Costing Group 1 Important Questions for IPCC November 2017 (Chapters 1 5)

Transcription

1 Costing Group 1 Important Questions for IPCC November 2017 (Chapters 1 5) CHAPTER 1 INTRODUCTION AND COST SHEET 1. Given below is a list of eight industries. Give the method of costing against each industry. i. Nursing Home ii. Coal iii. Bicycles iv. Bridge Construction v. Interior Decoration vi. Advertising vii. Furniture viii. Sugar company having its own sugarcane fields (i) Nursing Home (ii) Coal (iii) Bicycles (iv) Bridge construction (v) Interior Decoration (vi) Advertising (vii) Furniture (viii) Sugar company having its own sugar-cane fields Operating Single Multiple Contract Job Job Multiple/ Job costing Process 2. Give the correct cost unit for the following types of service providers: Railways Electricity board Canteen Boiler House Service Provider Railways Electricity Board Canteen Boiler House Cost per unit Per Passenger Kilometer Per kilowatt- hours Per meal Per 1000 Kg of steam 3. Write short notes on: i. Sunk Cost ii. Opportunity cost 1

2 (i) Sunk Costs: Historical costs or the costs incurred in the past are known as sunk costs. They play no role in the current decision making process and are termed as irrelevant costs. For example, in the case of a decision relating to the replacement of a machine, the written down value of the existing machine is a sunk cost, and therefore, not considered. (ii) Opportunity cost: It refers to the value of sacrifice made or benefit of opportunity foregone in accepting an alternative course of action. For example, a firm financing its expansion plan by withdrawing money from its bank deposits. In such a case the loss of interest on the bank deposit is the opportunity cost for carrying out the expansion plan. 4. Following information has been obtained from the cost records of Adithya Chemicals Ltd for 2010: Finished Goods on Rs 50,000 Heat, Light and Rs. 20, Power Raw materials on Rs. 10,000 Factory insurance Rs.5, and Taxes Work in Progress on Rs. 14,000 Repairs to Plant Rs. 3, Direct Labour Rs. 1,60,000 Factory supplies Rs. 5,000 Purchase of Raw Rs. 98,000 Depreciation- Rs. 6,000 material Factory building Indirect labour Rs. 40,000 Depreciation- Plant Rs. 10,000 Other information made available is:- Factory cost of goods produced in 2010 is Rs. 2,80,000 Raw material consumed in 2010 is Rs. 95,000 Cost of goods sold in 2010 is Rs. 1,60,000 No office and administration expenses were incurred during the year Prepare a Statement of Cost for the year ending 2010 giving maximum possible information and its break-up. Particulars Amount Amount Opening stock of Raw materials 10,000 Purchase of Raw Materials 98,000 - closing stock of Raw Materials (b/f) 13,000 Raw Material consumed (Given) 95,000 Direct Labour 1,60,000 PRIME COST 2,55,000 2

3 Add: Factory OH Indirect Labour 40,000 Heat, Light and Power 20,000 Factory insurance and taxes 5,000 Repairs to Plant 3,000 Factory supplies 5,000 Depreciation- Factory building 6,000 Depreciation Plant 10,000 89,000 Add: Opening WIP 14,000 Less: Closing WIP (B/f) 78,000 Factory Cost / COP (GIVEN) 2,80,000 Add: Opening stock of Finished goods 50,000 Cost of Goods Available for sale 3,30,000 Less: Closing stock of Finished goods (b/f) 1,70,000 Cost of Goods Sold (Given) 1,60,000 NOTE: Since no office overheads are given, Factory cost is Cost of Prod 5. A re-roller produced 400 metric tons of MS bars spending Rs. 36,00,000 towards material and Rs. 6,20,000 towards rolling charges. 10% of the output was found to be defective, which had to be sold at 10% less than the price for good production. If the sales realization should give the firm an overall profit of 12.5% on cost, find the selling price per metric ton of both the categories of bars. The scrap arising during the rolling process fetched a realization of Rs. 60,000. Calculation of total costs associated with production Particulars Amount Materials 36,00,000 Rolling charges 6,20,000 Total cost 42,20,000 Less: Realisation from scrap -60,000 Net Cost 41,60,000 Sales Value of the total sales of MS bars = 41,60,000 * 112.5% = 46,80,000 (incl. 12.5% profit on cost) Let S.P. Per unit of good unit be x Total sales value from good units = 360x S.P. Per unit of defective = x - 10% x = 0.9x Total sales value from defectives = 0.9x * 40 = 36x Hence, 360x + 36x = 46,80, x = 46,80,000 3

