Cost &

Managerial
Accounting

SOME BASIC THEORY FOR COST ACCOUNTING

ACCOUNTING
It is a study of systematic
 Recording
 Classifying
 Summarizing &
 Interpreting
all the business transaction in term of money By GAAP
COST
Cost is a forgoing, measured in monetary terms, incurred or potentially to be incurred to achieve a
specific objective. By AICPA
COST: ASSETS OR EXPENSE
Cost is something forgone in term of assets to achieve future benefit.
Assets: If future benefit has not yet achieved, it is an asset.
Expense: While, Expense is something, from which benefit has been achieved. In other
words expense is expired cost.
COST ACCOUNTING
It is branch of accounting that deals with the
 recording,
 classifying,
 summarizing, and
 interpreting
of information on a Cost Per Unit basis for the purpose of
a]. Planning and Controlling Operation
b]. Production costing
c]. Management decision making.
ELEMENTS/COMPONENTS OF COST
 Direct Material
 Direct Labour
 Factory Overheads
o Indirect material
o Indirect Labour
o Other Factory Expenses
 Factory Rent
 Heat, Power & Light
 Depreciation of Machines , Etc.
 Factory Related Expenses
INVENTORY STAGES
 Raw Material
 Work-In-Process/Goods in Progress/ Uncompleted Goods
 Finished Goods/ Completed Goods.

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ELEMENTS OF COST
Introduction
Elements of cost are necessary to have a proper classification and analysis of total cost. Thus,
elements of cost provide the management with necessary information for proper control and management
decisions. For this purpose, the total cost is analysed by the elements or nature of cost, i.e., material,
labour and overheads. The various elements of costs may be illustrated as below:

Materials Cost
Materials Costs refer to cost of materials which are the major substances used in production and are
converted into finished goods and semi-finished goods. Materials are grouped as direct materials and
indirect materials.
Direct Materials:
Direct materials are those that form part of a product. Raw materials, semi-
finished products, and finished products which can be identified with production of a product are known
as direct materials. Sugar cane, cotton, oilseeds, woods etc. are examples of direct materials. The cost of
materials involves conversion of raw materials into finished products.
Indirect Materials:
Material costs, other than direct material cost are known as indirect material
cost. Indirect materials cannot be identified with a particular unit of cost or product. Indirect materials are
indirectly used for producing the products. Lubricating oil, consumable stores, fuel, design, layout etc. are
examples of indirect material cost.

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Labour Cost
In actual production of the product, labour is the prime factor which is physically and mentally
involved. The payment of remuneration of wages is made for their effort. The labour costs are grouped
into (a) Direct Labour and (b) Indirect Labour.
(a) Direct Labour: Direct labour cost or direct wages refer to those specifically incurred for or can
be readily charged to or identified with a specific job, contract, work order or any other unit of cost are
termed as direct labour cost. Wages for supervision, wages for foremen, wages for labours who are actually
engaged in operation or process are examples of direct labour cost.
(b) Indirect Labour: Indirect labour is for work in general. The importance of the distinction lies in
the fact that whereas direct labour can be identified with and charged to the job, indirect labour cannot be
so charged and has therefore to be treated as part of the factory overheads to be included in the cost of
production. Examples are salaries and wages of supervisors, store keepers, maintenance labour etc.
(III) Expenses
All expenses are other than material and labour that are incurred for a particular product or process.
They are defined by ICMA as "The cost of service provided to an undertaking and the notional cost of the
use of owned assets." Expenses are further grouped into (a) Direct Expenses and (b) Indirect Expenses.
,(a) Direct Expenses: Direct expenses which are incurred directly and identified with a unit of
output or process are treated as direct expenses. Hire charges of special plant or tool, royalty on product,
cost of special pattern etc. are the examples of direct expenses.
(b) Indirect Expenses: Indirect expenses are expenses other than indirect materials and indirect
labour, which cannot be directly identified with a unit of output. Rent, power, lighting, repairs, telephone
etc. are examples of indirect expenses.
Overheads
All indirect material cost, indirect labour cost, and indirect expenses are termed as Overheads.
Overheads may also be classified into (a) Production or Factory Overhead (b) Office and Administrative
Overheads (c) Selling Overhead and (d) Distribution Overhead.

