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ElemenB based
Materials
Labour
Expenses
.
.
Production
Administration
Seling
Distribution
ontrollability based
Conbollable
Non-tontsollable
R&D
fterroduction
Conversion
Particulals
add:
Lss:
Add
add
Addr
Add:
Lass:
AddI
cost
Add:
Less:
add!
add:
Rs.
oF
PRoDuc[o
FTR.l
Production OH)
Management OH)
Forrnula
Concept
ABC Analvsis
o/o
Re-Orde! Level
1.
2.
I',llnimlm Level
I\|axinun Level
Average Level
2.
3.
Eoa
=F
rclated
formulae
EOQ
700/0. 200/0
Danger Level
in Total value
Safety Stock
ROQ
Buying Costs
(No.
x Cost per
of
Orders
=
p.a.
+
Carrying Costs p.a.
Order) + (Average Inventory x Carrying Cost p.u. p.a.)
Co6ts D.a.
Discounts ar available
Step
Prccedure
Determlne various order sizes by Trial and Error. The rules to be fullowd arc - (a) One represenbtion should be
oiven for eve Di@. and /b) Lower limit of evey class inteyal should fu chosen.
Find the number oforders for each Order Size chosen above. No, of Orders = Annual Requirement + Order Size,
Compute Buyinq Costs per annum = Number of Orders x Cost Der Order.
2
3
4
5
6
7
a
Ratio =
36s
Material Turnover Ratio
It
is
(a)
(b)
treated
is treated as a
either as Direct Wages by inflahng the Wage Rate (for Direct Workers) or
as Production OH (for Indirect Workers)
FTR.2
If it is
IPCC Cost
& Fl{
Situation
1.
2.
3.
4.
Due
to hult of a
Charged to Job
Charged
5.
3. Com
l.
llialltci:
Method:
in defauh, in order to
fix
=!jE
L
Separahon Method:
2. Accession l4elhod:
3. Mixed
department
=9L
2. Repia.er ri
to the
without ExDansion
Labour Turnover
3, Flux
Methodi
=4
LL
_R+N
-s+A
LL -s+R+N
(a) Based on
fime
Number of Separations
(-)
,
2
taken
Ourput
System
Slmple Tlme Rate
Difierrtialftne Rrte
High Waqe Plan
Taylor's Difiercntial
Piece Rate
lllerrick's
Differential Piece
Rate
Total Waqes =
Tota Waqes =
Tota Waqes =
Tota Waqes =
i:ie
+ 20olo Bonus, i.e. (Hrs worked x Rate per hour) + 20olo thereon
o,e(e
aale, i.e. (ActrJal OuPut \ 1200/d o. Pipce Rate per unit)
l-igL'
Tinr
EmeEon's EffIclency
System
FTR.3
S)stem
Points Systems
Hayns
Basic
Bonus
750,6
Points
Points Eamed
per point
Rate
Basic Commnent
Hrs Worked x Rate D.h.
Hrs Worked x Rate D.h.
System
Halsey-Weir
Premium Bonus
Bdeaux
System
Halsey
Bonus ComDonent
Systemi
Hrs worked
Rate p.h.
x l'lme
Barth
Saved
Achral Hoursl
Forinula
Concept
Sgrgation of
Sv Co6ts
High and Low
Pointr
Mdhod, tc.
iteaning of
Ou$ut for OH
.
.
Variable Cosb at either highest or lowest volume as Sales x Variable Cost Vo computed above.
Fixed Costs = TotalCosts leas Variable Costs as computed abve.
I{ote:
Absorption
The above principle can also be used with Difference in Output Quantity or Difrerence in
Operating Hours in the Denominator (insbead of Difference in Sales Value), to get Variable Co6t
Der unit or Variable Cost Der hour. as the case mav be.
TYE of OH
Factory OH
Admin OH
S&DOH
Costing Stp6
1. Collectton
4. Apportionment
OutDut means
Finished Goods + Closinq Stock of WIP,
Finished Goods.
2, Classification
Alsumpdon
Service Deoaftments do not Eerve one another.
