The Hindu Business Line : Profit reconciliation <i>sans</i> professional touch

i) Production overheads have been charged to work-in-progress at 20 per cent on prime cost; ii) Administration overheads have been recovered at Rs 9.75 per finished unit; iii) Selling and distribution (S&D) overheads have been recovered at Rs 13 per unit sold.

The under- or over-absorption of overheads has not been transferred to costing profit and loss (P&L) account.

Required: Prepare a pro forma costing P&L account, indicating net profit.

Prepare control accounts for production overheads, administration overheads and selling and distribution overheads.

Prepare a statement reconciling the profits disclosed by cost records with that shown in financial accounts.

Solution: The costing P&L A/c (sales, 30,000 units; closing finished stock, 1,000 units; and production, 31,000 units) is presented in Table 2.

The production overhead control A/c, the administration overhead control A/c, and the S&D overheads control A/c are presented in Tables 3, 4 and 5 respectively.

The reconciliation statement is presented in Table 6.

Note: This question is of B.Com standard.

Single, output costing

A RE-ROLLER produced 400 tonnes of M.S. bars spending Rs 36,00,000 towards materials and Rs 6,20,000 towards rolling charges.

Ten per cent of the output was found to be defective, which had to be sold at 10 per cent less than the price for the good production.

If the sales realisation should give the firm an overall profit of 12.5 per cent on cost, find the selling price per tonne of both the categories of bars.

The scrap arising during the rolling process fetched a realisation of Rs 60,000.

Answer: Statement of selling price per tonne is presented in Table 7.

Good output (400 x 90 per cent) = 360 tonnes

Defective output (400 x 10 per cent) = 40 tonnes equivalent to 36 tonnes good output (to be sold at 10 per cent less than the price for good production)

Total = 396 tonnes

Selling price: Rs 46,80,000 / 396 tonnes = Rs 11818.18 per tonne in the case of good output.

Rs 11818.18 x 90 per cent = 10636.36 per tonne, selling price in case of defective output.