Overheads

UNIT 12 UNIT COSTING

Structure
12.0 Objectives
12.1 Introduction
12.2 Meaning and Applicability
12.3 Preparation of Statement of Cost/Cost Sheet
12.3.1 Ascertainment of Cost of Direct Materials
12.3.2 Ascertainment of Cost of Direct Labour
12.3.3 Ascertainment of Cost of Other Direct Expenses/hargeable Expenses
12.3.4 Ascertainment of Prime Cost
12.3.5 Ascertainment of Factory/Works Cost
12.3.6 Ascertainment of Cost of Production
12.3.7 Ascertainment of Total Cost/Cost of Sales
12.3.8 Treatment of Items of Expenses and Losses of Purely Financial Nature
12.4 Preparation of Production Account
12.5 Special Points to be Noted
12.5.1 Value of Scrap/Wastage
12.5.2 Opening and Closing Work-in-Progress
12.5.3 Opening and Closing Stocks of Finished Goods
12.5.4 Selling and Distribution Overheads
12.5.5 Computation of Recovery Rates for Overheads
12.6 Preparation of Statement of Quotation/Tendering Price
12.7 Comprehensive Illustrations
12.8 Let Us Sum Up
12.9 Key Words
12.10 Answers to Check Your Progress
12.11 Terminal Questions/Exercises

12.0 OBJECTIVES
After studying this unit, you should be able to:
●● prepare cost sheet and ascertain the prime cost, the factory/works
cost, the cost of production, the cost of goods sold, the cost of sales
and profit;
●● prepare production account; and
●● prepare a statement of quotation and ascertain the selling price/price
of the tender.

12.1 INTRODUCTION
Unit costing is one of the most commonly used method of costing by firms
which are engaged in manufacturing products with identical units such as
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 coal, bricks, shoes, sugar, cement, etc. Under this method, cost and profit Unit Costing
per unit of output is ascertained by preparing monthly or quarterly cost
sheets showing details of the various components of total cost. In this unit,
you will learn how cost sheet is prepared and how cost and profit per unit of
output is determined.

12.2 MEANING AND APPLICABILITY

Unit costing refers to a method of costing used by industries engaged in
mass production of homogeneous/identical products. The basic feature of
unit costing is that the cost units are identical. Unit costing is also known
as “Single Output Costing”. Single or Output Costing is the form of Unit
costing used when the enterprise produces basically one homogeneous
product or one homogeneous product in two or more grades. Under this
method, the cost per unit is arrived at by dividing the total cost by the
total number of units produced. Thus, the cost ascertainment involves the
following two stages:
i) collection and functional analysis of all costs,
ii) division of total cost by the total number of units produced in order
to determine the cost per unit.
This procedure is applicable only when the organisation produces only one
product. If, however, the organisation produces several grades of the same
product, it becomes imperative to apportion the various costs between the
various grades so that the Cost of each grade can be determined separately
Unit costing method can be successfully applied in those industries engaged
in assembling, such as automobiles, electronics, typewriters, etc., and also
in those industries engaged in production of homogeneous products, such as
collieries, quarries, brick making, brewaries, dairies, sugar, cement works
etc.

12.3 PREPARATION OF STATEMENT OF COST/ COST

SHEET
Under this method of costing, it is customary to prepare a statement of cost
which is popularly known as ‘Cost Sheet’ at periodical intervals. It shows
detailed break-up of the total cost and the cost per unit at each stage. It
should contain as much information regarding costs as may be necessary
for the purposes of cost analysis and cost control. In actual practice, the
corresponding figures of the preceding period are also shown in the) Cost
Sheet for purposes of comparison. This facilitates cost control.
You learnt about the preparation of Cost Sheet in Unit 3 Block 1. We shall
now study about it in more detail. The proforma of Cost Sheet is given here
again in Figure 12.1.

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 Methods of Costing Figure 12.1 : Proforma of Cost Sheet
COST SHEET OF…………………….
for the month ending ………………
Output:…………. Units
Total: Per unit
Rs. Rs.
Raw Materials Consumed
Opening Stock of Raw Materials
Add : Purchases of Raw ……………
Materials ……………
Less: Closing Stocks of Finished
Goods __________
Direct Labour …………… …………… ……………
Other Direct Expenses …………… …………… ……………
__________ __________ __________
PRIME COST …………… ……………

Factory Overheads
…………. ………….
…………. ………….
…………. ………….
WORKS COST …………. ………….
Office & Administrative ________ ________ _________
Overheads …………. …………… …………… ……………
………….
…………. ……………
…………. ……………
…………. ……………
…………. ……………
COST OF PRODUCTION …………… ……………
(…………units)

Add : Opening Stock of Finished …………… ……………

Goods _________ __________
(…………units)
Less : Closing Stock of Finished …………… ……………
Goods __________ __________
(…………units)
COST OF GOODS SOLD
(…………units) ……………
Selling & Distribution Overheads ……………
…………… …………… …………… ……………
………….. __________ __________ _________
……………
COST OF SALES …………… ……………
(…………units)
PROFIT (LOSS) …………… ……………
__________ __________
SALES/SELLING PRICE …………… ……………
___________ __________

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 Look at Illustration 1 and see how Cost Sheet is prepared from the given Unit Costing
data.
Illustration 1: In a factory 20,000 units of Product X were manufactured
in the month of September, 2018. From the following figures obtained from
the costing records, prepare a Cost Sheet showing the total cost and cost per
unit:
Rs.
Direct Material Consumed 2,00,000
Direct Wages 1,60,000
Other Direct Expenses 40,000
Factory Overheads 80,000
Office & Administrative Overheads 60,000
Selling & Distribution Overheads 60,000
Solution:
Cost Sheet of Product ‘X’ for the Month of September, 2018
Output : 20,000 units
Total Cost Cost Per unit
Rs. Rs.
Cost of Direct Materials 2,00,000 10.00
Cost of Direct Labour 1,60,000 8.00
Cost of Other Direct Expenses 40,000 2.00
PRIME COST 4,00,000 20.00
Add Factory Overheads 80,000 4.00
FACTORY/WORKS COST 4,80,000 24.00
Add : Office & Administrative 60,000 3.00
Overheads
COST OF PRODUCTION 5,40,000 27.00
Add: Selling & Distribution 60,000 3.00
Overheads
TOTAL COST/COST OF SALES 6,00,000 30.00

Note: Cost per unit for each component of total cost has been arrived at by
dividing the amount by the total output.
12.3.1 Ascertainment of Cost of Direct Materials
While considering the cost of direct materials, only the cost of direct materials
actually used or consumed should be taken into account. Normally, all the
raw materials purchased in a particular period are not consumed during the
same period. Certain amount of raw materials is always kept in stock so that
production may not be interrupted for want of materials. In most cases, the
cost of direct materials actually used in production is not given. It should be
determined in the following manner:

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 Methods of Costing Cost of Direct Materials Used in Production Rs.

Cost of Opening Stock of Raw Materials ……..

