Cost Accounting Solved Question Paper 2015 [Gauhati University BCOM 4th SEM CBCS Pattern]

Cost Accounting Solved Question Paper 2015
[Gauhati University BCOM 4th SEM CBCS Pattern]

Paper: COM-HC-4016/COM-RC-4026 (Cost Accounting)
Full Marks: 80 : Time: Three hours
The figures in the margin indicate full marks for the questions.

1. Answer the following as directed: 1x6=6

a) The main purpose of Cost Accounting is to (Select the correct answer)

1) Maximize profit.

2) Minimize losses.

3) Help management in taking decisions by providing information.

Ans: 3) Help management in taking decisions by providing information.

b) Cost of goods produced include (Select the correct answer)

1) Production cost and work in progress.

2) Only prime cost.

3) Production cost and finished goods inventory.

Ans: 3) Production cost and finished goods inventory.

c) A normal loss is (Select the correct answer)

1) Due to the nature of process.

2) Due to the abnormal factors.

3) None of the two.

Ans: 1) Due to the nature of process.

d) Equivalent production in process costing represents production (Select the correct answer)

1) In terms of completed units.

2) Production at cost price.

3) Production of incomplete units.

Ans: 1) In terms of completed units.

e) Weighted average cost method of valuing material issues involves adding all the different prices and dividing by the number of such prices. (Indicate whether the statement is true or false)

Ans: False

f) Labour turnover is calculated by (Select the correct answer)

1) Number of workers left/average number of workers.

2) Number of additions/average number of workers.

3) Number of workers replaced/average number of workers.

4) All of the above

Ans: 4) All of the above

2. Answer the following questions briefly: 2x5=10

a) What is the concept of cost?

Ans: 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.

b) State the two reasons of abnormal idle time of labour.

Ans: The main reasons for the occurrence of abnormal idle time are:

1. Due to machine break downs, power failure, non-availability of raw materials, tools or waiting for jobs due to defective planning.

2. Due to conscious management policy decision to stop work for some time.

c) Why is ABC analysis of inventory significant?

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.

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.

d) What is the basic difference between allocation and apportionment of overhead?

Ans: Difference between allocation and apportionment of overheads

Allocation

Apportionment

1. Allocation means the allotment of whole items of cost to cost centres or cost units.

2. It deals with the whole items of cost.

3. Cost is directly allocated to any cost centre or cost units.

4. Cost is allocated when the cost centre uses whole of the benefits of the expenses.

1. Apportionment means allotment of proportion of items of cost to cost centres or cost units.

2. It deals with only proportion of items of cost.

3. It needs a suitable basis for subdivision of cost by cost centres or cost units. Thus it is indirect process of allotment.

4. Cost is apportioned when cost centres use only a proportion of the benefits of the whole expenses.

e) What is the need for charging inter-process profits?

Ans: Inter-process profits are those which are associated with the transfer of goods from one process to another. Inter process profits enable to measure the efficiency of each process. Also, Comparison of costs with market price at each stage assist management to take ‘make or buy’ decisions.

3. Answer the following questions:

(a) Write the differences between Cost Accounting and Financial Accounting. 5

Ans: DISTINGUISH BETWEEN FINANCIAL AND COST ACCOUNTING

Basis	Financial Accounting	Cost Accounting
1. Nature	Financial accounts are maintained on the basis of historical records.	Cost accounts lay emphasis on both historical and predetermined costs.
2. Use	Financial Accounting is used even by outside entities.	Cost Accounting is used only the management of the concern.
3. System	Financial Accounting uses the double-entry system for recording financial data.	Cost Accounting does not use the double-entry for collecting cost data.
4. Scope	Financial Accounting covers all items of income and expenditure whether related to the cost centers or not,	Cost Accounting covers all items related to a cost centre.
5. Reports	Financial Accounting results are shown P&L A/c and balance sheet.	Cost Accounting results are shown in Cost Sheet/ Coating Profit & Loss A/c/ Reports Contract A/c/ Process A/c.

