Topics to be covered: Statements of financial information (balance sheet and income statement) Understanding of annual report Cash flow

statement Financial statement analysis Cost concept and management needs Activity based costing system Volume-cost-profit analysis Budgeting and profit planning Revenue and profit variance analysis Responsibility accounting Short run decision analysis

Journal & Ledger

Journalise the following transactions in the books of Mr.Malik for the month of December 1995. Dec 1: Commenced business with cash Rs.1,00,000 and building Rs.50,000. Dec 2: The above cash is deposited in Bank. Dec 3: Received Cash Rs.10,600 from Amit and allowed discount to him Rs.400. Dec 4: Paid Rs.13,900 to Anand after deducting a discount of Rs.10. Dec 5: Received Rs.16,500 from Rajesh in full settlement of Rs.17,000. Dec 6: Paid Rs.24,500 to Ajay by cheque in full settlement of his account of Rs.25,000. Dec7 :Purchased goods worth Rs.20,000 less 10% T.D. and 5% C.D. from Vijay and paid him the full amount due in the spot. Dec 8: Purchased goods from Vishal for Rs.30,000 at 10% T.D and 5 % C.D., 60% of the amount due paid on the spot Dec 9: Received free samples from various parties amounting to Rs.5,000. Dec 10: One of our debtor to the extent of Rs.2,000 has become insolvent and only 60% in a rupee could be recovered from him in full settlement of his account. Dec 11: Goods woth Rs.2,000 lost in fire. Dec 12: Sold goods worth Rs.9,000 to Dinesh at 10% T.D. & 5% C.D., 40% amount received immediately. Dec 13: Sold goods to Krishna for Rs.30,000 at 10% T.D. Dec 14: Purchased goods from A & Company for Rs.40,000 at 10% T.D. Dec 15: Krishna returned goods worth Rs.5,000 gross. Dec 16: Returned goods worth Rs.4,500 (net) to A & Co. Dec 17: Sold goods to Sujit for Rs.20,000 less 5% T.D. and 3% C.D. Dec 18: Received a cheque from Krishna for Rs.22,000 in full settlement of his account. Dec 19: Issued a cheque of Rs31,000 to A & Co in full settlememt of their Account. Dec 20: Purchased 100 shares at Rs.60each, brokerage Rs.500 also paid. Dec 21: Sold shares of ABC Ltd for Rs.10,000 subject to brokerage of Rs.500. Dec 22: Purchased machinery for Rs.55,000 and spent Rs.5,000 for its installation. Dec 23: Sold goods worth Rs.5,000 at 10% C.D. Dec 24: Made cash purchases Rs.1,00,000 of 20% T.D and 10% C.D. Dec 25: Invoiced goods to Bindu for Rs.60,000 off 6% T.D. and received full amount on the spot.

Dec 26: Paid to Salman Rs.500 as advance against salaries. Dec 27: Borrowed Rs.10,000 from Mahesh.

Journalize the following transactions in the books of Pankaj and prepare the necessary ledger accounts for the month of August 1993: Aug 1: Commenced business with cash Rs.40,000, Furniture Rs.30,000, Goods Rs.10,000 and building Rs.1,00,000. Aug 2: Opened bank account with Bank of India by depositing Rs.5,000 Aug 4: Purchased goods worth Rs.5,000 from Pancholi Traders and paid half the amount in cash who allowed us 10% C.D. Aug 7: Rajesh & Co. purchased goods from us worth rs.2,000 at 10 % T.D. and 10% C.D. Aug 10: Paid LIC premium of Rs.400 and fire insurance premium of Rs.200. Aug 15: Invoiced goods to Mr. Maldar worth Rs.1,000 Aug 16: Placed and order with M/s. Lucky Traders for goods worth Rs.10,000 Aug 17 : Cash purchases worth Rs.5,000. Aug 18: Paid to Tulsidas Parikh Rs.250 being rent of residential premises. Aug 19: Goods costing rs.100 were distributed as free samples Aug 25: Received the goods from M/s. Lucky Traders as per our order and paid 1/4th amount in cash less Rs.100 discount. Aug27: Sold to Kumar, goods worth Rs.4,000 less 2.5% C.D. and received from him 15% amount by cheque. Aug 31: Withdrew cash from bank Rs.250 for personal use and Rs.500 for office use.

The following balance appeared in the ledger of Mr. Mehta on June 1, 1996. Cash A/c.: Rs.50,000 Purchases A/c: Rs.20,000 Sales A/c: Rs.25,000 Machinery A/c Rs.30,000 Capital A/c: Rs.35,000 His transactions for the month of June 1996 are as below: June1: Purchased goods from Mr.Dinesh worth Rs.20,000 with 10% T.D. and 5% C.D. June 3: Sold goods to Mr. Nandu worth Rs.15,000. June 4: Withdrawn from bank Rs.2,000 for meeting office expenses. June 5: Mr. Nandu paid Rs.14,500 in cash and was allowed discount of Rs.500. June 6: Paid carriage on behalf of Anil Rs.100 June 7: Sold an old machinery for Rs.2,000 June 8: Received Rs.10,000 from Arun as a loan. June 9: Exchanged with Dilip Machinery, by giving equal value of FurnitureRs.10,000. June 10: Purchased investmenst for Rs.10,000 and brokerage paid Rs.50. June 11: Purchased machinery worth Rs.24,000 from A & Co., 1/4th amount paid in cash June 13: Bought goods worth Rs.10,000 from Sunil on cash basis and he allowed cash discount at 5%. June 14: Wages paid to workers in cash Rs.5,000 June 15: Recevied interest from bank Rs.1,000 June 18: Vijay invoiced goods to us Rs.3,000. June 22: Received a cheque from B & Co for Rs.10,000 in full settlement of their account. June 25: Paid fire insurance premium Rs.1,000 June 29: Paid commission to Mr.Ajay by cash Rs.200. June 30: Old car costing Rs.35,000 was sold for Rs.40,000.