4 x = /- S.P. Per unit of good units = /- S.P. Per unit of defectives = * 0.9 = /- CHAPTER 2 MATERIAL 1. You and Kohli have been asked by a CA firm where you are serving as articled assistants to visit to one of its client s factory for stock verification. Since, it is Kohli s first audit assignment he wants to know the difference between the Perpetual Inventory System and Continuous Stock taking. As a senior audit fellow of Kohli, you are required to satisfy his query. The following point of distinction may be explained to Kohli to satisfy his query: Distinction between Perpetual Inventory System and Continuous Stock taking Perpetual Inventory System: It is a system of stock control followed by the stores department. Under this system, a continuous record of receipt and issue of material is maintained by the stores department. In other words, in this system, stock control cards or bin cards and the stores ledger show clearly the receipts, issues and balance of all items in stock at all times. This system facilitates planning of production and ensures that production is not interrupted for want of materials and stores. Continuous Stock taking: It means physical verification of stores items on a continuous basis to reveal the position of actual balances. Such verification is conducted round the year, thus covering each item of store twice or thrice. Any discrepancies, irregularities or shortages brought to the notice, as a result of continuous stock verification are reported to the appropriate authorities for initiating necessary rectification measures. This system works as a moral check as stores staff and acts as a deterrent to dishonesty. A perpetual inventory system is usually supported by a programme of continuous stock taking. That is continuous stock taking is complementary to the perpetual inventory system. Sometimes the two terms are considered synonymous but it is not so. The success of the perpetual inventory system depends upon the maintenance and upto date writing up of (i) the stores ledger and (ii) bin cards/ stock control cards. Continuous stock taking, ensures the veracity of figures shown by the above records. 2. Distinguish between: i. Re-order Level and Re-order Quantity ii. Scrap and Defectives (i) Re-order Level and Re-order Quantity Re-order level & Re-order quantity: Re-order level is defined as that level of an inventory item where a fresh order for its replenishment is placed. Mathematically it can be determined by using the following formulae: Re-order level (ROL) = [Maximum consumption Maximum re-order period] 4

5 Alternatively, ROL= Minimum Level + [ Average rate of consumption * Average re-order period] Re-order quantity (ROQ) is defined as that quantity of an inventory item for which order is placed again and again. Economic order quantity is a re-order quantity but not vice-a versa. It can be determined by using the following mathematical expression: EOQ =ROQ= 2 Annual requirement of inv item in units Cost of placing an order Annual carrying cost per unit per annum 1/2 Thus, Re-order level is the level of stock which indicates the order for the further materials and on the other hand ROQ is the quantity of material that should be ordered. (ii) Scrap and Defectives Scrap: Scrap is incidental residence from certain type of manufacture, usually of small amount and low value, recoverable without further processing. The cost of scrap is borne by good units and income from scrap is treated as other income. Defectives: Defectives are portion of production which can be rectified by incurring additional cost. Normal defectives can be avoided by quality control. Normal defectives are charged to good products. Abnormal defectives are charged to Costing Profit and Loss Account 3. The annual carrying cost of material X is 3.6 per unit and its total carrying cost is 9,000 per annum. What would be the Economic order quantity for material X, if there is no safety stock of material X? Annual carrying per unit per annum 3.6 p.u. P.a. Total Carrying cost per annum 9,000 Carrying cost = 1/2 EOQ * Carrying cost per unit per annum 9,000 = 1/2 EOQ * 3.6 2,500 = 1/2 EOQ EOQ = 5000 units 4. Re-order quantity of material X is 5,000 kg.; Maximum level 8,000 kg.; Minimum usage 50 kg per hour; minimum re-order period 4 days; daily working hours in the factory is 8 hours. You are required to calculate the re-order level of material X. ROQ = 5000 kg Minimum usage = 50 Kg per hour Minimum reorder period = 4 days 5