Add : Cost of Raw Materials purchased ……..
Add : Carriage/Freight on purchases, if any …….. ……..
Cost of Raw Materials available for use ……..
Less: Cost of Closing Stock of Raw Materials …….. ……..
Look at Illustration 2 and see how cost of direct materials consumed is
worked out.
Illustration 2 : From the particulars given below, determine the cost of
direct materials consumed.
Rs.
Opening Stock of Raw Materials 40,000
Purchase of Raw Materials 2,40,000
Carriage Inwards 20,000
Closing Stock of Raw Materials 50,000
Carriage Outwards 20,000
Production Wages 1,80,000
Solution:
Cost of Direct Materials Used in Rs. Rs.
Production
40,000
Cost of Opening Stock of Raw
Materials 2,40,000
Add: Cost of Raw Materials purchased 20,000 2,60,000
Add: Carriage Inward
Cost of Raw Materials available for use 3,00,000
Less: Cost of Closing Stock of Raw 50,000 2,50,000
Materials
Value of stock of raw materials may be determined in any one of the methods
discussed in Unit 5 on materials. However, in the absence of any indication
in the given problem, it would be better to value the stock of raw materials
on FIFO basis and to give a note to that effect.
12.3.2 Ascertainment of Cost of Direct Labour
While considering the cost of direct labour, only the cost of direct labour actually
used in production should be taken into account. If there are outstanding or
prepaid direct wages, the same should be adjusted in the following manner:
Cost of Direct Labour Used in Production Rs.
Direct Wages paid ………
Add: Outstanding Direct Wages, if any ………
Less: Pre-paid Direct Wages, if any ________
……... ……..
…….. ________

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 12.3.3 Ascertainment of Cost of Other Direct Expenses/Chargeable Unit Costing
Expenses
Similarly, if there are outstanding or pre-paid direct/chargeable expenses,
the same should be adjusted in the same manner as direct labour in order
to ascertain the actual cost of direct/chargeable expenses. These expenses
include hire-charges paid for special machinery or plant taken on hire, cost
of special moulds, designs, and patterns, cost of patents and royalties, etc.
12.3.4 Ascertainment of Prime Cost
Prime cost refers to the direct cost. It is the sum total of three direct elements
of cost i.e., direct materials, direct labour and other direct expenses.
While determining the prime cost, we should always take the summation
of the cost of direct materials, direct labour and expenses actually used in
production. However, it is important to note here that direct materials will
not form part of prime cost in those industries where the product is extracted
from natural resources like collieries, quarries.
12.3.5 Ascertainment of Factory/Works Cost
Factory/Works Cost refers to the summation of prime cost and factory
overheads. Factory overheads include cost of indirect materials, indirect
labour and other indirect expenses incurred in the factory which are related
to production. It is determined as follows:
Rs.
Cost of Direct Materials …………
Cost of Direct Labour …………
Cost of other Direct Expenses …………
PRIME COST …………
Add Factory Overheads …………
FACTORY/ WORKS COST …………
__________
__________
Illustration 3 : From the following particulars, prepare a statement
showing (a) Cost of Direct Materials consumed, (b) Prime cost, (C)
Factory overheads and(d) Factory Cost.
Rs.
Stock of Raw Materials on 1.4.90 24,000
Stock of Raw Materials, on 30.04.90 31,000
Purchase of Raw Materials 1,10,000
Productive Wages 75,000
Drawing Office Salaries 7,800
Counting House Salaries 8,500
Freight on Purchase of Materials 6,000
Rent, Rates, Taxes & Insurance (Factory) 9,000
Rent, Rates, Taxes & Insurance (Office) 6,000
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 Methods of Costing Carriage Outwards 9,500
Repairs of Plant & Machinery 4,500
Travelling Expenses 12,000
Gas and Water Charges (Factory) 3,500
Gas and Water Charges (Office) 1,200
General Charges 7,500
Manager’s Salary (3/4 time devoted to Factory and ¼ time
devoted to Office) 24,000
Depreciation on Plant & Machinery 6,500
Depreciation on Furniture 1,000
Directors’ Fees 9,000
Advertisement 15,000
Solution :
Statement of Cost for the month of April, 2018
Rs. Rs. Rs.
Cost of Direct Materials
Consumed
Cost of Opening Stock of Raw 24,000
Materials
Add: Cost of Raw Materials 1,10,000
purchased
6,000 1,16,000
Add: Freight on purchases
Cost of Raw Materials available for 1,40,000
use 31,000 1,09,000
Less: Cost of Closing Stock of
75,000
Raw Materials
Cost of Direct Labour 1,84,000
PRIME COST
Factory Overheads
Drawing Office Salaries
Rent, Rates, Taxes & Insurance 7,800
(Factory) 9,000
Repairs to Plant & Machinery
Gas & Water Charges 4,500
Managers Salary ( 24,000) 3,500
Depreciation of Plant & Machinery 18,000
6,500 49,300
FACTORY/WORKS COST

2,33,300

12.3.6 Ascertainment of Cost of Production

Cost of production refers to the summation of factory/works cost and office
& administrative overheads. Office and administrative overheads include
the cost of indirect materials, indirect labour and other indirect expenses
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 incurred in office which are related to administration. Based on data given Unit Costing
in Illustration 3, the ‘Cost of Production’ will be determined as follows:
Rs.

FACTORY/WORKS COST 2,33,300

Add: Office & Administrative Overheads
Counting House Salaries Rs.
Rent, Rates, Taxes & Insurance (Office) 8,500
Gas & Water Charges (Office 6,000
General Charges 1,200
Managers Salary (¼ x 24,000 7,500
Depreciation on Furniture 6,000
Directors’ Fees 1,000
9,000 39,200

