QUESTION BANK

Cost and Management Accounting

1. What do you mean by cost accounting? Distinguish between cost accounting and management
accounting?
2. What do you mean by elements of cost? Explain in detail and how these elements are
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presented in the form of a cost sheet?

What is costing? Discuss the various techniques of costing used in the business.
Explain the concept of marginal costing and distinguish between marginal costing and
absorption costing.
What do you understand by the term break even analysis and how does this help in
business decisions?
Mention the broad principles on which overhead expenses are generally apportioned.
Upon what basis would you apportion the following expenses to individual cost centers
in an engineering unit? a. Rent and Rates b. Power c. Life insurance premium d. Lighting
What are the main steps in budgetary control? State the main objectives of budgetary
control
Distinguish between fixed budget and flexible budget?
Write a critical note about the usage, application, advantages and limitations of marginal
costing techniques.
From the following particulars of a product, prepare a cost sheet, indicating cost per unit
also:
Raw Material
- Opening Stock 20,000
- Purchases 1,50,000
- Closing Stock 10,000
Direct Labor Rs.60, 000, Factory Overhead Rs.22, 500, Office Overhead Rs.27, 500
Finished Stock:
Opening Stock 500 units @ 11.20 per unit;
Closing Stock 1,500 units @ current cost price.
Profit on sales 20%; Selling and Distributive expenses Rs. 20,000; Units produced 25,000
From the following information, prepare a statement showing cost and profit per unit:
Direct material Rs 45,000
Direct labours 33 1/3% of direct material
Direct Expenses 20% of direct material cost and direct labour cost
Factory overheads 1/9th of prime cost
Office and administrative expenses 25% of works cost
Selling and distribution expenses 10% of cost of goods sold
Units produced 100 Units remain unsold 10% of units produced Profit 1/5th of cost of
sales.

12. Tata Ltd. has three production departments A, B and C and two service departments X and Y.
The data available for the month of March-2012 concerning the organization

Following particulars are also available-

The expenses of service departments are to be allocated in following manner.

You are required to calculate the overhead absorption rate per hour in respect of the three
production departments.
13. In a factory the following particulars have been extracted for the quarter ending 30th June

2010 in respect of P1, P2 and P3 and service departments S1 and S2. Compute the
departmental overhead rate for each of the production departments, assuming that
overheads are absorbed as a percentage of direct wages.

Expenses for the period were

Apportion general overheads in the proportion of direct wages. Apportion the expenses of
S1 according to direct wages and those of S2 in the ratio of 5:3:2 to the production
departments.
14. A Ltd. has three production departments A, B and C and two service departments D and

E. The following are the figures of the company

The following further details are available

Sundry expenses are apportioned on the basis of direct wages. The expenses of D and E
are allocated as under.

Find the rate per hour if the working hours are as under. A Department 6226 B
Department 4028 C Department 4066
15. A. Sales Rs. 1,00,000; Profit Rs. 10,000; Variable Cost 70%. Find out (a) P/V ratio (b) Fixed
costs and (c) Sales to earn a profit of Rs. 40,000.

B. From the following information find (a) BEP in rupees and (b) number of units to be
sold to earn a net income of 10% of sales : Selling Price Rs. 20 per unit; Variable Cost
Rs. 12 per unit; Fixed Cost Rs. 2,40,000.

C. The ratio of variable cost to sales is 70%. The Break-even point occurs at 80% of capacity.
Find 100% capacity sales when fixed cost is Rs. 6 lakhs.
16. J K Ltd sells two products Jay and Kay in four areas North, South, East and West. The

following sales are budgeted for the month of january2013:

Actual sales for the same period were as follows:

On the basis of all the relevant factors, the following sales are budgeted for the month of
February 2013.

