Cost Accounting – Semester 4 – Solved Question Paper 2018 – Dibrugarh University

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COST ACCOUNTING

SOLVED QUESTION PAPERS

2018

1.a. Fill in the blanks :                                                      1×4=4

  1. Fixed cost per unit decrease when volume of production increases.
  2. In printing industries, the method of process costing is applied.
  3. In process costing, the output of the each process in the input of the next process.
  4. In cast accounting, overheads is the combination of indirect material, indirect labour and indirect expenses.
  5. Choose and write the correct answer:
  6. Under the ABC analysis of material control, a stands for, low value/moderate value/high value items.
  7. In a chemical industry, the method of process costing/ contact costing is applied.
  8. Variable overhead cost is a period cost/an output cost.
  9. Cost of abnormal idle time and overtime is transferred to costing profit and loss account/general profit and loss account.

2)   Write on the following (any four):

a. Distinction between cost accounting and financial accounting? (any four points).

BasisCost accountingFinancial accounting
1)Nature  Accounts lay emphasis on both historical pre- determined costs. Financial accounts are maintained on the basis of historical record.
2) UseCost accounting is only used by the management of the concern.Financial accounting is used even by outside entries.
3) SystemCost accounting does not use the double entry for collecting cost data.Financial accounting uses the double entry system for recording financial data.
4) S;:copeCost accounting covers all items related to a cost time.Financial accounting covers all items of income and expenditure whether related to the cost center or not.

      b. Causes of labour turnover?

      Ans: Same as 2017 paper question paper no 2 (c)

      c. Allocation and absorption of overhead?

      Ans: same as 2017 paper question no

d. Reconciliation of cost account and financial account.

Ans: When cost accounts and financial accounts are maintained in two different set of books, there will be prepared two profit and loss accounts- one for costing books and the other for financial books. And the other for financial books. The profit or loss shown by costing books may not agree with that shown by financial books. Such a system is termed as, ‘Non-integral system’ whereas under the integral system of accounting, there are no separate cost and financial accounts consequently, the problem of reconciliation does not arise under the integral system, however where two sets of accounting system, namely financial accounting and cost accounting and cost accountancy are being maintained, the profit shown by the two sets of accounts may not agree with each other. Although both deal with the same basic transaction like purchases consumption of materials, wages and other expenses, the differences in approach in a collection, analysis and presentation of date to meet the objective of the individual system.

             Financial accounts are concerned with the assertainment of profit and loss for the whole operation of the organization for a relatively long period, usually a year, without being two much concerned with lost computation, whereas cost accounts are concerned with the assertainment of profit and loss made by manufacturing division or products for cost comparison and preparation and use of a variety of cost statement, the difference in purpose and approach generally results in a different profit figure from what is disclosed by the financial accounts of profit figures given by the reconciliation of profit figures given by the cost accounts and financial accounts.

e. Perpetual inventory system

Ans: Same as 2017 paper question no. 4(b) first part.

3) a. The following data have been extracted from the books of m/s ABC industries ltd. For the calendar year 2017:

Opening stock of raw material Purchase of raw material Closing stock of raw material Carriage inward Wages: direct Indirect other  direct charges rent and rates: factory office indirect consumption of material depreciation: plant office furniture salary: office salesman other  factory expenses other office expenses managing directors’s remuneration other selling expense travelling expense of salesman carriage and freight sales advance income tax-paid advertisement25000 85000 40000 5000 75000 10000 15000 5000 500 500 1500 400 2500 2000 5700 700 12000 1000 1100 1400 250000 15000 2000

 Managing director’s chemuneration is to be allocated in the ratio of 2:1:3 for factory, office and sales departments respectively.

             From the above information prepare the difference phases of cost and net profit.

