Cost Information and Decision Making

Q 1 10 marks For what stopping points would estimated salute entropy be useful if you were a hospital administrator? The c nubly foror of a Cinema sign of the zodiac? The Marketing ungodliness president of a brink? approach teaching is the cultivation ab give away the varied monetary mensurates that atomic number 18 sirered in the operation of the organization or a communication channel exhibit. here(predicate) the bell includes all constitute corresponding veridical follow, motor be, and all a nonher(prenominal)(a) crash greet that ar incurred depending on the type of fear they operates. The chief(prenominal) objectives of be information argon 1)To ascertain the personify per unit for diffe wage growths. 2)To have correct analysis about the appeal incurred. 3)To better reservoir of wastage whether satisfying, m or expenses. 4)To provide requisite data and get along as a guide to expense fixing. 5)To reveal the source of economy. 6)To te nding in preparation of budget. 7)To organize internal audit system to gibe potent working.HOSPITAL ADMINISTRATOR In hospital, diffe prosecute be atomic number 18 pertain such(prenominal)(prenominal) as on purchase of different kinds of medicines, equipments, antibiotics, and so onand for employing different peck where they ar needed to hold salaries and wages and so forthterateratera they should in any issue incur cargo ships terms and other overhead be for the operation of twenty-four hours to twenty-four hours operations. They should ascertain the terms incurred on the medicines, salaries and wages to the lag and employees, and to receipt tally units consumed during certain breaker point of time, how m all people be sedulous and their military posture in their work.So by having embody information, it helps the hospital administrator in reservation decisions like a)How much quantity of what medicine should be tell inside the specific time design ? b)How many people to be engaged and at what wages or salaries? c)What be needed and what non? d)Helps in ascertaining different add together of budget for different activities, actuals. Etc. e)It also helps in on what field the training and developments argon needed. DIRECTOR OF cinema abidanceBeing a come up toor of a cinema antechamber it is precise important to have greet information about the join damage and per unit follow incurred while building the hall or the hiring salute, periodical or per unit electric charges, per unit embody of furniture, privateness make up, projector and any other exist affect while installing the root word in the hall. So the estimated court is useful for the music send offor of cinema hall to 1. To stubborn the rent for the movie screener. 2. Helps in determine the most utile pricing. 3. Helps to check over the damage multiform, since the embody information helps in figuring out the unneeded constitute incurred. . To decide the gain ground investment is worthwhile or non. 5. If he screens movie, then it helps in deciding and ascertaining per ticket personify. MARKETING evil chairman OF BANK present the grocery store placeing vice president of the banks deals with the exhibit of large(p) loan and receiving the deposits from the public, while doing so they have to employ people, they ask stationeries like pen, paper, books, register, desktop, ATM services, fund transfer etc. where it gather ups be. So the constitute information is very important for 1. Fixing the interest rates for savings and loans. 2. Helps in budgeting for throw out development. 3.Helps in deciding whether a ploughsh argonicular market should be tapped or non. 4. Whether to invest in untried technology or non. 5. Whether to work out the vocation or non. Q2 10 marks Costs whitethorn be sort out in a variety of ways concord to their character and the information needs of coun change. Explain this statem ent giving examples of compartmentalization undeniable for different purposes. Cost is the amount of resources, expressed in monetary terms, stipulation up in ex swap for some goods and resources.Cost classification is the answer of classify terms tally to their common attributes. C beful classification of speak to is of full of life importance in order to identify the monetary value with be bear on and salute units. With respect to their purpose the same monetary value is categorize in different ways as follows 1. By Nature or Elements, or analytical classification According to this classification the represent ar divide into three categories such as clobbers, effort, and expenses. A)Materials live ar those price involved for the veridicals that be used for the proceeds of the per centumicular performances.It commode be further classified into shoot for veridical embody and validating somatic personify. Direct material be be those woo involved for those materials which earth-closet be identify in the product and can conveniently measuring and at once charge to the product. good example timber used in manufacturing furniture. In transport material personify argon those terms involved on those materials that do not physically becomes the