Cost Accounting Solved Question Paper 2012, Gauhati University Solved Question Papers

Gauhati University Solved Question Papers

Cost Accounting Solved Question Paper 2012

Full Marks: 80

Time: 3 hours

(The figures in the margin indicate full marks for the questions)

1. Answer as directed:        1×10=10

1)  Which of the following is correct statement?

a) Cost accounting is needed by a non-profit organisation such as a hospital.

b) Cost Accounting provides information for ascertaining financial position of a company.

c) All limited companies registered under the Companies Act, 2013 must maintain cost accounts records.

d) Cost Accounting is not required if the price is beyond the control of the firm.

Ans: d) Cost Accounting is not required if the price is beyond the control of the firm.

2) Cost Accounting provides all of the following information except _______. [Fill in the gap from the following options:]

a) Products costs.

b) Cash forecasts.

c) Inventory value.

d) Cost of goods sold.

Ans: b) Cash forecasts.

3) Which of the following is correct statement?

a) Cost Accounting helps in ascertaining accounting profit for income tax purpose.

b) Cost Accounting provides information to all those who are internal and external to the firm.

c) Costing and Cost Accounting are not the same term.

d) Cost Accounting helps management in earning extra profit.

Ans: c) Costing and Cost Accounting are not the same term.

4) Write the meaning of ‘Purchase requisition’.

Ans: Purchase requisition a written request given by the factory foremen to the store keeper to acquire certain goods or services required for production.

5) What is ‘Codification of Materials’?

Ans: Codification is a process of representing each item by a number, the digits of which indicate the group, the subgroup, the type and the dimension of the item.  It is always advisable to codify the overhead expenses.

6) Just in time (JIT) approach is applied in which of the following cases?

a) Material pricing.

b) Inventory management.

c) Cost Sheet preparation.

d) EOQ.

Ans: b) Inventory management.

7) Which of the following statement is correct?

a) Abnormal idle time wages are included in the cost of production.

b) Total labour cost can be reduced by recruiting cheap labour.

c) Fringe benefits are labour related costs.

d) Premium bonus plans do not induce workers to increase efficiency.

Ans: c) Fringe benefits are labour related costs.

8) Define the term ‘Labour Turnover’.

Ans: Labour turnover may be defined as change in labour force i.e., percentage change in the labour force during a specific period. High labour turnover indicates that labour is not stabilized and there are frequent changes by way of workers leaving the organization. High labour turnover is to be avoided. At the same time very low labour turnover indicates inefficient workers are being retained in the organization.

9) The time for which the employer pays, but from which he obtains no production, is called:

a) Idle time. 

b) Abnormal idle time.

c) Normal idle time.

d) None of the above. [Select the correct option]

Ans: a) Idle time.

10) Give the definition of “Overhead absorption” as used in costing.

Ans: A absorption means charging equitable share of overhead expenses to the products. As the overhead expenses are indirect expenses, the absorption is to be made on some suitable basis. The basis is the ‘absorption rate’ which is calculated by dividing the overhead expenses by the base selected.

2. Answer the following very briefly:      5×2=10

1) Write any two distinguishing features of cost unit and cost centre.

Ans: Cost Centre: A large business is divided into a number of functional departments (such as production, marketing and finance) for administrative convenience. These departments are further divided into smaller divisions for cost ascertainment and control. These smaller divisions are called cost centers. A cost centre is a location, person or item of equipment (or group of these) in relation to which cost can be ascertained and controlled.

Cost Unit: It is a unit of production, service or time or combination of these, in relation to which costs may be ascertained or expressed. It should be one with which expenditure can be most readily associated. Cost Units differ from one business to the other. They are usually units of physical measurement like number, weight, area, volume, time, length and value.

2) Explain the meaning of Perpetual Inventory system.

