Question

Q1

A)   Cost & Management Accountants are often required for providing information to the business management for the sake of making decisions. For this purpose, accountants must clearly understand different costs involved in business decisions and their connection to various situations in decision making.

Required:

Discuss and differentiate in detail between Sunk Cost and Relevant Cost with the help of relevant examples from real-life.                                                                                         

B)    Dawn Flour Mills specializes in producing flour and related products. Following is the data provided by the accounts department staff for preparing financial statement:

Particulars	OMR
Income tax	15,000
Closing stock of WIP	260,000
Opening stock of WIP	340,000
Salary of factory supervisor	9,600
Cleaning supplies for office building	1,400
Direct material purchase	300,000
Depreciation of factory building	30,000
Salaries of sales staff	40,000
Sales	2,300,000
Rent of goods delivery vehicles	54,000
Freight on direct material purchases	4,000
Cleaning supplies for production	1,800
Utilities expenses for production facility	5,600
Plant insurance	5,000
Bank charges	1,700
Office stationery	2,300
Depreciation of office building	14,000
Indirect material	80,000
Closing stock of raw materials	110,000
Closing stock of finished goods	200,000
Wages of the factory janitors	4,400
Opening stock of raw materials	150,000
Opening stock of finished goods	500,000
Marketing expenses	16,000
Wages of production labor	23,000
Property tax on admin building	3,000
Security of production facility	14,000

Required:

a)     Prepare Cost of Goods Manufactured and Sold Statement.                                     

b)     Prepare Income Statement.                                                                                        

Answer 1

Ans Q-1(A) Sunk cost is the cost which has already been done and there is no scope to recover and judge it, in management accounting or while the management is taking any decesion there is no use of this cost beacuse it has already incurred , for example - Rent paid for the workshop

Relevant cost - on the other hand it is the future cost or the cost which will be incurred at the time of production , which is totally relevant to the production ,and which is also avoidable acoording to situation , for example - labour cost .

​​​​​​Ans 1-B

Statment of Goods Manufactured and sold

O.p stock of Ram materials 150000

(+) Purchase 300000

(-) Closing stock . 110000

R/M consumed ( Direct Material) 340000

Frieght on purchase. 4000

Cleaning supplies for production 1800

Direct labour 23000

prime cost 368800

Factory overheads

O.p stock of WIP 340000

- cl. Stock of WIP 260000 80000

Add- salary of Factory supervisor 9600

Dep on Factory building 30000

Utility exp 5600

Plant insurance 5000

Indirect Material 80000

Wages of factory labour 4400

Factory cost/ work cost 583400

Office and administration overheads

Cleaning of office building 1400

Office stationary 2300

Dep on office building 14000

Property tax 3000

cost of production 604100

o.p stock of finished goods 500000

-cl stock of finished goods 200000

300000

cost of goods available for sale 904100

​​​​​​Income statement

Cost of goods available for sale 904100

selling and distribution overheads   

Salary of salesmen 40000

Rent of goods delivery van 54000

Marketing expenses 16000

Total cost 10,14,100

Profit ( Bal. Figure ) 12,85,900

Sales 23,00,000

P​​​rofit = Total sales - Total cost

Income tax and bank charges are not part of cost accounting