6 Daily working hours = 8 hours Maximum Level = 8000 Kg ROL =? Max L = ROL + ROQ - (Min consumption * Min Lead time) 8000 = ROL (50 * 32 ) ROL = 4,600 Kgs 5. Raw materials AXE costing 150 per kg. and BXE costing 90 per kg. are mixed in equal proportions for making product A. The loss of material in processing works out to 25% of the product. The production expenses are allocated at 40% of direct material cost. The end product is priced with a margin of 20% over the total cost. Material BXE is not easily available and substitute raw material CXE has been found for BXE costing Rs. 75 per kg. It is required to keep the proportion of this substitute material in the mixture as low as possible and at the same time maintain the selling price of the end product at existing level and ensure the same quantum of profit as at present. You are required to compute the ratio of the mix of the raw materials AXE and CXE. % of loss - 25% of output If output is 1 unit, loss is 0.25 units Input will be 1.25 units Consumption of Raw material AXE and BXE = 50% each i.e Kg each of AXE and BXE Present cost and selling price of 1 Kg of product (using AXE and BXE) Material AXE cost = Kg * Material BXE cost = Kg * Total Material cost 150 Add: Production expenses at 40% 60 Total Production costs 210 Add: 20% Profit margin on cost 42 Selling Price 252 To retain the present selling price, material cost per kg of output should be maintained at 150 (as above) Let the raw material AXE be "a" Kg. Hence the quantity of new raw material CXE = ( a) kg Total raw material cost = (a*150)+[(1.25-a) * 75] 75a = 150 a = 0.75 Hence Qty of AXE be 0.75 kg whereas qty of CXE should be ( ) = 0.50 Kg Hence ratio of material AXE and CXE is 0.75:0.50 i.e. 3:2 respectively. 6. The following information relating to a type of Raw material is available: Annual demand 2,000 units Unit price Rs Ordering cost per order Storage 2% p.a. 6

7 Interest 8% p.a. Lead time Half-month Calculate economic order quantity and total annual inventory cost of the raw material. Annual Demand = 2000 units Buying cost per order = 20 (given) Carrying cost per unit per annum = (8+2)% * 20 = 2 EOQ = 2AB/C On substituting the above values, EOQ = 200 units Total annual inventory cost Buying cost = A/EOQ * Buying cost per order 2000/200 * Carrying cost = 1/2 * EOQ * Carrying cost per unit per annum 1/2 * 200 * Inventory cost = No. of units purchased * cost per unit 2000 * 20 40,000 Total = 40, A consignment consisting of 4 grades of material was purchased for 1,20,000. Storekeeper sorted them out and recorded the following: Grade A 4000 units, Grade B 8,000 units, Grade C 10,000 units, Grade D 12,000 units. Total sales amounted to 16,000 (rate of profit being 33.33% on cost) and those of B at a price 1.5 times that of A, but the rate of profit was % on sales. Similarly, Grade C material was sold for 50,000 yielding a profit of 20% on sales. Calculate the purchase price of each grade on the basis of the above information. Grade A 4000 units Grade B 8000 units Grade C 10,000 units Grade D 12,000 units Total Purchase price Rs. 1,20,000 Sales of Grade A Rs. 16,000 Let purchase price per unit of Grade A be 'x' Total Purchase price of Grade A 4000x Rs. Profit on cost (33.33% on 4000x) x Rs. Sales of Grade A x Rs. Hence: x = 16,000 x = Rs. 3/- pu 7

8 S.P. Of Grade A pu = Rs. 4 (16,000 Rs. / 4000 units) S.P. Pu of Grade B Rs. 6 (1.5 * Rs. 4) Less : Profit (1/3rd on sales ) Rs. 2 Cost p.u. Rs. 4 Grade C Sales Value Rs. 50,000 Less: Profit Rs. 10,000 (20% on sales) Purchase Value Rs. 40,000 Purchaase price per unit (Rs. 40,000 / 10,000) Rs. 4 Total Purchase price For: Grade A Rs. 3 * 4,000 units Rs. 12,000 Grade B Rs. 4 * 8,000 units Rs. 32,000 Grade C Rs. 4 * 10,000 units Rs. 40,000 Grade D Balancing figure Rs. 36,000 TOTAL (Given) Rs. 1,20,000 CHAPTER 3 LABOUR 1. Zuri Ltd. is witnessing high labour turnover for few past years. The Director Personnel wants to minimize the labour turnover. Define Labour Turnover? How is it measured? What are the remedial steps that you can suggest to the Director Personnel of Zuri Ltd in order to reduce Labour turnover? Explain Labour turnover in an organisation is the rate of change in the composition of labour force during a specified period measured against a suitable index. The standard of usual labour turnover in the industry or labour turnover rate for a past period may be taken as the index or norm against which actual turnover rate should be compared. The methods for measuring labour turnover are: Replacement method: This method takes into consideration actual replacement of labour irrespective of no. of workers leaving. Replacement method = Average number of employees on roll during the year x 100 Number of employees replaced during the year 8

