After studying this chapter you should be able to:
Understand the meaning of job costing.
Comprehend the special features of job costing.
Ascertain the cost of each job—procedure and necessary records to be maintained.
Understand the concept of batch costing.
Learn the features of batch costing.
Adopt the procedure for computing the cost of a batch.
Explain the concept of batch quantity.
Compute profit from a job or a batch.
Explain the meaning of important key terms.
In an era of technological revolution, industries have grown in volume and varied in activities of production. Each industry has its own special characteristic features. One such variety is specific-order industries. Specific-order industries are those where work consists of separate jobs or batches or contracts, each of which is authorized by a special order or contract. Elements of cost are accumulated in such type of industries. The manner in which costs are accumulated for ascertain product costs in specific industries will be explained in detail in this chapter.
Job costing is one of the methods of costing. It is also known as job order costing. In this system, work is undertaken to customer’s specific requirements on the basis of orders. Such orders are of comparatively short duration. The work is carried out within the factory. The work passes through processes or operation activities in such a way as to identify the unit continuously till it reaches finished product. “The term may also be applied to work such as property repairs and the method may be used in the costing of internal capital expenditure jobs.”
This method of costing is used in industries which are engaged in printing, steel structures, switch gear, heat exchangers, transformers, motors, pumps, pressure vessels, general engineering works, oil well and shipping.
The main objectives of job costing are:
The following procedure is followed for job costing.
It starts from preparing quotations and culminates in the acceptance of quotations by customer. Tenders are floated by customers. After analysing the specific features, a detailed cost estimate is to be prepared by the design and estimation department with the assistance of costing department to quote the price. An estimation sheet is prepared after scrutinizing the reference job. Once the quotation, thus prepared based on various factors, is accepted by the customer, the manufacturer intimates in advance to the concerned departments.
Every order received is given a separate distinguishing number which is referred to as job number. Every job or order is to be identified with this number throughout its production process. The main purpose of assigning job number for each job or order is for proper accounting and administrative convenience.
A production order (or job order or manufacturing order) is an authorization to the factory to manufacture the job. This order is issued by the production planning department/commercial department on the receipt of job order. It is issued to the foreman of the relevant department. Instructions to costing department are also issued simultaneously. Specimen of production order is shown as follows:
A job cost card or job cost sheet is maintained for each job. The costs are collected and recorded for each job under separate production order number. The bases of collection of costs are:
All the basic documents will carry to respective production order numbers.
The other details or contents of a job cost card can be read from the proforma as shown here:
In case a job passes through more than one department, the proforma of job cost card differs and is shown here:
Profit/loss can be ascertained by preparing job cost card.
Wastage relating to the process is treated as overhead. Abnormal wastage is charged to costing profit and loss account.
Actual costs are compared with estimates made while preparing quotation price. Variances are ascertained and analysed in detail for each cost centre and overheads. Following are the merits of job cost analysis:
Proper book-keeping is essential for job cost book-keeping.
Illustration 8.1
Following data are available from the cost records of Aditya & Co. Ltd with respect to Job No. 108.
Materials |
|
Rs. 10,000 |
Wages: |
Department X |
40 hours @ Rs. 10 per hour |
|
Department Y |
50 hours @ Rs. 12 per hour |
|
Department Z |
60 hours @ Rs. 15 per hour |
Factory overheads (Variable): |
|
|
|
Department X |
Rs. 8,000 (estimated) |
|
Department Y |
Rs. 10,000 (estimated) |
|
Department Z |
Rs. 12,000 (estimated) |
The estimated direct labour hours during the budget period: |
||
|
Department X |
4,000 hours |
|
Department Y |
4,000 hours |
|
Department Z |
4,000 hours |
Fixed overheads: Rs. 20,000 for 20,000 normal working hours.
You are required to calculate the cost of Job No. 108 and calculate the selling price required to earn a profit of 20% on cost.
Solution
Overhead absorption rates are to be calculated:
Step 1: Variable overheads:
Step 2: Fixed overheads:
Substituting the values in the formula we get,
Step 3: Cost of the Job No. 108 is computed as follows:
Particulars | Rs. | Amount Rs. |
---|---|---|
Step (a): Direct materials (Given) |
|
10,000 |
Step (b): Direct wages (Given) |
|
|
Department X – 40 hours × Rs. 10 per hour |
400 |
|
Department Y – 50 hours × Rs. 12 per hour |
600 |
|
Department Z – 60 hours × Rs. 15 per hour |
900 |
1,900 |
Step (c): Variable overheads: (*1 – step 1) |
|
|
Department X – 40 hours × Rs. 2 per hour |
80 |
|
Department Y – 50 hours × Rs. 2.50 per hour |
125 |
|
Department Z – 60 hours × Rs. 3 per hour |
180 |
385 |
Step (d): Fixed overheads: (*2 – step 2) |
|
|
(40 + 50 + 60 hrs): 150 hrs × Re 1 / hr |
|
150 |
Step (e) TOTAL COST |
|
12,435 |
Step (f) PROFIT AT 20% ON COST |
|
2,487 |
Step (g) SELLING PRICE |
|
14,922 |
Illustration 8.2
A work order for 500 units of a commodity has to pass through three different machines for which the machine hour rates are:
Machine No. 1 – Rs. 1.00; Machine No. 2 – Rs. 2.00; and Machine No. 3 – Rs. 3.00.
