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Question Paper
Management Accounting (MB161): January 2008
• Answer all 70 questions.
• Marks are indicated against each question.
Total Marks : 100
<Answer>
1. In a broader sense, cost accounting can best be defined within the accounting system as an
(a) Internal reporting to plan and control routine operations
(b) Internal and external reporting for making non-routine decisions and developing plans and
policies
(c) Internal reporting for use in management planning and control and external reporting to the
extent its product-costing function satisfies external reporting requirements
(d) External reporting to Government, various outside parties, etc.
(e) External reporting to investors of an organization. (1 mark)
<Answer>
2. The cost proposed annually for the plant service at corporate headquarters is an example of
(a) Committed cost
(b) Sunk cost
(c) Discretionary cost
(d) Imputed cost
(e) Relevant cost. (1 mark)
<Answer>
3. The cost of goods manufactured, under a periodic cost accumulation system, is equal to the
(a) Cost of goods sold less beginning work-in-process
(b) Cost of goods put into production plus ending work-in-process less beginning
work-in-process
(c) Cost of goods available for sale plus ending finished goods less beginning finished goods
(d) Cost of goods available for sale plus beginning finished goods less ending finished goods
(e) Cost of goods put into production plus beginning work-in-process less ending
work-in-process. (1 mark)
<Answer>
4. The term ‘variable costs’ refers to
(a) All manufacturing costs incurred to produce units of output
(b) All costs which are associated with marketing, shipping, warehousing and billing activities
(c) All costs which do not change in total for a given period of time and relevant range but become
progressively smaller on a per unit basis as volume increases
(d) All costs which fluctuate in total in response to small change in the rate of utilization of
capacity
(e) All costs which are likely to respond to the amount of attention devoted to them by a specified
manager. (1 mark)
<Answer>
5. Which of the following statements is true?
(a) All costs are controllable
(b) Fixed cost per unit remains constant
(c) Depreciation is an out-of-pocket cost
(d) Variable cost per unit varies with the increase in the volume of output
(e) An item of cost that is direct for one business may be indirect for another. (1 mark)
<Answer>
6. The term used to describe the assignment of direct costs to a particular cost object is
(a) Cost tracing
(b) Cost allocation
(c) Cost absorption
(d) Cost assignment
(e) Cost accumulation. (1 mark)
<Answer>
7. The classification of cost as either direct or indirect depends upon
(a) The avoidability of costs
(b) The controllability of costs
(c) The timing of the cash outlay for the cost
(d) The cost object to which the cost is being related
(e) The behavior of the cost in response to volume changes. (1 mark)
<Answer>
All the Best: Hiten Patel
8. During the last year, Metro Ltd. has increased its production from 14,500 units to 16,000 units. The
total cost of production has been increased by Rs.19,200 from the previous cost of Rs.2,68,100. The
fixed cost of the company during the last year was
(a) Rs.62,450
(b) Rs.54,000
(c) Rs.50,000
(d) Rs.82,500
(e) Rs.40,000. (1 mark)
<Answer>
9. At 70% capacity utilization, the overhead recovery rate is Rs.24 per unit. At 90% capacity level, the
rate gets reduced to Rs.22 per unit. If the production attains 95% of the capacity utilization, the
recovery rate would be
(a) Rs.22.67
(b) Rs.18.46
(c) Rs.20.16
(d) Rs.21.63
(e) Rs.19.00. (2 marks)
<Answer>
10. Exotica Ltd. has provided the following operating results for the year 2006-07:
Product Sales mix (%) P/V ratio (%)
A 35 35
B 40 45
C 25 55
The total sales value of all the products was Rs.64 lakh and fixed costs amount to Rs.10 lakh. The
composite P/V ratio was
(a) 34.25%
(b) 45.00%
(c) 44.00%
(d) 55.50%
(e) 28.16%.
