EXHIBIT TN-1: VARIOUS TYPES OF COST CLASSIFICATIONS
Basis Cost Concept Example
Material Bodies, motors
Nature of Expenses Labour Direct labour
Overhead Supervision, factory rent
Factory expenses, set-up labour,
Manufacturing
consumables
Marketing Advertising
Functional Classification Selling and Distribution Selling expenses
General and Administrative CEO salary, office expenses
Financing Interest paid
Fixed Cost Rent
Behavioural Variable Cost Labour, material
Mixed Cost Electricity, telephone
Product Cost Labour, material, drilling bits
Cost Inventory Basis
Selling, general, and administrative
Period Cost
expenses, finance charges
Direct Direct materials, factory electricity
Cost Object or
Traceability Finance charges, rent (for office and
Indirect
factory)
Marketing study, research and
Sunk Cost
development
Cost for Decision Profits forgone from the previous business
Opportunity Cost
operation
Relevant Cost Objective cost of a business decision
Note: CEO = chief executive officer
Managerial Application
Expenses forming the primary
components of cost
For classification of product and
period costs, and the preparation
of financial statements
Relationship of cost to activity
volume: cost-volume-profit and
break-even point analysis
To assess the prime cost of a
cost object, which further helps in
inventory valuation
Analysis of product cost and
profitability
Managerial decision-making
For cost-benefit analysis
estimating economic profit
Accepting new orders; adding or
dropping product lines
EXHIBIT TN-2: HARSH ELECTRICALS COST CLASSIFICATIONS (IN ₹)
Traceability
Cost Note Total Cost Direct Indirect
Salary of Nagesh Contractual amount 600,000 a
Factory Rent 1,050 square feet @ ₹8 per a
month 10,800
Office Rent 150 square feet @ ₹8 per a
month 14,400
Raw Materials 3,260 Standard models @
(case Exhibit 4) ₹1,778 + 810 Baleno models @ a
₹2,185 7,566,130
Casual workers (for 3,260 Standard models 1 hour for Standard + 1.2 hours a
and 810 Baleno models) for Baleno @ ₹25/hour 105,800
Indirect (Set-up) Labour 6 months @ ₹6,000/month 36,000 a
Procurement Expenses 0.5% of raw materials 37,831 a
Drilling bit ₹10 per unit of cooler 40,000 a
Factory Electricity 115,850 a
Actual during working and pro-
rata during off-season
Office Electricity 16,000 a
Factory Insurance Contractual amount 25,000 a
Consumables May change after 5,000 units 45,000 a
Depreciation on Factory Machinery, ₹300,000 for 5 years and a
64,000
Furniture ₹40,000 for 10 years
₹80,000 for 5 years and a
Depreciation on office equipment 22,000
₹60,000 for 10 years
Selling Expenses ₹100 per cooler sold 400,000 a
Workshop Electricity
During the Season
Standard Coolers (During Production) 32,600.00
Baleno Coolers (During Production) 12,150.00
Maintenance (During Production) 600.00
Factory Lighting (During Production) 18,000.00
During Off-Season
Lighting and Maintenance 52,500.00
Total 115,850.00
Office Electricity
During the Season
Office Computer (During Production) 6,000.00
Office Lighting (During the Season) 3,000.00
During Off-Season
During Off-Season (1/8 based on space) 7,500.00
Total 16,500.00
Behavioral Inventoriable
Fixed Variable Mixed Product Period
a a
a a
a a
a a
a a
a a
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a a
a
a
a a
a a
a a
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EXHIBIT TN-4: PRODUCT PROFITABILITY ANALYSIS UNDER THE CONVENTIONAL COST SYSTEM (IN ₹)
Particulars Regular
Direct Materials Consumed
Body
Motor
Pump
Blade, Clam, and Wiring
Pipe, Water Distributor, and Water Panel
Diverter
Packing (Carton and Labelling)
Wheel
Direct Materials Consumed 0.00
Direct Labour
1hr @25/hr;
Labour
1.2 hrs@25/hr
Direct Expenses
Drilling Bit ₹ 10/unit
Power
Prime Cost 0.00
Manufacturing Overheads
Supervisor's Salary (Nagesh) 600,000.00
Consumables 45,000.00
Rent (Factory) 10,800.00
Procurement Charges 37,831.00
Depreciation (Factory) 64,000.00
Factory Electricity 71,100.00
Factory Insurance 25,000.00
Indirect Labour 36,000.00
Total Manufacturing Overheads 889,731.00
Production of Standard Model
Production of Baleno Model
Total Direct Labour Cost 0.00
Cost Driver Rate / Overhead Recovery Rate #DIV/0!
Manufacturing Overheads #DIV/0!
Product Cost #DIV/0!
Revenue 2,500.00
Profit #DIV/0!
Product Profitability (in %) #DIV/0!
SYSTEM (IN ₹)
Baleno Model
0.00
0.00
#DIV/0!
#DIV/0!
3,000.00
#DIV/0!
#DIV/0!
EXHIBIT TN-7: CALCULATION OF HARSH ELECTRICALS COST-VOLUME-PROFIT ANALYSIS (IN ₹)
Particulars Standard Model Baleno Model Total
Variable Costs
Direct Materials Used 0.00 0.00
Direct Labour 0.00 0.00
Drilling Bits 0.00 0.00
Distribution
Electricity
Procurement Cost
Per Unit Variable Cost
Selling Price
Contribution per Unit
Units Sold
Total Contribution 0.00 0.00 0.00
Total Fixed Costs for Standard and Baleno Models 625,200.00
Total Earnings before Interest and Tax -625,200.00
Calculation of Fixed Costs (in ₹)
Salary of Nagesh 600,000.00
Factory Rent 10,800.00
Office Rent 14,400.00
Indirect Labour
Electricity
Factory Insurance
Consumables
Depreciation Workshop
Depreciation on Office Equipment
Total 625,200.00
Note: ₹ = INR = Indian rupee; US$1 = ₹54.35 on April 1, 2013
Source: Prepared by the case writers.
EXHIBIT TN-8: CALCULATION OF HARSH ELECTRICALS BREAK-EVEN POINT (IN ₹)
Contribution of
Model Sales Mix Contribution
the Bundle
Standard 4.00 0.00 0.00
Baleno 1.00 0.00 0.00
Total 0.00
Fixed Cost 625,200.00
BEP in bundles Fixed Costs / Contribution #DIV/0!
BEP in units
Standard units x 4 #DIV/0!
Baleno units x 1 #DIV/0!
BEP in revenue
Standard 1341 units @ 2500
Baleno 335 units @ 3000
Total 1676 units 0.00
