Cost accounting

Forth semester B COM

Section –A
1) Answer any five question from the following .each
question carries two marks:

a) What do you mean by cost unit?

Ans: It is defined as “unit of product, service or time in relation to which
the cost may be expressed”. Given by CIMA of UK.
b) What is reconciliation statement?
Ans: Bank reconciliation is the process of matching the balances in an
entity's accounting records for a cash account to the corresponding
information on a bank statement. The goal of this process is to ascertain
the differences between the two and to book changes to the accounting
records as appropriate.
c) What are variable cost overheads? Give an example
Ans: Variable costs are costs that change as the quantity of the good or service that
a business produces changes. Variable costs are the sum of marginal costs over all
units produced. They can also be considered normal costs. Fixed costs and variable
costs make up the two components of total cost.

Ex: commission, fright charges, credit card fees.

d) What is apportionment?
Ans: Division of income and expenses in certain proportion and, in
contrast to an allocation, over two or more accounts, departments, or
entities. ... Law: Division and distribution of assets and/or liabilities in
proportion to the rights and interests of the parties involved.
 e) What is JTI?
Ans: It is purchase of material immediately before the material are
needed for the production .this leads to zero stack level and safes in
storage cost.
f) What is machine hour rate?
Ans: it means that cost of running a machine for one hour. It can be
calculated as

= factory overhead for a particular machine

no of machine hours.

g) What is meant by ‘bin card’?

Ans: A BIN Card is a table that records the status of a good held in
stock. A typical retailing business with a large stock warehouse will use
a BIN card to record a running balance of stock on hand, in addition to
information about stock received and notes about problems associated
with that stock item.

Section –c

3)Answer any three question from the following each

question carries fourteen marks:
7) A ltd company has 3 production departments and 2 service department.
Total departmental overhead as per primary distribution of various
departments are as follows:
Production department: A:Rs.3,00,000;B:Rs. 3,50,000& C :2,00,000

Service department: X: Rs.8, 00,000; Y: Rs.60, 000

The company decided to charge the service department cost on the basis of
the following percentages:

Service A B C X y
department
X 30% 20% 30% - 20%
Y 40% 30% 20% 10% -
Find out total overhead of production department under;

A) Simultaneous equation method

b) Repeated distribution method

Solution:

step1: Assumption

Let x be overhead of department X

x=80,000+10% of Y

Let y be overhead of department Y

y= 60,000+20% of X

step 2 : redrafting

x=80,000+0.1y X10

y=60,000+0.2X10
Step 3: Removing decimal

10x=8, 00,000+1y

10Y=6, 00,000+2x

Step 4: arranging the equation

10x-1y=8, 00,000x1

-2x+10y=6, 00,000x5

Step 5: solving the equation

10x-1y=8, 00,000

-2x+50y=30, 00,000

-49y=38, 00,000

Y=38, 00,000

49

Y=77551

Step 6: to find out Y by the equation 1

10x+1y=8, 00,000

10x-1(77551) =8, 00,000

10x-77551=8, 00,000

10x=8, 00,000+77551

10x=8, 77,551

X=8, 77,551
 10

X=87,755

 Overhead distribution summary

Particular Total A B C
Overhead as 8,50,000 3,00,000 3,50,000 2,00,000
per primary
distribution
Dept.(x) 26,326 17,551 26,326
Dept.(y) 31020 23265 15510
Total 3,57,000 3,90,816 2,41,836

 Repeated distribution method:

particular A B C X Y
Overhead 3,00,000 3,50,000 2,00,000 80,000 60,000
as per
primary
distribution
Dept.(x) 24,000 16,000 24,000 (80,000) 16,000
Dept.(y) 30,400 22,800 15,200 7600 (76,000)
Dept.(x) 2280 1520 2280 (7600) 1520
Dept.(y) 608 456 304 152 1520
Dept.(x) 45 30 45 (152) 30
Dept.(y) 12 9 6 3 (30)
Dept.(x) 0.9 0.6 0.9 (3) 0.6
Total 3,57,345.9 3,90,815.6 2,41,835.9 ------------ ----------

8) From the following prepare a reconciliation statement calculate the net

profit as per financial accounts:

Particular Amount
a)Net profit as per costing records 1,72,400
b)works overhead under 3,120
recovered in costing
c) administrative overhead 1,700
recovered in excess
d)depreciation charged in 11,000
financial records
e)Interest received but not 8,000
included in costing
f)obsolescence plant loss charged 5,700
in financial records
g)Income tax provided in 40,300
financial books
h)bank interest credited in 750
financial books
i)stores adjustment credited in 475
financial books
j)depreciation of stock charged in 6,750
financial books
k)depreciation recovered in 12,300
costing
Solution:

Particular Amount
Net profit as per costing records 1,72,400
[+addition]
a) administrative overhead 1,700
recovered in excess
b) Interest received but not 8,000
included in costing
c) bank interest credited in
financial books 750
d) stores adjustment credited
in financial books 475
e) depreciation 1300
Total 12,225
[-subtraction]
a) works overhead under 3,120
recovered in costing
b) obsolescence plant loss
charged in financial records 5,700

c) Income tax provided in 40,300

financial books
d) depreciation of stock 6,750
charged in financial books
Total 55,870
Profits as per financial books 1,28,755
[1,84,625-55,870]
9) ABC ltd .provides the following information for 10,000 machines
manufactured during the year 2018.