COST OF PRODUCTION 2,72,500

administrative expenses do not form part of the cost of production. But,
Cost Accounting literature in India still makes a distinction between the
terms ‘cost of production’ and ‘works cost’.
Accordingly, in the Indian context, the cost of production includes
office and administration expenses for cost accounting purposes.
12.3.7 Ascertainment of Total Cost/Cost of Sales
Total Cost/Cost of Sales refers to the summation of cost of production of
goods produced and selling & distribution overheads. Selling and distribution
overheads include cost of indirect materials, indirect labour and other indirect
expenses which are incurred for the purpose of sale and distribution. Based
on data given in Illustration 3, the Total Cost/Cast of Sales will be determined
as follows:
Rs.
COST OF PRODUCTION OF GOODS PRODUCED 2,72,500
Add : Selling & Distribution Overheads
Carriage Outwards 9,500
Travelling Expenses 12,000
Advertisement 15,000 36,500
TOTAL COST/COST OF SALES
3,09,000
12.3.8 Treatment of Items of Expenses and Losses of Purely Financial
Nature
It is important to note that there are certain items of expenses and losses
which are of purely financial nature and are to be excluded from cost. These
items are: cash discount allowed, interest paid, fines and penalties paid,
income tax paid, dividend paid, obsolescence loss, loss on sale of fixed
assets, loss on sale of investments, etc.
Illustration 4 :The following particulars have been obtained from the cost
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 Methods of Costing records of P Manufacturing Company Limited for the month of August,
2018:
Output and Sales for the month ………. 10,000 Units
Stock of Raw Materials as on 1.8.2018 15,000
Stock of Raw Materials as on 31.8.2018 ………. 20,000
Drawing Office Salaries ………. 9,000
Counting House Salaries ………. 6,000
Direct Wages paid ………. 58,000
Direct Expenses ………. 20,000
Purchase of Raw Materials ………. 92,000
Carnage Inwards ………. 3,000
Carriage Outwards ………. 4,500
Cash Discount allowed ………. 1,500
Power and Consumable Stores ………. 12,000
Indirect Wages ………. 15,000
Lighting of Factory ………. 5,500
Repairs to Plant & Machinery ………. 6,500
Depreciation on Plant & Machinery ………. 5,000
Debenture Interest ………. 10,000
Office Rent ………. 12,000
Directors’ Fees ………. 6,000
Travelling Expenses ………. 7,500
Salesmen’s Salaries and Commission ………. 18,000
Office Salaries ………. 9,000
General Charges ………. 7,000
Advertisement ………. 10,000
Outstanding Direct Wages ………. 2,000
Sale Proceeds of Factory Scrap ………. 3,000
You are required to prepare the Cost Sheet for the month of August, 2018
showing the various elements of cost per unit.
Solution :
Cost Sheet of P. Manufacturing Co. Ltd for the Month of August, 2018
Output 10,000
Units
Rs. Rs. Total Cost
Cost Per
Unit
Cost of Raw Materials used 15,000 Rs. Rs.
Add: Cost of Raw Materials 92,000
purchased

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 Add: Carriage Inwards Unit Costing
3,000 95,000
Cost of Raw Materials available 1,10,000
for use
Less: Cost of Closing Stock of 20,000 90,000 9.00
Raw Materials

Cost of Direct Labour 58,000

Direct Wages paid 2,000 60,000 6.00
Add : Outstanding Direct 20,000
Wages
Cost of Direct Expenses
1,70,000 17.00
PRIME COST
Add: Factory Overheads
Drawing Office Salaries 9,000
Power and Consumable Stores 12,000
Indirect Wages 15,000
Lighting of Factory 5,500
Repairs to Plant & Machinery 6,500
Depreciation on Plant & 5,000
Machinery
Less: Sale proceeds of Factory 53,000
Scrap
FACTORY/WORKS COST 3,000 50,000 5.00
Add : Office & Administrative 2,20,000 22.00
Overheads
Counting House Salaries 6,000
Office Rent 12,000
Directors’ Fees 6,000
Office Salaries 9,000
General Charges 7,000 40,000 4.00
COST OF PRODUCTION 2,60,000 26.00
Add : Selling & Distribution
Overheads
Carriage Outwards 4,500
Travelling Expenses 7,000
Salesmen’s Salaries & 18,000
Commission
Advertisement 10,000 40,000 4.00
COST OF SALES 3,00,000 30.00

Note : Cash Discount allowed and Debenture Interest are items of purely
financial nature and, as such, are excluded from cost.

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 Methods of Costing
12.4 PREPARATION OF PRODUCTION ACCOUNT
Production Account is another way of presentation of cost information. It is
prepared in the form of a ledger account. No separate column is shown for
cost per unit. All the possible break up of cost should be shown in stages in
the manner shown below.
Illustration 5 : Based on data given in Illustration 4, prepare Production
Account.
Solution :
Production Account of P. Manufacturing Co. Ltd. for the
Month of August, 2018
Dr. Cr.
Rs. Rs.
To Opening Stock of Raw Materials 15,000 By Closing 20,000
Stock of
To Raw Materials purchased 92,000 By Cost
of Direct 90,000
Materials
used c/d
To Carriage Inwards 3,000
1,10,000 1,1,0000
To Cost of Direct Materials used b/d 90,000 By Prime 1,70,000
Cost c/d
To Direct Wages 58,000
Add: Outstanding Direct Wages 2,000 60,000
To Cost of Direct Expenses 20,000
1,70,000 1,70,000
By Factory/
To Prime Cost b/d 1,70,000 Works 2,20,000
To Factory Overheads Cost c/d
Drawing Office Salaries 9,000
Power & Consumable Stores 12,000
Lighting of Factory 5,500
Indirect Wages 15,000
Repairs of Plant & Machinery 6,500
Depreciation on Plant & Machinery 5,000
53,000
Less: Sales proceeds of Fact. Scrap 3,000 50,000

2,20,000 2,20,000
To Factory/Works Cost b/d 2,20,000 By Cost of 2,60,000
Production
c/d

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 To Office & Administration Overheads Unit Costing

Counting House Salaries 6,000

Office Rent 12,000
Directors fees 6,000
Office Salaries 9,000
General charges 7,000 40,000
2,60,000
To Cost of Production b/d 2,60,000 2,60,000
To Selling & Distribution Overheads By Cost of 3,00,000
Carriage outward 4,500 Sales c/d

Travelling Expenses 7,500

Salesmen’s Salaries 18,000
Advertisement 10,000 40,000
3,00,000
To Cost Sales b/d 3,00,000 3,00,000

Note: If sales are given in the problem, the same should be shown on the
credit side and the difference between Sales and Cost of Sales should be
treated as profit/loss on sale.
Check Your Progress A
1) Fill up the blanks:
a) Cost of Direct Material’s Consumed ..........................................
...............
b) Prime Cost = .............................................................................
c) Cost of Sales .............................................................................
d) Cost of Production = Factory Cost + .........................................
.................
e) Selling Price = Cost of Sales + ...................................................
...............
2) State whether each of the following equations are True or False and
justify your answer.
a) Factory Cost = Prime Cost + Office Overheads
b) Prime Cost = Direct Cost
c) Total Cost = Prime Cost + All Indirect Costs
d) Cost of Production = Factory cost + Selling & Distribution
Overheads
e) Cost of Sales = Factory Cost + Selling & Distribution Overheads
3) Name the industries to which unit costing can be successfully applied.

