Cost Ques (2 Files Merged)
Cost Ques (2 Files Merged)
Cost Ques (2 Files Merged)
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2. (a) Following data is extracted from the books of XYZ Ltd. for the month of January, 2020: the Nepalese subsidiary on the assumption that the sale price is ` 14 per bottle.
(i) Estimation- [10 Marks]
Particulars Quantity (kg.) Price (`) Amount (`) 3. (a) ‘Healthy Sweets’ is engaged in the manufacturing of jaggery. Its process involve sugarcane
crushing for juice extraction, then filtration and boiling of juice along with some chemicals and
Material-A 800 ? --
then letting it cool to cut solidified jaggery blocks.
Material-B 600 30.00 18,000
The main process of juice extraction (Process – I) is done in conventional crusher, which is then
-- filtered and boiled (Process – II) in iron pots. The solidified jaggery blocks are then cut, packed
and dispatched. For manufacturing 10 kg of jaggery, 100 kg of sugarcane is required, which
Normal loss was expected to be 10% of total input materials.
extracts only 45 litre of juice.
(ii) Actuals-
Following information regarding Process – I has been obtained from the manufacturing
1480 kg of output produced. department of Healthy Sweets for the month of January, 2020:
Particulars Quantity (kg.) Price (`) Amount (`) (`)
Material-A 900 ? -- Opening work-in process (4,500 litre)
Material-B ? 32.50 --
Sugarcane 50,000
59,825
Labour 15,000
Overheads 45,000
(iii) Other Information-
Sugarcane introduced for juice extraction (1,00,000 kg) 5,00,000
Material Cost Variance = ` 3,625 (F)
Direct Labour 2,00,000
Material Price Variance = ` 175 (F)
You are required to CALCULATE: Overheads 6,00,000
(i) Standard Price of Material-A; Abnormal Loss: 1,000 kg
(ii) Actual Quantity of Material-B; Degree of completion:
(iii) Actual Price of Material-A; Sugarcane 100%
(iv) Revised standard quantity of Material-A and Material-B; and
Labour and overheads 80%
(v) Material Mix Variance; [10 Marks]
Closing work-in process: 9,000 litre
(b) CanCola, a zero sugar cold drink manufacturing Indian company, is planning to establish a
subsidiary company in Nepal to produce coconut flavoured juice. Based on the estimated annual Degree of completion:
sales of 60,000 bottles of the juice, cost studies produced the following estimates for the Sugarcane 100%
Nepalese subsidiary:
Labour and overheads 80%
Total Annual Costs Percent of Total Annual Cost
(`) which is variable Extracted juice transferred for filtering and boiling: 39,500 litre
Material 2,70,000 100% (Consider mass of 1 litre of juice equivalent to 1 kg)
Labour 1,97,000 80% You are required to PREPARE using average method:
Factory Overheads 1,20,000 60%
(i) Statement of equivalent production,
Administration Expenses 52,000 35%
(ii) Statement of cost,
The Nepalese production will be sold by manufacturer’s representatives who will receive a
commission of 9% of the sale price. No portion of the Indian office expenses is to be allocated to (iii) Statement of distribution cost, and
the Nepalese subsidiary. You are required to- (iv) Process-I Account. [10 Marks]
(i) COMPUTE the sale price per bottle to enable the management to realize an estimated 20% (b) In a factory, the basic wage rate is ` 300 per hour and overtime rates are as follows:
profit on sale proceeds in Nepal.
Before and after normal working hours 180% of basic wage rate
(ii) CALCULATE the break-even point in rupees value sales and also in number of bottles for
Sundays and holidays 230% of basic wage rate
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During the previous year, the following hours were worked It can market 50% of its output at ` 560 by incurring expenses referred from (ii) to (iv) above and
- Normal time 1,00,000 hours 30% of its output at ` 600 per unit without incurring any of the expenses referred from ( i) to (iv)
above.
