1657992360911cost Accounting Solved Papers 2013 To 2019 Ebook

1 COST ACCOUNTING SOLVED QUESTION PAPERS ( 2013 TO 2019)
Cost Accounting May’ 2013 (Semester Exam)

1. (a) Choose the correct answer:
a) Variable cost per unit remains same/increases/decreases due to increase in production.
b) Under the ABC analysis of material control, A stands for low value/moderate value/high value items.
c) Idle time represents the time for which the employers the time for which the employer makes payment
and gains something in terms of production/makes payment but does not gain anything in terms of production.
(b) fill in the blanks:
a) Fixed overhead cost is a Committed/Period cost.
b) Prime cost incurred due to any abnormality is debited to Abnormal Loss Account.
c) In process costing the output of the each process is the Input of the next process.
(c) Write true or false:
a) Most of the items of costs are direct in contract costing. True
b) High wages of cost not necessarily mean high cost per unit. True
2. Answer the following:

a) Distinguish between cost accounting and financial accounting.
Ans: DISTINGUISH BETWEEN FINANCIAL AND COST ACCOUNTING
Basis Financial Accounting Cost Accounting
1. Nature Financial accounts are maintained on the basis of Cost accounts lay emphasis on both historical
historical records. and predetermined costs.
2. Use Financial Accounting is used even by outside Cost Accounting is used only the management
entities. of the concern.
3. System Financial Accounting uses the double-entry Cost Accounting does not use the double-
system for recording financial data. entry for collecting cost data.
4. Scope Financial Accounting covers all items of income Cost Accounting covers all items related to a
and expenditure whether related to the cost cost centre.
centers or not,
5. Reports Financial Accounting results are shown P&L A/c Cost Accounting results are shown in Cost
and balance sheet. Sheet/ Coating Profit & Loss A/c/ Reports
Contract A/c/ Process A/c.
b) What do you mean by perpetual inventory system?
Ans: Perpetual Inventory System: Perpetual Inventory system means continuous stock taking. CIMA defines perpetual
inventory system as ‘the recording as they occur of receipts, issues and the resulting balances of individual items of stock
in either quantity or quantity and value’. Under this system, a continuous record of receipt and issue of materials is
maintained by the stores department and the information about the stock of materials is always available. Entries in the
Bin Card and the Stores Ledger are made after every receipt and issue and the balance is reconciled on regular basis with
the physical stock. The main advantage of this system is that it avoids disruptions in the production caused by periodic
stock taking. Similarly it helps in having a detailed and more reliable check on the stocks. The stock records are more
reliable and stock discrepancies are investigated and appropriate action is taken immediately.
Salient features of perpetual inventory system
a) It requires more efforts to maintain inventory under this method.
b) Quantity balances shown by the store ledger and bin cards are reconciled.
c) A number of items are physically checked systematically and by rotation.
d) The method is comparatively costly as compared to periodical inventory system.
e) Store ledger and bin cards keeps inventory record up-to date and decent.
c) Define labour turnover. Explain the causes of labour turnover.
Ans: Meaning: Labour turnover may be defined as change in labour force i.e., percentage change in the labour force
during a specific period. High labour turnover indicates that labour is not stabilised and there are frequent changes by
way of workers leaving the organization. High labour turnover is to be avoided. At the same time very low labour
turnover indicates inefficient workers are being retained in the organization.
Causes of Labour turnover: The causes for labour turnover can be broadly classified under three heads.
(1) Personal Causes
(2) Unavoidable Causes
(3) Avoidable Causes
i) Personal Causes: Some of the employees may leave the organization on account of personal reasons as given
below:
(a) Circumstances of family.
(b) Retirement on reaching the prescribed age.
(c) Change in material status in case of women employees.
(d) Dislike for the job or place;
(e) Death of the employee.
(f) Employee getting recruited in a better job.
(g) Permanent disability due to accidents.
(h) Involvement of employee in activities of moral turpitude.
ii) Unavoidable Causes: In certain instances the organization may discharge the employees due to unavoidable
reasons as mentioned below:
(a) Termination of workers on account of insubordination or inefficiency
(b) Discharge of workers on account of irregularity or long absence.
(c) Retrenchment of workers by the company on account of shortage of work.
iii) Avoidable Causes: Some of the employees may leave the organization account of the following reasons:
(a) Non availability of promotion opportunities
(b) Dissatisfaction with incentive schemes
(c) Unhappy with remuneration
(d) Unsuitable to job due to wrong placement
(e) Unhappy with working conditions
(f) Non availability of accommodation, health and recreational facilities
(g) Lack of stability of Tenure.
d) Distinguish between ABC and VED analysis.
Ans: Difference between ABC analysis, Perpectual Inventory system and VED analysis
ABC analysis Perpectual Inventory System VED analysis
Its main objective is to reduce the Its main objective is physical Its main objective is to prevent
investment in material. verification of all items. stoppage of production due to
shortage of essential material.
In this system, stocks are classified There is no classification of stock. The analysis classifies items on the
on the basis of value. basis of their criticality for the industry
or company – vital, essential and
desirable.
It will not pay equal attention to all Equal attention is given to all types More attention is given to essential
types of inventory. of inventory. inventory.
ABC analysis is applicable when there This system is applicable whether or VED analysis is specially applied in the
is small variety of stock. not stocks are of large varieties or case when there is a large variety of
small varieties. stocks such as spare parts inventory,
medical stores etc.
Store ledger and bin card is not Store ledger and bin card is Store ledger and bin card is not
prepared in this analysis. prepared in this system. prepared in this analysis.
3. Following extract of costing information relates to a commodity for the year ended 31 st March, 2012:
Stock on 1st April, 2011: Raw materials 5000

Finished product (1000 tones) 4000
st
Stock on 31 March, 2012: Raw materials 5560
Finished product (2000 tons) 8000
Raw materials purchased 30000
Direct wages 25000
Rent, Rates and Taxes 1000
Carriage inwards 360
st
Work in progress on 1 April, 2011 1200
Work in progress on31st April, 2012 4000
Cost of factory supervision 2000
Sales of finished goods 75000
Advertisement and selling expenses amounts of 0.25 paise per ton sold. 16000 tones were produced during the year.
Prepare a statement showing:
a) The value of raw material used;
b) The cost of production;
c) The cost of turnover for the year;
d) The net profit for the year and net profit per ton.
Ans:
Statement of Cost or Cost sheet
PARTICULARS Units Amount
Opening Stock of Raw material 5,000
Add: Purchase of Raw material 30,000
Add: Carriage inward 360
Less: Closing Stock of Raw material 5,560
(a) Raw Material consumed during the year 29,800
Add: Direct wages 25,000
Prime Cost 54,800
Add: Work’s overheads:
Cost of factory supervision 2,000
Work’s Cost incurred 56,800
Add: Opening stock of work-in-progress 1,200
Less: Closing stock of work-in-progress 4,000
Work’s cost / factory cost 54,000
Add: Office and administrative overhead:
Rent, Rates and taxes 1,000
(b) Cost of Production 16,000 55,000
Add: Opening Stock of finished goods 1,000 4,000
Less: Closing Stock of finished goods 2,000 8,000
(c) Cost of goods Sold 15,000 51,000
Add: Selling and Distributive overheads (0.25*15,000) 3,750
Total cost of sales 15,000 54,750
(d) Add: Profit for the year 20,250
Sales 15,000 75,000
Profit per ton = 20250/15000 = 1.35
Or
(b) Describe the various methods of pricing materials issued and point out their advantages and disadvantages.
Ans: METHODS OF PRICING OF MATERIAL
A number of methods are used for pricing material issues. Each method has its own advantages and
disadvantages. As such, it is impossible to say which method is the best. Each organisation should choose a particular
method best suited to it. While choosing a method, it is necessary to see that the method chosen is simple, effective and
realistic. At the same time, it is equally necessary to consider the effect of the method on production cost and inventory
valuation. The following are the different methods of pricing the material issues:
First In First Out Method (FIFO)
According to this method the units first entering the process are completed first. Thus the units completed
during a period would consist partly of the units which were incomplete at the beginning of the period and partly of the
units introduced during the period. The cost of completed units is affected by the value of the opening inventory, which
is based on the cost of the previous period. The closing inventory of work-in-process is valued at its current cost.
Advantages:
a. This method is simple to understand and easy to operate.
b. The closing stock is valued at the current market price.
c. Since issues are priced at cost, no profit or loss arises from pricing.
d. This method is more suitable in times of falling prices.
e. Deterioration and obsolescence can be avoided.
Disadvantages:
a. When prices fluctuate, calculation becomes complicated. This increases the possibility of clerical errors.
b. During the period of price fluctuations, material charged to jobs vary. Therefore, comparison between jobs is
difficult.
c. During the period of rising prices, product costs are under stated and profits are overstated. This may result in
payment of higher dividend out of capital.
Last In First Out Method (LIFO)
According to this method units last entering the process are to be completed first. The completed units will be
shown at their current cost and the closing-work in process will continue to appear at the cost of the opening inventory
of work-in-progress along with current cost of work in progress if any.
Advantages:
a. Issues are based on actual cost.
b. Issue price reflects current market price.
c. Product cost will be based on current market price and hence will be more realistic.
d. There is no unrealized profit or loss.
e. Simple to operate if purchases are not many and prices are steady or rising.
f. When prices are raising this method is helpful in preparation of quotation or estimates.
Disadvantages:
a. This method involves considerable clerical work.
b. Under felling price, issues are priced at lower prices and stocks are valued at higher rates.
c. Stock of material shown in the balance sheet will not reflect market price.
d. Due to variation in prices, comparison of cost of similar job is difficult.
e. This method is not accepted by the income tax authorities.
Simple Average Method
The simple average is determined by adding different prices of materials in stock and dividing the total by
number of prices. Quantity purchased in each lot is ignored.
Advantages:
b. It reduces clerical work.
c. It is suitable when price are stable.
Disadvantages:
a. It does not take into account the quantities purchased.
b. The value of closing stock becomes unrealistic.
c. Material cost does not represent actual cost price.
d. When prices fluctuate, this method will give incorrect result.

Weighted Average Method:
This is an improvement over the simple average method. This method takes into account both quantity and
price for arriving at the average price. The weighted average is obtained by dividing the total cost of material in the stock
by total quantity of material in the stock.
Advantages:
a. It gives more accurate results than simple average price because it considers both quantity as well as price.
b. It evens out the effect of price fluctuations. All jobs are charged a average price. So, comparison between jobs
is more easy and realistic.
c. It is suitable in the case of materials subject to wide price fluctuations.
d. It is acceptable to income tax authorities.
Disadvantages:
a. Stock on hand does not represent current market price.
b. When large numbers of purchases are made at different rates, the calculation is tedious. So, there are more
chances of clerical error.
c. With some approximation in average price, there will be profit or loss due to over or under charging of
material cost to jobs.
4. (a) From the following information, calculate the total monthly remuneration of each of three workers X, Y and Z:
Standard production per month per worker=1000 units
Actual production during a month X=890 units, Y= 720 units and Z= 960 units
Piecework rate per unit of actual production=20 paise
Dearness wages Rs. 50 per month (fixed)
House rent allowance 20 per month (fixed)
Additional production bonus at the rate of Rs. 5 for each percentage of actual production exceeding 80% of the
standard.
Ans: Calculation of Monthly Remuneration
Particulars X Y Z
(a) Basic Wages =Price Produced x Rate per piece 178 144 192
(890 x 0.20) (720 x 0.20) (960 x 0.20)
(b) Dearness Wages 50 50 50
(c) House Rent Allowance 20 20 20
(d) Additional Production Bonus 45 Nil 80
(9 x 5) (16 x5)
Total monthly remuneration
Working Note:
Particulars X Y Z
Actual Output 890 720 960
Normal Output 1,000 1,000 1,000
% of actual production on normal output 890 720 960

= ×100 = ×100 = ×100
1,000 1 ,000 1 ,000
=89 % =72 % =96 %
=(89 %−80 %) NIL =(96 %−80 %)

Additional Bonus
=9 % =16 %
Or
(b) Discuss the principles of Premium Bonus Plans. Describe salient features of Rowan Plan and Halsey Plans
Ans: The Halsey premium plan: This system is known as fifty fifty plan. It was introduced by F.A. Halsey, an American
engineer. Under this method a standard time is fixed for the performance of each job; worker is paid for actual time
taken at an hourly rate plus 50% of time saved as bonus. Total wages under this scheme is calculated with the help of
the following formula:
Earnings = Time taken x Rate per hour + 50% (Time saved x Rate per hour)
Features of Halsey Premium Scheme: Under this plan,
a) 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.
b) Standard time and standard work are fixed for the job or operation in advance;
c) The workers producing more than the standard, or the workers completing the work in less than the
standard time fixed, get bonus in addition to the ordinary time wage.
d) The bonus or the premium, by whatever name called, is 30 to 70 percent of the wages of time saved, the
usual percentage being 50%,
e) Workers who fail to reach the prescribed standard get the time wages.
f) Labour cost per unit of output decreases. The employer also shares the benefit of efficiency which induced
him to improve the method and equipment.
Rowan System or Rowan Plan: The scheme was introduced in 1901 by David Rowan of Glasgow, England. The
wages are calculated on the basis of hours worked where as the ‘bonus is that proportion of the wages of time taken
which the time saved bears to the standard time allowed’. Total wages under this scheme is calculated with the help of
Earnings = Time taken x Rate per hour + Time saved / Standard time (Time taken x Rate per hour)
The main features of Rowan plan are:
a) Time rate is guaranteed and the worker gets the guaranteed irrespective of whether he completes the job
b) Standard time and standard work are fixed for the job or operation in advance;
c) The workers producing more than the standard, or the workers completing the work in less than the
d) Bonus is based on that proportion of the time wages which the time saved bears to the standard time.
e) Workers who fail to reach the prescribed standard get the time wages.
f) Labour cost per unit of output decreases. The employer also shares the benefit of efficiency which induced
g) Wages per hour increases but in the same proportion as the output.
5. (a) Compute machine hour rate of a machine in a shop consisting of 3 machines occupying equal floor space.
Following detail are supplied for the machine of which estimated working hours per year are fixed at 2500 hours in
which normal idle time is estimated at 20% of the standard time:
Rent and taxes of the shop per annum 3600
Electricity for the shop per month 200
Repairs and maintenance expenses for the machine per annum 600
Rate of power changes for 100 units(the machine consuming 10 units per hour) 3
Forman’s salary for supervising all three machines, per month 750
Indirect labour cost Rs. 2 per hour for the machine The machine cost Rs.130000 and scraps value is estimated at
Rs. 10000 and estimated life is 10 years. The foreman devotes equal attention for each machine in the shop.
Calculation of Machine Hour Rate
Particulars Per annum Per hour
Standing Charges:
Rent (3,600 /3) 1,200
Electricity (200 x 12/3) 800
Foreman’s Salary (750 x 12/3) 3,000

For 2,000 hours 5,000 2.50
Running Expenses:
Depreciation
(10×2
1 ,30 , 000−10 , 000
,000 ) 6.00
(
600
R/M 2 , 000
) 0.30
Power (10*3/100)
0.30
Machine hour rate 9.10
Indirect Labour cost (Operator’s wages) 2
Comprehensive Machine hour rate 11.10
Normal working hours = 2,500 – 20% = 2,000
Or
(b) What do you mean by overhead cost? Explain the various classification of overhead cost and its bases of
apportionment.
Ans: Overheads - Meaning
Cost related to a cost center or cost unit may be divided into two i.e. Direct and Indirect cost. The Indirect cost is
the overhead cost and is the total of indirect material cost, indirect labour cost, indirect expenses. These indirect costs
are called as ‘Overhead’ costs. According to CIMA, overhead costs are defined as, ‘ the total cost of indirect materials,
indirect labor and indirect expenses.’ Thus all indirect costs like indirect materials, indirect labor, and indirect expenses
are called as ‘overheads’. Examples of overhead expenses are rent, taxes, depreciation, maintenance, repairs,
supervision, selling and distribution expenses, marketing expenses, factory lighting, printing stationery etc. In
subsequent paragraphs, we will be discussing various aspects of overhead accounting.
Classification of Overheads: Classification is defined by CIMA as, ‘the arrangement of items in logical groups
having regard to their nature or the purpose to be fulfilled. In other words, classification is the process of arranging
items into groups according to their degree of similarity. Accurate classification of all items is actually a prerequisite to
any form of cost analysis and control system. Classification is made according to following basis.
(a) Classification according to Elements: According to this classification overheads are divided according to
their elements. The classification is done as per the following details.
1. Indirect Materials: Materials which cannot be identified with the given product unit of cost center is called
as indirect materials. For example, lubricants used in a machine is an indirect material, similarly thread used to stitch
clothes is also indirect material. Small nuts and bolts are also examples of indirect materials.
2. Indirect Labour: Wages and salaries paid to indirect workers, i.e. workers who are not directly engaged on
the production are examples of indirect wages.
3. Indirect Expense: Expenses such as rent and taxes, printing and stationery, power, insurance, electricity,
marketing and selling expenses etc are the examples of indirect expenses.
(b) Functional Classification: Overheads can also be classified according to their functions. This classification is
done as given below.
1. Manufacturing Overheads: Indirect expenses incurred for manufacturing are called as manufacturing
overheads. For example, factory power, works manager’s salary, factory insurance, depreciation of factory machinery
and other fixed assets, indirect materials used in production etc. It should be noted that such expenditure is incurred for
manufacturing but cannot be identified with the product units.
2. Administrative Overheads: Indirect expenses incurred for running the administration are known as
Administrative Overheads. Examples of such overheads are, office salaries, printing and stationery, office telephone,
office rent, electricity used in the office, salaries of administrative staff etc.
3. Selling and Distribution Overheads: Overheads incurred for getting orders from consumers are called as
selling overheads. On the other hand, overheads incurred for execution of order are called as distribution overheads.
Examples of selling overheads are, sales promotion expenses, marketing expenses, salesmen’s salaries and commission,
advertising expenses etc. Examples of distribution overheads are warehouse charges, transportation of outgoing goods,
packing, commission of middlemen etc.
4. Research and Development Overheads: In the modern days, firms spend heavily on research and
development. Expenses incurred on research and development are known as Research and Development overheads.
(c) Classification according to Behavior: According to this classification, overheads are classified as fixed,
variable and semi-variable. These concepts are discussed below.
1. Fixed Overheads: Fixed overheads are commonly described as those that do not vary in total amount with
increase or decrease in production volume, for a given period of time, may be a year. Salaries, depreciation of fixed
assets, property taxes, are some of the examples of fixed costs. Total fixed costs remain same irrespective of changes in
volume of production but per unit of fixed cost is variable. It increases if production decreases while if production
increases, it decreases.
2. Variable Overheads: Variable overheads are those which go on increasing if production volume increases
and go on decreasing if the volume decreases. Such increase or decrease may or may not be in the same proportion.
Variable overheads are generally considered to be controllable as they are directly connected with the production.
3. Semi-variable Overheads: These types of overheads remain constant over a relatively short range of
variation in output and then are abruptly changed to a new level. In other words, they remain same up to a certain level
of output and after crossing that level, they start increasing. For example, supervisor’s salary is treated as fixed but if a
decision is taken to operate a second shift, additional supervisor may have to be appointed which results into increase in
the salary of the supervisor. This indicates that it is a semi-variable overheads. Similarly, maintenance expenditure, fire
insurance are also semi-variable overheads.
Apportionment of Overhead Expenses: Cost apportionment is the allotment of proportions of items to cost
centres or cost units on an equitable basis. The term refers to the allotment of expenses which cannot identify wholly
with a particular department. Such expenses require division and apportionment over two or more cost centres or units.
So cost apportionment will arise in case of expenses common to more than one cost centre or unit. It is defined as the
allotment to two or more cost centres of proportions of the common items of cost on the estimated basis of benefit
received. Common items of overheads are rent and rates, depreciation, repairs and maintenance, lighting, works
manager’s salary etc.
Bases of Apportionment: Suitable bases have to be found out for apportioning the items of overhead cost to
production and service departments and then for reapportionment of service departments costs to other service and
production departments. The basis adopted should be such by which the expenses being apportioned must be
measurable by the basis adopted and there must be proper correlation between the expenses and the basis. Therefore,
the common expenses have to be apportioned or distributed over the departments on some equitable basis. The
process of distribution is usually known as ‘Primary Distribution’.
Following are the main bases of overhead apportionment utilised in manufacturing concerns:
(i) Direct Allocation: Overheads are directly allocated to various departments on the basis of expenses for each
department respectively. Examples are: overtime premium of workers engaged in a particular department, power (when
separate meters are available), jobbing repairs etc.
(ii) Direct Labour/Machine Hours: Under this basis, the overhead expenses are distributed to various
departments in the ratio of total number of labour or machine hours worked in each department.
(iii) Value of Materials Passing through Cost Centres: This basis is adopted for expenses associated with material
such as material handling expenses.
(iv) Direct Wages: This method is used only for those items of expenses which are booked with the amounts of
wages, e.g., workers’ insurance, their contribution to provident fund, workers’ compensation etc.
(v) Number of Workers: This method is used for the apportionment of certain expenses as welfare and
recreation expenses, medical expenses, time keeping, supervision etc.
(vi) Floor Area of Departments: This basis is adopted for the apportionment of certain expenses like lighting and
heating, rent, rates, taxes, maintenance on building, air conditioning, fire precaution services etc.
(vii) Capital Values: In this method, the capital values of certain assets like machinery and building are used as
basis for the apportionment of certain expenses e.g. rates, taxes, depreciation, maintenance, insurance charges of the
building etc.
(viii) Light Points: This is used for apportioning lighting expenses.
(ix) Kilowatt Hours: This basis is used for the apportionment of power expenses.
(x) Technical Estimates: This basis of apportionment is used for the apportionment of those expenses for which
it is difficult, to find out any other basis of apportionment. This is used for distributing lighting, electric power, works
manager’s salary, internal transport, steam, water charges etc. when these are used for processes.
6. (a) A product process through processes A, B and C. The normal wastage of each process is as followings:
Process A=5%, Process B=6% and Process C=10%. Wastage of process A was sold at Rs. 2 per unit, that of process B at
Rs. 5 per unit and that of process C at 10 per unit.
1000 units were issued to process A in the beginning of April, 2011 at a cost of Rs. 2 per unit. The other expenses were
as follows:
Process A B (Rs.) C (Rs.)
(Rs.)
Raw materials 2000 3000 1000
Labour 5000 8000 6000
Direct expenses 1550 2946 3738
Actual output(units) 950 910 810
Prepare processes accounts of A, B and C assuming that there were no opening or closing stocks.
Process A A/c
Particulars Units Amount Particulars Units Amount
To Raw Materials 1,000 2,000 By Normal loss 50 100
To Direct Materials - 2,000
To Wages - 5,000 By Process B A/c 950 10,450
To Direct Expenses - 1,550
1,000 10,550 1,000 10,550
Process B A/c
To Process A A/c 950 10,450 By Normal loss 57 285
To Direct Materials - 3,000 (950 x 6%)
To Wages - 8,000
To Direct Expenses - 2,946 By Process C A/c 910 24,570
To Abnormal Gain A/c 17 459
967 24,855 967 24,855
Process C Account
To Process B A/c 910 24,570 By Normal loss 91 910
To Wages - 6,000
To Direct Expenses - 3,738 By Abnormal Loss 9 378
By Finished Stock A/c 810 34,020
910 35,308 910 35,308
Working Note:
(i) Value of abnormal gain (Process B A/c)
24 , 396−285
= ×17
950−57
24 ,111
= ×17=459
893
(ii) Value of abnormal loss (Process C A/c)
35 , 308−910
= ×9
910−91
34 ,398
= ×9=378
819
Or
(b) Explain the following:
a) Value of WIP on an incomplete contract
b) Reconciliation of Cost and Financial Accounts
Ans: 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.
c) Difference between cost audit and financial audit.
Cost Accounting May’ 2014 (Semester Exam)

The figures in the margin indicate full marks for the questions.
1. (a) Fill in the blanks : 1x5=5
(i) LIFO method is suitable in times of rising prices.
(ii) Material control aims at achieving effective material utilisation.
(iii) Cost audit is concerned with the verification and examination of Cost Accounts.
(iv) When actual loss is more than the estimated loss, then the difference is considered to be abnormal loss.
(v) Depreciation is an indirect expenses in cost.
(a) Select the appropriate answer for each of the following questions : 1x3=3
(i) Which of the following is not a method of costing?
(1) Contract Costing
(2) Operating Costing

