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Title Name Amity Solved Assignment BBA 6th Sem for Cost and Managerial Accounting
University AMITY
Service Type Assignment
Course B.B.A
Semister Semester-VI Cource: B.B.A
Short Name or Subject Code Cost & Managerial Accounting
Commerce line item Type Semester-VI Cource: B.B.A
Product Assignment of B.B.A Semester-VI (AMITY)

Solved Assignment


  Questions :-

                                                                                                                       Amity BBA 6 SEM Solve Assignment For Cost & Managerial Accounting

 

1 . Cost accounting is becoming more and more relevant in the emerging economic scenario in India’. Comment.  

2 . An efficient system of costing is essential factor for industrial control under modern conditions of business and as such may be regarded as an important part

in the efforts of any management to secure business stability’. Elaborate.  

3 . From the following transactions extracted from the books of accounts of a manufacturing concern as on 31 April 2011. Work out a) consumption value of raw

material in the month and b) value of  closing stock  as on  31 April 2011 under the FIFO method of pricing issues:

    Quantity in Units Rate per unit (Rs.)

2010 April 1 Opening Stock 300 9.7

2010 April 3 Purchases 250 9.8

2010 April 11 Issues 400  

2010 April 15 Purchases 300 10.5

2010 April 20 Issues 210  

2010 April 25 Purchases 150 10.3

2010 April 29 Issues 100  

   

4 . From the following information prepare a cost sheet showing cost profit per unit

Direct materials consumed                           Rs.4, 00,000

Direct labour                                                           40% of direct material cost

Direct expenses                                                      50% of direct labour cost

Factory overheads                                                  25% of prime cost

Office and admin expenses are @ Rs.150 per 10 units produced

Selling & distribution overheads are Rs. 500 per 100 units sold

Opening finished stock                                            800 units @ Rs.85.50

Closing stock                                                          400 units

Finished goods sold                                               16,400 units

Profit                                                                      1/6 th  of sales  

 

5 . Answer any three questions of the following:

a. Explain product cost and period cost with 2 examples of each.

b. What is meant by direct material cost?

c. Find out the cost of raw material purchased from the data given below:

Particular  Amount
Prime cost 200000
Closing stock of raw material 20000
Direct labour cost 100000
Expenses on purchases 10000

 

d. Distinguish between costing and cost accounting.

e. Define batch costing. Give examples of industries which adopt batch costing.  

6 . Mosaic Co. Ltd has three production depts A, B & C and two service depts D & E.  Info:

Rent Rs. 5000                                 Indirect wages Rs. 1500

Power Rs.1500                                Depreciation of Machinery Rs.10000

General lighting Rs. 600                   Sundry expenses Rs. 10000

Floor space

(sq.ft.)

Light points

Direct wages (Rs.)

H.P. of machines

Value of machines (Rs.)

Prepare a statement showing distribution of overheads to various departments.

 

7 . The following information is provided to you:

Selling price per unit            Rs. 40

Variable cost                       Rs. 24

Fixed costs                          Rs. 6

Profit                                  Rs. 10

Present sales volume is 2000 units

Calculate:

(a) P/V ratio (b) BEP  (c) Margin of safety   (d) profit at a sales volume of 2500 units  (e) sales required to earn a profit of Rs. 26,000  

 

8 . What are budget and budgetary control? Discuss the advantages and essential for success of budgetary control.

 

 

Section B

Case Detail :  

Read the case below and answer the questions given at the end

 Case Study

 Coffee Cart Supreme sells hot and iced coffee beverages and small snacks. The

following is last month’s income statement.

 Particulars Amount $ Amount $

Revenue   5000

Cost of Beverage & snacks 2000  

Cost of napkins, straws etc 500  

Cost of rent cart 500  

Employee wages 1000 4000

Pre tax profit   1000

Taxes   250

After tax profit   750

1. What is the total cost function for Coffee Cart Supreme? What is the tax rate for Coffee Cart Supreme? 

2. Calculate the amount of sales needed to reach a target after-tax profit of $1,500. 

3. What was Coffee Cart Supreme’s degree of operating leverage and Coffee Cart Supreme’s margin of safety in revenue last month? 

 

Section C

Question No.  1 Marks - 10

  Which of the following statement measures the financial position of the entity on   particular time?  

 Options

  1. Income Statement
  2. Balance Sheet
  3. Cash Flow Statement
  4. Statement of Retained Earning

 

 

Question No.  2 Marks - 10

The Process of cost apportionment is carried out so that--  

 Options

  1. Cost may be controlled
  2. Cost unit gather overheads as they pass through cost centers
  3. Whole items of cost can be charged to cost centers
  4. Common costs are shared among cost centers

 

 

Question No.  3 Marks - 10

Direct materials cost is Rs. 80,000. Direct labor cost is Rs. 60,000. Factory overhead is Rs. 90,000. Beginning goods in process were Rs. 15,000.

The cost of goods manufactured is Rs. 245,000. What is the cost assigned to the ending goods in process?

 Options

  1. Rs. 45,000
  2. Rs. 15,000 Rs.
  3. 30,000
  4. There will be no ending Inventory Solution

 

 

Question No.  4 Marks - 10

1.     When prices are rising over time, which of the following inventory costing methods will result in the lowest gross margin/profits?  

