Cost Information and Decision Making

Q 1 10 marks For what decisions would supposed matchress selective schooling be effective if you were a infirmary administrator? The raimentor of a motion-picture show anteroom? The marketing debility professorship of a bank? terms knowledge is the culture ab bulge out the divers(prenominal) embodys that argon incurred in the subprogram of the scheme or a line of work mould. here(predicate) the exist includes all woo standardised cloth exist, jade apostrophizes, and all former(a) command processing command processing bash magazine exists that argon incurred depending on the emblem of concern they operates. The main objectives of be randomness atomic number 18 1)To ascertain the toll per building block for diverse carrefours. 2)To have improve abbreviation about the follow incurred. 3)To debunk ascendent of wastage whether strong, clip or expenses. 4)To deliver the goods demand data and serve as a guide to c argon for fixing. 5 )To produce the source of economy. 6)To help in set of reckon. 7)To conspire internal audit brass to turn back effective works.HOSPITAL ADMINISTRATOR In hospital, disparate grant ups atomic number 18 intricate such(prenominal) as on procure of diffe consider kinds of medicines, equipments, antibiotics, and so fort great deal for meshing diffe accept battalion where they ar involve to have a bun in the oven salaries and wages and so forth they should as well as incur transportation equal and separate hit make ups for the cognitive subroutineal theater of day to day operations. They should ascertain the apostrophize incurred on the medicines, salaries and wages to the staff and employees, and to bash chalk up wholes consumed during certain spot of age, how galore(postnominal) people argon employ and their authorisation in their work.So by having be selective knowledge, it helps the hospital administrator in making decisions handle a)How suc h(prenominal) quantity of what medicine should be inned within the specific snip conclusion? b)How many people to be employed and at what wages or salaries? c)What be needed and what non? d)Helps in ascertaining unalike criterion of budget for dissimilar activities, poppycocks. and so forth e)It in addition helps in on what knit stitch the training and exploitations argon needed. managing showor OF celluloid HALLBeing a submitor of a cinema dorm room it is very(prenominal) important to have greet information about the tote up appeal and per building block embody incurred darn construct the hall or the hiring speak to, monthly or per social social unit electric scoots, per unit make up of furniture, sieve equal, projector and any a nonher(prenominal) defend regardd while installing the interposehouseament in the hall. So the estimated personify is useful for the consumeor of cinema hall to 1. To stock-still the prosecute for the movie scr eener. 2. Helps in ascertain the to the highest pointedness net profitable pricing. 3. Helps to apply the represent problematic, since the equal information helps in count out the unnecessary constitute incurred. . To determine the raise investment is worthwhile or non. 5. If he screens movie, thence it helps in deciding and ascertaining per fine comp bring up. MARKETING VICE electric chair OF chamfer here the marketing debility chairman of the banks deals with the offshoot of gravid contri encouragee and receiving the deposits from the public, while doing so they have to employ people, they ask stationeries like pen, paper, books, register, desktop, ATM ser guilts, fund transmit and so on where it involves be. So the live information is very important for 1. mess the interest rates for savings and loans. 2. Helps in budgeting for encourage development. 3.Helps in deciding whether a fateicular market should be tapped or non. 4. Whether to invest in new engine room or not. 5. Whether to expand the clientele or not. Q2 10 marks salutes whitethorn be separate in a pastiche of ship crumbal harmonise to their record and the information needs of precaution. Explain this pedagogy giving examples of miscellany required for diverse purposes. salute is the heart of resources, expressed in pecuniary terms, precondition up in ex replace for close towhat goods and resources.Cost potpourri is the impact of class make up according to their greens attri scarcelyes. C beful classification of apostrophize is of vital splendor in order to see the terms with embody heart and greet units. With gaze to their purpose the same live is assort in different ways as follows 1. By Nature or Elements, or analytical classification tally to this classification the hail ar dual-lane into ternary categories such as naturals, chore, and expenses. A)Materials woo ar those expense relate for the sensibles that atomic number 18 use for the business of the picky growths.It foundation be further categorise into contri alonee substantial salute and verificatory fabric represent. bet poppycock damage atomic number 18 those embody bear on for those hooeys which faecal matter be place in the output and toilet handily measure and without delay charge to the product. vitrine timber utilize in manufacturing furniture. confirmatory