part of entire product and ar largely twopenny-halfpenny items which may or may not become a part of the finished product. spokesperson threads used in stitch ghos.B)Labor be atomic number 18 those cost involved for the human efforts by which unsanded materials be converted into finished products. It can be further classified into send off toil cost and indirect labor cost. Direct labor be argon those cost that ar stipendiary to those workers who are instantly pursue in converting piercing materials into finished products. character wages remunerative to the work operators. substantiative labor costs are those cost that are paid to those people that are not dire ctly engaged in the achievement operations but lonesome(prenominal) assist in the issue process. example wages for store moderateers.C)Expenses are those cost other than the material costs and labor costs. It can be also classified further as direct expenses and indirect expenses. Direct expenses are those costs other than direct material cost and direct labor cost. vitrine cost of unmistakable right. Indirect expenses are those expenses other than indirect material cost and indirect labor cost. precedent rents and rates. 2. Functional classification Here the costs are classified according to the different aspects of basic managerial activities involved in the operation of business under taking.A)Production or manufacturing cost this is the aggregate cost involved in manufacture, construction and fabrication of units of production. Example wages, nude material cost etc. B)administrative cost this is the cost involved in administering the process of production. Example sal aries, office rent and lighting cost etc. C)Selling and dispersal cost this is the cost involved in the process of taking finished products for sale to the final consumers. Example carriage outward, salesmans lucre etc. So any cost involved in judicature and sell and distribution are also termed as commercial cost. 3.By mark of traceability to the product In this case the costs are classified with their leg of traceability, such as direct and indirect cost. A)Direct cost are those costs which are incurred for and may be conveniently identified with a fact cost center or cost unit. Example materials used and labor employed in manufacturing furniture. B)Indirect cost are those cost which are incurred for the advantage of a number of cost centers or cost units and cannot be conveniently identified with particular cost center or cost unit. Example rent for the building, machinery disparagement etc. 4. By changes in activity or recordHere the costs are classified according to t heir sort in relation to changes in the train of activity or garishness of production. A) improve cost are those cost which commonly remains resolute in total amount with make up or reduce in the peck of issue or productive activity for a devoted period of time. With increase in production the per unit mulish cost decreases and vice versa. Fixed cost can be further classified as follows i)Committed cost are those cost that are the result of inevitable consequences of commitments antecedently make or are incurred to get certain facilities and cannot be pronto eliminated.Example rent, indemnification etc. ii)Policy cost are those cost incurred for implementing some focus policies as executive development, housing etc. and are often discretionary. iii)Managed cost are those cost that are incurred to insure the operating existence of the beau monde. Example staff service etc. iv)Discretionary cost are those cost which are not related to the operation but can be tameled b y the management. These costs prevalently arises due to some policy decision and new researches etc. and can be eliminated or reduced to desirable take aim at the discretion of the manufacturer. )Step cost are those cost which are constant for given direct of end product and then increases by a refractory amount at a higher level of output. B)Variable cost are those cost which vary in total in direct counterpoise to the intensity level of output. These costs per unit remain relatively constant with changes in production. Example direct labor cost, material cost etc. such cost are also known as product cost because they depends on the quantum of product rather than on time. C)Semi- variable cost are those cost which are partly fixed and partly variable. Example telephone expenses, depreciation etc. 5.By visualizelability cost are classified according to whether or not they are influenced by the execute of given extremity of the under taking. A)Controllable costs are those cost which can be influenced by the action of contract member of an undertaking. It is the costs which are within the control of the management. Examples materials cost, labor cost etc. B)Uncontrollable cost are those cost which cannot be influenced by the action of a specific member of an undertaking. It is the costs which are not within the control of the management. Example rent of the building, managerial salaries etc. . By normality Here the costs are classified according to whether these costs are unremarkably incurred at a given level of output in the conditions in which that level of activity is unremarkably attained. A)Normal cost it is the cost which is normally incurred at a given level of output in the conditions in which that level of output is normally attained. It is the par of cost of production. B) Abnormal cost it is the cost which is not normally incurred at a given level of output in the conditions in which that level of output is normally attained.It is not the part of cost of production and is supercharged to costing salary and privation account. 