Ans: Perpetual Inventory system means continuous stock taking. CIMA defines perpetual inventory system as ‘the recording as they occur of receipts, issues and the resulting balances of individual items of stock in either quantity or quantity and value’. Under this system, a continuous record of receipt and issue of materials is maintained by the stores department and the information about the stock of materials is always available. Entries in the Bin Card and the Stores Ledger are made after every receipt and issue and the balance is reconciled on regular basis with the physical stock. The main advantage of this system is that it avoids disruptions in the production caused by periodic stock taking. Similarly, it helps in having a detailed and more reliable check on the stocks. The stock records are more reliable and stock discrepancies are investigated and appropriate action is taken immediately.

Salient features of perpetual inventory system

a)       It requires more efforts to maintain inventory under this method.

b)      Quantity balances shown by the store ledger and bin cards are reconciled.

c)       A number of items are physically checked systematically and by rotation.

d)      The method is comparatively costly as compared to periodical inventory system.

e)      Store ledger and bin cards keeps inventory record up-to date and decent.

3) Mention the treatment of

a) Research and development expenses and

b) Interest on capital in Cost Accounting.

Ans: Research and experimental cost: These are costs incurred in the discovery of new ideas or process by experiment or otherwise and for putting the results of such experiments on commercial basis. Research may also be done for improvement of an existing process or product.

Research may be of two types – (a) fundamental research, and (b) applied research.

(a) Fundamental research does not aim at a specific tangible result and is a continuous process. So, cost incurred on such a continuous process during a particular period should be treated as works overhead of that period. If, however, the process is not a continuous one for any reasons, the cost may be spread over a number of years depending upon the amount involved.

(b) When expenses are incurred on applied research for improving an existing product or method, such expenses should be treated as works overhead of the period in which they have been incurred. When expenses are incurred in a research for new product or method, separate project number should be allotted for research for each purpose and expenses should accordingly. Now, this research may either end in failure or end in success. In case of cost should be written off to costing profit and loss account. If it is a success, the expenses should be debited to development cost. The total of research and development cost for each project should be treated as deferred revenue expenditure to be charged to product or products over a number of periods. If such research and development cost relates to a particular product, it should be directly charged to that product only over a number of periods. If it relates to a production method, such cost should be charged to works overhead account over a number of periods.

Interest on Capital: This item of expenses is a controversial one. Some accountants suggest that this is purely a financial cost and has got nothing to do in cost accounts. Others contend that, like other factor prices, interest on capital should also be treated as an element of cost. The arguments for and against inclusion of interest in cost are as follows:

Arguments for inclusion:

a) As rent is paid for the use of accommodation, interest is paid for the use of capital. If rent is included in cost why interest should be excluded?

b) Comparison of cost in two organisations cannot be dependable unless interest is considered in both.

Arguments against inclusion:

a) Interest is a matter of internal finance and hence it is not connected with cost of production.

b) Interest is paid on borrowed capital. No interest is payable on proprietor’s own capital. Since it is difficult to decide as to whether interest on borrowed capital or interest on entire capital should be considered for cost accounts, it is better to exclude the item altogether.

4) Mention the justification for applying direct labour hour rate and machine hour rate for absorption of overheads.

Ans: Direct Labor Hour Method: Maximum manufacturing entities are labour intensive and maximum indirect expenses are related with labour. More is the labour hour, more indirect expenses will be incurred. Due to which it is better to absorb overheads on the basis of labour hour. This method is used in those organizations where labour is a dominant factor in the total cost. Under this method, the following formula is used for calculating the overhead absorption rate: Budgeted or Actual Overheads/ Direct Labor hour Machine Hour Rate: Where machines are more dominant than labour, machine hour rate method is used. CIMA defines machine hour rate as ‘actual or predetermined rate of cost apportionment or overhead absorption, which is calculated by dividing the cost to be appropriated or absorbed by a number of hours for which a machine or machines are operated or expected to be operated’.

In other words, machine hour rate is the cost of operating a machine on per hour basis. The formula for calculating the machine hour rate is, Budgeted or Actual Overhead Expenses/ Machine Hours

5) Mention the difference between overhead absorption and overhead apportionment.

