[Short Answer Type]
1. Question: What is a Cost Sheet? Explain its components.
Answer:
A Cost Sheet is a statement that shows the total cost of producing a product. It includes direct costs (materials and labor), indirect costs (overheads), and the final cost of production. The cost sheet typically contains:
- Direct Materials Cost
- Direct Labour Cost
- Direct Expenses
- Prime Cost
- Factory Cost (or Production Cost)
- Administrative Overheads
- Cost of Production
- Selling and Distribution Overheads
- Total Cost
- Profit
It helps businesses determine the cost of a product and assist in pricing decisions.
2.Question: Define Just in Time (JIT) and explain its features.
Answer:
Just in Time (JIT) is a production strategy that aims to reduce inventory costs and improve efficiency by receiving goods only when they are needed in the production process. The key features of JIT are:
- Minimization of inventory.
- Reduction in holding costs.
- Streamlined production processes.
- Emphasis on supplier relationships.
- Constant quality improvements.
JIT is widely used in manufacturing industries to maintain smooth production cycles and improve cash flow.
3. Question: What is Indirect Labour Cost? Explain with examples.
Answer:
Indirect Labour Cost refers to the wages paid to workers who are not directly involved in the production of goods or services but provide necessary support to the production process. Examples include:
- Supervisors’ wages.
- Maintenance staff wages.
- Quality control personnel.
These costs are considered part of factory overheads and are allocated to the products or services produced.
4. Question: Explain the features of Job Costing.
Answer:
Job Costing is a costing method used to determine the cost of a specific job or batch of production. The main features are:
- Individual Cost Tracking: Costs are collected for each individual job or batch separately.
- Direct Materials and Labor: The materials and labor for each job are tracked individually.
- Overhead Allocation: Factory overheads are applied to each job based on a predetermined rate.
- Custom Products: Typically used for custom-made products or services.
- Detailed Cost Records: A job cost sheet or card is used to record the cost details.
This method is ideal for businesses like construction, printing, or custom manufacturing.
5. Question: What is Abnormal Gain in cost accounting? Explain with an example.
Answer:
Abnormal Gain refers to the excess output produced beyond the expected normal loss in a production process. In contrast to normal loss, which is expected due to inefficiencies, abnormal gain is considered a positive outcome where production exceeds expectations.
For example, if the normal loss is estimated to be 10% but only 5% loss occurs, the difference (5%) is considered abnormal gain. This gain is usually accounted for separately and is not considered part of the standard cost structure.
6. Question: From the following information, calculate the Economic Order Quantity (EOQ):
- Annual usage = 8,000 units
- Purchase Price per unit = Rs. 10
- Ordering Cost per Order = Rs. 80
- Carrying Cost = 20% per unit per year
Answer:
The EOQ formula is: EOQ=2×Ordering Cost×Annual UsageCarrying Cost per UnitEOQ = \sqrt{\frac{2 \times \text{Ordering Cost} \times \text{Annual Usage}}{\text{Carrying Cost per Unit}}}
Substitute the given values: EOQ=2×80×800010×0.20=12800002=640000=800 unitsEOQ = \sqrt{\frac{2 \times 80 \times 8000}{10 \times 0.20}} = \sqrt{\frac{1280000}{2}} = \sqrt{640000} = 800 \text{ units}
So, the EOQ is 800 units.
7. Question: The following information is extracted from the job ledger of Devi Enterprises for Job No. 454.
- Materials = Rs. 6,800
- Wages = 100 hours × Rs. 5 = Rs. 500
- Variable Overheads = Rs. 10,000 for 5,000 hours, so for 100 hours = Rs. 200
- Billed Price = Rs. 9,000
Find the profit if the job is billed for Rs. 9,000.
Answer:
Total Cost = Materials + Wages + Variable Overheads Total Cost=6,800+500+200=Rs.7,500\text{Total Cost} = 6,800 + 500 + 200 = Rs. 7,500
Profit = Billed Price – Total Cost Profit=9,000−7,500=Rs.1,500\text{Profit} = 9,000 – 7,500 = Rs. 1,500
So, the profit from Job No. 454 is Rs. 1,500.
[Essay Answer Type]
8. Question: The output of Process X was 5,000 units, normal loss allowed was 10% of input. Abnormal loss was 400 units. The following further information is obtained:
- Material = Rs. 5 per unit
- Overheads = Rs. 6,700
- Labour = Rs. 8,000
- Wastage Realized = Rs. 2.50 per unit
Prepare the Process X Account.