9 Separation method: In this method labour turnover is measured by dividing the total no. of separations during the period by average no. of workers on payroll during the same period. Separation method = Average number of employees on roll during the year 100 Number of employees separated during the year Flux method: This method takes into account both the replacements as well as no. of separations during the period. Flux Method= No of employees replaced + No of employees separated x 100 during the year during the year Average number of employees on roll during the year The suggestive remedial steps that will be helpful for Zuri Ltd. to minimize the labour turnover are as follows: Exit interview: An interview to be arranged with each outgoing employee to ascertain the reasons of his leaving the organization. Job analysis and evaluation: to ascertain the requirement of each job and allot appropriate job to appropriate persons. Organisation should make use of a scientific system of recruitment, placement and promotion for employees. Organisation should create healthy atmosphere, providing education, medical and housing facilities for workers. Committee for settling workers grievances. 2. Jigyasa Boutiques LLP. (JBL) takes contract on job works basis. It works for various fashion houses and retail stores. It has employed 26 workers and pays them on time rate basis. On an average an employee is allowed 2 hours for boutique work on a piece of garment. In the month of March 2014, two workers Margaret and Jennifer were given 30 pieces and 42 pieces of garments respectively for boutique work. The following are the details of their work: Particulars Margaret Jennifer Work assigned 30 pieces 42 pieces Time taken 28 hours 40 hours Workers are paid bonus as per Halsey System. The existing rate of wages is 50 per hour. As per the new wages agreement the workers will be paid 55 per hour w.e.f. 1 st April At the end of the month March 2014, the accountant of the company has calculated wages to these two workers taking 55 per hour. i. From the above information calculate the amount of loss that the company has incurred due to incorrect rate selection. ii. What would be the loss incurred by the JBL due to incorrect rate selection if it had followed Rowan scheme of bonus payment. iii. Amount that could have been saved if Rowan scheme of bonus payment was followed. iv. Do you think Rowan scheme of bonus payment is suitable for JBL? 9

10 PARTICULARS Margaret Jennifer No. of garments assigned (Pieces.) Hour allowed per piece (Hours) 2 2 Total hours allowed (Hours) Hours Taken (Hours) Hours Saved (Hours) (i) Calculation of loss incurred due to incorrect rate selection. (While calculating loss only excess rate per hour has been taken) PARTICULARS Margaret Jennifer Total Basic Wages (28 Hrs. 5) (40 Hrs. 5) Bonus (as per Halsey Scheme) (50% of Time Saved Excess Rate) (50% of 32 Hrs. 5) (50% of 44 Hrs. 5) Excess Wages Paid (ii) Amount of loss if Rowan scheme of bonus payment were followed PARTICULARS MARGARET JENNIFER TOTAL Basic Wages (28 Hrs * 5) (40 Hrs * 5) Bonus (Rowan Scheme) (Time taken / Time allowed) * Time (28/60) * 32 * 5 (40/84) * 44 * 5 Saved * Excess Rate per hour Excess Wages Paid (iii) Calculation of amount that could have been saved if Rowan Scheme were followed Wages paid under Halsey Scheme Wages paid under Rowan Scheme Difference (Savings) Margaret Jennifer Total

11 (iv) Rowan Scheme of incentive payment has the following benefits, which is suitable with the nature of business in which Jigyasa Boutique LLP operates: (i) Under Rowan Scheme of bonus payment, workers cannot increase their earnings or bonus by merely increasing its work speed. Bonus under Rowan Scheme is maximum when the time taken by a worker on a job is half of the time allowed. As this fact is known to the workers, therefore, they work at such a speed which helps them to maintain the quality of output too. (ii) If the rate setting department commits any mistake in setting standards for time to be taken to complete the works, the loss incurred will be relatively low. 3. Calculate the number of workers replaced from the following information: Labour turnover based on separation 3% Labour turnover based on flux method 8% No. of workers left and discharged 18 Labour turnover based on separation method = 3% Labour turnover based on Flux method = 8% No of workers left and discharged = 18 Separation method = No of workers left and discharged / Average workforce (A) 3% = 18 / A A= 600 workers Flux method = No of separations + Recruitments + replacements / Average workforce 8% = Replacements / = Replacements No of workers replaced = 30 workers 4. X ltd provides you the following information for its 6 factory working days in a week. Hours as per Time card: 48 hours Hours as per Job card: 36 hours Daily allowance for lunch, personal needs, fatigue and maintenance of machine 40 mins Wage rate per hour: 20 per hour The remaining time not booked was on account of breakdown of machinery, power failure and strike. How would you deal with these wages in the books of X ltd? Also pass journal enteries. Hours as per Time Card Hours Booked Idle Time Less: Normal Idle time 48 hrs 36 hrs 12 hrs 4 hrs 11

