Cost Statement or Cost Sheet

Proforma of Cost Statement or Cost Sheet

Cost Statement
Period = ×× Production = ×× units

Particulars Amount Amount

Opening stock of Raw Material ××
(+)Purchases ××
(+) Purchases return or Return Outward ×× ××
(+) Carriage Inward ××
(+) Custom Duty ××
(+) Dock Charges, Octroi ××
(+) Freight Inward ××
(+) Issued from Godown, Other Material ××
(+) Consumed, Carriage on purchase ××
(+) Purchasing Expenses ××
×××
(-) Closing stock of Raw material and other unused material ××
(-) Scrap value realised from Material ×× ×××

Consumed Material ×××

(+) Direct on Productive Wages ×××
(+) Direct Expenses, Royalty, Excise Duty ×××

Prime Cost ×××

(+) Factory on cost OR work on cost OR overheads: ××

Indirect material, wages, power, fuel, oil ××
Depreciation & repairs of plant & machinery, factory ××
Building and maintenance. ××
Factory Rent, rates, taxes & Insurance ××
Internal Transportation ××
Drawing office salary & other Factory Expenses ××
Factory lighting, supervision, clearing, stationary ××
Motive Power ××
Laboratory Expenses, Welfare Expenses ××
Loose Tools, Written off ××
Works Manager Salary, Works Clerical Staff salary ××
Supervision, Store-keeper salary ×× ×××
×××
(+)Opening Stock Of Work in progress ×××

1
(-)Closing Stock Of Work in progress ××
(-)Sale of Scrap ××
×××
×××

Factory Cost ×××

(+) Office on cost OR Office Administrative Overheads:
Salary of office staff, Postage, Telephone & Telegram ××
Stationary, General Expenses ××
Depreciation on furniture ××
Audit & Legal fees, Bank charges ××
Director fees, Feed of BOD & Other office expenses ××
Counting house salaries, Legal expenses ××
Trade Subscription ××
××× ×××
Cost of production ×××
(+) Opening Stock of finished goods ×××
×××
(-) Closing Stock of finished goods ×××
Cost of Goods sold ×××

(+) Selling & Distribution on Cost or overheads:

Godown rent, Advertisement ××
Trade Discount, Bad debts ××
Salesman salary, commission & Travelling Exp. ××
Counting office, Expenses or Salary ××
Carriage Outward, Showroom expenses ××
Expenses related to Delivery Van Expenses ××
Other expenses relating to selling & distribution exp. ××
Rent of warehouse ××
××× ×××
Total Cost ×××
(+) Net profit or Net Loss ×××
Sales ×××

Finding of % of one item to another

General Overheads
% of General Overheads on Factory Cost= ×100
Factory Cost

Wages or Rent
% of Wages/Rent on Prime Cost= ×100
Prime Cost

2
 Profit to be calculated on Sales when sales is not given, only % of profit is given on

Percentage Rate × Total Cost

sales profit =
100 – Percentage Rate

Profit to be calculated on Total Cost when Total cost is not available, but selling price is

Selling Price × Rate of Profit

available. Profit =
100 – Percentage Rate

Wages Profit
% of profit with (I) Sales = ×100; (II) Total Cost = ×100;
Sales Total Cost

A) Stock of Raw Materials: - If opening stock of raw materials, Purchaser of Raw

materials and closing stock materials are given, then with the help of these raw
material consumed can be calculated.
(+) Opening Stock of raw material xx
(+) Carriage inward xx
(+) Custom Duty or Octroi or Dock charges xx
(+) Freight Inward xx
xxx
(-) Closing stock of raw material xx
Cost of raw material used or consumed xxx

B) Stock of Work in Progress: Work in progress means (Incomplete units) units which
on some work have been done but which are not yet complete. It is valued at prime
cost or works cost basis. But work cost basis is preferred.
At Factory cost
Prime Cost
(+) Factory Overheads xx
(+) Opening WIP xx
xx
(-) Closing WIP xx
Factory Cost xx

At prime cost
Direct material xx
(+)Direct wages xx
(+)Direct Expenses xx
(+)Direct WIP xx
xx
(-) Closing WIP xx
Prime cost xx

3
 C) Stock of finished goods: This stock of finished goods will be taken into account
before calculating cost of goods sold as under.

Cost of production xx
(+) Op. stock of finished goods xx
xx
(-) Stock of finished goods xx
Cost of goods sold xx

NOTES:

A) In cost account only productive income & expenses are included: following Income &
expenditure are not includes in the cost accounts.
1. Cash discount
2. Capital Expenditure
3. Capital loss (loss on sale of Asset)
4. Gift & Donation
5. Dividend paid OR Provision
6. Income Tax, Wealth Tax, Gift Tax, search charge
7. Goodwill, Preliminary exp, Discount On issue of share OR Debenture Written off
8. Any type of reserve (Bad Debt reserve & Provision)
9. Interest on Debenture, Bank overdraft OR Bank loan.
10. Income not related with production (Rent, Int., Dividend, Commission, Royalty,
Transfer fee received & Profit on loss of assets)
11. Underwriting commission.
12. Wealth Tax
13. Gift Tax
14. Penalty or fine
15. Expenses on issue of share or debenture
16. Sales on issue and sundry incomes

B) If valuation of finished stock has not been given then it will be valued on the basis of
cost of production
C) Selling expenses always charge on sold units.
D) If sale of scrap given it will be deducted from factory on cost.
E) If in the example asking for showing gross profit then cost statement will be
completed on the stage of cost of goods sold and after that profit statement will be
prepared as follows:

4
 Profit-Statement

Particular Amt
Sales xxx
(-)COGS xx
Gross profit (G.P.) xxx
(-)Selling and distribution on cost (on sold unit) xx
Net profit (N.P.) xxx

F) Sold unit = Opening stock in unit (+) Production (-) Closing stock in unit

G) When unit produce and unit sold are given then difference of them assumes closing
stock of finished goods. And it will be valued on the basis of cost of production.
Formula is as:

Closing stock of finished goods = Cost of production x unit of (Difference)

Unit produce

H) Closing Stock = Opening Stock + Production in Unit - unit sold

5
 Problems on Cost Statement or Cost Sheet
Problem No. 1. From the following information prepare cost statement for the year 31st
March, 2013.

