Paper: Costing Marks: 100

Time Allowed: 3 Hours

PART A
MULTIPLE CHOICE QUESTIONS
(30 Marks)

1) In which of the following methods, issues of materials are priced at pre-determined rate?
(a) Inflated price method
(b) Standard price method
(c) Replacement price method
(d) Market price method.

2) Form used for making a formal request to the purchasing department to purchase materials is a - :
(a) Material Transfer Note
(b) Purchase Requisition Note
(c) Bill of Materials
(d) Material Requisition Note

3) Cost of idle time due to non- availability of raw material is-

(a) Charged to overhead costs
(b) Charged to respective jobs
(c) Charged to costing profit and loss account
(d) None of the above

4) If the time saved is less than 50% of the standard time, then the wages under Rowan and Halsey premium
plan on comparison gives-
(a) More wages to workers under Rowan plan than Halsey plan
(b) More wages to workers under Halsey plan than Rowan plan
(c) Equal wages under two plans
(d) None of the above

5) Primary packing cost is a part of:

(a) Direct material cost
(b) Production Cost
(c) Selling overheads
(d) Distribution overheads

6) Normal capacity of a plant refers to the difference between:

(a) Maximum capacity and practical capacity
(b) Practical capacity and normal capacity
(c) Practical capacity and estimated idle capacity as revealed by long term sales trend.
(d) Maximum capacity and actual capacity

7) Which of the following is not a benefit of ABC?

(a) Accurate cost allocation
(b) Improved decision making
(c) Better control on activity and costs
(d) Reduction of prime cost

8) The steps involved for installation of ABC in a manufacturing company include the following except:
(a) Borrowing fund
(b) Feasibility study
(c) Building up necessary IT infrastructure and training of line employees
(d) Strategy and value chain analysis

9) Audit fees paid to auditors is part of:

(a) Administration Cost
(b) Production cost
(c) Selling & Distribution cost
(d) Not shown in cost sheet.

10) A company pays royalty to State Government on the basis of production, it is treated as:
(a) Direct Material Cost
(b) Factory Overheads
(c) Direct Expenses
(d) Administration cost.

11) When costing loss is Rs. 5,600, administrative overhead under-absorbed being Rs. 600, the loss as per
financial accounts should be
(a) Rs. 5,600
(b) Rs. 6,200
(c) Rs. 5,000
(d) None of the above

12) Which of the following items should be added to costing profit to arrive at financial profit?
(a) Over-absorption of works overhead
(b) Interest paid on debentures
(c) Income tax paid
(d) All of the above

13) Unit Costing is applicable where:

(a) Product produced are unique and no 2 products are same
(b) Dissimilar articles are produced as per customer specification
(c) homogeneous articles are produced on large scale
(d) Products made require different raw materials

14) The production planning department prepares a list of materials and stores required for the completion of a
specific job order, this list is known as:
(a) Bin card
(b) Bill of material
(c) Material requisition slip
(d) None of the above

15) Batch costing is a type of:

(a) Process costing
(b) Job Costing
(c) Differential costing
(d) Direct costing

16) Job costing is similar to that under Batch costing except with the difference that a:
(a) Job becomes a cost unit.
(b) Batch becomes the cost unit instead of a job
(c) Process becomes a cost unit
(d) None of the above.

17) The most suitable cost system where the products differ in type of materials and work performed is :
(a) Job Costing
(b) Process Costing
(c) Operating Costing
(d) None of these.

