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Question PaperManagement Accounting – I (151) : October 2004
Answer all questions. Marks are indicated against each question.
1. Which of the following is the primary objective of costing?
(a) Ascertainment of cost (b) Control of cost(c) Cost reduction (d) Estimation of sales price(e) Preparation of financial statements.
(1 mark)
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2. A major difference between Financial Accounting and Management Accounting relates to differences in the users. Related to Saibal Manufacturing Company, which of the following best describes a user of Management Accounting Information?
(a) Credit Manager of a vendor for Saibal Manufacturing Company(b) Purchasing Manager of Saibal Manufacturing Company(c) Bank Manager reviewing a loan application of Saibal Manufacturing Company(d) Income Tax Commissioner reviewing the tax return of Saibal Manufacturing Company(e) Shareholders of Saibal manufacturing Company.
(1 mark)
< Answer >
3. The cost proposed annually for the plant service for the grounds at corporate headquarters is an example of
(a) Programmed cost (b) Sunk cost (c) Discretionary cost(d) Imputed cost (e) Relevant cost.
(1 mark)
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4. The total of costs incurred in the operation of a business undertaking other than the cost of manufacturing and production is
(a) Out-of-pocket cost (b) Programmed cost (c) Conversion cost(d) Commercial cost (e) Imputed cost.
(1 mark)
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5. Due to changes that are occurring in the basic operations of many firms, all of the following represent, trends of allocation of indirect cost, except
(a) Treating direct labor as an indirect manufacturing cost in an automated factory(b) Using throughput time as an application base to increase awareness of the costs associated with
lengthened throughput time(c) Preferring plant-wide application rates that are applied to machine hours rather than incurring the
cost of detailed allocations(d) Using several machine cost pools to measure product costs on the basis of time in a machine center(e) Using cost drivers as application to increase the accuracy of reported product costs.
(1 mark)
< Answer >
6. A company absorbs overheads on machine hours. In a period, actual machine hours were 17,285, actual overheads were Rs.4,96,500 and there was under absorption of Rs.12,520.
The budgeted level of overheads of the company is
(a) Rs.4,83,980 (b) Rs.4,96,500 (c) Rs.5,09,020 (d) Rs.5,13,785(e) The data is insufficient.
< Answer >
(1 mark)
7. At 60% capacity utilization, the overhead recovery rate is Rs.17.50 per unit. At 70% capacity level, the rate gets reduced to Rs.16 per unit. If the production attains 88% of the capacity utilization, the recovery rate would be
(a) Rs.14.09 (b) Rs.14.16 (c) Rs.14.32 (d) Rs.14.75 (e) Rs.15.01
(1 mark)
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8. Ajex Ltd. had the following inventories at the beginning and at the end of the month of September 2004:
Particulars September 1, 2004 (Rs.) September 30, 2004 (Rs.)Finished goods 1,25,000 1,17,000Work-in-process 2,35,000 2,51,000Direct materials 1,34,000 1,24,000
The following additional manufacturing data were available for the month of September 2004:
Particulars (Rs.)Direct materials purchased 1,89,000Purchase returns 1,000
Carriage inward 3,000
Direct labor 3,00,000
Actual factory overhead 1,75,000
The company applies factory overhead at a rate of 60% of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year 2004-05.
The manufacturing cost of the company for the month of September 2004 was
(a) Rs.6,81,000 (b) Rs.6,65,000 (c) Rs.4,89,000 (d) Rs.6,78,000 (e) Rs.6,73,000.
(1 mark)
< Answer >
9. Precision Ltd. has furnished the following information pertaining to one of its machines:
i) i) Total cost of the machine to be depreciated Rs.2,30,000ii) ii) Life of the machine – 10 yearsiii) iii) Depreciation on straight lineiv) iv) Departmental overheads (annual)
Rent – Rs.50,000; Heat and light – Rs.20,000; Supervision – Rs.1,30,000v) v) Departmental area – 70,000 square metres; Machine area – 2,500 square metresvi) vi) Number of machines – 26vii) vii)Annual cost of reserve equipment for the machines – Rs.1,495viii) viii) Hours runs on production – 1,800ix) ix) Hours for setting and adjusting – 200x) x) Power cost – Re.0.50 per hour of running timexi) xi) Labor :
When setting and adjusting – full time attention When machine is producing – one worker can look after 3 machines
xii) Labor rate is Rs.6 per hour.
The comprehensive machine hour rate of the company is
(a) Rs.17.64 (b) Rs.18.14 (c) Rs.20.80 (d) Rs.22.00 (e) Rs.20.14.
(2 marks)
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10. When allocating service department costs to production departments, the method that does not consider different cost behavior patterns is the
< Answer >
(a) Single-rate method (b) Dual-rate method(c) Direct method (d) Reciprocal method (e) Step method.
(1 mark)
11. Monark Ltd. has undertaken to supply 2,000 units of product – ‘MONO’ per month for the months of July, August and September 2004. Every month a batch order is opened against which materials and labor cost are booked at actuals. Overheads are absorbed at a rate per labor hour. The selling price is contracted at Rs.15 per unit. The company has furnished the following data pertaining to the costs for 3 months:
MonthBatch Production
(Units)Materialcost (Rs.)
Laborcost (Rs.)
Overheadcost (Rs.)
Total laborhours
July ’04 2,500 12,500 5,000 24,000 8,000August ’04 3,000 18,000 6,000 18,000 9,000September ’04 2,000 10,000 4,000 30,000 10,000
The rate per labor hour is Rs.2
The overall profit of the order of 6,000 units is
(a) Rs.90,000 (b) Rs.80,000 (c) Rs.75,000 (d) Rs.60,000 (e) Rs.30,000.
(2 marks)
< Answer >
12. The expense for merchandise that is manufactured or purchased for resale to customers is known as the
(a) Gross cost (b) Variable cost (c) Cost of goods sold (d) Best cost structure (e) Fixed cost.
(1 mark)
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13. XY Ltd. produces two products-x and y. The direct cost of Product x is Rs.250 per unit (Rs.100 material and Rs.150 labor) and Product y is Rs.350 (Rs.230 material and Rs.120 labor) per unit. 50 units of Product x and 150 units of Product y were produced. Overhead amounts to Rs.1,30,000 and is composed of material handling Rs.12,000, labor support Rs.60,000, machine operation Rs.48,000 and general administration Rs.10,000. Material handling cost driver is material cost, labor support cost driver is labor cost. Machine operation cost resulted from running the machines a total of 480 hours (3/4th of which was for product x). General administration effort related equally to products x and y. Material handling chargeable per unit of Product x (rounded off to the nearest rupee) amounts to
(a) Rs.30 (b) Rs.40 (c) Rs.60 (d) Rs.70 (e) Rs.50.
(1 mark)
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14. The basis used for the apportionment of power expenses is
(a) Light points (b) Horse power of machines (c) Floor space of Departments (d) Number of employees(e) Technical estimates.
(1 mark)
< Answer >
15. Non-production overhead costs are not considered in stock valuation, because
(a) They are outside the control of production manager(b) They are fixed period costs(c) They cannot be identified with individual product(d) They are incurred after stock has been brought to its present location and condition(e) They are indirect costs.
(1 mark)
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16. Which of the following average costs per unit may be expected to decrease by the greatest percentage with an increase in the volume of units produced?
< Answer >
I. Average fixed cost per unitII. Average semivariable cost per unitIII. Average variable cost per unitIV. Average total cost per unit
(a) Only (I) above (b) Both (I) and (IV) above(c) Both (I) and (II) above (d) Only (IV) above(e) (I), (II) and (III) above.
(1 mark)
17. Baisakhi Ltd. has 3 production departments – P1, P2 and P3 and 2 service departments – S1 and S2. The company has furnished the following overhead costs of production departments as well as service departments:
Department Overhead costs(Rs.)P1 13,600P2 14,700P3 12,800S1 9,000S2 3,000
The company has provided the following expenses of service departments which are charged to production as well as service departments on a percentage basis:
Department P1 P2 P3 S1 S2S1 40% 30% 20% - 10%S2 30% 30% 20% 20% -
The total expense of P2 is
(a) Rs.18,712 (b) Rs.18,833 (c) Rs.15,555 (d) Rs.16,721 (e) Rs.15,833.
(2 marks)
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18. Generally, individual departmental rates rather than a plantwide rate for applying overhead would be used, if
(a) A company wants to adopt a standard costing system(b) A company wants to adopt a direct costing system(c) The manufactured products differ in the resources consumed from the individual departments in the
plant(d) Manufacturing overhead is the largest cost component of its product cost(e) The manufacturing operations of a company are all highly automated.
(1 mark)
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19. Which of the following is not related to selling and distribution overhead cost?
(a) Showroom rent and rates(b) Depreciation on goods delivery mini-truck(c) Sample goods and other free gifts(d) Debt collection expenses(e) Charitable and political donations.
(1 mark)
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20. Air Purifier Ltd. uses process cost system to manufacture Dust Density Sensors for the mining industry. The following pertains to operations for the month of September
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2004:
Particulars UnitsOpening work-in-process (September 01, 2004) 450Introduced in production during September 2004 4,100Closing work-in-process (September 30, 2004) 520
There is no loss in the manufacturing process. The opening inventory was 80% complete for materials and 60% complete for conversion costs. The closing inventory was 75% complete for materials and 65% complete for conversion costs.
Costs pertaining to the month of September 2004 are as follows:
Opening work in process: Materials Rs. 6,850Conversion Rs. 4,350
During the month: Materials Rs.71,050Conversion Rs.57,372
The total cost of closing work-in-process as on September 30, 2004, using FIFO method, is
(a) Rs.10,708.62 (b) Rs.11,649.63 (c) Rs.12,573 (d) Rs.11,557.00(e) Rs.12,443.00.
