COST CONCEPT

PRESENTED BY SUMIT AGARAAWL 09KB028

CASE STUDY OF COST SHEET

CAMPBELL Company is a metal and wood cutting manufactures, selling products to the home construction market. Consider the following data for 2009. Sand paper 20,000 Material holding cost 7,00,000 Lubricant and coolants 50,000 Misc. indirect manufacturing labour 4,00,000 Direct manufacturing labour 30,00,000 Direct materials inventory Jan1,2009 4,00,000 Direct material inventory Dec.31,2009 50,00,000 Finished goods inventory Jan1,2009 10,00,000 Finished goods inventory Dec.31,2009 15,00,000

Work in process inventory Dec.31,2009 Plant-leasing costs Deprecation plant equipment Work in process inventory Jan1,2009 Property taxes on plant equipment Fire insurance on plant equipment Direct material purchased Revenues Marketing promotions Marketing salaries Distribution costs Customer-service costs

1,40,000 5,40,000 3,60,000 1,00,000 40,000 30,000 46,00,000 1,36,00,000 6,00,000 10,00,000 7,00,000 10,00,000

INFORMATION

1. Suppose that both the direct material cost and the plant leasing cost are for the production of 9,00,000 units. Assume that the plant leasing cost is a fixed cost and prepare the cost sheet. 2. . For all manufacturing items, classify costs as direct costs or indirect cost and indicate by V or F whether each is basically a variable cost or a fixed cost. 3. Suppose Campbell company manufacture 10,00,000 unit. Repeat the computation in requirement 2 for direct materials and plant leasing costs. Assume the implied cost behavior patterns persist. 4. As a management consultant, explain concisely to the company president why the unit cost for direct materials did not change in requirements 2 and 3 but the unit cost for leasing costs did change.

Direct Factory Material

Campbell Company
Schedule of cost sheet of goods manufactured For the year ended December 31,2009
PARTICULAR
Direct material Beginning inventory Jan1,2009 Add: Purchase of direct materials Cost of direct material avail for use Less: Ending inventory,Dec31,2009 Direct material consumed Direct manufacturing labour

AMOUNT RS

AMOUNT RS

4,00,000 46,00,000 50,00,000 5,00,000 45,00,000 (V) 30,00,000 (V) 75,00,000

Prime cost

Indirect Factory Expenses

FACTORY COST
PARTICULAR
Indirect manufacturing costs Sandpaper Materials-handling costs Lubricants and coolants Misc indirect manufacture labour Plant leasing costs Deprecation plant equipment Property taxes on plant equipment Fire insurance on plant equipment Add work in process Jan1 2009 Less work in process Dec31 2009 Factory cost

AMOUNT RS

AMOUNT RS

20,000 7,00,000 50,000 4,00,000 5,40,000 3,60,000 40,000 30,000 1,00,000 1,40,000

(V) (V) (V) (V) (F) (F) (F) (F) 21,40,000 (40,000) 96,00,000

SELLING AND DISTRIBUTION

SELLING AND DISTRIBUTION EXPENSES

PARTICULAR
Cost of goods manufacture Add finished good inventory Jan 1 Less finished good inventory Dec 31 10,00,000 15,00,000 6,00,000 10,00,000 7,00,000 10,00,000 AMOUNT RS AMOUNT RS 96,00,000 (5,00,000) 91,00,000

Cost of goods sold

Marketing promotion Marketing salaries Distribution costs Customer service costs COST OF SALE

33,00,000

1,24,00,000

SALES REVENUE

SALES REVENUE
PARTICULAR
Cost of SALE Profit Total revenue

AMOUNT RS AMOUNTRS
12,00,000 1,24,00,000 12,00,000

1,36,00,000

DECISION MAKING

Impact of fixed cost and variable cost in different production line

FOR 9,00,000 UNIT Direct material unit cost (V) = direct material used = 45,00,000 =Rs5 per unit unit produced 9,00,000 Plant leasing unit cost (F) = plant leasing costs = 5,40,000 =Rs0.6per unit unit produced 9,00,000

FOR 10,00,000 UNIT Direct material unit cost (V) = direct material used = 50,00,000 =Rs5 per unit unit produced 10,00,000 Plant leasing unit cost (F) = plant leasing costs = 5,40,000 =Rs0.54per unit unit produced 10,00,000

BEP and PV ratio analysis

Contribution =Sales variable cost 1,36,00,000 81,30,000 = 34,70,000 PV ratio= Contribution *100 = 34,70,000 *100 =25.15% Sales 1,36,00,000 BEP (RS) = Total fixed cost = 9,70,000 = RS 385659 PV ratio 25.15%

Managerial decision

Manager should more emphasis in maximum utilization of resources. The BEP of this product is RS 385659 so if the company produce this much amount of goods then the company will face no profit no loss . The increase in production does not lead to decrease in variable cost but the fixed cost will reduced. To increase the profit the total cost is to be reduced. Manager should take important decision regarding the maximization of output