Gauhati University Solved Question Papers
Cost Accounting Solved Question Paper’ 2013
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) Cost Accounting is generally concerned with internal reporting for managerial requirement. (State whether the statement is True or False)
2) Cost is expressed in ‘Rs.’ Per physical unit (like metre, kg, km, tonne etc.) (State whether the statement is True or False)
3) Calculate the value of raw materials consumed if Raw materials purchased Rs. 88,000, Opening stock of raw materials Rs. 1,00,000 and Closing Stock of raw materials Rs. 1,23,500.
Ans: Raw material consumer = o/s of raw material + purchase of raw material – closing stock of raw material = 1,00,000+88,000-1,23,500=64,500
4) Select the most appropriate: Material control covers:
a) Purchase of Materials.
b) Issue of Materials.
c) Storing of Materials.
d) All of the above.
Ans: d) All of the above.
5) Materials should be issued by the storekeeper against material requisition slip. (Fill in the blank)
6) Stock verification sheets are maintained to record the result of physical verification. (Fill in the blank)
7) Time and Motion study is conducted by Payroll Department. (State whether the statement is True or False)
Ans: False, Engineering department
8) Cost of Abnormal idle time is transferred to profit and loss account. (Fill in the blank)
9) Wages sheet is prepared by the Select the most appropriate:
a) Personnel department.
b) Pay-roll department.
c) Cost accounting
d) None of the above.
Ans: b) Pay-roll department.
10) Overhead cost is the aggregate of indirect material cost, indirect wages and indirect expenses. (Fill in the blank)
2. Answer the following very briefly: 2×5=10
1) Write the meaning of cost classification.
Ans: Classification of cost mean division of expenses incurred by a manufacturing concern on the basis of nature, functions, variability and controllability. It is necessary because it helps in ascertaining product cost and period cost.
2) State at least four items of expenses/losses which will not form a part of the costs as per cost accounting.
Ans: Loss on sale of assets, Donations, Discount on issue of shares, provision for repairs
3) Write the meaning of merit rating.
Ans: MERIT RATING: Merit rating aims at evaluating the performance of workers. Main objective of merit rating is to reward employee on the basis of efficiency and merit. Merit rating brings out the comparative worth of workers.
4) Write the meaning of cost apportionment.
Ans: 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.
5) What basis would you follow for distribution of the following overhead expenses to departments?
Factory rent, Municipal rent and Taxes, ESI, Store service expenses.
Ans: Factory rent = Floor area occupied
Municipal rent and taxes = Floor area occupied
ESI = Number of workers
Store Service Expenses =
3. (1) The following information relates to the manufacturing of a standard product during June 2013:
Amount in Rs.
Machine hour rate
Machine hour worked
Administrative overheads 20% of
Works cost selling overhead Rs. 5 per unit
16,000 units @ 40 per unit
You are required to prepare statement of cost, showing cost and profit per unit sold.
(2) State five features of a good cost accounting system. 5
Ans: Characteristics of a Good Costing System: An ideal system of cost accounting must possess some characteristics which bring all the advantages, discussed above; to the business, in order to be ideal and objective. The main characteristics are:
a) Simplicity: It must be simple, flexible and adaptable to the changing conditions. And it must be easily understandable to the personnel. The information provided must be in the proper order, in right time and to the right persons so as to be utilized fully.
b) Flexibility and Adaptability: The costing system must be flexible to accommodate the changing conditions and circumstances. The expansion, contraction of changes must be adopted in the existing system with minimum changes.
c) Economy: The costing system must suit the finance available. The expenditure must be less than the benefits derived from the system adopted.
d) Comparability: The management must be able to make comparison of the facts and figures with the past figures, figures of other concerns, or other departments of the same concern.
e) Minimum Changes to the Existing one: When introducing a costing system, it may cause minimum change to the existing set up of the business.
(3) Write five causes of under or over absorption of overheads. 5
Ans: 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.
