Cost and Managerial Accounting 2


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Assignment A

  1. ‘Cost accounting is becoming more and more relevant in the emerging economic scenario in India’. Comment.


  1. ‘ An efficient system of costing is essential factor for industrial control under modern conditions of business and as such may be regarded as an important part in the efforts of any management to secure business stability’. Elaborate.


  1. From the following transactions extracted from the books of accounts of a manufacturing concern as on 31 April 2011. Work out a) consumption value of raw material in the month and b) value of  closing stock  as on  31 April 2011 under the FIFO method of pricing issues:
Quantity in Units Rate per unit (Rs.)
2010 April 1 Opening Stock 300 9.7
2010 April 3 Purchases 250 9.8
2010 April 11 Issues 400
2010 April 15 Purchases 300 10.5
2010 April 20 Issues 210
2010 April 25 Purchases 150 10.3
2010 April 29 Issues 100



  1. From the following information prepare a cost sheet showing cost profit per unit

Direct materials 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 admin expenses are @ Rs.150 per 10 units produced

Selling & distribution overheads are Rs. 500 per 100 units sold

Opening finished stock                                            800 units @ Rs.85.50

Closing stock                                                          400 units

Finished goods sold                                               16,400 units

Profit                                                                      1/6th of sales


5. Answer any three questions of the following:

a. Explain product cost and period cost with 2 examples of each.

b. What is meant by direct material cost?


c. Find out the cost of raw material purchased from the data given below:


Particular Amount
Prime cost 200000
Closing stock of raw material 20000
Direct labour cost 100000
Expenses on purchases 10000

d. Distinguish between costing and cost accounting.


e. Define batch costing. Give examples of industries which adopt batch costing.



                                                             Assignment B

1. Mosaic Co. Ltd has three production depts A, B & C and two service depts D & E.  Info:

Rent Rs. 5000                                 Indirect wages Rs. 1500

Power Rs.1500                                Depreciation of Machinery Rs.10000

General lighting Rs. 600                   Sundry expenses Rs. 10000


Floor space


Light points

Direct wages (Rs.)

H.P. of machines

Value of machines (Rs.)




































Prepare a statement showing distribution of overheads to various departments.


  1. The following information is provided to you:

Selling price per unit            Rs. 40

Variable cost                       Rs. 24

Fixed costs                          Rs. 6

Profit                                  Rs. 10

Present sales volume is 2000 units



(a) P/V ratio (b) BEP  (c) Margin of safety   (d) profit at a sales volume of 2500 units  (e) sales required to earn a profit of Rs. 26,000

  1. What are budget and budgetary control? Discuss the advantages and essential for success of budgetary control.


  1. 4.     Read the case below and answer the questions given at the end


Case Study


Coffee Cart Supreme sells hot and iced coffee beverages and small snacks. The following is last month’s income statement.


Particulars Amount $ Amount $
Revenue 5000
Cost of Beverage & snacks 2000
Cost of napkins, straws etc 500
Cost of rent cart 500
Employee wages 1000 4000
Pre tax profit 1000
Taxes 250
After tax profit 750



A. What is the total cost function for Coffee Cart Supreme?

B. What is the tax rate for Coffee Cart Supreme?

C. Calculate the amount of sales needed to reach a target after-tax profit of $1,500.

D. What was Coffee Cart Supreme’s degree of operating leverage last month?

E. What was Coffee Cart Supreme’s margin of safety in revenue last month?

F. What was Coffee Cart Supreme’s margin of safety percentage last month?

G. Suppose next month’s actual revenues are $8,000 and pretax profit is $2,000. Would actual costs be higher or lower than expected?

H. Coffee costs are volatile because worldwide coffee production varies from year to year. Explain how this volatility affects the quality of the cost function for Coffee Cart Supreme.

