# COMSATS Institute of Information Technology Abbottabad

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1 COMSATS Institute of Information Technology Abbottabad Department of Management Sciences First Sessional: Spring 2018 Class: BBA 4 Date: Subject: Cost Accounting Instructor: Zaheer A. Swati Total Time Allowed: 80 Minutes Max Marks: Registration # SECTION-A (Time allowed: 15 Minutes) (Marks: 15) A. Encircle the most appropriate choice. 1. A characteristic of a variable cost is? (a) The total cost varies in proportion to changes in the level of activity (b) The cost per unit remains constant, regardless of the level of activity (c) Both A and B (d) Neither A nor B 2. Which of the following is NOT included under the head of FOH cost? (a) Indirect Material (b) Indirect Labor (c) Indirect Expense (d) Direct labor 3. The formula for calculating the sales dollars required to meet target operating income is? (a) (Total fixed costs plus Target operating income) divided contribution margin per unit (b) (Total fixed costs plus Target operating income) divided by contribution margin ratio (c) (Total fixed costs plus Target operating income) divided total variable costs (d) (Contribution margin plus target operating income) divided by total fixed costs 4. Assume a sales volume of 6,000 units, unit selling price of Rs. 20, unit variable cost of Rs. 12, and total fixed costs of Rs. 20,000. What is the margin of safety in sales dollars? (a) Rs. 25,000 (b) Rs. 50,000 (c) Rs. 70,000 (d) Rs. 120, If activity level decreases, what happens to the unit fixed cost? (a) It decreases (b) It increases (c) It remains the same (d) It depends on how much the activity level increases 6. Which one of the following types of costs is most likely to be included in determining the cost of inventory? (a) Freight-in (b) Interest cost for amounts borrowed to finance the purchase of inventory (c) Freight-out (d) Marketing costs 7. Assume a sales price per unit of Rs. 25, variable cost per unit Rs. 15, and total fixed costs of Rs. 18,000. What is the breakeven point? (a) 45,000 units (b) Rs. 45,000 (c) 37,500 units (d) Rs. 37, The level to which inventory must fall in order to signal that an order must be placed to replenish an item? (a) Safety stock (b) EOQ (c) Ordering point (d) Just in time 1 of 5

2 9. Suppose you are charged a Rs. 40 per month base charge for your electrical service. You are also charged an additional Rs for every unit of electricity you use. The cost is an example of a? (a) Variable cost (b) Fixed cost (c) Mixed cost (d) Step cost 10. The quantity of an inventory item to order so that total inventory costs are minimized over the firms planning period? (a) EOQ (b) Optimal order quantity (c) Inventory control (d) All of above 11. Following are the inventories of Manufacturing Concern except? (a) Work in process (b) Fuel and Power (c) Finished goods (d) Raw material 12. Which of the following is not an example of a fixed cost? (a) Rent on factory warehouse (b) Insurance on factory equipment (c) Indirect material (d) Advertising costs 13. The point at which it becomes essential to initiate purchase order for its fresh material is called? (a) EOQ (b) Ordering Level (c) Ordering Point (d) b and c 14. Fixed cost per unit increases when? (a) Production volume decreases (c) Variable cost per unit decreases (b) Production volume increases (d) None of the above 15. Factory overhead includes all manufacturing costs except direct material and direct labor. Which of the following items would not be considered to be a factory overhead cost? (a) Repainting the corporate office building (b) Indirect labor (c) Repair and maintenance expenditures on multiple factory machinery (d) Small expenditures pertaining to items like rags, screws, etc., used in the production process 2 of 5

3 SECTION-B (Time allowed: 65 Minutes) Q1. Mr. Zubari has following data of Income Statement to know No Cost No Benefit of firm's operations (Marks 15) Income Statement Sales (100 units at Rs. 100 a unit).... Rs. 10,000 Cost of goods sold: Direct Labor... Rs. 1,500 Direct Material Used ,400 Variable Factory Overheads Fixed Factory Overheads Total Cost of goods Sold..... Rs. (4,400) Gross Profit.... Rs. 5,600 Marketing Expenses: Variables... Rs. 1,200 Fixed.... 1,000 Administrative Expenses: Variable Fixed ,300 Total Marketing and Administrative Expenses.. Rs. (4,000) Operating Income.. Rs. 1,600 Requirements: 1) The breakeven point in Rupees, using the figures given in the budget 2) The breakeven point in Units, using the figures given in the budget 3) If target profit is Rs. what will be target sales in rupees Solution: Variable Cost = 1, , , = Rs. 5,400 Fixed Cost = , ,300 = Rs. (1) The breakeven point in Rupees Total Fixed Cost Variable Cost 1- Selling Price 5, ,000 Answer: Breakeven in Rupees = Rs. 6,522 3 of 5