(a) Production Overhead: Production Overhead is also termed as Factory Overhead. Factory
overhead includes indirect material, indirect labour and indirect wages which are incurred in the factory.
For example, rent of factory building, repairs, depreciation, wages of indirect workers, etc.
(b) Office and Administrative Overhead: Office and Administrative Overhead is the indirect
expenditure incurred in formulating the policies, establishment of objectives, planning, organizing and
controlling the operations of an undertaking. All office and administrative expenses like rent, staff salaries,
postage, telegram, general expenses etc. are examples.
(c) Selling Overhead: Selling Overhead is the indirect expenses which are incurred for promoting
sales, stimulating demand, securing orders and retaining customers. For example, advertisement, salesmen's
commission, salaries of salesmen etc.
(d) Distribution Overhead: These costs are incurred from the time the product is packed until it
reaches its destination. Cost of warehousing, cost of packing, transportation cost etc. are some of the
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examples of distribution overhead.
Meaning: Cost Sheet or a Cost Statement is "a document which provides for the assembly of the
estimated detailed elements of cost in respect of cost centre or a cost unit." The analysis for the different
elements of cost of the product is shown in the form of a statement called "Cost Sheet." The statement
summarises the cost of manufacturing a particular list of product and discloses for a particular period:

SOME BASIC FORMULAE

The cost of direct materials and direct labor.

Prime Cost:
Direct material + Direct labour

The total direct labor cost plus the overhead cost.

Conversion Cost:
Direct labour + Factory overhead

Manufacturing Cost: Direct material + Direct labour + Factory overhead

Cost of Goods
Manufacturing cost + Work in process (beg) – Work in process (end)
Manufactured:

Raw material (beginning) + Net purchases of raw material –

Direct Material Used:
Raw material (ending)

Net Purchases of Raw Purchases of raw material + Transportation in – Purchase discount –

Material: Purchase return & allowance

Finished goods (beginning) + Cost of goods manufactured – Finished

Cost of Goods Sold:
goods (ending)

Per Unit Cost: Cost of goods manufactured

Number of units manufactured

Factory Overhead Rate Factory overhead X 100

Direct labour

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STATEMENT OF COST OF GOODS MANUFACTURED

Name of Business
Statement of Cost of Goods Manufactured
For the Period Ended
Raw Material Used:
Raw materials (opening) XXX
Add: Net Purchases of Raw Materials:
Purchases of raw materials XXX
Add: Transportation-in XXX
Delivered purchases of raw materials XXX
Less: Purchase discount (XXX)
Less: Purchase return and allowances (XXX)
Net purchases of raw materials XXX
Raw materials available for use XXX
Less: Raw materials (ending) (XXX)
Raw materials used XXX
Add: Direct labour XXX
Prime cost XXX
Add: Factory Overheads:
Indirect materials XXX
Indirect labours XXX
Factory maintenance and repair cost XXX
Heat, light and power XXX
Water, gas XXX
Factory supervisor salary XXX
Factory foreman salary XXX
Depreciation – factory XXX
Factory insurance expense XXX
Factory rent XXX
Other overheads XXX
Total factory overheads XXX
Manufacturing cost XXX
Add: Work – in – process (opening) XXX
Total work – in – process during the period XXX
Less: Work – in – process (ending) (XXX)
Cost of goods manufactured XXX

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INCOME STATEMENT
Name of Business
Income Statement
For the Period Ended

Sales XXX
Less: Sales discount XXX
Less: Sales returns and allowances XXX (XXX)
Net sales XXX
Less: Cost of Goods Sold:
Finished goods (opening) XXX
Add: Cost of goods manufactured XXX
Merchandise available for sale XXX
Less: Finished goods (ending) (XXX)
Cost of goods sold (XXX)
Gross profit XXX
Less: Operating Expenses:
Administrative expenses XXX
Selling expenses XXX
Distribution expenses XXX
Total operating expenses (XXX)
Net profit/Loss XXX/(XXX)

