INT-22 Cost AccounTING—AN INTRODUCTION OBJECTIVE TYPE QUESTIONS L_ Choose the correct answer 1. Cost accounting is (a) An instrument of management control (b) Notneeded if prices are beyond the control of the firm (c) Nothing more than a detailed analysis of expenditure (d) Useful only in such organisation which have profit as the aim 2. The main purpose of cost accounting is to (a) Maximise profits (b) Help in inventory valuation (c) Provide information to management for decision-making (@).. Aidin the fixation of selling price 3. Anexample of fixed cost is (a) Direct material cost (b) Works manager’s salary (c) Depreciation of machinery (d) Chargeable expenses 4. Increase in total variable cost is due to (a) Increase in fixed cost (b) Increase in sales (c) Increase in production (d) None of these 5. Costs which are ascertained after they have been incurred are known as (a) Imputed costs (b) Sunk costs (c) Historical costs (d) Opportunity costs 6. © Conversion cost is equal to the total of (a) Material cost and direct wages” (b), Material cost and indirect wages (c) Direct wages and factory overheads (d) Material cost and factory overheads 7. The purpose of financial accounting is to provide information for (a) Assessing the profitability and financial position of the firm (b) Fixing prices (c) Locating factors leading to wastages and losses (d) Cost control, 8. The term ‘cost’ refers to (a) The present value of future benefits (b) The value of the sacrifice made to acquire goods or services (©) Anasset that has given benefit and is now expired (d)_ The price of products sold or services rendered .9 Cost accounting differs from financial accounting in respect of (a) Reporting of cost (b) Ascertaining cost (©) Control of cost (d)_ Recording costCost AccountiInc—An INTRODUCTION INT-23 10. 12, 16. 17. 18, 19, Electricity generating company should use (a) Process costing (b) Unit costing (c) Operation costing (d) Operating costing . The term ‘Sunk costs’ refers to (a) Costs that are directly influenced by unit manager (b) Past costs that are now irrevocable (c) Costs that should be incurred in a particular production process (d) Benefits lost from rejecting the next best alternative Which one of the following is not a factor to be considered in designing a cost system? (a) Reporting factor (b) Price factor (c) Economy factor (d) Organisational factor When amount deposited in a bank is withdrawn for financing a project, the loss of interest on bank deposit will be referred to as (a) Replacement cost (6) Sunk cost. (c) Opportunity cost (d) Pre-production cost Which costing system description applies to the manufacture of 20 engraved doors for-the new club house at a golf course? (a) Service (b) Contract (c) Batch (d)_ Process The principal factor to be considered in designing a costing system includes (a) Company organisation structure (b) Nature of business (c) Manufacturing process (d) All of the above Research and development cost is an example of (a) Sunk cost (b) Pre-production cost (c) Imputed cost (d) Oppertunity cost Step costs are classified as a (a) Mixed cost () Fixed cost (c) Variable cost (d) Conversion cost An important feature of a cost centre is that (a) It must be one specific location only (b) Ithas clearly defined boundaries (c) It uses only monetary information (d) It must be an area of the business through which product pass Which method of costing is best suited for interior decoration? (a) Contract costing (b) Operating costing (c) Job costing (d) Process costing Depreciation based on the number of units produced would be classified as what type of cost? (a) Out-of-pocket (&) Fixed (©) Variable (@ MarginalINT-24 : Cost AccountiINc—AN INTRODUCTION 21. Which one of the following is the most important tool in cost planning? (a) Budgeting (b) Cost unit (c) Cost statement (d) Direct cost 2. Contract costing is applied in (a) Automobile industries (b) Aeroplane industries (c) Ship building (d) None of these 23. When a change is made in the level of production, the resulting change inthe total cost is known as (a) Out-of-pocket cost (b) Differential cost (c) Imputed cost (d) Opportunity cost 24. Multipie costing method is employed in (a) Sugar mill (b) Multi-product company (c) Oilrefinery . (d) Carmanufacturing company 25. Which one of the following methods of costing is adopted by quarries? (a) Batch costing (b) Contract costing (c) Single costing (d) Multiple costing 26. Job costing is applied in (a) Textile mills (b) Printing press (©) Paper mills (d) Chemical works 27. Fixed cost per unit increases when (a) Production volume decreases (b) Production volume increases (c) Variable cost per unit increases (d) Variable cost per unit decreases 28. Which of the following is a cost behaviour-oriented approach to production costing? (a) Job order costing (b) Process costing (c) Marginal costing (d) Absorption costing 29. An example ofa variable cost is (a) Depreciation (b) Labour cost (c) Insurance on machinery (d) Manager’s salary 30. Which of the following production operations would be most likely to employ a process cost system? (2) Home builder (b) Crude oil refiner (c) Ship builder (d) Aircraft manufacturer [Ans : L. (a); 2. (c)s 3. (b)5 4. (€)3 5. ()s 6. (€)s 7. (a)5 8. (b)5 9. (c)s 10. (ds AL. (b); 12. (b); 13. (€)s 14. (©)s 15. (Ad); 16. (b); 17. (a); 18. (b); 19. (6); 20. (c); 21. (a)5 22. (€); 23. (b); 24. (d)s 25. (c}s 26, (b); 27. (a)s 28, (c)s 29. (b); 30. (b)}Cost ACCOUNTING—AN INTRODUCTION INT-25 IL Fillin the blanks 1, On the basis of behaviour, cost can be classified as and 2 isa location, person or item of equipment in relation to which cost is ascertined. 3. The prime object of cost acounting is to 4, The main function of financial accounting is reporting. 5, The technique and process of ascertaining cost is known as 6 The use by several undertakings of the same technique of costing is termed as costing. 7. Direct cost is to cost unit or cost centre whereas indirect cost is 8 A -sound costing system must place the same emphasis on cost control as on 9. costs remain constant with changes in volume, while costs fluctuate with volume. 10. A personal cost centre is one which consists of a ll. An estimate is an > price is a and cost is a 12. Out-of-pocket costs involve payment to 13. is the practice: of charging all costs, both variable and fixed, to operations, processes, or products. 14, costing is based on the classification of costs into fixed and variable. 15. An expenditure which cannot be allocated to a cost centre or a cost unit is termed as cost. 16. costing is employed in cinemas. 17. Incement industries, the cost unit is 18. costs are those which follow the item of inventory and costs are those chargeable against current income. 19. Added value is the change in : 20. A method of costing followed in a public utility organisation is termed as 21. For exercising control over costs, the best system is costing. 22. Depreciation is expenditure. 23. ‘costs benefit the current period only, while cost benefit more than one period. A. costs are hypothetical notional costs.INT-26 Cost AccoUNTING—AN INTRODUCTION |. Fixed, variable and semi-variable; 2. Cost centre; 3. Cost control; 4, External; 5. Costing; 6. Uniform; 7. Allocated, apportioned; 8. Cost ascertainment; 9. Fixed, variable; 10. Group of persons; 11. Opinion, policy, fact; 12. Outsiders; 13. Absorption costing; 14. Marginal; 15. Indirect; 16. Operating; 17. Tonne; 18. Product, period; 19. Market value; 20. Operating costing; 21. Standard; 22. Semi-variable; 23. Revenue, capital; 24. Imputed] [Ans: IL Indicate whether the following statements are true or false Cost accounting is a branch of financial accounting. All costs are fixed in the long term. A cost unit is the same as a cost centre. Abnormal cost is controllable. The term ‘cost’ means price. Cost classification is only a futile mental exercise. Period costs are not assigned to products. Cost unit in a college may be a student. Pp eM AWA WN Both finanical and cost accounts are written up with the same basic documents. 10. Operating costing and operation costing are two different methods of costing. 11. Period costs are unvariable and are expensed out as and when inventory is sold. 12. Administration expenses are mostly fixed. 13. Costing, cost accounting and cost accountancy mean the same. 14. An item of cost that is direct for one business may be indirect for another. 15. Since pricing is a matter of managerial policy, cost information is useless for price fixation. 16. There is no difference between selling costs and distribution costs. 17. Variable cost per unit remains constant. 18. Techniques and methods of costing are two different things. 19. Fixed cost per unit increases with increase in production volume. 20. Standard costing tells us ‘what the cost should be’. 21. Cost accounting is based on the principles of double entry system. 2. Distribution cost includes primary packing expenses. 23. Sunk costs are relevant for decision making.+ Cost AccountiInc—AN INTRODUCTION INT-27 24. Direct costs and direct expenses are the same. 25. Cost accounting is a system of foresight and not a post-mortem study. [Ans: True: 2, 4, 7, 8, 9, 10, 12, 14, 17, 18, 20, 21, 253 False: 1, 3, 5, 6, 11, 13, 15, 16, 19, 22, 23, 24] THEORETICAL QUESTIONS What is cost accounting? What are its objectives? Define ‘costing’, ‘cost’ and ‘cost accounting’. _ What are the limitations of financial accounting? State the differences between financial accounts and cost accounts. yA YN What are the differences between management accounting and cost accounting? 6. State the advantages of cost accounting. How does it aid the management and what objections are raised against cost accounts? 