St. Joseph’s college of Commerce (Autonomous)
END SEMESTER EXAMINATION – APRIL 2014
B.Com – IV SemESTER
COST AND MANAGEMENT ACCOUNTING
Duration: 3 Hours Max Marks: 100
Section – A
- Answer any ten Each carries 2 marks. (10 X 2=20)
- Explain the term Normal process loss.
- Explain the term Equivalent production in Process costing.
- Give the meaning of the term Marginal Cost.
- What do you mean by Break even analysis?
- Selling price-Rs. 150 per unit, Variable cost- Rs. 90 per unit, Fixed cost –Rs. 6,00,000
(total ) What is the breakeven point, what is the selling price per unit if breakeven point is 12,000 units?
- Give the meaning of the term relevant costing.
- Explain the concept ‘Budget’.
- Mention any four functional budgets.
- Distinguish between Fixed and Flexible budget.
- Give the meaning of standard costing.
- Write a note on Variance analysis.
- Give the meaning of the term Idle time variance.
Section – B
- Answer any four questions: (4X5=20)
- Calculate equivalent production
| Opening work-in-progress (30% complete) | 2,000 units |
| Put into the process during the month | 20,000 units |
| Transferred to next process | 18,000 units |
| Closing work-in-progress (40% complete) | 4,000 units |
- A company sold in two successive periods 7,000 units and 9,000 units and has incurred a loss of Rs. 10,000 and earned Rs.10, 000 as profit respectively. The selling price per unit can be assumed at Rs. 100.
You are required to calculate:
- The amount of fixed cost
- The number of units to break even
- The number of units to earn a profit of Rs. 40,000.
- You are given the following data:
| Sales | Profit | |
| Year 2004 | Rs. 1,20,000 | Rs. 8,000 |
| Year 2005 | Rs. 1,40,000 | Rs. 13,000 |
Find out-
- P/V ratio
- E. Point
- Profit when sales are Rs. 1,80,000
- Sales required to earn a profit of Rs. 12,000
- Margin of safety in 2005.
- Ace Ltd., has an inventory of 5,000 units of a product left over from last year’s production. This model is no longer in demand. It is possible to sell these at reduced prices through the normal distribution channels. The other alternative is to ask someone to take them on ‘as is where is’ basis. The latter alternative will cost the company Rs. 5,000
The company produced 2,40,000 units of the product last year, when the unit costs were as under
| Rs. | ||
| Manufacturing cost: | ||
| Variable | 6.00 | |
| fixed | 1.00 | 7.00 |
| Selling and distribution cost: | ||
| Variable | 3.00 | |
| Fixed | 1.50 | 4.50 |
| Total cost | 11.50 |
Selling price per unit Rs. 14.00
Should the company scrap the items or sell them at a reduced price? If you suggest the latter, what minimum price would you recommend?
- The expenses budgeted for production of 10,000 units in a factory are furnished below:
| Rs. Per unit | |
| Materials | 70 |
| Labour | 25 |
| Variable overheads | 20 |
| Fixed overheads (Rs. 1,00,000) | 10 |
| Variable expenses (direct) | 5 |
| Selling expenses (10% fixed) | 13 |
| Distribution expenses (20% fixed) | 7 |
| Administration expenses (Rs. 50,000) | 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.
- Calculate variable overhead variances form the following:
| Budgeted | Actual | |
| Output (units) | 20,000 | 19,000 |
| Hours | 5,000 | 4,500 |
| Overhead – fixed | 10,000 | 10,500 |
| Variable | 5,000 | 4,800 |
Section – C
- Answer any three Each carries 15 marks. (3X15=45)
- In process A on 1 March, there was no work-in-progress. During the month of March, 2000 units of material were issued at a cost of Rs. 18,000. Labour and overheads totalled Rs. 9,000 and Rs. 6,600 respectively. On 31, March, 1500 units were completed and transferred to the next process. On the remaining 500 units, which are incomplete, degree of completion was as follows:
Material-100%, Labour- 60%, Overhead-30%.
Prepare (a) Statement of Equivalent production
(b) Statement of cost
(c) Statement of evaluation
(d) Process account
- A retail trader in garments is currently selling 24,000 shirts annually. He supplies the following details for the year ended 31st December 2011:
Rs.
| Selling price per shirt | 40 |
| Variable cost per shirt | 25 |
| Fixed cost: | |
| Staff salaries for the year | 1,20,000 |
| General office costs for the year | 80,000 |
| Advertising costs for the year | 40,000 |
As a cost accountant of the firm you are required to answer the following each part independently:
- Calculate the breakeven point and margin of safety in sales revenue and number of shirts sold.
- Assume that 20,000 shirts were sold in a year. Find out the net profit of the firm.