The following expenses have been incurred on the work order:
Materials Rs. 10,500, Wages Rs. 1,000.
Machine No. 1 has been engaged for 250 hours
Machine No. 2 has been engaged for 150 hours
Machine No. 3 has been engaged for 120 hours
After the work has been completed, materials worth Rs. 500 are returned to the stores.
Office overheads used to be 40% of works cost. But on account of rise in the cost of administration, distribution and sale, there has been a 50% rise in the office overhead expenditure.
It is known that 10% of the production will have to be scrapped as not being up to the specification, and the sale proceeds of the scrapped output will be only 5% of cost of sales.
If the manufacturer wants to make a profit of 20% on the total cost of the work order, compute the selling price of a unit of commodity.
Solution
Total cost of the work order has to be computed stage by stage, that is:
This is done as follows:
Particulars | Rs. | Rs. |
---|---|---|
Step 1: Materials used (Total – returned) (10,500 − 500) |
|
10,000 |
Step 2: Direct wages |
|
1,000 |
Step 3: PRIME COST (Step 1 + Step 2) |
|
11,000 |
Step 4: Works overheads (@ machine hr. rate) |
|
|
(i) Machine No. 1: 250 hours × Rs. 1.00 per hour |
250 |
|
(ii) Machine No. 2: 150 hours × Rs. 2.00 per hour |
300 |
|
(iii) Machine No. 3: 120 hours × Rs. 3.00 per hour |
360 |
910 |
Step 5: WORKS COST (Step 3 + Step 4) |
|
11,910 |
Step 6: Office overheads (@ 60% of works COST) |
|
7,146 |
(40% + 50% of 40% = 60%) |
|
19,056.00 |
Step 7: Less: Process of scrap |
|
|
(5% of 10% of Rs. 19,056) |
|
95.28 |
Step 8: TOTAL COST OF WORK ORDER |
|
18,960.72 |
Step 9: Profit @ 20% of total cost |
|
3,792.14 |
Step 10: SELLING PRICE of 500 units |
|
22,752.86 |
Step 11: Selling price of one unit |
|
45.50 |
Illustration 8.3
The quantity specified on a production order was 5,000 units of an article in the manufacture of which four operations were involved. The piece rates for these four operations were in the following sequence: Rs. 30; Rs. 40; Rs. 30; and Rs. 50 per unit. The company recovered factory overhead expenses based on direct labour cost, and the current overhead rate is 75%. The entire quantity of material authorized for the order, namely, 2000 kg @ Rs. 300 per kg, was issued to the shop. Of this, 100 kg was returned as scrap arising in course of manufacture, valued at Rs. 2,000.
At the year end, the order was incomplete; only 500 units were fully completed and transferred to finished stock. Stock-taking of the work-in-progress revealed the following position:
Material in process: |
1,400 kg |
Material in hand, in shop (unprocessed): |
300 kg |
Production in partly completed stage: |
4,000 units |
Extent of work performed:
Up to first operation stage: |
2,000 units |
Up to the second operation stage: |
1,500 units |
Up to the third operation stage: |
500 units |
Up to the fourth operation stage: |
nil |
You are required to compare the cost of the work-in-progress.
Solution
Particulars | Rs. | Rs. |
---|---|---|
Step I: Material cost: |
|
|
(i) Material in hand: 300 kg × Rs. 300 |
|
90,000 |
(ii) Materials in process: 1,400 kg × Rs. 300 |
4,20,000 |
|
Less: Proportion cost of scrap |
1,400 |
4,18,600 |
|
|
5,08,600 |
Step II: Labour cost: |
|
|
Operation 1 – 2,000 units @ Rs. 30 |
60,000 |
|
Operation 2 – 1,500 units @ Rs. 70 (30 + 40) |
1,05,000 |
|
Operation 3 – 500 units @ Rs. 100 (30 + 40 + 30) |
50,000 |
2,15,000 |
Step III: Factory overhead: 75% of Rs. 2,15,000 (75% on direct labour) |
|
1,61,250 |
Step IV: Total Cost of work-in-progress (Step I + Step II + Step III) |
|
8,84,850 |
Illustration 8.4
Gemini Manufacturing Company processed production through two departments (i) machining and (ii) finishing. Overhead rates are predetermined based on machine hours in the machine department and the direct labour wages in the finishing department.