Particulars Rs.
Opening stock of Material 5,000
Closing stock of material 2,000
Material purchase 30,000
Productive wages 35,000
Direct expenses 3,000
Unproductive wages 10,500
Factory rent & taxes 7,500
Factory lighting 2,200
Factory power 1,500
Water supply 5,600
Internal transportation 3,000
Director fees-factory 1,000
Office 2,000
Factory cleaning 500
Office expenses 200
Estimating charges 800
Factory stationery 750
Office stationery 900
Loose tools written off 500
Rent & rates office 500
Factory insurance 1,100
Office insurance 500
Legal expenses 400
Godown rent 300
Depreciation on plant & Machinery 2,000
Depreciation on office building 1,000
Depreciation on delivery van 200
Bad Debt 100
Advertisement 300
Counting office salary 1,500
Maintenance of delivery van 700
Bank charges 50
Commission on sale 1,500
Drawing office 900
Sales 1,40,000

*******
6
Problem No. 2. From the following prepare cost-statement for the period of six month ended
on 30th June, 2013.

Rs.
Opening stock or raw material 4,000
Material purchased 22,000
Carriage inward 2,000
Closing stock raw material 6,000
Direct wages 20,000
Direct expenses 3,000
Indirect wages 2,000
Lighting & Heating (factory) 1,500
Lighting & Heating (office) 500
Depreciation on machinery 2,500
Advertisement 6,000
Work in progress (1st Jan 2013) 1,200
Work in progress (30th June, 2013) 800
Travelling expenses and commission 4,000
Office salary 6,000
Factory cleaning 500
Estimating expenses 1,200
Internal transportation 500
Stock of finished goods (1st Jan 2013) 1,800
Stock of finished goods (30th June 2013) 3,000
Bad debts 200
Bad debts reserve 400
Cash discount 300
Factory rent 2,400
Office rent 1,800

*******
Problem No. 3. From the following, prepare cost statement for the year 31st December, 2013.

Rs.
st
Material(1 Jan) 5,000
Material (31st Dec) 2,000
Material purchase 30,000
Productive wages 35,000
Direct expenses 3,000
Unproductive wages 10,500
Rent & rates (factory) 7,500
Lighting (factory) 2,200
Power 1,500

7
 Internal transportation 3,000
Directors fess (factory) 1,000
Directors fees (office) 2,000
Factory cleaning 200
Office expenses 500
Drawing office salary 800
Stationary (factory) 750
Stationary (office) 900
Depreciation on machinery 500
Rent & Rates (office) 500
Water supply 1,200
Factory insurance 1,100
Office insurance 500
Legal expenses 400
Rent of godown 300
Goodwill written off 2,000
Depreciation of office building 1,000
Depreciation on delivery van 200
Bad debts 100
Advertisement 300
Counting office salary 1,500
Unkeep delivery van 700
Bank charges 50
Commission on sale 1,500
Stock of finished goods (1st Jan) 2,000
Stock of finished goods (31st Dec.) 4,500
Sales 1,40,000

*******
Problem No. 4. From the following prepare cost statement showing total cost for the year
31st December, 2013.

Rs.
st
Material (1 Jan) 47,000
Material (31st Dec.) 50,000
Material purchased 2,08,000
Drawing office salary 9,600
Counting office salary 14,000
Carriage inward 8,200
Carriage outward 5,100
Cash discount paid 3,400
Bad debt written off 4,700
Repairs of machinery & factory 10,600

8
 Rent, Rates & Insurance (factory) 3,000
Rent, Rates & Insurance (office) 1,000
Travelling expenses 3,100
Salary & Commission & Travelling agent 8,400
Productive wages 1,40,000
Depreciation on machinery equipment & factory 7,100
Depreciation on furniture 600
Director fees 6,000
Lighting, heating & water (factory) 1,500
Lighting, heating & water (office) 300
General expenses 5000
Salary to managers 12,000

In the previous year the work has been done 48 hours week out of that the manager work 40
in factory and in 8 hours in office.

*******
Problem No. 5. Following details have been obtained from the cost records of Cosmet
Paints Ltd.

Rs.
st
Stock of raw material on 1 September 2013 75,000
Stock of raw material on 30th September 2013 91,500
Direct wages 52,500
Indirect wages 2,750
Sales 2,11,000
Work in progress 1st September 2013 28,000
Work in progress 30th September 2013 35,000
Purchase of raw materials 66,000
Depreciation of plant and machinery 3,500
Factory rent, rates & power 15,000
Expenses of purchases 1,500
Carriage outward 2,500
Advertising 3,500
Office rent and rates 2,500
Travelling wages & commission 6,500
Stock of finished goods on 1st September 2013 54,000
Stock of finished goods on 30th September 2013 31,000

Prepare a cost statement or production statement giving the maximum possible break up of
costs & profits.
*******
9
Problem No. 6. From the following prepare cost-statement showing following items.
Material consumed Production cost/ cost of production
Prime cost Gross profit
Factory cost Net profit

Rs.
Purchase of raw materials 66,000
Direct wages 52,500
Indirect wages 2,750
Raw material 1st September, 2013 75,000
Raw material 30th September, 2013 91,000
Stock of finished goods 1st September, 2013 52,500
Stock of finished goods 30th September, 2013 31,000
Work in progress 1st September, 2013 28,000
Work in progress 30th September, 2013 35,000
Sales 2,11,000
Factory rent, rates & power 15,000
Depreciation on machinery 3,500
Carriage inward 1,500
Factory general expenses 10,000
Traveler wages & commission to sales agent 6,500
Rent, rates office 2,500
Office general expenses 6,500
Advertisement 3,500
Carriage outward 2,500

*******
Problem No. 7. From the following prepare cost statement for the month March 2013 which
is showing following items.
Prime cost 2) Cost of production 3) Cost of goods sold 4) Gross profit 5) Net profit

Rs.
st
Stock of Material 1 March 2013
Raw Material 22,500
Work in progress 8,220
Finished goods 17,360
Stock of Material 31st March 2013
Raw Material 26,250
Work in progress 9,100
Finished goods 15,750
Raw material purchased 21,900
Sales 72,310
Direct wages 17,150

10
 Indirect wages 830
Office expenses 3,160
Selling & Distribution overheads 4,210

*******
Problem No. 8. From the following figures, you are required to prepare a cost statement for
the quarter ended 31st March, 2013, assuming stock of finished goods at end of period to be
valued at cost showing. (i) Value of material consumed (ii) Cost of production (iii) Cost o
goods sold. (iv) Profit on goods sold/Gross profit (v) Net profit.