(2 marks)
21. The yield of a certain process is 80%, the by-product is 16% and normal loss is 4% of its main product. 5,000 units of materials are put in process and its cost is Rs.24.80 per unit and other expenses amounted to Rs.15,150, 40% of which was accounted for by power cost. It is the practice of the company that the power cost is chargeable to the main-product and the by-product in the ratio of 3:2. The cost of the by-product is
(a) Rs.24,606 (b) Rs.55,660 (c) Rs.26,727 (d) Rs.22,264 (e) Rs.23,718.
(2 marks)
< Answer >
22. Shivam Chemicals Ltd. runs its boiler on furnace oil obtained from Indian Oil and Bharat Petroleum, whose depots are situated at a distance of 10 km and 8 km from the factory site of the company. Transportation of furnace oil is made by the company’s own tank lorries of 5 tons capacity each. Onward trips are made only on full load and the lorries return empty. The filling-in time takes an average of 50 minutes for Indian Oil and 45 minutes for Bharat Petroleum. The emptying time in the factory is only 45 minutes for both. From the records available, it is seen that the average speed of the company’s lorries work out to 40 km per hour. The variable operating charges per km is Rs.2.20 and fixed charges per hour of operation is Rs.13.20.
The cost per ton-mile from Bharat Petroleum is
(a) Rs.1.36 (b) Rs.1.43 (c) Rs.1.51 (d) Re.0.72 (e) Re.0.75.
(2 marks)
< Answer >
23. ABC Constructions Ltd. has taken two contracts on April 01, 2003. The position of the contracts as on March 31, 2004 is as follows:
Particulars Contract A (Rs.) Contract B (Rs.)Contract price 54,00,000 1,20,00,000Materials 11,60,000 21,60,000Wages paid 22,48,000 33,00,000Other expenses 56,000 1,20,000Plant at site 3,20,000 6,00,000Unused materials at site 80,000 1,20,000Wages accrued 72,000 1,08,000
< Answer >
Other expenses due 8,000 18,000Work certified 32,00,000 60,00,000Cash received 24,00,000 45,00,000Work completed but not yet certified 1,60,000 1,80,000
The plant at site is to be depreciated at 12% per annum.
The values of work in progress of each contract respectively are
(a) Rs.9,60,000 and Rs.14,19,000 (b) Rs.8,00,000 and Rs.12,33,000(c) Rs.9,60,000 and Rs.11,58,000 (d) Rs.8,00,000 and Rs.14,19,000(e) Rs.11,58,000 and Rs.14,19,000.
(2 marks)
24. Consider the following data of a company:
Material Purchased - Rs.170,000. There was no beginning inventory.Direct labor incurred - 400 hours at the rate of Rs.10 per hour.Budgeted labour hours - 430 Budgeted overhead cost - Rs.6,450Units started - 20,000 unitsUnits completed - 15,000 unitsActual overheads - Rs.6,200Ending Inventory - 60% complete.
The value of ending inventory is
(a) Rs.50,000 (b) Rs.30,000 (c) Rs.20,000 (d) Rs. 5,000 (e) Rs.25,000.
(2 marks)
< Answer >
25. Retention monies are best defined as
(a) Cash returned to contractee, if actual profits on a contract are 20% higher than negotiated amount(b) Cash returned to contractee, if actual profits on a contract are 25% higher than negotiated amount(c) Cash withheld by the contractee, under the terms of contract when payments of the value certified
are being made(d) Cash withheld by the contractee, in order to improve the cash flow of the contractor(e) Payments to the contractor, where it is desired to secure his service for a future contract.
(1 mark)
< Answer >
26. Arrow Ltd. manufactures a product and furnishes the following costs structure of the product:
Variable manufacturing cost – Rs.16 per unitFixed manufacturing cost – Rs.4,00,000 per annum
The normal production capacity of the company is set at 20,000 units.
The information relating to production and sales for two years is given below:
Year Production Sales1 22,000 units 19,000 units2 18,000 units 20,000 units
During these period, the sale price was Rs.50 per unit.
The incomes under absorption costing for 1st year and under marginal costing for 2nd year are
(a) Rs.3,06,000 and Rs.2,80,000 respectively(b) Rs.3,06,000 and Rs.2,46,000 respectively(c) Rs.2,46,000 and Rs.2,80,000 respectively (d) Rs.2,46,000 and Rs.2,40,000 respectively (e) Rs.2,66,000 and Rs.2,80,000 respectively.
< Answer >
(2 marks)
27. Consider the following data pertaining to a process account for the month of September 2004:
Opening work-in-process (Material – 70% complete) –– 600 unitsClosing work-in-process (Material – 70% complete) –– 700 unitsMaterials introduced –– 4,000 units
The equivalent completed units of material in the process, under LIFO method, is
(a) 4,390 (b) 4,320 (c) 4,210 (d) 4,050 (e) 3,970.
(2 marks)
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28. Aditya Ltd., using process costing, manufactures a single product, which passes through two processes – process 1 and process 2, the output of process 1 becoming the input to process 2. The company has furnished the following information relating to the product for the month of September 2004:
i) Raw material issued to process 1 was 3,000 units at a cost of Rs.5 per unit.ii) There was no opening or closing work-in-progress but opening and closing stocks of finished goods
were Rs.20,000 and Rs.23,000 respectively.iii) Normal losses and abnormal losses are defective units having a scrap value and cash is received at
the end of the period for all such units.
Other information:
Particulars Process 1 Process 2Normal loss as a percentage of input 10% 5%Output in units 2,800 2,600Scrap value per unit (Rs.) 2 5Additional components introduced (Rs.) 1,000 780Direct wages incurred (Rs.) 4,000 6,000Direct expenses incurred (Rs.) 10,000 14,000Production overhead as a % of direct wages 75 125
The cost of goods sold of the product for the month of September 2004 is
(a) Rs.59,800 (b) Rs.56,800 (c) Rs.62,800 (d) Rs.64,880 (e) Rs.60,880.
(2 marks)
< Answer >
29. Marphy Company manufactures radios, which are sold at Rs.1,600 per unit. The total cost consists of 30% for direct materials, 40% for direct wages and 30% for overheads. An increase in material price by 30% and in wage rates by 10% is expected in the forthcoming year, as a result of which, the profit at current selling price may decrease by 40% of the present profit per unit. The future selling price to maintain same profit percentage is
(a) Rs.1,756 (b) Rs.1,365 (c) Rs.1,808 (d) Rs.2,021 (e) Rs.1,703.
(2 marks)
< Answer >
30. Which of the following is/are the best explanation of the relevance of equivalent production units in process costing?
(a) A means of equalizing production charged into stock of each period(b) A means by which the output achieved may be compared with the equivalent quantity budgeted for
the period under review(c) The conversion of partly completed units into an equivalent number of completed units in order that
costs may be shared on an equitable basis(d) The expression of losses in terms of an equivalent units of good production in order that their value
may be calculated(e) Both (c) and (d) above.
(1 mark)
< Answer >
31. The cost data pertaining to Product “X” of XL Ltd. are as follows:
Maximum capacity 30,000 unitsNormal capacity 15,000 unitsIncrease in inventory 1,880 unitsVariable cost per unit Rs.12Selling price per unit Rs.50Fixed manufacturing overhead costs Rs.3,60,000
If the profit under Absorption costing method is Rs.1,01,000, the profit under Marginal costing method would be
(a) Rs.1,46,120 (b) Rs.1,23,560 (c) Rs. 78,440 (d) Rs. 55,880 (e) Rs. 73,340.
(1 mark)
< Answer >
32. If the information related to joint cost is available to use any allocation method, the preferred method for allocation is the
(a) Physical measure (b) Sales value at split off(c) Net realizable value (d) Constant gross-margin percentage on net realisation value(e) Sale price per unit at split-off point.
(1 mark)
< Answer >
33. Cost of idle time arising due to non-availibility of raw-materials should be
(a) Charged to costing profit & loss account (b) Charged to factory overheads(c) Recovered by inflating the wage rates (d) Charged to indirect labor cost(e) Charged to direct labor cost.
(1 mark)
< Answer >
34. Which of the following is/are true regarding transport costing?
I. The costs of a transport company includes publicity costsII. Operating costs and running costs are the costs which vary more or less in direct proportion to
the distance traveledIII. Semi-variable costs are incurred in the form of tyre maintenance, paintings etcIV. Insurance of the vehicle can be considered as running cost
(a) Only (I) above (b) Only (II) above(c) Only (III) above (d) Both (II) and (IV) above (e) Both (II) and (III) above.
(1 mark)
< Answer >
35. The costing procedure that is most appropriate for service organizations is
(a) Job costing (b) Batch costing (c) Standard costing(d) Operating costing (e) Unit costing.
(1 mark)
< Answer >
36. The average method of valuation of inventory in process costing is suitable, if
(a) Prices are increasing(b) Prices of inventory fluctuate from period to period(c) Abnormal loss is incurred at the beginning of the process(d) Material is continually introduced(e) Material is introduced at the beginning of the process.
(1 mark)
< Answer >
37. JK Paper Manufacturing Company manufactures special paper. The company presents the following data relating to special paper for the month of September 2004:
< Answer >
Direct Materials : Paper pulp - 500 tons at the rate of Rs.50 per ton Other materials - 100 tons at the rate of Rs.30 per ton.
Direct labor : 80 skilled labor - Rs.18 per day for 25 days 40 unskilled labor - Rs.14 per day for 25 days.
Direct expenses : Special equipment - Rs.3,000 Special dyes - Rs.1,000.
Factory overheads: Variable - 40% on direct labor costFixed - 50% on direct labor cost.
Administrative overheads - 10% on factory cost.Selling and distribution overheads - 10% on cost of production.
400 tons of special paper were manufactured and Rs.800 was realized by the sale of waste materials during the course of manufacture. There is no scrap value of the special equipment after utilization in the manufacture of special paper. If the company desires to earn a profit of 12% on selling price, selling price per ton is
(a) Rs.381.75 (b) Rs.427.53 (c) Rs.347.71 (d) Rs.433.80 (e) Rs.409.53
(2 marks)
38. Which of the following is true regarding contract costing?
(a) Both work certified and work uncertified are valued at cost price(b) Both work certified and work uncertified are valued at market price(c) Both work certified and work uncertified are valued at contract price(d) Work certified is valued at contract price whereas work uncertified is valued at cost price(e) Work certified is valued at cost price whereas work uncertified is valued at market price.