 Options

  1. FIFO
  2. LIFO
  3. Weighted Average
  4. Cannot be determined

 

 

Question No.  5 Marks - 10

The main difference between the profit center and investment center is--

 Options

  1. Decision making
  2. Revenue generation
  3. Cost in occurrence
  4. Investment

 

 

Question No.  6 Marks - 10

Which of the following is a characteristic of process cost accounting system?  

 Options

  1. Material, Labor and Overheads are accumulated by orders
  2. Companies use this system if they process custom orders
  3. Opening and Closing stock of work in process are related in terms of completed units
  4. Only Closing stock of work in process is restated in terms of completed units

 

 

Question No.  7 Marks - 10

  Which of the following manufacturers is most likely to use a job order cost accounting system?  

 Options

  1. A soft drink producer
  2. A flour mill
  3. A textile mill
  4. A builder of offshore oil rigs

 

 

Question No.  8 Marks - 10

  Production volume of 1,200 units cost incurred Rs. 10,000 and production volume of 1,400 units cost incurred Rs.20, 000.

The variable cost per unit would be?

 Options

  1. Rs. 50.00 per unit
  2. Rs. 8.33 per unit
  3. Rs. 14.20 per unit
  4. Rs. 100 per unit

 

 

Question No.  9 Marks - 10

 Cost accounting concepts include all of the following EXCEPT--  

 Options

  1. Planning
  2. Controlling
  3. Sharing
  4. Delegating.

 

 

Question No.  10 Marks - 10

  The main purpose of cost accounting is to--  

 Options

  1. Maximize profits
  2. Help in inventory valuation
  3. Provide information to management for decision making
  4. Aid in the fixation of selling price

 

 

Question No.  11 Marks - 10

 Period costs are --  

 Options

  1. Expensed when the product is sold
  2. Included in the cost of goods sold
  3. Related to specific Period
  4. Not expensed

 

 

Question No.  12 Marks - 10

  An organization sold units 4000 and have closing finished goods 3500 units and opening finished goods units were 1000.The quantity of unit

produced would be--  

 Options

  1. 7500 units
  2. 6500 units
  3. 4500 units
  4. 5500 units

 

 

Question No.  13 Marks - 10

Examples of industries that would use process costing include all of the following EXCEPT

 Options

  1. Beverages
  2. Food
  3. Hospitality
  4. Petroleum

Question No.  14 Marks - 10

 The components of the prime cost are--  

 Options

  1. Direct Material + Direct Labor + Other Direct Cost
  2. Direct Labor + Other Direct Cost + FOH
  3. Direct Labor + FOH
  4. None of the given options

 

 

Question No.  15 Marks - 10

Opportunity cost is the best example of--

 Options

  1. Sunk Cost
  2. Standard Cost
  3. Relevant Cost
  4. Irrelevant Cost

 

 

Question No.  16 Marks - 10

  Fixed cost per unit decreases when--

 Options

  1. Production volume increases.
  2. Production volume decreases.
  3. Variable cost per unit decreases.
  4. Variable cost per unit increases.

 

 

Question No.  17 Marks - 10

Prime cost + Factory overhead cost is--

 Options

  1. Conversion cost.
  2. Production cost.
  3. Total cost.
  4. None of given option.

 

 

Question No.  18 Marks - 10

    Find the value of purchases if Raw material consumed Rs. 90,000; Opening and closing stock of raw material is Rs. 50,000 and 30,000

respectively.

 Options

  1. Rs. 10,000
  2. Rs. 20,000
  3. Rs. 70,000
  4. Rs. 1,60,000

 

 

Question No.  19 Marks - 10

    Annual requirement is 7800 units; consumption per week is 150 units. Unit price Rs 5, order cost Rs 10 per order. Carrying cost Rs 1 per unit and

lead time is 3 week, The Economic order quantity would be--  

 Options

  1.  365 units.
  2. 300 units
  3. 250 units
  4. 150 units

 

 

Question No.  20 Marks - 10

For which one of the following industry would you recommend a Job Order Costing system?

 Options

  1. Oil Refining
  2. Grain dealing
  3. Beverage production
  4. Law Cases

 

 

Question No.  21 Marks - 10

______________ method assumes that the goods received most recently in the stores or produced recently are the first ones to be delivered to

the requisitioning department.

Options

  1. FIFO
  2. Weighted average method
  3. Most recent price method
  4. LIFO

 

 

Question No.  22 Marks - 10

Cost of production report is a _________________.  

 Options

  1. Financial statement
  2. Production Process report
  3. Order Sheet
  4. None of above

 

Question No.  23 Marks - 10

Opening work in process inventory can be calculated as under--

 Options

  1. FIFO and Average costing
  2. LIFO and Average costing
  3. FIFO and LIFO costing
  4. None of given option.

 

Question No.  24 Marks - 10

Jan 1; finished goods inventory of Manuel Company was Rs.3, 00,000. During the year Manuel’s cost of goods sold was Rs. 19, 00,000, sales

were Rs. 2, 000,000 with a 20% gross profit. Calculate cost assigned to the December 31; finished goods inventory.