- Overtime before and after working hours 20,000 hours
PREPARE a cost sheet for the month showing total cost and profit at 30%, 50% and 100%
Overtime on Sundays and holidays 5,000 hours
capacity level & COMPARE its profit. [10 Marks]
Total 1,25,000 hours
(b) A contractor has entered into a long term contract at an agreed price of `18,70,000 subject to an
The following hours have been worked on job ‘A’ escalation clause for materials and wages as spelt out in the contract and corresponding actuals
are as follows:
Normal 1,000 hours
Overtime before and after working hrs. 100 hours. Standard Actual
Sundays and holidays 25 hours. Materials Qty (tons) Rate (`) Qty (tons) Rate (`)
Total 1,125 hours A 6,000 50.00 6,050 48.00
B 3,000 80.00 2,950 79.00
You are required to CALCULATE the labour cost chargeable to job ‘A’ and overhead in each of
the following instances: C 2,500 60.00 2,600 66.00
(i) Where overtime is worked regularly throughout the year as a policy due to the workers’ Wages Hours Hourly Rate (`) Hours Hourly Rate (`)
shortage. X 3,000 70.00 3,100 72.00
(ii) Where overtime is worked irregularly to meet the requirements of production. Y 2,500 75.00 2,450 75.00
(iii) Where overtime is worked at the request of the customer to expedite the job. [10 Marks] Z 3,000 65.00 3,100 66.00
4. (a) Aloe Ltd. has the capacity to produce 2,00,000 units of a product every month. Its works cost at Reckoning the full actual consumption of material and wages, the company has claimed a final
varying levels of production is as under: price of ` 18,94,100. Give your ANALYSIS of admissible escalation claim and indicate the final
price payable. [10 Marks]
Level Works cost per unit (`)
5. (a) A Ltd. manufactures two products- A and B. The manufacturing division consists of two
10% 400 production departments P 1 and P2 and two service departments S 1 and S2.
20% 390 Budgeted overhead rates are used in the production departments to absorb factory overheads to
30% 380 the products. The rate of Department P 1 is based on direct machine hours, while the rate of
40% 370 Department P 2 is based on direct labour hours. In applying overheads, the pre-determined rates
50% 360 are multiplied by actual hours.
60% 350 For allocating the service department costs to production departments, the basis adopted is as
follows:
70% 340
(i) Cost of Department S 1 to Department P 1 and P2 equally, and
80% 330
(ii) Cost of Department S 2 to Department P 1 and P2 in the ratio of 2 : 1 respectively.
90% 320
100% 310 The following budgeted and actual data are available:
Annual profit plan data:
Its fixed administration expenses amount to ` 3,60,000 and fixed marketing expenses amount to
` 4,80,000 per month respectively. The variable distribution cost amounts to ` 30 per unit. Factory overheads budgeted for the year:
It can sell 100% of its output at ` 500 per unit provided it incurs the following further expenditure: Departments P1 27,51,000 S1 8,00,000
(i) It gives gift items costing ` 30 per unit of sale; P2 24,50,000 S2 6,00,000
(ii) It has lucky draws every month giving the first prize of ` 60,000; 2 nd prize of ` 50,000, Budgeted output in units:
3rd prize of ` 40,000 and ten consolation prizes of ` 5,000 each to customers buying the Product A 50,000; B 30,000.
product.
Budgeted raw-material cost per unit:
(iii) It spends ` 2,00,000 on refreshments served every month to its customers; Product A ` 120; Product B ` 150.
(iv) It sponsors a television programme every week at a cost of ` 20,00,000 per month.
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Budgeted time required for production per unit: Bio-organic Ltd. followed an Absorption Costing System and absorbed its production overheads,
Department P 1 : Product A : 1.5 machine hours to its products using direct labour hour rate, which were budgeted at ` 1,98,000.
Now, Bio-organic Ltd. is considering adopting an Activity Based Costing system. For this,
Product B : 1.0 machine hour additional information regarding budgeted overheads and their cost drivers is provided below:
Department P 2 : Product A : 2 Direct labour hours
Particulars (`) Cost drivers
Product B : 2.5 Direct labour hours Forklifting cost 58,000 Weight of material lifted
Average wage rates budgeted in Department P 2 are: Supervising cost 60,000 Direct labour hours
Product A - ` 72 per hour and Product B – ` 75 per hour. Utilities 80,000 Number of Machine operations
All materials are used in Department P 1 only. The number of machine operators per unit of production are 5, 5, and 6 for BABYSOFT - Gold,
BABYSOFT- Pearl, and BABYSOFT- Diamond respectively.
Actual data (for the month of Jan, 2020):
(Consider (i) Mass of 1 litre of Essential Oils and Filtered Water equivalent to 0.8 kg and 1 kg
Units actually produced: Product A : 4,000 units respectively (ii) Mass of output produced is equivalent to the mass of input materials taken
Product B : 3,000 units together.)
Actual direct machine hours worked in Department P 1: You are requested to:
On Product A 6,100 hours, Product B 4,150 hours. (i) PREPARE a statement showing the unit costs and total costs of each product using the
absorption costing method.
Actual direct labour hours worked in Department P 2:
(ii) PREPARE a statement showing the product costs of each product using the ABC approach.
On Product A 8,200 hours, Product B 7,400 hours.
(iii) STATE what are the reasons for the different product costs under the two approaches?
