Professional Documents
Culture Documents
Assignment - A
Quest1.
Cost Accounting is an aid to management discuss the main points in
support of this statement. Also explain briefly the limitation of Cost Accounting.
Answer 1:
COST ACCOUNTING is an aid to management & its Limitations:
a) Cost Accounting This accounts for cost; begins with recording revenues and cost
and ends with preparation of periodical statements & reports for ascertaining &
controlling costs.
b) The Cost accounting helps the management in the following important areas : (i)
Ascertaining the cost of a product, job etc., (ii) determination of selling price (iii)
Ascertaining the profit of each activity (iv) scope for cost control & cost reduction
measures (v) decision making.
c) Limitation of Cost Accounting: 1) It ignores item of pure finance like dividends,
rental income, interest, cash discounts, bad debts, profits/loss on account of sale of
capital nature of items, Appropriation of profits, abnormal items etc.,
2) It is an internal accounting statement submitted to management (job wise,
department wise, product wise etc) for proper planning, controlling cost & decision
making process & cannot be used by outside parties like Government, customers,
vendors, employees etc. unlike financial statements.
Quest2.
Prepare the Stores Ledger Accounts and discuss the effects of
adopting LIFO and FIFO on profits, with the help of the following figures:
Date
Jan 1
Jan10
Jan 12
Jan 31
Feb 3
Feb 12
Feb 28
Details
Opening Balance -10 Units (December 28 th purchase ) @ Rs 30
Purchase 10 Units @ Rs 33
Issued 10 units
Closing Balance 10 units
Purchase 10 units @ Rs 36
Issued 10 units
Purchased 10 units @ Rs 40
Issues
Date
Descptn
Qty
price
(Rs.)
Jan 1
Jan 10
Opening
stock
Purchases
10
10
30
33
Value
Date
Descptn
price
(Rs.)
Value
300
330
Jan 12
Jan 31
20
Feb 1
Feb 3
Opening
stock
Purchases
10
10
33
36
330
360
Feb 28
Purchases
10
40
400
Issues
Closing stock
630
30
10
10
30
33
20
300
330
630
Feb 12
Issues
10
33
330
Feb 28
Closing stock
10
10
36
40
360
400
Nett closing
stock
Total for Feb
Qty
1090
20
30
760
1090
Issues
Date
Descptn
Qty
price
(Rs.)
Jan 1
Jan 10
Opening
stock
Purchases
10
10
30
33
Value
Date
Descptn
Qty
price
(Rs.)
Value
300
330
Jan 12
Jan 31
20
Feb 1
Feb 3
Opening
stock
Purchases
10
10
30
36
300
360
Feb 28
Purchases
10
40
400
Issues
Closing stock
630
10
10
33
30
20
330
300
630
Feb 12
Issues
10
36
360
Feb 28
Closing stock
10
10
30
40
300
400
3
Nett closing
stock
Total for Feb
30
1060
20
30
Rs
2000
534
The expenses of service departments are charged out on a percentage basis as follows:
Service Departments S1
Service Department S2
P1
P2
P3
S1
S2
20%
40%
40%
20%
30%
20%
-20%
10%
---
700
1060
Value
Cost
driver
Rs.
Overheads
2534
direct
Production
departments
P1
P2
P3
Service departments
S1
800
700
500
20%
47
40%
94
30%
70
40%
129
20%
65
20%
65
13
26
19
992
886
656
S2
234
300
10%
23
323
(234)
20%
65
(323)
65
(65)
0
1
1
(1)
0
6
6
(6)
0
0
Value
Cost
driver
Rs.
Overheads
2534
- S1 Cost distribution
Total cost of Service Dept's - 1st stage
- S2 cost apportionment ratios
- S2 Cost distribution
Total cost of Service Dept's - 2 nd
stage
Total cost of Production departments
after apportionment of Service dept
direct
Production
departments
P1
P2
P3
800
700
500
20%
40%
30%
60
120
90
40%
132
20%
66
20%
66
Service departments
S1
S2
234
300
(300)
(arrived
above)
(66)
30
330
66
(330)
-
992
886
656
Quest4.
