000 Building rent 10, % on total taking 1,20, % on takings Total cost 26,41, % on total takings Profit is 20% of total takings Total takings = Rs. 26,41, % of total takings Let x be rent for single room suite Then 1,04,400 x = 26,41, % of (1,04,400 x) or 1,04,400 x = 26,41, ,100 x IPCC_31e_Costing (Problems) _ Operating Costing 14

15 No.1 for CA/CWA & MEC/CEC MASTER MINDS or 78,300 x = 26,41,000 or x = (iii) Rent to be charged for single room suite = Rs Rent for double rooms suites Rs = Rs Rent for triple rooms suites Rs = Rs Calculation of cost per km h: Problem No.7 Operating labour 50,000 Repairs &maintanence 50,000 Lubricants, spares & stores 40,000 Plant super vision 30,000 AOH 20,000 Coal (10,00,000 x 2.5 x 0.02) 50,000 Depreciation 10,000 Total Cost 2,50,000 2,50,000 Cost per kwh = = ,00,000 Existing Proposal: Own a car Problem No. 8 Calculation of cost per Km. under various proposals Particulars Calculations Cost/Km Depreciation 50,000-10,000 p.a ( m) 0.33 ps. 5 Petrol & Oil Tyres ps. Repairs ps ps. Taxes ps. 24,000 Km 0.02 ps. Driver wages 720 2,000 Km 0.36 ps. Total Cost Rs.1.61 ps. Proposal 1: Car taken on Hire basis Particulars Calculations Cost /Km Hire charges 800/ - 2,000 km 0.40 ps. Petrol 0.65 ps. - Oil 0.08 ps. - Tyres 0.07 ps. - Total Cost Rs ps. IPCC_31e_Costing (Problems) _ Operating Costing 15

16 Ph: Proposal - 2: Employee s own car Particulars Calculations Cost/km. Cost of interest Petrol Maintenance & Drivers wages 25,000 18% 24,000 Km ,000 Km 0.19 ps ps ps. Total Cost Rs.1.09 ps. Ranking of three proposals basing on Cost per Km. Particulars Cost per Km. Rank Existing Proposal 1.61ps III Proposal ps II Proposal ps I Decision: As cost per unit in proposal - 2 is less, it is better to accept that proposal. Problem No. 9 Particulars Present Situation Fare Reduction Proposal Number of Passengers 160 x 60% = 96 Given = 108 Gross Revenue per Flight Less: Variable Costs per Flight Fuel Food to Passengers 96x 7,200 = 6,91,200 96, x 125 = 12, x 6,720 = 7,25,760 96, x 125 = 13,500 Commission at 5% of Gross 34,560 36,288 Revenue Contribution per Flight Less: Fixed Costs per Flight Aircraft Lease Landing Charges 5,48,640 5,79,972 3,50,000 3,50,000 72,000 72,000 Net Operating Income per Flight 1,26,640 1,57,972 Decision: The Fare Reduction Proposal (and consequent increase in the number of passengers) will increase the Operating Income per Flight by Rs.1,57,972 - Rs.1,26,640 = Rs.31,332. Hence, the proposal is worthwhile. Problem No.10 Step-1: Calculation of total Absolute tonne Kms. P Q : 40 Kms. 10 tonne = 400 tonne Kms Q R : 60 Kms. 6 tonne = 360 tonne Kms R P : 80 Kms. 8 tonne = 640 tonne Kms Total =1400 tonne Kms. Absolute tonne Kms. =1,400 Step -2: Calculation of Commercial tonne Kms. Aggregate distance Average tonnage = ( ) = = 1440 tonne Kms. 3 Commercial tonne Kms. = 1440 THE END P 40km 10T Q 8 T 80km 60km 6T R IPCC_31e_Costing (Problems) _ Operating Costing 16

17 No.1 for CA/CWA & MEC/CEC MASTER MINDS 4. LABOUR-I time taken (or) actual time (Note) Standard out put Actual out put Rate per hour Standard time for 10 units Standard time for 600 units( Time saved (S-T) SOLUTIONS TO ASSIGNMENT PROBLEMS 600 units x1hour ) 10 units Problem No. 1 Earnings of worker Wage = time taken x rate per hour= 50 Hrs x 0.5 Bonus = 40% of time saved = (10 Hrs x 40%) x 0.5 Effective rate of earnings =( Note: Time taken: 50 Hrs 638 units 600 units Rs Hour 60 hours = = 10 Hours = Rs.25 = Rs.2 Rs.27 Earnings 27 = ) Time taken 50 = Rs.0.54 Monday Tuesday Wednesday Thursday Saturday 9 Hrs 9 Hrs 9 Hrs 9 Hrs 5 Hrs 50 Hrs Problem No. 2 Given, a. AT taken = 6 hrs b. S.T = 8 hrs c. T. S(b-a) = 2 hrs d. Rate per hour = ` 6 Copy Rights Reserved To MASTER MINDS, Guntur Calculation of total earnings: Earnings under halsey system = (T X R) + ½ (T. S X R) = 6 hrs. `6 + 1/2 (2 hrs. ` 6) = ` 36 + `6 = ` 42 T.S Earnings under rowan system = ( T XR) + (T XR) S.T = (6 X 6) +2/8 (6 X 6) = 36+9 = 45 IPCC_31e_Costing (Problems)_ Labour-I 17