Options

  1. Rs. 4,00,000
  2.  Rs. 6,00,000
  3. Rs. 16,00,000
  4. None of the given options

 

 

Question No.  25 Marks - 10

The cost expended in the past that cannot be retrieved on product or service--

Options

  1. Relevant Cost
  2. Sunk Cost
  3. Product Cost
  4. Irrelevant Cost

 

 

Question No.  26 Marks - 10

When a manufacturing process requires mostly human labor and there are widely varying wage rates among workers, what is probably the most

appropriate basis of applying factory costs to work in process?  

 Options

  1. Machine hours
  2. Cost of materials used
  3. Direct labor hours
  4. Direct labor dollars

 

 

Question No.  27 Marks - 10

A typical factory overhead cost is--

 Options

  1. Audit
  2. Compensation of plant manager
  3. Design distribution
  4. Internal

 

 

Question No.  28 Marks

Complete the following table--

 Options

  1. Fixed Cost Increase Constant
  2. Variable cost    
  3. Total cost Increase Decrease
  4. Per Unit Total

 

Question No.  29 Marks 

  Per Unit  Total
Fixed Cost Increase Constant
Variable Cost    
Total Cost Increase Decrease

Options

  1. Constant, Decrease
  2. Decrease, Decrease
  3. Increase, Increase
  4. Increase, Decrease.

 

 

Question No.  30 Marks - 10

The difference between total revenues and total variable costs is known as--

 Options

  1. Contribution margin
  2. Gross margin
  3. Operating income
  4. Fixed costs

 

 

Question No.  31 Marks - 10

Percentage of Margin of Safety can be calculated in which one of the following ways?

 Options

  1. Based on budgeted Sales
  2. Using budget profit
  3. Using profit & Contribution ratio
  4. All of the given options

 

 

Question No.  32 Marks - 10

Which of the following represents a CVP equation?

 Options

  1. Sales = Contribution margin (Rs.) + Fixed expenses + Profits
  2. Sales = Contribution margin ratio + Fixed expenses + Profits
  3. Sales = Variable expenses + Fixed expenses + profits
  4. Sales = Variable expenses – Fixed expenses + profits

 

 

Question No.  33 Marks - 10

For which one of the following industry would you recommend a Process Costing system?

 Options

  1. a) Grain dealer
  2. Television repair shop
  3. Law office
  4. Auditor

 

 

Question No.  34 Marks - 10

If 120 units produced, 100 units were sold @ Rs. 200 per unit. Variable cost related to production & selling is Rs. 150 per unit and fixed cost is Rs.

5,000. If the management wants to decrease sales price by 10%, what will be the effect of decreasing unit sales price on profitability of company?

(Cost & volume profit analysis keep in your mind while solving it)

 Options

  1. Remains constant
  2. Profits will increased
  3. Company will have to face losses
  4. None of the given options

 

 

Question No.  35 Marks - 10

If 120 units produced, 100 units were sold @ Rs. 200 per unit. Variable cost related to production & selling is Rs. 150 per unit and fixed cost is Rs.

5,000. If the management wants to increase sales price by 10%, what will be increasing sales profit of company by increasing unit sales price?

(Cost & volume profit analysis keep in mind while solving)

 Options

  1. Rs.2,000
  2. Rs. 5,000
  3. Rs. 7,000
  4. None of the given options

 

 

Question No.  36 Marks - 10

The following is the Corporation's Income Statement for last month: Particular Rs. Sales 4,000,000 Less: variable expenses 2,800,000Contribution

margin 1,200,000 Liss: fixed expenses 720,000 Net income 480,000 The company has no beginning or ending inventories. A total of 80,000

units were produced and sold last month. (Q.no. 36-39) What is the company's contribution margin ratio?

 Options

  1. 30%
  2. 70%
  3. 150%
  4. None of given options

 

 

Question No.  37 Marks - 10

What is the company's break-even in units?

 Options

  1. 48,000 units
  2. 72,000 units
  3. 80,000 units
  4. None of the given options

 

 

Question No.  38 Marks - 10

How many units would the company have to sell to attain target profits of Rs. 600,000?

 Options

  1. 88,000 units
  2. 100,000 units
  3. 106,668 units
  4. None of given options

 

 

Question No.  39 Marks - 10

Whatis the company's margin of safety in Rs?

 Options

  1. Rs. 480,000
  2. Rs. 1,600,000
  3. Rs. 2,400,000
  4. None of given options

 

 

Question No.  40 Marks - 10

Inventory control aims at--

 Options

  1. Achieving optimization
  2. Ensuring against market fluctuations
  3. Acceptable customer service at low capital investment
  4. Discounts allowed in bulk purchase
  Answers :-

                                                                                      Cost & Managerial Accounting

Assignment A

  1. ‘Cost accounting is becoming more and more relevant in the emerging economic scenario in India’. Comment.

Ans:

Cost accounting is a process of collecting, analyzing, summarizing and evaluating various alternative courses of action. Its goal is to advise the management on the most appropriate course of action based on the cost efficiency and capability. Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future.

In emerging countries like India, managers are making decisions only for their own organization, there is no need for the information to be comparable to similar information from other organizations. Instead, information must be relevant for a particular environment. Cost accounting information is commonly used in financial accounting information, but first we are concentrating on its use by managers to make decisions.

