ANIL SHARMA S CLASSES {Marks: 100} (COSTING PAPER-FULL) {Time: 3 Hours} ----------------------------------------------------------------------------------------------------- Q-1: What is meant by cost centre? Explain type of cost centres. (i) (ii) (iii) Explain Pre-production Costs. Explain Research and Development Costs Explain Training Costs Q-2: What is Costs accounting? Enumerate its important objectives. Describe the steps involved in the budgetary control technique. Q-3: Discuss the accounting treatment of spoilage and defectives in Cost Accounting. Distinguish between Bill of Materials and Material Requisition Note. Q-4: Discuss the accounting treatment of Idle time and overtime wages. Distinguish between Job Evaluation and Merit Rating. Q-5: A company manufactures a product from a raw material, which is purchased at Rs.60 per kg. The company incurs a handling cost of Rs.360 plus freight of Rs.390 per order. The incremental carrying cost of inventory of raw material is Rs. 0.50 per kg. per month. In addition, the cost of working capital finance on the investment in inventory of raw material is Rs.9 per kg. per annum. The annual production of the product is 1,00,000 units and 2.5 units are obtained from one kg. of raw material. (i) (ii) (iii) Calculate the economic order quantity of raw materials. Advice, how frequently should orders for procurement be placed. If the company proposes to rationalize placement of orders on quarterly basis, what percentage of discount in the price of raw materials should be negotiated? {6 Marks} Q-6: Raw materials 'AXE' costing Rs.150 per kg. and 'BXE' costing Rs.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 costs. 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'. {5 Marks}
Q-7: Calculate the earnings of workers A and B from the following particulars for a month and allocate the labour cost to each job X, Y and Z: A B (i) Basic Wages Rs.100 Rs.160 (ii) Dearness Allowance 50% 50% (iii) Contribution to provident Fund (on basic wages) 8% 8% (iv) Contribution to Employees' State Insurance (on basic wages) 2% 2% (v) Overtime 10 hours The normal working hours for the month are 200. Overtime is paid at double the total of normal wages and dearness allowance. Employer's contribution to state Insurance and Provident Fund are at equal rate with employees' contributions. The two workers were employed on jobs X, Y and Z in the following proportions: Jobs X Y Z Worker A 40% 30% 30% Worker B 50% 20% 30% Overtime was done on job Y. {6 Marks} Q-8: KPR Limited operates a system of standard costing in respect of one of its products which is manufactured within a single cost centre. The Standard Cost Card of product is as under: Standard Unit cost (`) Direct material 5 kg. @ ` 4.20 21.00 Direct labour 3 hours @ `3.00 9.00 Factory overhead `1.20 per labour hour 3.60 Total manufacturing cost 33.60 The production schedule for the month of June, 2013 required completion of 40,000 units. However, 40,960 units were completed during the month without opening and closing work-inprogress inventories. Purchases during the month of June, 2013, 2,25,000 kg. of material at the rate of `4.50 per kg. Production and Sales record for the month showed the following actual result. Material used 2,05,600 kg. Direct labour 1,21,200 hours; cost incurred ` 3,87,840 Total factory overhead cost incurred ` 1,00,000 Sales 40,000 units Selling price to be so fixed as to allow a mark-up of 20% on selling price. Required: (i) Calculate material variances based on consumption of material. (ii) Calculate labour variances and the total variance for factory overhead. (iii) Prepare Income statement for June, 2013 showing actual gross margin. (iv) An incentive scheme is in operation in the company whereby employees are paid a bonus of 50% of direct labour hour saved at standard direct labour hour rate. Calculate the Bonus amount.
Q-9: SK Ltd. is engaged in the manufacture of tyres. Analysis of income statement indicated a profit of ` 150 lakhs on a sales volume of 50,000 units. The fixed cost is ` 850 lakhs which appears to be high. Existing selling price is ` 3,400 per unit. The company is considering revising the profit target of ` 350 lakhs. You are required to compute- (i) Break-even point at existing level in units and in rupees. (ii) The number of units required to be sold to earn the target profit. (iii) Profit with 15% increase in selling price and drop in sales volume by 10% (iv) Volume to be achieved to earn target profit at the revised selling price as calculated in (ii) above, if a reduction of 8% in the variable costs and `85 lakhs in the fixed cost is envisaged. Q-10: Pentax Limited has prepared its expense budget for 20,000 units in its factory for the year 2013 as detailed below: (` per unit) Direct Materials 50 Direct Labour 20 Variable Overhead 15 Direct Expenses 6 Selling Expenses (20% fixed) 15 Factory Expenses (100% fixed) 7 Administration expenses (100% fixed) 4 Distribution expenses (85% variable) 4 Total 129 Prepare an expense budget for the production of 15,000 units and 18,000 units. {6 Marks} Q-11: ABC Ltd. manufactures a single product and absorbs the production overheads at a predetermined rate of Rs.10 per machine hour. At the end of financial year 2013-14, it has been found that actual production overheads incurred were Rs.6,00,000. It included Rs.45,000 on account of 'written off' obsolete stores and Rs.30,000 being the wages paid for the strike period under an award. The production and sales data for the year 2013-14 is as under: Production: Finished goods 20,000 units Work-in-progress (50% complete in all respects) 8,000 units Sales: Finished goods 18,000 units The actual machine hours worked during the period were 48,000. It has been found that onethird of the under - absorption of production overheads was due to lack of production planning and the rest was attributable to normal increase in costs. You are required to: (i) (ii) Calculate the amount of under - absorption of production overheads during the year 2013-14; and Show the accounting treatment of under - absorption of production overheads. {5 Marks}
