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Knowledge Assessment - IFill the blanks with the appropriate answers1.Output costing is that method of costing which helps in determining theand of output or production.2.The cost per unit is derived by dividing the total cost with the .3.Output costing is widely used by Industry.4.Output costing is widely used by the concern producing a single product orproducts.5.Output costing is also called as .6.Output costing is used in the firm that has single product, consistent manufacturingprocesses and cost units that are .7.Output costing helps in arriving at the final price for marketers.8.Cost sheet and are two approaches to output costing.[Ans: 1- Total and per unit cost, 2- Total quantity produced, 3- Sugar/Paper/Mining,4- Identical, 5- Single costing, 6- Physical and natural, 7- Selling, 8- Productionstatement/account]Session-2: Components of Cost and Treatment For Stock & ScrapComponents of CostThe total cost has been divided into sub components representing the cost at various stages. Followingare the various components of cost shown in the cost sheet or production account:1.Prime Cost: Prime cost is also named as “Direct Cost”, “Flat Cost”, “Basic Cost” or “FirstCost”. It is the summation of all direct costs relating to production, i.e. direct material,direct labour and direct expenses.2.Factory Cost: Factory cost is also named as “Work Cost”, “Manufacturing Cost” or“Production Cost”. It is the summation of prime cost and factory overheads that includesindirect material, indirect labour and indirect expenses of factory. Factory cost includes allthe direct cost relating to product and the indirect cost relating to factory.3.Office Cost: Office Cost is also named as “Cost of Production” or “Administration Cost”.Office cost is the summation of factory or work cost and office & administrative overheads.Any cost related to sales and distribution is not the part of office and administrative cost asthey form a separate category. This total cost of production is adjusted with the openingand closing stock of finished goods to get the cost of goods sold.4.Cost of Sales: It is also named as “Total Cost”. It is derived by adding selling and distributionoverheads to the cost of goods sold.4

Cost AccountingIllustration 1: Ashwani Industries is into assembling of chairs and has certain expenditures that arementioned below. You are required to determine the prime cost.ParticularsAmount (Rs.)Cost of chair frames1,20,000Cost of cushions75,000Cost of nuts and bolts20,000Wages paid for the assembling of chairs30,000Solution:Cost of all Direct Material Cost of chair frames Cost of cushions Cost ofnuts and bolts 1,20,000 75,000 20,000 Rs. 2,15,000Cost of Direct Labour Wages paid for the assembling of chairs Rs. 30,000Prime Cost Direct Material Direct Labour 2,15,000 30,000 Rs. 2,45,000Illustration 2: Following are the cost details of Vimhans Industries. You are required to calculate thefactory cost.ParticularsAmount (Rs.)Direct material2,30,000Labour cost for manufacturing products1,25,000Direct expenses65,000Rent for factory1,00,000General consumables40,000Salary of factory manager32,000Solution:Prime Cost Direct material Labour cost for manufacturingproducts Direct expenses5

2,30,000 1,25,000 65,000 Rs. 4,20,000Factory Overheads Rent for factory General consumables Salaryof factory manager 1,00,000 40,000 32,000 1,72,000 Rs.Factory Cost Prime Cost Factory Overheads 4,20,000 1,72,000 Rs. 5,92,000Illustration 3: Calculate the office cost from the following cost data:ParticularsAmount (Rs.)Direct material12,000Direct labour5,000Direct expenses2,000Power and fuel3,500Office stationery1,100Office telephone charges200Solution:Prime CostFactory CostOffice Cost Direct material Direct labour Direct expenses12,000 5,000 2,000Rs. 19,000Prime Cost Power and fuel19,000 3,500Rs. 22,500Factory Cost Office stationery Office telephonecharges 22,500 1,100 200 Rs. 23,800Treatment for Raw MaterialThe actual value of the raw material consumed is to be included in the cost sheet. Thus, the determinationof value of raw material consumed becomes important. For the same, the opening and closing stockof raw material is adjusted with the raw material purchased during the year to arrive at the actual valueof raw material consumed.6

