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Cost and Management Accounting
1) What do you mean by cost accounting? Distinguish between cost accounting and
management accounting?
2) Cost accounting is not a legal requirement. Elucidate this statement.
3) What do you mean by elements of cost? Explain in detail and how these elements are
presented in the form of a cost sheet?
4) What is costing? Discuss the various techniques of costing used in the business.
5) The method of costing depends on the nature of product, production methods and specific
business conditions. Explain this statement.
6) Give five examples for each of the followings.
a. Variable Costs
b. Semi Variable Costs
c. Fixed Costs
7) Cost sheet is a statement prepared to show the different components of total cost. Do you
agree? Give reasons.
8) Explain the concept of marginal costing and distinguish between marginal costing and
absorption costing.
9) What do you understand by the term break even analysis and how does this help in business
decisions?
10) The rate of earning profit mainly depends upon the magnitude of the angle of incidents
projected on break even chart. Explain as to whether this statement is correct. What
measures can be adopted to increase the magnitude of the angle of incidents?
11) Mention the broad principles on which overhead expenses are generally apportioned. Upon
what basis would you apportion the following expenses to individual cost centers in an
engineering unit?
a. Rent and Rates
b. Power
c. Life insurance premium
d. Lighting
12) What is budget and budgetary control? State and explain the various budgets which can be
established in the following functional areas of operation.
a. Production
b. Finance
c. Sales and Marketing
13) What are the main steps in budgetary control? State the main objectives of budgetary control
14) Distinguish between fixed budget and flexible budget?
15) What do you understand by master budget? Into what sections it is usually divided and what
is the purpose of divisions?
16) State the distinction between the two terms in each of the following vining examples:
a. Cost allocation and cost Apportionment
b. Direct and Indirect Cost
c. Fixed and variable Cost
d. Indirect expenses and overheads.
17) Distinguish between direct labor and indirect labors. Give four examples of indirect labor
that may arise in a factory.
18) What are overheads? How should overheads be classified? To what extent will you include
overhead charges in your valuation of
a. Work in Progress
b. Finished goods.
19) Distinguish between allocation, apportionment and absorption in connection with factory
overhead expenses.
20) What are the general considerations that should decide your choice of basis for distributions
of overhead costs to departments?
21) What is means by absorption of overheads? What factors should be considered in obtaining a
rate of absorption of overheads?
22) Some of the major problems of cost accounting are associated with the allocation of indirect
expenditure, why is this so? Give a brief account of the several methods of allocation known
to you and indicate the circumstances which would lead you to regard each of them in turn as
appropriate.
23) Write a critical note about the usage, application, advantages and limitations of marginal
costing techniques.
24) Marginal cost determines the rate of change in costs if the volume of output is increased or
decreased by one unit. Explain with example.
Cost of Materials
Direct wages paid
Cost of Power & Consumable stores (20% Fixed)
Factory indirect wages paid (40% Fixed)
Cost of lighting in the factory (Fixed)
Office expenses incurred (Fixed)
Selling expenses paid (70% Variable)
Depreciation of plant (under straight line method)
Rs.
1,00,000
70,000
15,000
20,000
10,000
30,000
50,000
10,000
The entire output was sold at Rs. 350 per unit. For the year 2014, it is estimated that the
production will be increased by 50% by utilizing the spare capacity and the rates for materials
and direct wages will increase by 10% and 20% respectively.
The expenses of the company are either fixed or variable and the company assumes that the
nature of the expenses will not change in the coming days.
You are required to prepare:
(i)
(ii)
A cost sheet for the year 2013 showing the cost per unit.
A statement showing estimated cost and profit for the year 2014, assuming that all the
goods produced would be sold at a price of Rs. 340 per unit.
