Case Study 1

Cost Structure Analysis at Modern Furniture Ltd.

Modern Furniture Ltd. specializes in high-quality wooden furniture and has established a robust cost
accounting system. In September, the company produced 1,000 units of its popular product, the
Heritage Dining Table. The company aims to analyze its production costs to better understand its cost
structure and profitability.

Details Provided:

• Direct Materials: ₹1,50,000

• Freight on Raw Materials: ₹5,000

• Indirect Materials: ₹12,000

• Direct Labor Costs: ₹80,000

• Factory Overheads: ₹50,000

• Administrative Overheads: ₹20,000

• Selling and Distribution Expenses: ₹30,000

• Opening Stock of Raw Materials: ₹15,000

• Closing Stock of Raw Materials: ₹10,000

• Selling Price per Unit: ₹400

Case Questions:

1. Compute the prime cost, factory cost, and total cost for producing the Heritage Dining Table.

2. Determine the company’s cost per unit and analyze whether the production costs align with their
pricing strategy.
 Case Study 2
Profitability Assessment of the Heritage Dining Table

Modern Furniture Ltd. has been experiencing a surge in demand for its Heritage Dining Table. While
the company’s production efficiency is well-managed, it seeks to evaluate the profitability of this
product to optimize its pricing and marketing strategy.

Details Provided:

• Total Units Produced in September: 1,000

• Direct and Indirect Costs: Refer to the cost details provided above.

• Selling Price per Unit: ₹400

Case Questions:

1. Analyze the total revenue, total costs, and the net profit or loss for September.

2. If the company wants to maintain a profit margin of 20%, what should the minimum selling price
per unit be?
 Case Study 3
Pricing and Profitability Analysis at Modern Furniture Ltd.

Modern Furniture Ltd. has established itself as a premium producer of wooden furniture. With the
rising demand for its Heritage Dining Table, the company is keen to revisit its cost structure and
pricing model to ensure sustained profitability. The product’s current selling price is ₹400 per unit,
and the company produced 1,000 units in September.

Cost Breakdown:

• Direct Materials: ₹1,50,000

• Freight on Raw Materials: ₹5,000

• Indirect Materials: ₹12,000

• Direct Labor Costs: ₹80,000

• Factory Overheads: ₹50,000

• Administrative Overheads: ₹20,000

• Selling and Distribution Expenses: ₹30,000

• Opening Stock of Raw Materials: ₹15,000

• Closing Stock of Raw Materials: ₹10,000

Case Questions:

1. Calculate the break-even selling price per unit if the company wishes to cover all costs but earn no
profit.

2. Suppose the company plans to offer a 10% discount on the selling price during a festive season.
Evaluate the impact on profitability and discuss whether the strategy is financially viable.
 Question 1
PQR Ltd. manufactures steel chairs and provides the following information for the financial year
ending 31st March:

Direct Materials Cost: ₹70,000

Direct Wages: ₹40,000

Factory Rent: ₹15,000

Depreciation on Machinery: ₹8,000

Electricity Charges: ₹6,000

Office Rent: ₹3,500

Salaries to Office Staff: ₹5,000

Selling Expenses: ₹4,000

Advertisement Expenses: ₹3,000

Freight on Sales: ₹1,200

Profit Margin: 25% of Cost Price

During the financial year, PQR Ltd. produced 600 chairs.

Tasks:

- Prepare a cost sheet to calculate the following:

- Total cost
- Cost per chair
 Question 2
LMN Ltd. manufactures plastic bottles and provides the following information for the financial year
ending 31st March:

Direct Materials Cost: ₹55,000

Direct Wages: ₹35,000

Factory Rent: ₹12,000

Depreciation on Machinery: ₹6,000

Electricity Charges: ₹5,000

Office Rent: ₹4,000

Salaries to Office Staff: ₹4,500

Selling Expenses: ₹3,800

Advertisement Expenses: ₹2,800

Freight on Sales: ₹1,500

Profit Margin: 18% of Cost Price

During the financial year, LMN Ltd. produced 700 bottles.

Tasks:

- Prepare a cost sheet to calculate the following:

- Total cost
- Cost per bottle
 Question 3

ABC Ltd. has to supply 15,000 shirts per day. It can produce 18,000 shirts in a single production run.
The cost of holding shirts is 2 paise per shirt, and the setting-up cost of a production run is ₹250.