On 1st Jan 2013 On 31st March 2013

Stock (Rs.) (Rs.)
Finished goods 1,00,000 1,23,500
Work in progress 71,500 42,000
Purchases of raw material 31,000 34,500
Direct wages 88,000
Indirect wages 70,000
Work charges 2,500
Administration expenses 37,000
Selling expenses 13,000
Sales 15,000
2,84,000

*******
Problem No. 9. Following particulars have been extracted from the costing accounts of
manufacturing company.
Opening stock
Raw material 3,211
Finished goods 1,564

Closing stock
Raw material 4,675
Finished goods 2,192

Work in progress
Opening 2,463
Closing 2,947
Purchased of raw material 16,724
Sales 37,293
Direct wages 8,640
Indirect wages 956
Carriage on purchased 317

11
Carriage on sale 673
Factory expenses 1,172
Office expenses 995
Traveler’s salaries 1,746
Packing & advertising 1229
Repairs of plan & machinery 274

You are required to prepare a statement showing:-

(i) Prime cost, (ii) Cost of production, (iii) Gross profit, (iv) Net profit.

*******
Problem No.9 (A). From the following prepare cost statement of Shiv-shankar Trading
Company for the half year ended on 30th June 2013

Rs.
Raw material 70,000
Productive wages 40,000
Stock on 1st Jan. 2013
Raw material 11,000
Work in progress 2,000
Finished gods 6,000
Selling & distribution on cost 650
Stock on 30th June, 2013
Raw material 12,500
Work in progress 5,000
Finished gods 7,500
Factory rent & Taxes 5,000
Factory lighting & insurance 2,000
Carriage inward 700
Office overhead 2,500
Calculate profit on 10% on total cost.

*******
Problem No.10. A cost of motorcycle included the following item.
Rs.
Material use for the production 5,500
Material use for the packing of raw material 1,000
Material use for the packing of finished goods 150
Material use in factory 75
Material use in office 125
Labour paid for factory supervision 200

12
 Direct factory expenses 500
Indirect factory expenses 100
Office expenses 125
Office building depreciation 75
Factory depreciation 175
Selling expenses 350
Carriage on sales 500
Advertisement 125
What will be the selling price if the profit percentage is 25% on sale.

*******
Problem No.11.Following extract related to the costing information of a commodity for the
quarter ending 31st Dec.2013

Particulars Rs.
Purchased of raw material 1,20,000
Rent & Rates (work on cost) 40,000
Direct wages 1,00,000
Carriage inward 1,440
Stock of raw material (1.10.2013) 10,000
Stock of finished goods (31.12.2013)1000 tones 16,000
Stock of raw material (31.12.2013) 22,240
Stock of finished goods(31.12.2013) 2000 tones 32,000
Work in progress (1.10.2012) 4,800
Work in progress(31.12.2012) 16,000
Sale of finished goods(15000)tones 3,00,000
Office on cost 8,000
Factory on cost 15,560

Advertisement, Discount etc. Selling expenses were Rs.1 per tones sold.
Calculate:- 1.Value raw material 2. Cost of production
3. Gross profit for the period 4. Net profit for the period.

*******
Problem No.12.Following costing statistics to the commodity for the six month ended 30th
June, 2013.

Rs.
Purchase of raw material 22,500
Direct wages 18,750
Rent & rates insurance of works 2,500
Carriage inward 270

13
 Administrative overheads 5,000
Stock 1st Jan. 2013
Raw material 3,750
Finished products (750 tones) 3,000
Work in progress 900
Stock 30th June 2013
Raw material 4,170
Work in progress 3,000
Finished products (1500 tones) 6,000
Cost of factory supervision 1,500
Sale of finished goods 56,250

Advertising, discount allowed & selling expenses amount to 20 paise per tones sold 12,000
tones of the commodity further produce during the period.

*******
Problem No.13. Mr. Rahul furnished the following data relating to manufacturer of standard
product during the month April 2013.

Raw Material Rs. 15,000

Direct labour charges Rs. 9,000
Machinery hours works Rs. 900
Machinery hour rate Rs. 5
Administrative overheads 20% on works cost.
Selling overheads (0.50 per unit)

Unit produce 17,100 unit sold at the rate of Rs. 4 per unit. Your are required to prepare cost
sheet from the above (1) Cost per unit (2) Profit per unit sold (3) Profit for the period.

*******
Problem No.14. Following information related to paper mill for the half year ended 30th June
2013.

Rs.
Raw material purchased 30,000
Direct 25,000
Factory Rent & rates insurance 10,000
Carriage inward 360
Factory supervision expenses 2,000
Stock 1st Jan.2013
Raw material 5,000
Work in progress 1,200

14
 Finished products (1000 tones) 4,000
Stock 30th June 2013
Raw material 5,560
Work in progress 4,000
Finished products (1500 tones) ?
Sale 75,000

Selling & distribution on cost 25 paise per tones on unit sold. In the above half year factory
produce 16,000 tones.

*******
Problem No.15. From the following date, relating to the manufacturing of a standard product
during the month of Sept. 2013. Prepare a statement showing cost & profit per unit.

Raw material Rs. 40,000

Direct labour charges Rs. 24,000
Machine hours worked Rs. 9,500 (hours)
Selling over head (per unit) 1
Machine hour rate (per unit) 4
Unit produced Rs. 20,000
Unit sold Rs. 18,000 (Rs. 10 per)
Office overheads 20% of works cost.

*******
Problem No.16. Modern manufacturer consists information for the year ended 31st March
2013 was as follows:

Rs.
Sales 2,75,000
Opening stock
Material 3,000
Work in progress 4,000
Finished goods 7,000
Material purchased 1,10,000
Direct wages 65,000

Closing stock
Material 4,000
Work in progress 6,000
Finished goods 8,000

Factory overhead 60% of direct wages. Administrative overheads 5% on sale. Selling &
distribution overheads 10% on sale.
15
Problem No.17. In a factory two types of tape recorders are manufacture viz ‘Aryabhat’&
‘Rohini’ models from the following particulars prepare a statement showing cost & profit per
model sold. There is no opening or closing stock.