(3) Batch Costing
(4) Marginal Costing
(ii) Specify the method of costing suitable to a toy-making unit
(1) Process Costing
(2) Operating Costing
(3) Batch Costing
(4) Multiple Operating Costing
(iii) In which of the following contracts Contract Costing is applied as a specialized system of Job Costing?
(1) Short-term contract
(2) Long-term contract
(3) Medium-term contract
(4) Continuous processes
2. Write short notes on (any four) : 4x4=16
(a) ABC analysis: In this technique, the items of inventory are classified according to the value of usage. Materials are
classified as A, B and C according to their value.
Items in class ‘A’ constitute the most important class of inventories so far as the proportion in the total value of
inventory is concerned. The ‘A’ items constitute roughly about 5-10% of the total items while its value may be about
80% of the total value of the inventory.
Items in class ‘B’ constitute intermediate position. These items may be about 20-25% of the total items while the
usage value may be about 15% of the total value.
Items in class ‘C’ are the most negligible in value, about 65-75% of the total quantity but the value may be about
5% of the total usage value of the inventory.
The numbers given above are just indicative, actual numbers may vary from situation to situation. The principle
to be followed is that the high value items should be controlled more carefully while items having small value though
large in numbers can be controlled periodically.
(b) Merit rating: Merit rating aims at evaluating the performance of workers. Main objective of merit rating is to reward
employee on the basis of efficiency and merit. Merit rating brings out the comparative worth of workers. The traits
generally considered for determining merit and worth of workers are as under: 1) Education Qualification and
knowledge 2) Skill and experience 3) Attitude to the work 4) Quality of work done 5) Efficiency 6) Regularity 7) Integrity
8) Reliability 9) Qualities like leadership, initiative, self confidence and sense of judgment 10)Discipline 11)Cooperation
The above traits are allotted with points and total points scored on all traits determine the worth of workers.
The employees may be rated individually as per the pints they score and they may be put in groups based on their
common scores of points.
Importance of Merit rating: Merit is a valuable tool considered to be important for human resource
measurement. Merit rating has the following advantages:
(1) It helps to know the individual worker’s worth and traits; this helps the supervisor to assign the tasks in
which the worker is proficient.
(2) It points out traits in which the workers are not proficient. The workers will have an opportunity to improve
by suitable training.
(3) It helps in increasing wages and promotion opportunities.
(4) It helps to stimulate the self-confidence of workers as it recognizes the merit and worth of workers.
(c)Idle time: Idle time refers to the labour time paid for but not utilized on production. It, in fact, represents the time for
which wages are paid, but during which no output is given out by the workers. This is the period during which workers
remain idle.
Types of Idle Time:
a. Normal idle time is inherent in any job situation and thus it cannot be eliminated or reduced. For example:
time gap between the finishing of one job and the starting of another; time lost due to fatigue etc. The cost of normal
idle time should be charged to the cost of production. This may be done by inflating the labour rate. It may be
transferred to factory overheads for absorption, by adopting a factory overhead absorption rate.
b. Abnormal idle time is defined as the idle time which arises on account of abnormal causes; e.g. strikes;
lockouts; floods; major breakdown of machinery; fire etc. Such an idle time is uncontrollable. The cost of abnormal idle
time due to any reason should be charged to Costing Profit & Loss Account.
Reasons for idle time: According to reasons, idle time can be classified into normal idle time and abnormal idle
time. Normal idle time is the time which cannot be avoided or reduced in the normal course of business.
1. The main reasons for the occurrence of normal idle time are as follows:
2. Time taken by workers to travel the distance between the main gate of factory and the place of their work.
3. Time lost between the finish of one job and starting of next job.
4. Time spent to overcome fatigue.
5. Time spent to meet their personal needs like taking lunch, tea etc.
(d) Time and motion study: The study of time and motion is essential for designing an incentive system. Time study
determines the time to be spent on the job. Standard time is the time that should be taken for completing a particular
job under standard or normal working conditions. For fixation of standard time, motion study is necessary. Thus, the
motion study precedes the time study. Motion study means dividing the job into fundamental elements or basic
operations of the job or process and studying them in detail to eliminate the unnecessary elements or motions. After
investigation all movements in a job, process or operation, the motion study aims at finding out the most scientific and
systematic way of performing the job. After eliminating unnecessary motions, the time that should be taken to perform
these motions is decided with the help of a stop-watch. In the time so fixed, some allowance is added in the same for
normal idle time, which is due to fatigue, change of job, change of tools, preventive maintenance of machines and so on.
Thus standard time for a job or process is arrived at.
(e) Job card: This card is a combined record, which shows both, the time taken for completion of the job as well as the
attendance time. Therefore there is no need to keep separate record of both, time taken and attendance time.
3. (a) Define costing. Discuss the essentials of an Ideal Cost Accounting System. 4+8=12
Ans: Introduction to Cost Accounting
Cost: The term ‘cost’ has to be studied in relation to its purpose and conditions. As per the definition by the
Chartered Institute of Management Accountants (C.I.M.A.), London ‘cost’ is the amount of actual expenditure incurred
on a given thing.
Costing: The C.I.M.A., London has defined costing as the ascertainment of costs. “It refers to the techniques and
processes of ascertaining costs and studies the principles and rules concerning the determination of cost of products and
services”.
Cost Accounting: It is the method of accounting for cost. The process of recording and accounting for all the
elements of cost is called cost accounting. I.C.M.A. has defined cost accounting as follows: “The process of accounting
for cost from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship
with cost centers and cost units. In its widest usage it embraces the preparation of statistical data, the application of cost
control methods and the ascertainment of the profitability of activities carried out or planned”.
Cost Accountancy: The term ‘Cost Accountancy’ includes Costing and Cost accounting. Its purposes are Cost-
control and Profitability – ascertainment. It serves as an essential tool of the management for decision-making.
I.C.M.A., has defined cost accountancy as follows: “The application of costing and cost accounting principles,
methods and techniques to the science, art and practice of cost control and the ascertainment of profitability. It includes
the presentation of information derived there from for the purpose of managerial decision making”.
Characteristics of a Good Costing System
An ideal system of cost accounting must possess some characteristics which bring all the advantages, discussed
above; to the business, in order to be ideal and objective. The main characteristics are:
a) Simplicity: It must be simple, flexible and adaptable to the changing conditions. And it must be easily
understandable to the personnel. The information provided must be in the proper order, in right time and to the right
persons so as to be utilized fully.
b) Flexibility and Adaptability: The costing system must be flexible to accommodate the changing conditions
and circumstances. The expansion, contraction of changes must be adopted in the existing system with minimum
changes.
c) Economy: The costing system must suit the finance available. The expenditure must be less than the benefits
derived from the system adopted.
d) Comparability: The management must be able to make comparison of the facts and figures with the past
figures, figures of other concerns, or other departments of the same concern.
e) Minimum Changes to the Existing one: When introducing a costing system, it may cause minimum change to
the existing set up of the business.
f) Uniformity of Forms: Forms of different colours can be used to distinguish them. Forms must be uniform in
size and quality. Form should contain instructions to fill, to use and for disposal.
g) Less Clerical Work: Printed forms will involve less labour to fill in, as the workers may be a little educated.
They may not like to spend much time in filling the forms.
h) Efficient Material Control and Wage System: There must be a proper procedure for recording the time spent
on different jobs, by workers for the payment of wages. A systematic method of wage system will help in the control of
labour cost. Since the cost of material forms a great proportion to the total cost, there must be an efficient system of
stores control.
i) A Sound Plan: There must be proper and sound plans to collect, to allocate and to apportion overhead
expenses on each job or each product in order to find out the cost accurately.
j) Reconciliation: The systems of costing and financial accounting must be facilitated to reconcile in the easiest
manner.
k) Overall Efficiency of Cost Accountant: The work of the cost accountant under a good system of costing must
be clearly defined as to his duties and responsibilities to the firm are very essential.
Or
(b) Following details relate to ATEACO Ltd. for the year ending 31.03.2013:
01.04.2012 31.03.2013
Units Rs. Units Rs.
Stock of Raw Materials 1000 12,000 800 10,000
Work-in-progress 800 16,000 1000 20,000
Stock of Finished Goods 6000 - 10000 -
Expenses during the year in Rs.
Direct Wages 6,00,000
Purchase of Raw Materials (97000 units) 11,14,000
Other Materials 36,000
Carriage Inward 5,640
Carriage Outward 3,000
Wages to Foremen 48,000
R & D Expenses 30,000
Other Wages 6,000
Manager’s Salary 72,000
Employee’s State Insurance 6,000
Power and Fuel 54,000
Office Expenses 36,000
Printing and Stationery 12,000

Counting House Salary 12,000
Sales of Scraps 1,640
Income Tax 22,000
Donation to Charity 5,000
Selling and Distribution expenses Rs. 1 per unit. Units manufactured during the year are 96000. Finished stock is valued
at current cost. Prepare Cost Sheet showing the following:
a) Materials consumed
b) Prime cost
c) Factory cost
d) Cost of production
e) Cost of goods sold
f) Total cost of sales
Ans:
Cost Sheet of ATEACO Ltd.
PARTICULARS UNIT AMOUNT
Opening Stock of Raw material 1,000 12,000
Add: Purchase of Raw material 97,000 11,14,000
Add: Carriage inward 5,640
Less: Closing Stock of Raw material 800 10,000
(a) Raw Material consumed during the year 97,200 11,21,640
Add: Direct wages 6,00,000
(b) Prime Cost 17,21,640
Add: Work’s overheads:
Other material 36,000
Wages to foremen 48,000
Other wages 6,000
Power and fuel 54,000
Less: Sale of Scraps (1,000) (1,640)
Work’s Cost incurred 18,64,000
Add: Opening stock of work-in-progress 800 16,000
Less: Closing stock of work-in-progress 1,000 20,000
(c) Work’s cost / factory cost 18,60,000
Add: Office and administrative overhead:
R & D Expenses 30,000
Manager’s salary 72,000
Employees State Insurance 6,000
Office expenses 36,000
Printing & stationery 12,000
Counting House Salary 12,000
(d) Cost of Production 96,000 20,28,000
Add: Opening Stock of finished goods (20,28,000/96,000*6,000) 6,000 1,26,750
Less: Closing Stock of finished goods (20,28,000/96,000*10,000) 10,000 2,11,250
(e) Cost of goods Sold 92,000 19,43,500
Add: Selling and Distributive overheads - 96,000
(f) Total cost of sales 92,000 20,39,500
4. (a) Sunshine Electronics manufactures picture tube for TV. Details of their operation during the year are given
below:
Average monthly market demand – 2000 tubes
Ordering cost – Rs. 100 per order
Inventory carrying cost – 20% per annum
Cost of tubes – Rs. 500 per tube

Normal usage – 100 tubes per week
Minimum usage – 50 tubes per week
Maximum usage – 200 tubes per week
Lead time to supply – 6 to 8 weeks.
(i) Compute economic order quantity. If the supplier is willing to supply quarterly 1500 units at a discount of 5%,
is it worth accepting. 5
(ii) Compute the following : 2x3=6
(1) Maximum level of stock
(2) Minimum level of stock
(3) Reorder level
Ans: Annual usage of tubes (C0) = Normal usage per week x 52 weeks
= 100 tube x 52 weeks
= 5,200 tubes
Ordering cost per order (o) = Rs. 100
Inventory carrying cost per unit p.a. = 20% of Rs. 500 = Rs. 100
EOQ=
√ √
2C0 O
CC
=
2×5 , 200 units×Rs . 100
Rs . 100
=102 units (approx)
Evaluation of order size of 1,500 units at 5% discount:

5 , 200 units
= =3. 46 or 4 (incase of a fraction, the next whole number is considered )
1 , 500 units
No. of orders
Calculation of Total material cost if 4 orders are made:

Particulars Rs.
Ordering Cost: 4 orders per year @ Rs. 100 per order 400
Carrying Cost of average inventory:
15 , 000 20 71,250
×(500 less 5%)×
2 100
Total annual cost (Excluding item cost) 71,650
Calculation of Total material cost if optimum quantity is ordered:

Rs.
Annual Cost if EOQ (102 units) is adopted:
5 ,200 5,100
Ordering Cost: 102 or 51 orders per year of Rs. 100 per order
102 units 20
×500× 5,100
Carrying cost of average inventory: 2 100
Total annual cost (Excluding item cost) 10,200

Increase in annual Cost: Rs. (71,650 – 10,200) = Rs. 61,450
Amount of quantity discount: 5% x Rs. 500 x 5,200 units = Rs. 1,30,000

Since, the amount of quantity discount (Rs. 1,30,000) is more than the increase in total cost (Rs. 61,450), it is advisable
to accept the offer. This will result in a saving of Rs. (1,30,000 – 61,450) or Rs. 68,550 p.a. in inventory cost.
(1) Maximum level of Stock:
= Re-order level + Re-order quantity – (Minimum usage x Minimum delivery period)
= 1,600 units + 102 units – (50 units x 6 weeks) = 1,402 units.
(2) Minimum level of Stock:
= Re-order level – (Normal usage x Normal delivery Period) [See Note]
= 1,600 units – (100 units x 7 weeks) = 900 units
Normal delivery period is taken to be the average delivery period.
(3) Re-order level of Stock:
= Maximum usage x Maximum delivery period
= 200 units x 8 weeks = 1,600 units.
Or
(b) What do you mean by material control? Discuss its objectives. 4+7=11
Ans: Inventory or Store Control
Inventory control means to monitor the stock of goods used for production, distribution and captive (self)
consumption. For a specific time period, stocks of goods are placed at some particular location. Stock of goods includes
raw-materials, work in progress, finished goods, packaging, spares, components, consumable items, etc. Inventory
Control means maintaining the inventory at a desired level. The desired-level keeps on fluctuating as per
the demand and supply of goods.
According to Gordon Carson, "Inventory control is the process where by the investment in materials and parts
carried in stocks is regulated, within pre-determined limits set in accordance with the inventory policy established by
the management."
Simply "Inventory control is a method to identify those stocks of goods, which can be used for the production of
finished goods. It shall be supported by a schedule which gives details regarding; opening stock, receipt of raw-materials,
issue of materials, closing stock, and scrap generated."
Objectives of store control: The following are the important objectives of store control
a) to make available the right type of raw material at the right time in order to have smooth and continuous
flow of production;
b) to ensure effective utilization of material;
c) to prevent over stocking of materials and consequent locking up of working capital;
d) to procure appropriate quality of raw materials at reasonable price;
e) to prevent losses during storage of materials;
f) to supply information to the management regarding the cost of materials and the availability of stock;
5. (a) A workman has taken 15 hours in performing a job. The standard hours fixed for the job are 20 hours. He is
paid hourly payment @ Rs. 4. He is allowed to be paid 40% of the time saved. In addition, he also gets a dearness
allowance of Rs. 2 a day of 8 hours. Calculate his total earnings under:
(i) Halsey Premium Plan;
(ii) Rowan Premium Plan; 5½+5½=11
Ans: Time Allowed = 20 hours
Time Taken = 15 hours
Time Saved = 5 hours
(i) Calculation of total earnings under Halsey Premium plan
Total Wages=( TT×rate )+40% (Time Saved×rate )

=(15×4 )+40% (5×4 )
=60+8=68
Add: Dearness Allowance =3 . 75
(
2
8
×15 ) 71.75
(ii) Calculation of Total earnings under Rowan Premium plan

TS
Total Wages=( TT×rate )+ ( TT×rate)
ST
5
=(15×4 )+ (15×4 )
20
5
=60+ ×60=75
20
Add: Dearness Allowance =3 . 75

2
8 (
×15 ) 78.75
Or
(b) What do you mean by labour turnover? What steps should be taken to check the increasing rate of labour
turnover? Discuss. 4+7=11
(1) Personal Causes
below:

Remedial steps to minimize labour turnover: The following steps are useful for minimizing labour turnover:
1. Exit interview: An interview is arranged with each outgoing employee to ascertain the reasons of his leaving
the organization.
2. Job analysis and evaluation: to ascertain the requirement of each job.
3. Organisation should make use of a scientific system of recruitment, placement and promotion for
employees.
4. Organisation should create healthy atmosphere, providing education, medical and housing facilities for
workers.
5. Committee for settling workers grievances.
6. (a) Assam Engineering Works has three production departments A, B, C and one service department S. From the
following particulars, calculate labour hour rate for each of the production departments. Expenses for the period of
12 months :
Particulars Rs.
Rent 36,000
Power 8,250
Indirect Wages 5,200
Depreciation on Machinery 22,000
Electricity 5,600
Canteen Expenses 6,500
Additional information :
A B C S
Light points 7 7 9 5
Floor space (sq. m) 300 250 450 200
Horsepower of Machine (HP) 65 30 30 40
No. of workers 2 3 6 2
Direct wages (in Rs.) 12,000 14,000 18,000 8,000
Cost of machine (in Rs.) 50,000 60,000 80,000 10,000
Working days – 200 days of 8 hours each. Service rendered by service department S to production departments A, B and
C are 30%, 20% and 50% respectively.
Ans: Overheads distribution summary
Production Department
Items of Exp. Amount Basis of A B C Service
Apportionment Department
Direct Wages 8,000 Actual - - - 8,000
Rent 36,000 Floor Space 9,000 7,500 13,500 6,000
(6:5:9:4)
Power 8,250 HP Hour Ratio 3,250 1,500 1,500 2,000
(13:6:6:8)
Depreciation 22,000 Cost of Machine 5,500 6,600 8,800 1,100
(5:6:8:1)
Indirect Wages 5,200 Direct Wages 1,200 1,400 1,800 800
(6:7:9:4)
Canteen Exp. 6,500 No. of Workers 1,000 1,500 3,000 1,000
(2:3:6:2)
Electricity 5,600 Light Points 1,400 1,400 1,800 1,000
(7:7:9:5)
Total 91,550 21,350 19,900 30,400 19,900
Apportionment
of Service dept.
overheads 5,970 3,980 9,950 (19,900)
27,320 23,880 40,350 Nil
Labour Hour 200x8x2=3,200 200x8x3=4,800 200x8x6=9,600
worked
Labour Hour 8.54 4.98 4.20

Rate
Or
(b) Define overhead. How are overheads classified? State four reasons of over-absorption or under-absorption of
overheads. 2+5+4=11
(d) Classification according to Elements: According to this classification overheads are divided according to
(e) Functional Classification: Overheads can also be classified according to their functions. This classification is
(f) Classification according to Behavior: According to this classification, overheads are classified as fixed,
Over or under absorption of overheads meaning:
Overhead expenses are usually applied to production on the basis of predetermined rates. The pre-determined
rate may present estimated or actual cost. The actual overhead cost incurred and overhead applied to the production
will seldom be the same. But due to certain reasons the difference between two may arise.
Over absorptions: If the amount applied exceeds, the actual overhead, it is said to be an over absorption of
overheads.
Under absorption: If the amount applied is short fall of the actual overhead in production it is said to be the
under absorption of overheads. The over or under absorption of overheads may be termed as overhead variance.
Reason of over or under-absorption of overheads: The under or over-absorption of overhead arises due to
following reasons:
a) Errors in estimating overheads.
b) Overhead may change due to change in method of production.
c) The seasonal fluctuation in overhead cost in some industries.
d) Under utilization of available capacity, unexpected change in the volume of out put.
e) Valuation of work in progress in wrong process.
7. (a) From the following particulars, prepare Contract Account for the year ended on 31 st December, 2013: 11
Rs.
Materials sent to site 1,90,000
Wages paid 1,20,000
Wages outstanding 5,500
Direct expenses 60,000

Establishment charges 52,000
Special plant installed at cost 2,00,000
Cost of work not certified 25,000
Value of special plant of 31.12.2013 1,70,000
Materials at site on 31.12.2013 21,000
Total contract price 12,00,000
Cash received 5,94,000
Retention – 10% of work certified Sale of scrap 2,000
General plant costing Rs. 1,20,000 was used for 3 months. Depreciation on that is to be provided at 15 % p.a.
Or
(b) What do you mean by ‘Cost Audit’ and ‘Cost Management’? Discuss the functions of a Cost Auditor. 3+3+5=11
2015 (May)
COMMERCE
(General / Speciality)
Course: 401
Time: 3 hours
(Cost Accounting)
Full Marks: 80
Pass marks: 32
The figures in the margin indicate full marks for the questions
1. (a) Fill in the blanks : 1x5=5
(i) Fixed cost per unit decreases when volume of production increases.
(ii) Prime cost is the combination of direct materials, direct labour and direct expenses.
(iii) Cost of abnormal idle time and overtime is transferred to Costing Profit and Loss Account.
(iv) Depreciation on showroom building is to be treated as Selling and distribution overheads.
(v) In contract costing Escalation clause allows adjustment of the prices of materials or rate of labour, etc.,
when these rises beyond a specified limit.
(b) Choose the correct answer: 1x3=3
(i) Rent of a factory building is a variable cost / fixed cost / semi-variable cost.
(ii) A high labour turnover increase / decreases the cost of production.
(iii) The basis of apportionment for canteen and staff welfare expenses is floor area occupied / number of
workers / wages.
2. Write short notes on (any four) : 4x4=16

