CA Inter Costing Important Question
Table of Content
Other Important Questions Blog :
Question 1.
Enumerate the factors which are to be considered before installing a system of cost accounting.
Answer:
Before setting up a system of cost accounting the factors mentioned below should be studied:
(a) Objective : The objective of setting up the costing system, for example whether it is being introduced for fixing prices or for establishing a system of cost control.
(b) Nature of Business or Industry : The industry in which the business is operating. Every business or industry has its own uniqueness and objectives. According to its cost information requirement, cost accounting methods are followed. For example, an oil refinery maintains process wise cost accounts to find out the cost incurred on a particular process, say in crude refinement process etc.
(c) Organizational Hierarchy : Costing system should fulfil the information requirements of different levels of management. Top management is concerned with the corporate strategy, strategic level management is concerned with marketing strategy, product diversification, product pricing etc. Operational level management needs the information on standard quantity to be consumed, report on idle time etc.
(d) Knowing the product: Nature of the product determines the type of costing system to be implemented. The product which has by-products requires costing system which accounts for by-products as well. In case of perishable or short self-life products, marginal costing is appropriate to know the contribution and minimum price at which products could be sold.
(e) Knowing the production process : A good costing system can never be established without the complete knowledge of the production process. Cost apportionment can be done on the most appropriate and scientific basis if a cost accountant can identify degree of effort or resources consumed in a particular process. This also includes some basic technical know-how and process peculiarity.
(f) Information synchronization : Establishment of a department or a system requires substantial amount of organizational resources. While drafting a costing system, information needs of various other departments should be taken into account. For example, in a typical business organisation accounts department needs to submit monthly stock statement to its lender bank, quantity wise stock details at the time of filing returns to tax authorities etc.
(g) Method of maintenance of cost records : The organization must determine beforehand the manner in which Cost and Financial accounts could be inter-locked into a single integral accounting system and how the results of separate sets of accounts i.e. cost and financial, could be reconciled by means of control accounts.
(h) Statutory compliance and audit : Records are to be maintained to comply with statutory requirements and applicable cost accounting standards should be followed.
(i) Information Attributes : Information generated from the Costing system should possess all the attributes of useful information i.e. it should be complete, accurate, timely, relevant. to have an effective management information system (MIS).
Question 2.
(i) How would you treat the idle capacity costs in Cost accounts?
(ii) State the circumstances in which time rate system of wage payment can be preferred in a factory.
Answer:
Question 3.
How is slow moving and non-moving item of stores detected and what steps are necessary to reduce such stocks?
Answer:
Question 1.
Rounak Ltd. is the manufacturer of monitors for PCs. A monitor requires 4 units of Part-M.
The following are the details of its operation during 20X8:
| Average monthly market demand | 2,000 Monitors |
| Ordering cost | ₹ 1,000 per order |
| Inventory carrying cost | 20% per annum |
| Cost of Part | ₹ 350 per part |
| Normal usage | 425 parts per week |
| Minimum usage | 140 parts per week |
| Maximum usage | 710 parts per week |
| Lead time to supply | 3-5 weeks |
Compute from the above:
(i) Economic Order Quantity (EOQ). If the supplier is willing to supply quarterly 30,000 units of Part-M at a discount of 5%, is it worth accepting?
(ii) Reorder level
(iii) Maximum level of stock
(iv) Minimum level of stock.
Answer:
(1) A = Annual usage of parts = Monthly demand for monitors x 4 parts x 12 months
= 2,000monitors x 4 parts x 12 months = 96,000units
O = Ordering cost per order = ₹1,000/- per order
C1 = Cost per part = ₹350/-
iC1 = Inventory carrying cost per unit per annum
= 20% x ₹ 350 = ₹ 70/- per unit, per annum
Economic order quantity (EOQ):
E.O.Q = = 1,656 parts (approx.)
The supplier is willing to supply 30,000 units at a discount of 5%, therefore cost of each part shall be ₹350 – 5% of 350 = ₹332.5
Total cost (when order size is 30,000 units):
= Cost of 96,000 units + Ordering cost + Carrying cost.
= (96,000 units x ₹332.50) + + 1/2(30,000 units x 20% x ₹332.50)
= ₹ 3,19,20,000 + ₹ 3,200* + ₹ 9,97,500 = ₹ 3,29,20,700
Total cost (when order size is 1,656 units):
= (96,000 units x ₹ 350) + + 1/2(1,656 units x 20% x ₹350)
= ₹ 3,36,00,000 + ₹ 57,970* + ₹ 57,960 = ₹ 3,37,15,930
Since, the total cost under the supply of 30,000 units with 5% discount is lower than that when order size is 1,656 units, therefore the offer should be accepted.
Note: While accepting this offer consideration of capital blocked on order size of 30,000 units has been ignored.
*Order size can also be taken in absolute figure.
(2) Reorder level
= Maximum consumption x Maximum re-order period
= 710 units x 5 weeks = 3,550 units
(3) Maximum level of stock
= Re-order level + Reorder quantity – (Min. usage x Min. reorder period)
= 3,550 units + 1,656 units – (140 units x 3 weeks) = 4,786 units.
(4) Minimum level of stock
= Re-order level – Normal usage x Average reorder period
= 3,550 units – (425 units x 4 weeks) = 1,850 units.
Question 2.
XYZ Ltd. has obtained an order to supply 48,000 bearings per year from a concern. On a steady basis, it is estimated that it costs ₹ 0.20 as inventory holding cost per bearing per month and the set-up cost per run of bearing manufacture is ₹ 384.
You are required to:
(i) compute the optimum run size and number of runs for bearing manufacture.
(ii) compute the interval between two consecutive runs.
(iii) find out the extra costs to be incurred, if company adopts a policy to manufacture 8,000 bearings per run as compared to optimum run Size.
(iv) give your opinion regarding run size of bearing manufacture.
Assume 365 days in a year.
Answer:
Question 3.
M/s SE Traders is a distributor of an electronic items. A periodic inventory of electronic items on hand is taken when books are closed at the end of each quarter. The following information is available for the quarter ended on 30th September, 20X1:
| Sales | ₹2,19,30,000 |
| Opening Stock | 12,500 units @ ₹ 600 per unit |
| Administrative Expenses | ₹5,62,500 |
| Purchases (including freight inward): | |
| - July 1, 2021 | 25,000 units @ ₹ 573 per unit |
| - September 30, 2021 | 12,500 units @ ₹ 630 per unit |
| Closing stock- September 30, 2021 | 16,000 units |
You are required to COMPUTE the following by WAM (Weighted Average Method), FIFO method and LIFO method assuming issue/ consumption pattern was even throughout the quarter:
(i) Value of Inventory on 30th September, 20X1.
(ii) Profit or loss for the quarter ended 30th September, 20X1.
Answer:
Question 1.
The Accountant of Y Ltd. has computed employee turnover rates for the quarter ended 31st March, 20X1 as 10%, 5% and 3% respectively under ‘Flux method’, ‘Replacement method’ and ‘Separation method’ respectively. If the number of workers replaced during that quarter is 30, FIND OUT the number of workers for the quarter
(i) recruited and joined and (ii) left and discharged and (iii) Equivalent employee turnover rates for the year.
Answer:
Working Note:
Average number of workers on roll (for the quarter):
Employee Turnover rate using Replacement method
= (No. of replacements/ Average number of worker on roll) × 100
or,
5/ 100 = 30/ Average number of workers on roll
or,
Average number of workers on roll = (30 × 100)/ 5 = 600
(i) Number of workers recruited and joined :
Employee turnover rate (Flux method)
=(No. of Separations × (s) + No. of Accessions (A))/ Average number of workers on roll
or, 10/ 100 = (18 + A)/ 600
or, A = [6000/ 100) - 18] = 42
No. of workers recruited and joined 42.