18 Ph: Problem No. 3 Statement showing computation of effective hourly cost of employee X (i) Earning of Employee X : Per month Per annum Basic pay 1,000 12,000 Dearness Allowance 200 2,400 Bonus 240 2,880 Employer s contribution to provident fund (similar to employee s contribution) 120 1,440 Other allowance 250 3,000 (ii) Effective working hours : 1,810 21,720 Particulars Amount Annual working hours 2,400 Less : Normal idle time 400 Effective working hours 2,000 Effective hourly cost of X : Rs. 21,720/2, Problem No. 4 Particulars Y Z a. Actual production b. Piece work rate 1/- 1/- c. Wages 750/- 950/- d. Dearness 200/- 200/- e. % on bonus 75% 95% f. Amount on bonus - 750/- g. Total monthly remuneration (c+d+f) 950/- 1900/- Problem No. 5 a. Statement showing calculation of total burdento the employer and the net wages payable to the employee. Particulars Total A B C D 1. Gross wages (+) employer contribution to EPF(10% of wages) (+)employer contribution to ESI(5% of wages) Wages chargeable to job Employee contribution to PF Employee contribution to ESI Net wages payable to employee(1-2-3) IPCC_31e_Costing (Problems)_ Labour-I 18

19 No.1 for CA/CWA & MEC/CEC MASTER MINDS b. Total amount deposited by the employer in PF = 191 Total amount deposited by the employee in PF = c. Total amount deposited by the employer in ESI = 95.5 Total amount deposited by the employee in ESI = d. Calculation of total cost of job: Direct material 6000 Direct labour Direct expenses -- Prime cost (+)over head Total cost of job 12, Problem No Calculation of wages undeer extra output basis: Given standard time for 80 units = 1hr No.ofhrs per day = 8hrs Therefore standard production per day = 8hrs X 80units = 640units Actual production = 800 units Extra output = = 160 units 100units Rs.15 Bonus 160units? = 24 Wage earnings = Therefore labour cost for 100 units = X100 = Rs Calculation of wages under straight work basis: No.ofhrs per day = 8hrs Wages per day = Rs.50 Wages per hour = 50 = Rs.6.25 per hour Standard production for one hour = 80 units 6.25 Therefore piece rate = = Rs per unit 80units Earnings = 800 units X = Rs Labour cost of 100 units = 100 units X = Rs.7.80 Copy Rights Reserved To MASTER MINDS, Guntur 3. Calculation of earnings under halsey system: a. Given actual time = 8 hours 1hour 80units b. Standard time = 10 hours? 800units c. Total time saved (b-a) = 2 hours. Earnings = (T X R)+1/2(T X R) = (8 X 6.25) + ½ (2 X 6.25) = Rs IPCC_31e_Costing (Problems)_ Labour-I 19

20 Ph: Labour cost for 100 units = X100 = Rs Calculation of earnings under rowan system: T.S Earnings = (T X R) + (T XR) =(8 X 6.25) + 2/10(8 X 6.25) = Rs. 60 S.T Labour cost of 100 units = 60/80 X 100 = Rs.7.50 Problem No. 7 Given Rate per hour = Rs. 0.4 per unit, Piece rate = Rs. 0.3 per unit, Standard production per hour = 2 units Time taken = 40 hours Standard production for 40 hours = 80 units (40 X 2) Actual production for 40 hours (X) = 50 units (Y) = 80 units Particulars 1. Earnings (W.N 1) 2. Cost per piece Taylor Differential Merrick Differential Piece Rate Piece Rate Gantt s Task X Y X Y X Y ( % 80) (0.3 50) ( % 80) (40 0.4) (0.3 83% 50) 19.2 [16+(16 20%)] ( ) ( ) ( ) ( ) ( ) 80 ( ) W.N - 1: Efficiency = Actual production Standard production ; X = = 62.5%; Y = = 100% Given that, Time taken (T) = 8 hours Standard output per hour = 5 units Standard output for 8 hours = 40 units Rate per hour = Rs Actual output (X) = 25 units Actual output (Y) = 40 units Problem No. 8 Copy Rights Reserved To MASTER MINDS, Guntur Efficiency = Earnings Calculation of earnings and bonus under Emersion s system of plan Particulars Worker A Worker B Actual Production % % 100 Standard Production (8 X 6.25) 50 + (50 x 20%) Note- 1: Worker A has < 66.67% efficiency, therefore he get only time rate wages. Note- 2: Worker B has 100% efficiency, therefore he get 120% of time rate wages. IPCC_31e_Costing (Problems)_ Labour-I 20