(1 mark)
< Answer >
39. Cost of material used is equal to
(a) Cost of goods manufactured + Closing WIP – Opening WIP – Direct labour – Factory overhead(b) Cost of goods manufactured – Closing WIP + Opening WIP + Direct labour – Factory overhead(c) Cost of goods manufactured – Closing WIP + Opening WIP + Direct labour + Factory overhead(d) Cost of goods manufactured + Closing WIP – Opening WIP + Direct labour – Factory overhead(e) Cost of goods manufactured – Closing WIP + Opening WIP – Direct labour + Factory overhead.
(1 mark)
< Answer >
40. Products of relatively small total value that are produced simultaneously from a common manufacturing process along with products of greater value and quantity are
(a) Scrap (b) By-products (c) Spoilage (d) Waste (e) Defective.
(1 mark)
< Answer >
41. Which of the following methods of costing considers both the variable and fixed costs as part of product costs?
(a) Direct costing (b) Marginal costing (c) Absorption costing(d) Standard costing (e) Uniform costing.
(1 mark)
< Answer >
42. ABC Ltd. has furnished the following data pertaining to the process of Chemical C for the month of September 2004:
Input 1,500 kg.Output 1,400 kg.Normal loss 10% of inputSale value of normal loss as scrap Rs.2.80 per kg.
< Answer >
Cost of input to the process Rs.8,520
The cost of abnormal loss /gain shown in the process account is
(a) Rs.318 (loss) (b) Rs.300 (gain) (c) Rs.270 (loss)(d) Rs.318 (gain)(e) Rs.300 (loss).
(2 marks)
43. Which of the following costs is not deducted from sales revenue in computation of contribution margin?
(a) Direct materials (b) Direct labor (c) Fixed factory overheads(d) Variable factory overheads (e) Variable selling overheads.
(1 mark)
< Answer >
44. Cost-volume-profit analysis is most important for the determination of
(a) Volume of operations necessary to break-even(b) Variable revenues necessary to equal fixed costs(c) Sales revenue necessary to equal fixed costs(d) Relationship between revenues and costs at various levels of operations(e) Sales revenue necessary to equal total costs.
(1 mark)
< Answer >
45. A company has three factories situated in North, East and South with its head office in Hyderabad. The management has received the following summary report on the operations of each factory for a period:
Region Actual sales (Rs.)
Over/(under) budgeted sales (Rs.)
Actual profit (Rs.)
Over/(under) budgeted profit (Rs.)
North 1,100 (400) 135 (180)
East 1,450 150 210 90
South 1,200 (200) 330 (110)
If the variable cost ratio, fixed costs and sales mixes are as per the budget, the break-even sales in rupees of the company as a whole is
(a) Rs.2,500 (b) Rs.1,500 (c) Rs.1,200 (d) Rs.1,750 (e) Rs.1,600.
(2 marks)
< Answer >
46. Consider the following information pertaining to Hyderabad Power Company for the year 2003-04:
Total units generated 50,00,000 Operating labor cost Rs.2,40,000
Plant Supervision expenses Rs.1,20,000
Cost of lubricant and supplies Rs.1,60,000
Coal consumed per unit generated 1.5 kg
Cost of coal delivered to power station Rs.400 per ton
The total variable cost per unit of generation is
(a) Re.1.000 (b) Re.0.704 (c) Re.0.680 (d) Re.0.600 (e) Re.0.500.
(1 mark)
< Answer >
47. Sai Plastics Ltd. manufactures plastic chairs. The company is working at 60% capacity level, which represents 4,800 chairs per month. The cost break-up per chair is as under:
Materials – Rs.62
< Answer >
Labor – Rs.32Overheads – Rs.40 (60% fixed)
The selling price is Rs.180 per chair. The company is planning to produce at 80% capacity level. At 80% capacity level, the selling price falls by 5% accompanied by a similar fall in the price of materials.
The break-even point in units and profit at proposed level for the company are
(a) 1,646 units and Rs.2,95,040 respectively(b) 1,798 units and Rs.2,56,640 respectively(c) 1,646 units and Rs.2,56,640 respectively(d) 1,798 units and Rs.2,95,040 respectively(e) 1,798 units and Rs.2,20,800 respectively.
(2 marks)
48. Which of the following statements is true with respect to Absorption costing and Variable costing?
(a) Overhead costs are treated in the same manner under both the costing methods(b) Variable manufacturing costs are lower under variable costing(c) Fixed manufacturing costs are treated in the same manner under both the costing methods(d) If finished goods inventory increases, variable costing results in lower income(e) Gross margins are the same under both the costing methods.
(1 mark)
< Answer >
49. One of the major assumptions limiting the reliability of break-even analysis is that the
(a) Efficiency and productivity will continually increase(b) Total variable costs will remain unchanged over the relevant range(c) Cost of production factors varies with changes in technology(d) Selling price of products will decrease as more units are produced and made available(e) Total fixed costs will remain unchanged over the relevant range.
(1 mark)
< Answer >
50. JIT Ltd. has a factory where four products are manufactured in a common process. During September 2004, the costs of the common process were Rs.1,60,000. The data pertaining to four products is as follows:
Product Production Sales Sales value per unitA 600 units – –B 400 units – –C 500 units 400 units Rs. 70D 600 units 450 units Rs.100
Products A and B are further processed to make finished products X and Y respectively. The data relating to Products X and Y is given below.
Product Production Sales Cost of further processing Sales value per unitX 600 units 600 units Rs.10,000 Rs.100Y 400 units 300 units Rs.25,000 Rs.200
There was no opening stock. Company uses sales value at split off point as basis for apportionment of common costs.
The profits of product Y and product C are
(a) Rs.8,250 and Rs.10,000 respectively (b) Rs.8,250 and Rs.5,600 respectively(c) Rs.8,250 and Rs.9,000 respectively (d) Rs.9,000 and Rs.5,600 respectively(e) Rs.10,000 and Rs.5,600 respectively.
(2 marks)
< Answer >
51. Bharti Ltd. has furnished the following data pertaining to manufacturing operations for the month of < Answer
September 2004:
Particulars Rs.Raw materials (September 1,2004) 6,000Direct labor cost 25,000 (125% of factory overhead ) Work-in-progress (September 1,2004) 7,000Finished goods (September 1,2004) 12,000Cost of goods sold 88,000
Selling expenses 8,500
Raw materials (September 30,2004) 6,800Work-in-progress (September 30,2004) 6,500Finished goods (September 30,2004) 12,800Sales for the month 1,12,500
The materials purchased and profit earned by the company for the month of September 2004 are
(a) Rs.43,500 and Rs.24,500 respectively (b) Rs.42,500 and Rs.16,000 respectively(c) Rs.43,300 and Rs.16,000 respectively (d) Rs.44,100 and Rs.16,000 respectively(e) Rs.44,100 and Rs.24,500 respectively.
(2 marks)
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52. Two manufacturing companies – AB Ltd and XY Ltd. have decided to merge their business operations. They have furnished the following operation details:
Particulars AB Ltd XY LtdCapacity utilization (%) 90 60Sales (Rs. in lacs) 540 300Variable costs (Rs. in lacs) 396 225Fixed costs (Rs. in lacs) 80 50
The profitability of the merged plant at 80% capacity level is
(a) 20.25% (b) 18.95% (c) 15.75% (d) 14.45% (e) 11.14%.
(2 marks)
< Answer >
53. XLNT Ltd. has furnished the following information pertaining to the forthcoming year:
Budgeted Variable costs – 60% of sales valueBudgeted Fixed costs – 20% of sales value
If the company increases the selling price by 10% but the fixed costs, variable cost per unit and sales volume remain unchanged, the effect on contribution would be
(a) An increase of 10% (b) A decrease of 10% (c) An increase of 20%(d) A decrease of 20% (e) An increase of 25%.
(1 mark)
< Answer >
54. Quadila Ltd. has furnished the following information pertaining to its product for the period ended September 30,2004:
Selling price per unit Rs.80Variable cost per unit Rs.35Fixed cost Rs.5,96,000
The company plans to improve the quality of its sole product by
i. Replacing a component that costs Rs.6.25 with a higher-grade unit that costs Rs.8.00.ii. Acquiring a packing machine of Rs.80,000.
The company will depreciate the machine over a period of 10 years with no estimated salvage value by
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the Straight Line Method of depreciation. The income tax rate is 40%. If the company desires to earn a post-tax profit of 10% on sales in the next period, the units to be sold by the company in the next period are
(a) 16,560 (b) 18,104 (c) 16,375 (d) 18,289 (e) 20,190.
(2 marks)
55. Sams Ltd. manufactures and sells two products – M and N. The following data are estimated for the quarter ending September 30, 2004 .
ParticularsProduct
MProduct
NSales (Units) 80,000 1,20,000
Sale price per unit (Rs.) 20 16
Variable cost per unit (Rs.) 12 10
The annual fixed costs are estimated at Rs.8,16,000. The break-even point in sales value with the current sales mix is
(a) Rs.24,00,000 (b) Rs.21,12,000 (c) Rs.19,20,000 (d) Rs.14,40,000(e) Rs. 9,60,000.
(2 marks)
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56. Consider the following data pertaining to a product of Megha Sai Ltd. for the month of September 2004
Fixed Costs – Rs.2,43,000Net Profit – Rs.81,000Net profit on sales – 10%.
The margin of safety of the product for the month was
(a) Rs.5,00,000 (b) Rs.4,00,000 (c) Rs.3,00,000 (d) Rs.2,60,000(e) Rs.2,02,500.