Ans: Absorption means charging equitable share of overhead expenses to the products. As the overhead expenses are indirect expenses, the absorption is to be made on some suitable basis. The basis is the ‘absorption rate’ which is calculated by dividing the overhead expenses by the base selected. A base selected may be any one of the basis given below. The formula used for deciding the rate is as follows, Overhead Absorption Rate = Overhead Expenses/ Units of the base selected.

Apportionment of Overhead Expenses: Cost apportionment is the allotment of proportions of items to cost centres or cost units on an equitable basis. The term refers to the allotment of expenses which cannot identify wholly with a particular department. Such expenses require division and apportionment over two or more cost centres or units. So cost apportionment will arise in case of expenses common to more than one cost centre or unit. It is defined as he allotment to two or more cost centres of proportions of the common items of cost on the estimated basis of benefit received. Common items of overheads are rent and rates, depreciation, repairs and maintenance, lighting, works manager’s salary etc.

3. Answer either (a) and (b) or (c):

(a) Calculate the gross wages received by Govinda from the following data for the week August 1 to 7:

Wages rate per hours

Units produced in week

Standard time allotted

Actual time taken

Rs. 4.00

300 units

60 hours

48 hours

Apply Rowan Premium Bonus Plan.             5

(b) Explain the meaning of ‘Time and Motion Study’ stating its benefits to the management.  5

Ans: Time and Motion Study: The study of time and motion is essential for designing an incentive system. Time study determines the time to be spent on the job. Standard time is the time that should be taken for completing a particular job under standard or normal working conditions. For fixation of standard time, motion study is necessary. Thus, the motion study precedes the time study. Motion study means dividing the job into fundamental elements or basic operations of the job or process and studying them in detail to eliminate the unnecessary elements or motions. After investigation all movements in a job, process or operation, the motion study aims at finding out the most scientific and systematic way of performing the job. After eliminating unnecessary motions, the time that should be taken to  perform these motions is decided with the help of a stop-watch. In the time so fixed, some allowance is added in the same for normal idle time, which is due to fatigue, change of job, change of tools, preventive maintenance of machines and so on. Thus standard time for a job or process is arrived at.

Or

(c) Write critical notes on:

1) Work study and method study.

Ans: Work Study: For improving productivity and for providing a basis for incentive plans for payment of wages, work study is an analytical tool. Work study aims at improvement of performance within an operation through reduction in material usage, time saving, quality improvement etc. In order to fulfill the objectives two related techniques namely method study and time study (i.e., work measurement) have been combined into work study. Method Study is a systematic procedure for analysing the work in order to eliminate unnecessary operations and to arrange the essential operations in the best possible order and thereby to standardised the working method. To achieve these objectives, the method study shall have the following steps:

(1)       Take the details of the existing methods of work..

(2)       Make detailed analysis of the existing methods of work and also of the alternative methods.

(3)       Eliminate the unnecessary operations and movements and arrange the essential ones in the best order, keeping in view the simplification of work and better utilisation of the facilities available. Elimination of unnecessary operations and movements requires motion study. Thus work study includes motion study also. In course of motion study, the most scientific and simple way of performing a work is established by eliminating the unnecessary and wasteful movements and thereby reducing fatigue.

2) Measurement of labour turnover and its effect.        5×2=10

Ans: Measurement of Labor Turnover: It is essential for any organisation to measure the labor turnover. This is necessary for having an idea about the turnover in the organisation and also to compare the labor turnover of the previous period with the current one. The following methods are available for measurement of the labor turnover:

1. Additions Method: Under this method, number of employees added during a particular period is taken into consideration for computing the labor turnover. The method of computing is as follows:

Labour Turnover = Number of additions/Average number of workers during the period X 100

2. Separations Method: In this method, instead of taking the number of employees added, number of employees left during the period is taken into consideration. The method of computation is as follows:

Labour Turnover = Number of separations/Average number of workers during the period X 100

3. Replacement Method: In this method neither the additions nor the separations are taken into consideration. The number of employees replaced is taken into consideration for computing the labour turnover.

