Questions on (1)Introduction to cost accounting and (2) Material

Unit 1 (Introduction to cost accounting)

Objective type:
State whether following statements are true or false.
1. variable cost per unit remains unchanged when output is increased or decreased.
2. Cost accounting is a branch of financial accounting.
3. Cost accounting is used in manufacturing and non-manufacturing undertakings.
4. Cost means expired cost while expense means expired as well as unexpired cost.
5. Abnormal cost is uncontrollable.
6. Main purpose of cost accounting is to maximise profit.
7. Conversion cost is the aggregate of direct labour and manufacturing overhead.
8. Supervisor's salary is a part of administration overhead.
9. Contract costing is used in the supply of tyres and tubes for a long term contract with a car manufacturing company.
10. Nails used in furniture manufacture is an indirect material cost.
11. All costs are controllable.
12. Contract costing is used in ship building.
13. Variable cost per unit varies with increase or decrease in the volume of output.
14. Depreciation is an out-of-pocket cost.
15. Fixed cost per unit remains fixed.
16. An item of cost that is direct for one business may be indirect for another.
17. Fixed cost does not change in the same proportion in which output change.

Q. Fill in the blanks.
1. Aggregate of all direct costs is known as...........
2. Fixed cost per unit ______ with increase in the size of output.
3. Factory cost plus administration overhead is equal to ...................
4. ............ is the technique/process of ascertaining costs.
5. Cost is .......and price is a .......
6. Methods of costing used in toy making is .......
7. An example of chargeable expense is ,.....
8. .......... is a unit of product, service or time in relation to which cost may be ascertained.
9. Indirect material plus indirect labour plus ........... is equal to overheads.
10. ....... and ....... are examples of fixed cost.

Q.Match the following
(i) Total fixed cost                             1. What cost should be
(ii) Total variable cost                       2. Incurred cost
(iii) unit variable cost                        3. Increases with output
(iv) Unit fixed cost                            4. Cost of conversion
(v) Standard cost                               5. What costs are expected to be
(vi) Period cost                                  6. Decreases with rise in output
(vii) Actual cost                                 7. Remains constant in total
(viii) Labour and overhead                8. Remains constant per unit
(ix) Incremental cost                          9. Cost not assigned to product
(x) Budgeted cost                              10. Added value of a new product
     
Q.2 Point out any four limitations of financial accounting that made managers to look towards cost accounting as a tool to support their working. Comment.

Q.3 Write Notes on (i) Cost Centre (ii) Cost Unit (iiii) Objectives of Cost Accounting

Q.4 Distinguish between (a) Direct and Indirect Costs  (b) Fixed and Variable Costs (c) Product cost and Period cost (iv) Relevant cost and Irrelevant cost

Q.5 State the unit of cost and method of costing generally used in following industries:
   (i) Brick works (ii) Electricity company (iii) Colliery (iv) Ready-made garments (v) Hosiery unit (vi) Paper mill (vii) Oil Refinery (viii) Furniture manufacturing (ix) Road Transport Company (x) Shipbuilding (xi) Toy making (xii) Sugar (xiii) Restaurants viz. Pizza Hut or Bikanerwala
(xiv) Real estate development (xv) Hospital or Hotel (xvi) Pharmaceutical industry

Q6. Mention common techniques used in costing. Briefly explain any two.

Q.7 Write short notes on (a) Implicit costs (b) Opportunity costs

Q.8 What is the scope of cost accounting? Can you point out some limitations of cost accounting.
Q.9 Briefly highlight importance or benefits of cost accounting.
Q.10 Mention various methods applied while costing of different industries. Very briefly explain any four.

Questions on Materials:

1. Give outline of Purchase cycle.
2. Give arguments in favour of Centralized purchase department highlighting demerits of decentralized purchase department.
3.What are Six 'R's of Purchase function?
4. Name various documents one would normally encounter while visiting purchase and stores departments. Explain any two such documents.
5.Distinguish between Bin Card and Stores Ledger.
6. Mention any four techniques used by a stores manager to control the operations at stores. Explain any one.
7. Distinguish between (I) Carrying Costs and Non Carrying Costs (II) Bin Cards and Stores Ledger (III) Perpetual Inventory System and Periodic Inventory System
8. Briefly explain 'Turnover Ratio" and 'Input-Output Ratio' in the context of material cost control.
9. Mention various methods used for pricing the issue of materials to production departments.
10. Distinguish between FIFO and LIFO methods in the context of material stores.
11. Write short notes on: (I) ABC analysis (ii) 'Levels' in stores management (iii) EOQ
12. Objective:
           Q.Fill in the blanks:

1   .       In ABC analysis, A stands for…….materials.