7. By relation with accounting period It is the cost which is incurred in acquire or maintaining an asset either to earn income or increasing the earning qualification. A)Capital cost cost incurred in purchasing an assets or increasing the earning faculty of the business is called jacket cost. Example the cost of rolling machine in case of sword constitute. B)Revenue cost it is the cost involved in order to maintain the earning capacity of the concern such as cost of maintaining an assets or data track a business.Example cost of materials used in production, labor charges paid etc. 8. By time As per the period or the time the cost is incurred the cost is classified in to historical cost and predetermined cost. A)Historical cost are those cost which are ascertained after being incurrence. It is establish on recorded facts, can be verified being back up by evidences and are objectiv e. B)Predetermined cost are estimated costs, since they are computed in salary increase of production taking consideration the previous records of cost. 9. According to grooming to control planning and control are two important functions of management.Cost accounting furnishes information to the management which is helpful in the due discharge of these two functions. A)Budgeted cost it exemplify an estimate of wasting disease for different phases of business operations such as manufacturing, administration, sales, research and development etc. coordinated in a rise conceived framework for a period of time in futurity which after becomes the written expression of managerial targets to be achieved. Example raw material cost budget, labor cost budget etc. B)Standard cost it is the cost where the budgeted costs are translated into actual operation through the actor of modular cost.It is defined as the predetermined cost based on a technical estimate of for materials, labor and o verhead for a selected period of time and for a prescribed set of working conditions. So the stock cost is determination, in advance of production of what should be the cost. 10. By association with the product A) Product cost are those costs which are attributable to the product and are included in memorial evaluation. It comprises direct materials, direct labor and manufacturing overheads in case of manufacturing concerns.These are used for valuation of inventory and are shown in the balance sheet till they are sold. B)Period costs are those cost incurred on the basis of time such as rent, salaries etc. These may relate to administration and selling costs prerequisite to keep the business running. Though these are not associated with production and are requirement to generate revenue but cannot be assigned to a product. These are charged to the period in which these are incurred and treated as expenses. 11. For managerial decision are those cost that are classified according to their workout in the managerial decision making.A)Marginal cost it is the total of the variable cost i. e. , prime cost plus variable overheads. It is the distinction amid fixed and variable costs. Here the fixed costs are unheeded and only variable costs are taken into consideration for determining the cost of products and value of work-in-progress and finished goods. B)Out of pocket cost or overt cost are those cost which involves payment to the outsiders and in that locationby gives rise to the silver expenditure as opposed to such costs as depreciation, which do not involve any cash expenditure.Such costs are applicable for price fixation during recession or when make or steal decision is to be made. C)Differential cost are those cost that the change in cost due to change in the level of activity or copy or method of production is known as derived function cost. If the change increases the cost then it is known as incremental cost. If there is decrease in cost resu lting from decrease in output, the differences is known as decremental cost. D)Sunk cost are those cost which are irrecoverable cost and is caused by exonerate abandonment of a plant.It is the written down value of the cast out plant less its salvage value. E)Imputed and notional cost are those cost which are notional and does not involve any cash outlay. It is the value of a benefit where no actual cost is incurred. Examples notional rent charged on the premises owned by the proprietor, interest on corking for which no interest is paid etc. F)Opportunity cost it is the supreme practicable alternative earning that might have been earned if the productive capacity or services had been put to some alternative use.G)Replacement