hng Price per Machine = = 468.

75 P
600
Profit and Loss AWe and Tender Price
Illustration 7
Afirm manufactured and sold 1,000
PL Alc for the year 2013 is given out belowtypewriters in the year 2013. Its summarised
Dr.
:
Trading and Profit & Loss Account Trading and,
Particulars Amount Particulars

To Cost of Materials
Amound Cost o

To Direct Wages 80,000 By Sales

To Manufacturing Exp. 1,20,000
50,000
4,00,00 Add:

To GroSs Profit cld

1,50,000
Direct

4,00,000 Add:
To Salaries
60,000By Gross Profit b/d 4,00,000
To Rent, Rates & Insurance 10,000 1,30,000
To General Expenses 20,000 Manu

To Selling Expenses 30,000

To Net Profit 30,000
Ofice
1,50,000
1,50,000
For the year 2014 it is estimated that :he
(1) The output and sales will be of 1,200 typewriters.
(2) The prices of materials will rise by 20% in comparison to previous year.
(3) Wages will increase by 5%. Selli

(4) Manufacturing expenses will increase in proportion to combined cost of materials and wages
(5) Selling expenses p.u. will remain unchanged. Prof
(6) Other expenses will remain unaffected by the rise in the output.
Prepare a cost sheet showing the price at which the typewriters to be manufactured in 208
should be marketed so as to show a profit of 10% on the selling price.
(Based on V. B. Uni. B. Com. 2006)
Solution Cost Sheet
(Output 1,000 Typewriters)
Cost par ing
Particulars Total Cost Type
writer

ixe
80.000
Cost of Materials 80,000 120.00
Direct Wages 1,20,000 WOT
 Caleulation of Tender Price or Quotation Price 317

200.00
Prime Cost 2,00,000 50.00
ucturing Expenses 50,000
250.00
Works Cost 2,50,000
Oerhend'
60.00
60,000 10.00
Solaries
Rate and Insurance 10,000
20.00
Rent,
General Expenses 20,000
340.00
3,40,000
Cost of Production 30.00
30,000
370.00
s a l i n gB x p e n s e s

3,70,000
Total Cost 30.00
30,000
Net Profit 400.00
4,00,000
Selling Price
Percentage of Manufacturing Expenses with Prime Cost
50,000 x 100 = 25%
2,00,000
Statement of Estimated Cost of 1,200 Typewriters
Cost per
Total Cost 1ypewriters

ing n Particulars

80,000 x 1,200
Amourt Cost o fMaterials
1,000
96,000
1,15,200
96.00

19,200
Add: 20% Increase

(1,20,000x 1,200 1,44,000 126.00

Direct Wages 1,000 1,51,200
7,200 222.00
Add :5% Increase Prime Cost
2,66.400

A00,090 55.50

150,00 (2,66,400 x 25 66,600

277.50
Manufacturing Exp. 100 3,33,090
Works Cost
50.00
Ofice Overhead : 60,000
8.33
Salaries 10,000
20,000 16.67
1,50,0 Rent, Rate and Insurance
352.50
General Expenses Cost of Production 4.23,000

36,000 30.00
(30,000 x 1,200
Selling Expenses 4,59,000 382.50
1,000 Total Cost

nd wag 51,000 42.50

(4,59,000x10
Profit 5,10,000 425.00
90 Selling Price

din202
p.u. =425
CONSIDERATION THE
FIXED
.: Selling Price TAKING INTO
Dm,2 0 6
ESTIMATION BY
II) AND VARIABLE EXPENSES

elements of cost under the nature of cost, there are three

discussed earlier in the chapter
As basis of nature :
kinds of costs on the unaffected due to increase or decrease in the
Cost pa
Cost : Fixed cost is that which is salary, etec. Thus, in absence of proper volume
Fixed
1. rent, Manager's direction,
output. For example, Factoryproduction level.
wrie

of same at each which is directly related with the output. In other

ixed cost remains cost is that
Cost : Variable and it decreases when the production
2. Variable
increasing
production it
increases is decreased.
1 9 0 0