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PRACTICE QUESTIONS
Q.1
Direct Material = Rs. 50,000
Direct Labour = 75,000
Rent (Factory) = 5,000
Fuel & Power = 2,000
Rent (Office) = 3,000
Utility (Factory) = 3,000
Utility (Office) = 1,500
Factory Supervisor Salary = 5,000
Depreciation( Machines = 2,000
Indirect Material = 10,000
Indirect Labour = 5,000
Compute: i) Prime Cost ii) Factory Over Head
iii) Factory Cost iv) Conversion Cost
Q.2
Direct Material = Rs. 80,000
Direct Labour = 90,000
Rent (Factory) = 6,000
Fuel & Power = 4,000
Rent (Office) = 2,500
Utility (Factory) = 4,500
Utility (Office) = 2,500
Factory Supervisor Salary = 7,500
Depreciation (Machines) = 3,500
Indirect Material = 18,000
Indirect Labour = 7,200
Compute: i) Prime Cost ii) Factory Over Head
iii) Factory Cost iv) Conversion Cost
Q.3 Compute Factory Cost:
Direct Material = Rs. 50,000

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Conversion Cost = 150,000
Prime Cost = 100,000
Q.4 Compute Factory Cost:
Prime Cost = Rs. 250,000
Direct Material = 100,000
Conversion Cost = 380,000
Q.5
Material = Rs. 75,000( 80% Direct )
Labour = 100,000 ( 20 % Indirect )
Conversion Cost = 180,000 (Indirect Material and Labour are included)
Compute: i) Prime Cost ii) Factory Cost
Q.6
Material = Rs. 150,000 ( 25 % Indirect )
Labour = 200,000 ( 70% Direct )
Conversion Cost = 350,000 (Indirect Material and Labour are included)
Compute: i) Prime Cost ii) Factory Cost

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Q.7 Factory Cost = Rs. 500,000

Prime Cost = three-fifth of the Factory Cost.
Direct Material = one-fifth of the Factory Cost.
Compute: i) Direct Labour ii) Conversion Cost
Q.8 Factory Cost = Rs. 800,000
Prime Cost = three-fourth of the Factory Cost.
Direct Material = one-third of the Prime Cost.
Compute: i) Direct Labour ii) Conversion Cost
Q.9
Prime Cost = Rs. 600,000 which is 75% of Factory Cost
Direct Labour = 250,000
Compute: i) Factory Overhead ii) Conversion Cost
Q.10
Prime Cost = Rs. 540,000 which is 60% of Factory Cost
Direct Labour = 240,000
Compute: i) Factory Overhead ii) Conversion Cost
Q.11
Material = Rs. 120,000 [ 15 % Indirect]
Labour = 150,000 [ 75 % Direct ]
Rent = 25,000 [ 40 % Office ]
Fuel & Power = 40,000 [ 100% Factory ]
Utilities Expense = 8,000 [ 25 % Factory ]
Supervisor Salaries = 30,000 [ 60 % Factory ]
Depreciation = 45,000 [ 15 % Furniture, 25% Factory Building, 15% Office
Building
& Remaining for Factory Machines ]
Compute: i) Prime Cost ii) Factory Over Head
iii) Factory Cost iv) Conversion Cost [S.M]
RAW MATERIAL

Q.1. Raw Material - (opening) Rs. 6,000 Q.2. Raw Material - (opening) Rs. 8,500
Raw Material – Purchases 60,000 Raw Material - Purchases 65,000
Raw Material - Return 4,000 Raw Material - Return 1,500
Raw Material - (Ending) 3,000 Raw Material - (Ending) 4,800
Discount Received 2,000 Discount Received 1,200
Discount allowed 3,000 Discount allowed 2,600
Transportation In 2,000 Transportation In 1,500
Find Raw Material Consumed ? Find Raw Material Consumed ?
[S.M] [S.M]

Q.3. Raw Material – Consumed Rs. 60,000 Q.4. Raw Material - Consumed Rs. 75,000
Raw Material - Return 4,000 Raw Material - Return 6,000
Raw Material - opening 15,000 Raw Material - opening 12,000
Raw Material - ending 80% of Opening Raw Material - ending 75% of Opening
Find Raw Material Purchases ? Find Raw Material Purchases ?

