PART – 1

COSTING
(TOTAL MARKS 50)

QUESTION No : 1 (10 MARKS)

Manar lodging home is being run in a small hill station with 50 single rooms. The home
offers concessional rates during six off- season months in a year. During this period, half of
the full room rent is charged. The management’s profit margin is targeted at 20% of the
room rent. The following are the cost estimates and other details for the year ending on
31st March 2012. [Assume a month to be of 30 days].

(i) Occupancy during the season is 80% while in the off- season it is 40% only.
(ii) Expenses:
 Staff salary [Excluding room attendants] Rs. 2,75,000
 Repairs to building Rs. 1,30,500
 Laundry and linen Rs. 40,000
 Interior and tapestry Rs. 87,500
 Sundry expenses Rs. 95,400
(iii) Annual depreciation is to be provided for buildings @ 5% and on furniture and
equipments @ 15% on straight-line basis.
(iv) Room attendants are paid Rs. 5 per room day on the basis of occupancy of the rooms
in a month.
(v) Monthly lighting charges are Rs. 120 per room, except in four months in winter
when it is Rs. 30 per room and this cost is on the basis of full occupancy for a month.
(vi) Total investment in the home is Rs. 100 lakhs of which Rs. 80 lakhs relate to
buildings and balance for furniture and equipments.

You are required to work out the room rent chargeable per day both during the season
and the offseason months on the basis of the foregoing information.

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QUESTION No : 2 (10 MARKS)

Cimech Constructions Limited has entered into a big contract at an agreed price of Rs.
1,50,00,000 subject to an escalation clause for material and labour as spent out on the
contract and corresponding actual are as follows :

Standard Actual
Material : Quantity Rate per Ton Quantity Rate per Ton
(Tons) (Rs.) (Tons) (Rs.)
A 3,000 1,000 3,400 1,100
B 2,400 800 2,300 700
C 500 4,000 600 3,900
D 100 30,000 90 31,500
Labour : Hours Hourly Rate Hours Hourly Rate
L1 60,000 15 56,000 18
L2 40,000 30 38,000 35

You are required to:

(i) Analyse admissible escalation claim and DETERMINE the final contract price
payable.
(ii) PREPARE the contract account, if the all expenses other than material and
labour related to the contract are Rs. 13,45,000.

QUESTION No : 3 (5 MARKS)

In a machine department of a factory there are five identical machines. From the particulars
given below; prepare the machine hour rate for one of the machines.

Space of the department 10,000 sq.mts.

Space occupied by the machine 2,000 sq.mts.
Cost of the machine (Rs.) 20,000
Scrap value of the machine (Rs.) 300
Estimated life of the machine 13 years
Depreciation charged at 7 ½ % p.a
Normal running of the machine 2,000 hours
Power consumed by the machine as shown by the meter 3,000 p.a
Estimated repairs and maintenance throughout the
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 working life of the machine (Rs.) 5,200
Sundry supplies including oil, waste etc. charged direct to the machine amount to Rs. 600
p.a.
Other expenses of the department are : Rs.
Rent and Rates 9,000
Lighting (to be apportioned according to workers employed) 400
Supervision 1,250
Other charges 5,000
It is ascertained that the degree of supervision required by the machine is 2/5th and 3/5th
being devoted to other machines.
There are 16 workers in the department of whom 4 attended to the machine and the
remaining to the other machines.

QUESTION No : 4 (5 MARKS)

In a manufacturing unit, overhead was recovered at a predetermined rate of Rs.25 per man-
day. The total factory overhead incurred and the man-days actually worked were
Rs.41,50,000 and 1,50,000 respectively.

Out of the 40,000 units produced during a period 30,000 units were sold. There were also
30,000 uncompleted units which may be reckoned at 66.67% complete.
On analysing the reasons, it was found that 40% of the unabsorbed overheads were due to
defective planning and the rest were attributable to increase overhead costs.
How would unabsorbed overhead be treated in Cost Accounts?

QUESTION No : 5 (5 MARKS)

Aditya Brothers supplies surgical gloves to nursing homes and polyclinics in the city. These
surgical gloves are sold in pack of 10 pairs at price of Rs. 250 per pack.

For the month of April 2018, it has been anticipated that a demand for 60,000 packs of
surgical gloves will arise. Aditya Brothers purchases these gloves from the manufacturer at
Rs. 228 per pack within a 4 to 6 days lead time. The ordering and related cost is Rs. 240 per
order. The storage cost is 10% p.a. of average inventory investment.

Required :

(i) CALCULATE the Economic Order Quantity (EOQ)

(ii) CALCULATE the number of orders needed every year.

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 (iii) CALCULATE the total cost of ordering and storage of the surgical gloves.
(iv) DETERMINE when should the next order to be placed. (Assuming that the
company does maintain a safety stock and that the present inventory level is
10,033 packs with a year of 360 working days).

QUESTION No : 6 (5 MARKS)
Calculate the total earnings and effective rate of earnings per hour of three operators
under Rowan System and Halsey System from the following particulars.
The standard time fixed for producing 1 dozen articles is 50 hours. The rate of wages is
Rs.1/- per hour.
The actual time taken by three are as follows:-
A 45 hours
B 40 hours
C 30 hours.

QUESTION No : 7 (10 MARKS)

A product passes through three processes— A, B and C. 10,000 units at a cost of Rs.1.10
were issued to Process A. The other direct expenses were as follows:

PROCESS – A PROCESS –B PROCESS-C

Sundry materials 1,500 1,500 1,500
Direct labour 4,500 8,000 6,500
Direct expenses 1,000 1,000 1,503

The wastage of process ‘A’ was 5% and in process ‘B’ 4%

The wastage of process ‘A’ was sold at Rs.0.25 per unit and that of ‘B’ at Rs. 0.50 per unit
and that of C at Rs. 1.00.
The overhead charges were 160% of direct labour. The final product was sold at Rs.10 per
unit fetching a profit of 20% on sales. Find out the percentage of wastage in Process ‘C’

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