Tasks:

How frequently should the company run the production process to minimize total inventory costs?
 Question 4

ABC Ltd. received a target of publishing 20,000 books before the start of the new school year. To
achieve this target, the company assigned 20 employees to the project. The project manager decided
to allocate 15 employees on a full-time basis for 50 days, each at a daily rate of ₹60. Additionally, two
managers were assigned to oversee the warehouse for seven days, each earning ₹40 per day. For the
supply chain, two employees were assigned at a rate of ₹30 per day for the entire 30-day period.
Furthermore, one employee was assigned to the marketing team for five days at a rate of ₹20 per
day.

The direct material costs amounted to ₹3,000, while indirect materials, including ink, electricity,
carriage, and stickers, cost ₹500. The overhead expenses related to publishing the books totaled
₹700.

Find the total job cost in ₹INR.

(sums on calculation of prime cost)
 Question 5
DEF Ltd. manufactures and sells a single product. The following information is available for the
month of December:

Direct Materials: ₹60,000

Direct Labor: ₹30,000

Factory Overheads: ₹20,000

Administrative Expenses: ₹8,000

Selling and Distribution Expenses: ₹5,000

Number of Units Produced: 1,500 units

Number of Units Sold: 1,200 units

Tasks:

Prepare a cost sheet showing the following:

- Total cost of production

- Cost per unit
- Total cost of goods sold (COGS)
 Question 6
ABC Ltd. manufactures and sells a single product. The following information is available for the
month of November:

Direct Materials: ₹50,000

Direct Labor: ₹25,000

Factory Overheads: ₹15,000

Administrative Expenses: ₹7,000

Selling and Distribution Expenses: ₹4,000

Number of Units Produced: 1,200 units

Number of Units Sold: 900 units

Tasks:

Prepare a cost sheet showing the following:

- Total cost of production

- Cost per unit
- Total cost of goods sold (COGS)
 Question 7
A manufacturing company produces smart gadgets and aims to understand its cost structure to make
informed strategic decisions. The company has gathered the following information for one of its
product lines:

The direct materials used for producing one gadget include sensors, aluminum casings, and
rechargeable batteries, which cost ₹ 600 per unit.

The wages of workers directly involved in assembling the gadgets amount to ₹ 250 per unit.

The company incurs indirect costs such as factory utility bills and supervisors' salaries, amounting to
₹ 1,200 per month.

It also incurs costs for administrative staff salaries and advertising expenses, totaling ₹ 1,800 per
month.

Tasks:

a. Classify the given costs into direct materials, direct labor, indirect materials, indirect labor, and
overheads.

b. Calculate the total direct cost per unit of the gadget.

c. Identify which costs would fall under controllable and non-controllable categories.

d. Explain the importance of classifying costs for managerial decision-making and cost control.
 Question 8
what is budgetory control system? its importance and limitations
 Question 9
Differentiate between variable cost, fixed cost and semi variable cost
 Question 10 (Important)
A company employs two workers, Worker A and Worker B, to complete three jobs (X, Y, and Z) during
a month. The following information is available:

Worker A

Basic Pay: ₹120

Dearness Allowance: 60% of Basic Pay

Contribution to PF: 10% of Basic Pay

Contribution to Insurance: 3% of Basic Pay

Overtime Hours: 12 hours

Worker B

Basic Pay: ₹180

Dearness Allowance: 50% of Basic Pay

Contribution to PF: 8% of Basic Pay

Contribution to Insurance: 2% of Basic Pay

Overtime Hours: None

Additional Information:

The normal working hours for the month are 200 hours.

Overtime is paid at double the total of normal wages and dearness allowance.

The proportion of time spent by each worker on different jobs is as follows:

Worker A: 50% on Job X, 25% on Job Y, 25% on Job Z

Worker B: 40% on Job X, 35% on Job Y, 25% on Job Z

Tasks:

Calculate the total monthly earnings of Worker A and Worker B, considering overtime payments.

Allocate the total labor cost of Worker A and Worker B to each of the jobs (X, Y, and Z) based on the
time proportions.
 Question 11
Basic Wages and Overtime

A company employs Worker P and Worker Q. Worker P's basic pay is ₹150, while Worker Q's basic
pay is ₹200. Both workers are entitled to a dearness allowance of 40% of basic pay. The normal
working hours in a month are 180 hours. Worker P works 8 hours of overtime, and Worker Q works
12 hours of overtime. Overtime is paid at 1.5 times the combined total of basic wages and dearness
allowance.

