MITTAL COMMERCE CLASSES INTERMEDIATE – MOCK TEST

(GI-1, GI-2+4, GI-3, GI-5+6 & VDI-1, VI-1, SI-1)

DATE: 14.07.2020 MAXIMUM MARKS: 100 TIMING: 3¼ Hours

PAPER : COSTING
Answer to questions are to be given only in English except in the case of
candidates who have opted for Hindi Medium. If a candidate who has not opted
for Hindi Medium. His/her answer in Hindi will not be valued.
Question No. 1 is compulsory.
Candidates are also required to answer any Four questions from the remaining
Five Questions.
In case, any candidate answers extra question(s)/sub-question(s) over and
above the required number, then only the requisite number of questions first
answered in the answer book shall be valued and subsequent extra question(s)
answered shall be ignored.
Wherever necessary, suitable assumptions may be made and disclosed by way of
note.

Answer 1:
Fixed C os t
(a) (i) Break- even s ales {1 M}
P / V Ratio
C hangein P rofit Rs. 37,50,000
P /V Ratio x 1 0 0 or, x 100
C hangein Sales Rs. 7,80,60,000 Rs. 5,93,10,000
Rs. 37,50,000
O r, x 100 or, 2 0 %
Rs . 1,87,50,000

Rs. 98,50,000
Break- even s ales Rs . 4,92,50,000 {1 M}
20%

(ii) Profit/ loss = Contribution – Fixed Cost {1 M}

= Rs. 8,20,00,000 × 20% - Rs. 98,50,000
= Rs. 1,64,00,000 – Rs. 98,50,000 = Rs. 65,50,000 {1 M}

(iii) To earn same amount of profit in 20X8-X9 as was in 20X7-X8, it has to

earn the same amount of contribution as in 20X7-X8.
Sales – Variable cost = Contribution equal to 20X7-X8 contribution
Contribution in 20X7-X8 = Sales in 20X7-X8 × P/V Ratio in 20X7-X8
= Rs. 5,93,10,000 × 20% = Rs. 1,18,62,000
Let the number of units to be sold in 20X8-X9 = X
Sales in 20X8-X9 – Variable cost in 20X8-X9 = Desired Contribution
90 X – 80 X = Rs. 1,18,62,000
Or, 10 X = 1,18,62,000
Or, X = 11,86,200 units
Therefore, Sales amount required to earn a profit equals to 20X7-X8 profit
= Rs. 90 × 11,86,200 units = Rs. 10,67,58,000 {1 M}

Answer:
2 xD xS
(b) (i) Optimum run size or Economic Batch Quantity (E BQ ) {1 M}
C
Where, D = Annual demand i.e. 1.15% of 8,00,00,000 = 9,20,000 units
S = Set-up cost per run = Rs. 3,500
C = Inventory holding cost per unit per annum
= Rs. 1.5 × 12 months = Rs. 18

2 x 9,20,000 units x Rs. 3,500 {1 M}

EBQ 18,915 units
Rs. 18

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MITTAL COMMERCE CLASSES INTERMEDIATE – MOCK TEST

(ii) Calculation of Total Cost of set-up and inventory holding

Batch size No. of setups Set-up Inventory holding Total Cost

Cost (Rs.) cost (Rs.) (Rs.)
A 40,000 units 23 80,500 3,60,000 4,40,500 }{1 M}
9,20,000 (23 × Rs. 3,500) 40,000 x Rs. 18
40,000 2
B 18,915 units 49 1,71,500 1,70,235 3,41,735 }{1 M}
9,20,000 (49 × Rs. 3,500) 18,915 x Rs. 18
It can be
done in 18,915 2
fraction
Extra Cost (A – B) 98,765 }{1 M}

Answer:
(c) Cost Sheet
(for the quarter ending 30 September 2018)
Amount (Rs.)
(i) Raw materials consumed
Opening stock of raw materials 2,45,600
Add: Purchase of materials 12,22,650*
Less: Closing stock of raw materials (2,08,000)
Raw materials consumed 12,60,250
Add: Direct wages (1,47,000×175%) 2,57,250
Direct Expenses 1,80,000
(ii) Prime cost 16,97,500
Add: Factory overheads (2,57,250/175%) 1,47,000
{1/4
Gross Factory cost 18,44,500 Each x
Add: Opening work-in-process 1,70,800 20
Less: Closing work-in-process (1,90,000) point =
5 M}
(iii) Factory cost 18,25,300
Add: Administration overheads (10% of factory overheads) 14,700
Add: Opening stock of finished goods 3,10,000
Less: Closing stock of finished goods (2,75,000)
(iv) Cost of goods sold 18,75,000
Add: Selling & distribution overheads 60,000
Cost of sales 19,35,000
(v) Net Profit 2,75,000
Sales 22,10,000

*(18,75,000 + 2,75,000 – 3,10,000 – (1,47,000 × 10%) + 1,90,000 –1,70,800 –

(2,57,250 × 100/175%) - 1,80,000 – 2,57,250 + 2,08,000 – 2,45,600) =
12,22,650

Working Notes:
Purchase of raw materials = Raw material consumed + Closing stock - opening
stock of raw material
Raw material consumed = Prime cost - Direct wages - Direct expenses
Factory Overheads = 2,57,250*100/175
Prime cost = Factory cost + Closing WIP – Opening WIP – Factory overheads
Factory Cost = Cost of Production goods sold + Closing stock of Finished goods –
Opening stock of finished goods – Administrative overheads
Net Profit = Sales - Cost of sales
Alternative solution

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MITTAL COMMERCE CLASSES INTERMEDIATE – MOCK TEST

Cost Sheet
(for the quarter ending 30 September 2018)
Amount (Rs.)
(i) Raw materials consumed
Opening stock of raw materials 2,45,600
Add: Purchase of materials 12,37,350*
Less: Closing stock of raw materials (2,08,000)
Raw Material consumed 12,74,950
Add: Direct wages (1,47,000×175% 2,57,250
Direct Expenses 1,80,000
(ii) Prime cost 17,12,,200
Add: Factory overheads (2,57,250/175%) 1,47,000
Gross Factory cost 18,59,200
Add: Opening work-in-process 1,70,800
Less: Closing work-in-process (1,90,000)
(iii) Factory cost/works cost/cost of production 18,40,000
Add: Opening stock of finished goods 3,10,000
Less: Closing stock of finished goods (2,75,000)
(iv) Cost of goods sold 18,75,000
Add: Administration overheads (10% of factory overheads) 14,700
Add: Selling & distribution overheads 60,000
Cost of sales 19,49,700
(v) Net Profit 2,60,300
Sales 22,10,000
*(18,75,000 + 2,75,000 – 3,10,000 + 1,90,000 –1,70,800 – 1,47,500 - 1,80,000 –
2,57,250 + 2,08,000 – 2,45,600) = 12,37,350.

Working Notes:
Purchase of raw materials = Raw material consumed + Closing stock - opening
stock of raw material
Raw material consumed = Prime cost - Direct wages - Direct expenses
Factory Overheads = 257250*100/175
Prime cost = Factory cost + Closing WIP – Opening WIP – Factory overheads
Factory Cost = Cost of Production goods sold + Closing stock of Finished goods –
Opening stock of finished goods
Net Profit = Sales - Cost of sales

Answer:
(d) (i) Labour cost variance [(SH x Std. Rate) – (AH paid x AE)]
Rs. 40 Rs. 65
Rs. 1,800 Rs. 45 Rs. 50 Rs. 40 Rs. 50
Rs. 2,000
= (Rs. 1,05,300 – Rs. 1,00,000) {1 M}
= Rs. 5,300(F)
Labour Rate Variance = AH paid (SR–AR)
{1 M}
= Rs. 2,000 (45-50) = Rs. 10,000 (A)
Labour efficiency variance = SR (SH–AH worked)
= Rs. 45 (Rs. 2,340 – Rs. 1,900) = Rs. 19,800 (F)
{1 M}
Idle time variance = SR x Idle time = Rs. 45 x 100 = Rs. 4,500 (A)
(ii) Reconciliation
Labour Cost Variance = Labour Rate Variance + Labour efficiency variance + {1 M}
Idle time variance
OR
Rs. 10,000 (A) + Rs. 19,800 (F) + Rs. 4,500 (A) = Rs. 5,300(F) {1 M}

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MITTAL COMMERCE CLASSES INTERMEDIATE – MOCK TEST

Answer 2:
(a) (i) Statement of Operating income and Operating income as a
percentage of revenues for each product line
(When support costs are allocated to product lines on the
basis of cost of goods sold of each product)
Soft Fresh Packaged Total
Drinks Produce Foods
(Rs.) (Rs.) (Rs.) (Rs.)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000 }{1/2 M}
Cost of Goods sold (COGS): 30,00,000 75,00,000 45,00,000 1,50,00,000 }{1/2 M}
(B)
Support cost (30% of COGS): 9,00,000 22,50,000 13,50,000 45,00,000 }{1/2 M}
(C) (Refer working notes)
Total cost: (D) = {(B) + (C)} 39,00,000 97,50,000 58,50,000 1,95,00,000 }{1/2 M}
Operating income: E= {(A)- 67,500 7,53,000 1,99,500 10,20,000 }{1/2 M}
(D)}
Operating income as a 1.70% 7.17% 3.30% 4.97% }{1/2 M}
percentage of revenues: (E/A)
× 100)
Working notes:
1. Total support cost:
(Rs.)
Bottles returns 60,000
Ordering 7,80,000
Delivery 12,60,000
Shelf stocking 8,64,000
Customer support 15,36,000
Total support cost 45,00,000 }{1 M}
2. Percentage of support cost to cost of goods sold (COGS):
Total support cost
x 100
Total cost of goods sold
Rs. 45,00,000
x 100 30% }{11/2 M}
Rs. 1,50,00,000
3. Cost for each activity cost driver:
Activity Total cost Cost allocation base Cost driver rate
(1) (Rs.) (3) (4) = [(2) ÷ (3)]
(2)
Ordering 7,80,000 1,560 purchase orders Rs. 500 per purchase order }{1/2 M}
Delivery 12,60,000 3,150 deliveries Rs. 400 per delivery }{1/2 M}
Shelf-stocking 8,64,000 8,640 hours Rs. 100 per stocking hour }{1/2 M}
Customer support 15,36,000 15,36,000 items sold Rs. 1 per item sold }{1/2 M}

(ii) Statement of Operating income and Operating income as a

percentage of revenues for each product line
(When support costs are allocated to product lines
using an activity -based costing system)
Soft drinks Fresh Packaged Total
(Rs.) Produce Food
(Rs.) (Rs.) (Rs.)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000 }{1/4 M}
Cost & Goods sold 30,00,000 75,00,000 45,00,000 1,50,00,000 }{1/4 M}
Bottle return costs 60,000 0 0 60,000 }{1/4 M}
Ordering cost* (360:840:360) 1,80,000 4,20,000 1,80,000 7,80,000 }{1/4 M}

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MITTAL COMMERCE CLASSES INTERMEDIATE – MOCK TEST

Delivery cost* (300:2190:660) 1,20,000 8,76,000 2,64,000 12,60,000 }{1/4 M}

Shelf stocking cost* 54,000 5,40,000 2,70,000 8,64,000 }{1/4 M}
(540:5400:2700)
Customer Support cost* 1,26,000 11,04,000 3,06,000 15,36,000 }{1/4 M}
(1,26,000:11,04,000:3,06,000)
Total cost: (B) 35,40,000 1,04,40,000 55,20,000 1,95,00,000 }{1/4 M}
Operating income C: {(A)- (B)} 4,27,500 63,000 5,29,500 10,20,000 }{1/4 M}
Operating income as a % of 10.78% 0.60% 8.75% 4.97% }{1/4 M}
revenues
* Refer to working note 3