12 (40 mins * 6 days)/ 60 Abnormal Idle time 8 hrs Wages to Labour can be dealt in two ways: 1. Treating Normal Idle time as FOH Wages charged to job 720 (36 hours * 20) Normal Idle time 80 (4 hours * 20) Abnormal Idle time 160 (8* 20) TOTAL 960 Journal entry JOB A/c DR 720 FOH A/c DR 80 Costing P&L A/c DR 160 To WAGE CONTROL A/c Inflating wage rates on account of normal idle time Inflated wage rate = Total wages / Total hours - Normal Idle time 960 / 48 4 = Wages charged to Job 786 (36 hours * ) Abnormal Idle time 174 (8 hrs * ) TOTAL 960 Journal entry JOB A/c DR 786 Costing P&L A/c DR 174 To WAGE CONTROL A/c 960 CHAPTER 4 OVERHEADS 1. The Arya Ltd. has the following account balances and distribution of direct charges on 31st March, Particulars Total Production Departments Service Departments Machine Packing General Stores Shop Plant Allocated (Rs) (Rs) (Rs) (Rs) (Rs) Overheads Indirect 29,000 8,000 6,000 4,000 11,000 Labour Maintenance Material 9,900 3,400 1,600 2,100 2,800 12

13 Misc. Supplies Supervisor s salary Cost and payroll 5,900 1,500 2, , ,000-80, ,000 - Overheads to be apportioned: Power 78,000 Rent 72,000 Fuel and 60,000 Heat Insurance 12,000 Taxes 8,400 Depreciation 1,20,000 The following data were compiled by means of the factory survey made in the previous year: Particulars Floor Space Radiator No. of Investment H.P. hours Section employees Machine 2000 Sq Ft ,00,000 3,500 Shop Packing 800 Sq Ft ,40, General Plant 400 Sq Ft ,000 - Stores and maintenance 1600 Sq Ft ,60,000 1,000 Expenses charged to the stores departments are to be distributed to the other departments by the following percentages: Machine shop 50%; Packing 20%; General Plant 30%; General Plant overheads are distributed on the basis of number of employees. i.prepare an overhead distribution statement with supporting schedules to show computations and basis of distribution. ii.determine the service department distribution by simultaneous equation method. i. Overhead Distribution Statement Particulars Production Departments Service Departments Machine Packing General Stores Shops Plant Allocated Overheads (Rs) (Rs) (Rs) (Rs) Indirect Labour 8,000 6,000 4,000 11,000 Maintenance Material 3,400 1,600 2,100 2,800 Misc. Supplies 1,500 2,

14 Supervisor s salary ,000 - Cost and Payroll salary ,000 - Total overheads allocated 12,900 10,500 1,03,000 14,400 Add: Apportioned overheads (As 1,84,350 70,125 22,775 73,150 per schedule below) Total 1,97,000 80,625 1,25,775 87,550 Schedule of Apportionment of Overheads Production Departments Service Departments Item of Cost Basis Machine Packing General Stores (Rs) Shops (Rs) (Rs) Plant (Rs) Power HP Hours 54,600 7,800-15,600 (7:1:-:2) Rent Floor Space 30,000 12,000 6,000 24,000 (5:2:1:4) Fuel and Radiator 12,000 24,000 8,000 16,000 Heat Sec. (3:6:2:4) Insurance Investment 7,500 2, ,500 (10:3:1:2) Taxes Investment 5,250 1, ,050 (10:3:1:2) Depreciation Investment 75,000 22,500 7,500 15,000 (10:3:1:2) Total 1,84,350 70,125 22,775 73,150 (ii) Re-distribution of Overheads of Service Departments to Production Departments: Let, the total overheads of General Plant = a and the total overheads of Stores = b a = 1,25, b...(i) b = 87, a...(ii) Putting the value of b in equation no. (i) a = 1,25, (87, a) Or a = 1,25, , a Or 0.94a = 1,52,040 Or a = 1,61,745 (appx.) Putting the value of a = 1,61,745 in equation no. (ii) to get the value of b b = 87, ,61,745 = 1,19,899 Secondary Distribution Summary Particulars Total (Rs) Machine Shops Packing (Rs) (Rs) Allocated and Apportioned overheads as per primary distribution 2,77,875 1,97,250 80,625 - General Plant 1,61,745 80, [1,61,745 * (5/10) ] 48, [1,61,745 * (3/10) ] 14

