Question 01
Versatile Mebel (Pvt) Ltd. is a manufacturer of premium wooden office desks supplied to
corporate customers. The company has recently expanded its production capacity and
management is interested in establishing a costing system to determine the manufacturing cost
of each desk.
During June 2026, the company produced 2,000 office desks. Each desk requires 15 kg of
timber and 4 direct labour hours for completion. The selling price of each desk is Rs. 85,000.
The following information has been extracted from the company's records for the month of
June 2026.
Cost Item
Amount
(Rs. '000)
Raw Material Purchases
Traceable per unit of production (15 kg per desk @ Rs. 300 per kg) 9,000
Untraceable per unit of production
600
Carriage Inwards (2/3 relates to Traceable Materials)
1050
Salaries and Wages
Carpenters and assemblers
5,600
(4 direct labour hours per desk @ Rs. 700 per hour)
Factory supervisor and production support staff
1,200
Administrative staff salaries
1,800
Electricity and Water (4/6 relates to production)
900
Rent and Rates (5/8 relates to production)
600
Depreciation (3/5 relates to factory machinery)
450
Patent registration charges (Rs. 60 per desk produced)
120
Outsourced finishing charges (Rs. 40 per desk produced)
80
Finance charges
250
Discounts received
50
Required:
Required:
1. Cost Classification
Identify the following categories from the above information:
i.
Direct materials
ii.
Direct labour
iii.
Direct expenses
iv.
Indirect materials
v.
Indirect labour
vi.
Production overheads
vii.
Non-production overheads
viii.
Items not considered in product costing
2. Calculation of Product Cost
Calculate:
i.
Prime Cost
ii.
Total Production Overheads
iii.
Total Production Cost
iv.
Production Cost per Desk
Question 02
Mila Ltd. manufactures and sells Product S. The management accounts are prepared using the
Marginal Costing Method and the following information has been extracted from the standard
cost card of the Product S.
Per Unit (Rs.)
Direct Material (0.5 litres at Rs.2,500/- per 1,250
litre)
Direct Labour (1.5 hours at Rs.1,000/- per 1,500
hour)
Variable Production Overheads
625
The below information relates to the quarter ended 30th June 2025:
Fixed Overheads
Budgeted (Rs)
Actual (Rs)
Production
15,525,000
16,600,000
Non-Production
8,000,000
9,350,000
23,525,000
25,950,000
Budgeted (Units)
Actual (Units)
Production
30,000
31,200
Sales
30,000
29,700
Opening Inventory
2000
Closing Inventory
3500
Actual / budgeted Selling Price per unit is Rs.4,400/-.
You are required to: Prepare the Income Statement for the quarter ended 30th June 2025 using
the Marginal Costing method.
Question 03
Sunshine Manufacturing produces solar panels with the following cost structure:
•
Direct materials: $150 per unit
•
Direct labour: $75 per unit
•
Direct expenses: $25 per unit
•
Variable overhead: $50 per unit
•
Fixed overhead: $200,000 per year
The company produced 10,000 units and sold 8,000 units during the year at $400 per unit.
Variable selling and administrative expenses were $20 per unit sold, and fixed selling and
administrative expenses were $50,000 for the year.
Calculate the following:
1. The profit for the year using absorption costing
2. The profit for the year using marginal costing
3. Explain the reason for the difference between the two profit figures