Variable cost

Labour expenses tp produce one unit $200

One unit= 200*1=200 cost

If you are producing 10000 units : labour cost

10000*1= 10000total cost

Cost per unit: 1 unit/10000 units= per unit$1

Wood material square feet $10

10 table per table requires 20 SF

10table*20 SF*$10= total cost2000$

1Table*10*10= $100

SE expenses $10= cost per unit

Labour 1 labour cost $20, 20 labour

20lab*20 per labor= 400

1lb*20=20

30000 slary paid fixed cost level of activity: units 10000 units

Cost per unit

30000/ 10000 unit= $3per uni

Reduced to $ 5000

Cost per unit

30000/5000= $6
ILCB has the following information relating to one of its products: · Direct material cost per unit $1 ·
Direct labour cost per unit $3 · Variable production cost per unit $3 · Fixed production overhead
$30,000 per month · Budgeted production 15,000 units per month Required: Calculate the cost per
unit and the total cost of the budgeted monthly production?

DM=

Cost per unit total cost

Variable constant changes

Fixed changes constant

15000 units cost per unit total cost

Direct material 1 15000*1= 15000

Direct labour 3 15000*3=45000

Vrable P 3 15000*3=45000

Fixed cost 30000/15000=2 30000

9 135000

135000/9= 15000 units

15000*9=135000

Semi variable cost

Stepped cost
Semi variable cost/ semi fixed cost
Example: 500 units 50000 cost, 400 units 45000cost, 200 units 15000cost
1. 500units, 200 units
2. VC per unit = 50000-15000/500-200= VC per unit116.67
3. Fixed cost= 500 unit activity level total cost 50000
= 50000- (500*116.67)
= -8335

4. Total cost= -8335+(500*116.67

=50000

Question 1
1: Hl50units LL 26

Variable cost= $ 31 per unit

50 units 7310

50units*31per unit = V Cost 1550

Fixed cost= 7310-1550= 5760

26 units 6566

26*31= 806

6566-806= 5760

Question 2
VC per unit= $10

FCost= 5000

350*10= 3500 VC + Fc 5000= total cost 8500

High/low method with changes in the variable cost per unit

The following information relates to the manufacture of Product LL in 20X8:

Output (units) Total cost ($)
200 7,000
300 8,000
400 8,600
For output volumes above 350 units the variable cost per unit falls by 10%. (Note: this fall applies to
all units – not just the excess above 350).
Required: Estimate the cost of producing 450 units of Product LL in 20X9.

High and low method for stepped fixed cost

An organisation has the following total costs at three activity levels

Activity level (units) 4,000 6,000 7,500

Total cost $40,800 $50,000 $54,800

Variable cost per unit is constant within this activity range and there is a step up of 10% in the total
fixed costs when the activity level exceeds 5,500 units.

What is the total cost at an activity level of 5,000 units?

Cost sheet format

ELEMENTS OF COST UNITS TOTAL COST PER

COST UNIT
Direct material:
Cost of material consumed:
Opening stock -----
Add: purchases ----
----- -------
Less: closing stock ---- ------
Direct labour ------
Direct expenses
Prime cost ------ ------
Factory overheads:
Indirect material ---
Oil waste grease ---
Consumable stores ---
Works stationary ---
Indirect wages ---
Drawing office salary ---
R&D expenses ---
Welfare expenses ---
Service and purchase dept. expenses ---
Coal, fuel, gas, water, steam ---
Factory expenses etc., ---- -----
Normal idle time cost ----
Normal loss of material ---
Cost of defective works ---
Rectification of cost ---
Less: sale of scrap ---
Add: opening W-I-P ---
Less: closing W-I-P ---
-----
Works cost/ factory cost ------ ------
Office and administrative overheads:
Salary-office, counting house, general manager
Office: rent and taxes, printing, stationary, ---
sundry expenses ---
Depreciation of office equipments
Directors fees ---
Legal expenses ---
Audit fees ---
Subscription to periodicals ---
 --- -----
Production cost ------- ----- -----
Add: opening stock of finished goods -----
Less: closing stock of finished goods ---- ----
Cost of goods sold ---- ----- ----
Selling and distribution expenses:
Salary of sales staff ----
Commission ---
Travelling expenses, carriage outward ---
Advertisement ---
Sample free gifts ---
Show room expenses ---
Demonstration ---
Sales office expenses ---
Trade fair exhibition expenses ---
Warehouse ---
Packing containers ---
Discount on sales ---
Finished stock insurance ---
After-sales services etc.., --- ---- ----
Cost of sales/ total sales ------ ------ -------
Add: profit ------ -----
Sales ----------- ------- ---------

Illustrations: 1
1. Manoor Marbles Ltd., is manufacturing the product “M” and the following information
has been obtained from the records for the year ending 31/12/2010
On 1/1/2010 On 31/12/2010
Stock- raw materials (Rs.) 40000 44480
Finished products (units) 2000 4000
W-I-P (Rs.) 9600 32000
Rs. Rs.
Purchase of materials 240000 Direct wages 200000
Indirect materials 12000 Carriage inward 2880
Works manager salary 16000 printing and stationary 4000
Indirect wages 2000 Office salary 24000
Research and equipment 10000 Counting house salary 4000
Employee state insurance 2000 sales 600000
Other factory expenses 22000