words, in case of
 318
SBPDPublications Cost Aceounting
3, Semi-Variable Cost Those expenses the part of which is fixed and the next. part e
costs. They are not directly concerned with the
is variable, are called semivariable
vary less bethan
or more
It ahould kept
proportionately, productinn
in mind while solving tender price questions, directions given in Th
ahould not be avoided.
ustration 8
2013:
The following data is given about a factory for
Production :50,000 units
Materials consumed
Direct Wages
Variable Production Expenses
Variable Selling Expenses 1564
Fixed Expenses 25614%
1566
Total output 50,000 units and sales 6,00,000
It is expected that in 2014:
(1) The factory will produce 1,00,000 units.
(2) Prices of materials will go up by 33-%. 19
(3) There will be an increase of 25% of variable selling expenses rate due to increase in the
advertising.
rate of commission tosalesman and extensive
(4) Fixed expenses willincrease by 25,000.
Calculate :
a production of 1,00,000 units 2
(1) What would be the cost p.u. in 2014 based onprofit
(2) If it is desired to maintain the same rate of on sales as in the 2013, what. west
(R.U., B.Com. Hons, 2010
be the selling price in 2014 ?
Cost Sheet
Solution Solu
(Output 50,000Units)
Total Cost Cost per
Particulars Unit

75,000 L50 Raw

Material consumed 50,000 1.00
Direct Wages 2.50
Direc
Prime Cost 1,25,000
1,00,000 2.00 Direc
Variable Production Expenses 75,000 1.50
Variable Fixed Expenses 2,00,000 4.00 Fxed
Variable Selling Expenses Total Cost 5,00,000 10.00
Varia
1,00,000 2.00
Profit 16% on S.P.

Sales (50,000 x 12) 6,00,000 12.00

lust
Cost Sheet
(Output 1,00,000 Units)
Cost per
Total Cost Unit
Particulars

1,50,000
200
Material consumed (75,000 x 2") 50,000 2,00,000
fol
Add : Increase 33-% 1,00,000
100
3.00
Direct Wages (50,000 x 2') Prime Cost 3,00,000
2.00
Variable Production Expenses 2,00,000 100
(1,00,000 x 2) 1,00,000
Fixed Expenses (75,000 + 25,000)
 Caleulation of Tender Price or
Quotation Price 319

e Selling
Bxpenses
(2,00,000 x2) 4,00,000
5 6I n c r e a s e

100,000 5,00,000 5.00

on Selling Price or Total Cost 11,00,000 11.00
Price
a04on Cost 2,20,000 2.20

C o s t p . u .: 1 l . 0 0
Selling Price 13,20,000 13.20

Selling
Price p.u. = 13.20
,00,000 units are two times of 50,000 units.
stration9

The cost of manufacturing 2,000 units of a commodity is given below :

75000 RawMaterials
8,000
Direct Wages
6,000
Direct Expenses
2,000
Fixed Overhead
6,400
Variable Overhead
1,500
ein the e manufacturing additional 200 units, the cost of production is as follows :
Materials
Proportionately
Direct Wages 20% less than proportionately
Direct Exp. t3p.u. extra for additional units
Factory overhead { 400 extra
would Variable Overhead 20% more than proportionately
2010) Calculate tothe estimated cost of production of total 2,200 units of the commodity.
Solution Statement of Cost of 2,200 Units
2,000 200 2,200
st per Particulars Units Units
Jnit Units

8,000 800 8,800

.50 Rar Materials (Proportionately)
.00 (6,000 x 200 = 600- 20% 6,000 480 6,480
.50 Direct Wages 2,000
2,000 600 2,600
.00
.50
Direct Exp. ( 3 per extra unit) Prime Cost 16,000 1,880 17,880
.00 6,400 400 6,800
Fixed Overhead
.00 (1,500 x 200 1,500 180 1,680
Variable Overhead = 150 + 20%
.00 2,000 Total Cost 23,900 2,460 26,360
2.00
llustration 10
of a commodity comprises :
The cost of manufacturing 5,000units 20,000
Materials 25,000
t per Wages 400
nit
Direct Expenses 16,000
Fixed Overhead 4,000
Variable Overhead commodity, the cost of production ineveace
tne
200 For manufacturing every 1,000 extra units or
L.00
follows : Proportionately
Materials 10% less than proportionately
No Extra Cost
3.00 Wages
Direct Exp. 200 extra per 1,000 units
2.00 Fixed Overhead 25% less than proportionately
1.00 Variable Overhead
 320 SBPD Publications Cost Accounting
Caleulate the estimated coet of production of 8,000 units of the commodity and
much it would differ if a flate rate of factory overhead based on wages were charged. show bry
(R. U., 1B.
Statement of Cost Com.
Solution
Particulars
5,000
Units
3.000 Fired