Q-12: A transport company has been given a 40 kilometer long route to run 5 buses. The cost of each bus is ` 6,50,000. The buses will make 3 round trips per day carrying on an average 80% passenger of their seating capacity. The seating capacity of each bus is 40 passengers. The buses will run on an average 25 days in a month. The other information for the year 2016-17 is given below: - Garage rent Annual repairs and maintenance Salaries of 5 drivers Wages of 5 conductors Manager's salary Road tax, permit fee, etc. Office expenses Cost of diesel per litre ` 33 Kilometers run per litre for each bus Annual depreciation ` 4,000 per month for all 5 buses ` 22,500 p.a. each bus ` 3,000 each driver per month ` 1,200 each conductor per month ` 7,500 per month ` 5,000 for a quarter for all 5 buses ` 2,000 per month for all 5 buses 6 kilometers 15% of cost Annual Insurance 3% of cost You are required to calculate the bus fare to be charged from each passenger per kilometer, if the company wants to earn profits of 33 1 /3 % on takings (total receipts from passengers). Q-13: PQR Construction Ltd. commenced a contract on April 1, 2013. The total contract was for Rs.27,12,500. It was decided to estimate the total profit and to take to the credit of Costing P & L A/c the proportion of estimated profit on cash basis which work completed bear to the total contract. Actual expenditure in 2013-14 and estimated expenditure in 2014-15 are given below: 2013-14 2014-15 Actual (Rs.) Estimated (Rs.) Material issued 4,56,000 8,14,000 Labour : Paid 3,05,000 3,80,000 : Outstanding at end 24,000 37,500 Plant purchased 2,25,000 - Expenses : Paid 1,00,000 1,75,000 : Outstanding at end - 25,000 : Prepaid at the end 22,500 - Plant returned to stores (a historical stores) 75,000 1,50,000 (on Dec. 31 2014) Material at site 30,000 75,000 Work-in-progress certified 12,75,000 Full Work-in-progress uncertified 40,000 NIL Cash received 10,00,000 Full The plant is subject to annual depreciation @ 20% of WDV cost. The contract is likely to be completed on December 31, 2014. Required: (i) Prepare the Contract A/c for the year 2013-14. (ii) Estimate the profit on the contract for the year 2013-14.
Q-14: Pharma Limited produces product 'Gluco-G' which passes through two processes before it is completed and transferred to finished stock. The following data relates to March, 2014: Process I (`) Process II (`) Finished Stock (`) Opening Stock 1,50,000 1,80,000 4,50,000 Direct materials 3,00,000 3,15,000 - Direct Wages 2,24,000 2,25,000 - Factory Overheads 2,10,000 90,000 - Closing Stock 74,000 90,000 2,25,000 Inter process profit included in Opening stock NIL 30,000 1,65,000 Output of process I is transferred to process II at 25 percent profit on the transfer price, whereas output of process II is transferred to finished stock at 20 percent on transfer price. Stock in processes are valued at prime cost. Finished stock is valued at the price at which it is received from process II. Sales for the month is ` 28,00,000. You are required to prepare Process-I A/c, Process-II A/c, and Finished Stock A/c showing the profit element at each stage. Q-15: A Company operates separate cost accounting and financial accounting systems. The following is the list of opening balances as on 1.04.2013 in the Cost Ledger. Debit (`) Credit (`) Stores Ledger Control Account 53,375 - WIP Control Account 1,04,595 - Finished Goods Control Account 30,780 - General Ledger Adjustment Account - 1,88,750 Transactions for the quarter ended 30.06.2013 are as under: (`) Materials purchased 26,700 Material issued to production 40,000 Materials issued to factory for repairs 900 Factory wages paid (including indirect wages ` 23,000) 77,500 Production overheads incurred 95,200 Production overheads under-absorbed and written-off 3,200 Sales 2,56,000 The Company's gross profit is 25% on Cost of Sales. At the end of the quarter, WIP stocks increased by ` 7,500. Prepare the relevant Control Accounts, Costing Profit & Loss Account and General Ledger Adjustment Account to record the above transactions for the quarter ended 30.06.2013. {10 Marks}
Q-16: Alpha Limited has decided to analyses the profitability of its five new customers. It buys bottled water at Rs. 90 per case and sells to retail customers at a list price of Rs. 108 per case. The data pertaining to five customers are: Customers A B C D E Cases sold 4680 19688 136800 71550 8775 List selling price 108 108 108 108 108 Actual selling price 108 106.20 99 104.40 97.20 No. of purchase order 15 25 30 25 30 No. of customer visits 2 3 6 2 3 Number of deliveries 10 30 60 40 20 Kilometers traveled per 20 6 5 10 30 delivery No. of expedited deliveries 0 0 0 0 1 Its five activities and their cost drivers are: Activities Cost driver rate Order taking Rs. 750 per purchase order Customer visits Rs. 600 per Customer visit Deliveries Rs. 5.75 per delivery Km traveled Product handling Rs. 3.75 per case sold Expedited deliveries Rs. 2,250 Per expedited delivery Required:- (i) Compute the customer-level operating income of each of five retail customers now being examined (A, B, C, D, and E). Comments on the results. (ii) What insights are gained by reporting both the list selling price and the actual selling price for each customer? (iii) What factors alpha Limited should consider in deciding whether to drop one or more of five customers? {10 Marks}