28) From the following particulars of a product, prepare a cost sheet, indicating cost per unit
also:
Raw Material
- Opening Stock
20,000
- Purchases
1,50,000
- Closing Stock
10,000
Direct Labor Rs.60, 000, Factory Overhead Rs.22, 500, Office Overhead Rs.27, 500
Finished Stock: Opening Stock 500 units @ 11.20 per unit; Closing Stock 1,500 units @
current cost price. Profit on sales 20%; Selling and Distributive expenses Rs. 20,000; Units
produced -25,000
29) From the following information for the month of January, prepare a cost sheet to show the
following components: a) Prime cost b) Factory cost c) Cost of production d) Total cost
Rs
Rs
Direct material
57,000
Plant Depreciation
1,250
Direct wages
28,500
Factory Heating and Lighting
400
Factory Rent and rates
2,500
Factory managers salary
2,000
Office rent & rates
500
Office salaries
1,600
Plant repairs and maintenance 1,000
Directors Remuneration
1,500
Telephone and Postage
200
Advertisement
1,500
Printing and Stationery
100
Sales mans Salaries
2,500
Legal Charges
150
Showroom rent
500
Sales
1,16,000
30) From the following information, prepare a statement showing cost and profit per unit:
Direct material
Rs 45,000
31) Tata Ltd. has three production departments A, B and C and two service departments X and
Y. The data available for the month of March-2012 concerning the organization
Rs.
15,000
5,000
2,400
6,000
6,000
40,000
30,000
10,000
Rent
Municipal Taxes
Electricity
Indirect Wages
Power
Depreciation on Machinery
Canteen Expenses
Other labor related costs
Following particulars are also available-
Total
5,000
240
40,000
150
200,000
A
1,000
40
12,000
60
48,000
2,335
B
1,250
60
8,000
30
64,000
1,510
C
1,500
80
12,000
50
80,000
1,525
X
1,000
40
6,000
10
4,000
Y
250
20
2,000
4,000
X
Y
A
20%
40%
B
30%
20%
C
40%
30%
Y
10%
10%
You are required to calculate the overhead absorption rate per hour in respect of the three
production departments.
32) In a factory the following particulars have been extracted for the quarter ending 30th June
2010 in respect of P1, P2 and P3 and service departments S1 and S2. Compute the
departmental overhead rate for each of the production departments, assuming that overheads
are absorbed as a percentage of direct wages.
Particulars
Direct Wages (Rs.)
Direct
Material
(Rs.)
No. of Workers
Power (K W Hrs.)
Asset Value
P1
30,000
P2
45,000
P3
60,000
S1
15,000
S2
30,000
15,000
150
6,000
60,000
30,000
225
4,500
40,000
30,000
225
3,000
30,000
22,000
75
1,500
10,000
22,000
75
1,500
10,000
Light Points
Area in Sq. Fts
10
150
16
250
4
50
6
50
4
50
Power
Lighting
Stores Overhead
Staff Welfare
Depriciation
Rent
General Overheads
Apportion general overheads in the proportion of direct wages. Apportion the expenses of S1
according to direct wages and those of S2 in the ratio of 5:3:2 to the production departments.
33) A Ltd. has three production departments A, B and C and two service departments D and E.
The following are the figures of the company
Rs.
5,000
5,000
1,500
1,500
10,000
10,000
2,000
10
3,000
2,500
15
2,000
3,000
20
3,000
2,000
10
1,500
500
5
500
60,000
60
80,000
30
100,000 5,000
50
10
5,000
D
E
A
20%
40%
B
30%
20%
C
40%
30%
E
10%
10%
Find the rate per hour if the working hours are as under.
A Department
B Department
C Department
6226
4028
4066
34)
a) Following details are available:
Sales
Period I
Period II
Rs.
39,000
43,000
Total
Cost
Rs.
34,800
37,600
Calculate Variable cost, fixed cost and contribution for each period.
b) Following details are available:
Period I
Period II
Sales
Rs.
2,00,000
3,00,000
Profit
Rs.
20,000
40,000
35) A. Sales Rs. 1,00,000; Profit Rs. 10,000; Variable Cost 70%. Find out (a) P/V ratio (b) Fixed
costs and (c) Sales to earn a profit of Rs. 40,000.
B. From the following information find (a) BEP in rupees and (b) number of units to be sold
to earn a net income of 10% of sales : Selling Price Rs. 20 per unit; Variable Cost Rs. 12
per unit; Fixed Cost Rs. 2,40,000.
C. The ratio of variable cost to sales is 70%. The Break-even point occurs at 80% of
capacity. Find 100% capacity sales when fixed cost is Rs. 6 lakhs.
36)
a) Following details are available:
Actual Sales
Break Even Sales
Fixed Cost
Find out the profit at actual sales.
Rs.
20,000
10,000
5,000
b) Find out the Break Even point and profit if sales are Rs. 50,00,000 and P/V Ratio is 50% and
Margin of safety is 40%.
37)
A. From the following, calculate : (a) P/V Ratio, and (b) Margin of safety for 2003
2002
50,000
10,000
Sales
Profit
(Rs.)