(ii) Number of workers left and discharged:
Employee turnover rate (Separation method) = 3/10 = S/ 600
or, S* = 18
Hence, number of workers left and discharged comes to 18
(iii) Calculation of Equivalent employee turnover rates:
= (Employee turnover rate for the quarter(s)/ Number of quarter(s)) × 4 quarters
Using Flux method = (10%/ 1) × 4 = 40%
Using Replacement method = (5%/ 1) × 4 = 20%
Using Separation method = (3%/ 1) × 4 = 12%
Question 2.
SMC Company Limited is producing a particular design of toys under the following existing incentive system :
Normal working hours in the week 48 hours
Late shift hours in the week 12 hours
Rate of payment
Normal working : ₹ 150 per hour
Late shift : ₹ 300 per hour
Average output per operator for 60 hours per week (including late shift hours) : 80 toys.
The company’s management has now decided to implement a system of labour cost payment with either the Rowan Premium Plan or the Halsey Premium Plan in order to increase output, eliminate late shift overtime, and reduce the labour cost.
The following information is obtained :
The standard time allotted for ten toys is seven and half hours.
Time rate : ₹ 150 per hour (as usual).
Assuming that the operator works for 48-hours in a week and produces 100 toys, you are required to calculate the weekly earnings for one operator under
(I) The existing Time Rate,
(ii) Rowan Premium Plan and,
(iii) Halsey Premium Plan (50%).
Answer:
Question 3.
From the following information, CALCULATE employee turnover rate using – (i) Separation Method, (ii) Replacement Method, (iii) New Recruitment Method, and (iv) Flux Method:
No. of workers as on 01.01.2019 = 3,600
No. of workers as on 31.12.2019 = 3,790
During the year, 40 workers left while 120 workers were discharged. 350 workers were recruited during the year, of these 150 workers were recruited because of exits and the rest were recruited in accordance with expansion plans.
Answer:
Question 1.
In a factory the expenses of factory are charged on a fixed percentage basis on wages and office overhead expenses are calculated on the basis of percentage of works cost.
| I Order (₹) | II Order (₹) | |
| Material | 12,500 | 18,000 |
| Wages | 10,000 | 14,000 |
| Selling price | 44,850 | 61,880 |
| Percentage of profit on cost | 15% | 12% |
Find the rate of Factory OH and Office OH.
Answer:
Let ‘X’ and ‘Y’ be the % of Works Overhead on wages and Office Overhead on works cost respectively.
| Particulars | Order I | Order II |
| Material | 12,500 | 18,000 |
| Wages | 10,000 | 14,000 |
| Prime Cost | 22,500 | 32,000 |
| (+) Factory OH’s | (10,000 x X/100) = 100X | (14,000 x X/100) = 140X |
| Works Cost | 22,500 + 100X | 32,000 + 140X |
| (+) Office Overheads | XY + 225Y | 1.4XY + 320Y |
| [(100 X + 22,500) x Y/100] | ||
| [(140 X + 32,000) x Y/100] | ||
| Total Cost | 100X + XY + 225Y + 22,500 | 140X + 1.4XY + 320Y + 32,000 |
| Cost | 44,850 x (100/115) = 39,000 | 61,880 x (100/112) = 55,250 |
100X + XY + 225Y + 22,500 = 39,000
⇒ 100X + XY + 225Y = 16,500 → Equ. (1)
140X + 1.4XY + 320Y + 32,000 = 55,250
⇒ 140X + 1.4XY + 320Y = 23,250 → Equ. (2)
Equ. (1) x 1.4 ⇒ 140X + 1.4XY + 315Y = 23,100
Equ. (2) ⇒ 140X + 1.4XY + 320Y = 23,250
(–) (–) (–) (–)
5Y = 150
Therefore, Y = 150/50 = 30
Substituting the value of Y in Equ. (1), we get X
100X + 30X + 225 x 30= 16,500 → Equ. (1)
130X + 6750 = 16,500
130X = 9,750
X = 9,750/130 = 75
% of Factory OH on wages = 75%
% of Office OH on works cost = 30%
Question 2.
XYZ Ltd. manufactures a single product. It recovers factory overheads at a pre-determined rate of ₹20 per man-day.
During the year 20X1-X2, the total factory overheads incurred and the man-days actually worked were ₹35.50 lakhs and 1.50 lakh days respectively. Out the amount of ₹ 35.50 lakhs, ₹2.00 lakhs were in respect of wages for strike period and ₹ 1.00 lakh was in respect of expenses of pervious year booked in this current year. During the period, 50,000 units were sold. At the end of the period, 12,000 completed units were held in stock but there was no opening stock of finished goods. Similarly, there was no stock of uncompleted units at the beginning of the period but at the end of the period there were 20,000 uncompleted units which may be treated as 65% complete in all respects.
On investigation, it was found that 40% of the unabsorbed overheads were due to factory inefficiency and the rest were attributable to increase in the cost of indirect materials and indirect labour. You are required to:
(i) Calculate the amount of unabsorbed overheads during the year 20X1-X2.
(ii) Show the accounting treatment of unabsorbed overheads in cost accounts and pass journal entry.
Answer:
Question 3.
The ABC Company has the following account balances and distribution of direct charges on 31st March, 20X1.
| Total | Production Depts. | Service Depts. | |||
| Machine shop | Packing | Gen. Plant | Store & Maintenance | ||
| (₹) | (₹) | (₹) | (₹) | (₹) | |
| Allocated Overheads : | |||||
| Indirect labour | 14,650 | 4,000 | 3,000 | 2,000 | 5,650 |
| Maintenance material | 5,020 | 1,800 | 700 | 1,020 | 1,500 |
| Misc. supplies | 1,750 | 400 | 1,000 | 150 | 200 |
| Superintendent’s salary | 4,000 | – | – | 4,000 | – |
| Cost & payroll salary | 10,000 | – | – | 10,000 | – |
| Overheads to be apportioned : | |||||
| Power | 8,000 | ||||
| Rent | 12,000 | ||||
| Fuel and heat | 6,000 | ||||
| Insurance | 1,000 | ||||
| Taxes | 2,000 | ||||
| Depreciation | 1,00,000 | ||||
| 1,64,420 | 6,200 | 4,700 | 17,170 | 7,350 | |
The following data were compiled by means of the factory survey made in the previous year:
| Floor space (Sqft) | Radiator sections | No. of employees | Investment (₹) | H.P. hours | |
| Machine Shop | 2,000 | 45 | 20 | 640,000 | 3500 |
| Packing | 800 | 90 | 10 | 200,000 | 500 |
| General Plant | 400 | 30 | 3 | 10,000 | - |
| Store & Maintenance | 1,600 | 60 | 5 | 150,000 | 1,000 |
| 4,800 | 225 | 38 | 1,000,000 | 5,000 |
Expenses charged to the stores and maintenance departments are to be distributed to the other departments by the following percentages:
Machine shop 50%; Packing 20%; General Plant 30%; General Plant overheads is distributed on the basis of number of employees:
(a) PREPARE an overhead distribution statement with supporting schedules to show computations and basis of distribution including distribution of the service department expenses to producing department.
(b) DETERMINE the service department distribution by the method of continued distribution (repeated distribution) through 3 cycles. Show all calculations to the nearest rupees.