In emerging counties, unlike the accounting systems that help in the preparation of financial reports periodically, the cost accounting systems and reports are not subject to rules and standards like the Generally Accepted Accounting Principles. As a result, there is wide variety in the cost accounting systems of the different companies and sometimes even in different parts of the same company or organization.

Advantages Of Cost Accounting

 
 

Following are the most important advantages of a good cost accounting system:

1) Classification and Subdivision of Costs:

In the contrast to a single profit or loss figure supplied by general accounting, the cost accounting classifies costs and income by every conceivable subdivision of the business enterprise. In a good costing system data regarding costs by departments, processes, functions, products, orders, jobs, contracts and services can easily computed. This detailed cost information for managerial control is one of the most important contributions of cost accounting.

2) Adequacy or Inadequacy of Selling Prices:

Unit cost of production, administration and safe made possible by cost accounting aids management in deciding the adequacy or inadequacy of selling prices i.e. neither too high detracting business, nor too low resulting in losses to the concern.

In period of depressions, slumps, or in case of competition management forced to lower prices even below cost of production and sale. In such circumstances, cost accounting will help management in deciding the proper reduction.

3) Disclosure of profitable Products:

Cost Accounting will disclose activities, departments, products and territories, which bring profit and those that result in losses. Management to determine what products because of profit margin the sales department because of their greater profit margin should emphasize will use this information. What products arte unprofitable or less profitable and might be eliminated or lesser sales pressure be given to them. What activities or territories are not producing sufficient profit and should be either further improved or eliminated and what methods of production and distribution are most profitable for the firm. This will increase the overall profit of the concern.

4) Control of Material and Supplies:

In a good costing system materials and supplies must be accounted for in terms of departments, jobs, units of production or service. This will eliminate altogether or reduce to the minimum misappropriations, embezzlements, deterioration, obsolescence, and losses from defective, spoiled, scrap and out of date materials and supplies.

5) Maintenance of Proper Investment in Inventories:

A costing system will help in the maintenance of various inventory items of materials and supplies in line with production and sale requirements. If these quantities are too small, production may stop or sales may be lost. On the other hand, if quantities of such materials and supplies are in excess of the production and sales requirements, too much working capital may unnecessarily tie up in inventories. The detailed quantity information furnished by the cost accountant at all times will go a long way in reducing or eliminating this possibility.

6) Correct Valuation of Inventories: 

Cost Accounting plays a basic role in the correct valuation of inventories of finished goods, work in process, materials and supplies. The book inventory method (as opposed to physical inventory method) made possible by cost accounting system will involve the operation of the various inventory control accounts in such a manner that the balances of these accounts well be inventory valuations required for periodic financial statements. This enables the preparation of monthly financial statements without the trouble and expense of taking monthly physical inventories.

7) Whether to Manufacture or Purchase from Outsiders:

Cost records furnish information regarding the cost of manufacturing of different finished parts, which assist management in making a decision whether to purchase these parts from outside manufacturers or manufacture them in the factory.

8) Control of Labour Cost: 

Orders, jobs, contracts, departments, processes, or services record cost of labour. In many manufacturing enterprises, daily time reports are prepared showing the number of hours and minutes spent and the wage rate for each worker per job or operation. This enables management to compare the current cost of labour per job or operation with some previously incurred or determined cost thus measuring the efficiency or inefficiency of the labour force and assigning the work to employees best suited for it.

9) Use of Company-wide Wage Incentive Plans: 

When labour cost is accounted for by jobs and operations, it is possible to use effectively wage incentive plans or bonus schemes for the remuneration of labour force. Carefully planned and administered incentive schemes are an effective means of enforcing superior performance and cost reduction. Workers are more co-operative, responsive and productive when some form of incentive offered to them for surpassing stipulated standards of perfection and performance. Cost of accounting has developed incentive plans, which are applicable not only to factory workers but also to clerks, salespersons, and other executives for above standard performance.

 

  1. ‘ An efficient system of costing is essential factor for industrial control under modern conditions of business and as such may be regarded as an important part in the efforts of any management to secure business stability’. Elaborate. Solve by www.solvezone.in

Ans:

An efficient system of accounting is an essential factor for industrial control under consitions of business due to the following advantages

  1. A good Cost Accounting System helps in identifying unprofitable activities, losses or inefficiencies in any form.
  2. The application of cost reduction techniques, operations research techniques and value analysis technique, helps in achieving the objective of economy in concern´s operations. Continuous efforts are being made by the business organization for finding new and improved methods for reducing costs.
  3. Cost Accounting is useful for identifying the exact causes for decrease or increase in the, profit/loss of the business. It also helps in identifying unprofitable products or product lines so that these may be eliminated or alternative measures may be taken.
  4. It provides information and data to the management to serve as guides in making decisions involving financial considerations. Guidance may also be given by the Cost Accountant on a host of problems such as, whether to purchase or manufacture a given component, whether to accept orders below cost, which machine to purchase when a number of choices are available.
  5. Cost Accounting is quite useful for price fixation. It serves as a guide to test the adequacy of selling prices. The price determined may be useful for preparing estimates or filling tenders.
  6. The use of cost accounting technique viz., variance analysis, points out the deviations from the pre-determined level and thus demands suitable action to eliminate such deviations in future.
  7. Cost comparison helps in cost control. Such a comparison may be made from period to period by using the figures in respect of the same unit of firms or of several units in an industry by employing uniform costing and inter-firm comparison methods. Comparison may be made in respect of costs of jobs, processes or cost centres.
  8. A system of costing provides figures for the use of Government, Wage Tribunals and other bodies for dealing with a variety of problems. Some such problems include price fixation, price control, tariff protection, wage level fixation, etc.
  9. The cost of idle capacity can be easily worked out, when a concern is not working to full capacity.
  10. The use of Marginal Costing technique, may help the executives in taking short term decisions. This technique of costing is highly useful during the period of trade depression, as the orders may have to be accepted during this period at a price less than the total cost.
  11. The marginal cost has linear relationship with production volume and hence in formulating and solving "Linear Programming Problems", marginal cost is useful.

