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Name of Book Cost Accounting

Author(s) Babatosh Banerjee


Edition Eleventh
Problem No 2
Page No 77

Problem
A companys monthly requirement of an inventory item is 1800 units .The cost of processing an order
Discount as underUpto
- Above
Lot size (Units) 400 401-600 601-800 801-1000 1000
Discount (Rs) Nil 6 10 15 20
Lead time is 2 days and the company wishes to keep a safety stock equal to 50 % of the usage in the
A)Find EOQ without considering the offer for discount
B)Calculate Re-order point taking 1 month =30Working days
C)Tabulate different types of cost as also effect of discount on different order sizes taking 1,2,3,………

Solution

Solution-
A) EOQ = √2AS
C

where
A = Annual usuage =1800*12=21,600 units
S = Cost of processing an order =Rs 5
C = Carrying cost per unit=Rs0.20

EOQ = √2*21600*5
0.2

B) Reorder point=
Safety stock +Consumption during lead time
1/2(1800/30*2)+(1800/30*2)Units
= 60+120= 180 units

C) Statement showing computations of EOQ


No of orders

Monthly requirement (units)


Order size
Average inventory
Ordering cost @ rs 5 per order
Carrying cost@Rs0.20 per unit
Total cost
Discounts
Total cost

Since the total (Net) Cost is

Name of Book Cost Accounting


Author(s) Babatosh Banerjee
Edition Eleventh
Problem No 4
Page No 78

Problem
G Ltd produces a product which has a monthly demand of 4000 units .The product requires a compon
Per order and the Holding cost is 120 per order and the holding cost is 10% pa
You are required to calculate
1)EOQ
2)If the minimum lot size to be supplied is 4000 Units what is the extra cost the company has to incurr
3)What is the minimum carrying cost the company ha to incur

Solution
EOQ = √2AS
C

1) Where A=Annual Usage=4000*12=48,000 units


S=Ordering Cost per order =Rs120
C=Carrying/Holding Cost per unit =Rs 20*0.10=Rs 2

EOQ= √2*48000*120
2

2) Extra cost will be the difference in cost I.E ordering cost plus carry
= 48000 20
2400

No Of orders required when lot sizes is 4000 units


= 48000 12
4000

Average inventory
When order size is 2400=2400/2=1200 units
When order size is 4000=4000/2=2000 units

Extra cost = (20-12)*Rs120 +(1200-2000)*Rs2


= Rs 960 (Savings)-Rs 1600=(-) Rs 640

3) The Minimum carrying cost will be with the EOQ That is -


1/2(2400*Rs 2)= Rs 2400
e cost of processing an order is Rs 5 and the carrying cost per units is Rs 0.20.The company supplier agrees to

al to 50 % of the usage in the lead time.

order sizes taking 1,2,3,……….7 orders a month and indicate the EOQ.

nnual usuage =1800*12=21,600 units


ost of processing an order =Rs 5
arrying cost per unit=Rs0.20

= √10,80,000=
1039 units

umption during lead time

computations of EOQ
1 2 3 4 5 6 7

Monthly requirement (units) 1800 1800 1800 1800 1800 1800 1800
1800 900 600 450 360 300 257
verage inventory 900 450 300 225 180 150 129
rdering cost @ rs 5 per order 5 10 15 20 25 30 35
arrying cost@Rs0.20 per unit 180 90 60 45 36 30 26
185 100 75 65 61 60 61
20 15 6 6 Nil Nil Nil
165 85 69 59 61 60 61

ince the total (Net) Cost is minimum for an order size of 450 units the EOQ is 450 Units

he product requires a component x which is purchased at RS 20.For every finished product one unit of compone

has to incurr

ge=4000*12=48,000 units
st per order =Rs120
lding Cost per unit =Rs 20*0.10=Rs 2

= 2400 units

nce in cost I.E ordering cost plus carrying cost between the two lot sizes i.e 2400 units VS 4000 units

lot sizes is 4000 units

00/2=1200 units
00/2=2000 units

+(1200-2000)*Rs2
gs)-Rs 1600=(-) Rs 640
mpany supplier agrees to offer quantity
s 450 Units

oduct one unit of component is required .The ordering cost is Rs120


Name of Book Cost Accounting
Author(s) S N Maheshwari
Edition Eleventh
Problem No 5.7
Page No 92