7. “Two of the main objections against cost accounts are that they are expensive and unnecessary”. Do you agree with this statement? Discuss the limitations of cost accounting. 9. What are the main characteristics of an ideal cost accounting system? 10. What do you mean by installation of costing system? Explain the practical difficulties involved in installing such a system in a manufacturing concern. ll. Briefly explain the different ways of ‘classifying cost’. 12. Write a note on cost centre. 13. Write short notes on: (a) Sunk cost (b) Opportunity cost (c) Out-of-pocket cost (d) Conversion cost (e) Profit centre (f) Cost unit 14. Briefly explain the different methods of costing? State the industries to which they can be applied.Cost SHEET, TENDERS AND QUOTATIONS CTQ-43 0.375x= Rs. 11,250 11,250 = Rs. —<-—_ = Rs. 30. x S. 0375 Rs. 30,000 Hence, cost of sales = Rs. 30,000 (a) Statement showing present profit per article Particulars Rs. Direct materials 30,000 0.50 | 15,000 Direct labour 30,000 x 0.20 6,000 Overheads 30,000 x 0.30 9,000. Total cost 30,000 Profit (Bal. fig.) 15,000 Selling price 45,000 15,000 % of present profit to cost of sales = 35 O99 x 100= 50% (b) Statement showing revised selling price per article Particulars Rs. Direct materials 30,000 x 0.575 17,250 Direct labour 30,000 x 0.250 7,500 Overheads 30,000 x 0.300 9,000 Total anticipated cost 33,750 Add: Profit (50% on cost) (33,750 x 50%) 16,875 Revised selling price ! 50,625 OBJECTIVE TYPE QUESTIONS L Choose the correct answer 3 1. Prime cost may be correctly defined as (a) The sum ofthe large cost items in a product cost (b) The total cost incurred in producing a finished unit (c) The sum of direct materials and direct labour cost with all other costs excluded 5 (d) The total of all cost items which can be directly charged to product units 2. Prime cost plus variable overheads is known as (a) Cost of sales (b) Production cost (c) Total cost (d) Marginal costCT1Q-44 ‘Cos¥ Suet; TENDERS AND QUOTATIONS 3. Which one of the following constitutes the cost of production? (a) Works cost + Office and administration Dyarheads (b) Prime cost + Factory overheads | =: (c) Works cost + Prime cost y 2 (d) Works cost + Selling and distribution overeat 4. A cost shett Should iawe'! 2?) 6% »{a) Twocolumns (b) One.column, ,(c) Three columns: (d) As many, columns as-may be required Si can winderstatetpen of closing work-in-progress inventory: will ‘a) Overstate current assets 0), , Overstate gross profit ¢) Understate net profit {d);_, Understate cost of goods 6. An.overstatement of opening work=in-progress-inventory-will- (a) Overstate net profit), - | (b) Overstate cost of goods sold (©) Overstate gross'profit,, © =< dd): Understute cost‘of goods sold 7. Ifthe total of production cost is Rs. 80, 000: and 20% of: Sale Price is the profit to be addéd;swhat isthe profit? +i rig viviosis tosis (ay Rs 24,000 - ® TRS. 20,000 (0); Rs: 12,000 > 28 “@D “Rs: 16,000 8... The total cost of a producti is Rs. 64,000 and if 20% of the: sale price is the ® Profit to be.added, what is the sale price? es “Rs, 80,000 i (b) Rs. 76,800 ® Rs. 72,000. @ "Rs 68,000 9 “Welfare expenses will be shown in the cost sheet under “@y Factory overheads ~""=(@) Administration overheads (c) Selling overheads (d) Distribution overheads 10. Which one of thé following. donstitites tlid dost’6f sales? “(a) Works cost + Administration overheads (b) Cost of production + Selling and distribution overtiedds' (c) Prime cost + Works overheads.;.: 9: -{)28°> Work cost +. Sellingand oie overhéads > Factory: cost-is also: known as A statement that sets out the di Noo mp bal The: Aan , indirect materials, indirect labour and indirect expenses is known asCost Sweet, PENDERS-AND QUOTATIONS . cr@us’ 4. Total cost is made up of materials, ‘labourand The aggregate of direct wages and manufacturing overheads is known as. . 6. ‘On cost’ is a and is recominended by ICMA. 7. Materials used,plus direct labour plus factory.overheads is termed as ¥ 8. Cost of seatching new products or improved methods ‘is ‘ cost. {Ans : 1. works, production; 2. cost sheet; 3. overheads;. 4. expenses; 5. conversion cost; 6. misnomer, not; 7. works cost; 8. research] TIL: Indicate whether the following statements are True or False Prime cost anid’ indiréet cost make total cost: Direct material is one which can easily be identified in the finished product, Wages paid to timé clerk is an example of direct cost. Factory cost and factory expenses are not the same. Chargeable expenses is the sum of direct and indirect expenses. Electricity, used in mining copper is the cost of direct material i.c., copper. Overheads.end indirect expenses mean the same. Fixed cost and period cost are the same. [Ans : True: 1, 2,'4, 6, 8; False: 3, 5, 7] SAAWAWN om “THEORETICAL QUESTIONS: ». tase What are clemetits of cost? Illustrate the different components. of cost. 2. Distinguish between direct expenses and indirect expenses. What types of expenses areincluded in the former? What do you, understand by ‘overhead’? 