 

 

  1. From the following transactions extracted from the books of accounts of a manufacturing concern as on 31 April 2011. Work out a) consumption value of raw material in the month and b) value of closing stock as on 31 April 2011 under the FIFO method of pricing issues:

Quantity in Units

Rate per unit (Rs.)

2010 April 1

Opening Stock

300

9.7

2010 April 3

Purchases

250

9.8

2010 April 11

Issues

400

2010 April 15

Purchases

300

10.5

2010 April 20

Issues

210

2010 April 25

Purchases

150

10.3

2010 April 29

Issues

100


Ans.

  1. consumption value of raw material in the month

Ans 300*9.7 + 250*9.5 + 160*10.5=6965 Ans

  1. value of closing stock  as on  31 April 2011

Ans 3015

Quantity in Units

Rate per unit (Rs.)

Id

Current Stock

Current Value

Stock

2010 April 1

Opening Stock

300

9.7

1

300

2910

 

2010 April 3

Purchases

250

9.8

2

550

5360

 

2010 April 11

Issues

400

 

150

1470

1=0,2=150

2010 April 15

Purchases

300

10.5

3

450

4620

1=0,2=150,3=300

2010 April 20

Issues

210

 

240

2520

1=0,2=0,3=240

2010 April 25

Purchases

150

10.3

4

390

4065

1=0,2=0.3=240,4=150

2010 April 29

Issues

100

 

290

3015

1=0,2=0,3=140,4=150

 

 

 

  1. From the following information prepare a cost sheet showing cost profit per unit

Direct materials consumed                                    Rs.4, 00,000

Direct labour                                                         40% of direct material cost

Direct expenses                                                     50% of direct labour cost

Factory overheads                                                 25% of prime cost

Office and admin expenses are @ Rs.150 per 10 units produced

Selling & distribution overheads are Rs. 500 per 100 units sold

Opening finished stock                                         800 units @ Rs.85.50

Closing stock                                                        400 units

Finished goods sold                                              16,400 units

Profit                                                                     1/6th of sales

Ans.

Areas                                              Cost                      Cost Per unit

Productions                                    16000                               1

Direct Material                              400000                             25

Direct Labour                                160000                             10

Direct Expense                                80000                              5

Factory Overhead                           160000                            10

Office & admin expense                 240000                            15

Selling & dist. Expense                     82000                             5.125

Units Products                                              16000                           

Cost Per unit                                                                           71.125

Profit per unit                                                                         11.83333333                                                   

Profit (units)                                                                              189333.3333

 

 

 

  1. Answer any three questions of the following:
  2. Explain product cost and period cost with 2 examples of each

Ans:

Product Costs

For financial accounting purposes, product costs include all costs involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. Product costs “attach” to units of product as the goods are purchased or manufactured, and they remain attached as the goods go into inventory awaiting sale. Product costs are initially assigned to an inventory account on the balance sheet. When the goods are sold, the costs are released from inventory as expenses (typically called cost of goods sold) and matched against sales revenue. Since product costs are initially assigned to inventories, they are also known as inventor able costs.

We want to emphasize that product costs are not necessarily treated as expenses in the period in which they are incurred. Rather, as explained above, they are treated as expenses in the period in which the related products are sold. This means that a product cost such as direct materials or direct labor might be incurred during one period but not recorded as an expense until a following period when the completed product is sold.

Examples are direct material costs, direct labour costs manufacturing overheads, carriage inwards and all such costs that contributes and are necessary to bring the inventory to their present location and condition for example handling costs, amortized development costs, borrowing costs in specific cases, storage costs where production process requires goods to be stored i.e. storage is part of the production process for example pickles.

Period Costs

Period costs are all the costs that are not product costs. For example, sales commissions and the rental costs of administrative offices are period costs. Period costs are not included as part of the cost of either purchased or manufactured goods; instead, period costs are expensed on the income statement in the period in which they are incurred using the usual rules of accrual accounting. Keep in mind that the period in which a cost is incurred is not necessarily the period in which cash changes hands. For example, as discussed earlier, the costs of liability insurance are spread across the periods that benefit from the insurance—regardless of the period in which the insurance premium is paid.

As suggested above, all selling and administrative expenses are considered to be period costs. Advertising, executive salaries, sales commissions, public relations, and other nonmanufacturing costs discussed earlier are all examples of period costs. They appear on the income statement as expenses in the period in which they are incurred.