2   .       Bin card only shows _______ of materials and not……………

3   .       ____________ is a document which initiates the purchase procedure.

4   .       Two important considerations in fixing order size are…………………… and ………………

5   .       The method of regular physical checking of materials in a store throughout the year is known as  ____

6   .       _____________is that portion of the basic raw material that is lost in processing and having no recovery value.

7   .       Abnormal loss of materials is charged to……………..

8   .       …………..is a method of recording stores balances after each receipt and issue to facilitate regular checking

9   .       __________ is a master requisition of materials which lists all the materials required for a job.

1   .   In _____________ method of pricing, closing stock is valued at the notional price set based on standard cost of material.

Q. True or False:

1. In ABC technique, ‘A’ items are those which are used in largest quantities.

2. Value of closing stock under FIFO and LIFO methods is the same.

3. Perpetual inventory system means continuous stock-taking.

4. Bill of materials is an invoice received from the supplier of material.

5. Slow moving materials are those which have a low inventory turnover ratio.

6. Simple average method of pricing is a more scientific method than weighted average method.

7. When prices are showing a rising tendency, FIFO method results in higher profits.

8. Reorder lever is normally fixed between minimum and maximum levels.

9. Purchase requisition note is prepared by the purchasing department.

10. Defective work is that production which is below the standard specification but which can be rectified.

11. Waste has no realizable value while scrap has small value.

12. Normal loss of material is transferred to Costing Profit and Loss Account.

13 Bin card is maintained by cost accounting department.

14. In manufacturing a product, electricity accounts for 40 per cent of the total cost. Therefore it is a direct cost.

15. In LIFO method, closing stock is valued at oldest prices of materials in stock.

Practical questions:

1.       Examples of industries, Type of costing method and applicable cost units 

SN	Type of Industry	Costing Method	Cost Unit
1	Colliery		Per Ton of coal
2	Sugar		Per Quintal
3	Cotton-textiles yarn clothing		Per pound/metre
4	Paper		Per kg
5	Steel		Per tonne
6	Automobile		Per unit
7	Chemical		Per litre/kg/mg
8	Gas		Per cubic metre
9	Nuts and Bolts/Bearings		Per bag/case/carton
10	Power		Per kilo-watt hour
11	Transport		Per tonne km

2.       Illustration for ABC analysis of stores

Store Item	Units		Cost/Unit	Total Cost
1	400		100
2	600		50
Total A
3	800		8
4	1000		10
5	200		18
Total B
6	1000		2
7	1500		0.5
8	2000		1
9	1500		1.5
10	1000		3
Total C
G. Total

3.       EOQ: Remember that EOQ does not tell us how much to purchase on an overall basis. Instead, it tries to answer how much to purchase at one time or under one order.

3.1   A Scooter manufacturing company purchases 1000 steel part @Rs.70/- per part for assembly. The costs per purchase order, i.e., cost of placing an order works out to be Rs.35/-.  This includes the non-carrying costs e.g. clerical costs, postage stationery, freight etc. The carrying cost per unit during the year is 10% on inventory price per unit. Calculate the most economical order size, i.e. EOQ from the above information.

Ans. 100 units.

3.2   From the following information, find out the Economic Order Quantity and the number or orders placed in the year:

Annual Consumption: 120 units

Buying costs per order: Rs.20

Price per unit: 100

Storage and carrying cost as a percentage of Average Inventory – 12%

3.3   The Ganges pump company uses about 75000 valves per year and the usage is fairly constant at 6250 per month. The valves cost Rs.1.50 per unit when bought in quantities and the carrying cost is estimated to be 20% of average inventory investment on the annual basis. The cost of placing an order and processing the same is Rs.18

It takes 45 days to receive delivery from the date of an order and a safety stock of 3250 is desired.

You are required to determine:

(i)                  The most economical order quantity and frequency of orders,

(ii)                The order point.

(iii)               The most economical order quantity if the valves cost Rs. 4.50 each instead of Rs.1.50 each.

3.4   A firm is allowed to avail of the Quantity discounts an purchase at the reduced prices as follows:

Rs. Per Kg.	Kilograms
6.00	Less than 250
5.80	250 and less than 800
5.60	800 and less than 2000
5.50	2000 and less than 4000
5.20	4000 and over

The annual demand is for 4,000 Kgs

Stock holding costs are 20% of the material cost per annum.