Arsumfilons
and Hethods
in ReaPpo.tionment
Licened Capa.ity
appropriate authority
2,
Capacty
Concepts
3,
4.
l,lthod
Direct Distribution l4ethod.
Step Ladder Method, or Step f4ethod, or
Non-ReciDrocal Servkes Method.
ReaiproGl Services lYethod
.
.
1.
3, Allocation
6. Recovery
5. Renpportionment
issued by an
5.
Actual Capacity Utilization is tie volume of production achieved, or actual operating hours
wcirked, in relation to installed capacity.
6. If Actual Capacity tjtilization < Ins1"l,ed Capacity, tfie diffurence is called Idle C.prclty
Forecast Plant Idle Capacity.
FTR.4
(or)
FM
Fonnula
ConcGpt
If Actual Gpacity Utilization > Insblled Capacity, the difference is Excets Capa.ity utilization.
abnomal Idle Capacity is the difference between Practical Capacity and Normal Capacity or
Adual Gpacity Utilizatjon whichever is higher. So, abnormal Idle Capacity = Practical (or
7.
8.
Ovrhead
Recovery
1.
2.
(c) Percentaqe of Prime Cost, (d) Labour Hour Rate, and (e) Machine Hour Rate
li{ethods
If Total oH include
Maahlne Hour
Rate Concepts
OVERABSORPTIOI{
I{DERABSORPTIOl{
nts Savinos in OH
Analysed as due to
Abnormal Reasons
e.g, genuine planning errors,
chanqes in assumptions, etc,
3.
Unlts sold
Debited to ----------|
CostingP&LAccount.
(Also see l{ote below)
Contlol
FG
Stores Ledger
Control
2.
Factory
3.
OH
Cont ol
Account
Productron
OH Control Account
[or]
A*/c
reted
Credited with
I\4aterials Issued
to of lvlaterials in Stores
(i)
Jobs (i.e. to wIP),
Department, i,e.(ii) Repairs Work (Factory OH),
. Cost of Purciases including
(iii) office (Adminiskation OH),
Carriage Inwards,
Sales Department (Selling OH),
. I\4aterials Retumed from Production . (iv)
llaterials returned to Vendor.
Department,
Reeipt
1.
Closing Stock of
Finished Goods
I{eme of Acaount
Waqes Paid.
.
.
.
Indirect Exoenses,
FTR,5
.
.
.
Indirect Wages.
Abnormal Idle Time / OT Waoes, ifanv.
.
.
Ilame of Account
Debited with
6.
Administrative Overhead
7.
and Distributlon
Overheads Control Account
Cost of Sales Account
9.
Sales Acmunt
10.
11_
goods returned
by
Customers, if anv.
Selling and Distributjon Overheads
Selling
8.
of
Cost
.
.
incumd,
Cost of Goods Sdd.
Loss in
to
Control acmunt
AOH absorbed
AOH incured.
Credited with
.
.
&
if
any,
.
.
Sales Value.
.
.
.
.
Profit
ansferred from
Dr.
Particulars
To
To
Rs.
Interest,
To
To
By Opening Stocks
Financial Book
Rs.
By Profit as ter
By Overheads undeFabsorbd in Cost Books
- Factory / Admlnistration / S&D Overheads
By llon-operating Ependiture, income Tax, Write
Cr.
Particula15
Financial Records b/fd
fbal. fioure)
Total
Total
Ilote: The above account may be considered as an exlension of the Finandal P & L Account, Hence, Financial proht
on the craIit side ofthis account. Debit/ Cledit approach to reconcitiation is as under-
1.
2.
3
4.
5.
is taken-
Identifi/ the item causing difference e.g. Production Overheads, coodwill writteft-off etc.
See whether the item relates to the Debit or Credit side of the Financiat p & L Account.
Ascertain the direction of $e change i.e, whether the amount is to be increased or reduced in ordea to anive at the
figure as per the Cost Records.
If the amount is to be increased. record the difference in the same side, if the amount is to be reduced, reverse the
difference by posting it in the opposite side.
Reconciliatiofi Decision Tabl mav be oreoared a5
as unde
Item
Underabsorbed OH
Overabsorbed OH
Non-Oleratino Incomes
Nofl-OpeEtinq Expenses
Openinq Stock overvalued in Financial Book
Openinq Stock undervalued in Financial Bookg
Oosinq Stock overvalued in Financial Eooks
Closinq Stock underualued in Financial Book
r-
As per Financial
To be cha.ged to..,..