Journalise the following transactions in the books of Mr.Malik for the month of December 1995. Dec 1: Commenced business with cash Rs.1,00,000 and building Rs.50,000. Dec 2: The above cash is deposited in Bank. Dec 3: Received Cash Rs.10,600 from Amit and allowed discount to him Rs.400. Dec 4: Paid Rs.13,900 to Anand after deducting a discount of Rs.10. Dec 5: Received Rs.16,500 from Rajesh in full settlement of Rs.17,000. Dec 6: Paid Rs.24,500 to Ajay by cheque in full settlement of his account of Rs.25,000. Dec7 :Purchased goods worth Rs.20,000 less 10% T.D. and 5% C.D. from Vijay and paid him the full amount due in the spot. Dec 8: Purchased goods from Vishal for Rs.30,000 at 10% T.D and 5 % C.D., 60% of the amount due paid on the spot Dec 9: Received free samples from various parties amounting to Rs.5,000. Dec 10: One of our debtor to the extent of Rs.2,000 has become insolvent and only 60% in a rupee could be recovered from him in full settlement of his account. Dec 11: Goods woth Rs.2,000 lost in fire. Dec 12: Sold goods worth Rs.9,000 to Dinesh at 10% T.D. & 5% C.D., 40% amount received immediately. Dec 13: Sold goods to Krishna for Rs.30,000 at 10% T.D. Dec 14: Purchased goods from A & Company for Rs.40,000 at 10% T.D. Dec 15: Krishna returned goods worth Rs.5,000 gross. Dec 16: Returned goods worth Rs.4,500 (net) to A & Co. Dec 17: Sold goods to Sujit for Rs.20,000 less 5% T.D. and 3% C.D. Dec 18: Received a cheque from Krishna for Rs.22,000 in full settlement of his account. Dec 19: Issued a cheque of Rs31,000 to A & Co in full settlememt of their Account. Dec 20: Purchased 100 shares at Rs.60each, brokerage Rs.500 also paid. Dec 21: Sold shares of ABC Ltd for Rs.10,000 subject to brokerage of Rs.500. Dec 22: Purchased machinery for Rs.55,000 and spent Rs.5,000 for its installation. Dec 23: Sold goods worth Rs.5,000 at 10% C.D. Dec 24: Made cash purchases Rs.1,00,000 of 20% T.D and 10% C.D. Dec 25: Invoiced goods to Bindu for Rs.60,000 off 6% T.D. and received full amount on the spot. Dec 26: Paid to Salman Rs.500 as advance against salaries.

Dec 27: Borrowed Rs.10,000 from Mahesh.

Journalize the following transactions in the books of Pankaj and prepare the necessary ledger accounts for the month of August 1993: Aug 1: Commenced business with cash Rs.40,000, Furniture Rs.30,000, Goods Rs.10,000 and building Rs.1,00,000. Aug 2: Opened bank account with Bank of India by depositing Rs.5,000 Aug 4: Purchased goods worth Rs.5,000 from Pancholi Traders and paid half the amount in cash who allowed us 10% C.D. Aug 7: Rajesh & Co. purchased goods from us worth rs.2,000 at 10 % T.D. and 10% C.D. Aug 10: Paid LIC premium of Rs.400 and fire insurance premium of Rs.200. Aug 15: Invoiced goods to Mr. Maldar worth Rs.1,000 Aug 16: Placed and order with M/s. Lucky Traders for goods worth Rs.10,000 Aug 17 : Cash purchases worth Rs.5,000. Aug 18: Paid to Tulsidas Parikh Rs.250 being rent of residential premises. Aug 19: Goods costing rs.100 were distributed as free samples Aug 25: Received the goods from M/s. Lucky Traders as per our order and paid 1/4th amount in cash less Rs.100 discount. Aug27: Sold to Kumar, goods worth Rs.4,000 less 2.5% C.D. and received from him 15% amount by cheque. Aug 31: Withdrew cash from bank Rs.250 for personal use and Rs.500 for office use.

The following balance appeared in the ledger of Mr. Mehta on June 1, 1996. Cash A/c.: Rs.50,000 Purchases A/c: Rs.20,000 Sales A/c: Rs.25,000 Machinery A/c Rs.30,000 Capital A/c: Rs.35,000 His transactions for the month of June 1996 are as below: June1: Purchased goods from Mr.Dinesh worth Rs.20,000 with 10% T.D. and 5% C.D. June 3: Sold goods to Mr. Nandu worth Rs.15,000. June 4: Withdrawn from bank Rs.2,000 for meeting office expenses. June 5: Mr. Nandu paid Rs.14,500 in cash and was allowed discount of Rs.500. June 6: Paid carriage on behalf of Anil Rs.100 June 7: Sold an old machinery for Rs.2,000 June 8: Received Rs.10,000 from Arun as a loan. June 9: Exchanged with Dilip Machinery, by giving equal value of FurnitureRs.10,000. June 10: Purchased investmenst for Rs.10,000 and brokerage paid Rs.50. June 11: Purchased machinery worth Rs.24,000 from A & Co., 1/4th amount paid in cash June 13: Bought goods worth Rs.10,000 from Sunil on cash basis and he allowed cash discount at 5%. June 14: Wages paid to workers in cash Rs.5,000 June 15: Recevied interest from bank Rs.1,000 June 18: Vijay invoiced goods to us Rs.3,000. June 22: Received a cheque from B & Co for Rs.10,000 in full settlement of their account. June 25: Paid fire insurance premium Rs.1,000 June 29: Paid commission to Mr.Ajay by cash Rs.200. June 30: Old car costing Rs.35,000 was sold for Rs.40,000.

FINAL ACCOUNTS Q1. From the following trial balance prepare Trading and Profit and Loss Account for the year ending 31st December, 1976 and a Balance Sheet as on that date, after taking into consideration the following adjustments. Trial Balance Sheet as on 31st December, 1976 Debit Balance Opening Stock Sundry Debtors Purchases Wages Salaries Office Expenses Insurance Plant & Machinery Rent Travelling Expenses Returns Inwards Land & Building Bills Receivable Bank Balance Furniture Sundry expenses Bad Debts Advertisement Rs. 20,000 28,000 40,000 8,500 2,700 2,445 1,300 30,000 1,800 1,400 3,500 44,800 4,000 6,655 2,400 800 600 700 1,99,60 0 Credit Balance Bills Payable Returns Outwards Sundry Creditors Sales R.D.D. Capital A/c 10% Loan (taken on 1st July, 1976) Commission Discount (received) Rent (received) Rs. 10,000 2,500 21,500 70,000 400 90,000 3,000 1,000 500 700

1,99,600

Adjustments: 1) Closing Stock valued at Rs. 15,000 2) Outstanding wages Rs. 500, Outstanding Salaries Rs. 300 3) Prepaid Insurance Rs. 300 4) Depreciate Plant & Machinery at 10% Land and Building at 15% and Furniture at 5% 5) Provide Rs. 500 for further bad debts and maintain reserve for bad and doubtful debts at 5%. 6) Provides 5% interest on Capital. 7) Travelling expenses includes personal travelling of proprietor Rs. 400.

Q2.

The Trial Balance as on 31st December 1978 of Shrikant Traders is given below: Debit Balance Drawings Buildings Plant & Machinery Cash at bank Purchases Sales returns Carriage Inward Opening Stock Wages Sundry Debtors Salaries Postage & Telegram Rent & Insurance Bad Debts Discounts Trade Expenses Furniture Commission Prepaid Insurance Printing & Stationery Cash in hand Patents Rs. 350 20,000 6,000 550 47,500 1,500 350 11,000 6,000 17,600 2,500 200 400 250 100 300 5,000 500 300 700 2,400 2,500 1,26,000 Credit Balance Capitals Sale Purchase Returns Sundry Creditors Discount earned Reserve for bad debts Outstanding Salaries 6% Loan (taken On 01-10-1978) Rs. 25,000 75,500 1,000 12,600 50 750 100 11,000

1,26,000

Adjustments: 1) Stock as on 31st December 1978 was valued at Rs. 15,000. 2) Outstanding Wages Rs. 600 and outstanding rent Rs. 700. 3) Provide 10% depreciation on Plant & Machinery and 5% depreciation on furniture. 4) 5% Interest allowed on capital. 5) Goods worth Rs. 250 withdrawn by the proprietor for self use. 6) Goods worth Rs. 5,000 destroyed by fire and insurance company admitted a claim for Rs. 4,200. 7) Provide 5% R.D.D. at Sundry Debtors. Prepare a Trading Account & Profit and Loss Account for the year ended 31st December 1978 & the Balance Sheet as on that date.