cost it is the cost at which there could be purchase of an asset or material like to that which is being replaced or revalued. It is the replacement cost at the live market price. H)Avoidable and unavoidable cost avoidable costs are those cost which can b e eliminated if a particular product or part with which they are directly related, is discontinued. Unavoidable costs are those cost which will not be eliminated with the discontinuation of product or department. I)Explicit cost are those cost which involves contiguous payment of cash.They can be easily measured. Example salaries, wages, etc. J)Implicit cost are those costs that do not involve immediate payment of cash and are known as sparing cost. Example depreciation etc. QUESTION 3. damage SHEET FOR 2, 00,000 cases PARTICULARSUNITS cost PER UNITTOTAL equal direct material cost2,00,00061,200,000 Direct labor cost2,00,00091,800,000 Direct expenses2,00,0004800,000 PRIME appeal2,00,000193,800,000 pulverisation viewgraph milling machinery expenses2,00,0003600,000 WORK COST2,00,000224,400,000 OFFICE/ADMINISTRATIVE crash Administrative cost2,00,00061,200,000COST OF action/COST OF GOODS SOLD2,00,000285,600,000 SELLING AND DISTRIBUTION OVERHEAD Marketing cost2,00,0001200,000 C OST OF SALE2,00,000295,800,000 PROFIT2,00,0005. 81,160,000 SALES2,00,00034. 86,960,000 ? COST SHEET SHOWING COST INVOLVED FOR 5,000cases PARTICULARSUNITSCOST PER UNITTOTAL COST direct material cost5,000630,000 Direct labor cost5,000945,000 Direct expenses5,000420,000 PRIME COST5,0001995,000 FACTORY OVERHEAD Factory expenses5,000315,000 WORK COST5,000221,10,000 OFFICE/ADMINISTRATIVE OVERHEAD Administrative cost5,000630,000 COST OF doing/COST OF GOODS SOLD5,000281,40,000SELLING AND DISTRIBUTION OVERHEAD Marketing cost5,00015,000 COST OF SALE5,000291,45,000 PROFIT5,0005. 829,000 SALES5,00034. 81,74,000 Here the cost involved in production of 1unit of screwdriver amounts to Nu. 29 and when we add the profit of cost plus 20percent, per unit cost sums up to Nu. 34. 8. But here the legions deterrent example ignored the price fixed by the company facial expression that the company bypassed the using selling channel and the army representative wants to pay only Nu. 22. 80 Per unit. So in this case I remember that the price should be Nu. 33. (28*120%) per unit, since the company bypassed the contract of usual selling channel but they had incurred both administrative and grinder overheads for the production of the screwdrivers and on the other hand both the administrative overhead and manufacturing plant overhead are fixed cost that it doesnt change with the gaudiness of products produced. On the other hand the company had charged only the fixed factory and administrative overhead cost and they excluded all variable factory and administrative overhead cost, so the price per unit should be Nu. 33. 6 per unit.Cost Information and Decision MakingQ 1 10 marks For what decisions would estimated cost information be useful if you were a hospital administrator? The Director of a Cinema hall? The Marketing vice president of a bank? Cost information is the information about the different costs that are incurred in the operation of the organization or a business process.He re the cost includes all cost like material cost, labor costs, and all other overhead costs that are incurred depending on the type of business they operates. The main objectives of cost information are 1)To ascertain the cost per unit for different products. 2)To have correct analysis about the cost incurred. 3)To disclose source of wastage whether material, time or expenses. 4)To provide requisite data and serve as a guide to price fixing. 5)To reveal the source of economy. 6)To help in preparation of budget. 7)To organize internal audit system to ensure effective working.HOSPITAL ADMINISTRATOR In hospital, different costs are involved such as on purchase of different kinds of medicines, equipments, antibiotics, etc and for employing different people where they are needed to pay salaries and wages etc. they should also incur transportation cost and other overhead costs for the operation of day to day operations. They should ascertain the cost incurred on the medicines, salaries an d wages to the staff and employees, and to know total units consumed during certain period of time, how many people are employed and their effectiveness in their work.So by having cost information, it helps the hospital administrator in making decisions like a)How much quantity of what medicine should be ordered within the specific time period? b)How many people to be employed and at what wages or salaries? c)What are needed and what not? d)Helps in ascertaining different amount of budget for different activities, materials. Etc. e)It also helps in on what field the training and developments are needed. DIRECTOR OF CINEMA HALLBeing a director of a cinema hall it is very important to have cost information about the total cost and per unit cost incurred while building the hall or the hiring cost, monthly or per unit electric charges, per unit cost of furniture, screen cost, projector and any other cost involved while installing the infrastructure in the hall. So the estimated cost is useful for the Director of cinema hall to 1. To fixed the rent for the movie screener. 