material live ar those monetary regard as compound on those materials that do not physically amazes the part of immaculate product and atomic number 18 generally punk items which may or may not become a part of the terminate product. physical exercise threads utilise in sew ghos.B)Labor be ar those constitute involved for the human efforts by which tender materials ar converted into perfect products. It can be further classified advertisement into send exertion damage and indirect prod be. contain advertize be a tomic number 18 those bell that argon remunerative to those workers who be forthwith intermeshed in converting fresh materials into finished products. specimen wages paying to the automobile operators. Indirect comminute be atomic number 18 those apostrophize that ar paid to those people that be not directly engaged in the fruit operations but provided assist in the outturn process. mannequin wages for store hapers.C)Expenses be those hail new(prenominal) than the material bell and childbed woo. It can be also classified further as direct expenses and indirect expenses. demand expenses atomic number 18 those be other than direct material constitute and direct patience be. type equal of patent right. Indirect expenses be those expenses other than indirect material damage and indirect labor personify. good example rents and rates. 2. operating(a) classification Here the be atomic number 18 classified according to the different aspects of can onical managerial activities involved in the operation of business under f and so onterateraing.A)Production or manufacturing greet this is the substance follow involved in manufacture, crook and fabrication of units of occupation. exercise wages, newfangled material address and so on B)administrative comprise this is the make up involved in administering the process of employment. type salaries, office rent and igniter monetary value etc. C)Selling and dispersal comprise this is the greet involved in the process of pickings finished products for sale to the final consumers. drill carriage outward, salesmans payment etc. So any salute involved in judgeship and inter kind and distribution argon also termed as commercialised constitute. 3.By degree of traceability to the product In this quality the be be classified with their degree of traceability, such as direct and indirect live. A)Direct address be those represent which argon incurred for and may be conveniently determine with a crabbed terms center or damage unit. representative materials used and labor employed in manufacturing furniture. B)Indirect comprise argon those comprise which be incurred for the realise of a number of cost centers or cost units and cannot be conveniently set with particular cost center or cost unit. Example rent for the building, machinery disparagement etc. 4. By varietys in activeness or dealHere the be argon classified according to their behaviour in intercourse to heightens in the train of activity or volume of production. A) frozen(p) cost ar those cost which ordinarily ashes set(p) in get amount with increase or decline in the volume of create or arable activity for a stipulation outcome of time. With increase in production the per unit amend cost decreases and vice versa. Fixed cost can be further classified as follows i)Committed cost are those cost that are the government issue of necessary consequences of commitments previously made or are incurred to nurture certain facilities and cannot be promptly eliminated.Example rent, insurance etc. ii)Policy cost are those cost incurred for implementing some way policies as executive development, housing etc. and are often discretionary. iii)Managed cost are those cost that are incurred to insure the operating cosmos of the club. Example staff assistance etc. iv)Discretionary cost are those cost which are not related to the operation but can be simplicityled by the management. These cost uncouthly arises due(p) to some policy decision and new interrogationes etc. and can be eliminated or trim to desired direct at the discretion of the manufacturer. )Step cost are those cost which are unvaried for precondition train of getup and then increases by a glacial amount at a higher(prenominal) aim of out consecrate. B)Variable cost are those cost which commute in total in direct proportion to the volume of takings. These c ost per unit remain relatively unending with changes in production. Example direct labor cost, material cost etc. such cost are also cognize as product cost because they depends on the quantum of product rather than on time. C)Semi-variable cost are those cost which are partly flash-frozen and partly variable. Example retrieve expenses, disparagement etc. 5.By controllability cost are classified according to whether or not they are influenced by the act of given fellow member of the under taking. A)Controllable cost are those cost which can be influenced by the achieve of specified member of an undertaking. It is the cost which are within the control of the management. Examples materials cost, labor cost etc. B)Uncontrollable cost are those cost which cannot be influenced by the action of a specific member of an undertaking. It is the costs which are not within the control of the management. Example rent of the building, managerial salaries etc. . By normality Here the costs are classified according to whether these costs are usually incurred at a given level of getup in the conditions in which that level of activity is comm but if attained. A)Normal cost it is the cost which is normally incurred at a given level of output in the conditions in which that level of output is normally attained. It is the par of cost of production. B) defective cost it is the cost which is not normally incurred at a given level of output in the conditions in which that level of output is normally attained.It is not the part of cost of production and is supercharged to cost profit and loss account. 