                                                             Assignment C

  1. Which of the following statement measures the financial position of the entity on   particular time?

a)     Income Statement

b)    Balance Sheet

c)     Cash Flow Statement

d)    Statement of Retained Earning

  1. The Process of cost apportionment is carried out so that–

a)     Cost may be controlled

b)    Cost unit gather overheads as they pass through cost centers

c)     Whole items of cost can be charged to cost centers

d)    Common costs are shared among cost centers

  1. Direct materials cost is Rs. 80,000. Direct labor cost is Rs. 60,000. Factory overhead is Rs. 90,000. Beginning goods in process were Rs. 15,000. The cost of goods manufactured is Rs. 245,000. What is the cost assigned to the ending goods in process?

a)     Rs. 45,000

b)    Rs. 15,000 Rs.

c)     30,000

d)    There will be no ending Inventory Solution:


  1. When prices are rising over time, which of the following inventory costing methods will result in the lowest gross margin/profits?

a)     FIFO

b)    LIFO

c)     Weighted Average

d)    Cannot be determined


  1. The main difference between the profit center and investment center is–

a)     Decision making

b)     Revenue generation

c)     Cost in occurrence

d)     Investment


  1. Which of the following is a characteristic of process cost accounting system?

a)      Material, Labor and Overheads are accumulated by orders

b)    Companies use this system if they process custom orders

c)     Opening and Closing stock of work in process are related in terms of completed units

d)     Only Closing stock of work in process is restated in terms of completed units


  1. Which of the following manufacturers is most likely to use a job order cost accounting system?

a)      A soft drink producer

b)     A flour mill

c)     A textile mill

d)    A builder of offshore oil rigs


  1. Production volume of 1,200 units cost incurred Rs. 10,000 and production volume of 1,400 units cost incurred Rs.20, 000. The variable cost per unit would be?

a)     Rs. 50.00 per unit

b)    Rs. 8.33 per unit

c)     Rs. 14.20 per unit

d)    Rs. 100 per unit


  1. Cost accounting concepts include all of the following EXCEPT–

a)     Planning

b)    Controlling

c)     Sharing

d)    Delegating.

  1. The main purpose of cost accounting is to–

a)     Maximize profits

b)    Help in inventory valuation

c)     Provide information to management for decision making

d)    Aid in the fixation of selling price


  1. Period costs are —

a)      Expensed when the product is sold

b)    Included in the cost of goods sold

c)      Related to specific Period

d)     Not expensed


  1. An organization sold units 4000 and have closing finished goods 3500 units and opening finished goods units were 1000.The quantity of unit produced would be–

a)      7500 units

b)    6500 units

c)     4500 units

d)    5500 units


  1. Examples of industries that would use process costing include all of the following EXCEPT–

a)     Beverages

b)    Food

c)     Hospitality

d)    Petroleum



  1. The components of the prime cost are–


a)     Direct Material + Direct Labor + Other Direct Cost

b)    Direct Labor + Other Direct Cost + FOH

c)     Direct Labor + FOH

d)    None of the given options


  1. Opportunity cost is the best example of–

a)     Sunk Cost

b)    Standard Cost

c)     Relevant Cost

d)    Irrelevant Cost


  1. Fixed cost per unit decreases when–


a)     Production volume increases.


b)    Production volume decreases.


c)     Variable cost per unit decreases.


d)    Variable cost per unit increases.


  1.  Prime cost + Factory overhead cost is–


a)     Conversion cost.


b)    Production cost.


c)     Total cost.


d)    None of given option.


  1.  Find the value of purchases if Raw material consumed Rs. 90,000; Opening and closing stock of raw material is Rs. 50,000 and 30,000 respectively.


a)     Rs. 10,000


b)    Rs. 20,000


c)     Rs. 70,000


d)    Rs. 1,60,000


  1. Annual requirement is 7800 units; consumption per week is 150 units. Unit price Rs 5, order cost Rs 10 per order. Carrying cost Rs 1 per unit and lead time is 3 week, The Economic order quantity would be–

a)              365 units.

b)             300 units

c)             250 units

d)           150 units


20. For which one of the following industry would you recommend a Job Order Costing system?

a)     Oil Refining

b)    Grain dealing

c)     Beverage production

d)    Law Cases

21.  ______________ method assumes that the goods received most recently in the stores or produced recently are the first ones to be delivered to the requisitioning department.


