Cost Classification 37 Solution

Example:1 Classification of Cost
Expense details for a company manufacturing a product the Classification by Nature of Expenses
previous month are as under:
Production and Sale-Units: 20,000
The Selling Price of the Product-Rs/unit. 58
Interest from bank interest on Fixed Deposit 10,000 Irrelevant Income
Classification of cost by Nature of Expenses
Cost elements Amount-Rs. Material cost Labour cost Expenses Irrelevant cost
Principal Raw Material 600,000 600,000
Other supporting raw materials 30,000 30,000
Packing Material 15,000 15,000
Direct labour 40,000 40,000
Indirect manu. labour 10,000 10,000
Donation 5,000 5,000
Bad debts 4,000 4,000
Marketing personnel Salary 100,000 100,000
Salary of Production Cost centre 100,000 100,000
Salary of Mnt. Personnel 90,000 90,000
Sales and Distri. Supervisor's salary 15,000 15,000
Telephones expenses 15,000 15,000
General Manager's Travelling 12,000 12,000
Direct expenses 8,000 8,000
Depreciation on Plant and Machinery for 4,000
processing main material 4,000
Printing, Stationery 4,000 4,000
Depre. on Office building 3,000 3,000
Depre.on Office vehicle 1,000 1,000
Depre. on Depot furniture 1,000 1,000
Depre. on Plant and Machinery for providing
support service to the Production 2,000 2,000
Total 1,059,000 645,000 50,000 355,000 9,000
Classification of Cost-01 By Nature or Element
Particulars Qty Amount-Rs. Rs/unit % on Sales % on Cost

Suggested
Answer Difference
Sales Realisation 20,000 1,160,000 58.00 100.00 1,160,000 -
Cost
Material Cost 645,000 32.25 55.60 61.43 645,000 -
Labour Cost 50,000 2.50 4.31 4.76 50,000 -
Expenses 355,000 17.75 30.60 33.81 355,000 -
Total Cost of Sales 1,050,000 52.50 90.52 100.00 1,050,000 -
Profit 110,000 5.50 9.48 10.48 110,000 -
FINANCIAL PROFIT & LOSS

Sales Realisation 1,160,000
Income from interest on Fixed Deposit 10,000
Total Revenue 1,170,000
Less:
Total Expenses 1,059,000
Profit 111,000
Reconciliation of Costing Profit/Loss with Financial Profit/Loss
Profit as per Costing Profit/Loss Working 110,000

Add-Income not considered 10,000
Less- Expenses not considered
Donation 5,000
Bad debts 4,000
Profit as per Financial Accounts 111,000
Alternatively,
Profit as per Financial Accounts 111,000
Add- Expenses not considered
Donation 5,000
Bad debts 4,000
Less- Income not considered 10,000
Profit as per Cost Accounts 110,000
Classification of Cost
Example:1 Classification by Traceability
Expense details for a company manufacturing a product the
Classification of cost by Traceability
Cost elements Amount-Rs. Direct cost Indirect cost Irrelevant cost
Bad debts 4,000 4,000
Direct expenses 8,000 8,000 -
processing main material 4,000 -
support service to the Production 2,000 2,000
Total 1,059,000 697,000 353,000 9,000
Classification of Cost-02 By Traceability
Sales Realisation 20,000 1,160,000 58.00 100.00 1,160,000 0

Cost
Direct Cost 697,000 34.85 60.09 66.38 697,000 0
Indirect Cost 353,000 17.65 30.43 33.62 353,000 0
Total Cost of Sales 1,050,000 52.50 90.52 100.00 1,050,000 0
Profit 110,000 5.50 9.48 10.48 110,000 0
Example:1 Classification by Behaviour
Classification of cost by Behaviour
Cost elements Amount-Rs. Variable cost Fixed cost Irrelevant cost
Bad debts 4,000 4,000
Direct expenses 8,000 8,000 -
processing main material 4,000
Depre. on Plant and Machinery for
providing support service to the
Production 2,000 2,000
Total 1,059,000 693,000 357,000 9,000
Classification of Cost-03 By Variability
Sales Realisation 20,000 1,160,000 58.00 100.00 ###

Cost
Variable Cost 693,000 34.65 59.74 66.00 693,000
Fixed Cost 357,000 17.85 30.78 34.00 357,000
Total Cost of Sales 1,050,000 52.50 90.52 100.00 ###
Profit 110,000 5.50 9.48 10.48 110,000
Example:
Interest from bank interest on Fixed Deposit 10,000
Classification of cost by Function
Cost elements Amount-Rs.