Cost AccountingValue of raw material consumed Opening stock of raw material Purchase of rawmaterial – Closing stock of raw materialIllustration 4: Find out the value of raw material consumed for M/s Deepika from the followinggiven information:ParticularsAmount (Rs.)Opening stock of raw material55,000Closing stock of raw material15,000Purchases of raw material80,000Solution:Value of raw material consumed Opening stock of raw material Purchase ofraw material – Closing stock of raw material 55,000 80,000 – 15,000 Rs. 1,20,000Treatment for Work-in-ProgressWork-in-Progress is that part of stock which has not been completely manufactured. It requires somemore work to be done for becoming the finished goods. They are in such a form which is not yet readyto be sold. It is usually abbreviated as “WIP”. It can be valued at prime or factory cost basis. But it isincorrect to value it at prime cost as many of the work overhead expenses get incurred on such goods.Work in progress is to be adjusted before calculating the net factory or work cost. The opening stockof WIP is added and closing stock of WIP is subtracted from gross work cost before arriving at theactual or net work or factory cost.Illustration 5: Show the treatment of Work-in-Progress in the cost sheet from the available giveninformation:ParticularsAmount (Rs.)Prime cost23,50,000Factory overheads8,53,000Opening WIP2,10,000Closing WIP1,60,000Solution:Gross Work Cost Prime cost Factory overheads 23,50,000 8,53,000 Rs. 32,03,0007

Work or Factory Cost Gross Work Cost OpeningWIP – Closing WIP 32,03,000 2,10,000 – 1,60,000 Rs. 32,53,000Treatment for Finished goodsFinished goods are the goods that have been manufactured completely from the production’s point ofview. It is valued at the cost of production as no further cost is to be added at the factory level. Theadjustment for finished goods is of key importance for determining the cost of goods sold. We canarrive at the cost of goods sold by adding opening stock of finished goods and subtracting closingstock of finished goods from cost of production.Cost of Goods Sold Cost of production Opening stock of finished goods – Closing stockof finished goodsIllustration 6: Determine the Cost of goods sold for M/s. Darwin Enterprises from the followinggiven information:ParticularsAmount (Rs.)Cost of production25,40,000Opening stock of finished goods5,60,000Closing stock of finished goods6,10,000Solution:Cost of Goods Sold Cost of production Opening stock offinished goods – Closing stock of finished goods 25,40,000 5,60,000 – 6,10,000 Rs. 24,90,000Illustration 7: Find out the Total cost and Factory overheads for Budhiraj & Sons from the followinggiven information:ParticularsAmount (Rs.)Prime cost45,400Factory cost52,600Office overheads12,500Opening stock of finished goods1,000Closing stock of finished goods1,500Salesman salary5,0008

Cost AccountingSolution:Factory Cost Prime Cost Factory OverheadsFactory Overheads Factory Cost – Prime Cost 52,600 – 45,400 Rs. 7,200Cost of Production Factory Cost Office overheads 52,600 12,500 Rs. 65,100Cost of Goods Sold Cost of Production Opening stock of finishedgoods – Closing stock of finished goods 65,100 1,000 – 1,500 Rs. 64,600Total Cost Cost of Goods Sold Salesman Salary 64,600 5,000 Rs. 69,600Treatment for ScrapScrap is a left over after the production or manufacturing process of a product. It is of small valuewhich can be sold off to recover some cost. Scrap arises from low quality of raw material and faults inproduct designing, manufacturing processes etc. The amount realised from the sale of scrap is to beadjusted and should be deducted either from factory overheads or gross work cost.In case, some material (before being used) are found to be defective and considered to be scrap, then itshould be adjusted with the value of raw material used and is to be reduced from the cost of materialused. Any loss on sale of such material should be charged to the costing P&L account.Knowledge Assessment – IIObjective Type Questions1.Prime cost is not called asa. Direct Costb. Basic Costc. Float Costd. Flat Cost2.Factory Cost is the summation ofa. Prime cost and Office overheadsb. Office cost and Office overheadsc. Prime cost and Factory overheads9

d. Office cost and selling overheads3.Working of cost of goods sold requiresa. Cost of Production and Opening & Closing stock of finished goodsb. Cost of Production and Opening & Closing stock of raw materialc. Cost of Production and Opening & Closing Work in progressd. None of the above4.What is required to calculate the value of raw material consumeda. Opening stock of raw materialb. Closing stock of raw materialc. Raw material purchased during the periodd. All of the above5.Factory cost is not known asa. Work Costb. Industrial Costc. Manufacturing Costd. Production Cost6.Which of these is to be adjusted before calculating the net work costa. Opening and Closing stock of raw materialb. Opening and Closing stock of WIPc. Opening and Closing stock of finished goodsd. Scrap7.Work in Progress is in the form which isa. Ready to be soldb. Ready to be used as raw materialc. Ready to be worked upon for further processingd. Ready to be kept in warehouse8.Office cost is the summation ofa. Work cost and office & administrative overheadsb. Work cost and selling and distribution overheadsc. Work cost and factory overheadsd. Prime cost and factory overheads10

