Unit & Batch Costing Practical Questions-Answers

Unit & Batch Costing

ANSWERS
1. Statement of Cost per Unit No. of units produced: 10,000 units
Cost per unit Amount
Particulars
(₹) (₹)
Raw Materials Consumed 40.00 4,00,000
Direct Wages 24.00 2,40,000
Prime cost 64.00 6,40,000
Add: Manufacturing Overheads (3,200 hours × ₹ 40) 12.80 1,28,000
Works cost 76.80 7,68,000
Add: Office Overheads (10% of Works Cost) 7.68 76,800
Cost of goods sold 84.48 8,44,800
Add: Selling Overheads (10,000 units × ₹ 20) 20.00 2,00,000
Cost of sales / Total cost 104.48 10,44,800
Add: Profit (Bal Figure) 15.52 1,55,200
Sales 120.00 12,00,000

2. Statement of Cost and Selling price for 2,000 units of output

Cost per unit Total Cost
Particulars
(₹) (₹)
Direct Materials 7.50 15,000
Direct Labour 3.00 6,000
Prime cost 10.50 21,000
Add: Factory Overheads (Refer working note-2) 17.50 35,000
Total cost 28.00 56,000
Add: Profit (20% of Sales is equivalent to 25% of Cost) 7.00 14,000
Sales 35.00 70,000

Working Notes:
1) Direct Material and Direct Labour cost is varying directly in proportion to units produced and shall
remain same per unit of output. Thus, direct material cost is equal to ₹ 9000 ÷ 1200 units = ₹ 7.50
per unit and labour cost is equal to₹ 3600 ÷ 1200 units = ₹ 3 per unit.
2) Calculation of Factory Overheads- An observation of cost related to different output levels for factory
overheads shall reveal 2 things

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 Unit & Batch Costing Practical Questions-Answers

a) Total cost increases from ₹31,000 to ₹34,000 along with increase in output from 1,200 units to
1,800 units but cost per unit is not constant. Thus, it is not a variable cost. Cost per unit is
reducing along with increase in output from ₹ 25.83 (₹ 31,000 ÷ 1,200 units) to ₹ 18.89 (₹34,000
÷ 1,800 units)
b) Since the cost is varying with the output, it is also not a fixed cost.
Hence, we can see that the cost is a semi- variable cost and has to be calculated for 2,000 units by
analysing its fixed and variable components
Week Number Units Manufactured Factory Overheads
1 1,200 31,000
2 1,600 33,000
Difference 400 2,000

Therefore, Variable Cost per unit = Change in Factory Overheads ÷ Change in output
= ₹2,000 ÷ 400 = ₹5
Now total factory overheads for week 2 = ₹33,000
Out of this, Variable Overheads = 1,600 units × ₹5 = ₹ 8,000
Thus, fixed component = ₹ 33,000 – ₹ 8,000 = ₹ 25,000
Therefore, Variable Cost for 2,000 units = 2,000 units × ₹5 = ₹ 10,000
Fixed Cost will not change and hence will be = ₹25,000
Therefore, Total Factory Cost = Variable Overheads + Fixed Overheads
Overheads for 2,000 units = ₹10,000 + ₹25,000 = ₹ 35,000

3. Statement of cost per batch and per order

No. of batch = 600 units ÷ 50 units = 12 batches
Cost per batch Total Cost
Particulars
(₹) (₹)
Direct Material Cost 500.00 6,000
Direct Wages 50.00 600
Oven set-up cost 150.00 1,800
Add: Production Overheads (20% of Direct wages) 10.00 120
Total Production cost 710.00 8,520
Add: S&D and Administration overheads (10% of Total 71.00 852
production cost)
Total Cost 781.00 9,372
Add: Profit (1/3rd of total cost) 260.33 3,124
Selling price 1,041.33 12,496
Selling Price per unit = 1041.33÷ 50 = ₹ 20.83

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 Unit & Batch Costing Practical Questions-Answers

4.
Particulars Jan. Feb. March April May June Total
Batch output (in units) 210 200 220 180 200 220 1,230
Sale value (₹) 1,680 1,600 1,760 1,440 1,600 1,760 9,840
Material cost (₹) 650 640 680 630 700 720 4,020
Direct wages (₹) 120 140 150 140 150 160 860
Overheads* (₹) 600 672 672 621 780 800 4,145
Total cost (₹) 1,370 1,452 1,502 1,391 1,630 1,680 9,025
Profit per batch (₹) 310 148 258 49 (30) 80 815
Total cost per unit (₹) 6.52 7.26 6.83 7.73 8.15 7.64 7.34
Profit per unit (₹) 1.48 0.74 1.17 0.27 (0.15) 0.36 0.66

