Cost of Return: 3 Corrected Exercises

Welcome to this article whose sole purpose is to help you progress on the theme of cost price with corrected exercises from the Operational Management subject of the BTS MCO.

If you would like to first see or review the course on the same theme, I invite you to read my article entitled Calculate a Product Cost in Just 5 Steps.

The 3 corrected exercises on cost price on this page mainly concern the calculation of purchasing costs and the calculation of production costs.

You will also find corrected exercises on the following concepts: the distribution of indirect costs and the calculation of the cost of a unit of work.

Here is the list of corrected exercises on cost price:

• Cost price – Exercise No. 1: Distribution of indirect costs – Cost of unit of work
• Cost price – Corrected exercise No. 2: Stock sheet – Cost price – Profitability rate
• Cost price – Corrected exercise No. 3: Purchase cost – Result – Net margin

Cost price – Corrected exercise No. 1: Distribution of indirect costs – Cost of unit of work

States

The Casdeau commercial unit specializes in the design and sale of clothing and more particularly trendy pants.

To manufacture its products, it uses MP raw material.

The manufacturing process is as follows: passage through two workshops (AT1 and AT2), packaging workshop and then marketing.

The manager Mr. Lepique sends you, for year N, the following information:

• PM purchases: 50 kg at €000;
• Production: 22 pairs of pants;
• Packaging: 19;
• Machine hours used: 11 hours;
• Sales: 18 pairs of pants.

It also sends you the distribution table for indirect costs:

Work to do

• Complete the indirect costs distribution table.
• Calculate the unit cost of work for each center.

Proposed correction

Distribution table of indirect charges

To complete the indirect costs distribution table, you must follow different steps.

Distribute the Energy auxiliary center and the Machinery Management auxiliary center to the main centers using percentages.

Here are the details of the calculations for the auxiliary Energy center:

• 11 × 800 = 0,08 in the Machine Management center
• 11 × 800 = 0,18 in the Supply center
• And so on down the line.

You must do the same calculations for the distribution of the Machine Management center:

• 38 (944 + 38) × 000 = 944 in the Supply center
• 38 (944 + 38) × 000 = 944 in the AT0,28 center
• And so on down the line.

Calculation of secondary distribution

You need to add up each main center:

• 8 + 000 + 2 = 124
• 24 + 500 + 2 = 832
• 28 + 000 + 3 = 540
• 12 + 500 + 1 = 180
• 8 + 800 + 1 = 180

To calculate the number of units of work you need to ask yourself questions about the unit of work.

For the Supply center: How many times is there 1 euro in the amount of purchases?

For center AT1: How many machine hours were used in center AT1?

For the AT2 center: How many pants were made in the AT2 workshop?

For the Packaging center: How many pants have been packaged?

For the Distribution center: How many pants were sold?

Calculation of the number of units of work

To calculate the purchase amount, you must multiply the quantity purchased by the unit purchase price:

50 × 000 = €0,60

To find the number of units of work, you must divide the amount of purchases by €1:

30 ÷ 000 € = 1 units of work

To find the number of machine hours used in the AT1 center, you just need to read the information in the statement:

11 000 hours

To find the number of pants manufactured in the AT2 center, you just have to read the information in the statement:

22 pants manufactured.

To find the number of pants packaged in the Packaging center, you just have to read the information in the statement:

19 pairs of pants packaged.

To find the number of pants sold in the Distribution center, you just have to read the information in the statement:

18 pants sold.

Calculation of unit cost of work

To calculate the unit of work cost, you must divide the secondary allocation total by the number of units of work:

• 12 ÷ 461 = 30
• 38 ÷ 236 = 11
• 44 ÷ 002 = 22
• 20 ÷ 690 = 19
• 16 ÷ 211 = 18

Cost price – Corrected exercise No. 2: Stock sheet – Cost price – Profitability rate

States

The Caslamar business unit buys and sells spare parts for kitchens for large restaurants and other catering professionals.

She wants to know the cost price of a new model that she wants to put on the market very soon.

The Caslamar manager will give you several instructions to answer different questions.

• Purchases: 500 pieces at €100
• Sales: 620 pieces at €195
• Stocks at the start of the period: 160 pieces at €140
• Number of work units (“Supply” center): 500
• Number of work units (“Distribution” center): 1
• Cost of the unit of work: €21 (“Supply” center) and €12 (“Distribution” center)
• Supply costs: €3 per piece
• Distribution costs: €12 per item sold

Work to do

1. Calculate the purchase cost.
2. Determine the elements of the stock card.
3. Calculate the distribution cost and the production cost.
4. Calculate the result as well as the rate of return.

Proposed correction

• Calculate the purchase cost.

Purchases = Quantity purchased × Unit purchase price

Supply costs = Quantity purchased × Unit supply costs

Supply creel = Quantity purchased × Supply center labor unit cost

Purchase cost = 500 corresponds to the quantity purchased. 62 is the sum of the amounts. 000 corresponds to the result of division 124 ÷ 62

• Determine the elements of the stock card.

The initial stock is given in the statement.

The entries (left side of the stock sheet) correspond to the previously calculated purchase cost.