From the following particulars of Rosa Ram Ltd. For three months
ending 31 March , 2005 prepare:
(a)
Cost sheet for the period giving various costs, and (b) Profit and Loss
Account for the quarter showing profit per barrel.
Wages Rs 12,000, Coal and Oil 11,200, Cooperage , Corks and Shives Rs
4,000,Malts Rs 40,000,Hops 10,800, Beer Duty Rs 2,80,000 Water Rs
1,000, Rent and Taxes Rs.6,000, By product Rs 3,600, Sugar Rs 14,000 ,
Preservatives Rs 1,600, Other Materials Rs 1,200 , Repairs Rs 1,800,
Depreciation 1,200, Administration Expenses Rs 24,000 , Selling and
Distribution Expenses Rs. 30,000.
Opening stock for beer Rs 40,500 (300 barrels). Closing stock of beer Rs
67,500 (500 barrels). Beer sales Rs 4,98,000(2800 barrels) . Beer brewed
during the period 3,000 barrels.
Answer 4:
a) Cost sheet for the period:
40000
10800
3600
14000
1600
1200
71200
12000
Direct Wages
Direct Expense
- Coal & Oil
- Cooperage,Corks & Shives
11200
4000
Prime Cost
15200
98400
280000
1000
6000
1800
1200
3000 barrels
300 barrels
40500
500 barrels
67500
290000
388400
(27,000)
361,400
24,000
30,000
Cost of sales
415,400
Sales
29.50
(per barrel)
82,600
2800 barrels
498,000
Opening stock
Cost of Production
units
300
3000
Amount
Particulars
40500
388400
Sales
Closing stock
Gross Profit
136600
Total
565500
Administrative expenses
24,000
30,000
Nett Profit
82,600
Total
136,600
Units
2800
500
Amount
498,000
67500
565500
136600
136,600
29.50
Question 5: What is Machine Hour Rate? What is the use of MHR? Explain the
calculation procedure of it with imaginary figures.
Answer 5:
Machine hour rate & its uses:
a) Machine hour rate can be defined as an operating cost of the machine per hour worked.
b) It is the ideal method for capital intensive departments, where labour hours spent is not
much. It helps in identifying the idle capacity of the machine (extent of under absorption
indicates idle capacity)
Calculation: Machine hour rate = Running cost (depreciation, power, repairs etc.) +
Standard cost (wages, supervision, insurance etc.) /
Effective working hours (Total hours Normal hrs lost)
8
Let us see example ; XYZ company operates its production with a machinery/plant which
runs for 2000 hrs capacity per month & normal lost hrs due to maintenance etc is 10%
It incurs the following cost per month in respect of the machine:
a) wages 800 b) depreciation 600 c) maintenance 300 d) power charges - 300
Computation of machine hour rate = Overheads (2000/-) / effective machine hrs (1800 hrs
(2000-10%)
Machine hour rate of XYZ company = Rs.1.11
Assignment - B
Quest 1:
What is Marginal Costing? How variable cost and fixed cost are are
treated in marginal costing vis--vis with Absorption Costing?
Answer 1:
Marginal Costing: a) It is defined as the ascertainment of marginal cost and of the effect
on profit of changes in volume or type of output by differentiating between fixed and
variable costs.
b) it is relevant for decision making & it is also known as variable costing or out of
packet costing.
Treatment of Variable & Fixed cost (Marginal vs. Absorption costing):
Marginal costing
Absorption costing
i) Only Variable costs are included for i) both fixed and variable costs are
product costing & inventory valuation
considered for product costing & inventory
valuation
ii) Fixed costs are regarded as a period ii) Fixed costs are charged to production.
cost. The profitability of different Each product bears a reasonable share of
products is judged by their PV ratio.
fixed cost and thus the profitability of a
product is influenced by the apportionment
of fixed costs.
Quest 2: S Ltd. furnishes you the following information relating to the half year
ending 30th June, 2007.
Fixed Expenses
Sales Value
Profit
50,000.
2, 00,000.
50,000.
During the period half of the same year the company has projected the loss of Rs 10,000.
Calculate(a) P/V Ratio, break even point and margin of safety for the half year ending 30 th
June.
