Question

6. The following are the costing records for the year 2020 of a manufacturer: Production 1,000 units, Cost of raw materials Rs,20,000, Labour cost Rs.12,000, Factory overheads Rs.8,000, Office overheads Rs.4,000, Selling expenses Rs.1,000, Rate of profit 25% on the selling price. The manufacturer decided to produce 1,500 units in 2021. It is estimated that the cost of raw materials will increase by 20%, the labour cost will increase by 10%, 50% of the overhead charges are fixed and the other 50% are variable. The selling expenses per unit will be reduced by 20%. The rate of profit will remain the same. Prepare a cost statement for the year 2021 showing the total profit and selling price per unit.​

Answer 1

Here's a cost statement for the year 2021:

Production of 1,500 units

Cost of raw materials = Rs. (20,000 x 1.2) = Rs. 24,000

Labour cost = Rs. (12,000 x 1.1) = Rs. 13,200

Fixed overheads = Rs. (8,000/2) = Rs. 4,000

Variable overheads = Rs. (8,000/2 x 1.5) = Rs. 6,000

Office overheads = Rs. 4,000

Selling expenses per unit = Rs. (1,000 x 0.8 / 1,500) = Rs. 0.53

Total cost per unit = Rs. (24,000 + 13,200 + 4,000 + 6,000 + 4,000) / 1,500 = Rs. 28.80

Profit = 25% of selling price

Selling price per unit = (28.80 / (1 - 0.25)) = Rs. 38.40

Total profit = (1,500 x 38.40 x 0.25) = Rs. 14,400

Therefore, the cost statement for the year 2021 shows a total profit of Rs. 14,400 and a selling price per unit of Rs. 38.40.