SRI BALAJI SOCIETY Question Bank Cost and Management ing

1) What do you mean by cost ing? Distinguish between cost ing and management ing? 2) Cost ing is not a legal requirement. Elucidate this statement. 3) What do you mean by elements of cost? Explain in detail and how these elements are presented in the form of a cost sheet? 4) What is costing? Discuss the various techniques of costing used in the business. 5) “The method of costing depends on the nature of product, production methods and specific business conditions”. Explain this statement. 6) Give five examples for each of the followings. a. Variable Costs b. Semi Variable Costs c. Fixed Costs 7) “Cost sheet is a statement prepared to show the different components of total cost”. Do you agree? Give reasons. 8) Explain the concept of marginal costing and distinguish between marginal costing and absorption costing. 9) What do you understand by the term break even analysis and how does this help in business decisions? 10) “The rate of earning profit mainly depends upon the magnitude of the angle of incidents projected on break even chart”. Explain as to whether this statement is correct. What measures can be adopted to increase the magnitude of the angle of incidents? 11) Mention the broad principles on which overhead expenses are generally apportioned. Upon what basis would you apportion the following expenses to individual cost centers in an engineering unit? a. Rent and Rates b. Power c. Life insurance d. Lighting

12) What is budget and budgetary control? State and explain the various budgets which can be established in the following functional areas of operation. a. Production b. Finance c. Sales and Marketing 13) What are the main steps in budgetary control? State the main objectives of budgetary control 14) Distinguish between “fixed budget” and “flexible budget”? 15) What do you understand by master budget? Into what sections it is usually divided and what is the purpose of divisions? 16) State the distinction between the two in each of the following vining examples: a. Cost allocation and cost Apportionment b. Direct and Indirect Cost c. Fixed and variable Cost d. Indirect expenses and overheads. 17) Distinguish between direct labor and indirect labors. Give four examples of indirect labor that may arise in a factory. 18) What are overheads? How should overheads be classified? To what extent will you include overhead charges in your valuation of a. Work in Progress b. Finished goods. 19) Distinguish between allocation, apportionment and absorption in connection with factory overhead expenses. 20) What are the general considerations that should decide your choice of basis for distributions of overhead costs to departments? 21) What is means by absorption of overheads? What factors should be considered in obtaining a rate of absorption of overheads? 22) Some of the major problems of cost ing are associated with the allocation of indirect expenditure, why is this so? Give a brief of the several methods of allocation known to you and indicate the circumstances which would lead you to regard each of them in turn as appropriate. 23) Write a critical note about the usage, application, advantages and limitations of marginal costing techniques. 24) “Marginal cost determines the rate of change in cost’s if the volume of output is increased or decreased by one unit”. Explain with example.

25) Short Notes : a. Master Budget b. Cost Centre and Cost Unit c. Margin of Safety d. Sunk Cost e. Profit Volume Ratio 26) From the following information, prepare a statement showing the cost and profit per unit. Direct material consumed Rs.4,00,000 Direct labour 40% of direct material cost Direct expenses 50% of direct labour cost Factory overheads 25% of prime cost Office and istrative expenses have been absorbed @ Rs.150 per 10 units produced Selling and distribution expenses have been applied @ Rs.500 per 100 units sold. Opening finished stock 800 units @ Rs 85.50 per unit Closing finished stock 400 units Finished goods sold 16,400 Profit 1/5th of cost of sales. 27) Music India Ltd. Has furnished the following information in relation to the production of 1,000 compact discs manufactured by it during the year 2013: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii)

Cost of Materials Direct wages paid Cost of Power & Consumable stores (20% Fixed) Factory indirect wages paid (40% Fixed) Cost of lighting in the factory (Fixed) Office expenses incurred (Fixed) Selling expenses paid (70% Variable) Depreciation of plant (under straight line method)

Rs. 1,00,000 70,000 15,000 20,000 10,000 30,000 50,000 10,000

The entire output was sold at Rs. 350 per unit. For the year 2014, it is estimated that the production will be increased by 50% by utilizing the spare capacity and the rates for materials and direct wages will increase by 10% and 20% respectively. The expenses of the company are either fixed or variable and the company assumes that the nature of the expenses will not change in the coming days. You are required to prepare: (i) (ii)

A cost sheet for the year 2013 showing the cost per unit. A statement showing estimated cost and profit for the year 2014, assuming that all the goods produced would be sold at a price of Rs. 340 per unit.