4, Distinguish.between : (a) Direct materials and indirect materials (b) Direct'wages and indirect wages (c) Direct expenses and indirect expenses What is a costsheet? What is its purpose? Distinguish between :‘cost sheet’, and ‘production statement’. Dray a:proforma,cost.sheet: -» Explaimthe following and give their alternative names: (a) © Prime cost’’(b)” Workscost (c) ’ Office cost 9. Name the items of income and expenditure which are excluded from cost accounting, though included in financialaccounts. 10. How are’*Penders’ or ‘Quotations’ prepared? Il. Describe the role of a cost accountant in determining the quotation price as against a tender. e PrN AwMAT-74 Mareriacs IL Fillinthe blanks 1. Bin card is also known as bin or card. 2. Fixation of stock levels is known as the and method of inventory control. ® 3. Under the ABC technique, ‘A’ stands for * 4. The process of physical verification of stores throughout the year is termed as 7 5. Stores are issued against requisition form. 6. Allotting symbols or code number or both to the different items of stores is called 7. Material Return Note is sent by department to the storekeeper. 8. is a document which recorded the transfer of materials from one job or department to another. 9. Determination of the ordering level is estimated for 10. The quantity of materials that is to be ordered with a supplier iscalled __. ll. is a document which is classified to record the materials issues, returns and transfers. 12. level is that level of material at which a new order for material is placed. 13. The rate of change in the material used is known as 14. Under the method, a new issue price is determined after each purchase. 15. Selection of suppliers is made by 16. The use of facilitates an easy and quick location of any item of stores. 17. Quantities of materials on hand as shown by the bin cards should agree with quantities on the 18. Proper storage conditions help in avoiding while materials are in storage. 19. Surpluses and deficiencies in the course of stock taking may arise due to > and : 20. Abnormal losses of materials are charged to [Ans: 1. tag, store; 2. demand, supply; 3. high value items; 4. perpetual inventory system; 5. stores; 6. stores coding; 7. returning; 8. material transfer note; 9. inventory; 10. EOQ; 11. material issue analysis sheet; 12. re-order; 13, turnover ratio; 14, weighted average; 15. management; 16. location codes; 17. stores ledger A/c; 18. losses; 19. evaporation, absorption of moisture, pilferage ; 20. costing P&L A/c]LAB-54 Lasour, 16. The Halsey plan (a) Is intended to improve the quality of work (b) Pays higher bonus at higher levels of efficiency (c) Divides the benefit of time saved equally between the employer and the employee (d) None of the above 17. The Rowan plan (a) Is the best for efficient workers (b) Pays lower bonus than that of Halsey beyond 50% saving in time (c) Pays increased bonus at-an increasing rate as the efficiency (d) None of the above 18. Under Emerson’s efficiency plan, the worker gets normal wages at (a) 100% efficiency (b) 80% efficiency (c)33'/,% efficiency (d) 667/,% efficiency 19. The payroll (a) Is the wage analysis sheet (b) Is the wage sheet (c) Is arolled sheet of paper fastened around the drum of the dial time recorder (d) None of the above 20. Under Gantt task and bonus plan, no bonus is available to a worker if his efficiency is below (a) 100% (b) 50% (©) 75% (d) 66 1% 21. Under Bedaux system, the point obtained as ‘B’ represents (a) No. of minutes taken for ajob (b) No. of hours taken for a job (c) No. of units produced (d) No.of workers required fora job 22. In which of the following incentive plans of wage payment, wages on time basis are not guaranteed? (a) Gantt’s task and bonus system (b) Halsey plan (c) Rowan plan (d) Taylor's differential piece rate system 23. Fringe benefits (a) Are contract labour costs (b) Are related to labour productivity (c) Are indirect forms of employee compensation (d) None of the above 24. Under which of the following bonus system, production budget of the department is taken as standard and the actual production, if exceeds the standard, bonus is paid to all the workers (a) Priestman’s plan (b)Scanlon plan (c) Bush plan (d) Rucker plan 25. Under the high wage plan, a worker is paid (a) Normal wages plus bonus (b) At a double rate for overtime (c) According to his efficiency (d) At a time rate higher than the usual rateOverHeaps OHD-63 Standing charges per hour = 47.65/ 1,814 0.03 Machine expenses: Depreciation 785 x 1/40 19.63 Repairsto machine 1,446 x 1/40 36.15 Power 3,120 x 1/40 78 Total machine expenses 133.78 Machine expenses per hour = 133.78 / 1,814 0.074 Machine hour rate 0.104 Note It is assumed that depreciation, repairs and power are not time linked but based on usage. For this reason, these items have not been categorised as standing charges. OBJECTIVE TYPE QUESTIONS L Choose the correct answer 1. The allocation of whole items of cost to cost centres or cost units is termed as (a) Cost allocation (b) Cost apportionment (c) Overhead absorption (d) Cost reapportionment 2. Apportionment of overhead cost may be defined as (a) Classification of overhead cost as fixed or variable (b) Charge each cost centre with a share of an overhead cost using an appropriate basis to estimate the benefit extracted by each cost centre (c) Charge to a cost centre of an overhead cost item with no estimation (d) Charge to cost units for the use of an overhed cost 3. Which of the following is a service department? (a) Finishing department (b) Refining department (©) Receiving department ~ (@) Machining department 4, Departmental overhead rates are used to . (a) Make sure that more overhead is applied to production (b) Allocate service department costs to production departments (©) Assign overhead to production whenever a factory overhead applied account is used (d) Secure an assignment of overhead to production that reflects the benefits a product receives from a department better than does a single plant wide overhead rate. 5. Which of the following best describes a fixed cost? A cost which “(a) Remains at the same level when output increases (b) Has a direct relationship with output (c) Remains at the same level upto a particular level of output (d) Represents a fixed proportion of total costOHD-64 OVERHEADS 6. Which of the following is a valid classification of the salary paid to the foreman in charge of the packing department? (a) Direct product cost (b) Direct departmental cost (c) Service department cost (d) Indirect departmental cost 7. Wages paid to maintenance department workers who do repair work principally for production departments but also on the vehicles in the distribution department should be charged as (a) General cost (b) Service cost (c) Production cost (d) Distribution cost 8. Warehouse expenses is an example of (a) Factory overhead (b) Administrative overhead (c) Selling overhead (d) Distribution overhead. 9. Bad debt is an example of (a) Manufacturing overhead (b) Administration overhead (c) Selling overhead (d) Distribution overhead 10. Which of the following is not a selling overhead? (a) Royalty on sales (b) Distribution of samples (c) Legal cost for debt realisation (d) Insurance to cover sold goods while in transit Il. Salary to a foreman should be classified as a (a) Variable overhead (b) Fixed overhead (©) Semi-fixed or Semi-variable overhead (d) None of these 12. Directors’ remuneration form a part of: (a) Selling overhead (b) Distribution overhead (c) Office and administrative overhead - (d) Factory overhead 13. Packing cost is a (a) Manufacturing overhead (b) Selling overhead (c) Distribution overhead (d) It may be any of the above 14. Number of workers employed is used as a basis for the apportionment of: (a) Personnel department expenses (b) Canteen expenses (c) Time office costs (d) Any of these 15, Absorpion means (a) Charging of overheads to cost centres or cost units (b) Charging of overheads to cost units (c) Charging of overheads to cost centres (d) None of the above 16. Factory overheads should be absorbed on the basis of (a) Machine hours (b) Direct labour hours (c) Direct labour cost (d) Relationship to cost incurredOVERHEADS OHD-65 17. Administration overheads are recovered as a percentage of (a) Works cost (b) Prime cost (c) Direct materials (d) Direct wages 18. Factory overheads include all of the following except (a) Salary of plant manager (b) Depreciation on delivery equipment (c) Small tool expenses (d) Taxes on factory building 19. Information regarding depreciation is obtained from (a) Plant register (b) Invoice (c) Cash book (d) Stores requisition 20. A business telephone bill should normally be classified into which one of the following categories? (a) Variable overhead (b) Fixed overhead (c) Semi-variable overhead (d) Stepped fixed overhead 21. Which of the following is usually classified as stepped cost? (a) Telephone (b) Rawmaterials (c) Rates (d) Supervisors” wages 22, Factory worker fringe benefit costs are usually charged to (a) Manufacturing overhead (b) Office and administration overhead (c) Direct labour (d) Work-in-progress inventory 23. Over which of the following costs is management likely to have least control? (a) Advertising cost (b) Buildings insurance cost (c) Machine breakdown cost (@) Wage cost 24. The only method of allocating service department costs to producing departments that considers reciprocal services is called the (a) Algebraic method (b) Step method (c) Out-of-step method (d) Direct method 25. In the determination of factory overhead application rates, the numerator of the formula is the (a) Estimated labour hours for the next period (b) Actual labour hours for the next period (c) Estimated factory overheads for the next period (d) Actual factory overheads for the next period 26. Normal capacity of a plant is (a) Long-term average capacity based on sales expectancy (b) Actual volume of production overheadsOHD-66 OveRHEADS 27. 