Query Detail : SEBI Grade A Officer Phase I Paper 2 General Stream

I am unable to understand the part B problem you have given in the 'job costing' pdf...How have u calculated the administrative expense/factory overheads and profit? pls help
AashikhaVijayaBanu,   April 11th 2020,  
SEBI Grade A Officer Phase I Paper 2 General Stream


In Part B the question says that the administrative cost is same percentage of works cost as in last year.

Last year admin cost was 42000 and works cost was 210000. So in % terms it was 42000/210000 = 20%.

Now in Part B, the works cost is calculated as 240000. As such the adminitrative cost will be 20% of 240000 = 48000 (as shown in Part B table).

Similarly, factory cost has to be determined as % of direct wages. In last year it was 45000/75000 = 60%. As such in current year it will be 60% of 75000 (direct labour cost is same as direct wages) = 45000.

Like this, after calculating all costs and expenses, we arrive at Cost of sales of 357000 in Part B. Now profit % is said to be same as last year, so we first calculate the % of profit as a % of cost of sales last year.

We know profit/sales last year was = 60900/365400 = 0.1667

Now we also know that sales = (profit +cost of sales)  so we know cost of sales.

So new profit can be calculated by solving the equation:

0.1667 = profit/ (profit +357000); solving this equation will give profit = 71400.

So sale price = profit + cost of sales = 71400 + 357000 = 365400