15 - Stores 1,19,899 59, , (1,19,899 * 50%) (1,19,899 * 20%) Total Overheads 3,38,072 1,53, A manufacturing unit has purchased and installed a new machine of Rs. 12,70,000 to its fleet of 7 existing machines. The new machine has an estimated life of 12 years and is expected to realize Rs.70,000 as scrap at the end of its working life. Other relevant data are as follows: (i) Budgeted working hours are 2,592 based on 8 hours per day for 324 days. This includes 300 hours for plant maintenance and 92 hours for setting up of plant. (ii) Estimated cost of maintenance of the machine is 25,000 p.a. (iii) The machine requires a special chemical solution, which is replaced at the end of each week (6 days in a week) at a cost of 400 each time. (iv) Four operators control operation of 8 machines and the average wages per person amounts to 420 per week plus 15% fringe benefits. (v) Electricity used by the machine during the production is 16 units per hour at a cost of 3 per unit. No electricity is consumed during unproductive maintenance and setting up time. (vi) Departmental and general works overhead allocated to the operation during last year was 50,000. During the current year it is estimated to increase by 10% of this amount. Calculate machine hour rate, if (a) setting up time is unproductive; (b) setting up time is productive. Calculation of Total costs associated with the machine Amount (Rs) Particulars Calculation 1. Depreciation (Rs.12,70,000 - Rs. 70,000)/12 years 1,00, Cost of Maintenance Given 25, Cost of chemical solution 324 days/6 days per week *Rs Departmental and General OH (Rs. 50, %)/8 machines 6, Operators wages [(324/6 weeks * Rs. 420 per week) * 1.15 ]/2 13, Electricity cost 16 units * Rs. 3 per units * 2200 hours (WN - 1) 1,05,600 Total Overheads 2,72,116 Number of hours when set up time is unproductive = = 2200 hours (i) Machine hour rate = Rs. / 2200 hours = Rs /- Number of hours when set up time is productive = = 2292 hours (ii) Machine hour rate = Rs. / 2292 hours = Rs /- 15

16 WN - 1 : Calculation of number of hours for which electricity was consumed Total hours in the year 2592 Less: Maintenance time -300 Less: Set up time -92 Balance ABC Ltd. which absorbs overheads at a predetermined rate, provides the following information: Overheads incurred: 1,50,000 Overheads absorbed: 1,00,000 Goods Sold: 12,000 units Stock of finished goods: 11,000 units Stock of WIP : 10,000 units (20% complete) Show the treatment of overheads and pass journal entries for the same. (Assume Under/ over absorption is Normal) Overheads incurred 1,50,000 Overheads absorbed 1,00,000 Under absorption 50,000 This is Normal underabsorption and hence charged to finished goods a/c, cost of sales a/c and wip a/c on supplementary rate basis. Supplementary rate = Total underabsorption / Total number of units Sales units 12,000 units Closing stock 11,000 units WIP Equivalent units 2,000 units (10,000 * 20%) Total Number of units completed units Supplementary rate = 50,000 / 25,000 = Rs. 2 Underabsorption charged as follows: Cost of sales (12,000 units * Rs. 2) 24,000 Finished goods a/c (11,000 * Rs. 2) 22,000 WIP A/c (2000 units * Rs. 2) 4,000 Total 25,000 CHAPTER 5 INTEGRATED AND NON INTEGRATED ACCOUNTING 1. The financial books of a company reveal the following data for the year ended 31 st March, 2015: 16

