Unit Costing & Reconciliation Question : 1 (Nov, 2003) CA Past Years Exam Question A fire occurred in the factory premise on 31 st October of a year. The accounting records have been destroyed. Certain accounting records kept in another building, reveal the following for the period 1 st September to 31 st October. Direct material purchased ` 2,50,000 Sales revenues ` 7,50,000 Work in process inventory on 1 st September ` 40,000 Direct labour ` 2,22,250 Direct material inventory on 1 st September ` 20,000 Prime costs ` 3,97,750 Finished goods inventory on 1 st September ` 37,750 Cost of goods available for sale ` 5,55,775 Indirect manufacturing costs 40% of conversion costs Gross margin percentage based on revenues The loss is fully covered by insurance. The insurance company wants to know the historical cost of the inventories as a basis for negotiating settlement, although the settlement is actually to be based on replacement cost, not historical cost. You are required to compute the following items as on 31 st October:- 1. Finished goods inventory 2. Work in process inventory 3. Direct materials inventory Question : 2 (May, 2009) Bright Shoe Polish Company manufactures Black and Brown Polish in one standard size of tin selling at ` 12.00 and ` 13.30 respectively. Following information is supplied to you Opening stock Closing stock Sales Black Polish 2,400 tins 5,400 tins 72,000 tins Brown Polish 8,00 tins 3,00 tins 30,000 tins Cost details: Direct Materials Direct Wages ` 2,04,000 Polish ` 2,46,000 Production overhead ` 3,06,000 Tins ` 1,20,000 Selling overhead ` 1,02,000 The opening stock of black and brown polish was valued at its production cost. The per unit cost of raw materials for brown polish is 10% higher than that for black, but there is no difference in the cost of tins. Direct wages per unit for brown polish are 8% higher than those of black polish and production overhead are considered to vary with direct wages. Selling overhead is absorbed at a uniform rate per tin of polish sold. You are required to prepare a statement to show the cost and profit. Question : 3 (May, 2008) SK Engineering Company limited manufactures two types of auto bearing Type XD and Type XE. The company s records show the following particulars for those bearings for the month of May Direct materials Direct labour Production overheads Office overheads Amount in ` 38,10,000 20,10,000 6,03,000 6,42,300 There was no work-in-progress at the beginning or at the end of the month. It was ascertained that (a) Direct material cost per bearing for type XD was 160% of those for type XE (b) Direct labour cost per bearing for type XE was 40% of those for type XD. (c) Selling and distribution overheads were ` 2 per bearing sold for each type. 30% Page No. 1
(d) Productions overhead were absorbed based on direct labour cost and offices overhead were absorbed on the basis of factory cost. (e) Stock of finished bearings on 1 st May was 15,000 bearings at ` 15 of type XD and 20,000 bearings at ` 8 of type XE (f) Production during May month was 2,70,000 bearings of type XD and 3,30,000 bearings of type XE. Out of May s output, 25,000 bearings of type XD and 40,000 bearings of type XE remained in stock on 31 st May which was valued at cost of production. Prepare cost sheet showing the selling price at which the bearings would be marketed, if the company desired 20% profit on selling price. Question : 4 (May, 2010) A company produces a machine and sells it for ` 3,000. There is an increase of 20% in the cost of material, 10% in labour, and 10% in overhead cost. The only figures available are that material cost is 50% of cost of sales, labour cost is 30% of cost of sales and overhead cost is 20% of cost of sales. The anticipated increased cost in relation to the present sales price would cause a 30% decrease in the amount of the present gross profit. What would be the selling price of the machine to give the same percentage of gross profit as before? Question : 5 (Nov, 2008) In a manufacturing company, factory overheads are charged as fixed percentage basis on direct labour and office overheads are charged on the basis of percentage of factory cost. The following data is available for the year ending 31 st March Product A Product B Direct materials ` 19,000 ` 15,000 Direct labour ` 15,000 ` 25,000 Sales ` 60,000 ` 80,000 Profit 25% on cost 25% on sales price Find out: (a) Percentage of factory overhead on direct labour, and (b) Percentage of office overhead on factory cost. Question : 6 (May, 2008) A factory incurred the following expenditure during last year Direct material consumed 12,00,000 Manufacturing wages 7,00,000 Manufacturing overhead: Fixed 3,60,000 Variable 2,50,000 6,10,000 Total 25,10,000 In the next year, the following changes are expected in production and cost of production:- (a) Production will increase due to recruitment of 60% more workers in the factory. (b) Overall efficiency will decline by 10% on account of recruitment of new workers. (c) There will be an increase of 20% in fixed overhead and 60% in variable overhead. (d) The cost of direct material will be decreased by 6%. (e) The company desires to earn a profit of 10% on selling price. Ascertain the cost of production and selling price for the next year. Page No. 2