Answer:
Question 1.
ABC Ltd. manufactures three products X, Y and Z using the same plant and resources. It has given the following information for the year ended on 31st March, 2020:
| X | Y | Z | |
| Production Quantity (units) Cost per unit: | 1200 | 1440 | 1968 |
| Direct Material (₹) | 90 | 84 | 176 |
| Direct Labour (₹) | 18 | 20 | 30 |
Budgeted direct labour rate was ₹ 4 per hour and the production overheads, shown in table below, were absorbed to products using direct labour hour rate. Company followed Absorption Costing Method. However, the company is now considering adopting Activity Based Costing Method.
| Budgeted Overheads (₹) | Cost Driver | Remarks | |
| Material Procurement | 50,000 | No. of orders | No. of orders was 25 units for each product. |
| Set-up | 40,000 | No. of production Runs | All the three products are produced in production runs of 48 units. |
| Quality Control | 28,240 | No. of Inspections | Done for each production run |
| Maintenance | 1,28,000 | Maintenance hours | Total maintenance hours were 6,400 and was allocated in the ratio of 1:1:2 between X, Y & Z. |
Required:
1. Calculate the total cost per unit of each product using the Absorption Costing Method.
2. Calculate the total cost per unit of each product using the Activity Based Costing Method.
Answer:
1. Traditional Absorption Costing
| X | Y | Z | Total | ||
| (a) | Quantity (units) | 1,200 | 1,440 | 1,968 | 4,608 |
| (b) | Direct labour per unit (₹) | 18 | 20 | 30 | - |
| (c) | Direct labour hours (a × b)/₹ 4 | 5,400 | 7,200 | 14,760 | 27,360 |
Overhead rate per direct labour hour:
= Budgeted overheads ÷ Budgeted labour hours
= (₹ 50,000 + ₹ 40,000 + ₹ 28,240 + ₹ 1,28,000) ÷ 27,360 hours
= ₹ 2,46,240 ÷ 27,360 hours
= ₹ 9 per direct labour hour
Unit Costs:
| X | Y | Z | |
| Direct Costs: | |||
| - Direct Labour (₹) | 18.00 | 20.00 | 30.00 |
| - Direct Material (₹) | 90.00 | 84.00 | 176.00 |
| Production Overhead: (₹) | 40.50 [(9x18)/4] | 45.00 [(9x20)/4] | 67.50 [(9x30)/4] |
| Total cost per unit (₹) | 148.50 | 149.00 | 273.50 |
2. Calculation of Cost-Driver level under Activity Based Costing
| X | Y | Z | Total | |
| Quantity (units) | 1,200 | 1,440 | 1,968 | - |
| No. of orders (to be rounded off for fraction) | 48 (1200 / 25) |
58 (1440 / 25) |
79 (1968 / 25) |
185 |
| No. of production runs | 25 (1200 / 48) |
30 (1440 / 48) |
41 (1968 / 48) |
96 |
| No. of Inspections (done for each production run) | 25 | 30 | 41 | 96 |
| Maintenance hours | 1,600 | 1,600 | 3,200 | 6,400 |
Calculation of Cost-Driver rate
| Activity | Budgeted Cost (₹) | Cost-driver level | Cost Driver rate (₹) |
| (a) | (b) | (c) = (a) / (b) | |
| Material procurement | 50,000 | 185 | 270.27 |
| Set-up | 40,000 | 96 | 416.67 |
| Quality control | 28,240 | 96 | 294.17 |
| Maintenance | 1,28,000 | 6,400 | 20.00 |
Calculation of total cost of products using Activity Based Costing
| Particulars | Product | ||
| X (₹) | Y (₹) | Z (₹) | |
| Direct Labour | 18.00 | 20.00 | 30.00 |
| Direct Material | 90.00 | 84.00 | 176.00 |
| Prime Cost per unit (A) | 108.00 | 104.00 | 206.00 |
| Material procurement | 10.81 [(48 x 270.27)/ 1200] |
10.89 [(58 x 270.27)/ 1440] |
10.85 [(79 x 270.27)/ 1968] |
| Set-up | 8.68 [(25 x 416.67)/ 1200] |
8.68 [(30 x 416.67)/ 1440] |
8.68 [(41 x 416.67)/ 1968] |
| Quality control | 6.13 [(25 x 294.17)/ 1200] |
6.13 [(30 x 294.17)/ 1440] |
6.13 [(41 x 294.17)/ 1968] |
| Maintenance | 26.67 [(1,600 x 20)/ 1200] |
22.22 [(1,600 x 20)/ 1440] |
32.52 [(3,200 x 20)/ 1968] |
| Overhead Cost per unit (B) | 52.29 | 47.92 | 58.18 |
| Total Cost per unit (A + B) | 160.29 | 151.92 | 264.18 |
Note: Question may also be solved assuming no. of orders for material procurement to be 25 for each product.
Question 2.
MST Limited has collected the following data for its two activities. It calculates activity cost rates based on cost driver capacity.
| Activity | Cost Driver | Capacity | Cost |
| Power | Kilowatt hours | 50,000 kilowatt hours | ₹ 2,00,000 |
| Quality Inspections | Number of Inspections | 10,000 Inspections | ₹ 3,00,000 |
The company makes three products M, S and T. For the year ended March 31, 20X4, the following consumption of cost drivers was reported:
| Product | Kilowatt hours | Quality inspections |
| M | 10,000 | 3,500 |
| S | 20,000 | 2,500 |
| T | 15,000 | 3,000 |
Required :
(i) Compute the costs allocated to each product from each activity.
(ii) Calculate the cost of unused capacity for each activity.
(iii) Discuss the factors the management considers in choosing a capacity level to compute the budgeted fixed overhead cost rate.
Answer:
Question 3.
Luxury Designer Pvt. Ltd. is a manufacturing company, which manufactures ready made designer shirts. It has four customers: two wholesale category customers and two retail category customers. It has developed the following Activity-Based Costing system :
| Activity | Cost Driver Rate (₹) |
| Order Processing | 1,260 per purchase order |
| Customer Visits | 1,500 per purchase order |
| Regular Delivery | 30per delivery Km. travelled |
| Expedited Delivery | 4,490per expedited delivery |
List selling price per shirt is ₹ 1,000 and average cost per shirt is ₹ 600. CEO of Luxury Designer Pvt. Ltd. wants to evaluate the profitability of each of the four customers for the year 2023, to explore opportunities for increasing profitability of his Company in the next year 2024. The following data in context of four customers are available for 2023:
| Wholesale Customers | Retail Customners | |||
| WC-1 | WC-2 | RC-1 | RC-2 | |
| Number of Purchase orders | 50 | 65 | 224 | 245 |
| Number of Customer visits | 10 | 13 | 25 | 22 |
| Regular Deliveries | 46 | 52 | 175 | 198 |
| Kilometers travelled per delivery | 20 | 15 | 10 | 25 |
| Expedited Deliveries | 5 | 16 | 50 | 62 |
| Average Number of Shirts per order | 215 | 110 | 18 | 15 |
| Average Selling Price per Shirt | ₹ 700 | ₹ 800 | ₹ 900 | ₹ 950 |
You are required to :
Calculate the customer-level operating income and operating income as a % of revenues in 2023 and rank them on the basis of relative profitability.
Answer:
Question 1.
The following are the costing records for the year 2017 of a manufacturer:
Production 20,000 units; Cost of Raw Materials ₹ 2,00,000; Labour Cost ₹ 1,20,000; Factory Overheads ₹ 80,000; Office Overheads ₹ 40,000; Selling Expenses ₹ 10,000, Rate of Profit 25% on the Selling Price.
