CA INTER - COSTING MAGIC REVISION SERIES Nov ‘22 RS TT Te 72 KANSTIYA 14™ SEP CHAPTER 6 COST SHEET concept | © MODULE | OPTIMISED 5.0 Quickfire Explanation of the chapter v v Basics Question . . covering all points Q.3: Pg, 6.12 Q.3:Pg. 6.15 : ICAI - Past Papers Advance Question July ‘21- Q 2{a) Newly Added Ratio of Various Costs at a Q.12: Pg. 6.35 Various charges in costs Q.21:Pg. 6.551. Basics Question covering all points QUESTION 1 (Master Sum) (Similar to RTP May 21) ‘Arnav Inspat Udyog Ltd. has the following expenditures for the year ended 3st March, 2021: cD Se Taal ae ad (Rs. (Rs) a Raw materials purchased 10,00,00,000 (ii) | GST paid on the above purchases @18% 1,80,00,000 (eligible for input tax credit) (ii) | Freight inwards 11,20,600 (iv) | Wages paid to factory workers 29,20,000 (») | Contribution made towards employees’ PF and EsIs 3,60,000 (vi) | Production bonus paid to factory workers 2,90,000 (vii) | Royalty paid for production 172,600 (viii) | Amount paid for power and fuel 4,62,000 (ix) | Amount paid for purchase of moulds and patterns (life is equivalent to two years production) 8,96,000 (x) | Job charges paid to job workers 812,000 (xi) | Stores and spares consumed 112,000 (xii) | Depreciation on Factory building 84,000 Office building 56,000 Plant and Machinery 1,26,000 Delivery vehicles 86,000 3,52,000 (xiii) | Salary paid to supervisors 1,26,000 (xiv) | Repairs and Maintenance paid for: Plant and Machinery 48,000 Sales office buildings 18,000 Vehicles used by directors 19,600 85,600 (xv) | Insurance premium paid for: Plant and Machinery 31,200 Factory building 18,100 ‘Stock of raw materials & WIP 36,000 85,300 (xvi) | Expenses paid for quality control check activities 19,600 (xvii) | Salary paid to quality control staffs 96,200 (xviii) | Research and development cost paid for improvement in production process 18,200(xix) (xx) (xxi) (xxii) (xxiii) (xxiv) (xxv) (xxvi) (xxvii) (xxviii) (xxix) (xxx) Expenses paid for pollution control and engineering & maintenance Expenses paid for administration of factory work Salary paid to functional managers: Production control Finance and Accounts Sales and Marketing Salary paid to General Manager Packing cost paid for: Primary packing necessary to maintain quality For re-distribution of finished goods Interest and finance charges paid (for usage of non-equity fund) Fee paid to auditors Fee paid to legal advisors Fee paid to independent directors Performance bonus paid to sales staffs Value of stock as on Ist April, 2020: Raw materials Work-in-process Finished goods Value of stock as on 31st March, 2021: Raw materials Work-in-process Finished goods 9,60,000 9,18,000 10,12,000 96,000 112,000 18,00,000 9,20,000 11,00,000 9,60,000 8,70,000 18,00,000 26,600 118,600 28,90,000 12,56,000 2,08,000 7,20,000 1,80,000 1,20,000 2,20,000 180,000 38,20,000 36,30,000 Amount realised by selling of scrap and waste generated during manufacturing process - Rs.86,000/- From the above data you are required to PREPARE a statement of cost for Arnav Ispat Udyog Ltd, for the year ended 31st March, 2021, showing: (Prime cost (ii) Factory cost (iii) Cost of Production (iv) Cost of goods soldand (v) Cost of sales.SOLUTION Statement of Cost of Arnav Ispat Udyog Ltd. for the year ended 31st March 2021: iF Ee Ce NS (Rs) (Rs) (| Material consumed: Raw materials purchased 10,00,00,000 Freight inwards 11,20,600 ‘Add: Opening stock of raw materials 18,00,000 Less: Closing stock of raw materials (9,60,000) | 10,19,60,600 (i) | Direct employee (labour) cost: Wages paid to factory workers 29,20,000 Contribution made towards employees’ PF & EsIS 3,60,000 Production bonus