Cost sheet of m/s ABC industry

ParticularsDetailsAmount 
Opening stock raw material Add: purchase of raw material           Carriage inward Less: closing stock of raw                               material (i) Raw material consumed Add: direct wages Other direct charges (ii) Prime cost Add: Indirect wage Indirect consumption of material Factory Rent Plant depreciation Other factory expenses Managing director chemuration       Add: Salesman salary          Other selling expenses           Travelling expenses of salesman           Carrage and freight           Advertisement           Managing Director remoneration           (v) cost of sales           (vi) Net profit(b/f)           (vii) Sales25000 85000 5000        75000     90000
115000 (40000)
75000 15000
  10000 500 5000 1500 5700 4000165000               26700
    2000 1000 1100 1400 2000 6000
191700SS           13500 211300 38700 250000

Or

(b) What do you mean by material control? What are its techniques? Discuss its significances.               3+3+8=14

Materials control can be defined as a systematic control over purchasing, storing and consumption of materials. Materials control helps to maintain a regular and timely supply of materials by avoiding over and under-stocking. Materials control ensures that the right quality and quantity of materials is available to the company at the right time. Materials control helps to reduce the losses and wastage of materials by maintaining their efficient purchase, storage and use or consumption in the factory. The importance of materials control lies in its role in reducing the cost of production and increasing the profitability of the company.

The following are the common techniques of inventory control:

1. Determination of various levels of materials

2. Economic Order Quantity

3. ABC Analysis

4. Perpetual Inventory System

1. Determination of Various Levels of Materials

The store-keeper plays an important role in deciding upon the various levels materials. In order to ensure that the optimum quantity of materials is purchased stocked neither less nor more, the store keeper applies scientific techniques of material management. Fixing of certain levels for each item of materials in one of techniques.

These levels are not permanent but require revision according to the change in the factors which determine these levels. The following levels are generally fixed.

(a) Re-order Level

(b) Maximum Level

(c) Minimum Level

(d) Average Level

(e) Danger Level

(a) Re-order Level:

This level is that level of material at which it is necessary to initiate purchase requisition for fresh supplies. This is normally the point lying between the maximum and the minimum levels. Fresh orders must be placed before the actual stocks touch the minimum level.

2. Economic Order Quantity (EOQ)

The economic order quantity, known as EOQ, represents the most favorable quantity to be ordered each time fresh orders are placed.

The quantity to be ordered is called economic order quantity because the purchase of this size of material is most economical. It is helpful to determine in advance as to how much should one buy when the stock level reaches the re-order level. If large quantities arc purchased, the carrying costs would be large.

On the other hand, if small quantities are purchased at frequent intervals the ordering costs would be high. The economic order quantity is fixed at such a level as to minimise the cost of ordering and carrying the stock. It is the size of the order which produces the lowest cost of material ordered.

3. ABC Analysis

This technique of inventory control is also known as Always Better Control technique. ABC analysis is an analytical method of control which aims at concentrating efforts on those areas where attention is needed most.

Materials having higher values but constitute small percentage of total items, are grouped in ‘A’ category. On the other hand, a large percentage of items of materials which represent a smaller percentage of the values, are grouped in ‘C’ category. Items of materials having moderate value ‘and moderate size are grouped in ‘B’ category.

4. Perpetual Inventory System

The perpetual inventory system is intended as an aid to material control. It is a system of stock control followed by stores department. The system follows a method of recording stores by which information about each receipt, issue and current balance of stock is always available.

Advantages of Perpetual Inventory System

(i) Easy detection of errors – Errors and frauds can be easily detected at an early date. It helps in preventing their occurrence.

(ii) Better control over stores- The system exercises better control over all receipts and issues in such a manner so as to give a complete picture of both quantities and values of stock in hand at all times.

(iii) No interruption of production process- Production process is not interrupted as the physical verification of stock is made on a planned and regular basis.

(iv) Acts as internal check- Under the system, records are made simultaneously in the bin cards and stores ledger accounts which acts as a system of internal check for detection of errors as and when they are committed.

Significance of Material Control

Materials control is necessary for making efficient purchase, storing and consumption of materials. Every manufacturing company requires to maintain a materials control system that facilitates efficient purchase, storage and use of the materials. The needs for materials control system in the company arise due to the following reasons.