The manufacturer decided to produce 25,000 units in 20X2. It is estimated that the cost of raw materials will increase by 20%, the labour cost will increase by 10%, 50% of the overhead charges are fixed and the other 50% are variable. The selling expenses per unit will be reduced by 20%. The rate of profit will remain the same.
Prepare a Cost Statement for the year 2017 showing the total profit and selling price per unit.
Answer:
Statement of Cost (Cost Sheet)
(Output 20,000 units)
|
Particulars
|
Cost per unit (Amount in ₹)
|
Total Cost (Amount in ₹)
|
| Raw Materials | 10 | 2,00,000 |
| Labour | 6 | 1,20,000 |
| PRIME COST | 16 | 3,20,000 |
| Add: Factory Overhead | 4 | 80,000 |
| WORKS COST | 20 | 4,00,000 |
| Add: Office Overhead | 2 | 40,000 |
| COST OF PRODUCTION | 22 | 4,40,000 |
| Add: Selling Expenses | .5 | 10,000 |
| COST OF SALES | 22.5 | 4,50,000 |
| Add: Profit (25% on Selling Price or 33.33% on Cost of Sales) | 7.50 | 1,50,000 |
| SELLING PRICE | 30.00 | 6,00,000 |
Statement of Cost (Cost Sheet)
(Output 25,000 units)
| Particulars |
Cost per unit (Amount in ₹)
|
Total Cost (Amount in ₹)
|
|
Raw Materials (₹ 10 x 120% x 25,000)
|
12 | 3,00,000 |
|
Labour (₹ 6 x 110% x 25,000)
|
6.6 | 1,65,000 |
| PRIME COST | 18.6 | 4,65,000 |
| Add: Factory Overhead (₹ 80,000 x 50% + ₹ 2 x 25,000) | 3.6 | 90,000 |
| WORKS COST | 22.2 | 5,55,000 |
| Add: Office Overhead (₹ 40,000 x 50% + ₹ 1 x 25,000) | 1.8 | 45,000 |
| COST OF PRODUCTION | 24 | 6,00,000 |
| Add: Selling Expenses (₹ .5 x 80% x 25,000) | 0.4 | 10,000 |
| COST OF SALES | 24.4 | 6,10,000 |
| Add: Profit (25% on Selling Price or 33.33% on Cost of Sales) | 8.132 | 2,03,313 |
| SELLING PRICE | 32.532 | 8,13,313 |
Question 2.
From the following particulars, you are required to PREPARE monthly cost sheet of Aditya Industries:
| Amount (₹) | |
| Opening Inventories: | |
| - Raw materials | 12,00,000 |
| - Work-in-process | 18,00,000 |
| - Finished goods (10,000 units) | 9,60,000 |
| Closing Inventories: | |
| - Raw materials | 14,00,000 |
| - Work-in-process | 16,04,000 |
| - Finished goods | ? |
| Raw materials purchased | 1,44,00,000 |
| GST paid on raw materials purchased (ITC available) | 7,20,000 |
| Wages paid to production workers | 36,64,000 |
| Expenses paid for utilities | 1,45,600 |
| Office and administration expenses paid | 26,52,000 |
| Travelling allowance paid to office staffs | 1,21,000 |
| Selling expenses | 6,46,000 |
Machine hours worked - 21,600 hours
Machine hour rate - ₹ 8.00 per hour
Units sold- 1,60,000
Units produced - 1,94,000
Desired profit - 15% on sales
Answer:
Question 3.
The following data are available from the books and records of Q Ltd. for the month of April 2020:
Direct Labour Cost = ₹ 1,20,000 (120% of Factory Overheads)
Cost of Sales = ₹ 4,00,000
Sales = ₹ 5,00,000
Accounts show the following figures:
| 1st April, 2020 | 30th April, 2020 | |
| (₹) | (₹) | |
| Inventory: | ||
| Raw material | 20,000 | 25,000 |
| Work-in-progress | 20,000 | 30,000 |
| Finished goods | 50,000 | 60,000 |
| Other details: | ||
| Selling expenses | 22,000 | |
| General & Admin. expenses | 18,000 |
You are required to prepare a cost sheet for the month of April 2020 showing:
Answer:
Question 1.
A manufacturing company disclosed a net loss of ₹ 3,47,000 as per their cost accounts for the year ended March 31, 20X8. The financial accounts however disclosed a net loss of ₹ 5,10,000 for the same period. The following information was revealed as a result of scrutiny of the figures of both the sets of accounts.
| (₹) | ||
| (i) | Factory Overheads under-absorbed | 40,000 |
| (ii) | Administration Overheads over-absorbed | 60,000 |
| (iii) | Depreciation charged in Financial Accounts | 3,25,000 |
| (iv) | Depreciation charged in Cost Accounts | 2,75,000 |
| (v) | Interest on investments not included in Cost Accounts | 96,000 |
| (vi) | Income-tax provided | 54,000 |
| (vii) | Interest on loan funds in Financial Accounts | 2,45,000 |
| (viii) | Transfer fees (credit in financial books) | 24,000 |
| (ix) | Stores adjustment (credit in financial books) | 14,000 |
| (x) | Dividend received | 32,000 |
Prepare a memorandum Reconciliation Account.
Answer:
Memorandum Reconciliation Accounts
| Dr. | Cr. | ||
| (₹) | (₹) | ||
| To Net Loss as per Costing books | 3,47,000 | By Administration overheads over recovered in cost accounts | 60,000 |
| To Factory overheads under absorbed in Cost Accounts | 40,000 | By Interest on investment not included in Cost Accounts | 96,000 |
| To Depreciation under charged in Cost Accounts | 50,000 | By Transfer fees in Financial books | 24,000 |
| To Income-Tax not provided in Cost Accounts | 54,000 | By Stores adjustment (Credit in financial books) | 14,000 |
| To Interest on Loan Funds in Financial Accounts | 2,45,000 | By Dividend received in financial books | 32,000 |
| By Net loss as per Financial books | 5,10,000 | ||
| 7,36,000 | 7,36,000 |
Question 2.
Journalise the following transactions assuming that cost and financial transactions are integrated:
| (₹) | |
| Raw materials purchased | 2,00,000 |
| Direct materials issued to production | 1,50,000 |
| Wages paid (30% indirect) | 1,20,000 |
| Wages charged to production | 84,000 |
| Manufacturing expenses incurred | 84,000 |
| Manufacturing overhead charged to production | 92,000 |
| Selling and distribution costs | 20,000 |
| Finished products (at cost) | 2,00,000 |
| Sales | 2,90,000 |
| Closing stock | Nil |
| Receipts from debtors | 69,000 |
| Payments to creditors | 1,10,000 |
Answer:
Question 3.
Construct journal entries in the following situations assuming that cost and financial transactions are integrated :
| (i) | Purchase of raw material | ₹4,40,000 |
| (ii) | Direct Material issued to production | ₹3,60,0000 |
| (iii) | Wages charged to production | ₹80,000 |
| (iv) | Manufacturing overheads charged to production | ₹1,32,000 |
Answer:
Question 1.
TSK Limited manufactures a variety of products. The annual demand for one of its products - Product ‘X’ is estimated as 1,35,000 units, Product ‘X’ is to be manufactured done in batches. Set up cost of each batch is ? 3,375 and inventory holding cost is ? 5 per unit. It is expected that demand of Product ‘X’ would be uniform throughout the year.
Required :
(i) Calculate the Economic Batch Quantity (EBQ) for Product ‘X’.