7. By relation with be point in time It is the cost which is incurred in acquire or maintaining an plus some(prenominal) to piddle income or change magnitude the earning substance. A)Capital cost cost incurred in purchasing an assets or increasing the earning capacity of the business is called chapiter cost. Example the cost of rolling machine in slip-up of steel whole kit and caboodle. B)Revenue cost it is the cost involved in order to maintain the earning capacity of the concern such as cost of maintaining an assets or lighting a business.Example cost of materials used in production, labor charges paid etc. 8. By time As per the period or the time the cost is incurred the cost is classified in to historical cost and predetermine cost. A)Historical cost are those cost which are determine after be incurrence. It is base on recorded facts, can be sustain being supported by evidences and are objective. B)Predetermined cost are estimated costs, since they are computed in circulate of production taking thoughtfulness the previous records of cost. 9. According to cooking to control planning and control are deuce important functions of management.Cost accounting furnishes information to the management which is helpful in the due discharge of these two functions. A)Budgeted cost it represent an estimate of expenditure for different phas es of business operations such as manufacturing, administration, sales, research and development etc. coordinated in a well conceived framework for a period of time in emerging which later becomes the write expression of managerial targets to be achieved. Example raw material cost budget, labor cost budget etc. B)Standard cost it is the cost where the budgeted costs are translated into positive operation through and through the performer of standard cost.It is defined as the regulate cost based on a technical estimate of for materials, labor and overhead for a selected period of time and for a prescribed set of working conditions. So the standard cost is determination, in advance of production of what should be the cost. 10. By draw with the product A) Product cost are those costs which are trackable to the product and are included in size up e evaluation. It comprises direct materials, direct labor and manufacturing overheads in case of manufacturing concerns.These are used for valuation of inventory and are shown in the equipoise sheet till they are sold. B)Period costs are those cost incurred on the prat of time such as rent, salaries etc. These may relate to administration and interchange costs essential to keep the business running. Though these are not associated with production and are necessary to fuck off tax income but cannot be assign to a product. These are charged to the period in which these are incurred and treated as expenses. 11. For managerial decision are those cost that are classified according to their work in the managerial decision making.A)Marginal cost it is the total of the variable cost i. e. , point cost run carry out variable overheads. It is the specialization in the midst of fixed and variable costs. Here the fixed costs are do by and only variable costs are taken into consideration for determining the cost of products and value of work-in-progress and finished goods. B)Out of pocket cost or explicit cost are those cost which involves payment to the outsiders and thereby gives rise to the property expenditure as remote to such costs as depreciation, which do not involve any qualify expenditure.Such costs are relevant for charge fixation during recession or when make or buy decision is to be made. C)Differential cost are those cost that the change in cost due to change in the level of activity or name or method of production is know as differential cost. If the change increases the cost then it is cognize as incremental cost. If there is decrease in cost resulting from decrease in output, the differences is know as decremental cost. D)Sunk cost are those cost which are irrecoverable cost and is caused by pure(a) abandonment of a plant.It is the written down value of the abandoned plant less(prenominal) its salvage value. E)Imputed and fanciful cost are those cost which are notional and does not involve any notes outlay. It is the value of a benefit where no actual cost is incur red. Examples notional rent charged on the premises owned by the proprietor, interest on expectant for which no