28. 31. 33. (c) Maximum capacity less inevitable interruption (d) The maximum productive capability . Idle capacity of plant refers to the difference between (a) Practical capacity and normal capacity (b) Practical capacity and capacity based on sales expectancy (c) Maximum capacity and practical capacity (d) Maximum capacity and actual capacity Maximum possible productive capacity of a plant when no operating time is lost is its (a) Theoretical capacity (b) Normal capacity (c) Practical capacity (d) Capacity based on sales expectancy . The level of capacity or activity which when used in setting overhead rates would yield the lowest average unit product costs is most likely to be (a) Actual capacity (b) Expected capacity (c) Normal capacity (d) . Practical capacity ). When fixed and variable overhead rates are used (a) Both rates should be based on actual activity (vb) Both rates should be based upon expected activity (©) , The variable rate should be based upon expected activity, while several alternative bases may be used of the fixed rate (d) Overheads will probably be rather fully absorbed when both rates are based upon practical capacity. When the amount of overhead absorbed is less than the amount of overhead incurred, it is known as: (a) Under-absorption of overhead (b) Over-absorption of overhead (c) Proper absorption of overhead (d)_ None of these When the amount of under or over-absorption is significant, it should be disposed off by: (a) Carrying over as a deferred charge to the next accounting year (b) The use of supplementary rates (c) Transferring to costing P&L A/c (d) None of these Which one of the following is a cost of seeking to create and stimulate demand and of securing orders? (a) Distribution cost (b) Selling cost (c) Administrative cost (d) Research cost JAns : 1.(a); 2. (b); 3. (c); 4. (d)s 5. (c); 6. (b); 7. (b); 8. (d); 9.(c); 10. (d); 11. (c); 12. (e); 13. (d); 14. (d); 15. (b); 16. (d); 17. (a); 18. (b); 19. (a); 20. (c)s 21. (d); 22. (a); 23. (b); 24. (a); 25. (c); 26. (a); 27. (b); 28. (a); 29. (d); 30. (c); 31. (a); 32. (b); 33.(b)]Overseas : OHD-67 IL Fillin the blanks 1, Overhead is an aggregate of and and ¥ 2. The difference between actual and recovered factory overheads is termed as 3. Under or over-absorption of overheads arises only when overheads are absorbed by : 4 means the allotment of whole items of cost to cost centres or cost, units. Ss is the allotment of proportions of items of cost to cost centres or cost units. 6. The process of grouping costs according to their common characteristics is called 7. When the amount of under or over-absorbed overheads is significant, it is disposed off by the use of 8 When the amount of under or over-absorbed overheads is negligible, it is disposed off by : 9. The rate is computed by dividing the overheads by the aggregate of the productive hours of direct workers. 10. In machine hour rate, wages of machine operator are included. Il. The difference between practical capacity and the capacity based on sales expectancy is termed as 12. The capacity is the maximum capacity minus unavoidable loss of operating time. 13. The cost of searching for new or improved products, new applications of materials or new or improved methods is known as 2 14. is the loss in the value of an asset due to its supersession at a date earlier than that foreseen. 5. Relative areas of departments is used as basis for the apportionment for items such as and [Ans: I. Indiret materials, rect labour, indirect expenses; 2. Under or over-absorbed overheads; 3. Predetermined overhead rates; 4, Allocation; 5. Apportionment; 6. Cost classification; 7. Supplementary rate; 8. Transfer to costing P&L A/c; 9. Direct labour hours; 10. Comprehensive; 11. Idle capacity; 12, Practical; 13. Research cost; 14. Obsolescence; 15. Rent, lighting and heating} HL Indicate whether the following statements are True or False 1. Fixed overhead cost is a committed cost. 2. Variable overhead cost is a period cost. 3. Cost of indirect materials is apportioned to various departments.OHD-68 OvEeRHEADS 4. Primary’ distribution is effected on the basis of service rendered to the _ production departments by service departments. 5. Factory rent is a direct cost to the factory as a whole but indirect to the departments. 6.. Factory overheads and other expenses are synonymous terms. 