(a) Economic Order Quantity (EOQ)
Ans: Economic order quantity (EOQ) is that size of the order which gives maximum economy in purchasing any material
and ultimately contributes towards maintaining the materials at the optimum level and at the minimum cost.
In other words, the economic order quantity (EOQ) is the amount of inventory to be ordered at one time for
purposes of minimizing annual inventory cost.
The quantity to order at a given time must be determined by balancing two factors: (1) the cost of possessing or
carrying materials and (2) the cost of acquiring or ordering materials. Purchasing larger quantities may decrease the unit
cost of acquisition, but this saving may not be more than offset by the cost of carrying materials in stock for a longer
period of time.
The carrying cost of inventory may include:
a) Interest on investment of working capital
b) Property tax and insurance
c) Storage cost, handling cost
d) Deterioration and shrinkage of stocks
e) Obsolescence of stocks.
Formula of Economic Order Quantity (EOQ): The different formulas have been developed for the calculation of
economic order quantity (EOQ). The following formula is usually used for the calculation of EOQ.
A = Demand for the year
Cp = Cost to place a single order
Ch = Cost to hold one unit inventory for a year
Ch√
EOQ = 2∗A∗Cp
(b) LIFO: Last In First Out Method (LIFO)
Advantages:
Disadvantages:
(c) Stock control: Inventory control means to monitor the stock of goods used for production, distribution and captive
(self) consumption. For a specific time period, stocks of goods are placed at some particular location. Stock of goods
includes raw-materials, work in progress, finished goods, packaging, spares, components, consumable items, etc.
Inventory Control means maintaining the inventory at a desired level. The desired-level keeps on fluctuating as per
the management."
(d) Objectives of material control: The following are the important objectives of store control
flow of production;
(e) Reorder level: It is the point at which the storekeeper should initiate purchase requisition for fresh supply. This level
lies between the maximum level and the minimum level. It is calculated by applying the following formula: Maximum
consumption x maximum re-order period. If maximum consumption is not given, then it is calculated as follows: Safety
stock level + normal consumption * normal reorder period.
(f) Bin Card: Bin is a place where materials are kept in. It may be a rack, container, shelf or space where stores are kept.
Bin card is a document showing the particulars of materials kept in the bin. It is a document attached to the bin
disclosing the quantitative details of materials received, issued and the closing balance. A bin card is used for each item
of material. Each receipt and issue is recorded on the bin card in a chronological order and the latest balance is shown
after each receipt and issue. Bin card is maintained by the store keeper. It indicates information like different stock
levels. No, name of material, material code number, stores ledger folio number, quantity of materials received, issued
and the balance in hand.
3. (a) The Assam Company Ltd. Furnishes the summary of Trading and Profit & Loss Account for the year ended
31st December, 2014
Raw Materials Consumed 1,39,600
Direct Wages 76,200
Production Overheads 42,600
Administrative Overheads 39,100
Selling and Distribution Overheads 42,700
Preliminary Expenses Written off 2,200
Goodwill Written off 2,500
Income Tax 4,100
Work-in-Progress :
Materials 28,200
Wages 11,790
Production Overheads 7,900
Sales (1,200 units) 4,80,000
Finished Goods (200 units) 8,000
Interest on Securities 6,000
The company manufactures standard unit. Information from last year’s records shows that –
(i) Factory overheads have been allocated to the production at 20% on prime cost;
(ii) Administrative overheads have been charges at Rs. 3 per unit on the units produced;
(iii) Selling and distribution overheads have been charged at Rs. 4 per unit of units sold.
You are required to prepare a Cost Sheet showing profit or loss as per Cost Accounts. 14
Cost Sheet of Assam Company Limited
For the month of 31st December’ 2014
PARTICULARS UNITS AMOUNT
Raw Materials Consumed 1,39,600
Direct Wages 76,200
Prime Cost 2,15,800
Add: Factory Overheads (20% on prime cost) 43,160
Less: Closing Stock of work-in-progress (28,200+11,790+7,900) 47,890
Work’s Cost 2,11,070
Add: Office and administrative Overheads (Rs. 3 per unit produced) 36,600
Cost of Production 12,200 2,47,670
Less: Closing Stock of finished goods 200 4,060
Cost of goods Sold 12,000 2,42,610
Add: Selling and Distributive Overheads (Rs. 4 per unit sold) 48,000
Cost of Sales 12,000 2,91,610
Profit 1,88,390
Sales 12,000 4,80,000
PRODUCTION = SALES + CLOSING STOCK
Or
(b) Discuss the nature of Cost Accounting and explain different cost concepts. 7+7=14
Ans: Meaning and nature of cost accounting
on a given thing.
services”.
Following are the nature and characteristic of Cost Accounting:
1) Cost accounting views the whole organization from the individual component of the organization like a job, a
process etc.
2) Cost accounting aims at ascertaining the profitability of individual components of the organization.
3) It is meant for those people who are part of the decision making process of the organization. Thus, it is only
for internal use.
4) It is not a legal requirement. It is not compulsory to maintain cost accounting records.
5) In Cost Accounting, data is immediately available which facilitates in decision making process.
6) Cost Accounting considers each and every transaction, whether related to past or future which will have an
impact on the business.
Classification of Cost – Various Cost Concepts
Cost classification is the process of grouping costs according to their common characteristics. It is the placement
of like items together according to their common characteristics. A suitable classification of costs is of vital importance in
order to identify the cost with cost centers or cost units. Costs may be classified according to their nature, i.e. material,
labour and expenses and a number of other characteristics. The important ways of classification are:
a) By Nature or Element or Analytical Classification
According to this classification, the costs are divided into three categories i.e. Materials, Labour and Expenses.
There can be further sub classification of each element; for example, material into raw material components, and spare
parts, consumable stores, packing material etc. This classification is important as it helps to find out the total cost, how
such total cost is constituted and valuation of work in progress.
b) By Functions
According to this classification costs are divided as follows:
Manufacturing and Production Cost: This is the total of costs involved in manufacture, construction and
fabrication of units of production.
Commercial Cost: This is the total of costs incurred in the operation of a business undertaking other than the
cost of manufacturing and production. Commercial cost may further be sub-divided into (a) administrative cost and (b)
selling and distribution cost.
c) As Direct and Indirect
According to this classification, total cost is divided into direct costs and indirect costs.
Direct costs are those which are incurred for and may be conveniently identified with a particular cost centre or
cost unit. Materials used and labour employed are common examples of direct costs.
Indirect costs are those cost which are incurred for the benefit of number of cost centers or cost units and
cannot be conveniently identified with a particular cost centre or cost unit. Examples of indirect cost include rent of
building, management salaries, machinery depreciation etc.
d) By Variability
According to this classification, costs are classified into three groups viz. fixed, variable and semi-variable.
Fixed or period costs are commonly described as those which remain fixed in total amount with increase or
decrease in the volume of output or productive activity for a given period of time. Examples of fixed costs are rent,
insurance of factory building, factory manager’s salary etc.
Variable or product costs are those which vary in total in direct proportion to the volume of output. Examples
are direct material costs, direct labour costs, power, repairs etc. Such costs are known as product costs because they
depend on the quantum of output rather than on time.
Semi-variable costs are those which are partly fixed and partly variable. For example, telephone expenses
included a fixed portion of annual charge plus variable charge according to calls; thus total telephone expenses are semi-
variable. Other examples of such costs are depreciation, repairs and maintenance of building and plant etc.
e) By Controllability
Under this, costs are classified according to whether or not they are influenced by the actions of a given member
of the undertaking. On this basis it is classified into two categories:
Controllable costs are those which can be influenced by the action of a specified member of an undertaking,
that is to say, costs which are at least partly within the control of management. Generally speaking, all direct costs
including direct material, direct labour and some of the overhead expenses are controllable by lower level of
management.
Uncontrollable costs are those which cannot be influenced by the action of a specified member of an
undertaking that it is to say, which are within the control of management. Most of the fixed costs are uncontrollable. For
example, rent of the building is not controllable and so are managerial salaries.
f) By Normality
Under this, costs are classified according to whether these are cost which are normally incurred as a given level
of output in the conditions in which that level of activity is normally attained. On this basis, it is classified into two
categories:
Normal cost: It is the cost which is normally incurred at a given level of output in the conditions in which that
level of output is normally attained. It is a part of cost of production.
Abnormal cost: It is the cost which is not normally incurred at a given level of output in the conditions in which
that level of output is normally attained. It is not a part of cost of production and charged to Costing Profit and Loss
Account.
g) By Capital and Revenue or Financial Accounting Classification
The cost which is incurred in purchasing assets either to earn income or increasing the earning capacity of the
business is called capital cost. For example, the cost of a rolling machine in case of steel plan. Such cost is incurred at
one point of time but the benefits accruing from it are spread over a number of accounting years.
It any expenditure is done in order to maintain the earning capacity of the concern such as cost of maintaining
an asset or running a business it is revenue expenditure e.g. cost of materials used in production, labour charges paid to
convert the material into production, salaries, depreciation, repairs and maintenance charges, selling and distribution
charges etc.
h) By Time
Cost can be classified as (i) Historical costs and (ii) Predetermined costs.
i) Historical costs: The cost which is ascertained after their incurrence is called historical costs.
ii) Predetermined costs: Such costs are estimated costs i.e. computed in advance of production taking into
consideration the previous period’s costs and the factors affecting such costs. Predetermined cost determined on
scientific basis becomes standard cost.
i) According to Planning and Control
Planning and control are two important functions of management. Cost accounting furnishes information to the
management which is helpful is the due discharge of these two functions. According to this, costs can be classified as
budgeted costs and standard costs.
i) Budgeted costs: Budgeted costs represent an estimate of expenditure for different phases of business
operations such as manufacturing, administration, sales, research and development etc. coordinated in a well conceived
framework for a period of time in future which subsequently becomes the written expression of managerial targets to
be achieved.
ii) Standard Cost: Standard cost is the predetermined cost based on a technical estimate for materials, labour
and overhead for a selected period of time and for a prescribed set of working conditions.
j) For Managerial Decisions
On this basis, costs may be classified into the following costs:
i) Marginal cost: Marginal cost is the total of variable costs i.e. prime cost plus variable overheads.
ii) Out of pocket costs: This is that portion of the cost which involves payment to outsiders i.e., gives rise to cash
expenditure as opposed to such costs as depreciation, which do not involve any cash expenditure.
iii) Differential costs: The change in costs due to change in the level of activity or pattern or method of
production is known as differential costs.
iv) Sunk costs: A sunk cost is an irrecoverable cost and is caused by complete abandonment of a plant. It is the
written down value of the abandoned plant less its salvage value.
v) Imputed costs: These costs are those costs which appear in cost accounts only e.g. national rent charged on
business premises owned by the proprietor, interest on capital for which no interest has been paid. These costs are also
known as notional costs.
vi) Opportunity cost: It is the maximum possible alternative earning that might have been earned if the
productive capacity or services had been put to some alternative use.
vii) Replacement cost: It is the cost at which there could be purchased an asset or material identical to that
which is being replaced or revalued. It is the cost of replacement at current market price.
viii) Avoidable and unavoidable cost: Avoidable costs are those which can be eliminated if a particular product
or department, with which they are directly related, is discontinued. Unavoidable cost is that cost which will not be
eliminated with the discontinuation of a product or department.
4. (a) The following data is available in respect of a worker for the year, 2014 in the ABC Manufacturing Company:
(i) Wages per month Rs. 600
(ii) Dearness Allowance 20 paise per month per cost of living index point over 400 points; present index is
1,400 points.
(iii) House Rent Allowance 25% of (i) and (ii).
(iv) Annual Bonus for the year Rs. 3,000
(v) Cost of labour welfare amenities for the year Rs. 3,20,400
(vi) Employer’s contribution to –
a. Contributory Provident Fund, 10% of basic wages.
b. Employees State Insurance 2% of basic wages.
(vii) Annual working days, 310 days of 8 hours
(viii) Total leave with pay permitted in a year – 30 days.
(ix) Normal ideal time – 240 hours
(x) Abnormal idle time – 100 hours
(xi) No. of workers in the factory – 150
Compute labour cost for the year per head and per hour. Also state how the cost of idle time can be treated.
10+4=14
Ans: Computation of Total Labour cost

Particulars Amount
a) Basic Wages (600*12*150) 10,80,000
b) Dearness Allowance (0.20*12*1000*150) 3,60,000
c) House Rent Allowance (25% of a and b) 3,60,000
d) Annual Bonus 4,50,000
e) Cost of labour welfare and amenities 3,20,400
e) Employer’s contribution to:
- Provident fund (10% of basic wages) 1,08,000
- ESIC (2% of basic wages) 21,600
Total Labour Cost 27,00,000
Labour cost per worker = 27,00,000/150 = 18,000
Calculation of normal labour hours = 310*8*150 – 240*150 (normal idle time) – 30*8*150 (leave period) = 3,00,000
Labour cost per hour = 27,00,000/3,00,000 = Rs. 9
Or
(b) Distinguish between: 7+7=14
(i) Idle time and overtime.
Ans: Idle time refers to the labour time paid for but not utilized on production. It, in fact, represents the time for which
wages are paid, but during which no output is given out by the workers. This is the period during which workers remain
idle. Idle time is divided into two parts:
Overtime is the amount of wages paid for working beyond normal working hours as specified by Factories Act or
by a mutual agreement between the workers union and the management. There is a practice is to pay for overtime work
at higher rates. Hence, payment of overtime consists of two elements, the normal wages e.g., the usual amount, and the
extra payment i.e., the premium. This amount of extra payment paid to a worker under overtime is known as overtime
premium.
Treatment of Overtime Premium in Cost Accounting
a) If overtime is resorted to at the desire of the customer, then overtime premium may be charged to the job
directly.
b) If overtime is required to cope with general production programme or for meeting urgent orders, the
overtime premium should be treated as overhead cost of the particular department or cost center, which works
overtime.
(ii) Remuneration and incentives.
Ans: Difference between remuneration and incentives:
Remuneration is a payment or compensation received by an employee against the services provided by him.
This includes the basic salary, any bonus, allowances or other economic benefits that an employee or executives
received during his employment. Remuneration paid on the basis of time rate or piece rate basis. It is fixed in nature and
is constant for every employee even if they doesn't work as per standards. Remuneration is traditionally seen as the
total income of an individual and may comprises a range of separate payments determined according to different rules.
Incentive is a monetary or non-monetary reward which is given to a worker for his efficiency and hard work. It is
given to the workers when their actual production is more than the standard production. It is considered as a
performance appraisal to the employee if he/she performs better than standard work in a way that benefits to the
organization. It is variable in natures and change according to the efficiency of the workers. An incentive motivates and
encourages a worker to produce more and better and help in increasing the interest of the worker in the production.
Both remuneration and incentive are labour cost. Sometimes, both the terms are used interchangeably but they
are different from each other in following aspects:
Basis Remuneration Incentives
1. Nature Remuneration is fixed. Incentive is variable.
2. work Remuneration is given to labourers, employees incentive is provided when they perform good in
for their presheculded task or routine task. their routine task.
3. Motivation It is routine payment. It does not motivate an Incentive are ways to appreciate the employees
employee. performance.
5. (a) A machine was purchases on January, 2014 for Rs. 5 lakhs. The total cost of all machinery inclusive of the new
machine was Rs. 75 lakhs. The following further particulars are available :
Expected life of the machine 10 years
Scrap value at the end of 10 years – Rs. 5,000
Repairs and maintenance for the machine during the year – Rs. 2,000
Expected number of working hours of the machine per year 4000 hours.
Insurance Premium Annually for all machines – Rs. 4,500
Electricity consumption for the machine per hour @ 75 paise per unit for 25 units.
Area occupied by the machine 100 sq. ft.
Area occupied by other machines 1500 sq. ft.
Rent per month of the department – Rs. 800
Lighting charges – Rs. 120 per months for 20 points for the whole department out of which 3 points are for the
machine.
Compute the machine hour rate for the machine on the basis of the data given above. 14
Computation of Machine hour rate
Standing Charges: (Shop)
Insurance
( 4 , 500× )
5
75 300
Rent
( 800×12×100
1, 600 ) 600
( 120×12×3
Lighting 20
)
216
For 4,000 hours 1,116 0.279

Running Expenses:
(5 , 00 ,000−5 , 000
Depreciation 10×4 ,000
) 12.375
0.50
R/M( 2 , 000/4 , 000 )
Electricity 25×0 .75
18.75
Or
(b) Define overhead. What do you mean by under and over-absorption of over-heads? State the causes of over and
under-absorption of the factory overheads. 4+4+6=14
(a) Classification according to Elements: According to this classification overheads are divided according to
1) Indirect Materials: Materials which cannot be identified with the given product unit of cost center is called
2) Indirect Labour: Wages and salaries paid to indirect workers, i.e. workers who are not directly engaged on
3) Indirect Expense: Expenses such as rent and taxes, printing and stationery, power, insurance, electricity,
(b) Functional Classification: Overheads can also be classified according to their functions. This classification is
1) Manufacturing Overheads: Indirect expenses incurred for manufacturing are called as manufacturing
2) Administrative Overheads: Indirect expenses incurred for running the administration are known as
3) Selling and Distribution Overheads: Overheads incurred for getting orders from consumers are called as
4) Research and Development Overheads: In the modern days, firms spend heavily on research and
(c) Classification according to Behavior: According to this classification, overheads are classified as fixed,
1) Fixed Overheads: Fixed overheads are commonly described as those that do not vary in total amount with
2) Variable Overheads: Variable overheads are those which go on increasing if production volume increases
3) Semi-variable Overheads: These types of overheads remain constant over a relatively short range of
overheads.
following reasons:
6. (a) A product is produced through two distinct processes – Process I and Process II. On completion it is transferred
to finished stock. From the following particulars during the month of December, 2014, prepare Process Accounts: 14
Process – I Process – II
Unit introduced 10000 9000
Transfer to next process / finished goods 9000 8250
Normal loss (on inputs) 10% 5%
Realisable value of normal loss (per unit) (in Rs.) 2 4
Cost incurred :
Direct Material (in Rs.) 40,000
Direct Labour (in Rs.) 20,000 20,000
Direct Expenses (in Rs.) 12,000 10,050
Production overheads (100% of direct labour)
Assume that there was no opening or closing stock of Raw Materials and Work-in-Progress.
Process I A/c
To Raw Materials 10,000 40,000 By Normal loss (10%) 1,000 2,000
To Wages - 20,000
To Direct Expenses - 12,000 By Process II A/c 9,000 90,000
To Production overheads - 20,000
(100% of wages)
10,000 92,000 10,000 90,000
Process II A/c
To Process I A/c 9,000 90,000 By Normal loss (5%) 450 1,800
To Wages 20,000 By Abnormal Loss 300 4,851
To Direct Expenses 10,050
To Production overheads 20,000 By Finished Stock A/c 8,250 1,33,399

(100% of wages)
9,000 1,40,050 9,000 1,40,050
Working Note:
Value of abnormal loss (Process C A/c)
1 , 40 , 050−1 ,800
= ×300
9 ,000−450
=4851
Or
(b) Explain the following: 7+7=14
(i) Reconciliation of Cost and Financial Accounts.
Ans: Reconciliation of Cost Accounting and Financial Accounting: 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.
system.
(ii) Treatment of WIP.
2016 (May)
COMMERCE
1. (a) Choose the correct answer: 1x4=4

a) The method of costing used in a refinery is process costing/job costing.
b) The practice of charging all costs to product is absorption costing/batch costing.
c) Administration expenses are mostly fixed/variable.
d) Variable cost per unit remains same/increases when the volume of production increases.
(b) Fill in the blanks: 1x4=4
a) Fixed cost per unit decreases with rise in output and increases with fall in output.
b) Under the ABC analysis of material control, A stands for high value items.
c) Muster roll is necessary for the preparation of the labour attendance register .
d) Fixed overhead cost is a periodical cost.
2. Answer the following (any four): 4x4=16

a) “Classification of cost plays a vital role in ascending cost.” Explain this statement.
Ans: Cost classification is the process of grouping costs according to their common characteristics. It is the placement of
like items together according to their common characteristics. A suitable classification of costs is of vital importance in
labour and expenses and a number of other characteristics. Classification of cost helps in determining the product cost
and period cost of the product. It also helps in determining tender price.
b) Give five differences between Cost Accounting and Financial Accounting.
centers or not,
c) Give four reasons of under-absorption and over-absorption of overheads.

Ans: Reason of over or under-absorption of overheads: The under or over-absorption of overhead arises due to
following reasons:
d) What is ABC analysis? How is it differ from VED analysis?
Ans: Difference between ABC analysis, Perpectual Inventory system and VED analysis
ABC analysis VED analysis
Its main objective is to reduce the investment in Its main objective is to prevent stoppage of production due
material. to shortage of essential material.
In this system, stocks are classified on the basis of value. The analysis classifies items on the basis of their criticality
for the industry or company – vital, essential and desirable.
It will not pay equal attention to all types of inventory. More attention is given to essential inventory.
ABC analysis is applicable when there is small variety of VED analysis is specially applied in the case when there is a
stock. large variety of stocks such as spare parts inventory,
medical stores etc.
Store ledger and bin card is not prepared in this Store ledger and bin card is not prepared in this analysis.
analysis.
e) Give four differences between Job Costing and Process Costing.

Ans: Difference between Job costing and Process Costing
Basis of distinction Job Costing Process Costing
Basic Job costing is used when the cost object Process Costing is generally used for a mass of
is an individual (or a lot/batch) unit or a identical product or service.
distinct product or service.
Accumulation of Cost Costs can be accumulated by each The Costs are accumulated in a period. The
individual product or service. total costs in a period are divided over the
number of units to get an average unit cost.
Cost Determination Job costing is done against a specific Costs are compiled for each process over a
order being produced. period of time.

Cost Calculation Costs are calculated when a job is over. Costs are calculated at the end of a cost
period like an accounting year.
Transfer There are usually no transfers of costs Transfer of costs from one process to another
from one job to another. is made as the product moves from one
process to the other.
3. (a) From the following information, prepare a Cost Sheet showing the cost and profit: 14
Particulars Rs.
Opening raw material 29,500
Closing raw material 36,000
Opening work-in-progress:
Material 13,600
Wages 11,000
Works Overhead 6,600
Closing work-in-progress:
Material 12,000
Wages 16,500
Works overhead 9,900
Opening finished goods – 200 units @ Rs. 84.
Closing finished goods – 1,600 units
Particulars Rs.
Purchase of raw material 1,90,000
Carriage on purchases 1,500
Sale of scrap of raw material 5,000
Wages 2,97,000
Works overhead @ 60% of direct labour cost; Administrative overhead @ 12 per unit produced. Selling and distribution
overheads @ 20% of selling price. Sales 7,600 units at a profit of 10% on cost price
Ans:
Statement of Cost or Cost sheet
PARTICULARS Units Amount Amount
Opening Stock of Raw material 29,500
Add: Purchase of Raw material 1,90,000
Add: Carriage inward 1,500
Less: Sale of scrap of raw material 5,000
Less: Closing Stock of Raw material 36,000
(a) Raw Material consumed during the year 1,80,000
Prime Cost 4,77,000
Add: Works overhead @ 60% of direct labour cost 1,78,200
Add: Opening stock of work-in-progress
Material 13,600
Wages 11,000
Works overhead 6,600 31,200
Less: Closing stock of work-in-progress
Material 12,000 38,400
Wages 16,500
Works overhead 9,900
Work’s cost / factory cost 6,48,000
Add: Administration overhead @ Rs 12 per unit produced (9,000 * 12)
1,08,000
(b) Cost of Production 9,000 7,56,000

Add: Opening Stock of finished goods (@84) 200 16,800
Less: Closing Stock of finished goods(756000/9000= 84) 1,600 1,34,400
(c) Cost of goods Sold 7,600 6,38,400
Add: Selling and Distributive overheads 1,80,061
Total cost of sales 7,600 8,18,461
(d) Add: Profit for the year 81,846
Sales 7,600 9,00,307
Production = Sales + closing stock – opening stock = 7,600+1,600 – 200 = 9,000
Working note:
Let the cost be x
Add: Profit @ 10% on cost 0.10x
Sales 1.10X
Selling and distribution expenses (20% on 1.10x) 0.22x
Now,
Total cost = 6,38,400 + 0.22x = x
= >x – 0.22x = 6,38,400
= >0.78x = 6,38,400
= >x = 6,38,400/0.78 = 81,8461 (Total Cost)
Or
(b) “The perpetual inventory system is an integral part of material control.” Discuss this statement by bringing out the
salient features and advantages of this system. 14
Perpetual Inventory System: Perpetual Inventory system means continuous stock taking. CIMA defines perpetual
1) It requires more efforts to maintain inventory under this method.
2) Quantity balances shown by the store ledger and bin cards are reconciled.
3) A number of items are physically checked systematically and by rotation.
4) The method is comparatively costly as compared to periodical inventory system.
5) Store ledger and bin cards keeps inventory record up-to date and decent.
6) The method applies to those concerns usually that sell high-value items (Such as car, personal computer,
equipments etc.) not at a large quantity as compared to items under periodic system.
7) Causes for difference between physical balances and book balances can be explored.
8) Making corrective entries in case of discrepancies.
9) Removing the causes of discrepancies between physical quantities and book balances.
Advantages of Perpetual Inventory System
a) Easy detection of errors - Errors and frauds can be easily detected at an early date. It helps in preventing
their occurrence.
b) 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.
c) No interruption of production process- Production process is not interrupted as the physical verification of
stock is made on a planned and regular basis.
d) 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.
e) Investment in materials kept under control - The investment in materials is kept at a minimum level as the
actual stock is continuously compared with the maximum level and minimum level.
f) Early detection of loss of stock- Loss of stock due to shrinkage, evaporation, accident, fire, theft, etc. can be
easily detected.
g) Accurate and up-to-date accounting records- Due to continuous stocktaking, the store-keeper and stores
accountant become more vigilant in their works and they maintain accurate and up-to-date records.
h) Easy to prepare interim accounts- It is possible to prepare periodical profit and loss account and balance
sheet without physical stock-taking being made.
i) Availability of correct stock data- Correct stock data is readily available for settlement of insurance claims.
4. (a) From the following particulars, work out the earnings for the week of a worker under the: 14
Particulars Rs.
a) Straight piece rate system;
b) Differential piece rate system;
c) Halsey premium system;
d) Rowan system:
Number of working hours per week 48 hours
Wages per hour 3.75
Rate per piece 1.50
Normal time per piece 20 minutes
Normal output per week 120 pieces
Actual output for the week 150 pieces
Differential piece rate:
80% piece rate when output is below standard 120% when output is above standard.
Ans: (i) Straight Price Rate system = Price Produced x rate per price = 150 x 1.50 = Rs.
225
(ii) Taylor’s differential price rate
Normal output = 120
Actual output = 150 (Above Standard)
i.e. 20% of price rate is applicable
120% of price rate = 1.50 x 120% = 1.80
Now, Wages under differential Price rate
= 150 x 1.80 = 270
(iii) Time Taken = 48 hours
Time allowed = 150 x 120 = 3,000 minutes or 50 hours (based on actual output)
Time Saved = 50 – 48 = 2 hours
Now, Wages under Halsey Premium Plan:
=(TT×rate )+50% (TS×rate )
=(48×3 .75 )+50% (2×3 . 75)
=180+3. 75=183. 75
(iv) Wages under Rowan system:

TS
=(TT×rate )+ ( TT×rate )
ST
2
=(48×3 .75 )+ ( 48×3 . 75)
50
=180+7 .20=1 87 .20
Or
(b) What is idle time? Discuss its causes. How is it treated in Cost Accounting? 4+6+4=14
idle.
Types of Idle Time:
a) The main reasons for the occurrence of normal idle time are as follows:
b) Time taken by workers to travel the distance between the main gate of factory and the place of their work.
c) Time lost between the finish of one job and starting of next job.
d) Time spent to overcome fatigue.
e) Time spent to meet their personal needs like taking lunch, tea etc.
The main reasons for the occurrence of abnormal idle time are:
a) Due to machine break downs, power failure, non-availability of raw materials, tools or waiting for jobs due
to defective planning.
b) Due to conscious management policy decision to stop work for some time.
c) In the case of seasonal goods producing units, it may not be possible for them to produce evenly throughout
the year. Such a factor too results in the generation of abnormal idle time.
5. (a) From the following details, compute the hourly rate of a machine installed in a shop: 14
Particulars Rs.
Cost of Machine 2,00,000
Installation charges 20,000
Estimated Scrap value (Life 15 years) 10,000
Rent and rates of the shop p.a. 7,200
General lighting of the shop p.m. 800
Insurance premium for the machine per quarter 720
Estimated repairs and maintenance cost of the machine p.a. 3,000
Power consumption of the machine 20 units per hour
Rate of power per 100 units 20
Estimated working hours of the machine per year 2,300
Shop Supervisor’s salary per month 1,800
th th
The machine occupies 1/4 of the total floor area of the shop. The supervisor is expected to devote 1/5 of his time for
supervising the machine. Normal idle time is expected to be 300 hours per annum.
Ans: Computation of Machine Hour Rate
Computation of Machine hour rate

Standing Charges: (Shop)
(i) Rent 4
(
7200
) 1,800
(ii) Electricity
(
800×12
4 ) 2,400
4,320
(iii) Supervisor’s Salary
1800∗12
5 ( )
(iv) Insurance (720*4) 2,880
For 2,000 hours 11,400 5.70
Running Expenses:
( 2 , 00 ,000+20 ,000−10 , 000
(i) Depreciation 15×2 ,000
) 7.00
(ii) Repairs & Maintenance (3,000/2,000) 1.50
(ii) Power
( 20
100
×20 )
4.00
Normal Working Hours = 2,300 – 300 = 2,000

Or
(b) Define overhead. What do you mean by absorption of overheads? Discuss the different methods of absorption of
overheads. 4+2+8=14
Absorption of overheads: The most important step in the overhead accounting is ‘Absorption’ of overheads.
CIMA defines absorption as, ‘the process of absorbing all overhead costs allocated or apportioned over a particular cost
center or production department by the units produced.’ In simple words, absorption means charging equitable share of
overhead expenses to the products. As the overhead expenses are indirect expenses, the absorption is to be made on
some suitable basis. The basis is the ‘absorption rate’ which is calculated by dividing the overhead expenses by the base
selected. A base selected may be any one of the basis given below. The formula used for deciding the rate is as follows,
Overhead Absorption Rate = Overhead Expenses/ Units of the base selected.
The methods used for absorption are as follows:
a. Direct Material Cost: Under this method, the overheads are absorbed on the basis of percentage of direct
material cost. The following formula is used for working out the overhead absorption percentage: Budgeted or Actual
Overhead Cost/ Direct Material Cost X 100
b. Direct Labor Cost Method: This method is used in those organizations where labor is a dominant factor in
the total cost. Under this method, the following formula is used for calculating the overhead absorption rate: Budgeted
or Actual Overheads/ Direct Labor Cost X 100
c. Prime Cost Method: This method is an improvement over the first two methods. Under this method, the
Prime Cost is taken as the base for calculating the percentage of absorption of overheads by using the following formula:
Budgeted or Actual Overheads/ Prime Cost X 100
d. Production Unit Method: This method is used when all production units are similar to each other in all
respects. Total overhead expenses are divided by total production units for computing the rate per unit of overheads
and overheads are absorbed in the product units. If a firm produces more than one products and if they are not uniform
to each other, equivalent units are calculated to find out the rate of overheads per unit. The formula of absorption of
overheads is as follows: Overhead absorption rate = Budgeted or Actual Overheads/Production Units
e. Direct Labor Hour Method: Under this method, the rate of absorption is calculated by dividing the overhead
expenses by the direct labor hours. The formula is as follows. Budgeted or Actual Overhead Expenses/Direct Labor Hours
f. Machine Hour Rate: Where machines are more dominant than labor, machine hour rate method is used.
CIMA defines machine hour rate as ‘actual or predetermined rate of cost apportionment or overhead absorption, which
is calculated by dividing the cost to be appropriated or absorbed by a number of hours for which a machine or machines
are operated or expected to be operated’. In other words, machine hour rate is the cost of operating a machine on per
hour basis. The formula for calculating the machine hour rate is, Budgeted or Actual Overhead Expenses/ Machine Hours
g. Selling Price Method: In this method, selling price of the products is used as a basis for absorbing the
overheads. The logic used is that if the selling price is high, the product should bear higher overhead cost. Ratio of selling
price is worked out and the overheads are absorbed.
6. (a) The product of a manufacturing concern passes through two processes A and B and then to finished stock. It is
ascertain that in each process normally 5% of the total weight is lost and 10% is scrap which realizes Rs. 80 per tonne
and Rs. 200 per tonne from processes A and B respectively. The following are the figures relating to both the
processes:
Particulars Process – A Process – B
Materials (in tonnes) 1,000 70
Cost of material per tonne (in Rs.) 125 200
Wages (in Rs.) 28,000 10,000
Manufacturing expenses (in Rs.) 8,000 5,250
Output (in tonnes) 830 780
Prepare Process Accounts showing cost per tonnes of each process. There was no stock of work-in-progress in any
process. 14
Process A A/c
To Raw Materials 1,000 1,25,000 By loss of weight 50 ------
To Wages - 28,000 By Normal Loss (Scrap) 100 8,000
To Mfg. Expenses 8,000 By Abnormal Loss 20 3,600
By Process B A/c 830 1,49,400
1,000 1,61,000 1,000 1,61,000
Process B A/c
To Process A A/c 830 1,49,400 By loss of weight 45 -----
To Direct Materials 70 14,000 By Normal Loss (Scrap) 90 18,000
To Wages 10,000
To Manufacturing 5,250 By Finished Stock A/C 780 1,63,800
Expenses 15 3,150
To Abnormal Gain A/c
915 1,81,800 915 1,81,800
Working Note: (i) Value of abnormal loss (Process A A/c)
1 , 61 , 000−8 , 000
= ×20
1 , 000−150
=3600
(ii) Value of abnormal gain (Process B A/c)
1 ,78 ,650−18000
= ×15
9 ,000−135
=3 ,150
Or
(b) Under what circumstances, an enterprise needs to reconcile of Cost Accounts and Financial Accounts? State the
reasons for which profit from Cost Accounting and that of Financial Accounting do not tally. 5+9=14
Ans: When cost accounts and financial accounts are maintained in two different sets of books, there will be prepared
system.
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.
Reasons for disagreement between Profits as per financial accounting and Profits as per cost accounting:
The difference in the profitability of cost and financial records may be due to the following reasons.
a) Items included in the financial accounts but not in cost accounts.
 Purely financial income- such as interest received on bank deposits, interest and dividend on investments,
rent receivables, transfer fee received, profit on the sale of assets etc.
 Purely financial charges – such as losses due to scraping of machinery, losses on the sale of investments and
assets, interest paid on the bank loans, mortgages, debentures etc., expenses of company’s transfer office, damages
payable at law etc.
 Appropriation of profit – the appropriation of profit is again a matter which concerns only financial accounts.
Items like payment of income tax and dividends transfer to reserve, heavy donations, writing off of preliminary
expenses, goodwill and patents appear only in profit and loss appropriation account and the costing profit and loss a/c is
not affected.
b) Items included in cost accounts only: There are certain items which are included in cost accounts but not in
financial accounts. They are: Charges in lieu of rent where premises are owned, interest on capital employed in
production but upon which no interest is actually paid.
c) Under/Over absorption of overhead expenses: In cost accounts, overheads are absorbed at predetermined
rates which are based on past data. In the financial accounts the actual amount incurred is taken into account. There
arise a difference between the actual expenses and the predetermined overheads charged to product or job.
If overheads are not fully recovered, which means that the amount of overheads absorbed in cost accounts is
less than the actual amount, the shortfall is called as under recovery or under absorption. If overhead expenses
recovered in cost accounts are more than that of the actually incurred, it is called over absorption. Thus, both the over
and under recovery may cause the difference in the profits of both the records.
d) Different basis of stock valuation: In cost accounts, the stock of finished goods is valued at cost by FIFO, LIFO,
average rate, etc. But, in financial accounts stocks are valued either at cost or market price, whichever is less. The
valuation of work-in-progress may also lead to variation. In financial books only prime cost may be taken into account
for this purpose whereas in cost accounts, it may be valued at prime cost plus factory overhead.
e) Different basis of depreciation adopted: The rates and methods of charging depreciation may be different in
two sets of accounts.
(OLD COURSE)
Full Marks: 80
Pass Marks: 32
a) Prime Cost/Production cost is the combination of direct material, direct labour and direct expenses.
b) In ABC analysis, A indicates less value/moderate value/high value material.
c) Fixed cost per unit remains same/increases/decreases when volume of production increases.
d) Standard costing is a method/technique of Cost Accounting.

a) In process costing, output of every process is the input of next process.
b) FIFO method, if pricing issue of material is suitable at the time of decreasing price.
c) Prime cost under abnormal condition is to be debited to costing profit and loss account.
d) Under Rowan plan, bonus is always in decreasing order.
2. Write short notes (on any four): 4x4=16

a) ABC analysis: A-B-C Analysis: ABC Analysis: ABC System: In this technique, the items of inventory are classified
according to the value of usage. Materials are classified as A, B and C according to their value.
b) Cost of idle time:
c) Reconciliation of Cost Accounting and Financial Accounting: When cost accounts and financial accounts are
system.
system.
d) Classification of Cost: Cost classification is the process of grouping costs according to their common
characteristics. It is the placement of like items together according to their common characteristics. A suitable
classification of costs is of vital importance in order to identify the cost with cost centers or cost units. Costs may be
classified according to their nature, i.e. material, labour and expenses and a number of other characteristics. The
important ways of classification are:
b) By Functions
d) By Variability
management.
f) By Normality
categories:
Account.
charges etc.
h) By Time: Cost can be classified as (i) Historical costs and (ii) Predetermined costs.
be achieved.
e) Machine hour rate: Where machines are more dominant than labor, machine hour rate method is used. CIMA
defines machine hour rate as ‘actual or predetermined rate of cost apportionment or overhead absorption, which is
calculated by dividing the cost to be appropriated or absorbed by a number of hours for which a machine or machines
hour basis. The formula for calculating the machine hour rate is, Budgeted or Actual Overhead Expenses/ Machine
Hours.
3. (a) The following are the data taken from the Cost Accounts of a manufacturer in respect of the month of March,
2014: 14
Particulars Rs.
Stock in hand on 01-03-2014:
Raw Materials 25,000
Work-in-progress 8,220
Finished goods 17,360
Purchase of Raw materials 21,900
Sales of finished goods 72,310
Direct wages 17,150
Stock in hand 31-3-2014:
Raw Materials 26,250
Non-productive wages 830
Works Expenses 8,430
Office and Administrative expenses 3,160
Selling expenses 4,210
Prepare a Cost Sheet showing the following:
a) Cost of materials consumed.
b) Cost of production.
c) Cost of goods sold.

d) Profit for the month.
Cost Sheet
PARTICULARS AMOUNT
Raw Material (Opening) 25,000
Add: Material purchases 21,900
Less: Raw Material (Closing) 26,250
(a) Raw Material consumed during the year 20,650
Add: Direct Labour 17,150
(b) Prime Cost 37,800
Add: Factory Overheads:
Works Expenses 8,430
(b) Work’s cost incurred 47,060
Add: W-I-P (Opening) 8,220
Less: W-I-P (Closing) 9,100
(c) Work’s cost 46,180
Add: Administrative Overheads 3,160
(d) Cost of production 49,340
Add: Finished goods (Opening) 17,360
Less: Finished goods (Closing) 15,750
(e) Cost of goods sold 50.950
Add: Selling and distributive overheads 4,210
(f) Total Cost 55,160
(g) Profit (Balancing figure) 17,150
Sales 72,310
Or
(b) Define Cost Accounting. Briefly explain different methods and techniques of Cost Accounting. 4+4+6=14
Ans: Introduction to Cost Accounting
on a given thing.
services”.
Techniques of Costing
The types and techniques of costing are as follows:
1) Historical Costing: ‘The ascertainment of costs after they have been incurred’ is called Historical costing.
Such costs are, therefore, ‘postmortem’ costs as under this method all the expenses incurred on the production are first
incurred and them the costs are ascertained.
2) Standard Costing: ‘The preparation and use of standard costs, their comparison with actual costs and the
analysis of variance to their causes and points of incidence’ is called standard costing.
3) Here the standards are first set and then they are compared with actual performances. The difference
between the standard and the actual is known as the variance. The variances are analyzed to find out their causes and
also the points or locations at which they occur.
4) Marginal Costing: Marginal Costing involves the ascertainment of marginal costs and of the effects on profit
of changes in volumes or type of output by differentiating between fixed costs and variable costs’. The fixed costs are
those which do not change but remain the same, with the increase or decrease in the quantum of production. The
variables costs are those which do change proportionately with the change in quantum of production.
5) The marginal costing takes into account only the variable costs to find out ‘marginal costs’. The difference
between Sales and Marginal costs is known as ‘Contribution’ and contribution is an aggregate of fixed costs and
Profit/Loss. So the fixed costs are deducted from the contribution to find out the profits. Marginal costing is a technique
to ascertain the effect on profits. Marginal costing is a technique to ascertain the effect on profit by the change in the
volume of output or by the change in the type of output.
6) Direct Costing: The practice of charging all direct cost to operations, process or products, leaving all the
indirect costs to be written off against profits in the period in which they arise is called direct costing.
7) Absorption Costing: It is the practice of charging all costs, both variables and fixed, to operations, processes
or products. This is the traditional technique as opposed to Marginal or Direct costing techniques. Here both the fixed
and variables cost are charged in the same manner.
Methods of Costing
The methods of costing are as follows:
1) Job Costing: The job costing methods are applicable where the unit of manufacture is one and complete in
itself. They include printers, job foundries, tool manufactures, and contractors, etc. the following methods are included
in Job Costing:
2) Contract Costing: This method if applied in undertakings erecting buildings or carrying out constructional
works, e.g., House buildings, ship building, Civil Engineering contracts. Here the cost unit is one and completed in itself.
The cost unit is a contract which may continue for over more than a year. It is also known as the Terminal Costing, since
the works are to be completed within a specified period as per terms of contract or agreement executed by the
contractor and contractee.
3) Batch Costing: In this method, a batch of similar or identical products is treated as a job. Here the unit of
cost is a batch of group of products, costs are collected and analyzed according to batch numbers and the costs are
ascertained batch wise. This method is applied in pharmaceutical industries where medicines or injections are
manufactures batch wise or in general engineering factories producing components in convenient batches.
4) Process Costing: Process costing method is applicable to those industries manufacturing a number of units
of output requiring processing. Here an article has to undergo two or more processes for reaching the stage of finished
goods and succeeding process till completion.
5) Unit costing: This method is also known as single or output costing. The objective of this method is to
ascertain the total cost as well as the cost per unit. A cost sheet is prepared taking into account the cost of material,
labour and overheads, Unit costing is applicable in the case of mines, oil drilling units, cement works, brick works and
units manufacturing cycles, radios, washing machines etc.
6) Operating costing: This method is followed by industries which render services. To ascertain the cost of such
services, composite units like passenger kilometers and tone kilometers are used for ascertaining costs. For example, in
the case of a bus company, operating costing indicates the cost of carrying a passenger per kilometer.
7) Operation costing: This is a more detailed application of process costing. It involves costing by every
operation. This method is used where there is mass production of repetitive nature involving a number of operations.
The main purpose of this method is to ascertain the cost of each operation.
8) Multiple Costing: It is also known as composite costing. It refers to a combination of two or more of the
above methods of costing. It is adopted in industries where several parts are produced separately and assembled to a
single product.
4. (a) during the first week of January, 2015, a worker Mr. Ashok manufactured 300 articles. He received wages for a
guaranteed 48 hours week at the rate of Rs. 4 per hour. The estimated time to produce one article is 10 minutes and
under the incentive scheme, the time allowed is increased by 20%. Calculate his gross wage according to –
a) Piece work with a guaranteed weekly wages;
b) Rowan premium bonus;
c) Halsey premium bonus 50% to workman. 4+5+5=14
Ans: Time allowed per piece = 10 minutes
Time allowed under incentive scheme = 10 + 20 % = 12 minutes
Standard units per hour = 60/12 = 5 units
Rate per piece = rate per hour / piece per hour = 4/5 = 0.80
(i) Straight Price Rate system with a guaranteed weekly wages
= Price Produced x rate per price
= 300 x 0.80 = 240
Or guaranteed weekly wages = 48 x 4 = 192
Whichever is higher is payable to the worker i.e. Rs. 240
(ii) Time Taken = 48 hours
Time allowed = 300 x 12 = 3,600 minutes or 60 hours
(based on actual output)
Time Saved = 60 – 48 = 12 hours
Now, wages under Rowan system:
TS
=(TT×rate )+ ( TT×rate )
ST
12
=(48×4 )+ (48×4 )
60
=192+38 . 40=230 . 40
(iii) Wages under Halsey Premium Plan:
=(TT×rate )+50% (TS×rate )
=(48×4 )+50% (12×4 )
=192+24=216
Or
(b) (i) Define labour turnover. Explain its reasons.
(1) Personal Causes

below:
(ii) Discuss the essential features of an ideal wage payment method. 4+3+7=14
Ans: An ideal incentive plan must possess the following features:
a) Simplicity - The plan should be simple to understand and operate. Who should be able to calculate their
wages without any difficulty?
b) Acceptability - It should be acceptable to workers as well as the employer.
c) Flexibility - The incentive plan should be flexible to introduce nice changes.
d) Quality - The plan should ensure the quality of the output. Workers should be discouraged to speed up the
work to earn more wages at the cost of quality.
e) Stability - The plan should give a stable earnings over a period of time, minimum but adequate wage must
be ensured.
f) Wide coverage - It should cover the maximum number of workers. 1 direct as well as indirect worker should
be covered.
g) No restriction on earnings - The plan should not have any restriction earnings of workers. They should be
allowed to earn as much as they can.
h) Investigation and evaluation - The plan should be based on scientific investigation and evaluation to produce
good result. Standard time should fix on the basis of time and motion study.
i) Increasing output and lowering cost of production - It should aim increasing output and lowering cost of
production.
j) Motivating to earn more - The plan should motivate the workers increase their efficiency and earn more.
The success of an incentive plan depends on the mutual cooperation a understanding between employer and
employees.
5. (a) From the following data, calculate the machine hour rate of a machine: 14
Particulars Rs.
Cost of machine 35,500
Scrap value 2,500
Estimated life 12 years
Effective working days:
200 days of 8 hours
100 days of 6 hours
Maintenance and repairs 7.5% of cost of machine
Stores consumed 1,000
Power consumption 2 per operating hour
Insurance premium 1% of cost of machine
Supervision expenses 7,500
Estimated idle time 10%
Computation Machine Hour Rate

Standing Charges:
Insurance Premium ( 35 , 500×1 % ) 355
Supervisor’s Expenses 7,500
For 1,980 hours 7,855 3.97
Running Expenses:
(
35 , 500−2, 500
Depreciation 12×1, 980
) 1.39
R/M
( )
35 , 500×7 . 5 %
1 , 980 1.34
( )
1 ,000
Stores consumed 1 , 980 0.51
Power
2
Calculation of normal working hours
200×8=1,600
100×6= 600
2,200
Less: Normal Standard time @10% 220
1,980
Or
(b) Define overhead. How are overheads classified? Explain four reasons of over-absorption and under-absorption of
overheads. 4+5+5=14
a) Classification according to Elements: According to this classification overheads are divided according to
1) Indirect Materials: Materials which cannot be identified with the given product unit of cost center is called
2) Indirect Labour: Wages and salaries paid to indirect workers, i.e. workers who are not directly engaged on
3) Indirect Expense: Expenses such as rent and taxes, printing and stationery, power, insurance, electricity,
b) Functional Classification: Overheads can also be classified according to their functions. This classification is
1) Manufacturing Overheads: Indirect expenses incurred for manufacturing are called as manufacturing
2) Administrative Overheads: Indirect expenses incurred for running the administration are known as
3) Selling and Distribution Overheads: Overheads incurred for getting orders from consumers are called as
4) Research and Development Overheads: In the modern days, firms spend heavily on research and
c) Classification according to Behavior: According to this classification, overheads are classified as fixed,
1) Fixed Overheads: Fixed overheads are commonly described as those that do not vary in total amount with
2) Variable Overheads: Variable overheads are those which go on increasing if production volume increases
3) Semi-variable Overheads: These types of overheads remain constant over a relatively short range of
overheads.
following reasons:
6. (a) A product passes through three processes P, Q and R. The Normal wastage of each process is as follows:
Process P = 5%, process Q = 6%, and process R = 10%. Wastage of process P was sold at Rs. 2 per unit, that of process Q
at Rs. 5 per unit and that of process R at Rs. 10 per unit. 1,000 units were issued to process P in the beginning of April,
2015 at cost of Rs. 2 per unit. The other expenses were as follows:
Process
P Q R
Raw materials (in Rs.) 2,000 3,000 1,000
Wages (in Rs.) 5,000 8,000 6,000
Direct expenses (in Rs.) 1,550 2,946 3,738
Actual output (in Rs.) 950 910 810
Prepare Process Accounts of P, Q and R assuming that there were no openings or closing stocks. 14
Process P A/c
To Raw Materials 1,000 2,000 By Normal loss 50 100
To Direct Materials - 2,000
To Wages - 5,000 By Process Q A/c 950 10,450
To Direct Expenses - 1,550
1,000 10,550 1,000 10,550
Process Q A/c
To Process P A/c 950 10,450 By Normal loss 57 285
To Wages - 8,000
To Direct Expenses - 2,946 By Process R A/c 910 24,570
To Abnormal Gain A/c 17 459
967 24,855 967 24,855
Process R A/c
To Process Q A/c 910 24,570 By Normal loss 91 910