Answer:
(b) (a) Overhead Distribution Statement
Production Departments Service Departments
Machine Packing General Stores
Shops Plant
Allocated Overheads: (Rs.) (Rs.) (Rs.) (Rs.)
Indirect labour 8,000 6,000 4,000 11,000
Maintenance Material 3,400 1,600 2,100 2,800
Misc. supplies 1,500 2,900 900 600
Supervisor’s salary -- -- 16,000 --
Cost & payroll salary -- -- 80,000 --
Total allocated overheads 12,900 10,500 1,03,000 14,400
Add: Apportioned Overheads 1,84,350 70,125 22,775 73,150
(As per Schedule below)
1,97,250 80,625 1,25,775 87,550
{1 M} {1 M} {1 M} {1 M}
Schedule of Apportionment of Overheads
Production Service
Item of Cost Basis Departments Departments
Machine Packing General Stores
Shops (Rs.) (Rs.) Plant (Rs.) (Rs.)
Power HP hours 54,600 7,800 -- 15,600 }{1/2 M}
(7 : 1 : - : 2)
Rent Floor space 30,000 12,000 6,000 24,000 }{1/2 M}
(5 : 2 : 1 : 4)
Fuel & Heat Radiator sec. 12,000 24,000 8,000 16,000 }{1/2 M}
(3 : 6 : 2 : 4)
Insurance Investment 7,500 2,250 750 1,500 }{1/2 M}
(10 : 3 : 1 : 2)
Taxes Investment 5,250 1,575 525 1,050 }{1/2 M}
(10 : 3 : 1 : 2)
Depreciation Investment 75,000 22,500 7,500 15,000 }{1/2 M}
(10 : 3 : 1 : 2)
1,84,350 70,125 22,775 73,150

(b) Re-distribution of Overheads of Service Departments to Production

Departments:
Let, the total overheads of General Plant = ‘a’ and the total overheads of
Stores = ‘b’
a = 1,25,775 + 0.3b…………………………………(i)
b = 87,550 + 0.2a…………………………………….(ii)
Putting the value of ‘b’ in equation no. (i)
a = 1,25,775 + 0.3 (87,550 + 0.2a)
Or a = 1,25,775 + 26,265 + 0.06a
Or 0.94a = 1,52,040 Or a = 1,61,745 (appx.) }{1 M}
Putting the value of a = 1,61,745 in equation no. (ii) to get the value
of ‘b’
b = 87,550 + 0.2 × 1,61,745 = 1,19,899 }{1 M}

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MITTAL COMMERCE CLASSES INTERMEDIATE – MOCK TEST

Secondary Distribution Summary

Particulars Total Machine Shops Packing
(Rs.) (Rs.) (Rs.)
Allocated and Apportioned overheads 2,77,875 1,97,250.00 80,625.00
as per Primary distribution
- General Plant 1,61,745 80,872.50 48,523.50
5 3
(1,61,745 x ) (1,61,745 x )
10 10
- Stores 1,19,899 59,949.50 23,979.80
(1,19,899 × 50%) (1,19,899 ×
20%)
3,38,072.00 1,53,128.30
{1/2 M} {1/2 M}

Answer 3:
(a) (i) Calculation of Raw Material inputs during the month:
Quantities Entering Litres Quantities Leaving Litres
Process Process
Opening WIP 800 Transfer to Finished Goods 4,200
Raw material input 5,360 Process Losses 1,800
{2 M}{ (balancing figure)
Closing WIP 160
6,160 6,160

(ii) Calculation of Normal Loss and Abnormal Loss/Gain

Litres
Total process losses for month 1,800
Normal Loss (10% input) 536
Abnormal Loss (balancing figure) 1,264 }{1 M}

