The Hindu Business Line : Suitable rent for different suites

A company runs a holiday home. For this purpose, it has hired a building at a rent of Rs 10,000 per month along with 5 per cent of total taking. It has three types of suites for its customers — single, double and triple rooms. More information on the rooms is given in Table 1. The rent of a double room suite is to be fixed at 2.5 times the single room suite and that of the triple room suite, twice that of the double room suite.

The other expenses for the year 2006 are as shown in Table 2. Provide profit at 20 per cent on total taking, and assume 360 days in a year. Calculate the rent to be charged for each type of suite.

Solution: Expenses for the year 2006 are presented in Table 3.

Single room: X x 100 rooms x 100 per cent = 100X

Double room: 2.5X x 50 rooms x 80 per cent = 100X

Triple room: 2 x 2.5X = 5X x 30 rooms x 60 per cent = 90X

8.5X = 290X

290X x 360 days = 3521333

X = ?

= 3521333 x X / 290X x 360 days

= Rs 33.73, that is, Rs 34 per day for single room.

Double room = 34 x 2.5 = Rs 85 per day for double room.

Triple room = 34 x 5 = Rs 170 per day for triple room.

Reconciliation: Single room = 34 x 100 x 360 x 100 per cent = Rs 12,24,000

Double room = 2.5 x 34 = 85 x 50 x 360 x 80 per cent = Rs 12,24,000

Triple room = 5 x 34 = 170 x 30 x 360 x 60 per cent = Rs 1,101,600. Total rent = Rs 35,49,600

Reconciliation of profit

ABC Ltd has furnished the information presented in Table 4 from the financial books for the year ended March 31, 2007: The cost sheet shows the cost of materials at Rs 104 per unit and the labour cost at Rs 60 per unit. The factory overheads are absorbed at 60 per cent of labour cost and administration overheads at 20 per cent of factory cost.

Selling expenses are charged at Rs 24 per unit. The opening stock of finished goods is valued at Rs 180 per unit. You are required to prepare:

i) A statement showing profit as per cost accounts for the year ended March 31, 2007; and

ii) A statement showing the reconciliation of profit as disclosed in cost accounts with the profit shown in financial accounts.

Solution: Working Note 1: Opening stock + production – sales = closing stock

Hence production = sales + closing stock – opening stock

That is, 10250 + 250 – 500 = 10,000 units.

The statement of cost and profit as per cost accounts and the statement of reconciliation are presented in Tables 5 and 6.