12.5 SPECIAL POINTS TO BE NOTED

12.5.1 Value of Scrap/Wastage
Scrap refers to the incidental residue of certain types of manufacture or
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 Methods of Costing defective products beyond any rectification. If there is any realisable value
of such scrap, the same should reduce the cost of goods produced and, as
such, it should be deducted from cost of materials consumed or factory
overheads or factory cost/works cost.
12.5.2 Opening and Closing Work-in-Progress
Work-in-progress refer to partly finished or semi-finished goods. Work on
such goods has already started but not completed till the end of particular
period. The cost incurred in respect of closing work-in-progress must be
deducted from factory/works cost in order to ascertain the works cost of
the completed units (finished goods). It should be noted that the work-
in-progress of the previous period is the opening work-in-progress in the
current period which has been converted into finished goods in the current
period. Hence, the cost of opening stock of work-in-progress should be
added to the works cost of the current period. The reason why the cost of
opting and closing work-in-progress is adjusted in the works cost is that it
(cost of uncompleted units) includes only the cost of raw materials, direct
labour and factory overheads.
If the cost of opening and closing stock of work-in-progress is given, the
same should be adjusted after the factory overheads have been added to the
Prime Cost in the following manner:
Rs.
Cost of Direct Materials …….…...
Cost of Direct Labour ………....
Cost of Direct Expenses …………
_________
PRIME COST
Add : Factory Overheads ………….. …………..
Less: Value of Scrap, if any ………….. …………..
_________
GROSS FACTORY/WORKS COST …………..
_________
Add : Cost of Opening Stock of Work-
in-progress, if any …………..
Less: Cost of Closing Stock of Work- …………..
in-progress, if any _________
FACTORY/WORKS COST OF
…………..
GOODS COMPLETED _________

It is important to note That, in such a situation, the calculation of cost per

unit should be started after the stage of factory cost.
12.5.3 Opening and Costing Stocks of Finished Goods
It is unlikely that all the units of finished goods produced during a particular
period will be sold in the same period. In fact, it is the management policy
to keep some closing stock of finished goods so that sales for the next period
remain uninterrupted. The cost of closing stock of finished goods should be
deducted from the cost of production of goods produced in order to ascertain
the cost of production of goods sold during the current period. Since the
closing stock of finished goods of the preceding period i.e., the opening
stock for the current period is likely to be sold during the current period (on
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 FIFO basis), the same should be added to the cost of production. Thus, the Unit Costing
adjustments for opening and closing stocks of finished goods are made in
the following manner:
Rs.
Cost of Opening Stock of Finished Goods, if any …………..
Add: Cost of Production of Goods produced …………..
Cost of Production of Goods available for sale …………..
Less: Cost of Closing Stock of Finished Goods, if any …………..
__________
Cost of Production of Goods Sold
...................

Illustration 6 : The following information has been obtained from the

costing records of a manufacturing company for the month of October,
2018:
Cost of Raw Materials on 1-10-18 …….. 75,000
Cost of Raw Materials purchased …….. 9,60,000
Carriage on Purchases …….. 15,000
Chargeable Expenses …….. 80,000
Direct Wages Paid …….. 4,20,000
Factory Overheads …….. 2,30,000
Cost of Work-in Progress 1-10-18 …….. 60,000
Cost of Raw materials on 30-10-18 …….. 90,000
Cost of work in progress on 31-10-18 …….. 75,000
Cost of Stock of Finished Goods on 1-10-18 …….. 1,50,000
Cost of Stock of Finished Goods on 31-10-18 …….. 1,80,000
Office & Administrative Overheads …….. 1,25,000
Selling & Distribution Overheads …….. 1,30,000
Sales …….. 22,50,000
You are required to prepare
i) Cost Sheet showing the cost of production of goods produced, and
ii) Statement showing cost of sales and profit for the month of October,
2018
Solution:
Cost Sheet for the Month of October, 2018
Cost of Direct Materials used Rs.
Opening Stock of Raw Materials 75,000
Add: Raw Materials purchased 9,60,000
Add: Carriage on Purchases 15,000 9,75,000
10,50,000
Less: Closing Stock of Raw 90,000 9,60,000
Materials
Cost of Direct Labour 4,20,000
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 Methods of Costing Cost of Chargeable Expenses 80,000
14,60,000
PRIME COST
Add: Factory Overheads 2,30,000
GROSS FACTORY/WORKS 16,90,000
COST
Add: Cost of Opening Stock of
Work-in-Progress 60,000
Less: Cost of closing stock of 17,50,000
Work-in-progress 75,000
FACTORY/WORKS COST 16,75,000
Add: Office & Administrative 1,25,000
Overheads
COST OF PRODUCTION OF 18,00,000
GOODS PRODUCED

2) Statement Showing the cost of Sales and Profit for the Month of
October, 2018
Rs.
Cost of Opening Stock of Finished Goods 1,50,000
Add: Cost of Production of goods produced 18,00,000
Cost of Production of goods available for sale 19,50,000
Less: Cost of Closing Stock of Finished Goods 1,80,000
COST OF PRODUCTION OF GOODS SOLD 17,70,000
Add: Selling & Distribution Overheads 1,30,000
COST OF SALES 19,00,000
Profit (Balancing Figure) 3,50,000
SALES 22,50,000

Sometimes, the cost of closing stock of finished goods is not given. In that
case, the same can be worked out by multiplying the number of units in
stock by cost of production per unit as ascertained in the cost sheet. The cost
of opening stock of finished goods is usually given. But, if the same is not
given, it can also be worked out with the help of the cost of production per
unit for the current period based on the assumption that cost of production
per unit for the current period and that of the preceding period are the same.
It is considered desirable to include an additional column for the quantity
of goods in the Statement of Cost of Sales and Profit. This facilitates the
ascertainment of the quantity of goods sold or the quantity of goods in stock,
as the case may be.
12.5.4 Selling and Distribution Overheads
Quite often, instead of giving the selling and distribution overheads in the
cost data the rate of ‘selling and distribution overheads per unit’ is given.
In such a situation, the amount of selling and distribution overheads should

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 be worked out by multiplying the number of units sold by the selling and Unit Costing
distribution expenses per unit. It should be noted that this rate is to be
applied to the units sold and not to the units produced.
12.5.5 Computation of Recovery Rates for Overheads
Sometimes, you are required to calculate overheads recovery rates based on
the cost sheet prepared by you. Such rates are usually in respect of factory
overheads and administration overheads. Factory overhead rate is usually
calculated as a percentage of direct wages as follows:
Factory Overheads
×100
DirectWages
Administration Overhead rate is usually calculated as a percentage of works
cost as follows:
Office Administration Overheads
×100
Factory / WorksCost
Selling and distribution overheads rate may be computed either as a
percentage of works cost or as a percentage of sales.
Illustration 7 : The following is the cost data relating to product D for the
year ending December 31, 2018.
Rs.
Purchase of Raw Materials 1,20,000
Factory Rent & Insurance 8,000
Carnage Inwards 1,440
Other Factory Overheads 40,000
Direct wages 60,000
Stock on 1-1-2018
Raw Materials 20,000
Finished Goods (1,000 tons) 15,000

Administrative Overheads Sales 28,400

Stock on 31-12-2018 2,99,000
Raw Materials 22,240
Finished Goods (2,000 tons) 31,950
There was no stock of work-in-progress either at the beginning or at the
end. Advertisings and other selling costs were Re. 1 per ton. During the
year 16,000 tonnes of product D was produced. As certain (a) total the cost
of production (b) the Cost of goods stock the cost of sales, and, (d) the net
profit for the year; and work out (1) the percentage of factory overheads on
direct wages (ii) the percentage of administration overheads on works cost,
and (iii) the net profit per ton.