(i) Calculation of values of Raw Material, Labour and Overheads added to the
process:
Material Labour Overheads
Cost per equivalent unit Rs. 23.00 Rs. 7.00 Rs. 9.00
Equivalent units (litre) (refer the 4,824 4,952 5,016
working note)
Cost of equivalent units Rs. 1,10,952 Rs. 34,664 Rs. 45,144
Add: Scrap value of normal loss Rs. 8,040 -- --
(536 units × Rs. 15)
1/2
Total value added Rs. 1,18,992 Rs. 34,664 Rs. 45,144 }{2 M}

Workings:
Statement of Equivalent Units (litre):
Equivalent Production
Input Details Units Output details Units Material Labour Overhead s
Units (%) Units (%) Units (%)
Opening WIP 800 Units completed:
Units introduced 5,360 - Opening WIP 800 -- -- 240 30 320 40 1/2
- Fresh inputs 3,400 3,400 100 3,400 100 3,400 100
{2 M}
Normal loss 536 -- -- -- -- -- --
Abnormal loss 1,264 1,264 100 1,264 100 1,264 100
Closing WIP 160 160 100 48 30 32 20
6,160 6,160 4,824 4,952 5,016

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MITTAL COMMERCE CLASSES INTERMEDIATE – MOCK TEST

(iv) Process Account for Month

Litres Amount Litres Amount
(Rs.) (Rs.)
To Opening WIP 800 26,640 By Finished goods 4,200 1,63,800
To Raw Materials 5,360 1,18,992 By Normal loss 536 8,040 {2 M}
To Wages -- 34,664 By Abnormal loss 1,264 49,296
To Overheads -- 45,144 By Closing WIP 160 4,304
6,160 2,25,440 6,160 2,25,440

Answer:
(b) (i) Annual Cost Statement of three vehicles
( Rs.)
Diesel {(1,34,784 km. ÷ 4 km) × Rs. 65) (Refer to Working 21,90,240
Note 1)
Oil & sundries {(1,34,784 km. ÷ 100 km.) × Rs. 250} 3,36,960
Maintenance {(1,34,784 km. × Rs. 0.25) + Rs. 6,000} (Refer 39,696
to Working Note 2)
Drivers' salary {(Rs.24,000 × 12 months) × 3 trucks} 8,64,000
Licence and taxes (Rs. 25,000 × 3 trucks) 75,000
Insurance 45,000
Depreciation {(Rs. 29,00,000 ÷ 10 years) × 3 trucks} 8,70,000
General overhead 1,15,600
Total annual cost 45,36,496 }{3 M}

(ii) Cost per km. run

T otal annual cost of vehicles
Cost per kilometer run Refer to working Note1
T otal kilometre travelled annually
Rs. 45,36,496
Rs. 33.66 }{2 M}
1,34,784 Kms
(iii) Freight rate per tonne km (to yield a profit of 10% on freight
T otal annual cost of three vehicles
Cost per tonne km Refer to working Note1
T otal effective tonnes kms. per annum
Rs. 45,36,496
Rs. 7.48
6,06,528 Kms
Rs. 7.48
Freight rate per tonnekm. 1 Rs. 8.31 }{2 M}
0.9

Working Notes:
1. Total kilometer travelled and Commercial tonnes kilometer (load carried) by
three trucks in one year
Truck One way No. of Total distance Total distance Load carried Total
distance in trips covered in km covered in km per trip / effective
kms per day per day day in tonnes km
(with load) (up & down) tonnes
a b c=a×b d=c×2 e f = 27/3 ×c
1 16 4 64 128 6 576
2 40 2 80 160 9 720
3 30 3 90 180 12 810
Total 234 468 27 2,106

Total kilometre travelled by three trucks in one year

(468 km. × 24 days ×12 months) =1,34,784 }{1 M}
Total effective tones kilometre of load carried by three trucks during one
year