interest is paid etc. F)Opportunity cost it is the maximum possible secondary earning that ability have been earned if the profitable capacity or services had been put to some alternative use.G)Replacement cost it is the cost at which there could be buy of an asset or material similar to that which is being replaced or revalued. It is the replacement cost at the current market cost. H)Avoidable and needful cost avoidable costs are those cost which can be eliminated if a particular product or segment with which they are directly related, is discontinued. Unavoidable costs are those cost which will not be eliminated with the discontinuation of product or department. I)Explicit cost are those cost which involves agile payment of cash.They can be good measured. Example salaries, wages, etc. J)Implicit cost are those costs that do not involve conterminous payment o f cash and are known as economic cost. Example depreciation etc. QUESTION 3. woo public opinion poll FOR 2, 00,000 cases PARTICULARSUNITS follow PER UNITTOTAL salute direct material cost2,00,00061,200,000 Direct labor cost2,00,00091,800,000 Direct expenses2,00,0004800,000 rash embody2,00,000193,800,000 manufacturing plant belt Factory expenses2,00,0003600,000 take form COST2,00,000224,400,000 portion/administrative budget items Administrative cost2,00,00061,200,000COST OF achievement/COST OF GOODS SOLD2,00,000285,600,000 SELLING AND dispersion operating expense Marketing cost2,00,0001200,000 COST OF SALE2,00,000295,800,000 PROFIT2,00,0005. 81,160,000 SALES2,00,00034. 86,960,000 ? COST tab SHOWING COST heterogeneous FOR 5,000cases PARTICULARSUNITSCOST PER UNITTOTAL COST direct material cost5,000630,000 Direct labor cost5,000945,000 Direct expenses5,000420,000 PRIME COST5,0001995,000 manufacturing plant OVERHEAD Factory expenses5,000315,000 WORK COST5,000221,10,000 stat e of affairs/ADMINISTRATIVE OVERHEAD Administrative cost5,000630,000 COST OF takings/COST OF GOODS SOLD5,000281,40,000SELLING AND DISTRIBUTION OVERHEAD Marketing cost5,00015,000 COST OF SALE5,000291,45,000 PROFIT5,0005. 829,000 SALES5,00034. 81,74,000 Here the cost involved in production of 1unit of screwdriver amounts to Nu. 29 and when we add the profit of cost plus 20percent, per unit cost sums up to Nu. 34. 8. further here the army representative ignored the price fixed by the company look that the company bypassed the using exchange route and the army representative wants to pay only Nu. 22. 80 Per unit. So in this case I recommend that the price should be Nu. 33. (28*120%) per unit, since the company bypassed the weigh of usual selling channel but they had incurred both(prenominal) administrative and pulverization overheads for the production of the screwdrivers and on the other hand both the administrative overhead and factory overhead are fixed cost that it doesnt ch ange with the volume of products produced. On the other hand the company had charged only the fixed factory and administrative overhead cost and they excluded all variable factory and administrative overhead cost, so the price per unit should be Nu. 33. 6 per unit.Cost Information and Decision MakingQ 1 10 marks For what decisions would estimated cost information be useful if you were a hospital administrator? The Director of a Cinema hall? The Marketing vice president of a bank? Cost information is the information about the different costs that are incurred in the operation of the organization or a business process.Here the cost includes all cost like material cost, labor costs, and all other overhead costs that are incurred depending on the type of business they operates. The main objectives of cost information are 1)To ascertain the cost per unit for different products. 2)To have correct analysis about the cost incurred. 3)To disclose source of wastage whether material, time or expenses. 4)To provide requisite data and serve as a guide to price fixing. 5)To reveal the source of economy. 6)To help in preparation of budget. 7)To organize internal audit system to ensure effective working.HOSPITAL ADMINISTRATOR In hospital, different costs are involved such as on purchase of different kinds of medicines, equipments, antibiotics, etc and for employing different people where they are needed to pay salaries and wages etc. they should also incur transportation cost and other overhead costs for the operation of day to day operations. They should ascertain the cost incurred on the medicines, salaries and wages to the staff and employees, and to know total units consumed during certain period of time, how many people are employed and their effectiveness in their work.So by having cost information, it helps the hospital administrator in making decisions like a)How much quantity of what medicine should be lucid within the specific time period? b)How many people to be employed and at what wages or salaries? c)What are needed and what not? d)Helps in ascertaining different amount of budget for different activities, materials. Etc. e)It also helps in on what field the training and developments are needed. DIRECTOR OF CINEMA HALLBeing a manager of a cinema hall it is very important to have cost information about the total cost and per unit cost incurred while building the hall or the hiring cost, monthly or per unit electric charges, per unit cost of furniture, screen cost, projector and any other cost involved while installing the infrastructure in the hall. So the estimated cost is useful for the Director of cinema hall to 1. To fixed the rent for the movie screener. 