Q. No.3) From the following balances taken from the ledger of M/s. AVON ENTERPRISES prepare the Manufacturing, Trading

and Profit and Loss Account for the year ended 31st December, 1990 and Balance Sheet as on that date after Considering the adjustments indicated below : Debit Balances Rs. Credit Balance s Capital A/c Scrap Sales Sundry Creditors Sales Rs.

Drawings Purchases Rates and Taxes Salaries Factory lighting and Heating Factory insurance Advertisements Bad debts written Off Tax (Personal) Sundry expenses Raw material30,000 Finished goods 25,000 Postages & telegram Wages Factory building Furniture & Fixtures Plant & Machinery Sundry Debtors 4% National Defence bonds Face values Rs. 15,000) Cash & Bank Bal Technical knowhow

50,000 10,52,500 12,500 50,000 10,000 3,000 10,000 5,000 1,000 1,700

3,60,000 7,500 52,500 12,56,500

55,000 6,500 22,500 1,00,000 25,000 50,000 93,500

10,000 18,300 1,00,000 16,76,500

16,76,500

Adjustments :-

1)

2) 3) 4) 5) 6) 7) 8) Q4.

Stock - in - trade as at 31-12-1990 Raw Materials 25,000 Finished Goods 20,000 Purchase invoices aggregating Rs.12,500 were omitted to be entered in the Purchase Day book. An amount of Rs.2,500/- received in respect of income on personal investments of the proprietor was wrongly credited to Sundry Debtors account. Provide depreciation @ 5% p.a on Buildings, @ 15% on furniture & fixtures & @ 20% on Plant and Machinery. During the year machinery having book value of 10,000/- was sold for Rs.6,500 on 1-1-90. Sale proceeds thereof were wrongly included in sales. Rates and taxes included rent of the proprietors house Rs.3,500/Write off further bad debt of Rs.1,000 and maintain reserve @ 2%. 1/10th Technical knowhow fees is to be amortised.

From the following particulars of Jaydeep, prepare Manufacturing, Trading and Profit & Loss Account for the year ended 31-121982, after giving effect to adjustments indicated below : Debit Balance Drawing Account Purchases Rent & Taxes Salaries Carriage Fuel and Coal Factory Insurance Advertisement Factory Power Bad debts written Off Cash Discount Sundry Expenses Opening Stocks Raw materials 30,000 Finished goods Rs. 50,000 10,52,500 12,500 50,000 10,000 7,000 3,000 10,000 8,000 5,000 1,000 1,750 Credit Balance Capital A/c 1-1-1982 Sales Cash Discount Creditors Rs.

3,66,000 12,66,500 7,500 52,500

25,000 Patents Postage & Telegrams Wages Factory Buildings Furniture & Fixtures Plant & Machinery Sundry Debtors 4% Govt. Pro-notes Subscribed on 1-1-1982 Cash in hand Cash in bank

55,000 6,000 6,500 17,500 1,00,000 25,750 47,500 93,500

10,000 22,750 97,250 16,92,500 16,92,500

Adjustments :Stock-in-trade 31-12-1982 : Raw Material Rs.25,000 Finished goods Rs.20,000 1) Depreciation to be provided : Plant and Machinery 10% Patents 10% Buildings 2 1/2% Furniture 5% 2) Provided 2 1/2% for Doubtful debts on debtors. 3) Purchase invoices aggregating Rs.12,500 were omitted be entered in the purchase Day Book. 4) Debtors include Rs.2,500 due from the proprietor. 5) An amount of Rs.2,500 received in respect of the private loan advanced by the proprietor was wrongly credited to Sundry Debtors account. 6) Purchase invoices of the value of Rs. 37,500 were entered in the purchase day book on 29th Dec. 1982, but the goods in respect thereof were received on 3-1-1983. 7) An amount of Rs.1,750 received from debtor was wrongly credited to Sales Account. 8) The annual interest on Government Promissory Notes accrued due on 31-12-1982, but was collected in 1983.

Q5.

Mr. Chetan the proprietor of Miracle Groups gives the following Trial Balance for the year ended on 31st March, 2001. Particulars Motor Vehicles Plant and Machinery Returns IDBI Bonds Interest on IDBI Bonds Bad Debts Provision for Doubtful Debts Life Insurance Premium of Mr. Chetan Bills of Exchange Debtors and Creditors Rent (Factory Rs. 62,500) Printing and Stationery Discount Insurance Sales Carriage on Finished Goods Sold Power and Fuel Wages Raw Material Purchased Withdrawls / Capital Opening Stock: Finished Goods Raw Material Work in Progress Cash in Hand Bank Overdraft Dr. (Rs.) 5,00,000 20,00,000 60,000 5,00,000 25,000 15,000 20,000 2,52,500 15,00,000 2,24,000 1,03,500 12,500 1,27,500 86,750 3,57,750 6,98,000 83,23,500 1,00,000 5,45,000 1,27,000 64,500 50,000 20,50,000 1,56,77,50 1,56,77,50 0 0 2,50,000 10,00,000 47,500 1,01,85,000 Cr.(Rs.) 75,000 55,000

20,00,000

Following further information is also given: 1) Stock at Cost on 31/03/2001 Finished Goods 10,00,000 Raw Materials 2,25,000 Work in Progress 1,25,000 The Market Value of Finished Goods as on 31/3/2001 was Rs. 12,50,000. 2) Provide Depreciation on Plant & Machinery @ 25% p.a. and on Motor Vehicles @ 20% p.a. 3) General Insurance Prepaid was Rs. 22,500 while factory rent outstanding was Rs. 32,500 on 31/03/2001.

4)

5) 6) 7)

Material costing Rs. 75,000 was destroyed by fire and insurance company admitted the claim to the extent of Rs. 50,000 on 28th March, 2001 and finished goods costing Rs. 37,500 has been distributed as free samples on same date. Rs. 50,000 has to be written of as bad debts. Create provision for doubtful debts and discount on debtors @ 5% and 2% respectively. Purchase include Rs. 20,000 being machinery purchased on 1/10/2000. During the year Bills Receivable of Rs. 20,000 has been dishonoured and no entry has been passed for this in the books.

Q6.