Books
..Dr.
...Dr.
.....cr.
,,Dr,
. Dr.
,,D.,
.,,,'Cl,
,,Dr,
FTR.5
Difference and
adjusknent rquird
..Cr.
....Dr.
, Dr.
.-Cr.
Cr.
. Dr.
. Dr.
,,,cl.
Total Costs
+
Indirct Costs (estimated
Direct Costs
++
Direct l{aterials
Direct Labour
+
RequisiUon
/
Wage
BO!1,
Direct Exps
POH
AOH
As o/o of Dir,"d
Labour, or Lab
Hour Rate
From
Journals &
If
soH
+
As o/o of Sales
Cost
Rate of Interest
Cost
(I) and
Ljnlt Cost of
*o=lf
Formula
wo.k Ce(ified = Progress Paymelts + Retention l4oney.
Income on a contract till date = Value of Work Certified + cost of work uncertified.
Concept
Work Certified
Inaome till date
l{otional Proflt
Estinated Total Profit
(Loss)
Notionai Profit = Income till date (Less) Expenditure till date on the contract.
ETP = Contract Prce (Less) Estimated Total Costs on the contract.
lNote: Estimated Total Costs = Cost till date + Additiona] Costs to be incurred.l
51o/o
910/0
to 900,6
99o/o
Sna/o
Notional Profit x
Cash Re ceived
?x
(Se ote c)
(Se Note c)
Notional Profit
Cash Received
work Certified
100o/o
Work Certified
(See Note d)
Xotesi
la)
Per.entaoe of ComDletion
Work
"- ' Certified
'' ' ''
= Contract
Price
(b) If
there is a loss at any siage, i.e. irrespective of percentage of completion, such Loss should be
Profit and Loss Account.
(c)
(d)
Substantially completed can also be considered as 51olo to 95olo completed. In such case, the next slab of Almost
complete contracts will be taken as 95o/o to 99olo completed.
For fully complete contracts, the balance portion of profit is recognised only upon receipt of Retention lloney. If entire
ariount is fully received, the whole of profit can be recognised.
prudence / conseNaUsm is generally followed for recognizing proflt. Hence, for e'(act 50o/o completion,
1/3'0 of Notiona, Profit wirl be re(oglised (ano rct 2/3'd).
FTR,7
Any of the following alternative formula may be used for recognition of profia
i.e, ETP
Contract Pr ice
Price
Cnsh Re ceived
Estimated TotalcosE
Work Certified
Contrad
(0 +
J'
Nouonar profit
Pr
percentage of Completion
'
i.e. ETP
Wolk Certified
ice
gt-Eglgl]Sq
Percentage of Completion
ilote:
1.
2.
3.
(91
ETP based
(a)
(b)
In the absence of any specific requirement or other informaton, Formula (b) may be applied.
Even where the ETP related information is avallable, Notional Profit may also be used to reognize profit. Hence,
Formula (e) & (f) may be applied for profit recognition.
proft -x Gsh
Noflonr,
,t o*..
4.
5.
The Profit reaognised / transfened to the P & L pcount should be determined on prudence
i.e. if all the formulae are applied, the least of the rerulting profits should be considered.
1x
If the
Re
ceived
conservati3m lrasis,
amount of Notioml Profft is less than the amount to be recognised by applying the above formula, then profit
b P & L I/c sha be the least of the two. 1e.9. If eroRim Oe recoiii
on EIp is Rs.48,000; but
Nodonal Profit is only Rs.36,000, then the amount transferred to p&L A/c shall be Rs.36,000 only).
-,
t'nsfend
*-tu."t
.ontracts
'
Treatment
Notonal Prcfit
Notional Proft
Estimated Total Los3 is fully provided for in the current year. profft should
Loes
25olo, Any
of
not be recognized,
Cu.rent Lo6s is fully provlded for. profit is not recognised even though
there may be a pro-fit when the mntract is finally completed.
