Page 39 - DCOM206_COST_ACCOUNTING_II

Particulars ` Particulars `
Cost Accounting – II
To Material consumed 12,000 By Sale (350 units) 70,000
To Wages 4,000 By Finished stock (50 units) 3,500
To Factory expenses 12,000 By Interest received 1,500
Notes To Administrative expenses 12,000
To Goodwill written-off 4,000
To Discount of debentures written-off 3,000
To Net profit 28,000
75,000 75,000

The company’s cost records show that:

(a) Factory overheads have been recovered at 100% on prime cost.
(b) Administrative overheads have been recovered at 25% of factory cost.
Prepare:
(a) A statement of cost indicating net profit, and
(b) A statement reconciling the profit as disclosed by cost accounts and that shown in financial
accounts.
Solution:
Statement of Cost and Profit

Particulars Amount (`)
Material consumed 12,000
Wages 4,000
Prime Cost 16,000
Factory overheads (100% of prime cost) 16,000
Factory Cost 32,000
Administrative overheads (25% of factory cost) 8,000
Cost of Production 40,000
(1)
(2)
Less : Closing finished stock (40,000 x 50) 400 5,000
Cost of Goods Sold 35,000
Profit (70,000 – 35,000) 35,000
Sales 70,000

Reconciliation Statement
For the year ending 31st March, 2009

Particulars Amount Amount
(`) (`)
Profit as per cost accounts 35,000 --
Add: Over-absorption of factory overheads in cost accounts 4,000 --
Interest received excluded from cost accounts 1,500 --
Less: Administration overheads under-recovered in cost accounts -- 4,000
Goodwill written off excluded from cost accounts -- 4,000
Discount on debentures excluded from cost accounts -- 3,000
Finished stock over-valued in cost accounts -- 1,500
40,500 12,500
(3)
Profit as per Financial Accounts -- 28,000
40,500 40,500

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