To Wages - 6,000
To Direct Expenses - 3,738 By Abnormal Loss 9 378
By Finished Stock A/c 810 34,020
910 35,308 910 35,308
Working Note:
(i) Value of abnormal gain (Process B A/c)
24 , 396−285
= ×17
950−57
24 ,111
= ×17=459
893
(ii) Value of abnormal loss (Process C A/c)
35 , 308−910
= ×9
910−91
34 ,398
= ×9=378
819
Or
(b) What do you mean by Cost Audit and Cost Management? Explain how a cost auditor works in conducting cost
audit. 4+4+6=14
2017 (May)
Course: 401
(Cost Accounting)
Full Marks: 80
Pass Marks: 24
Time: 3 hours
1. (a) Fill in the blanks: 1x4=4
a) Cost which can be charged to a particular unit of cost is considered as product cost.
b) Reorder quantity may be measured in units or value.
c) Under the Halsey plan Bonus is a fixed percentage.
d) The basis of apportionment for indirect wages is direct labour.
(b) Choose and write the correct answer: 1x4=4
a) In a printing industry, job costing/process costing is applied.
b) The sum of direct material cost and direct labour cost is termed as prime cost/overhead.
c) Tender form is issued by the purchasing department/production department.
d) Vacation pay for factory workers should be charged to factory overhead/direct labour.
2. Write on the following (any four): 4x4=16
a) Statement of cost and profit.
Ans: COST SHEET
Cost Sheets are statements setting out the costs of a product giving details of all the costs. Presentation of
costing information depends upon the method of costing. A cost sheet can be prepared weekly, monthly, quarterly or
annually. In a cost sheet besides total expenditure incurred, cost per unit of output in case of each element of cost can
be shown in a separate column. The cost sheet should give cost per unit in the previous period for the purposes of
comparison.
Walter & Bigg define, “The expenditure which has been incurred upon production for a period is extracted from
the financial books and the store records, and set out in a memorandum or a statement. If this statement is confined to
the disclosure of the cost of the units produced during the period, it is a termed as a cost sheet”. In other words cost
sheet is a statement showing the total cost under proper classification in a logical order.
Components of Total Cost
1. Prime Cost: Prime cost consists of costs of direct materials, direct labors and direct expenses. It is also known
as basic, first or flat cost.
2. Factory Cost: Factory cost comprises prime cost and, in addition, works or factory overheads that include
costs of indirect materials, indirect labors and indirect expenses incurred in a factory. It is also known as works cost,
production or manufacturing cost.
3. Office Cost: Office cost is the sum of office and administration overheads and factory cost. This is also termed
as administration cost or the total cost of production.
4. Total Cost: Selling and distribution overheads are added to the total cost of production to get total cost or the
cost of sales.
b) Inventory control.
Ans: Inventory or Store Control
Inventory control means to monitor the stock of goods used for production, distribution and captive (self)
consumption. For a specific time period, stocks of goods are placed at some particular location. Stock of goods includes
raw-materials, work in progress, finished goods, packaging, spares, components, consumable items, etc. Inventory
Control means maintaining the inventory at a desired level. The desired-level keeps on fluctuating as per
the management."
Objectives of store control: The following are the important objectives of store control
flow of production;
c) Causes of labour turnover.
Ans: Causes of Labour turnover: The causes for labour turnover can be broadly classified under three heads.
(1) Personal Causes
below:

d) Allocation, apportionment and absorption of overhead.
Ans: Allocation of Overhead Expenses: Allocation is the process of identification of overheads with cost centres. An
expense which is directly identifiable with a specific cost centre is allocated to that centre. So it is the allotment of whole
item of cost to a cost centre or cost unit or refers to the charging of expenses which can be identified wholly with a
particular department. For example, the whole of overtime wages paid to the workers relating to a particular
department should be charged to that department. So, the term allocation means the allotment of the whole item
without division to a particular department or cost centre.
Apportionment of Overhead Expenses: Cost apportionment is the allotment of proportions of items to cost
centres or cost units on an equitable basis. The term refers to the allotment of expenses which cannot identify wholly
with a particular department. Such expenses require division and apportionment over two or more cost centres or units.
So cost apportionment will arise in case of expenses common to more than one cost centre or unit. It is defined as the
Absorption of Overheads: The most important step in the overhead accounting is ‘Absorption’ of overheads.
CIMA defines absorption as, ‘the process of absorbing all overhead costs allocated or apportioned over a particular cost
center or production department by the units produced.’ In simple words, absorption means charging equitable share of
selected. A base selected may be any one of the basis given below.
e) Five reasons for disagreement of profit as shown by the Cost Accounting and Financial Accounting.
Ans: The difference in the profitability of cost and financial records may be due to the following reasons.
1) Items included in the financial accounts but not in cost accounts.
 Purely financial income- such as interest received on bank deposits, interest and dividend on investments,
rent receivables, transfer fee received, profit on the sale of assets etc.
 Purely financial charges – such as losses due to scraping of machinery, losses on the sale of investments and
assets, interest paid on the bank loans, mortgages, debentures etc., expenses of company’s transfer office, damages
payable at law etc.
 Appropriation of profit – the appropriation of profit is again a matter which concerns only financial accounts.
Items like payment of income tax and dividends transfer to reserve, heavy donations, writing off of preliminary
expenses, goodwill and patents appear only in profit and loss appropriation account and the costing profit and loss a/c is
not affected.
2) Items included in cost accounts only: There are certain items which are included in cost accounts but not in
financial accounts. They are: Charges in lieu of rent where premises are owned, interest on capital employed in
production but upon which no interest is actually paid.
3) Under/Over absorption of overhead expenses: In cost accounts, overheads are absorbed at predetermined
rates which are based on past data. In the financial accounts the actual amount incurred is taken into account. There
arise a difference between the actual expenses and the predetermined overheads charged to product or job.
4) Different basis of stock valuation: In cost accounts, the stock of finished goods is valued at cost by FIFO,
LIFO, average rate, etc. But, in financial accounts stocks are valued either at cost or market price, whichever is less.
5) The valuation of work-in-progress may also lead to variation. In financial books only prime cost may be taken
into account for this purpose whereas in cost accounts, it may be valued at prime cost plus factory overhead.
6) Different basis of depreciation adopted: The rates and methods of charging depreciation may be different in
two sets of accounts.
3. (a) Following information are related to a product for the year ended on 31 st March, 2016:
Particulars Rs.
st
Stock on 1 April, 2015:
Raw materials 10,000
Finished products (2000 tons) 8,000
Stock on 31st March, 2016:
Finished products (4000 tons) 16,000
Raw material purchased 60,000
Direct wages 50,000
Rent, rates and taxes of works 20,000
Work-in-progress on 1st April, 2015 2,400
Work-in-progress on 31st March, 2016 8,000
Cost of factory supervision 5,000
Sales of finished goods 1,50,000
Advertisement and selling expenses amount to 0.25 paise per ton sold. 32000 tons were produced during the year.
Prepare a cost sheet showing (i) the value of raw materials used, (ii) cost of production for the year, (iii) cost of goods
sold, (iv) the net profit for the year and (v) the net profit per ton of the product. 14
Solution:
Cost Sheet
Particulars Units Amount
Opening Stock of R/M 10,000
Add: Purchase of R/M 60,000
70,720
Less Closing stock of R/M 12,120
(1) R/M consumed 58,600
Add: Wages 50,000
Prime cost 1,08,600
Add: Factory overheads:
Cost of factory suspension 5,000
Rent, rates and Taxes of works 20,000
Works cost incurred 1,33,600
Add: Opening W-I-P 2,400
Less: Closing W-I-P 8,000
(2) Works cost/Cost of production 32,000 1,28,000
Add: Opening stock of FG (1,27,000/32,000 x 2,000) 2,000 8,000

Less: Closing stock of FG 4,000 16,000
(3) cost of goods sold 30,000 1,20,000
Add: S/D overheads (30,000 x 0.25) 7,500
(4) Total cost 1,27,500
Add: Profit 23,500
Sales 1,50,000
Or
(b) What do you understand by cost classification? Discuss the various bases of classification of costs and various
types of costs. 4+6+4=14
Ans: Classification of Cost – Elements of Cost – Cost Concepts
Cost classification is the process of grouping costs according to their common characteristics. It is the placement
of like items together according to their common characteristics. A suitable classification of costs is of vital importance in
b) By Functions
d) By Variability
management.
f) By Normality
categories:
Account.
charges etc.
h) By Time: Cost can be classified as (i) Historical costs and (ii) Predetermined costs.
be achieved.
4. (a) A worker takes 80 hours to do a job for which the time allowed is 100 hours. His daily rate is Rs. 2.50 per hour.
Calculate the work cost of the job under the following methods of payment of wages and statement of works cost: 14
a) Time rate
b) Halsey plan
c) Rowan plan
Additional information:
1) Material cost – Rs. 120
2) Factory overhead 125% of wages
Ans: Calculation of wages:
a) Time rate method: Time Taken * Rate per hour = 80*2.50= Rs. 200
b) Halsey Plan = TT * Rate Per hour + 50% (TS*Rate per hour) = 80*2.50+50%(20*2.50) = Rs. 225
c) Rowan Plan = TT * Rate Per Hour + TS/ST (TT * Rate per hour) = 80*2.50+ 20/100(80*2.50) = Rs. 240
Calculation of Works cost
Particulars Time Rate Halsey Method Rowan Method
Material 120 120.00 120
Wages 200 225.00 240
Prime Cost 320 345.00 360
Add: Factory Overheads 250 281.25 300
Works Cost 470 626.26 660
Or
(b) What do you mean by perpetual inventory system? How does it differ from ABC analysis? State the advantages of
ABC analysis. 4+6+4=14
stock taking. Similarly, it helps in having a detailed and more reliable check on the stocks. The stock records are more
Difference between ABC analysis, Perpetual Inventory system and VED analysis
ABC analysis Perpetual Inventory System
Its main objective is to reduce the investment in material. Its main objective is physical verification of all items.
In this system, stocks are classified on the basis of value. There is no classification of stock.
It will not pay equal attention to all types of inventory. Equal attention is given to all types of inventory.
ABC analysis is applicable when there is small variety of This system is applicable whether or not stocks are of
stock. large varieties or small varieties.
Store ledger and bin card is not prepared in this analysis. Store ledger and bin card is prepared in this system.
Advantages of ABC analysis

a. Reduction in investment: under ABC analysis, the materials from group 'A' are purchase in lower quantities as
much as possible. With this, the effort to reduce the delivery period is also made. These in turn help to reduce the
investment in material.
b. Optimization of Inventory management function: Each class of the inventory gets management attention as
per its value and accordingly, manpower is allocated and expenses are incurred to manage it. It ensures that most
important items are regularly monitored and closely observed whereas such efforts are expended with for the less
important items.
c. Control on high value material: under ABC analysis, strict control can be exercised to the materials in group
'A' that have higher value.
d. Reduction in Storage cost: Since Class “A” material is of high value and are purchase in lower quantities as
much as possible, it reduces the total storage cost.
e. Saving in time and cost: Since a signification effort is made for management of the material from group 'A', it
helps to save time as well as cost.
f. Opportunity to convert Class B items into Class A: As Class B items hold potential for growth, the business
may tap into this opportunity and convert it frequent yet low-value customers into regular, high-value customers to
Class A.
5. (a) From the following particulars, compute a comprehensive machine hour rate: 14
a) Cost of machine – Rs. 1,00,000; Estimated life – 15 years; Residual value – Rs. 10,000
b) Machine running hours – 2040 hours per machine per annum including idle time of 40 hours due to repairs
and maintenance and breakdown of machine.
c) Power consumption of the machine per hour – 20 units; Rate of power per 100 units – Rs. 80.
d) There are two operators in the shop and wages of an operator who is in charge of two machines Rs. 12,000
p.a.
e) Rent, rates and taxes of the shop Rs. 4,800 p.a.
f) Insurance premium for the machine Rs. 400 per quarter.
g) General lighting per month – Rs. 600
h) Repairs and maintenance expenses per month Rs. 400 per machine.
i) Shop supervisor’s salary per month – Rs. 1,500.
j) Other factory overhead allocated to the shop Rs. 6,000 p.a.
There are four identical machines in the shop. The supervisor devotes 1/5 th of his time for supervising the machine.
Or
a) Various methods of determining overhead rate:
Ans: The methods used for absorption are as follows:
1. Direct Material Cost: Under this method, the overheads are absorbed on the basis of percentage of direct
2. Direct Labor Cost Method: This method is used in those organizations where labor is a dominant factor in
3. Prime Cost Method: This method is an improvement over the first two methods. Under this method, the
4. Production Unit Method: This method is used when all production units are similar to each other in all
5. Direct Labor Hour Method: Under this method, the rate of absorption is calculated by dividing the overhead
6. Machine Hour Rate: Where machines are more dominant than labor, machine hour rate method is used.
7. Selling Price Method: In this method, selling price of the products is used as a basis for absorbing the
b) Various bases of apportionment of overheads to departments.
Ans: Bases of Apportionment: Suitable bases have to be found out for apportioning the items of overhead cost
to production and service departments and then for reapportionment of service departments costs to other service and
building etc.
6. (a) From the following information, prepare a Reconciliation Statement: 14

Particulars Rs.
Profit as per cost accounts 1,45,500
Works overheads under recovered 9,500
Administrative overheads under recovered 22,750
Selling overheads over recovered 19,500
Overvaluation of opening stock in cost accounts 15,000
Overvaluation of closing stock in cost accounts 7,500
Interest earned during the year 3,750
Rent received during the year 27,000
Bad debts written-off during the year 9,000
Preliminary expenses written-off during the year 18,000
Solution:
Reconciliation of Cost and Financial Account
Particulars Amount Amount
Profit as per cost accounts 1,45,500
Add:
a) Selling overheads over recovered 19,500
b) Overvaluation of opening stock in cost accounts 15,000
c) Interest earned during the year shown in profit and loss account only 3,750
d) Rent received during the year 27,000 65,250
Less: 2,10,750
a) Works overheads under recovered 9,500
b) Administrative overheads under recovered 22,750
c) Overvaluation of closing stock in cost accounts 7,500
e) Bad debts written-off during the year 9,000
f) Preliminary expenses written-off during the year 18,000 66,750
Profit as per financial accounts 1,44,000
Or
(b) (i) How does job costing differ from process costing?
Forms and Details There is more paper work. It has lesser paper work.
Inventory There is little or no inventory. There is regular and significant inventory.
Mechanization It is less amenable to mechanization & It is more amenable to mechanization &

automation. automation.
(ii) What do you mean by normal loss, abnormal loss and abnormal gain in process costing? How are they treated in
Process Accounts? 7+7=14
Ans: Treatment of losses in process costing: It is rare that the output of a process is equal to its input. In most of the
cases, the output of a process is less than the input. The difference between the input and output and output is called
process loss. The process loss may be in the form of loss in weight, scrapes or wastes. These process losses may be
classified into:
a) Normal Loss: The fundamental principle of costing is that the good units should bear the amount of normal
loss. Normal loss is anticipated and in a process it is inevitable. It is included in total cost of the product due to which
cost per unit is increases. The cost of normal loss is therefore not worked out. The number of units of normal loss is
credited to the Process Account and if they have some scrap value or realizable value the amount is also credited to the
process account. If there is no scrap value or realizable value, only the units are credited to the process account.
b) Abnormal Loss: If the units lost in the production process are more than the normal loss, the difference
between the two is the abnormal loss. It is excluded from total cost due to which it does not affect the cost per unit of
the product. The relevant process of account is credited and abnormal loss account is debited with the abnormal loss
valued at full cost of finished output. The amount realized from sale of scrap of abnormal loss units is credited to the
abnormal loss account and the balance in the abnormal loss account is transferred to the Costing Profit and Loss
Account.
c) Abnormal Gain: If the actual production units are more than the anticipated units after deducting the
normal loss, the difference between the two is known as abnormal gain. It is excluded from total cost due to which it
does not affect the cost per unit of the product. The valuation of abnormal gain is done in the same manner like that of
the abnormal loss. The units and the amount is debited to the relevant Process Account and credited to the Abnormal
Gain Account.
(OLD COURSE)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
a) Fixed cost per unit decreases/increases with rise in output.
b) For EOQ, Q stands for quality/quantity.
c) Under the Rowan plan, bonus is a fixed/variable percentage.
d) Bases of factory rent apportionment are floor area/direct expenses.
a) In an oil industry, Process costing method is applied.
b) The perpetual inventory system means a continuous stock-taking system.
c) In process costing, costs are calculated at the end of the each process.
d) Overheads are the sum of indirect material, indirect labour and indirect expenses.
2. Answer the following questions (any four): 4x4=16
a) Distinguish between Cost Accounting and Financial Accounting.
centers or not,
b) What do you mean by perpetual inventory system?
Ans: Perpectual Inventory System: Perpetual Inventory system means continuous stock taking. CIMA defines perpetual
f) It requires more efforts to maintain inventory under this method.
g) Quantity balances shown by the store ledger and bin cards are reconciled.
h) A number of items are physically checked systematically and by rotation.
i) The method is comparatively costly as compared to periodical inventory system.
j) Store ledger and bin cards keeps inventory record up-to date and decent.
k) The method applies to those concerns usually that sell high-value items (Such as car, personal computer,
c) Explain the causes of labour turnover.
(1) Personal Causes
below:
d) Explain different methods of calculating overheads.
Ans: The methods used for absorption are as follows:
1. Direct Material Cost: Under this method, the overheads are absorbed on the basis of percentage of direct
2. Direct Labor Cost Method: This method is used in those organizations where labor is a dominant factor in
3. Prime Cost Method: This method is an improvement over the first two methods. Under this method, the
4. Production Unit Method: This method is used when all production units are similar to each other in all
5. Direct Labor Hour Method: Under this method, the rate of absorption is calculated by dividing the overhead
6. Machine Hour Rate: Where machines are more dominant than labor, machine hour rate method is used.
7. Selling Price Method: In this method, selling price of the products is used as a basis for absorbing the
e) Distinguish between Job Costing and Process Costing.

3. (a) Following information has been obtained from the cost records of Aditya Chemical Ltd. for 2016:
Particulars Rs.
Finished goods on 1.1.2016 50,000
Raw materials on 1.1.2016 10,000
Work-in-progress on 1.1.2016 14,000
Direct Labour 1,60,000
Purchase of raw material 98,000
Indirect labour 40,000
Heat, light and power 20,000
Factory insurance and taxes 5,000
Repairs to plant 3,000
Factory supplies 5,000
Depreciation on factory building 6,000
Depreciation on plant 10,000
Finished goods on 31.12.2016 1,70,000
Raw materials on 31.12.2016 13,000
Work-in-progress on 31.12.2016 78,000
No office and administrative expenses were incurred during the year 2016. Prepare a statement of cost for the year
2016 showing (i) cost of raw material consumed, (ii) factory cost and (iii) cost of goods sold. 11
Cost Sheet
Particulars Amount
1,08,000
Less Closing stock of R/M 13,000
(1) R/M consumed 95,000
Add: Wages 1,60,000
Prime cost 2,55,000
Indirect Labour 40,000
Heat, light and power 20,000
Factory insurance and taxes 5,000
Repairs to plant 3,000
Factory supplies 5,000
Depreciation on factory building 6,000
Depreciation on plant 10,000
Works cost incurred 3,44,000
Add: Opening W-I-P 14,000
Less: Closing W-I-P 78,000
(2) Works cost/Cost of production 2,80,000
Add: Opening stock of FG 50,000
Less: Closing stock of FG 1,70,000

(3) cost of goods sold 1,60,000
Or
(b) What do you understand by cost classification? Discuss the various bases of classification of costs and give examples
of each class of cost. 3+5+3=11
4. (a) The products A and B are used as follows:
Particulars A B
Normal consumption 200 units Per week 100 units Per week
Maximum consumption 300 units Per week 200 units Per week
Minimum consumption 100 units Per week 50 units Per week
Reorder quantity 1,000 units 500 units
Reorder period 4 to 5 weeks 2 to 4 weeks
For each product, calculate the following: 11
1) Reorder level
2) Maximum level
3) Minimum level
4) Average stock level
Solution:
(a ) Re-order level=Maximum consumption×M aximum Re-order period
A=300×5=1,500 units
B=2 00×4= 800 units
(b ) Maximum level=ROL+ROQ−( Minimum Consumption×Minimum ROP )
A=1 , 500+1 ,000−( 100×4 )=2 , 100
B=800+500−( 50×2 ) =1 ,200
(c ) Minimum level=ROL−( Normal Consumption×Normal ROP )
A=1,500− 200× ( 4+5
2
=600 )
B=800− 100×( 2+4
2
=500)
1
(d ) Average Stock level=Minimum Level+ ROQ
2
1
A=600+ ×1 , 000=1 , 100
2
1
B=500+ ×500=750
2
Or
(b) What do you understand by economic order quantity (EOQ)? Describe the methods pricing materials issues with its
advantages and disadvantages. 4+7=11
period of time.
f) Interest on investment of working capital
g) Property tax and insurance
h) Storage cost, handling cost
i) Deterioration and shrinkage of stocks
j) Obsolescence of stocks.
EOQ =
√ 2∗A∗Cp
Ch
5. (a) A worker takes 12 hours to complete a work on daily wages and 8 hours on a scheme of payment by results.
Worker’s day rate is Rs. 6 per hour. The cost of material of the product is Rs. 20 and the overheads are recovered at
200% of the total wages. Calculate the factory works cost of the product under (i) Rowan plan and (ii) Halsey
scheme. 11
Ans: Calculation of wages:
a) Rowan Plan = TT * Rate Per Hour + TS/ST (TT * Rate per hour) = 8*6+ 4/12(8*6) = Rs. 64
b) Halsey Plan = TT * Rate Per hour + 50% (TS*Rate per hour) = 8*6+50% (4*6) = Rs. 60
Calculation of Works cost
Particulars Rowan Method Halsey Method
Material 20 20
Wages 64 60
Prime Cost 84 80
Add: Factory Overheads 128 120
Works Cost 212 200
Or
(b) Write short notes on: 3+3+5=11
a) Idle time: Idle time refers to the labour time paid for but not utilized on production. It, in fact, represents the time for
which wages are paid, but during which no output is given out by the workers. This is the period during which workers
remain idle.
Types of Idle Time and its treatment
a) The main reasons for the occurrence of normal idle time are as follows:
b) Time taken by workers to travel the distance between the main gate of factory and the place of their work.
c) Time lost between the finish of one job and starting of next job.
d) Time spent to overcome fatigue.
e) Time spent to meet their personal needs like taking lunch, tea etc.
a) Due to machine break downs, power failure, non-availability of raw materials, tools or waiting for jobs due
b) Due to conscious management policy decision to stop work for some time.
c) In the case of seasonal goods producing units, it may not be possible for them to produce evenly throughout
b) Overtime: Overtime is the amount of wages paid for working beyond normal working hours as specified by Factories
Act or by a mutual agreement between the workers union and the management. There is a practice is to pay for
overtime work at higher rates. Hence, payment of overtime consists of two elements, the normal wages e.g., the usual
amount, and the extra payment i.e., the premium. This amount of extra payment paid to a worker under overtime is
known as overtime premium.
Treatment of Overtime Premium in Cost Accounting
c) If overtime is resorted to at the desire of the customer, then overtime premium may be charged to the job
directly.
d) If overtime is required to cope with general production programme or for meeting urgent orders, the
overtime premium should be treated as overhead cost of the particular department or cost center, which works
overtime.
e) If overtime is worked in a department, due to the fault of another department, the overtime premium
should be charged to the latter department.
f) Overtime worked on account of abnormal conditions such as flood, earthquake etc. should not be charged
to cost but to costing P/L A/c.
c) Labour turnover: Meaning: Labour turnover may be defined as change in labour force i.e., percentage change in the
labour force during a specific period. High labour turnover indicates that labour is not stabilised and there are frequent
changes by way of workers leaving the organization. High labour turnover is to be avoided. At the same time very low
labour turnover indicates inefficient workers are being retained in the organization.
(1) Personal Causes
below:
ii) Unavoidable Causes: In certain instances, the organization may discharge the employees due to unavoidable

6. (a) A machine purchased for Rs. 55,000. It was installed in a shop over 1/5 th of its floor area at an additional cost of Rs.
5,000. The working life of the machine as also the scrap value was estimated at 10 years and Rs. 5,000 respectively.
From the following details, compute the machine hour rate: 12
Particulars Rs.
Rent and rates of the shop p.a. 5,000
Repairs and maintenance for the machine p.a. 3,000
Insurance premium p.a. 2,400
Supervisor’s salary p.m. 1,000
th
It is estimated that the supervisor devotes 1/4 of his time for the machine. The cost of power is Rs. 20 per 100 units and
the machine consumed 10 units per hour. Normal working hour of the machine is estimated at 1200 but during the year
it actually worked for 1000 hours.
Computation of Machine Hour rate
Standing Charges:
Rent and Rates 5(

5 , 000
) 1,000
General Lighting
500×12
5 ( ) 1,200
2,400
Insurance premium
Supervisor’s Salary
( 1 ,000×12
4 ) 3,000
For 1,000 hours 7,600 7.60

Running Expenses:
Depreciation
(5510×1, 000+5
,000
, 000−5 ,000
) 5.50
R/M
( 31 ,, 000
000 )
3.00
( )
20 2.00
10×
Power 100
Normal working hours = 1,200 – 200 = 1,000