From the following trial balance as on 31-3-1984 and after considering the other information, you are required to prepare Manufacturing, Trading & Profit & Loss Account of M/s. Venus Manufactures for the year ended on 31st March, 1984 : Debit Balances Drawing Account Land Building Plant & Machinery Loose tools Bills receivable Bank balance Cash on hand Opening Stock (Raw Materials) Purchases of Raw Materials Returns Wages Carriage inward Carriage outward Power and Fuel Salaries Rent Debtors Advertisement Rs. 38,000 20,000 50,000 1,00,000 10,000 20,000 16,000 1,000 40,000 11,00,000 14,000 66,000 6,000 7,600 17,200 44,000 2,200 4,49,000 Credit Balance Capital A/c Bills Payable Sales of finished goods Returns Discount Creditors Rs. 4,40,000 60,000 14,80,000 10,000 500 90,000

Expenses Bad Debts Water Charges Stores Furniture Stationary & Printing General Expenses Insurance Repairs to Machinery Extension to Building

5,000 1,000 4,800 2,000 4,000 4,000 35,800 7,700 3,200 12,000 20,80,500 20,80,500

Other information :1) Stock of raw materials as on 31-3-1984 was Rs.20,000. There was no opening and closing stock of finished goods. 2) Depreciate Plant & Machinery at 10%, Loose tools at 10%, furniture at 10%, Building at 5%. Extension to Building was completed on 1-1-1984. 3) Provide for doubtful debts at 5% and for discount on sundry debtors at 2%. 4) The concern owes Rs.6,000 for wages and Rs.4,000 for salaries. 5) Rent amounting to Rs.200 for March is not paid. 6) Insurance amounting to Rs.1,500 is for the next year. 7) Bill water charges for the last quarter for Rs.1,500 was received in May 1985 and has remained unadjusted. Q7. From the following information, prepare Manufacturing, Trading & P & L A/c for the year ended 31st December, 1990 and Balance Sheet as at that date of M/s. M & Co. Debit Balances Ms Drawing Purchases-Raw Materials Freehold property Plant & Machinery Rs. Credit Balances 36,000 Ms Capital Returns outward 1,90,000 Sundry creditors 1,20,000 Provision for 2,00,000 doubtful debts Rs. 3,29,800 10,000 80,000 1,000

Salaries Office expenses Furniture & Fixtures Discount allowed Sundry debtors Investment at cost in 10% Govt. Bonds Bank balance B. R. Petty cash in hand Opening stock: Raw materials Work in progress Finished goods Advance against Purchase of Machinery Wages Postage & Telephones Insurance premium Power & Fuel Bad debts Office rent Freight inward Loose tools Office electricity

24,000 5,000 10,000 1,200 52,000 40,000 10,600 6,000 2,400 16,000 26,000 38,000

Interest on investments Sales Bills Payable

2,000 4,40,000 10,000

20,000 30,000 3,000 3,600 10,800 3,000 5,400 10,000 5,000 4,800 8,72,800

8,72,800

Additional Information : 1) Stock as on 31st December, 1990 Raw materials Rs.20,000 Work in progress Rs.17,500 Finished goods Rs.76,000. 2) Outstanding expenses were wages Rs.3,000 and Salaries Rs.1,800. Insurance premium prepaid was Rs.500/- but it was included in office expenses. 3) A new machine was purchased on 30-9-90. No payment was made in settlement of the net balance due as per the bill which was Rs.10,000. No entries for the acquisition of the machine were passed in the books of account.

4) 5) 6) 7) 8) 9) 10) 11)

Depreciate machinery at 10% p.a. and furniture and fixtures at 15% p.a. Loose tools were valued at Rs.3,800 as on 31-12-90. Write off Rs.2,000 out of the debtors as bad and provide for doubtful debts at 5% on the debtors. The manager is entitled to commission @ 5% of the N.P. after charging the commission. BR included dishonoured bill of Rs.2000, 50% of which is turned out as bad. Goods supplied to proprietor Rs.2000 wrongly included in debtors. Sales include goods at Sales Price Rs. 6,000 sent on approval at cost +20% 50% of goods are approved. Petty cash balance on 31.12.90 was Rs. 400. Furniture with book value 4000 was sold for Rs. 5,000 but proceeds were included in sales.

Q8.

From the following trial balance of Mohan as on 31st March, 1984 and the adjustments given thereafter, you are required to prepare the Trading and Profit & Loss Account for the year ended on 31st March, 1984 and the balance sheet as on that date.

Trial Balance of Mohan as on 31st March, 1984 Debit Balances Drawing Cash Stock as on 1-4-1983 Carriage Outwards Bad debts Wages Power and fuel at Rs. 4,000 p.m. Returns inwards Purchases Rent @ Rs. 2,000 p.m. Salesmans Commission @ 5% of sales Insurance paid Rs. Credit Balances 38,000 Capital as on 2,000 1-4-1983 Bank of Baroda 80,000 Returns Outwards 14,000 Sales 4,000 Interest 1,10,000 Received Loan received 44,000 from Ganga on 12,000 1-1-1984 @ 3,60,000 8% p.a. Commission 22,000 Received Creditors Discount 24,000 Rs. 2,00,000 80,000 10,000 6,00,000 3,000

80,000 36,000 59,000 2,000

From 1-4-1983 To 31-5-1984 Loan given to Nayan On 1-41983@ 10% p.a. Carriage inwards Salaries Interest on bank over draft Investments Plant & Machinery Furniture Delivery Van (purchased on 1-10-1983) Office equipment Debtors Discount

14,000 40,000 20,000 42,000 5,000 26,000 90,000 6,000 24,000 8,000 84,000 1,000 10,70,000

10,70,000

8)

Following information is also furnished : 1) Stock on 31-3-1984 is worth Rs. 1,50,000. It includes goods worth Rs. 10,000 which were received on 29-3-1984 but the bill for which was not received till 31-3-1984. 2) Goods worth Rs.20,000 were supplied to customers on 30-3-1984 but sales invoices were not prepared till 313-1984. 3) Wages for March 1984 amounting to Rs.10,000 were paid on 7th April, 1984. 4) Commission received in advance amounted to Rs. 4,000. 5) Provide Rs.7,000 for bad debts. 6) Provide depreciation :@ 20% per annum on delivery van. @ 15% per annum on furniture and office equipment. @ 10% per annum on plant and Machinery. 7) On scrutiny of bank statements, it was found that the bank had debited Mohans Account with Rs.500 as bank commission in March, 1984, but entry for the same was recorded in the cash book on 14th May, 1984. On 31st March, 1984, Mohan received a cheque for Rs.8,000 as dividend on investment. However, the entry for this was passed on 5th April, 1984.