Write five objectives of departmentalization of overheads. 5
Ans: After classification of overheads all the items of overheads are collected properly under suitable account heading. The next step is allocation and apportionment of overheads. This is also known as departmentalization or primary distribution of overheads. Objectives of departmentalization of overheads:
a) To ascertain the cost of each department.
b) To control the expenses incurred in each department.
c) To ascertain the actual cost of goods or services passed through each department.
d) To held in fixation of selling price
e) To collect and allocate various overheads between or amongst production or service departments.
(4) Briefly describe the process costing procedure. 5
Briefly describe the accounting treatment of the following while preparing contract Account. a) Depreciation of Plant. b) Cash Ratio and Retention Money.
4. Barpeta Rice Enterprise do not maintain perpetual inventory system. Only physical inventory was taken at the end of each month. The physical inventory at the end of Dec. 2012 showed 200 bags of fine rice at Rs. 212.25 per bag. The following purchases were made during the month of January, 2013:
400 bags at Rs. 218 per bag.
900 bags at Rs. 223.50 per bag.
400 bags at Rs. 220 per bag.
700 bags at Rs. 213 per bag.
300 bags at Rs. 224 per bag.
On 31st January, 2013, the physical stock was 1,200 bags. You are required to calculate the value of the stock on 31st January, 2013 according to 1) FIFO method. 2) LIFO method and 3) Average cost method.
Explain briefly the meaning of Maximum Level, Minimum Level and Re-ordering Level in maintenance of stock in an organisation. What is the factor that governs the fixing of these levels? 10
Ans: Levels of Stock: In stores records, different levels of stock are mentioned. The levels are: (1) Minimum level below which the stock must not go at any time; (2) Maximum level above which the stock must not go at any time; (3) Ordering or re-ordering level which being reached by the stock, the purchase requisition is required to be sent to the buying department; and (3) Danger level which being reached by the stock, very urgent measure for purchase is a need.
1) Minimum Level: It represents the minimum quantity of an item of material to be kept in the store at any time. Material should not be allowed to fall below this level. If the stock goes below this level, production may be held up for want of materials. This stock is also known as safety stock level or buffer stock. While fixing the minimum level the following factors are to be taken into consideration:
1. Nature of the material: Materials that are regularly stored must maintain a minimum level. If on customer’s order a special item of material is to be purchased, no minimum level is required to be fixed for that.3
2. The maximum time required from the date of order to the day of actual delivery: It is known as the lead time. The longer the lead time, the lower is the minimum level, provided the re-order point remains constant.
3. Rate of consumption of the material: The minimum rate, the maximum rate and the normal rate of consumption are to be taken into consideration.
2) Maximum Level: It is the stock level above which stock should not be allowed to rise. This is the maximum quantity of stock of raw materials which can be had in the stock. It is goes above, it will be overstocking. While fixing the maximum level the following factors require consideration:
a) Rate of consumption of the material.
b) The lead time.
c) The maximum requirement of the material at any time.
d) Nature of the material: The materials which deteriorate quickly are stored as little as possible.
e) Storage space available for the material.
f) Prime economy: Seasonal materials are cheap during the harvesting seasons. So maximum purchase is made during the harvesting season and as a result the maximum level is high.
g) Cost of storage and insurance.
h) Cost of the material and the finance available: When the material is costly the maximum level is likely to be low. If the price is likely to go up maximum level should be high.
i) Inventory turnover: In case of slow moving materials the maximum level is low and in case of quick moving material the maximum level is high.
j) Nature of supply: If the supply is uncertain the maximum level should be as high as possible.
k) Economic order quantity (EOQ): Maximum level largely depends on economic order quantity, because unless otherwise contra indicated the economic order quantity decides the quantity ordered and hence influences the maximum level.
3) Ordering or Re-Ordering
Level: This level is fixed between the minimum level and the maximum level. This is fixed in such a manner that the excess of ordering level over the minimum level is sufficient to meet the requirement during the lead time. Thus, the minimum level, the rate of consumption and the lead time are the main factors to be considered while fixing the re-ordering level.