paid to factory workers 2,90,000| 35,70,000 (ii) Direct expenses: Royalty paid for production 1,72,600 “Amount paid for power and fuel 4,62,000 Amortised cost of moulds and patterns 4,48,000 Job charges paid to job workers 8,12,000| _18,94,600 Prime Cost 10,74,25,200 (i) | Works/ Factory overheads: Stores and spares consumed 112,000 Depreciation on factory building 84000 Depreciation on plant and machinery 126,000 Repairs and Maintenance paid for plant & machinery 48,000 Insurance premium paid for plant and machinery 31,200 Insurance premium paid for factory building 18,100 Insurance premium paid for stock of raw materials & WIP 36,000 Salary paid to supervisors 126,000 Expenses paid for pollution control and engineering & maintenance 26600| _6,07,900 Gross factory cost 10,80,33,100 ‘Add: Opening value of W-I-P 9,20,000 Less: Closing value of W-I-P (8.70,000) Factory Cost 10,80,83, 100W) i) Wii) (viii) (ix) &) (xi) (xii) (xiii) (xiv) Quality control cost: Expenses paid for quality control check activities Salary paid to quality control staffs Research and development cost paid for improvement in production process ‘Administration cost related with production: -Expenses paid for administration of factory work -Salary paid to production control manager Less: Realisable value on sale of scrap and waste ‘Add: Primary packing cost Cost of Production ‘Add: Opening stock of finished goods Less: Closing stock of finished goods Cost of Goods Sold ‘Administrative overheads: Depreciation on of fice building Repairs and Maintenance paid for vehicles used by directors Salary paid to manager-Finance & Accounts Salary paid to General Manager Fee paid to auditors Fee paid to legal advisors Fee paid to independent directors Selling overheads: Repairs and Maintenance paid for sales of fice building Salary paid to manager- Sales & Marketing Performance bonus paid to sales staffs Distribution overheads: Depreciation on delivery vehicles Packing cost paid for re-distribution of finished goods Interest and finance charges paid 19,600 96,200 115,800 18,200 118,600 9,60,000| — 10,78,600 (86,000) 96,000 10, 93,05, 700 11,00,000 (18,00,000) 56,000 19,600 918,000 12,56,000 1,80,000 1,20,000 220,000 18,000 10,12,000 1,80,000 86,000 112,000 10, 86,05, 700 27,69,600 12,10,000 1,98,000 7,20,000 Cost of sales 11,35,03,300] Note: GST paid on purchase of raw materials would not be part of cost of materials 45 it is eligible for input tax cre2. Advance Question Question 2 The following data relates to manufacturing of a standard product during the month of March, 2021: Particulars Amount (in Rs) Stock of Raw material as on 01-03-2021 80,000 Work in Progress as on 01-03-2021 50,000 Purchase of Raw material 2,00,000 Carriage Inwards 20,000 Direct Wages 1,20,000 Cost of special drawing 30,000 Hire charges paid for Plant 24,000 Return of Raw Material 40,000 Carriage on return 6,000 Expenses for participation in Industrial 8,000 exhibition Legal charges 2,500 Salary to office staff 25,000 Maintenance of office building 2,000 Depreciation on Delivery van 6,000 Warehousing charges 1,500 Stock of Raw material as on 31-03-2021 30,000 Stock of Work in Progress as on 31-03-2021 24,000 + Store overheads on materials are 10% of material consumed. + Factory overheads are 20% of the Prime cost, + 10% of the output was rejected anda sum of * 5,000 was realized on sale of scrap. 