(b) State the benefits of centralized purchasing system of materials. 5

Ans: Advantages of centralized purchasing system:

a) Its cost of purchase will be relatively less because the cost of duplication of efforts in buying function is eliminated.

b) The Manager of departments other than purchasing department are relieved from the responsibility of purchasing of materials. They can concentrate in their assigned areas of activities.

c) Since the management is specialised in purchase, it helps in buying goods as reasonable rate and better management of purchase order.

d) Bulk buying helps in getting quantity discount. Direct contact with the suppliers will be possible which will eliminate the link of the intermediaries.

e) Centralised purchase enables the purchase of standardized items through standardized procedure.

Following information relating to a type of raw material is available:

Annual demand

Unit price

Ordering cost per order

Storage cost

Interest rate

Lead time

2,400 units

Rs. 2.40

Rs. 4.00

2% per annum

10% per annum

Half Month

Calculate EOQ and total inventory cost in respect of the particular material. 5

(c) What will be the earning of a worker at 55 paisa per hour when he takes 140 hours to do a volume of work for which the standard time allowed is 200 hours? The plan payment of bonus on sliding scale is as under:

1) Within the 1^st 10% saving in standard time, bonus is 40% of the time saved.

2) Within the 2^nd 10% saving in standard time, bonus is 50% of the time saved.

3) Within the 3^rd 10% saving in standard time, bonus is 60% of the time saved.

4) For the rest, the bonus is 75% of the time saved. 5

(d) What are the necessities of classification for overhead into Fixed and Variable? 5

(e) What is Contract Costing? Mention the distinguishing features of Contract Accounts. 1+4=5

Ans: Contract Costing Meaning: Contract costing is a special form of job costing used for ascertaining cost and profit on contracts undertaken for big jobs like constructing a building, a road, a bridge or a ship. Such jobs mainly comprise activities outside the contractor’s premises and involve huge amount. They take long time to complete so much so that the work may extend over more than one accounting year. This means that the cost and profit may have to be worked out even on incomplete work as at the end of an accounting year. Hence, a special method of accounting known as ‘contract costing’ or ‘terminal costing’ has been developed for ascertaining cost and profit on such jobs.

Features of Contract Costing: 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.

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.

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4. Write in detail the classification of direct and indirect costs. 9

Ans: Ans: Classification of Direct and Indirect Expenses

Raw materials are converted into finished products by a manufacturing concern with the help of labour, plants etc. The elements that constitute the cost of manufacture are known as the elements of cost. The elements of cost are:- (a) material, (b) labour, and (c) expenses. Each of these elements are again sub-dividend into direct and indirect.

Direct material, direct labour and direct expenses are those which can be traced in relationship with a particular process, job, operation or product. Direct material, direct labour and direct expenses together constitute prime cost. Indirect material, indirect labour and indirect expenses are those which are of general nature and cannot be traced in relationship with a particular process, operation, job or product. Indirect material, indirect labour and indirect expenses of the factory together constitute factory (or works) overhead

Prime cost + Factory (or works) overhead = Factory cost or Works cost.

Factory cost + Administration overhead = Cost of production.

Cost of production + Selling and distribution overhead = Total cost or Cost of sales.

Let up have some idea about the different elements of cost mentioned above.

1. Direct Material

Direct material is the material which can be conveniently identified with and allocated to cost centres and cost units. It refers to material out of which the product is manufactured, for example, leather-shoes are produced out of leather, butter is produced out of milk, and steel utensils are produced out of stainless steel and so on. Thus, leather, milk and stainless steel are the direct materials for the manufacture of shoes, butter and steel utensils respectively. More than one material may be directly required for a production.

As against direct material, another kind of material may be required in the process of manufacture, but not directly. For example, machines used for production require lubricants, jute and cotton wastes etc. These are indirect materials.

While direct material is a component of prime cost, indirect material is a component of factory overhead. Direct material directly varies with the output, but indirect material may not so vary.