7. Departmentalisation of overheads facilitates the control objective of cost accounting. 8. Direct assignment of factory overheads cost to each department is called apportionment. 9. Predetermined rate of absorption of overheads helps in quick preparation of cost estimates and quoting prices. 10. Direct labour hour rate of absorstion of overheads are suitable where most of the production is done by using machines. 1]. The time factor is ignored when the cost of materials is used as the basis for absorption of overheads. , 12. Blanket rate of overheads is well-suited to a factory which has a number of departments, 13, A cost accounting system may contain many sub-groups of accounts for overheads, each of which contains an account with the same title. 14. Generally, all indirect manufacturing overheads will be allocated to the production departments after being first accumulated in service departments. 15. The machine hour rate is appropriate where direct labour costs are relatively low and machine costs are relatively high. 16. Allocation of overhead costs to producing departments is necessary to identify operating inefficiencies in service department. 17. Factory overheads are said to be over-absorbed when actual costs are greater than the amount assigned or applied to production. 18. An idle capacity loss cannot be isolated if an overhead rate is set using expected activity. . 19. The overhead rate can be based on practical capacity eventhough the company fully expects to operate at a lower level. 20. Departments that helps producing departments indirectly are known as service departments. Overheads are also known as chargeable expenses. Carriage inwards is not really an overhead at all, but is'a direct cost. Rent is not included in cost when premises are owned by the company. 24. The words ‘allocation’, ‘apportionment’ and ‘allotment’ have exactly the same meaning in costing. 25. Rate per unit of production is the easiest and most suitable of all the methods of absorption. BRERCF-36 RECONCILIATION OF COST AND FINANCIAL ACCOUNTS IL Indicate whether the following statements are True or False 1. When cost and financial accounts are independently maintained, it is essential to reconcile these two accounts. 2. Over-absorption of administration overheads in cost accounts is deducted from costing profit to reconcile it with profit as per finanical book. 3. Provision for income tax, penalties and fines are shown in cost accounts only. 4, Purely financial incomes like dividend, interest on investment, discount, etc. are shown in finanical accounts only. 5, Over-absorption or over-recovery and under-absorption or under-recovery of overheads means overheads shown in costing are more or less than that shown in finanical accounts. 6. Rent on-own buildings is not included in cost accounts. 7. Costing profit & loss a/c includes all items of finanical nature (like interest) . which are not included in cost ascertainment. 8. Reconciliation statement starts with profit or loss as per cost or finanical accounts and at the end profit or loss as per financial or cost accounts is obtained as the balancing figure. {Ans : True: 1, 4,5, 8; False : 2, 3,.6, 7] THEORETICAL QUESTIONS . What do you understand by reconciliation of cost and financial accounts? 2. Explain why periodic reconciliation of cost and financial accounts is necessary. 3. Discuss the reasons for difference in results as shown by cost accounts and financial accounts. How will you reconcile them? 4, Explain the procedure of reconciling the profits as shown by cost and financial accounts. 5. List out ten items, either debit or credit, which appear in the financial accounts but do not appear in the cost accounts. 6. “It is important to reconcile the profits disclosed by cost accounts with those of the financial accounts.” Do you agree? Explain. 7. What is memorandum reconciliation account? Distinguish between reconciliation statement and memorandum reconciliation account and give an imaginary memorandum reconciliation account.OpeRATING AND Operation CosTinc 000-35 [Ans : 1. (c): 2. (d) 33. (©) 54. (b): 5. (€) 5 6. (d) 5 7. ( OBJECTIVE TYPE QUESTIONS Choose the correct answer Classification and accumulation of costs by fixed and variable cost is of special importance in (a) Output costing (b) Process costing (c) Operating costing (d) Batch costing The Tamil Nadu Transport Corporation must use (a) Job costing (b) Contract costing (c) Process costing, (d) Operating costing Electricity generating company should employ (a) Process costing (b) Multiple costing (c) Operating costing (d) Output costing Cinema houses must adopt (a) Contract costing (b) Operating costing (©) Batch costing (d) Job costing. A lorry delivers goods to intermediate destinations on a journey from X and Y where vehicle space is the limiting factor. Which