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COST OF GOODS MANUFACTURED
Total Manufacturing Cost + Opening Work-in-Process – Closing Work In Process
COST OF GOODS SOLD
Cost of Goods Manufactured + Opening Finished Goods – Closing Finished Goods.
A.B.C Manufacturing Co.
Statement of Cost of Goods Manufactured
For the year ended ________ , 200X
Direct Material Consumed xxxx
Direct Labour Consumed xxxx
Factory Over Heads
Indirect Material
Indirect Labour xxx
Other Factory Expenses. xxx
Total Factory Over Heads xxx xxxx
Factory /Manufacturing /Production Cost xxxxx

Add: Work In Process- opening xxx

Total Work Put in Process xxxxx
Less: Work In Process- Closing (xxx)

Total Cost of Goods Manufactured. Xxxxx

SCHEDULE FOR RAW MATERIAL CONSUMED

Opening Raw Material xxx

Add: Raw material Purchases xxxx
Less: Purchases - Return (xxx)
Purchases - Discount (xxx)
Add: Transportation- In xxxx
Total Purchases of Raw Material xxxxx
Raw Material Available for Consumption xxxxx
Less: Raw Material- Ending (xxxx)
Raw Material Consumed Xxxxx
Practice Questions for Manufacturing Concern
QUESTION – 1
From the following data for the year ending June, 1997,
determine. A] The cost of goods manufactured for this year
and also
B] The cost of goods sold
Direct Material purchased Rs. 200,000
Direct Labour Costs 210,000
Manufacturing Overhead Cost. 175,000
Inventories were counted and priced as below:
June 30, 1997 June 30, 1996
Inventory of direct Materials. Rs. 50,000 Rs. 40,000
Inventory of work in process 80,000 75,000

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Inventory of finished goods 25,000 30,000 [C,97]

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QUESTION – 2
The following data have been taken from the book of Manufacturing Company Ltd. For the
year 1997-98.
Inventories July 1 June 30
Raw Materials Rs. 16,000 Rs. 18,000
Goods In Process 24,000 22,000
Finished Goods 12,000 26,000
Data for the Year
Sales Rs. 480,000
Purchases ( Raw Materials ) 110,000
Purchase discount 2,000
Direct Labour 90,000
Factory Over Head 98,000
Operating Expenses 70,000
REQUIRED:
a) Statement of Cost of Goods Manufactured b) Income Statement [B,98]
QUESTION – 3
The following data have been taken from the book of Ubaida Company Ltd. For the year 2002-03.
Inventories July 1 June 30
Raw Materials Rs. 36,000 Rs. 75,000
Goods In Process 90,000 75,000
Finished Goods 50,000 75,000
Data for the Year
Sales Rs. 960,000 Purchases ( Raw Materials ) Rs. 410,000
Purchase discount 15,000 Direct Labour incurred 175,000
Purchase Return 20,000 Transportation Inward 10,000
Rent (Factory) 35,000 Fuel & Power 55,000
Rent (Office) 3,000 Utility (Factory) 13,000
Utility (Office) 1,500 Transportation Outward 15,000
Factory Supervisor Salary 8,000 Depreciation ( Furniture) 10,000
Depreciation( Machines) 20,000 Other Operating Expenses 45,000
REQUIRED:
a) Statement of Cost of Goods Manufactured b) Income Statement [S.M]
QUESTION – 4
The following data have been taken from the book of Ghani Manufacturing Company Ltd. for the
year 2003-04.
Inventories July 1 June 30
Raw Materials Rs. 65,000 Rs. 55,000
Goods In Process 80,000 90,000
Finished Goods 50,000 75,000
Data for the Year
Sales Rs. 900,000 Purchases ( Raw Materials ) Rs. 310,000
Discount received 10,000 Direct Labour payment 250,000
Carriage Inward 25,000 Purchases Return (Raw materials) 10,000
Factory Expenses excluding Indirect Material and Labour amounted to Rs. 150,000, Indirect Labour is
20% of total payment & Direct Material is 90% of Total Raw Material Consumption.Total Administrative
and Selling Expenses amounted to 15% of Sales.
REQUIRED: a) Statement of Cost of Goods sold b) Income Statement [S.M]

