Gauhati University Solved Question Paper
4 (SEM-4/CBCS) CA HC/RC
Cost Accounting Solved Question Paper 2021 (Held in 2022)
Paper: COM-HC-4016/COM-RC-4026 (Cost Accounting)
Full Marks: 80 : Time: Three hours
The figures in the margin indicate full marks for the questions.
1. Answer the following as directed: 1×6=6
(a) Indirect expenses are also known as overheads. (Fill in the blanks with appropriate word/words)
(b) FIFO method of valuing materials is suitable in times of rising prices. (State whether the statement is ‘True’ or ‘False’) False, in case of falling prices FIFO is suitable
(c) Wage sheet is prepared by the
(1) Pay-roll Department.
(2) Production Department.
(3) Personnel Department.
(4) None of the above. (Select the most appropriate one)
(d) Fixed cost per unit decreases with increase in output. (State whether the statement is ‘True’ or ‘False’)
(e) Loss incurred in an incomplete contract is transferred to Contract Account. (State whether the statement is ‘True’ or ‘False’) False, Transferred to profit and loss account
(f) Which of the following is shown in Cost Accounts?
(1) Transfer to Reserve.
(2) Loss on sale of building.
(4) None of the above. (Select the most appropriate one)
2. Answer the followingquestions: 2×5=10
a) Whatis meant by Bin Card?
Ans: Bin Card: Bin is a place where materials are kept in. It may be a rack, container, shelf or space where stores are kept. Bin card is a document showing the particulars of materials kept in the bin. It is a document attached to the bin disclosing the quantitative details of materials received, issued and the closing balance.
b) State two objectives of Time and Motion Study.
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.
c) State the meaning of Machine Hour Rate.
Ans: Machine Hour Rate: Where machines are more dominant than labor, 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
d) Mention two features of Contract Costing.
Ans: Features of Contract Costing
i) The work is undertaken to customer’s specific requirements.
ii) The work will be of a relatively long duration and involves large amount.
e) Name two items that are included in financial accounts but not in cost accounts.
Ans: Expenses included in financial accounts but not included in cost accounts: Donation, Income tax, Profit or loss on sale of assets, provision for income tax and bad debts etc., transfer to reserves, goodwill and intangible assets written off, preliminary expenses, discount of issue of shares and debentures, dividend, cash discount, interest paid, advance income tax, debenture interest, interest on loan and overdrafts, any income received, over depreciation, abnormal bad debt, interest on capital, capital losses, fines and penalties, Discount allowed and received, Brokerage and underwriting commission, Guest house expenses and incomes,
3. Answer any four of the following questions: 6×4=24
a) What is a “Cost Sheet”? Mention four advantages of preparation of Cost Sheet. 2+4=6
Ans: COST SHEET: Cost Sheets are statements setting out the costs of a product giving details of all the costs. Presentation of costing information depends upon the method of costing. A cost sheet can be prepared weekly, monthly, quarterly or annually. In a cost sheet besides total expenditure incurred, cost per unit of output in case of each element of cost can be shown in a separate column. The cost sheet should give cost per unit in the previous period for the purposes of comparison.
Walter & Bigg define, “The expenditure which has been incurred upon production for a period is extracted from the financial books and the store records, and set out in a memorandum or a statement. If this statement is confined to the disclosure of the cost of the units produced during the period, it is a termed as a cost sheet”. In other words, cost sheet is a statement showing the total cost under proper classification in a logical order.
Advantages of Cost Sheet
a) Helps in Decision Making: Cost accounting helps in decision making. It provides vital information necessary for decision making. For instance, cost accounting helps in deciding:
1. Whether to make a product buy a product?
2. Whether to accept or reject an export order?
3. How to utilize the scarce materials profitably?
b) Helps in fixing prices: Cost accounting helps in fixing prices. It provides detailed cost data of each product (both on the aggregate and unit basis) which enables fixation of selling price. Cost accounting provides basis information for the preparation of tenders, estimates and quotations.
c) Formulation of future plans: Cost accounting is not a post-mortem examination. It is a system of foresight. On the basis of past experience, it helps in the formulation of definite future plans in quantitative terms. Budgets are prepared and they give direction to the enterprise.
d) Avoidance of wastage: Cost accounting reveals the sources of losses or inefficiencies such as spoilage, leakage, pilferage, inadequate utilization of plant etc. By appropriate control measures, these wastages can be avoided or minimized.
b) Write a short note on the role of Cost Accountant in business organisation. 6
Ans: Role and Functions of Cost accountant: A cost accountant in a manufacturing organisation plays several important roles:
1) Establishment of cost accounting department: A cost accountant establishes a cost accounting department in his concern which helps in cost ascertainment and cost control. The functions performed by a cost accounting department includes -cost ascertainment, cost comparison, cost reduction, cost control and cost reporting.