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 Methods of Costing Solution
Cost sheet of Product D for the Year ending December 31, 2018
Output : 16,000 units

Cost of Direct Materials used

Opening Stock of Raw Materials 20,000
Raw Materials purchased
Add : Carriage inwards 1,440
1,20,000
Less: Closing Stock of Raw Materials 1,41,440
Direct Wages 22,240 1,19,200
PRIME COST 60,000
Factory Overheads 1,79,200
Rent & Insurance
Other Factory Overheads
Works Cost 8,000
Administrative Overheads 40,000 48,000
2,27,200
28,400

COST OF PRODUCTION 2,55,600

2, 55, 600
Cost of Production per Unit = = Rs.15, 975
16, 000

Statement of Cost of Sales and Profit

Quantity Amount
(Tons) (Rs.)
Opening Stock of Finished Goods 1,000 15,000
Add: Cost of Production 16,000 2,55,600
17,000 2,70,000
Less: Closing Stock of Finished Goods 2,000 31,950
COST OF GOODS SOLD 2,38,650
Add: Selling & Distribution Overheads 15,000
(15,000 Re.1)
COST OF SALES 2,53,650
Net Profit 45,350

SALES 2,99,000

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 i) Percentage of Factory Overheads to Direct Wages Unit Costing

Factory Overheads
= ×100
DirectWages
48, 000
= × 100
60, 000
= 80%
ii) Percentage of Administration Overheads to Works Cost
Administrative Overheads
= ×100
WorksCost
28, 400
= × 100
2, 27, 200
= 12.5%
iii) Net Profit per Unit
Net Profit
=
Numberof Units Sold
45, 350
=
15, 000
= Rs. 3.02
Check Your Progress B
1) Fill up the blanks:
a) Realisable value of factory scrap should be deducted from
………….
b) Percentage of factory overheads to cost of direct labour
………………
c) Opening and closing stock of work-in-progress should be
adjusted after the factory overheads are added to the but before
the stage of…………
d) Selling and distribution overheads are incurred only
on……………. and not on…………………
2) State whether each of the following statements is True or False and
justify your answer.
a) Closing stock of work-in-progress should be valued on the basis
of prime cost.
b) Closing stock of finished goods should be valued on the basis of
cost of sales.
c) Selling and distribution overheads are incurred on the cost of
production of goods produced.
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 Methods of Costing d) Office & Administrative overheads are recovered usually on
the basis of percentage to factory cost.
e) Selling and distribution overheads are recovered on the basis of
percentage of works cost or percentage of sales.

12.6 PREPARATION OF STATEMENT OF QUOTATION/

TENDERING PRICE
Sometimes, the prospective buyer invites quotations from a number of
suppliers for some goods with certain specifications. The term ‘Quotation’
refers to quoting the minimum price for obtaining a specific order. Such
a price is quoted before the commencement of actual production in
anticipation of obtaining the particular order. In such a situation, first the cost
of such specific order should be estimated and then a reasonable amount of
profit should be added thereto in order to determine the price to be quoted.
While quoting the price for such specific order, one has to be cautious about
the fact that the price is neither too high nor too low. In case the price is too
high, offer will be rejected outright. On the other hand, if the price is too
low, it will result in either lower profit or loss. Therefore. it is important to
estimate the cost as accurately as possible. Although, estimation of cost is
primarily based on past performance, all future trends must also be taken
into account.
Statement of quotation is prepared in the same manner as Cost Sheet as
shown in Illustration 8.
Illustration 8 : X Manufacturing Co. Ltd. receives an enquiry for the supply
of 20,000 units of its products.
The costs are estimated as follows:
Raw Materials 1,00,000 Kgs @ Rs. 2 per kg.
Direct Wages 10,000 hours @ Rs. 8 per hour
Variable Overheads :
Factory Rs. 4.80 per labour hour
Selling & Distribution Rs. 32,000
Fixed Overheads :
Factory Rs. 12,000
Office & Administration Rs. 1,00,000
Selling & Distribution Rs. 28,000
The company adds 20% to its cost as its margin of profit. Prepare a
Statement of quotation showing the price to be quoted.

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 Solution : Unit Costing
Statement of Quotation Showing the Price to be Quoted per unit and
for 20,000 Units
Total Per Unit
Rs. Rs.
Estimated Cost of Direct Materials 2,00,000 10.00
Estimated Cost of Direct Labour 80,000 4.00

Estimated Prime Cost

Add: Estimated Factory Overheads 2,80,000 14.00
Variable 48,000
Fixed 12,000
Estimated Factory Cost
60,000 3.00

Add: Estimated Office & Administrative 3,40,000 17.00

Overheads
Estimated Cost of Production 1,00,000 5.00
4,40,000 22.00
Add: Estimated Selling & Distribution Overheads
Variable 32,000
Fixed 28,000

60,000 3.00

Estimated Cost of Sale 5,00,000 25.00

Add : Desired Profit @ 20% on Cost Price 1,00,000 5.00
Estimated Selling Price 6,00,000 30.00

Sometimes, cost records for a particular period are given and the estimated
cost of materials and labour of a work order are provided for the purpose of
ascertaining its selling price to be quoted. In such a situation, you should
prepare the cost sheet first and ascertain the recovery rates for factory
overheads as a percentage to direct wages for administrative overheads
as a percentage of works costs, and for selling and distribution overheads
as a percentage of cost of goods sold (or as suggested). These rates must
be duly adjusted with the anticipated changes, if any, before preparing the
statement of quotation. Look at Illustration 9 and study how the statement
of Quotation for a work order is prepared with the help of a given cost data.
Illustration 9 : The following figures have been obtained from the cost
records of a manufacturing company for the year 2018:

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 Methods of Costing Rs.
Cost of Materials 2,40,000
Wages for Direct Labour 2,00,000
Factory Overheads 1,20,000
Distribution Expenses 56,000
Administration Expenses 1,34,400
Selling Expenses 89,600
Profit 1,68,000

A work order was executed in 2018 and the following expenses were
incurred:
Rs.
Cost of Materials 32,000
Wages for labour 20,000

Assuming that in 2018 the rate for factory overheads went up by 20%
distribution charges went down by 10% and selling and administration
charges went up by 12½%, at what price should the product be quoted so as
to earn the same rate of profit on the selling price as in 2018. Show the full
workings.
Factory overheads are based on direct wages while administration, selling
and distribution expenses are based on factory Cost.
Solution
Statement of Cost for the Year 2018
Rs.
Cost of Direct Materials . 2.40.000
Direct Wages 2,00,000
PRIME COST
Factory Overheads 4,40,000
WORK COST 1,20,000
Administration Overheads 5,60,000
COST OF PRODUCTION
Selling, Overheads 1,34,400
Distribution Overheads 6,94.400
COST OF SALES 89.600
Profit 56,000
8,40,000
SALES
1,68,000
10,08,000