(2 marks)
<Answer>
11. Shiw Shankar Ltd. has three production departments – P1, P2 and P3 and 2 service departments – S1 and
S2. Budgeted overheads for the next year have been allocated or apportioned by the cost department
among the 5 departments. The secondary distribution of service department overheads is pending and
the following details are given:
Department Overheads apportioned/allocated Estimated level of activity
P1 Rs.50,000 5,000 labor hours
P2 Rs.90,000 12,000 machine hours
P3 Rs.80,000 6,000 labor hours
December 2007:
Materials introduced –– 25,000 units
Opening work-in-process –– 1,000 units (completion of material – 80%)
Closing work-in-process –– 800 units (completion of material – 50%)
Under average method, the equivalent units of material in the process for the month was
(a) 25,000 units
(b) 22,900 units
(c) 26,200 units
(d) 26,000 units
(e) 25,600 units. (2 marks)
<Answer>
14. If a company manufactures two products from a common process, which of the following factors
determines whether the output consists of joint products or one main product and a by-product?
(a) Commercial value
(b) Management policy
(c) Average unit cost of the products
(d) Potential marketability for each product
(e) Quantum of work expended in the production of each product. (1 mark)
<Answer>
15. Which of the following statements related to Contract costing is true?
(a) Both work certified and work uncertified are valued at cost price
(b) Both work certified and work uncertified are valued at market price
(c) Both work certified and work uncertified are valued at contract price
(d) Work certified is valued at cost price whereas work uncertified is valued at market price
(e) Work certified is valued at contract price whereas work uncertified is valued at cost price. (1 mark)
<Answer>
16. Brisha Ltd. manufactures two products – A and B. The fixed costs incurred for the products are
Rs.2,20,000. The company sells these two products in the ratio of 2:1. The unit contribution of product
A is Rs.6 and product B is Rs.8. How many units of product B would be sold at the break-even point?
(a) 11,000 units
(b) 16,500 units
(c) 22,000 units
(d) 5,500 units
(e) 8,250 units. (2 marks)
<Answer>
17. Which of the following changes can improve break-even point?
(a) Increase in fixed cost
(b) Increase in sale price
(c) Increase in variable cost
(d) Increase in sales volume
(e) Increase in production volume. (1 mark)
<Answer>
18. Which of the following statements is true?
(a) Marginal costing and absorption costing are the same
(b) In marginal costing technique, profit is the difference between sales and marginal cost
(c) If marginal costing technique is used, only variable costs are charged to products
(d) In marginal costing, under or over absorption of fixed overheads is bound to arise
(e) In marginal costing technique, a portion of fixed overheads is carried over to the next period. (1 mark)
<Answer>
19. Palodhy Ltd. manufactures product - M. The company has furnished the following information
pertaining to its product per unit:
Particulars Rs.
Selling price 120
Direct material 50
Direct labour 30
Variable overheads 10
The number of units sold by the company was 4,450. If the direct labour cost is increased by 20%, the
number of extra units to be sold to maintain the same quantum of profit is
(a) 1,010 units
(b) 950 units
(c) 875 units
(d) 1,225 units
All the Best: Hiten Patel
following factors?
(a) Margin of safety
(b) Unit sales price
(c) Break-even units
(d) Variable cost per unit
(e) Change in sales volume. (1 mark)
<Answer>
29. Total production of a company is 10,000 units at a cost of Rs.12 per unit, sales were 8,200 units and the
company had 1,800 units as closing stock. The by-product that was generated was sold for Rs.2,500,
selling price per unit of output was Rs.25. Administration expenses were Rs.26,850. The net profit
when the by-product is credited to cost of production was
(a) Rs.65,200
(b) Rs.72,350
(c) Rs.69,500
(d) Rs.81,800
(e) Rs.63,000. (2 marks)
<Answer>
30. The current sales price of Ahana Ltd. is Rs.120 per unit. Variable costs are expected to increase from
Rs.75 to Rs.80 per unit. Fixed costs of Rs.5,00,000 will not change. How many additional sales units
are required in order to maintain an operating income of Rs.2,50,000?
(a) 16,667
(b) 18,750
(c) 2,500
(d) 2,083
(e) 2,250. (2 marks)
<Answer>
31. Sanglina Ltd., manufacturer of product S, has furnished the following information pertaining to its
product:
Material cost per unit – Rs.150; Labour cost per unit – Rs.120; Variable overhead cost per unit – Rs.80.