Examples of these costs include administrative costs, selling and marketing costs, finance costs or borrowing costs (excluding such costs that can be included in the inventory), product research costs, product development costs that failed to fulfill capitalization criteria, abnormal losses etc.

.

  1. What is meant by direct material cost?

Ans.

Direct materials cost is the cost of direct materials which can be easily identified with the unit of production. For example, the cost of glass is a direct materials cost in light bulb manufacturing.

The manufacture of products or goods required material as the prime element. In general, these materials are divided into two categories. These categories are direct materials and indirect materials.

Direct materials are also called productive materials, raw materials, raw stock, stores and only materials without any descriptive title.

  1. Find out the cost of raw material purchased from the data given below:

Particular

Amount

Prime cost

200000

Closing stock of raw material

20000

Direct labour cost

100000

Expenses on purchases

10000


Ans:

Cost of Production = Prime Costs + Factory Overheads

Factory Overheads= Direct labour cost+ Expenses on purchases- Closing stock of raw material

Factory Overheads=100000+10000 -20000

Factory Overheads=90000

Cost of Production = Prime Costs + Factory Overheads

Cost of Production =200000 +90000

Cost of Production =290000

 

  1. Define batch costing. Give examples of industries which adopt batch costing.

Ans.

Batch cost is a cost that is incurred when a group of products or services are produced, and which cannot be identified to specific products or services within each group

Batch costing is employed by companies manufacturing in batches. It is used by readymade garment factories for ascertaining the cost of each batch of cloths made by them.

Pharmaceutical or drug industries, electronic component manufacturing units, radio manufacturing units too use this method of costing for ascertaining the cost of their product.

A costing system used by organizations whose products are easily identified by batches.

                                              

 

 

                                                            Assignment B

Answer all questions.

  1. Mosaic Co. Ltd has three production depts A, B & C and two service depts D & E. Info:

Rent Rs. 5000                               Indirect wages Rs. 1500        

Power Rs.1500                              Depreciation of Machinery Rs.10000

General lighting Rs. 600               Sundry expenses Rs. 10000

 

Floor space

(sq.ft.)

Light points

Direct wages (Rs.)

H.P. of machines

Value of machines (Rs.)

Total

A

B

C

D

E

20000

120

10000

150

250000

4000

20

3000

60

60000

5000

30

2000

30

80000

6000

40

3000

50

100000

4000

20

1500

10

5000

1000

10

500

-

5000

Prepare a statement showing distribution of overheads to various departments.

Ans:

 

Basis

A

B

C

D

E

Total

Rent

Space

1000

1250

1500

1000

250

5000

General Lighting

Light Points

100

150

200

100

50

600

Direct Wages

Actual

3000

2000

3000

1500

500

10000

Power

H.p of Machine

600

300

500

100

0

1500

Indirect Wages

Equal

300

300

300

300

300

1500

Depreciation of machine

Value

2400

3200

4000

200

200

10000

Sundry Expenses

Equal

2000

2000

2000

2000

2000

10000

 

  1. The following information is provided to you:

Selling price per unit         Rs. 40

Variable cost                     Rs. 24

Fixed costs                        Rs. 6

Profit                                 Rs. 10

Present sales volume is 2000 units

Calculate:

 

(a) P/V ratio (b) BEP (c) Margin of safety   (d) profit at a sales volume of 2500 units (e) sales required to earn a profit of Rs. 26,000

Ans

  1. P/V Ratio

P/V Ratio = (Contribution/Sales)*100

Contribution= Selling Price per unit - Variable Cost per unit

                  = 40-16

                  =16

Sales=40

P/V= (16/40)*100

=40%

  1. Margin of Safety

MOS=Profit/PV Ratio

=10/40

=0.25

  1. BEP

Break-Even Point in Units =Fixed Cost/ Contribution per unit

Contribution per unit = Selling Price per unit - Variable Cost per unit

                              =40-24

                              =16

Break Even Point=            Fixed Cost/ Contribution per unit

                              = (6*2000)/16

                              =750

                                               

  1. profit at a sales volume of 2500 units

Sales = (Fixed Cost + Desired Profit)/PV Ratio

2500 = (12000 + Desired Profit) /40

2500*40 = (12000 + Desired Profit)

Desired Profit = (2500*40)-12000

Desired Profit = 88000

 

  1. sales required to earn a profit of Rs. 26,000

Sales= (Fixed Cost + Desired Profit)/PV Ratio

= (12000+26000)/40

= 950

 

  1. What are budget and budgetary control? Discuss the advantages and essential for success of budgetary control.

Ans:

  1. a)Budget:

 A formal statement of the financial resources set aside for carrying out specific activities in a given period of time.

It helps to co-ordinate the activities of the organization.

An example would be an advertising budget or sales force budget.

  1. b) Budgetary control:

A control technique whereby actual results are compared with budgets.

Any differences (variances) are made the responsibility of key individuals who can either

Advantages of budgeting and budgetary control

There are a number of advantages to budgeting and budgetary control:

 Compels management to think about the future, which is probably the most important feature of a budgetary planning and control system. Forces management to look ahead, to set out detailed plans for achieving the targets for each department, operation and (ideally) each manager, to anticipate and give the organization purpose and direction.