Aryabhat Rohini
Labour 15600 62920
Material 27300 108680

Works overhead is charged 80% on labour and office overhead is taken at 15% on
work cost. The selling price of both tape recorders is Rs. 1000. 78 ‘Aryabhat’& 286 ‘Rohini’
models were sold.

*******
Problem No.18. From the following information prepare a statement showing cost & profit
per radio sold.

Particulars Orient sujan

Labour 15600 62920
Material 27300 108680

Works overheads are charged 80% on labour and office overheads is taken at 15% on
work cost. The selling price of both radios is Rs. 1000/-, Orient78-Sujan 286 radios sold.

*******
Exercise
Problem No.1. Prepare from the following information statement (a) material
consumed,(b)Prime cost,(c)Factory cost,(d) Cost production,(e)Total cost,(f) Net Profit

Particulars Rs.
Stock of raw material on 01.01.2013 24,000
Stock of raw material on 31.12.2013 31,400
Purchased of raw material 92,000
Drawing office salaries 3,200
Counting house salaries 6,000
Carriage inward 2,300
Carriage outward 2,100
Bad Debts Written off 2,000
Rent, Rates, Tax & Insurance :- Factory 4,200
Office 1,500
Productive Wages 60,500
Deprecation written off plants & machinery 3,200
Deprecation written off office furniture 150
Gas and water:- Factory 800
Office 300
Traveler’s Salaries & communication 2,400

16
 Advertisement and sampler 2,000
Rent of warehouse 1,200
Maintenance of delivery van 2,000
Printing & stationary 1,200
Telephone charges:- Factory 800
Office 1,200
Sales 2,72,500

*******
Problem No.2. The following cost data is supplied for the half year ending 31st December,
2013

Particulars Rs.
Purchased of raw material 1,20,000
Works overheads 48,000
Direct wages 1,00,000
Carriage on purchased 1,440
st
Stock(1 July 2013): Raw material 20,000
Finished products (1000 tons) 16,000
st
Stock(31 Dec. 2013): Raw material 22,240
Finished products (2000 tones) 32,000
st
Work in progress (1 July 2013) 4,800
st
Work in progress (31 Dec. 2013) 16,000
Sales – Finished goods 3,00,000
Selling and distribution overheads are Rs. 1/- per ton sold 16,000 tons of commodities
were produced during the period.

You are to ascertain (1) Cost of raw materials used (2) Cost of output for the period
(3) Cost of sales (4) Net profit for the period and (5) Net profit per ton of the commodity
sold.

*******
Problem No.3. The following information is available for the period 2013.

Particulars Rs.
Opening stock of raw materials 25000
Purchase of raw materials 85000
Closing stock of materials 40000
Carriage inwards 5000
Wages – Direct 75000
Wages – Indirect 10000
Office direct charges 15000
Rent & Rates – Factory 5000
Rent & Rates – Office 500

17
 Indirect consumption of material 500
Depreciation – Plant & Machinery 1500
Office furniture 100
Salary office 2500
Salesman 2000
Other factory expenses 5700
Less on sale of plant 700
Debenture interest 500
Goodwill written off 2000
Other office expenses 900
Managers remuneration 12000
Income tax 500
Dividend 1000
Bad debts written off 1000
Advertisement expenses 2000
Travelling expenses of salesman 1100
Carriage & freight outward 1000
Sales 250000

The manager has the overall charge of the company and his remuneration is to be
allocated at Rs.4000 to the factory, Rs.2000 in the office and Rs. 6000 to the selling
operations.

From the above particulars prepare a statement showing:

(1)Prime cost (2) Factory cost (3) Net profit

*******
Problem No.4. The following data relate to the manufacture of a standard product during the
month of March 2013:

Particulars Rs.
Raw material consumed 15,000
Direct wages 9,000
Machine hours worked 900
Machine hour rate 5.00
Office overhead 20% on work cost
Selling and Distribution overheads 50 paise per unit
Units produced 17,100
Units sold 16000 @ Rs. 4/-

You are required to prepare a cost sheet in respect of the above showing.

1) The cost of production per unit.

2) The profit per unit sold.
3) The profit for the period.

*******

18
19
Problem No.5. From the following particulars prepare a statement of cost and find out cost
of goods sold and total cost. Also find the number of units sold.

Particulars Rs.
Raw materials 1,60,000
Direct labour 60,000
Factory overheads 82,500
Office overheads 27,500
Opening stock of finished goods @ Rs. 11.20 500 units
Closing stock of finished goods 1500 units @ Current cost price
Selling & and Distribution expenses 20,000
Units produced 25,000 units

*******
Problem No.6. Prepare cost statement from the following information:-

Particulars Rs.
Consumed material 4,00,000
Wages 3,50,000
Factory overheads 2,50,000
Office overheads 2,00,000
Selling overheads 1,00,000
Sales (90% of production) 13,50,000

*******

20
 Quotations or Tender Sheet

Frequently a manufacturer of a consumer durable goods in response to an

advertisement in the press is required to submit a tender or to quote prices for the supply of
goods or for completing a job even before an order OR production of goods starts.

If number of units to be produced for tender is given in the problem then firstly
prepare cost statement for past period showing per unit cost and on the basis of per unit cost
statement, tender statement will be prepared.

There are three types of examples in tender.

a) Where no information is given (only production in units for tender is given).

b) Material and labour is given for the tender.
c) Where all information are given.

Problems on Quotations or Tender Sheet

Type -1 Where No Information is Given

In that case all expenses in tender will be fixed on the basis of cost statement &
changes will be fixed on the basis of cost statement and changes will be taken in the
quotation only, then profit ration will be given on the selling price, the profit will be
calculated as follows:

Total cost ×Profit rate or percentage or ratio

Profit=
100-Profit Ratio

When % of profit is given on total cost

Total Cost ×% of profit

Profit=
100

21
Problem No.1. On the 30th Oct. 2013 a store manufacturer desired to quota for a contract for
the supply of 1000 stores. From the following data prepare a statement showing the price to
be quoted to give the same percentage of net profit on turnover sales as was realised during
this months ending 31st March, 2013.