21 No.1 for CA/CWA & MEC/CEC MASTER MINDS Problem No. 9 (i) Rowan Premium Plan: Rowan Premium Plan ` Normal wages (10 x 120) 1,200 D.A. for 15 days (30 x 15 ) 450 Bonus : T.S Hours Bonus hours XT S.T 150 Bonus (24 x 10) 240 Total Wages 1890 (ii) Emersion`s Efficiency Plan Normal Wages: Normal wages 1200 D.A. (15 x 30) Efficiency %= x100 = 125% 120 Rate of Bonus up to 100% 20% From 101% to 125% 25% 45 Bonus being 45% normal wages( x1200 ) % Total Wages Problem No. 10 Statement showing calculation of good unit, bonus and earnings Particulars X Y 1. Production 2. Standard Time per unit 189 units 20 Min (1)x(2) 63 hrs 3. Standard Time hrs 4. Actual Time 5. Time saved (3)-(4) 18 hrs 6. Rate per hour 2 84 (42 2) 7. Wages (Normal) 12 (3 4) 8. Wages (Over Time) Bonus (Over Time) [(5) X (6)] X 50% Earnings ( ) 11. Rejections Good units (1) - (11) Wage cost per good unit units 15 Min 51 hrs 39 hrs 12 hrs 2 84 ( x2) ( ) 200 In case of Y, wage cost per good units is calculated only for this job only i.e. only Rs. 90 are taken as his earnings. IPCC_31e_Costing (Problems)_ Labour-I 21

22 Ph: Problem No. 11 Given Standard time (S) = 90 hours. Rate per hour (R) = 50 Given effective rate of earnings = 60 Earnings(E) = 60 Time taken(t) Earnings = 60T Copy Rights Reserved To MASTER MINDS, Guntur We know that T.S Earnings = ( T XR) + (T XR) S.T 60T = T (50) + ( 90 T ) 50T 90 60T 50T 90 T = 50T 90 = 18 = 90 T T = =72 10T 90 T = 50T 90 Halsay system: E = TR + 40% (TS)R = 72 X % (18) 50 = = 3960 ERE= 3960/72 = 55. THE END IPCC_31e_Costing (Problems)_ Labour-I 22

23 No.1 for CA/CWA & MEC/CEC MASTER MINDS 5. LABOUR-II Total wages on time basis: SOLUTIONS TO ASSIGNMENT PROBLEMS Problem No. 1 A Rs. 8 = Rs. 200 B Rs. 6 = Rs. 180 C Rs. 5 = Rs. 200 Payment for the task Bonus: (Rs. 725 Rs. 580) = Rs. 145 Or, 25% of the time-basis wages. = Rs. 725 Earnings of each worker Worker Wages Time Basis Group task bonus 25% Total A B C Problem No. 2 Average no. of workers No.of wor ker s at thebegining + No.of wor ker sat the end = = 2 = 950 Separations = left + discharged = = 50 Replacements = 25 New recruitments = = 125 a. Separation method No.of separations = X100 Avg.No.of wor ker s 50 = X100 = 5.26% Copy Rights Reserved 950 To MASTER MINDS, Guntur No. of Replacements b. Replacements method = X100 Avg.No.of wor ker s 25 = X100 = 2.63% 950 c. Recruitment method Re cruitments(other than replacements) = X100 Avg.No.of wor ker s 125 = X100 = 13.15% 950 d. Accessions method Re cruitments + Replacements = X100 Avg.No.of wor ker s = X100 = 15.78% 950 IPCC_31e_Costing (Problems) _ Labour-II 23

24 Ph: e. Flux method Separation s + Replacements Alteration method. I = X100 Avg.No.of wor ker s = X100 = 7.89% 950 Separation s + Replacements+ NewRecruitments Alteration method. II = X100 Avg.No.of wor ker s = X100 = 21.05% 950 Problem No. 3 Calculation of labour turnover rate: 1. Separation method: Number of workers separated during the year Labour turnover rate = X 100 Average number of workers on rolls during the year 600 = X 100 = 6.82% 8800 Average Number of workers separated during the year =Number of workers left the company during the year + Number of workers discharged during the year = = 600. Average number of workers on rolls during the year = X = 8, Replacement Method: Number of workers replaced during the year Labour turnover rate = Average number of workers on rolls during the year X 100 = 700 X =7.95% 3. Flux Method: Labour turnover rate = Number of workers separated + Number of workers replaced X 100 Average number of workers on rolls during the year = X = 14.77% Problem No. 4 Calculation of total contribution: Contribution = sales X p/v ratio = 83,03,300 X 20% = 16,60,660 Calculation of productive hours: Copy Rights Reserved To MASTER MINDS, Guntur No. of hours worked 4,45,000 (-) unproductive hours due to training (30,000 hr x 50%) (15,000) Production hours 4,30,000 IPCC_31e_Costing (Problems) _ Labour-II 24