10% of the finished product was found to be defective and the defective products were rectified at an additional expenditure which is equivalent to 20% of proportionate direct wages. + The total output was 8000 units during the month. Youare required to prepare a Cost Sheet for the above period showing the: (i) Cost of Raw Material consumed, (ii)Prime Cost (iii) Work Cost iv) Cost of Production _—_(v) Cost of SalesSolution: (a) — Statement of Cost for the month of March, 2021 Particulars ‘Amount | Amount (Rs) (Rs) (i) Cost of Material Consumed: Raw materials purchased (Rs 2,00,000 - Rs 1,60,000 40,000) Carriage inwards 20,000 ‘Addi Opening stock of raw materials 80,000 Less: Closing stock of raw materials (30,000) | 2,30,000 Direct Wages 120,000 Direct expenses: Cost of special drawing 30,000 Hire charges paid for Plant 24,000 | __54,000 Prime Cost 4,04,000 Carriage on return 6,000 Store overheads (10% of material consumed) 23,000 Factory overheads (20% of Prime cost) 80,800 Additional expenditure for rectification of defectiveproducts (refer working note) 2,160 111,960 Gross factory cost 515,960 ‘Add: Opening value of W-I-P 50,000 Less: Closing value of W-I-P (24,000) (ili) Works/ Factory Cost 5,41,960 Less: Realisable value on sale of scrap (6,000) (iv) Cost of Production 5,36,960 ‘Add: Opening stock of finished goods - Less: Closing stock of finished goods - Cost of Goods Sold 5,36,960 Administrative overheads: Maintenance of of ice building 2,000 Salary paid to Office staff 25,000 Legal Charges 2,500 29,500Selling overheads: Expenses for participation in Industrial exhibitio Distribution overheads: Depreciation on delivery van Warehousing charges (W)_Cost of Sales 8,000 8,000 6,000 1500 7.500 5,81,960 Alternative Solution (Considering Hire charges paid for Plant as indirect expenses) Statement of Cost for the month of March, 2021 Particulars ‘Amount | Amount (Rs) (Rs) Cost of Material Consumed: Raw materials purchased (Rs 200,000 - Rs 40,000) 1,60,000 Carriage inwards 20,000 ‘Add: Opening stock of raw materials 80,000 Less: Closing stock of raw materials (30,000) | 2,30,000 Direct Wages 1,20,000 Direct expenses: Cost of special drawing 30,000 | 30,000 Prime Cost 3,80,000 Hire charges paid for Plant 24,000 Carriage on return 6,000 Store overheads (10% of material consumed) 23,000 Factory overheads (20% of Prime cost) 76,000 ‘Additional expenditure for rectification of defective products (refer working note) Gross factory cost ‘Add: Opening value of W-I-P Less: Closing value of W-I-P Works/ Factory Cost Less: Realisable value on sale of scrap Cost of Production 2160 | 1,31,160 5,11,160 50,000 (24,000) 5,37,160 (6,000) 5,32,160‘Add: Opening stock of finished goods Less: Closing stock of finished goods Cost of Goods Sold ‘Maintenance of office building Salary paid to Office staff Legal Charges Selling overheads: Expenses for participationin Industrial exhibition Distribution overheads: Depreciationon delivery van Warehousing charges Cost of Sales 2,000 25,000 2.500 8,000 6,000 1,500 29,500 8,000 7,500 5,77,160 Working Notes: 1.” Number of Rectified units Total Output £8,000 units Less: Rejected 10% 1800 units Finished product 2.200 units Rectified units (10% of finished product) 720 units 2. Proportionate additional expenditure on 720 units = 20% of proportionate direct wages 0,20 x (Rs, 1,20,000/8,000) x 720 = Rs. 2,160Ratio of Various Costs QUESTION 3 (RTP Nov'19) ) DFG Ltd. manufactures leather bags for office and school purpose. The following information is related with the production of leather bags for the month of September 2021. (i)Leather sheets and cotton cloths are the main inputs, and the estimated requirement per bag is two meters of leather sheets and one meter of cotton cloth, 2,000 meter of leather sheets and 1,000 meter of cotton cloths are purchased at Rs, 3,20,000 and Rs, 15,000 respectively. Freight paid on purchases is Rs. 8,500. (ii) Stitching