Particulars Rs.
Stock of raw material (31st Oct. 2012) 35,000
Stock of raw material (31st March. 2013) 4,900
Purchase of raw material 52,500
Factory wages (direct) 95,000
Factory expenses 17,500
Establishment expenses 10,000
Complete stock (31st Oct. 2012) Nil
Complete stock (31st March 2013) 35,000
Sales 1,89,000

The number of store manufactured during the six month was 4,000 including those
sold & those in stock at the close of the period. The stores to be quoted for are of uniform
size and quality & similar to those manufactured during six months, ending 31st March, 2013.
As from 1st April 2013, cost of material increased by 15% and the cost of factory labour or
wages increased by 10%.

*******

Problem No.2. Production data of a manufactures for the year 2012 was as follows:

Particulars Rs.
Raw materials 20,000
Wages 30,000
Works overheads 15,000
Office overheads 6,500
Sales 90,000

Output was 10,000 units, during the year 2013 the manufacturer wants to quote price
for 500 units, material cost is expected to rise 10% & labour cost 20% on the manufacturer
wants 10% profit on sales.

*******

Problem No.3. Following figures relate to the costing of a manufacturer of electric fans (of
uniform quality) for the period of three months:-

Particulars Rs.
Stock of raw material (1st Oct. 2013) 5,000
Stock of raw material (31st Dec. 2013) 3,500
Purchase of raw material 32,500

22
 Factory wages (direct) 75,000
Indirect wages 12,500
Complete stock (1st Oct. 2013) Nil
Complete stock (31st Dec. 2013) 20,250
Sales 1,12,500

Number of fans manufactured during the three months was 3000.

Prepare a statement showing the cost per fan and the price to be quoted for 750 fans to
realize the same percentage of profit or as was realised during the three months referred to
above assuming identical cost.

*******
Problem No.4. On 30th April, 2013, In electric meter manufacturer desired to quote for a
contract for the supply of 10,000 meters, from the following data, prepare statement showing
price to be quoted to give the same percentage of net profit on turnover as was realised during
the six months to 31st March, 2013.

Particulars Rs.
Stock of raw material (1st Oct. 2012) 1,00,000
Stock of raw material (31st March. 2013) 14,000
Purchase of raw material 1,50,000
Factory wages 3,00,000
Variable factory overheads 50,000
Sales 5,40,000
Complete stock (1st Oct. 2012) Nil
Complete stock (31st March. 2013) 1,00,000

Number of meters manufactured during the six months was 12,000 including those
sold and those in stock at the close of the period. The meters to be manufactured for are if
uniform size upto 31st March, 2013. As from 1st April, 2013 the cost of factory labour
increased by 10%.

*******

Problem No.5. A company manufacturer 6000 units in previous half year for that, the costs
follow:-

Particulars Rs.
Opening stock of material 6,000
Material purchased 35,000
Closing stock of material 5,000
Direct wages 24,000
Factory overheads 15,000

23
 Office overheads 17,000
Opening stock of finished goods Nil
Closing stock of finished goods 12,000
Sales 1,00,000

Company certain to submit a tender for 1000 units the prices of material and labour
will be increased by 15% and 10% respectively. The profit for the tender as before six
months.

*******
Type -2 Materials and Labour is Given
If in the example material and labour is given for the tender then the following three
ratios will be fixed on the basis of cost statement and after that the overheads charge in the
tender on the basis of pervious percentage will be calculated are as follows:-

Factory Overheads
Percentage of Factory overheads to Direct Wages = ×100
Direct Wages

Office Overheads
Percentage of Office overheads to Factory Cost= ×100
Factory Cost

Percentage of Selling & Distribution on cost to Factory Cost

Selling & Distribution on Cost

= ×100
Factory Cost

If in the example selling and distribution on cost will be given separately then both
percentages calculate separately.

Problem No.6. From the following prepare cost statement.

Particulars Rs.
st
Stock of material 31 December, 2013 30,000
Material purchased 7,50,000
Productive wages 6,00,000
Sales 16,30,000
Raw material on 31st December, 2012 32,000
Works overheads 1,20,000
Office overheads 1,46,800

Company contained to prepare a tender for a machine as per cost department, the
material will be consumed Rs. 20,000 and labour Rs. 25,000. Prepare the tender, which is
showing 20% on selling price.

24
 *******

Problem No.7. Production data of a manufacture for the year 2012 was as follows:

Particulars Rs.
Raw material 20,000
Wages 30,000
Works overheads 15,000
Office overheads 6,500
Sales 90,000

Output was 10,000 units during the year 2013 the manufacturers want to quote price
for 500 units. Material cost is expected to rise 10% and labour cost 20%. The manufacturer
wants 10% profit on sale.

*******

Problem No.8. From the following prepare statement showing the cost of tender of job no. 1
for which particular of previous year are given below:-

Particulars Rs.
Material 8,00,000
Wages 4,00,000
Works 1,00,000
Office overheads 65,000

Material required to tender is Rs. 16,000 and wages Rs. 8,000. Tender is to prepare
taking 25% profit on selling price.

*******

Problem No.9. From the following particulars of a company ltd. prepare cost sheet,
particular of previous year are as follows:-

Particulars Rs.
Material 5,00,000
Wages 2,50,000
Works overheads 25,000
Office overheads 20,000

1. Prepare of works on cost to direct wages and office on cost to works overheads.
2. Material 50,000, Wages 30,000 will be required for tender.
3. Prepare the statement showing the tender price cost places 10%.

25
 *******

Problem No.10. A manufacturer of scooters find that in 2012 it cost him Rs. 6,16,000 to
manufacturer 200 scooters which he sold at Rs. 4,000 each. The cost was made up as:-

Particulars Rs.
Raw Material 2,00,000
Direct Wages 3,00,000
Factory overheads exp 60,000
Office overheads exp. 56,000

For the year 2012 he estimates that each scooter will require material of the value of
Rs. 1,000 and wages of Rs. 1,500. That the factory overhead expenses will bear the same
relation to direct wages as in the previous year and the percentage of office overhead
expenses to factory cost will also be the same.

Prepare a statement showing cost of production for 2013 and the profit he should
make per unit if he increases the price of the scooter by Rs. 80 over the price of last year.