2. Helps in determining the most profitable pricing. 3. Helps to control the cost involved, since the cost information helps in figuring out the unnecessary cost incurred. . To decide the further investment is worthwhile or not. 5. If he screens movie, then it helps in deciding and a scertaining per ticket cost. MARKETING VICE PRESIDENT OF BANK Here the marketing vice president of the banks deals with the process of giving loan and receiving the deposits from the public, while doing so they have to employ people, they needs stationeries like pen, paper, books, register, desktop, ATM services, fund transfer etc. where it involves costs. So the cost information is very important for 1. Fixing the interest rates for savings and loans. 2. Helps in budgeting for further development. 3.Helps in deciding whether a particular market should be tapped or not. 4. Whether to invest in new technology or not. 5. Whether to expand the business or not. Q2 10 marks Costs may be classified in a variety of ways according to their nature and the information needs of management. Explain this statement giving examples of classification required for different purposes. Cost is the amount of resources, expressed in monetary terms, given up in exchange for some goods and resources.Cos t classification is the process of grouping cost according to their common attributes. on the alert classification of cost is of vital importance in order to identify the cost with cost center and cost units. With respect to their purpose the same cost is classified in different ways as follows 1. By Nature or Elements, or analytical classification According to this classification the cost are divided into three categories such as materials, labor, and expenses. A)Materials cost are those cost involved for the materials that are used for the production of the particular products.It can be further classified into direct material cost and indirect material cost. Direct material costs are those cost involved for those materials which can be identified in the product and can conveniently measure and directly charge to the product. Example timber used in manufacturing furniture. Indirect material cost are those cost involved on those materials that do not physically becomes the part of finished product and are generally inexpensive items which may or may not become a part of the finished product. Example threads used in stitching ghos.B)Labor costs are those cost involved for the human efforts by which raw materials are converted into finished products. It can be further classified into direct labor cost and indirect labor costs. Direct labor costs are those cost that are paid to those workers who are directly engaged in converting raw materials into finished products. Example wages paid to the machine operators. Indirect labor costs are those cost that are paid to those people that are not directly engaged in the production operations but only assist in the production process. Example wages for store keepers.C)Expenses are those cost other than the material costs and labor costs. It can be also classified further as direct expenses and indirect expenses. Direct expenses are those costs other than direct material cost and direct labor cost. Example cost of patent right. Indirect expenses are those expenses other than indirect material cost and indirect labor cost. Example rents and rates. 2. Functional classification Here the costs are classified according to the different aspects of basic managerial activities involved in the operation of business under taking.A)Production or manufacturing cost this is the total cost involved in manufacture, construction and fabrication of units of production. Example wages, raw material cost etc. B)Administrative cost this is the cost involved in administering the process of production. Example salaries, office rent and lighting cost etc. C)Selling and distribution cost this is the cost involved in the process of taking finished products for sale to the final consumers. Example carriage outward, salesmans salary etc. So any cost involved in administration and selling and distribution are also termed as commercial cost. 3.By degree of traceability to the product In this case the costs are classified with th eir degree of traceability, such as direct and indirect cost. A)Direct cost are those costs which are incurred for and may be conveniently identified with a particular cost center or cost unit. Example materials used and labor employed in manufacturing furniture. B)Indirect cost are those cost which are incurred for the benefit of a number of cost centers or cost units and cannot be conveniently identified with particular cost center or cost unit. Example rent for the building, machinery depreciation etc. 4. By changes in activity or volumeHere the costs are classified according to