2. Direct Wage

Direct wage is the wage which can be conveniently identified with and allocated to cost centres and cost units. It refers to the wages paid to the workers who actually produce the goods. In case of manual work it is not difficult to locate the direct worker, because he is one who produces the goods. In case of a work done by machine, the person who makes the input and collects the output and in whose account the output is credited for the purpose of payment of wages, is the direct worker.

There are several other workers in the factory who help the direct workers in connection with their work with regard to supply of material, power etc. and in respect of supervision and maintenance. These are indirect workers. Wages of indirect workers at different stages of production are indirect wages. Direct wages is a component of prime cost, while indirect wage is a component of factory overhead. The former directly varies with the output while the latter may not so vary.

3. Direct Expenses

Besides direct material and direct labour, certain expenses may be wholly and exclusively necessary for a particular production. This expense is referred to as direct expenses and it can be easily identified with and allocated to cost centres or cost units. For example, if an order is received to manufacture 1,000 pieces of plastic balls with the customer’s name embossed on them, the manufacture shall have to prepare a mould exclusively for this purpose. The cost of the mould may be regarded as the direct expenses of the production. Similarly, charge for hire of a special plant for production is also a direct expenses and it can be easily identified with and allocated to cost centres or cost units. Cost of preparing blue print for a production is another example of direct expenses.

4. Overhead

Overhead refers to the indirect expenses incurred at various levels of activities of the enterprise. These expenses cannot be conveniently identified with or allocated to cost centres or cost units. Classification of overhead expenses according to functions may be done as below:

a) Factory or works overhead: It refers to all indirect expenses of the factory. This includes wages of all factory staff excluding those of direct workers, indirect material, rent, rates and taxes of factory, depreciation of factory assets, excise duty, canteen expenses, labour welfare expenses etc.

b) Administration overhead: It refers to all expenses incurred in connection with general administration. Salary of the administrative staff, rent, rates, taxes of administrative accommodation, postage, telegram and telephone, stationery, lighting of administrative building, depreciation of office appliances etc. are included in administration overhead.

c) Selling overhead: It refers to all expenses incurred in connection with sales. Thus, salary of sales staff, travelers’ commission, advertisement, rent rates, taxes of sale office, depreciation of sales office appliances, cost of participation in industrial fares and exhibitions, cost of free gifts, cost of free after-sales service, normal bad debt etc. are included in selling overhead.

d) Distribution overhead: It refers to all expenses incurred in connection with delivery of the product after the sale is affected. Thus, delivery van expenses, freight and insurance, packing for delivery, loading and unloading, salary of the deliverymen, customs duty etc. are included in distribution overhead. Classification of overhead expenses according to behaviour may be done as below:

- Fixed costs: Fixed cost include only those overhead expenses which remain fixed irrespective of the level of output. Rent and rates of building, salary of the works manager, administrative manager, sales manager etc., depreciation of buildings, insurance, etc. are items of fixed costs.

- Variable costs: Variable costs include prime cost and variable overheads. These costs vary proportionately with the output. Direct materials, direct wages, direct expenses, consumable stores, power, fuel, etc. are items of variable cost.

- Semi-variable or semi-fixed costs: These include overhead expenses that vary according to output, but not proportionately. So, these costs are partly fixed and partly variance. Examples of semi-variable costs are normal repairs and maintenance of building and plant, salary of supervisors, charge men, foreman etc., service department expenses, depreciation of plant and machinery etc. To take a concrete example, let us consider the element ‘repairs’. Normal repair is mostly fixed in nature, because within certain degree of capacity utilisation normal repair is a routine matter at regular intervals. When utilisation is beyond that certain degree, more frequent repairs shall be necessary involving further cost; but still, such increase in cost shall not be proportionate to the increase in output. This is way the element is semi-fixed or semi-variable.

The following are the costing records for the year 2014 of a manufacturer:

Particulars

Rs.