Question : 7 (Nov, 2008) Maximum production capacity of JK Ltd is 5,20,000 units per annum. Details of estimated cost of production are (a) Direct material ` 15 per unit. (b) Direct wages ` 9 per unit (subject to a minimum of ` 2,50,000 per month) (c) Fixed overheads ` 9,60,000 per annum. (d) Variable overheads ` 8 per unit. (e) Semi-Variable overheads are ` 5,60,000 per annum up to 50% capacity and additional ` 1,50,000 per annum for every 25% increase in capacity or a part of it. JK Limited worked at 60% capacity for the first 3 months during the year, but it is expected to work at 90% capacity for the remaining nine months. The selling price per unit was ` 44 during the first 3 months. Calculate what selling price per unit should be fixed for the remaining nine months to yield a total profit of ` 15,62,500 for the whole year. Question : 8 (Nov, 2005) A re-roller product 400 metric tons of MS bars spending ` 36,00,000 towards material and ` 6,20,000 towards rolling charges. Ten percent of the output was found to be defective, which had to be sold at 10% less than the price for good production. If the sales realization should give the firm an overall profit of 12.5% on cost, find the selling price per metric ton of both the categories of bars. The scrap arising during the rolling process fetched a realization of ` 60,000. Question : 9 (May, 2006) XYZ Auto Ltd is in the business of selling cars. It also sells insurance and fiancé as part of its overall business strategy. The following information is available for the company Physical Units Sales Value Sales of cars 10,000 cars ` 30,000 lakhs Sales of insurance 6,000 policies ` 1,500 lakhs Sales of finance 8,000 loans ` 19,200 lakhs The revenue earnings from each line of business before expenses are as follows: Sale of cars: 3% of sales Value Sale of insurance: 20% of sales value Sale of finance: 2% of sales value Salesman salaries ` 200 lakhs Documentation cost per insurance policy ` 100 Rent ` 100 lakhs Documentation cost for each loan ` 200 Electricity ` 100 lakhs Direct sales expenses per car ` 5,000 Advertising ` 200 lakhs Indirect costs have to be allocated in the ratio of physical units sold. You are required (a) Make a cost sheet for each product allocating the direct and indirect costs. And also showing the product-wise profit and total profit. (b) Calculate the percentage of profit to revenue earned from each line business. Note: For a dealer in cars, insurance policies and loans, the entire sales value of the products/services do not constitute its income. Only the commission portion thereof (called revenue earnings in this question), constitutes dealer s income. Page No. 3
Question : 10 (Nov, 1998) Arun limited has capacity to produce 1,00,000 units of a product every month. Its works cost at varying levels of production is as under: - Level (%) 10 20 30 40 50 60 70 80 90 100 Works cost per unit (`) 400 390 380 370 360 350 340 330 320 310 Its fixed administration expenses amount to ` 1,50,000 and fixed marketing expenses amount to ` 2,50,000 per month respectively. The variable distribution cost amounts to ` 30 per unit. It can market 100% of its output at ` 500 per unit provided it incurs the following further expenditure. (a) It gives gift items costing ` 30 per unit of sale, (b) It has luck draws every month giving first prize of ` 50,000, second prize of ` 25,000, third prize of ` 10,000 and three consolation prize of ` 5,000 each to customers buying the product, (c) It spends ` 1,00,000 on refreshments served every month to its customers, and (d) It sponsors a television program every week at a cost of ` 20,00,000 per month. It can market 30% of its output at ` 550 per unit without incurring any of the expenses referred to in (a) to (d) above. Advise the company on its course of action. Show the supporting cost sheets. Question : 11 (Nov, 2004) Popeye Company is a metal and wood cutting manufacturing, selling products to the home construction market. Consider the following data for the month of October, 2004: Sandpaper 5,000 Material-handling costs 1,75,000 Lubricants and Coolants 12,500 Miscellaneous indirect manufacturing labour 1,00,000 Direct manufacturing labour 7,50,000 Direct materials, October 1, 2004 1,00,000 Direct materials, October 31, 2004 1,25,000 Finished goods, October 1, 2004 2,50,000 Finished goods, October 31, 2004 3,75,000 Work - in -progress, October 1, 2004 25,000 Work - in - progress, October 31, 2004 35,000 Plant - leasing costs 1,35,000 Depreciation - plant equipment 90,000 Property tax on plant equipment 10,000 Fire insurance on plant equipment 7,500 Direct material 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 You are required to:- 1. Prepare an income statement with a separate supporting schedule of cost of goods manufactured. 2. For all manufacturing items, indicate by V or F whether each is basically a variable cost or a fixed cost (where the cost object is a product unit). Page No. 4