The selling price per unit is Rs.500. Sales during the year are expected to be Rs.18,00,000 and fixed
overhead costs are Rs.2,00,000. During the current year direct material cost is expected to increase by
10%, labor cost by 8%, variable overhead cost by 5% and fixed overhead cost by 4%. The contribution
to sales ratio for the current year is
(a) 20.00%
(b) 25.00%
(c) 24.28%
(d) 25.63%
(e) 20.50%. (2 marks)
<Answer>
32. Operating management is more concerned with the operational aspects of management. Which of the
following information is not required to the operating management?
(a) Utilized capacity
(b) Installed capacity
(c) Licensed capacity
(d) Capital requirements
(e) Acceptance or rejection of products. (1 mark)
<Answer>
33. While comparing managerial accounting information with financial accounting information, it is
expected that managerial accounting information would
(a) Be based upon GAAP
(b) Include an analysis of historical cost
(c) Be mandatory for business organizations
(d) Present estimates of future financial operations
(e) Emphasize information on the company as a whole. (1 mark)
<Answer>
34. Which of the following statements is false?
(a) In process costing, cost is accumulated on time basis
(b) In job costing, cost is computed at the end of the cost period
(c) In job costing, the basis of cost accumulation is job order or batch size
(d) In process costing, cost is accumulated according to processes or departments
(e) In process costing, items of prime cost cannot be traced with a particular order due to
continuous production. (1 mark)
<Answer>
35. ABC Chemicals Ltd. produces three products – A, B and C. The raw materials cost is Rs.50,000 and
processing cost is Rs.20,000. At this point 3,000 litre of A is produced which can be sold for Rs.30,000.
All the Best: Hiten Patel
Additional processing cost of Rs.14,000 produces 6,000 litre of B and 1,000 litre of C. B can be sold
for Rs.66,000 and C can be sold for Rs.9,000 after further processing costs of Rs.1,000. The profit/
(loss) of product B is
(a) Rs. 6,000
(b) Rs.16,000
(c) Rs.12,000
(d) (Rs.3,000)
(e) (Rs.5,000). (2 marks)
<Answer>
36. For a given period, profit under absorption costing is less than the profit under marginal costing, if
(a) Production is equal to sales
(b) Production is more than sales
(c) Sales are more than production
(d) Closing stock is more than opening stock
(e) Opening stock is equal to average monthly sales. (1 mark)
<Answer>
37. Generally, individual departmental rates rather than a plant-wide rate for applying overhead would be
used if
(a) A company wants to adopt a standard cost system
(b) A company wants to adopt a direct costing system
(c) The manufacturing operations of a company are highly automated
(d) The manufacturing overhead is the largest cost component of its product cost
(e) The manufactured products differ in the resources consumed from the individual departments
in the plant. (1 mark)
<Answer>
38. Mirind Ltd. has furnished the following information pertaining to its production:
Maximum capacity 1,00,000 units
Normal capacity 80,000 units
Increase in inventory 3,650 units
Variable cost per unit Rs.18
Selling price per unit Rs.50
Fixed manufacturing overhead costs Rs.9,60,000
If the profit under Absorption costing method is Rs.88,200, the profit under Marginal costing method
would be
(a) Rs. 53,160
(b) Rs. 44,400
(c) Rs.1,32,000
(d) Rs.1,23,240
(e) Rs. 35,040. (2 marks)
<Answer>
39. Sruthi Ltd. uses a predetermined overhead rate of Rs.35 per machine hour. The company utilized 480
machine hours. The standard hours were 464 machine hours. If the actual overhead costs of the
company are Rs.16,550, the under or over absorption of overhead is
(a) Rs.250 (over)
(b) Rs.250 (under)
(c) Rs.310 (over)
(d) Rs.310 (under)
(e) Rs.560 (under). (1 mark)
<Answer>
40. Job Costing Method is generally applied for which of the following?
(a) Oil Refinery
(b) Printing Shop
(c) Paint Manufacturer
(d) Wallpaper Manufacturer
(e) Beverage Drink Manufacturer. (1 mark)
<Answer>
41. Which of the following costs is not considered as a product cost under Absorption costing as well as
Direct costing?
