Question 4 (a) XYZ Transport is running a bus between town A and town B which are 25 kms apart. The bus will make 4 round trips every day carrying ...

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Question 4 (a) XYZ Transport is running a bus between town A and town B which are 25 kms apart. The bus will make 4 round trips every day carrying on an average 30 passengers on each trip. The bus costs the company a sum of 5,00,000. It has been insured at 2% per annum and the annual tax will amount to 2,000 and the garage rent is 500 per month. Annual repairs will be 8,000 and the bus is likely to last for 5 years. The driver's salary will be 15,000 per month and the conductor's salary will be 12,000 per month in addition to 10% of the takings as commission (to be shared by the driver and conductor equally). Cost of stationery will be 800 per month. Manager-cum-accountant's salary is 35,000 per month. Petrol and Oil will be 1,000 per 100 km. Assuming 15% profit on takings. Depreciation will be charged at straight line method. You are required to calculate the bus fare to be charged for per passenger kilometer. The bus will run on an average 25 days in a month. (b) LMN Foods is a manufacturer of organic snacks. For the year ending 2023, the company compiled the following financial data: (8 Marks) Item Amount (in ) Opening inventory of raw materials 2,00,000 Closing inventory of raw materials 2,50,000 Raw material purchases 12,00,000 Labour costs 5,00,000 Production overheads 2,50,000 Marketing and distribution expenses 1,52,000 In 2024, LMN Foods accepted a request for a bulk supply of their best-selling snacks. The estimated costs for fulfilling this order are as follows: • Estimated raw material cost: 3,00,000 • Estimated labour cost: 1,50,000 • Packaging and transportation costs: 49,400 LMN Foods allocates production overhead based on direct labour costs and marketing and distribution expenses as a percentage of the total production cost based on the previous year's data. Required: (i) Calculate the overhead recovery rates for 2023 based on actual costs. (2 Marks) (ii) Prepare a comprehensive cost statement for the bulk order and determine the Sales required for achieving a profit margin of 20% on the final sales amount. (4 Marks) COST AND MANAGEMENT ACCOUNTING

Accepted Answer

Answer Solution: (a) Statement of Cost per Passenger – Km Particulars Cost per annum () Per month () Standing Charges (A): Taxes 2,000 Insurance (5,00,000 × 0.02) 10,000 Garage Rent (500 × 12) 6,000 Salary of Driver (15,000× 12) 1,80,000 Salary of Conductor (12,000× 12) 1,44,000 Stationery (800 × 12) 9,600 Salary of Manager cum Accountant (35,000 × 12) 4,20,000 Total 7,71,600 Monthly Standing Charges: (7,71,600/12) 64,300.00 Running Charges (B): Depreciation [(5,00,000/5/12] 8,333.33 Diesel and oil [(4 × 2 × 25 × 25) × 10] 50,000.00 Monthly Running Charges 58,333.33 Maintenance Charges (C): Repairs 8,000 666.67 Total cost before commission 1,23,300.00 Commission: (D) 16,440.00 Total cost (A+B+C+D) 1,39,740.00 Profit 24,660.00 Total takings (Total Cost + Profit) 1,64,400.00 Total passenger-km = 4 × 2 × 25 × 25 × 30 = 1,50,000 passenger km Hence, Fare per passenger-km = 1,64,400.00/ 1,50,000 = 1.09 Working Note: Calculation of Commission and Profit: Let total takings = x Commission = 0.10 x Profit = 0.15 x Takings = Cost before commission and profit + Commission + Profit Therefore, x = 1,23,300 + 0.10 x + 0.15 x 0.75x = 1,23,300 x = 1,64,400 Commission = 0.10 × 1,64,400 = 16,440 Profit = 0.15 × 1,64,400 = 24,660 (b) (i) Calculation of Overhead Recovery Rate: Production Overhead recovery rate based on Direct Labour Costs = Production Overhead Direct Labour Cost ×100 = 2,50,000 5,00,000 ×100 = 50% of Direct Labour Marketing & Distribution Overhead recovery rate based on Total Production Costs = Marketing & Distribution Overhead Total Production Cost ×100 = 1,52,000 19,00,000 ×100 = 8% of Total Production Costs Working Note: Statement showing Total Cost for 2023 Particulars Amount () Opening stock of raw material 2,00,000 Add: Purchases 12,00,000 COST AND MANAGEMENT ACCOUNTING Less: Closing stock of raw material (2,50,000) Direct Material Consumed 11,50,000 Direct Labour Cost 5,00,000 Prime Cost 16,50,000 Add: Production Overhead 2,50,000 Production cost 19,00,000 Add: Marketing & Distribution Cost 1,52,000 Total Cost 20,52,000 (ii) Cost Statement for the Bulk Order and Determination of Sales in 2024: Particulars Amount () Direct Material Cost 3,00,000 Direct Labour Cost 1,50,000 Prime Cost 4,50,000 Add: Production Overhead (50% of Direct Labour Cost) 75,000 Production cost 5,25,000 Add: Marketing & Distribution Cost (8% of Production Cost) 42,000 Packaging and Transportation Costs 49,400 Total Cost 6,16,400 Add: Profit @ 25% on cost 1,54,100 Sales value (Price to be quoted for the order) 7,70,500 Hence the price to be quoted is 7,70,500

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Key Concepts to Understand

Depreciation

Supply

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