Production 1,000 units

Cost of raw materials

Labour cost

Factory overheads

Office overheads

Selling expenses

Rate of profit 25% on selling price

20,000

12,000

8,000

4,000

1,000

The manufacturer decided to product 1,500 units during the year 2015. It is estimated that the cost of raw material will increase by 20%, the labour cost will increase by 10%, 50% of the overhead charges are fixed and other 50% are variable. The selling expenses per unit will be reduced by 20%. The rate of profit will remain same. Prepare a Cost Statement for the year 2015, showing the Profit and Selling price per unit.

5. The following transaction took place in respect of an item of material:

Particulars

Receipts

Quantity

Rate (Rs.)

Jan – 1: Opening balance

Jan – 5: Received from vendor

Jan – 12: Received from vendor

Jan – 20: Received from vendor

Jan – 25: Received from vendor

500 units

200 units

150 units

300 units

400 units

@ Rs. 4/-

@ Rs. 4.25/-

@ Rs. 4.10/-

@ Rs. 4.50/-

@ Rs. 4/-

Material Issues. Issues are to be priced on the principle of Last in first out method.

Jan 4

Jan 10

Jan 15

Jan 19

Jan 26

Jan 30

200 units,

400 units,

100 units,

200 units,

250 units.

Write out the Store Ledger Account in respect of the materials for the month of January. 10

What are idle facilities? From the information given below, calculate the idle time cost and present the same in a tabular form when the hourly fixed cost of running the machine is Rs. 8/-.

The capacity usage ratio and the capacity utilization ratio in respect of a machine for a particular month is 80% and 90% respectively.

The available working hours in a month are 200 hours.

The break-up of idle time is as follows:

Waiting for job

Breakdown

Waiting for tools

5 hours

4 hours

3 hours

6. The net profit of A Co. Ltd. appeared at Rs. 60,652 as per financial records for the year ending 31^st march, 2014. The Cost Books, however showed a net profit of Rs. 86,200 for the same period. A scrutiny of the figures from both the sets of accounts revealed the following facts:

Particulars

Rs.

Works overhead under recovered in cost

Administrative overhead over recovered in cost

Depreciation charged in Financial Accounts

Depreciation recovered in costs

Interest on investment not included in costs

Loss due to obsolescence charged in Financial Accounts

Income tax provided in Financial Accounts

Bank interest and transfer fee credited in Financial Book

Stores adjustment (credit) in financial books

Value of Opening Stock in:

Cost Accounts

Financial Accounts

Valuation of Closing Stock in:

Cost Accounts

Financial Accounts

Interest charged in cost accounts

Goodwill written off

Loss on sale of furniture

1,560

850

5,600

6,250

4,000

2,850

20,150

375

237

24,800

26,300

25,000

23,000

2,000

5,000

600

Prepare a statement showing the reconciliation between the figures of net profit as per Cost Accounts and the figures of net profit as shown in the Financial Books. 10

Elucidate the functional classification of overheads. 10

Ans: Overhead refers to the indirect expenses incurred at various levels of activities of the enterprise. These expenses cannot be conveniently identified with or allocated to cost centres or cost units. Classification of overhead expenses according to functions may be done as below:

7. What is process costing? Describe the basic feature of process costing. 2+8=10

Ans: 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.

A.M. Industry Ltd. has three processes through which its products pass for becoming a finished product. There is a loss of 2% in each process on the total weight put in and 10% is scrap in all processes. The scrap realizes Rs. 5/- per ton from process 1. Rs. 7 per ton from process 2 and Rs. 10 per ton from process 3. The detailed information of various processes is as follows: 10

Particulars

Process 1

Process 2

Process 3

Passed to next process

Sent to warehouse for sale

60%

40%

50%

100%

Process 1

Rs. tons

Process 2

Rs. tons

Process 3

Rs. tons

Raw materials

Labour cost

General expenses

150,000 500

27,500

12,500

24,480 136

20,600

9,200

7,200 24

15,000

5,075

Prepare Process Cost Accounts showing cost per ton at each process.

-000-

Cost Accounting Solved Question Paper 2015 [Gauhati University BCOM 4th SEM CBCS Pattern]