2) Information to costing department: He ascertains the requirement of cost information which may be useful to organisational managers at different levels of the hierarchy.
3) Costing manuals: He develops a manual, which specifies the functions to be performed by the cost accounting department. The manual also contains the format of various forms which would be utilised by the concern for procuring and providing information to the concerned officers. It also specifies the frequency at which the cost information would be supplied to a concerned executive.
4) Cost ascertainment: Cost ascertainment, requires the classification of costs into direct and indirect. Further it requires classification of indirect costs (known as overheads) into three lasses viz., factory overheads; administration overheads and selling and distribution overheads. Cost accountant suggests the basis which may be used by his subordinates for carrying out the necessary classifications as suggested above.
5) Cost comparison: Cost comparison is the task carried out by cost accountant for controlling the cost of the products manufactured by the concern. Cost accountant of the concern establishes standards for all the elements of cost and thus a standard cost of the finished product. The standard cost so determined may be compared with the actual cost to determine the variances. Cost accountant ascertains the reasons for the occurrence of these variances for taking suitable action.
6) Cost analysis: Cost analysis may also be made by cost Accountant for taking decisions like make or buy and for reviewing the current performance.
c) The particulars of Materials ‘A’ and ‘B’ are given below: 6
Normal usage: 100 units per week each.
Minimum usage: 50 units per week each.
Maximum usage: 150 units per week each.
Re-ordering quantity: ‘A’ – 600 units. ‘B’ – 1,000 units.
Re-ordering period: ‘A’ – 3 to 5 weeks. ‘B’ – 2 to 4 weeks.
Calculate the following:
1) Re-ordering level.
2) Minimum Stock level.
3) Maximum Stock level.
4) Average stock level.
d) A worker manufactured 180 articles during the last week of April 2021. Working hours during the week are 48 hours, standard rate Rs. 12 per hour and standard time to manufacture an article is 20 minutes. Calculate his total wages for the week according to Halsey Premium Bonus Plan. 6
e) What is overhead? Mention any four features of fixed overheads. 2+4=6
Ans: Meaning and Definition of overheads: Aggregate of all expenses relating to indirect material cost, indirect labour cost and indirect expenses is known as Overhead. Accordingly, all expenses other than direct material cost, direct wages and direct expenses are referred to as overhead. According to Wheldon, Overhead may be defined as “the cost of indirect material, indirect labour and such other expenses including services as cannot conveniently be charged to a specific unit.” Blocker and WeItmer define overhead as follows: “Overhead costs are operating cost of a business enterprise which cannot be traced directly to a particular unit of output. Further such costs are invisible or unaccountable.”
Features of fixed overheads
Fixed overheads are commonly described as those that do not vary in total amount with increase or decrease in production volume, for a given period of time, may be a year. Salaries, depreciation of fixed assets, property taxes, are some of the examples of fixed costs. Some of the features of fixed overheads are:
a) Fixed costs are also known as period cost.
b) Total fixed costs remain same irrespective of changes in volume of production.
c) Fixed cost per unit of fixed cost is variable. It increases if production decreases while if production increases, it decreases.
d) Fixed overheads are normally not included in prime cost.
f) Mention any six points of distinctions between Integrated Accounting and Non-integrated Accounting. 6
Ans: Difference between non-integrated and integrated accounting cost control accounting
Bases of differences
Under it, separate accounts are maintained for cost and financial transactions.
Under it, separate accounts are not maintained for cost and financial transactions.
The recording of various costs are maintained difference cost
Difference subsidiary ledgers are maintaining the records of the transactions.
It is independent system of accounting.
Under this, the cost and financial accounts are dependent to each other.
Under it, it is necessary to prepare a reconciliation statement to reconcile the profit between the cost and financial accounting.
Under it, it is not necessary to prepare a reconciliation statement to reconcile the profit between the cost and financial accounting.
Under it, the cross checking is not possible since they are independent to each other.