(a) Freight-in
(b) Direct labor cost
(c) Insurance of factory
(d) Manufacturing supplies
(e) Packaging and shipping cost. (1 mark)
All the Best: Hiten Patel
<Answer>
42. AXC Electricity Generation and Distribution Ltd. has furnished the following information pertaining to
the last year:
Total units generated 20,00,000 kwh
Operating labor Rs.4,50,000
Repairs and maintenance Rs.1,70,000
Plant supervision Rs.1,25,000
Lubricants, spares and stores Rs. 55,000
Administrative overheads Rs. 68,000
Coal consumed per kwh for the year was 3 kg at the rate of Re.0.30 per kg. Depreciation was charged
at the rate of 10% on capital cost of Rs.11,00,000. The total cost per kwh was
(a) Re.1.50
(b) Re.1.05
(c) Re.1.89
(d) Re.1.39
(e) Re.1.09. (2 marks)
<Answer>
43. The fixed factory overheads are added to inventory in which of the following costing systems?
(a) Uniform costing
(b) Activity-based costing
(c) Standard costing
(d) Variable costing
(e) Absorption costing. (1 mark)
<Answer>
44. Sundar Rao Builders Ltd. has signed a contract with the Defense Department for Rs.8,25,000 with a
forecasted cost of Rs.6,55,000. After completion of 60% of the job, the cost-to-date amounted to
Rs.4,20,000 and cash received was Rs.4,00,000. At this point of time, the revised estimated profit will
be
(a) Rs.1,58,333
(b) Rs.1,25,000
(c) Rs.1,60,000
(d) Rs.2,10,000
(e) Rs.1,80,000. (2 marks)
<Answer>
45. In the last month, Gajawala Plastics Ltd. had a beginning work-in-process inventory of 375 units, 100%
completed with regard to material and 80% completed with regard to conversion costs. 7,600 units
were added during the period and 5,800 units were completed. Normal loss was 5% of the completed
units. Abnormal loss amounted to 320 units. Ending work-in-process of the period was 80% completed
with regard to materials and 60% completed with regard to conversion costs. The cost of beginning
work-in-process was Rs.9,650, Rs.2,500 of which was for conversion costs. From the total cost of
Rs.1,45,000 of added costs, Rs.37,500 was for conversion costs. The equivalent number of production
units of material, using weighted average method, was
(a) 7,372
(b) 7,662
(c) 6,997
(d) 7,287
(e) 7,297. (2 marks)
<Answer>
46. Committed cost
(a) Is a cost which is essential for the decision under consideration
(b) Is that portion of the cost, which involves payment to outsiders
(c) Is a cost at which there could be purchase of an asset or material identical to that which is being
replaced or revalued
(d) Is the maximum possible alternative earnings that might have been earned if the production
capacity or services had been put to some alternative use
(e) Is a fixed cost which results from the decisions of the management in the prior period and is not
subject to the management control in the short run. (1 mark)
<Answer>
47. More accurate cost allocation can be accomplished when
(a) Costs are more indirect
(b) Labor costs are more than material costs
(c) Costs are more homogeneous
All the Best: Hiten Patel
(c) Supplementary rate of under or over absorption of overhead can be determined only after the
absorption of overhead costs
(d) Supplementary rates are used to carry out adjustment for the difference between overhead
absorbed and overhead incurred
(e) The over or under absorption of overheads can be carried over as deferred charge to the next
accounting period by transferring it to overhead reserve account. (1 mark)