2. Helps in determining the most profitable pricing. 3. Helps to control the cost involved, since the cost information helps in figuring out the unnecessary cost incurred. . To decide the further investment is worthwhile or not. 5. If he screens movie, then it helps in deciding and ascertaining per ticket cost. MARKETING VICE PRESIDENT OF BANK Here the marketing vice president of the banks deals with the process of giving loan and receiving the deposits from the public, while doing so they have to employ people, they needs stationeries like pen, paper, books, register, desktop, ATM services, fund transfer etc. where it involves costs. So the cost information is very important for 1. Fixing the interest rates for savings and loans. 2. Helps in budgeting for further development. 3.Helps in deciding whether a particular market should be tapped or not. 4. Whether to invest in new technology or not. 5. Whether to expand the business or not. Q2 10 marks Costs may be classified in a variety of ways according to their nature and the information needs of management. Explain this statement giving examples of classification required for different purposes. Cost is the amount of resources, expressed in monetary terms, given up in exchange for some goods and resources.Cost classification is the process of grouping cost according to their common attributes. Careful classification of cost is of vital importance in order to identify the cost with cost center and cost units. With respect to their purpose the same cost is classified in different ways as follows 1. By Nature or Elements, or analytical classification According to this classification the cost are divided into three categories such as materials, labor, and expenses. A)Materials cost are those cost involved for the materials that are used for the production of the particular products.It can be further classified into direct mate rial cost and indirect material cost. Direct material costs are those cost involved for those materials which can be identified in the product and can conveniently measure and directly charge to the product. Example timber used in manufacturing furniture. Indirect material cost are those cost involved on those materials that do not physically becomes the part of finished product and are generally inexpensive items which may or may not become a part of the finished product. Example threads used in stitching ghos.B)Labor costs are those cost involved for the human efforts by which raw materials are converted into finished products. It can be further classified into direct labor cost and indirect labor costs. Direct labor costs are those cost that are paid to those workers who are directly engaged in converting raw materials into finished products. Example wages paid to the machine operators. Indirect labor costs are those cost that are paid to those people that are not directly engage d in the production operations but only assist in the production process. Example wages for store keepers.C)Expenses are those cost other than the material costs and labor costs. It can be also classified further as direct expenses and indirect expenses. Direct expenses are those costs other than direct material cost and direct labor cost. Example cost of patent right. Indirect expenses are those expenses other than indirect material cost and indirect labor cost. Example rents and rates. 2. Functional classification Here the costs are classified according to the different aspects of basic managerial activities involved in the operation of business under taking.A)Production or manufacturing cost this is the total cost involved in manufacture, construction and fabrication of units of production. Example wages, raw material cost etc. B)Administrative cost this is the cost involved in administering the process of production. Example salaries, office rent and lighting cost etc. C)Selling and distribution cost this is the cost involved in the process of taking finished products for sale to the final consumers. Example carriage outward, salesmans salary etc. So any cost involved in administration and selling and distribution are also termed as commercial cost. 3.By degree of traceability to the product In this case the costs are classified with their degree of traceability, such as direct and indirect cost. A)Direct cost are those costs which are incurred for and may be conveniently identified with a particular cost center or cost unit. Example materials used and labor employed in manufacturing furniture. B)Indirect cost are those cost which are incurred for the benefit of a number of cost centers or cost units and cannot be conveniently identified with particular cost center or cost unit. Example rent for the building, machinery depreciation etc. 4. By changes in activity or volumeHere the costs are classified according to their behavior in relation to changes in th e level of activity or volume of production. A)Fixed cost are those cost