(1 mark)
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57. ACD Ltd. has been approached by a foreign customer who wants to place an order for 1,500 units of Product C at Rs.22.50 a unit although the company currently sells this item for Rs.39 a unit, and the item has a cost of Rs.29 per unit. Further analysis reveals that the company will not pay sales commission of Rs.2.50 a unit on these sales and its packaging requirement will save an additional amount of Rs.1.50 per unit. However, the additional graphics required on this job will cost Rs.3,000. The fixed costs amounting to Rs.4,00,000 for the production of 50,000 units of such products by the company will not change. Accepting this job by the company will
(a) Increase profit by Rs.1,950 (b) Increase profit by Rs.6,750(c) Increase profit by Rs.5,250 (d) Decrease profit by Rs.5,250(e) Decrease profit by Rs.1,950.
(1 mark)
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58. Ponchu Das Pvt.Ltd. of Kolkata is currently operating at 80% capacity. The following is the income statement furnished by the company:
Particulars Rs. in lakh Rs. in lakhSales 640Cost of sales:Direct materials
200
Direct expenses 80 Variable overheads 40
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Fixed overheads 260 Total cost 580 Net income 60
The Managing Director has been discussing an offer from Middle East of a quantity, which will require 50% capacity of the factory. The price is 10% less than the current price in the local market. Order cannot be split. The capacity of factory can be augmented by 10% by adding facilities at an increase of Rs.40 lakh in fixed cost. If the proposal is accepted with the increased facilities, the profit will be increased by
(a) Rs.50 lakh (b) Rs.40 lakh (c) Rs.60 lakh (d) Rs.25 lakh (e) Rs.35 lakh.
(2 marks)
59. PQR Ltd. manufactures three components – P, Q, and R. The company has furnished the following information pertaining to the cost per unit of three products:
Particulars P (Rs.) Q (Rs.) R (Rs.)Fixed cost 7.00 5.00 4.50Variable cost 8.00 6.00 6.00Total cost 15.00 11.00 10.50
Alwin Company has offered to supply the components to PQR Ltd at the following prices:
P – Rs. 10.00 per unitQ – Rs. 5.00 per unitR – Rs. 7.50 per unit
Which of the following decisions should be considered by PQR Ltd.?
(a) Make all the three components(b) Buy all the three components(c) Make component P and buy components Q & R (d) Make components P & Q and buy component R(e) Make components P & R and buy component Q.
(1 mark)
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60. MNR Ltd. has furnished the following information for two years:
Particulars 2002-03 (Rs.) 2003-04 (Rs.)Sales 8,00,000 ?P/V Ratio 50 % 37.5%Margin of safety as % of Sales 40 21.87
There has been substantial saving in the fixed cost for the year 2003-04 due to restructuring of process. The company’s sales quantities of both the years are same. Selling price for the year 2003-04 is reduced. The fixed cost for the year 2003-04 is
(a) Rs.1,92,000 (b) Rs.1,87,500 (c) Rs.1,60,000 (d) Rs.1,20,000 (e) Rs.1,45,500.
(2 marks)
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61. Bhavani Ltd.is operating at 80% capacity has a sales value of Rs.8,00,000 at Rs.25 per unit. The cost data are as under:
Material cost Rs.7.50 per unit. Labour Rs.6.25 per unit. Semi variable cost (including variable cost of Rs.3.75 per unit) Rs.1,80,000. Fixed cost Rs1,90,000 up to 80% level of output, beyond this an additional cost of Rs.20,000 will be incurred. The activity level at break even point is
(a) 82.5% (b) 83% (c) 79% (d) 90% (e) 92%.(2 marks)
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62. The comparative profit statement of two quarters is as below: < Answer >
Particulars 1st quarter 2nd quarterUnits sold 2,500 3,750Direct Material (Rs.) 87,500 ?Direct wages (Rs.) 62,500 ?Fixed and variable factory overheads (Rs.) 75,000 95,000Sales (Rs.) 2,75,000 ?Profit (Rs.) 50,000 40,000
In 2nd quarter, direct material price has increased by 20%. There was a saving of Rs.5,000 in fixed overhead in the second quarter. The other costs remained same. The quantity that should have been sold in the second quarter to maintain the profit of 1st quarter is
(a) 5,125 units (b) 4,705 units (c) 4,020 units (d) 5,200 units (e) 4,375 units.(2 marks)
63. A company has an opening stock of 6,000 units of finished goods. The production planned for the current period is 24,000 units and expected sales for the current period is 28,000 units .The selling price per unit is Rs.10. The variable cost per unit in this period is Rs.6 per unit but in previous period it was Rs.5 per unit. If the fixed cost for the current period is Rs.86,000,then the break even point for the current period using First in first out basis, is
(a) 17,917 units (b) 28,572 units (c) 14,000 units (d) 20,000 units (e) 23,125 units.
(2 marks)
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64. Hotel Paradise has annual fixed cost of Rs.15,00,000 for a 300 room hotel with an average daily room rent of Rs.40 and average variable costs of Rs.6 per room rented .The hotel operates 365 days a year. The income tax rate is 30%. The occupancy ratio to make a profit of Rs.1,00,000 is
(a) 44.13% (b) 40.29% (c) 30.89% (d) 63.04% (e) 52.17%.(2 marks)
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65. Which of the following is false with respect to job costing?
(a) It is very useful in cost plus contracts(b) It helps the management in minimizing the spoilage(c) It facilitates control of costs(d) It is expensive as it involves great deal of clerical work(e) It provides a useful basis for making estimates for similar jobs in future.
(1 mark)
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66. Which of the following statements is false?
(a) In process costing, cost is accumulated according to processes or departments(b) In job costing, the basis of cost accumulation is job order or batch size(c) In process costing, cost is accumulated on time basis(d) In job costing, cost is computed at the end of the cost period(e) In process costing, items of prime cost cannot be traced with a particular order due to continuous
production.
(1 mark)
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67. If the amount of wastage in a manufacturing process is abnormal, it should be classified as
(a) Deferred charge (b) Period cost (c) Product cost(d) Joint cost (e) Discretionary cost.
(1 mark)
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68. Which of the following statements is true?
(a) Escalation clause in a contract provides that contract price is fixed(b) In contract costing, credit is taken for the full amount of profit on complete portions of the
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incomplete contract(c) Work-in-progress certified and uncertified in a contract is valued at cost(d) Salary of supervisor employed in a contract is an indirect cost(e) Cost plus contract protects the contractor from the risk of market fluctuations in the prices of
material, labor and other elements.
(1 mark)
69. The way in which foreseeable losses estimated for a contract
(a) Ignore until they are known to be accurate with reasonable certainty(b) Write off immediately that they are estimated (c) Write off in the same proportion as any estimated profit are recognized(d) Write off only if the work to which they relate is 50% completed(e) Write off only if the work to which they relate is 80% completed.
(1 mark)
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70. Delta Ltd. manufactures four products – P,Q,R & S, which emerge from a particular process of operation. The total cost of input for the year ended March 31, 2004 is Rs.2,80,000. The details of output, additional cost after split-off point and sales value of the products are as follows:
Products Output (Kg.)Additional processing cost
after split-off point (Rs.)Sales value after further process
(Rs.)P 10,000 20,000 2,20,000Q 3,000 20,000 1,15,000R 6,000 17,000 1,05,000S 4,000 50,000 1,70,000
If the products are sold at split-off point without further processing, the sales value would have been:
P Rs.1,90,000Q Rs.1,00,000R Rs. 85,000S Rs.1,05,000
The maximum amount of profit of the company from the four products is
(a) Rs.3,15,000 (b) Rs.2,28,000 (c) Rs.2,23,000 (d) Rs.3,35,000 (e) Rs.2,43,000.
(2 marks)
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71. Which of the following would not be used in developing a job order cost sheet?
(a) Work ticket (b) Transferred-in cost(c) Time card (d) Materials requisition (e) Operation schedule.
(1 mark)
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72. Which of the following can be said about job-order system, process costing system and hybrid system?
(a) The type of product manufactured by a company does not influence the type of accounting system used
(b) The manufacturing process does not influence the type of accounting system used by a company(c) The cost systems require the use of some form of cost averaging(d) The managers rely upon the cost system to provide information based only upon actual costs(e) The managers rely upon the cost system to provide information based only upon standard costs.
(1 mark)
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Suggested AnswersManagement Accounting – I (151) : October 2004
1. Answer : (b)
Reason : The primary object of costing is to control cost. Cost reduction is not the primary object of costing. Similarly, estimation of sales price and preparation of financial statements are not the primary object of costing. Therefore,(b) is correct.
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2. Answer : (b)
Reason : The Purchasing Manager of Saibal Manufacturing would be an internal user of information that is concerned with production reports and estimates, where as the other individuals are all external to the company and would expect Financial Accounting information prepared in accordance with GAAP. Therefore, (b) is correct.
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3. Answer : (c)
Reason : A discretionary cost is characterized by uncertainty about the relationship of input (the cost) to output. It also tends to the subject of a periodic decision regarding the outlay to be made. Research, Advertisement and Public Relation are common examples. Thus the annual cost of plant service is discretionary because of the difficulty of valuing the output. Other options are not correct.
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4. Answer : (d)
Reason : The total of costs incurred in the operation of a business undertaking other than the cost of manufacturing and production is commercial cost
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5. Answer : (c)
Reason : With the recent automation of factories and the corresponding emphasis on activity-based costing(ABC),companies are finding new ways of allocating indirect factory overhead. One change is that plant-wide application rates are being used less often because a closer matching of costs with cost drivers provides better information to management. ABC results in a more accurate application of indirect costs because it provides more refined data. Instead of a single cost goal for a process, a department, or even an entire plant, an indirect cost pool is established for each identified activity. The related cost driver, the factor that changes the cost of the activity, is also identified.
Option (a) is incorrect because one effect of computerization is that the amount of direct labor relative to other costs has been decreasing. For this reason some companies have found that it is no longer expedient to track direct costs as closely as was once done. Thus, some companies are treating direct labor as an indirect factory overhead cost.
Option (b) is incorrect because through put time is one of the cost drivers that is beginning to be used more often as an overhead application base. Throughput is the rate of production over a stated time. This rate clearly drives (influences) costs.
