SUBJECT – COST AND MANAGEMENT ACCOUNTING
Question.1 is compulsory
Answer any 4 from the rest
Question.1 (5x4=20M)
A. When tenders were invited for a store, quotations were received as under:
supplier X
(a) Rate ₹ 2 each; (b) Trade discount 10%; (c) Cash discount 5% if bills are paid within
a fortnight after receipt: (d) Transport charges ₹ 1 per 100 units.
Supplier Y
(a) Rate ₹ 1.80 each (upto ,000 units), ₹ 1.60 each (for orders above 1,000 units); (b)
6% interest per annum will be added if bills are not paid within a fortnight after receipt
of the materials; (c) Transport charges ₹ 3 per 100 units.
Assuming that 5,000 units are required every month and that quality and other
conditions of supply are the same, offer your comments as to whom purchase order can
be issued. The factory pays 50% of its total monthly bills every fortnight.
B. M/s. NOP Limited has its own power plant and generates its own power. Information
regarding power requirements and power used are as follows:
Production Dept. Service Dept.
A B X Y
(Horse power hours)
Needed capacity production 20,000 25,000 15,000 10,000
Used during the quarter ended 16,000 20,000 12,000 8,000
September 2018
During the quarter ended September 2018, costs for generating power amounted to
₹ 12.60 lakhs out of which ₹ 4.20 lakhs was considered as fixed cost.
Service department X renders services to departments A, B, and Y in the ratio of 6:4:2
whereas department Y renders services to department A and B in the ratio of 4: 1. The
direct labour hours of department A and B are 67500 hours and 48750 hours
respectively.
Required:
1 Prepare overheads distribution sheet.
2 Calculate factory overhead per labour hour for the dept. A and dept. B.
C. GHI Ltd. manufactures 'Stent' that is used by hospitals in heart surgery. As per the
estimates provided by Pharmaceutical Industry Bureau, there will be a demand of 40
Million 'Stents' in the coming year. GHI Ltd. is expected to have a market share of 2.5%
of the total market demand of the Stents in the coming year. It is estimated that it
costs ₹ 1.50 as inventory holding cost per stent per month and that the set-up cost per
run of stent manufacture is ₹ 225.
Required:
i. What would be the optimum run size for Stent manufacture?
ii. What is the minimum inventory holding cost?
iii. Assuming that the company has a policy of manufacturing 4,000 stents per run,
how much extra costs the company would be incurring as compared to the optimum
run suggested in (i) above?
D. The relationship between Sales and Cost in a company is as follows:
Sales Total Cost
₹ 60,000 ₹ 48,000
₹ 1,08,000 ₹ 72,000
Find out:
1. Profit-Volume Ratio,
2. Variable Cost at a Sale of ₹ 1,00,000,
3. Fixed cost,
4. Total Cost at a Sale of ₹ 80,000.
Question.2 (10x2=20M)
A. From the following information, prepare a Cost Sheet showing the cost and profit.
Opening Closing
Raw Materials: ₹ 29,500 ₹ :36,000
Work-in-progress:
Materials 13,600 12,000
Wages 11,000 16,500
Works overheads 6,600 9,900
Finished Goods: 200 units @ ₹ 84 1,600 units
Purchases of raw material ₹ 1,90,000, Carriage on purchases ₹ 1,500, Sale of scrap of
Raw materials ₹ 5,000
Wages ₹ 2,97,000
Works overheads are absorbed g 60% of direct labour cost.
Administration overheads are absorbed @ ₹ 12 per unit produced.
Selling and distribution overheads are absorbed @ 20% of selling price.
Sales — 7600 units at a profit of 10% on sales price.
B. A company has introduced a new product and marketed 20,000 units. Variable cost of
the product is ₹ 20 per units and fixed overheads are ₹ 3,20,000.
You are required to:
i. Calculate selling price per unit to earn a profit of 10% on sales value, BEP and Margin
of Safely?
ii. If the selling price is reduced by the company by 10%, demand is expected to
increase by 5,000 units, then what will be its impact on Profit, BEP and Margin of
Safety?
iii. Calculate Margin of Safety if profit is ₹ 64,000.
