LMN Foods is a manufacturer of organic snacks. For the year ending 2023, the company compiled the following financial data: Item Amount (in ₹)…

CA Intermediate · Cost and Management Accounting · PYQS · January 2025
LMN Foods is a manufacturer of organic snacks. For the year ending 2023, the company compiled the following financial data: Item Amount (in ₹) Opening inventory of raw materials 2,00,000 Closing inventory of raw materials 2,50,000 Raw material purchases 12,00,000 Labour costs 5,00,000 Production overheads 2,50,000 Marketing and distribution expenses 1,52,000 In 2024, LMN Foods accepted a request for a bulk supply of their best-selling snacks. The estimated costs for fulfilling this order are as follows: Estimated raw material cost:3,00,000Estimated labour cost:1,50,000Packaging and transportation costs:49,400 LMN Foods allocates production overhead based on direct labour costs and marketing and distribution expenses as a percentage of the total production cost based on the previous year's data. Required: (i) Calculate the overhead recovery rates for 2023 based on actual costs. (2 Marks) (ii) Prepare a comprehensive cost statement for the bulk order and determine the Sales required for achieving a profit margin of 20% on the final sales amount. (4 Marks)

Suggested Answer and Working Notes:

(i) Calculation of Overhead Recovery Rate: Production Overhead recovery rate based on Direct Labour Costs = (Production Overhead / Direct Labour Cost) ×100 = (2,50,000 / 5,00,000) ×100 = 50% of Direct Labour Marketing & Distribution Overhead recovery rate based on Total Production Costs = (Marketing & Distribution Overhead / Total Production Cost) ×100 = (1,52,000 / 19,00,000) ×100 = 8% of Total Production Costs Working Note: Statement showing Total Cost for 2023 Particulars Amount (₹) Opening stock of raw material 2,00,000 Add: Purchases 12,00,000 Less: Closing stock of raw material (2,50,000) Direct Material Consumed 11,50,000 Direct Labour Cost 5,00,000 Prime Cost 16,50,000 Add: Production Overhead 2,50,000 Production cost 19,00,000 Add: Marketing & Distribution Cost 1,52,000 Total Cost 20,52,000 (ii) Cost Statement for the Bulk Order and Determination of Sales in 2024: Particulars Amount (₹) Direct Material Cost 3,00,000 Direct Labour Cost 1,50,000 Prime Cost 4,50,000 Add: Production Overhead (50% of Direct Labour Cost) 75,000 Production cost 5,25,000 Add: Marketing & Distribution Cost (8% of Production Cost) 42,000 Packaging and Transportation Costs 49,400 Total Cost 6,16,400 Add: Profit @ 25% on cost 1,54,100 Sales value (Price to be quoted for the order) 7,70,500 Hence the price to be quoted is 7,70,500

Topics: Cost Sheet

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