*******
Type -3 Where all Information are Given
Manufacturing Cost
Percentage of Manufacturing expenses to Prime Cost= ×100
Prime Cost

Factory on Cost
Percentage of Factory on Cost to Prime cost= ×100
Prime Cost
Problem No.11. Following is the Trading & Profit & Loss account of a company which
manufactures 1000 Raincoats during the year:-

Particulars Rs. Particulars Rs.

Material 50,000 Sales 1,20,000
Wages 25,000
Manufacture exp. 15,000
Gross profit 30,000
1,20,000 1,20,000
Salaries 8,000 Gross profit 30,000
Rent & taxes 2,000
General exp. 12,000
Selling exp. 2,000
Packing exp. 1,000

26
Net profit 5,000
30,000 30,000

1. Company has to submit a tender for 500 rain coats in year 2013.
2. Cost of material will go up by 20% and wages 10%.
3. Manufacturing exp. Will increase in combined proportion of material and wages.
4. Selling exp. and Packing exp. per unit will remain unaffected by the rise in output.
5. Prepare a statement of tender, so as to yield profit 20% on sale.

*******

Problem No.12. A firm manufactured and sold 1000 typewriters in the year 2013. It’s
summarized Trading and Profit & Loss account for the year 2013 is set act below:-

Particulars Rs. Particulars Rs.

Cost of Material 80,000 Sales 4,00,000
Direct Wages 1,20,000
Manufacture charges 50,000
Gross profit 1,50,000
4,00,000 4,00,000
Management and staff Salaries 60,000 Gross profit 1,50,000
Rent, rates and insurance 10,000
General exp. 20,000
Selling exp. 30,000
Net profit 30,000
1,50,000 1,50,000

1. Output and sales will be 1200 typewriters.

2. Prices of material will rise by 20% on the previous year level.
3. Wages rate will rise by 5%.

*******

Problem No.13. Following one the particulars for the production 2000 sewing machines of
Bharat Engineering Ltd. for the year ended 31st March, 2011-

Particulars Rs.
Cost of material 1,60,000
Wages 2,40,000
Manufacturing exp. 1,00,000
Salaries 1,20,000
Rent, rates and insurance 20,000
General exp. 40,000
Selling exp. 60,000

27
 Sales 8,00,000

Company plans to manufacture 3000 sewing machine during the year 2012-2013 submit a
statement showing the price at which machine would be marked so as to show a profit of
10% on selling price. Following additional information is supplied to you –

1. Price of materials will be rise by 20% on the previous year level.

2. Wages rate will rise by 5%.
3. Manufacturing expenses will rise in proportion to the combined cost of material and
wages.
4. Selling expenses per unit will remain the same.
5. Other expenses will remain unaffected by the rise in output.

*******

28
 Reconciliation of Cost and Financial Accounts
When the financial and cost records are maintained in single set of books only one
Profit figure will be disclosed. Hence, there is no need to reconcile the profit. This system is
called integrated system of accounting. Certain companies maintain separate set of books of
account for financial accounts and cost accounts. Here the profit shown by financial accounts
may differ from the profit disclosed by cost accounts. A question may arise as to which profit
is correct and what are the reasons for such variation when the company is the same and
transactions are also not different. Though lots of transactions and data are similar in both
sets of books, the profit figure may vary due to difference in objectives, assumptions,
treatment of various expenditures and costs. Therefore, the reconciliation statement is
prepared to find out the reasons for variation in profits and correctness of both the set of
books.

For the purpose of reconciling, the financial and cost books the financial records are
required to be so structured as to provide information as per requirements of cost accounting.
The requirements are as under:

1. Materials : Direct and indirect material accounts to be separately maintained in

financial books since in cost accounts direct material is part of prime cost while the indirect
material is covered under factory overheads.

2. Labour : For the same reasons given above, the financial records should give
information about direct labour and indirect labour separately.

3. Expenses : In financial books, separate accounts are maintained for direct expenses
identified with specific product, job etc. and general expenses of indirect nature.

4. Classification of Indirect Expenses : Indirect expenses should be classified in financial

books as factory expenses, office and administrative expenses and selling and distribution
expenses. Preferably separate ledger accounts should accumulate this information.

5. Normal and Abnormal Losses : In financial accounts, losses may not be bifurcated
into normal and abnormal losses since both are debited to Profit and Loss Account. However,
in cost records these two losses are treated differently.

6. Operating and Non-operating Items : Both operating and non-operating expenses are
debited to Profit and Loss Account but in cost accounts only operating items are considered
while non-operating items are excluded. Therefore, its bifurcation in financial accounts will
facilitate the reconciliation.

29
NEED FOR RECONCILIATION OF PROFIT

Following are the reasons for reconciling the profit shown by Cost books and financial
books :

1. To ascertain the reasons for difference in cost and financial profit or loss.
2. To facilitate cost ascertainment and cost control.
3. To examine mathematical accuracy of cost and financial profit or loss.
4. To facilitate formulation of policies regarding stock valuation, depreciation and
overheads.
5. To improve effectiveness of internal control systems.
6. To promote coordination between cost and financial accounting departments.

RECONCILIATION OF PROFITS

In financial books, actual expenses / incomes are recorded while in cost accounts
estimation is also done. Due to this reason and due to inclusion of certain items in financial
books and certain items in cost books the profits differ and can be reconciled.

Expenses not included in Cost Accounts :

1. Provision for bad and doubtful debts.

2. Amounts written off - intangible assets like goodwill or capital expenditure like
preliminary expenses, underwriting commission etc.
3. Losses on sale of investments or fixed assets.
4. Capital expenditure written off.
5. Damages payable through court except liability for workmen's compensation.
6. Penalties for late execution of contracts.
7. Entries for Revaluation of fixed assets.
8. Abnormal losses of material, abnormal idle time.
9. Cash discounts.
10. Discount on issue of debentures.
11. Expenses of share transfer office.
12. Excess remuneration paid to proprietor / partners.
13. Appropriations of profits like dividends transfer to reserves, donations, charities, income-
tax etc.

Incomes not included in Cost Accounts:

1. Interest, dividends, rent, commission, discount etc. received by Company.

2. Transfer fees received.
3. Profit on revaluation or sale of investments or fixed assets.
4. Damages received by the company form others. Income tax refunds.
5. Income tax refunds.