Curent Loss or Estimated Total Loss, whichever is wots, is fu y provided
for jn the curent year,
1:
Concept
Methoda of
loint Cost
ApDortionher|t
Formula
1. Physical Quantities Method,
2. Average lJnit Cost l4edrod,
3. Survey / Technical Evaluatjon Method, 4. Contrjbution Margin Method, and
5. Market Value l!4ethods - (a) Sate Vatue at Sptit Off point, (b) Sate Vatue after Further
Proceasiag, and (c) NRV at Split Off Point.
FIR.8
IPCC Co6t
Formula
k,
Step
1
& FM
Procedurc
Compute Additional Revenue = Sale Value after further Prccessing Less Sales Value at Split off,
Compute Additional Costs = Further Processing Cosb + S & D OH if any.
3
4
Step
1
Procedur
Compute Process Loss = Input Quantity Less Output Ouantitv.
Determine l{ormal Loss Quantity, either based on Input or Expected Production
Compute Abnormal Loss or Abnormal Gain, as the case may be. lstep 1 Less Step 2]
2
3
B: COST A]{ALYSrc
Step
Procdure
Determine
(a) Grosr Cost, i.e. Total of Debit Side of Process AccounL and
(b) Gross lnput Quantlty, i.e. Total Input Quantjty for the Process.
Determine l{ornal Loss Quantity, and Ssap Value, if any, of Normat Loss.
Compr,te
(a)
(b)
Net Cost
Loss
Ouantity
lEljGL
11;5
;5
66;ed as cood
unit Rate)
It6m
Basis of valuation
1
2
Abnomal Loss
Abnormal Gain
Normal Loss
Effective Cost per unit as per B(4) above. (I{otet Abnormal Loss is considered as
Deemed Good Production, and is valued, as if it were qood units produced.)
Effecjve Cost per lnit as per B(4) above. (!tote: Abnormal Gain constifutes Actual
(excessive) Good Production. )
.
.
.
.
.
.
.
.
.
FTR.9
Production: The
Input - Output Reconciliation of quantities on physical basis.
Dete.mination of Percentaqe of Completion and Computation of Equivalent Produdion.
Computation of Cost per equivalent unit.
Apportionme.t of Total Cost over Production, Abnormal Loss and Closinq WIP.
PreDaration of Process Account,
SteD 1
SteD 2
SteD 3
Ster 4
SteD 5
Note: Before applying the above steps, Students are first required to decide on the following 1. tlethod of Valuation, i,e, FIFO orWAC!
(a) FIFO l'1e6od should be used if - (i) degree of completion for Opening \tllP is given, and (ii) Cost break-up of
(b)
2.
(i) degree of completion tor Opening WIP is not given, and (ii) Cost break-lp of
Direct Material Input into the Subsequent Procss, oii) Lnbour and (iv) POH,
nation for
Step 1
Input-Output
Reconciliation
(a)
(b)
Compute Total Input during the period = Opening WIP units + Freshly introduced unib.
Compute Normal Loss Quantity based on (i) Percentage of Total Input, or (ii) Percentage of
Expeded Production, i.e. [Opening WIP + Fresh Units - Closing WIP].
(c)
Determine Quantity transfened to next prccess, and classiry it into - (i) Transfer ftom OpenirE WIP
& (ii) TEnsfer from Fresh units. [Note: This classifrcation is only for FIFO, and not for WAC Method].
Identify the units lying as Closing WIP and compute Abnormal Loss / cain as balancjng figure.
(d)
Item
Step 2
Prcentage
of
Completion and
Equivalent
Units
(See
Iote
below)
Step 3
pel
Equivalent Unit
1000/6
Iit
l00o/o (generally) or as specified in the Question for Soap.
Cost
Perentaoe of Cornoletion
(a)
(b)
As
This is obtained by dividing the Cost (Materials, Labour & POH) by the respective equivalent units.
Scrap Value of Normal Loss, if any, is reduced from the Cost of l.4aterials. In @se of se@nd or
Subsequent Process, it is reduced from Cost of l\4aterialA, i.e, Previous Procss Raw Material.