COMPANY ACCOUNTS Q.NO.1 Following is trial Balance of KITTU LTD 31-12-95 DEBIT CREDIT Calls in Arrears 25,000 10 % Pref. Shares of 8,00,000 100 Opening Stock 4,50,000 Equity Shares of 10 12,00,00 each 0 Purchases 28,20,00 Sales 36,25,00 0 0 Freight 70,000 12$ Debentures (1-1095 Salaries [ 11 months ] 1,65,000 Secured on Building ) 6,00,000 Office rent & Taxes 6,000 Tax Provision [ L. Year ] 2,50,000 Travelling Expenses 8,000 Creditors 5,00,000 Printing & Stationary 10,000 Profit & Loss 1,00,000 Postage & Telegram 7,000 General Reserve 2,00,000 Building 10,00,00 0 Furniture & Fittings 2,40,000 Delivery Van 1,80,000 Carriage outward 9,000 Advance Tax [L. Year ] 2,40,000 Advance Tax [C. Year ] 2,50,000 Debtors 4,50,000 Bank Balance 3,40,000 Investments [ 12% government Securities Face Value 1025000 Purchased on 1-8-95 10,05,00 0 72,75,00 72,75,00 0 0 [1] Closing Stock Rs.5,68,000 [2] Sale include 1,25,000 being sales on behalf of consignors on which 4% commission is due. [3] Directors remuneration is 5 % of net profit before tax. [4] Last years income tax assessment was completed for Rs.2,25,000 [5] Provide 10,000 for Audit Fees & 4,000 for Professional charges payable to Auditor.

[6] [7] [8]

Depreciation Building - 2.5 %, furniture - 10 % Delivery Van - 20% Income tax Provision is to be made 40 % of Net Profit. Proposed dividend 12 % and transfer 50,000 To General Reserve. Prepare Trading, Profit & Loss and Balance Sheet as at that date.

Q.NO.2

Following is the trial balance of NOICO LTD DEBIT CREDIT Advance Tax [ L. Year ] 3,65,000 Share Capital Intrim dividend Directors fees Prepaid Insurance Debenture Interest Bank Balance T.D.S. Int on Investments Investments [M.Value 474000] Debtors [ 55000 due for more Than 6 Months ] Stock Vehicles [Cost 1,50,000] Furniture [Cost 2,00,000 ] Machinery [ Cost 30,00,000 ] Land-Building[Cost 10,00,000] 1,73,000 20,000 30,000 75,000 General Reserve Tax Provision [ L. Year ] Profit & Loss 15% Debentures O.B

2,26,000 Gross Profit 16,000 Share Premium 5,00,000 Creditors Outstanding Expenses 24,55,00 Interest on Investments 0 16,60,00 0 1,00,000 1,60,000 21,20,00 0 8,00,000

30,00,00 0 3,00,000 4,40,000 5,74,000 10,00,00 0 10,50,00 0 2,50,000 20,00,00 0 36,000 50,000

87,00,00 87,00,00 0 0 [1] Depreciation for the year charged against trading account : [a] Land & Building -.50,000 [b] Plant & Machinery - 3,00,000 [c] Furniture - 16,000 [2] Directors remuneration 15,000 & 1,00,000 staff salaries was charged to Trading Account. [3] Income Tax Assessment for last year completed resulting in a gross demand of .3,40,000

[4] [5]

Tax Provision for Current Year should be kept at Rs.3,00,000. Directors recommend transfer of Rs.2,00,000 to Debenture Redemption Fund, Rs.3,50,000 to General Reserve and a final dividend of 10% . Prepare Profit and Loss account and Balance Sheet.

COST ACCOUNTING Prof. Amit Godses Lecture Notes COST SHEET What do you mean by cost? Cost for a layman means price of a commodity. However, from the view point of the manufacturer. Cost means the total amount of expenditure incurred to produce a marketable commodity. It includes all expenditure incurred for procuring the raw material, and continues till the final finished product is sold. These costs are incurred at different stages and each such cost is of a varying nature and purpose. What is cost sheet? The structured format in which such costs are p0resented is cost sheet. In simple words cost sheet is a logical listing of various costs. While preparing cost sheet various types of costs are grouped together depending upon their nature, and are presented in a structured format.

Following is the structure of cost-sheet? Total cost Rs. xxx xx xx xx (xx) (xx) Per Unit Cost

Particulars Direct Material Costs: Opening Stock of materials (+) Purchases (+) Carraige inwards (+) Customs duty / Dock charges/ Freight (-) Closing Stock (-) Sale of raw material scrap Direct wages Direct Expenses / Chargeable exps Prime costs (+) Factory Expenses / Over heads. (+) Opening Stock (WIP) (-) Closing Stock (WIP) (-) Sale of scrap. (Processed scrap) Factory cost (+) Office / Administrative Overheads Cost of Production (+) Opening Stock (FG) (-) Closing Stock (FG) Cost of Goods Sold (+) Selling / Distribution Overheads Cost of Sales (+) Profit Sales

Rs.

xxx xx xx xxx xx xxx xx (xx) (xx) xxx xx xxx xx (xx) xxx xx xxx xx xxx

Factory Overheads include: Factory rent, Factory lighting, works managers salary, motive power, power, Fuel, Heat, Water charges, laboratory expenses, Depredation on P/M, depredation Factory Bldg, Repairs, Maintenance of Factory, Indirect /Unproductive wages, Estimation

expenses, technical directors fees, royalties on production, Loose tools w/off, factory stationery, supervisors salary, service departments expenses, and all other factory related expenses. Office / Administrative Expenses include: Office rent, Taxes, Staff Salary, office lighting, office cleaning, Printing, and Stationery, postage, Telegram, conveyance (office), depreciation on office furniture Building, depreciation on office equipments, office repairs, general expenses, legal expenses, audit fees. Selling distribution overheads include: Advertisement, showroom expenses, travelling expenses, commission on sales, sales mans salary, packing expenses, servicing expenses, carriage outwards, insurance of ware house, salary to sales dept, delivery van expenses including depredation and al sales related expenses.

Specific exclusions from cost sheet: Following expenses appearing in Financial Accounts are completely excluded in cost sheet: I. Interest on loans, debentures, fixed deposits. II. Share issue expenses, discount on issue underwriting commission, share transfer expenses. III. Fines and penalties. IV. Cash discount V. Loss on sale of fixed assets / investments. VI. Compensation or damages paid. VII. Baddebts written off / Provision for RBD. VIII. Income tax paid, Provision for income tax. IX. Goodwill /Preliminary expenses / Discount on issue of shares/ debentures written off. X. Charities / Donation. XI. Dividend declared. XII. Transfer to reserves / sinking fund etc. Following expenses appearing in Financial Accounts is excluded in Cost Account:

I. Rent from property. II. Profit on sale of fixed assets / investments etc. III. Interests on investments/ dividends etc. IV. Discount received. V. Any other gains a part from sales, sale of scrap.

Q1.

The books and records of the Kunal Manufacturing Company presents the following data for the month of August, 1987. Direct Labour cost Rs. 16,000 (160% of factory overhead) Cost of goods sold Rs. 56,000 Inventory accounts showed these opening and closing balances: August 1 August 31 Rs. Rs. Raw materials 8,000 8,600 Work in progress 8,000 12,000 Finished goods 14,000 18,000 Selling expenses 3,400 General and administration 2,600 expenses Purchase of Finished Goods 5,000 You are required to prepare a statement showing cost of goods manufactured and sold and profit earned. Sales was Rs. 65,000.

Q2.