Question.3 (10x2=20M)
A. X Ltd. maintains a non-integrated accounting system for the purpose of management
information. The following are the data related with year 2021 -22:
Particulars Amount
(‘000)
Opening balances:
- Stores ledger control A/c 48,000
- Work-in-process control A/c 12,000
- Finished goods control A/c 2,58,000
- Building construction A/c 6,000
- Cost ledger control A/c 3,24,000
During the year following transactions took place:
Materials:
- Purchased 24,000
- Issued to production 30,000
- Issued to general maintenance 3,600
- Issued to building construction 2,400
Wages:
- Gross wages paid 90,000
- Indirect wages paid 24,000
- For building construction 6,000
Factory overheads:
- Actual amount incurred (excluding items 96,000
shown above)
- Absorbed in building construction 12,000
- Under-absorbed 4,800
Royalty paid 3,000
Selling distribution and administration overheads 15,000
Sales 2,70,000
At the end of the year, the stock of raw material and work-in-process was ₹3,30,00,000
and ₹15,00,000 respectively. The loss arising in the raw material account is treated as
factory overheads. The building under construction was completed during the year. Gross
profit margin is 20% on sales.
Required:
PREPARE the relevant control accounts to record the above transactions in the cost
ledger of the company.
B. PQR Ltd. specializes in the distribution of pharmaceutical products. It buys from
pharmaceutical companies and resells to each of the three different markets:
(i) General Supermarket Chains
(ii) Drug Store Chains
(iii) Chemist Shops
The company plans to use activity based costing for analyzing the profitability of its
distribution channels. The following data for the quarter ending March 2014 is given:
General Drug Store Chemist
Supermarket Chains Shop
Chains
Average sales per delivery ₹ 96,500 ₹ 32,450 ₹ 6,225
Average cost of goods sold
₹ 94,650 ₹ 31,800 ₹ 5,950
per delivery
Number of deliveries 960 2,470 8,570
Total number of orders 1,000 2,650 9,500
Average number of cartons
250 75 12
shipped per delivery
Average number of hours of
2 0.5 0.1
shelf stocking per delivery
The following information is available in respect of operating costs (other than cost of
goods sold) for the quarter ending March 2014:
Activity Area Cost Driver Total Cost
(₹ )
Customer purchase order Purchase Order by 5,91,750
processing customers
Customer store delivery Number of deliveries 9,60,000
Cartons dispatched to Customer Number of Cartons 7,92,135
stores dispatched to customer
stores
Shelf stocking at customer store Hours of shelf stocking 80,240
Compute the operating income of each distribution channel for the quarter ending March
2014 using activity based costing.
Question.4 (10x2=20M)
A. KMR Ltd. produces product AY, which passes through three processes 'XM', 'YM' and
'ZM'. The output of process 'XM' and 'YM' is transferred to next process at cost plus
20 percent each on transfer price and the output of process 'ZM' is transferred to
finished stock at a profit of 25 percent on transfer price. The following in formation
are available in respect of the year ending 31st March, 2017:
Process Process Process Finished
- XM - YM - ZM Stock
(₹) (₹) (₹) (₹)
Opening Stock 30,000 54,000 80,000 90,000
Material 1,60,000 1,30,000 1,00,000 -
Wages 2,50,000 2,16,000 1,84,000 -
Manufacturing 1,92,000 1,44,000 1,33,000 -
Overheads
Closing Stock 40,000 64,000 78,000 1,00,000
Inter process profit Nil 8,000 20,000 40,000
included in Opening
Stock
Stock in processes is valued at prime cost. The finished stock is valued at the price at
which it is received from process ‘ZM’. Sales of the finished stock during the period
was₹ 28,00,000.
You are required to prepare:
(i) All process accounts and
(ii) Finished stock account showing profit element at each stage.
B. Following information relates to ABC company for the year 2016:
i. Projected sales:
Month August September October November December
Sale 35 40 40 45 46
ii. Gross profit margin will be 20% on sale.
iii. 10% of projected sale will be cash sale. Out of credit sale of each month, 50%
will be collected in the next month and the balance will be collected during the
second month following the month of sale.
iv. Creditors will be paid in the first month following credit purchase. There will be
credit purchase only.
v. Wages and salaries will be paid on the first day of the next month. The amount
will be ₹ 3 lakhs each month.
vi. Interim dividend of ₹ 2 lakhs will be paid in December 2016.
vii. Machinery costing ₹ 10 lakhs will be purchased in September 2016. Repayment by
instalment of ₹ 50,000 p.m. will start from October 2016.
viii. Administrative expenses of ₹ 1,00,000 per month will be paid in the month of
their incurrence.
ix. Assume no minimum cash balance is required. Opening cash balance as on 01-10-
2016 is estimated at ₹ 10 lakhs.