Or
(b) What do you mean by overhead cost? Explain the various classifications of overhead cost and its bases of
apportionment. 4+8=12
Ans: Meaning and Definition of overheads
Aggregate of all expenses relating to indirect material cost, indirect labour cost and indirect expenses is known
as Overhead. Accordingly, all expenses other than direct material cost, direct wages and direct expenses are referred to
as overhead.
According to Wheldon, Overhead may be defined as "the cost of indirect material, indirect labour and such
other expenses including services as cannot conveniently be charged to a specific unit."
Blocker and WeItmer define overhead as follows: "Overhead costs are operating cost of a business enterprise
which cannot be traced directly to a particular unit of output. Further such costs are invisible or unaccountable."
Classification of Overheads
Classification of overheads is the process of grouping of costs based on the features and objectives of the
business organization. Classification is made according to following basis:
(g) Classification according to Elements: According to this classification overheads are divided according to
(h) Functional Classification: Overheads can also be classified according to their functions. This classification is
Examples of selling overheads are sales promotion expenses, marketing expenses, salesmen’s salaries and commission,
(i) Classification according to Behavior: According to this classification, overheads are classified as fixed,
the salary of the supervisor. This indicates that it is a semi-variable overhead. Similarly, maintenance expenditure, fire
Bases of Apportionment: Suitable bases have to be found out for apportioning the items of overhead cost to
production and service departments and then for reapportionment of service departments costs to other service and
building etc.
7. (a) A product passes through three processes for completion. During December 2016, 1000 units were produced.
The data relating to the process were as follows:
Particulars A (Rs.) B (Rs.) C (Rs.)
Material 30,000 15,000 10,000
Labour 25,000 20,000 15,000
Direct Expenses 5,000 21,600 9,050
The indirect expenses for the period were Rs. 14,000. The scraps of process B and C were sold at Rs. 1,450 and Rs. 1,660
respectively. Prepare the Process Accounts and cost of Production Account. 11
Process A Account
Particulars Per Amount Particulars Per Unit Amount

Unit
To Materials 30 30,000 By Process B Account 61.974 61,974
To Labour 25 25,000
To Direct Expenses 5 5,000
To Indirect Expenses 1.964 1,964
(Absorbed on the basis
of wages)
61.974 61,974 61.974 61,974
Process B Account
Unit
To Process A Account 61.974 61,974 By Normal Loss 1.45 1,450
To Materials 15 15,000 By Process C Account 125.596 1,25,596
To Labour 20 20,000
To Direct Expenses 21.60 21,600
To Indirect Expenses 8.842 8,482
of wages)
127.046 1,27,046 127.046 1,27,046
Process C Account
Unit
To Process B Account 1,25,596 By Normal Loss 1,660
To Materials 10,000 By Process C Account 1,61,540
To Labour 15,000
To Direct Expenses 9,050
To Indirect Expenses 3,554
of wages)
1,63,200 1,63,200
Or
1. Difference between Cost Audit and Financial Audit.
2. Reconciliation of Cost Account and Financial Account.
Ans: Reconciliation of Cost Accounting and Financial Accounting: 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
system.
system.
2018 (May)
COMMERCE
(General/Speciality)
Course: 401
(Cost Accounting)
Time: 3 hours
(NEW COURSE)
Full Marks: 80
Pass Marks: 24
1) Fixed cost per unit decreases 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 Cost Accounting, overheads are the combination of indirect material, indirect labour and indirect
expenses.
1) Under the ABC analysis of material control, A stands for low value/moderate value/high value items.
2) In a chemical industry, the method of process costing/contract costing is applied.
3) Variable overhead cost is a period cost/an output cost.
4) Cost of abnormal idle time and overtime is transferred to costing Profit and Loss Account/General Profit and
Loss Account.
a) Distinction between Cost Accounting and Financial Accounting (any four points)
centers or not,
b) Causes of labour turnover.
(1) Personal Causes
below:
c) Allocation and absorption of overheads.
Ans: Allocation of Overhead Expenses: Allocation is the process of identification of overheads with cost centres. An
expense which is directly identifiable with a specific cost centre is allocated to that centre. So it is the allotment of whole
item of cost to a cost centre or cost unit or refers to the charging of expenses which can be identified wholly with a
particular department. For example, the whole of overtime wages paid to the workers relating to a particular
department should be charged to that department. So, the term allocation means the allotment of the whole item
without division to a particular department or cost centre.
Absorption of Overheads: The most important step in the overhead accounting is ‘Absorption’ of overheads. CIMA
defines absorption as, ‘the process of absorbing all overhead costs allocated or apportioned over a particular cost center
or production department by the units produced.’ In simple words, absorption means charging equitable share of
selected. A base selected may be any one of the basis given below. The formula used for deciding the rate is as follows,
d) Reconciliation of Cost Account and Financial Account.
system.
system.
e) Perpetual inventory system.
l) It requires more efforts to maintain inventory under this method.
m) Quantity balances shown by the store ledger and bin cards are reconciled.
n) A number of items are physically checked systematically and by rotation.
o) The method is comparatively costly as compared to periodical inventory system.
p) Store ledger and bin cards keeps inventory record up-to date and decent.
3. (a) The following data have been extracted from the books of M/s, ABC Industries Ltd. For the calendar year, 2017:
Particulars (Rs.)
Opening stock of raw materials 25,000
Purchase of raw materials 85,000
Closing stock of raw materials 40,000
Carriage inwards 5,000
Wages: Direct 75,000
Indirect 10,000
Other direct charges 15,000
Rent and rates: Factory 5,000
Office 500
Indirect consumption of materials 500
Depreciation: Plant 1,500
Office Furniture 400
Salary: Office 2,500
Salesman 2,000
Other factory expenses 5,700
Other office expenses 700
Managing Director’s remuneration 12,000

Other selling expenses 1,000
Travelling expenses of salesman 1,100
Carriage and freight outward 1,400
Sales 2,50,000
Advance income-tax paid 15,000
Advertisement 2,000
Managing Director’s remuneration is to be allocated in the ratio of 2 : 1 : 3 for factory, office and sales departments
respectively. From the above information, prepare the different phases of cost and net profit. 14
Cost Sheet of M/S ABC Industries
Carriage Inwards 5,000
1,15,000
Less: Closing stock of R/M 40,000
(a) R/M consumed 75,000
Add: Wages (Direct) 75,000
Add: Other direct changes 15,000
(b) Prime Cost 1,65,000
Indirect materials 500
Indirect wages 10,000
Factory rent and rates 5,000
Depreciation on Plant 1,500
Other Factory expenses 5,700
Managing director’s remuneration (12,000 x 2/6) 4,000 26,700
(c) works cost 1,91,700
Add: Office and administrative Overheads:
Office rent & rates 500
Depreciation on office furniture 400
Office salary 2,500
Other office expenses 700
Managing director’s remuneration 2,000 6,100
(d) Cost of production: 1,97,800
Add: Selling and Distribution Overheads:
Salesman salary 2,000
Managing director’s remuneration (12,000 x 3/6) 6,000
Other Selling Expenses 1,000
Travelling Expenses of salesman 1,100
Carriage & Freight outward 1,400
Advertisement 2,000 13,500
(e) Total cost 2,11,300
Add: Profit 38,700
(f) Sales 2,50,000
Or
(b) What do you mean by material control? What are its techniques? Discuss its significances. 3+3+8=14
Ans: Inventory or Store Control: Inventory control means to monitor the stock of goods used for production,
distribution and captive (self) consumption. For a specific time period, stocks of goods are placed at some particular
location. Stock of goods includes raw-materials, work in progress, finished goods, packaging, spares, components,
consumable items, etc. Inventory Control means maintaining the inventory at a desired level. The desired-level keeps on
fluctuating as per the demand and supply of goods.
According to Gordon Carson, "Inventory control is the process whereby the investment in materials and parts
the management."
Significance/Advantages of Inventory control
1. Protects from fluctuations in demand: There are always chances of fluctuations in the demand of a material.
These fluctuations can be adjusted if there are sufficient items in the stock of inventory. Therefore, proper inventory
control protects the company from fluctuations in demand.
2. Better services to customers: If the company maintains a proper inventory of raw-materials, then it can
complete its production in time. So, it can deliver the finished goods to the customers in time. Similarly, if the company
has a proper inventory of finished goods, then it can satisfy the additional demand of the customers.
3. Continuity of production operations: Proper inventory control helps to maintain continuity of production
operations. This is because it maintains a smooth flow of raw materials. So, there are no shortages of raw-materials
required for production process.
4. Reduces the risk of loss: Proper inventory control helps to reduce the risk of loss due to obsolescence
(outdated) or deterioration of items. This is because it checks all the items regularly.
5. Minimizes the administrative workload: Proper inventory control helps to minimize the administrative work
load of purchasing, inspection, warehousing, etc. This will reduce the manpower requirement and will minimize the
labour cost too.
6. Protects fluctuation in output: Inventory control tries to reduce the gap between planned production and
actual production. There are cases where the production schedule cannot be followed because of Sudden breakdown of
machines, Problems in supply of materials, Sudden labour strikes, Loss due to failure of power supply, etc.
In such cases, the difference between planned production and actual production can be bridged by inventories
held in stock.
7. Effective use of working capital: Proper inventory control helps to make effective use of working capital.
Inventory control helps in maintaining the right amount of stocks of materials, components, etc. Over stocking is
avoided. Therefore, the working capital will not be blocked in excess inventory.
8. Check on loss of materials: Inventory control helps to maintain a check on the loss of materials due to
carelessness or pilferage. If there is no proper inventory control, then there are more chances of carelessness and
pilferage by the employees, especially in the store-keeping department.
9. Facilitates cost accounting activities: Inventory control facilitates cost accounting activities. This is because,
inventory control provides a means of allocating materials cost of products, departments or other operating accounts.
10. Avoids duplication in ordering: Inventory control avoids duplication in ordering of stock. This is done by
maintaining a separate purchase department.
INVENTORY CONTROL TECHNIQUES
Techniques of Inventory Control
The techniques or the tools generally used to effect control over the inventory are the following:
1) Budgetary techniques for inventory planning;
2) A-B-C. System of inventory control; (SHORT NOTE)
3) Economic Order Quantity (E.O.Q.) i.e., how much to purchase at one time economically; (SHORT NOTE)
4) VED Analysis;
5) Perpetual inventory system and the system of store verification; (SHORT AND BROAD QUESTION)
6) Fixation of Stock Level;
7) Control Ratios.
1) Budgetary Techniques: For the purchase of raw materials and stocks, what we required is a purchase
Budged to be prepared in terms of quantities and values involved. The sales stipulated as per sales Budget of the
corresponding period generally works out to be the key factor to decide the production quantum during the budget
period, which ultimately decides the purchases to be made and the inventories to be planned.
2) ABC Analysis: ABC System: In this technique, the items of inventory are classified according to the value of
usage. Materials are classified as A, B and C according to their value.
Advantages of ABC analysis
a. Reduction in investment: under ABC analysis, the materials from group 'A' are purchase in lower quantities as
much as possible. With this, the effort to reduce the delivery period is also made. These in turn help to reduce the
investment in material.
b. Optimization of Inventory management function: Each class of the inventory gets management attention as
per its value and accordingly, manpower is allocated and expenses are incurred to manage it. It ensures that most
important items are regularly monitored and closely observed whereas such efforts are expended with for the less
important items.
c. Control on high value material: under ABC analysis, strict control can be exercised to the materials in group
'A' that have higher value.
d. Reduction in Storage cost: Since Class “A” material is of high value and are purchase in lower quantities as
much as possible, it reduces the total storage cost.
e. Saving in time and cost: Since a signification effort is made for management of the material from group 'A', it
helps to save time as well as cost.
f. Opportunity to convert Class B items into Class A: As Class B items hold potential for growth, the business
may tap into this opportunity and convert it frequent yet low-value customers into regular, high-value customers to
Class A.
Disadvantage of ABC analysis
a) No Proper classification of material: ABC analysis will not be effective if the material are not classified into
the groups properly.
b) Not suitable if materials are of same value: It is not suitable for the organization where the costs of materials
do not vary significantly.
c) No scientific base: There is no any scientific base for the classification of material under ABC analysis.
d) Not suitable for small organisation: The classification of the materials into different groups may lead to extra
cost. Hence, it may not be suitable for small organization.
3) Economics order quantity: Economics order quantity represents the size of the order for which both order,
ordering and carrying costs together are minimum. If purchases are made in large quantities, inventory carrying cost will
be high. If the order size is small, ordering cost will be high. Hence, it is necessary to determine the order quantity for
which ordering and carrying costs are minimum. The formula used for determining economics order quantity is a s
follows:
Where,
EOQ=
√ 2 AO
C
A is the annual consumption of material in units.

O is the cost of placing an order (ordering cost per unit)
C is the cost of interest and storing one unit of material for the one year (carrying cost per unit per annum).
4) VED Analysis: VED – Vital, Essential, Desirable – analysis is used primarily for control of spare parts. The
spare, parts can be divided into three categories – vital, essential or desirable – keeping in view the critically to
production.
5) Perpetual Inventory System: Perpetual Inventory system means continuous stock taking. CIMA defines
perpetual inventory system as ‘the recording as they occur of receipts, issues and the resulting balances of individual
items of stock in either quantity or quantity and value’. Under this system, a continuous record of receipt and issue of
materials is maintained by the stores department and the information about the stock of materials is always available.
Entries in the Bin Card and the Stores Ledger are made after every receipt and issue and the balance is reconciled on
regular basis with the physical stock. The main advantage of this system is that it avoids disruptions in the production
caused by periodic stock taking. Similarly it helps in having a detailed and more reliable check on the stocks. The stock
records are more reliable and stock discrepancies are investigated and appropriate action is taken immediately.
q) It requires more efforts to maintain inventory under this method.
r) Quantity balances shown by the store ledger and bin cards are reconciled.
s) A number of items are physically checked systematically and by rotation.
t) The method is comparatively costly as compared to periodical inventory system.
u) Store ledger and bin cards keeps inventory record up-to date and decent.
v) The method applies to those concerns usually that sell high-value items (Such as car, personal computer,
w) Causes for difference between physical balances and book balances can be explored.
x) Making corrective entries in case of discrepancies.
y) Removing the causes of discrepancies between physical quantities and book balances.
Advantages of Perpetual Inventory System
j) Easy detection of errors - Errors and frauds can be easily detected at an early date. It helps in preventing
their occurrence.
k) 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.
l) No interruption of production process- Production process is not interrupted as the physical verification of
stock is made on a planned and regular basis.
m) 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.
n) Investment in materials kept under control - The investment in materials is kept at a minimum level as the
actual stock is continuously compared with the maximum level and minimum level.
o) Early detection of loss of stock- Loss of stock due to shrinkage, evaporation, accident, fire, theft, etc. can be
easily detected.
p) Accurate and up-to-date accounting records- Due to continuous stocktaking, the store-keeper and stores
accountant become more vigilant in their works and they maintain accurate and up-to-date records.
q) Easy to prepare interim accounts- It is possible to prepare periodical profit and loss account and balance
sheet without physical stock-taking being made.
r) Availability of correct stock data- Correct stock data is readily available for settlement of insurance claims.
6) Fixation of stock level: The object of fixing stock levels for each item of material is to maintain required
quantity of materials in the store and thereby the expenses may be reduced. The different stock levels are: (1) Minimum
stock level (2) Maximum stock level (3) Reorder stock level
a. Minimum stock level: It represents the minimum quantity of an item of material to be kept in the store at
any time. Material should not be allowed to fall below this level. If the stock goes below this level, production may be
held up for want of materials. This stock is also known as safety stock level or buffer stock.
b. Maximum stock level: It is the stock level above which stock should not be allowed to rise. This is the
maximum quantity of stock of raw materials which can be had in the stock. It is goes above, it will be overstocking.
c. Reorder stock level: It is the point at which the storekeeper should initiate purchase requisition for fresh
supply. This level lies between the maximum level and the minimum level.
7) Control Ratios: The control ratios are mainly two:
a) Inventory Turnover Ratio which we have studied and
b) Input-output Ratio.
Inventory Turnover: Inventory Turnover is a ratio of the value of the materials consumed during a period to the
average value of inventory held during that period.
If the inventory turnover rate in terms of value of materials is high, or if the length of the inventory turnover
period is short, the material is said to be fast moving. So if the rate of consumption is fast or if the inventory turnover
rate is good, it is a healthy measure of efficiency of materials control, as the capital employed is properly utilized.
Input-output Ratio: The Input-output Ratio is the ratio of the raw material put into manufacture and the
standard raw materials content of the actual output. This ratio enables one to find out whether the usage of the
materials is favourable or not. A standard ratio of input of materials and output of material should be determined and
the actual ratio should be compared with the standard ratio.
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;
Ans:
Time Take = 48 Hours
Time Allowed based on actual output = 15 mins * 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 * Rate per piece
= 240*1.25
= Rs. 300
Or Guaranteed weekly wages = 48*5 = 240
Whichever is higher is his actual wages i.e., Rs. 300
2) Rowan Premium Plan = TT*Rate per Hour + TS/ST (TT*Rate per hour)
= 48*5+ 12/60(48*5) = Rs. 288
3) Halsey Premium plan = TT*Rate per hour + 50% (TS*Rate per hour)
= 48*5+50% (12*5) = Rs. 270
Or
(b) (1) Describe the essential characteristics of a good system of wage payment. 7
Ans: An ideal incentive plan must possess the following features:
a) Simplicity - The plan should be simple to understand and operate. Who should be able to calculate their
wages without any difficulty?
b) Acceptability - It should be acceptable to workers as well as the employer.
c) Flexibility - The incentive plan should be flexible to introduce nice changes.
d) Quality - The plan should ensure the quality of the output. Workers should be discouraged to speed up the
work to earn more wages at the cost of quality.
e) Stability - The plan should give a stable earnings over a period of time, minimum but adequate wage must
be ensured.
f) Wide coverage - It should cover the maximum number of workers. 1 direct as well as indirect worker should
be covered.
g) No restriction on earnings - The plan should not have any restriction earnings of workers. They should be
allowed to earn as much as they can.
h) Investigation and evaluation - The plan should be based on scientific investigation and evaluation to produce
good result. Standard time should fix on the basis of time and motion study.
i) Increasing output and lowering cost of production - It should aim increasing output and lowering cost of
production.
j) Motivating to earn more - The plan should motivate the workers increase their efficiency and earn more.
The success of an incentive plan depends on the mutual cooperation a understanding between employer and
employees.
(2) Describe with illustration the salient features of Rowan Plan and Halsey Plan. 7
Ans: The Halsey premium plan: This system is known as fifty-fifty plan. It was introduced by F.A. Halsey, an American
engineer. Under this method a standard time is fixed for the performance of each job; worker is paid for actual time
taken at an hourly rate plus 50% of time saved as bonus. Total wages under this scheme is calculated with the help of
Earnings = Time taken x Rate per hour + 50% (Time saved x Rate per hour)
Principles/Features of Halsey Premium Scheme: Under this plan,
a. Time rate is guaranteed and the worker gets the guaranteed irrespective of whether he completes the job
b. Standard time and standard work are fixed for the job or operation in advance;
c. The workers producing more than the standard, or the workers completing the work in less than the
d. The bonus or the premium, by whatever name called, is 30 to 70 percent of the wages of time saved, the
usual percentage being 50%,
e. Workers who fail to reach the prescribed standard get the time wages.
f. Labour cost per unit of output decreases. The employer also shares the benefit of efficiency which induced
Rowan System or Rowan Plan: The scheme was introduced in 1901 by David Rowan of Glasgow, England. The
wages are calculated on the basis of hours worked where as the ‘bonus is that proportion of the wages of time taken
The main principles/features of Rowan plan are:
a. Time rate is guaranteed and the worker gets the guaranteed irrespective of whether he completes the job
b. Standard time and standard work are fixed for the job or operation in advance;
c. The workers producing more than the standard, or the workers completing the work in less than the
d. Bonus is based on that proportion of the time wages which the time saved bears to the standard time.
e. Workers who fail to reach the prescribed standard get the time wages.
f. Labour cost per unit of output decreases. The employer also shares the benefit of efficiency which induced
g. Wages per hour increases but in the same proportion as the output.
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.
Solution:
Calculation of Machine Hour Rate
Standing Charges:
Rent (3,600 /3) 1,200
Electricity (200 x 12/3) 800
Foreman’s Salary (750 x 12/3) 3,000
For 2,000 hours 5,000 2.50
Running Expenses:
(1 ,30 , 000−10 , 000

) 6.00
R/M
(600
2 , 000 )
0.30
Power (10*3/100) 0.30

Indirect Labour cost (Operator’s wages) 2
Normal working hours = 2,500 – 20% = 2,000
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
Ans: Absorption of Overheads
The most important step in the overhead accounting is ‘Absorption’ of overheads. CIMA defines absorption as,
‘the process of absorbing all overhead costs allocated or apportioned over a particular cost center or production
department by the units produced.’ In simple words, absorption means charging equitable share of overhead expenses
to the products. As the overhead expenses are indirect expenses, the absorption is to be made on some suitable basis.
The basis is the ‘absorption rate’ which is calculated by dividing the overhead expenses by the base selected. A base
selected may be any one of the basis given below. The formula used for deciding the rate is as follows,
The methods used for absorption are as follows:
a. Direct Material Cost: Under this method, the overheads are absorbed on the basis of percentage of direct
b. Direct Labor Cost Method: This method is used in those organizations where labor is a dominant factor in
c. Prime Cost Method: This method is an improvement over the first two methods. Under this method, the
d. Production Unit Method: This method is used when all production units are similar to each other in all
e. Direct Labor Hour Method: Under this method, the rate of absorption is calculated by dividing the overhead
f. Machine Hour Rate: Where machines are more dominant than labor, machine hour rate method is used.
g. Selling Price Method: In this method, selling price of the products is used as a basis for absorbing the
overheads.
following reasons:
a. Errors in estimating overheads.
b. Overhead may change due to change in method of production.
c. The seasonal fluctuation in overhead cost in some industries.
d. Under utilization of available capacity, unexpected change in the volume of out put.
e. Valuation of work in progress in wrong process.
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:
Materials (tones) 1,000 70
Cost of materials (Rs. Per tone) 125 200
Wages (Rs.) 28,000 10,000
Manufacturing expenses (Rs.) 8,000 5,250
Output (tones) 830 780
Prepare the Process Cost Accounts showing cost per tones of each process. There was no work-in-progress in any
process. 14
Process A A/c
To Raw Materials 1,000 1,25,000 By loss of weight 50 ------
To Wages - 28,000 By Normal Loss (Scrap) 100 8,000
To Mfg. Expenses 8,000 By Abnormal Loss 20 3,600
By Process B A/c 830 1,49,400
1,000 1,61,000 1,000 1,61,000
Process B A/c
To Process A A/c 830 1,49,400 By loss of weight 45 -----
To Direct Materials 70 14,000 By Normal Loss (Scrap) 90 18,000
To Wages 10,000
To Manufacturing 5,250 By Finished Stock A/C 780 1,63,800
Expenses 15 3,150
To Abnormal Gain A/c
915 1,81,800 915 1,81,800
Working Note: (i) Value of abnormal loss (Process A A/c)
1 , 61 , 000−8 , 000
= ×20
1 , 000−150
=3600
(ii) Value of abnormal gain (Process B A/c)
1 , 78 , 650−18000
= ×15
9 ,000−135
=3 , 150
Or
(b) (1) Define job costing. Where is it applied? 2+2=4
Ans: Job Costing: Job costing is 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
Ans: 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
system.
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.
(v) Under absorption of overheads in cost accounts.
(vi) The amount by which closing stock of inventory is over-valued in cost accounts.
(vii) The amount b which the opening stock of inventory is under -valued in cost accounts.
3. After making all the above additions and deductions, the resulting figure will be profit as per financial
accounts.
Note: If, profit as per financial accounts (or loss as per cost accounts) is taken as the base, then items added shall be
deducted and items to be deducted shall be added, i.e., the procedure shall be reversed.
(OLD COURSE)
Full Marks: 80
Pass Marks: 32
1) Overheads are the combination of direct material, direct labour and direct expenses.
2) Fixed cost per unit decreases when volume of production increases.
3) In Cost Accounting, depreciation is the indirect expenses.
4) In process costing, the output of the each process is the input of the next process.
1) Variable cost per unit remains same/increases/decreases due to increase in production.
2) Rent of factory building is a variable cost/fixed cost/semi-variable cost.
3) A high labour turnover increases/decreases the cost of production.
4) Standard costing is a method/technique of Cost Accounting.
a) Distinction between Cost Accounting and Management Accounting.
Ans: DISTINGUISH BETWEEN MANAGEMENT ACCOUNTING AND COST ACCOUNTING
Cost accounting and Management accounting are two modern branches of accounting. Both the systems involve
presentation of accounting data for the purpose of decision making and control of day-to-day activities. Cost accounting
is concerned not only with cost ascertainment, but also cost control and managerial decision making.
Management accounting makes use of the cost accounting concepts, techniques and data. The functions of cost
accounting and management accounting are complimentary. In cost accounting the emphasis is on cost determination
while management accounting considers both the cost and revenue. Though it appears that there is overlapping of areas
between cost and management accounting, the following are the differences between the two systems.
a) Purpose: The main objective of cost accounting is to ascertain and control the cost of products or services.
The function of management accounting is to provide information to management for efficiently performing the
functions of planning, directing, and controlling.
b) Emphasis: Cost accounting is based on both historical and present data, whereas management according
deals with future projections on the basis of historical and present cost data.
c) Principles and Procedures: Established procedures and practices are followed in cost accounting. No such
prescribed practices are followed in Management accounting. The analysis is made and the resulting conclusions are
presented in reports as per the requirements of the management.
d) Data Used: Cost accounting uses only quantitative information whereas management accounting uses both
qualitative and quantitative information.
e) Scope: Management accounting includes, financial accounting, cost accounting, budgeting, tax planning and
reporting to management, whereas Cost accounting is concerned mainly with cost ascertainment and control.
b) Economic Order Quantity (EOQ)
period of time.
1) Interest on investment of working capital
2) Property tax and insurance
3) Storage cost, handling cost
4) Deterioration and shrinkage of stocks
5) Obsolescence of stocks.
EOQ =
√
c) Labour turnover.
2∗A∗Cp
Ch
(1) Personal Causes
below:

d) Apportionment and absorption of overheads.
Ans: Apportionment of Overhead Expenses: Cost apportionment is the allotment of proportions of items to cost centres
or cost units on an equitable basis. The term refers to the allotment of expenses which cannot identify wholly with a
particular department. Such expenses require division and apportionment over two or more cost centres or units. So
cost apportionment will arise in case of expenses common to more than one cost centre or unit. It is defined as the
Absorption of Overheads
The most important step in the overhead accounting is ‘Absorption’ of overheads. CIMA defines absorption as,
‘the process of absorbing all overhead costs allocated or apportioned over a particular cost center or production
department by the units produced.’ In simple words, absorption means charging equitable share of overhead expenses
to the products. As the overhead expenses are indirect expenses, the absorption is to be made on some suitable basis.
The basis is the ‘absorption rate’ which is calculated by dividing the overhead expenses by the base selected. A base
selected may be any one of the basis given below. The formula used for deciding the rate is as follows,
e) Reconciliation of Cost Account and Financial Account.
system.
system.
3. (a) The Accounts of ABC Manufactures Ltd. For the year ending 31st December, 2017 shows the following:
Particulars (Rs.)
Stock of raw material on 1.1.2017 6,720
Materials purchased 1,50,000
Material returned to suppliers 2,000
Direct labour 50,000
Direct expenses 15,300
Factory expenses 20,000
Office and administrative expenses 8,000
Selling and distribution expenses 7,900
Stock of materials on 31.12.2017 7,720
Profit 10,000
Find out:
7) Material consumed;
8) Prime cost;
9) Work cost;
10) Cost of production;
11) Sales. 11
Solution:
Cost Sheet
Particulars Amount
Opening Stock R/M 6,720
Add: Purchase of R/M (less return) 1,48,000
Less: Closing Stock of R/M 7,720
(a) Raw material consumed 1,47,000
Add: Direct labour 50,000
Add: Direct Expenses 15,300
(b) Prime cost 2,12,300
Add: Factory overheads 20,000
(c) Works Cost 2,32,300
Add: Office and administration overheads 8,000
(d) Cost of production 2,40,300
Add: Selling and Distribution overheads 7,900
(e) Total Cost 2,48,200
Add: Profit 10,000
(f) Sales 2,58,200
Or
(b) What are elements of cost? Classify costs according to elements, function and variability and give two examples of
each. 3+8=11
such total cost is constituted and valuation of work in progress. Cost are further divided into direct and indirect costs.
b) By Functions
d) By Variability
4. (a) Compute the reorder level, minimum level, maximum level and average stock level for components A and B based
on the following data: 11
Particulars A B
Maximum consumption per week 150 units 150 units
Average consumption per week 100 units 100 units
Minimum consumption per week 50 units 50 units
Reorder period 8 to 12 weeks 4 to 8 weeks
Reorder quantity 400 units 600 units
Maximum lead time for emergency purchase 3 weeks
Solution:
(a ) Re-order level=Maximum consumption ×M aximum Re-order period

A=150×12=1,800 units
B=150×8= 1,200 units
(b ) Minimum level=ROL−( Normal Consumption×Normal ROP )
A=1,800− 100× ( 8+12
2
=800 )
B=1 ,200− 100×( 4+8
2
=600)
(c ) Maximum level=ROL+ROQ− ( Minimum Consumption×Minimum ROP )
A=1 , 800+400−( 50×8 )=1 , 800
B=1200+600−( 50×4 ) =1, 600
1
(d ) Average Stock level=Minimum Level+ ROQ
2
1
A=800+ ×400=1 , 000
2
1
B=600+ ×600=900
2
Or
(b) Describe the various methods of pricing materials issued for production and point out their advantages and
disadvantages. 11
Ans: METHODS OF PRICING OF MATERIAL
A number of methods are used for pricing material issues. Each method has its own advantages and
disadvantages. As such, it is impossible to say which method is the best. Each organisation should choose a particular
method best suited to it. While choosing a method, it is necessary to see that the method chosen is simple, effective and
realistic. At the same time, it is equally necessary to consider the effect of the method on production cost and inventory
valuation. The following are the different methods of pricing the material issues:
First In First Out Method (FIFO)
According to this method the units first entering the process are completed first. Thus the units completed
during a period would consist partly of the units which were incomplete at the beginning of the period and partly of the
units introduced during the period. The cost of completed units is affected by the value of the opening inventory, which
is based on the cost of the previous period. The closing inventory of work-in-process is valued at its current cost.
Advantages:
b. The closing stock is valued at the current market price.
c. Since issues are priced at cost, no profit or loss arises from pricing.
d. This method is more suitable in times of falling prices.
e. Deterioration and obsolescence can be avoided.
Disadvantages:
a. When prices fluctuate, calculation becomes complicated. This increases the possibility of clerical errors.
b. During the period of price fluctuations, material charged to jobs vary. Therefore, comparison between jobs is
difficult.
c. During the period of rising prices, product costs are under stated and profits are overstated. This may result in
payment of higher dividend out of capital.
Last In First Out Method (LIFO)

Advantages:
Disadvantages:
Simple Average Method
The simple average is determined by adding different prices of materials in stock and dividing the total by
number of prices. Quantity purchased in each lot is ignored.
Advantages:
b. It reduces clerical work.
c. It is suitable when price are stable.
Disadvantages:
a. It does not take into account the quantities purchased.
b. The value of closing stock becomes unrealistic.
c. Material cost does not represent actual cost price.
d. When prices fluctuate, this method will give incorrect result.
Weighted Average Method:
This is an improvement over the simple average method. This method takes into account both quantity and
price for arriving at the average price. The weighted average is obtained by dividing the total cost of material in the stock
by total quantity of material in the stock.
Advantages:
a. It gives more accurate results than simple average price because it considers both quantity as well as price.
b. It evens out the effect of price fluctuations. All jobs are charged a average price. So, comparison between jobs
is more easy and realistic.
c. It is suitable in the case of materials subject to wide price fluctuations.
d. It is acceptable to income tax authorities.
Disadvantages:
a. Stock on hand does not represent current market price.
b. When large numbers of purchases are made at different rates, the calculation is tedious. So, there are more
chances of clerical error.
c. With some approximation in average price, there will be profit or loss due to over or under charging of
material cost to jobs.
5. (a) From the following data, ascertain the total earnings of each worker separable under
(1) Halsey scheme (50%) and
(2) Rowan scheme: 11

Name of Worker Amal Bimal
Time allowed 5 hours 5 hours
Actual time taken 4 hours 6 hours
Basic rate of wages per hour Rs. 3.00 Rs. 3.00
Solution:
(i) Halsey premium plan=( TT×rate )+50 % ( TS×rate )
Amal=4×3+50% ( 1×3 )=13 . 0
Bimal=6×3 =18
TS
(ii ) Rowan Scheme=( TT×rate )+ ( TT×rate )
St
1
Amal= ( 4×3 ) + ( 4×3 )=14 . 40
5
Bimal=6×3 =18
Note: No time saved by Bimal.
Or
(b) What is labour turnover? What are its causes? How can it be reduced? 3+5+3=11
(1) Personal Causes
below:

Remedial steps to minimize labour turnover: The following steps are useful for minimizing labour turnover:
1. Exit interview: An interview is arranged with each outgoing employee to ascertain the reasons of his leaving
the organization.
2. Job analysis and evaluation: to ascertain the requirement of each job.
3. Organisation should make use of a scientific system of recruitment, placement and promotion for
employees.
4. Organisation should create healthy atmosphere, providing education, medical and housing facilities for
workers.
5. Committee for settling workers grievances.
6. (a) From the following details, compute the hourly rate of a machine installed in a shop: 12
Particulars (Rs.)
Cost of machine 2,00,000
Installation charges 20,000
Estimated scrap value 10,000
Rent and rates p.a. 7,200
Insurance premium for the machine per quarter 720
Repairs and maintenance p.a. 3,000
Power consumption 20 units per hour, rate of power per 100 units is Rs. 20, estimated working hours of the machine
2300 hours per year, shop supervisor’s salary per month Rs. 1,800. The machine occupies 1/4 th of the total floor area of
the shop. The supervisor is expected to devote 1/5 th of his time for supervising the machine. Normal idle time is
expected to be 300 hours per annum.
Solution:
Standing Charges:
Rent and Rates

( 7 , 200
4 ) 1,800
General Lighting
(800×12
4 )
2,400
2,880
Insurance( 720×4 )
( 1 ,800×12
5 ) 4,320
For 2,000 hours 11,400 5.70

Running Expenses:
( )
2 , 00 ,000+20 ,000−10 , 000 7

1.50
R/M
( 3 , 000
2 , 000 )
( )
20 4.00
20×
Power 100
Normal working hours = 2,300 – 300 = 2,000 hours.

Or
(b) Define overhead. State the different methods of classification for determining overheads. 4+8=12
as overhead.
1. Classification according to Elements: According to this classification overheads are divided according to their
elements. The classification is done as per the following details.
a) Indirect Materials: Materials which cannot be identified with the given product unit of cost center is called
b) Indirect Labour: Wages and salaries paid to indirect workers, i.e. workers who are not directly engaged on
c) Indirect Expense: Expenses such as rent and taxes, printing and stationery, power, insurance, electricity,
2. Functional Classification: Overheads can also be classified according to their functions. This classification is
a) Manufacturing Overheads: Indirect expenses incurred for manufacturing are called as manufacturing
b) Administrative Overheads: Indirect expenses incurred for running the administration are known as
c) Selling and Distribution Overheads: Overheads incurred for getting orders from consumers are called as
d) Research and Development Overheads: In the modern days, firms spend heavily on research and
3. Classification according to Behavior: According to this classification, overheads are classified as fixed, variable
and semi-variable. These concepts are discussed below.
a) Fixed Overheads: Fixed overheads are commonly described as those that do not vary in total amount with
b) Variable Overheads: Variable overheads are those which go on increasing if production volume increases
c) Semi-variable Overheads: These types of overheads remain constant over a relatively short range of
7. (a) Assam Construction obtained a contract for the building of an office for Rs. 6,00,000. Construction work
commenced on 1st April, 2017 and at the end of the financial year they received payment of Rs. 2,40,000 representing
80% of the amount of work certified. The following information in available from the books of the contractors:
Particulars (Rs.)
Material issued 1,20,000
Materials of land on 31.3.2018 5,000
Wages paid 1,60,000
Plant installed at site 1,20,000
Direct Expenses 22,000
Overheads allocated to the contract 11,000
Work finished but not yet certified at cost 10,000
Plant to be depreciated at 10%
Prepare the Contract Account for the year ended 31.3.2018 and show your calculation of the amount adjusted to the
credit of Profit and Loss Account. 11
Or
(b) Distinguish between: 6+5=11
1) Job Costing and Process Costing.
Forms and Details There is more paper work. It has lesser paper work.
2) Cost Audit and Financial Audit.
2019 (May)
COMMERCE (General/Speciality)
Course: 401 (Cost Accounting)
Time: 3 hours
(NEW COURSE)
Full Marks: 80
Pass Marks: 24
1) Prime cost includes
a) Direct material + Direct labour + Works expenses.
b) Direct material + Direct labour + Chargeable expenses.
c) Direct material + Direct labour + Office expenses.
2) Purchase budget should be prepared by the
a) Financial Manager.
b) Production Manager.
c) Purchase Manager.
3) Depreciation is a
a) Fixed expenses.
b) Variable expenses.
c) Semi-variable expenses.
4) In process costing, the abnormal loss is treated as
a) Period cost.
b) Unit cost.
c) Future cost.
1) Fixed cost per unit decreases with rise in output.

2) Re-order quantity may be measured in units.
3) Fixed overhead cost is a period cost.
4) The need of reconciliation arises in non-integrated accounting system.
2. Write short notes on (any four): 4x4=16
a) Techniques of costing.
Ans: Techniques of Costing: The types and techniques of costing are as follows:
8) Historical Costing: ‘The ascertainment of costs after they have been incurred’ is called Historical costing.
Such costs are, therefore, ‘postmortem’ costs as under this method all the expenses incurred on the production are first
incurred and them the costs are ascertained.
9) Standard Costing: ‘The preparation and use of standard costs, their comparison with actual costs and the
analysis of variance to their causes and points of incidence’ is called standard costing.
10) Here the standards are first set and then they are compared with actual performances. The difference
between the standard and the actual is known as the variance. The variances are analyzed to find out their causes and
also the points or locations at which they occur.
11) Marginal Costing: Marginal Costing involves the ascertainment of marginal costs and of the effects on profit
of changes in volumes or type of output by differentiating between fixed costs and variable costs’. The fixed costs are
those which do not change but remain the same, with the increase or decrease in the quantum of production. The
variables costs are those which do change proportionately with the change in quantum of production.
12) The marginal costing takes into account only the variable costs to find out ‘marginal costs’. The difference
between Sales and Marginal costs is known as ‘Contribution’ and contribution is an aggregate of fixed costs and
Profit/Loss. So the fixed costs are deducted from the contribution to find out the profits. Marginal costing is a technique
to ascertain the effect on profits. Marginal costing is a technique to ascertain the effect on profit by the change in the
volume of output or by the change in the type of output.
b) ABC analysis.
Ans: ABC Analysis: ABC System: In this technique, the items of inventory are classified according to the value of usage.
Materials are classified as A, B and C according to their value.
c) Rowan premium bonus plan.
Ans: Rowan System or Rowan Plan: The scheme was introduced in 1901 by David Rowan of Glasgow, England. The
wages are calculated on the basis of hours worked whereas the ‘bonus is that proportion of the wages of time taken
The main principles/features of Rowan plan are:

h) Time rate is guaranteed and the worker gets the guaranteed irrespective of whether he completes the job
i) Standard time and standard work are fixed for the job or operation in advance;
j) The workers producing more than the standard, or the workers completing the work in less than the
k) Bonus is based on that proportion of the time wages which the time saved bears to the standard time.
l) Workers who fail to reach the prescribed standard get the time wages.
m) Labour cost per unit of output decreases. The employer also shares the benefit of efficiency which induced
n) Wages per hour increases but in the same proportion as the output.
d) Manufacturing overheads.
Ans: Manufacturing Overheads: Indirect expenses incurred for manufacturing are called as manufacturing overheads.
For example, factory power, works manager’s salary, factory insurance, depreciation of factory machinery and other
fixed assets, indirect materials used in production etc. It should be noted that such expenditure is incurred for
e) Abnormal process loss.
Ans: Abnormal Loss: If the units lost in the production process are more than the normal loss, the difference between
the two is the abnormal loss. It is excluded from total cost due to which it does not affect the cost per unit of the
product. The relevant process of account is credited and abnormal loss account is debited with the abnormal loss valued
at full cost of finished output. The amount realized from sale of scrap of abnormal loss units is credited to the abnormal
loss account and the balance in the abnormal loss account is transferred to the Costing Profit and Loss Account.
Features of Abnormal Loss:
a) It arises due to external factor.
b) It is accidental in nature.
c) It cannot be estimated in advance.
d) It is insurance loss.
e) It is avoidable.
3. (a) Discuss in detail the advantages and limitations of Cost Accounting. 8+6=14
Ans: Advantages of Cost Accounting (Aid to Management)
a) Helps in Decision Making: Cost accounting helps in decision making. It provides vital information necessary
for decision making. For instance, cost accounting helps in deciding:
1. Whether to make a product buy a product?
2. Whether to accept or reject an export order?
3. How to utilize the scarce materials profitably?
b) Helps in fixing prices: Cost accounting helps in fixing prices. It provides detailed cost data of each product
(both on the aggregate and unit basis) which enables fixation of selling price. Cost accounting provides basis information
for the preparation of tenders, estimates and quotations.
c) Formulation of future plans: Cost accounting is not a post-mortem examination. It is a system of foresight.
On the basis of past experience, it helps in the formulation of definite future plans in quantitative terms. Budgets are
prepared and they give direction to the enterprise.
d) Avoidance of wastage: Cost accounting reveals the sources of losses or inefficiencies such as spoilage,
leakage, pilferage, inadequate utilization of plant etc. By appropriate control measures, these wastages can be avoided
or minimized.
e) Highlights causes: The exact cause of an increase or decrease in profit or loss can be found with the aid of
cost accounting. For instance, it is possible for the management to know whether the profits have decreased due to an
increase in labour cost or material cost or both.
f) Reward to efficiency: Cost accounting introduces bonus plans and incentive wage systems to suit the needs
of the organization. These plans and systems reward efficient workers and improve productivity as well improve the
morale of the work -force.
g) Prevention of frauds: Cost accounting envisages sound systems of inventory control, budgetary control and
standard costing. Scope for manipulation and fraud is minimized.
h) Improvement in profitability: Cost accounting reveals unprofitable products and activities. Management can
drop those products and eliminate unprofitable activities. The resources released from unprofitable products can be
used to improve the profitability of the business.
i) Preparation of final accounts: Cost accounting provides for perpetual inventory system. It helps in the
preparation of interim profit and loss account and balance sheet without physical stock verification.
j) Facilitates control: Cost accounting includes effective tools such as inventory control, budgetary control and
variance analysis. By adopting them, the management can notice the deviation from the plans. Remedial action can be
taken quickly.
Limitations of Cost Accounting
In spite of the various advantages claimed by cost accounting, the discipline suffers from the following
limitations:
a) Cost Accounting is costly to operate: It involves heavy expenditure to operate. The benefits derived by
operating the system are more than the cost.
b) Cost Accounting involves many forms and statements: It involves usage of many forms and statements
which leads to increase of paper work.
c) Costing may not be applicable in all types of Industries: Existing methods of cost accounting may not be
applicable in all types of industries. Cost accounting methods can be devised for all types of industries, and services.
d) It is based on Estimations: Costing system relies on predetermined data and therefore it is not reliable.
Costing system estimates costs scientifically based on past and present situations and with suitable modifications for the
future. This leads to accurate cost figures based on which management can initiate decisions. But for the predetermined
costs, cost accounting also becomes another ‘Historical Accounting’.
e) It is not an exact science: Like any others accounting system, it is not an exact science but an art that has
developed through theories and practices.
f) Bias Judgments: Many judgments are biased and depend on individual discretion.
g) Difference in opinion: Different views are held by different cost accounts about the items to be includes in
cost.
Or
(b) Following data are taken from the Cost Accounts of a manufacturer in respect of the month of March 2019:
Particulars Rs.
st
Stock in hand on 1 March 2019:
Purchase of raw materials 21,900

Sale of finished goods 72,310
Direct wages 17,150
st
Stock in hand on 31 March, 2019:
Works expenses 8,430
Office and administrative expenses 3,160
Selling and distribution expenses 4,210
Prepare a Statement of Cost and Profit showing the following: 2x7=14
1) Cost of materials consumed.
2) Prime cost.
3) Works cost.
4) Cost of production.
5) Cost of goods sold.
6) Cost of sales.
7) Profit for the month.
Cost Sheet
For the month of March, 2019
PARTICULARS Amount
Raw Materials (Opening) 25,000
Add: purchase of Raw Materials 21,900
Less: Raw Materials (closing) 26,250
1. Raw Materials consumed 20,650
Add: Direct wages 17,150
2. Prime Cost 37,800
Add: Work’s overheads: 8,430
Add: Non-productive wages 830
Work’s Cost incurred 47,060
Add: Work-in-progress (Opening) 8,220
Les: work-in-progress (Closing) 9,100
3. Work’s Cost 46,180
Add: Office and administrative Overhead 3,160
4. Cost of Production 49,340
66,700
Less: Finished goods (Closing) 15,750
5. Cost of goods sold 50,950
Add: Selling and Distributive overhead: 4,210
6. Cost of Sales 55,160
7. Profit (Balancing figure) 17,150
Sales 72,310
4. (a) A statement of materials received and issued in March 2019 is given below:
March 1 Opening stock of materials 4,400 units @ Rs. 8 per unit

March 5 Purchased 550 units @ 10 per unit.
March 8 Issued 2,200 units.
March 10 Purchased 6,600 units @ 12 per unit.
March 27 Purchased 4,950 units @ 11 per unit
From the above statement, prepare Stores Ledger by applying –
1) First-in-first-out method;
2) Last-in-first-out method; 7+7=14
Or
(b) (1) What is idle time? What are its causes? 6
idle.
time. Normal idle time is the time which cannot be avoided or reduced in the normal course of business. The main
reasons for the occurrence of normal idle time are as follows:
1. Due to machine break downs, power failure, non-availability of raw materials, tools or waiting for jobs due
2. Due to conscious management policy decision to stop work for some time.
3. In the case of seasonal goods producing units, it may not be possible for them to produce evenly throughout
(2) A worker takes 12 hours to complete a work on daily wages and 8 hours on a scheme of payment by results.
Worker’s daily rate is Rs. 6 per hour. The cost of material of the product is Rs. 20 and the overheads are recovered at
200% of the total wages. Calculate the Factory Works Cost of the product under: 4+4=8
1) Rowan plan;
2) Halsey scheme;
Solution of Q.N.11.
Time saved
(1) Rowan plan= ( Time taken×Rate )+ ( Time taken×Rate )
Standard Time
4
=( 8×6 ) +( 8×6 )
12
=48+16=64
(2) Halsey plan=( Time taken×Rate ) +50 % ( Time saved×Rate )
=( 8×6 ) +50 % ( 4×6 )
=48+12=60
Calculation of Factory Cost
(1) Rowan (2) Halsey
Material 20 20
Wages 64 60
Prime Cost 84 80
Add: Factory Overheads
(200% of wages) 128 120
Factory cost 212 200
5. (a) Define overhead. How are overheads classified? Explain four reasons of over-absorption and under-absorption
of overheads. 4+5+5=14
as overhead.
(j) Classification according to Elements: According to this classification overhead are divided according to their
elements. The classification is done as per the following details.
marketing and selling expenses etc. are the examples of indirect expenses.
(k) Functional Classification: Overheads can also be classified according to their functions. This classification is
(l) Classification according to Behavior: According to this classification, overheads are classified as fixed,
the salary of the supervisor. This indicates that it is semi-variable overheads. Similarly, maintenance expenditure, fire
following reasons:
f) Errors in estimating overheads.