4
cost
ADDortionment
Step 5
Step
Process
Account
Total Cost is apportioned over Production, Abnormal Loss and Closing WIP by multiplying the
equivalent units at the appropiate Cost per Equivalent Unit.
io the Process Account. The crcdit sjde is updated using the figures determined in
Step 4 above. Under FIFO method. Cost of Produdion consisB of Coat of Openjng WIP and Cost of
Processing durjng the period.
Costs are debited
l{ote:
Under FIFO l\4ethod, in case of Second or Subsequent ProcesseE l\4aterial A is regarded as 100% complete in all
respecB, except for tsansfer out of Opening WIP units and Normal Loss.
Unde. WAC Method, total transfer to next process is taken as 100o/o complete. Break-up between Opening WIP and
fresh units introduced, is not considercd.
FTR.1O
.
.
Absolute (Weighted Average) Tonne-Klomebes: Each Route Distance x Respective Load Quantities.
Conmercial (Simple Average) Ionnes-Kilometres: Total Distance (1.e. Kms) x Average Load euaotity (Tonnes).
xlP - Aa-z4P
N4aterial
=AQTSP-AQxAP
Worki
wN (1) _ wN (2)
= wN (3)
lJsage Variance
=SQxsP-AQxsP
wN (2)
=MQxSP-AQxSP
= wN (4) - WN (3)
=5QxsP-MQxsP
= wN (1) - WN (4)
Notes
WN Column No.
t1)
Computation
SOxSP
2)
AQXAP
(4)
RAOxsP
AQxsP
[laterial A
Ivaterial B, etc.
Total
sa
Meaning ofTeims
/ Abbreviations
used:
SP
AP
RAQ
2. LABOUR
COSMRIA
t4ppv=pQxSp-pexAp
Where
PQ
Purchase Quantity,
SH
x SR
AH x AR = WN (1)
- wN
(2)
LaboulRate Variance
=AHxSR-AHxAB
=SHxsR-AHxsR
= wN (1) - wN (3)
=wN (3)
wN (2)
Labour Mix Variance
=&!1xSR-MxsR
= wN (4) - WN (3)
WN Column No.
FTR.11
Labour
= wN (1)
wN (a)
SH
I'leanlng ot Terrns
Ah
nAH
SR
AR
Abbrcviations urd:
Labour Revisd
Efnciency Varlance
LITV = Actual Idle Hours x Standard Rate Per Hour (Always Mverse).
LREV = Balancing Flgure, LEv + UTV, deEending upon whether LEv is Favourable or Adverse.
Variance
VOH
=r{"lxSR-AHxAR
= wN (3) -WN (2)
Actual VOH
Efriciency/Utilisation Variance
=SHxSR-AHxSR
I
VOH
= wN (1)
-wN
(3)
v
VOH Revised Efficiency Variance
(Balancing Figure)
i.e. VEV + WW
AO x
Y
I
ExpndituE Variance
FOH Volum Variance = AO x SR
= BFOH - AFOH
= wN (1) -wN (3)
= wN (3) - wN (2)
Capadty
EfEciency Vadance
(or)AHxsR-PExsR
=AEx sR-BHxsR,
= A) x sR-SOx s& i.e.
= wN (4) -wN (3), (or) wN (4) -wN
= SEx sR-AH x sR
l{ote: wN (5) will be used only
= wN (1) - WN (a)
Variance
(s)
when
.
.
FOH
BFOH
Calendar Variance
=EExSR-EExSR
=PQxsR-BOxsR
=
PFOH
BFOH
Idle Time Vadance (FfM = Actual Idle Hours x Standard Rate Per Hour (Always adverse)
FOH Rvisd Efficlency Variance (FREV) - Balancing Figure, FOH Efficiency Variance i FIW, depending upon
FOH
otE
(1)
AO
'(
SR
(2)
(3)
AFOH
BFOTI
FTR.12
(4)
AHxSR
(s)
PFOH
AO
8()
SO
PO
AH
BH
SH
PH
OutDut-
besd
bacd
1.
SHXSR ph =
AOXSR pu =
2.
AHXSR ph =
SOXSR pu =
3.
BHXSR ph =
BOXSR pu =
Budgeted Fixed oH
4.