(ii) Assuming that the company has a policy of manufacturing 7,500 units of Product ‘X’ per batch, calculate the additional cost incurred as compared to the cost incurred as per Economic Batch Quantity (EBQ) as computed in (i) above.
Answer:
(i) Economic Batch Quantity (EBQ) =
where,
D = Annual demand for the product
S = Set-up cost per batch
C = Carrying cost per unit per annum.
=
= 13,500 units.
(ii) Total Cost (of maintaining the inventories) when batch size (Q) are 13,500 and 7,500 units respectively
Total cost = Total set-up cost + Total carrying cost.
| When batch size is 13,500 units | When batch size is 7,500 units | |
| Total set up cost | = 1,35,000 / 13,500 ₹ 3,375 =₹ 33,750 Or, No. of setups = 10 = 10 x ₹ 3,375 = ₹ 33,750 |
=1,35,000 / 7,500 × ₹ 3,375 = ₹ 60,750 |
| Total Carrying cost | 1/2 × 13,500 × 5 = ₹ 33,750 | 1/2 × 7,500 × 5 = ₹ 18,750 |
| Total Cost | ₹ 67,500 | ₹ 79,500 |
₹ 12,000 is the excess cost borne by the company due to batch size not being economic batch quantity.
Alternative presentation
| EOQ 13,500 | Batch size 7500 | Extra cost | Saving | |
| No of setup | 10 | 18 | 8 x 3375 = 27,000 | |
| Carrying cost | 13,500 – 7500 = 6000/ 2 @ 5 | 15,000 | ||
Net extra cost = (27,000- 15,000) = ₹ 12,000
Question 2.
A jobbing factory has undertaken to supply 300 pieces of a component per month for the ensuing six months. Every month a batch order is opened against which materials and labour hours are booked at actual. Overheads are levied at a rate per labour hour. The selling price contracted for is ₹ 8 per piece. From the following data CALCULATE the cost and profit per piece of each batch order and overall position of the order for 1,800 pieces
| Month | Batch Output | Material cost | Direct wages | Direct labour |
| (₹) | (₹) | hours | ||
| January | 310 | 1150 | 120 | 240 |
| February | 300 | 1140 | 140 | 280 |
| March | 320 | 1180 | 150 | 280 |
| April | 280 | 1130 | 140 | 270 |
| May | 300 | 1200 | 150 | 300 |
| June | 320 | 1220 | 160 | 320 |
The other details are:
| Month | Chargeable expenses | Direct labour |
| (₹) | (Hours) | |
| January | 12,000 | 4,800 |
| February | 10,560 | 4,400 |
| March | 12,000 | 5,000 |
| April | 10,580 | 4,600 |
| May | 13,000 | 5,000 |
| June | 12,000 | 4,800 |
Answer:
Question 3.
Phonick Ltd. accepted an order to supply 2,000 units per month of Product ‘E’ for the third quarter of the year. Each monthly batch order records the actual costs of materials and labour. Overheads are charged at a rate per labour hour. The selling price is established at ₹ 15 per unit.
Information relating to Material, Labour and Overheads is provided below:
| Month | Batch Output (Numbers) | Material Cost (₹) | Labour Cost (₹) | Overheads(₹) | Total Labour Hours |
| October | 2,500 | 12,500 | 5,000 | 24,000 | 8,000 |
| November | 3,000 | 18,000 | 6,000 | 18,000 | 9,000 |
| December | 2,000 | 10,000 | 4,000 | 30,000 | 10,000 |
Labour is paid at the rate of ₹ 2 per hour.
CALCULATE the cost and profit per unit of each batch order along with the overall position of the order for 6,000 units.
Answer:
Question 1.
The data pertaining to Heavy Engineering Ltd. using are as follows at the end of 31.3.20X2. Direct material ₹ 9,00,000; Direct wages ₹ 7,50,000; Selling and distribution overhead ₹ 5,25,000; Administrative overhead ₹ 4,20,000, Factory overhead ₹ 4,50,000 and Profit ₹ 6,09,000.
(a) Prepare a cost sheet showing all the details.
(b) For 20X1-X2, the factory has received a work order. It is estimated that the direct materials would be ₹ 12,00,000 and direct labour cost ₹ 7,50,000. What would be the price of work order if the factory intends to earn the same rate of profit on sales, assuming that the selling and distribution overhead has gone up by 15%? The factory recovers factory overhead as a percentage of direct wages and administrative and selling and distribution overheads as a percentage of works cost, based on the cost rates prevalent in the previous year.
Answer:
(a)
Statement of Cost
| Particulars | Amount (₹) |
| Direct Materials | 9,00,000 |
| Direct Wages | 7,50,000 |
| Prime Cost | 16,50,000 |
| Factory Overheads (60% of wages) | 4,50,000 |
| Works Cost | 21,00,000 |
| Administration Overhead (20% of works cost) | 4,20,000 |
| Cost of Production | 25,20,000 |
| Selling & Distribution Overheads (25% of Works Cost) | 5,25,000 |
| Cost of Sales | 30,45,000 |
| Profit (1/5 of Cost) | 6,09,000 |
| Sales | 36,54,000 |
(b)
Estimated price of work order
| Particulars | Amount (₹) |
| Direct Materials | 12,00,000 |
| Direct Wages (or labour) | 7,50,000 |
| Prime Cost | 19,50,000 |
| Factory Overheads (60% of wages) | 4,50,000 |
| Works Cost | 24,00,000 |
| Administration Overhead (20% of works cost) | 4,80,000 |
| Cost of Production | 28,80,000 |
| Selling & Distribution Overheads (40% i.e., 25 % + 15% of Works Cost) | 9,60,000 |
| Total Cost | 38,40,000 |
| Profit (1/5 of Total Cost) | 7,68,000 |
| Estimated Sales price | 46,08,000 |
Question 2.
The following are the budgeted details are available from the records of a manufacturing company SP Ltd.:
| ₹ | ₹ | |
| Direct Materials | 2,13,000 | |
| Direct Wages: | ||
| Machine Shop (12,000 hours) | 63,000 | |
| Assembly Shop (10,000 hours) | 48,000 | 1,11,000 |
| Works Overhead: | ||
| Machine Shop | 88,200 | |
| Assembly Shop | 51,800 | 1,40,000 |
| Administrative Overhead | 92,800 | |
| Selling Overhead | 81,000 | |
| Distribution Overhead | 62,100 |
You are required to:
(a) PREPARE a Schedule of Overhead Rates from the figures available stating the basis of overhead recovery rates used under the given circumstances.
(b) WORK OUT a Cost Estimate for the following job based on overhead calculated on above basis.
| Direct Material: | 25 kg @ ₹ 17.20/kg |
| 15 kg @ ₹ 21.00/kg | |
| Direct labour: (On the basis of hourly rate | Machine shop 30 hours |
| For machine shop and assembly shop) | Assembly shop 42 hours |
Answer:
Question 3.
In the current quarter, ABC company has undertaken two jobs. The data relating to these jobs are as under:
| Job 1000 | Job 1100 | |
| Selling price | ₹ 1,07,325 | ₹ 1,57,920 |
| Profit as percentage on cost | 8% | 12% |
| Direct Materials | ₹ 37,500 | ₹ 54,000 |
| Direct wages | ₹ 30,000 | ₹ 42,000 |
It is the policy of the company to charge Factory overheads as percentage on direct wages and selling and administration overheads as percentage on Factory Cost. The company has received a new order for manufacturing of a similar job. The estimate of direct materials and direct wages relating to the new order are ₹ 75,000 and ₹ 50,000 respectively. A profit of 20% on sales is required. You are required to compute:
(i) The rates of Factory overheads and selling and Administration overheads to be charged.
