In order to provide employment opportunities in rural areas of Madhya Pradesh, State government decided to give interest free loan up to…

In order to provide employment opportunities in rural areas of Madhya Pradesh, State government decided to give interest free loan up to 30,00,00,000 to Khadi cloth industrialists. In return these industrialists are expected to set up the factory and produce khadi cloth in such rural areas. The loan is refundable after 20 years in lump sum. Madhya Pradesh government kept a stipulation that 40% of cloth production shall be supplied to government at a nominal rate of 10 per metre. This supply shall be used by the government for making uniforms of class IV employees of state government. Haryana cloth mill of Hissar took loan of 30 crores and commenced business in Dindori, a rural district of Madhya Pradesh. Production commenced at Dindori and following are the details: Production during the year 2023-24 40,00,000 metres of Khadi cloth Raw cotton used 1,20,00,000 Direct wages 1,80,00,000 Freight inwards 8,00,000 Factory overheads estimated at 30% of prime cost Office and administration overheads estimated at 20% of factory cost Donations 2,00,000 Fines & Penalties 5,00,000 Selling and distribution overhead estimated at 1,69,52,000 The selling price to be charged from general public is to be fixed in such a way as to earn a profit of 30% on total cost of sales and price should be in multiple of Re.1. Actual overheads incurred are as under:- (1) Factory overheads = 89,50,000 (2) Office and administration overheads = 90,50,000 (3) Selling and distribution overheads = 1,70,00,000 The company has been requested to submit a cost audit report to the government detailing the production activities in its factory. As part of this process, the government has provided a draft format containing several key questions that must be addressed within the report. These questions are designed to ensure the accuracy and transparency of the company's production costs, and they play a critical role in shaping the audit report. Before proceeding with the preparation of the final cost audit report, it is essential that the company carefully reviews and works out the answers to these questions.