a)     FIFO

b)    Weighted average method

c)     Most recent price method

d)    LIFO

22. Cost of production report is a _________________.


a)     Financial statement

b)    Production Process report

c)     Order Sheet

d)    None of above





23. Opening work in process inventory can be calculated as under–


a)     FIFO and Average costing


b)    LIFO and Average costing


c)     FIFO and LIFO costing


d)    None of given option


24. Jan 1; finished goods inventory of Manuel Company was Rs.3, 00,000. During the year Manuel’s cost of goods sold was Rs. 19, 00,000, sales were Rs. 2, 000,000 with a 20% gross profit. Calculate cost assigned to the December 31; finished goods inventory.


a)     Rs. 4,00,000


b)    Rs. 6,00,000


c)     Rs. 16,00,000


d)    None of given options


25. The cost expended in the past that cannot be retrieved on product or service–


a)     Relevant Cost


b)    Sunk Cost


c)     Product Cost


d)    Irrelevant Cost


26.  When a manufacturing process requires mostly human labor and there are widely varying wage rates among workers, what is probably the most appropriate basis of applying factory costs to work in process?

a)     Machine hours

b)    Cost of materials used

c)     Direct labor hours

d)    Direct labor dollars


27.  A typical factory overhead cost is–


a)     Audit


b)    Compensation of plant manager


c)     Design distribution


d)    Internal


28. Complete the following table–





a)     Constant, Decrease


b)    b. Decrease, Decrease


c)     c. Increase, Increase

d)    Increase, Decrease.


29. The Kennedy Corporation uses Raw Material Z in a manufacturing process. Information as to balances on hand, purchases and requisitions of Raw Material Z is given below–


If a perpetual inventory record of Raw Material Z is maintained on a FIFO basis, it will show a month end inventory of–


a)     $240


b)    $784


c)     $759


d)    $767


30. The difference between total revenues and total variable costs is known as–

a)     Contribution margin

b)    Gross margin

c)     Operating income

d)    Fixed costs


31. Percentage of Margin of Safety can be calculated in which one of the following ways?

a)     Based on budgeted Sales

b)    Using budget profit

c)     Using profit & Contribution ratio

d)    All of the given options


32.  Which of the following represents a CVP equation?

a)     Sales = Contribution margin (Rs.) + Fixed expenses + Profits

b)    Sales = Contribution margin ratio + Fixed expenses + Profits

c)     Sales = Variable expenses + Fixed expenses + profits

d)    Sales = Variable expenses – Fixed expenses + profits


33. For which one of the following industry would you recommend a Process Costing system?

a)     Grain dealer

b)    Television repair shop

c)     Law office

d)    Auditor


34. If 120 units produced, 100 units were sold @ Rs. 200 per unit. Variable cost related to production & selling is Rs. 150 per unit and fixed cost is Rs. 5,000. If the management wants to decrease sales price by 10%, what will be the effect of decreasing unit sales price on profitability of company? (Cost & volume profit analysis keep in your mind while solving it)

a)     Remains constant

b)    Profits will increased

c)     Company will have to face losses

d)    None of the given options


35. If 120 units produced, 100 units were sold @ Rs. 200 per unit. Variable cost related to production & selling is Rs. 150 per unit and fixed cost is Rs. 5,000. If the management wants to increase sales price by 10%, what will be increasing sales profit of company by increasing unit sales price? (Cost & volume profit analysis keep in mind while solving)

a)     Rs.2,000

b)    Rs. 5,000

c)     Rs. 7,000

d)    None of the given options




36. What is the company’s contribution margin ratio?

a)     30%

b)    70%

c)     150%

d)    None of given options


37. What is the company’s break-even in units?

a)     48,000 units

b)    72,000 units

c)     80,000 units

d)    None of the given options


38. How many units would the company have to sell to attain target profits of Rs. 600,000?

a)     88,000 units

b)    100,000 units

c)     106,668 units

d)    None of given options


39. What is the company’s margin of safety in Rs?

a)     Rs. 480,000

b)    Rs. 1,600,000

c)     Rs. 2,400,000

d)    None of given options


40. Inventory control aims at–

a) Achieving optimization

b) Ensuring against market fluctuations

c) Acceptable customer service at low capital investment

d) Discounts allowed in bulk purchase



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