The figures for 2009–10 based on which the overhead rates were arrived at are furnished below:
Machining Department Rs. | Finishing Department Rs. | |
---|---|---|
Direct labour–wages |
25,00,000 |
25,00,000 |
Factory overheads |
75,00,000 |
50,00,000 |
Direct labour hours |
20,00,000 |
40,00,000 |
Machine hours |
25,00,000 |
15,00,000 |
The cost sheet for Job No. 750 indicates the following:
Machining Department | Finishing Department | |
---|---|---|
Material consumed |
Rs. 80 |
Rs. 10 |
Direct labour wages |
Rs. 50 |
Rs. 40 |
Direct labour hours |
30 hrs |
40 hrs |
Machine hours |
20 hrs |
10 hrs |
Assuming that the production order No. 750 consisted of 20 numbers of part No. 780, you are required to prepare a cost sheet showing the unit cost of the part.
Solution
NOTE: Factory overheads are to be calculated as follows:
Illustration 8.5
Model: Ledger control account
The following information for the year ended 31 December 2009 is obtained from the books and records of a factory:
Completed Jobs Rs. | Work-in-progress Rs. | |
---|---|---|
Raw materials supplied stores |
1,00,000 |
40,000 |
Wages |
1,25,000 |
50,000 |
Chargeable expenses |
15,000 |
5,000 |
Materials returned to stores |
5,000 |
- |
Factory overheads are 75% of wages. Office overheads are 20% of factory cost, and selling and distribution overheads are 10% of cost of production.
The completed jobs realized Rs. 4,50,000.
Write up:
[B. Com (Hons) Delhi. Modified]
Solution
The required accounts have to be presented in ledger form as follows:
Batch costing may be said as another form of “job costing”. The terminology of CIMA defines batch cost as “aggregated costs relative to a cost unit which consists of a group of similar articles which maintains its identity throughout one or more stages of production”. Batch costing may be defined as “that form of specific order costing which applies when similar articles are manufactured in batches, either for sale or for use within the undertaking. In most cases the costing is similar to job costing”.
The term “batch” means a group of products of similar nature. Under this method of costing, a batch is regarded as a single cost unit.
In batch costing, the most important factor is the determination of optimum size of the batch, which is termed as “economic batch quantity”. To put in simple words, it is the determination of “how much to produce”. The need for economic batch quantity arises when the rate of production is in excess of the rate of sales turnover and a decision has to be taken on the optimum size of the batch.
Two main elements that are associated with economic batch quantity are:
The set-up cost is incurred for setting up tools and machines for each batch. It is a fixed amount per batch. This is incurred irrespective of the size of the batch. If there is an increase in the number of batches, the total set up cost increases. But when batch quantity increases, there is an increase in storage cost (carrying cost) followed by a decline in set-up cost. Storage cost consists of interest on capital, defective work, storage loss, obsolescence, premium etc. This cost is mentioned as a rate per unit.
EBQ is that point where storage costs equal the set-up costs. At this point the total costs are at minimum level. EBQ is based on the following factors:
The most commonly used formula for determining EBQ is:
Illustration 8.6
X Ltd is supplying to Modern Radios an important component R-103, 12,000 units per annum. It is estimated that it costs 10 paise as inventory-holding cost per component per month and that the set-up cost per run of component manufacture is Rs. 162.
Solution
Optimum run size is nothing but economic batch quantity.
∴ Economic batch quantity = 1,800 units
Based on the assumption that the components are supplied evenly throughout the year, average inventory will be
Minimum inventory cost per annum
Illustration 8.7
Following information relates to the manufacture of a component in a cost centre:
Cost of materials |
10 paise per component |
Operator’s wages |
80 paise an hour |
Machine hour rate |
Rs. 2 |
Set-up time of the machine |
2 hrs 30 minutes |
Manufacturing time |
10 minutes per component |
You are required to prepare cost sheets showing both production and set-up costs–total and per unit when a batch consists of 10, 100 and 1,000 components.
