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.
Overheads:
Objective:
Q.1 State whether following statements are true or false:
(i) Fixed cost per unit remains fixed even when output level changes.
(ii) Departmentalization of overheads refers to the process allocation, apportionment and reapportionment of overheads to production departments.
(iii) Cost of after sales services is a part of selling and distribution overheads.
(iv) When building is owned and no rent is actually paid, still notional rent should be added to the cost of production.
(v) Machine hour rate method of overhead absorption is suitable when production is mainly carried through use of machines.
(vi) Selling overheads are incurred for promotion of products and securing orders, while distribution overheads are incurred in arranging the supply and availability of products to customers.
(vii) Predetermined overhead absorption rates result in under-absorption or over-absorption of overheads.
(viii) Secondary packing is an example of distribution cost
(ix) Total cost of a product or service = Primary cost + Overheads
(x) Actual capacity of a production unit is greater than installed capacity.
Fill in the blanks:
(i) Overheads cost is the aggregate of _________, __________ and ________
(ii)_________ is the allotment of whole items of overheads to the cost units or cost centre.
(iii)Under absorption of overheads means that _______ overheads are less than _________ overheads.
(iv) Factory rent should be apportioned to various departments of the factory on the basis of _______ occupied by each department.
(v) Predetermined overhead absorption rates should be based on __________ capacity.
(vi) Charging of total overhead costs of a production department or cost centre to the products or units produced is known as ____________ of overheads.
(vii) _____________ is one of the methods of reapportionment when service departments are mutually dependent.
(viii) ___________ overheads show tendency of both fixed and variable overheads.
(ix) Accounting and audit expenses is an example of ______________ overheads.
(x) Jet airways has been badly hit by high ________ costs in periods of declining sales.
Theoretical :
Q.1 What do you understand by the term 'overheads' in cost accounting? How important is their measurement and control. Support your answer with suitable examples.
Hint: Overheads refer to indirect costs i.e. indirect material, indirect labour and indirect expenses
With constant rise in technology, capital investment in assets, salary bills etc, over the years indirect expenses i.e. overheads have assumed the major portion in the total cost structure of goods or service. This has made their measurement and control of paramount importance in the sustenance of of any commercial organisation. Eg. Aviation industry in India has been a victim of high overhead costs and major casualties like Air India, King Fisher and presently in the case of Jet airways is a testimony of this issue.
Q.2 Give classification of overheads with examples on the basis of (i) Functional departments (ii) Variability with respect to sales (iii) Controllability.
Q.3 What is Departmentalization of overheads?
Hint: The process of charging overheads through allocation and apportionment to production departments is known as departmentalization of overheads.
Q.4 What is Re-apportionment of overheads?
Hint: Reapportionment of overheads involves allocating and apportioning overhead bill of service departments to production departments. This is done because costs of running service departments has to be ultimately recovered from sales of products or service of revenue generating departments.
Q.5 What are semi-variable overheads? Give examples. Mention various methods used to segregate fixed and variable components from semi-variable overheads.
Hint: Refer unit 3
Q.6 Give four examples of service departments in a commercial organisation.
Hint: (i) Accounts department (ii) Computer networking and support (iii) Security (iv) Stores & Purchases... here you may mention any of the support departments.
Q.7 Suggest various methods of reapportionment of overheads where service departments are mutually dependent.
Hint: (i) Repeated distribution (ii) Trial and error (iii)
Q.8 Briefly describe the term 'absorption of overheads'.
Hint: refer notes
Q.9 What do you mean by 'overhead absorption rate'? Mention various overhead absorption rates used in cost accounting.
Hint: Overhead absorption rate is arrived at by dividing total overheads (both allocated, apportioned and re-apportioned) by number of units of production or some other base representing level of activity in the production department.
Q.10 Distinguish between actual and predetermined overhead absorption rate. Why overheads are under or over absorbed.
Hint: When actual overheads are used, the resultant overhead absorption rate is also actual. On the contrary when an estimated overhead rate based on past figures and production levels is used, such a rate is known as predetermined absorption rate. Predetermined overheads rates are used to estimate overheads for forecasting or estimating costs of a product or service (before actual activity takes place and costs are actually incurred)
Again, overheads based on predetermined overhead absorption rates are also predetermined i.e. estimated and not actual. This is a sort of forecasting. This leads to a possibility where such estimated or budgeted overheads are more or less than the actual overheads. Actual overheads come into existence only after they are actually incurred.
When overhead absorbed or recovered (based on predetermined rates) are less than actual overheads, it is said overheads are under absorbed or under recovered.
When overhead absorbed or recovered (based on predetermined rates) are more than actual overheads, it is said overheads are over absorbed or over recovered.
Hint: (i) Use of supplementary rates
(ii) Writing off to costing profit and loss account
(iii) Carrying forward to subsequent years for adjustment
Q.12 Briefly describe the treatment of following items of overhead:
(i) Actual or notional rent of building (ii) Primary and secondary packing (iii) Royalties (iv) Subsidized canteen or fooding
Hint: (i) Actual or notional rent of building : Actual rent of building is a cost to be included in either manufacturing or office & Admin or Selling & Distribution overheads based on the fact which activity uses that building. However, notional rent should not ordinarily be added to the cost of production unless and until there is a specific requirement of management for short term decision making or comparison purposes.
(ii) Primary packing is part of Prime cost as direct material or direct expenses, while, secondary packing is either a selling or distribution cost. Sometimes packing of some special nature is done at the request of customer, then it may be treated as selling costs.
(iii) Royalties with regard to some patent, know-how etc based on which specified production is carried out is a direct expense and becomes part of prime cost. However, where royalties are linked to number of units sold or quantum of sales, it is a selling overhead.
(iv) Subsidized canteen or mess represent a cost i.e. overhead and should be apportioned between manufacturing, office & administration and selling & distribution overheads based on either number of employees of respective departments using canteen or mess facility or wage bill of each department.
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