30
Expenses included only in Cost Accounts:

If company owns its own premises, no rent is debited in Profit and Loss Account but in
costing a notional rent is included in cost accounts. On the same basis notional salaries of
proprietor / partners, notional depreciation on assets, which have very less WDV but assets
are still used, is provided in cost accounts while in financial books depreciation will be nil or
negligible.

Standard cost of material and labour :

In financial books, material and labour are accounted for at actual cost. But in cost
records, sometimes, direct material / direct labour are charged to products and jobs at pre-
determined standard cost. Such cost may be higher or lower than actual costs. This leads to
difference in profit shown by both sets of books.

Over or under absorption of overheads :

Again in financial books, indirect expenses are recorded at actual. But in cost records the
overheads are absorbed on the basis of pre determined overhead absorption rates based on
certain percentage of direct material, labour or prime cost, machine hour rate etc. Thus, there
can be over-absorption of expenses i.e. expenses considered in cost records may exceed the
actual expenses or vice versa (i.e. under-absorption of expenses). This is also one of the
reasons for difference in profits.

Difference in valuation of stocks, difference in rates of depreciation or method of charging

depreciation, abnormal gains / losses etc. are also the reasons for difference in profits shown
by cost and financial records.

METHOD OF RECONCILIATION

Reconciliation statement is prepared at the end of certain period. Normally we start from
profit as disclosed by Cost Accounts and then we arrive at profit disclosed by Financial
Accounts. But, if costing profit is to be found out one may have to start from Profit as per
Financial Accounts as starting point. Assuming costing profit is given we have to add
certain i t e m s t o t h i s f i g u r e o r d e duct certain items from costing profit to arrive at
financial profit

Items to be added to Profit as per Cost Accounts :

1. Overcharge in Factory on cost, office on cost and selling on cost (‘on cost' means
overheads) or undercharge in financial books.
2. Items of income appearing in financial books.

31
 3. Over-valuation of opening stock in cost books and under-valuation of closing stock in
cost books.
4. Depreciation overcharged in Cost Accounts.

Items to be deducted from Profit as per Cost Accounts :

1. Undercharge of Factory on cost, office on cost and selling on cost in Cost Accounts or
overcharge in financial books.
2. Items of expenses considered only in Financial Accounts.
3. Under-valuation of opening stock and over-valuation of closing stock in Cost Accounts.
4. Depreciation undercharged in Cost Accounts

Proforma of Reconciliation Statement

Reconciliation Statement
As on dated…………………..
Particulars Amount Amount
Net profit as per cost Account ×××
(+) Overcharge expenses & Undercharge income in cost Account
Over recovery of indirect expenses ××
Income not shown in cost ××
Overcharge of depreciation in cost ××
Expenses shown in cost but not in financial ××
Undervalue of stock in cost ××
Credit items taken in the financial ledger but not taken in the cost ledger ××
Notional items of exp. taken in cost ledger but not taken in financial A/c ××
Overvaluation of opening stock in cost A/c ××
Undervaluation of closing stock in cost A/c ××
Over absorption of overheads ××
Income credited in financial A/c but not in cost A/c ××
Undervaluation of opening stock in financial account ×××

(-) Undercharge Expenses & Overcharge income in cost A/c

Debt items which are purely matter of finance & shown in financial A/c ××
Appropriations shown in the financial ledger but not taken in cost ledger ××
Undervaluation of opening stock in cost A/c. ××
Overvaluation of closing stock in cost A/c. ××
Overcharge of depreciation in cost A/c. ××
Undercharge of depreciation in cost A/c. ××
Under absorption of overheads ××
Under recovery of indirect expenses in cost A/c. ××
Expenses not shown in cost ××
Abnormal wastage of time & material in cost A/c. ××
Financial A/c ×××
×××
Net profit as per Financial Account ×××

32
Notes:
1. If net loss is given then it will be shown in miner (-).
2. Sales as per cost account and as per financial account will be always same or equal.
3. If difference is given in example then it will be taken into Reconciliation statement.
4. Reconciliation statement will be prepared on the basis difference cost & financial
account. Therefore, those expenses are charge on same basis in both accounts will be
not included in Reconciliation statement.
5. If difference Is not given in material wages and direct expenses then it will be
assumed same in cost & financial account.
6. Valuation of closing stock was not given then it will be valued in cost account on the
basis of cost production. In financial account it will be valued on factory cost.
7. Rules of Reconciliation.

A) If profit or loss A/c or financial A/c are more than cost A/c = Less (minus)
B) If profit & loss A/c or financial A/c are less than cost A/c = Add (Plus)

Table for Addition or Subtraction

Absorption of items Opening Closing Exp. & Income &
stock stock Losses Gains
A. Overcharge (+) Add (-) Less (+) Add (-) Less
items
B. Undercharge (-) Less (+) Add (-) Less (+) Add
items

For expenses items For income items

Add = Overcharge Add = Overcharge
Deduct = Undercharge Deduct = Overcharge

8. If profit of financial account or loss as per cost account is taken then above procedure
(rules) is to be reversed.

33
 Problems on Reconciliation of Cost and
Financial Accounts
Problem: 1. Mamta manufacturing co. the net profit for the year ended 31st March, 2013 Rs.
64,377 as per financial books for the same period profit as per cost account Rs. 86,200. The
following information will be received the comparing the both account.

Particulars Amount (Rs.)

1. Factory overheads undercharge in cost account 1,560
2. Office overheads overcharge in cost account 850
3. Depreciation as per financial books 5,600
4. Depreciation as per cost books 6,250
5. Interest on investment was not included in cost account 4,000
6. Loss by the sale of assets (in only financial books) 2,850
7. Income tax charge in financial books 20,150
8. Interest on bank deposits & transfer fees in the financial books 375
9. Material adjustments (credited in financial account) 237
10. Loss by the depreciation charge on opening stock (in financial accounts) 3375

*******
Problem: 2. Net profit of Jackson manufacturing co. ltd. appearing Rs. 1,28,755 as per the
financial records for the year ended 31st December, 2013 cost books however showed a net
profit of Rs. 1,72,400 for the same period. A sautéing of the figure from the both the sets of
accounts disclosed the following facts.

Particulars Amount (Rs.)