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 Factory Overheads Unit Costing
Factory” Overheads Rate = ×100
DirectWages
=
1, 20, 000
× 100
2, 00, 000
= 60%
Admn. Overheads
Administration Overheads Rate = ×1000
WorksCost
1, 34, 400
= × 100
5, 60, 000
= 24%
Selling Overheads Rate = Selling Overheads
×100
WorksCost

89, 600
= × 100
5, 60, 000

=16%
Distt. Overheads
Distribution Overheads Rate = ×100
Works Cost
56, 000
= × 100
5, 60, 000
= 10%
1, 68, 000
Rate of Profit = × 100
8, 40, 000
=20% of cost of sales
Statement of Quotation for a Work Order
Rs.
Cost of Direct Materials 32,000
Direct Wages 20,000
PRIME COST 52,000
Factory Overheads
(60% of wages plus 20% thereof i.e., 72% of wages) 14,400
WORK COST 66,400
Administration Overheads
1
(24% of works cost plus 12 % thereof i.e., 27% of works cost) 17,928
2
84,238
COST OF PRODUCTION
Selling Overheads
(16% of works cost plus 10 thereof i.e., 18% of works cost) 11,952
Distribution Overheads
(10% of works cost plus 10 thereof i.e., 9% of works cost) 5,976
COST OF SALES 1,02,256
Profit (12% of cost of sales) 20,451
ESTIMATED SELLING PRICE 1,22,707

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 Methods of Costing
12.7 COMPREHENSIVE ILLUSTRATIONS
Illustration 10 : The following particulars relating to the year 2018 have
been taken from the books of a Chemical Works manufacturing and selling
a chemical mixture:
Kg. Rs.
Stock on 1st January, 2018
Raw Materials 2,000 2,000
Finished Mixture
Factory Stores 500 1,750
7,250

Purchases
Raw Materials 1,60,000 1,80,000
Factory Stores
24,250
Sales
Finished Mixture
Factory Scrap
Factory Wages 1,53,050 9,18,000
Power 8,170
1,78.650
30,400
Depreciation on Machinery 18,000
Salaries
Factory 72,220
Office
Selling 37,220
41,500

Expenses
Direct
Office
Selling
Stock on 31st December, 2018
Raw Materials
Finished Mixture 1,200 ?
Factory Stores 450 ?
5,500

The stock of finished mixture at the end of 2018 is to be valued at the

factory cost of the mixture for that year. The purchase price of raw materials
remained unchanged throughout the year. Prepare a statement giving the
maximum possible information about cost and its break up for the year 2018.

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 Solution: Unit Costing
Cost Sheet of a Chemical Works for the year 2018
Output : 1,53,000 Kg
Total Cost Cost per unit
Rs. Rs.
Cost of Direct Material used
Cost of Opening stock of raw materials 2,000
Add : Cost of Raw Materials purchased 1,80,000
1,82,000
Less : Cost of Closing Stock of Raw 1,350 1,80,650 1.181
Materials
Cost of Direct Labour 1,78,650 1.168
Cost of Direct Expenses 18,500 0.121
PRIME COST 3,77,800 2.470
Factory Overheads
Cost of Factory Stores consumed :
Opening Stock
7,250
Add: Purchases
24,250

31,500
Less : Closing Stock 25,950
5,550
Power 30,400
Depreciation of Machinery 18,000
Factory Salaries 72,220
1,46,570
Less : Sale of Factory Scrap 8,170 1,38,400 0.904
WORKS COST 5,16,200 3,374
Office & Admn. Overheads
Office Salaries 37,220
Office Expenses 18,200 55,420 0.362
COST OF PRODUCTION 5,71,620 3,736

Statement Showing Cost of Sales and Profit for Year 2018

Rs.

Cost of Opening Stock of Finished Mixture (500 kg.) 1,750

Add : Cost of production of Finished Mixture (1,53,000 kg.) 5,71,620
5,73,370
Less: Cost of Closing stock of Finished Mixture (450 kg.) 1,518
COST OF GOODS SOLD (1,53,050 kg) 5,71,852
Selling & Distribution Overheads
Salaries 41,500

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 Methods of Costing Selling Expenses 18,000 59,500
COST OF SALES (1,53,050 Kg.) 6.31.352
Profit (Balancing figure) 2,86,648
Sales (1,53,050 Kg. finished mixture) 9,18,000

Working Notes
1) Production during the year = Goods Sold + Closing Stock - Opening
Stock = (1,53,050 + 450 – 500)
= 1,53,050 Kg.
1, 80, 000
Value of Closing Stock of Raw Materials = × 1, 200 = Rs.1, 350
1, 60, 000
5,16, 200
Value of Closing Stock of Finished Mixture = Rs. × 450 = Rs.1, 518
1, 53, 000

Illustration 11
Work out in Cost Sheet form the unit cost of production per ton of Special
Paper manufactured by a paper mill in March, 2018 from the following
data:
Direct Materials
Paper Pulp 500 tons @ Rs. 50 per ton
Other Materials 100 tons @ Rs. 30 per ton
Direct Labour
80 Skilled men @ Rs. 3 per day for 25 days
40 Unskilled men @ Ks. 2 per day for 25 days
Direct Expenses
Special Equipment Rs. 3,000
Special Dyes Rs. 1,000
Works Overheads
Variable @ 100% and Fixed @ 60% on Direct Wages
Administrative Overheads @ 10%
Selling and Distribution Overheads @ 15% on Works Cost
Forty tons of special paper was manufactured and Rs. 800 was realised by
the sale of waste material during the course of manufacture. The scrap value
of the special equipment after utilisation in manufacture is nil.
Solution
Cost Sheet of a Paper Mill for the Month of March, 2018
Output : 400 Ton
Total Cost Cost per Ton
Rs. Rs.
Cost of Direct Materials used
Paper Pulp = 500 Rs. 50 = 25,000
Other Materials = 100 Rs, 30 = 3,000
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 28,000 Unit Costing
Less: Sale of Waste Materials 800 27,200 68.00
Cost of Direct Labour
Skilled Men = 80 × Rs. 3 × 25 6,000
Unskilled Men = 40 × Rs. 2 × 25 2,000 8,000 20.00
Cost of Direct Expenses
Special Equipment 3,000
Special Dyes 1,000 4,000 10.00
PRIME COST
Works Overheads
Variable (100% on direct wages) 8,000
Fixed (60% on direct wages) 4,800 12,800 32.00
WORKS COST 52,000 130.00
Administrative or Overheads (10% on Work 5,200 13.00
Cost)
COST OF PRODUCTION 57,200 143.00
Selling & Distribution Overheads (15% on 7,800 19.50
Works Cost)
COST OF SALES 65,000 162.50

Illustration 12 :Cooling Ltd. manufactured and sold 1,000 refrigerators

in the year ending 31st March, 2018. The summarised Trading and Profit
& Loss Account is set out below:
Rs. Rs.
To Cost of Materials 8,00,000 By Sales 40,00,000
To Direct Wages 12,00,000