(ii) The selling price of the new order.
Answer:
Question 1.
M Ltd. produces a product-X, which passes through three processes, I, II and III. In Process-III a by-product arises, which after further processing at a cost of ₹ 85 per unit, product Z is produced. The information related for the month of August 2020 is as follows:
| Process-I | Process-II | Process-III | |
| Normal loss | 5% | 10% | 5% |
| Materials introduced (7,000 units) | 1,40,000 | - | - |
| Other materials added | 62,000 | 1,36,000 | 84,200 |
| Direct Wages | 42,000 | 54,000 | 48,000 |
| Direct expenses | 14,000 | 16,000 | 14,000 |
Production overhead for the month is ₹ 2,88,000, which is absorbed as a percentage of direct wages.
The scrapes are sold at ₹10 per unit
Product-Z can be sold at ₹ 135 per unit with a selling cost of ₹15 per unit
No. of units produced:
Process-I- 6,600; Process-II- 5,200, Process-III- 4,800 and Product-Z- 600
There is not stock at the beginning and end of the month.
You are required to PREPARE accounts for:
(i) Process-I, II and III
(ii) By-product process.
Answer:
(i)
Process-I A/c
| Particulars | Units | Amt (₹) | Particulars | Units | Amt (₹) |
| To Materials | 7,000 | 1,40,000 | By normal loss (5% of 7,000) | 350 | 3,500 |
| To Other materials | - | 62,000 | By process-II* | 6,600 | 3,35,955 |
| To Direct wages | - | 42,000 | By abnormal loss* | 50 | 2,545 |
| To Direct Expenses | - | 14,000 | |||
| To Production OH (200% of ₹42,000) | - | 84,000 | |||
| 7,000 | 3,42,000 | 7,000 | 3,42,000 |
= ₹ 50.9022
Process-II A/c
| Particulars | Units | Amt (₹) | Particulars | Units | Amt (₹) |
| To process-I A/c | 6,600 | 3,35,955 | By normal loss (10% of 6,600) | 660 | 6,600 |
| To other materials | - | 1,36,000 | By process-III* | 5,200 | 5,63,206 |
| To Direct Wages | - | 54,000 | By Abnormal loss** | 740 | 80,149 |
| To Direct Expenses | - | 16,000 | |||
| To production OH (200% of ₹ 54,000) | - | 1,08,000 | |||
| 6,600 | 6,49,955 | 6,600 | 6,49,955 |
= ₹ 108.3089
Process-III A/c
| Particulars | Units | Amt (₹) | Particulars | Units | Amt (₹) |
| To Process-I A/c | 5,200 | 5,63,206 | By normal loss (5% of 5,200) | 260 | 2,600 |
| To Other Materials | - | 84,200 | By product-X*** | 4,800 | 8,64,670 |
| To Direct Wages | - | 48,000 | By product-Z# (₹ 35 x 600) | 600 | 21,000 |
| To Direct Expenses | - | 14,000 | |||
| To production OH (200% of ₹ 48,000) | - | 96,000 | |||
| To abnormal gain*** | 460 | 82,864 | |||
| 5,660 | 8,88,270 | 5,660 | 8,88,270 |
= ₹ 180.1396
# Realisable value = ₹ 135 - (85+15) = ₹ 35
(ii)
By-Product Process A/c
| Particulars | Units | Amt(₹) | Particulars | Units | Amt (₹) |
| To Process-III A/c | 600 | 21,000 | By Product-Z | 600 | 81,000 |
| To Processing Cost | - | 51,000 | |||
| To Selling expenses | - | 9,000 | |||
| 600 | 81,000 | 600 | 81,000 |
Question 2.
Following details have been provided by M/s AR Enterprises:
| (i) | Opening works-in-progress - 3000 units (70% complete) |
| (ii) | Units introduced during the year - 17000 units |
| (iii) | Cost of the process (for the period) - ₹ 33,12,720 |
| (iv) | Transferred to next process - 15000 units |
| (v) | Closing works-in-progress - 2200 units (80% complete) |
| (vi) | Normal loss is estimated at 12% of total input (including units in process in the beginning). Scraps realise ₹ 50 per unit. Scraps are 100% complete. |
Using FIFO method, compute:
(i) Equivalent production
(ii) Cost per equivalent unit
Answer:
Question 3.
The product of a manufacturing concern passes through two processes A and B and then to finished stock. It is ascertained that in each process normally 5% of total weight is lost and 10 % is scrap which from processes A and realizes ₹ 96 per ton and ₹ 240 per ton respectively. the following are the figures relating to both the processes.
| Process A | Process B | |
| Material in tons | 1,200 | 84 |
| Cost of Materials per ton in rupees | 150 | 240 |
| Wages in rupees | 33,600 | 12,000 |
| Manufacturing Expenses in rupees | 9,600 | 6,300 |
| Output in tons | 996 | 936 |
Answer:
Question 1.
In a factory producing joint products of two varieties, the following data are extracted from the books:
| TOTAL (₹) | |
| Sales of products X and Y | 7,50,000 |
| Direct Material | 2,25,000 |
| Direct Labour | 1,10,000 |
| Variable Overhead (150% on Labour) | 1,65,000 |
| Fixed Overhead | 2,00,000 |
The analysis of sales reveals that the percentage of sale of product X is 66.6666 %.
Management contemplates to process further joint products so that they could be sold at higher rates. Facilities for this are available. The additional expenditure for the further process and total sales anticipated at higher selling prices are given below. Make recommendations presenting the affect of the proposal.
| PRODUCT X | PRODUCT Y | TOTAL | |
| Sales after further processing | 6,00,000 | 3,00,000 | 9,00,000 |
| Additional material | 50,000 | 20,000 | 70,000 |
| Additional direct labour | 20,000 | 8,000 | 28,000 |
Answer:
Amount (₹)
| Particulars | X | Y |
TOTAL |
|
| (i) | Sales after further processing | 6,00,000 | 3,00,000 | 9,00,000 |
| (ii) | Sales at split off | 5,00,000 | 2,50,000 | 7,50,000 |
| (iii) | Incremental sales | 1,00,000 | 50,000 | 1,50,000 |
| (iv) | Incremental/Additional/further processing / Separate cost: |
|||
| Material | 50,000 | 20,000 | 70,000 | |
| Labour | 20,000 | 8,000 | 28,000 | |
| Variable Overheads | 30,000 | 12,000 | 42,000 | |
| (v) | Incremental Profit/Loss | -- | 10,000 | 10,000 |
It is recommended to further process Product Y because there is an incremental / additional profit ₹ 10,000 where as product X need not be further processed because there is no additional profit.
Question 2.
OPR Ltd. purchases crude vegetable oil. It does refining of the same. The refining process results in four products at the spilt-off point - S, P, N and A. Product 'A’ is fully processed at the split-off point. Product S, P and N can be individually further refined into SK, PM, and NL respectively. The joint cost of purchasing the crude vegetable oi l and processing it were ₹ 40,000. Other details are as follows:
| Product | Further processing costs (₹) |
Sales at split-off point (₹) |
Sales after further processing (₹) |
| S | 80,000 | 20,000 | 1,20,000 |
| P | 32,000 | 12,000 | 40,000 |
| N | 36,000 | 28,000 | 48,000 |
| A | - | 20,000 | - |
You are required to identify the products which can be further processed for maximizing profits and make suitable suggestions.
