Question 2 (a) Kidz Company manufactures and sells two models of baby toys namely, Max and Pro. During the Financial Year 2024-25, 1,500 units of M...

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Question 2 (a) Kidz Company manufactures and sells two models of baby toys namely, Max and Pro. During the Financial Year 2024-25, 1,500 units of Max and 3,600 units of Pro were manufactured. However, only 60% of Max and 80% of Pro were sold during the year. Labour cost per unit of Max is two times that of Pro. There was no opening stock of finished goods or work-in progress. The cost particulars of the two models of Baby Toys are given below: Particulars Max () Pro () Total () Material Cost 42,000 63,000 1,05,000 Labour Cost - - 1,21,000 Further, the cost controller of the factory informed that: • Works overhead is 50% of labour cost • Office overhead is recovered at 20% of works cost. • Selling and distribution overhead is 20 and 30 per unit sold for Model Pro and Model Max respectively. Required: (i) Prepare a cost sheet for the financial year 2024-25, showing the various elements of cost for each model of Baby Toys (Prime cost, work cost, cost of production, cost of goods sold and cost of sales). (ii) Calculate the per unit selling price of each model of Baby Toys if profit is charged at 20 percent on sales. (7 Marks) (b) A plastic manufacturing company is operating with an employment of 128 skilled workers. The product is in great demand. The company desires to increase production to meet market demand but is short of skilled workers. The company finds extremely difficult to find new skilled workers to fulfil its demands. The company is considering the introduction of an incentive scheme – either Halsey scheme (with 50% bonus) or Rawan scheme of wage payment for increasing the labour productivity to cope up the increasing demand. The company believes that if the proposed incentive scheme could bring about an average 15% increase over the present earnings of the workers, it could act as sufficient incentive for them to produce more with increased efficiency. The following data is worth consideration, in measuring the increase in productivity for the month of April 2025. Hourly rate of wages (guaranteed) 30 Maximum time allowed to produce one unit by one worker 2.5 hours Number of working days in the month 25 Number of workers hours per day of each worker 8 Actual production during the month (units) 12,500 Required: (i) Calculate the effective rate of earnings under the Halsey scheme and the Rowan scheme. (ii) Calculate the increased labour efficiency on introduction of the incentive schemes. (iii) Calculate the savings to the plastic company in terms of direct labour cost per unit under both the schemes. (iv) Advise the company about the selection of the scheme to fulfil their assurance. (7 Marks)

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Answer Solution: (a) Preparation of Cost Sheet for FY 2024-25 Particulars Max () Pro () Total () Direct materials 42,000 63,000 1,05,000 Direct wages (Working note- (i)) 55,000 66,000 1,21,000 Prime cost 97,000 1,29,000 2,26,000 Work overhead (50% of labour cost) 27,500 33,000 60,500 Factory Cost/Work Cost 1,24,500 1,62,000 2,86,500 Administration/Office Overhead (20 % of work cost) 24,900 32,400 57,300 Cost of production 1,49,400 1,94,400 3,43,800 COST AND MANAGEMENT ACCOUNTING Less: Closing stock (Working note- (ii)) (59,760) (38,880) (98,640) Cost of goods sold 89,640 1,55,520 2,45,160 Selling and distribution overhead 27,000 ( 30 x 900) 57,600 ( 20 x 2,880) 84,600 Cost of sales/ Total cost 1,16,640 2,13,120 3,29,760 Profit (20% on sales or 25% of cost) 29,160 53,280 82,440 Sales value 1,45,800 2,66,400 4,12,200 Selling price per unit 162 92.5 Working Notes: (i) Direct labour cost per unit of Pro = M Direct labour cost per unit of Max = 2M Total Direct labour cost = M x 3,600 units + 2M × 1,500 units 1,21,000 = 3,600 M + 3,000 M M = 18.333 Therefore, Direct labour Cost per unit of Max = 2 x 18.33 = 36.667 Total labour cost of Pro = 18.333 x 3,600 units = 66,000 Total labour cost of Max = 36.667 x 1,500 units = 55,000 (ii) Value of closing stock Particulars Max (units) Pro (units) No. of units produced 1,500 3,600 No. of units sold 60% of 1,500 = 900 80% of 3,600 = 2,880 Closing Stock 600 720 Max = (1,49,400/1,500) x 600 = 59,760 Pro = (1,94,400/3,600) x 720 = 38,880 Note: If a student assumes Office overheads as general overheads, then it will be part of cost of sales. (b) Working Notes: 1. Actual time taken to produce 12,500 pieces = No. of working days in the month × No. of working hours per day of each worker × No. of workers = 25 days × 8 hrs. × 128 workers = 25,600 hours 2. Total time wages of 128 workers per month: = No. of working days in the month × No. of working hours per day of each worker × Hourly rate of wages × No. of workers = 25 days × 8 hrs. × 30 × 128 workers = 7,68,000 3. Time saved per month: Time allowed per piece to a worker 2.5 hours No. of units produced during the month by 128 workers 12,500 pieces Total time allowed to produce 12,500 pieces (12,500 × 2.5 hours) 31,250 hours Actual time taken to produce 12,500 pieces 25,600 hours Time saved (31,250 hours – 25,600 hours) 5,650 hours 4. Bonus under Halsey scheme to be paid to 128 workers: Bonus = (50% of time saved) × hourly rate of wages = 50/100 × 5,650 hours × 30 = 84,750 Total wages to be paid to 128 workers are ( 7,68,000 + 84,750) 8,52,750, if company considers the introduction of Halsey Incentive Scheme to increase the employee productivity. COST AND MANAGEMENT ACCOUNTING 5. Bonus under Rowan Scheme to be paid to 128 workers: Bonus = Time taken Time allowed × Time saved × hourly rate = 25,600 hours 31,250 hours × 5,650 hours × 30 = 1,38,854.4 Total wages to be paid to 128 workers are ( 7,68,000 + 1,38,854.4) 9,06,854.4, if company considers the introduction of Rowan Incentive Scheme to increase the Employee productivity. (i) (a) Effective hourly rate of earnings under Halsey scheme: (Refer to Working Notes 1, 2, 3 and 4) = Total time wages of 128 workers+Total bonus under Halsey scheme Total hours worked = 8,52,750 25,600 hours = 33.310 (b) Effective hourly rate of earnings under Rowan scheme: (Refer to Working Notes 1, 2, 3 and 5) = Total time wages of Total bonus under 128 workers Rowan scheme Total hours worked + = 9,06,854.4 25,600 hours = 35.424 (ii) Efficiency in % on introduction of the incentive schemes = Time allowed as per standard×100 Time Taken = 31,250 hours 25,600 hours = 122.07% Labour efficiency has increased by 22.07% (iii) (a) Saving in terms of direct Employee cost per piece under Halsey scheme: (Refer to Working Note 4) Employee cost per piece (under time wage scheme) = 2.5hours × 30 = 75. Employee cost per piece (under Halsey scheme) = Total wages paid under the scheme Total number of units produced = 8,52,750 12,500 = 68.22 Saving per piece: (75 – 68.22) = 6.78 (b) Saving in terms of direct Employee cost per piece under Rowan Scheme: (Refer to Working Note 5) Employee cost per piece under Rowan scheme = 9,06,854.4 12,500 = 72.548 Saving per piece = 75 – 72.548 = 2.452 (iv) Since the company has assured 15% increase over present earnings i.e. 7,68,000 which comes to 8,83,200 and total wages under halsey scheme and rowan scheme are 8,52,750 and 9,06,854.4 respectively, so the company is advised to select the rowan scheme of wage payment to fulfill its requirement of 15% increase.

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