28) From the following particulars of a product, prepare a cost sheet, indicating cost per unit also: Raw Material - Opening Stock 20,000 - Purchases 1,50,000 - Closing Stock 10,000 Direct Labor – Rs.60, 000, Factory Overhead – Rs.22, 500, Office Overhead Rs.27, 500 Finished Stock: Opening Stock 500 units @ 11.20 per unit; Closing Stock 1,500 units @ current cost price. Profit on sales 20%; Selling and Distributive expenses – Rs. 20,000; Units produced -25,000 29) From the following information for the month of January, prepare a cost sheet to show the following components: a) Prime cost b) Factory cost c) Cost of production d) Total cost Rs Rs Direct material 57,000 Plant Depreciation 1,250 Direct wages 28,500 Factory Heating and Lighting 400 Factory Rent and rates 2,500 Factory managers salary 2,000 Office rent & rates 500 Office salaries 1,600 Plant repairs and maintenance 1,000 Director’s Remuneration 1,500 Telephone and Postage 200 ment 1,500 Printing and Stationery 100 Sales man’s Salaries 2,500 Legal Charges 150 Showroom rent 500 Sales 1,16,000 30) From the following information, prepare a statement showing cost and profit per unit: Direct material

Rs 45,000

Direct labours 33 1/3% of direct material Direct Expenses 20% of direct material cost and direct labour cost Factory overheads 1/9th of prime cost Office and istrative expenses 25% of works cost Selling and distribution expenses 10% of cost of goods sold Units produced 100 Units remain unsold 10% of units produced Profit

1/5th of cost of sales.

31) Tata Ltd. has three production departments A, B and C and two service departments X and Y. The data available for the month of March-2012 concerning the organization Rs. 15,000 5,000 2,400 6,000 6,000 40,000 30,000 10,000

Rent Municipal Taxes Electricity Indirect Wages Power Depreciation on Machinery Canteen Expenses Other labor related costs Following particulars are also available-

Floor Space (Sq. Mts.) Light Points (Nos.) Direct Wages (Rs.) HP of Machines Cost of Machines (Rs.) Working Hours

Total 5,000 240 40,000 150 200,000

A 1,000 40 12,000 60 48,000 2,335

B 1,250 60 8,000 30 64,000 1,510

C 1,500 80 12,000 50 80,000 1,525

X 1,000 40 6,000 10 4,000

Y 250 20 2,000 4,000

The expenses of service departments are to be allocated in following manner.

X Y

A 20% 40%

B 30% 20%

C 40% 30%

X

Y 10%

10%

You are required to calculate the overhead absorption rate per hour in respect of the three production departments. 32) In a factory the following particulars have been extracted for the quarter ending 30th June 2010 in respect of P1, P2 and P3 and service departments S1 and S2. Compute the departmental overhead rate for each of the production departments, assuming that overheads are absorbed as a percentage of direct wages. Particulars Direct Wages (Rs.) Direct Material (Rs.) No. of Workers Power (K W Hrs.) Asset Value

P1 30,000

P2 45,000

P3 60,000

S1 15,000

S2 30,000

15,000 150 6,000 60,000

30,000 225 4,500 40,000

30,000 225 3,000 30,000

22,000 75 1,500 10,000

22,000 75 1,500 10,000

Light Points Area in Sq. Fts

10 150

16 250

4 50

6 50

4 50

Expenses for the period were – Rs. 1,100 200 800 3,000 36,000 550 12,000

Power Lighting Stores Overhead Staff Welfare Depriciation Rent General Overheads

Apportion general overheads in the proportion of direct wages. Apportion the expenses of S1 according to direct wages and those of S2 in the ratio of 5:3:2 to the production departments. 33) A Ltd. has three production departments A, B and C and two service departments D and E. The following are the figures of the company Rs. 5,000 5,000 1,500 1,500 10,000 10,000

Rent and Rates General Lighting Indirect Wages Power Depreciation of Machinery Sundry Expenses The following further details are available – Floor Space (Sq. Mts.) Light Points (Nos.) Direct Wages (Rs.) Value of Machinery (Rs) HP of Machines

A

B

C

D

E

2,000 10 3,000

2,500 15 2,000

3,000 20 3,000

2,000 10 1,500

500 5 500

60,000 60

80,000 30

100,000 5,000 50 10

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

5,000

D E

A 20% 40%

B 30% 20%

C 40% 30%

D

E 10%

10%

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

6226 4028 4066

34) a) Following details are available: Sales

Period I Period II

Rs. 39,000 43,000

Total Cost Rs. 34,800 37,600

Calculate Variable cost, fixed cost and contribution for each period. b) Following details are available:

Period I Period II

Sales Rs. 2,00,000 3,00,000

Profit Rs. 20,000 40,000

Find out Break Even Sales.