of the following is the most appropriate cost charge rate? (a) Per cubic metre (b) Per mile (c) Per cubic metre mile (d) Pertonne-mile As capacity utilisation of a service increases, the average total cost per unit of service will (a) Fluctuate on a random basis (b) Remain constant unless price level changes (c) Increase since additional costs are incurred (d) Fall as the impact of fixed cost per cost unit is reduced Ina polytechnic cost analysis, which of the following is the most useful cost unit comparison exercise? (a) Cost per graduate for each degree examined over a number of years. (b) Overall average cost per graduate compared with that of other polytechnics. (c) Cost per graduate for one degree with cost per graduate for other degree courses. (d) Overall average cost per graduate from one year to another. Composite unit is a distinctive feature of (a) Single costing (b) Operating costing (c) Process costing (d) Job costing . (b)]PCS-86 Process Costing 23, __________ method of evaluating by-products is applied when by-products are utilised in the undertaking itself as material for some other process. 24, _______ is an example of cost which is virtually always after split-off cost. 25, Under the _________ method, joint cost is allocated according to the sales value of the individual, products. [Ans : [1. Job costing, process costing; 2. Valuation of work-in process, process losses; 3. Abnormal gain; 4. Good units; 5. Costing P & L a/c; 6. Normal loss ; 7. Abnormal loss; 8. Equivalent prodyction; 9. FIFO, average cost; 10. 480 units; 11, Average cost; 12. Equivalent unit; 13. Inter process profit; 14. Sugar, bagasse; 15. Determine profit or loss on each product line; 16. Relative sales values, profit pattern desired, purpose of manufacture; 17. By-product; 18. Split-off point; 19. Main ; 20. Joint; 21. Relative sales value; 22. Scrap; 23. Opportunity or replacement cost: 24. Selling & distribution cost; 25. Market or sales value] HL Indicate whether the following statements are True or False: 1. In process costing , there is a transfer of cost from one process to another as the product moves from one process to another. 2. In process costing, ordinarily no distinction is made between direct and indirect material. 3. A process cost system is applicable to paper mills, chemical works, textile mills. 4. The number of requisition for materials is greater in a process cost system than in a job order cost system. . 5. Normal losses are avoidable losses arising from the nature of the productive process. 6. - The cost of abnormal process loss is not included in the cost of process. 7. Process costing is generally applied where all the operations are performed in one department. 8. The output of one process may be transferred to another process at cost or at market price. 9. Equivalent production comprises the units completed during the period together with equivalent completed units represented in the beginning and ending work-in-progress inventories. 10, In equivalent production computations, a distinction is made between equivalent units of materials and equivalent units of conversion. IL. Inclusion of inter process profits in accounts will not require any adjustment in stocks. 12. Process costing is applied in garment industry. 13. Abnormal gain should reduce the normal loss and balance is transferred to costing P&La/c. 'MCB.112 Marginal Costing and Break-even Analysis If the sales of products A and C can be pushed by 10,000 units each, as per the assumption of the sales manager, his proposal, when implemented will increase the profit by Rs. 1,000. 1. Objective Type Questions (A) Choose the correct answer to the following 1, Production cost under marginal costing includes (a) Prime cost only (b) Prime cost and Fixed overhead (c) Prime cost and Variable overhead (d) Prime cost, Variable overhead and Fixed overhead. 2. One of the primary differences between marginal costing and absorption costing is regarding the treatment of (a). Prime cost (b) Fixed overheads (c) Variable overheads (d) Direct materials. 3. Absorption costing differs from marginal costing is the (a) fact that standard costs can be used with absorption costing but not with marginal costing (b) amount of costs assigned to individual units of products (©) kind of activities for which each can be used (d) amount of fixed costs that will be incurred. 4. Contribution margin is also known as (a) Marginal income (b) Gross profit (c) Net profit (d) None of these. 5. Period costs are (a) Overhead costs (b) Prime cost (c) Variable cost (d) -Fixed costs. 6. Contribution margin is equal to (a) Fixed cost — Loss (b) Profit + Variable cost (c) Sales— Fixed cost—Profit (d) None of these. 7. P/V Ratio is an indicator of (a) the rate at which goods are sold (b) the volume of sales (c) » the volume of profit (@) the rate of profit.