[C.A. (Inter); I.C.W.A. (Inter); B.com (Hons) Delhi; M.Com, Madras University. Modified]
Solution
Set-up costs and production costs are to be calculated as follows:
Particulars | Total Rs. | Per Unit Rs. (÷10) |
---|---|---|
(A) Set-up Cost: |
|
|
Step 1: Operator’s wages: (2 hr 30 min × Rs. 0.80/hr) |
2.00 |
|
Step 2: Overheads of the machine (2 hr 30 min × MHR @ Rs. 2/hr) |
5.00 |
|
Step 3: Total set-up cost (Step 1 + Step 2) |
7.00 |
0.70 |
(B) Production Costs: |
|
|
Step 4: Materials cost for 10 units @ 0.10 / unit |
1.00 |
0.10 |
Step 5: Wages for the operator (10 units × 10 min / per comp) × Rs. 0.80/hr |
1.33 |
0.13 |
Step 6: Overheads of machine (10 units × 10 min / per unit) × Rs. 2/hr |
3.33 |
0.33 |
Step 7: Total production cost (Step 4 + Step 5 + Step 6) |
5.66 |
0.56 |
Step 8: Total production cost + set-up cost |
|
|
[(A) + (B)] (Step 3 + Step 7) |
12.66 |
1.26 |
Particulars | Total Rs. | Per Unit Rs. (÷100) |
---|---|---|
(A) Setting-up Cost: |
|
|
Step 1: Operator’s wages: (2 hr 30 min × Rs. 0.80) |
2.00 |
|
Step 2: Overheads of the machine: (2 hr 30min × Rs. 2) |
5.00 |
|
Step 3: Total set-up cost (Step 1 + Step 2) |
7.00 |
0.07 |
(B) Production Costs: |
|
|
Step 4: Materials cost for 100 units @ 0.10 |
10.00 |
0.100 |
Step 5: Operator wages @ (100 units ×10 min) × Rs. 0.80/hr |
13.33 |
0.133 |
Step 6: Overheads of machine (100 units × 10 min) ×Z Rs. 2/hr |
33.33 |
0.333 |
Step 7: Total production cost (Step 4 + Step 5 + Step 6) |
56.66 |
0.566 |
Step 8: Total production cost + set-up cost |
|
|
[(A) + (B)] (Step 3 + Step 7) |
63.66 |
0.636 |
Particulars | Total Rs. | Per Unit Rs. (÷1000) |
---|---|---|
(A) Setting-up Cost: |
|
|
Step 1: Operator’s wages (2 hr 30 min @ 0.80/hr) |
2.00 |
|
Step 2: Overheads of the machine (2 hr 30 min @ Rs. 2/hr) |
5.00 |
|
Step 3: Total set-up costs (Step 1 + Step 2) |
7.00 |
0.007 |
(B) Production Costs: |
|
|
Step 4: Materials cost for 1,000 units @ 0.10/unit |
100.00 |
0.100 |
Step 5: Operators wages (1,000 × 10) @ .80/hr |
133.33 |
0.133 |
Step 6: Machine overheads (1,000 x 10) × Rs. 2/hr |
333.33 |
0.333 |
Step 7: Total production cost (Step 4 + Step 5 + Step 6) |
566.66 |
0.566 |
Step 8: Total production cost + set-up cost |
|
|
[(A) + (B)] (Step 3 + Step 7) |
573.66 |
0.573 |
FOR PROFESSIONAL COURSES
Under job costing method, the following procedure is being adopted, generally. As and when materials are received, accounting entries are made for purchases. Entries are made in work-in-progress accounts at once, when materials are issued and consumption of other resources occur. The job account in work-in-progress ledger is debited with direct material cost, direct labour and direct expenses. Overheads are charged as and when necessary. In-toto job costing method provides enough cost information in detail quickly. Job costing method leaves audit trials. Hence it has become necessary to eliminate such elaborate documentation system. Of late, the trend is to adopt minimum accounting information. Back flush costing method aims at this simple accounting procedure.
Back flush costing may be defined as “cost accounting system which focusses on the output of an organisation and then works back to attribute costs to stock and cost of sales”. This method emphasizes that only when the manufacture of a job is complete, accounting entries must be made. No need to keep work-in-progress account only when units are completed; costs are assigned to such completed units. Standard or budgeted costs serve as the basis for assigning costs to finished products. Back flush costing may be defined as “costing system that omits recording some or all of the journal entries relating to the cycle from the purchase of direct material to the sale of finished goods.” This method is also called post-deduct costing, delayed costing and end-point costing. Accordingly, this method has three versions.
A combined direct materials inventory and work-in-progress is maintained to record purchases and consumed materials for completed units. Standard or budgeted rates are used for assessing consumption. Labour costs and overheads are recorded in one conversion cost control account.
Illustration 8.8
Purchase of raw materials in June |
Rs. 22,000 |
Conversion costs (including labour) in June |
Rs. 20,000 |
Units completed in June |
2,000 |
Units sold in June |
1,600 |
Standard cost per unit of output |
|
Materials Rs. 20 |
|
Conversion cost Rs. 10 |
|
|
_____ |
There are no direct material variances in June. It is also found that there are no opening stocks of raw materials, work-in-progress and finished goods.
Solution
Under this method, journal entries are to be recorded for
Finally, inventory balances are shown.
These are shown as follows:
To record purchases and consumption by units sold, a combined direct raw materials, work-in-progress and finished goods inventory has to be maintained. The account under this method is christened as “inventory control account”. To calculate the cost of direct materials consumed, standard rates or budgeted rates are used.
The cost of units sold is recorded in the cost of goods sold account. At the end of the month, unabsorbed conversion costs are transferred to cost of goods sold account.
The main difference between these methods (version 1 and version 2) is: In version 1, the physical sequences are taken as complete when the units of output have been completely manufactured, whereas in version 2, physical sequences are taken as complete only on sale of units produced.
Illustration 8.9
Same figures as in Illustration 8.8.
Solution
Illustration 8.10
Same as in Illustration 8.8.
Solution
Job costing, a method of costing, which work is undertaken to customer’s specific requirements on the basis of orders.