Option (d) is incorrect because multiple cost pools are preferable. They permit a better matching of indirect costs with cost drivers.
Option (e) is incorrect because ABC uses cost drivers (causes) as application bases to provide more refined data.
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6. Answer : (e)
Reason : The budgeted level of overheads cannot be calculated from the information provided.
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7. Answer : (b)
Reason : Let, at 100% capacity level, units produced = 100
At 60% capacity, the overhead recovery rate = Rs.17.50 per unit
Therefore, total overhead at 60% = 60 ´ Rs.17.50 = Rs.1,050
At 70% capacity, the recovery rate = Rs.16 per unit
Therefore, total overhead at 70% = Rs.16 ´ 70 = Rs.1,120
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Therefore, variable cost =
Rs.1,120 Rs.1,050
10
=
Rs.70
10 = Rs.7 per unit
Fixed cost = Rs.1,050 – 60 ´ Rs.7 = Rs.630
At, 88% capacity = Rs.630 + 88 ´ Rs.7
= Rs.630 + Rs.616 = Rs.1,246
So, The overhead recovery rate at 88% = Rs.1,246 /88 = Rs.14.16
8. Answer : (a)
Reason :
Beginning direct materials inventory 1,34,000 Add: Purchases 1,89,000 Less: Purchase returns (1,000) Add: Transportation 3,000 Total direct materials available 3,25,000 Less: Ending direct materials inventory (1,24,000) Direct material used 2,01,000Direct labor 3,00,000Total prime costs 5,01,000
Manufacturing cost = Rs.5,01,000 + 60% of Rs.3,00,000 (Direct labor)
= Rs.6,81,000.
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9. Answer : (e)
Reason : Computation of comprehensive machine hour rate:
Expenses Workings Rs. Rs.Standing charges: Rent, heat and light (Rs.70,000 / 70,000) x 2,500 2,500.00 Supervision Rs.1,30,000 / 26 5,000.00 Depreciation 10% of Rs.2,30,000 23,000.00 Reserve equipment cost Rs.1,495 / 26 58.50 Labor cost during setting and adjustment 200 hours x Rs.6 1,200.00 Hourly standing charges Rs.31,758 / 1,800 31,758.00 17.64Machine expenses: Power 0.50Labor cost Rs.6 / 3 2.00Comprehensive machine hour rate 20.14
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10.
Answer : (a)
Reason : The single rate method combines fixed and variable costs. However, dual rates are preferable because they allow variable costs to be allocated on a different basis from fixed costs. Options (c), (d) and (e) are incorrect because the direct method, reciprocal method and step methods can be used on a single or dual rate basis. Option (b) is not true because a dual-rate method considers different cost behavior patterns.
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11.
Answer : (e)
Reason :
Particulars July August September TotalBatch Production (units) 2,500 3,000 2,000 7,500 (Rs.) (Rs.) (Rs.) (Rs.)Total sales value (@ Rs.15) 37,500 45,000 30,000 1,12,500Less:Costs: Material Materials 12,500 18,000 10,000 40,500Labor 5,000 6,000 4,000 15,000Overheads (Workings) 7,500 6,000 6,000 19,500
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25,000 30,000 20,000 75,000Profit 12,500 15,000 10,000 37,500Profit per unit 5 5 5 Cost per unit 10 10 10
Profit for 6,000 units
Sales– 6,000 ´ Rs.15 Rs.90,000
Cost – 6,000 ´ Rs.10 Rs.60,000
Profit Rs.30,000
Workings:
Batch labor hoursRs.5,000 ¸ Rs.2
= 2,500 hoursRs.6,000 ¸ Rs.2
= 3,000 hoursRs.4,000 ¸ Rs.2
= 2,000 hoursOverhead per hour
(Total Overheads ¸ Total labor hours)
Rs.24,000 ¸ 8,000= Rs.3
Rs.18,000 ¸ 9,000 = Rs.2
Rs.30,000 ¸ 10,000 = Rs.3
Overhead for the batch Rs.7,500 Rs.6,000 Rs.6,000
12.
Answer : (c)
Reason : The expense for merchandise that is manufactured or purchased for resale to customers is known as the cost of goods sold. This cost would include, in retailing, the purchase price of merchandise acquired for resale to customers. In a manufacturing company, this cost would include raw materials used, labor necessary to assemble the product, and a portion of fixed costs associated with the manufacturing process. Therefore, option (c) is correct.
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13.
Answer: (a)
Reason: Material handling charges per rupee of material = Rs.12,000 / [(50 x Rs. 100) + (150 x Rs. 230)] = Rs.12,000/39,500=Re.0.3038;
Material handling cost per unit of x =Rs.100 x 0.3038 = Rs.30.38 around Rs.30.
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14.
Answer : (b)
Reason : The choice of an appropriate basis is a matter of judgment to suit the particular circumstances of an organization and wherever possible there should be a cost and cause relationship. In the case of apportionment of power expenses – Horse power of machines is most appropriate. Option (a) is incorrect, it is more appropriate to apportion the lighting expenses. Option (c), (d) and (e) are incorrect. The power expenses in no way has direct relationship with the floor area of the departments or the number of employees. Where there is any logical basis for apportionment can be done only with the help of intense study, a technical estimate is preferred.
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15.
Answer : (d)
Reason : Non-production costs are incurred in the place other than production function. So these costs are either administrative or selling and distribution cost. Therefore, it is not a part of production cost. So, (d) is correct
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16.
Answer : (a)
Reason : (i) average fixed cost per unit = total fixed cost / number of units produced
(ii) Average semivariable cost per unit = total semivariable cost/ number of units produced(iii) Average variable cost per unit = total variable cost / number of units produced(iii) Average total cost per unit = total cost / number of units produced
As the numerator is constant, average fixed cost per unit is inversely proportional to the number of units produced.
All of (ii), (iii) and (iv) has some variable part in them which increases with an increase in the volume of units produced. So none of them are inversely proportional to the number of units produced (although inversely related). So Average fixed cost per unit may be expected to decrease by the greatest percentage with an increase in the volume of units produced.
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17.
Answer : (b)
Reason :
Particulars P1(Rs.) P2 (Rs.) P3 (Rs.) S1 (Rs.) S2 (Rs.)Primary Distribution 13,600 14,700 12,800 9,000 3,000
S1 (4:3:2:1) 3,600 2,700 1,800 (-) 9,000 900S2 (3:3:2:2) 1,170 1,170 780 780 (-) 3,900S1 (4:3:2:1) 312 234 156 (-) 780 78S2 (3:3:2:2) 23 23 16 16 (-) 78S1 (4:3:2:1) 6 5 3 (-) 16 2S2 (3:3:2:2) 1 1 - - (-) 2
Total 18,712 18,833 15,555
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18.
Answer : (c)
Reason : Factory overhead is usually assigned to products based on a predetermined rate or rates. The activity base for overhead allocation should have a high correlation with the incurrence of overhead. Given only one cost driver, one overhead application rate is sufficient. If products differ in the resources consumed in individual departments, multiple rates are preferable.
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19.
Answer : (e)
Reason : Charitable and political donations are not related to sales. It is the administrative expenses. Other expenses mentioned in (a), (b), (c) and (d) are related to selling and distribution overhead. Therefore, (e) is correct.
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20.
Answer : (d)
Reason : Statement of equivalent Production Unit (FIFO)Input Output Completed: Material Conversion
Opening 450 Opening 450 20% 90 40% 180Introduced 4,100 Introduced 3,580 100% 3,580 100% 3,580 Closing 520 75% 390 65% 338 4,550 4,550 4,060 4,098 Costs during the month Rs.71,050 Rs.57,372 Cost per unit Rs. 17.50 Rs. 14.00
The total cost of closing work-in-processMaterial – 390 ´ Rs.17.50 = Rs.6,825
Conversion – 338 ´ Rs.14.00 = Rs.4,732
Rs.11,557
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21.
Answer : (a)
Reason : Input = 5,000 units. Main product = 80% of 5,000 units = 4,000 units.
By-product = 16% of 5,000 units = 800 units
Process loss = 4% of 5,000 units = 200 units
Share of by-product:
Material cost = 5,000 units x Rs.24.80 = (Rs.1,24,000 x 800 ) / 4,800 = Rs.20,667
Other cost = 60% of Rs.15,150 = (Rs. 9,090 x 800) / 4,800 = Rs.1,515
Power cost = 40% of Rs.15,150 = (Rs.6,060 x 2) / 5 = Rs.2,424
Total costs of by-product = Rs.20,667 + Rs.1,515 + Rs.2,424 = Rs.24,606
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22.
Answer : (c)
Reason :
Particulars Indian Oil Bharat PetroleumDistance (Depots to factory – full load) 10 km 8 kmDistance covered per trip 20 km 16 kmRunning time @ 40 km p.h. 30 minutes 24 minutes
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Filling-in time 50 minutes 45 minutesEmptying time 45 minutes 45 minutes Total time per trip 125 minutes 114 minutesDetails of costs: Variable operating charges @ Rs.2.20Indian Oil(20 km x Rs.2.20)Bharat Petr. (16 km x Rs.2.20)
Rs.44.00
Rs.35.20
Fixed charges @ Rs.13.20 per hourIndian Oil (125mint.x Rs.13.20 / 60mint)Bharat Petroleum (114 mint. x Rs.13.20 / 60 mint.)
Rs.27.50
Rs.25.08
Total cost per trip Rs.71.50 Rs.60.28Ton-km (full load)Indian Oil (5 tons x 10 km)Bharat Petroleum (5 tons x 8 km)
50 ton-km
40 ton-km
Cost per ton-km (Total cost per trip / Ton-km) Rs.1.43 Rs.1.51
23.
Answer : (a)
Reason : ABC Constructions Ltd.
a.Dr. Contract A/c. No. A Cr.