Advertising, discount allowed and selling cost is Rupee one per unit. Total units produced
are 32000. Prepare a statement to show the cost and profit per unit of product ‘M’.
Cost sheet for the year ending 31/12/2010

Elements of cost Total cost Units Cost Unit

1. Direct material: cost of material
consumed
Opening stock of RM 40000
Purchase of Materials 240000
Carriage inward 2880 238400/3
Less: Closing sk of RM (44480) 238400 32000 2000
2. Direct labour: direct wages 200000 32000 =7.45
3. Direct expenses: Nil Nil 6.25
Nil
Prime cost (1+2+3) 438400 32000 13.7
+ Factory Overheads:
1. Indirect material 12000 32000 0.375
2. Works mgr salary 16000 32000 0.5
3. Indirect wages 2000 32000 0.06
4. Research and equipment 10000 32000 0.31
5. ESI 2000 32000 0.06
6. Other factory expenses 22000 32000 0.69
Total( prime cost+ Factory overheads) 502400 32000 15.7
+ opening work in progress 9600
- Closing WIP (32000)
Works cost/ factory cost 480000 32000 15
+ Office overheads/Admn OHS
1. Printing and stationery 4000 32000 0.13
2. Office salary 24000 32000 0.8
3. Counting office salary 4000 32000 0.13
Cost of production/ production cost 512000 32000 16
+ opening stock of FGs( no of units* cost of P 32000 2000
per unit) 2000*16
- Closing stock of FGs(4000*16) (64000) (4000)

Cost of goods sold (512000+32000-64000) 480000 30000 16

+ selling and distribution OHs
Advertising, discount, selling cost(30000*1) 30000 30000 1
Cost of sales (480000+30000)/total cost 510000 30000 17
+/- profit/loss(600000-510000)or 90000 30000 3
90000/30000 or 30000*3
Sales/ sales per unit 600000 30000 20

Cost+ profit= sales

Profit= sales- cost

No of unit produce+ opening stock of FG- closing stock of FG= No. of unit sold

No of units produced= no of units sold- opening stock og FG+ Closing stock of FG

2.
The following particulars are obtained from the financial accounts of Manu Cables
Ltd. for the month of June 2017
Rs. Rs.
Purchase of Materials 98,000 Productive wage 74,700
Unproductive wage 11,300 Bad debts recovered 176
Showroom expenses 1,600 Debt collection charges 120
Carriage inward 500 Cash discount 1,850
Carriage outward 600 Haulage 1,025
Import duty on purchases 860 Gas and water 675
Motive power 4,500 Product design expenses 1,150
Returns outward 650 Rectification cost 7,000
Office salary 17,525 Telephone charges 1,850
Chargeable expenses 25,000 Scrap of material sold 300
Loss on sale of plant 16,000 Samples and free gifts 900
Depreciation on plant 2,900 Income Tax 2,500
Works stationary 1,300 Commission on sales 3,860
Bad debt 3,500 Legal charges 625
Reserve for bad debt 4,250 Sales (5,200 units) 3,64,000
Stock as on 1-6-2017 30-6-2017
Rs. Rs.
Material 1,500 750
W-I-P: Material 1,200 360
Wage s 900 600
Factory overhead 250 100
Finished goods (units) 250 50
From the above details prepare a cost sheet for the month of June 2017

Cost sheet for no of units produced:

Calculation of No of units= No of units sold- Opening stock Of FG+ closing stock of FG

= 5200units-250 units+ 50 units

= 5000units

Cost sheet for the month of June 2017

Elements of cost Total cost unit Costunit

1. Direct material: cost of material
consumed:
Opening stock of material 1500
Opening WIP material 1200
Purchase of materials 98000
Carriage inwards 500
Import duty on purchases 860
-Purchase return (650)
- scrap of material sold (300)
- closing stock of materials (750)
- closing stock of WIP (360) 100000 5000 20
2. Direct labour: direct wages
Opening stock of WIP wages 900
+productive wages 74700
- Closing Sk of WIP (600) 75000 5000 15
3. direct expenses:
Chargeable expenses 25000 5000 5
Prime cost 200000 5000 40
+ Factory overheads:
1. Unproductive wages 11300
2. Motive power 4500
3. Depreciation on plant 2900
4. Works stationery 1300
5. Haulage 1025
6. Gas and water 675
7. Product design 1150
8. Rectification cost 7000
+ opening stock of WIp FOHs 250
- Closing stk of WIP FOHs (100)
Factory cost/ works cost( PC+ Factory 230000 5000 46
OHs)
+ office overheads/ Administration OHs
1. Office salary 17525
2. Telephone charges 1850
3. Legal charges 625

Cost of production( FC+Office OHS) 250000 5000 50

+ opening stock of FGs 12500 250 50
Units* cost of production per unit
- Closing stock of FGs(50*50) (2500) (50) 50
Cost of goods sold ( COP+OFG-CFG) 260000 5200 50
+ Selling and distribution Overheads:
1. Showroom expenses 1600
2. Carriage outwards 600
3. Bad debts 3500
4. Debt collection charges 120
5. Sample and free gift 900
6. Commission on sales 3860
Cost of sales/ total cost( COGS+S&D ohs) 270580 5200 52.03
+ profit (70-52.3)0r 364000-270580= 93420 5200 17.97
93420/5000
Sales 364000/5200= 364000 5200 70