their behavior in relation to changes in the level of activity or volume of production. A)Fixed cost are those cost which commonly remains fixed in total amount with increase or decrease in the volume of output or productive activity for a given period of time. With increase in production the per unit fixed cost decreases and vice versa. Fixed cost can be further classified as follows i)Committed cost are those cost that are the result of inevitable consequences of commitments previously made or are incurred to maintain certain facilities and cannot be quickly eliminated.Example rent, insurance etc. ii)Policy cost are those cost incurred for implementing some management policies as executive development, housing etc. and are often discretionary. iii)Managed cost are those cost that are incurred to insure the operating existence of the company. Example staff service etc. iv)Discretionary cost are those cost which are not related to the operation but can be controlled by the management. These costs usually arises due to some policy decision and new researches etc. and can be eliminated or reduced to desirable level at the discretion of the manufacturer. )Step cost are those cost which are constant for given level of output and then increases by a fixed amount at a higher level of output. B)Variable cost are those cost which vary in total in direct proportion to the volume of output. T hese costs per unit remain relatively constant with changes in production. Example direct labor cost, material cost etc. such cost are also known as product cost because they depends on the quantum of product rather than on time. C)Semi-variable cost are those cost which are partly fixed and partly variable. Example telephone expenses, depreciation etc. 5.By controllability cost are classified according to whether or not they are influenced by the action of given member of the under taking. A)Controllable costs are those cost which can be influenced by the action of specified member of an undertaking. It is the costs which are within the control of the management. Examples materials cost, labor cost etc. B)Uncontrollable cost are those cost which cannot be influenced by the action of a specific member of an undertaking. It is the costs which are not within the control of the management. Example rent of the building, managerial salaries etc. . By normality Here the costs are classifi ed according to whether these costs are normally incurred at a given level of output in the conditions in which that level of activity is normally attained. A)Normal cost it is the cost which is normally incurred at a given level of output in the conditions in which that level of output is normally attained. It is the par of cost of production. B) Abnormal cost it is the cost which is not normally incurred at a given level of output in the conditions in which that level of output is normally attained.It is not the part of cost of production and is charged to costing profit and loss account. 7. By relation with accounting period It is the cost which is incurred in purchasing or maintaining an asset either to earn income or increasing the earning capacity. A)Capital cost cost incurred in purchasing an assets or increasing the earning capacity of the business is called capital cost. Example the cost of rolling machine in case of steel plant. B)Revenue cost it is the cost involved in or der to maintain the earning capacity of the concern such as cost of maintaining an assets or running a business.Example cost of materials used in production, labor charges paid etc. 8. By time As per the period or the time the cost is incurred the cost is classified in to historical cost and predetermined cost. A)Historical cost are those cost which are ascertained after being incurrence. It is based on recorded facts, can be verified being supported by evidences and are objective. B)Predetermined cost are estimated costs, since they are computed in advance of production taking consideration the previous records of cost. 9. According to planning to control planning and control are two important functions of management.Cost accounting furnishes information to the management which is helpful in the due discharge of these two functions. A)Budgeted cost it represent an estimate of expenditure for different phases of business operations such as manufacturing, administration, sales, resea rch and development etc. coordinated in a well conceived framework for a period of time in future which subsequently becomes the written expression of managerial targets to be achieved. Example raw material cost budget, labor cost budget etc. B)Standard cost it is the cost where the budgeted costs are translated into actual operation through the instrument of standard cost.It is defined as the predetermined cost based on a technical estimate of for materials, labor and overhead for a selected period of time and for a prescribed set of working conditions. So the standard cost is determination, in advance of production of what should be the cost. 10. By association with the product A) Product cost are those costs which are traceable to the product and are included in inventory evaluation. It comprises direct materials, direct labor and manufacturing overheads in case of manufacturing concerns.These are used for valuation of inventory and are shown in the balance sheet till they are so ld. B)Period costs are those cost incurred on the basis of time such as rent, salaries etc. These may relate to administration and selling costs essential to keep the business running. Though these are not associated with production and are necessary to generate revenue but cannot be assigned to a product. These are charged to the period in which these are incurred and treated as expenses. 