Cost Accounting Question Bank Final

8/10/2019 Cost Accounting Question Bank Final

1/13

QUESTION BANK

Cost and Management Accounting

1. What do you mean by cost accounting? Distinguish between cost accounting and managementaccounting?

2. What do you mean by elements of cost? Explain in detail and how these elements are

presented in the form of a cost sheet?3. What is costing? Discuss the various techniques of costing used in the business.

4. Explain the concept of marginal costing and distinguish between marginal costing and

absorption costing.5.

What do you understand by the term break even analysis and how does this help in

business decisions?

6. Mention the broad principles on which overhead expenses are generally apportioned.

Upon what basis would you apportion the following expenses to individual cost centersin an engineering unit? a. Rent and Rates b. Power c. Life insurance premium d. Lighting

7. What are the main steps in budgetary control? State the main objectives of budgetarycontrol

8. Distinguish between fixed budget and flexible budget?

9. Write a critical note about the usage, application, advantages and limitations of marginalcosting techniques.

10. From the following particulars of a product, prepare a cost sheet, indicating cost per unit

also:

Raw Material- Opening Stock 20,000

- Purchases 1,50,000

- Closing Stock 10,000Direct LaborRs.60, 000, Factory OverheadRs.22, 500, Office Overhead Rs.27, 500

Finished Stock:

Opening Stock 500 units @ 11.20 per unit;Closing Stock 1,500 units @ current cost price.

Profit on sales 20%; Selling and Distributive expenses Rs. 20,000; Units produced -

25,000

11. From the following information, prepare a statement showing cost and profit per unit:Direct material Rs 45,000

Direct labours 33 1/3% of direct material

Direct Expenses 20% of direct material cost and direct labour cost

Factory overheads 1/9th of prime costOffice and administrative expenses 25% of works cost

Selling and distribution expenses 10% of cost of goods sold

Units produced 100 Units remain unsold 10% of units produced Profit 1/5 th of cost ofsales.


2/13


3/13

Expenses for the period were

Apportion general overheads in the proportion of direct wages. Apportion the expenses of

S1 according to direct wages and those of S2 in the ratio of 5:3:2 to the production

departments.

14.

A Ltd. has three production departments A, B and C and two service departments D andE. The following are the figures of the company

The following further details are available

Sundry expenses are apportioned on the basis of direct wages. The expenses of D and E

are allocated as under.


4/13

Find the rate per hour if the working hours are as under. A Department 6226 B

Department 4028 C Department 4066

15. A. Sales Rs. 1,00,000; Profit Rs. 10,000; Variable Cost 70%. Find out (a) P/V ratio (b) Fixed

costs and (c) Sales to earn a profit of Rs. 40,000.

B. From the following information find (a) BEP in rupees and (b) number of units to be

sold to earn a net income of 10% of sales : Selling Price Rs. 20 per unit; Variable CostRs. 12 per unit; Fixed Cost Rs. 2,40,000.

C. The ratio of variable cost to sales is 70%. The Break-even point occurs at 80% of capacity.Find 100% capacity sales when fixed cost is Rs. 6 lakhs.

16. J K Ltd sells two products Jay and Kay in four areas North, South, East and West. The

following sales are budgeted for the month of january2013:

Actual sales for the same period were as follows:

On the basis of all the relevant factors, the following sales are budgeted for the month of

February 2013.

It was decided that additional advertising campaign will be undertaken in south and East

which will result in additional sales of 1,500 units of Jay in South and 2,500 units of Kayin East. You are required to prepare a sales budget for the month of Feb, 2013 for

presentation to management also showing the budgeted and actual sales for the month of

Jan 2013which are to be provided as a guide in preparing the sales budget.


5/13

17. Calculate the Break Even Point is units and in rupees and also arrive at Margin of Safety

ratio from the following information.

18. A Company has three production departments and two service departments. Distribute

summary of overheads is as follows:

Find out the total overheads of production departments using the following methods:

a) Simultaneous Equation Method (b) Repeated Distribution Method

19. Prepare a Cash Budget for the three months ending 30 june 2012, from the information given

below:


6/13

b) Cash and bank balance on 1 April 2012 is expected to be Rs 6,000.