Answer:
Question 3.
A coke manufacturing company produces the following products by using 5,000 tons of coal @ ₹ 1,100 per ton into a common process.
| Coke | 3,500 tons |
| Tar | 1,200 tons |
| Sulphate of ammonia | 52 tons |
| Benzol | 48 tons |
PREPARE a statement apportioning the joint cost amongst the products on the basis of the physical unit method.
Answer:
Question 1.
AXA Passenger Transport Company is running 5 buses between two towns, which are 40 kms apart. Seating capacity of each bus is 40 passengers. Following details are available from their books, for the month of April 20X7:
| Amount (₹) | |
| Salary of Drivers, Cleaners and Conductors | 24,000 |
| Salary to Supervisor | 10,000 |
| Diesel and other Oil | 40,000 |
| Repairs and Maintenance | 8,000 |
| Taxation and Insurance | 16,000 |
| Depreciation | 26,000 |
| Interest | 20,000 |
| 1,44,000 |
Actual passengers carried were 75% of the seating capacity. All the four buses run on all days for the month. Each bus made one round trip per day. Calculate cost per passenger - Kilometer.
Answer:
Working Note:
Total Passenger Kilometers =
Number of Buses × Distance × Seating Capacity × Used Capacity × Number of days in the Month × Number of trips
= 5 Buses × 40 kms.× 40 Seats × 75% × 30 Days × 2 Single trips (1 Round Trip)
= 3,60,000 Passenger-Kms.
Cost per Passenger-Km = Total costs / Total Passenger Kilometers
Statement of Cost per Passenger - Km
| Particulars | Cost Per Month | Cost per Passenger - Km | |
| A. | Standing Charges: | ||
| Wages of Drivers, Cleaners and Conductors | 24,000 | ||
| Salary to Supervisor | 10,000 | ||
| Taxation and Insurance | 16,000 | ||
| Depreciation | 26,000 | ||
| Interest | 26,000 | ||
| Total Standing Charges | 96,000 | 0.267 | |
| B. | Running Charges | ||
| Diesel and other Oil | 40,000 | 0.111 | |
| C. | Maintenance Charges | ||
| Repairs and Maintenance | 8,000 | 0.022 | |
| Total | 1,44,000 | 0.400 |
Cost per Passenger-Km = ₹ 0.40
Question 2.
SEZ Ltd. built a 120 km. long highway and now operates a toll road to collect tolls. The company has invested ₹ 900 crore to build the road and has estimated that a total of 120 crore vehicles will be using the highway during the 10 years toll collection tenure. The other costs for the month of “June 2020” are as follows:
(i) Salary :
(ii) Electricity - ₹ 1,50,000
(iii) Telephone - ₹ 1,00,000
(iv) Maintenance cost - ₹ 50 lakhs
(v) The company needs 30% profit over total cost.
Required:
1. Calculate cost per kilometre
2. Calculate the toll rate per vehicle.
Answer:
Question 3.
POR limited has replaced 72 workers during the quarter ended 31st March 2022. The labour rates for the quarter are as follows:
| Flux method | 16% |
| Replacement method | 8% |
| Separation method | 5% |
You are required to ascertain:
(i) Average number of workers on roll (for the quarter),
(ii) Number of workers left and discharged during the quarter,
(iii) Number of workers recruited and joined during the quarter,
(iv)Equivalent employee turnover rates for the year.
Answer:
The standard and actual figures of a firm are as under
| Standard time for the job | 1,000 hours |
| Standard rate per hour | ₹ 50 |
| Actual time taken | 900 hours |
| Actual wages paid | ₹ 36,000 |
Compute the variances
Answer:
| (₹) | ||
| (a) | Std. labour cost (1,000 hours × ₹ 50) | 50,000 |
| (b) | Actual wages paid | 36,000 |
| (c) | Actual rate per hour: ₹ 36,000/900 hours | ₹ 40 |
Variances
(i) Labour Rate variance
= Actual time (Std. rate – Actual rate)
= 900 hours (₹ 50 – ₹ 40)
= ₹ 9,000 (F)
(ii) Efficiency variance
= Std. rate per hr. (Std. time – Actual time)
= ₹ 50 (1,000 hrs. – 900 hrs.)
= ₹ 5,000 (F)
(iii) Total labour cost variance
= Std. labour cost – Actual labour cost
= {(₹ 50 × 1,000 hours) – ₹ 36,000}
= (₹ 50,000 – ₹ 36,000) = ₹ 14,000 (F)
Question 2.
For making 10 kg. of CEMCO, the standard material requirements is:
| Material | Quantity | Rate per kg. (₹) |
| A | 8 kg | 6.00 |
| B | 4 kg | 4.00 |
During April, 1,000 kg of CEMCO were produced. The actual consumption of materials is as under:
| Material | Quantity (kg.) | Rate per kg. (₹) |
| A | 750 | 7.00 |
| B | 500 | 5.00 |
Calculate (A) Material Cost Variance; (b) Material Price Variance; (c) Material usage Variance.
Answer:
Question 3.
The standard output of a Product 'DJ' is 25 units per hour in manufacturing department of a Company employing 100 workers. In a 40 hours week, the department produced 960 units of product 'DJ' despite 5% of the time paid was lost due to an abnormal reason. The hourly wage rates actually paid were ₹ 6.20, ₹ 6.00 and ₹ 5.70 respectively to Group 'A' consisting 10 workers, Group 'B' consisting 30 workers and Group 'C' consisting 60 workers. The standard wage rate per labour is same for all the workers. Labour Efficiency Variance is given ₹ 240 (F).
You are required to compute:
(i) Total Labour Cost Variance.
(ii) Total Labour Rate Variance.
(iii) Total Labour Gang Variance.
(iv) Total Labour Yield Variance, and
(v) Total Labour Idle Time Variance.
Answer:
Question 1.
The following figures are related to KG Limited for the year ending 31st March, 2023:
Sales - 48,000 units @ ₹ 400 per unit;
P/V Ratio 25% and Break-even Point 50% of sales.
You are required to CALCULATE:
(i) Fixed cost for the year
(ii) Profit earned for the year
(iii) Units to be sold to earn a target net profit of ₹ 22,00,000 for a year.
(iv) Number of units to be sold to earn a net income of 25% on cost.
