Question Bank

1. Define and explain the following terms with suitable examples:

a. Cost
b. Costing
c. Cost Accounting
d. Cost Accountancy
e. Cost Centre
f. Cost Unit
2. Explain classification of cost on various basis.
3. Discuss methods and techniques of cost accounting.
4. Distinguish between cost accounting and financial accounting. (Or emphasis
of cost accounting is different from financial accounting.
5. What is cost audit? What are the objectives and advantages of cost audit?
6. Define Marginal Cost. Discuss the importance of classifying expenses into
variable and fixed.
7. What do you understand by P/V ratio? Discuss the importance of P/V ratio
and state how P/V ratio can be improved?
8. Explain the following concept with reference to overheads, with suitable
example:
a. Classification
b. Allocation
c. Apportionment
d. Absorption
e. Under and over absorption
9. Write short notes
a. Process costing
b. Operating costing
c. Break even analysis
d. Make or buy decision
e. Types of costing
f. Job costing
g. Cost audit
h. Profit Volume Ratio
i. Back flush accounting
j. Types of budget
k. Activity based costing
l. Inventory valuation
m. Labour Turnover

n. Zero based budgeting

o. Marginal coting
p. Types of variances
Problems
Q. 1) ABC Ltd. provides the following information for 10,000 cookers
manufactured during the last year:
PARTICULARS
AMOUNT (Rs.)
Material
450,000
Direct Wages
300,000
Power and consumables
60,000
Lighting of factory
117,500
Clerical Salaries and Mgmt. Expenses
168,000
Selling expenses
27,000
Sales proceeds of factory scrap
10,000
Plant, repairs, maintenance and depreciation
57,500
The net selling price was Rs.158 per unit and all units were sold.
From 1st January of the current year, the selling price was reduced to Rs.150 and it
Estimated that production could be increased by 50% in the current year due to
increased spare capacity.
Prepare:
a) A cost sheet for the last year.
b) A cost sheet for the current year if 15000 units were Produced and sold. The
Factory overheads are recovered as a percentage of direct wages and office and
Selling expenses as a percentage of works cost.
Q.2) Nilgiri Ltd. produces fridges and sells each for Rs.20, 000 during a year. The
Direct material, direct labour and OVERHEADS costs are 60%, 20% and 20%
respectively of the cost of sales. Next year, the Direct Material costs have increased
by 15% and Direct Labour costs by 17.5% and so the profit has declined by 50% if
the same selling price is to be maintained. Compute the new selling price to enable
the company to maintain the same percentage of profit as that earned during the
preceding year.
Q.3) A firm has purchased a plant to manufacture a new product, the cost data for
which is given below: Estimated annual sales 24,000 units
Estimated Costs:
Materials

Rs.4 per unit

Labour
Rs.0.60 per unit
Factory Overheads
Rs.24, 000 per year
Admn. Expenses
Rs.28, 800 per year
Selling expenses
15% of sales
Calculate the selling price if profit per unit is Rs.1.02
Q.4) The following information relates to a company
Stock

Opening

Closing

Finished goods
WIP
Raw Material

110,000
70,000
90,000

95,000
80,000
95,000

a) Cost of goods produced Rs.684, 000.

b) Factory cost Rs.654, 000.
c) Factory overheads Rs.167, 000.
d) Direct Material consumed Rs.193, 000.
Calculate:
1) Raw material purchased.
2) Direct labour cost.
3) Cost of goods sold
Q.5) The accounts of the Steel Ways Engineering Co. Ltd for 1995 are as follows:
Rs.
Materials used
Direct wages
Works overhead expenditure
General expenses

1,80,000
1,60,000
40,000
19,000

a. Show the works cost and total cost, the percentage that the works overhead cost
bears to the direct wages and the percentage that the general expenses bears to the
works cost.
b. What price should the company quote to manufacture a machine which is
estimated to require an expenditure of Rs. 8,000 on materials and Rs. 6,000 on
wages so that it will yield a profit of 25% on the total cost or 20% on selling price?
Q.6) The budgeted sales of the products of a company are as follows:

Products

Budgeted
sales in unit

Budgeted
sales in unit

Budgeted
Budgeted
Budgeted
variable cost selling price fixed
per unit
per unit
expenses

X
Y
Z

10,0000
15,000
20,000

10,0000
15,000
20,000

2.5
3
3.5

4
4
4

12,000
9,000
7,500

From the above information, you are required to compute the following for each
product:
a. The Budgeted Profit
b. The Budgeted break even sales
c. The Budgeted margin of safety in terms of sales value
Q.7) From the following particulars, you are required to calculate:
(i)P/V Ratio
(ii)BEP for sales;
(iii)Margin of Safety;
(iv)Profit when sales are Rs.2, 00,000
(v)Sales required to earn a profit of Rs.40, 000
Year Sales
Profit
I
Rs. 2,40,000 Rs.18,000
II
Rs. 2,80,000 Rs.26,000
You may make plausible assumptions. Also evaluate the effect on II years profit
when,
(a) 20% decrease in sales quantity.
(b) 20% decrease in sales quantity accompanied by 10% increase in sales price and
reduction of Rs. 3,500 in fixed costs
Q.8) A Japanese Soft Drink Company is planning to establish a subsidiary
company in India to produce mineral water. Based on the estimated annual sales of
40,000 bottles of the minerals water, cost studies produced the following estimates
for the Indian subsidiary.
Total Annual
Cost

Percentage of Total Annual

Cost which is variable

Material
2,10,000
100%
Labour
1,50,000
80%
Factory overheads
92,000
60%
Administration
40,000
35%
expenses
The Indian Production will be sold by the manufacturers representatives who will
receive a commission of 8% of the sales price. No portion of the Japanese office
expenses is to be allocated to the Indian subsidiary.
Required:
1. Compute the sales price per bottle to enable the management to realize an
estimated
10% profit on sale proceeds in India
2. Calculate the Break-even point in Rupee sales as also in number of bottles for
the Indian subsidiary on the assumption that the sales price is Rs.14 per bottle.
Q.9) An Umbrella manufacturer makes an average net profit of Rs.2.50 per

piece on a selling price of Rs.14.30 by producing and selling 60,000 pieces or

60% of the potential capacity. His cost of sales is as follows:
Direct material Rs.3.5,
Direct wages Rs. 1.25
Work overheads Rs. 6.25 (50% fixed)
Sales overheads Rs. 0.80 (25% variable)
During the current year, he intends to produce the same number of units but
anticipates that his fixed charges will go up by 10% while the direct labour
and direct materials will go up by 8% and 6% respectively. But he has no
option of increasing the selling price under this situation. He obtains an offer
for further 20% of his capacity.
What minimum price will you recommend for acceptance of offer to ensure
the Manufacturer an overall profit of Rs.1, 67,300 ?