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MITTAL COMMERCE CLASSES INTERMEDIATE – MOCK TEST

(2,106 tonnes km. × 24 days × 12 months) = 6,06,528 tonne-km

2. Fixed and variable component of maintenance cost:

Difference in maintenance cost
Variable maintenance cost per km.
Difference in distance travelled
Rs. 46,050 Rs. 45,175
Rs. 0.25 }{1 M}
1,60,200 kms 1,56,700 kms
Fixed maintenance cost =Total maintenance cost–Variable maintenance cost
= Rs. 46,050 – 1,60,200 kms × Rs. 0.25= Rs. 6,000 }{1 M}

Answer 4:
(a) 1. (a) Sales value at split- off point method
Products Sales Selling Price Sales Joint Cost
(in Ton) per Ton Revenue Apportioned
(Rs. ) (Rs. ) (Rs. )
}{1/2 M}
Caustic Soda 1,200 50 60,000 50,000
Chlorine 800 75 60,000 50,000 }{1/2 M}
1,20,000 1,00,000

Total joint cost

Apportionment of joint cost = x Sale revenue of each
Total sale value
product
Joint cost apportioned to Caustic Soda
Rs. 1,00,000
x Rs. 60,000 = Rs. 50,000 }{1/2 M}
Rs. 1,20,000
Rs. 1,00,000
Joint cost apportioned to Chlorine x Rs. 60,000 = Rs. 50,000 }{1/2 M}
Rs. 1,20,000
(b) Physical measure method
Products Sales (in Ton) Joint Cost Apportioned (Rs. )
Caustic Soda 1,200 60,000 }{1/2 M}
Chlorine 800 40,000 }{1/2 M}
1,00,000

Total joint cost

Appointed joint cost = x Physical units of each product
Total physical value
Joint cost apportioned to Caustic Soda
Rs. 1,00,000
x 1,200 ton = Rs. 60,000 }{1 M}
Rs. 1,20,000
Joint cost apportioned to chlorine
Rs. 1,00,000
x 800 ton = Rs. 40,000 }{1 M}
2,000 ton

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MITTAL COMMERCE CLASSES INTERMEDIATE – MOCK TEST

(c) Estimated net realizable value method:

Caustic Soda Chlorine
Amount (Rs. ) Amount (Rs. )
Sales Value 60,000 1,00,000
(Rs. 50 × 1,200 (Rs. 200 × 500 tons)
tons)
Less: Post split-off cost - (20,000)
(Further
processing cost)
Net Realisable Value 60,000 80,000
Apportionment of Joint Cost of {1/2 M}{ 42,857 {1/2 M}{ 57,143
Rs. 1,00,000 in ratio of 3:4

2. Incremental revenue from further processing of Chlorine into PVC

(500 tons × Rs. 200 – 800 tons × Rs. 75) Rs. 40,000 }{1 M}
Less : Incremental cost of further processing of Chlorine into PVC Rs. 20,000 }{1 M}
Incremental operating income from further processing Rs. 20,000 }{1 M}

The operating income of Inorganic Chemicals will be reduced by Rs. 20,000 in

August if it sells 800 tons of Chlorine to Lifetime Swimming Pool Products, instead {1 M}
of further processing of Chlorine into PVC for sale.