Prepare a cost sheet showing the cost per tonne of paper manufactured by BHADRACHALAM PAPER MILLS in January, 1991 under the different elements of cost.

Direct Materials:

Q3.

i) Paper pulps 1,000 tons @ Rs. 80 per ton ii) Other miscellaneous materials 200 tons @ Rs.. 50 per ton Direct Labour i) 220 skilled men for 25 days @ Rs. 6 per day ii) 110 unskilled men for 25 days @ Rs. 4 per day Direct Expenses: i) Special equipment hire charges Rs. 10,000 ii) Special dyes Rs. 5,000 Works Overhead: `i) Variable @ 100 per cent on wages ii) Fixed @ 50 per cent on direct wages Administrative Overhead @ 10 per cent on works cost Selling and distribution overhead @ 20 per cent on works cost. Finished paper manufactured 1,000 tons Sales of Waste Rs. 2,000. Sales Rs. 400 per ton. Swadeshi Electronics Ltd. furnished to you the following information for the year ended 31st March, 1996.: Production and Sales 15,000 units Sales Rs. 12,75,000 Direct Wages Rs. 2,70,000 Direct Materials Rs. 3,30,000 Factory Overheads Rs. 2,25,000 Administrative Overheads Rs. 1,05,000 Sales Overheads Rs. 90,000 On account of intense competition following changes are estimated in the subsequent year: I. Production and Sales activity will be increased by one third. II. Material rate will be lower by 25%. However there will be increase in consumption by 20% due to quality difference. III. Direct Wages cost would be reduced by 20% due to automation. IV. Out of the above factory overheads, Rs. 45,000 are of fixed nature. The remaining factory expenses are variable in proportion to the number of units produced. V. Total administrative overheads will be lower by 40%. VI. Sales overheads per unit would remain the same. VII. Sale price per unit would be lower by 20%.

Prepare a statement of cost for both the years ending 31 st March, 1996 and 31st March, 1997 showing maximum possible details of cost. Q4. M/S. BATA SHOE CO. Manufactures two types of shoes A and B, Production costs for the year ended 31st March. 1989 were: Rs. Direct Materials 15,00,000 Direct Wages 8,40,000 Production Overheads 3,60,000 27,00,000 There was no Work-in-progress at the beginning or at the end of the year. It is ascertained that: I. Direct Material in type A shoes consists twice as much as that in type B shoes. II. The direct wages for type B shoes were 60% of those for type A shoes. III. Production overhead was the same per pair of A and B type. IV. Administrative overheads for each type was 150% of direct wages. V. Production during the year were: 40,000 Pairs of 36,000 Were sold. which Type B 1,20,00 Pairs of 1,00,000 Were sold. 0 which I. Selling cost was Rs. 1.50 per pair. II. Selling price was Rs. 44 for type A and Rs. 28 pr pair for type B. Prepare a statement showing cost and profit. Type A

Q5.

A factory manufactures a uniform type of article and has a capacity of 6,000 units per week. The following information shows the different elements of cost for three consecutive weeks when the output has changed every week. Units produced Direct materials Direct labour Factory Overheads (partly variable & partly fixed). 12,500

2,000

12,000

6,000

2,800 3,700

16,800 22,200

8,400 11,100

16,500 21,000

The factory has received an order for 5,000 units and it desires a profit of 16-2/3% on selling price. Find out the price at which each unit should be sold. Q6. Domestic appliances manufactures Pressure Cookers. For the year ending 31st December, 1999, expenses incurred are as follows for an output of 2000 units. Rs. Raw materials consumed Direct wages Factory overheads Administrative overheads Selling overheads (10% of sales value) Distribution overheads 2,00,000 1,00,000 1,60,000 46,000 70,200 36,000

During the year, 200 units were unsold. For the year 2000, the following changes were estimated: I. Raw materials price would rise by 10% but consumption per unit would decrease by 5%. II. Direct wages would rise by 3.5%. III. Of the factory overheads Rs. 60,000 are fixed and would remain at the same level but the variable there of would be in same proportion to Direct wages as in 1999. IV. Administrative overheads would rise by 20%. V. Selling overheads as a percentage of sales value would remain at the same level and distribution overheads would remain same per unit as in 1999. VI. The output and sales would be 3000 pressure cookers. VII. Expected profit in the year 2000 is 40% of sales. From the above information prepare: A. Cost-sheet of the year 1999 and projected cost sheet of the year 2000 showing per unit and total cost.

B. Working note for the projected cost sheet. C. Projected sales price. Q7. Vaijnath Polymers manufactures and sells a typical branch of tiffin boxes under its own brand name. The installed capacity of the plant is 1,20,000 units per year distributable evenly over each month of calendar year. The cost Accountant of the company has informed you about the cost structure of the product which is as follows: Raw Materials Direct Labour Direct Expenses Variable Overheads Fixed Overheads for the year Rs. Rs. Rs. Rs. Rs. 20 per unit 12 per unit 2 per unit 16 per unit 3,00,000

Semi-Variable Overheads are as follows: I. Rs. 7,500 per month upto 50% capacity and II. Additional Rs. 2,500 per month for every additional 25% capacity utilization or part thereof. The plant was operating at 50% capacity during the first seven months of the calendar year 1999 and at 100% capacity in the remaining months of the year.The selling price for the period from 1st January 1999 to 31st July, 1999 was fixed at Rs. 69 per unit. The firm has been monitoring the profitability and revising the selling price to meet its annual profit target of Rs. 8 lacs. You are required to suggest the selling price per unit for the period from 1st August, 1999 to 31st December 1999. Prepare cost sheet clearly showing the total and per unit cost and also profit for the period: a) From 1st January 1999 to 31st July 1999. b) From 1st August 1999 to 31st December 1999.

Operating Costing Q.1. A cement manufacturing company is facing the problem of

transportation from its quarry. The quarry is situated 25 Kms away and the only means of transport available is the roadways. The company has received quoatations from some of the local transporters at Rs.22 Rs.22.50 and Rs.23 per tonne of limestone transported, with an escalation clause in respect of diesel oil costs. The quantity of limestone to be transported per month is 24,000 tonnes. While studying the feasibility of department transport, the following facts came to be recognized: a. Two types of trucks are available in the market, namely, 10 tonners and 8 tonners

b. Details of operating costs for the trucks : 10 Purchase price Estimated useful life Residual value Km. per litre of diesel Estimated repair and maintenance cost per truck Vehicle and road tax per quarter Tonner Rs.2.5 Lakh 5 year Rs.40,000 3Km Rs.1,000 P.m Rs.600 c. cost of diesel per litre d. cost of finance for purchase of trucks 12% p.a e. Each vehicle can run 5 trips (up and down) each day, and can run on a an average for 24 days in a month. f. Drivers will have to be recruited according to the number of trucks to be purchased. In addition, one extra driver for every 5 vehicles will be required for the entire fleet. A driver will cost Rs.400 per month. g. An additional transport supervisor would be required at a cost of Rs.1,000 per month. h. Yet another possibility is to hire sufficient number of trucks (8 tonnes only) from a transport company at the rate of Rs.6,000 per month pe truck. The transport company will undertake to pay repairs an maintenance costs as well as vehicle and road tax. The cement company has to bear the cost of driver, supervisor and other operational costs. You are required to advise the board on a appropriate choice among the above alternatives considering also the option of entrusting the job to the transport operators. 8 Tonnre Rs.2.0 Lakh 5 year Rs.20,000 4 Km Rs.1,600 P.m Rs.600