Problem
A Factory having three production department A,Band C and two service department Boiler House and
in its turn is dependent on the boiler house for supply of power for driving the pump .The expense is i
The expenses for bolier house are RS 2,34,000and the pump room are Rs 3,00,000.
The expenses of the Boiler house and pump room are apportioned to the production departments on
A B C B.H P.R
Expenses of Boiler-House20% 40% 30% - 10%
Expenses of Pump Room 40% 20% 20% 20% -
Show clearly as to how the expenses of Boiler house and pump room would be apportioned to A,B and

Solution

Let X be the overhead of boiler house and Y be the total overhead of Pump Room

X=2,34,000 +.2Y
Y=3,00,000+.1Y
or
10X-2Y=23,40,000
-x+10Y=30,00,000

On multiplying equation (I) by 5 and adding it to equation (II)


50X-10Y=1,17,00,000
-X+10Y=30,00,000
49X=1,47,00,000
X=3,00,000

On Substitution the value in Equation (II)


-3,00,000+10Y=30,00,000

10Y=33,00,000 or Y=3,30,000

Distribution of Overheads

Total
A
Amount for the Departments
2,000,000 800,000
Boiler House 270,000 60,000
Pump Room 264,000 132,000
2,534,000 992,000
Name of Book Cost Accounting
Author(s) S N Maheshwari
Edition Eleventh
Problem No 5.22
Page No 108

Problem

From the following data of textile factory maschine room compute an hourly maschine rate assuming
There are 3 days holidays at deepawali ,2 days at holi and 2 days at christmas exclusive of sundays .T
Number of Maschines (each of same type ) 40
Expenses per anum
power 3120 Lubricating oil 66
light 640 Repairs to maschines 1446
Salaries to foreman 1200 depreciation 785.6
Total Expenses Rs 7257.60

Solution
Number of Hours Worked
Total Number of days in a year
Saturdays 52
sundays 52
Holidays 7
Full Working days

Number of hours on fullworking days @8 per day


Number of hours on saturdays @4 per day
Total Per Maschine
Effective hours per maschine 90%of 2240
Total no of Hours for 40 Maschines 80640
Less Allowance for Breakdown 10% 8064
Total Hours worked 72576

Computation of Maschine hour rate

Standing charges
Salaries to foreman
light
Total

Per hour(1840/72,576)
Maschine expenses
Power 3120
Lubricating oil 66
Repairs 1446
Depreciation 785.6
Total 5417.6

Per Hour(5417.60/72576)

Maschine hour rate


artment Boiler House and Pump room .The boiler house has to depend upon the pump room for supply of water
e pump .The expense is incurred by the production department during a period are A-RS 8,00,000,B-Rs 7,00,000

duction departments on the following basis

e apportioned to A,B and C department.Use Algebrical equation

equation (II)

Departments
B C
700,000 500,000
120,000 90,000
66,000 66,000
886,000 656,000
maschine rate assuming that the maschine room will work on 90% capacity throughout the year and that a brea
s exclusive of sundays .The factory works 8 hours a day and 4 hours on Saturday

365

111
254

2032
208
2240
2016

Per Hr Rs
Rs
1200
640
1840

0.02
0.08

0.1
p room for supply of water and pump room
RS 8,00,000,B-Rs 7,00,000 and c-Rs5,00,000 .
ut the year and that a breakdown of 10% is reasonable
Name of Book Problem and solution in cost accounting
Author(s) DR S N Maheshwari
Edition Tenth
Problem No 9.4
Page No A255

Problem
Calculate the estimated cost of production of ByProducts X and Y at the point of separation from the m
By Product X By Product Y
Selling Price per unit RS 12 Rs 24
Cost per unit after separation from the main Product Rs 3 Rs 5
Units Produced 500 200

Sellling expenses amount to 25% of Total Works cost i.e. including both pre-separation and post -sepa
Selling prices are arrived at by adding 20% of total costi.e.the sum of works cost and selling expenses