The following formula may be used for working out of the above levels: Maximum level = Re-order level + Re-order quantity – (Minimum usage x Minimum order period)
[Explanation: The actual stock level on the date on which the quantity ordered shall be received, will be the quantity ordered + re-order level – the minimum consumption during the least lead time.]
Minimum level = Re-order level – (Normal usage x Normal i.e., average re-order period)
[Explanation: If the usage is normal, the level will not go below this by the time the actual delivery against the order is received.]
Re-ordering level = Maximum re-order period x Maximum usage. [Explanation: Even if maximum consumption takes place, the stock shall just reach zero level by the maximum lead time.]
5. From the following particulars, prepare the labour cost per man day of 8 hours. 10
Basic pay Rs. 5 per day.
Dearness allowance Rs. 25 per every point over 100 cost of living index for working class.
Current cost of living index is 700 points.
Leave salary, 10% of (1) and (2).
Employer’s contribution to Provident Fund 8% of (1) (2) and (3).
Expenditure on amenities to labour Rs. 20 per head per month.
Number of working days in a month 25 days of 8 hours.
Write short notes on: 5+5=10
1) Job evaluation.
2) Job analysis.
Ans 1) Job Evaluation: Job evaluation means the systematic analysis and classification of a job according to the varying factors it demands from the workers. Jobs are of different types. A group of jobs requires physical strength; a second group requires brain; a third group requires education, skill and experience; a fourth group may require brain, education, skill and experience and so on. Job evaluation, in other words, classifies jobs into different grades according to their main characteristics in order to determine the merit of each job in terms of work value.
Procedure for Job Evaluation: Under the point’s value method, evaluation is done in the following manner:
1. Each job factor is allotted a number of points.
2. Consider the factors required for performing a job.
3. Give the allotted points to the respective factors required by the job.
4. The total of the points scored by the job decides its rank.
2) Job analysis: The process of studying and collecting informations relating to the operations and responsibilities of a specific job is called job analysis. The immediate product of this analysis are job description and job specification. It analyze the content & characteristics of the job and requirements/ qualifications needed to perform those jobs.
According to Michael L. Jucius, “Job analysis refers to the process of studying the operations, duties and organizational aspects of jobs in order to derive specifications or as they called by some, job descriptions.”
Importance/Uses of Job analysis
1. Achievement of Goals: Weather and Davis have stated, “Jobs are at the core of every organization’s productivity, if they are designed well and done right, the organization makes progress towards its objectives. Otherwise, productivity suffers, profits fall, and the organization is less able to meet the demands of society, customer, employees, and other with a stake in its success.”
2. Organizational Design: Job analysis will be useful in classifying the jobs and the interrelationships among the jobs. On the basis of information obtained through job analysis, sound decisions regarding hierarchical positions and functional differentiation can be taken and this will improve operational efficiency.
3. Organization and Manpower Planning: It is helpful in organization planning, for it defines labour in concrete terms and co-ordinates the activities of the work force, and clearly divides duties and responsibilities.
6. Describe briefly the principal accounts to be maintained in the Cost Ledger and state their functions. 10
Ans: Principal Accounts to be Maintained
The principal accounts in the cost ledger and their functions are summarized below:
1. Stores Ledger Control Account: This account deals with material transactions. It is a summary of the value of stores received, issued and balance in store. Receipts are posted from goods received notes or invoices to the debit side of this account. Similarly, issues of materials are posted from material requisition or materials issues analysis sheet to the credit side of this account. The balance of this account represents the total balance of stock which should agree with the aggregate of the balances of individual accounts in the Stores Ledger.
2. Wages Control Account: This account records wage transaction in aggregate. Postings are made from wages analysis sheet. This account is debited with gross wages (paid and accrued) and is closed by transfer of direct wages to work-in-progress and indirect wages to factory, administration and selling and distribution overheads control accounts.