Cost Accounting9.Scrap isa. Left over of manufacturing processb. Sold off to recover costc. Of small valued. All of the above10.Total cost is also known asa. Cost of productionb. Cost of manufacturingc. Cost of salesd. None of the above[Ans: 1(c), 2(c), 3(a), 4(d), 5(b), 6(b), 7(c), 8(a), 9(d), 10(c)]Session-3: Cost Sheet Approach For Output CostingThe cost data can be presented in two major ways for the purpose of ascertaining, controlling andcomparing total and per unit cost. The one is cost sheet discussed in this session and the other isproduction account discussed in the next session.Cost Sheet/Cost StatementCost sheet is a statement that presents the total and per unit cost of production with regard to any costunit or cost centre for a specific period of time. It is prepared in a tabular form presenting the variouscomponents of cost at various stages. It can be prepared on weekly, monthly, quarterly, half yearly oryearly basis. Cost sheet helps the accountant to determine the selling price by ascertaining the cost.Cost sheet is also a managerial tool for cost manager to judge the efficiency of production. The variouscost components may be compared with the budgeted figures to keep them under control. Openingand closing stock variations in the raw material, work in progress and finished goods are also adjustedin the statement. A cost sheet illustrates the following things:1.Total Cost of Production2.Total Quantity of Production3.Per Unit Cost of Total Quantity Produced4.Components of Cost, i.e. Prime Cost, Work Cost etc.5.Opening and Closing Raw Material, WIP and Finished Goods6.Direct and Indirect Classification of CostTypes of Cost SheetThere are two variants of cost sheet. They are:a.Historical Cost Sheet: Historical cost sheet considers the historical cost value that hasactually been incurred. In this cost sheet, historical actual cost is presented for the various11

cost components.b.Estimated Cost Sheet: Estimated cost sheet is based on the predictable cost figures whichare estimated. The estimation is done by looking at the past figures and analysing the currentsituation.Cost Sheet ProformaFollowing is the Proforma which is used for preparing the cost sheet and showing the various elementsof cost:M/s. EnterprisesCost SheetFor the year ending 31st March 20Production (in units)ParticularsTotal CostAmount(Rs.)Per A) Purchases during the Year(B) Add: Opening Stock of Raw Material(C) Less: Closing Stock of Raw Material(D) Direct Material Consumed (A B-C)(E) Direct Labour(F) Direct Expenses(G) Prime Cost (D E F)(H) Add: Factory Overheads(I) Gross Factory/Work Cost (G H)(J) Add: Opening WIP(K) Less: Closing WIP(L) Factory/Work Cost (I J-K)(M) Add: Office and Administrative Overheads(N) Cost of Production/Office Cost (L M)(O) Add: Opening Finished Stock(P) Less: Closing Finished Stock(Q) Cost of Goods Sold (N O-P)(R) Add: Selling and Distribution Overheads(S) Total Cost/Cost of Sales (Q R)12

Cost AccountingIllustration 8: From the books of accounts of M/s. Khurram Enterprises, following details have beenextracted for the year ending 31st March, 2015:ParticularsAmount (Rs.)Opening stock of raw material2,88,000Closing stock of raw material3,00,000Material purchased during the year9,42,000Direct labour cost4,43,000Indirect wages54,000Salaries to office staff2,12,000Freight outward43,000Repairs for plant and machinery21,000Factory rent and taxes55,000Office rent and taxes32,000Distribution expenses76,000Salesman salaries and commission54,000Manager’s salary (40% of his time used in factory & rest in office)60,000Factory electricity charges25,000Office telephone expenses5,000Opening stock of finished goods2,03,000Closing stock of finished goods1,12,000Depreciation of office furniture13,000You are required to prepare cost sheet for the firm from the above given details.13