g) Overhead may change due to change in method of production.
h) The seasonal fluctuation in overhead cost in some industries.
i) Underutilization of available capacity, unexpected change in the volume of output.
j) Valuation of work in progress in wrong process.
Or
(b) From the following information, work out the production hour rate of recovery of overhead in department P1, P2 and
P3: 14
Particulars Total Production Departments Service Departments
Rs. P1 P2 P3 S1 S2
Rent (Rs.) 1,000 200 400 150 150 100
Electricity (Rs.) 200 50 80 30 20 20
Fire insurance (Rs.) 400 80 160 60 60 40
Plant depreciation (Rs.) 4,000 1,000 1,500 1,000 300 200
Transport (Rs.) 400 50 50 50 100 150
Estimated working hours - 1,000 2,500 1,800 - -
Expenses of service departments S1 and S2 are apportioned as under:
P1 P2 P3 S1 S2
S1 30% 40% 20% - 10%
S2 10% 20% 50% 20% -
Solution:
Overheads Primary Distribution Sheet
Particulars Total Production Departments Service Departments
Rs. P1 P2 P3 S1 S2
Rent (Rs.) 1,000 200 400 150 150 100
Electricity (Rs.) 200 50 80 30 20 20
Fire insurance (Rs.) 400 80 160 60 60 40
Plant depreciation (Rs.) 4,000 1,000 1,500 1,000 300 200
Transport (Rs.) 400 50 50 50 100 150
Total Primary distribution 6,000 1,380 2,190 1,290 630 510
Department S1 189 252 126 (630) 63
Department S2 57 116 286 114 (573)
Department S1 34 46 23 (114) 11
Department S2 2 3 6 - (11)
Total Overheads 6,000 1,662 2,607 1731 Nil Nil
Estimated Working Hours 1,000 2,500 1,800
Production Hour Rate 1.662 1.043 0.96
6. (a) (1) What is process costing? What are its features? Name any three industries in which process costing is used.
2+5+3=10
Ans: Process Costing
Process costing is a method of operation costing which is used to ascertain the cost of production at each process,
operation or stage of manufacture, where processes are carried in having one or more of the following features:
Where the product of one process becomes the material of another process or operation
Where there is simultaneous production at one or more process of different products, with or without by product,
Where, during one or more processes or operations of a series, the products or materials are not distinguishable from
one another, as for instance when finished products differ finally only in shape or form’.
Process costing is defined by Kohler as: “A method of accounting whereby costs are charged to processes or operations
and averaged over units produced; it is employed principally where a finished product is the result of a more or less
continuous operation, as in paper mills, refineries, canneries and chemical plants; distinguished from job costing, where
costs are assigned to specific orders, lots or units.
Features/Characteristics of Process Costing:
a) Process Costing Method is applicable where the output results from a continuous or repetitive operations or
processes.
b) Products are identical and cannot be segregated.
c) It enables the ascertainment of cost of the product at each process or stage of manufacture.
d) The output consists of products, which are homogenous.
e) Production is carried on in different stages (each of which is called a process) having a continuous flow.
f) The input will pass through two or more processes before it takes the shape of the output. The output of each
process becomes the input for the next process until the final product is obtained, with the last process giving the final
product.
g) The output of a process except the last may also be saleable in which case the process may generate some
profit.
h) The input of a process except the first may be capable of being acquired from the outside sources.
i) The output of a process is transferred to the next process generally at cost to the process. It may also be
transferred at market price to enable checking efficiency of operations in comparison to the market conditions.
j) Normal and abnormal losses may arise in the processes.
Application of Process Costing
There are number of industries where Process costing system can be used except where job, Batch or Unit
Operation Costing is necessary. The following are examples of industries where process costing is applied:
a) Where the final product merges only after two or more process such as paper-the raw material, bamboo is
made into pulp; pulp is a made into paper and then it is finished, glazed etc. for sale;
b) The product of one process becomes the raw material of another process or operation e.g. refined groundnut
oil is the material for making vegetable ghee and
c) Different products may have a common prior process e.g. brass goods will require melting of brass commonly
for all goods. Another example is petroleum products by the same refinery.
Some other industries where Process Costing is applied are:
Chemical works, Textiles, weaving, spinning, Soap making, Food product, Box making, Canning factory, Coke
works, Paint, ink and varnishing etc.
(2) Distinguish between normal process loss and abnormal process loss. 4
Ans: Normal Loss: The fundamental principle of costing is that the good units should bear the amount of normal loss.
Normal loss is anticipated and in a process it is inevitable. It is included in total cost of the product due to which cost per
unit is increases. The cost of normal loss is therefore not worked out. The number of units of normal loss is credited to
the Process Account and if they have some scrap value or realizable value the amount is also credited to the process
account. If there is no scrap value or realizable value, only the units are credited to the process account.
Abnormal Loss: If the units lost in the production process are more than the normal loss, the difference between the two
is the abnormal loss. It is excluded from total cost due to which it does not affect the cost per unit of the product. The
relevant process of account is credited and abnormal loss account is debited with the abnormal loss valued at full cost of
finished output. The amount realized from sale of scrap of abnormal loss units is credited to the abnormal loss account
and the balance in the abnormal loss account is transferred to the Costing Profit and Loss Account.
Difference between normal loss and abnormal loss:
Bases Normal Loss Abnormal Loss
1. Source It arises due to internal factors. It arises due to external factor.
2. Nature It is recurring in nature. It is accidental in nature.
3. Estimation It can be estimated in advance from the past It cannot be estimated in advance.
experience.
4. Access to It is not insurable loss. It is insurance loss.
insurance
5. Avoidance It is unavoidable loss. It is avoidable.
Or
(b) A company’s Trading and Profit & Loss Account was as follows:
Particulars Rs. Particulars Rs.
Purchases 25,210 Sales (50,000 units at Rs. 1.50 each) 75,000
Direct wages 10,500 Discount received 260
Works expenses 12,130 Profit on sale of land 2,340
Selling expenses 7,100 Closing stock 4,080
Administration expenses 5,340
Depreciation 1,100
Net profit 20,300
81,680 81,680
The profit as per Cost Accounts was only Rs. 19,770. Reconcile the financial and cost profits using the following
information: 14
1) Cost accounts value of closing stock Rs. 4,280.
2) The works expenses in the Cost Accounts were taken as 100% of direct wages.
3) Selling and administration expenses were charged in the Cost Accounts at 10% of sales and Rs. 0.10 per
unit respectively.
4) Depreciation in the Cost Accounts was Rs. 800.
Reconciliation of Cost and Financial Account

Profit as per Cost A/c 19,770
Add: (i) Selling expenses over-recovered in cost A/c 400
(ii) Discount received shown only in financial A/c 260
(iii) Profit on sale of land shown only in financial A/c 2,340 3,000
22,770
Less: (i) Work expenses overcharged in financial A/c 1,630
(ii) Administrative expenses overcharged in financial A/c 340
(iii) Depreciation is overcharged in financial A/c 300
(iv) Closing stock is overvalued in Cost A/c 200 2,470
Profit as per financial A/c 20,300
Rough Calculation:
Cost Account Financial Account Differences

Closing stock (Income) 4,280 4,080 (-) 200
Work expenses (Exp.) 10,500 12,130 (-) 1,630
Selling Expenses (Exp.) 7,500 7,100 (+) 400
Administrative Expenses (Exp.) 5,000 5,340 (-) 340
Depreciation (Exp.) 800 1,100 (-) 300
Discount received (Income) - 260 (+) 260
Profit on sale of land (Income) - 2,340 (+) 2,340
(OLD COURSE)
Full Marks: 80
Pass Marks: 32
1) Costing is defined as ‘the technique and process of ascertaining costs’.
2) A Bin card provides a complete record of all materials received and the quantity thereof.
3) The rate of change in the composition of labour force in an organization is termed as labour turnover.
4) Overhead is the aggregate of indirect material, indirect labour and indirect expenses.
1) Unit costing / Job costing is employed in paper mill industries.
2) In case of rising prices, LIFO / FIFO method of pricing material issues reports higher income.
3) Cost of normal idle time is always controllable / uncontrollable.
4) Fixed overheads per unit is reduced / increased when volume of output is increased.
a) Elements of cost.
b) By Functions
cost of sales.
b) Scope of Cost Accounting.
Ans: The term scope here refers to field of activity. Cost accounting refers to the process of determining the cost of a
particular product or activity. It provides useful data both for internal and external reports reporting. Internal reporting
presents details of cost data in a summarized and aggregate form. For instance, in case a company manufacturing
electrical goods cost of each product.
In order that cost accounting satisfies the requirements of both internal and external reporting, the following
are the different activities which are undertaken under cost accounting system:
a) Cost Determination: This is the first step in the cost accounting system. It refers to determining the cost for a
specific product or activity. This is a critical activity since the other three activities, explained below, depend on it.
b) Cost Recording: It is concerned with recording of costs in the cost journal and their subsequent posting to
the ledger. Cost recording may be done according to integral or non-integral system a separate set of books is
maintained for costing and financial transactions.
c) Cost Analyzing: It is concerned with critical evaluation of cost information to assist the management in
planning and controlling the business activates. Meaningful cost analysis depends largely upon the clear understanding
of the cost finding methods used in cost accounting.
d) Cost Reporting: It is concerned with reporting cost data both for internal and external reporting purpose. In
order to use cost information intelligently it is necessary for the managers to have good understanding of different cost
accounting concepts.
c) ABC analysis.
Ans: ABC Analysis: ABC System: In this technique, the items of inventory are classified according to the value of usage.
Materials are classified as A, B and C according to their value.
d) Apportionment of overheads.
Ans: Apportionment of Overhead Expenses: Cost apportionment is the allotment of proportions of items to cost centres
or cost units on an equitable basis. The term refers to the allotment of expenses which cannot identify wholly with a
particular department. Such expenses require division and apportionment over two or more cost centres or units. So
cost apportionment will arise in case of expenses common to more than one cost centre or unit. It is defined as the
e) Cost audit.
f) Cost sheet.
Ans: Cost Sheets are statements setting out the costs of a product giving details of all the costs. Presentation of costing
information depends upon the method of costing. A cost sheet can be prepared weekly, monthly, quarterly or annually.
In a cost sheet besides total expenditure incurred, cost per unit of output in case of each element of cost can be shown
in a separate column. The cost sheet should give cost per unit in the previous period for the purposes of comparison.
Walter & Bigg define, “The expenditure which has been incurred upon production for a period is extracted from
the financial books and the store records, and set out in a memorandum or a statement. If this statement is confined to
the disclosure of the cost of the units produced during the period, it is a termed as a cost sheet”. In other words, cost
sheet is a statement showing the total cost under proper classification in a logical order.
cost of sales.
3. (a) Prepare a Cost Sheet from the following: 11
Particulars Rs.
Sales 8,00,000
Materials 1.1.2018 40,000
Materials 31.12.2018 32,000
Work-in-progress 1.1.2018 55,000
Work-in-progress 31.12.2018 72,000
Finished goods 1.1.2018 64,000
Finished goods 31.12.2018 1,51,000
Materials purchased 1,52,000
Direct labour 1,45,000
Manufacturing overheads 1,08,000
Selling expenses 50,000

General office expenses 40,000
Cost Sheet
For the Year 2018
PARTICULARS Amount
Raw Materials (Opening) 40,000
Add: purchase of Raw Materials 1,52,000
Less: Raw Materials (closing) 32,000
1. Raw Materials consumed 1,60,000
2. Prime Cost 3,05,000
Add: Work’s overheads: 1,08,000
Add: Work-in-progress (Opening) 55,000
Les: work-in-progress (Closing) 72,000
3. Work’s Cost 5,40,000
Add: General Office Expenses 40,000
4. Cost of Production 5,80,000
6,44,000
Less: Finished goods (Closing) 1,51,000
5. Cost of goods sold 4,93,000
Add: Selling and Distributive overhead: 50,000
6. Cost of Sales 5,43,000
7. Profit (Balancing figure) 2,57,000
Sales 8,00,000
Or
(b) Distinguish between the following: 6+5=11
1. Direct cost and Indirect cost.
Ans: Direct costs are those which are incurred for and may be conveniently identified with a particular cost centre or
cost unit. Materials used, labour employed and direct expenses are common examples of direct costs. Total of all direct
cost is called prime cost.
Indirect costs are those cost which are incurred for the benefit of number of cost centers or cost units and cannot be
conveniently identified with a particular cost centre or cost unit. Examples of indirect cost include rent of building,
management salaries, machinery depreciation etc. Indirect cost is also known as overheads. Overheads is divided into
three parts – factory overheads, office & administrative overheads and selling & distribution overheads.
2. Fixed cost and Variable cost.
Ans: Fixed cost: Fixed cost are commonly described as those that do not vary in total amount with increase or decrease
in production volume, for a given period of time, may be a year. Salaries, depreciation of fixed assets, property taxes, are
some of the examples of fixed costs. Total fixed costs remain same irrespective of changes in volume of production but
per unit of fixed cost is variable. It increases if production decreases while if production increases, it decreases.
Variable cost: Variable cost are those which go on increasing if production volume increases and go on decreasing if the
volume decreases. Such increase or decrease may or may not be in the same proportion. Variable cost is generally
considered to be controllable as they are directly connected with the production. Material cost, labour cost and other
direct expenses are common examples of variable cost.
4. (a) XYZ Ltd. manufactures a product A and provides you the following particulars:
Cost of placing an order Rs. 90

Annual carrying cost per unit Rs. 5.20
Normal usage 50 units per week
Minimum usage 25 units per week
Maximum usage 75 units per week
Re-order period 4 to 6 weeks
Compute from the above: 11
1) Re-order quantity.
2) Re-order level.
3) Minimum level.
4) Maximum level.
5) Average stock level.
Or
(b) Explain the meaning and purpose of the following documents: 4+3+4=11
1) Purchase Requisition.
2) Bin Card.
3) Stores Ledger.
Ans: Purchase Requisition: A form known as ‘Purchase Requisition’ is commonly used as a format requesting the
purchase department to purchase the required material. Normally the purchase requisition is issued by the Stores
Department when the quantity of the concerned material reaches the minimum level. Only in the cases of materials,
which are not kept in the stores on regular basis, the requisition is issued by the concerned department. Purchase
requisition has information like the quantity required, the expected date of receipt, the department in which the
material is required, description of material etc. Copies of the purchase requisition are sent to the Accounts department
and the concerned department who is in need of the material.
Bin Card: Bin is a place where materials are kept in. It may be a rack, container, shelf or space where stores are kept. Bin
card is a document showing the particulars of materials kept in the bin. It is a document attached to the bin disclosing
the quantitative details of materials received, issued and the closing balance. A bin card is used for each item of
material. Each receipt and issue is recorded on the bin card in a chronological order and the latest balance is shown after
each receipt and issue. Bin card is maintained by the store keeper. It indicates information like different stock levels. No,
name of material, material code number, stores ledger folio number, quantity of materials received, issued and the
balance in hand.
Store Ledger: Store ledger is a document showing the quantity and value of materials received, issued and in balance at
the end. One stores ledger is allotted to each component of material. Entries are made in this ledger by the costing clerk
with reference to goods received note, material requisition note, material returned note etc. It is very similar to the bin
card except it contains additional columns showing the prices and value of materials received, issued and balance in
hand. It gives the value of closing stock at any time. Besides, a store ledger contains information like name of the
material, code number, different stock levels etc.
5. (a) From the following particulars, you are required to work out the earning of worker for a week under –
1) Straight piece rate;
2) Halsey premium scheme (50% sharing);
3) Rowan premium scheme. 3+4+4=11
Weekly working hours 48
Hourly wage rate Rs. 7.50
Piece rate per unit Rs. 3.00

Normal time taken per unit 24 minutes
Normal output per week 120 units
Actual output per week 150 units
Solution:
Time taken=48 hours

Time per hour=Rs . 7.50
Time per piece=Rs . 3
Normal output=120 unit
Actual output =150 unit
Time allowed per piece=20 minutes
Standard time=150×20=3 ,000 minutes or 50 hours
Time saved=2 hours
(a ) Straight piece rate=Piece produced×Rate per piece =150×3=450
(b ) 120% of piece rate is applicable because actual output is more than standard output
Differential piece rate=3×120 %=Rs . 3 . 60
∴ Wages under differential piece rate=150×3 .60=Rs . 540
(c) Halsey plan=( Time taken×Rate ) +50% ( Time saved×Rate )

=48×7 .50+50% ( 2×7. 50 )
=360+7.5
=367 .5
Time saved
(d ) Rowan=( Time taken×Rate ) + ( Time taken×Rate )
Standard time
2
=48×7.50+ ( 48×7 . 50 )
50
=360+14. 4
=374 . 4
Or
(b) What is idle time? Explain its causes. How is idle time treated in Cost Accounts? 3+4+4=11
idle.
Types of Idle Time:
a. Normal idle time is inherent in any job situation and thus it cannot be eliminated or reduced. For example: time
gap between the finishing of one job and the starting of another; time lost due to fatigue etc. The cost of normal idle
time should be charged to the cost of production. This may be done by inflating the labour rate. It may be transferred to
factory overheads for absorption, by adopting a factory overhead absorption rate.
1. The main reasons for the occurrence of normal idle time are as follows:
4. Due to machine break downs, power failure, non-availability of raw materials, tools or waiting for jobs due to
defective planning.
5. Due to conscious management policy decision to stop work for some time.
6. In the case of seasonal goods producing units, it may not be possible for them to produce evenly throughout
Control of Idle Time
Following steps are suggested to control idle time:
i) Vigilance must be exercised to control and eliminate idle time.
ii) The instructions to the workers should be given in advance so that workers need not wait.
iii) Plant and machine should be maintained properly so that their breakdown can be avoided
iv) The causes of the idle time should be found out and the root cause must be removed.
v) Regular and timely supply of raw materials must be made available through a good system of storing materials.
6. (a) Compute the machine hour rate from the following data: 12
Particulars Rs.
Cost of machine 10,00,000
Installation charges 1,00,000
Scrap value after 10 years 50,000
Rent of the shop per month 10,000
General lighting for the shop per month 2,000
Insurance for the machine p.a. 9,000
Repairs p.a. 10,000
Power consumption 10 units per hour and average rate of power per unit 4
Shop supervisor’s salary p.m. 15,000
Estimated working hours p.a. 2,500
The machine occupies one-fourth of total area of the shop. Supervisor denotes one-third of his time for the machine.

Standing Charges:
Rent and Rates

(10 , 000∗12
4 ) 30,000
General Lighting
( 2 , 000×12
4 ) 6,000
9,000
Insurance
(
15 , 000×12
3 ) 60,000
For 2,500 hours 1,05,000 42

Running Expenses:
Depreciation
( 10 , 00 , 000+1, 00 , 000−50 , 000
10×2,500 ) 42
R/M
( 10 , 000
2 ,500 ) 40
Power (10 units @ Rs. 4 per unit)
Or
(b) What are the causes of under-absorption and over-absorption of overheads? How will you deal with them in Cost
Accounts? 7+5=12
Ans: Over or under absorption of overheads meaning:
overheads.
following reasons:
k) Errors in estimating overheads.
l) Overhead may change due to change in method of production.
m) The seasonal fluctuation in overhead cost in some industries.
n) Underutilization of available capacity, unexpected change in the volume of output.
o) Valuation of work in progress in wrong process.
Treatment of under and over absorption of overheads
Once the under/over absorption is noticed, the following corrective steps are to be taken to rectify the same.
a) Use of supplementary Rate: The under/over absorption can be rectified by using the supplementary rate.
This rate is calculated by dividing the under/over absorbed amount of overheads by the units of the base. The rate so
arrived is known to be supplementary rate.
b) Carrying forward to future period: If the amount of under/over absorption of overheads is small, it may be
carried forward to the future period hoping that it will be rectified in the future.
c) Writing off to Profit and Loss A/c: Amount of under/over absorption can be written off to Costing Profit and
Loss Account and thus not reflected in the total costs.
7. (a) A product of XYZ Ltd. Co. possesses through two processes A and B. 10,000 units at a cost of Rs. 1.10 were issued
to process A. Other direct expenses were as follows:
Sundry materials Rs. 2,000 Rs. 2,000
Direct labour Rs. 4,500 Rs. 8,000
Direct expenses Rs. 1,500 Rs. 1,500
Output (units) 9,000 9,120
Wastage of process A was 5% and in process B 4%. Wastage of process A was sold at 0.25 per unit and that of process
B at 0.50 per unit. Overhead charges were 160% of direct labour. Prepare Process – A A/c and Process – B A/c. 11
Or
(b) (1) Explain the special features of contract costing. 5
Ans: The distinguishing features of contract are as follows:
Features regarding Production
i) The work is undertaken to customer’s specific requirements.
ii) The work will be of a relatively long duration and involves large amount.
iii) The work is usually site based.
iv) The work is frequently of a constructional nature.
v) Plant and equipment may be purchased or hired for the duration of the contract.
vi) The completion date is fixed in advance, and penalties follow delays
vii) Certain aspects of the work are assigned to sub-contractors.
Features regarding Cost
i) The cost unit in contract costing is a contract.
ii) A separate account is prepared for each contract to ascertain the profit or loss on each contract.
iii) Most of the items of cost can be classified as direct since they can be easily identified with a specific contract.
iv) Indirect costs are normally restricted to Head Office expenses and storage costs. These are allocated to various
contracts on which work is carried out during the year.
v) The contract price is often fixed in advance and payment is received at various stages of completion based on
architect’s certificate.
vi) A separate contract ledger is maintained for recording costs when the number of contracts is large.
(2) How does cost audit differ from financial audit? 6

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1 COST ACCOUNTING SOLVED QUESTION PAPERS ( 2013 TO 2019)

Cost Accounting May’ 2013 (Semester Exam)

2. Answer the following:

Stock on 1st April, 2011: Raw materials 5000

d. When prices fluctuate, this method will give incorrect result.

Normal Output 1,000 1,000 1,000

% of actual production on normal output 890 720 960

=(89 %−80 %) NIL =(96 %−80 %)

Foreman’s Salary (750 x 12/3) 3,000

Cost Accounting May’ 2014 (Semester Exam)

(2) Operating Costing

Printing and Stationery 12,000

Cost of tubes – Rs. 500 per tube

Evaluation of order size of 1,500 units at 5% discount:

Calculation of Total material cost if 4 orders are made:

Total annual cost (Excluding item cost) 71,650

Calculation of Total material cost if optimum quantity is ordered:

Total annual cost (Excluding item cost) 10,200

Amount of quantity discount: 5% x Rs. 500 x 5,200 units = Rs. 1,30,000

Total Wages=( TT×rate )+40% (Time Saved×rate )

(ii) Calculation of Total earnings under Rowan Premium plan

Add: Dearness Allowance =3 . 75

(a) Non availability of promotion opportunities

Labour Hour 8.54 4.98 4.20

Direct expenses 60,000

2. Write short notes on (any four) : 4x4=16

Ans: Computation of Total Labour cost

For 4,000 hours 1,116 0.279

To Production overheads 20,000 By Finished Stock A/c 8,250 1,33,399

1. (a) Choose the correct answer: 1x4=4

2. Answer the following (any four): 4x4=16

c) Give four reasons of under-absorption and over-absorption of overheads.

e) Give four differences between Job Costing and Process Costing.

order being produced. period of time.

(b) Cost of Production 9,000 7,56,000

(iv) Wages under Rowan system:

Computation of Machine hour rate

(ii) Repairs & Maintenance (3,000/2,000) 1.50

Normal Working Hours = 2,300 – 300 = 2,000

(b) Fill in the blanks: 1x4=4

2. Write short notes (on any four): 4x4=16

c) Cost of goods sold.

(1) Personal Causes

Computation Machine Hour Rate

To Direct Materials - 1,000 (910 x 10%)

(h) Involvement of employee in activities of moral turpitude.

Add: Opening stock of FG (1,27,000/32,000 x 2,000) 2,000 8,000

Advantages of ABC analysis

6. (a) From the following information, prepare a Reconciliation Statement: 14

Mechanization It is less amenable to mechanization & It is more amenable to mechanization &

number of units to get an average unit cost.

Less: Closing stock of FG 1,70,000

(b) Discharge of workers on account of irregularity or long absence.

Rent and Rates 5(

For 1,000 hours 7,600 7.60

Normal working hours = 1,200 – 200 = 1,000

Particulars Per Amount Particulars Per Unit Amount

Managing Director’s remuneration 12,000

A is the annual consumption of material in units.

(1 ,30 , 000−10 , 000

Power (10*3/100) 0.30

(h) Involvement of employee in activities of moral turpitude.

(a ) Re-order level=Maximum consumption ×M aximum Re-order period