25 No.1 for CA/CWA & MEC/CEC MASTER MINDS Calculation of total unproductive hours: (a) Hours lost due to training = 15,000 (b) Hours lost due to delayed replacements = 1,00,000 1,15,000 Contribution forgone = 4,44,130 4,30,000 hrs - 16,60,660 1,15,000 hrs - -? Calculation of labour turnover cost: Contribution forgone (profit forgone) = 4,44,130 (+) settlement + recruitment + selection + training costs = 43, , , ,490 Total = 5,57,930 Assuming that if 15,000 hrs due to training has been included in 1,00,000 hrs so that 4,30,000hr 16,60,660 Contribution forgone = 3,86,200 1,15,000hrs? Total labour turnover cost = 4,44, , , , ,490 = 5,57,930 Problem No. 5 Given, Standard production per hour = 200 Pieces No.of hours worked = 500 hours Standard Production for 500 hours = 500 x 200 = 1,00,000 Pieces Actual Production = 1,20,000 Pieces Excess Production = 1,20,000 1,00,000 = 20,000 Pieces % of Excess production over standard = 20,000 x100 1,00,000 =20% Bonus % = 20% x ½ = 10% Copy Rights Reserved Bonus amount = (500 hours x 2) x 10% = Rs.100 To MASTER MINDS, Guntur Calculation of total earning of worker A&B:- Particulars A B Basic Wages (44 hours x 2.20) Bonus 8.80 (100/500 hours x 44 hours) (48 hours x 1.90) 9.60 (Rs.100/500 hours x 48 hours) Total IPCC_31e_Costing (Problems) _ Labour-II 25

26 Ph: Problem No. 6 Particulars A B C Total 1. Basic Wages 40 x Rs.75 = 60 x Rs.80 = 44 x Rs.50 = Rs.10,000 Rs.3,000 Rs.4,800 Rs.2, Bonus (Rs apportioned in the Rs.1,500 Rs.2,400 Rs.1,100 Rs.5,000 (bal. fig) ratio of Basic wages ( 30 : 48 : 22) 3. Total Wages ( 1+2) Rs.4,500 Rs.7,200 Rs.3,300 Rs.15, Number of hours 40 hours 60 hours 44 hours worked 5. Effective Wages per hour (3 4) Rs Rs Rs Note: Group Bonus of Rs.5,000 (i.e. Total Rs.15,000 less Time Basic Wages Rs.10,000) shall be apportioned in the ratio of Time Basic Wages itself, in order to recognize both factors viz. effort (days worked) and efficiency (wage rate per day). Problem No. 7 Given Standard time per piece before use of Jig = 80 minutes Calculation of total time reduced and award payable to employee Effective ratio = 80% ST AT = 80% 80min AT = 80% AT = 100 Min After use of jig the standard time will reduce by 8 minutes. Revised standard time = 80 min 8 min =72 min Efficiency ratio = 80% ST AT = 80% 72Min AT = 80% AT = 72 80% = 90 Min Copy Rights Reserved To MASTER MINDS, Guntur Reduction in actual time per unit = 100 min 90 min = 10 min/ unit Total time reduced = units X 10Min 60Min 160 Labour cost saved = 2500 X ( ) 8h = Rs. 50,000 Award payable to employee = 50,000 X 1.5 m 12m = Rs.6250 = 2500 hrs THE END IPCC_31e_Costing (Problems) _ Labour-II 26

27 No.1 for CA/CWA & MEC/CEC MASTER MINDS 6. OVERHEADS - 1 Primary Distribution of Overheads: Item Basis SOLUTIONS TO ASSIGNMENT PROBLEMS Total Amount (Rs.) PROBLEM NO.1 Production Departments Service Departments X (Rs.) Y (Rs.) Z (Rs.) A (Rs.) B (Rs.) Indirect Material Actual 1,25,000 20,000 30,000 45,000 25,000 5,000 Indirect Labour Actual 2,60,000 45,000 50,000 70,000 60,000 35,000 Superintendent s Salary Fuel & Heat Power Rent & Rates Insurance Meal Charges Depreciation Actual 96, , Radiator Sections {2:4:6:5:3} Kilowatt Hours {7:8:6:3:0} Area (Sq. ft.) {22:20:15:12:6} Capital Value of Assets {4:6:5:1:2} No. of Employees {6:7:12:3:2} Capital Value of Assets {4:6:5:1:2} 15,000 1,500 3,000 4,500 3,750 2,250 1,80,000 52,500 60,000 45,000 22,500-1,50,000 44,000 40,000 30,000 24,000 12,000 18,000 4,000 6,000 5,000 1,000 2,000 60,000 12,000 14,000 24,000 6,000 4,000 2,70,000 60,000 90,000 75,000 15,000 30,000 Total overheads 11,74,000 2,39,000 2,93,000 3,94,500 1,57,250 90,250 Re-distribution of Overheads of Service Department A and B: Total overheads of Service Departments may be distributed using simultaneous equation method. Let, the total overheads of A = a and the total overheads of B= b a = 1,57, b (i) or, 10a - b = 15,72,500 [(i) x10] b = 90, a (ii) or, -0.20a + b = 90,250 10a - b = 15,72, a + b = 90, a = 16,62,750 a = 1,69,668 Putting the value of a in equation (ii), we get b = 90, x 1,69,668 b = 1,24,184 IPCC_32e_Costing (Problems)_Overheads-I 27