Answer :
(b) Contract Account
Particulars (Rs.) Particulars (Rs.)
To Material issued 9,48,000 By Machine (Working note 1)** 7,45,270
” Direct Wages (4,57,200 – 3,49,200
1,08,000)
” Administrative charges 7,20,000
” Supervisor’s salary 3,00,000
(Rs. 50,000 × 9 × 2/3)
” Machine** 7,85,270 ” Works cost (balancing 23,57,200
figure)
31,02,470 31,02,470
” Works cost 23,57,200 ” Value of work certified 21,00,000 }{1 M}
(50%×42,00,000)
” Costing P&L A/c 3,32,100 ” Cost of work uncertified 5,89,300 }{1 M}
{4 M}
(Notional profit) (Working Note 2)
26,89,300 26,89,300
** Alternatively Depreciation on machine can be shown debit side of Contract
Account.
Working notes:
1. Written down value of Machine:
Rs. 7,85,270 Rs. 75,000 185days {2 M}
Depreciati on x Rs. 40,000
9 years 365days
Hence the value of machine after the period of 185 days = Rs. 7,85,270 –
Rs. 40,000 = Rs. 7,45,270
2. The cost of 2/3rd of the contract is Rs. 23,57,200
Rs. 23,57,200 {2 M}
Cost of 100% " " " " x 3 Rs. 35,35,800
2
Cost of 50% of the contract which has been certified by the architect is Rs.
17,67,900. Also, the cost of 1/6th (2/3 – 1/2) of the contract, which has
been completed but not certified by the architect is Rs. 5,89,300.

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Answer 5:
(a) (i) (a) Production Budget (in units) for the year ended 31st March 2018
Product A Product B
Budgeted sales (units) 36,000 16,700
Add: Increase in closing stock 860 400
No. of good units to be produced 36,860 17,100
Post production rejection rate 3% 5% {3 M}
No. of units to be produced 38,000 18,000
36,860 17,100
0.97 0.95

(b) Purchase budget (in kgs and value) for Material C

Product A Product B
No. of units to be produced 38000 18000
Usage of Material C per unit of production 4 kg. 5 kg.
Material needed for production 1,52,000 kg. 90,000 kg.
Materials to be purchased 1,60,000 kg. 93,750 kg.
{3 M}
1,52,000 90,000
0.95 0.96
Total quantity to be purchased 2,53,750 kg.
Rate per kg. of Material C Rs. 45
Total purchase price Rs. 1,14,18,750

(ii) Calculation of Economic Order Quantity for Material C

2 2,53,750 Rs. 250 12,68,75,000 {2 M}

EOQ 5.597 kg. (Approx)
45 9% 4.05

Answer:
(b) Statement of Reconciliation

Sl.No. Particulars Amount (Rs.) Amount (Rs.)

Net loss as per Cost Accounts (35,400)
Additions
1. FactoryO/H over recovered 1,35,000 }{1/2 M}
2. Dividend Received 20,000 }{1/2 M}
3. Bank Interest received 13,600 }{1/2 M}
4. Difference in Value of Opening 20,000 }{1/2 M}
Stock
(1,65,000 – 1,45,000) }{1/2 M}
5. Difference in Value of Closing Stock 6,500
(1,32,000 – 1,25,500)
6. Notional Rent of own Premises 60,000 }{1/2 M} 2,55,100
Deductions
1. Administration O/H under recovered 25,500 }{1/2 M}
2. Depreciation under charged 26,000 }{1/2 M}
3. Loss due to obsolescence 16,800 }{1/2 M}
4. Income tax Provided 43,600 }{1/2 M}
5. Goodwill written-off 25,000 }{1/2 M}
6. Provision for doubtful debts 15,000 }{1/2 M} (1,51,900)
Net Profit as per Financial A/c. 67,800

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Answer:
(c) Calculation of Cost of Production and Profit for the month ended April 2018:
Particulars Amount (Rs.) Amount
(Rs.)
Materials consumed:
- Opening stock 6,06,000
- Add: Purchases 28,57,000
34,63,000
- Less: Closing stock (7,50,000) 27,13,000
Direct wages 37,50,000
Prime cost 64,63,000 }{1 M}
Factory expenses 21,25,000
85,88,000
Add: Opening W-I-P 12,56,000
Less: Closing W-I-P (14,22,000) }{1 M}
Factory cost 84,22,000
Less: Sale of scrap (26,000)
Cost of Production 83,96,000 }{1 M}
Add: Opening stock of finished goods 6,06,000
Less: Closing stock of finished goods (3,59,000)
Cost of Goods Sold 86,43,000 }{1 M}
Office and administration expenses 10,34,000
Selling and distribution expenses 7,50,000
Cost of Sales 1,04,27,000 }{1 M}
Profit (balancing figure) 29,73,000 }{1 M}
Sales 1,34,00,000