20. A company manufactures two products. A and B by making use of two types of materials viz, X

and Y. Product A requires 10 units of X and 3 units of Y. Product B requires 5 units of X and 2

units of Y. The price of X is Rs. 2 per unit and that of Y Rs. 3 per unit.

The sales manger has estimated the sales of product A to be 5,000 units and that of

product B 10,000 units. The estimate opening stork of material X for the budget period is2,500 units and that of Y is 3,000 units. The desired closing stork of material X is 5,000units and that of Y is 4,000 units. Prepare the Material Usage Budget and Materials

Purchase Budget for the year ending 31st Dec. 2013.

21. Form the following budgeted figures prepare a cash budget in respect of three months to

June 30.

Expected cash balance on 1st AprilRs. 20,000.

Other information:a. Materials and overhead are to be paid during the month following the month of

supply

b. Wages are to be paid during the month in which they are incurred


7/13

c. Terms of sales: The terms of credit sales are payment by the end of the month

following the month of sales; of the sales are paid when due the other half to be

paid during the next month. 5% sales commission is to be paid within the monthfollowing actual sales.

d. Preference dividend for Rs. 30,000 is to be paid on 1st may

e.

Share call money for Rs. 25,000 is due on 1st April and 1st June.f. Plant and machinery worth Rs. 10,000 is to be installed in the month of January and

the payment is to be made in the month of June.

22. A factory engaged in manufacturing plastic toys is working at 40% capacity andproduces, 10, 000 toys per month. The present cost break up for one toy is as under.

Material: Rs.10 Labor: Rs.3 Overheads: Rs.5 [60% fixed] The selling price is Rs.20 per

toy. If it is decided to work the factory at 50% capacity, the selling price falls by 3%. At

90% capacity, the selling price falls by 5% accompanied by a similar fall in the price ofmaterial. You are required to prepare a statement showing the profits/losses at 40%, 50%

and 90% capacity utilizations.

23. In what way is variance analysis helpful to the company management?

24. Distinguish between Budgetary Control and Standard Costing.

25. Explain briefly the advantages and limitations of standard costing. In what ways does it

differ from budgetary control?

26. What is Material & Labor Variance? Define all with its causes.

27. Define standard costing. Point out the difference between historical costing and standard

costing.

28. Calculation of variances in standard costing is not an end in itself, but a means to an

end. Discuss.

29.

Recently a conference speaker discussing budgets and standard costs made the followingstatementbudgets and standards are not the same things, they have different purposes

and are setup and used in different ways, yet a specific relationship exists between them.

a) Identify differences between budgets and standards

b) Identify similarities between budgets and standards

30. Explain the principle underlying make or buy decision. Mention also the probable

factors influencing the decision in this connection.

31. What factors would you take into consideration in closing or suspending the business

activity?

32. What are the benefits of activity-based costing system? How is ABC information useful

on decision making?

33. Define target costing and what are its benefits and limitations?

34. Explain the meaning of target costing and state its stages.

35. Do you agree that activity-based costing is a more refined system of charging of overhead

cost to products than the traditional method? Explain.


8/13

36. Explain life-cycle cost analysis as a tool of management also discusses the features and

benefits of Product life cycle costing.

37. Short Notes:

a) Make or buy decision

b) Operate or shutdown

c)

Standard costing and Actual costing

d) Life cycle costing

38. The standard material cost to produce a ton of chemical X is given below:

300 kg of material A @ Rs.10 per kg

400 kg of material B @ Rs.5 per kg

500 kg of material C @ Rs.6 per kg

During a particular period, 100 tons of mixture X was produced from the usage of

35 tons of material A @ Rs.9, 000 per ton

42 tons of material B @ Rs.6, 000 per ton53 tons of material C @ Rs.7, 000 per ton

Calculate material cost, price, and usage and mix variances.

39. S.V. Ltd. manufactures a single product, the standard mix of which are as follows:

Material A 60% at Rs.20 per kg

Material B 40% at Rs.10 per kg

Normal loss in the production is 20% of input. Due to shortage of material A, the

standard mix was changed and the actual mix was as follows:

Material A 105 kg at Rs.20 per kgMaterial B 95 kg at Rs.9 per kg

Actual loss was 35 kg, while the actual output was 165 kg

Calculate all material variances.

