Model Test – IPCC - Labour costing

Model Test – IPCC

LABOUR COSTING

SUGGESTED ANSWER

 

1. A skilled worker in XYZ Ltd. is paid a guaranteed wage rate of Rs. 30 per hour. The standard time per unit for a particular product is 4 hours. Mr.Been, a machineman, has been paid wages under the Rowan Incentive Plan and he had earned an effective hourly rate of Rs. 37.50 on the manufacture of that particular product. What could have been his total earnings and effective hourly rate, had been put on Halsey Incentive Scheme (50%) ?

 

Ans:

 

Let T hours be the total time worked in hours by the skilled worker (machineman P); Rs. 30/- is the rate per hour; standard time is 4 hours per unit and effective hourly earning rate is Rs. 37.50 then

 

Earnings = Hours worked × Rage per hour + (Timesaved /Time allowed ) × Time taken × Rate per hour

(Under Rowan incentive plan)

Rs. 37.5 T = T × Rs. 30 + [(4-T) /4 ] × T × Rs. 30

Rs. 37.5 = Rs. 30 + (4 – T) × Rs. 7.5

Or Rs. 7.5 T = Rs. 22.5

Or T = 3 hours

Total earnings and effective hourly rate of skilled worker (machineman P) under Halsey Incentive Scheme (50%)

 

Total earnings = Hours worked × Rate per hour + ½  Time saved × Rage per hour

(Under 50% Halsey incentive Scheme)

= 3 hours × Rs. 30 + ½ × 1 hour × Rs. 30 = Rs. 105

 

Effective hourly rate = ( Time earnings/Time Allowed)

                                    Rs.105/3hrs

                                    = Rs.35

 

2.  Standard output in 10 hours is 240 units; actual output in 10 hours is 264 units. Wages rate is Rs.10 per hour. Calculate the amount of bonus and total wages under Emerson Plan.

 

Answer:

(i) Efficiency = Actual output / standard output, 264/240 = 110%

(ii) Since efficiency  ≥ 100%, total wages under Emerson plan is calculated using the formulae:

Total wages = 120% of Time rate + 1% Bonus for every 1% increase in efficiency

                                                                                          beyond 100%

                    = {(10 hrs X Rs.10 per hour) X 120%] + 10% Bonus on Rs.10 per hour for 10 hrs

                    = Rs.120 + Rs.10 = Rs.130        

Crash Course - CA Final Revised Schedule

PCC 

PROFESSIONAL COACHING CENTRE

 

May 2011 Exam

(CA Final - Crash course)

 

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Cost Mgt. (Adv. Mgt. A/c)	CA.K.HARIHARAN	7 days	6pm – 8.45pm	01/04/11	3500
Indirect Tax Laws	CMA.MD.RAFI	16 days	6pm – 8.45pm	16/03/11	5000

Class Venue		PROFESSIONAL COACHING CENTRE MMH Complex, 3rd Floor, Natesan street, (Behind Siva Vishnu Temple) T.Nagar, Chennai – 17
Registration at    (Pre registration is must)		10/9, Flat no.6, 2nd Floor, Rainbow Apartments Norton 1st Street Mandaveli, Chennai - 600 028 Ph: 98416 61405     99406 23954 044 – 2462 2694

Registration Fee: Rs.250/-

Visit www.professionalcoachingcentre.com

Model Test – IPCC - Material Costing

Model Test – IPCC

MATERIAL COSTING

SUGGESTED ANSWER

Qtn 1. About 50 items are required every day for a machine. A fixed cost of Rs. 50 per order is incurred for placing an order. The Inventory carrying cost per item amounts to Rs. 0.02 per day. The lead period is 32 days. Compute:

(i) Economic order quantity.

(ii) Re-order level.

 

Ans:

 

(i) EOQ =    

 

 

√(2AB) / C

 

Where: A (ie. Annual consumption)  = 50 items × 365 days = 18,250 items

B (Ordering cost per order) = Rs. 50

C (carrying cost per item per annum) = Rs. 0.02 × 365 = Rs. 7.30

 

EOQ =

 

√ 2 X 18,250 units X Rs. 50

                        Rs. 7.30

=500 units

 

(ii) Re-order level = Maximum usage per day × Maximum lead time

= 50 items per day × 32 days

= 1,600 items

 

Qtn 2. PQR limited produces a product which has monthly demand of 52,000 units.            The product requires a component X which is purchased @ Rs.15/unit. For every finished product,2 units of component X are required. The ordering cost is Rs.350/order and the carrying cost is 12% p.a.

 

         Required:

Ø      Calculate the economic order quantity for component X.

Ø      If the minimum lot size to be supplied is 52,000 units, what is the extra cost the company has to incur?

 

Ans:

                    

1. EOQ =  √ 2AB/C , Where

 

               A = Annual requirement of RM = 52,000 X 12 months = 12,48,000 units.

               B = Buying cost per order = Rs.350

               C = Carrying cost per unit per annum = Rs.15 X 12% = Rs.1.80 p.u.p.a

 

    EOQ = 22,030 units.