Q.2. Remix p.i.c makes ready-mixed cement and operates a small fleet of vehicles which delivers the product to customers within its delivery area. General data: Maintenance records for the previous five year reveal:year 1 2 3 4 5 Transport statistics reveal: Number Vehicle s 1 2 3 4 (Trips) 6 4 2 2 Mileage of vehicles 1,70,000 1,80,000 1,65,000 1,60,000 1,75,000 of Average tonnage Carried customers (Tones) 4 4 5 6 10 20 40 30 to Maintenance (Rs) 13,500 14,000 13,250 13,000 13,750 Average distance to customers (miles) cost

journey Each day

5 1 8 60 There are five vehicles operating a five day week, for 50 weeks a year. Inflation can be ignored. Standard cost data include:Drivers wages are Rs.150/- each per week. Supervisor/relief drivers wages is Rs.200 per week. Depreciation, on a straight line basis with no residual value: Loading equipment Vehicles (each) Petrol cost 30 P. per mile. Cost Rs.1,00,000 Rs.30,000 Life 5 Year 5 Year

Repair cost 7 P. per mile Vehicle licences cost Rs.400 p.a. for each vehicle Insurance cost Rs.600 p.a. in total Tyres costs Rs.3,000 p.a. in total Miscellaneous costs,Rs.2,250 p.a. in total. you are required to calculate a standard rate per tonne/mile of operating vehicles. Q.3 Taj group of Hotels runs a chain of hotels throughout the world. It has its head office in Bombay. The management has been preparing its budget for the next year and first hotel has selected in Hotel Taj, Bombay. The hotel does not remain fully occupied always .However much depends on seasons. For this purpose, the year is divided in three parts, summer, winter and monsoon each season of 4 months. There are three types of rooms ordinary, deluxe and aristocrat. The management has made the estimate for the coming year. Depreciation Salaries Transportation Laundry Charges Bed Sheet etc; Municipal Taxes ,rates 15,000 25,00,000 1,50,000 4,00,000 2,50,000 6,00,000 of capacity

The charges mentioned above are fixed irrespective capacity utilization. a. Lighting (i) Rs. 20 per day in each season for ordinary room

utilization, whereas charges mentioned below depend solely on the

(ii) Rs. 25 per day in each season for Deluxe room (iii) Rs. 30 per day in each season for aristocrat room b. Salary of room attendant

(i)

Rs. 40 per day ordinary room in summer

(ii) Rs. 50 per day deluxe room in summer (iii) Rs. 60 per day aristocrat room in summer (iv) Rs.30,40&50 respectively for ordinary room, deluxe room and aristocrat room respectively in winter and monsoon. c. Light refreshment (i) Rs.35 per day for summer

(ii) Rs.45 per day for winter (iii) Rs.60 per day-for monsoon d. Other expenses Rs.20 per day room The capacity utilization, as such, is very uncertain. However based on past experience, following could be the best possible estimates: In summer, the utilization is maximum and all 150 ordinary rooms remain occupied. in the case of deluxe room and aristocrat rooms ,the utilization is 90 and 60 i.e. 90% and 80% respectively. In winter, utilization is 80% and 60% and 40% respectively for ordinary, deluxe and aristocrat rooms. In monsoon utilization is only 60%, 40% and 20% respectively. In addition, each hotel has to bear the change of head office expenses, proportionately. It is estimated that head office expenses would be Rs. 20,00,000/- and that the Bombay branch will bear 10% of total head office expenses. It is the managements policy to add 25% to the cost and further that aristocrat room charges should be 3 tomes the ordinary room charge and deluxe room should be twice the ordinary room change.

You required to work out various rates for the next year .Also work out thee rates if deluxe room charge should be triple of ordinary room in charge in all season but in aristocrat room case, charge should be 3.5 times in summer, 5 times in winter and 8 times in summer as compared to ordinary room charge.( Assume 360 days for computation purpose)

Overheads

Q.1. PH Ltd, is a manufacturing company having three production departments, A, B and C and two service departments X and Y. The following is the budget for December 2005: Total Rs. Direct material Direct wages Factory rent Power Depreciation Other overheads 0 0 1,00 0 2,50 4,00 0 0 5,00 A Rs. 1,00 B Rs. 2,000 2,000 C Rs. 4,000 8,000 X Rs. 2,000 1,000 Y Rs. 1,000 2,000

9,00 0 Additional information : Area (sq. ft.) Capital value ( Rs. Lacs) of assets Machine hours Horse power of machines 500 20 1,000 50 250 40 2,000 40 0 4,00 0 2 0 A technical assessment of the apportionment of expenses of service department is as under: A Service dept. X Service dept. Y Required: (i) A statement showing distribution of overheads to various departments. (ii) A statement showing re-distribution of service department expenses to production Department. (iii) Machine hours rates of the production department A, B, and C. Q.2. Norma Ltd. Is a retail organization which operates three sales departments and an administration department in a large supermarket complex. Each sales department has a manager and its own prescribed gross margin related to selling price. Exceptionally, the general manager permits the department managers to reduce the selling price of a product by giving a quantity discount, a special price for a large order or for an item of out-dated stock. The following data are given: % 45 60 B% 15 35 C% 30 5 X% Y% 10 0 2 50 250 10 1,000 15 500 10 1,000 25

Audio video Equipment (Rupees)

& l

Electrica Applianc es (Rupees)

Furniture

(Rupees)

Stock at November 1 At cost At full sales value Transactions November Purchases Net sales Price approved reductions 1,50,000 2,15,000 5,000 40,000 63,00 0 3,00 0 Expenditure incurred during November was: Items expenses Rates Light and heat Advertising Transport Insurance Miscellaneous Canteen Salaries Wages Depreciation and of t Rupees 4,000 2,000 35,250 25,850 3,525 1,175 4,125 24,910 3,750 2,500 Amoun Basis of apportionment To sales & administration department Area Occupied Area Occupied Sales value for the month before any reduction Sales value for the month before any reduction Sales value for the month before any reduction Sales value for the month before any reduction during 1,20,000 2,00,000 80,00 0 1,10,00 0 1,60,000 2,24,000 7,000 2,00,000 2,80,000

Administration

Numbers of Employees See detailed information given below See detailed information given below

Direct Other detailed information for November Was: Salaries Wages (Rupees) Audio & video m) 11,900 2,000 6,000 500 750 1,000 27 4 15 600 200 500 equipment Electrical appliances Furniture Administration & Depreciati on (Rupees) No . of Employee s Ares Occupie d (sq.