  • Promotes coordination and communication.
  • Clearly defines areas of responsibility. Requires managers of budget centers to be made responsible for the achievement of budget targets for the operations under their personal control.
  • Provides a basis for performance appraisal (variance analysis). A budget is basically a yardstick against which actual performance is measured and assessed. Control is provided by comparisons of actual results against budget plan. Departures from budget can then be investigated and the reasons for the differences can be divided into controllable and non-controllable factors.
  • Enables remedial action to be taken as variances emerge.
  • Motivates employees by participating in the setting of budgets.
  • Improves the allocation of scarce resources.
  • Economize management time by using the management by exception principle.

 

 

Section B                            

Read the case below and answer the questions given at the end 

 Case Study

Coffee Cart Supreme sells hot and iced coffee beverages and small snacks. The following is last month’s income statement.

Particulars

Amount $

Amount $

Revenue

5000

Cost of Beverage & snacks

2000

Cost of napkins, straws etc

500

Cost of rent cart

500

Employee wages

1000

4000

Pre tax profit

1000

Taxes

250

After tax profit

750

 

Questions

  1. What is the total cost function for Coffee Cart Supreme? What is the tax rate for Coffee Cart Supreme?

Ans.

To estimate the cost function, we use judgment to classify costs as fixed, variable, or mixed. For a typical retail business, rent and wages are likely to be fixed. We estimate fixed costs as the sum of these two costs (Rs 500 + Rs 1,000 = Rs 1,500). It seems reasonable that the costs of beverages and snacks (Rs 2,000) and napkins, straws, etc. (Rs 500) would vary with revenues. We use the revenues as the cost driver to estimate variable costs as Rs 2,500 / Rs 5,000 = 0.50, or 50% of revenues.

Thus, the cost function is

TC _ Rs 1,500 + (50% * Revenue)

We use income tax expense and pretax profit from last month to estimate the tax rate:

Tax rate = Taxes / Pretax profit = Rs 250 / Rs 1,000 = 25%

 

 

  1. Calculate the amount of sales needed to reach a target after-tax profit of $1,500.

Ans.

We first calculate the amount of pretax profit needed to achieve an after-tax profit of Rs 1,500.

Targeted pretax profit = Rs 1,500 / (1 = 0.25) = Rs 2,000

The contribution margin ratio is

(5,000 - 2,500) / 5,000 = 0.50 or 50%

We then perform the CVP calculation for revenues.

Revenue = (Rs1,500 + Rs2,000) / 0.50 = Rs3,500 / 0.50 = Rs7,000

 

 

  1. What was Coffee Cart Supreme’s degree of operating leverage and Coffee Cart Supreme’s margin of safety in revenue last month?

Ans.

We use the results of our previous computations to calculate the contribution margin, and we then calculate the degree of operating leverage 

Contribution margin = Rs5,000 - Rs2,500 = Rs2,500

Degree of operating leverage = Contribution margin / Profit

Degree of operating leverage = Rs2,500 / Rs1,000 = 2.50

Before calculating the margin of safety, we need to calculate the breakeven point. Note that the margin of safety must be calculated in revenue dollars. We do not have unit or product mix information.

The breakeven point is calculated as

Rs1,500 / 0.50 = Rs3,000 in revenues

Current revenues are Rs5,000, so the margin of safety is calculated as

Margin of safety = Rs5,000 - Rs3,000 = Rs2,000

 

 

 

                                                            Assignment C

Answer all questions.

Tick mark (√) the most appropriate answer.

  1. Which of the following statement measures the financial position of the entity on particular time?
  2. Income Statement
  3. Balance Sheet
  4. Cash Flow Statement
  5. Statement of Retained Earning

 

  1. The Process of cost apportionment is carried out so that--
  2. Cost may be controlled
  3. Cost unit gather overheads as they pass through cost centers
  4. Whole items of cost can be charged to cost centers
  5. Common costs are shared among cost centers

 

  1. Direct materials cost is Rs. 80,000. Direct labor cost is Rs. 60,000. Factory overhead is Rs. 90,000. Beginning goods in process were Rs. 15,000. The cost of goods manufactured is Rs. 245,000. What is the cost assigned to the ending goods in process?
  2. 45,000
  3. 15,000 Rs.
  4. 30,000
  5. There will be no ending Inventory Solution:

 

 

 

  1. When prices are rising over time, which of the following inventory costing methods will result in the lowest gross margin/profits?
  2. FIFO
  3. LIFO
  4. Weighted Average
  5. Cannot be determined

 

 

 

  1. The main difference between the profit center and investment center is--
  2. Decision making
  3. Revenue generation
  4. Cost in occurrence
  5. Investment

 

 

 

  1. Which of the following is a characteristic of process cost accounting system?
  2. Material, Labor and Overheads are accumulated by orders
  3. Companies use this system if they process custom orders
  4. Opening and Closing stock of work in process are related in terms of completed units
  5. Only Closing stock of work in process is restated in terms of completed units

 

 

 

  1. Which of the following manufacturers is most likely to use a job order cost accounting system?
  2. A soft drink producer
  3. A flour mill
  4. A textile mill
  5. A builder of offshore oil rigs

 

 