(b) Expected sales volume for second half of the year assuming that selling price and
fixed expenses remain unchanged in the second half.
(c) The break even point and margin of safety for the whole year 2007.
Answer 2:
10
The details of S ltd for the half year ended 30th June 2007 has been tabulated as below:
200,000
100,000
100,000
50,000
50,000
80,000
40,000
40,000
50,000
(10,000)
280,000
140,000
140,000
100,000
40,000
( c) Break even point for 2007 (rs.) : (fixed cost / PV ratio) = (100000/50%) = 200,000/Margin of safety (rs): (profit / PV ratio) = (40000/50%) = 80,000/Or (total sales BEP sales) = (280,000 200,000) = 80,000/Ques 3:
The standard material cost for 100 kgs of chemical D is made up ofChemical A- 30 Kgs @ Rs 4.00 per kg.
Chemical B- 40 Kgs @ Rs 5.00 per kg.
Chemical C-80 Kgs @ Rs 6.00 per kg.
11
SQ * SP
chemical A
chemical B
chemical C
Total
Wor.Note ref
2
kgs
150
200
400
price
4
5
6
750
value
600
1000
2400
kgs
140
220
440
price
4
5
6
value
560
1100
2640
4300
kgs
140
220
440
price
4.2
4.8
6.5
800
4
800
NOTES :
chemical A
chemical B
chemical C
4000
AQ * SP
chemical A
chemical B
chemical C
AQ * AP
value
588
1056
2860
4504
RAQ * SP
chemical A
chemical B
chemical C
kgs
150
200
400
price
4
5
6
750
value
600
1000
2400
4000
12
Standard quantity for actual output is converted & considered
13
Assignment - B
Case Study
East and West Enterprises is currently working at 50% capacity and produces 10,000
units..
At 60% capacity the raw material cost increases by 2% and the selling price falls by 3%.
At 70% capacity the raw material cost increases by 4% and the selling price falls by 5%.
At 50% capacity working the product costs Rs 180 per unit and is sold at Rs 200 per unit.
The unit cost of Rs 180 is made up as follows:
Material
Wages
Factory overhead
Administrative overhead
Rs 100
Rs 30
Rs 20(40% fixed)
Rs 30(50% fixed).
14
50% capacity
60% capacity
70% capacity
10000
12000
14000
200
194
190
(falls by 3%)
(falls by 5%)
30
12
15
157
102
(increases by
2%)
30
12
15
159
104
(increases by
4%)
30
12
15
161
43
35
29
Sale Value (a * b)
2,000,000
2,328,000
2,660,000
Variable Cost (a * c)
1,570,000
1,908,000
2,254,000
Contribution (d * a)
430,000
420,000
406,000
Fixed cost :
- Factory O/H's (8 per unit)
- Administrative O/H's (15 per unit)
80000
150000
80000
150000
80000
150000
200,000
190,000
176,000
100
- Wages
- Factory O/H's - Variable
- Administrative O/H's-Variable
Total Variable cost / unit - ( c)
Contribution per unit - (d) - (b-c)
15
Part - C
Objective Types Question
1.
Answer : (a)
2.
Answer : (b)
3. In automobile industry , cost unit is ---------(a)
Quality.
(b)
Number.
(c)
Weight.
(d)
(a) and (b).
Answer : (c)
4.
Reorder.
Average.
EOQ.
Danger.
Answer : (c)
5.
Broadly speaking any expenditure over and above ----------------------is known
as overheads.
(a)
(b)
(c)
(d)
Answer : (a)
Indirect costs.
Fixed cost.
Prime cost.
Factory cost.
16
6.
Marginal Costing.
Standard Costing.
Activity Based Costing.
Incremental Costing.
Answer : (d)
7.
Answer : (d)
8.
Variable cost.
Semi-variable cost.
Fixed cost.
Sunk cost.
Answer : (b)
9.
Answer : (d)
Change to term.
Repetitive.
Arbitrage.
Escalation.
17
10.
Job.
Contract.
Batch
(a) and (b) of above.
All of the above.
Answer : (e)
11.
When the completion of the contract is less then , the total expenditure on
the contract is transferred to -------------------------Account.