18) A process account is debited by abnormal gain, the value is determined as:
(a) Equal to the value of normal loss
(b) Cost of good units less realizable value of normal loss
(c) Cost of good units less realizable value of actual loss
(d) Equal to the value of good units less closing stock

19) Assume 550 units were worked on during a period in which a total of 500 good units were completed.
Normal spoilage consisted of 30 units; abnormal spoilage, 20 units. Total production costs were Rs. 2,200. The
company accounts for abnormal spoilage separately on the income statement as loss due to abnormal spoilage.
Normal spoilage is not accounted for separately. What is the cost of the good units produced?
(a) Rs. 2,080
(b) Rs. 2,115
(c) Rs. 2,200
(d) Rs. 2,332

20) Method of apportioning joint costs on the basis of output of each joint product at the point of split off is:
(a) Sales value method
(b) Physical unit method
(c) Average cost method
(d) Marginal cost and contribution method

21) Under net realizable value method of apportioning joint costs to joint products, the selling & distribution
cost is:
(a) Added to joint cost
(b) Deducted from further processing cost
(c) Deducted from sales value
(d) Ignored

22) Which of the following is a co-product:

(a) Diesel and Petrol in an oil refinery
(b) Edible oils and oil cakes
(c) Curd and butter in a dairy
(d) Mustard oil and Sunflower oil in an oil processing company.

23) Absolute Tonne-km. is an example of:

(a) Composite units in power sector
(b) Composite unit of transport sector
(c) Composite unit for bus operation
(d) Composite unit for oil and natural gas

24) BOT approach means:

(a) Build, Operate and Transfer
(b) Buy, Operate and Transfer
(c) Build, Operate and Trash
(d) Build, Own and Trash

25) Which of the following variance arises when more than one material is used in the manufacture of a
product:
(a) Material price variance
(b) Material usage variance
(c) Material yield variance
(d) Material mix variance

26) If standard hours for 100 units of output are 400 @ Rs. 2 per hour and actual hours take are 380 @ Rs. 2.25
per, then the labour rate variance is:
(a) Rs. 95 (adverse)
 (b) Rs. 100 (adverse)
(c) Rs. 25 (favourable)
(d) Rs. 120 (adverse)

27) The main difference between marginal costing and absorption costing is regarding the treatment of:
(a) Prime cost.
(b) Fixed overheads.
(c) Direct materials.
(d) Variable overheads

28) If P/V ratio is 40% of sales then what about the remaining 60% of sales:
(a) Profit.
(b) Fixed cost.
(c) Variable cost.
(d) Margin of safety.

29) The classification of fixed and variable cost is useful for the preparation of:
(a) Master budget
(b) Flexible budget
(c) Cash budget
(d) Capital budget

30) Which of the following is usually a short-term budget:

(a) Capital expenditure budget
(b) Research and development budget
(c) Cash budget
(d) Sales budget

PART B -70 MARKS

Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.

Q1) Answer the following:

a) M/s. KBC Bearings Ltd. is committed to supply 48,000 bearings per annum to M/s. KMR F ans on a steady daily
basis. It is estimated that it costs Rs. 1 as inventory holding cost per bearing per month and that the set up
cost per run of bearing manufacture is Rs. 3,200
(i) DETERMINE what would be the optimum run size of bearing manufacture?
(ii) DETERMINE What would be the interval between two consecutive optimum runs?
(iii) CALCULATE the minimum inventory cost? Marks 4

b) CALCULATE a suggested fare per passenger-km from the following information for a Mini Bus:
(i) Length of route: 30 km
(ii) Purchase price Rs. 4,00,000
(iii) Part of above cost met by loan, annual interest of which is Rs. 10,000 p.a.
(iv) Other annual charges: Insurance Rs. 15,000, Garage rent Rs. 9,000, Road tax Rs. 3,000 , Repairs &
maintenance Rs. 15,000, Administrative charges Rs. 5,000.
(v) Running Expenses: Driver & Conductor Rs. 5,000 p.m., Repairs/Replacement of tyre-tube Rs. 3,600 p.a.,
Diesel and oil cost per km Rs. 5.
(vi) Effective life of vehicle is estimated at 5 years at the end of which it will have a scrap value of Rs.
10,000.
(vii) Mini Bus has 20 seats and is planned to make Six no. two way trips fo r 25 days/p.m.
(viii) Provide profit @ 20% of total revenue. Marks 5
c) The M-Tech Manufacturing Company is presently evaluating two possible processes for the manufacture of a
toy. The following information is available:

Particulars Process A (Rs.) Process B (Rs.)

