Financial ManagementQuestion 5523 of 217
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1. What will be the total manufacturing cost and total cost of sales on cash cost basis?

Options

A` 20,70,000, ` 23,40,000
B` 24,00,000, ` 30,00,000
C` 22,50,000, ` 23,40,000
D` 16,80,000, ` 24,00,000 (2 Marks)
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Correct Answer

✅ Option A — ` 20,70,000, ` 23,40,000

All Options:

  • A` 20,70,000, ` 23,40,000 ✓
  • B` 24,00,000, ` 30,00,000
  • C` 22,50,000, ` 23,40,000
  • D` 16,80,000, ` 24,00,000 (2 Marks)

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Detailed Solution & Explanation

To calculate the total manufacturing cost and total cost of sales on a cash cost basis, we analyze the cash expenditures provided in the case scenario:

**1. Raw Material Consumption:**
Estimated annual sales = ` 30,00,000
Raw material consumed is 25% of estimated sales:
Raw Material Consumed=25%ב30,00,000=‘7,50,000\text{Raw Material Consumed} = 25\% \times ` 30,00,000 = ` 7,50,000

**2. Wages:**
Wage expenses are 20% of sales:
Wages=20%ב30,00,000=‘6,00,000\text{Wages} = 20\% \times ` 30,00,000 = ` 6,00,000

**3. Cash Manufacturing Overheads:**
Outstanding cash manufacturing overhead expenses at the end of the year will be ` 60,000. Since they are paid in one month arrear (meaning 1 month of overheads is outstanding at any time), the annual cash manufacturing overheads can be calculated as:
Annual Cash Manufacturing Overheads=‘60,000×12=‘7,20,000\text{Annual Cash Manufacturing Overheads} = ` 60,000 \times 12 = ` 7,20,000

**4. Total Manufacturing Cost (on Cash Cost Basis):**
Total Manufacturing Cost=Raw Material Consumed+Wages+Annual Cash Manufacturing Overheads\text{Total Manufacturing Cost} = \text{Raw Material Consumed} + \text{Wages} + \text{Annual Cash Manufacturing Overheads}
Total Manufacturing Cost=‘7,50,000+‘6,00,000+‘7,20,000=‘20,70,000\text{Total Manufacturing Cost} = ` 7,50,000 + ` 6,00,000 + ` 7,20,000 = ` 20,70,000

**5. Total Cost of Sales (on Cash Cost Basis):**
To find the total cost of sales, we add non-manufacturing cash expenses (administrative cost and sales promotion expenses) to the total manufacturing cost:
- **Administrative Cost:** ` 1,80,000 p.a. (to be paid after one month lag)
- **Sales Promotion Expenses:** ` 90,000 p.a. (paid quarterly in advance)
Total Cost of Sales=Total Manufacturing Cost+Administrative Cost+Sales Promotion Expenses\text{Total Cost of Sales} = \text{Total Manufacturing Cost} + \text{Administrative Cost} + \text{Sales Promotion Expenses}
Total Cost of Sales=‘20,70,000+‘1,80,000+‘90,000=‘23,40,000\text{Total Cost of Sales} = ` 20,70,000 + ` 1,80,000 + ` 90,000 = ` 23,40,000

Thus, the total manufacturing cost on cash cost basis is ` 20,70,000, and the total cost of sales on cash cost basis is ` 23,40,000.

Hence, **Option A** is the correct answer.

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