Particulars Rs. Rs. Particulars Rs.To Materials 11,60,000 By Work certified 32,00,000Less: Unused materials 80,000 10,80,000 By Work not yet completed 1,60,000To Wages 22,48,000 By Loss transferred to 1,42,400Add Wages accrued 72,000 23,20,000 Profit & loss a/c To Other expenses 56,000 Add: Other expenses due 8,000 64,000 Add: Depreciation (at 12% on Rs.3,20,000)
38,400
35,02,400 35,02,400
Dr. Contract A/c. No. B Cr.
Particulars Rs. Rs. Particulars Rs.To Materials 21,60,000 By Work certified 60,00,000Less: Unused materials 1,20,000 20,40,000 By Work not yet completed 1,80,000To Wages 33,00,000 Add: Wages accrued 1,08,000 34,08,000 To Other expenses 1,20,000 Add: Expenses due 18,000 1,38,000 To Depreciation(at 12% on Rs.
6,00,000) 72,000
To Notional profit 5,22,000 61,80,000 61,80,000 To Profit & loss A/c.* 2,61,000 By Notional Profit 5,22,000To WIP (Reserve) 2,61,000 5,22,000 5,22,000
*
Cash Re ceived2
3 Work Certified´
× Notional Profit
=
2 Rs.45, 00, 000
3 Rs.60, 00, 000´
× Rs.5,22,000 = Rs.2,61,000.
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b. Value of work-in-progress:
ParticularsContract A
(Rs.)Contract B (Rs.)
Work certified 32,00,000 60,00,000Work not certified 1,60,000 1,80,000 33,60,000 61,80,000Less: Reserve –– 2,61,000 33,60,000 59,19,000Less: Cash received 24,00,000 45,00,000Work-in-Process 9,60,000 14,19,000
24.
Answer: (b)
Reason: Cost per equivalent unit of ending inventory = Rs.10.00 x 3,000 equivalent units in ending inventory = Rs.30,000.
* Equivalent units 15,000 completed + 3,000 in ending inventory (60% x 5,000) = 18,000 equivalent units.
* Total cost = Material Rs.170,000 + labor 4,000 + applied overhead Rs. 6,000 (400 hours x Rs.15/hour). = Rs.1,80,000
* Cost per unit = Rs.180,000/18,000 = Rs.10.00 per equivalent unit.
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25.
Answer : (c)
Reason : Under the terms of the contract, if contractee retains cash at the time of payments of the value certified of work-in-progress, it is called Retention money. Other options are not correct.
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26.
Answer : (a)
Reason : a. Arrow Ltd.
Income statement (under absorption costing system)
Particulars1st year
(Rs.)2nd year
(Rs.)
Sales – (19,000 x Rs.50) (20,000 x Rs.50) 9,50,000 10,00,000
(Less) Cost of goods sold Opening stock at the rate of (Rs.16 + Rs.20) – 1,08,000Production at the rate of (Rs.16 + Rs.20) 7,92,000 6,48,000
Available for sale 7,92,000 7,56,000Less closing stock at the rate of (Rs.16 + Rs.20) 1,08,000 36,000
Cost of goods sold 6,84,000 7,20,000
Gross profit (Sales – Cost of goods sold) 2,66,000 2,80,000Add: Over absorption (2000 units x Rs.20) 40,000 –Less: under absorption (2000 units x Rs.20) – (40,000)
Net income 3,06,000 2,40,000
b. Income statement (under Marginal costing system)
Particulars1st year
(Rs.)2nd year
(Rs.)
Sales: (19,000 x Rs.50) (20,000 x Rs.50) 9,50,000 10,00,000
Less: Cost of goods sold Opening stock at the rate of (Rs.16) – 48,000Production at the rate of (Rs.16) 3,52,000 2,88,000
Available for sale 3,52,000 3,36,000Less: closing stock at the rate of (Rs.16) 48,000 16,000
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Total variable cost 3,04,000 3,20,000
Contribution (Sales – cost of goods sold) 6,46,000 6,80,000Less: Fixed expenses 4,00,000 4,00,000
Net income 2,46,000 2,80,000
Workings: -
i. Fixed cost per unit (under normal capacity)= units000,20
000,00,4.Rs
= Rs.20.
ii. Input-output analysis:
Particulars 1st Year units 2nd Year unitsOpening stock – 3,000Production 22,000 18,000Total 22,000 21,000Less closing stock 3,000 1,000Sale 19,000 20,000
27.
Answer : (e)
Reason : Equivalent completed units under LIFO:
Particulars Input (units) Output (units)Opening WIP 600 Units completed 3,900Material introduced 4,000 Closing WIP 700 4,600 4,600
Particulars Output (units) Equivalent units of material
% Units
Units completed 3,900 100 3,900
Closing WIP
a. Opening WIP 600 –– ––
b. New units 100 70 70
4,600 3,970
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28.
Answer : (b)
Reason : Normal loss in process 1 = 10% of 3,000 = 300
Output in process 1 = 2,800 units and raw material issued in process 1 = 3,000units
Abnormal gain = 300 + 2,800 – 3,000 = 100 units
Total cost in process 1 = 3,000 x Rs.5 + Rs.1,000 + Rs.4,000 + Rs.10,000 +75% of Rs.4,000 = Rs.33,000
Net cost = Total cost – Realizable value of normal loss = Rs.33,000 – 300 x Rs.2 = Rs.32,400
Number of good units = 3,000 – 300 = 2,700
Cost per unit = Rs.32,400 / 2,700 = Rs.12
Cost of input in process 2 = 2,800 x Rs.12 = Rs.33,600
Total cost of process 2 = Rs.33,600 + Rs.780 + Rs.6,000 + Rs.14,000 + 125% of Rs.6,000 = Rs.61,880
Total input = 2,800 units, Finished goods = 2,600 units, Normal loss = 140 units & Abnormal loss = 60(balancing
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fig.)
Cost per good unit =(Rs.61,880 – 140 x Rs.5) / (2,600 units + 60 units) = Rs.23
Cost of finished goods in process = 2,600 x Rs.23 = Rs.59,800
Cost of goods sold = Rs.59,800 + Rs.20,000(op.fin.goods) - Rs.23,000 (cl.fin.goods) = Rs.56,800
29.
Answer : (c)
Reason : Let ‘x’ be the cost, ‘y’ be the profit and Rs.1,600 selling price per unit of radio.
Hence, x + y = 1,600 -------------- (i)
Statement of present and future cost of a radio
ParticularsPresent cost (Rs.)
(a)
Increase in cost (Rs.)
(b)
Anticipated cost (Rs.)
(c) = (a) + (b)
Direct material 0.3x 0.09x 0.39x
Direct labor 0.4x 0.04x 0.44x
Overheads 0.3x – 0.30x
Total x 0.13x 1.13x
An increase in material price, and wage rates resulted into a decrease in current profit by 40% at present selling price; therefore we have:
1.13x + 0.6y = 1,600 --------------- (ii)
On solving (i) and (ii), we get:
x = Rs.1,207.55
y = Rs. 392.45
Current profit Rs.392.45 or 32.5%[i.e. Rs.392.45/Rs.1,207.55] of cost
Future Selling price = Rs.1,207.55 x 1.13 x 1.325 = Rs.1,808.
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30.
Answer : (c)
Reason : Equivalent production unit means the conversion of partly completed units into an equivalent number of completed units in order that costs may be shared on an equitable basis. Other options are not correct.
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31.
Answer : (d)
Reason : Fixed cost per unit = Rs.3,60,000 / 15,000 units = Rs.24.
Profit under absorption costing = Rs.1,01,000
Adjustment of fixed manufacturing overhead costs of increased inventory = 1,880units x Rs.24 = Rs.45,120
Profit under marginal costing = Rs.1,01,000 – Rs.45,120= Rs.55,880
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32.
Answer : (b)
Reason : If the information is available such that any allocation method is available, the preferred method for allocation is the sales value at split off. It should not be on physical measurement, net realizable value, constant gross margin percentage on NRV and sale price per unit at split off point. Therefore, (b) is correct.
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33.
Answer : (a)
Reason : Cost of idle time arriving due to non-availability of raw-materials must be charged to costing profit & loss account. Other options are not correct. Therefore, (a) is correct.
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34.
Answer : (e)
Reason : The costs involved in transporting costing are operating costs and running costs, Operating costs . Running costs are the costs which vary more or less in direct proportion to the distance traveled like
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petrol and Semi-variable costs are incurred in the form of tyre maintenance, paintings etc Insurance of the vehicle cannot be considered as running cost.
35.
Answer : (d)
Reason : For service organizations, Operating costing is most appropriate.
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36.
Answer : (b)
Reason : The average method of valuation of inventory in process costing is useful when prices are fluctuating from period to period. It is not useful in respect of other options (a),(c),(d) and (e).
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37.
Answer : (d)
Reason : Jk Paper Manufacturing Company
Cost Sheet (Production 400 tonnes)
Particulars Total (Rs)Cost per ton
(Rs)Direct Material Paper pulp (500 tons at the rate of Rs.50 per ton) 25,000 62.50Other materials (100 tons at the rate of Rs.30 per ton) 3,000 7.50 28,000 70.00Less sale of waste realized 800 2.00 27,200 68.00Direct labor 80 skilled men at the rate of Rs.18 per day for 25 days 36,000 90.0040 unskilled men at the rate of Rs.14 per day for 25 days 14,000 35.00Direct Expenses Special equipment \ 3,000 7.50Special dyes 1,000 2.50Prime Cost 81,200 203.00Factory Overheads Variable 40% on Direct labor costs (Rs.36,000 + Rs.14,000) 20,000 50.00Fixed 50% of Direct labor costs (Rs.36,000 + Rs.14,000) 25,000 62.50Factory- Cost 1,26,200 315.50Administrative Overheads 10% of factory cost (i.e., on Rs.1,26,200) 12,620 31.55Cost of Production 1,38,820 347.05Selling and Distribution Overheads 10% of cost of production (i.e., on Rs.1,38,820)
13,882 34.705
Total Cost 1,52,702 381.755Profit (12% on selling price) 20,823 52.057Sales – (Rs.1,52,702 ̧ 88%) 1,73,525 433.80
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38.