Task:

- Calculate the total monthly earnings for Worker P and Worker Q.

- If Worker P and Worker Q worked on Job A (60%) and Job B (40%), allocate their labor costs
to each job.
 Question 12
Contribution to Provident Fund and Insurance

Workers R and S receive a basic monthly salary of ₹180 and ₹250, respectively. A dearness allowance
of 50% is applied to the basic salary. The company deducts 10% of the basic wage for provident fund
(PF) and 5% of the basic wage for insurance. Both workers worked for a total of 160 normal working
hours in the month. Worker R did 20 hours of overtime, while Worker S did not. Overtime is paid at
double the combined rate of basic wages and dearness allowance.

Task:

- Calculate the total earnings for Worker R and Worker S.

- If Worker R worked 50% of the time on Job M and 50% on Job N, while Worker S worked 75%
on Job M and 25% on Job N, allocate their labor costs to each job.
 Question 13
Multiple Workers with Proportional Job Allocation

Worker X and Worker Y earn basic salaries of ₹250 and ₹300, respectively. Each worker also receives
a dearness allowance at 60% of their basic pay. Contributions of 12% for provident fund (PF) and 3%
for insurance are deducted from their basic pay. Normal working hours for the month are 200 hours.
Worker X worked 15 hours of overtime, and Worker Y worked 10 hours of overtime. Overtime is paid
at double the total wages (basic + dearness allowance).

Task:

- Calculate the total earnings for Worker X and Worker Y.

- If Worker X spends 50% of their time on Job 1, 30% on Job 2, and 20% on Job 3, while Worker
Y spends 40% of their time on Job 1, 35% on Job 2, and 25% on Job 3, allocate their total
labor costs to each job.
 Question 14
Varying Overtime Rates

Workers A and B have basic pay of ₹120 and ₹180, respectively. Both workers are entitled to a
dearness allowance at 70% of basic pay. Provident fund (PF) deductions are made at 10% of basic
pay, and insurance contributions are 2% of basic pay. Worker A works 12 hours of overtime, and
Worker B works 15 hours of overtime. Normal working hours are 190 hours in a month. Overtime is
paid at 1.75 times the total of basic pay and dearness allowance.

Task:

- Calculate the total earnings for Worker A and Worker B.

- If Worker A spends 40% of their time on Job X, 35% on Job Y, and 25% on Job Z, while Worker
B spends 45% of their time on Job X, 30% on Job Y, and 25% on Job Z, allocate their total
labor costs to each job.
 Question 15
Complex Allocation of Time to Multiple Jobs

A factory employs two workers, Worker K and Worker L. Worker K's basic wage is ₹200, while Worker
L's basic wage is ₹300. Each worker receives a dearness allowance at 45% of their basic wage.
Contributions of 10% for provident fund (PF) and 3% for insurance are made on their basic pay.
Normal working hours are 200 hours per month. Worker K worked 20 hours of overtime, and Worker
L worked 8 hours of overtime. Overtime is paid at 2 times the total of basic pay and dearness
allowance.

Task:

- Calculate the total earnings for Worker K and Worker L.

- Allocate the labor costs for Worker K and Worker L to three jobs — Job A, Job B, and Job C —
based on the following time allocation:
- Worker K: Job A (40%), Job B (30%), Job C (30%)
- Worker L: Job A (50%), Job B (20%), Job C (30%)
 Question 16
Different Allowance Percentages for Workers

Worker D has a basic pay of ₹250, and Worker E has a basic pay of ₹320. Worker D receives a
dearness allowance of 55%, while Worker E receives a dearness allowance of 65% on their basic
wage. Provident fund contributions are 8%, and insurance contributions are 2% for both workers.
Overtime of 15 hours is worked by Worker D, while Worker E works no overtime. Overtime is paid at
double the total wages (basic + dearness allowance).

Task:

- Calculate the total earnings for Worker D and Worker E.

- If Worker D spends 70% of their time on Job P and 30% on Job Q, while Worker E spends 60%
of their time on Job P and 40% on Job Q, allocate the labor cost of both workers to the two
jobs.
 Question 17
Special Deduction for Loans

Worker M and Worker N have basic pay of ₹220 and ₹280, respectively. Each worker is entitled to a
dearness allowance of 40% of basic pay. Contributions for provident fund and insurance are 10% and
5% of basic pay, respectively. Both workers also have a monthly loan deduction of ₹500. Normal
working hours are 190 hours. Worker M worked 18 hours of overtime, while Worker N worked 12
hours of overtime. Overtime is paid at 2.5 times the total wages (basic + dearness allowance).