PHXSR ph =
POXSR pu =
Possible Fixed OH
OuFut i.e.
=
=
=
=
=
Budgeted Hours.
Standard Hours, i.e.
Eeected Ime (Time Allowd) for Actual Output.
Po6sible Hours,
i.e, Expecd Hours for Actual Days wo*ed.
SR
llm-
= Budgeted Outrut.
ill
= Standard Rate per Unit or per Hour, as the case may be,
Thk rpiantat...
Sbndard or Absorbed
Fixed OH
P
BD
5. SALES VARIAI{CES
ll,l
Ail
,- TOIAL /
RXOVER APPROACfl
Sales
= wN (3)
wN (2)
Sales
2.l,lARGI /
volume Vadance
= EOx BP-AOx
=AQxEP-AQxAP
lilix Variance
BP
Sals
=&\QxBP-AQxBP
= wN (4) -wN (3)
= wN (1)
PROFTT APPROACH
BO x Br,,r
-AO x AM =
Quandty Variance
=@xBP-EAQxBP
AQxEU-AQxAU
= v'/N (3) - wN (2)
EOxBM-AqxBM
l.llx Vanance
SAOxBM-AOxBM
Sals Mdrgin
FTR.13
wN (4)
= wN (4)
WN (3)
EQx
Bl'4
ty Variance
-BAQx
= wN (1)
BM
wN (4)
Factor
Relationship
1. Price
Reason
Standard
sold,
remaining
Cost
Applicable
impact
on
SW x Budgeted Net
Profit Ratio
increases due to
vol,iire increase/ the impad on
Pitri. l. to th. extent of Net
Pfrlr"! lnaiease
anliv.
,;: sMW
]
]
]
under
Absorption Costing as
well as
Marginal
combinations also.
cost also
for
and
Method of Costino
Applicable
individual products
product
sl.{Pv
2, Volume
No, of Prcducts
under
Costjng
System,
and not
combinations,
Ratio
Time-Based Formula
1. Budgeted
Capacity Usage
2.
Ratio
Actual Capacity
t tilisation Ratlo
3.
Efficiency Ratio
4.
Calendar Retio
5. Volume or Level
of Activity Ratio
Outpr,!t-8esed Formula
Budgeted Holls
Pradical Plant Capacity Hours
Actual Hours
Budgeted Hou6
S
Budgeied Ouiput
Practical Plant Capacity Outplt
Actual Hours
(o0
Ouiout
'-'
Standard
Budgeted
tanda.d Hours
Days
Budqeted Hours
Staodard
OutDUt
Possble Output
Output
Standard Output
Possible Output
Budgeted Ouiput
Acfual Hours
Actual Davs
Possibe Hours
Budqeted
Siandard
OuFul
Actual Output
Budgeied Output
Hours
Budseted Houis
Coneot
Pv Ratio
Total Contribution
x 100
Total sales Value
Change in Contiibution
(or)
100 (or)
Change in Sales
= 100% Less Variable Cost Ratio.
Break Even
Point
Margin
of
Safety
Indifference
Point
Shut Down
Point
Chanqe in Sales
"^Y
^c"1=
PV Ratio
(T'ris
.s
(o,
100
(o0
100
Costs
- LOnrnDUfiOn
^ ,F:lel per ,,untt,, ( rnrs,s denored as Break Even Quantjty).
(a) l4argin of Safety (in tu.) = TotalSales tesjBEP Sales (or) Pr oflt
PV Ratio
Pr ofrt
Conkibution per Unit
Difference in Fixed Costs
Difference in Flxed Costs
(a) Indifference Point (Rs.) =
Difference in PV Ratio
Dlfference in Variable Cost Ratio
Difference
in
Fixed Costs
Dfference in Fixed Costs
(b) IndifererEe Point (unib)=
(or)
Difference in Contribution per Unit
Difference in Variable Cost per unit
Avoidable- FII+ costs
costs
(a) shur Lrown point (p.s.)(b) shrr Dow.r point (QH)- ryoidable.Fxed
Pv
per
ConhibJf,on
lJnit
(b) Margin of Safety (Qtty) = Total Sales Qtty lets BEQ (or)
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Kaflo
FTR.14
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