The delivery cost per order is Rs.6.00

Calculate the best quantity to order.

3.5   A manufacturing company uses materials worth Rs.36000/- per year. The cost per purchase is Rs.100/- and the carrying cost is 20% of the average inventory carried. The company currently has an optimum purchasing policy but has been offered a discount of 1 % if it purchases two times per year. Should the offer be accepted? If not, what counter offer should be made?

Calculate the best quantity to order.

Q4.

A company uses 'A', 'B' and 'C' materials in the manufacture of its products. The following information is given in respect of materials:

Materials	Usage per unit of product (Kg.)	Re-Order Qty. (Kg.)	Price per Kg.	Delivery period (weeks)	Order Level (Kg.)	Minimum Level
A	8	8000	1	1 to 3	3,000	--
B	3	4000	3	3 to 5	1,875	--
C	4	6000	2	2 to 4	--	1700

Weekly production varies from 75 to 125 unit. Find out the following:

(i)                  Minimum Stock of A

(ii)                Maximum stock of B

(iii)               Re-order level of C

(iv)               Average Stock Level of A

Ans (i) 1400
       (ii) 5200
       (iii) 2000

      (iv) 5400

Q.5 The following figures are taken from the records of M/s Rahul & Co., Moradabad of the year 2018.. The valuation of inventory is Rse.1 per Kg. or Litre

	Opening Stock	Purchases	Closing Stock
Material X	700 Kg	11500 Kg	200 Kg.
Material Y	200 Ltr	11000 Ltr	1200 Kg.
Material Z	1000 Kg.	1800 Kg	1200 Kg.

Calculate the material turnover ratio of the above material and express in number of days the average inventory is held.

Q6. From the following transactions, prepare a stores ledger Account using (i) FIFO (ii) LIFO (iii) Average and (iii) Weighted Average methods of material issue.:

Date	Particulars	Units	Cost per Unit (Rs.)
2018 July -1	Opening Stock	500	20
4	Purchased GRN 574	400	21
6	Issued SR 251	600
8	Purchased GRN 578	800	24
9	Issued SR 258	500
13	Issued SR 262	300
24	Purchased GRN 584	500	25
28	Issued SR269	400

Ans: Closing stock 400 units; value FIFO: Rs.10,000; LIFO: Rs. 8,500; Average: Rs.9,550; Wt. Av:






Labour:

Q.1 Describe various methods of recording time or attendance.
Hint: (i) Attendance registers
          (ii) Clock cards
           (iii) Metal discs
           (iv) Bio-metric attendance

Q.2 Describe various methods of time booking:
     (I) Job ticket
     (ii) Labour cost card
      (iii) Time sheets

Q.3 Outline the organisational set-up for managing and controlling labour component.
Hint:
(I) Engineering or Production planning department
(ii) Personnel or HR department
(iii) Time keeping department
(iv) Payroll department
(v) Cost Accounting department

Q.4 What are the main functions of Payroll department?
Hint:
(I) To maintain department-wise record of number of employees, wage structure of each employee
(ii) To verify and summarise work time of each employee
(iii) To maintain record of wage rate and other related conditions
(iv) To calculate, periodically or on demand, the wages earned by or payable to employees
(v) To make necessary deductions like EPF, ESI, TDS, undertime etc and additions like overtime, incentives, bonus etc.
(vi) to distribute timely and accurate wages

Q.5 What is the role of cost accounting department so far labour cost element is concerned?
Hint: Costing department is responsible for correct recording of wages and salaries to various jobs. It classifies the wage and salary amount as direct or indirect and also on functional basis. This is necessary for timely and informed decision making by management.
Q.6 Give examples of direct and indirect labour costs.
Hint: refer unit 2

Q.7 Write short notes on (i) Merit rating (ii) Job Evaluation

Hint: refer unit 2

Q.8 You are working as a manager in a export house engaged in the export of metal handicrafts. There are few very profitable orders available provided they are delivered with in one month. Major concern in completing these orders is non-availability of labour as availability of skilled labour is limited and costly. Offer your suggestions with specific reference to building special wage system to encourage workers to complete the orders with in time limits.
Hint: Here describe/mention various wage plans with special focus on incentive wage plans and profit sharing plans.

Q.9 How will you record and control costs of following : (i) Ghost workers (ii) Out workers (iii) Outside workers (iv) Casual workers

Q.10 What is (i) idle time (ii) Overtime ? Give their causes and steps to control them. How are these accounted for?

Q.11 What is labour turnover? How it is measured? Suggest four ways to reduce labour turnover.