Solution:M/s. Khurram EnterprisesCost SheetFor the year ending 31st March 2015ParticularsAmount(Rs.)(A) Purchases during the year(B) Add: Opening stock of raw material(C) Less: Closing stock of raw material(D) Direct Material Consumed (A B-C)(E) Direct labour cost(F) Prime Cost (D E)Add: Factory OverheadsIndirect wagesRepairs for plant and machineryFactory rent and taxesManager’s salary – FactoryFactory electricity charges(G) Total Factory Overheads(H) Factory/Work Cost (F G)Add: Office and Administrative overheadsSalaries to office staffOffice rent and taxesManager’s salary – OfficeOffice telephone expensesDepreciation of office furniture(I) Total Office and Administrative overheads(J) Cost of Production/Office Cost (H I)(K) Add: Opening stock of finished goods(L) Less: Closing stock of finished goods(M) Cost of Goods Sold (J K-L)Add: Selling and Distribution OverheadsFreight outwardDistribution expensesSalesman salaries and commission(N) Total Selling and Distribution Overheads(O) Total Cost/Cost of Sales (M 4,000

Cost AccountingIllustration 9: Prepare a cost sheet to show the total cost and cost per unit of goods manufactured byM/s. Abram Enterprises for the month of January 2015. Also, find out the cost of sales.ParticularsAmount (Rs.)Stock of raw material (1.1.15)4,000Stock of raw material (31.1.15)5,500Raw material purchased29,000Manufacturing wages8,000Depreciation on plant1,500Factory rent and rates4,000Office rent1,000General expenses1,200Sales discount1,000Advertising expenses5,000The number of units produced during the month was 4,000. The stock of finished goods was 300 and400 units on 1.1.15 and 31.1.15 respectively. The total cost of units in hand on 1.1.15 was Rs. 3,900. Allthese had been sold during the month.Solution:M/s. Abram EnterprisesCost SheetFor the month ending 31st January 2015ParticularsAmount(Rs.)(A) Purchases during the year(B) Add: Opening stock of raw material(C) Less: Closing stock of raw material(D) Material Consumed (A B-C)(E) Manufacturing wages(F) Prime Cost (D E)Add: Factory OverheadsDepreciation on plantFactory rent and .)Per Unit(Rs.)27,5008,00035,5006.8752.0008.875

(G) Total Factory Overheads(H) Factory/Work Cost (F G)Add: Office and Administrative OverheadsOffice rentGeneral expenses(I) Total Office and Administrative Overheads(J) Cost of Production/Office Cost (H I)(K) Add: Opening finished stock(L) Less: Closing finished stock (10.8*400)(M) Cost of Goods Sold (J K-L)Add: Selling and Distribution OverheadsSales DiscountAdvertising Expenses(N) Total Selling and Distribution Overheads(O) Total Cost/Cost of Sales (M 048,780Knowledge Assessment – IIIState whether the following statements are true (T) or false (F)1.Cost figures in the cost sheet cannot be compared with the past year figures in thesame cost sheet for analysis purpose by the management.2.Cost Sheet can be prepared on weekly, monthly, quarterly, half yearly or yearly basis.3.Types of cost sheet are past cost sheet and future cost sheet.4.Advertising expense is a cost component of selling and distribution overheads.5.Cost sheet is also a managerial tool for cost manager to judge the efficiency ofproduction.6.Cost sheet tells about quality and labour efficiency of the production.7.Prime cost, work cost, office cost and total cost are components of cost sheet.8.Salary to factory manager is a type of office overhead cost.[Ans: 1(F), 2(T), 3(F), 4(T), 5(T), 6(F), 7(T), 8(F)]Session-4: Production Account Approach For Output CostingProduction Account/Production StatementProduction statement is another approach to present the cost information for proper ascertainmentand analysis. It also presents the same information that cost sheet or statement show. The productionstatement is said to provide some more information than cost sheet relating to profit or loss and salesvalue. The presentation of production statement is generally made in a vertical form of account whichis called as “Production Account”.16

Cost AccountingProduction Account ProformaFollowing is the Proforma for the Production Account:LimitedProduction AccountFor the year ending 31st March 20ParticularsAmount(Rs.)ParticularsTo Direct Mat

Cost Accounting Student Handbook, Class-XII Price: First Edition : Copies : Paper used: 80 GSM CBSE Watermark White Maplitho "This book or part thereof may not be reproduced by any person or agency in any manner." Published By: The Secretary, CBSE, Central Board of Secondary Education, Shiksha Kendra, 2, Community Centre, Preet Vihar, Delhi-110301