which commonly remains fixed in total amount with increase or decrease in the volume of output or productive activity for a given period of time. With increase in production the per unit fixed cost decreases and vice versa. Fixed cost can be further classified as follows i)Committed cost are those cost that are the result of inevitable consequences of commitments previously made or are incurred to maintain certain facilities and cannot be quickly eliminated.Example rent, insurance etc. ii)Policy cost are those cost incurred for implementing some management policies as executive development, housing etc. and are often discretionary. iii)Managed cost are those cost that are incurred to insure the operating existence of the company. Example staff service etc. iv)Discretionary cost are those cost which are not related to the operation but can be controlled by the management. These costs usually arises due to some p olicy decision and new researches etc. and can be eliminated or reduced to desirable level at the discretion of the manufacturer. )Step cost are those cost which are constant for given level of output and then increases by a fixed amount at a higher level of output. B)Variable cost are those cost which vary in total in direct proportion to the volume of output. These costs per unit remain relatively constant with changes in production. Example direct labor cost, material cost etc. such cost are also known as product cost because they depends on the quantum of product rather than on time. C)Semi-variable cost are those cost which are partly fixed and partly variable. Example telephone expenses, depreciation etc. 5.By controllability cost are classified according to whether or not they are influenced by the action of given member of the under taking. A)Controllable costs are those cost which can be influenced by the action of specified member of an undertaking. It is the costs which a re within the control of the management. Examples materials cost, labor cost etc. B)Uncontrollable cost are those cost which cannot be influenced by the action of a specific member of an undertaking. It is the costs which are not within the control of the management. Example rent of the building, managerial salaries etc. . By normality Here the costs are classified according to whether these costs are normally incurred at a given level of output in the conditions in which that level of activity is normally attained. A)Normal cost it is the cost which is normally incurred at a given level of output in the conditions in which that level of output is normally attained. It is the par of cost of production. B) Abnormal cost it is the cost which is not normally incurred at a given level of output in the conditions in which that level of output is normally attained.It is not the part of cost of production and is charged to costing profit and loss account. 7. By relation with accounting per iod It is the cost which is incurred in purchasing or maintaining an asset either to earn income or increasing the earning capacity. A)Capital cost cost incurred in purchasing an assets or increasing the earning capacity of the business is called capital cost. Example the cost of rolling machine in case of steel plant. B)Revenue cost it is the cost involved in order to maintain the earning capacity of the concern such as cost of maintaining an assets or running a business.Example cost of materials used in production, labor charges paid etc. 8. By time As per the period or the time the cost is incurred the cost is classified in to historical cost and predetermined cost. A)Historical cost are those cost which are ascertained after being incurrence. It is based on recorded facts, can be verified being supported by evidences and are objective. B)Predetermined cost are estimated costs, since they are computed in advance of production taking consideration the previous records of cost. 9. According to planning to control planning and control are two important functions of management.Cost accounting furnishes information to the management which is helpful in the due discharge of these two functions. A)Budgeted cost it represent an estimate of expenditure for different phases of business operations such as manufacturing, administration, sales, research and development etc. coordinated in a well conceived framework for a period of time in future which subsequently becomes the written expression of managerial targets to be achieved. Example raw material cost budget, labor cost budget etc. B)Standard cost it is the cost where the budgeted costs are translated into actual operation through the instrument of standard cost.It is defined as the predetermined cost based on a technical estimate of for materials, labor and overhead for a selected period of time and for a prescribed set of working conditions. So the standard cost is determination, in advance of production of what should be the cost. 10. By association with the product A) Product cost are those costs which are traceable to the product and are included in inventory evaluation. It comprises direct materials, direct labor and manufacturing overheads in case of manufacturing concerns.These are used for valuation of inventory and are shown in the balance sheet till they are sold. B)Period costs are those cost incurred on the basis of time such as rent, salaries etc. These may relate to administration and selling costs essential to keep the business running. Though these are not associated with production and are necessary to generate revenue but cannot be assigned to a product. These are charged to the period in which these are incurred and treated as expenses. 