To Other Manufacturing 5,00,000

Cost
To Gross Profit c/d 15,00,000
40,00,000 40,00,000
To Management and Staff 6,00,000 By Gross 15,00,000
Salaries Profit b/d
To Rent, Rates and 1,00,000
Insurance
To Selling Expenses 3,00,000
To General Expenses 2,00,000
To Net Profit 3,00,000
15,00,000 15,00,000
For the year ending 31st March 2019, it is estimated that—
a) Output and Sales will be 1,200 refrigerators.
b) Prices of Material will go up by 20% on the level of previous year.
c) Wages will rise by 5%.
d) Manufacturing costs will rise in proportion to the combined cost of
Material and wages.
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 Methods of Costing e) Selling cost per unit will remain unaffected.
f) Other expenses will also remain constant.
You are required to submit a statement to the Board of Directors showing
the price at which the refrigerators should be marketed so as to show profit
of 10% on selling price.
Solution :
Statement showing Estimated Selling Price of Refrigerators for the year
ending 31st March, 2018
Output : 1,200
Total Per Unit
Cost
Cost of Direct Materials 11,52,000 960
Cost of Direct Labour 15,12,000 1,260
PRIME COST 2,220
26,64,000
Add : Factory Overheads 6,66,000 555
FACTORY COST 33,30,000 2,775
Add : Office & Administrative Overheads 9,00,000 750
COST OF PRODUCTION 42,30,000 3,525
Add: Selling & Distribution Overheads 3,60,000 300
COST OF SALES 45,90,000 3,825
Add: Profit @ 10% on Selling Price i.e., 1/9 on Cost of 5,10,000 425
Sales
Estimated Selling Price 51,00,000 4,250

Working Notes :
1) For the sake of convenience, it is desirable that the cost sheet for the
last year is prepared as follows :
Cost Sheet of Cooling Ltd for the year ended 31.3.2018
Total Cost Cost Per
Unit
Cost of Direct Materials 8,00,000 800
Cost of Direct Labour 12,00,000 1,260
PRIME COST 20,00,000 2,000
Add : Factory Overheads (Other Manufacturing Costs) 5,00,000 555
FACTORY COST 25,00,000 2,775
Add : Office & Administrative Overheads 9,00,000 750
Management & Staff Salaries
6,00,000
Rent, Rates & Insurance
1,00,000
General Expenses 9,00,000 900
2,00,000
COST OF PRODUCTION 34,00,000 3,400
Add: Selling & Distribution Overheads 3,00,000 300
COST OF SALES 37,00,000 3,700

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 2) It is important to note he that the cost of all variable items should be Unit Costing
determined per unit and the same should be multiplied by the output
for the next year. Thus, increase in the volume of output will be
automatically taken care of.
3) Cost of direct material per unit for the next year

 20 
= 800 +  × 800 = 800 + 160 = Rs.960
 100 

4) Cost of direct labour per unit for the next year

 5 
= 1, 200 +  × 1, 200 = 1, 200 + 60 = Rs.1, 260
 100 

5) Increase in combined cost of material and labour i.e., Prime Cost

 2, 220 − 2, 000  220

=  × 100 = × 100 = 11%
 2, 000  2, 000

∴ Manufacturing cost per unit for the next year….

 11 
= 500 +  × 500 = 500 × 55 = Rs.555
 100 

12.8 LET US SUM UP

Unit costing is a method of costing used in those industries which are
engaged in mass production of homogeneous/identical products. This
method of costing is applied in a large number of industries like automobiles,
electronics, collieries, quarries, brick making, etc.
A Statement of Cost/Cost Sheet is prepared at periodical intervals showing
the total cost and cost per unit of each element of cost side by side. The
cost per Unit 5 arrived at by dividing the total cost incurred by the total
number of units produced. An alternative way of presentation of this cost
information is in the form of a ledger account called ‘Production Account’
Sometimes, a statement of quotations is required to be prepared in order
to find out the price to be quoted to the prospective buyer for obtaining a
specific order. While preparing this statement, cost for the specific order
should be estimated first and, thereafter, a reasonable amount of profit
should be added to the estimated cost. The resultant figure shall represent
the selling price to be quoted.

12.9 KEY WORDS

Chargeable Expenses: Other direct expenses.
Cost of Production of Goods Sold : Cost of opening stock of finished
goods plus cost of production of goods produced minus cost of closing
stock of finished goods.
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 Methods of Costing Cost of Production of Goods Produced : Total of factory/works cost and
office and administrative overheads.
Cost of Sales : Total of cost of production of goods sold and selling &
distribution overheads.
Factory/Works Cost : Total of prime cost and factory overheads.
Production Account: Statement of cost prepared in the form a ledger
account. It is similar to Manufacturing Account prepared in financial
accounts.
Prime Cost: Direct cost i.e., total of cost incurred on direct materials, direct
labour and direct expenses.
Selling Price/Price of Tender: Total of cost of sales and desired amount of
profit.
Work-in-Progress: Semi-finished goods.

12.10 ANSWERS TO CHECK YOUR PROGRESS

A) 1. a) Cost of opening stock of raw materials + Cost of raw materials
purchased - Cost of closing stock of raw materials.
b) Cost of direct materials + Cost of direct labour + Cost of direct
expenses.
c) Cost of production of goods sold ÷ Selling & Distribution
overheads.
d) Office & Administrative overheads.
e) Profit.
2) a) False, b) True, c) True, d) False, e) False.
3) Automobiles, Electronics, Collieries, Quarries, Brick making etc.
1) a) Factory Overheads, c) prime Cost, factory Cost,
d) goods sold, goods produced.
2) a) False, b) False, c) False, d) True, e) True.

12.11 TERMINAL QUESTIONS/EXERCISES

Questions:
1) Define Unit Costing. Mention the industries to which this method of
costing is applicable.
2) What is a cost sheet? In what respect does it differ from a Production
Account?
3) Describe in brief the various components of Total Cost.
Exercises:
1) Prepare a Cost Sheet from the following data to find out profit and
cost per unit :
Rs.
Raw Materials consumed Rs. 1,60,000
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 Direct Wages Rs.80,000 Unit Costing

Factory Overheads 20% of Direct Wages

Administrative Overheads 10% of Factory Cost
Selling Overheads Rs. 12,000
Units produced 4,000
Units sold Rs. 100 per unit
Selling Price Rs. 100 per unit