Question : 12 (Nov, 2006) A manufacturing company has an installed capacity of 1,50,000 units per annum. Its cost structure is given below: Variable cost per unit: Materials 10 Labour (subject to a minimum ` 1,00,000 per month) 10 Overheads 4 Fixed overhead per annum 1,92,3000 Semi - variable overheads per annum at 75% capacity (it will increase by ` 4,000 per annum for increase of every 5% of the capacity utilization or any part thereof) 60,000 The capacity utilization for the next year is budgeted at 75% for the first three months, 80% for the next six months and 90% for the remaining three months. You are required to:- If the company is planning to have a profit of 20% on the selling price, calculate the selling price per unit for the next year. Question : 13 (Nov, 2009) The following information is available in the financial accounts of a manufacturing company for the year ending 31 st March, 2009: Direct material consumption 3,55,000 Direct wages 3,60,000 Manufacturing expenses 2,45,000 Office and administrative expenses 2,40,000 Selling and distribution expenses 2,00,000 Donation and charity 20,000 Interest on debentures 48,000 Preliminary expenses (written off) 20,000 Provision for income tax 75,000 Interest received on deposits 25,000 Sales : 1,80,000 units 16,20,000 Closing stock of finished goods: 30,000 units 1,50,000 The cost accounts reveals:- (a) Manufacturing overheads recovered at 80% on direct wages. (b) Office and administrative overheads at 25% on factory cost. (c) Selling and distribution overheads at ` 1 per unit. (d) Closing stock of finished goods valued at cost of production. You are required to:- 1. Prepare Profit and Loss Account showing net profit in financial accounts. 2. Prepare a statement showing profit in the cost accounts. 3. Prepare a statement reconciling the profits disclosed as per above (1) and (2). Page No. 5
Question : 14 (May, 2002) The financial books of a company reveal the following data for the year ending 31 st March, 2002: Opening stock: Finished goods 875 units 74,375 Work-in-progress 32,000 Raw materials consumed 7,80,000 Direct labour 4,50,000 Factory overheads 3,00,000 Goodwill 1,00,000 Administration overheads 2,95,000 Dividend paid 85,000 Bad debts 12,000 Selling and distribution overheads 61,000 Interest received 45,000 Rent received 18,000 Sales 14,500 units 20,80,000 Closing stock: Finished goods (375 units) 41,250 Work-in-progress 38,667 The cost records provide as under:- (a) Factory overheads are absorbed at 60% on direct wages. (b) Administration overheads are recovered at 20% on factory cost. (c) Selling and distribution overheads are charged at ` 4 per unit sold. (d) Opening stock of finished goods is valued at ` 104 per unit. (e) The company adopts weighted average cost method for stock valuation. You are required to:- 1. Prepare a statement for the year ended 31 st March, 2002 to show a) the profit as per financial records. b) the profit as per costing records. 2. Present a statement reconciling the profit as per costing records with the profit as per financial records. Question : 15 (June, 2009) A manufacturing company disclosed a net loss of ` 2,13,000 as per their cost accounting records for the year ended March 31, 2009. However, their financial accounting records, disclosed a net loss of ` 2,58,000 for the same period. A scrutiny of data of both the sets of books of accounts revealed following information: Factory overheads under - absorbed 5,000 Administration overheads over absorbed 3,000 Depreciation charged in financial accounts 70,000 Depreciation charged in cost accounts 80,000 Interest on investments not included in cost accounts 20,000 Income tax provided in financial accounts 65,000 Transfer fees (credit in financial books) 2,000 Preliminary expenses written off 3,000 Overvaluation of closing stock of finished goods in cost account 7,000 Prepare a Memorandum Reconciliation Accounts. Page No. 6