35) A. Sales Rs. 1,00,000; Profit Rs. 10,000; Variable Cost 70%. Find out (a) P/V ratio (b) Fixed costs and (c) Sales to earn a profit of Rs. 40,000.

B. From the following information find (a) BEP in rupees and (b) number of units to be sold to earn a net income of 10% of sales : Selling Price Rs. 20 per unit; Variable Cost Rs. 12 per unit; Fixed Cost Rs. 2,40,000.

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

36) a) Following details are available: Actual Sales Break Even Sales Fixed Cost Find out the profit at actual sales.

Rs. 20,000 10,000 5,000

b) Find out the Break Even point and profit if sales are Rs. 50,00,000 and P/V Ratio is 50% and Margin of safety is 40%. 37) A. From the following, calculate : (a) P/V Ratio, and (b) Margin of safety for 2003 2002 50,000 10,000

Sales Profit

(Rs.) 2003 80,000 25,000

B. The following figures relate to a company manufacturing a varied range of products : Particulars Year ending 31-12-2002 Year ending 31-12-2003

Total Cost 19,83,600 21,43,200

Total Sales 22,23,000 24,51,000

Calculate from the above particulars: (a) P/V ratio; (b) Fixed cost and its percent to sales; (c) Break-even-point (d) Margin of safety for both the year. 38) Following information is made available to you about a company for two periods. Period (I) (II)

Sales (Rs.) 1,20,000 1,40,000

Profit (Rs.) 9,000 13,000

Find out: a. b. c. d. e.

Profit Volume Ratio Break Even Point for sales Profit when sales are Rs. 1,00,000. Sales required to earn a profit of Rs. 20,000. Safety Margin in period II. 39) Calculate the Break Even Point is units and in rupees and also arrive at Margin of Safety ratio from the following information. Estimated Sales (1,00,000 Units) Variable Cost Fixed Cost Total Cost Net Profit

Rs. 20,00,000 Rs. 12,00,000 Rs. 4,00,000 Rs 16,00,000 Rs 4,00,000

40) A Company has three production departments and two service departments. Distribute summary of overheads is as follows: Production Department A - Rs 3000 B - Rs. 2000 C - Rs. 1000

Service Department 1 - Rs 234 2 - Rs 300

The expenses of service departments are charged on a percentage basis which is as follows: A

B

C

1

2

1.

20%

40%

30%

-

10%

2.

40%

20%

20%

20%

-

Find out the total overheads of production departments using the following methods: a) Simultaneous Equation Method (b) Repeated Distribution Method

41) BB Ltd is a manufacturing company having three production departments, A, B and C and two service departments X and Y . The following is the budget for december2004:

Direct materials

Total

A

B

C

X

Y

Rs

Rs

Rs

Rs

Rs

Rs

1,000

2,000

4,000

2,000

1,000

Direct wages

5,000

Factory rent

4000

Power

2500

Depreciation

1000

Other overheads

9000

2,000

8,000

1,000

2,000

Additional Information: Area (sq. ft)

500

250

500

250

500

Capital value of assets (Rs lakh)

20

40

20

10

10

Machine hours

1000

2000

4000

1000

Horse power of machines

50

40

20

15

1000 25

A technical assessment of the apportionment of expenses of service departments is as under: A

B

C

X

Y

Service Deptt X

45%

15%

30%

-

10%

Service Deptt Y

60%

35%

-

5%

-

Required: (i) (ii)

A statement showing distribution of overheads to various departments. A statement showing re-distribution of service department’s expenses to production departments. 42) The following figures are extracted from the books of a manufacturing company. Indirect materials:     

Production department A Production department B Production department C Production department X Production department Y

900 1,200 200 1,500 400

Indirect wages:   

Production department A Production department B Production department C

900 1,100 300

 

Production department X Production department Y

1,000 650

Power and light

6000

Rent and rates

2800

Insurance on assets

1000

Meal charges

3000

Depreciation p.a

6% on capital values

From the above prepare a Departmental Distribution Summary with following departmental data: Item