The Total line on the Input side: the quantity corresponds to the sum of the quantities (160 + 500). The same goes for the Amount column (22 + 400). The unit price is the result of the Amount ÷ Quantity division (62 ÷ 000)

In this corrected exercise, the weighted average unit cost method is used. Here the CMUP is €126,36. Consequently, all elements on the Exit side of the stock sheet (therefore on the right) are evaluated at the CMUP.

The quantity released corresponds to the quantity sold (620). This quantity is valued at CMUP, therefore at €126,36 per unit.

The ending stock quantity is found by making the difference between the total and the quantity issued (660 – 620 = 40).

• Calculate the distribution cost and the production cost.

The cost of distribution

Distribution costs = number of pieces sold × distribution costs per pieces sold

The Distribution center = Number of work units of the Distribution center × cost of work unit of the Distribution center

Distribution cost: the quantity corresponds to the number of pieces sold. The amount corresponds to the sum of the column. The unit price corresponds to the division between the amount and the quantity.

The cost of returns

The purchase cost of the parts sold corresponds to the outgoing stock from the stock sheet calculated above.

The distribution cost corresponds to the distribution cost calculated above.

The cost price: the quantity corresponds to the number of pieces sold. The amount corresponds to the sum of the column. The unit price corresponds to the result of the Amount ÷ quantity division (105 ÷ 924,85).

• Calculate the result as well as the rate of return.

Turnover = Quantity sold × Unit sales price

The cost price was calculated previously.

The result: The quantity corresponds to the quantity sold. The amount corresponds to the difference between turnover and cost price (120 – 900).

Unit result = Amount of result ÷ Quantity sold

We can therefore conclude that the Caslamar business unit achieves a unit profit of €24,15 and an overall net margin of €14.

The rate of profitability

Regarding the rate of return, the following formula must be applied:

Profitability rate = (Result ÷ Turnover) × 100

So: (14 ÷ 975,15) × 120 = 900%

The sale of spare parts is therefore profitable since the profit represents a little more than 12% of turnover.

Cost price – Corrected exercise No. 3: Purchase cost – Result – Net margin

States

The Lécole company buys and resells TBI interactive whiteboards.

It offers fixed and mobile TBIs. As a manager, you would like to know which product is the most profitable for the company. For this you have the following elements:

In addition to the cost of purchasing the TBI, the other expenses of the company are:

• Sales commission: €200 per fixed TBI and €100 per mobile TBI
• Salary and social charges: €80
• Rent: €30
• Depreciation allowance: €40
• Taxes: €18

For the distribution of indirect costs, the management controller distinguishes between three analysis centers:

• The supply center
• The distribution center
• The administration center

It also evaluated the use of indirect charges by the different centers:

Salaries must be allocated to:

• 25% at the supply center
• 50% at the distribution center
• 25% at the administration center

Indirect costs analysis table

At the start of the year, the Lécole company held N 20 TBI valued at a purchase cost equal to €1. In year N, it acquired 720 fixed TBIs for a unit purchase cost of 120 euros.

Work to do

1. Calculate the purchase cost of the purchased goods
2. Calculate the cost of purchasing goods sold
3. Calculate the distribution cost
4. Calculate the cost price
5. Determine the net margin

Proposed correction

• Calculate the purchase cost of the purchased goods

First of all it is necessary to present the distribution table of indirect costs following the distribution percentages:

Here are the explanations of the results of the indirect costs distribution table:

(1): 80 × 000%

(2): Total of the Purchase analysis center column.

(3): These are the purchases given in the statement.

(4) and (5): The company achieved a turnover of (3 × 000) + (110 × 1) or a total of €000. Which corresponds to 100 times €430 in turnover.

(6): 48 ÷ 200

Now we can present the purchase cost table:

Direct charges correspond to the elements provided in the statement.

Indirect costs correspond to the elements provided (work unit cost) in the indirect costs analysis table.

The cost of purchasing a fixed IWB is equal to €1 while the cost of purchasing a mobile IWB is €685,38.

• Calculate the cost of purchasing goods sold

The purchase cost of goods sold takes into account inventory changes. With the CMUP (weighted average unit cost) method, the fixed IWB stock sheet is presented as follows:

The initial stock is given in the statement.

The entries correspond to the purchase cost (rounded) calculated above.

The total (left): The quantity corresponds to the sum of the column. The amount corresponds to the sum of the column. The unit price is equal to the division between the amount and the quantity (236 ÷ 600). 140 corresponds to the CMUP.

The Total line is a copy of the left line.

Outputs: the quantity corresponds to the number of fixed TBIs sold. The quantity is evaluated at CMUP.

Final stock: The quantity corresponds to the difference between the total and the sales (140 – 110). The amount corresponds to the result of multiplying the quantity by the unit price (30 × 1).

• Calculate the distribution cost

The direct charges which correspond to the commissions are given in the statement.

The source of indirect charges is the distribution table for indirect charges.

Distribution cost: the quantity corresponds to the quantity sold. The amount corresponds to the sum of the column. The unit price corresponds to the result of the division between the amount and the quantity sold.

• Calculate the cost price

(1): indirect administration costs come from the indirect costs analysis table.

The cost price is the sum of all costs incurred by the Lécole company.

• Determine the net margin

Results interpretation :

Overall, the TBI sales activity is profitable. On the other hand, in detail, we can see that it is the fixed IWBs which are very profitable while the mobile IWBs suffer a loss of €6.