Features of Job costing: (i) A job consists of a single order or contract. (ii) Itself is a cost-unit; (iii) Each job is unique (iv) Products are not manufactured for general consumption (v) Costs are ascertained for each order (vi) It is possible to identify a job at each stage of its manufacturing process.
Procedure of job costing is explained in stages (with adequate specimen of records to be used in each stage) in section 8.4.1 to 8.4.8 (Ref: The text).
Accounting for work in process is explained in illustrations from 8.1 to 8.5.
Batch costing may be defined as aggregated costs relative to a cost unit which consists of a group of similar articles which maintains its identity throughout the manufacturing process. ‘Batch’ refers to a group of products of similar nature. The cost of each unit is ascertained by dividing the total cost of a batch by the number of units produced in that batch.
Special features of Batch costing: (i) Costs are accumulated for each batch (ii) Items produced are identical and (iii) Items may be grouped for the purpose of costing.
Economic Batch Quantity: It refers to the determination of “how much to produce.” Set up costs and carrying costs are the main elements which are associated with EBQ.
Ascertainment of EBQ is explained in illustration 8.6. Back flush costing is a cost accounting system that focusses on the output of an organisation and then works back to attribute costs to stock and cost of sales. This method has three versions which are illustrated in 8.8, 8.9 & 8.10.
Job Costing: A costing method designed for undertaking specific order of work to customer’s specific requirements.
Job Cost Card: A document or record for each job, acts as a subsidiary ledger for work-in-progress control account in cost ledger.
Batch Costing: A costing method designed for undertaking specific order of work (similar articles produced in batches).
Set-Up Cost: Cost incurred in setting-up machines and tools for each batch of production.
Storage Cost: Includes interest on capital locked up, defective work, obsolescence, insurance premium etc.
Economic Batch Quantity: Optimum level or size of batch, concept similar to economic order quantity of materials.
Back Flush Costing: A cost accounting system which focuses on the output of an organization and then works back to attribute costs to stock and cost of sales.
I. State whether the following statements are true or false
Answers:
1. True |
2. False |
3. True |
4. False |
5. False |
6. True |
7. True |
8. False |
9. True |
10. False |
11. True |
12. True |
II. Fill in the blanks with apt word(s)
Answers:
III. Multiple choice questions: Choose the correct answer:
Answers:
1. (a) |
2. (b) |
3. (c) |
4. (d) |
5. (a) |
6. (b) |
7. (c) |
|
1. From the following information prepare Job No. 236 account in the job cost ledger.
|
Rs. |
Direct materials purchased |
3,600 |
Direct materials received from stores |
25,200 |
Direct wages |
14,400 |
Other direct expenses |
1,500 |
The works overheads are to be taken at 75% of wages and administrative overheads at 25% of works cost. The contract price of Job No. 236 which is completed is fixed at Rs. 82,500.
[Madras University]
[Ans: Cost of production: Rs. 69,375; Profit: Rs. 13,125]
2. The cost information relating to two jobs in a factory is given below:
Job No. 1 |
Job No. 2 |
Materials: Rs. 40 |
Materials Rs. 20 |
Wages at 40 paise per hour for 150 hrs |
Wages at 40 paise per hour for 200 hours |
In a factory, the overheads are recovered at 100% of prime cost. Find out the works cost of both the jobs and comment upon the basis of ascertaining the job cost.
[Sri Venkateswara University]
3. X Ltd. took up two jobs during the first week of June 2009. The following details are available:
Job 10 Rs. | Job 11 Rs. | |
---|---|---|
Materials supplied |
4,000 |
2,800 |
Wages paid |
1,800 |
1,200 |
Direct expenses |
200 |
- |
Materials transferred from 11 to 10 |
200 |
200 |
Materials returned to stores |
- |
100 |
[Ans: Cost of job 10: Rs. 6,200; Cost of job 11: Rs. 3,700]
4. From the following information, prepare Job No. 15, and Job No. 16 accounts in the job cost ledger:
Job No. 15 Rs. | Job No. 16 Rs. | |
---|---|---|
Direct materials |
9,600 |
4,800 |
Materials received from stores |
67,200 |
57,600 |
Direct wages |
38,400 |
20,000 |
Other direct expenses |
4,000 |
2,000 |
The production overheads are to be taken at 100% of wages and administration overheads at 20% of the production cost. The contract price of Job No. 15, which is completed, is fixed at Rs. 2,20,000. Job No. 16 is in progress.
[Karnataka University; Andhra University; Bharathidasan University. Modified]
[Ans: Job No. 15: Sales, Rs. 2,20,000; Profit, Rs. 23,000; Administration overhead, Rs. 39,400 Job No. 16: Total cost, Rs. 1,30,500]
5. From the following particulars, prepare the cost sheet for Job No. 101 and find out the value of the job: Materials issued for the job, Rs. 6,000. Productive wages, Rs. 4,600. Direct expenses, Rs. 500. Provide 60% on productive wages for works on cost and on works cost for office on cost. Profit is to be realized on the selling price at 15%.