(Answer: Prime Cost: Rs. 2,40,000; Factory Cost: Rs. 2,56,000; Cost of
production of goods produced : Rs. 2,81,600; Cost of Sales: Rs. 2,65,440;
and Profit : Rs. 94,560)
2) You are the chief of the Cost Accounting Department of Leather
Products India Ltd. Your organisation manufactures shoes. The
following figures have been extracted from the account books relating
to the production of shoes for the year 2018.
Rs.
Raw Materials consumed (including abnormal wastage of Rs. 5,10,000
10,000)
Direct Wages paid 4,00,000
Factory Overheads 1,00,000
Tools consumed 10,000
Depreciation of Machines (Factory) 5,000
Machines imported 1,00,000
Work Expenses (Misc.) 50,000
Office Expenses 25,000
Overheads for Office 40,000
Managing Director’s Salary 50,000
Stationery & Printing (Office) 5,000
Depreciation of Machines (Office) 1,000
Selling and Distribution Expenses 25,000
Entertainment of customers 20,000
Advertising 30,000
Dividend paid 1,00,000
Prepare a cost analysis statement after considering the following
i) The profit rate is 20% on sales.
ii) Wages outstanding Rs. 25,000.
Hint : Abnormal wastage of raw materials should be treated separately
and as such, it should not form part of cost.
(Answer: Cost of raw materials consumed; Rs. 5,00,000, Cost of direct labour:
Rs. 4,25,000; Prime Cost: Rs. 9,25.000; Factory Overheads :
Rs.1 ,65,000 Factory Cost: Rs. 10,90,000; Administrative Overheads : Rs.
1,21,000; Cost of production of goods produced : Rs. 12,11,000; Selling &
Distribution Overheads: Rs. 75,000; Cost of Sales :Rs. 12,86,000; Profit:
Rs. 3,21,500 & Sales: Rs. 16,07,500)
3) The following details have been obtained from the cost records of
Comet Paints Limited:
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 Methods of Costing Rs.
Stock of Raw Materials on 1st September, 2018 75,000
Stock of Raw Materials on 31st September, 2018 91,500
Direct Wages 52,500
Indirect Wages 2,750
Sales 2,11,000
Work-in-progress on 1st September, 2018 28,000
Work-in-progress on 30th September, 2018 35,000
Purchase of Raw Materials 66,000
Factory Rent, Rates and Power 15,000
Depreciation of Plant and Machinery 3,500
Expenses on Purchases 1,500
Carriage Outwards 2,500
Advertising 3,500
Office Rent & Taxes 2,500
Travellers’ Wages and Commission 6,500
Stock of Finished Goods on 1st September, 2018 54,000
Stock of Finished Goods on 30th September, 2018 31,000
Prepare a Production Account giving the maximum possible break up of
costs and profit.
(Answer: Cost of Raw Materials consumed: Rs. 51,000; Prime Cost:
Rs. 1,03,500; Factory Overheads : Rs. 21,250; Factory Cost: Rs. 1,17,750;
Cost of Production of goods produced : Rs. 1,20,250; Cost of Production
of Goods Sold: Rs. 1,43,250; Selling & Distribution overheads: Rs. 12,500;
Cost of Sales: Rs. 1,55,750; and Profit : Rs. 55,250)
4) A company makes two distinct types of vehicles A and B. The total
expenses during a period as shown by the books for assembly of 600
of A and 800 of B are as under:
Rs.
Material 1,98,000
Wages 12,000
Stores Overheads 19,800
Running Expenses of Machine 4,400
Depreciation 2,200
Labour Amenities 1,500
Works General Expenses 30,000
Administration and Selling Expenses 26,790

Other Data available to you are A:B

Material Cost Ratio per Unit 1:2

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 Direct Labour Ratio per Unit 2:3 Unit Costing

Machine Utilization Ratio per Unit 1:2

Calculate the cost of each vehicle per unit giving reasons for the basis of
apportionment adopted by you.
Hint: a) Calculate the effective ratio by taking into account the total
output of two vehicles as follows:
Effective Material Ratio = 1 600 : 2 800
= 600: 1600=3: 8
Effective Labour Ratio = 2 600: 3 800
= 1200:2400=1:2
Effective Machine Utilisation Ratio = 1 600 : 2 800
= 600: 1600=3:8
b) Apportion Material and Stores overhead in Material ratio, Direct
wages, Labour amenities and Works general expenses in Labour
ratio, Running expenses of Machine and Depreciation in Machine
utilization ratio and Administrative & selling expenses in the ratio of
works cost.
(Answer: Prime Cost : A - Rs. 58,000/Rs. 96.67, B - Rs. 1,52,000/Rs.
190.00;
Factory Overheads : A - Rs. 17,700/Rs. 29.50; B-Rs. 40,200/Rs.
50.25; Works Cost: A - Rs. 75,700/Rs. 126.17; B - Rs. 1,92,200/Rs.
24025; Total Cost/Cost of Sales; A - Rs. 83,270/Rs. 138.79,
B - Rs. 2,11,420/- Rs. 264.28)
5) From the following information prepare the Cost Sheet of Pig Iron
showing cost of Pig Iron produced and Cost per tonne of each item of
expenditure:
Stock on Purchases Stock on
1st August, during the 31st August,
2018 month of 2018
August,
2018

Rs. Rs. Rs.

Iron Ore 10,800 56,000 10,200

Lime Stone 4,500 15,000 4,800

Coal 94,000 70,000 47,000

Coke 10,500 59,000 7,200

Sundries 6,500 24,000 7,500

Wages Paid Rs. 66,000
Works Charges Rs. 44,500
Sale of Slag during the month was Rs. 8,500

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 Methods of Costing Production of Pig Iron during the
month was 1,000 Tonnes
(Answer: Cost of Direct Materials used: Rs. 2,73,600; Factory Cost/Cost
of Production: Rs. 3,75,600; Cost per tonne: Rs. 375.60)
6) The following particulars have been made available from the Cost
Ledger of a company:
The company is required to submit a tender for a large machine The Cost
Department estimates that the materials will costs. 40.000 and wages to
fabricate the machine Rs. 24.000. The tender is to be made at a net profit of
20% on selling price.
Prepare a statement showing a) Cost of materials used, b) total cost, c)
percentage of factory overheads to direct wages, and d) percentage of
office overheads to works cost. Also prepare a statement of quotation
showing the price at which the tender of the machine can be submitted.
(Answer: Cost of materials used : Rs. 5,82,400; Total cost Rs. 11,38,520;
Percentage of Factory Overheads to Direct Wages 22%; Percentage of Office
Overheads to Works Cost 6.65%; Price to be quoted in tender: Rs. 92,360.)

Note: These questions will help you to understand the unit better. Try to
write answers for them and verify with the content. But do not submit
your answers to the University. These are for your practice only.

SOME USEFUL BOOKS

Arora, M.N. 1988. A Text Book of Cost Accountancy, Vikas Publishing
ouse Pvt. Ltd.: New Delhi. (Chapters 14, 15, 16, 17, 19)
Bhar, B.K. 2018. Cost Accounting: Methods and Problems, Academic
Publishers : Calcutta.
Maheshwari, S.N. and S.N. Mittal, 2018. Cost Accounting: Theory and
Problems, Shree Mahavir Book Depot: Delhi. (Chapters 6, 7, 8, 11)
Nigam B.M.L. and G.L. Sharma, 2018. Theory and Techniques of Cost
Accounting,
Himalaya Publishing House: Bombay. (Chapters 11, 12, 14, 17)
Owner, L.W.J. and J.L. Brown, 1984. Wheldon’s Cost Accounting, ELBS :
London. (Chapters 17, 18)

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