Costs actually incurred: Product A Product B
[10 Marks]
` `
6. Answer any four of the following:
Raw materials 4,89,000 4,56,000
(a) DISCUSS the steps to be followed to exercise control over cost.
Wages 5,91,900 5,52,000
(b) DISTINGUISH between Bill of Materials and Material Requisition Note.
Overheads: Department P1 2,50,000 S1 80,000
(c) LIST five financial expenses that causes differences in Financial and Cost Accounts.
P2 2,25,000 S2 60,000 (d) EXPLAIN standing charges and running charges in the case of transport organisations. LIST
You are required to: three examples of both.
(i) COMPUTE the pre-determined overhead rate for each production department. (e) DESCRIBE objectives of Budgetary Control System. [4 × 5 = 20 Marks]
(ii) PREPARE a performance report for Jan, 2020 that will reflect the budgeted costs and actual
costs. [10 Marks]
(b) BABYSOFT is a global brand created by Bio-organic Ltd. The company manufactures three
range of beauty soaps i.e. BABYSOFT- Gold, BABYSOFT- Pearl, and BABYSOFT- Diamond.
The budgeted costs and production for the month of December, 2019 are as follows:
BABYSOFT- Gold BABYSOFT- Pearl BABYSOFT- Diamond
Production of 4,000 3,000 2,000
soaps (Units)
Resources per Qty Rate Qty Rate Qty Rate
Unit:
- Essential Oils 60 ml ` 200 / 100 ml 55 ml ` 300 / 100 ml 65 ml ` 300 / 100 ml
- Cocoa Butter 20 g ` 200 / 100 g 20 g ` 200 / 100 g 20 g ` 200 / 100 g
- Filtered Water 30 ml ` 15 / 100 ml 30 ml ` 15 / 100 ml 30 ml ` 15 / 100 ml
- Chemicals 10 g ` 30 / 100 g 12 g ` 50 / 100 g 15 g ` 60 / 100 g
- Direct Labour 30 ` 10 / hour 40 ` 10 / hour 60 ` 10 / hour
minutes minutes minutes
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Test Series: October, 2020 Advise – The total cost of inventory is lower if quantity discount is accepted. The company
would save ` 26,880 (` 38,89,600 - ` 38,62,720).
MOCK TEST PAPER
(c) Master Budget for the year ending ______
INTERMEDIATE: GROUP – I
Particulars (`) (`) (`)
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
Sales:
SUGGESTED ANSWERS/ HINTS
Acrylic finish wooden sheets 70,00,000
1. (a) Statement of Cost and Profit per batch Lacquer finish wooden sheets 30,00,000
Total Sales 1,00,00,000
Particulars Jan. Feb. March April May June Total Less: Cost of production:
Batch output (in units) 310 300 320 280 300 320 1,830 Direct materials (65% of ` 1,00,00,000) 65,00,000
Sale value (`) 2,480 2,400 2,560 2,240 2,400 2,560 14,640 Direct wages (25 workers × ` 1,500 × 12 4,50,000
Material cost (`) 1,150 1,140 1,180 1,130 1,200 1,220 7,020 months)
Prime Cost 69,50,000
Direct wages (`) 120 140 150 140 150 160 860
Fixed Factory Overhead:
Chargeable expenses* (`) 600 672 672 621 780 800 4,145
Works manager’s salary (5,500 × 12 months) 66,000
Total cost (`) 1,870 1,952 2,002 1,891 2,130 2,180 12,025 Foreman’s salary (4,500 × 12 months) 54,000
Profit per batch (`) 610 448 558 349 270 380 2,615 Depreciation 1,26,000
Total cost per unit (`) 6.03 6.51 6.26 6.75 7.10 6.81 6.57 Light and power 30,000 2,76,000
Profit per unit (`) 1.97 1.49 1.74 1.25 0.90 1.19 1.43 Variable Factory Overhead:
Stores and spares (2.5% of ` 1,00,00,000) 2,50,000
Overall position of the order for 1,200 units Repairs and maintenance 80,000
Sales value of 1,800 units @ ` 8 per unit ` 14,400 Sundry expenses 45,000 3,75,000
Total cost of 1,800 units @ ` 6.57 per unit ` 11,826 Works Cost 76,01,000
Gross Profit (Sales – Works cost) 23,99,000
Profit ` 2,574
Less: Adm., selling and distribution expenses 3,99,000
* Chargeable expenses Net Profit 20,00,000
×Direct labour hours for batch
Direct labour hour for the month
(d) (i) Estimated Net Realisable Value Method:
(b) (i) Calculation of Economic Order Quantity
Buttermilk Butter