Solution
Apportionment of Pre-Separation costs
By-Product X
500 Units
Perunit Total
Selling price 12 6000
Less Net Profit (1/5 of cost or 1/6of Selling price) 2 1000
10 5000
Less Selling expense(1/4 of works cost or 1/5 of Total cost 2 1000
Work Cost 8 4000
Less Cost incurred after separation of Main Product 3 1500
Estimated cost at the point of Separation 5 2500

Name of Book Problem and solution in cost accounting


Author(s) DR S N Maheshwari
Edition Tenth
Problem No 9.47
Page No A263

Problem

A vegetable oil refining company obtains four products whose cost details are:
Joint cost of the four products Rs 8,29,600
Outputs A 5,00,000 litres,B 10,000 litres,C Rs Nil and D Rs 8030
The products xan be sold as intermediates i.e. at split off point without further processing The sales p
As Finished product As Intermediate
A Rs per litre 1.84 1.2
B Rs Per litre 8 4
C Rs Per litre 6.4 6.4
D Rs per KG 26.67 24

A) Calculate the productwise profit allocating joint cost on net realisable values
B)Compare the profitability in selling the products with and without further processing

Solution

Allocation of Joint cost on Net realisable Values

A) Products A B C
Output 500000 litres10000 litres5000 litres
Selling price at split off point per Rs1.20
unit RS4.00 Rs6.40
Total Sales Value 600000 40000 32000
Joint Cost Rs 8,29,600 apportioned in ratio
560541
of sales37369
value 29895
Profit 39459 2631 2105

B) Products A B D
Further processing
Sales value 920,000 80,000 240,000
Share of Joint cost 560,541 37,369 201,795
Further processing costs 240,000 48,000 8,030
Total cost 800,541 85,369 209,825
Profit 119,459 -5,369 30,175

Not further processing


Profit as shown above statement (A) 39459 2631 14205

The above statements shows that it is beneficial to further process product


nt of separation from the main product

e-separation and post -separation works cost


s cost and selling expenses

ent of Pre-Separation costs


y-Product X By-Product Y
200 Units
Perunit Total
24 4800
4 800
20 4000
4 800
16 3200
5 1000
11 2200

her processing The sales prices are


s Intermediate

processing

Net realisable Values

D
9000KG
Rs 24
216000
201795
14205

further process product A and D but not product B


Name of Book Problems and solution in cost accounting
Author(s) DR Sn Maheshwari
Edition Eleventh
Problem No 16.26
Page No 458

Problem
The following are the cost and the sales data of a manufacturer selling three products X,Y and Z

Product Selling price


Variable
per unit
cost
Percent
per unit
of Rupees (sales volume)
X 4 3 20
Y 5 4 40
Z 8 6 40
Capacityof the manufacturer Rs 15,00,000total sales volume
Annual fixed cost -Rs2,30,000
a)Find the break even point in rupees
b)Calculate his profit or loss at 80% capacity

Solution

Computation of Profit Volume ratio X Y


Sales Revenue 20 40

Selling price per unit 4 5

No Of Units 5 8

Varable cost per unit 3 4

Total Varibale Cost 15 32

Contribution 5 8

The PV Ratio is thus 23%

a) Break Even Point


Fixed Cost Rs-2,30,000

Break Even
= Sales Fixed Cost
P/V Ratio

2,30,000*100/23 Rs 10,00,000
b) Profit or Loss at 80% Capacity
Sale at 80% Capacity(80% of Rs 15,00,000) 1,200,000
Excess over break even sales 200,000
Profit at 23% of Rs2,00,000 46,000

Name of Book Cost accounting


Author(s) Babatosh Banerjee
Edition Eleventh
Problem No 8
Page No 588

Problem
Nandi chemical s limited has two factories with similar plant and maschinery for manufacture of soda
them as on integrated unit .The additional fixed cost involved in the merger is estimated at Rs 5Lakhs

Factory X Y
capacity in operation 60% 100%
Rs Rs
Turnover 120 Lakhs 300 lakhs
Variable cost 90 220
Fixed cost 25 35

Find Out
a) What should be the capacity of the merged factory to be operated for break even
b)What is the profitability of working 80% of the integrated capacity and
C)What turnover will give an over all profit of Rs 60 lakhs
Solution