It was decided that additional advertising campaign will be undertaken in south and East
which will result in additional sales of 1,500 units of Jay in South and 2,500 units of Kay
in East. You are required to prepare a sales budget for the month of Feb, 2013 for
presentation to management also showing the budgeted and actual sales for the month of
Jan 2013which are to be provided as a guide in preparing the sales budget.

17. Calculate the Break Even Point is units and in rupees and also arrive at Margin of Safety

ratio from the following information.

18. A Company has three production departments and two service departments. Distribute

summary of overheads is as follows:

Find out the total overheads of production departments using the following methods:
a) Simultaneous Equation Method (b) Repeated Distribution Method
19. Prepare a Cash Budget for the three months ending 30 june 2012, from the information given
below:

b) Cash and bank balance on 1 April 2012 is expected to be Rs 6,000.

20. A company manufactures two products. A and B by making use of two types of materials viz, X
and Y. Product A requires 10 units of X and 3 units of Y. Product B requires 5 units of X and 2
units of Y. The price of X is Rs. 2 per unit and that of Y Rs. 3 per unit.

The sales manger has estimated the sales of product A to be 5,000 units and that of
product B 10,000 units. The estimate opening stork of material X for the budget period is
2,500 units and that of Y is 3,000 units. The desired closing stork of material X is 5,000
units and that of Y is 4,000 units. Prepare the Material Usage Budget and Materials
Purchase Budget for the year ending 31st Dec. 2013.

21. Form the following budgeted figures prepare a cash budget in respect of three months to

June 30.

Expected cash balance on 1st April Rs. 20,000.

Other information:
a. Materials and overhead are to be paid during the month following the month of
supply
b. Wages are to be paid during the month in which they are incurred

Terms of sales: The terms of credit sales are payment by the end of the month
following the month of sales; of the sales are paid when due the other half to be
paid during the next month. 5% sales commission is to be paid within the month
following actual sales.
d. Preference dividend for Rs. 30,000 is to be paid on 1st may
e. Share call money for Rs. 25,000 is due on 1st April and 1st June.
f. Plant and machinery worth Rs. 10,000 is to be installed in the month of January and
the payment is to be made in the month of June.
c.

22. A factory engaged in manufacturing plastic toys is working at 40% capacity and

produces, 10, 000 toys per month. The present cost break up for one toy is as under.
Material: Rs.10 Labor: Rs.3 Overheads: Rs.5 [60% fixed] The selling price is Rs.20 per
toy. If it is decided to work the factory at 50% capacity, the selling price falls by 3%. At
90% capacity, the selling price falls by 5% accompanied by a similar fall in the price of
material. You are required to prepare a statement showing the profits/losses at 40%, 50%
and 90% capacity utilizations.
23. In what way is variance analysis helpful to the company management?
24. Distinguish between Budgetary Control and Standard Costing.
25. Explain briefly the advantages and limitations of standard costing. In what ways does it
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differ from budgetary control?

What is Material & Labor Variance? Define all with its causes.
Define standard costing. Point out the difference between historical costing and standard
costing.
Calculation of variances in standard costing is not an end in itself, but a means to an
end. Discuss.
Recently a conference speaker discussing budgets and standard costs made the following
statement budgets and standards are not the same things, they have different purposes
and are setup and used in different ways, yet a specific relationship exists between them.
a) Identify differences between budgets and standards
b) Identify similarities between budgets and standards
Explain the principle underlying make or buy decision. Mention also the probable
factors influencing the decision in this connection.
What factors would you take into consideration in closing or suspending the business
activity?
What are the benefits of activity-based costing system? How is ABC information useful
on decision making?
Define target costing and what are its benefits and limitations?
Explain the meaning of target costing and state its stages.
Do you agree that activity-based costing is a more refined system of charging of overhead
cost to products than the traditional method? Explain.

36. Explain life-cycle cost analysis as a tool of management also discusses the features and

benefits of Product life cycle costing.