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QUESTION – 5
From the following data, Prepare Cost of Good Sold Statement
Material consumed = Rs. 150,000 [ 20 % Indirect]
Labour incurred = 200,000 [ 75 % Direct ]
Rent = 35,000 [ 20 % Office ]
Fuel & Power = 45,000 [ 100% Factory ]
Utilities Expense = 10,000 [ 35 % Factory ]
Supervisor Salaries = 30,000 [ 60 % Factory ]
Depreciation = 45,000
[ 10 % Furniture, 15% Office Building, 25% Factory Building & Remaining for Factory Machines]
Inventories Opening Closing
Raw material Rs. 45,000 80% of Opening
W-I-Process 75% of Closing 80,000
Finished Goods 90,000 20% of Cost of Goods Manufactured [S.M]
QUESTION – 6**
Following information relates to commodity ‘ A ‘ of a manufacturing concern for their one month
operations:
Stock of Materials- Ending Rs. 31,400 Stock of Materials- Beg. Rs. 24,000
Material purchases 92,500 Carriage and Cartage Outward 2,150
Carriage and Cartage Inward 3,575 Drawing office Salaries 3,250
Counting House Salaries 6,300 Cash Discount Allowed 1,450
Bad Debts written off 3,250 Repair of Plant 2,225
Rent, Rates & Maintenance-Factory 4,250 Sales 230,500
Rent, Rates, & Maintenance-Office 1,000 Travelling Expenses 1,050
Traveller Salaries & Commission 3,850 Production Wages 63,000
Depreciation- Machinery 3,250 Depreciation- Office Furniture 150
Director’s Fee 3,000 Energy and Gas – Factory 600
Managers Salary (¾ Factory- ¼ Office) 5,000 Energy and Gas – Office 200
General Expenses – Factory 1,700 Process Inventory – Ending 16,200
Process Inventory – Beginning 20,500 Finished Goods - Beginning 10,600
Finished Goods Inventroy- ending 5,400
REQUIRED:
A] Cost of Goods Manufactured Statement B] Income Statement [C, 93]
QUESTION – 7
The accounting records of Alladen Manufacturing Co. include the following information relating to
the year ended December 31, 1996. December 31 January 1
Materials inventory Rs. 60,000 Rs. 47,500
Goods in Process Inventory 18,750 20,000
Finished Goods inventory ( January 1 5,000 units ) ? 95,000
Raw materials Purchases Rs. 142,500
Direct Labour cost 97,500
Factory overhead cost 221,250
22,500 units were manufactured and 20,000 units were sold.
REQUIRED:
a) Prepare a statement of cost of finished goods manufactured for 1996.
b) Compute the cost of producing a single unit during 1996.
c) Compute the cost of goods sold during 1996, assuming that the FIFO inventory costing
d) Compute Inventory of Finished Goods on December 31, 1996 assuming that FIFO Method [B,96]