40. Standard hours for manufacturing two products, M and N are 15 hours per unit and 20

hours per unit respectively. Both products require identical kind of labour and the

standard wage rate per hour is Rs.5. In a particular year, 10, 000 units of M and 15, 000

units of N were produced. The total labour hours worked were 4, 50, 000 and the actual

wage bill came to Rs.23, 00,000. This includes 12, 000 hours paid for @ Rs.7 per hour

and 9400 hours paid for @ Rs.7.50 per hour, the balance having been paid at Rs.5 perhour. You are required to calculate labour variances.

41. The standard output of production EXE is 25 units per hour in a manufacturing

department of a company employing 100 workers. The standard wage rate per labour

hour is Rs.6. In a 42 hours week, the department produced 1040 units of the product

despite 5% of the time paid were lost due to an abnormal reason. The hourly wage rate


9/13

actually paid were Rs.6.20, Rs.6 and Rs.5.70 respectively to 10, 30 and 60 of the

workers. Compute various relevant labour variances.

42. Compute the Material Price Variance from the following data:

Standard Material cost per unit Materials Issued

Material A 2 pieces @ Re.1.00 = 2.00 Material A 2050 pieces

Material B 3 pieces @ Rs. 2.00 = 6.00 Material B 2980 pieces

Assume Material A was purchased at the rate of Re. 1.00 and Material B at the rate of Rs.

2.10.

43. The standard cost of material for manufacturing a unit of a particular product PEE is

estimated as follows: 16 kg of raw material @ Re. 1 per kg.

On completion of the unit, it was found that 20 kg. of raw material costing Rs. 1.50 per

kg has been consumed. Compute Material Variances.

44. A gang of workers usually consists of 10 men, 5 women and 5 boys in a factory. They are

paid at standard hourly rates of Rs. 1.25, Rs. 0.80 and Rs. 0.70 respectively. In a normalweek of 40 hours the gang is expected to produce 1000 units of output.

In certain week, the gang consisted of 13 men, 4 women and 3 boys. Actual wages were

paid at the rates of Rs. 1.20, Rs. 0.85 and Rs. 0.65 respectively. Two hours were lost due

to abnormal idle time and 960 units of output were produced.

Calculate various labour variances.

45. Following details are available from the records of Delta Ltd company for a month

regarding the standard labour hours and rates of an hour for a product.

Hours Rate per hour (Rs) Total (Rs)

Skilled 10 3.00 30.00

Semi-skilled 8 1.50 12.00

Unskilled 16 1.00 16.00

Total 58.00

The actual production for the product was 1500 units for which the actual hours worked

and rates were as below:

Hours Rate per hour (Rs) Total (Rs)

Skilled 13,500 3.50 47,250Semi-skilled 12,600 1.80 22,680

Unskilled 30,000 1.20 36,000

Compute Labour cost variance, labour rate variance, labour efficiency variance and labour

mix variance.


10/13


11/13

Labour 2 hours @ Rs.10 each = Rs.20 per unit

The actual which have emerged from business operations are as follows.

Production8,000 units, material consumed16,500 kg @ Rs.2.40 each = Rs.39,600,

Wages paid 18,000 hours @ Rs.8 each = Rs.1, 44, 000

Calculate appropriate material and labour variances.

51. The Bharat electrical Ltd Company produces most of its electrical parts in its own plant.

The company is at present considering the feasibility of buying a part from an outside

supplier for Rs 4.5 per part. If this were done, monthly costs would increase by Rs 1000.

The part under consideration is manufactured in Department A along with numerous

other parts. On account of discontinuing the production of this part, department A would

have somewhat reduced operations. The average monthly usage production of this part is

20,000 units. The cost of producing this part on per unit basis are as follows:

Material Rs 1.80

Labour (half-hour) 2.40Fixed overheads 0.80

Total cost Rs 5

Give appropriate decision to the management of the company.

52. ABC ltd produces a variety of products each having a number of component parts.

Product B takes 5 hours to produce on a particular machine which is working at full

capacity. B has a selling price of rs 100 and variable cost of Rs 60 per unit. A component

part X -100 could be made on the same machine in two hours at variable cost of Rs 10

per unit. The suppliers price for the component is rs 25 per unit.