1. Economical Purchase
Every manufacturing company should purchase high quality materials at the most economical price. An efficient materials control system ensures how better quality materials can be bought at the economical price, which will finally help reduce the total cost of the production.

2. Minimum Investment
The over-stocking of materials is undesirable to the company, as it raises the cost of production. Therefore, an efficient materials control system helps to avoid over-stocking of materials and thus keeps the investment in materials to minimum.

3. Minimum Wastage
An efficient materials control system helps to carefully handle the materials to and from store houses and factory by trained and efficient store keepers and workers. With the help of an efficient materials control system, therefore , the wastage and losses of materials by fire, theft, leakage and so on can be kept at minimum.
4.Balance On Hand
An efficient materials control system is one which always provides the ready balance of materials on hand in terms of their quantity and value. The perpetual system of inventory control always shows the physical movement of stocks of materials and their current balance in terms of quantity and value.

5. Source Of Information
A proper system of recording materials is a great source of information of materials which helps in the preparation of materials purchasing and production plans.

4. (a) The following are the information in respect to a worker who has manufactured 240 articles during the last week of December 2017:                                               4+5+5=14

Working hours during the week are 48 hours, standard rate Rs. 5 per hour and standard time to manufacture an article is 15 minutes.

Calculate his gross wages for the week according to –

1)         Piecework with guaranteed weekly wages;

2)         Rowan Premium Bonus Plan;

3)         Halsey Premium Bonus Plan;     

Time Taken = 48 Hours

Time Allowed based on actual output = 15 mins X 240 = 3600 mins or 60 hours

Time Saved = 60 – 48 = 12 Hours

Piece produced per hour = 60/15 = 4 Units

Rate Per piece = 5/4 = Rs. 1.25

1) Piece work with guaranteed weekly wages = Piece produced  X Rate per piece

= 240 X 1.25

= Rs. 300

2) Rowan Premium Plan = (T X R) + S-T/S (T X R)

= 48 X 5+ 12/60(48 X 5) = Rs. 288

3) Halsey Premium plan = T X R + 50% (T X R)

= 48 X 5+50% (12 X 5) = Rs. 270

                                                                         Or       

(b) (1) Describe the essential characteristics of a good system of wage payment.                        7

  • A wage policy must be linked with the productivity of the workers. If a wage policy is not related to productivity, it will not be fair either to management and consumers or to workers.


(2) Wages should be linked with the job requirements and skill. Due consideration should be given to such factors as skill, length of time required in learning, versatility required.


(3) The wage policy should result in a reduction of unit cost of manufacture lowered prices and higher profits. All the three parties— workers, management and consumers— should participate and share the gains of higher productivity (a) workers by way of higher wages and incentives (b) management by way of lower and higher profits © consumers by way of better quality and lower price.


(4The wage policy should include an incentive system for the efficient workers. The system should provide sufficient incentives to workers to work hard and with great care. It should enable an efficient worker to earn more.


(5) The wage policy should have a proper wage differential based on proper job evaluation so that wages earned by different categories have a proper relation to the content and its worth.


(6) The wage policy should guarantee minimum wage to protect the interests of workers against conditions beyond their control. The wages policy should take care of minim um wage and the essential needs of the workers.
(7) Wage policy should be flexible in order to meet changing conditions. It should be adaptable to necessary changes.

  • Describe with illustration the salient features of Rowan Plan and Halsey Plan.   7

Halsey Premium Plan

This premium plan was originated by Mr. F. A. Halsey. Under this worker is paid at the time rate if the actual time taken is equal to or more standard time.Thus the worker is not penalised for his inefficiency and he gels for the actual time worked. If the time taken is less than the standard time, l saved is shared by the worker and the employer. Besides the wages for the actual worked, he gets bonus usually at 50% of the time saved at time rate.

The main features of Halsey premium plan are:

(i) Standard time is fixed in advance for performing a job.

(ii) Time rate is guaranteed and the worker gets the guaranteed irrespective of whether he completes the job within the time also takes more time to do it.

