Cost and Management Accounting

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ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – OCTOBER 2013
B.COM – III SEMESTER
COST AND MANAGEMENT ACCOUNTING
Duration: 3 hours Max. Marks: 100
SECTION – A
I) Answer any TEN of the following: ( 10 x 2 = 20)
1. What is the difference between ‘Idle time’ and ‘Idle capacity’?
2. What is ‘works on cost’? How is it different from ‘Works Cost’?
3. What are Semi-variable costs? Give two examples?
4. State two factors to be considered in the choice of methods of pricing material
issues?
5. What is ‘continuous stock taking’?
6. Briefly explain how bonus is calculated in Rowan Plan?
7. How is setting up time treated in calculating machine hour rate?
8. What do you understand by the term ‘Retention Money’?
9. A truck starts with a load of 5 tons of goods from Station ‘X’. It unloads ‘2’ tones
at station ‘Y’ and the rest of the goods at station ‘Z’. It reaches back directly to
station X after getting reloaded with 4 tons at station ‘Z’. The distance between X
to Y, Y to Z and X to Z are 20km, 30 km and 40 km respectively. Compute the
total ton kms.
10. State any 2 such items which are included in cost accounts but not in Financial
Accounts/
11. What are the three elements of Cost?
12. Briefly explain ‘Work certified’ in Contract Costing?
SECTION – B
II) Answer any FOUR of the following (4 x 5 = 20 )
13. Mr. Gopal furnishes the following data relating to the manufacture of a standard
product during the month of April 2009:
Raw material consumed Rs.15,000
Direct labour charges Rs.9,000
Machine hours worked 900
Machine Hour Rate Rs. 5
Administration overheads 20% on works cost
Selling Overhead Rs. 0.50 per unit
Unit produced 17,100
Units sold 16,000 at Rs. 4 per unit
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You are required to prepare a cost sheet from the above, showing:
(a) the cost per unit, (b) cost per unit sold and profit for the period.
14. SV. Construction Ltd. have obtained a contract for the construction of a bridge. The
value of the contract is Rs. 12 lakhs and the work commenced on 1st October, 2009.
The following details are shown in their books for the year ended 30th
September,2010:
Plant purchases Rs. 60,000; Wages paid Rs. 3,40,000, Materials issued to site
Rs. 3,36,000; Site expenses Rs. 8,000; General overheads apportioned Rs. 32,000;
Wages accrued as on 30-9-2010 Rs. 2,800; Materials at site as on 30-9-2010 Rs. 4,000;
Direct expenses accrued as on 30-9-2010 Rs. 1,200; Work not yet certified at cost Rs.
14,000; Cash received being 80% of work certified Rs. 6,00,000. Life of plant
purchased is 5 years and scrap value is nil.
(1) Prepare the contract account for the year ended 30th September, 2010;
(2) Show the amount of profit which you consider might be fairly taken on
the contract and how you have calculated it.
15. Prepare stores ledger a/c showing the receipts and issues, pricing materials issued
on the basis of: Simple average method
Receipts
1-10-12 opening stock 400 units at Rs.3.50 per unit
3-10-12 purchased 600 units at Rs.4.00 per unit
13-10-12 purchased 1800 units at Rs.4.30 per unit
23-10-12 purchased 1200 units at Rs.3.80 per unit
Issues
5-10-12 issued 800 units
15-10-12 issued 1200 units
25-10-12 issued 1200 units
16. From the following figures prepare a Reconciliation Statement
Rs.
Net profit as per costing records 1,72,400
Works overhead under recovered in costing 3,120
Administrative overhead recovered in excess 1,700
Depreciation charged in financial records 11,200
Depreciation recovered in costing records 12,500
Interest received but not included in costing 12,500
Obsolescence loss charged in financial books 5,700
Income tax provided in financial books 40,300
Bank interest credited in financial books 750
Stores adjustment (credit in financial books) 475
Depreciation of stock charged in financial books 6,750
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17. The standard time allotted for a job is 20 hours and the rate per hour is Rs.20 plus a
dearness allowance of Rs.5 per hour worked
The actual taken by a worker is 15 hours. Calculate the earnings under (a) Time
system (b) Halsey Plan (c) Rowan Scheme.
18. A factory has 2 production departments ( A &B) and 2 service departments (X & Y).
The departmental overhead distribution summary is s follows
A B X Y
Rs Rs Rs Rs
Overheads
allocated
6,000