ènits
Unita
Materials
20,000 x 3,000 20,000 12,000 32,069,
5,000 us

25,000 x3,000) 15,000 - 10%

25,000 13,500 38 500
Wages 5,000 400
Chargeable Expenses
Prime Cost 45,400 25,500 70,900
16,000 600
Fixed Overhead (200 x 3) 4,000 1,800 16,600
Variable Overhead 4,000 x3,000 = 2,400 - 25% 5,800
5,000 Total Cost 65,400 27,900 93,300
Wages08
Percentage of Factory Overhead with
Factory Overhead
x 100 r l os a pro

Wages
(16,000 + 4,000) x 100 = 80% Solui

25,000
production of 8,000 units will be calcula.)
If factory overhead is based on wages, the cost of
as follows : 32,000
Materials
38,500
Wages 400
Charveable Expenses Prime Cost 70,900
(38,500 x 80 wse 30,800
Works Overhead
100
Total Cost 1,01,700
8,400
.. Variation =(1,01,700 - 93,300) =*
Ilustration 11 following
Ltd. has undertaken a contract for the manufacture of 8,000 units and the
X
informations have been obtained :
Materials Cost 7 24 p.u.
o ail 20 p.u.
Direct Wages
7 70 p.u.
Selling Price variable 14,400, (c) semi-variable (af
consists of (a) fixed 24,000, (b)
The overhead charges
which 60% is fixed) 9,600. of articles are
profit per unit, if the number(Delhi
per unit. What would be the B. Com
Calculate the profit remain unchanged.
fixed overhead charges
10,000 units, the total
X LTD.
Solution
Cost Sheet
(Output :8,000 units and 10,000 units) 10,000units
8,000 units
Particulars Cost p.u
Total Cost Cost p.u. Total Cost
Dired
leu 00; 1,92,000 24.00 2,40,000
24.00 Dired
20.00
Materials 1,60,000 20.00 2,00,000
Direct Wages
 Caleulation of Tender Price or Quotation Priee 321
Prime Cost 8,52,000 44.00 440,000 44.00
180
14,400 180 18.000
Overheade(40% Variable)
048
3,840 048 4,800 0.58
Overheads (60% Fixed) 5,760 0.72 5,760 240
rable

24,000 3.00 24,000

4926
o v e r h e a

Total Cost 4,00,000 50.00 4,92,560

20.74
Profit 1,60,000 20.00 2,07, 440
Units Sales 5,60,000 70.00 7,00,000
70.00

adtrstion12 7,500 units

tactory produces a uniform type of article and has acapacity of producing
of costs for
three
A i n48 hours.
oertain
The following information shows the different elements
week :
of 48 hours each when the output has changed week to (Partly
ak weeks

Direct Overhead Fized and Partly

eutive Direct Factory
UnitsProduced

Variable)
i n 4 8h o u r s
Materials Labour

5890 2,000
4,000 8,000 20,000
19,000

2,500
5,000 10,000 23,000
16,000 and
4,000 8,000 will be 5,000 units
asked to find the selling price per unit when
the weekly output
You are will have to be made.
of 16 on sale price
pait 09,2
question :
olution

tis clear from the p.u. :

