Page 208 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes A work order has been executed in 2009 and the following expenses have been incurred; Materials
` 40,000 and Labour ` 25,000. Assuming that in 2009 the rate of Factory charges has increased by
20%; Distribution charges have gone down by 10% and Selling and Administration charges have
each gone up by 12½ %; at what price should the product be sold so as earn the same rate of profit
on the selling price as in 2008?
Factory overhead is based on direct wages, while all other overheads are based on factory cost.
Solution:

Statement of Cost for the Year 2008

Particulars Amount (`)
Cost of materials 1,00,000
Direct labour 90,000
prime Cost 1,90,000
Factory overhead 50,000
Works Cost 2,40,000
Administrative overhead 77,200
Cost of production 3,17,200
Selling and Distribution overheads :
Selling expenses 54,800
Distribution charges 38,000 92,800
4,10,000
Profit (20% on cost) 84,000
Selling price 4,94,000
Statement of cost of a work order for the year 2009

Particulars Amount (`)
Materials 40,000
Labour 25,000
prime Cost 65,000
Factory overhead (55.55% of wages + 20%, thereof i.e. 66.66 on labour) 16,665
Works Cost 81,665
Administrative overhead (32.17% of factory cost + 12½%, thereof i.e. 36.19% on 29,555
factory cost)
Cost of production 1,11,220
Selling expenses (22.83% of factory cost + 12½%, thereof i.e. 25.69% on factory cost) 20,980
Distribution charges (15.83% of factory cost – 10%, thereof i.e. 14.25% on factory cost) 11,637
Total Cost 1,43,837
Profit (20% on cost) 28,767
Selling price 1,72,604
The work in process account receives debits for direct materials, direct labor and factory overhead
costs. The work in process account is a controlling account. Cost ledgers maintain details on
the costs of each individual job. An individual cost ledger account is called a job cost sheet. It
provides extensive information on each job direct materials, direct labor, and factory overhead
costs. When a job is completed, total costs are added up and divided by the number of units
finished to determine cost per unit.

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