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QUESTION – 8*
The books of Fazal Electronics Company Limited engaged in manufacturing of colour television.
Annual production capacity of the company is 15,000 televisions. During the year 1998, the company sold
12,000 televisions. Other informations for the year ending 31st December, 1998 were as follows:
Dec 31 Jan 1
Rs. ( in Thousands) Rs. ( in Thousands)
Material 3,000 5,000
Finished Goods ? 823
Work – in – Process 1,500 4,000
Finished Goods ( Units ) 500 100
Material Purchased 41,650 Direct Labour 21,000
Factory Over head 34,902 Selling Expenses 8,560
General & Admin. Expenses 9,656 Sales 127,200
REQUIRED:
1. Income Statement for the year ending 31st December 1998.
2. Number of units manufactured.
3. Cost per unit manufactured.
4. Value of Finished Goods Inventory as on 31st December, 1998
5. Net Profit per Unit Cost. [C,99]
QUESTION – 9**
Following transactions were recorded in the books of Wahid Electronics Est., for the month of April 1989.
Beginning Inventories: Rs. Ending Inventories: Rs
Materials 19,000 Materials 8,900
Work – In – Process 7,500 Work – In – Process 15,700
Finished Goods 26,000 Finished Goods 21,750
Transactions for the months were:
Material Purchased 275,000 Consumable & supplies (Indir. Mat.) 54,000
Utilites (Factory 60%, Office 40%) 60,000 Wages (Factory 70%, Office 30%) 90,000
Salaries – Office Staff 30,000 Salaries – Sales Staff 10,000
Travelling Expenses – Sales 25,500 Factory Overheads 16,000
Depreciation 15,500 Distribution Expenses 3,850
Sales 550,000
REQUIRED:
A] Cost of Goods manufactured and Sold statement for the year ended Dec. 31, 1990.
B] Income Statement for the year ended Dec. 31, 1990. [C,92]
FACTORY OVER HEADS (ACTUAL AND APPLIED)
If Factory Over heads [Applied] is given, we include Applied Factory Overhead in the Statement of
Cost of Goods Manufactured. Then the Difference between Applied Factory Overhead and Actual Factory
Overhead will be adjusted in Statement of Cost of Goods Sold.
A.B.C Manufacturing Co.
Statement of Cost of Goods Sold
Cost of Goods Manufactured ( Applied ) xxxx
Add: Finished Goods – Opening xxxx
Total Finished Goods Available For Sale xxxx
Less: Finished Goods – Ending (xxxx)
Cost of Goods Sold ( Applied ) xxxx
Add/Less: Under/Over Applied Factory Overhead xxxx
Cost of Goods Sold ( Actual ) xxxxx

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QUESTION – 10
Material Used Rs. 60,000 ( 80% Direct); Labour Incurred Rs. 80,000 ( 25 % Indirect ); Other
Factory Over Head Incurred Rs. 75,000. Factory Overhead applied at 120% of Direct Labour.
Prepare Cost of Goods Manufactured and Cost of Goods Sold at(actual) & at (Applied) [S.M]
QUESTION – 11**
The following data have been extracted from the records of A.B.C. Manufacturing Company:-
Inventory Accounts Jan. 1: Inventory Accounts Dec 31:
Material Rs. 45,000 Materials Rs. 38,000
Work- in- Process 15,000 Work – in – Process 12,000
Finished Goods 10,000 Finished Goods 17,000
The following transactions took place during the year 1990:
Direct Material Purchased Rs. 6,500
Indirect Materials Purchased and used 10,000
Factory Payroll Rs. 38,000 out of which Rs. 8,000 represented indirect labour. Other factory overhead cost
incurred Rs. 25,000. Factory overhead applied to production at the rate of 150% of direct labour cost.
Selling expenses Rs. 20,000 Admin Expenses 17,000
Financial Management Income 2,000 Financial Management Expense 3,000
Sale for the year 236,000 Sales return and Allowances 2,500
Carriage inward 4,000
REQUIRED:
A] Cost of Goods manufactured and Sold statement for the year ended Dec. 31, 1990.
B] Income Statement for the year ended Dec. 31, 1990. [C, 91]
QUESTION – 12.** 
Kaay Company’s Cost of Good Sold for the month ended June 30, 1995 was 645,000. Ending Material
Inventory was 10% higher than beginning Inventory and Work In Process ending Inventory was 80% of
beginning Inventory. Factory overhead applied was 50% of Direct Labour. Other Information pertaining to
inventories and production for the month of June, 1995 is as follows:
Beginning Inventories: June 1, 1995
Direct Material Rs. 340,000
Work – In – Process 270,000
Finished Goods 212,000
Material Purchased during the month 328,000
Finished Goods Inventory June 30, 1995 215,000
REQUIRED:
A] Prepare a Schedule of Cost of Goods Manufactured for the month of June 1995. [C,95]
B] Prepare a Schedule to Compute the Prime cost Incurred during the month.
C] Prepare a Schedule to Compute the Conversion Cost charged to Work– in–Process during the
month.
QUESTION – 13.** 
The payroll records of the Weber Company show payments for labor of Rs. 400,000, of which Rs.
80,000 is indirect labor. Materials requisitions show Rs. 300,000 for materials used, of which Rs. 280,000
represents direct materials. Other manufacturing expenses total Rs. 124,000. Finished goods on hand at the
end of the period are stated at cost, Rs. 176,000, of which Rs. 40,000 is direct materials cost. Factory
overhead is allocated on the basis of direct labor cost.
REQUIRED:
The amount of direct labor and the amount of factory overhead in Finished Goods [M.U: P2.1]