<Answer>
60. Which of the following methods is not used for apportionment of joint costs to different products?
(a) Survey method
(b) Physical unit method
(c) Average unit cost method
(d) Joint cost proration method
(e) Contributory margin method. (1 mark)
<Answer>
61. Shiva Ltd. is engaged in the production of a component –T15. The company has agreed to supply
30,000 components per annum to Bhigu Ltd. on a regular basis. The company incurs Re.0.50 as
inventory holding cost per component per month and the set-up cost per run of component manufacture
is Rs.400. If the company has the policy of manufacturing 5,000 components per run, the total cost for
the company for handling the inventory is
(a) Rs.15,000
(b) Rs. 9,400
(c) Rs.16,200
(d) Rs.17,400
(e) Rs.32,400. (2 marks)
<Answer>
62. Which of the following statements is false?
(a) Canteen expenses are apportioned to cost centers on the basis of number of employees
(b) Insurance costs of a building are apportioned to cost centers on the basis of floor area
(c) Power expenses are apportioned to cost centers on the basis of machine hours
(d) Supervision expenses are apportioned to cost centers on the basis of estimated time devoted to
each machine
(e) Depreciation expenses of machines are apportioned to cost centers on the basis of floor area
occupied by each machine. (1 mark)
<Answer>
63. If predetermined overhead rate is not employed and the volume of production is increased over the
level planned, the cost per unit would be expected to
(a) Decrease for fixed costs and decrease for variable costs
(b) Increase for fixed costs and increase for variable costs
(c) Decrease for fixed costs and remain unchanged for variable costs
(d) Remain unchanged for fixed costs and increase for variable costs
(e) Increase for fixed costs and remain unchanged for variable costs. (1 mark)
<Answer>
64. Which of the following statements is false?
(a) Joint products are produced from the same basic raw material and by a common process
(b) By-product is a secondary product, which incidentally results from the manufacture of main
product
(c) The main difference between joint products and by-products is their commercial value
(d) The relationship between main product and by-product changes with changes in economic
conditions
(e) Where the by-products are utilized in the same undertaking, the by-product is valued at
standard cost. (1 mark)
<Answer>
65. Pravu Ltd. has been manufacturing product - PT for last seven years. The company maintains a margin
of safety of 40% with an overall contribution to sales ratio of 30%. If fixed cost is Rs.6 lakh, the profit
of the company is
(a) Rs.42.50 lakh
(b) Rs.40.00 lakh
(c) Rs. 3.00 lakh
(d) Rs. 4.00 lakh
(e) Rs. 5.00 lakh. (2 marks)
<Answer>
66. Mayuri Ltd. produces a product which undergoes three processes before it is marketed. The policy of
the company is to transfer the stock to the next process at a profit. The company has furnished the
following data relating to its process I:
Particulars Rs.
All the Best: Hiten Patel
Suggested Answers
Management Accounting (MB161): January 2008
ANSWER REASON
A Cost accounting is the internal reporting system for an organization’s own management for decision- < TOP >
1.
making. The major emphasis is on functions, activities, products, and processes and on internal planning
and control and information needs of the organization. Option (b), (c), (d) and (e) are incorrect as Cost
accounting has nothing to do with external reporting.
C A discretionary cost is characterized by uncertainty about the relationship of input (the cost) to output. It < TOP >
2.
also tends to the subject of a periodic decision regarding the outlay to be made. Research,
Advertisement and Public Relation are common examples. Thus the annual cost of plant service is
discretionary because of the difficulty of valuing the output. Other options are not correct.
E Under periodic cost accumulation system, the cost of goods manufactured is equal to cost of goods put < TOP >
3.
into production plus beginning work-in-process less ending work-in-process. Therefore (e) is correct.
Other options are not correct.
D Variable costs refer to all costs, which fluctuate in total in response to small change in the rate of < TOP >
4.
utilization of capacity. Other statements given in (a), (b), (c) and (e) are not correct in respect of
meaning of variable cost. Therefore, (d) is correct.
E An item of cost that is direct for one business may be indirect for another is a true statement. Other < TOP >
5.
statements are not correct. Therefore, (e) is correct.
B The term used to describe the assignment of direct costs to the particular cost object is cost allocation. It < TOP >
6.
is not the cost tracing, cost assignment, cost accumulation and cost absorption. Therefore, (b) is correct.
D A direct cost can be specifically associated with a single cost object in an economically feasible way. < TOP >
7.