[Sri Venkateswara University]
[Ans: Sales: Rs. 18,344; Profit: Rs. 2,751.62]
6. The following direct costs were incurred on Job No. 415 of Standard Radio Company:
Materials: Rs. 4,010
Wages:
Department A; 60 hours @ Rs. 3 per hour
Department B; 40 hours @ Rs. 2 per hour
Department C; 20 hours @ Rs. 5 per hour
Overhead expenses for these three departments were estimated as follows:
Variable Overheads:
Department A: Rs. 5,000 for 5,000 labour hours
Department B: Rs. 3,000 for 1,500 labour hours
Department C: Rs. 2,000 for 500 labour hours
Fixed Overheads: Estimated at Rs. 20,000 for 10,000 normal working hours.
You are required to calculate the cost of Job No. 415 and calculate the price to give profit of 25% on selling price.
[Madras University; Calicut University; Madurai Kamaraj University; Sri Venkateswara University]
[Ans: Selling price: Rs. 6,440; Profit: Rs. 1,610; Cost of the job: Rs. 4,830]
7. Following data relate to the month of December 2009:
Job No. |
Rs. |
410 |
120 |
411 |
280 |
412 |
225 |
413 |
300 |
|
925 |
Job No. |
Hours |
Rs. |
410 |
400 |
600 |
411 |
200 |
450 |
412 |
300 |
675 |
413 |
100 |
225 |
|
|
1,950 |
Prepare:
[Madras University]
[Ans: (a) Cost of sales: Job No. 411, Rs. 2,880; Job No. 412, Rs. 1,800 Profit: Job No. 411, Rs. 320; Job No.412, Rs. 200 Billing price: Job No. 411, Job No. 412, Rs. 2,000 Rs. 3200;
Work-in-Progress: |
Inventory: |
Rs. 2,675 (total) |
Materials: |
|
Rs. 500 |
Labour: |
|
Rs. 975 |
Overheads: |
|
Rs. 1200 |
Total sales: |
|
Rs. 5,200 |
Works cost: |
|
Rs. 4,000 |
Under-absorbed factory overheads: |
|
Rs. 100 |
Gross profit: |
|
Rs. 1,200] |
8. A factory follows job costing. The following cost data are obtained from its books for the year ending 31 March 2010.
|
Rs. |
Direct materials |
45,000 |
Direct wages |
37,500 |
Profit |
30,450 |
Selling and distribution overheads |
26,250 |
Administration overheads |
21,000 |
Factory overheads |
22,500 |
Prepare a cost sheet and find out overhead recovery rates and percentage of profit on sales.
[Ans: Prime cost: Rs. 82,500; Works cost: Rs. 1,05,000; Cost of production: Rs. 1,26,000; Cost of sales: Rs. 1,52,250 Percentage of profit on sales = 16.67%
Overhead recovery rates:
Percentage of works overheads to wages |
60% |
Percentage of administration overhead to works cost |
20% |
Percentage of selling and distribution overhead to works cost |
25%] |
9. The estimated material cost of a job is Rs. 5000 and direct labour cost is likely to be Rs. 1,000. In machine shop, it will require machinery by Machine No. 8 for 20 hours and by Machine No. 11 for 6 hours. Machine hour rates for Machine No. 8 and No. 11 are Rs. 10 and Rs. 15 respectively. Considering only machine shop cost, the direct wages in all other shops last year amounted to Rs. 80,000 as against Rs. 48,000 for factory overheads. Last year factory cost of all jobs amounted to Rs. 2,50,000 as against Rs. 37,500 office expenses.
Prepare a quotation which guarantees 20% profit on selling price.
[Madras University]
[Ans: Price to be quoted: Rs. 9,904.38]
10. The following particulars rebate to the year ended 31 March 2010:
Completed Jobs Rs. | Work-in-Progress. Rs. | |
---|---|---|
Materials issued |
1,50,000 |
30,000 |
Wages |
1,05,000 |
21,000 |
Chargeable expenses |
22,500 |
1,500 |
Materials returned to stores |
1,500 |
– |
Works expenses were 60% of prime cost. Administration overheads were 30% of works cost. The value of jobs completed during the year was Rs. 7,50,000.
Prepare:
[Ans:
[Model: Batch costing]
11. M/S Exee Tools Ltd has an order to supply 48,000 special tools per annum. The set-up cost of tools per run is Rs. 648. It is estimated that it costs 10 paise as inventory-holding cost per tool per month. What should be the optimum run size for tools manufacturing?
[Ans: 7,200 units]
12. A contractor has to supply 10,000 paper cones per day for 320 days in a year. He finds that when he starts production, he can produce 20,000 units a day. The cost of holding a paper cone for 1 year is 2 paise and the set-up cost of a production run is Rs. 20. How frequently should production run be made?