Materials Rs 1,50,000
Rs 1,30,000
Direct wages
Rs 20,000
Power and consumables
Rs 22,000
Lighting and charges of factory
Rs 68,000
Clerical charges
Rs 20,000
Sales proceeds of factory scrap
Rs 8,000
Selling expenses
Rs 17,500
Plant repairs, maintenance and
depreciation
Selling price per unit Rs 120 and all units were sold.

Prepare:

a) Cost sheet for the year 2018

b) Statement of quotation for the year 2019,if the selling price is
estimated to reduce to rs .100 per unit. Assume factory overhead are
to be recovered as a percentage on direct wages and office overheads
as a percentage on works cost and selling and distribution overheads
per unit remain same. It is estimated that production for the year 2018
will increased by 50% due to its spare capacity.
Solution:
Cost sheet as per 2018 10,000units
particulars Amount Cost per unit
materials 1,50,000 15
+ direct wages 1,30,000 13
Prime cost 2,80,000 28
+ factory overhead
Power and consumable 20,000
Lighting charges of 22,000
factory
Plant repairs deprecation 17500
59500
- Scrap 8000
51500
Factory cost 3,31,500 33.15
+ office and
administration
Clerical salaries 68000
Cost of production 3,99,500
+ selling and distribution
Selling expenses 20,000
Total cost 4,19,500
profit 7,80,000
Sales(10,000x120) 12,00,000
Calculation of percentages

1. Factory overheads as a percentage of direct wages

51500/1, 30,000x100=39.6%

2. Administration overhead as a percentage of work cost

68000/3, 31500x100=20.5%

3. Selling and administration as a percentage of factory cost

20,000/3, 31,500=6.03%

Cost sheet as per 2019

15000 units

Particular amount Per unit cost

Direct Material
Direct wages

Prime cost

+factory overhead
1,30,000X
10) From the following transaction prepare stores ledger account
under FIFO method for the year 2018
Date Particular Units Rate per unit
purchases 200 2.2
March 2
March 4 150 ------
Issues
March 6 200 2.3
Purchases

March 11 150 -----

Issues

March 15 250 2.4

Purchases

March 19 200 ------

Issues

March 22 200 2.5

Purchases

March 27 250 ------

Issues

March 28 200 2.6

Purchases

March 30 150 -----

Issues
There was opening balance of 300 units valued at Rs. 2 per unit. The
stock verification record reveals a shortage of 10 units on 10th march
2018 and another shortage of 20 units on 23rd march 2018.On 25th
march 2018, there was a refund of surplus of 20 units from a work
order which were issued earlier on 4th march 2018.

Solution:
Stores ledger account as per FIFO method

Receipts Issues Balance

Quantity rate Tot Quantity rate total Quantity rate Tot
Date al al
300 2 600
01/03

200 2.2 440 300 2 600

02/03
200 2.2 440
150 2 300 150 2 300
04/03
200 2.2 440
200 2.3 460 150 2 300
06/03
200 2.2 440
200 2.3 460
10 2 20 140 2 280
10/03
200 2.2 440
200 2.3 460
[150]
11/03
140 2 280 190 2.2 418
10 2.2 22 200 2.3 460
250 2.4 600 190 2.2 418
15/03
200 2.3 460
250 2.4 600
[200]
19/03
190 2.2 418 190 2.3 437
10 2.3 23 250 2.4 600
200 2.5 500 190 2.3 437
22/03
250 2.4 600
200 2.5 500
[20] 170 2.3 391
23/03
20 2.3 46 250 2.4 600
200 2.5 500
 20 2 40 170 2.3 391
25/03
250 2.4 600
200 2.5 500
20 2 40
[250]
27/03
170 2.3 391 170 2.4 408
80 2.4 192 200 2.5 500
20 2 40
200 2.6 520 170 2.4 408
28/03
200 2.5 500
20 2 40
200 2.6 520
[150] 20 2.4 48
30/03
150 2.4 360 200 2.5 500
20 2 40
200 2.6 520

11) From the following you are required to calculate the earnings of a
worker for a week under:

a) Straight piece rate system

b) Taylor’s differential piece rate system
c) Halsey premium plan
d) Rowan premium plan

Weekly working hours 48

Hourly wage rate (Rs) 30

Piece rate per unit (Rs) 12

Time allowed per unit 12 minutes

Normal output for the week 240 pieces

Actual output for the week 300 pieces

Differential piece rate 80% of piece rate when output is below normal and
120% of piece rate when output above normal.

Solution:

Step 1: given

1 week=48 hours

Rate/hour=Rs 30

Rate/units=Rs 12

Standard time=1 unit=12 min

Normal consumption = 240

Actual consumption=300

Step:2

a) Piece rate system:

No of units X rate/unit
=300X12
=3600

b) Taylors plan
Under Taylor’s plan:
Step 1: rate/unit =12
Step 2: calculation of lower rate: 12X80%=9.6
Calculation of higher rate: 12X120%=14.4
Step 3: finding of efficiency
=300>240
300= no of units
240=normal output
 Step 4: calculation of earnings:
=no of units X higher rate
=300X14.4=4320

c) Halsey plan =
Time taken X hourly rate + 50 %{ time saved X hourly rate}
=48 X 38 +50 %{ 12X30}
=1440+180
=1620

Working note: time saved = standard time – hourly rate

=60-48=12

d) Rowan plan:
=time taken X hourly rate + time saved X time taken X HR
Standard time
=48 X 30 +12/60 X48 X 30
=1440+288
=Rs1728

Working note: 1 units =12 min

300 units=?
300 X 12
=3600 min
=3600/60=60 hours.
Note: standard time is calculated on the basis of actual output.