Answer : (d)
Reason : In contract costing, work certified is valued at contract price and work uncertified is valued at cost price. Both are not valued at cost price, market price or contract price. Therefore (d) is true.
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39.
Answer : (a)
Reason : Cost of material used is calculated by adding closing work-in-process to cost of goods manufactured and deducting opening WIP , direct labour and factory overhead from cost of goods manufactured.
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40.
Answer : (b)
Reason : By-products are products of relatively small total value that are produced simultaneously from a common manufacturing process with products of greater value and quantity (joint products).
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41.
Answer : (c)
Reason : Direct costing and marginal costing are same. It is mainly concerned with the variable costs.
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Absorption costing uses both variable cost and fixed cost (i.e. total costs) in product costs. Standard costing is a technique to control cost. Uniform costing is followed by several business enterprises using the same costing principles. It is not a separate method of cost accounting. Therefore, absorption costing uses the total cost approach in the production.
42.
Answer : (b)
Reason : Cost of normal process = Input - Sale value of normal scrap
Normal loss = 10% of 1,500 kg. = 150 kg.
Sale value of normal loss = Rs.2.80 x 150kg. = Rs.420
Cost of normal process = Rs.8,520 – Rs.420 = Rs.8,100
Cost per kg. of normal production = Cost of normal process / Normal output = Rs.8,100 /(1,500 – 150)
= Rs.6 per kg.
Abnormal gain = Actual output – Normal output = 1,400 kg. – 1,350 kg. = 50 kg.
Cost of abnormal gain = Rs.6 x 50 kg. = Rs.300
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43.
Answer : (c)
Reason : Contribution margin =(Sales revenue - Variable cost)/ Sales revenue .Except Fixed factory overheads all are variable costs .So , Fixed factory overheads costs is not deducted from sales revenue in computation of contribution margin.
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44.
Answer : (d)
Reason : Cost-volume-profit analysis is important for the determination of relationship between revenues and costs at various levels of operation. Other options (a), (b), (c) and (e) are not correct in respect of cost-volume-profit analysis. Therefore, (d) is correct.
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45.
Answer : (a)
Reason : Contribution to sales ratio = Change in profit / Change in sales
North = Rs.180 / Rs.400 = 45%; East = Rs.90 / Rs.150 = 60%; South = Rs.110 / Rs.200 = 55%;
Fixed cost:
North = Rs.1,100 x 45% - Rs.135 = Rs.360; East = Rs.1,450 x 60% - Rs.210 = Rs.660; South = Rs.1,200 x 55% - Rs.330 = Rs.330;
Total fixed cost = Rs.360 + Rs.660 + Rs.330 = Rs.1,350.
Total sales of 3 region = Rs.3,750; Total profit of 3 region = Rs.675
Therefore, Sales x contribution to sales ratio = fixed cost + profit
Rs.3,750 x contribution to sales ratio = Rs.1,350 + Rs.675
Contribution to sales ratio = Rs.2,025 / Rs.3,750 = 54%
Break-even sales = Rs.1,350 / 54% = Rs.2,500.
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46.
Answer : (c)
Reason :
Particulars Rs.
Coal – kg000,1
000,00,50tonper400.Rskgs5.1 ´´30,00,000
Operating labor cost 2,40,000Cost of lubricant and supplies 1,60,000Total variable cost 34,00,000
Variable cost per unit of generation = units000,00,50
000,00,34.Rs
= Re.0.68
Other answers mentioned in (a), (b), (d) and (e) are not correct.
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47.
Answer : (d)
Reason :
Particulars Per unit (Rs.) 60% Per unit (Rs.) 80%Sales unit 4,800 6,400 Rs. Rs.Sale value 180 8,64,000 171.00 10,94,400Materials 62 2,97,600 58.90 3,76,960Labor 32 1,53,600 32.00 2,04,800Overheads (variable) 16 76,800 16.00 1,02,400Total variable cost 110 5,28,000 106.90 6,84,160Contribution 70 3,36,000 64.10 4,10,240Fixed cost (40 ´ 60% ´ 4,800) 1,15,200 1,15,200Profit 2,20,800 2,95,040Break even point 1646 units 1,798 units
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48.
Answer : (d)
Reason : Under variable costing, inventories are charged only with the variable costs of production. Fixed manufacturing costs are expensed as period costs.
Absorption costing charges all cost of production to inventory. If finished goods inventory increases, variable costing results in lower income because entire fixed costs are expensed in the current period but absorption costing results in higher income because it capitalizes some fixed costs. Other options (a),(b),(c) and (e) are not true
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49.
Answer : (e)
Reason : The inherent simplifying assumptions used in CVP analysis are the following:
Costs and revenues are predictable and are linear over the relevant range; variable costs change proportionally with activity level; changes in inventory are insignificant in amount; fixed costs remain constant over the relevant range of volume; prices remain fixed; production equals sales; there is a relevant range in which the various relationships are true; all costs are either fixed or variable; efficiency is constant; costs vary only with changes in volume and there is a constant mix of products (or only one product).
Option (a) is incorrect because breakeven analysis assumes no changes in efficiency and productivity.
Option (b) is incorrect because one limiting assumption is that unit variable cost, not total variable cost, is constant
Option (c) is incorrect because the cost of production factors is assumed to be stable
Option (d) is incorrect because selling prices are assumed to be stable.
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50.
Answer : (b)
Reason :
JIT Ltd.
Notional sales value of X and Y at the split off point:
Particulars X (Rs.) Y (Rs.)
Sales value of productionX – 600 units ´ Rs.100Y – 400 units ´ Rs.200
60,000
80,000
Less: Further processing costs 10,000 25,000
Notional sales value of products A & B 50,000(A) 55,000 (B)
Common costs are to be apportioned on the basis of sales value:
Joint Product Sales value of production Proportion Apportionment of common costs
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(Rs.) (Rs.)A 50,000 25.0% 40,000B 55,000 27.5% 44,000C (500 units ´ Rs.70) 35,000 17.5% 28,000D (600 units ´ Rs.100) 60,000 30.0% 48,000
2,00,000 100.0% 1,60,000
Profitability StatementParticulars A&X
(Rs.)B&Y(Rs.)
C(Rs.)
D(Rs.)
Total(Rs.)
Common costs 40,000 44,000 28,000 48,000 1,60,000
Further processing costs 10,000 25,000 – – 35,000
50,000 69,000 28,000 48,000 1,95,000
Less: Closing stock (See working) – 17,250 5,600 12,000 34,850
Cost of goods sold 50,000 51,750 22,400 36,000 1,60,150
Sales 60,000 60,000 28,000 45,000 1,93,000
Profit 10,000 8,250 5,600 9,000 32,850
Profit/sales ratio 16.67% 13.75% 20.0% 20.0% 17.02%
Working – Closing Stock
B & Y – (Rs.69,000 ¸ 400 units) ´ 100 units = Rs.17,250
C – (Rs.28,000 ¸ 500 units) ´ 100 units = Rs. 5,600
D – (Rs.48,000 ¸ 600 units) ´ 150 units = Rs.12,000
51.
Answer : (d)
Reason : Cost of production = Cost of goods sold + Cl.fin.goods – Op.fin.goods + Cl.W.I.P. – Op.W.I.P. = Rs.88,000 + Rs.12,800 - Rs.12,000 + Rs.6,500 – Rs.7,000 = Rs.88,300
Raw material consumed = Cost of production – Direct labor – Factory overhead = Rs.88,300 – Rs.25,000 –Rs.20,000 = Rs.43,300
Raw material purchased = Raw material consumed + Cl.Raw material – Op. Raw material = Rs.43,300 + Rs.6,800 – Rs.6,000 = Rs.44,100
Cost of sales = Cost of goods sold + Selling expenses = Rs.88,000 + Rs.8,500 = Rs.96,500
Profit = Sales – Cost of sales = Rs.1,12,500 – Rs.96,500 = Rs.16,000
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52.
Answer : (e)
Reason :
Particulars AB Ltd XY Ltd TotalCapacity 100% 100% 100%Sales 600 500 1100Variable cost 440 375 815 160 125 285Less: Fixed cost 80 50 130
Profit 80 75 155
Rs.
Contribution at 80% level = 285 ´ 80% = 228
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Less: Fixed cost 130
Profit 98
Profitability =
Rs.98100
80% of Rs.1,100´
=
Rs.98100
Rs.880´
= 11.14%
53.
Answer : (e)
Reason :
Sales 100 110 (100 ´ 1.1)Variable cost 60 60Contribution 40 50
Increase =
50-40100
40´
=
10100
40´
= 25%.
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54.
Answer : (e)
Reason : The units to be sold equal to fixed costs plus the desired pretax profit divided by the units contribution margin. In the preceding year, the unit contribution margin was Rs.45 (i.e. Rs.80 – Rs.35). The amount will decrease by Rs.1.75 because of use of a higher grade component. The unit contribution will be Rs.43.25 and the fixed cost will increase from Rs.5,96,000 to Rs.6,04,000 as a result of Rs.8,000 as depreciation on new packing machine.
Let “n” be the number of units to be sold to make a post tax profit of 10% on sales
Then
Sales = Rs.80n
Post tax profit = 10% of 80n=Rs.8n
Post tax profit 8n = (Rs.43.25n – Rs.6,04,000 ) (1 – 0.40)
8n = 25.95n – 3,62,400
n number of units to be produced = 20,190.
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55.
Answer : (b)
Reason :
Particulars Product M Product N TotalBudgeted sales volume 80,000 1,20,000 2,00,000Budgeted total contribution Rs.8 Rs.6 Budgeted total contribution Rs. 6,40,000 Rs. 7,20,000 Rs.13,60,000Budgeted sales revenue Rs.16,00,000 Rs.19,20,000 Rs.35,20,000
Average contribution per unit = Rs.13,60,000 ¸ 2,00,000 = Rs.6.80.
