Question

1) The accounts of Kool Kool Company Ltd. show for 20X6:
Materials Rs 350,000;
Labour Rs 270,000;
Factory Overheads Rs 81,000
and Administration Overheads Rs 56,080.
What price should the company quote for a refrigerator? It is
estimated that Rs 1,000 in material and Rs 700 in labour will be
required for one refrigerator. Absorb factory overheads on the basis
of labour and administration overheads on the basis of works cost.
A profit of 121⁄2 % on selling price is required.

2) The summary as per primary distribution is as follows:
Production departments A- `2400; B- `2100 & C- `1500
Service departments X – `700; Y- `900
Expenses of service departments are distributed in the ratios of:
X dept. : A- 20%, B- 40%, C- 30% and Y- 10%
Y dept. : A- 40%, B- 20%, C- 20% and X- 20%
Show the distribution of service costs among A, B and C under repeated distribution method
and simultaneous method.

Answer 1

Solution:

Statement of Cost         
Materials   350,000     
Labour   270,000     
Prime Cost   620,000     
Factory OH   81,000     
Works Cost   701,000     
Administration OH   56,080     
Total Cost of Production   757,080     
% of Factory Overheads to Labour: =(81,000/270,000)*100   30%     
% of Administration Overheads to Works Cost: =56,080/701,000)*100   8%     
         
Statement of Selling Price of a Refrigerator         
Materials   1,000.00     
Labour   700.00     
Prime Cost   1,700.00     
Factory OH (30% on Labour)   210.00     
Works Cost   1,910.00     
Administration OH (8% of Works Cost)   152.80     
Total Cost of Production   2,062.80     
Plus: Profit (1/8 on Sales or 1/7 of Cost)   294.69     
Selling Price per Refrigerator   2,357.49     
As per policy we have to answer first question