28 Ph: Secondary Distribution of Overheads Particulars Production Departments X (Rs.) Y (Rs.) Z (Rs.) Total overhead as per primary distribution 2,39,000 2,93,000 3,94,500 Service Department A (80% of 1,69,668) 50,900 50,900 33,934 Service Department B (90% of 1,24,184) 31,046 49,674 31,046 Total 3,20,946 3,93,574 4,59,480 PROBLEM NO.2 Primary over head distribution method Particulars Basis Total P 1 P 2 S 1 S 2 Direct material Given 30, ,000 20,000 Direct labour Given 30, ,000 10,000 Over Heads Given 1,80,000 80,000 50,000 30,000 20,000 Power Department Cost Variable Actual KWH(13:23:10.25:10) 84,375 19,500 34,500 15,375 15,000 Fixed Normal capacity (20:35:12.5:17.5) 37,500 8,824 15,441 5,514 7,721 Total OH 1,08,324 99,941 80,889 72,721 Secondary over head distribution method(simultaneous equation method) Particulars Basis P 1 P 2 S 1 S 2 Total OH As computed 1,08,324 99,941 80,889 72,721 Apportionment of S 1 OH 5:4:-:1 48,691 38,952 (97,381) 9,738 Apportionment of S 2 OH 3:1:1:- 49,475 16,492 16,492 (82459) Total OH 2,06,490 1,55, Let S 1 be total OH of service dept. - 1 S 2 be total OH of service dept. - 2 S 1 = 80,889+20% S (1) S 2 = 72,721+10% S (2) By substituting equation (2) in equation (1) S 1 = 80,889+20% (72,721+10% S 1 ) = 80, , S S 1 = 95,433 S 1 = 97,381 By substituting equation (1) in equation (2) S 2 = 72,721+10% (97,381) = 72,721 +9,738 = 82,459 Particulars P 1 P 2 a. Total OH 2,06,490 1,55,385 b. Labour hrs 19,000(95,000/5) 12,500(50,000/4) c. OHRR(a/b) Rs per LH Rs per LH IPCC_32e_Costing (Problems)_Overheads-I 28

29 No.1 for CA/CWA & MEC/CEC MASTER MINDS (i) Cost Driver Allocation percentage Percent used: PROBLEM NO.3 Factory office dept.: Snowmobile engine Boat engine Maintenance dept: Snowmobile engine Boat engine 80% 20% 75% 25% (ii) Secondary Overhead distribution statement: (Direct method): Particulars Basis Snow mobile engine dept Boat engine department Factory office Maintenance Total Overhead Given 6,00,000 17,00,000 3,00,000 2,40,000 Apportionment of Factory office Overhead Apportionment of maintenance dept Overhead 80% ; 20% 2,40,000 60,000 (3,00,000) 75% ; 25% 1,80,000 60,000 (2,40,000) Total Overhead 10,20,000 18,20, (iii) Cost Driver Allocation percentage: Factory office dept.: Snowmobile engine Boat engine Maintenance dept Maintenance dept: Snowmobile engine Boat engine Particulars Percent used 72% 18% 10% 75% 25% (iv) Secondary Overhead distribution statement: (Step ladder method): Particulars Basis Snow mobile engine dept Boat engine department Factory office Maintenance Total Overhead Given 6,00,000 17,00,000 3,00,000 2,40,000 Apportionment of 72 :18 :10 2,16,000 54,000 (3,00,000) 30,000 Factory office Overhead 8,16,000 17,54,000-2,70,000 Apportionment of 75%: 25% 2,02,500 67,500 - (2,70,000) maintenance dept Overhead Total Overhead 10,18,500 18,21, IPCC_32e_Costing (Problems)_Overheads-I 29