Answer:
Let’s calculate the input quantity:
- Normal loss allowed = 10% of input.
- Actual output = 5,000 units, and abnormal loss is 400 units.
So, the input quantity should be: Input=Output+Normal Loss+Abnormal Loss\text{Input} = \text{Output} + \text{Normal Loss} + \text{Abnormal Loss} Input=5000+(10%×Input)+400\text{Input} = 5000 + (10\% \times \text{Input}) + 400
Let the input be XX. X=5000+0.10X+400X = 5000 + 0.10X + 400 0.90X=54000.90X = 5400 X=54000.90=6000 unitsX = \frac{5400}{0.90} = 6000 \text{ units}
Now, we prepare the Process X Account:
| Particulars | Debit (Rs.) | Credit (Rs.) |
|---|---|---|
| Materials (6000 units × Rs. 5) | 30,000 | |
| Labour | 8,000 | |
| Overheads | 6,700 | |
| Normal Loss (10% of 6000 units) | 600 units × Rs. 5 = 3,000 | |
| Abnormal Loss (400 units × Rs. 5) | 2,000 | |
| Output (5000 units × Rs. 5) | 25,000 | |
| Wastage Realized (400 units × Rs. 2.5) | 1,000 | |
| Balance c/d | Rs. 30,700 | Rs. 30,700 |
The Process X Account tracks the costs of materials, labor, and overheads, with credits for the normal and abnormal loss, output, and wastage realized.
Here are the questions and answers you requested:
9a. Question: Define Cost Accounting and explain its objectives and scope.
Answer:
Cost Accounting is the process of collecting, analyzing, and recording all the costs incurred in the production process. It involves tracking both direct and indirect costs to determine the cost of producing goods or services. The primary goal of cost accounting is to provide information that helps managers make informed decisions regarding cost control, pricing, and profitability.
Objectives of Cost Accounting:
- Cost Control: To ensure that costs do not exceed budgeted amounts.
- Cost Reduction: To identify areas where costs can be reduced without affecting quality or performance.
- Pricing Decisions: To assist in setting competitive prices by determining the cost of production.
- Profitability Analysis: To help determine the profitability of various products or services.
- Budgeting: To assist in creating accurate and realistic budgets.
- Decision Making: To provide data for managerial decision-making regarding expansion, product mix, etc.
Scope of Cost Accounting:
- Cost Classification: Categorizing costs into fixed, variable, direct, and indirect.
- Cost Allocation: Assigning costs to cost centers or production departments.
- Cost Control and Analysis: Monitoring and analyzing costs to ensure they stay within budget.
- Cost Reporting: Preparing reports for internal use, such as cost sheets and variance analysis.
9b. Question: Discuss the difference between Cost Accounting and Financial Accounting.
Answer:
While both cost accounting and financial accounting are used to assess a company’s financial health, they serve different purposes and are governed by different principles.
| Aspect | Cost Accounting | Financial Accounting |
|---|---|---|
| Purpose | To determine and control costs for internal management use | To prepare financial statements for external stakeholders |
| Scope | Deals with detailed information on costs of production | Deals with the overall financial position of the company |
| Users | Internal management (e.g., managers, department heads) | External users (e.g., shareholders, creditors, regulators) |
| Reports Prepared | Cost sheets, job cost sheets, cost variance reports | Profit & Loss Account, Balance Sheet, Cash Flow Statement |
| Legal Requirement | Not legally required, voluntary | Legally required for public companies under regulatory bodies |
| Time Focus | More detailed and frequent, often on a weekly/monthly basis | Periodic (quarterly, annually) |
| Accuracy and Precision | Focuses on precise measurement of costs | Focuses on overall financial accuracy |
10a. Question: Discuss the various types of Inventory Control Techniques.