Break-even point =
Rs.8,16,000
Rs.6.80 = 1,20,000 units
Average selling price per unit = Rs.35,20,000 ¸ 2,00,000 = Rs.17.60
Break-even point in sales value = 1,20,000 ´ Rs.17.60 = Rs.21,12,000.
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56.
Answer : (e)
Reason : Sales = Rs.81,000 / 10% = Rs.8,10,000
Variable Cost = Total Sales – Fixed Cost – Profit
= Rs. 8,10,000 – Rs.2,43,000 – Rs.81,000 = Rs 4,86,000
Contribution to sales = (8,10,000 – Rs.4,86,000) ¸ 8,10,000 = 40%
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Margin of Safety = Net Profit ¸ 40% = Rs.81,000 ¸ 40% = Rs.2,02,500.
57.
Answer: (c)
Reason: Total cost per unit = Rs.29; Fixed cost per unit at 50,000 units = Rs.4,00,000 / 50,000 = Rs.8. Variable cost per unit = Rs.29 – Rs.8 = Rs.21; Additional graphics cost per unit = Rs.3,000 / 1,500 = Rs.2 per unit. Cost savings = Commission + packing cost = Rs.2.50 + Rs.1.50 = Rs.4.00. Therefore, net cost = Rs.21 + Rs.2 – Rs.4 = Rs.19.
Net profit per unit = Rs.22.50 – Rs.19.00 = Rs.3.50
Total profit = 1,500 x Rs.3.50 = Rs.5,250.
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58.
Answer : (b)
Reason: Proposed sales = Local sales + Middle East sales = Local sales of 60% + Export sales of 50%
= (Rs.640 / 80%) x 60% + [(Rs.640 / 80%) x 50% – 10% of (Rs.640 / 80%) x 50%]
= Rs.480 + Rs.360 = Rs.840; Present sales = Rs.640;
Incremental revenue = Rs.840 – Rs.640 = Rs.200lakh.
Proposed cost = 60% local + 50% Middle East = Direct material at 110% + Direct expenses at 110% + variable expenses at 110% + fixed expenses = (Rs.200/80) x 110 + (Rs.80/80) x 110 + (40/80) x 110 + (Rs.260 + Rs.40) = Rs.275 + Rs.110 + Rs.55 + Rs.300 = Rs.740
Differential cost = Rs.740 – Rs.580 = Rs.160 lakh.
Incremental profit = Rs.200 – Rs.160 = Rs.40 lakh.
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59.
Answer : (e)
Reason : The relevant cost of manufacture will be the variable cost assuming that fixed costs will remain unchanged whether or not the company make or buy the components. Under this circumstances the company should only purchase components if the purchase price is less than the variable cost. Therefore, the company should only purchase component Q.
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60.
Answer : (b)
Reason : Since the sales quantities of years 2002-03 and 2003-04 are same , the variable costs will be same for both the years , which is equal to sales of 2002-03 x variable cost ratio = Rs.8,00,000 x 50% = Rs.4,00,000.
Variable cost ratio for 2003-04 is 100-37.5 = 62.5%.and the sales for the year 2003-04 is Rs.4,00,000 / 0.625 = Rs.6,40,000.
Margin of safety = 0.2187 i.e. (sales-Break even sales)/sales = 0.2187
Sales – Break even sales = Rs.6,40,000 x 0.2187 = Rs.1,40,000
So,Break even sales = Rs.6,40,000 – Rs.1,40,000 = Rs.5,00,000.
But Break even sales = Fixed cost / (P/V ratio)
Fixed cost = Rs.5,00,000 x 37.5% = Rs.1,87,500.
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61.
Answer : (d)
Reason : Sales at 80% capacity level are Rs.8,00,000 /Rs.25 = 32,000 units.
Variable cost per unit = Direct material cost + Direct labour cost + variable overhear of Rs.3.75 = Rs.7.50 + Rs.6.25 + Rs.3.75 = Rs.17.50.Contribution per unit = Rs.25.00 - Rs.17.50 =Rs.7.50.
Fixed cost below 80% = (Fixed portion of semi variable cost ) + Fixed cost = (Rs.1,80,000 – Rs.3.75 x 32000)+Rs.1,90,000 = Rs.2,50,000. So, Break even point = fixed cost / contribution per unit = Rs.2,50,000 / Rs.7.50 = 33,200 units which is above 80% capacity .So, this break even point is not practically possible.
Fixed cost above 80% = (Fixed portion of semi variable cost ) + Fixed cost + additional fixed cost = (Rs.1,80,000 – Rs.3.75 x 32000)+Rs.1,90,000 + Rs.20,000 = Rs.2,70,000. So, Break even point = fixed cost / contribution per unit = Rs.2,70,000 / Rs.7.50 = 36,000 units which is between 80% and 100% capacity. So, this break even point is practically possible.Activity level at 36,000 units = 36,000 x 80 / 32,000 = 90%.
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62.
Answer : (e)
Reason : For 2nd quarter :
Material cost = (Rs.87500 x 1.20 x 3,750 )/2500 = Rs.1,57,500 = Rs.42 per unit
Direct Labour = Rs.62,500 x 3,750 / 2,500 = Rs.93,750 = Rs.25 per unit
Overheads :
1st Quarter = Rs.75,000
2nd Quarter =Rs.1,00,000 (if there is no change in fixed cost)
Variable over head per unit = (Rs.1,00,000 – Rs.75,000 ) /(3,750,-2,500) =Rs.20.
So , fixed overheads = Rs.75,000 – (2,500 x Rs.20) = Rs.25,000 ( if there is no saving in fixed cost)
Actual fixed overheads = Rs.25,000 –Rs.5,000 = Rs.20,000.
Variable cost per unit = Material +Direct Labour+ Variable over head per unit = Rs.42+Rs.25+Rs.20 =Rs.87.
Sales value = Variable cost +Fixed cost +profit = Rs.87 x 3,750 +Rs.20,000 + Rs.40,000 = Rs.3,86,250
Selling price per unit = Rs.3,86,250 / 3,750 = Rs.103
Contribution per unit = Rs.103- Rs.87 =16.
Number of units to be sold to make a profit of Rs.50,000 = (fixed cost + desired profit )/ contribution per unit = (Rs.20,000 +Rs.50,000)/Rs.16 = 4,375 units.
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63.
Answer : (d)
Reason : Break even point = Fixed cost / contribution per unit
Since the organisation is following FIFO basis for sale .First opening stock of 6,000 units will give a contribution of Rs.10- variable cost per unit of first 6,000 units = 6,000 x (Rs.10-Rs.5) = Rs.30,000.The balance of fixed cost (Rs.86,000-Rs.30,000) is to be recovered from units produced in this period. The number of units to be sold from the latest production to reach break even point = Fixed cost to be recovered / contribution per unit =(Rs.86,000-Rs.30,000)/(Rs.10-Rs.6)= 14,000 units.
Total units for break even point = 6,000 from opening + 14,000 from latest production = 20,000 units.
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64.
Answer : (a)
Reason : Contribution per unit = Rs.40 – Rs.6= Rs.34
Let the number of units to be sold to make a Profit after Tax of Rs.1,00,000 be = n
Then Profit = (n x contribution per unit – fixed cost )(1 – tax rate)
Rs.1,00,000 = (n x Rs.34 – Rs.15,00,000)(1-0.3)
Rs.1,00,000=23.8n-Rs.10,50,000
N=Rs.11,50,000/23.8 = 48,320.
So, Number of units to make a profit of Rs.1,00,000 = 48,320 room days
Capacity usage = 48320 x 100 / (365 x 300) =44.13%
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65.
Answer : (c) Reason : Job costing does not facilitate control of costs unless it is used along with standard costing. This
statement (c) is false. Other statements mentioned in (a), (b), (d) and (e) are true.
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66.
Answer : (d) Reason : In process costing, cost is accumulated on time basis and according to process or departments. In this
method, prime cost cannot be traced with a particular order due to continuous production. In job costing, cost is accumulated according to job order or batch size. Job cost is computed when the job is completed. It does not consider the period of cost. Therefore (d) is false.
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67.
Answer : (b) Reason : Abnormal loss should be classified as period cost. If the wastage is normal, it should be product cost.
Abnormal loss cannot be deferred charge, joint cost or discretionary cost. Therefore, (b) is correct.
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68.
Answer : (e) Reason : Cost plus contract protects the contractor from the risk of market fluctuations. Salary of supervisor is
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the direct cost of the contract account. In contract account, certified work-in-progress is valued at contract value and uncertified work-in-progress is valued at cost. If there are any cost fluctuations, escalation clause will protect the contractor. In contract account, full profit is not credited to profit and loss account. Therefore, (e) is correct.
69.
Answer : (b)
Reason : Estimated losses for a contract should be written off immediately by their estimated value. Other options given (a),(c),(d) and (e) are not correct.
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70.
Answer : (b)
Reason :
Particulars P (Rs.) Q (Rs.) R (Rs.) S(Rs.) Total
Sales value after further process 2,20,000 1,15,000 1,05,000 1,70,000 6,10,000Sales value at split-off-point 1,90,000 1,00,000 85,000 1,05,000 4,80,000Incremental sales 30,000 15,000 20,000 65,000 1,30,000Further processing cost 20,000 20,000 17,000 50,000 1,07,000Incremental profit (loss) 10,000 (5,000) 3,000 15,000 23,000
Q should be sold at split-off-point and P, R and S should be sold after further processing cost.
Sales of P after further processing Rs. 2,20,000Sales of Q at split off point Rs. 1,00,000Sales of R after further processing Rs. 1,05,000Sales of S after further processing Rs 1,70,000Total sales Rs. 5,95,000Less Joint cost Rs. (2,80,000)Less further processing cost of P, R and S Rs. (87,000)Maximum profit Rs. 2,28,000
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71.
Answer : (b)
Reason : Transferred-in costs represent the costs transferred from one department to another department in a process costing system. Work ticket, time card, material requisition and Operation schedule are used in job costing.
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72.
Answer : (c)
Reason : All cost systems utilize some form of cost averaging and estimation. Therefore, (c) is correct.
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