An indirect cost cannot be specifically associated with a single cost object. Thus the specific cost object
influences whether a cost is direct or indirect. For example, a cost might be directly associated with a
single plant. The same cost however might not be directly associated with a particular department in the
plant. Therefore (d) is correct.
Options (a) and (b) are not correct because avoidability and controllability of costs have no effect on
whether a cost is direct or indirect. Option (c) is not correct because the timing of the cash outlay has no
effect on whether a cost is direct or indirect. Option (e) is not correct because the behavior of cost in
response to volume changes is a factor only if the cost object is a product.
D < TOP >
8.
Variable cost per unit = = = = Rs.12.80
P/V ratio = = .
D It is given in the question that the secondary distribution of service departments’ overhead is pending. < TOP >
11.
The same is thus attempted by use of simultaneous equation method.
Let, total overheads of department S1 = x; and total overheads of S2 = y;
According to problem, we get x = 25,000 + 0.1y and y = 20,000 + 0.2x;
Therefore, x = 25,000 + 0.1(20,000 + 0.2x) = 25,000 + 2,000 + 0.02x
Or, x (1 – 0.02) = 27,000, or, x = 27,000 / 0.98 = 27,551, then y = 25,510;
Statement of secondary distribution:
Particulars P1 (Rs.) P2 (Rs.) P3 (Rs.) Total (Rs.)
Direct allocation 50,000 90,000 80,000 2,20,000
S1 (80% of Rs.27,551) 5,510 11,021 5,510 22,041
S2 (90% of Rs.25,510) 2,551 15,306 5,102 22,959
Total 58,061 1,16,327 90,612 2,65,000
Budgeted labour/machine hours 5,000 12,000 6,000
Overhead rate per labour/machine hour 11.61 9.69 15.10
B If the batch size increases, setting up cost per unit decreases. Similarly, if the batch size decreases, < TOP >
12.
setting up cost per unit increases. Therefore, (b) is correct.
E Opening WIP – 1,000 units < TOP >
13.
Material introduced – 25,000 units
26,000 units
Less: Closing WIP 800 units
Completed units 25,200 units
Equivalent units under average method = 100% of completed units + 50% of closing WIP
= 100% of 25,200 units + 50% of 800 units
= 25,200 units + 400 units = 25,600 units
A Joint product and by-products arise in situations where the production of one product makes inevitable < TOP >
14.
the production of other products. When a group of individual products is simultaneously produced and
each product has a significant relative sales value, the output is called Joint products. Products have a
minor sales value in comparison to Joint product is called by-products. Therefore, option (a) is correct.
E In contract costing, work certified is valued at contract price and work uncertified is valued at cost price. < TOP >
15.
Both are not valued at cost price, market price or contract price. Therefore, (e) is true.
A Units are produced at the rate of 2 units of A to 1 unit of B < TOP >
16.
Suppose units of B produced at BEP = x ; Units of A produced at BEP = 2x;
Contribution made by A = Rs.6 per unit and B = Rs.8 per unit;
Total contribution at BEP = Rs.12x + Rs.8x; Fixed cost = Rs.2,20,000
So, 20x = Rs.2,20,000; x = Rs.2,20,000 ÷ 20 = 11,000 units of product B and product A = 11,000 × 2
= 22,000 units.
B < TOP >
17.
Break even point =
From the above relation, increase in sale price can improve break-even point. Break-even point will not
be improved with the increase in variable cost, fixed cost, sales volume and production volume. Other
options mentioned in (a), (c), (d) and (e) are not correct.
C Under marginal costing technique, products are valued at variable cost. Fixed costs are not considered < TOP >
18.
for valuation of product. Therefore, this statement is correct. Other statements given in (a), (b), (d) and
(e) are not correct.
E Contribution per unit = Rs.120 – Rs.90 = Rs.30 < TOP >
19.
Present contribution = 4,450 × Rs.30 = Rs.1,33,500
Increase in labor cost = Rs.30 × 20% = Rs.6.