37. Short Notes:
a) Make or buy decision
b) Operate or shutdown
c) Standard costing and Actual costing
d) Life cycle costing
38. The standard material cost to produce a ton of chemical X is given below:

300 kg of material A @ Rs.10 per kg

400 kg of material B @ Rs.5 per kg
500 kg of material C @ Rs.6 per kg
During a particular period, 100 tons of mixture X was produced from the usage of
35 tons of material A @ Rs.9, 000 per ton
42 tons of material B @ Rs.6, 000 per ton
53 tons of material C @ Rs.7, 000 per ton
Calculate material cost, price, and usage and mix variances.

39. S.V. Ltd. manufactures a single product, the standard mix of which are as follows:

Material A 60% at Rs.20 per kg

Material B 40% at Rs.10 per kg
Normal loss in the production is 20% of input. Due to shortage of material A, the
standard mix was changed and the actual mix was as follows:
Material A 105 kg at Rs.20 per kg
Material B 95 kg at Rs.9 per kg
Actual loss was 35 kg, while the actual output was 165 kg
Calculate all material variances.
40. Standard hours for manufacturing two products, M and N are 15 hours per unit and 20

hours per unit respectively. Both products require identical kind of labour and the
standard wage rate per hour is Rs.5. In a particular year, 10, 000 units of M and 15, 000
units of N were produced. The total labour hours worked were 4, 50, 000 and the actual
wage bill came to Rs.23, 00,000. This includes 12, 000 hours paid for @ Rs.7 per hour
and 9400 hours paid for @ Rs.7.50 per hour, the balance having been paid at Rs.5 per
hour. You are required to calculate labour variances.
41. The standard output of production EXE is 25 units per hour in a manufacturing
department of a company employing 100 workers. The standard wage rate per labour
hour is Rs.6. In a 42 hours week, the department produced 1040 units of the product
despite 5% of the time paid were lost due to an abnormal reason. The hourly wage rate

actually paid were Rs.6.20, Rs.6 and Rs.5.70 respectively to 10, 30 and 60 of the
workers. Compute various relevant labour variances.
42. Compute the Material Price Variance from the following data:
Standard Material cost per unit
Materials Issued
Material A 2 pieces @ Re.1.00 = 2.00
Material A 2050 pieces
Material B 3 pieces @ Rs. 2.00 = 6.00
Material B 2980 pieces
Assume Material A was purchased at the rate of Re. 1.00 and Material B at the rate of Rs.
2.10.
43. The standard cost of material for manufacturing a unit of a particular product PEE is
estimated as follows: 16 kg of raw material @ Re. 1 per kg.
On completion of the unit, it was found that 20 kg. of raw material costing Rs. 1.50 per
kg has been consumed. Compute Material Variances.
44. A gang of workers usually consists of 10 men, 5 women and 5 boys in a factory. They are

paid at standard hourly rates of Rs. 1.25, Rs. 0.80 and Rs. 0.70 respectively. In a normal
week of 40 hours the gang is expected to produce 1000 units of output.
In certain week, the gang consisted of 13 men, 4 women and 3 boys. Actual wages were
paid at the rates of Rs. 1.20, Rs. 0.85 and Rs. 0.65 respectively. Two hours were lost due
to abnormal idle time and 960 units of output were produced.
Calculate various labour variances.
45. Following details are available from the records of Delta Ltd company for a month

regarding the standard labour hours and rates of an hour for a product.

Skilled
Semi-skilled
Unskilled
Total

Hours
10
8
16

Rate per hour (Rs)

3.00
1.50
1.00

Total (Rs)
30.00
12.00
16.00
58.00

The actual production for the product was 1500 units for which the actual hours worked
and rates were as below:
Hours
Rate per hour (Rs)
Total (Rs)
Skilled
13,500
3.50
47,250
Semi-skilled
12,600
1.80
22,680
Unskilled
30,000
1.20
36,000
Compute Labour cost variance, labour rate variance, labour efficiency variance and labour
mix variance.