- If it is decided to introduce selling commission of Rs. 3 per shirt, how many shirts would require to be sold in a year to earn a net income of Rs. 15,000
- Assuming that for the year 2012 an additional staff salary of Rs. 33,000 is anticipated, and price of a shirt is likely to be increased by 15%, what should be the breakeven point in number of shirts and sales revenue?
- Novina industries Ltd., has received an export for its only product that would require the use of half of the factory’s present capacity of 4,00,000 units per annum. The factory is currently operating at 60% level to meet the demand of its domestic market.
As against current price of Rs. 6.00 per unit, the export order offers @ Rs. 4.50 per unit, which is less than the cost of production, the details of which are given below:
- Direct material Rs. 2.50 per unit
- Direct labour Rs. 1.00 per unit
- Direct expenses Rs. 0.50 per unit
- Fixed overhead Rs. 1.00 per unit
The condition of the export is that it has either to be accepted in full or totally rejected.
- Accept the order and keep domestic sales unfulfilled to the excess demand for the same
- Increase factory capacity by installing a few balancing machinery and equipments and also by working extra time to meet the balance of the required capacity. This will increase fixed overheads by Rs. 20,000 annually and the additional cost of overtime will work out Rs. 40,000 per annum.
- Outsource the production of additional requirement by supplying direct materials and paying conversion charges of Rs. 1.75 per unit to a small converter, and engaging one supervisor at a cost of Rs. 3,000 per month to look after quality, packing and dispatch.
- As a management accountant you are required to make comparative analysis of various proposals and suggest which of the alternative proposals is the most attractive to Novina industries Ltd.
- X ltd., operates a standard costing system. Following information is supplied by the company.
| Actual | Rs. |
| Material consumed (3,600 units @ Rs. 52.50 each) | 1,89,000 |
| Direct wages | 22,100 |
| Fixed expenses | 1,88,000 |
| Variable expenses | 62,000 |
Output during the period was 3,500 units of finished goods. For the above period, the standard the standard production capacity was 4,800 units and the breakup of standard cost per unit was as follows:
| Rs. | |
| Material cost ( one unit @ Rs. 50 each ) | 50 |
| Direct wages | 6 |
| Fixed expenses | 40 |
| Variable expenses | 20 |
| Total | 116 |
The standard wages per unit is based on 9,600 hours of the above perios at a rate of Rs. 3 per hour. 6,400 hours were actually worked during the above period and in addition, wages for 400 hours were paid to compensate for idle time due to break down of machine and overall wage rate was Rs. 3.25 per hour. You are required to calculate the following variance:
- Direct material cost variance
- Material price variance
- Material usage variance
- Direct labour cost variance
- Wage rate variance
- Labour efficiency variance
- Idle time variance
- Variable expenses variance
- Fixed expenses expenditure variance
- Fixed expenses volume variance
- Fixed expenses capacity variance
- Fixed expenses efficiency variance
- Total cost variance
- A company produces two products and budgets at 60% level of activity for the year 1998. It gives the following information:
| Product A | Product B | |
| Raw material cost per unit | Rs. 7.50 | Rs.3.50 |
| Direct wages per unit | Rs.4.00 | Rs.3.00 |
| Variable overhead per unit | Rs.2.00 | Rs.1.50 |
| Fixed overhead per unit | Rs.6.00 | Rs.4.50 |
| Selling price per unit | Rs.20.00 | Rs.15.00 |
| Production and sales (units) | 4,000 | 6,000 |
The managing director is not satisfied with the budgeted results as stated above and wants to improve the performance. The managing director proposed that the sales quantities of products A and B could be increased by 50% provided the selling price was reduced by 5% in case of product A and 10% in case of Product B. the price reduction should be made applicable to the entire quantity of sales of each of the two products.
You are required to present the overall profitability under the original budget and revised budget after taking the increased sales into consideration.
Section – D
- IV) Compulsory question. (1X15=15)
- From the following particulars, find the most profitable product mix and prepare a statement of profitability of that product mix:
| Product A | Product B | Product C | |
| Units budgeted to be produced and sold | 1,800 | 3,000 | 1,200 |
| Selling price per unit Rs. | 60 | 55 | 50 |
| Requirement per unit: | |||
| Direct materials | 5kg | 3kg | 4kg |
| Direct labour | 4hrs | 3 hrs | 2hrs |
| Variable overheads | Rs. 7 | Rs.13 | Rs.8 |
| Fixed overheads | Rs. 10 | Rs.10 | Rs.10 |
| Cost of direct material per kg | Rs. 4 | Rs.4 | Rs.4 |
| Direct labour hour rate | Rs. 2 | Rs.2 | Rs.2 |
| Maximum possible units of sales | 4,000 | 5,000 | 1,500 |
All the three products are produced from the same direct material using the same type of machines and labour. Direct labour, which is the key factor, is limited to 18,600 hours.
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