Answer:
Statement of Cost of K Ltd. for the year ended 31st March, 2023:
| Sl. No. | Particulars | Amount (₹) | Amount (₹) |
| (i) | Material Consumed: | ||
| - Raw materials purchased | 10,00,00,000 | ||
| - Freight inward | 11,20,600 | ||
| Add: Opening stock of raw materials | 18,00,000 | ||
| Less: Closing stock of raw materials | (9,60,000) | 10,19,60,600 | |
| (ii) | Direct employee (labour) cost: | ||
| - Wages paid to factory workers | 29,20,000 | ||
| (iii) | Direct expenses: | ||
| - Royalty paid for production | 1,72,600 | ||
| - Amount paid for power & fuel | 4,62,000 | ||
| - Job charges paid to job workers | 8,12,000 | 14,46,600 | |
| Prime Cost | 10,63,27,200 | ||
| (iv) | Works/ Factory overheads: | ||
| - Stores and spares consumed | 1,12,000 | ||
| - Repairs & Maintenance paid for plant & machinery | 48,000 | ||
| - Insurance premium paid for plant & machinery | 31,200 | ||
| - Insurance premium paid for factory building | 18,100 | ||
| - Expenses paid for pollution control and engineering & maintenance | 26,600 | 2,35,900 | |
| Gross factory cost | 10,65,63,100 | ||
| Add: Opening value of W-I-P | 9,20,000 | ||
| Less: Closing value of W-I-P | (8,70,000) | ||
| Factory Cost | 10,66,13,100 | ||
| (v) | Quality control cost: | ||
| - Expenses paid for quality control check activities | 19,600 | ||
| (vi) | Research & development cost paid improvement in production process |
18,200 | |
| (vii) | Less: Realisable value on sale of scrap and waste | (86,000) | |
| (viii) | Add: Primary packing cost | 96,000 | |
| Cost of Production | 10,66,60,900 | ||
| Add: Opening stock of finished goods | 11,00,000 | ||
| Less: Closing stock of finished goods | (18,20,000) | ||
| Cost of Goods Sold | 10,59,40,900 | ||
| (ix) | Administrative overheads: | ||
| - Depreciation on office building | 56,000 | ||
| - Salary paid to General Manager | 12,56,000 | ||
| - Fee paid to independent directors | 2,20,000 | 15,32,000 | |
| (x) | Selling overheads: | ||
| - Repairs & Maintenance paid for sales office building | 18,000 | ||
| - Salary paid to Manager- Sales & Marketing | 10,12,000 | ||
| - Performance bonus paid to sales staffs | 1,80,000 | 12,10,000 | |
| (xi) | Distribution overheads: | ||
| - Packing cost paid for re-distribution of finished goods | 1,12,000 | ||
| Cost of Sales | 10,87,94,900 |
Question 2.
LR Ltd. is considering two alternative methods to manufacture a new product it intends to market. The two methods have a maximum output of 50,000 units each and produce identical items with a selling price of ₹ 25 each. The costs are:
| Method-1 Semi-Automatic (₹) | Method-2 Fully-Automatic (₹) | |
| Variable cost per unit | 15 | 10 |
| Fixed costs | 1,00,000 | 3,00,000 |
You are required to calculate:
(1) Cost Indifference Point in units. Interpret your results.
(2) The Break-even Point of each method in terms of units.
Answer:
Question 3.
An agriculture based company having 210 hectares of land is engaged in growing three different cereals namely, wheat, rice and maize annually. The yield of the different crops and their selling prices are given below:
| Wheat | Rice | Maize | |
| Yield (in kgs per hectare) | 2,000 | 500 | 100 |
| Selling Price (₹ per kg) | 20 | 40 | 250 |
The variable cost data of different crops are given below:
| Crop | Labour charges | Packing Materials | Other variable expenses |
| Wheat | 8 | 2 | 4 |
| Rice | 10 | 2 | 1 |
| Maize | 120 | 10 | 20 |
The company has a policy to produce and sell all the three kinds of crops. The maximum and minimum area to be cultivated for each crop is as follows:
| Crop | Maximum Area (in hectares) | Minimum Area (in hectares) |
| Wheat | 160 | 100 |
| Rice | 50 | 40 |
| Maize | 601 | 10 |
You are required to:
(i) Rank the crops on the basis of contribution per hectare.
(ii) Determine the optimum product mix considering that all the three cereals are to be produced.
(iii) Calculate the maximum profit which can be achieved if the total fixed cost per annum is ₹ 21,45,000
(Assume that there are no other constraints applicable to this company)
Answer:
Question 1.
Prepare a Production Budget for three months ending March 31, 20X1 for a factory producing four products, on the basis of the following information.
| Type of Product | Estimated Stock on Jan. 1, 20X1 | Estimated Sales during Jan. to Mar. 20X1 | Desired closing stock on 31.3.20X1 |
| A | 2,000 | 10,000 | 3,000 |
| B | 3,000 | 15,000 | 5,000 |
| C | 4,000 | 13,000 | 3,000 |
| D | 3,000 | 12,000 | 2,000 |
Answer:
Production Budget for the 3 Months ending 31st March 20X1
| Particulars | Product A | Product B | Product C | Product D |
| Sales | 10,000 | 15,000 | 13,000 | 12,000 |
| Add: Closing Stock | 3,000 | 5,000 | 3,000 | 2,000 |
| 13,000 | 20,000 | 16,000 | 14,000 | |
| Less: Opening Stock | 2,000 | 3,000 | 4,000 | 3,000 |
| Production (Units) | 11,000 | 17,000 | 12,000 | 11,000 |
Question 2.
For production of 10,000 units the following are budgeted expenses:
Amount (₹)
| Per Unit | |
| Direct Materials | 48 |
| Direct Labour | 24 |
| Variable Overheads | 20 |
| Fixed Overheads (₹1,20,000) | 12 |
| Variable Expenses (Direct) | 4 |
| Selling Expenses (10% fixed) | 12 |
| Administration Expenses (₹40,000 fixed) | 4 |
| Distribution Expenses (20% fixed) | 4 |
| 128 |
Prepare a budget for production of 7,000 units and 9,000 units.
Answer:
Question 3.
A company is expecting to have ₹ 25,000 cash in hand on 1st April 20X1 and it requires you to prepare an estimate of cash position in respect of three months from April to June 20X1, from the information given below:
| Months | Sales (₹ ) | Purchase (₹ ) | Wages (₹ ) | Expenses (₹ ) |
| February | 70,000 | 40,000 | 8,000 | 6,000 |
| March | 80,000 | 50,000 | 8,000 | 7,000 |
| April | 92,000 | 52,000 | 9,000 | 7,000 |
| May | 1,00,000 | 60,000 | 10,000 | 8,000 |
| June | 1,20,000 | 55,000 | 12,000 | 9,000 |
Additional Information:
(a) Period of credit allowed by suppliers - two months.
(b) 25 % of sale is for cash and the period of credit allowed to customer for credit sale one month.
(c) Delay in payment of wages and expenses one month.
(d) Income Tax ₹ 25,000 is to be paid in June 20X1.
Answer:
Ruchika Saboo
An All India Ranker (AIR 7 - CA Finals, AIR 43 - CA Inter), she is one of those teachers who just loved studying as a student. Aims to bring the same drive in her students.
Ruchika Ma'am has been a meritorious student throughout her student life. She is one of those who did not study from exam point of view or out of fear but because of the fact that she JUST LOVED STUDYING. When she says - love what you study, it has a deeper meaning.
She believes - "When you study, you get wise, you obtain knowledge. A knowledge that helps you in real life, in solving problems, finding opportunities. Implement what you study". She has a huge affinity for the Law Subject in particular and always encourages student to - "STUDY FROM THE BARE ACT, MAKE YOUR OWN INTERPRETATIONS". A rare practice that you will find in her video lectures as well.
She specializes in theory subjects - Law and Auditing.
Yashvardhan Saboo
A Story teller, passionate for simplifying complexities, techie. Perfectionist by heart, he is the founder of - Konceptca.
Yash Sir (As students call him fondly) is not a teacher per se. He is a story teller who specializes in simplifying things, connecting the dots and building a story behind everything he teaches. A firm believer of Real Teaching, according to him - "Real Teaching is not teaching standard methods but giving the power to students to develop his own methods".
He cleared his CA Finals in May 2011 and has been into teaching since. He started teaching CA, CS, 11th, 12th, B.Com, M.Com students in an offline mode until 2016 when Konceptca was launched. One of the pioneers in Online Education, he believes in providing a learning experience which is NEAT, SMOOTH and AFFORDABLE.
He specializes in practical subjects – Accounting, Costing, Taxation, Financial Management. With over 12 years of teaching experience (Online as well as Offline), he SURELY KNOWS IT ALL.
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