2003
80,000
25,000
Total Cost
19,83,600
21,43,200
Total Sales
22,23,000
24,51,000
Calculate from the above particulars: (a) P/V ratio; (b) Fixed cost and its percent to sales; (c)
Break-even-point (d) Margin of safety for both the year.
38)
Following information is made available to you about a company for two periods.
Period
(I)
(II)
Sales (Rs.)
1,20,000
1,40,000
Profit (Rs.)
9,000
13,000
Find out:
a.
b.
c.
d.
e.
Rs. 20,00,000
Rs. 12,00,000
Rs. 4,00,000
Rs 16,00,000
Rs 4,00,000
40) A Company has three production departments and two service departments. Distribute
summary of overheads is as follows:
Production Department
A - Rs 3000
B - Rs. 2000
C - Rs. 1000
Service Department
1 - Rs 234
2 - Rs 300
The expenses of service departments are charged on a percentage basis which is as follows:
A
1.
20%
40%
30%
10%
2.
40%
20%
20%
20%
Find out the total overheads of production departments using the following methods:
a) Simultaneous Equation Method (b) Repeated Distribution Method
41) BB Ltd is a manufacturing company having three production departments, A, B and C and
two service departments X and Y . The following is the budget for december2004:
Direct materials
Total
Rs
Rs
Rs
Rs
Rs
Rs
1,000
2,000
4,000
2,000
1,000
Direct wages
5,000
Factory rent
4000
Power
2500
Depreciation
1000
Other overheads
9000
2,000
8,000
1,000
2,000
Additional Information:
Area (sq. ft)
500
250
500
250
500
20
40
20
10
10
Machine hours
1000
2000
4000
1000
50
40
20
15
1000
25
Service Deptt X
45%
15%
30%
10%
Service Deptt Y
60%
35%
5%
Required:
(i)
(ii)
Production department A
Production department B
Production department C
Production department X
Production department Y
900
1,200
200
1,500
400
Indirect wages:
Production department A
Production department B
Production department C
900
1,100
300
Production department X
Production department Y
1,000
650
6000
2800
Insurance on assets
1000
Meal charges
3000
Depreciation p.a
6% on capital values
From the above prepare a Departmental Distribution Summary with following departmental data:
Item
Production Department
A
Area (sq.mt.)
Capital value of
assets (Rs)
kWh
400
1,00,000
4,000
No. of workers
90
Service Department
400
300
200
100
1,20,000
80,000
60,000
40,000
4,400
1,600
1,500
500
120
30
40
20
43) J K Ltd sells two products Jay and Kay in four areas North, South, East and West. The
following sales are budgeted for the month of january2013:
North - Jay 5,000 units @ Rs30 each, and Kay 3,000 units @ Rs15 each
South - Kay 6,000 units @ Rs15 each
East
West - Jay 4,000 units @ Rs30 each and Kay 2,500 units @Rs15 each
Actual sales for the same period were as follows:
North - Jay 5750 units @ Rs30 each and Kay 3,500 units @ Rs15 each
South - Kay 6,250 units @ Rs15 each
East
West - Jay 4,750 units @ Rs30 each and Kay 2,625 units @Rs15 each
On the basis of all the relevant factors, the following sales are budgeted for the month of
February 2013.
North - Jay 6,000 units and Kay 3,250 units
South - Kay 6,500 units
East
44) Prepare a Cash Budget for the three months ending 30 june 2012, from the information
given below:
Month
Sales
Matarials
Wages
Overheads
Rs
Rs
Rs
February
14,000
9,600
3,000
1,700
March
15,000
9,000
3,000
1,900
April
16,000
9,200
3,200
2,000
May
17,000
10,000
3,600
2,200
June
18,000
10,400
4,000
2,300
Rs
Other Informations:
a) Credit terms are:
Sales and debtors -10% of sales are on cash, 50% of the credit sales are collected next month and
the balance in the following month:
Creditors - Matarials
2 months
Wages
months
Overheads
months
b) Cash and bank balance on 1 April 2012 is expected to be Rs 6,000.
45) The expenses budgeted for production of 10,000 units in a factory are furnished below:
Rs per unit
Matarials
70
Labour
25
Variable overheads
20
10
13
5
Total
155
Prepare a budget for the production of (a) 8,000 units, and (b) 6,000 units. Assume that
administration expenses are rigid for all levels of production.