[Madras University]
[Ans: Economic batch quantity: 80,000 units; Days required per batch: 4 days; Frequency of production: 80 times]
13. Compute the economic batch quantity for the company using batch costing with the following information:
Monthly demand for the component |
2,000 units |
Set-up cost per batch |
Rs. 120 |
Annual rate of interest |
6% |
Cost of manufacture per unit |
Rs. 6. |
[Madras University]
[Ans: 4,000 units]
14. A component item involves material cost of Rs. 6 per unit and 10 minutes to produce. The operator is paid Rs. 72 per hour and machine hour rate is Rs. 150. The setting-up of the machine to produce the component takes 2 hours and 20 minutes. Prepare cost sheet showing production and set-up costs for a batch of (1) 100 units and (b) 1000 units
[Madras University. Modified]
[Ans: |
(i) For 100 units: |
|
Production cost: Rs. 4,300 |
|
Set-up cost: Rs. 518 |
|
Total cost: Rs. 4,818 |
|
Cost/unit: Rs. 48.18 |
|
(ii) For 1000 units: Production cost: Rs. 43,000 Set-up cost: Rs. 518 Total cost: Rs. 43,518 Cost per unit: Rs. 43.158] |
15. A work order for 500 units of a commodity has to pass through four different machines, the machine hour rates of which are:
Machine No. 1 |
Rs. 1.25 |
Machine No. 2 |
Rs. 3.00 |
Machine No. 3 |
Rs. 4.00 |
Machine No. 4 |
Rs. 2.50 |
The following expenses have been incurred on the work order:
Materials Rs. 20,000; Wages Rs. 1,500
Machine 1 worked for 200 hours
Machine 2 worked for 300 hours
Machine 3 worked for 240 hours
Machine 4 worked for 100 hours
After the work order has been executed, materials worth Rs. 1,000 were returned to stores.
Office overheads are to be estimated at 60% of works cost; 10% of the production is going to be discarded, being unsatisfactory for which ½ of the cost can be realized from sale in the scrap market.
Find out the rate of selling price per unit if 20% profit on sale price is desired. Assume the net result output is 500 units.
[Madras University]
[Ans: |
Sale Price: Rs. 86.86 per unit Total sales: |
|
Rs. 43,434 Profi t: Rs. 8,686.86 Works cost: |
|
Rs. 22,860 Offi ce overhead: Rs. 13,716 Discarded units sold: Rs. 1,829] |
16. The following information for the year ended 31 December 2009 is obtained from the books and records of a factory:
Completed Jobs Rs. | Work-in-Progress Rs. | |
---|---|---|
Raw materials |
88,000 |
32,000 |
Supplied stores |
|
|
Wages |
1,00,000 |
40,000 |
Chargeable expenses |
10,000 |
4,000 |
Materials returned to stores |
1,000 |
– |
Factory overheads are 80% of wages. Office overheads are 25% of factory cost and selling and distribution overheads are 10% of cost of production.
[B.Com. (Hons) Delhi. Modified]
[Ans: (i) Rs. 1,35,000, (ii) Rs. 3,46,250 and (iii) Profit Rs. 29,125]
17. A factory used job costing. The following cost data are obtained from its books for the year ended 31 December 2009
|
Rs. |
Direct materials |
2,70,000 |
Direct wages |
2,25,000 |
Profit |
1,82,700 |
Selling and distribution expenses |
1,57,500 |
Administration overheads |
1,26,000 |
Factory overheads |
1,35,000 |
[C.A. (Inter). Modified]
[Ans: Prime cost: Rs. 4,95,000; Works cost: Rs. 6,30,000; Cost of production Rs. 7,56,000; Cost of sales Rs. 9,13,500; Sales value: Rs. 4,96,200; Price: Rs. 12,85,200]
18. A shop floor supervisor of a small factory presented the following cost for Job No. A to determine the selling price:
|
Per unit (Rs.) |
Material |
70 |
Direct wages (14 hrs @ Rs. 2.50/hr) |
35 |
Chargeable expenses (stores) |
5 |
|
110 |
Add: for expenses (overheads) |
37 |
Cost |
147 |
Analysis of the profit and loss account shows the following:
It is noted that average hourly rates for the two departments X and Y are similar.
You are required to:
[C.S. (Inter)]
[Ans: Profit: Rs. 26.25; Selling price: Rs. 157.50]
19. A factory can produce 60,000 units per annum at its optimum capacity. The estimated unit cost of production is as follows:
|
Rs. |
Direct material |
3 |
Direct labour |
2 |
Indirect expense |
1,50,000 p.a. |
Fixed |
5/unit |
Variable–Semi–variable: Rs. 50,000 p.a. up to 50% capacity and an extra of Rs. 10,000 for every 25% increase in capacity or part thereof.
The factory produces only against orders (and not for stock). The production programme of the factory is as indicated below. The management desires to ensure a profit of Rs. 1,00,000 for the year. Work out the average selling price at which each unit should be quoted:
First 3 months of the year: 50% of the capacity
Remaining 9 months: 80% of the capacity
Ignore selling and administration overheads.