17 Opening Stock: Finished goods 875 units Work-in-process to Raw materials consumed Direct Labour Factory overheads Goodwill written off Administration overheads Interest paid Bad Debts Selling and Distribution Overheads Interest received Rent received Sales 14,500 units Closing Stock: Finished goods 375 units Work-in-process 48,200 76,525 33,000 7,84,000 4,65,000 2,65,000 95,000 3,15,000 72,000 21,000 65,000 18,500 72,000 20,80,000 43,250 48,200 The cost records provide as under: Factory overheads are absorbed at 60% of direct wages. Administration overheads are recovered at 20% of factory cost. Selling and distribution overheads are charged at 5 per unit sold. Opening Stock of finished goods is valued at 105 per unit. The company values work-in-process at factory cost for both Financial and Cost Profit Reporting. Required: (i) Prepare statements for the year ended 31st March, 2014 show - The profit as per financial records - The profit as per costing records. (ii) Present a statement reconciling the profit as per costing records with the profit as per Financial Records. Statement of Profit as per financial records (for the year ended March 31, 2015) Particulars Amount Particulars Amount To Opening stock By Sales 20,80,000 Finished Goods 76,525 By Closing stock: Work-in-process 33,000 Finished Goods 43,250 To Raw materials consumed 7,84,000 Work-in-Process 48,200 To Direct labour 4,65,000 By Rent received 72,000 To Factory overheads 2,65,000 By Interest received 18,500 To Goodwill written off 95,000 To Administration overheads 3,15,000 To Selling & distribution 65,000 overheads 17

18 To Interest paid 72,000 To Bad debts 21,000 To Profit 70,425 Total 22,61,000 22,61,000 Statement of Profit as per costing records (for the year ended March 31,2015) Sales Revenue (14,500 units) (A) 20,08,000 Cost of Sales Opening stock ( 875 units * 105) 91,875 Add: Cost of Production of 14,000 units (Wn-1 and 2) 18,15,360 Less: Closing Stock ( 18,15,360 * [375 units /14,000 units]) (48,626) Production cost of goods sold (14,500 units) 18,58,609 Selling and distribution overheads (14,500 units * 5) 72,500 Cost of Sales (B) 19,31,109 19,31,109 Profit (A) (B) 1,48,891 Working Notes: 1. Number of units produced Units Sales 14,500 Add: Closing stock 375 Total 14,875 Less: Opening stock 875 Number of units produced 14,000 WN 2: COST SHEET Raw materials consumed 7,84,000 Direct labour 4,65,000 Prime cost 12,49,000 Factory overheads (60% of direct wages) 2,79,000 Factory cost 15,28,000 Add: Opening work-in-process 33,000 Less: Closing work-in-process (48,200) Factory cost of goods produced 15,12,800 Administration overheads (20% of factory cost) 3,02,560 Cost of production of 14,000 units 18,15,360 Cost of Production per unit = Total cost of production / No. of units produced = 18,15,360/ 14,000 units = Statement of Reconciliation (Reconciling the profit as per costing records with the profit as per financial records) Particulars Amount Amount Profit as per Cost Records 1,48,891 Add: Factory overheads over absorbed ( 2,79,000-2,65,000) 14,000 18

19 S&D Overheads over absorbed ( 72,500-65,000) 7,500 Opening stock overvalued ( 91,875-76,525) 15,350 Interest Received 18,500 Rent Received 72,000 1,27,350 Less: Administration overheads under-absorbed 12,440 ( 3,15,000-3,02,560) Closing stock overvalued ( 48,626-43,250) 5,376 Goodwill written off 95,000 Interest Paid 72,000 Bad debts 21,000 2,05,816 Profit as per Financial accounts 70, Ascent Ltd. is a manufacturing company which keeps its Cost Accounts and Financial Accounts separately. The Audit Committee of the company has advised the Board of Directors to integrate the above two accounts to avoid duplicity of work. The Finance Manager has requested you to identify few pre-requisites for the implementation of the Audit Committee s advice. The Ascent Ltd. has been maintaining separate books of accounts for Cost Accounting and Financial Accounting purposes. As per the advice of the Audit Committee, the books of account for the above two purposes will be integrated into one i.e. Integrated System of Accounting will be followed. Few pre-requisites for the above purpose are as follows: The management s decision about the extent of integration of the two sets of books. A suitable coding system must be made available so as to serve the accounting purposes of financial and cost accounts. An agreed routine, with regard to the treatment of provision for accruals, prepaid expenses, other adjustments necessary for preparation of interim accounts. Perfect coordination should exist between the staff responsible for the financial and cost aspects of the accounts and an efficient processing of accounting documents should be ensured. 19