5,010 1,500 9 300 Total 24,910 3,750 55 1,600 Each month, the total costs of the administration department are apportioned to the three sales Departments on the basis of the sales values for the month before any reduction. Using the data given, prepare a tabulated profit and loss statement for each sales department For November. Q.3. As a cost accountant of Oberon Ltd., you have prepared budget for sales quantity, production, Materials, labour utilization and variable overheads for the year ended 31st December 1999. Information from the labour utilization budget is shown below: Department North East Work force 20 25 Labour hours 35,000 45,000 Hourly rate Rs. 2.80 Rs. 2.60

West 30 55,000 Rs. 2.50 You have produced various estimates for the years fixed costs, some of which can be easily allocated direct to the three department and

some which need to be apportioned between the three department. The work so far is shown below: Fixed cost items (Rs.) Allocation or proposed basis Of apportionment North Plant Depreciation Departmental staff Selling & Administration Factory rent, rates and insurance Works Canteen Warehousing costs Light & heat Repairs & maintenance office 40,00 0 59,00 0 1,45,00 0 70,00 0 22,50 0 21,00 0 10,500 20,00 0 You apportionment of fixed costs will be based on the following information Floor area (m2 ) North East West Required: 1,200 1,000 600 Net value assets (Rupees) 1,00,000 50,000 20,000 book of Average of Assets (Years ) 3 2 5 2,60,000 1,20,000 40,000 age Materials Consumed (Rupees) Number of employees Materials consumed Floor area Net book value of assets weighted According to average age. West 20,000 15,000 50,000 Floor area 15,000 18,000 40,000 East 5,000 26,000 55,000

(a) (b)

Calculate hourly fixed overhead absorption rates for the three Produce a standard cost card showing how the selling price of a

departments. Weber PM2 is arrived at if the following variable costs are incurred. Materials: Rs.28.50 Labour: Department North East West Variable Overheads Oberon Ltd. Aims for a profit of 35% on sales. 2 hours 4 hours 3 hours

ACTIVITY BASED COSTING

Q.1. A company products three products A, B and C for which the standard costs And quantities per unit are as follows: Products Quantity produced Direct materials / p.u. (Rs.) Direct labour / p.u. (Rs.) Labour hours / p.u. Machine hours / p.u. No. of purchase requisitions A 10,000 50 30 3 4 1,200 B 20,000 40 40 4 4 1,800 C 30,000 30 50 5 7 2,000 300

No. of set ups 240 260 Production overheads split by departments: Department 1 = Rs. 10, 40,000 Department 2 = Rs. 15,84,000

Department 1 is labour intensive and Department 2 is machine intensive. Production overhead split by activity: Production scheduling / machine set up Receiving / inspecting Rs.12, 24,000 Rs. 14,00,000 Rs. 26,24,000 Number of batches received / inspected = 5,000 Number of batches for scheduling and set up = 800 You are required to:

(i) Prepare product cost statement under traditional Absorption Costing and activity Based costing method. (ii) Compare the results under two methods. Q.2. A company produces four products viz, P, Q, R and S. the data relating to production activities are as under: Produc t Quantity of Productio n P Q R S 1,000 10,000 1,200 14,000 Materia l Cost unit 10 10 32 34 / Direct labour Hours/uni t 1 1 4 3 0.50 0.50 2.00 3.00 Machine Hours / unit Direct Labour Cost Rs. 6 6 24 18 / unit

Production overheads are as under: (i) Overheads applicable to machine oriented activity: Rs. 1,49,700 (ii) Overheads relating to ordering materials: Rs.7,680 (iii) Set up costs: Rs.17,400 (iv) Administrative overheads for spare parts: Rs.34,380 (v) Materials handling costs: Rs.30,294 The following further information has been compiled: Produc t Number of Set ups Number of Materials orders P Q R 3 18 5 3 12 3 12 Number times Materials handled 6 30 9 36 of Number spare Parts 6 15 3 12 of

S 24 Required:

(i) Select a suitable cost diver for each item of overheads expense and calculate the cost per unit of cost driver. (ii) Using the concept of activity based costing, computer the factory cost per unit of each product. Q.3. Your Company decides to implement activity based costing (ABC) to the four products currently made and sold by them. Details of the four products and relevant information are given below for one period: Products Output in units Cost per unit : Direct Materials Direct Labor Rs. 40 Rs. 28 Rs. 50 Rs. 21 Rs. 30 Rs. 14 Rs. 60 Rs. 21 A 120 B 100 C 80 D 120

Machine hours (per unit ) 4 3 3 3 The four products are similar and are usually produced in production runs of 20 units and sold in batches of 10 units. The production overheads are currently absorbed by using a machine hour rate, and the total of the production overhead for the period has been analyzed as follows: Machine department (rent, business, rates, depreciation and supervision ) Set-up costs Stores receiving Inspection / Quality control 5,250 3,600 2,100 Rs. 10,430

4,620 Materials handling and dispatch You have ascertained that the cost drivers to be used are as listed below for the overhead costs shown; Cost Set- up costs runs Stores receiving Requisitions raised Cost Driver Number of production

Inspection /Quality control production runs Materials handling and dispatch

Number of Orders executed

The Number of requisitions raised on the stores was 20 for each product and the number of orders executed was 42, each order being for a batch of 10 of a product. You are required to calculate the factory cost per unit of each product under Activity Based costing.

Q. 6.

Family store wants information about the profitability of

individual product lines: Soft drinks, Fresh produce and packaged food. Family store provides the following data for the year 2005-06 for each product line: Soft drinks Fresh produce Revenues Cost of goods sold Cost of bottles returned Number placed Number of deliveries received Hours of shelf-Stocking time Items sold of purchase orders Rs.7,93,500 Rs.6,00,000 Rs.12,000 36 0 30 0 54 0 1,26,00 0 Rs.21,00,60 0 Rs.15,00,00 0 Rs.0 84 0 2,19 0 5,40 0 11,04,00 0 Packaged food Rs.12,09,90 0 Rs.9,00,000 Rs.0 360 660 2,700 3,06,000

Family store also provides the following information for the year 20052006 Activity Bottles returns Ordering Delivery Shelf stocking Customer Support Description of Activity Returning of empty bottles to store Placing purchases Physical receipt of Goods Stocking of goods on store shelves restocking Assistance provided To customers including Check -out Rs.3,07,2 00 (i) Family store currently allocates support (all costs other than cost of goods sold) to product lines on the basis of cost of goods sold of each product line. Calculate the operating income and operating income as a % of revenues for each product line. (ii) If family store allocates support costs (all costs other than cost of goods sold to product line using an activity- based costing system; calculate the operating income and operating income as a % of revenues for each product line. (iii) Comment on your answers in requirements (i) and (ii) and on-going Rs.1,72,8 00 15,36,000 Items sold delivery and of orders for Rs.1,56,0 00 Rs.2,52,0 00 8,640 hours of shelf stocking time Total cost Rs.12,000 Cost-allocation Base Direct tracing to softdrink line 1,560 purchase orders 3,150 deliveries