46) The following details are forecasted by a company for the purpose of effective cash
utilisation and management.
(i) Estimated sales and cost:
Year and
Month
Sales
Matarials
Wages
Overhead
Rs
Rs
Rs
Rs
4,20,000
2,00,000
1,60,000
2012
April
45,000
May
4,50,000
2,10,000
1,60,000
40,000
June
5,00,000
2,60,000
1,65,000
38,000
July
4,90,000
2,82,000
1,65,000
37,500
August
5,40,000
2,80,000
1,65,000
60,800
September
6,10,000
3,10,000
1,70,000
52,000
(ii)
Credit items:
- Sales 20% of sales on cash basis, 50% of the credit sales are colleceted next month and
balance in the following month.
- Credit allowed by suppliers is 2 months
- Delay is payment of wages is month and of overhead is one month.
(iii)
(iv)
(v)
(vi)
(vii)
Interest on 12% debentures of Rs 5,00,000 is paid half yearly in June and December.
Dividend on investments amounting to Rs 25,000 is expected to be received in June 2012.
A new machinery will be installed in June 2012 at a cost of Rs 4,00,000 which is payable in 20
investments from July 2012 onwards.
Advance income tax, to be paid in August 2012 is Rs 15000
Cash balance on 1st June 2012 is expected to be Rs 45,000 and the company wants to keep it at
the end if every month around this figure. The excess cash (in multiples of Rs thousand) is
being put in a fixed deposit.
Prepare a monthly cash budget for four months starting June 2012.
47) Chennai Engineering Co.Ltd manufactures two products X and Y . An estimate of number
of units expected to be sold in the first seven month of 2013 is given below:
Product X
Product Y
January
500
400
February
600
1,400
March
800
1,200
April
1,000
1,000
May
1,200
800
June
1,200
800
July
1,000
900
It is anticipated that:
(a) There will be no work-in-progress at the end of any month:
(b) Finished units equal to half the anticipated sales for the next month will be in stock at the end of
each month (including December 2012) The budgeted production and production and production
costs for the year ending 31st December 2013 are as follows:
Product X
Rs
Production (units)
Product Y
Rs
11,000
12,000
12
19
33,000
48,000
49) The following are the estimated sales of a company for eight months ending 30-10-2003
Months
April 2003
Estimated Sales
12,000
May 2003
June 2003
July 2003
August 2003
September 2003
October 2003
November 2003
13,000
9,000
8,000
10,000
12,000
14,000
12,000
As a matter of policy, the company maintains the closing balance of finished goods and raw
materials as follows:
Stock item
Closing balance of a month
Finished goods
50% of the estimated sales for the next month
Raw materials
Estimated consumption for the next month
Every unit of production requires 2 kg of raw material costing Rs. 5 per kg.
Prepare Production Budget (in units) and Raw Material Purchase Budget (in units and cost) of
the company for the half year ending 30 September 2003.
50) Form the following budgeted figures prepare a cash budget in respect of three months to June
30.
Months
January
February
March
April
May
June
Sales
60000
56000
64000
80000
84000
76000
Materials
40000
48000
50000
56000
62000
50000
Wages
11000
11600
12000
12400
13000
14000
Overheads
6200
6600
6800
7200
8600
8000
51) A factory engaged in manufacturing plastic toys is working at 40% capacity and produces,
10, 000 toys per month. The present cost break up for one toy is as under.
Material: Rs.10
Labor:
Rs.3
Overheads: Rs.5 [60% fixed]
The selling price is Rs.20 per toy. If it is decided to work the factory at 50% capacity, the
selling price falls by 3%. At 90% capacity, the selling price falls by 5% accompanied by a similar fall in
the price of material. You are required to prepare a statement showing the profits/losses at 40%, 50%
and 90% capacity utilizations.
52) For production of 10,000 fans, the following are the budgeted expenses:
Per Unit cost
Rs 25
Rs 30
Rs 10
Rs 15
Rs 15
Rs 15
Rs 10
Rs 5
Direct material
Direct labour
Direct expenses
Variable overheads
Fised overheads (Rs 50, 000)
Selling ( 20% fixed)
Distribution expenses (30% fixed)
Administrative expenses
( Rs 80,000 rigid for all levels of production)
Total cost of sales per unit
Rs 160
Prepare a budget for production of 7000, 8000 and 9000 fans, showing distinctly marginal
cost and total cost.