46. The following was the composition of a gang of workers in a factory during a particular

month, in one of the production departments. The standard composition of workers and
wage rates per hour were as follows.
Skilled: Two workers at a standard rate of Rs.20 per hour each
Semi-Skilled: Four workers at a standard rate of Rs.12 per hour each
Unskilled: Four workers at a standard rate of Rs.8 per hour each.
The standard output of the gang was four units per hour of the product. During the month
in question, however the actual composition of the gang and hourly rates paid were as
under
Skilled: 2 workers @ Rs.20 per hour
Semi-Skilled: 3 workers @ Rs.14 per hour
Un-skilled: 5 workers @ Rs.10 per hour
The gang was engaged for 200 hours during the month, which included 12 hours when no
production was possible due to the machine breakdown. 810 units of the product was
recorded as output of the gang during the month.
Calculate various labour variances.
47. In the manufacturing of a product, 200 employees are engaged at a rate of 50 paise per

hour. A five day week of 40 hours is worked and the standard performance is set at 250
units per hour. During the first week in January, 6 employees were paid at 45 paise an
hour and 4 employees at 56 paise an hour, the remaining employees were paid at standard
rates. The factory stopped production for one hour to power failure. Calculate variances.
48. Mac & Cheese Ltd. is engaged in producing a standard mix using 60 kg of chemical X

and 40 kg of chemical Y. The standard loss of production is 30%. The standard price of
X is Rs.5 per kg and of Y is Rs.10 per kg. The actual mixture and yield were as follows:
X 80 kg @ Rs.4.50 per kg
Y 70 kg @ Rs.8.00 per kg
Actual yield 115 kg.
Calculate all Material Variances.
49. Standard hours for manufacturing two products, M and N are 15 hours per unit and 20

hours per unit respectively. Both products require identical kind of labour and the
standard wages rate per hour is Rs.5. In the year 2006, 10,000 units of M and 15,000
units of N were manufactured. The total labour hours actually worked were 4,50, 000 and
the actual wages bill came to Rs.23,00, 000. This includes 12, 000 hours paid for @ Rs.7
per hour and 9,400 hours paid for @ Rs.7.50 per hour, the balance having been paid @
Rs.5 per hour. Calculate labour variances.
50. The standard cost card for a product shows,
Material cost 2 kg @ Rs.2.50 each = Rs.5.00 per unit

Labour 2 hours @ Rs.10 each = Rs.20 per unit

The actual which have emerged from business operations are as follows.
Production 8,000 units, material consumed 16,500 kg @ Rs.2.40 each = Rs.39,600,
Wages paid 18,000 hours @ Rs.8 each = Rs.1, 44, 000
Calculate appropriate material and labour variances.
51. The Bharat electrical Ltd Company produces most of its electrical parts in its own plant.

The company is at present considering the feasibility of buying a part from an outside
supplier for Rs 4.5 per part. If this were done, monthly costs would increase by Rs 1000.
The part under consideration is manufactured in Department A along with numerous
other parts. On account of discontinuing the production of this part, department A would
have somewhat reduced operations. The average monthly usage production of this part is
20,000 units. The cost of producing this part on per unit basis are as follows:
Material
Rs 1.80
Labour (half-hour)
2.40
Fixed overheads
0.80
Total cost
Rs 5
Give appropriate decision to the management of the company.
52. ABC ltd produces a variety of products each having a number of component parts.

