TYPES OF COST CLASSIFICATIONS
| VARIOUS TYPES OF COST CLASSIFICATIONS | |||||||||||||||||||||||||||||||||||||||
| Basis | Cost | Example | Managerial Application | ||||||||||||||||||||||||||||||||||||
| Nature of Expenses | |||||||||||||||||||||||||||||||||||||||
| Functional | Classification | ||||||||||||||||||||||||||||||||||||||
| Behavioural | |||||||||||||||||||||||||||||||||||||||
| Cost Inventory Basis | |||||||||||||||||||||||||||||||||||||||
| Cost Object or Traceability | |||||||||||||||||||||||||||||||||||||||
| Cost for Decision | |||||||||||||||||||||||||||||||||||||||
| Note |
HARSH ELECTRICALS COST CLASSIFI
| EXHIBIT TN-2: HARSH ELECTRICALS COST CLASSIFICATIONS (IN ₹) | |||||||||||||||||||||
| Traceability | Behavioral | Inventoriable | |||||||||||||||||||
| Total | |||||||||||||||||||||
| Workshop | Electricity | ||||||||||||||||||||
| During the Season | |||||||||||||||||||||
| Standard | |||||||||||||||||||||
| Baleno | |||||||||||||||||||||
| Maintenance (During Production) | |||||||||||||||||||||
| Factory Lighting (During Production) | |||||||||||||||||||||
| During Off-Season | |||||||||||||||||||||
| Lighting and Maintenance | |||||||||||||||||||||
| Total | |||||||||||||||||||||
| Office Electricity | |||||||||||||||||||||
| Office Computer (During Production) | |||||||||||||||||||||
| Office Lighting (During the Season) | |||||||||||||||||||||
| During Off-Season (1/8 based on space) | |||||||||||||||||||||
| Check Figure | 16,50 | 0.00 | |||||||||||||||||||
| Note: *During off production time, 1,000 unit of electricity per month are allocated to the office and factory, based on the space they occupy; 1 square foot = 0.09 square metres; ₹ = INR = Indian rupee; US$1 = ₹54.35 on April 1, 2013. |
PRODUCT PROFITABILITY ANALYSIS
| PRODUCT PROFITABILITY ANALYSIS UNDER THE CONVENTIONAL COST SYSTEM (IN ₹) | ||||||||
| Particulars | Regular | Baleno | Model | |||||
| Direct Materials Consumed | ||||||||
| Direct Labour | ||||||||
| Direct Expenses | ||||||||
| Prime Cost | ||||||||
| Manufacturing Overheads | ||||||||
| Total Manufacturing Overheads | ||||||||
| Production of Standard Model | ||||||||
| Production of Baleno Model | ||||||||
| Total Direct Labour Cost | ||||||||
| Cost Driver Rate / Overhead Recovery Rate | ||||||||
| Product Cost | ||||||||
| Revenue | ||||||||
| Profit | ||||||||
| Product Profitability (in %) | ||||||||
| Note: ₹ = INR = Indian rupee; US$1 = ₹54.35 on April 1, 2013 | ||||||||
| 0.18 | 0.16 |
STATEMENT OF COST OF GOODS SOLD
| HARSH ELECTRICALS STATEMENT OF COST OF GOODS SOLD (IN ₹) | |||||
| Amount | |||||
| Direct Material (Consumed) | |||||
| Manufacturing Overhead: | |||||
| Cost of Production | |||||
| Cost of Goods Manufactured | |||||
| Add Opening Inventory of Finished Goods | |||||
| Less Closing Inventory of Finished Goods (60 Standard models @ ₹2,055.41 and 10 Baleno models @ ₹2,515.9) | |||||
| Cost of Goods Sold | Check Figure: | 8,588,662.61 | |||
| Note: ₹ = INR = Indian rupee; US$1 = ₹54.35 on April 1, 2013; WIP = work in progress |
PROJECTED INCOME STATEMENT FOR
| HARSH ELECTRICALS PROJECTED INCOME STATEMENT FOR CALENDAR YEAR 2014 (IN ₹) | |
| Net Income/Profit before Tax | |
| Less: Tax | |
| Profit after Tax | |
| Note: ₹ = INR = Indian rupee; US$1 = ₹54.35 on April 1, 2013; COGS = cost of goods sold; EBITDA = earnings before interest, taxes, depreciation, and amortization; EBIT = earnings before interest and taxes. | |
| Check Figure: | 1,202,464.90 |
COST-VOLUME-PROFIT ANALYSIS
| EXHIBIT TN-7: CALCULATION OF HARSH ELECTRICALS COST-VOLUME-PROFIT ANALYSIS (IN ₹) | |
| Standard Model | |
| Variable Costs | |
| Direct Materials Used | |
| Drilling Bits | |
| Distribution | |
| Procurement Cost | |
| Per Unit Variable Cost | |
| Selling Price | |
| Contribution | |
| Units Sold | |
| Total Contribution | |
| Total | Fixed Cost |
| Total Earnings before Interest and Tax | 1,379,600.00 |
| Calculation of Fixed Costs (in ₹) | |
BREAK-EVEN POINT & DESIRED PROF
| EXHIBIT TN-8: CALCULATION OF HARSH ELECTRICALS BREAK-EVEN POINT (IN ₹) | ||
| Sales Mix | Contribution of the Bundle | |
| 4.00 | ||
| 1.00 | ||
| BEP in bundles | Fixed Costs / Contribution | ERROR:#DIV/0! |
| BEP in units | ||
| BEP in revenue | ||
| 4,357,500.00 | ||
| Note: ₹ = INR = Indian rupee; US$1 = ₹54.35 on April 1, 2013; BEP = break-even point | ||
| EXHIBIT TN-9: HARSH ELECTRICALS SALES REQUIRED FOR THE DESIRED PROFIT | ||
| Desired Profit (as in 2010–11) | ||
| Desired EBIT (as in 2010–11) | ||
| Desired Contribution | ||
| Required Sales in Bundles | ||
| Sales of Standard Model | ||
| Sales of Baleno Model | ||
| Total Sales of Both Models (in units) | ||
| Required Revenue for profit desired | [$INR] 8,642,500.00 | |
| Note: ₹ = INR = Indian rupee; US$1 = ₹54.35 on April 1, 2013; EBIT = earnings before interest and taxes |
Objectives:
· Explain cost concepts and classifications for managerial decisions
· Calculate product costs and profitability
· Prepare a cost of goods sold statement
· Understand cost-volume-profit analysis and the BEP
· Prepare a projected income statement
Questions:
1. Discuss the various cost concepts that are part of the managerial decision-making process
2. List the costs involved in air-cooler manufacturing, and classify them for various managerial decisions.
3. Describe a cost system. Using the conventional cost system, estimate the profitability of each type of cooler that Harsh Electricals manufactures.
4. Prepare a cost of goods sold statement for Harsh Electricals.
5. Considering Harsh Electricals’ product and period costs, create a projected income statement for the calendar year 2014.
6. Calculate Harsh Electricals’ BEP in terms of units and volume.
7. Calculate the number of units that Harsh Electricals must sell to match the level of profit earned in financial year 2010-11.
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