Income / Cost Statement of CTC

Particulars

Direct Material
Direct Laour
Prime Cost
Factory Overheads ( WN 1)
Add: Opening Raw Material
Less: Closing Raw Materail
Factory Cost
Administrative Overheads (WN2
)
Add: Opening Work-in-Progress
Less: Closing Work-in-Progress
Cost of Goods
Sold

Selling & Distribution Expenses (WN3)

Add: Opening Finished Goods
Less: Closing Finished Goods
Cost of Sales

Margin / Income
Sales
Working Notes:

Amount

Existing

$
300,000
$
250,000
$
550,000
$
179,750
$
$
30,000
$
699,750

$
300,000
$
250,000
$
550,000
$
179,750
$
$
$
729,750

$
39,292
$
$
139,950
$
599,092

$
39,292
$
$
$
769,042

$
155,958
$
$
$
755,050

$
155,958
$
$
$
925,000

$
224,950
$
980,000

$
55,000
$
980,000

i.e cost of Goods Manufac

Particular
Production
Supervis
Rent
Council Rate
Sales Staf

Factory
Overheads
( WN 1)
$
35,000
$
64,000
$
5,000
$

Advertising

Selling &
Administrativ Distribution
e Overheads Expenses
(WN2 )
(WN3)
total

$
$
$
- $

$
$
Equipment Dep. 23,750
$
Electricity
12,000
$
Manager's Salary 40,000

- $
$
625

Truck Lease

- $

$
$
179,750

$
- $
12,000 4,000
$
- $
- 110,000
$
- 18,000
$
625
$
$
26,667 13,333
$
- 10,000
$
39,292 155,958

$
35,000
$
80,000
$
5,000
$
110,000
$
18,000
$
25,000
$
12,000
$
80,000
$
10,000

Assumed all due to Produ

Remaining 5% shared
equally

Notes:
In the provided income statement cost of sales also included the stock held by
the
CTC, so the cost calculations made by the bookeeper is not correct.
Both the income statement gives diferent profit figures , because in the existing income
statement profit is less by closing raw material & WIP which is already held by CTC. And
in the new income statement true profits are shown.

Cost Volume Profit Analysis of Colonial Tap

Company
Particulars

Sales
Less Variable Costs ( WN1)

(In $)
Amount
980000
416000

Contribution Margin

564000
318
,800

Less
Fixed Costs (WN 2)
:

245

Profit

,200

Working Note 1:

Material

300000
30000
270000
54000

Less: Closing Raw Material

Less: Content of Closing WIP

Factory Wages

216000

250000
50000

Content of Closing WIP

200000
416000

Total
Working Note 2:

Production Supervisor's Salary 35000

28,00
Content of Closing WIP *

7000 0

Rent

80000

Content of Closing WIP *

12800 0

67,20

Council Rates

5000

Content of Closing WIP *

1000 0

4,00
110,00

Sales Staf
Advertisement
Electricity

0
18,00
0
12000
9,60

Content of Closing WIP *

Manager's Salary

2400 0
80000
72,00

Content of Closing WIP *

Truck Leases

8000 0
10,00
0
318,80

Total
0
* Calculation already shown in previous sub sloutions

Evluation and usefulness of product costs based on direct

materials and direct labour.
in product costing cost are assigned to inventory and production based on
the expenses . it is important process for the manufactures to chose diferent
costing methods that they wants to be the business simple , accurate and
other factors and so product costing is very useful some of the advantages of
product costing is :
Accuracy:
Accuracy means that how the business can trace its expenses through
product costs to correct the value of inventory .product cost analysis help in
accuracy when it comes to variable costing.( Lacoma.T)
Project tracking:
Project tracking means when a company match the budgeted costs with the
expected cost so costing plays very important role in project tracking so
without proper costing it will be difficult to analyze cash flows and to
determine that project has been success or not .Lacoma.T)
Decision making :
When a business manager make decision the decision is always based on the
return on investment that how much a profit will be obtain from products
based on costing . So product costing is the base which every manager will
consider making decision
Project development:
It mean to create a new products so when a company plan to create new
products or to recreate old product with new features so a product costing
can be valuable resource to allow the business to attach a specific cost not
only to product but also to product materials , features and abilities that
allow accurate cost predications .(Lacoma.T)

Recommendations for changes:

For CTC I will recommend following suggestions:
Whenever a company is calculating company s finances in that case
accuracy is very important in financial statements , income statement
and tax fillings. So each components of financial statement , income

statement impact financial pressure in the business so incorrect

calculations or inaccurate reports can create legal problems in tax
fillings as well the significant concerns from investors
The income statements reports depends on accurate calculations of
cost of goods sold or product cost . so the CTC income statement by
book keeper is incorrect so this leads serious problems and concerns
for the business so CTC should hire a professional accountant rather
then bookkeeper . (Kimbal.T)
Incorrect product costing have also impact on budget because budget
process depands on accurate calculations of expense and revenues
Cost plus approach is used by CTC so it mean they ignore consumer
demand in determining prices so I suggested for CTC to use cost Minus
approach to do market research and also It can reduced costs as much
as possible(james.T)

REFRENCES:

Kimball. Importance of Accurate Calculating in Product Cost Small

business : http://smallbusiness.chron.com/ importance- accuratecalculating-product-cost-36698.html date accssed on 25
,November.2013

Lacoma.T .The Advantages Product Costing Offers in Financial

Accounting small business:
http://smallbusiness.chron.com/advantages-product-costing-offersfinancial-accounting-24883.html date accesses on
27,November,2013

James.T cost plus approach:

http://www.ehow.com/facts_7297009_cost-plus-approach.html date
accssed on 25, November,2013