(a)
(b)
(c)
(d)
Answer : (c)
12.
Answer : (c)
13.
Answer : (b)
14.
Answer : (a)
costing.
18
15.
When actual loss is more than estimated loss, the difference between the two
is considered to be --------------------------.
(a)
(b)
(c)
(d)
Normal loss.
Estimated loss.
Abnormal loss.
Provisional loss.
Answer: (c)
16.
--------------------------------is spread on good items of production.
(a)
(b)
(c)
(d)
(e)
Answer: (b)
17.
(a)
(b)
(c)
(d)
(e)
Answer: (e)
18.
Abnormal loss.
Normal loss.
Abnormal gain.
Both (a) and (c).
None of the above.
Common.
Normal.
Abnormal.
Relevant.
None of the above.
19
Answer: (a)
19.
Milestone.
Identification.
Split off.
Common.
Answer: (c)
20.
The most important criterion for distinguishing between scrap, by-product and
joint product is ---------------------------------------of the products.
(a)
(b)
(c)
(d)
Answer: (c)
21.
(a)
(b)
(c)
(d)
Answer: (b)
22.
(a)
(b)
(c)
(d)
Answer: (a)
23.
Weight.
Importance.
Order of finality.
Relative sales value.
Answer: (e)
20
24.
Marginal cost.
Average cost.
Budgeted cost.
Standard cost.
Differential cost.
Answer: (a)
25.
Direct Material.
Direct labour.
Factory overhead.
Both (a) and (b).
Answer: (a)
26.
(a)
(b)
(c)
(d)
Standard costs.
Imputed costs.
Capacity costs.
Sunk costs.
Answer: (c)
27.
Differential Costs.
Incremental Fixed costs.
Variable costs.
Imputed costs.
None of the above
All of the above.
Answer: (f)
28.
-----------------------------are irrelevant costs for decision making.
(a)
(b)
(c)
(d)
Differential Costs.
Incremental Fixed costs.
Variable costs.
Imputed costs.
21
(e)
(f)
Sunk costs.
All of the above.
Answer: (e)
29.
The profit in marginal costing differs from absorption costing method mainly
because of:
(a)
(b)
(c)
(d)
(e)
Answer: (d)
30.
Muskan Ltd which makes only one product sells 10,000 units of its product
making a loss of Rs 10,000. The variable cost per unit of the product is Re 8 and the fixed
cost is Rs 30,000. What is the Contribution per unit?
(a)
(b)
(c)
(d)
Rs 8.
Rs 2.
Rs 3.
None of the above.
Answer: (b)
31.
What is the Break even point in the above case(Q30) , if the sales price, variable
cost and fixed cost remain the same.
(a)
(b)
(c)
(d)
15000 units.
12000 units.
20000 units.
None of the above.
Answer: (a)
32.
Standard costing is more widely used method in-------------------------------industry.
(a)
(b)
(c)
(d)
Answer: (d)
Contract.
Transport.
Process.
None of the above.
22
33.
Current.
Basic.
Normal.
Ideal.
Answer: (a)
34.
Estimated.
Calculated.
Actual.
Ideals.
Answer: (c)
35.
The process of comparing profits reflected by cost accounting records and
financial accounting records and to know the reason of difference is known as:
(a)
(b)
(c)
(d)
(e)
Audit.
Verification.
Examination.
Reconciliation.
Investigation.
Answer: (d)
36.
Which of the following items could be reason/reasons of the difference between
two sets of books of accounts (Financial/Cost).
(a)
(b)
(c)
(d)
(e)
Answer: (e)
23
37.
If the opening stock was valued at Rs 4000 in financial accounts and Rs 5000 in
cost accounts, what will the impact of the transaction?
(a)
(b)
(c)
(d)
Answer: (c)
38.
The technique which does not take into account the past trends in preparing the
budgets is -------------------------.
(a)
(b)
(c)
(d)
(e)
Incremental Budgeting.
Performance Budgeting.
Zero Based Budgeting.
Target Budgeting.
None of the above.
Answer: (c)
39.
Answer: (d)
40.
Answer: (b)
Functional.
Master.
Flexible.
Fixed.
None of the above.