4,000
1,170
1,500
The expenses of the service departments are to be charged on a percentage basis as
follows
A B X Y
Expenses of Service
department X
40%
50%
10%
Expenses of Service
department Y
50%
30%
20%
Show how the expenses of the 2 service departments are to be charged to the 2
production departments using repeated distribution method
SECTION – C
III) Answer any THREE of the following (3×15 = 45)
19. M.K Works can produce 60,000 units per annum at its optimum (100%) capacity.
The estimated costs of production are as under:
Direct material Rs. 3 per unit
Direct labour Rs. 2 per unit
Indirect expenses:
Fixed Rs.1,50,000 per annum
Variable Rs. 5 per unit
Semi variable Rs. 50,000 p.a. upto 50% capacity and an extra expenses of Rs.
10,000 for every 25% increase in capacity on part thereof .
The factory produced only against orders an not for own stock. If the production
programme of the factory is as indicated below, and the management desires to ensure
a profit of Rs.1,00,000 for the year, work out the average selling price at which each unit
should be quoted.
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First 3 months of the year 50% of capacity
Remaining 9 months 80% of capacity
Ignore selling, distribution and administration overheads.
20. The following is the Trial Balance of Pragathi Construction Company, engaged on
the execution of Contract No.107, for the year ended 31st December, 2001:
Rs. Rs.
Contractee’s Account
(Amount received against 75% of work certified) 3,00,000
Buildings 1,60,000
Creditors 72,000
Bank Balance 35,000
Capital Account 5,00,000
Materials 2,00,000
Wages 1,80,000
Expenses 47,000
Plant 2,50,000
8,72,000 8,72,000
The work on Contract No.107 was commenced on 1st January 2001. Materials
costing Rs. 1,70,000 were sent to the site of the contract but those of Rs. 6,000 were
destroyed in an accident. Wages of Rs. 1,80,000 were paid during the year. Plant
costing Rs. 50,000 was used on the contract all through the year. Plant with cost of Rs. 2
lakhs was used from 1st January to 30th September and was then returned to the stores.
Materials cost of Rs. 4,000 were at site on 31st December, 2001.
The contract was for Rs. 6,00,000 and the contractee pays 75% of the work
certified. Work certified was 80% of the total contract work at the end of 2001.
Uncertified work was estimated at Rs. 15,000 on 31st December, 2001.
Expenses are charged to the contract at 25% of wages. Plant is to be depreciated
at 10% for the entire year.
Prepare Contract No. 107 Account for the year 2001 and make out the Balance
Sheet as on 31st December 2001 in the books of Pragathi Construction Co.
21. A manufacturing concern has 2 identical large machines and 4 small machine. Each
large machine occupies 1/4th of the working area and employs 3 workers. Each small
machine occupies ½ the space of the large machine and employs 2 workers. The
workers are paid on the basis of piece rate system according to units produced. Each of
the 6 machines are estimated to work for 1,440 hours a year.
The effective working life for the large machine is 12,000 working hours and 9000
working hours for the small machine. The large machine costs Rs.2,00,000 each and
small machine costs Rs.40,000 each. The scrap value are Rs.40,000 & Rs.5,000
respectively for the large & small machine. Repairs & maintenance are estimated at
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Rs.4,000 for the large machine and Rs.1,200 for the small machine during its effective
life. Power consumption is 50 paise per unit. And amounts to 20 units for the large
machine and 2 units for the small machine per hour. The manager is paid a salary of
Rs.2,50,000 p.a. and the supervision requires ½ of his time divided equally among the 6
machines.
The other expenses were rent of the department Rs.6,400 pa, lighting Rs.1,820 p.a. (to be
apportioned on the basis of number of workers). Calculate the machine hour rate taking
a period of 3 months as the basis.
22. The following figures are taken from the books of Jayanth & co for the year ended
31st Dec 2004.
Financial Accounting Cost Accounting
Opening stock
Raw materials
Finished goods
6,000
5,000
5,000
4,800
Closing stock
Raw materials
Finished goods
4,000
6,000
4,300
8,000
Purchase of materials 40,000
Direct labour 20,000
Factory expenses 18,000 21,000 absorbed
Indirect labour 3,000
Sales 1,20,000
Administrative expenses 6,000 4,000 absorbed