and finishing need 2,000 man hours at Rs. 80 per hour. (iii) Other direct cost of Rs. 10 per labour hour is incurred. (iv) DFG has 4 machines at a total cost of Rs. 22,00,000. Machine has a life of 10 years with a scrap value of 10% of the original cost. Depreciation is charged on straight line method. (v) The monthly cost of administrative and sales office staffs are Rs. 45,000 and Rs. 72,000 respectively. DFG pays Rs. 1,20,000 per month as rent for a 2400 sq.feet factory premises. The administrative and sales office occupies 240 sq. feet and 200 sq. feet respectively of factory space. (vi) Freight paid on delivery of finished bags is Rs. 18,000. During the month 35 kg. of leather and cotton cuttings are sold at Rs. 150 per kg. (vii) There is no opening and closing stocks for input materials. There is 100 bags in stockat the end of the month, Required: PREPARE a cost sheet following functional classification for the month of September 2021,SOLUTION No, of bags manufactured = 1,000 units Cost sheet for the month of September 2021 ra aro) Cost per Cost (Rs.) unit (Rs.) ir Direct materials consumed: - Leather sheets 3,20,000 320,00 - Cotton cloths 15,000 15.00 ‘Add: Freight paid on purchase 8,500 8.50 2, _ | Direct wages (Rs. 80 2,000 hours) 1,60,000 160.00 3, | Direct expenses (Rs. 10 2,000 hours) 20,000 20.00 4, | Prime Cost 5,23,500 523.50 5, | Factory Overheads: Depreciation on machines 16,500 16.50 {(Rs. 22,00,000*90%) = 120 months} Apportion cost of factory rent 98,000 98.00 6. | Works/ Factory Cost 6,38,000 638.00 7, _| Less: Realisable value of cuttings (Rs.150«35 kg.) (6,250) (6.25) 8. | Cost of Production 6,32,7500| 632.75 9. | Add: Opening stock of bags - 10. (63,275) 11, | Cost of Goods Sold 5,69,475 632.75 12, | Add: Administrative Overheads: - Staff salary 45,000 45.00 = Apportioned rent for administrative of fice 12,000 12.00 13, | Add: Selling and Distribution Overheads - Staff salary 72,000 80.00 - Apportioned rent for sales office 10,000 wt - Freight paid on delivery of bags 18,000 20.00 14, | Cost of Sales (18+19+20) 7,26,475 800.86 Apportionment of Factory rent: To factory building ((Rs. 1,20,000 = 2400 sq.feet) x 1,960 sq. feet} To administrative of fice {(Rs. 120,000 + 2400 sq.feet)x 240 sq. feet} To sale of fice {(Rs. 1,20,000 = 2400 sq.feet) x 200 sq. feet} AS4. Various charges in costs QUESTION 4 ) ‘A factory incurred the following expenditure during the year 2020, ‘Amount in (Rs.)Amount in (Rs. ) lDirect Material Consumed 2,00,000 lanufacturing Wages '7,00,000 lanufacturing Overheads: |3,60,000 Fixed Variable i2,50,000 \6,10,000 [25,10,000 Inthe year 2021, following changes are expected in production and cost of production. (Production will increase due Torecruitment of 60% more workers in the factory. Gi) Overall efficiency will decline by 10% on account of recruitment of new workers. (ii) There will be an increase of 20% in Fixed Overhead and 60% in Variable Overhead. (iv) The cost of direct material will be decreased by 6%. (v) The company desire to earna profit of 10% on Selling Price. Ascertain the Cost of Production and Selling Price. SOLUTION Budaeted Cost Sheet for the vear 2008 (Rs) Direct Material Consumed \dd: 44% due to Increased Output ess: 6% for decline in price Direct Wages (Manufacturing) \dd: 60% Increase Prime Cost Te Um (Rs) (Rs) 2,00,000 b,28,000 17 28,000 03,680 16,24,320 7,00,000 20,000 t1,20,000 e7,44,320 | A Nllanufactured Overhead: ixed \dd: 20% Increase fariable \dd: 60% Increase ‘ost of Production \dd: 1/9 of cost or 10% on Selling rice selling Price 60,000 72,000 432,000 \2,50,000 1t,50,000 —4,00,000 __—8,32,000 135,76,320 3,97,369 39,73,689