Question : 16 (Nov, 2005) The following is the Trading and Profit and Loss Account of Omega Limited: Dr. Cr. Amount Amount (`) (`) To Materials consumed 23,01,000 By Sales (30,000 units) 48,75,000 To Direct wages 12,05,750 By Finished goods stock (1,000 1,30,000 units) To Production overheads 6,92,250 By Work-in-progress (Closing) 97,500 To Administration overheads 3,10,375 By Dividends received 3,90,000 To Selling and distribution 3,68,875 By Interest on bank deposits 65,000 overheads To Preliminary expenses written off 22,750 To Goodwill written off 45,500 To Fines 3,250 To Interest on Mortgage 13,000 To Loss on sale of machine 16,250 To Taxation 1,95,000 To Net profit for the year 3,83,500 55,57,500 55,57,500 Omega Limited manufactures a standard unit. The cost accounting records of Omega Ltd. show the following:- (a) Production overheads have been charged to work-in-progress at 20% on prime cost. (b) Administrative overheads have been recovered at ` 9.75 per financial unit. (c) Selling and distribution overheads have been recovered at ` 13 per unit sold. You are required to:- 1. Prepare a proforma Costing Profit and Loss Account, including net profit. 2. Prepare a statement reconciling the profits disclosed by cost records with that shown in financial accounts. Question : 17 (May, 2007) ABC Ltd. has furnished the following information from the financial books for the year ended 31 st March, 2007: Profit and Loss Account To Opening stock (500 units at ` 140 each) 70,000 By Sales (10,250 units) 28,70,000 To Managerial consumed 10,40,000 By closing stock (250 units at ` 200 each) 50,000 To Wages 6,00,000 To Goss profit c/d 12,10,000 29,20,000 29,20,000 To Factory overheads 3,79,000 By Gross profit 12,10,000 To Administration overheads 4,24,000 By interest 1,000 To Selling expenses 2,20,000 By Rent received 40,000 To Bad debts 16,000 To Preliminary expenses 20,000 To Net profit 1,92,000 12,51,000 12,51,000 Page No. 7
The cost sheet shows the cost of materials at ` 104 per unit and the labour cost at ` 60 per unit. The factory overheads are absorbed at 60% of labour cost and administration overheads at 20% of factory cost. Selling expenses are charged at ` 24 per unit. The opening stock of finished goods is valued at ` 180 per unit. You are required to:- 1. A statement showing profit as per Cost accounts for the year ended 31 st March, 2007 and 2. A statement showing the reconciliation of profit as disclosed by cost accounts with the profit shown in financial accounts. Question : 18 (May, 2003) A manufacturing company disclosed a net loss of ` 3,47,000 as per their cost accounts for the year ended March 31, 2003. The financial accounts disclosed a net loss of ` 5,10,000 for the same period. The following information was received as a result of scrutiny of the figures of both the sets of accounts: Factory overheads under - absorbed 40,000 Administration overheads over absorbed 60,000 Depreciation charged in financial accounts 3,25,000 Depreciation charged in cost accounts 2,75,000 Interest on investments not included in cost accounts 96,000 Income tax provided 54,000 Interest on loan funds in financial accounts 2,45,000 Transfer fees (credit in financial books) 24,000 Stores adjustments (credit in financial accounts) 14,000 Dividend received 32,000 Prepare a Memorandum Reconciliation Accounts. Question : 19 (Nov, 2012) R Ltd. showed a net loss of ` 35,400 as per their cost accounts for the year ended 31 st March, 2013. However, the financial accounts disclosed a net profit of ` 67,800 for the same period. The following information was revealed as a result of scrutiny of the figures of cost accounts and financial accounts: Factory overheads over recovered in cost books 1,35,000 Administration overhead under recovered 25,500 Depreciation under charged in cost accounts 26,000 Depreciation under charged in cost accounts 20,000 Dividend received 20,000 Loss due to obsolescence charged in financial accounts 16,800 Income tax provided 43,600 Bank interest credited in financial accounts 13,600 Value of opening stock In cost accounts 1,65,000 In financial accounts 1,45,000 Value of Closing stock In cost accounts 1,25,500 In financial accounts 1,32,000 Goodwill written off in financial accounts 25,000 Notional rent of own premises charged in cost accounts 60,000 Provision for doubtful debts in financial accounts 15,000 Prepare a Reconciliation statement by taking costing net loss as base. Page No. 8
Question : 20 (May, 2014) A manufacturing company disclosed a net loss of ` 48,700 as per their cost accounting records for the year ended March 31, 2014. However, their financial accounting records disclosed a net profit of `35,400 for the same period. A scrutiny of data of both the sets of books of accounts revealed following information: Factory overhead under absorbed 30,500 Administration overhead over absorbed 65,000 Depreciation charged in financial accounts 2,25,00 Depreciation under charged in cost accounts 2,70,000 Income tax provision 52,400 Transfer fee (credited in financial accounts) 10,200 Obsolescence loss charged in financial accounts 20,700 Notional rent of own premises charged in cost accounts 54,000 Value of opening stock In cost accounts 1,38,000 In financial accounts 1,15,000 Value of Closing stock In cost accounts 1,22,000 In financial accounts 1,12,500 Prepare a Memorandum Reconciliation Account by taking costing loss as base. Page No. 9