Labour Turnover = Number of replacements/Average number of workers during the period X 100

4. Flux Method: Under this method labor turnover is computed by taking into consideration the additions as well as separations. The turnover can also be computed by taking replacements and separations also. Computation is done as per the following methods:

Labor Turnover = ½ [Number of additions + Number of separations] /Average number of workers during the period X 100

Impact of ‘Labour Turnover’ on a manufacturing organization’s working: The impact of labour turnover on a manufacturing organization’s working is many folds. In fact, the labour turnover increases the cost of production in the following ways:

1.       Even flow of production is disturbed.

2.       Cost of recruitment and training increases.

3.       Breakage of tools, wastage of materials increases.

4.       Overall production decreases due to the time lost between the leaving and recruitment of new workers.

5.       Reduction in sales accounts for loss of contribution and goodwill consequently.

4. (a) Briefly describe the procedure of material purchase.       5

Ans: Process of purchasing and receiving goods

Purchase procedure differs from business to business, but all of them follow a general pattern or procedure. There should be proper Purchase Procedure to ensure that right type of material is purchased at right time, in right quantity, at right prices and at right place. All these things require a well-defined procedure of purchasing. The steps in Purchase Procedure are explained below.

Purchase Requisition: A form known as ‘Purchase Requisition’ is commonly used as a format requesting the purchase department to purchase the required material. Normally the purchase requisition is issued by the Stores Department when the quantity of the concerned material reaches the minimum level. Only in the cases of materials, which are not kept in the stores on regular basis, the requisition is issued by the concerned department. Purchase requisition has information like the quantity required, the expected date of receipt, the department in which the material is required, description of material etc. Copies of the purchase requisition are sent to the Accounts department and the concerned department who is in need of the material.

Purchase Order: After the receipt of purchase requisition, the purchase department places an order with a supplier, offering to buy certain material at stated price and terms. However before issuing the purchase order, quotations may be invited from various suppliers for arriving at the best deal. The purchase department usually keeps a list of suppliers from whom the quotations are invited. The quotations received are examined on various parameters like price, delivery period, terms and conditions, quality of material etc. After this, purchase order is issued to the selected supplier. It should be remembered that a purchase order is a legal document and it results into a contract between the company and the supplier. Hence the terms and conditions in the purchase order should be drafted clearly without any ambiguity.

Receiving the Materials: The receiving department performs the function of unloading and unpacking materials which are received by an organization. This will need an inspection report which is sometimes incorporated in the receiving report, indicating the items accepted and rejected with reasons. Copies of the receiving report along with the inspection report are sent to various departments like purchase, stores, concerned department, accounts department and costing department.

Approval of invoice: Approval of invoice indicates that goods according to the purchase order have been received and payments can be made for the same. However, if the goods are not according to the quality ordered or are in excess of the quantity specified or are damaged or are of inferior quality, payment is withheld.

Making the Payment: After the invoice is approved the payment is made to the supplier. The purchase procedure is completed with the payment released.

Or

Briefly describe the stores function of a large factory. 5

Ans: Not Necessary

(b) A consignment of chemical X was received by Sharma Factory. The invoice reveals the following data:

Quantity

Rate per kg

Sales Tax (VAT)

Freight

4,000 kg

Rs. 2.50

Rs. 816

Rs. 384

After receiving the consignment, it was noticed that there is a shortage of 200 kg. What stock rate would you adopt for the chemical assuming a provision of 5% towards further deterioration?      5

(c) Explain the treatment of under-absorption of overheads. 5

Ans: Under absorption: If the amount applied is short fall of the actual overhead in production it is said to be the under absorption of overheads. The over or under absorption of overheads may be termed as overhead variance.

