Question

You are given the cost records of XY manufacturing company which manufacture a specialised equipment against customer’s order.

OMR

Raw material cost in the beginning - 18,800

Purchase of material 15,000 kgs@ 2 per kg - 30,000

Carriage on purchase - 900

Raw material cost at end - 11,000

Work in progress in the beginning - 3,500

Work in progress in the end - 2,500

Direct labour cost - 28,000

Depreciation on factory building - 660

Depreciation on office building - 350

Factory managers salary - 1500

Office managers salary - 1,600

Other factory overheads - 5,800

Other office overheads - 3,500

Opening stock of finished goods - 4,800

Closing stock of finished goods - 5,500

Selling and distribution overheads 12% of cost of goods sold

Selling price is determined at 15% on cost

Units produced and sold - 800 units

Required:

a. Prime cost

b. Works cost

c. Cost of production

d. Cost of goods sold

e. Cost of sale

f. Profit

g. Selling price per unit 7 Marks

Answer 1

a) Prime Cost = Raw materials cost+Direct Labor cost

Calculation of Prime Cost (Amounts in OMR)

Beginning raw material cost	18,800
Add: Purchase of material	30,000
Add: Carraige on purchase	900
Less: Ending raw material cost	11,000
Total Direct material cost		38,700
Direct labor cost		28,000
Prime cost		66,700

Therefore the prime cost is OMR 66,700.

b) Calculation of Works Cost (Amounts in OMR)

Prime cost (A)		66,700
Factory overheads:
Depreciation on factory building	660
Factory managers salary	1,500
Other factory overheads	5,800
Total Factory overheads (B)		7,960
Total factory cost (C = A+B)		74,660
Beginning work in process (D)		3,500
Ending work in process (E)		2,500
Total works cost (C+D-E)		75,660

Therefore the total works cost is OMR 75,660.

c & d) Calculation of cost of production and cost of goods sold (Amounts in OMR)

Works cost (i)		75,660
Office Overheads:
Depreciation on office building	350
Office managers salary	1,600
Other office overheads	3,500
Total office overheads (ii)		5,450
c) Cost of Production (i+ii)		81,110
Add: Opening stock of finished goods		4,800
Less: Closing stock of finished goods		5,500
d) Cost of goods sold		80,410

Therefore the cost of production and the cost of goods sold is OMR 81,110 and OMR 80,410 respectively.

e, f, and g) Calculation of Cost of sale, profit and selling price per unit (Amounts in OMR)

Cost of goods sold	80,410
Selling and Distribution Overheads (12%*80,410)	9,649
e) Cost of sale (80,410+9,649)	90,059
f) Profit (15%*90,059)	13,509
Sales (90,059+13,509)	103,568
Units produced and sold	800 units
g) Selling price per unit (103,568/800 units)	129.46