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Assignment Set -1

Q1. Rainbow Ltd. sold goods for Rs. 30,00,000 in a year. In that year, the variable costs

were Rs. 6,00,000 and fixed costs were Rs. 8,00,000.

Find out:

i) MCSR or P/V Ratio

ii) Break-even sales

iii) Break-even sales, if the selling price was reduced by 10 % and fixed costs were

increased by Rs. 1,00,000

Ans:- i) MCSR or P/V Ratio

P/V Ratio = Contribution/Sale100

Contribution = Sale price Variable Cost

= 30,00,000-6,00,000

= 24,00,000

PV Ratio = 24,00,000/30,00,000100

= 80%

ii) Break Even Sales = Fixed Cost/Contribution

= 8,00,000/24,00,000100

= 33.33
iii) Selling Point Reduce by 10%

= 30,00,000 - 3,00,000

= 27,00,000

Fixed Cost increase by 1,00,000

= 8,00,000 + 1,00,000

= 9,00,000

BEP = Fixed Cost / Contribution

Fixed Cost = 9,00,000

Contribution = Sale price Variable Cost

= 27,00,000 6,00,000

= 21,00,000

New BEP = Fixed Cost / Contribution

= 9,00,000/21,00,000100

= 42.85
Q2 The method of costing depends on the nature of the product, production method and

specific business conditions. Enumerate giving examples.

Ans:- The different methods of costing and examples

Batch Costing :- This method is used to determine the cost of a group of identical products. The

batch that consists of similar products is a unit and not a single item within the batch.

Example :- Production of tablets, capsules, nuts and bolts, components or spare parts

Contract Costing :- This method is based on the principle of job costing used by house builders

and civil contractors. The contract becomes the cost unit for which relevant costs are determined.

Example :- construction of an apartment, housing colony ,airports, flyovers, etc.

Composite Costing :- This method is used to accumulate costs for different components of the

product and then combine them because the nature of product is complex.

Example :- manufacturing of aeroplanes , motor vehicles, computers, etc

Unit Costing :- This method is used when a single item is produced and the final product is

composed of homogenous units. The cost per unit is obtained by dividing the total cost by the

total number of units manufactured

Example:- Sugar industry ,Cement , fertilizer, chemicals, petroleum, refining , LPG, paper, etc.

Operating Costing :- This method is used by service industries. The unit cost differs for these

services depending upon the nature of service being rendered.

Examples :- Passenger mile, bed in a hospital , per student in a college.


Operation Costing :- This product costing is used when conversion activities are very similar

across product lines but the direct materials differ significantly.

Example :-The professional basketballs are covered with genuine leather whereas the scholastic

basketballs are covered with imitation leather.

Q3. A company making for stock in the first quarter of the year 2017 is assisted by its

bankers with overdraft accommodation. The following are the relevant budget figures:

Sale (Cr.) Purchases(Cr.) Wages &

Rs. Rs. Expenses (Cr.)Rs.

November 2016 1,20,000 83,000 10,000

December 2016 1,28,000 96,000 10,000

January 2017 72,000 1,62,000 11,000

February 2017 1,16,000 1,64,000 10,000

March 2017 84,000 40,000 12,000

Given the following further information you are required to prepare a Cash Budget for the

quarter January to March 2017, showing the budgeted amount of bank facilities required,

if any, in each month end:

a) Budgeted cash at bank on 1st January 2017 Rs. 20,000

b) Credit terms of sales are payment by the end of the month following the month of

supply. On average one half of sale are paid on due date, while the other half are paid

during the next month. Creditors are paid during the month following the month of supply.
c) Wages and expenses are paid twice a month on 1st and 16th respectively.

Ans :- Cash Budget 2017

Particulars Jan Feb March

Opening Balance of cash 20,000 13,500 (65000)

Sales 36,000 58,000 42,000

Collection from debtors 64,000 36,000 58,000

A 1,20,000 1,07,500 35,000

Less cash payment

Payment to used 96,000 1,62,000 1,64,000

Wages and Expenses

C.M 5500 5000 6000

L.M 5000 5500 5000

B (1,06,500) (1,72,500) (1,75,000)


Closing Balance 13,500 (65,000) (14,000)
Assignment Set II

Q1. 1 ton of material input yields standard output of 1,00,000 units. The standard price of

material is Rs. 20 per kg. The actual quantity of material use is 10 tons and the actual price

paid is Rs. 21 per kg. Actual output obtained is 9,00,000 units. Compute Material

Variances.

Ans :-

(i) Material Cost variances = 20 21

= -1 unfavorable.

(ii) Material Prices Variances = ( Standard price Actual price ) Actual Quantity used

= (20- 21) 9,00,000

= - 9,00,000 unfavorable.

(iii) Material usage variances = ( Standard Quantity Actual Quantity ) Standard Price

= (10,00,000 9,00,000) 21

= 21,00,000
Q2There are errors which do not affect the Trial Balance and it is difficult to

locate them. Do you agree ? justify your agreement/ disagreement.

Ans :- Errors not disclosed by Trial Balance

(i) Error of complete omission:- Error of omission occurs when a transaction is

completely omitted from the books of accounts.

Example :- If purchase of goods from jairam on credit is not recorded either in the

general journal or in the purchase book, it is termed as error of omission.

(ii) Error of commission :- If the errors wrong posting, wrong casting, wrong

calculation etc.. are committed in the books of original entry or ledger, it is

said to be error commission.

Example :- Purchase invoice of Rs. 1730 may have been entered as Rs. 1370

in the purchases book itself, then, in the subsequent ledger accounts the same

mistake continuous and thereby cannot be disclosed by trial balance.

(iii) Error of principle :- While drawing journal entries, often error of principle is

committed and this goes unnoticed because it does not affect the total of trial

balance.

Example :- Wages paid to workers engaged in the construction of building

should be debited to building account and not wages account.

(iv) Compensating Errors :- It is also called off-setting error. Compensating

error is one which is counter balanced by another error.

Example :- Mr. X account was debited Rs. 100 as against Rs. 1000 while the

account of Mrs.X account was debited Rs. 1000 as against the correct amount

of Rs.100.
The First error is compensated by the second error and therefore the trial

balance is not affected. This comes to light only at a later stage or on receipt

of the complaint.

Q3.From the following data prepare a Cost Sheet.

Ans :-

Rs.

Opening cost of Raw materials 30,000

Closing stock of Raw materials 20,000

Purchase of Raw materials 1,90,000

Sales 6,50,000

Prime cost 4,10,000

Factory Overhead 1,20,000

Administration Overhead 90,000

10% of the output remained unsold. There was no Direct Expenses


Ans :- Cost Sheet

Particulars Amount (Rs.)

Opening stock 30,000

Purchase of Raw Material 1,90,000

2,20,000

Less:- Closing Stock of Raw Material 20,000

Cost of Sale 2,00,000

Profit 4,50,000

Sales 6,50,000