Reason of over or under-absorption of overheads: The under or over-absorption of overhead arises due to following reasons:

a)    Errors in estimating overheads.

b)    Overhead may change due to change in method of production.

c)    The seasonal fluctuation in overhead cost in some industries.

d)    Underutilization of available capacity, unexpected change in the volume of output.

e)    Valuation of work in progress in wrong process.

Treatment of under and over absorption of overheads

Once the under/over absorption is noticed, the following corrective steps are to be taken to rectify the same.

a)    Use of supplementary Rate: The under/over absorption can be rectified by using the supplementary rate. This rate is calculated by dividing the under/over absorbed amount of overheads by the units of the base. The rate so arrived is known to be supplementary rate.

b)    Carrying forward to future period: If the amount of under/over absorption of overheads is small, it may be carried forward to the future period hoping that it will be rectified in the future.

c) Writing off to Profit and Loss A/c: Amount of under/over absorption can be written off to Costing Profit and Loss Account and thus not reflected in the total costs.

Or

Explain briefly the factors to be kept in view while selecting a particular method suitable for overhead absorption.  5

(d) Briefly describe the procedure of calculating profit on incomplete contract.          5

Ans: Process of estimating profit / loss on incomplete contracts

If the work on a contract is started and finished during the same accounting year, its profit or loss can be easily calculated and transferred to Profit and loss Account. But, in case of contracts which extend to more than one accounting year, the question arises whether any profit or loss should be accounted for during the accounting year or years when they are still in progress and, if so, how? It is agreed that if profit is computed only on the competition of the contract, there will be heavy fluctuation in the amount of profit from year to year. This will result not only in distorted profit pattern but also higher tax liability during the year of completion of the contract because the tax will have to be paid at higher rates. At the same time, if profit is computed on the uncompleted contracts and taken to Profit and Loss Account, there is a possibility of other unforeseen contingencies. Hence, it is an accepted principle that profit on uncompleted contracts must be taken into account in respect of the work certified only after providing adequate reserve for future contingencies. Rules relating to estimating profit / loss on incomplete contracts

(i)If completion of contract is less than 25% no profit should be taken to profit and loss account.

(ii)If completion of contract is upto 25% or more but less than 50% then

Or

Mention the treatment of normal and abnormal losses in process costing.

Ans: Treatment of losses in process costing

It is rare that the output of a process is equal to its input. In most of the cases, the output of a process is less than the input. The difference between the input and output and output is called process loss. The process loss may be in the form of loss in weight, scrapes or wastes. These process losses may be classified into:

Normal Loss: The fundamental principle of costing is that the good units should bear the amount of normal loss. Normal loss is anticipated and in a process it is inevitable. It is included in total cost of the product due to which cost per unit is increases. The cost of normal loss is therefore not worked out. The number of units of normal loss is credited to the Process Account and if they have some scrap value or realizable value the amount is also credited to the process account. If there is no scrap value or realizable value, only the units are
credited to the process account.

Abnormal Loss: If the units lost in the production process are more than the normal loss, the difference between the two is the abnormal loss. It is excluded from total cost due to which it does not affect the cost per unit of the product. The relevant process of account is credited and abnormal loss account is debited with the abnormal loss valued at full cost of finished output. The amount realized from sale of scrap of abnormal loss units is credited to the abnormal loss account and the balance in the abnormal loss account is transferred to the Costing Profit and Loss Account.

5. (a) The following particulars have been obtained from the cost records of Shantaram Factory for the year 2011.

Particulars

Rs.

Materials used:

In manufacturing

In primary packing

In selling the product

In the factory office

In the administrative office

Productive wages

Chargeable expenses

Factory supervision and expenses

Administrative expenses

Freight on material purchased

Depreciation on:

Factory building and machines

Office building

Delivery Van

Selling Expenses

Publicity

Bad debt

 

1,10,000

20,000

5,000

1,500

2,000

40,000

10,000

5,000

25,000

3,000

 

3,000

2,000

1,000

8,000

2,000

1,000

You are required to prepare a cost sheet assuming 1,000 units were manufactured and the selling price per unit is Rs. 300.00. Show also cost per unit.        10

Or

“Costing techniques represent the principles or bases which govern the cost computations.” Explain the statement highlighting the application of these techniques in cost computation.