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QUESTION – 14.**
On October 1, the Florida Company had the following inventories: Materials, $ 24,000; work in
process, $ 12,000; and finished goods, $ 35,000. During the month, materials purchases totaled $ 56,000.
Direct labor for October was $40,000, at a uniform wage of $ 6.40 per hour. Marketing and administrative
expenses for the month amounted to 10% of net sales. Inventories on October 31 were as follows: materials,
$ 20,000; work in process, $8,000; and finished goods, $ 40,000. Net sales for October totaled $ 200,000.
Factory overhead is applied on the basis of $ 8 per direct labor hour.
REQUIRED:
a]. Prime Cost c]. Conversion Cost e]. Income from Operations[Net Income]
b]. Cost of goods manufactured d]. Cost of goods sold [M.U: E6]
QUESTION – 15.**
The following information was taken from the accounting records of MUSLIM CORPORATION:-
Inventories Jan.1, 1982 Dec. 31, 1982
Raw Materials 132,000 144,000
Goods in process 97,200 81,900
Finished Goods 144,600 292,500
Data for the year ended December 31,,1982
Cost of goods manufactured Rs. 2,430,000
Factory Overhead, 80% of Direct Labour 535,200
The company also paid transportation cost of Rs. 90,000 on material purchased. Materials worth
Rs. 48,900 was also returned to suppliers.
Required:
Prepare a statement of cost of goods manufactured for the year ended December 31, 1982. Some
information needed for this statement is not listed above but can be derived from the data given. Show
supporting computation for:
i) Total cost of goods in process during the year ii) Direct Labour
iii) Cost of raw material used iv) Cost of raw material available for use
v) Purchasing of raw materials (gross) [B, 82]
QUESTION – 16.**
The Books of Memon Manufacturing company were destroyed in a fire accident, but some how
following information were obtained:
Sales Rs. 600,000
Finished Goods(opening) 72,000
Work in Process (ending) 80,000
Work in Process (opening) 100,000
Raw Material – (Ending) 70,000
Raw Material – Returns 5,000
For the Missing Information, The company was referring percentages pertaining to Previous year’s
figures.
 Gross Profit Rate was 25% on Sales, Net Profit was 50% of Gross Profit
 Selling Expenses were 10% of Cost of Goods Sold,
 Finished Goods (ending) were 10% of Cost of Goods Manufactured,
 Raw Material (ending) was 140% of Raw Material (Opening)
 It was also analyzed that Direct Labour was 20% of Prime Cost and 25% of Conversion Cost
Required:
a] Income statement b] Cost of Goods manufactured
c] Calculate Raw material Purchases [S.M]

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