30 Ph: Working notes: PROBLEM NO.4 1. Computation of total cost of jobs 1,07,325 Total cost of Job 1102 when 8% is the profit on cost = x100 = Rs.99, ,57,920 Total cost of job 1108 when 12% is the profit on cost = x100 = Rs.1,41, Factory overheads = F% of direct wages Selling & Administrative overheads = A% of factory cost (i) Computation of rates of factory overheads and selling and administration overheads to be charged. Jobs Cost Sheet Particulars Job 1102 (Rs.) Job 1108(Rs.) Direct materials 37,500 54,000 Direct wages 30,000 42,000 Prime cost 67,500 96,000 Add: Factory overheads 30,000F 42,000F Factory cost (Refer to Working note 2) (67, ,000 F) (96, ,000 F) Add: Selling and Administration Overheads(Refer to Working note 2) (67, ,000 F) A (96, ,000 F) A Total cost (67, ,000 F) (1+ A) (96, ,000F) 1+A) Since the total cost of jobs 1102 and 1108 are equal to Rs.99,375 and Rs.1,41,000 respectively, therefore we have the following equations (Refer to working note 1) (67, ,000 F) (1 + A) = 99,375 (1) (96, ,000 F) (1 + A) = 1,41,000 (2) or 67, ,000 F + 67,500 A + 30,000 FA = 99,375 96, ,000 F + 96,000 A + 42,000 FA = 1,41,000 or 30,000 F + 67,500 A + 30,000 FA = 31,875 (3) 42,000 F + 96,000 A + 42,000 FA = 45,000 (4) On solving (3) and (4) we get : A = 0.25 and F = 0.40 Hence A = 25% and F = 40% (ii) Selling price of the new order: Particulars (Rs.) Direct materials 64,000 Direct wages 50,000 Prime cost 1,14,000 Factory overheads (40% Rs.50,000) 20,000 Factory cost 1,34,000 Selling & Admn. Overheads (25% Rs.1,34,000) 33,500 Total cost 1,67,500 If selling price of new order is Rs.100 then Profit is Rs.20 and Cost is Rs.80 1,67,500 Hence selling price of the new order = x100 = Rs.2,09, IPCC_32e_Costing (Problems)_Overheads-I 30

31 No.1 for CA/CWA & MEC/CEC MASTER MINDS PROBLEM NO.5 i. 9,00,000 Fixed overhead rate = = 6 1,50,000 VOH rate = 4 Single OH rate/ total OH rate = 10 OH allocation for cutting dept. = 6,00,000 OH allocation for welding dept. = 4,00,000 10,00,000 ii. Overhead allocation on dual rate: Particulars FOH VOH Total OH Fixed / variable rate 6 4 Cutting dept. 5,40,000(90,000 X 6) 2,40,000(60,000 X 4) 7,80,000 Welding dept. 3,60,000(60,000 X 6) 1,60,000(40,000 X 4) 5,20,000 Total 9,00,000 4,00,000 13,00,000 iii. Overhead allocation on dual rate based on A.H: Particulars FOH VOH Total OH Rate per hour 6 4 Cutting dept.(60,000 hrs) 3,60,000 2,40,000 6,00,000 Welding dept.(40,000 hrs) 2,40,000 1,60,000 4,00,000 Total 6,00,000 4,00,000 10,00,000 iv. Comments: Under dual rate method, under (iii) and single rate method under (i), the allocation of fixed cost of practical capacity of plant over each department are based on single rate. The major advantage of this approach is that the user departments are allocated fixed capacity costs only for the capacity used. The unused capacity cost Rs. 3,00,000 (Rs. 9,00,000 Rs. 6,00,000) will not be allocated to the user departments. This highlights the cost of unused capacity. Under (ii) fixed cost of capacity are allocated to operating departments on the basis of practical capacity, so all fixed costs are allocated and there is no unused capacity identified with the power plant. THE END IPCC_32e_Costing (Problems)_Overheads-I 31

32 Ph: OVERHEADS - II SOLUTIONS TO ASSIGNMENT PROBLEMS PROBLEM NO.1 Particulars Production (Units) Semi Variable Cost (Rs.) Quarter I 36,000 2,80,000 Quarter II 42,000 3,10,000 Difference 6,000 30,000 Change in Semi Variable Cost 30,000 Variable Cost per Unit = = = Rs.5 per units Change in Pr oduction 6,000 units Total Fixed Cost = Semi Variables Cost (Production x Variable Cost per Unit) Total fixed cost in Quarter I: = 2,80,000 (36,000 5) = 2,80,000 1,80,000 = 1,00,000 Total fixed cost in Quarter II: = 3,10,000 (42,000 5) = 3,10,000 2,10,000 = 1,00,000 PROBLEM NO.2 Absorbed overheads = Actual Man days x Rate = 1,50,000 x 50 = Rs. 75,00,000 Under absorption of overheads = Actual overheads Absorbed overheads = 79,00,000 75,00,000 = Rs. 4,00,000 Reasons for under absorption: 1. Defective Planning 4,00,000 x 60% = Rs.2,40, Increase in overhead cost 4,00,000 x 40% = Rs.1,60,000 Treatment in Cost Accounts: i. The unabsorbed overheads of Rs. 2,40,000 on account of defective planning to be treated as abnormal and thus be charged to costing profit & loss account. ii. The balance of unabsorbed overheads i.e. Rs. 1,60,000 be charged as below on the basis of supplementary overhead absorption rate Supplementary Rate = Rs. 1,60,000 / (30, , % of 10,000) = Rs. 4 per unit a. To cost of sales Account = 30,000 x4 Rs. 1,20,000 b. To finished stock account = 5,000 x 4 Rs. 20,000 c. To WIP account = 50% of 10,000 x 4 Rs. 20,000 Rs. 1,60,000 IPCC_31e_Costing (Problems)_Overheads-II 32