Overall position of the order for 1,200 units

Sales value of 1,200 units @ ₹ 8 per unit ₹ 9,600
Total cost of 1,200 units @ ₹ 7.34 per unit ₹ 8,808
Profit ₹ 792
Overheads×Direct labour hours for batch
Direct labour hour for themonth

5.

2DS 2×500×12×60
EBQ = = = 600 units.
C 0.1×20

6.
i) Optimum batch size or Economic Batch Quantity (EBQ):

2DS 2×48,000×3,200
EBQ = = = 5,060 units.
C 12
ii) Number of Optimum runs = 48,000 ÷ 5,060 = 9.49 or 10 run Interval between 2 runs (in days) =
365 days ÷ 10 = 36.5 days
iii) Minimum Inventory Cost = Average Inventory × Inventory Carrying Cost per unit per annum

Average Inventory = 5,060 units ÷ 2 = 2,530 units

Carrying Cost per unit per annum= ₹1 × 12 months = ₹ 12
Minimum Inventory Holding Costs = 2,530 units × ₹ 12 = ₹ 30,360

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 Unit & Batch Costing Practical Questions-Answers

7.
i)

Production Batch Size Set-up costs per Holding Costs per Total Costs per
(Lt.) annum (₹) annum (₹) annum (₹)
4,000 1,250 400 1,650
5,000 1,000 500 1,500
6,000 833 600 1,433
7,000 714 700 1,414
8,000 625 800 1,425
9,000 556 900 1,456
10,000 500 1000 1,500

As the total cost is minimum at 7,000 ltr. i.e. ₹ 1,414, thus economic production lot would be
7,000 Litres

ii) Economic Batch Quantity (EBQ):

EBQ = √2DS/C
Where, D = Annual demand for the product = 50,000 Liters
S = Setting up cost per batch = ₹100 per set-up
C = Carrying cost per unit of production
= ₹ 50 / 250 liters = 0.20 per liter per annum
2×50,000×100
= = 7,071Litres.
0.2  1

Working Note:
1.For Production batch size of 7,000 litres
Number of set ups per year = 50,000 ÷ 7,000 = 7.14 or 8 set-ups
Hence, annual set up cost per year = 8 × ₹100 = ₹800
Average Quantity = 7,000 ÷ 2 = 3,500 litres
Holding Costs = 3,500 ltr. ÷250 × 50 = ₹ 700
2.It can be seen that EBQ determined with mathematical formula (7,071 litres) slightly varies
from the one determined by trial and error method (7,000 Litres)

8. Statement of Cost and Total Sales

Particulars First 3 months Next 9 months Total
Capacity Utilisation (No of 120,000x3/12x50% 120,000x9/12x80% 87,000
units) =15,000

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=72,000
Direct Material 13,50,000 64,80,000 78,30,000
Direct Labour 9,00,000 43,20,000 52,20,000
Add: Overheads:
− Fixed (1:3) 7,50,000 22,50,000 30,00,000
− Variable 15,00,000 72,00,000 87,00,000
Semi Variable 5,00,000 (For first 3 21,00,000 (at the rate 26,00,000
months at the rate of of ₹ 28,00,000 for 9
₹20,00,000) months)
Total cost 50,00,000 2,23,50,000 2,73,50,000
Add: Profit 20,00,000
Sales 2,93,50,000

Average Selling Price = ₹2,93,50,000 ÷ 87,000 units = ₹ 337.356

9. Statement of Cost and Profit per unit of each batch

January February March Total
a) Batch Output (Nos.) 1,250 1,500 1,000 3,750
b) Sales Value (@ ₹15 per unit) (₹)18,750 (₹) 22,500 (₹) 15,000 (₹) 56,250
COST
Material 6,250 9,000 5,000 20,250
Wages 2,500 3,000 2,000 7,500
Overheads 3,750 3,000 3,000 9,750
c) Total 12,500 15,000 10,000 37,500
d) Profit per batch (b) – (c) 6,250 7,500 5,000 18,750
e) Cost per unit (c) ÷ (a) 10 10 10
f) Profit per unit (d) ÷ (a) 5 5 5