Answer:
Inventory control techniques are strategies used by businesses to manage their inventory efficiently and reduce costs. Common inventory control techniques include:
- Just-in-Time (JIT):
Inventory is only ordered and received when it is needed in the production process, reducing inventory holding costs. - Economic Order Quantity (EOQ):
A formula used to determine the optimal order size that minimizes total inventory costs (ordering and carrying costs). - ABC Analysis:
Items are categorized into three classes (A, B, C) based on their importance, with A being the most valuable and requiring the most control, while C is less critical. - Reorder Point (ROP):
This technique calculates the level of inventory at which new stock should be ordered to avoid running out. - Safety Stock:
Maintaining an additional quantity of inventory as a buffer to protect against supply chain disruptions. - FIFO (First In, First Out):
The first items purchased are the first ones used or sold, ensuring that older stock is used first. - LIFO (Last In, First Out):
The most recently acquired inventory is used or sold first, which can be useful when prices are rising. - Two-Bin System:
Inventory is kept in two bins: when the first bin is empty, an order is placed for new stock, and the second bin is used until the order arrives.
10b.Question: From the following details, prepare the Store Ledger using the Weighted Average method of valuing the issues.
- Nov 3: Issued 1,500 units to production department
- Nov 5: Received 4,500 units @ Rs. 6.00 each
- Nov 10: Issued 1,600 units
- Nov 12: Returned to stores 100 units by the Production Department (from the issue of Nov. 3)
- Nov 16: Received 2,400 units @ Rs. 6.50 each
- Nov 19: Returned to supplier 200 units out of quantity received on Nov. 5.
- Nov 20: Received 1,000 units @ Rs. 7.00 each
- Nov 24: Issued to production 2,100 units
- Nov 27: Received 1,200 units @ Rs. 7.50 each
- Nov 29: Issued to production 2,800 units.
Answer:
To prepare the Store Ledger using the Weighted Average method, we need to calculate the weighted average cost per unit after each receipt of inventory. The formula for the weighted average cost is: Weighted Average Cost=Total Cost of InventoryTotal Units Available\text{Weighted Average Cost} = \frac{\text{Total Cost of Inventory}}{\text{Total Units Available}}
Let’s calculate the store ledger step by step:
| Date | Receipts (Units) | Cost per Unit | Issue (Units) | Closing Stock (Units) | Total Cost | Weighted Average Cost per Unit |
|---|---|---|---|---|---|---|
| Nov 3 | – | – | 1,500 | 1,500 | Rs. 9,000 | Rs. 6.00 |
| Nov 5 | 4,500 | Rs. 6.00 | – | 6,000 | Rs. 27,000 | Rs. 6.00 |
| Nov 10 | – | Rs. 6.00 | 1,600 | 4,400 | Rs. 26,400 | Rs. 6.00 |
| Nov 12 | – | Rs. 6.00 | – | 4,400 | Rs. 26,400 | Rs. 6.00 |
| Nov 16 | 2,400 | Rs. 6.50 | – | 6,800 | Rs. 44,200 | Rs. 6.47 |
| Nov 19 | – | Rs. 6.50 | – | 6,600 | Rs. 42,900 | Rs. 6.50 |
| Nov 20 | 1,000 | Rs. 7.00 | – | 7,600 | Rs. 49,900 | Rs. 6.56 |
| Nov 24 | – | Rs. 6.56 | 2,100 | 5,500 | Rs. 36,080 | Rs. 6.56 |
| Nov 27 | 1,200 | Rs. 7.50 | – | 6,700 | Rs. 47,380 | Rs. 7.07 |
| Nov 29 | – | Rs. 7.07 | 2,800 | 3,900 | Rs. 27,503 | Rs. 7.07 |
11a. Question: A worker takes 48 hours to do a job for which the time allowed is 60 hours. His wage rate is Rs. 10 per hour. Calculate the works cost of the job under the following methods of payment of wages:
a) Halsey Plan
b) Rowan Plan
Answer:
- Material Cost = Rs. 1,000
- Overheads = 150% of wages
a) Halsey Plan:
Under the Halsey Plan, the worker is paid 50% of the time saved in addition to the normal wage for the time allowed.
- Time allowed = 60 hours
- Actual time taken = 48 hours
- Time saved = 60 – 48 = 12 hours
- Wages = Rs. 10/hour
- Wages for time saved = (12 hours × Rs. 10 × 50%) = Rs. 60
- Total Wages = (48 hours × Rs. 10) + Rs. 60 = Rs. 480 + Rs. 60 = Rs. 540
- Overheads = Rs. 540 × 150% = Rs. 810
Works Cost (Halsey Plan) = Material Cost + Wages + Overheads
= Rs. 1,000 + Rs. 540 + Rs. 810 = Rs. 2,350
b) Rowan Plan:
Under the Rowan Plan, the worker is paid a proportion of the time saved based on the time allowed.
