Chapter No

COST CONCEPT AND CLASSIFICATIONS

Solution 1.1
High and Low Point Method Inspection Cost
Activity
High
Low
Difference

Units
Cost
2,65,000
Rs. 10,300
1,40,000
7,800
1,25,000
Rs. 2,500

Variable Rate = Rs. 2,500 1,25,000 = 0.02 paisas per unit

Months
January
February
March
April
May
June
July
August
September
October
November
December

Total Cost
Rs. 8,800
9,200
9,200
8,500
9,800
10,000
10,000
7,800
8,000
10,200
10,300
10,200

Variable Portion
Rs. 3,800 (1,90,000 0.02)
4,200 (2,10,000 0.02)
4,200 (2,10,000 0.02)
3,000 (1,75,000 0.02)
4,800 (2,40,000 0.02)
5,000 (2,50,000 0.02)
5,000 (2,50,000 0.02)
2,000 (1,40,000 0.02)
3,000 (1,50,000 0.02)
5,200 (2,60,000 0.02)
5,300 (2,65,000 0.02)
5,200 (2,60,000 0.02)

Fixed Portion
Rs. 5,000
5000
5000
5000
5000
5000
5000
5000
5000
5000
5000
5000

Solution 1.2
Fixed Cost
1. 75,000 Units Manufactured
Unit material & labour cost
Unit overhead cost (Rs. 1,03,000 75,000)
Total unit manufacturing cost

Rs. 2.52
1.38
Rs. 3.90

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2. 60,000 Units Manufactured
Unit Material and labour cost
Unit overhead cost: Variable Rs. 27,000 75,000 units
Fixed
Rs. 76,500 60,000 units
Total unit manufacturing Cost
3. 50,000 Units Manufactured
Unit Material and labour cost
Unit overhead cost: Variable Rs. 27,000 75,000 units
Fixed
Rs. 76,500 50,000 units
Total unit manufacturing Cost

Rs. 2.520
0.360
1.275
Rs. 4.155
Rs. 2.52
0.36
1.53
Rs. 4.41

3. When lesser number of units are manufactured the total fixed costs are spread over this
smaller production. In view of this at lower level of production the per unit fixed cost
as well as per unit total cost is higher.
Solution 1.3
UNIT COSTS TO MANUFACTURE AND SELL PAINT REMOVER
For the year ended June 30, 19A

Manufacturing costs
Variable selling costs:
Cartons
Freight
Delivery
Fixed selling costs:
Store operating costs
Sales office costs
Shipping department Cost:
Sales Salaries
Total unit cost to manufacture and sell

Company
Direct
Fact Stores
ory
Rs. 1.2000
1.200

Jobbers

Industrial

1.200

1.200

-------

0.030
0.080
0.120

0.080
0.150
---

0.080
0.200
---

0.0935
0.0620
0.0200
0.0560
Rs. 1.4315

0.126
0.062
0.020
0.056
1.694

--0.062
0.020
0.056
1.568

--0.062
0.020
0.056
1.618

ALI BROS

STATEMENT OF NET PROFIT ON SALES PER GALLON

For the year ended June 30, 2003

Selling Price
Cost to manufacture & sell
Unit profit after selling expenses

Rs. 2.1600
1.4315
0.7285

2.160
1.694
0.466

1.728
1.568
0.160

1.944
1.618
0.326

UNIT COST TO MANUFACTURE AND SELL

Manufacturing costs
Variable selling costs
Cartons
Freight
Delivery
Fixed selling cots:
Store Operating costs
Sales office costs;
Shipping department costs
Sales salaries
Total unit cost to manufacture and sell

ALI BROS

Rs. 1.350

1.350

1.350

1.350

-------

0.030
0.080
0.120

0.080
0.150
---

0.080
0.200
---

0.187
0.093
0.030
0.084
Rs. 1.744

0.189
0.093
0.030
0.084
1.976

--0.093
0.030
0.084
1.787

--0.093
0.030
0.084
1.837

STATEMENT OF NET PROFIT ON SALES PER GALLON

For the year ended June 30, 2003

Selling Price
Cost to manufacture & sell
Unit profit after selling expenses

Rs. 2.430
1.744
Rs. 0.686

2.430
1.976
0.454

1.944
1.787
0.157

2.187
1.837
0.350

Solution # 1.4
(a) Calculation of Estimated Annual Operating Cost for 1993:
Fixed Cost:
Depreciation
License Fee
Insurance
Total fixed cost
Total variable Cost (W-1)
Estimated Annual operating cost for 1993

Rs.
6000
600
600

Rs.

7200
15600
22,800

(b) Calculation of Estimated Cost per kilometer to be driven during: 1993

Estimated annual operating cost for 1993
=
Rs.22,800

4
Estimated Kilometers to be driven during 1993 = 13000 + 7000 = 20,000
Estimated annual operating costs
Estimated Cost per kilometer =
----------------------------------------------------Estimated kilometer to be driven
22800
------------ = Rs. 1.14
20000
(c) Calculation of cost per kilometer for personal use.
Estimated annual operating cost for 1993
= Rs. 22,800
Less: Receipts from corporation (7000 x 1.50)
= Rs. 10,500
Net operating cost for personal use
= Rs.12,300
Net cost for personal use
Cost per kilometer for personal use = --------------------------------------------------------------Estimated kilometer driven for personal use
12,300
Cost per kilometer for personal use =
---------------- = Rs. 0.946
13000
Estimated Cost per kilometer =

Working:
(W-1)

Calculation of total variable cost for 1993

Variable operating cost for 1992.

Repair

= Rs.3,000

Petrol etc.

= Rs.4,800

Total variable operating cost 1992

= Rs.7,800

Kilometer driven during 1992

= 10,000 km

Variable operating cost per kilometer

7,800
= ---------- = Re. 0.78
10000

Kilometer to be driven during 1993

= 13,000 + 7000 = 20,000

Total variable operating cost for 1993

= 20000 x 0.78 = Rs.15,600

Note:

Assuming that depreciation, license fee and insurance are treated as fixed costs of
the period whereas repairs expenses and petrol etc. are considered as variable costs.