Overall Position of the Order for 3,000 Units

Sales value (3,000 units × ₹ 15) 45,000
Less: Total cost (3,000 units × ₹ 10) 30,000
Profit 15,000

Calculation of overhead per hour:

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January February March

i) Labour hours:
Labour cost `2,500 `3,000 `2,000
= = 1,250 = 1,500 = 1,000
Labour rates per hour 2 2 2

ii) Overhead per hour:

Total Overheads `12,000 `9,000 `15,000
= =`3 =`2 =`3
Total labour hour 4,000 4,500 5,000

iii) Overhead for batch ₹3750 ₹3,000 ₹3,000

(i)× (ii)

10.
a) Optimum production run size (Q) = √2DS/C Where,
D = No. of units to be produced within one year.
S = Set-up cost per production run
C = Carrying cost per unit per annum.

2DS 2×24,000×`324
= = = 3,600 bearings.
C 0.10×12

b) Total Cost (of maintaining the inventories) when production run size (Q) are 3,600 and 6,000
bearings respectively
Total cost = Total set-up cost + Total carrying cost.

When Run size is 3,600 When run size is 6,000

bearings bearings
Total set up cost `24,000 `24,000
=  `324 = `2,160 =  `324 = `1,96
3,600 6,000

Or,
No. of setups = 6.67
(7 setups)
= 7 x 324 = ₹ 2,268
Total Carrying cost 1/2×3,600 × 0.10P × 12 1/2 × 6,000 × 0.10P × 12
= ₹ 2,160 = ₹ 3,600
Total Cost ₹ 4,320/ ₹ 4,428 ₹ 4,896

₹ 576/ ₹ 468 is the excess cost borne by the firm due to run size not being economic batch
quantity.

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c) Inventory holding cost at EBQ = 1/2 Q × C

(when Q = 3,600 bearings) = 1/2 × 3,600 bearings × 0.10P × 12
= ₹ 2,160

11. A
i) Total Cost of production= ₹ 2,120 + 60 + 20 = ₹ 2,200
Calculation of Economic Batch Quantity (EBQ):

2  90,000 `1,500 27,00,00,000

SEBQ = = = 1,567 columns.
5% of `2,200 `110

ii) Calculation of Extra Cost due to processing of 18,000 columns in a batch

When run size is 1,567 columns When run size is 18,000 columns
Total set up No. of setups =90,000/18,000 x 1,500
cost = 90,000/1567 = 57.43(58 setups) = 7,500
= 90,000/1,567 x 1,500
= 87,000
Total Carrying ½ x 1,567 x 110 ½ x 18,000 x 110
cost = 86,185 = 9,90,000
1,73,185 9,97,500

Thus, extra cost = ₹ 9,97,500 – ₹ 1,73,185 = ₹ 8,24,315

12.
i) Optimum batch size or Economic Batch Quantity (EBQ):

2DS 2×48,000×384
EBQ = = = 3919 or 3,920 units
C 2.4

Number of Optimum runs = 48,000 ÷ 3,920 = 12.245 or 13 run

ii) Interval between 2 runs (in days) = 365 days ÷ 13 = 28 days Or 365÷12.24=29.82 days
iii) Statement showing Total Cost at Production Run size of 3,600 and 8,000 bearings
A. Annual requirement 48,000 48,000
B. Run Size 3,920 8,000
C. No. of runs (A/B) 12.245 6
D. Set up cost per run ₹ 384 ₹ 384
E. Total set up cost (C x D) ₹. 4,702 ₹ 2,304
F. Average inventory (B/2) 1,960 4,000
G. Carrying cost per unit p.a. 2.40 2.40
H. Total Carrying cost (F x G) 4,704 9,600
I. Total cost (E+H) 9,406 11,904

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Extra cost incurred, if run size is of 8,000= ₹11,904 - 9,406= ₹.2,498

iv) To save cost the company should run at optimum batch size i.e. 3,920 Units. It saves ₹ 2,498. Run
size should match with the Economic production run of bearing manufacture. When managers of
a manufacturing operation make decisions about the number of units to produce for each
production run, they must consider the costs related to setting up the production process and the
costs of holding inventory.

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