2. Cost Comparison of EOQ with purchase policy of 52,000 units:

 

Particulars	Quantity ordered every time(a)	No. of Orders p.a (b)	Buying cost p.a @ Rs.350(c)	Average Inventory(d) = ½ of (a)	Carriying cost p.a @ Rs.1.80 (e)	Associated cost p.a = (c)+(e)
EOQ	22,030 units	12,48,000/22,030 =56.65 orders	56.65 X Rs.350 = Rs.19,828	½ X 22,030 = 11,015 units	11,015 X Rs.1.80 = Rs.19,827	Rs.39,655
Minimum lot size	52,000 units	12,48,000/52,000 = 24 orders	24 X Rs.350 = Rs.8,400	½ X 52,000 = 26,000 units	26,000 X Rs.1.80 =Rs.46,0800	Rs.55,200

Hence, additional cost by ordering 52,000 units every time = Rs.55,200- Rs.39,655 = Rs.15,545

 

Model Test – Final - BUDGETARY CONTROL

Model Test – Final

BUDGETARY CONTROL

SUGGESTED ANSWER

 

The budgeted and actual cost data of M Ltd. For 6 months from April to September, 2008 are as under:

                                                                   Budget                            Actual

Production units                                         16,000                            14,000

Material cost                                          Rs.25,60,000               Rs.41,60,000

                                                     (1,600 MT @ Rs.1, 600)        (at Rs. 1,650)

Labour cost                                            Rs.16,00,000               Rs.15,99,840

                                                     (at Rs.40 per hour)             (@Rs.44 per hour)

Variable overhead                                  Rs.3,00,000                 Rs.2,76,000

Fixed overhead                                       Rs.4,60,000                 Rs.5,80,000           

 

In the first half of the financial year 2009-10, production is budgeted for 30,000 units, material cost per tonne will increase from last year's actual by Rs.150, but it is proposed to maintain the consumption efficiency of 2008 as budgeted. Labour efficiency will be lower by 1% and labour rate will be Rs.44 per hour. Variable and fixed overhead will go up by 20% over 2008 actuals. Prepare the production cost budget for the period April-September, 2009 giving all workings.

 

Solution:

Production Cost Budget

                                  (for 6 months ending 30^th September, 2009)

                                                                                      

    30,000 Units

                                                                                      Cost per unit                Total

                                                                                              Rs.                           Rs.

Material cost                                                                      180                   54,00,000

Labour cost                                                                        115.21              34,56,420

Variable overhead                                                                23.65               7,09,500            

Fixed overhead                                                                     23.20               6,96,000

 

342.06                            1,02,61,920

 

Assumption:

Here, difference in actual and standard time is also considered for calculating the lower efficiency i.e 3.74% + 1% = 4.74%.

 

Working Notes:

I . Material cost:

Material consumption per unit = 1,600 MT = 0.10 MT

                                                     16,000

Consumption for 30,000 units = 3,000 MT.

Cost of 3,000 MT @ Rs.1,800 per MT = Rs.54,00,000.

 

II. Labour cost can be calculated as follows:

 

Time required for 30,000 units                                                       = 75,000 hours

Add: *(3.74%+1%) = 4.74% for lower efficiency                         =    3,555 hours

                                                                                                        = 78,555 hours

 

* 3.74% = Difference in actual and standard hours

                               Actual hours

 

              = 1,360 hours

                 36,360 hours   

 

Labour cost = 78,555 hours x 44 per hour

                    = 34,56,420

 

III. Variable overhead:

 

Actual rate = Rs.2,76,000          =  19.71 per unit

                         14,000    

Add: 20                                      =    3.94  

 

New rate                                         23.65

 

Total variable overhead = 30,000 x 23.65 = Rs.7,09,500

 

IV. Fixed overhead:

 

      Actual                                  = Rs.5, 80,000

Add: 20%                                  = Rs.1, 16,000

                                                      Rs.6, 96,000

According to the above production cost budget will be as follows:

 

Alternative:

Production Cost Budget

                                     ( for 6 months ending 30^th September, 2009)

 

                                                                                    30,000 units

                                                                                   Cost per unit        Total

                                                                                         Rs.                    Rs.

Material cost                                                                  180               54, 00,000

Labour cost                                                                    111.1            33, 33,000

Variable overhead                                                           23.65             7, 09,500

Fixed overhead                                                                23.20             6,96,000  

 

                                                                                      337.95         1,01,38,500      

 

Working Notes:    

 

1. Material cost

 

    Material consumption per unit = 1,600 MT                             = 0.10 MT

                                                          16,000

Consumption for 30,000 units = 3,000 MT

Cost of 3,000 MT @ Rs.1,800 per MT = Rs.54,00,000.

 

2. Labour cost:

 

2008- Total Budgeted Hour = 16,00,000                                     = 40,000 hours

                                                      40

 

Labour hour budget for each unit = 40,000                                 =     2.5

                                                         16,000     

 

Actual time paid = 15,99,840                                                      =  36,360 hours

                                    44         

Less: standard labour hours for 14,000 units (i.e 14,000 x 2.5)  = 35,000 hours

                                               

Difference in actual and standard hours                                     =    1,360

 

Time required for 30,000 units ( 30,000 x 2.5)                          = 75,000 hours

Add: 1% for lower efficiency                                                     =      750 hours

                                                                                                    = 75,750 hours

Labour cost = 75,750 hours x 44 per hour

                   = 33,33,000

 

3. Variable overhead

Actual rate = Rs.2,76,000                                                           =           19.71 per unit

                      14,000 units   

Add: 20                                                                                       =             3.94  

New rate                                                                                                   23.65 

Total variable overhead = 30,000 x 23.65 = Rs.7,09,500

 

4. Fixed overhead

    Actual                                                                                   = Rs.5,80,000

Add: 20%                                                                                 = Rs.1,16,000

                                                                                                  = Rs.6,96,000