Question

From the following information, ascertain food cost, labour cost and overhead cost and their percentage to total sales. Also find the net profit percentage:

Hint:

In CBSE board exams, both methods are valued; however, Method A is typically preferred for its ease of raw step-by-step additions. To guarantee the highest score, write down both calculations clearly to demonstrate your superior mastery of accounting standards!

Answer 1

To solve this accounting problem with complete professional accuracy, we will present two distinct, standard methods. Method A represents the direct, simplified cost aggregation often found in primary CBSE marking schemes. Method B represents the rigorous hospitality industry standard (Uniform System of Accounts for the Lodging Industry - USALI), which accounts for inter-departmental transfers (such as shifting staff meals from food cost to labor cost). Both methods are fully derived below. METHOD A: DIRECT COST AGGREGATION METHOD (Standard Exam Approach)

Step 1: Ascertainment of Food Cost:
The baseline food cost (Cost of Food Consumed) is calculated as: $$\text{Food Cost} = \text{Opening Stock} + \text{Purchases} - \text{Closing Stock}$$ $$\text{Food Cost} = 12,000 + 1,00,000 - 12,000 = \text{Rs. } 1,00,000$$ To calculate its percentage to Total Sales ($\text{Sales} = \text{Rs. } 3,84,000$): $$\text{Food Cost Percentage} = \left( \frac{\text{Food Cost}}{\text{Total Sales}} \right) \times 100$$ $$\text{Food Cost Percentage} = \left( \frac{1,00,000}{3,84,000} \right) \times 100 \approx \mathbf{26.04%}$$

Step 2: Ascertainment of Labour Cost:
The direct labor expenses comprise salaries, statutory benefits, and employee welfare schemes: $$\text{Labour Cost} = \text{Wages and Salaries} + \text{EPF} + \text{Medical Reimbursement} + \text{LTC}$$ $$\text{Labour Cost} = 40,000 + 5,000 + 4,000 + 1,200 = \text{Rs. } 50,200$$ To calculate its percentage to Total Sales: $$\text{Labour Cost Percentage} = \left( \frac{50,200}{3,84,000} \right) \times 100 \approx \mathbf{13.07%}$$

Step 3: Ascertainment of Overhead Cost:
Overheads consist of all operating expenses, administrative costs, and utility charges: Overheads &= Rent + Repairs + Electricity + Water + Gas/Fuel + Office Expenses
&+ Printing + Depreciation + Miscellaneous + Laundry + Telephone $$\text{Overheads} = 12,000 + 2,000 + 1,500 + 500 + 2,000 + 5,000 + 1,000 + 1,000 + 800 + 500 + 1,000$$ $$\text{Overheads} = \text{Rs. } 27,300$$ To calculate its percentage to Total Sales: $$\text{Overhead Cost Percentage} = \left( \frac{27,300}{3,84,000} \right) \times 100 \approx \mathbf{7.11%}$$

Step 4: Net Profit and Net Profit Percentage:
We must calculate Total Expenses and Total Operating/Non-operating Income:
• Total Sales Revenue = Rs. $3,84,000$
• Other Operating Receipts:
• Accommodation charged to staff = Rs. $500$
• Interest Subsidy = Rs. $500$
• Total Income/Receipts = $3,84,000 + 500 + 500 = \text{Rs. } 3,85,000$
• Total Operating Expenses = $\text{Food Cost} + \text{Labour Cost} + \text{Overheads}$ $$\text{Total Expenses} = 1,00,000 + 50,200 + 27,300 = \text{Rs. } 1,77,500$$
• Net Profit = $\text{Total Income} - \text{Total Expenses}$ $$\text{Net Profit} = 3,85,000 - 1,77,500 = \text{Rs. } 2,07,500$$
• Net Profit Percentage (calculated on Total Sales): $$\text{Net Profit Percentage} = \left( \frac{\text{Net Profit}}{\text{Total Sales}} \right) \times 100$$ $$\text{Net Profit Percentage} = \left( \frac{2,07,500}{3,84,000} \right) \times 100 \approx \mathbf{54.04%}$$ METHOD B: PROFESSIONAL HOSPITALITY ADJUSTMENT METHOD (USALI Standards)
In professional hospitality accounting, certain adjustments are mandatory to reflect the true cost parameters of the core revenue-generating departments:
• Adjusted Net Food Cost: Staff meals (Rs. $2,000$) and complimentary guest meals (Rs. $2,000$) are deducted from Food Cost because they were not sold to customers.
$\text{Net Food Cost} = 1,00,000 - 2,000 \text{ (Staff)} - 2,000 \text{ (Complimentary)} = \text{Rs. } 96,000 \quad \mathbf{(25.0% \text{ of Sales})}$

• Adjusted Labour Cost: The cost of feeding staff (Rs. $2,000$) is added as a payroll benefit. Additionally, since staff accommodation valued at Rs. $2,000$ was charged to staff at Rs. $500$, the remaining Rs. $1,500$ is a subsidy borne by the hotel, classified as a labor expense.
$\text{Net Labour Cost} = 50,200 + 2,000 \text{ (Staff Meals)} + 1,500 \text{ (Accommodation Sub.)} = \text{Rs. } 53,700 \quad \mathbf{(13.98% \text{ of Sales})} $
• Adjusted Overheads: Complimentary guest food (Rs. $2,000$) is added as a Marketing Overhead. The Interest Subsidy (Rs. $500$) is treated as a credit offset.
$\text{Net Overheads} = 27,300 + 2,000 \text{ (Marketing)} - 500 \text{ (Subsidy)} = \text{Rs. } 28,800 \quad \mathbf{(7.5% \text{ of Sales})}$ Summary Comparison Table of Financial Results: