NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Cost & Management Accounting
Internal Assignment Applicable for April 2023 Examination

Ques 1. X Ltd. made sales of ₹1,00,000 during a certain period. The net profit
for the same period was ₹10,000 and the fixed overheads were ₹15,000. Find
out:
a) Profit volume (P/V) ratio;
b) Break-even point (B/E) sales;
c) Volume of sales to earn a profit of ₹15,000;
d) Net profit from the sales of ₹1,50,000.

Sol :Given ,Sales = Rs 100000,

Profit = Rs 10000,
Fixed cost = Rs 15000
a) P/V ratio = Contribution/ Sales. It is used to measure the profitability of the
company. Contribution is the excess of sales over variable cost. So basically P/V
ratio is used to measure the level of contribution made at different volumes of sales
P/V Ratio is calculated as:
P/V Ratio = contribution / sales × 100
Contribution = fixed cost + profit
= 15000 + 10000
= Rs 25000

P/V Ratio = 25000 / 100000 × 100

= 25%

b) Break even point (BEP) sales: A business’s break-even point is the stage at
which revenues equal costs. Once you determine that number, you should take a
hard look at all your costs — from rent to labour to materials — as well as your
pricing structure.
BEP is calculated as:
BEP (Rs) = Fixed cost / Pv Ratio
= 15000 / 25%
= Rs 60000

c) Number of units to be sold to earn a profit to Rs. 15000.

Required sales (in units) = fixed cost + Desired profit / contribution per unit
= 15000 + 15000/25000
= 1.2 units
Required sales (Rs) = Fixed cost + Desired profit/ P/V Ratio
= 15000 + 15000/ 25%
= ₹ 120000

d) Net profit from the Sales of Rs 150000.

Required Sales (Rs) = Fixed cost + Desired profit/ PV Ratio
150000 = 15000 + Desired profit/0.25
150000 × 0.25 = 15000 + Desired profit
37500 = 15000 + Desired profit
Desired profit = 37500 — 15000
= Rs 22500

Ques 2. Describe the various steps involved in adopting standard costing

system in an organization.

Sol:Steps involved in adopting standard costing system in an organization are:-

1. Establishment of Cost Centers:

A cost center is a location, person or item of equipment (or a group of these) for
which costs may be ascertained and used for the purpose of cost control. The cost
center may be classified into a personal cost center, which relates to persons, or
impersonal cost center, which relates to equipment or location. Cost centers are set
up for cost ascertainment and cost control.
A cost center is a department or function within an organization that does not directly
add to profit but still costs the organization money to operate. Cost centers only
contribute to a company's profitability indirectly, unlike a profit center, which
contributes to profitability directly through its actions. Managers of cost centers, such
as human resources and accounting departments are responsible for keeping their
costs in line or below budget.
The main function of a cost center is to track expenses. A cost center manager is
only responsible for keeping costs in line with the budget and does not bear any
responsibility regarding revenue or investment decisions.

2. Classification and Codification of Accounts:

In any organisation, the main unit of classification is the major head which is further
divided into minor heads. Each minor head may have number of sub-heads. After
classification of accounts into various groups namely, major, minor and sub-heads
and allotting codes to each account these are programmed into the computer
system.
A proper codification requires a systematic grouping of accounts. The major groups
or heads could be Assets, Liabilities, Revenues and Expenses. The sub- groups or
minor heads could be capital, non-current liabilities, current assets, sales and so on.
Classifications of different accounts embodied in a transaction are resorted through
accounting equation.
Assets = Liabilities + Capital + (Revenues – Expenses)

3. Determination of Type of Standard:

Standard in simple words is a measure of what is expected to take place under the
current or anticipated circumstances. Another way of defining standard is that it is
something that is predetermined or planned and management wishes that actual
results equate to standards.

Standards are one of important quantitative tools in the hand of management to

control and measure performance of business operations. However it heavily
depends on the type of standards used to decide about the control actions and to
measure the performance.
Following are different types of standards:
1.Basic standards
2.Normal standards
3.Current standards
4.Attainable standards
5.Ideal standards

4.Setting of Standards:
Standard setting is defined as the identification of certain points on a mark scale with
particular performance standards, with the intention of enhancing the inferences that
are warranted from the test scores. It is argued that the selection of both the points
on the mark‐scales and the performance standards with which they are equated are
arbitrary and are driven by a set of values.
The validation of standards must therefore include consideration of their
consequences as well as their meanings. It is then argued that standards, where
they exist, cannot be accounted for purely in terms of norm ‐referenced or criterion ‐
referenced interpretations, but exist rather by virtue of a shared construct in a
community of practice.

Ques 3. a. Explain integrated accounting system and state its advantages.

Sol: Integrated accounting allows you to bring together your business systems so
that they work together to improve the flow of information and reduce your
operational costs. The benefits of an integrated accounting system can add up to a
radical transformation of your finance function.
Integrated accounting allows you to connect all of your business systems so that
they work together seamlessly. In the past, businesses used separate tools for
separate purposes… accounting, invoicing, sales, customer management, and so
on. Managing all of these different data streams and ensuring consistency across
reports was resource-intensive, often inaccurate, and frustrating.

Following are the advantages of the Integrated accounts:

Avoids duplication of work
As it combines statements, a single entry for one transaction is passed. Thus, there
is no requirement to record transactions at multiple places. Consequently, it helps in
avoiding duplication of work.
No reconciliation required
There is no need for Reconciliation as we get only one profit and loss figure in the
set of accounts.
Accuracy
The data and information recorded are more accurate. This is because it considers
two essential aspects of accounting.
Centralization of Accounts
The centralization of accounts occurs as accounts of two departments are prepared
by one.
Improved coordination
It facilitates coordination among the cost and finance departments.
Economical
Instead of multiple ledgers, we need to maintain only one set of books, saving time
and money.
Cumulative Knowledge
A combination of cost and financial knowledge results in better output.

Ques 3 b) M/s ABC Private Limited allotted a standard time of 40 hours for a
job and the rate per hour is ₹75. The actual time taken by a worker is 30 hours.
You are required to calculate the total earnings under either of the following
plans:
(i) Halsey Premium Plan (Rate 50%)
(ii) (ii) Rowan Plan.

Sol : b (i) Halsey Premium plan : In Halsey plan, the time wages are guaranteed
even if the output of a worker is below the standard. In case, the worker completes
the works in less than the standard time, then he/she will be paid according to the
actual time, i.e. time-rate plus the bonus calculated at a specified percentage of the
saved time.
Halsey Premium plan is calculated as :
= (Time takenxRate per hour) + (1/2xTime saved xRate per hour)
= (30hoursxRs.75) + (1/2x30hoursxRs.75)
=2250+375=2,625
(ii) Rowan Premium Plan: This plan was introduced by James Rowan. Under this
method, the standard time and the standard rate of wage Payment are determined in
the same manner as Halsey Plan. The workers, who complete their work within
standard time, are paid the wages at standard rate.
Rowan Premium plan is calculated as :

=(Time takenxRate per hour) +Time saved/Timeallowed(Time takenxRate per hour)

=(30hoursx75) + 10/40x30x75)
=2250+562.5=2,812.50