1. Cost & Management Accounting
By Product
Lecture-27
Mian Ahmad Farhan (ACA)

2. Example Main product By product Opening stock ----- -----
Production during the year ,
Closing stock
Cost incurred ,
Cost of 3600 units (64,000/4000x3600) 57,
Sales price (Per unit)
Further processing cost

3. Method-1 Treat as an other income Sales (3600 x 30) 1,08,000
Less Cost of goods sold
Opening stock
Production cost 64,000
Less Closing stock (16 x 400) 6,400
57,600
Gross Profit ,400
Add Other income ,400
51,800

4. Sales of By Product (700 x 2.5) 1,750
Less Further Processing cost (700 x 0.5)
1400

5. Method-2 Treat as a deduction from cost of goods sold
Sales (3600 x 30) 1,08,000
Less Cost of goods sold
Opening stock
Production cost 64,000
Less Closing stock (16 x 400) 6,400
57,600
Less Sales value of By Product
56,200
Gross Profit ,800

6. Method-3 Treat as a deduction from cost of goods manufactured
Sales (3600 x 30) 1,08,000
Less Cost of goods sold
Opening stock
Production cost (64,000 – 1,400) 62,600
Less Closing stock (62,600 x 10%) 6,260
56,340
Gross Profit ,660

7. Realizable Value Production cost on By Product 800 x 2.50 = 2,000
Additional cost on By Product 800 x 0.50 =
1,600

8. Method-4 (Realizable Value)
Treat as a deduction from cost of goods manufactured
Sales (3600 x 30) 1,08,000
Less Cost of goods sold
Opening stock
Production cost (64,000 – 1,600) 62,400
Less Closing stock (62,400/4,000=15.6 x 400) 6,240
56,160
Gross Profit ,840

9. Cost Elements Direct Material Direct Labor FOH Variable & Fixed Cost
Variable Cost

10. Absorption Costing & Marginal Costing
100 units
Marginal Costing
Direct Material
Rs. 80 per unit
8,000
5,000
3,000
2, ,000
18,000
16,000
2,000
14,000
Direct Labor
Rs. 50 per unit
Factory Overhead
Variable FOH
Fixed FOH
Product Cost
Fixed Cost
(Period Expenses)

11. Cost Per Unit Absorption Costing = 18,000 / 100 = Rs 180
Marginal Costing = 16,000 / 100 = Rs 160

12. a – All units Sold
b- No. of units sold 80
No. of units in stock 20
100
C- No. of units sold 110
Selling price Rs. 240 per unit

13. A- All Units Sold
Absorption costing Marginal costing
Sales (110 x 240) , ,000
Less Product cost
100 x , ,000
100 x 160
Gross profit ,000
Contribution margin 8,000
Less Fixed cost (2000)
Profit 6, ,000

14. B- 80 units sold & 20 units in stock
Absorption costing Marginal costing
Sales 110 x , ,400
Less Production cost
10 x 180 = 18, x 160 = 16,00
100 x 180= 18, x =16,000
19, ,600
Profit , Contribution Margin 8,800
Less Fixed cost ,000
6,800

15. Absorption costing Marginal costing Sales 80 x 240 19,200 19,200
C- 110 units sold
Absorption costing Marginal costing
Sales 80 x , ,200
Less Production cost
100 x 180 = 18, x 160 = 16,000
20 x = (3600) x = (3,200)
14, ,800
Profit , Contribution Margin 6,400
Less Fixed cost ,000
4,400