60%
Turnover 120 Lakhs

Variable cost 90 Lakhs

Fixed cost 25 Lakhs

Factory X Factory Y Merged factory


X Y X+Y
Capacity 100% 100% 100%

(Rs in Lakhs) Additional cost

Turnover 200 300 500


Variable cost 150 220 370

Fixed cost 25 35 5 65

a) P/v Ratio 500-370 = 13 or 26%


500 50

BEP= Fixed Cost = 6500000 *50/13


= 250 Lakhs
P/V Ratio

or
250/500*100=50% capacity level

b) AT 80 % capacity sales over BEP would be


30 % of 500 laks =RS 150 lakhs
Increase in Contribution=Increase in profit (Fixed cost reamaining constant )
13/50*150,00,000 = Rs 3,90,000

C) To earn a profit of Rs 60 Lakhs required contribution


Rs 65 lakhs +Rs 60Lakhs =Rs 125 Lakhs
Required Sales= Required contribution
= 125,00,000*50
P/V ratio 13
hree products X,Y and Z

Z TOTAL
40 100

30 77

10 23
inery for manufacture of soda As.The Board of directors of the company has expressed the desire to merge them
rger is estimated at Rs 5Lakhs .Following data are available in respect of these two factories-

r break even

100%
200 Lakhs

150 Lakhs

25 Lakhs
= Rs 4,80,76,923
d the desire to merge them and to run
Name of Book Problems and solution in cost accounting
Author(s) DR Sn Maheshwari
Edition Eleventh
Problem No 17.9
Page No 516

Problem
Garden Products limited manufacture the "Rain pour" garden spray .The accounts of the company for
"Rainpour" after charging fixed costs of Rs 10,00,000 the "Rainpour" is sold for Rs 50 per unit and has

Market sensitivity tests suggest the following responses to price charges


Alternatives Selling price reduced by Quantity sold increases by
A) 5% 10%
B) 7% 20%
C) 10% 25%

Evaluate these alternativess and state which on profitability consideration should be adopted for the f

Solution

Alternatives Reduction in Selling


Rate
Price Revised contribution per unit
Rs Rs Rs

A 5% 2.5 27.5

B 7% 3.5 26.5

C 10% 5 25

The above statement shows that on profitability consideration to the exclusion of oth

Working note

Computation of Units sold in 1991


Net Profit 1400000
Fixed cost 1000000
Contribution 2400000

Contribution per unit-Rs(50-20) I.e Rs 30


Units sold-Rs 24,00,000/30=80,000

Name of Book Problems and solution in cost accounting


Author(s) DR Sn Maheshwari
Edition Eleventh
Problem No 17.12
Page No 520

Problem
The budgeted results for X co include the following

Rs in lakhs Variable cost as % of sales value


Product A 60 50%
Product B 50 60%
Product C 80 65%
Product D 40 80%
Product E 30 70%
260

Fixed overhead for the period Rs 100 Lakhs

A)You are required to prepare a statement showing the amount of loss expected .
B)Assuming that the sale of only one product can be increased at a time you are asked to recommend

Solution
Statement showing the amount of contribution and expected lo

Product Sales Ratio of variable Variable Cost


Cost to Sales Rs

A 6,000,000 50% 3,000,000

B 5,000,000 60% 3,000,000

C 8,000,000 65% 5,200,000

D 4,000,000 80% 3,200,000

E 3,000,000 70% 2,100,000


Total ### 16,500,000

Contribution at present level of activity


Total fixed expenses
Loss

Additional sales required to break even assuming sales of only one product is increas
Sales required = under-recovery of Fixed overheads
P/V Ratio of the product

Product Rs
A 500000/50% 1,000,000

B 500000/40% 1,250,000

C 500000/35% 1,428,571

D 500000/20% 2,500,000

E 500000/30% 1,666,667

The company should utilise the spare capacity available for Product A to achieve ma
of production this combination will lead to maximum profitability.
y .The accounts of the company for the year 1991 are expected to reveal a profit of Rs 14,00,000 from the man
r" is sold for Rs 50 per unit and has a variable unit cost of Rs 20

price charges

eration should be adopted for the forthcoming year assuming cost structure unchanged from 1991

Rate increase in sale


Qty Revised sale QTY Total contribution
(units)