3. Factory Overheads Control Account: This account deals with factory overheads in aggregate. It debited with indirect material cost, indirect wages and indirect expenses and is credited with overheads absorbed, which are transferred to work-in-progress. The balance in this account represents under or over-absorbed overheads and is transferred to Overheads Adjustment Account or Costing Profit and Loss Account.
4. Work-in-progress Ledger Control Account: This account starts with opening balance of work-in-progress and is debited with materials, labour and factory overheads charged. It is credited with cost of finished goods. Closing balance shows the value of unfinished jobs.
5. Finished Goods Ledger Control Account: This account starts with opening balance of finished stock. It is debited with cost of finished goods transferred from work-in-progress control account and the amount of administration overheads absorbed. This account is credited with cost of sales by transferring to cost of sales account. The closing balance of this account represents the cost of goods remaining unsold at the end of the period.
6. Administration Overheads Account: This account is debited with administration overhead cost incurred and is credited with overheads absorbed by finished goods. The balance in this account represents under or over-absorbed overheads which is transferred to Overheads Adjustment Account or to Closing Profit and Loss Account.
7. Cost of Sales Account: This account is debited with the cost of goods sold by transfer from finished goods ledger control account and also selling and distribution overheads absorbed. It is closed by transfer to Costing Profit and Loss account.
8. Selling and Distribution Overheads Account: this account is debited with selling and distribution overheads incurred and is credited with overheads absorbed by cost of sales. It is closed by transferring the balance to costing Profit and Loss Account or Overheads Adjustment Account for under or over-absorbed overheads.
9. Overheads Adjustment Account: This account is debited with under-absorbed overheads for factory, administration and selling and distribution overheads and is credited with over-absorbed overheads. The balance in this account represents the net amount of over or under-absorption which is transferred to Costing Profit and Loss Account.
10.Costing Profit and Loss Account: This account is debited with the cost of sales, abnormal losses and under-absorbed overheads. It is credited with sale value of goods sold, abnormal gains and over-absorbed overheads. The balance in this account represents costing profit or loss which is transferred to cost ledger control account.
11.Cost Ledger Control Account: this account is also known as General Ledger Adjustment Account or Financial Ledger Control Account. The purpose of this account is to complete the double entry and make the cost ledger self-balancing. As no personal accounts are kept in the cost books, in order to complete the double entry, all accounts relating to financial accounts but not required for cost accounting are debited or credited to the cost ledger control account. For example, wages paid in case amount to Rs. 250 and as no cash or bank account is maintained in the cost ledger, then in order to complete the double entry, the following entry will be made, so as to credit cost ledger control account in place of cash or bank.
Wages Account Dr.
To Cost Ledger Control A/c
Cost ledger control account is sometimes disrespectfully referred to as ‘dustbin account’ because it is for disposing of the odds and ends of double entry which do not find any other place. Thus, the cost ledger control account is equivalent to debtors, creditors and cash or bank accounts in the financial ledger. Sales are debited to this account and net profit or loss is also transferred to this account. All transfer entries of internal nature which affect only cost accounts and have no implications in financial accounts do not appear in cost ledger control account. For example, transfer from stores ledger to work-in-progress, from work-in-progress to finished goods, etc., are not shown in cost ledger control account. The balance of cost ledger control account represents the total of all balances of impersonal accounts.
Why in Reconciliation of Cost and Financial Accounts necessary? State the possible reasons for differences between profits shown by both the accounts. 5+5=10
Ans: When cost accounts and financial accounts are maintained in two different sets of books, there will be prepared two profit and loss accounts – one for costing books and the other for financial books. The profit or loss shown by costing books may not agree with that shown by financial books. Such a system is termed as, ‘Non-Integral System’ whereas under the integral system of accounting, there are no separate cost and financial accounts. Consequently, the problem of reconciliation does not arise under the integral system.
However, where two sets of accounting systems, namely, financial accounting and cost accounting are being maintained, the profit shown by the two sets of accounts may not agree with each other. Although both deal with the same basic transactions like purchases consumption of materials, wages and other expenses, the difference of purpose leads to a difference in approach in a collection, analysis and presentation of data to meet the objective of the individual system.