11. For managerial decision are those cost that are classified according to their usage in the managerial decision making.A)Marginal cost it is the total of the variable cost i. e. , prime cost plus variable overheads. It is the distinctio n between fixed and variable costs. Here the fixed costs are ignored and only variable costs are taken into consideration for determining the cost of products and value of work-in-progress and finished goods. B)Out of pocket cost or explicit cost are those cost which involves payment to the outsiders and thereby gives rise to the cash expenditure as opposed to such costs as depreciation, which do not involve any cash expenditure.Such costs are relevant for price fixation during recession or when make or buy decision is to be made. C)Differential cost are those cost that the change in cost due to change in the level of activity or pattern or method of production is known as differential cost. If the change increases the cost then it is known as incremental cost. If there is decrease in cost resulting from decrease in output, the differences is known as decremental cost. D)Sunk cost are those cost which are irrecoverable cost and is caused by complete abandonment of a plant.It is the written down value of the abandoned plant less its salvage value. E)Imputed and notional cost are those cost which are notional and does not involve any cash outlay. It is the value of a benefit where no actual cost is incurred. Examples notional rent charged on the premises owned by the proprietor, interest on capital for which no interest is paid etc. F)Opportunity cost it is the maximum possible alternative earning that might have been earned if the productive capacity or services had been put to some alternative use.G)Replacement cost it is the cost at which there could be purchase of an asset or material identical to that which is being replaced or revalued. It is the replacement cost at the current market price. H)Avoidable and unavoidable cost avoidable costs are those cost which can be eliminated if a particular product or department with which they are directly related, is discontinued. Unavoidable costs are those cost which will not be eliminated with the discontinuation o f product or department. I)Explicit cost are those cost which involves immediate payment of cash.They can be easily measured. Example salaries, wages, etc. J)Implicit cost are those costs that do not involve immediate payment of cash and are known as economic cost. Example depreciation etc. QUESTION 3. COST SHEET FOR 2, 00,000 cases PARTICULARSUNITSCOST PER UNITTOTAL COST direct material cost2,00,00061,200,000 Direct labor cost2,00,00091,800,000 Direct expenses2,00,0004800,000 PRIME COST2,00,000193,800,000 FACTORY OVERHEAD Factory expenses2,00,0003600,000 WORK COST2,00,000224,400,000 OFFICE/ADMINISTRATIVE OVERHEAD Administrative cost2,00,00061,200,000COST OF PRODUCTION/COST OF GOODS SOLD2,00,000285,600,000 SELLING AND DISTRIBUTION OVERHEAD Marketing cost2,00,0001200,000 COST OF SALE2,00,000295,800,000 PROFIT2,00,0005. 81,160,000 SALES2,00,00034. 86,960,000 ? COST SHEET SHOWING COST INVOLVED FOR 5,000cases PARTICULARSUNITSCOST PER UNITTOTAL COST direct material cost5,000630,000 Direc t labor cost5,000945,000 Direct expenses5,000420,000 PRIME COST5,0001995,000 FACTORY OVERHEAD Factory expenses5,000315,000 WORK COST5,000221,10,000 OFFICE/ADMINISTRATIVE OVERHEAD Administrative cost5,000630,000 COST OF PRODUCTION/COST OF GOODS SOLD5,000281,40,000SELLING AND DISTRIBUTION OVERHEAD Marketing cost5,00015,000 COST OF SALE5,000291,45,000 PROFIT5,0005. 829,000 SALES5,00034. 81,74,000 Here the cost involved in production of 1unit of screwdriver amounts to Nu. 29 and when we add the profit of cost plus 20percent, per unit cost sums up to Nu. 34. 8. But here the army representative ignored the price fixed by the company saying that the company bypassed the using selling channel and the army representative wants to pay only Nu. 22. 80 Per unit. So in this case I recommend that the price should be Nu. 33. (28*120%) per unit, since the company bypassed the contract of usual selling channel but they had incurred both administrative and factory overheads for the production of the screwdrivers and on the other hand both the administrative overhead and factory overhead are fixed cost that it doesnt change with the volume of products produced. On the other hand the company had charged only the fixed factory and administrative overhead cost and they excluded all variable factory and administrative overhead cost, so the price per unit should be Nu. 33. 6 per unit.