Required: Advise whether the company should buy the component X-100. If necessarymake suitable assumptions.

53. A company is considering expansion. Fixed costs amount to Rs 4,20,000 and are

expected to increase by Rs 1,25,000 when plant expansion is completed. The present

plant capacity is 80,000 units a year. Capacity will increase by 50% with the expansion.

Variable costs are currently Rs 6.80 per unit and are expected to go down by Rs 0.40 per

unit with the expansion. The current selling price is Rs 16 per unit and is expected to

remain same under either alternative. What are the break-even points under either

alternative? Which alternative is better and why?

54. Auto parts ltd. has an annual production of 90,000 units for a motor component. The

component cost structure is as follows:

Materials Rs 270 per unit

Labour (25% fixed) Rs 180 per unit

Expenses:


12/13

Variable Rs 90 per unit

Fixed Rs 135 per unit

-------------------

Total Rs 675 per unit

a) The purchase manager has an offer from supplier who is willing to supply the

component at Rs 540. Should the component be purchased and production stopped?

b) Assume the resources now used for this components manufacture are to be used to

produce another new product for which the selling price is Rs 485.

In the latter case, the material price will be rs 200 per unit. 90,000 units of this product

can be produced at the same cost basis as above for labour and expenses. Discuss whether

it would be advisable to divert the resources to manufacture that new product, on the

footing that the component presently being produced would, instead of being produced,

be purchased from the market.

55.New Enterprise is currently manufacturing Part M6, producing 80000 units annually. The

part is used in the production of several products made by New Enterprises. The cost per

unit for M6 is as follows:

Particulars Unit Cost (Rs)

Direct Materials 12.00

Direct Labour 8.00

Variable Overheads 3.50

Fixed Overhead 2.50

Total; 26.00

Of the total fixed overhead assigned to M6, Rs 80000 is direct fixed overhead (the level

of production machinery and salary of a production line supervisor neither of which

will be needed if the line is dropped). The remaining fixed overhead is common fixed

overhead. An outside supplier has offered to sell the part to new Enterprises for Rs 25.00.

There is alternative use for the facilities currently used to produce the part.

1. Should the company manufacture or purchase part M6?

2. What is the New Enterprise would be willing to pay an outsider supplier?

3. If the company bought the part, by what amount would income increase or decrease?

56. The income statement for a company producing three products is given as under:

Particulars Product A Product B Product C

Sales 65800 100000 85500

Less: Variable Cost (25000) (55000) (35000)


13/13

Total Contribution 40800 45000 50500

Less: Allocated Fixed Cost (20500) (47000) (32800)

Profit (loss) 20300 (2000) 17700

Should the company drop Product B? Prepare a revised income statement if product B

was dropped.

57. The Bonsai ltd is presently evaluating two possible processes for the manufacture of a

toy, and makes available to you the following information:

Particulars Process A (Rs) Process B (Rs)

Variable cost per unit 12 14

Selling price per unit 20 20

Total fixed costs per year 30,00,000 21,00,000

Capacity (in units) 4,30,000 5,00,000

Anticipated sales (Next year in Units) 4,00,000 4,00,000

You are required to suggest:

i) Which process should be chosen? Substantiate your answer.

ii) Would you change your answer as given above if you were informed that the

capacities of the two processes are as follows: A 6, 00,000 units and B 5, 00,000

units? Why? Substantiate your answer.

58. ABC Electronics Company manufactures and sells three products namely Product A,

Product B and Product C. The income statement for the company is given as follows.

Product A Product B Product C Total

Sales 1000000 600000 400000 2000000

Variable Cost 400000 270000 240000 910000

Contribution 600000 330000 160000 1090000

Fixed Cost 240000 144000 96000 480000

Joint Separable 100000 80000 70000 250000

340000 224000 166000 730000

Net Income

(Loss)

260000 106000 (6000) 360000

a. Should the company drop product C? Explain.

b. Prepare a revised income statement assuming that product C is dropped.

c. Suppose that the sales of ABC Electronics company increases by 25% if product C is

dropped, will this change your answers? Explain.

Documents

Cost Accounting Question Bank Final