Interest received 5,000
Goodwill written off 1,000
Calculate the Profit as per cost and financial books. Prepare a reconciliation statement
showing clearly the reasons for the variation in profit figures.
23. A small scale industrial unit produces specialty products employing 5 workers. It
has planned to introduce an incentive scheme- either Halsey or Rowan scheme for
increasing labour productivity and the increased productivity for the product by
25%. By introducing the incentive scheme the SSI unit expects a 20% increase over
the present earning of the workers( assurance given to workers) .
As a result of the scheme, the following outcomes have been observed
Hourly rate of wages (guaranteed) Rs.2.00
Average time for producing 1 piece by one worker at the previous performance 2
hours
6
(this time is to be considered as time allowed for the purpose of the incentive
scheme)
No. of working days in a month -25 days
No of working hours per day for each worker – 8 hours
Actual production during the month – 625 nos.
You are required to (a) Calculate the effective rate of earning per hour under Halsey
scheme and Rowan Scheme (b) Calculate the savings in terms of direct labour cost
per piece under the above schemes. (c) Advise the SSI unit about the selection of the
scheme to fulfill its assurance to workers
SECTION – D
IV) Compulsory Question. (15 marks)
24. A transport company operates a 4 buses in a route covering 35 kms. Cost of
each vehicle is Rs.20,00,000 (fuel efficiency 6 Kms per liter ). The annual charges are
Insurance Rs.2,85,000
Road tax Rs.1,40,000
Garage rent Rs.52,000
Cost of repairs Rs.67,000
Expenses on tires and tubes Rs.11,200 pm
Office expenses Rs.14,000 pm
Cost of fuel (diesel) Rs.54 per liter
Drivers salary Rs.7,500 pm
Conductors salary Rs.6,000 pm
In addition the driver and conductor are entitled to 3.5% commission on ticket sale.
Effective life of each vehicle is 10 years with a scrap value of Rs.50,000 at the end. Each
bus has 50 seats and is expected to run 6 two way trips ( round trip) for 30 days in a
month (including 4 Sundays where the bus runs at 75% capacity). calculate the
passenger fare structure for approval by transport authorities who allow 15% profit on
net sales. Interest on loan is allowed on vehicle cost which amounted to Rs.6,50,000 p.a.

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

1. Answer any ten   Each carries 2 marks.                                 (10 X 2=20)

 

1. Explain the term Normal process loss.
2. Explain the term Equivalent production in Process costing.
3. Give the meaning of the term Marginal Cost.
4. What do you mean by Break even analysis?
5. 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?

6. Give the meaning of the term relevant costing.
7. Explain the concept ‘Budget’.
8. Mention any four functional budgets.
9. Distinguish between Fixed and Flexible budget.
10. Give the meaning of standard costing.
11. Write a note on Variance analysis.
12. Give the meaning of the term Idle time variance.

Section – B

1. Answer any four questions:                                                                                  (4X5=20)

 

13. 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

 

14. 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.

 

15. 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.

 

16. 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?

 

17. 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.

 

 

18. 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)

 

19. 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

20. A retail trader in garments is currently selling 24,000 shirts annually. He supplies the following details for the year ended 31^st 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?

 

21. 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.

1. Accept the order and keep domestic sales unfulfilled to the excess demand for the same
2. 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.
3. 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.
4. 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.

 

22. 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

 

23. 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

 

1. IV) Compulsory question.                                            (1X15=15)

 

24. 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.