Product B takes 5 hours to produce on a particular machine which is working at full

capacity. B has a selling price of rs 100 and variable cost of Rs 60 per unit. A component
part X -100 could be made on the same machine in two hours at variable cost of Rs 10
per unit. The suppliers price for the component is rs 25 per unit.
Required: Advise whether the company should buy the component X-100. If necessary
make suitable assumptions.
53. A company is considering expansion. Fixed costs amount to Rs 4,20,000 and are

expected to increase by Rs 1,25,000 when plant expansion is completed. The present

plant capacity is 80,000 units a year. Capacity will increase by 50% with the expansion.
Variable costs are currently Rs 6.80 per unit and are expected to go down by Rs 0.40 per
unit with the expansion. The current selling price is Rs 16 per unit and is expected to
remain same under either alternative. What are the break-even points under either
alternative? Which alternative is better and why?
54. Auto parts ltd. has an annual production of 90,000 units for a motor component. The
component cost structure is as follows:
Materials
Labour (25% fixed)
Expenses:

Rs 270 per unit

Rs 180 per unit

Variable
Fixed

Rs 90 per unit
Rs 135 per unit
------------------Total
Rs 675 per unit
a) The purchase manager has an offer from supplier who is willing to supply the
component at Rs 540. Should the component be purchased and production stopped?
b) Assume the resources now used for this components manufacture are to be used to
produce another new product for which the selling price is Rs 485.
In the latter case, the material price will be rs 200 per unit. 90,000 units of this product
can be produced at the same cost basis as above for labour and expenses. Discuss whether
it would be advisable to divert the resources to manufacture that new product, on the
footing that the component presently being produced would, instead of being produced,
be purchased from the market.

55. New Enterprise is currently manufacturing Part M6, producing 80000 units annually. The

part is used in the production of several products made by New Enterprises. The cost per
unit for M6 is as follows:
Particulars
Direct Materials
Direct Labour
Variable Overheads
Fixed Overhead
Total;

Unit Cost (Rs)

12.00
8.00
3.50
2.50
26.00

Of the total fixed overhead assigned to M6, Rs 80000 is direct fixed overhead (the level
of production machinery and salary of a production line supervisor neither of which
will be needed if the line is dropped). The remaining fixed overhead is common fixed
overhead. An outside supplier has offered to sell the part to new Enterprises for Rs 25.00.
There is alternative use for the facilities currently used to produce the part.
1. Should the company manufacture or purchase part M6?
2. What is the New Enterprise would be willing to pay an outsider supplier?
3. If the company bought the part, by what amount would income increase or decrease?
56. The income statement for a company producing three products is given as under:

Particulars
Sales
Less: Variable Cost

Product A
65800
(25000)

Product B
100000
(55000)

Product C
85500
(35000)

Total Contribution
Less: Allocated Fixed Cost
Profit (loss)
Should the company drop Product B? Prepare a
was dropped.

40800
45000
50500
(20500)
(47000)
(32800)
20300
(2000)
17700
revised income statement if product B

57. The Bonsai ltd is presently evaluating two possible processes for the manufacture of a

toy, and makes available to you the following information:

Particulars
Variable cost per unit
Selling price per unit
Total fixed costs per year
Capacity (in units)
Anticipated sales (Next year in Units)

Process A (Rs)
12
20
30,00,000
4,30,000
4,00,000

Process B (Rs)
14
20
21,00,000
5,00,000
4,00,000

You are required to suggest:

i)
Which process should be chosen? Substantiate your answer.
ii)
Would you change your answer as given above if you were informed that the
capacities of the two processes are as follows: A 6, 00,000 units and B 5, 00,000
units? Why? Substantiate your answer.

58. ABC Electronics Company manufactures and sells three products namely Product A,

Product B and Product C. The income statement for the company is given as follows.
Product A
Product B
Product C
Total
Sales
1000000
600000
400000
2000000
Variable Cost
400000
270000
240000
910000
Contribution
600000
330000
160000
1090000
Fixed Cost
240000
144000
96000
480000
Joint Separable
100000
80000
70000
250000
340000
224000
166000
730000
Net
Income 260000
106000
(6000)
360000
(Loss)
a. Should the company drop product C? Explain.
b. Prepare a revised income statement assuming that product C is dropped.
c. Suppose that the sales of ABC Electronics company increases by 25% if product C is
dropped, will this change your answers? Explain.