Production Department A

Area (sq.mt.) Capital value of assets (Rs) kWh

400

1,00,000 4,000

No. of workers

90

Service Department

B

C

X

Y

400

300

200

100

1,20,000

80,000

60,000

40,000

4,400

1,600

1,500

500

120

30

40

20

43) J K Ltd sells two products Jay and Kay in four areas North, South, East and West. The following sales are budgeted for the month of january2013: North - Jay 5,000 units @ Rs30 each, and Kay 3,000 units @ Rs15 each South - Kay 6,000 units @ Rs15 each East

- Jay 7,500 units @ Rs30 each

West - Jay 4,000 units @ Rs30 each and Kay 2,500 units @Rs15 each Actual sales for the same period were as follows: North - Jay 5750 units @ Rs30 each and Kay 3,500 units @ Rs15 each South - Kay 6,250 units @ Rs15 each East

- Jay 8,250 units @ Rs30 each

West - Jay 4,750 units @ Rs30 each and Kay 2,625 units @Rs15 each

On the basis of all the relevant factors, the following sales are budgeted for the month of February 2013. North - Jay 6,000 units and Kay 3,250 units South - Kay 6,500 units East

- Jay 8,500 units

West - Jay 4,500 units and Kay 2,750 units It was decided that additional advertising campaign will be undertaken in south and East which will result in additional sales of 1,500 units of Jay in South and 2,500 units of Kay in East. You are required to prepare a sales budget for the month of Feb, 2013 for presentation to management also showing the budgeted and actual sales for the month of Jan 2013which are to be provided as a guide in preparing the sales budget.

44) Prepare a Cash Budget for the three months ending 30 june 2012, from the information given below: Month

Sales

Matarials

Wages

Overheads

Rs

Rs

Rs

February

14,000

9,600

3,000

1,700

March

15,000

9,000

3,000

1,900

April

16,000

9,200

3,200

2,000

May

17,000

10,000

3,600

2,200

June

18,000

10,400

4,000

2,300

Rs

Other Informations: a) Credit are: Sales and debtors -10% of sales are on cash, 50% of the credit sales are collected next month and the balance in the following month: Creditors - Matarials 2 months Wages ¼ months Overheads ½ months b) Cash and bank balance on 1 April 2012 is expected to be Rs 6,000.

c) Other relevant informations are: (i) Plant and machinery will be installed in February 2012 at a cost of Rs 96000. The monthly instalment of Rs 2,000 is payable from April onwards. (ii) Dividend @ 5% on Preference Share Capital of Rs 2,00,000 will be paid on 1 june. (iii) Advances to be received for sale of vehicles Rs 9000 in June. (iv) Dividends from investments amounting to Rs 1,000 are expected to be received in June. (v) Income tax (advance) to be paid in June is Rs 2,000.

45) The expenses budgeted for production of 10,000 units in a factory are furnished below: Rs per unit Matarials

70

Labour

25

Variable overheads

20

Fixed overheads (Rs1,00,000)

10

Variable overheads (direct)

5

Selling expenses (10% fixed)

13

Distribution expenses (20% fixed)

7

istration expenses (Rs50,000)

5 Total

155

Prepare a budget for the production of (a) 8,000 units, and (b) 6,000 units. Assume that istration expenses are rigid for all levels of production.

46) The following details are forecasted by a company for the purpose of effective cash utilisation and management. (i) Estimated sales and cost: Year and Month

Sales

Matarials

Wages

Overhead

Rs

Rs

Rs

Rs

4,20,000

2,00,000

1,60,000

2012 April

45,000

May

4,50,000

2,10,000

1,60,000

40,000

June

5,00,000

2,60,000

1,65,000

38,000

July

4,90,000

2,82,000

1,65,000

37,500

August

5,40,000

2,80,000

1,65,000

60,800

September

6,10,000

3,10,000

1,70,000

52,000

(ii)

Credit items: - Sales – 20% of sales on cash basis, 50% of the credit sales are colleceted next month and balance in the following month. - Credit allowed by suppliers is 2 months - Delay is payment of wages is ½ month and of overhead is one month.

