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How to calculate Total cost of a product?

Example: Find the total cost of a product with the help of given information:

Raw material Rs.6 per unit, Labour cost Rs. 10 per unit, direct expenses Rs. 8 per unit, Office and administrative expenses Rs. 1, 00,000, selling and distribution expenses Rs. 2, 35,000. Total unit produced 7000 units.

Solution:               Statement of cost

Particulars

Cost per unit

Total cost

Raw material

6

42,000

Labour cost

10

70,000

Direct expenses

8

56,000

                                                                  Prime cost

 

1,68,000

Add: office and administrative expenses

 

1,00,000

                                                                 Office cost

 

2,68,000

Add: Selling and distribution expenses

 

2,35,000

                                                                    Total cost

                       Cost per unit 5,03,000/7000 = 71.8

71.8

5,03,000

 

Example: Find out the items comes under the headings of

a)      Direct expenses

b)      Factory expenses

c)       Office and administrative expenses

d)      Selling and distribution

·         Office rent

·         Raw material

·         Office stationery

·         Dividend received

·         wages

·         Patent fees

·         Advertising

·         Factory rent

·         Supervisor salary

·         Power and fuel

Solution:

a)      Direct expenses: raw material, wages

b)      Factory expenses: factory rent, patent fees, power and fuel, supervisor salary

c)       Office and administrative expenses: office stationery, office rent

d)      Selling and distribution: Advertising

Example: With the help of given information prepare statement of cost:

·         Office stationery Rs. 1500

·         Depreciation on factory machine 1800

·         Office rent Rs. 1100

·         Direct material Rs. 1000

·         Direct wages Rs. 1200

·         Selling expenses Rs. 2000

Solution:                                     Statement of Cost

Particulars

Total cost (Rs.)

Direct material

1000

Direct wages

1200

                                           Prime Cost

2200

Add: Factory expense:

 

Depreciation on factory machine

1800

                                        Factory Cost

4000

Add: Office expenses:

 

Office rent

1100

Office stationery

1500

                                        Office Cost

6600

Add: Selling and distribution expenses:

 

Selling expenses

2000

                                          Total cost

8600

 

Example: Find out the cost per unit of a product with the help of given information:

Particulars

Total cost

Direct material (40% fixed)

1,20,000

Direct wages (30% fixed)

1,26,000

Direct expenses (40% fixed)

1,70,000

Office salary

1,80,000

Depreciation on factory machine

1,00,000

Promotion expenses

2,10,000

Supervisor salary

1,40,000

 

Solution:                              Statement of Cost

Particulars

Total cost (Rs.)

Direct material :

Fixed cost: 40/100*1,20,000= 48,000

Variable cost: 60/100* 1,20,000= 72,000

1,20,000

Direct wages :

Fixed cost: 30/100 *1,26,000 = 37,800

Variable cost: 70/100*1,26,000 = 88,200

1,26,000

Direct expenses :

Fixed cost: 40/100*1,70,000 = 68,000

Variable cost: 60/100*1,70,000 = 1,02,000

1,70,000

                                             Prime Cost

4,16,000

Add: Factory expenses:

 

Supervisor salary

1,40,000

Depreciation on factory machine

1,00,000

                                        Work Cost or Factory cost

6,56,000

Add: Office & administrative expenses:

 

Office salary

1,80,000

                             Cost of production or office cost

8,36,000

Add: Selling and distribution expenses:

 

Promotion expenses

2,10,000

                                           Total cost

10,46,000

 

Example: Company PQR and Company LMN have produced product A and product B respectively. Find the total cost and cost per unit of both the product with the help of given information:

Particulars

Product A

Product B

Unit produced

10,000

10,000

Raw material

Rs.7 per unit

Rs. 8 per unit

wages

Rs. 10 per unit

Rs. 9 per unit

Office expenses

Rs. 12 per unit

Rs. 10 per unit

Factory expense

45,000

45,000

Selling expenses

Rs. 14 per unit

Rs. 11 per unit

 

Solution:                                            Statement of Cost

Particulars

Product A

Product B

Unit produced

10,000 unit

10,000 unit

Raw material

70,000

 80,000

wages

1,00,000

90,000

                                                            Prime cost

1,70,000

1,70,000

Add: Factory expense

45,000

45,000

                                                           Work Cost

2,15,000

2,15,000

Add: Office expenses

1,20,000

 1,00,000

                                                           Cost of production

3,35,000

3,15,000

Add: Selling expenses

1,40,000

1,10,000

                                                          Total Cost

4,75,000

4,25,000

                                                         Cost per unit

4,75,000/10,000

=47.5

4,25,000/10,0000

=42.5

 


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