Ans: Techniques of Costing

The types and techniques of costing are as follows:

1)    Historical Costing: ‘The ascertainment of costs after they have been incurred’ is called Historical costing. Such costs are, therefore, ‘postmortem’ costs as under this method all the expenses incurred on the production are first incurred and them the costs are ascertained.

2)    Standard Costing: ‘The preparation and use of standard costs, their comparison with actual costs and the analysis of variance to their causes and points of incidence’ is called standard costing. Here the standards are first set and then they are compared with actual performances. The difference between the standard and the actual is known as the variance. The variances are analyzed to find out their causes and also the points or locations at which they occur.

3)    Marginal Costing: Marginal Costing involves the ascertainment of marginal costs and of the effects on profit of changes in volumes or type of output by differentiating between fixed costs and variable costs’. The fixed costs are those which do not change but remain the same, with the increase or decrease in the quantum of production. The variables costs are
those which do change proportionately with the change in quantum of production.

The marginal costing takes into account only the variable costs to find out ‘marginal costs’. The difference between Sales and Marginal costs is known as ‘Contribution’ and contribution is an aggregate of fixed costs and Profit/Loss. So the fixed costs are deducted from the contribution to find out the profits. Marginal costing is a technique to ascertain the effect on profits. Marginal costing is a technique to ascertain the effect on profit by the change in the volume of output or by the change in the type of output.

4)    Direct Costing: The practice of charging all direct cost to operations, process or products, leaving all the indirect costs to be written off against profits in the period in which they arise is called direct costing.

5)    Absorption Costing: It is the practice of charging all costs, both variables and fixed, to operations, processes or products. This is the traditional technique as opposed to Marginal or Direct costing techniques. Here both the fixed and variables cost are charged in the same manner.

(b) The following are the summary of transactions obtained from the costing records of Nabaratna Company.

Particulars

Rs.

Direct wages (cash)

Indirect wages (cash)

Purchases (cash)

Purchases (credit)

Stores issued against production order

Works expenses (cash)

Works expenses allocated to jobs

Administration expenses

Administration expenses allocated to jobs

Finished goods transferred to warehouse

50,000

30,000

20,000

3,00,000

2,80,000

50,000

80,000

40,000

48,000

4,50,000

You are required to Journalize the above transactions under integral accounting system.            10

Or

Briefly describe the need and procedure for integration of cost and financial accounts.          10

(c) A product passes through two processes: Process A and Process B. Normal wastages are: 5% in Process A and 10% in Process B.

Scrap value:

(Per Unit)

Rs. 0.20 for Process A

Rs. 0.30 for Process B

Other details:

Particulars

Process A (Rs.)

Process B (Rs.)

Materials

Direct wages

Manufacturing expenses

12,000

14,000

4,000

6,000

8,000

6,000

7,500 units of raw materials were introduced into Process A at a cost of Rs. 15,000. The outputs were: Process A: 7,000 units. Process B: 6,200 units. You are required to prepare Process Accounts.       10

Or

From the information furnished below, prepare the Contract Account showing the cost and tender price.        10

Particulars

Rs.

Direct material cost

Direct labour cost

Direct expenses

Works overhead

Office overhead

Profit margin

60,000

42,000

5,000

40% of direct wages

5% of works cost

20% of tender price

Also Read: Gauhati University Cost Accounting Solved Question Papers

– Cost Accounting Solved Paper’ 2011

– Cost Accounting Solved Paper’ 2012

– Cost Accounting Solved Paper’ 2013

– Cost Accounting Solved Paper’ 2014

– Cost Accounting Solved Paper’ 2015

– Cost Accounting Solved Paper’ 2016

– Cost Accounting Solved Paper’ 2017

– Cost Accounting Solved Paper’ 2021 (CBCS Pattern)

-000-

error: Content is protected !!