Aculated (1) Value of material
(4,000 + 2,000)
(5.000+ 2,500)=2p.u.
(8,000 + 4,000)
Calculation Labour cost p.u. :
(2)
(8,000 + 2,000)
(10,000 +2,500) 4 p.u.
(16,000 + 4,000) Overhead:
(3) Calculation Fixed & Variable Factory
- 2,000) = 500
Increase in Unit (2,500
(20,000 - 19,000)= 1,000
Increase in Amount
olowisg 1,000)
|= 2
:. Variable Exp. p.u. 500
15,000
as Fixed Expense
Balance explained as follows :
of fixed expenses can be
Calculation
2) = 15,000
* 19,000 - (2,000 x 15,000
iable (d 20,000- (2,500 x 2) =
23,000 -(4,000 x 2)
=* 15,000
icles are Cost Sheet
B. Com Units)
(Output : 5,000
Cost
Total Cost p.u.
Particulars

nits
10,000 2.00
ost p.u
Direct Materials (5,000 x 2) 20,000 4.00
2400
Direct Labour (5,000 x 4) Prime Cost 30,000 6.00
2000
 322 SBPD Publications Cost Accounting

Factory Overhead: 15,000 Fi

Fixed 10,000
Variable
Total Cost
25,000
55,000
Profit @16% on Selling Price or 20% on Cost Price 11,000
Selling Price 4
66,000 5.
66,000 - 13.2 136, be(E 6;
Selling Price p.u. 5,000
Receipt of Order at Low Price
Mustration 13
Comparative cost statement of various years in a manufacturing concern are as und Materi

2011 2012 2013 Labour

Materials 60,000 40,000 80,000 W o r k s

Labour 48,000 32,000 64,000

Works Overheads 28,000 24,000 32,000 A d m i n

Administration Overheads 16,000 16,000 16,000

Selling Overheads 8,000 7,200 6,400 Selling

Output in units 12,000 8,000 16,000

On the basis of data given above, prepare an estimate for 32,000 units to be produced i in 2014
a profit of 25% on works cost will be sufficient.
Solution
llustr
Working Notes :
1. Materials :It is clear from the analysis of cost of material and units produced that cost
materials per unit is 5, which is shown as follows
2011 2012 2013
Material Cost
Materials Cost p.u. = 60,000 40,000 80,000
Output
12,000 8,000 16,000
=#5 =5 =5
Therefore, cost of material p.u. for the year 2012 will also be 5.
2. Labour = 2011 2012 2013
Labour Cost 48,000 32,000 64,000 receiv
p.u. =
Output 12,000 8,000 0 16,000 Solut
= 4 =4 =#4
3. Works Overheads :It is clear from the analysis of works overheads of previous years, the
are semivariable in nature. These are the composition of fixed and variable overheads, which wl
be calculated as follows :
Difference in Overheads of Two Levels
Variable Overheads p.u. =Difference in Output at the Same Level
28,000 - 24,000 4,000
=* lp.u.
Mater
12,000 -8,000 4,000 Labov
Or Direc
32,000 - 24,000 8,000 1 p.u.
16,000 - 8,000 8,000 Fixed
Or
32,000- 28,000 4,000 Profit
16,000 - 12,000 4,000 =t lp.u. Can
Deducting variable overheads from total semi-variable overhead, fixed overhead
Note
ascertained, hence :
 323
Calculation off Tender Price or Quotation Price
Sxed Overhead -Total
Overhead-(Units Produced xVOH p.a)
-28,000-(12,00o x 1)-t 16,000
Factory Overhead on the Production of 32,000
units
t 16,000 + (32.000 x 1) -t 48,000
LAdministration Overhead : remain same in the year
2014 too
Fixed overhead will
will rer wil
5. Selling Overhead : It has year 2014 it
decling trend 800 every year, hence, in the
be t6,400-t 800) t5,600.
Statement of Cost and Profit for 32,000 Units in 2014
1,60,000

Materials (32,000 units x 5) 1,28,000

Labour (32,000 units x* 4) Prime Cost

2,88,000

48,000

Works Overhead (W. Note 3) Works Cost

3,36,000

16,000

Administration Overhead (Fixed) Cost of Production

3,52,000

5,600
3,57,600
Selling Overhead Sales/Total Cost
Cost of 84,000
25
Profit 3,36,000 x 100
an 2014 4,41,600
32,000 units
Estimated Selling Price for