  1. Production volume of 1,200 units cost incurred Rs. 10,000 and production volume of 1,400 units cost incurred Rs.20, 000. The variable cost per unit would be?
  2. 50.00 per unit
  3. 8.33 per unit
  4. 14.20 per unit
  5. 100 per unit

 

 

 

  1. Cost accounting concepts include all of the following EXCEPT--
  2. Planning
  3. Controlling
  4. Sharing
  5. Accept

 

 

 

  1. The main purpose of cost accounting is to--
  2. Maximize profits
  3. Help in inventory valuation
  4. Provide information to management for decision making
  5. Aid in the fixation of selling price

 

 

 

  1. Period costs are --
  2. Expensed when the product is sold
  3. Included in the cost of goods sold
  4. Related to specific Period
  5. Not expensed

 

 

  1. An organization sold units 4000 and have closing finished goods 3500 units and opening finished goods units were 1000.The quantity of unit produced would be--
  2. 7500 units
  3. 6500 units
  4. 4500 units
  5. 5500 units

 

 

 

  1. Examples of industries that would use process costing include all of the following EXCEPT--
  2. Beverages
  3. Food
  4. Hospitality
  5. Petroleum

 

 

  1. The components of the prime cost are--
  2. Direct Material + Direct Labor + Other Direct Cost
  3. Direct Labor + Other Direct Cost + FOH
  4. Direct Labor + FOH
  5. None of the given options

 

 

 

  1. Opportunity cost is the best example of--
  2. Sunk Cost
  3. Standard Cost
  4. Relevant Cost
  5. Irrelevant Cost

 

 

 

  1. Fixed cost per unit decreases when--
  2. Production volume increases.
  3. Production volume decreases.
  4. Variable cost per unit decreases.
  5. Variable cost per unit increases.

 

 

 

  1. Prime cost + Factory overhead cost is--
  2. Conversion cost.
  3. Production cost.
  4. Total cost.
  5. None of given option.

 

 

 

  1. Find the value of purchases if Raw material consumed Rs. 90,000; Opening and closing stock of raw material is Rs. 50,000 and 30,000 respectively.
    1. 10,000
    2. 20,000
    3. 70,000
    4. 1,60,000

 

 

  1. Annual requirement is 7800 units; consumption per week is 150 units. Unit price Rs 5, order cost Rs 10 per order. Carrying cost Rs 1 per unit and lead time is 3 week, The Economic order quantity would be--
  2. 365 units.
  3. 300 units
  4. 250 units
  5. 150 units

 

 

 

  1. For which one of the following industry would you recommend a Job Order Costing system?
    1. Oil Refining
    2. Grain dealing
    3. Beverage production
    4. Law Cases

 

 

 

 

  1. ______________ method assumes that the goods received most recently in the stores or produced recently are the first ones to be delivered to the requisitioning department.
  2. FIFO
  3. Weighted average method
  4. Most recent price method
  5. LIFO

 

 

 

  1. Cost of production report is a _________________
  2. Financial statement
  3. Production Process report
  4. Order Sheet
  5. None of above

 

.

 

 

  1. 23. Opening work in process inventory can be calculated as under--
  2. FIFO and Average costing
  3. LIFO and Average costing
  4. FIFO and LIFO costing
  5. None of given option

 

  1. Jan 1; finished goods inventory of Manuel Company was Rs.3, 00,000. During the year Manuel’s cost of goods sold was Rs. 19, 00,000, sales were Rs. 2, 000,000 with a 20% gross profit. Calculate cost assigned to the December 31; finished goods inventory.
  2. 4,00,000
  3. 6,00,000
  4. 16,00,000
  5. None of given options

 

 

 

  1. The cost expended in the past that cannot be retrieved on product or service--
  2. Relevant Cost
  3. Sunk Cost
  4. Product Cost
  5. Irrelevant Cost

 

 

 

  1. When a manufacturing process requires mostly human labor and there are widely varying wage rates among workers, what is probably the most appropriate basis of applying factory costs to work in process?
  2. Machine hours
  3. Cost of materials used
  4. Direct labor hours
  5. Direct labor dollars

 

 

 

  1. A typical factory overhead cost is--
  2. Audit
  3. Compensation of plant manager
  4. Design distribution
  5. Internal

 

 

 

  1. 28. Complete the following table--
  Per Unit  Total
Fixed Cost Increase Constant
Variable Cost    
Total Cost Increase Decrease
  1. Constant, Decrease
  2. Decrease, Decrease
  3. Increase, Increase
  4. Increase, Decrease.

 

 

 

  1. The Kennedy Corporation uses Raw Material Z in a manufacturing process. Information as to balances on hand, purchases and requisitions of Raw Material Z is given below--

If a perpetual inventory record of Raw Material Z is maintained on a FIFO basis, it will show a month end inventory of-

  1. $240
  2. $784
  3. $759
  4. $767

 

 

 

  1. The difference between total revenues and total variable costs is known as--
  1. Contribution margin
  2. Gross margin
  3. Operating income
  4. Fixed costs

 

 

 

  1. Percentage of Margin of Safety can be calculated in which one of the following ways?
    1. Based on budgeted Sales
    2. Using budget profit
    3. Using profit & Contribution ratio
    4. All of the given options

 

 

 

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