1. Works overheads under recovered in cost account 3,120
2. Admin overheads recovered in excess in cost account 1,700
3. Depreciation recovered in cost 12,500
4. Depreciation charge in financial accounts 11,200
5. Interest on investment not included in financial account 8,000
6. Loss due to obsolescence charge in financial account 5,700
7. Income tax charge in financial accounts 40,300
8. Bank Interest & transfer fees in the financial accounts 750
9. Store adjustments (credited in financial books) 475
10. Loss due to depreciation stock value charged in financial accounts 6,750

*******

34
Problem: 3. Garware & Co. Ltd. maintains separate cost books which disclose a profit of Rs.
1,20,456 for the year ending 31st March, 2013 net profit disclosed by the financial accounts
amounted to Rs. 79,040 upon a scrutiny of two sets of accounts it is found out that.

1) Overhead as per cost books were estimated at Rs. 30,000 charge for the year shown
by the financial accounts was Rs. 27,928.
2) Directors were paid fees amounting to Rs. 2,000 (charged in financial a/c.)
3) Company made a provision of Rs. 1,400 for doubtful debts (in financial books.)
4) Penalty paid for late completion of contact Rs. 1,000 (not recorded in cost books)
5) Company received interest on bank deposits amounting to Rs. 112 (included in
financial books only.)
6) Installation of new plant involved on expenditure of Rs. 48,000 but it had not gone
into production as yet depreciation at 5% was provided on the cost of the plant.
7) Income tax provided in financial account Rs. 36,000.
8) Share transfer fees received during the year Rs. 200.

Prepare the reconciliation statement explaining the difference.

*******
Problem: 4. From the following figures prepare a reconciliation statement.

Particulars Amount (Rs.)

Net loss as per financial records 2,16,045
Net loss as per costing records 1,72,400
Works overheads under recovered in cost account 3,120
Admin overheads recovered in excess in cost account 1,700
Depreciation charged in financial accounts 11,200
Depreciation recovered in cost 12,500
Interest received but not included in cost account 8,000
Loss due to obsolescence charge in financial records 5,700
Income tax provided in financial books 40,300
Bank Interest credited in the financial books 750
Store adjustments (credited in financial books) 475
Depreciation of store charged in financial books 6,750
*******

Problem: 5. Financial profit and loss account of a manufacturing company for the year ended
31st March, 2013 is as follows:-

Particulars Rs. Particulars Rs.

Material consumed 50,000 Sales 1,24,000
Carriage inward 1,000
Direct wages 34,000
Works expenses 12,000

35
Administration expenses 4,500
Selling & distribution exp. 6,500
Debenture interest 1,000
Net profit 15,000
1,24,000 1,24,000

Net profit shown by the cost account for the year 16,270 upon details comparison of the two
sets of account it is found that –
1. Amount charged in the cost account in respect of overhead charges are as follows
Work overhead charges 11,500
Office overhead charges 4,590
Selling and distribution expenses 6,640
2. No charge has been made in the cost account in respect of debenture interest.
You are required to reconcile the profit shown by the two sets of accounts.

*******
Problem: 6. Profit as per cost account is Rs. 84,350. Following figures are found out on
comparing cost account books with financial account books.

Particulars Cost A/c (Rs.) Financial A/c (Rs.)

a) Opening stock:
Material 15,800 16,300
Work in progress 9,000 10,000
b) Closing stock
Material 16,000 15,000
Work in progress 9,000 8,000
c) Dividend and interest received - 500
d) Loss on sale of motor car - 600
e) Rs. 2,000 interest charged not considered in financial accounts
f) Goodwill Rs. 5,000 has been written off during the year
g) Overheads incurred Rs. 56,500 but overheads recovered amounted to Rs. 60,000.

Find out profit as per financial accounts and prepare a reconciliation statement.

*******

Problem: 7. From the following particulars prepare.

a) State of cost of manufacturer, calculating factory on cost at 25% on prime cost and
office on cost 75% of factory on cost.
b) Profit on loss account
c) Statement reconciling the profit shown by the cost accounts with that shown by the
profit & loss account. Selling price is fixed at cost plus 25%.

36
 Particulars Rs.
st
Stock on 1 January, 2013
Raw material 8,000
Finished goods 16,000
Stock on 31st December, 2013
Raw material 12,000
Finished goods 4,000
Purchase of raw material 48,000
Wages 20,000
Sales 1,30,000
Works expenses 15,500
Office expenses 12,200

*******
Problem: 8. From the following particulars prepare.

a) Profit on loss account

b) Statement showing the cost of manufacturer, calculating factory on cost at 25% on
prime cost and office on cost 75% of factory on cost.
c) Statement reconciling the profit shown by the cost accounts with that shown by the
profit & loss account. Selling price is fixed at cost plus 25%.

Particulars Rs.
Stock on 1st January, 2013
Raw material 4,000
Finished goods 8,000
Stock on 31st December, 2013
Raw material 6,000
Finished goods 2,000
Purchase of raw material 24,000
Wages 10,000
Sales 65,000
Works expenses 7,750
Office expenses 6,100

*******
Problem: 9. From the following particulars prepare

1. Cost statement
2. Profit and loss account
3. Reconciliation statement
Opening stock of raw material Rs. 1,44,000
Opening stock of finished stock Rs. 2,88,000
Purchase of raw material Rs. 8,64,000
Stock of raw material at the end Rs. 2,16,000
Stock of finished article at the end Rs. 72,000

37
 Wages Rs. 3,60,000

Calculate factory on cost at 20% of prime cost and article, on cost at 80% of factory on cost.
Actual works expenses amounted Rs. 2,27,150 and office expenses amounted to Rs.
1,85,950. The selling price was fixed at 20% above.

*******
Problem: 10. Prepare a statement showing cost per Radio set and profit per Radio set sold
from the following particulars. Radio sets manufactured are classified into no. 1 & no. 2.
There is no opening stock and closing stock of the sets.

No.1 No.2

Material 2,400 3,232

Labour 4,560 5,656

Works on cost to be 100% on labour and office on cost to be 25% on works cost. 120 no. 1
sets were sold during the year at Rs. 150 each, whereas the price per no. 2 sets was Rs. 110
and the number of set no. 2 sold was 202. What is the total profit for the year as particular
given. Also prepare a profit and loss account for the year in financial book of the company,
the following being the additional particular given. Work expenses Rs. 9,920 and office
expenses Rs. 6,670.

How would you account for the difference between the two figures of the profit?

*******

38