- Time saved = 12 hours
- Proportion of time saved = Time saved
/ Time allowed = 12 / 60 = 20%
- Wages for time saved = 20% of (12 hours × Rs. 10) = 20% × Rs. 120 = Rs. 24
- Total Wages = (48 hours × Rs. 10) + Rs. 24 = Rs. 480 + Rs. 24 = Rs. 504
- Overheads = Rs. 504 × 150% = Rs. 756
Works Cost (Rowan Plan) = Material Cost + Wages + Overheads
= Rs. 1,000 + Rs. 504 + Rs. 756 = Rs. 2,260
11b. Question: In a manufacturing concern there are four departments viz A, B, C & D. A and B are production departments and C & D are service departments. C renders service worth Rs. 12,000 to D and balance to A & B in the ratio of 3:2. D renders service to A and B in the ratio of 9:1. The overhead expenses incurred in a year are as follows:
| Expense Type | Amount (Rs.) |
|---|---|
| Depreciation | 95,000 |
| Rent, Rates and Taxes | 18,000 |
| Insurance | 7,600 |
| Power | 10,000 |
| Canteen Expenses | 5,400 |
| Electricity | 2,400 |
Following further information is given regarding the departments:
| Department | Direct Material (Rs.) | Direct Labour (Rs.) | Floor Space (sq. ft.) | Value of Assets (Rs.) | H.P. of Machines | No. of Workers | Light and Fan Points |
|---|---|---|---|---|---|---|---|
| A | 6,000 | 20,000 | 5,000 | 10,00,000 | 1,000 | 100 | 50 |
| B | 5,000 | 10,000 | 4,000 | 5,00,000 | 500 | 50 | 30 |
| C | 3,000 | 10,000 | 1,000 | 3,00,000 | 400 | 50 | 20 |
| D | 2,000 | 5,000 | 2,000 | 1,00,000 | 100 | 25 | 20 |
Prepare a statement showing the overhead expenses of production departments A and B after distribution of service department’s expenses.
12a. Question: Following information in respect of Job No. 222 is given below:
| Item | Amount (Rs.) |
|---|---|
| Materials | 5,800 |
| Wages | |
| Department A (100 hours @ Rs. 5 per hour) | Rs. 500 |
| Department B (200 hours @ Rs. 3 per hour) | Rs. 600 |
| Variable Overheads | |
| Department A (Rs. 10,000 for 5,000 hours) | Rs. 2 |
| Department B (Rs. 30,000 for 10,000 hours) | Rs. 3 |
| Fixed Overheads | Rs. 50,000 for 50,000 hours |
Calculate the cost of this job and also the price to be charged so as to give a profit of 20% on selling price.
Solution:
First, we need to calculate the total cost of the job:
- Material Cost = Rs. 5,800
- Wages:
- Department A = 100 hours × Rs. 5 = Rs. 500
- Department B = 200 hours × Rs. 3 = Rs. 600
- Variable Overheads:
- Department A = 100 hours × Rs. 2 = Rs. 200
- Department B = 200 hours × Rs. 3 = Rs. 600
- Fixed Overheads:
- Department A: (Rs. 50,000 ÷ 50,000 hours) × 100 hours = Rs. 100
- Department B: (Rs. 50,000 ÷ 50,000 hours) × 200 hours = Rs. 200
Total cost of Job No. 222: Total cost=Material+Wages+Variable Overheads+Fixed Overheads\text{Total cost} = \text{Material} + \text{Wages} + \text{Variable Overheads} + \text{Fixed Overheads} Total cost=5,800+(500+600)+(200+600)+(100+200)=5,800+1,100+800+300=8,000\text{Total cost} = 5,800 + (500 + 600) + (200 + 600) + (100 + 200) = 5,800 + 1,100 + 800 + 300 = 8,000
To calculate the selling price with a 20% profit margin on the selling price: Let the selling price be XX. X=Cost1−Profit Margin=8,0001−0.20=8,0000.80=10,000X = \frac{\text{Cost}}{1 – \text{Profit Margin}} = \frac{8,000}{1 – 0.20} = \frac{8,000}{0.80} = 10,000
Selling price to achieve 20% profit = Rs. 10,000
12b.Question: From the following, prepare a Cost Sheet and quote a suitable price:
| Particulars | Amount (Rs.) |
|---|---|
| Total production (tons) | 5,000 |
| Cost of Raw Material | 20,00,000 |
| Carriage Inwards | 2,00,000 |
| Direct wages | 20,00,000 |
| Indirect wages | 1,00,000 |
| Office Expenses | 10,00,000 |
| Selling Overheads | 10,00,000 |
| Payment of Income Tax | 3,00,000 |
| Dividend Paid | 5,00,000 |
Desired profit margin = 50% on cost.