4 (2) The breakeven point in Units Breakeven Total in units Price Fixed Cost Variable Cost 0.46 Breakeven in units Answer: Breakeven in Units = 65 Units (3) If target profit is Rs. what will be target sales in rupees Total Fixed Costs + Target Profit Target Sales (in Dollars) = Contribution Margin Ratio + Target Sales (in Dollars) = 1-5,400 10,000 Answer: Target Sales (in Dollars) = Rs. 13,043 Q2. These data relate to Sana Maqsood Co.'s March 2018 operations: (Marks 10) Materials, Beginning.. Rs. 8,000 Materials, Ending.. Rs. 9,000 WIP, Beginning. 7,500 WIP, Ending. 3,500 Finished goods, Beginning 10,000 Finished goods, Ending 12,000 Materials used 46,000 Direct Labor 8,000 Selling and general expenses. 6,700 Factory overhead is applied at the rate of 50% of direct labor cost. Requirement: Prepare Cost of Goods Sold Statement? Sana Maqsood Cost of Goods Sold Statement For the Ended March 2018 Opening Inventory 8,000 Net Purchases (Calculated) 47,000 Material Available for use 55,000 Closing Inventory (9,000) Direct Material used 46,000 4 of 5

5 Direct Labor 8,000 Prime Cost 54,000 Factory Overhead Cost (50% of direct labor cost) 4,000 Total Factory Cost 58,000 Opening Work in Process 7,500 Cost of Goods Available for Manufactured 65,500 Closing Work in Process (3,500) Cost of Goods Manufactured 62,000 Opening Finished Goods 10,000 Cost of Goods Available for Sold 72,000 Closing Finished Goods (12,000) Cost of Goods Sold 60,000 Q3. From the following Calculate: (Marks 10) (a) Re-order level (b) Minimum stock level (c) Danger Level Economic order quantity 5,000 units Consumption 250 to 400 units Re-order period 6 to 12 days Normal lead time 10 days Normal consumption 300 units Emergency Time 6 days Solution: (a) Ordering Level Ordering level= Maximum consumption * Lead Time [maximum] Ordering level= 400 * 12 Ordering level= 4,800 Units per day (b) Minimum Level Minimum level= Reorder level (Average consumption x lead time [Average]) Minimum level= 4,800 - (300 x 10) Minimum level= 1,800 Units per day (c) Danger Stock Level Danger stock level = Average consumption x Emergency lead time Danger stock level = 300 x 6 Danger stock level = 1,800 Units per day 5 of 5

### 1. F; I 2. V ; D 3. V ; D 4. F; I 5. F; I 6. F; I 7. V ; D 8. F; I 9. F; I 10. V ; D 11. F; I 12. F; I 13. F; I 14. F; I

SOLUTIONS TO EERCISES EERCISE 2-1 (15 minutes) 1. F; I 2. V ; D 3. V ; D 4. F; I 5. F; I 6. F; I 7. V ; D 8. F; I 9. F; I 10. V ; D 11. F; I 12. F; I 13. F; I 14. F; I EERCISE 2-2 (15 minutes) 1. Product

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Enrollment Number: Subject Code : APGDF 201 Numerical Code: 0252 Subject : Strategic Management Total Marks : 70 Date : 20/01/2015 Times : 03.00 to 06.00 Section A (30) Answer the following (any three)

### Math 1325 Lesson 8 Business Applications 2: Break Even Analysis, Equilibrium Quantity/Price

Math 1325 Lesson 8 Business Applications 2: Break Even Analysis, Equilibrium Quantity/Price Cost functions model the cost of producing goods or providing services. Examples: rent, utilities, insurance,

Your business plan Helping you with your business planning & forecasting Name of business Date when completed Please read the following notes before completing the form. (You may wish to talk to an accountant

### Case study Dealing with overheads

Case study Dealing with overheads This is the solution to the case study found at the end of: Chapter 7 Costing (a) Overhead apportionment Basis Total Cutting and turning Assembly and finishing Factory

### B.Com II Year (Hons.) Cost Accounting Model Paper I

Max. Marks: 100 B.Com II Year (Hons.) Cost Accounting Model Paper I Durations: 3 Hrs. Attempt all the questions. All Questions are compulsory, each question carry 20 marks. Unit I 1. A Ltd. Is the manufacturer

### CHAPTER 2. Job Order Costing 1, 2, 3, 4 5, 6, 7, 8 1, 2, 3, 4

CHAPTER 2 Job Order Costing ASSIGNMENT CLASSIFICATION TABLE Study Objectives Questions Brief Exercises Do It! Exercises A Problems B Problems 1. Explain the characteristics and purposes of cost accounting.