Answer 6:
(a) Controllable costs and Uncontrollable costs: Cost that can be controlled, typically
by a cost, profit or investment centre manager is called controllable cost.
Controllable costs incurred in a particular responsibility centre can be influenced by
{5 M}
the action of the executive heading that responsibility centre.
Costs which cannot be influenced by the action of a specified member of an
undertaking are known as uncontrollable costs.

Answer:
(b) Cost plus contract: Under cost plus contract, the contract price is ascertained by
adding a percentage of profit to the total cost of the work. Such types of contracts
are entered into when it is not possible to estimate the contract cost with
reasonable accuracy due to unstable condition of material, labour services etc.
Following are the advantages of cost plus contract:
(i) The contractor is assured of a fixed percentage of profit. There is no risk of
{5 M}
incurring any loss on the contract.
(ii) It is useful specially when the work to be don is not definitely fixed at the
time of making the estimate.
(iii) Contractee can ensure himself about the ‘cost of contract’ as he is
empowered to examine the books and documents of the contractor to
ascertain the veracity of the cost of contract.

Answer:
(c) In integrated accounting system cost and financial accounts are kept in the same
set of books. Such a system will have to afford full information required for Costing
as well as for Financial Accounts. In other words, information and data should be
recorded in such a way so as to enable the firm to ascertain the cost (together with {5 M}
the necessary analysis) of each product, job, process, operation or any other
identifiable activity. It also ensures the ascertainment of marginal cost, variances,
abnormal losses and gains. In fact all information that management requires from

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MITTAL COMMERCE CLASSES INTERMEDIATE – MOCK TEST

a system of Costing for doing its work properly is made available. The integrated
accounts give full information in such a manner so that the profit and loss account
and the balance sheet can be prepared according to the requirements of law and
the management maintains full control over the liabilities and assets of its
business.
Since, only one set of books are kept for both cost accounting and financial
accounting purpose so there is no necessity of reconciliation of cost and financial
accounts.

Answer:
(d) The impact of IT in cost accounting may include the followings:
(i) After the introduction of ERPs, different functional activities get integrated
and as a consequence a single entry into the accounting system provides
custom made reports for every purpose and saves an organisation from
preparing different sets of documents. Reconciliation process of results of
both cost and financial accounting systems become simpler and less
sophisticated.
(ii) A move towards paperless environment can be seen where documents like
Bill of Material, Material Requisition Note, Goods Received Note, labour
utilisation report etc. are no longer required to be prepared in multiple
copies, the related department can get e-copy from the system.
(iii) Information Technology with the help of internet (including intranet and
extranet) helps in resource procurement and mobilisation. For example,
production department can get materials from the stores without issuing
material requisition note physically. Similarly, purchase orders can be
initiated to the suppliers with the help of extranet. This enables an entity to
shift towards Just-in-Time (JIT) approach of inventory management and
production. {5 M}
(iv) Cost information for a cost centre or cost object is ascertained with
accuracy in timely manner. Each cost centre and cost object is codified
and all related costs are assigned to the cost object or cost centre. This
process automates the cost accumulation and ascertainment process. The
cost information can be customised as per the requirement. For example,
when an entity manufacture or provide services, it can know information
job-wise, batch-wise, process-wise, cost centre wise etc.
(v) Uniformity in preparation of report, budgets and standards can be
achieved with the help of IT. ERP software plays an important role in
bringing uniformity irrespective of location, currency, language and
regulations.
(vi) Cost and revenue variance reports are generated in real time basis which
enables the management to take control measures immediately.
(vii) IT enables an entity to monitor and analyse each process of manufacturing
or service activity closely to eliminate non value added activities.
The above are examples of few areas where Cost Accounting is done with the help
of IT.

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