[I.C.W.A. (Inter)]
[Ans: Rs. 17.24]
20. In an engineering company the factory overheads are recovered on a fixed percentage basis on direct wages and administrative overheads are absorbed on a fixed percentage basis on factory cost.
The company has furnished the following data relating to two jobs undertaken by it in a period:
Job 101 Rs. | Job 102 Rs. | |
---|---|---|
Direct material |
54,000 |
37,500 |
Direct labour |
42,000 |
30,000 |
Selling price |
1,66,650 |
1,28,250 |
Percentage profit on total cost |
10% |
20% |
Required:
Direct materials Rs. 24,000
Direct wages Rs. 20,000
Profit percentage on selling price
[C.A. (Inter)]
[Ans: Factory overheads: 60% of direct wages Administration overheads: 25% of factory cost. Job Factory overheads Administration overheads
|
Rs. |
Rs. |
|
Job 101 |
25,200 |
30,300 |
|
Job 102 |
18,000 |
21,375 |
|
Job 103–selling price: Rs. 80,000] |
|
|
21. A, an employee of XYZ Co., gets the following emoluments and benefits:
on 1st Rs. 100 of salary Rs. 400
on next Rs. 100 of salary Rs. 100
on balance every Rs. 100 Rs. 50 or part thereof
Provident fund |
8% of salary and DA |
ESI |
4% of salary and DA |
A works for 2,400 hours per annum; out of which 400 hours are non-productive but treated as normal idle time. A worked for 18 effective hours in Job No. 13 where the cost of direct material equals A’s earnings and the overhead applied is 100% of prime cost. The sale value of the job is quoted to earn a profit of 10% on such value.
You are required to find out:
[I.C.W.A. (Inter)]
[Ans: (a) Rs. 7.50 and (b) Rs. 600]
22. X Co., engaged in job work, has completed all jobs in hand on 30 December, and showed direct materials and direct labour cost of Rs. 80,000 and Rs. 60,000 respectively as having been incurred on Job No. 501.
The costs incurred by the business on 31 December 2009, the last day of the accounting year, were as under:
Direct materials (Job 501) |
Rs. 4,000 |
Direct wages (Job 501) |
Rs. 16,000 |
Indirect labour |
Rs. 4,000 |
Miscellaneous factory overheads |
Rs. 3,000 |
It is the practice of the business to make the jobs absorb factory overheads based on 120% of direct labour cost. Calculate the value of work-in-progress of Job No. 501 on 31 December 2009.
[Delhi University, B. Com. (Hons). Modified]
[Ans: Rs. 2,51,200]
[Model: Batch costing]
23. Component “Pee” is made entirely in cost centre 100. Material cost is 6 paise per component and each component takes 10 minutes to produce. The machine operator is paid 72 paise per hour and the machine hourrate is Rs. 1.50. The setting-up of the machine to produce component Pee takes 2 hours 20 minutes.
Based on the information, prepare cost sheets showing the production and set-up costs, both in total and per component assuming that a batch of (a) 10 components (b) 100 components and (c) 1,000 components are produced.
[C.A. (Inter); I.C.W.A. (Inter)]
[Ans: (a) Rs. 9.48; Rs. 0.948 (b) Rs. 48.18; Rs. 0.48 (c) Rs. 435.18; Rs. 0.435]
24. X Ltd is committed to supply 24,000 bearings per annum to Y Ltd on a steady basis. It is estimated that it costs 10 paise as inventory-holding cost per bearing per month and that the set-up cost per run of bearing manufacture is Rs. 324.
[C.A. (Inter). Modified]
[Ans: (a) 3,600 units; (b) 54 days; (c) Rs. 576 (Rs. 4,896 – Rs. 4,320); (d) Rs. 2,160; (e) Rs. 4,320]
25. Batch No. 37 incurred the following costs:
Direct materials |
Rs. 3,280 |
Department A |
420 labour hours @ Rs. 3.50 |
Department B |
686 labour hours @ Rs. 3.00 |
Factory overheads are absorbed on labour and the rates are Rs. 8 per hour for Department A and Rs. 5 per hour for Department B. The firm uses a cost plus system for setting selling price and expects a 25% gross profit (sales value minus factory cost).
Administrative overheads are absorbed as 10% of selling price.
Assuming that 1,000 units were produced in Batch No. 37, calculate:
[C.A. (Inter). Modified; I.C.W.A. (Inter). Modified; Madurai Kamaraj University, M.Com.]
[Ans: (a) Rs. 18.13; (b) Rs. 1813; (c) Rs. 2.72]
[Model: Back flush costing]
26.
|
Rs. |
Purchase of raw materials in January 2010 |
25,000 |
Conversion costs (inclusive of labour) in January |
20,000 |
Units computed in January |
1,200 |
Units sold in January |
1,000 |
Standard cost per unit of output |
|
|
Rs. |
Materials |
12 |
Conversion cost |
6 |
|
18 |
There are no direct material variances in January. It is also found that there are no opening stocks of raw materials, work-in-progress and finished goods. How would you treat the above under back flush costing. Apply all the versions.
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