New contribution per unit = Rs.120 – Rs.90 – Rs.6 = Rs.24
Number of units to be sold = Rs.1,33,500 ÷ Rs.24 = 5,562.5 or 5,563
Extra units to be sold = 5,563 – 4,450 = 1,113 units.
B Contribution of M1 = Rs.2,60,000 + Rs.1,00,000 = Rs. 3,60,000 < TOP >
20.
Contribution of M2 = Rs.1,70,000 + Rs.70,000 = Rs. 2,40,000
All the Best: Hiten Patel
E Under absorption costing, all manufacturing costs, both fixed and variable, are treated as product costs. < TOP >
41.
Under direct costing, only variable cost of manufacturing is inventoried as product costs. Fixed
manufacturing costs are expensed as period costs. Packaging and shipping costs are not product costs
under either method because they are incurred after the goods have been manufactured. Instead they are
included in selling and administrative expenses for the period. Other options (a), (b), (c) and (d) are as
product cost under respective costing method.
D < TOP >
42.
Total Per kwh
Particulars
(Rs.) (Re.)
Plant supervision 1,25,000 0.0625
Administrative overhead 68,000 0.0340
Depreciation 1,10,000 0.0550
Coal (3 kg × 20,00,000 × 0.3) 18,00,000 0.9000
Operating labor 4,50,000 0.2250
Repairs and maintenance 1,70,000 0.0850
Lubricants and supplies 55,000 0.0275
Total 27,78,000 1.3890 1.39
E Under absorption costing method, fixed factory overhead costs are added for valuation of inventory. < TOP >
43.
Therefore, (e) is correct.
B Final profit of the job = Rs. 8,25,000 - (4,20,000 ÷ 0.6) < TOP >
44.
= Rs. 8,25,000 – Rs. 7,00,000 = Rs.1,25,000.
A Opening WIP + Added = Completed units + Normal loss + Abnormal loss + closing WIP < TOP >
45.
375 + 7,600 = 7,975 = 5,800 + 290 + 320 + 1,565
Equivalent production units of material = [5,800 + 320 + (1,565 × .80)]
= 6,120 + 1,252 = 7,372.
E The correct answer is (e). Committed cost is a fixed cost which results from the decisions of the < TOP >
46.
management in the prior period and is not subject to the management control in the present on a short-
run basis.
Option (a) is false since the costs which are essential for the decision under consideration are not
committed cost.
Option (b) is incorrect as it is more specifically known as out of pocket costs.
Option (c) is incorrect as it is more specifically known as replacement cost.
Option (d) is incorrect as it is more specifically known as opportunity cost.
C More accurate cost allocation can be accomplished when costs are more homogeneous. Direct costs are < TOP >
47.
costs traceable to the goods or services and do not have to be allocated. Hence options (b) and (d) are
incorrect. When the costs are more indirect in nature or when the different costs vary depending upon
different causes and effects then the cost allocation becomes more difficult task and hence the accuracy
is affected.
B Contribution to sales ratio = Change of profit ÷ Change of sales < TOP >
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= Rs.15,000 ÷ Rs.50,000 = 0.30 or 30%
Break-even point:
Sales × contribution to sales ratio = Fixed cost + Profit
Rs.3,00,000 × 30% = Fixed cost + Rs.40,000
Fixed cost = Rs.90,000 – Rs.40,000 = Rs.50,000
Break-even sales in rupees = Rs.50,000 ÷ 0.30 = Rs.1,66,667.
B Income before tax = Rs.10,50,000 ÷ (1 – 30%) = Rs.15,00,000; < TOP >
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Fixed cost per annum = Rs.1,90,00,000;
Total contribution = Rs.15,00,000 + Rs.1,90,00,000 = Rs.2,05,00,000 ;
Daily contribution = Rs.1,000 – Rs.400 = Rs.600;
Number of room in a year = Rs.2,05,00,000 ÷ Rs.600 = 34,167 rooms ;
Number of rooms per day that the hotel must rent = 34,167 rooms ÷ 365 days
= 93.6 or 94 rooms to earn a net income after taxes of Rs.10,50,000.