Task:

- Calculate the total earnings for Worker M and Worker N after deductions.
- Allocate Worker M’s and Worker N’s labor costs to Job 1 and Job 2, if Worker M spends 50%
of their time on Job 1 and 50% on Job 2, and Worker N spends 60% of their time on Job 1
and 40% on Job 2.
 Question 18
Mixed Overtime Hours

Worker A and Worker B have basic pay of ₹180 and ₹250, respectively. Worker A receives a dearness
allowance of 50%, while Worker B receives 60% of basic pay. Both workers contribute 8% to PF and
2% to insurance. Worker A worked 10 hours of overtime at 1.5 times the total wage, while Worker B
worked 5 hours of overtime at 2 times the total wage.

Task:

- Calculate the total earnings for Worker A and Worker B.

- Allocate the total labor cost for Worker A and Worker B to Job 1, Job 2, and Job 3 if Worker A
spends 40%, 30%, and 30% of their time on the jobs, and Worker B spends 50%, 25%, and
25%, respectively.
 Question 19
Labor Cost with Bonus Payments

Worker X and Worker Y earn a basic wage of ₹240 and ₹280, respectively. A dearness allowance of
45% of basic pay is given to both workers. Contributions for PF and insurance are 8% and 2%,
respectively. Worker X worked 20 hours of overtime, while Worker Y worked 10 hours. Overtime is
paid at double the total of normal wages. Each worker receives a performance bonus of ₹1,000.

Task:

- Calculate the total earnings for Worker X and Worker Y.

- Allocate the labor cost of Worker X and Worker Y to Jobs A, B, and C, if Worker X spends 30%,
40%, and 30% of their time on these jobs, while Worker Y spends 40%, 30%, and 30%.
 Question 20
Overtime and Salary Increases

Workers A and B have basic salaries of ₹300 and ₹400. Each worker receives a dearness allowance of
50% of basic pay. Overtime is paid at double the combined rate of wages. Worker A works 10 hours
of overtime, while Worker B works 12 hours. The company implements a 10% basic pay increase
mid-month.

Task:

- Calculate the new total earnings for Worker A and Worker B.

- Allocate Worker A’s and Worker B’s labor costs to three jobs in the ratio 2:3:5.
 Question 21
A company has the following inventory movements:

Opening Inventory: 100 units @ ₹10 each

Purchases: 200 units @ ₹12 each on February 1

Sales: 150 units on March 1

Task:

- Calculate the ending inventory using both FIFO and LIFO.

- Which method gives a higher ending inventory value and why?
 Question 22
A company maintains the following inventory records for the year:

Opening Inventory: 80 units @ ₹8 each

Purchases: 100 units @ ₹9 on January 10

150 units @ ₹11 on April 20

Sales: 120 units on March 15

100 units on June 1

Task:

- Calculate the ending inventory using FIFO and LIFO methods.

- Which method will show a higher profit for the company if inventory costs are rising?
 Question 23
A toy manufacturing company tracks its inventory for the year as follows:

Opening Inventory: 200 units @ ₹20 each

Purchases: 300 units @ ₹22 on March 1

200 units @ ₹25 on June 1

Sales: 250 units on April 1

200 units on September 1

Task:

- Calculate the ending inventory using LIFO and FIFO.

- Determine which method results in a higher value for ending inventory.
- Discuss the impact of the inventory valuation method on the company's profit for the year.
 Question 24
Due to inflation, the cost of raw materials increased over time. The following transactions occurred:

Opening Inventory: 100 units @ ₹50 each

Purchases: 200 units @ ₹55 on January 15

150 units @ ₹60 on April 1

Sales: 200 units on February 1

100 units on May 1

Task:

- Calculate the ending inventory using both LIFO and FIFO.

