Cost accounting (ipcc)

This query is : Resolved

CA Piyush (Querist)
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05 July 2013 A timber merchant purchased 1,000 c.ft. of timber logs on 1st April, 1991 @ Rs. 100 per c.ft. and stored them in his timber yard for six months for seasoning. In the timber yard the following items of expenses were incurred during the period of seasoning:
(i) Rent Rs. 1,250 p.m.
(ii) Salaries of 4 Guards @ Rs. 250 p.m. (iii) Incidental Expenditure for Maintenance, Power, Lighting, etc. Rs. 750 p.m.
(iv) Annual Share of Administration Overhead Rs. 10,000. 50% of the floor area of the godown and other connected operations were incurred for stocking the seasoned timber. Loss in volume of the lags due to seasoning should be taken at 10%. Calculate the selling price of the seasoned timber per c.ft. on 1st October, 1991 assuming that the profit margin on cost was 15%.
Solution - Computation of Selling Price Quantity Amount c.ft. Rs.
Cost of Timber 1,000 1,00,000 Rent (1,250  6  1/2) 3,750 Salaries of Guards (250  4  6  1/2) 3,000 Incidental Expenses for maintenance, Power, etc. 2,250 Administration Overhead (10,000  1/2  1/2) 2,500 Less: Loss in volume (10%) 100 1,11,500

WHY ALL ITEMS HAVE BEEN MULTIPLIED BY 1/2 ?