33 No.1 for CA/CWA & MEC/CEC MASTER MINDS Particulars PROBLEM NO.3 Calculation of Under Recovery of Overhead Amount Manufacturing overheads incurred 8,50,000 Less: Manufacturing Overheads recovered 7,50,000 Under recovery of Overhead 1,00,000 Treatment of Under Recovery of Overhead can be done in 3 Methods: Method 1: Carry forward to subsequent years: Assuming that the industry is a seasonal one (or) a newly started one, it is appropriate to carry forward the under recovery of overheads. Therefore, Effect on Profits isnil. Method 2: Transfer to Profit and Loss Account: Assuming that, the under recovery has resulted due to abnormal reasons the loss has to be taken to Costing Profit and Loss Account. Therefore, Effect on Profits is that they will decrease by Rs. 1,00,000. Method 3: Use of Supplementary Rate: Supplementary Rate = Underrecov ery Actualbase = 1,00,000 24,00,000 = Rs /- Under Recovery adjusted towards Finished Goods = Rs, 4,80,000 X = Rs. 20,000 (approx.) Under Recovery adjusted towards Work-In-Progress = Rs. 2,40,000 X = Rs. 10,000 (approx.) Under Recovery adjusted towards Cost of Goods Sold =Rs.16,80,000 X = Rs. 70,000 (approx.) Therefore, Effect on Profits is that they will decrease by Rs.40,000 (70,000 20,000 10,000). PROBLEM NO.4 Calculation of Predetermined Machine Hour Rate Basis of Particulars Total A B apportionment Power 75:60 (W.N-1) 15,000 8,333 6,667 3,300 6,600 Spare parts 9,900 (3,000 X 110%) (5,000X110%X120%) Consumables 5,000 2,000 3,000 12,000 24,000 12% on cost SLM Depreciation 36,000 10,000 20,000 Basis 12% 12% 10% 10% Insurance 1:2 (W.N 2) 3,000 1,000 2,000 Indirect labour Direct labour hrs 18,400 27,600 46,000 (2:3) (W.N 3) (40KX115%X2/5) (40,000X115%X3/5) Building maintenance Floor space 3:4 7,000 3,000 4,000 Total (A) 48,033 73,867 Machine hrs (B) 25,000 30,000 Machine Hour Rate (A/B) IPCC_31e_Costing (Problems)_Overheads-II 33

34 Ph: W.N-1: Calculation of Kilo Watt hours Ratio Department KW Rating (1) Machine hours (2) Total (1x2) A 3 25,000 75,000 B 2 30,000 60,000 W.N-2: Insurance on machinery (to be apportioned on the basis of cost) Value of Machinery of Department A = Value of Machinery of Department B = 10,000 10% 20,000 10% = Rs. 1,00,000 = Rs. 2,00,000 WN-3: Calculation of Revised Indirect Wages: Particulars Amount Indirect Wages estimated 40,000 Add: General increase in indirect wages 6,000 Revised Indirect Wages 46,000 PROBLEM NO.5 No. of machine/hrs = 200 X 75% =150hours Calculation of total cost relating to machine: Depreciation of machine (1,08,000X10%X1/12) 900 Power 1,500 Supervision charges 3,000 Electricity 1,500 R&M 1,500 Insurance of P&M 12,000 Other general expenses 10,800 Wages(w.n.1) 3,727 Total cost 34,927 Computation of machine hour rate = Computation of wages payable to worker: 34, hrs = Rs.233per machine a. Wages for 8 hrs (40+12) 52 b. No. of working hours for the month (assumed that worker worked for 200 hrs) 200 hrs c. Basic wages 1,300 d. D.A(100% of C) 1,300 e. BASIC + D.A 2,600 f. Bonus(1/3 on 2,600) 867 g. Leave with pay (10% on 2,600) 260 Total 3,727 IPCC_31e_Costing (Problems)_Overheads-II 34

35 No.1 for CA/CWA & MEC/CEC MASTER MINDS PROBLEM NO.6 Computation of machine hour rate of new Machine: Total (Rs.) A. Standing Charges: 1,000 1 I. Insurance Premium 9,000X 9 1 II. Re nt X2,400X12 10 B. Machine expenses: 2,880 Per hour (Rs.) 3, * I. Repairs and Maintenance [5,000/4,000] 1.25 II. Depreciation 10,00,000 10, X4,000 III. Electricity 8 units x Rs Machine hour rate Working Note: 1 Calculation of productive Machine hour rate Total hours 4,200 Less: Non-Productive hours 200 4,000 * 3,880/ 4000 = Computation of Productive Machine Hours: PROBLEM NO.7 (a) Possible Operating Hours Per month = [ ]Rs. (b) Set Up Hours (given as productive, but does not require Power) Total Product Hours 180 hours 20 hours 200 hours 2. Statement of Overheads for a month: Particulars Computation Rs. Depreciation (Rs.5,00,000 - Rs. 20,000) X 1/10 th X 1/12 4,000 Repairs and Maintenance Rs. 60, months 5,040 Consumable Stores Rs. 47, months 3,960 Building Rent [Rs. 72,000 X 1/6 th ] 12 months 1,000 Supervisor s Salary Rs. 6,000 3 machines 2,000 Operator s wages Given 2,500 Lighting Given 1,000 These Overheads relates to total time of 200 hours. Hence, General OH Rate per hour = Rs. 19, Hrs = Rs per hour. IPCC_31e_Costing (Problems)_Overheads-II 35

36 Ph: Computation of Comprehensive Machine Hour Rate: Component of Time Set up Operation General Overhead per hour as per above Power Cost per hour Total Machine Hour Rate Fixed expenses per month PROBLEM NO.7 Rent (one fourth of the total) Lighting (one fifth of the total) Foreman s salary (one sixth of the total) Sundry expenses oil, waste etc Insurance (1% on the value of the machine per year) 8.33 Total constant expenses per month Total number of hours per annum 4,380 Total number of hours per month 365 Rs Fixed expenses per hour = 365hrs Variable expenses per hour: Depreciation: Cost of the machine 10,000 Less: Scrap value 900 9,100 Depreciation per annum 910 Depreciation per hour = (Rs.) ,380hrs Repairs for the whole life 18,000 for one hour Rs.18, ,380X10years Electricity for one hour : P Machine hour rate PROBLEM NO.9 Calculation of OHRR for each machine (without use of crane): Particulars A B C a. Over heads b. Machine hrs 588 ( ) 707( ) 480 ( ) c. OHRR(a/b) Over heads per machine to be added for above OHRR when crane is used = 570 ( ) THE END = 570 = Rs.0.74 per machine 770h IPCC_31e_Costing (Problems)_Overheads-II 36

37 No.1 for CA/CWA & MEC/CEC MASTER MINDS 8. PROCESS COSTING SOLUTIONS TO ASSIGNMENT PROBLEMS Problem.1 Process I A/c Particulars Units (Rs.) Particulars Units (Rs.) To Raw material used 7,500 4,50,000 By Normal loss(5% of 375 4,688 (@Rs.60) 7,500) To Direct wages 1,35,750 By Process II Rs ) 7,050 6,82,403 To Direct expenses 81,450 By Abnormal loss (@Rs ) 75 7,259 To Manufacturing overhead 27,150 7,500 6,94,350 7,500 6,94, ,350-4,688 6,89,662 Transfer price in Process I A/c = = = ` p.u. 7,500units units 7125 units Process II A/c Particulars Units (Rs.) Particulars Units (Rs.) To Process I Rs ) 7,050 6,82,403 By Normal loss(10% of 7,050 units) ,438 To Direct wages 1,29,250 By Finished Stock Rs ) 6,525 9,13,825 To Direct expenses 84,013 To Manufacturing overhead 19,387 To Abnormal gain(@ Rs ) ,210 7,230 9,40,263 7,230 9,40,263 9,15,053-26,438 8,88,615 Transfer price in Process II A/c = = = ` p.u. 7,050 units units 6345 units Finished Goods Stock A/c Particulars Units (Rs.) Particulars Units (Rs.) To Process II A/c(transfer By Cost of Rs ) 6,525 9,13,825 6,000 8,40,300 By Balance c/d ,525 6,525 9,13,825 6,525 9,13,825 Income Statement Particulars (Rs.) Particulars (Rs.) To Cost of sales(6,000 Rs ) 8,40,300 By Abnormal gain Process II A/c 180 units(rs Rs.37.50) 18,459 To Abnormal loss Process I 75 units(rs Rs.12.50) 6,322 By Sales (6,000 Rs ) 9,66,360 To Net Profit 1,38,197 9,84,819 9,84,819 IPCC_31e_Costing (Problems)_Process Costing 37

38 Ph: Problem.2 Process A Account Units Amount(Rs.) Units Amount(Rs.) To Input By Normal Loss (5%) To Direct Wages By Abnormal loss@ To Direct Exp By Process B A/C To overheads(1:2) 5800 By Profit and Loss A/C Cost of abnormal Loss in process A = = = per unit Process B A/C Units Amount(Rs.) Units Amount(Rs.) To Process A A/C By Normal Loss (5%) To Direct Wages By Finished stock A/C or Profit & loss A/C To Direct Exp To overheads (1:2) To Abnormal gain Cost of Abnormal gain = = = Working: Profit & Loss A/c Particulars Amount(Rs.) Particulars Amount(Rs.) To Cost of Sales: By Sales: Process A(2,500@12.50) 31,250 Process A (2500 x 15) - 37,500 Process B(4,800@21.80)1,04,640 1,35,890 Process B (4800 x 25) - 1,20,000 1,57,500 To Abnormal Loss: Process A [( To Selling expenses 5,000 To Net Profit 19,100 By Abnormal gain: Process B [(300 ( )] ,61,040 1,61,040 Note: 1. As mentioned selling expenses are not allocable to process which is debited directly to the P/L A/c. 2. It is assumed that Process A and Process B are not responsibility centers and hence, Process A and Process B have not been credited to direct sales. P/L A/c is prepared to arriving at profit/loss. IPCC_31e_Costing (Problems)_Process Costing 38