(iii) If the job is completed in less than pre-determined standard time worker is paid a bonus of 50% of the time saved at time rate in ad to his wages for the actual time spent on the job as a reward to his work.

Rowan plan

This plan was originated by James Rowan of David Rowan and Sons of Glasgow, Scotland. The system is similar to Halsey plan except for a different method of computation of bonus.

Here the bonus is calculated as a proportion of the wages of time taken which the time saved bears to the standard time. The main features of Rowan plan are:

(i) There is a guaranteed day-wage for actual time taken on the basis of time rate.

(ii) Bonus is paid for the time saved.

(iii) Bonus is based on that proportion of the time wages which the time saved bears to the standard time.

5. (a) From the following information, compute machine hour rate of a machine in a shop consisting of 3 machines occupying equal floor space. The estimated working hours per year are fixed at 2500 hours in which normal idle time is estimated at 20% of the standard time:                       

                                                                                                                                                 14

Rent and taxes of the shop per annum – Rs. 3,600 General Electricity for the shop per month – Rs. 200 Repairs and maintenance expenses for the machine per annum – Rs. 600 Rate of power charges for 100 units (the machine consuming 10 units per hour) – Rs. 3 Foreman’s salary for supervising all the machines per month – Rs. 750 Indirect labour cost – Rs. 2 per hour for the machine. The machine cost – Rs. 1,30,000. Scrap value is estimated at Rs. 10,000.

Estimated life is 10 years. The foreman devotes equal attention for each machine in the shop.

Calculation of Machine Hour Rate

                 ParticularsPer AnnumPer Hour
Standing Charge Rent (3600/3) Electricity(200 x 12)/3 Foreman’s Salary(750 x 12)/3 Total Standing Charge For 2000 hours (5000/2000)   Machine Expenses: Depreciation (1,30,000-10000)/2000 x 10 Repairs and Maintainence (600/2000) Power (10 x 3)/100 Indirect Labour Cost   Machine Hour Rate  1200 800 3000 5000            2.50   6.00 0.30 0.30 2.00 11.10

Or

(b) What factors would you consider for determining the overhead absorption rate? Explain the causes of over and under-absorption of overheads.                                               7+7=14

Same as Question no.5(b) of part a of solved paper 2017

6. (a) A product of a manufacturing concern posses through two processes A and B and then to finished stock. It is ascertained that in each process 5% of the total weight is lost and 10% is scrap, which from processes A and B realizes Rs. 80 per tone and Rs. 200 per tone respectively.

The following are the figures relating to both the processes:

Process – AProcess – B
Materials (tones) Cost of materials (Rs. Per tone) Wages (Rs.) Manufacturing expenses (Rs.) Output (tones)1,000 125 28,000 8,000 83070 200 10,000 5,250 780

Prepare the Process Cost Accounts showing cost per tones of each process. There was no work-in-progress in any process.                           14

Ans:                                Process A

ParticularsunitAmountParticularsunitAmount
To Raw Marketing To wages To Manufacturing expense1000     _         _125000   28000    8000By loss of weight By normal loss By abnormal loss By process A/c 50
100   20 830
     _    8000    3600 149400
 1000161000 1000161000

Process B

ParticularsunitAmountParticularunitAmount
To process A ToDirect Material To wages To Manufacturing expense To Abnormal830  70     _      _     15149400   14000     10000       5250        3150By loss of weight By normal loss By finished stock a/c  45   90 780     _   18000 163800
 915181800 915181800

                                     Or

(b) (1) Define job costing. Where is it applied?                                             2+2=4

Job costingis designed to accumulate cost data for a manufacturing firm which produces goods to specific order. It is also known as specific orders costing or production order costing. Under this method of costing, each job, batch or contract is treated as a cost unit and costs are collected and built up accordingly.

According to “ICMA”, London, it is that category of basic costing method which is applicable where the work consists of separate contract job or batches each of which is authorized by specific order or contract. It is followed by manufacturing and non-manufacturing concerns.