10% 8000 88000 2,420,000

20% 16000 96000 2,544,000

25% 20000 100000 2,500,000

onsideration to the exclusion of other factors alternative B is the Best and hence should be adopted for 1992
% of sales value

oss expected .
time you are asked to recommend a change in the sales volume of each product which will eliminate the expec

unt of contribution and expected loss

Contribution as %of Contribution


sales in
Rs

50% 3,000,000

40% 2,000,000

35% 2,800,000

20% 800,000

30% 900,000
9,500,000

ution at present level of activity9500000


xed expenses 10000000
500,000

sales of only one product is increased at a time to give additional contribution of Rs 5,00,000 is calculated as fo
ecovery of Fixed overheads
io of the product

ailable for Product A to achieve maximum Profitablity as its P/V Ratio is Highest .Fixed cost remaining the same
um profitability.
Rs 14,00,000 from the manufacture of

ged from 1991

uld be adopted for 1992


hich will eliminate the expected loss.

5,00,000 is calculated as follows


d cost remaining the same at every level
Name of Book Problems and solution in cost accounting
Author(s) Dr S N Maheshwari
Edition eleventh
Problem No 14.24
Page No 374

Problem
The budgeted cost of a factory specialising in the production of a single product at the optimum capac
Fixed cost Rs 20,688

Variable cost Rs
Power 1440
Repairs 1700
Miscellaneous 540
Direct material 49280
Direct labour 102,400 155,360

Having Regard to possible impact on sales turnover by market trends the company decided to have a
proposed to be produced being left to a later date before commencement of the budget period).Prepa

Assume selling price per unit is maintained at Rs 40 as at present indicate the effect on net profit.
Administration selling and distribution expenses continue at RS 3600

Solution

Capacity Level 100% 75% 50%


Output (Units) 6,400 4800 3200

Fixed cost Rs 20688 Rs 20688 Rs 20688


Variable cost
Direct material@rs 7.70 per Unit 49,280 36960 24640
Direct Labour@Rs16.00 Per Unit 102,400 76800 51200
Power@rs0.225 Per unit 1,440 1080 720
Repairs etc @ Rs 0.265625 per unit 1,700 1275 850
Miscellaneous @ Rs 0.084375 Per unit 540 405 270
Total cost 176,408 137208 98368
sales@RS40 per unit 256,000 192000 128000
Gross Profit 79,952 54792 29632
Administration expenses 3,600 3600 3600
Net Pofit 75,352 51192 26032

Name of Book Problems and solution in cost accounting


Author(s) Dr S N Maheshwari
Edition eleventh
Problem No 14.37
Page No 385

Problem
A Glass manufacturing company require you to calculate and present the budget for the next year fro
Sales
Toughened Glass Rs 3,00,000
Bent-Toughened Glass Rs 5,00,000
Direct Material Cost 60% Of sales
Direct wages 20 workers @Rs 150 Per month
Factory Overhead
Indirect labour
Works manager 500 Per month
Foreman 400 Per month
Stores and spares 2 1/2% on sales
Depreciation on machinery Rs 12600
Light and power 5000
Repairs and Maintenance 8000
Other sundries 10% on Direct wages

Administration selling and Distribution expense Rs 14000 Per year

Solution

Master Budget for period ending on


Rs
Sales (As per sales Budget) 300000
Toughened glass units @ Rs 500000
800000
Less Cost of Production(As per cost production budget)
Direct Material (Units @ Rs ) Rs 480000
Direct Wages 36000
Prime cost 516000

Factory Overhead
Variable
Stores and spares2 1/2 % of Sales Rs 20000
Light and power 5000
Repairs and Maintenance 8000 33000

Fixed
Works Manager Salary 6000
Foremans Salary 4800
Depreciation 12600
Sundries 3600 27000
Works Cost 576000

Gross Profit 224000

Less Administration ,selling and Distribution Overheads 14000


Net Profit 210000
ct at the optimum capacity of 6400 units per annum amounts rs 1,76,048 as detailed below

pany decided to have a flexible budget with a production target of Rs 3200 and 4800 units (the actual quantity
he budget period).Prepare a flexible budget for production level at 50% and 75% capacity

effect on net profit.


get for the next year from the following information
units (the actual quantity

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