Under it, the cross checking is possible since they are dependent to each other.
4. Answer any four of the following questions: 10×4=40
(a) The following is the expenditure on a contract of Rs. 12,00,000 commenced in January 2020: 10
Cash received on account of contract upto 31st December, 2020 was Rs. 4,80,000 being 80% of the work certified. The value of materials in hand was Rs. 20,000. Depreciation on plant was charged @ 20% per annum. Prepare Contract A/c.
(b) A company disclosed profit of Rs. 55,635 in the financial accounts and for the same period the cost accounts disclosed a profit of Rs. 13,520 only. On examination the following differences were observed:
Profit on sale of Assets
Imputed Rent Charge
Reconcile the Profit as per Cost Accounting records and Financial Accounting records. 10
(c) Following are the details of stores receipts and issues of materials of an organisation:
Opening stock of materials 4,400 units @ 8 per unit.
Purchased 550 units @ Rs. 10 per unit.
Issued 2,200 units.
Purchased 6,600 units @ Rs. 12 per unit.
Issued 4,400 units.
Issued 1,100 units.
Issued 2,200 units.
Purchased 4,950 units @ Rs. 11 per unit.
Issued 3,300 units.
Prepare Store Ledger by using:
1) First-in-first-out (FIFO) Method.
2) Last-in-first-out (LIFO) Method. 5+5=10
(d) What is Labour Turnover? What are the costs involved in labour turnover? How can you reduce the impact of labour turnover? 2+4+4=10
Ans: Meaning: 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.
Types of costs associated with labour turnover are:
Preventive costs: These costs are incurred to keep the labour turnover rate at a low level. They include costs of accommodation, transport facilities, medical services, welfare schemes, pension schemes, environment improvement, lighting, heating, air-conditioning etc. The rate of labour turnover is usually low, if a company incurs higher preventive costs.
Replacement costs: These costs arise due to high labour turnover, e.g. cost of advertising, recruitment, selection, training & induction, abnormal breakage and scrap, extra wages & overheads etc., caused as a result of in efficient and inexperienced newly recruited workers.
Remedial steps to minimize labour turnover: The following steps are useful for minimizing labour turnover:
1. Exit interview: An interview is arranged with each outgoing employee to ascertain the reasons of his leaving the organization.
2. Job analysis and evaluation: to ascertain the requirement of each job.
3. Organisation should make use of a scientific system of recruitment, placement and promotion for employees.
4. Organisation should create healthy atmosphere, providing education, medical and housing facilities for workers.
5. Committee for settling worker’s grievances.
(e) What do you mean by over absorption and under absorption of overheads? What are the causes of such over or under absorption? 4+6=10
Ans: Absorption of Overheads
The most important step in the overhead accounting is ‘Absorption’ of overheads. CIMA defines absorption as, ‘the process of absorbing all overhead costs allocated or apportioned over a particular cost center or production department by the units produced.’ In simple words, 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.
Overhead expenses are usually applied to production on the basis of predetermined rates. The pre-determined rate may present estimated or actual cost. The actual overhead cost incurred and overhead applied to the production will seldom be the same. But due to certain reasons the difference between two may arise.
Over absorptions: If the amount applied exceeds, the actual overhead, it is said to be an over absorption of overheads.
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.
(f) Mention the characteristics of Process Costing. Explain the different types of process losses and state how they are treated in Cost Accounts. 4+6=10
Ans: Features/Characteristics of Process Costing:
a) Process Costing Method is applicable where the output results from a continuous or repetitive operations or processes.
b) Products are identical and cannot be segregated.
c) It enables the ascertainment of cost of the product at each process or stage of manufacture.
d) The output consists of products, which are homogenous.
e) Production is carried on in different stages (each of which is called a process) having a continuous flow.
f) The input will pass through two or more processes before it takes the shape of the output. The output of each process becomes the input for the next process until the final product is obtained, with the last process giving the final product.
g) The output of a process except the last may also be saleable in which case the process may generate some profit.
h) The input of a process except the first may be capable of being acquired from the outside sources.
i) The output of a process is transferred to the next process generally at cost to the process. It may also be transferred at market price to enable efficiency of operations in comparison to the market conditions.
j) Normal and abnormal losses may arise in the processes.
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:
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.
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.
Also Read: Gauhati University Cost Accounting Solved Question Papers