You are required to prepare the monthly cash budget for the 3 month period (October
2016 to December 2016).
Question.5 (20M)
A. Beta Ltd. is manufacturing Product N. This is manufactured by mixing two materials
namely Material P and Material Q. The Standard Cost of Mixture is as under:
Material P 150 ltrs. @ ₹ 40 per ltr.
Material Q 100 ltrs. @ ₹ 60 per ltr.
Standard loss @ 20 of total input is expected during production.
The cost records for the period exhibit following consumption:
Material P 140 ltrs. @ ₹ 42 per ltr,
Material Q 110 ltrs. @ ₹ 56 per ltr,
Quantity produced was 195 ltrs.
Calculate:
i. Material Cost Variance
ii. Material Usage Variance.
iii. Material Price Variance (5M)
B. QS Limited has furnished the following information:
Standard overhead absorption rate per unit ₹ 20
Standard rate per hour ₹4
Budgeted production 12000 units
Actual production 15560 units
Actual working hours 74000
Actual overheads amounted to ₹ 2,95,000, out of which ₹ 62,500 are fixed. Overheads
are based on the following flexible budget:
Production (units) Total
Overheads (₹)
8,000 1,80,000
10,000 2,10,000
14,000 2,70,000
Calculate following overhead variances on the basis of hours :
(i) Variable overhead efficiency variance.
(ii) Variable overhead expenditure variance.
(iii) Fixed overhead efficiency variance.
(iv) Fixed overhead capacity variance (15M)
Question.6 (5x4=20M)
A. A company's plant processes 6,750 units of a raw material in a month to produce two
products 'M' and 'N'.
The process yield is as under:
Product M 80%
Product N 12%
Process Loss8%
The cost of raw material is ₹ 80 per unit.
Processing cost is ₹ 2,25,000 of which labour cost is accounted for 66%. Labour is
chargeable to products 'M' and 'N' in the ratio of 100:80.
Prepare a Comprehensive Cost Statement for each product showing:
(i) Apportionment of joint cost among products 'M' and 'N' and
(ii) Total cost of the products 'M' and 'N'.
B. Following data have been extracted from the books of M/s. ABC Private Limited:
(i) Salary (each employee, per month) ₹ 30,000
(ii) Bonus 25% of salary
(iii) Employer's contribution to PF, 15% of salary
ESI etc.
(iv) Total cost at employees' welfare ₹ 6,61,500 per
activities annum
(v) Total leave permitted during the 30 days
year
(v) No. of employees 175
(vii) Normal idle time 70 hours per annum
(viii) Abnormal idle time (due to failure 50 hours
of power supply)
(ix) Working days per annum 310 days of 8 hours
You are required to calculate:
1. Annual cost of each employee
2. Employee cost per hour
3. Cost of abnormal idle time, per employee
C. Coal is transported from two mines X & Y and unloaded at plots in a railway station. X is
at distance of 15 kms and Y is at a distance of 20 kms from the rail head plots. A fleet
of lorries having carrying capacity of 4 tonnes is used to transport coal from the mines.
Records reveal that average speed of the lorries is 40 kms per hour when running and
regularly take 15 minutes to unload at the rail head.
At Mine X average loading time is 30 minutes per load, while at mine Y average loading
time is 25 minutes per load.
Additional Information:
Drivers' wages, depreciation, insurance and taxes, etc. ₹ 12 per hour Operated Fuel, oil
tyres, repairs and maintenance, etc. ₹ 1.60 per km
You are required to prepare a statement showing the cost per tonne kilometre of
carrying coal from each mine 'X' and 'Y'.
D. A company has been asked to quote for a job. The company aims to make a net profit of
40% on sales. The estimated cost for the job is as follows:
Direct materials 10 kg @ ₹ 10 per kg
Direct labour 20 hours @ ₹ S per hour
Variable production overheads are recovered at the rate of ₹ 2 per labour hour.
Fixed production overheads for the company are budgeted to be ₹1,00,000 each
year and are recovered on the basis of labour hours. There are 10,000 budgeted labour
hours each year. Other costs in relation to selling, distribution and administration are
recovered at the rate of ₹50 per job. •
DETERMINE quote for the job by the Company.