It is employed in industries in which:

a) A production is done on the basis of customer’s own specifications.

b) Products are manufactured in distinguishable lots.

c) Products are not uniform.

d) It is practical to maintain a separate record of each lot from the time production is begun until it is completed.

Following is the list of concerns which generally employ job costing method.

a) Printing Work. b) Design Engineering Concerns. c) Repair Works. d) Construction companies. e) Furniture makers. f) Hardware industry. g) Automobile garages. h) Interior decoration etc.

 (2) Under what circumstances, we need to prepare Reconciliation of Cost Account and Financial Account and how is it prepared?                                          10

Meaning of Reconciliation of Cost and Financial Accounts

When cost  accounts and financial accounts are maintained in two different sets of books, there will be prepared two profit and loss accounts – one for costing books and the other for financial books. The profit or loss shown by costing books may not agree with that shown by financial books. Such a system is termed as, ‘Non-Integral System’ whereas under the integral system of accounting, there are no separate cost and financial accounts. Consequently, the problem of reconciliation does not arise under the integral system.

However, where two sets of accounting systems, namely, financial accounting and cost accounting are being maintained, the profit shown by the two sets of accounts may not agree with each other. Although both deal with the same basic transactions like purchases consumption of materials, wages and other expenses, the difference of purpose leads to a difference in approach in a collection, analysis and presentation of data to meet the objective of the individual system.

Financial accounts are concerned with the ascertainment of profit or loss for the whole operation of the organisation for a relatively long period, usually a year, without being too much concerned with cost computation, whereas cost accounts are concerned with the ascertainment of profit or loss made by manufacturing divisions or products for cost comparison and preparation and use of a variety of cost statements. The difference in purpose and approach generally results in a different profit figure from what is disclosed by the financial accounts and thus arises the need for the reconciliation of profit figures given by the cost accounts and financial accounts.

The reconciliation of the profit figures of the two sets of books is necessary due to the following reasons

a.       It helps to identity the reasons for the difference in the profit or loss shown by cost and financial accounts.

b.      It ensures the arithmetical accuracy and reliability of cost accounts.

c.       It contributes to the standardization of policies regarding stock valuation, depreciation and overheads.

d.      Reconciliation helps the management in exercising a more effective internal control.

PREPARATION ON RECONCILIATION STATEMENT OR MEMORANDUM RECONCILIATION ACCOUNT

A Reconciliation Statement or a Memorandum Reconciliation Account should be drawn: up for reconciling profits shown by the two sets of books. Results shown by any sets of books may be taken as the base and necessary adjustment should be made to arrive at the results shown by the other set of books. The technique of preparing a Reconciliation Statement as well as a Memorandum Reconciliation account is discussed below:

When there is a difference between the profits disclosed by cost accounts and financial accounts, the following steps shall be taken to prepare a Reconciliation Statement

1 Ascertain the various reasons of disagreement (as discussed above) between the profits disclosed by two sets of books of accounts.

2. If profit as per cost accounts (or loss as per financial accounts) are taken as the base:

ADD:

(i) Items of income included in financial accounts but not in cost accounts.

(ii) Items of expenditures (as interest on capital, rent on owned premises, etc.) included in cost accounts but not in financial accounts.

(iii) Amounts by which items of expenditure have been shown in excess in cost accounts as compared to the corresponding entries in financial accounts.

(iv) Amounts by which items of income have been shown in excess in financial accounts as compared to the corresponding entries in cost accounts

(v) Over-absorption of overheads in cost accounts.

(vi) The amount by which closing stock of inventory is under-valued in cost accounts.

(vii) The amount by which the opening stock of inventory is over-valued in cost accounts.

DEDUCT:

(i) Items of income included in cost accounts but not in financial accounts

(ii) Items of expenditure included in financial accounts but not in cost accounts.

(iii) Amounts by which item of income have been shown in excess in cost accounts over the corresponding entries in financial accounts.

(iv) Amounts by which items of expenditure have been shown in excess in financial accounts over the corresponding entries in’ cost accounts

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