1. HOW TO PREPARE COST SHEETS AND ANALYSE COSTS by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india www.afterschoool.tk mobile : 91+9414430763

2. WHAT IS A COST SHEET? It is a simple method to depict cost. It is based on the principles of cost accounting. We put costs in different categories and put it in a cost sheet. Typical cost sheet is divided in 4 parts : 1. Total direct cost or prime cost 2. Prime cost + factory cost = works cost 3. Works cost + admn. Exp + stock adjustment= Cost of production 4. cost of production+sales exp= cost of sales + profit =sales

3. Prepare cost sheet from the following: Direct material = 10, direct labour = 10 direct exp = 5, factory expenses = 5, administrative expenses = 5 Opening stock = 3, closing stock = 8, selling expenditure = 5, sales = 90

4. solution... Direct material + direct labour + direct expenses = Prime cost = (10+10+5) = 25 Prime cost + factory cost = works cost =25+ 5 = 30 add administrative. Exp + 5 = 35, adust for stock : less closing stock and add opening stock = - 5= 30 cost of production add selling exp : 5 = 35 cost of sales sales = 50, profit = 50—35 = 15. answer

5. A company produces X,Y,Z for which standard variable costs are as under, fixed overhead is 5400000 for each month. Inspite of increased sale, profit for 2 nd month has fallen. Why ?

6. solution... Contribution per unit : X = (360 – (60+80+60) ) = 160 Y = 500- (120+80+100) = 200 Z= 960 – (160+200+140) = 460 thus profit in the month of Nov. Was : (160*2 + 200*2*460*2) = 1640 – 54 lakh dec : (160*4+200*2.6+460*1)=1620 – 54 lakh

7. Explanation If we look at total volume, sales has increased, but if we look at profit, it is 20 lakhs lower in next month. The reason is that increase in sale is mostly in X and there is decrease in sale of Z. Z contributes substantially to profit, but when its sale is declining profit is bound to fall. Z alone contributes 56% of total contribution. So the conclusion is that the company must pay attention to sale of Z to earn more.

8. A company manufactures a product utilising 80% capacity with a turnover ofRs 8 lakhs @25 per unit. Material cost : 7.5 p.u., labour : 6.2 p.u., semivariable cost including variable (@3.75 p.u): 1.8 lakhs, fixed .9 lakh upto 80%, thereafter 20000 more will be required. Find sale to earn 1 lakh. Contribution : 25- (7.5+6.2+3.75) = 7.5 let us find profits at different levels : formula : contribution – fixed cost = profit sale = Rs. 8 lakh / 25 = .32 lakh unit 80%: (.32* 7.5) - (.9+(1.8-(.32* 3.75)) =.9 but our goal is to earn 1 lakh..

9. continued... Let us try at 100% capacity : (.4* 7.5) - (.9+.2+(1.8-(.4* 3.75)) =3 – 1.4 =1.6, so it it more than our target profit. (X* 7.5) - (.9+.2+(1.8-(X* 3.75)) = 1 7.5x+3.75X – 2.9 = 1 11.25X=3.9 X = 3.9/11.25 = .34 Thus comapny should make 34000 units to earn 1 lakh of profit.

10. What should be the selling price per unit, if BEP is to be reduced to 40% level? Contribution – fixed cost = profit (at BEP level, profit is ZERO) (.16* X) - (.9+(1.8-(.16*3.75))=0 .16X-2.1=0 X= 2.1/.16 = 13.1 contribution must be 13.1, for this selling price has to be : selling price = (contribution + variable cost per unit) =(13.1+ 17 .5) = 30.6 answer

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