(iii) (iv) (v) (vi) (vii)

Interest on 12% debentures of Rs 5,00,000 is paid half yearly in June and December. Dividend on investments amounting to Rs 25,000 is expected to be received in June 2012. A new machinery will be installed in June 2012 at a cost of Rs 4,00,000 which is payable in 20 investments from July 2012 onwards. Advance income tax, to be paid in August 2012 is Rs 15000 Cash balance on 1st June 2012 is expected to be Rs 45,000 and the company wants to keep it at the end if every month around this figure. The excess cash (in multiples of Rs thousand) is being put in a fixed deposit. Prepare a monthly cash budget for four months starting June 2012. 47) Chennai Engineering Co.Ltd manufactures two products X and Y . An estimate of number of units expected to be sold in the first seven month of 2013 is given below:

Product X

Product Y

January

500

400

February

600

1,400

March

800

1,200

April

1,000

1,000

May

1,200

800

June

1,200

800

July

1,000

900

It is anticipated that: (a) There will be no work-in-progress at the end of any month: (b) Finished units equal to half the anticipated sales for the next month will be in stock at the end of each month (including December 2012) The budgeted production and production and production costs for the year ending 31st December 2013 are as follows: Product X Rs

Production (units)

Product Y Rs

11,000

12,000

Direct materials per unit

12

19

Direct wages per unit

5

7

Other manufacturing charges

33,000

48,000

(Apportionable to each type of product) You are required to prepare: (a) A production budget showing the number of units to be manufactured each month. (b) A summarized production cost budget for the 6-month-period-January to June 2013. 48) A company manufactures two products. A and B by making use of two types of materials viz, X and Y. Product A requires 10 units of X and 3 units of Y. Product B requires 5 units of X and 2 units of Y. The price of X is Rs. 2 per unit and that of Y Rs. 3 per unit. The sales manger has estimated the sales of product A to be 5,000 units and that of product B 10,000 units. The estimate opening stork of material X for the budget period is 2,500 units and that of Y is 3,000 units. The desired closing stork of material X is 5,000 units and that of Y is 4,000 units. Prepare the Material Usage Budget and Materials Purchase Budget for the year ending 31 st Dec. 2013.

49) The following are the estimated sales of a company for eight months ending 30-10-2003 Months April 2003

Estimated Sales 12,000

May 2003 June 2003 July 2003 August 2003 September 2003 October 2003 November 2003

13,000 9,000 8,000 10,000 12,000 14,000 12,000

As a matter of policy, the company maintains the closing balance of finished goods and raw materials as follows: Stock item Closing balance of a month Finished goods 50% of the estimated sales for the next month Raw materials Estimated consumption for the next month Every unit of production requires 2 kg of raw material costing Rs. 5 per kg. Prepare Production Budget (in units) and Raw Material Purchase Budget (in units and cost) of the company for the half year ending 30 September 2003.

50) Form the following budgeted figures prepare a cash budget in respect of three months to June 30. Months January February March April May June

Sales 60000 56000 64000 80000 84000 76000

Materials 40000 48000 50000 56000 62000 50000

Wages 11000 11600 12000 12400 13000 14000

Overheads 6200 6600 6800 7200 8600 8000

Expected cash balance on 1st April – Rs. 20,000. Other information: (a) Materials and overhead are to be paid during the month following the month of supply (b) Wages are to be paid during the month in which they are incurred. (c) of sales: The of credit sales are payment by the end of the month following the month of sales; ½ of the sales are paid when due the other half to be paid during the next month. 5% sales commission is to be paid within the month following actual sales. (d) Preference dividend for Rs. 30,000 is to be paid on 1st may. (e) Share call money for Rs. 25,000 is due on 1st April and 1st June. (f) Plant and machinery worth Rs. 10,000 is to be installed in the month of January and the payment is to be made in the month of June.

51) A factory engaged in manufacturing plastic toys is working at 40% capacity and produces, 10, 000 toys per month. The present cost break up for one toy is as under. Material: Rs.10 Labor: Rs.3 Overheads: Rs.5 [60% fixed] The selling price is Rs.20 per toy. If it is decided to work the factory at 50% capacity, the selling price falls by 3%. At 90% capacity, the selling price falls by 5% accompanied by a similar fall in the price of material. You are required to prepare a statement showing the profits/losses at 40%, 50% and 90% capacity utilizations.

52) For production of 10,000 fans, the following are the budgeted expenses: Per Unit cost Rs 25 Rs 30 Rs 10 Rs 15 Rs 15 Rs 15 Rs 10 Rs 5

Direct material Direct labour Direct expenses Variable overheads Fised overheads (Rs 50, 000) Selling ( 20% fixed) Distribution expenses (30% fixed) istrative expenses ( Rs 80,000 rigid for all levels of production) Total cost of sales per unit

Rs 160

Prepare a budget for production of 7000, 8000 and 9000 fans, showing distinctly marginal cost and total cost.