D Unit contribution margin is Rs. 60 - Rs.45 = Rs.15. Additional profit will be Rs.20,700 (1,380 × Rs.15). < TOP >
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After break even, profit is equal to the unit contribution margin multiplied by the number of units sold
beyond break-even.
B The costs having clear relationship to output are known as engineered costs. Direct material cost is an < TOP >
51.
All the Best: Hiten Patel
= = = Rs.20.
Applied overhead cost = Actual production × Standard rate
= 20,500 units × Rs.20 = Rs.4,10,000
Actual overhead cost Rs.3,92,400
Over absorption of fixed overheads Rs. 17,600
E Variable Cost = Total sales – Fixed cost – Profit < TOP >
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= Rs.12,80,000 – Rs.4,35,000 – Rs.2,22,000 = Rs.6,23,000
Contribution to sales = (Rs.12,80,000 – Rs.6,23,000) ÷ Rs.12,80,000 = 51.33%
Margin of Safety = Net Profit ÷ 51.33% = Rs.2,22,000 ÷ 51.33% = Rs.4,32,496.
D Sales = Direct materials used + Direct labour + Fixed manufacturing overhead + Variable < TOP >
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manufacturing overhead + Gross profit
So, Rs.5,00,000 = Rs.2,00,000 + Rs.65,000 + Rs.1,10,000 + Variable manufacturing overhead +
Rs.40,000
Variable manufacturing overhead
= Rs.5,00,000 - Rs.2,00,000 - Rs.65,000 - Rs.1,10,000 – 40,000 = Rs.85,000
Total selling and distribution Expenses = Gross profit – Net loss
= Rs.40,000 – (-Rs.10,000) = Rs.50,000
Variable selling and distribution expenses = Total selling and distribution expenses – Fixed selling and
distribution expenses = Rs.50,000 – Rs.20,000 = Rs.30,000.
Contribution margin = Sales – Variable cost
= Sales – (Direct materials used + Direct labor + Variable manufacturing overhead + Variable selling
and distribution expenses.)
= Rs.5,00,000 – (Rs.2,00,000 + Rs.65,000 + Rs.85,000 + 30,000) = Rs.1,20,000.
A < TOP >
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Particulars Rs
Advertisement 25,000
Salaries of the Sales Department 50,000
Expenses of Sales Department 15,000
Counter Salesmen’s Salaries and D.A 25,000
Commission to Counter Salesmen 6,000
Traveling Salesmen’s Commission 8,000
Traveling Salesmen’s Expenses 4,000
Total sales overhead costs 1,33,000
D Certain decisions reflect the policies of the top management which results in periodic appropriations and < TOP >
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are referred to as programmed cost. Hence, the answer is (d).
C Hours anticipated may be more or less than the actual, not budgeted hours to be worked is false for < TOP >
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under or over absorption of overheads. All the other statements (a) Seasonal fluctuations in the overhead
expenses, (b) If overheads are not charged to work-in-progress proportionately (d) Non-recurring
expenditure incurred due to unexpected changes in the methods of production, and (e) Due to
fluctuations in the prices of material or wage rates, the basis upon which the factory overhead is
recovered from production may not be correct, are all true causes of under or over absorption of
overheads. Hence, the answer is (c).
D Percentage of works cost is a common method of absorption of administrative overhead costs and < TOP >
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selling and distribution overhead costs. Hence, the answer is (d).
C Supplementary rate of under or over absorption of overhead can be determined only after the absorption < TOP >
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of overhead costs is false statement with respect to methods of disposal of under or over absorption of
overheads. Actual supplementary rate of under or over absorption of overhead can be determined only
after the end of the accounting period. Hence, the answer is (c).
D Joint cost proration method is not a method for apportionment of joint costs to different products. It is a < TOP >
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cost method used for accounting for by-product. All the other (a) Survey method, (b) Physical unit
method, (c) Average unit cost method and (e) Contributory margin method are methods commonly used
for apportionment of joint costs to different products.
D Total cost of maintaining the inventories at 6,000 units. < TOP >
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All the Best: Hiten Patel