- Which method will minimize the company’s tax liability during periods of rising prices?
 Question 25
A company uses LIFO and FIFO methods for inventory valuation. The company has the following data
for its inventory transactions during a year:

Beginning Inventory: 200 units @ ₹10 each

March 1: Purchased 300 units @ ₹12 each

April 1: Sold 400 units

July 1: Purchased 200 units @ ₹14 each

October 1: Sold 100 units

Required:

- Calculate the ending inventory and cost of goods sold (COGS) for both FIFO and LIFO
methods.
- If the company wants to maximize its profit during a period of rising prices, which inventory
method should it choose and why?
 Question 26
A company uses both LIFO and FIFO methods for inventory valuation. The following transactions
occurred during the year:

Date Transaction Details

Beginning Inventory - 300 units @ ₹15 each

February 15 Purchase 200 units @ ₹18 each

March 10 Sale 250 units

May 5 Purchase 400 units @ ₹20 each

June 20 Sale 350 units

August 25 Purchase 300 units @ ₹22 each

October 10 Sale 200 units

November 30 Purchase 150 units @ ₹25 each

Requirements:

- Calculate the ending inventory and COGS for both LIFO and FIFO.
- Determine which method minimizes taxable income in a period of rising prices and explain
why.
 Question 27
3.Calculate the monthly earnings of Worker A and Worker B from the following particulars and
allocate the total labor cost to each job X, Y, and Z:

Data Worker A Worker B

Basic Pay (₹) 100 160

Dearness Allowance (%) 50% 50%

Contribution to PF (on Basic Wages) (%) 8% 8%

Contribution to Insurance (on Basic Wages) (%) 2% 2%

Overtime (hours) 10 -

Additional Information:

a. The normal working hours for the month are 200 hours.

b. Overtime is paid at double the total of normal wages and dearness allowance.

c. The table below shows the proportion of time each worker was employed on different jobs:

Job Worker A (%) Worker B (%)

X 40% 50%

Y 30% 20%

Z 30% 30%

Task:

I. Calculate the total earnings for each worker, considering the overtime payment
II. Allocate the total labor cost of Worker A and Worker B to each job (X, Y, and Z) based on
the given proportions.
 Question 28
A company manufactures premium leather bags and wants to analyze its cost structure to make
better pricing and production decisions. The following data is available:

Direct materials: Leather, zippers, and threads cost ₹1,200 per bag.

Direct labor: The workers stitching the bags are paid ₹800 per bag.

Variable overheads: Utilities and consumables used in production cost ₹200 per bag.

Fixed costs: Factory rent and salaries for supervisors amount to ₹50,000 per month.

Selling price: Each bag is sold for ₹3,000.

Tasks:

a. Classify the given costs into direct materials, direct labor, variable overheads, and fixed costs.

b. Calculate the contribution margin per unit.

c. Determine the break-even point in units and revenue.

d. Discuss how this information could help the company in making production and pricing decisions.
 Question 29
A manufacturing company produces electronic devices and wants to understand its cost structure
better to make informed decisions. The company has gathered the following information for one of
its product lines:

I.The direct materials used for producing one device include microchips, plastic casings, and
batteries, which cost ₹ 500 per unit.

II.The wages of workers directly assembling the devices amount to ₹ 200 per unit.

III.The company incurs indirect costs such as factory maintenance and supervision salaries,
amounting to ₹ 1,000 per month.

IV.It also incurs costs for administrative staff salaries and marketing expenses, totaling ₹ 1,500 per
month.

Task:

a.Classify the given costs into direct materials, direct labor, indirect materials, indirect labor, and
overheads.

b.Calculate the total direct cost per unit of the device.

c.Identify which costs would fall under controllable and non-controllable categories.

d.Explain why understanding the classification of costs is important for managerial decision-making
and cost control.
 Question 30
Particulars Amount ₹

Balances at the beginning of the month:

- Stores Ledger Control Account 25,000

- Work-in-Process Control Account 20,000
- Finished Goods Control Account 35,000
- Prepaid Production Overheads brought forward 3,000

Transactions during the month:

- Materials Purchased 75,000

Materials Issued:

- To production 30,000
- To factory maintenance 4,000
- Materials transferred between batches 5,000

Total wages paid:

- To direct workers 25,000

- To indirect workers 5,000

Other details:

- Direct wages charged to batches 20,000

- Recorded non-productive time of direct workers 5,000
- Selling and Distribution Overheads Incurred 6,000
- Other Production Overheads Incurred 12,000
- Sales 1,00,000
- Cost of Finished Goods Sold 80,000
- Cost of Goods completed and transferred 65,000
- Physical value of work-in-Process at the end of the month 40,000
- Production overhead absorption rate: 150% of direct wages

charged to work-in-process

Prepare the following accounts for the month:

1.Stores Ledger Control Account

2.Work-in-Process Control Account

3.Finished Goods Control Account

4.Production Overhead Control Account

5.Costing Profit and Loss Account