Principal Raw Material 600,000
Other supporting raw materials 30,000
Packing Material 15,000
Direct labour 40,000
Indirect manu. labour 10,000
Donation 5,000
Bad debts 4,000
Marketing personnel Salary 100,000
Salary of Production Cost centre 100,000
Salary of Mnt. Personnel 90,000
Sales and Distri. Supervisor's salary 15,000
Telephones expenses 15,000
General Manager's Travelling 12,000
Direct expenses 8,000
processing main material
Printing, Stationery 4,000
Depre. on Office building 3,000
Depre.on Office vehicle 1,000
Depre. on Depot furniture 1,000
support service to the Production 2,000
Total 1,059,000
Classification of Cost-03
Particulars Qty
Sales Realisation 20,000

Cost
Prime Cost
Factory Overheads
Administration Overheads
Selling & Distribution Overheads
Total Cost of Sales
Profit
Classification by Function
Irrelevant Income
Selling and
Factory Administration Distribution Irrelevant
Prime cost overheads overheads overheads cost
600,000
30,000
15,000
40,000
10,000
5,000
4,000
100,000
100,000
90,000
15,000
15,000
12,000
8,000
4,000
4,000
3,000
1,000
1,000
2,000
693,000 206,000 35,000 116,000 9,000
By Function
Amount-Rs. Rs/unit % on Sales % on Cost
1,160,000 58.00 100.00

693,000 34.65 59.74 66.00
206,000 10.30 17.76 19.62
35,000 1.75 3.02 3.33
116,000 5.80 10.00 11.05
1,050,000 52.50 90.52 100.00
110,000 5.50 9.48 10.48
1,160,000
697,000 -4,000
202,000 4,000
35,000 0
116,000 0
1,050,000 0
110,000 0
Example:
Classification of cost by Statistical Division

Donation 5,000
Bad debts 4,000
Depreciation on Plant and Machinery for processing 4,000
main material
Depre. on Plant and Machinery for providing support
service to the Production 2,000
Total 1,059,000
Particulars Qty

Cost
Prime Cost
Conversion Cost*
Selling & Distribution Overheads
Total Cost of Sales
Profit
* Some units consider Material Cost (RM +PM) and all else as Conversion cost.
This is so when a material is sent for jobwork outside the premises to some other
processor.
Classification by Statistical Division
Irrelevant Income
Selling and
Converesion Distribution Irrelevant
Prime cost cost cost cost
600,000
30,000
15,000
40,000
10,000
5,000
4,000
- 100,000
100,000
90,000
- 15,000
15,000
12,000
8,000
4,000
4,000
3,000
1,000
- 1,000
2,000
693,000 241,000 116,000 9,000
By Statistical Division
1,160,000 58.00 100.00

693,000 34.65 59.74 66.00
241,000 12.05 20.78 22.95
116,000 5.80 10.00 11.05
1,050,000 52.50 90.52 100.00
110,000 5.50 9.48 10.48
s Conversion cost.
emises to some other
1,160,000 0
693,000 0
242,000 -1,000
115,000 1,000
1,050,000 0
110,000 0
Example:
Classification of cost by Relevance
Donation 5,000
Bad debts 4,000
processing main material
support service to the Production 2,000
Total 1,059,000
Particulars Qty

Irrelevant Revenue -Rs. 10,000
Cost
Relevant Cost
Irrelevant Cost -Rs. 9,000
Total Cost of Sales
Profit
Classification by Relevance
Irrelevant Income
Relevant cost Irrelevant cost

600,000
30,000
15,000
40,000
10,000
- 5,000
- 4,000
100,000
100,000
90,000
15,000
15,000
12,000
8,000
4,000
4,000
3,000
1,000
1,000
2,000
1,050,000 9,000
By Relevance
1,160,000 58.00 100.00

1,050,000 52.50 90.52 100.00
- - -
1,050,000 52.50 90.52 100.00
110,000 5.50 9.48 10.48
1,160,000 -
1,050,000 -
1,050,000 -
110,000 -

Cost Classification 37 Solution

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Cost Classification 37 Solution

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Example:1 Classification of Cost

Classification of Cost-01 By Nature or Element

Particulars Qty Amount-Rs. Rs/unit % on Sales % on Cost

FINANCIAL PROFIT & LOSS

Reconciliation of Costing Profit/Loss with Financial Profit/Loss

Profit as per Costing Profit/Loss Working 110,000

Classification of Cost-02 By Traceability

Particulars Qty Amount-Rs. Rs/unit % on Sales % on Cost

Sales Realisation 20,000 1,160,000 58.00 100.00 1,160,000 0

Classification of Cost-03 By Variability

Particulars Qty Amount-Rs. Rs/unit % on Sales % on Cost

Sales Realisation 20,000 1,160,000 58.00 100.00 ###

Cost elements Amount-Rs.

Sales Realisation 20,000

Amount-Rs. Rs/unit % on Sales % on Cost

1,160,000 58.00 100.00

Cost elements Amount-Rs.

Sales Realisation 20,000

Amount-Rs. Rs/unit % on Sales % on Cost

1,160,000 58.00 100.00

Sales Realisation 20,000

Relevant cost Irrelevant cost

Amount-Rs. Rs/unit % on Sales % on Cost

1,160,000 58.00 100.00

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