Financial accounts are concerned with the ascertainment of profit or loss for the whole operation of the organisation for a relatively long period, usually a year, without being too much concerned with cost computation, whereas cost accounts are concerned with the ascertainment of profit or loss made by manufacturing divisions or products for cost comparison and preparation and use of a variety of cost statements. The difference in purpose and approach generally results in a different profit figure from what is disclosed by the financial accounts and thus arises the need for the reconciliation of profit figures given by the cost accounts and financial accounts.
The reconciliation of the profit figures of the two sets of books is necessary due to the following reasons
a) It helps to identity the reasons for the difference in the profit or loss shown by cost and financial accounts.
b) It ensures the arithmetical accuracy and reliability of cost accounts.
c) It contributes to the standardization of policies regarding stock valuation, depreciation and overheads.
d) Reconciliation helps the management in exercising a more effective internal control.
Reasons for disagreement between Profits as per financial accounting and Profits as per cost accounting:
The difference in the profitability of cost and financial records may be due to the following reasons.
1) Items included in the financial accounts but not in cost accounts.
Ø Purely financial income- such as interest received on bank deposits, interest and dividend on investments, rent receivables, transfer fee received, profit on the sale of assets etc.
Ø Purely financial charges – such as losses due to scraping of machinery, losses on the sale of investments and assets, interest paid on the bank loans, mortgages, debentures etc., expenses of company’s transfer office, damages payable at law etc.
Ø Appropriation of profit – the appropriation of profit is again a matter which concerns only financial accounts. Items like payment of income tax and dividends transfer to reserve, heavy donations, writing off of preliminary expenses, goodwill and patents appear only in profit and loss appropriation account and the costing profit and loss a/c is not affected.
2) Items included in cost accounts only: There are certain items which are included in cost accounts but not in financial accounts. They are: Charges in lieu of rent where premises are owned, interest on capital employed in production but upon which no interest is actually paid.
3) Under/Over absorption of overhead expenses: In cost accounts, overheads are absorbed at predetermined rates which are based on past data. In the financial accounts the actual amount incurred is taken into account. There arises a difference between the actual expenses and the predetermined overheads charged to product or job.
If overheads are not fully recovered, which means that the amount of overheads absorbed in cost accounts is less than the actual amount, the shortfall is called as under recovery or under absorption. If overhead expenses recovered in cost accounts are more than that of the actually incurred, it is called over absorption. Thus, both the over and under recovery may cause the difference in the profits of both the records.
4) Different basis of stock valuation: In cost accounts, the stock of finished goods is valued at cost by FIFO, LIFO, average rate, etc. But, in financial accounts stocks are valued either at cost or market price, whichever is less.
The valuation of work-in-progress may also lead to variation. In financial books only prime cost may be taken into account for this purpose whereas in cost accounts, it may be valued at prime cost plus factory overhead.
5) Different basis of depreciation adopted: The rates and methods of charging depreciation may be different in two sets of accounts.
7. The following expenditure was incurred for producing 190 units of a standard product
Material issued (200 units)
Normal wastage 5% of the input
Prepare Process Account and Calculate the per unit cost of the good units if:
1) Scrap value of wastage sold at Rs. 33 per unit.
2) Scrap value of wastage is nil.
The following figures relate to two jobs of a building contractor.
Total expenditure upto 31st Dec 2010
Wages paid in 2011
Materials issued in 2011
Indirect expenses charged in 2011
In each case the work was actually completed on 30th Nov. 2011 but contract could not be considered as completed until the maintenance period of six months had expired on 31st May, 2012. Prepare Contract Account in Columnar form and state what profit or less (is any) should be transferred to Profit and Loss Account of 2011 supposing maintenance expenses to be Rs. 200 per month for each contract. 10
Also Read: Gauhati University Cost Accounting Solved Question Papers