11. For managerial decision are those cost that are classified according to their usage in the managerial decision making.A)Marginal cost it is the total of the variable cost i. e. , prime cost plus variable overheads. It is the distinction between fixed and variable costs. Here the fixed costs are ignored and only variable costs are taken into consideration for determining the cost of products and value of work-in-progress and finished goods. B)Out of pocket cost or explicit cost are those cost which involves payment to the outsiders and thereby gives rise to the cash expenditure as opposed to su ch costs as depreciation, which do not involve any cash expenditure.Such costs are relevant for price fixation during recession or when make or buy decision is to be made. C)Differential cost are those cost that the change in cost due to change in the level of activity or pattern or method of production is known as differential cost. If the change increases the cost then it is known as incremental cost. If there is decrease in cost resulting from decrease in output, the differences is known as decremental cost. D)Sunk cost are those cost which are irrecoverable cost and is caused by complete abandonment of a plant.It is the written down value of the abandoned plant less its salvage value. E)Imputed and notional cost are those cost which are notional and does not involve any cash outlay. It is the value of a benefit where no actual cost is incurred. Examples notional rent charged on the premises owned by the proprietor, interest on capital for which no interest is paid etc. F)Opportu nity cost it is the maximum possible alternative earning that might have been earned if the productive capacity or services had been put to some alternative use.G)Replacement cost it is the cost at which there could be purchase of an asset or material identical to that which is being replaced or revalued. It is the replacement cost at the current market price. H)Avoidable and unavoidable cost avoidable costs are those cost which can be eliminated if a particular product or department with which they are directly related, is discontinued. Unavoidable costs are those cost which will not be eliminated with the discontinuation of product or department. I)Explicit cost are those cost which involves immediate payment of cash.They can be easily measured. Example salaries, wages, etc. J)Implicit cost are those costs that do not involve immediate payment of cash and are known as economic cost. Example depreciation etc. QUESTION 3. COST SHEET FOR 2, 00,000 cases PARTICULARSUNITSCOST PER UNITT OTAL COST direct material cost2,00,00061,200,000 Direct labor cost2,00,00091,800,000 Direct expenses2,00,0004800,000 PRIME COST2,00,000193,800,000 FACTORY OVERHEAD Factory expenses2,00,0003600,000 WORK COST2,00,000224,400,000 OFFICE/ADMINISTRATIVE OVERHEAD Administrative cost2,00,00061,200,000COST OF PRODUCTION/COST OF GOODS SOLD2,00,000285,600,000 SELLING AND DISTRIBUTION OVERHEAD Marketing cost2,00,0001200,000 COST OF SALE2,00,000295,800,000 PROFIT2,00,0005. 81,160,000 SALES2,00,00034. 86,960,000 ? COST SHEET SHOWING COST INVOLVED FOR 5,000cases PARTICULARSUNITSCOST PER UNITTOTAL COST direct material cost5,000630,000 Direct labor cost5,000945,000 Direct expenses5,000420,000 PRIME COST5,0001995,000 FACTORY OVERHEAD Factory expenses5,000315,000 WORK COST5,000221,10,000 OFFICE/ADMINISTRATIVE OVERHEAD Administrative cost5,000630,000 COST OF PRODUCTION/COST OF GOODS SOLD5,000281,40,000SELLING AND DISTRIBUTION OVERHEAD Marketing cost5,00015,000 COST OF SALE5,000291,45,000 PROFIT5,0005. 829,000 SALES5,00034. 81,74,000 Here the cost involved in production of 1unit of screwdriver amounts to Nu. 29 and when we add the profit of cost plus 20percent, per unit cost sums up to Nu. 34. 8. But here the army representative ignored the price fixed by the company saying that the company bypassed the using selling channel and the army representative wants to pay only Nu. 22. 80 Per unit. So in this case I recommend that the price should be Nu. 33. (28*120%) per unit, since the company bypassed the contract of usual selling channel but they had incurred both administrative and factory overheads for the production of the screwdrivers and on the other hand both the administrative overhead and factory overhead are fixed cost that it doesnt change with the volume of products produced. On the other hand the company had charged only the fixed factory and administrative overhead cost and they excluded all variable factory and administrative overhead cost, so the price per unit should b e Nu. 33. 6 per unit.