Variable cost per unit 12 14
Sales 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
SUGGEST:
1. Which process should be chosen?
2. 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; B - 5,00,000 units? STATE the reason? 5 Marks

Q2) Answer the following:

a) You are given the following information of the three machines of a manufacturing department of X Ltd.:

Preliminary estimates of expenses (per annum)

Machines
Total (Rs.) A (Rs.) B (Rs.) C (Rs.)
Depreciation 20,000 7,500 7,500 5,000
Spare parts 10,000 4,000 4,000 2,000
Power 40,000
Consumable stores 8,000 3,000 2,500 2,500
Insurance of machinery 8,000
Indirect employee cost 20,000
Building maintenance expenses 20,000
Annual interest on capital outlay 50,000 20,000 20,000 10,000
Monthly charge for rent and rates 10,000
Salary of foreman (per month) 20,000
Salary of Attendant (per month) 5,000
(The foreman and attendant control all the three machines and spend equal time on each of them.) The
following additional information is also available:

Machines
A B C
Estimated Direct Labour Hours 1,00,000 1,50,000 1,50,000
Ratio of K.W. Rating 3 2 3
Floor space (sq. ft.) 40,000 40,000 20,000
There are 12 holidays besides Sundays in the year, of which two were on Saturdays. The manufacturing
department works 8 hours in a day but Saturdays are half days. All machines work at 90% capacity throughout
the year and 2% is reasonable for breakdown.
You are required to:
CALCULATE predetermined machine hour rates for the above machines after taking into consideration the
following factors:
• An increase of 15% in the price of spare parts.
• An increase of 25% in the consumption of spare parts for machine ‘B’ & ‘C’ only.
• 20% general increase in wages rates. Marks 10
b) A product passes through Process- I and Process- II. Materials issued to Process- I amounted to Rs. 40,000,
Wages Rs. 30,000 and manufacturing overheads were Rs. 27,000. Normal loss anticipated was 5% of input. 4,550
units of output were produced and transferred-out from Process-I. There were no opening stocks. Input raw
material issued to Process I were 5,000 units. Scrap has realisable value of Rs. 2 per unit.
You are required to PREPARE Process- I account, value of normal loss, abnormal loss and units transferred to
Process-II. Marks 4

Q3) Answer the following:

a) C Ltd. manufactures two products using two types of materials and one grade of labour. Shown below is an
extract from the company’s working papers for the next month’s budget:

Product- Product-
A B
Budgeted sales (in units) 2,400 3,600
Budgeted material consumption per unit (in kg):
Material-X 5 3
Material-Y 4 6
Standard labour hours allowed per unit of product 3 5
Material-X and Material-Y cost Rs. 4 and Rs. 6 per kg and labours are paid Rs. 25 per hour. Overtime premium
is 50% and is paid, if a worker works for more than 40 hours a week. There are 180 direct workers.
The target productivity ratio (or efficiency ratio) for the productive hours worked by the direct workers in
actually manufacturing the products is 80%. In addition, the non -productive down-time is budgeted at 20% of
the productive hours worked.
There are four 5-days weeks in the budgeted period and it is anticipated that sales and production will occur
evenly throughout the whole period.
It is anticipated that stock at the beginning of the period will be:
Product-A 400 units
Product-B 200 units
Material-X 1,000 kg.
Material-Y 500 kg.
The anticipated closing stocks for budget period are as below:
Product-A 4 days sales
Product-B 5 days sales
Material-X 10 days consumption
Material-Y 6 days consumption
Required:
CALCULATE the Material Purchase Budget and the Wages Budget for the direct workers, showing the
quantities and values, for the next month. Marks 8

b) Aaradhya Ltd.manufactures a commercial product for which the standard cost per unit is as follows:

(Rs.)
Material:
5 kg. @ Rs. 4 per kg. 20.00
Labour:
3 hours @ Rs.10 per hour 30.00
Overhead
Variable: 3 hours @ Rs.1 3.00
Fixed: 3 hours @ Rs.0.50 1.50
Total 54.50
 During Jan. 20X8, 600 units of the product were manufactured at the cost shown below:

(Rs.)
Materials purchased:
5,000 kg. @ Rs.4.10 per kg. 20,500
Materials used:
3,500 kg.
Direct Labour:
1,700 hours @ Rs. 9 15,300
Variable overhead 1,900
Fixed overhead 900
Total 38,600
The flexible budget required 1,800 direct labour hours for operation at the monthly activity level used to set
the fixed overhead rate.
COMPUTE:
(a) Material price variance, (b) Material Usage variance; (c) Labour rate variance; (d) Labour efficiency
variance; (e) Variable overhead expenditure variance; (f) Variable overhead efficiency variance;
Marks 6
Q4) Answer the following:
a) Fixed Cost Rs. 1,20,000
Variable costsRs. 3 per unit
Selling price Rs. 7 per unit
Output Rs. 50,000 units
CALCULATE the profit for each of the following situation with the above data:
(i) with the data above
(ii) with a 10% increase in output & sales.
(iii) with a 10% increase in fixed costs.
(iv) with a 10% increase in variable costs.
(v) with a 10% increase in selling price.
(vi) taking all the above situations. Marks 10

b)The following data relate to the manufacture of a standard product during the 4- week ended 28th February:
Raw Materials Consumed Rs. 4,00,000
Direct Wages Rs. 2,40,000

Machine Hours Worked 3,200 hours

Machine Hour Rate Rs. 40
Office Overheads 10% of works cost
Selling Overheads Rs. 20 per unit
Units produced and sold 10,000 at Rs. 120 each
You are required to FIND OUT the cost per unit and profit for the 4-week ended 28th February. Marks 4

Q5) Answer the following:

a)As of 31st March, 2018, the following balances existed in a firm’s cost ledger, which is maintained separately
on a double entry basis:

Debit (Rs.) Credit (Rs.)

Stores Ledger Control A/c 3,20,000 -
Work-in-process Control A/c 1,52,000 -
 Finished Goods Control A/c 2,56,000 -
Manufacturing Overhead Control A/c - 28,000
Cost Ledger Control A/c - 7,00,000
7,28,000 7,28,000
During the next quarter, the following items arose:

(Rs.)
Finished Product (at cost) 2,35,500
Manufacturing overhead incurred 91,000
Raw material purchased 1,36,000
Factory wages 48,000
Indirect labour 20,600
Cost of sales 1,68,000
Materials issued to production 1,26,000
Sales returned (at cost) 8,000
Materials returned to suppliers 11,000
Manufacturing overhead charged to production 86,000
Required:
PREPARE the Cost Ledger Control A/c, Stores Ledger Control A/c, Work-in-process Control A/c, Finished Stock
Ledger Control A/c, Manufacturing Overhead Control A/c, Wages Control A/c, Cost of Sales A/c and the Trial
Balance at the end of the quarter as per costing records. Marks 8

b) A factory uses job costing. The following data are obtained from its books for the year ended 31st
March,2018:

Amount (Rs.)
Direct materials 9,00,000
Direct wages 7,50,000
Selling and distribution overheads 5,25,000
Administration overheads 4,20,000
Factory overheads 4,50,000
Profit 6,09,000
Required:
(i) PREPARE a Job Cost sheet indicating the Prime cost, Cost of Production, Cost of sales and the Sales value.
(ii) In 2018-19, the factory received an order for a job. It is estimated that direct materials required will be
Rs. 2,40,000 and direct labour will cost Rs. 1,50,000. DETERMINE what should be the price for the job if factory
intends to earn the same rate of profit on sales assuming that the selling and distribution overheads have
gone up by 15%. The factory overheads is recovered as percentage of wages paid, whereas, other overheads
as a percentage of cost of production, based on cost rates prevailing in the previous year. Marks 6

Q6) Answer the following:

a) EXPLAIN the difference between fixed budget and flexible budget Marks 5

b) DISCUSS the prerequisite of installing cost accounting system. Marks 5

c) DESCRIBE Operation costing with two examples of industries where operation costing is applied. Marks 4