Solution:
First, we need to prepare the cost sheet:
- Prime Cost:
- Raw Material: Rs. 20,00,000
- Carriage Inwards: Rs. 2,00,000
- Direct Wages: Rs. 20,00,000
Prime Cost=20,00,000+2,00,000+20,00,000=42,00,000\text{Prime Cost} = 20,00,000 + 2,00,000 + 20,00,000 = 42,00,000
- Factory Cost:
- Prime Cost: Rs. 42,00,000
- Indirect Wages: Rs. 1,00,000
Factory Cost=42,00,000+1,00,000=43,00,000\text{Factory Cost} = 42,00,000 + 1,00,000 = 43,00,000
- Cost of Production:
- Factory Cost: Rs. 43,00,000
- Office Expenses: Rs. 10,00,000
Cost of Production=43,00,000+10,00,000=53,00,000\text{Cost of Production} = 43,00,000 + 10,00,000 = 53,00,000
- Total Cost:
- Cost of Production: Rs. 53,00,000
- Selling Overheads: Rs. 10,00,000
Total Cost=53,00,000+10,00,000=63,00,000\text{Total Cost} = 53,00,000 + 10,00,000 = 63,00,000
- Cost per Ton:
Cost per Ton=Total CostTotal Production=63,00,0005,000=1,260\text{Cost per Ton} = \frac{\text{Total Cost}}{\text{Total Production}} = \frac{63,00,000}{5,000} = 1,260
Now, to quote a selling price with a 50% profit margin on cost: Selling Price per Ton=Cost per Ton×(1+Profit Margin)=1,260×(1+0.50)=1,260×1.50=1,890\text{Selling Price per Ton} = \text{Cost per Ton} \times (1 + \text{Profit Margin}) = 1,260 \times (1 + 0.50) = 1,260 \times 1.50 = 1,890
Selling Price per Ton = Rs. 1,890
13a Question: From the following information prepare:
a) The Contract Accounts
b) The Contractee’s Accounts
| Item | Amount (Rs.) |
|---|---|
| Materials sent to site | 85,349 |
| Labour engaged on site | 74,375 |
| Plant installed at cost | 15,000 |
| Direct Expenditures | 4,126 |
| Establishment Charges | 3,167 |
| Materials returned to stores | 549 |
| Work Certified | 1,95,000 |
| Cost of work not certified | 4,500 |
| Material on hand (Dec. 31) | 1,883 |
| Wages accrued on Dec. 31 | 2,400 |
| Value of plant on Dec. 31 | 11,000 |
| Contract price agreed | 2,50,000 |
| Cash received from contractee | 1,80,000 |
Solution:
- Contract Accounts
The Contract Account will include the cost of work certified, cost of work not certified, and the contract price.
| Particulars | Amount (Rs.) |
|---|---|
| Contract Price | 2,50,000 |
| Materials Sent to Site | 85,349 |
| Labour | 74,375 |
| Plant Installed | 15,000 |
| Direct Expenditures | 4,126 |
| Establishment Charges | 3,167 |
| Materials Returned | (549) |
| Total Cost of Work | 1,81,468 |
| Work Certified | (1,95,000) |
| Profit (Loss) | 13,532 |
- Contractee’s Account
| Particulars | Amount (Rs.) |
|---|---|
| Cash Received | 1,80,000 |
| Work Certified | (1,95,000) |
| Profit | 13,532 |
13b Question: Product X is obtained after it passes through three distinct processes. Prepare process accounts from the following information.
| Particulars | Process-I | Process-II | Process-III |
|---|---|---|---|
| Material | Rs. 15,084 | Rs. 5,200 | Rs. 3,960 |
| Direct Wages | Rs. 18,000 | Rs. 4,000 | Rs. 6,000 |
| Production Overheads | Rs. 18,000 | – | – |
| Output (Units) | 1,000 units | 950 units | 840 units |
| Loss (Scrap) | 5% | 10% | 15% |
Solution:
We will prepare the Process Accounts for each stage based on the data provided, including direct materials, direct wages, and overheads.