EOQ = 2AO = 2 9,680units Rs.200 = 220 units Amount (`) Amount (`)
C Rs.400 20%
Sales Value 8,40,000 76,80,000
(ii) Evaluation of Profitability of Different Options of Order Quantity (` 30 × 28 × 1000) (` 480 × 16 × 1000)
(A) When EOQ is ordered Less: Post split-off cost (Further
processing cost) - (1,20,000)
(`)
Net Realisable Value 8,40,000 75,60,000
Purchase Cost (9,680 units ` 400) 38,72,000
Apportionment of Joint Cost of 5,10,000 45,90,000
Ordering Cost [(9,680 units/220 units) ` 200] 8,800 ` 51,00,000* in ratio of 1:9
Carrying Cost (220 units ½ ` 400 20%) 8,800
* [(` 100 × 50 × 1000) + ` 1,00,000] = ` 51,00,000
Total Cost 38,89,600
(ii) Incremental revenue from further processing of Butter into Ghee
(B) When Quantity Discount is accepted
(` 480 × 16 × 1000 - ` 360 × 20 × 1000) ` 4,80,000
(`)
Less: Incremental cost of further processing
Purchase Cost (9,680 units ` 380) 36,78,400 of Butter into Ghee ` 1,20,000
Ordering Cost [(9,680 units/4,840 units) ` 200] 400
Incremental operating income from further processing ` 3,60,000
Carrying Cost (4,840 units ½ ` 380 20%) 1,83,920
Total Cost 38,62,720
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The operating income of ‘Buttery Butter’ will be reduced by ` 3,60,000 in February if it sells 38,700
20 tonne of Butter to ‘Healthy Bones’, instead of further processing of Butter into Ghee for APA = = 43
900
sale. Thus, ‘Buttery Butter’ is advised not to accept the offer and further process butter to
make Ghee itself. Actual Price of Material-A = ` 43
2. (a) (i) Material Cost Variance (A + B) = {(SQ × SP) – (AQ × AP)} (iv) Total Actual Quantity of Material-A and Material-B
Standard Price of Material-A = ` 45 (v) Material Mix Variance (A + B) = {(RSQ × SP) – (AQ × SP)}
SQ i.e. quantity of inputs to be used to produce actual output = (886 kg (from (iv) above) × ` 45 (from (i) above))
(900 kg × ` 45 (from (i) above)) + (AQ B × `30) = ` 60,000 Commission (9% on `9,00,000 (Working Note -1)) 81,000
Fixed Cost:
` 40,500 + (AQB × ` 30) = ` 60,000
Labour (` 1,97,000 × 20%) 39,400
(AQB × ` 30) = ` 19,500
Factory Overheads (` 1,20,000 × 40%) 48,000
19,500
AQB = = 650 kg Administrative Overheads (` 52,000 × 65%) 33,800
30
Total Cost 7,20,000
Actual Quantity of Material B = 650 kg. Profit (20% of ` 9,00,000) 1,80,000
(iii) (AQ × AP) = ` 59,825 Sales Proceeds 9,00,000
(AQA × APA) + (AQB × APB) = ` 59,825 Rs.9,00,000 15
Sales Price per bottle
(900 kg × APA) + (650 kg (from (ii) above) × ` 32.5) = ` 59,825 60,000
(900 kg × APA) + ` 21,125 = ` 59,825
(900 kg × APA) = ` 38,700
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(ii) Calculation of Break-even Point 3. (a) (i) Statement of Equivalent Production
Sales Price per Bottle = ` 14 Particulars Input Particulars Output Equivalent Production
Units Units
Rs.5,93,400(workingnote 2) Sugarcane Labour & O.H.
Variable Cost per Bottle = = ` 9.89
60,000bottles % Units % Units
Opening WIP 4,500 Completed and 39,500 100 39,500 100 39,500
Contribution per Bottle = ` 14 − ` 9.89 = ` 4.11
transferred to
Fixedcos t Process - II
Break -even Point (in number of Bottles) =
Contributionper bottle Units introduced 1,00,000 Normal Loss 55,000 -- -- -- --
(55%* of 1,00,000)
Rs.1,21,200
= = 29,489 Abnormal loss 1,000 100 1,000 80 800
Rs.4.11
Break- even Point (in Sales Value) = 29,489 Bottles × `14 Closing WIP 9,000 100 9,000 80 7,200
= ` 4,12,846 1,04,500 1,04,500 49,500 47,500
Working Note * 100 kg of sugarcane extracts only 45 litre of juice. Thus, normal loss = 100 – 45 = 55%
(1) Let the Sales Price be ‘X’ (ii) Statement showing cost for each element
9X Particulars Sugarcane Labour Overhead Total
Commission =
100 (`) (`) (`) (`)
20X Cost of opening work-in-process 50,000 15,000 45,000 1,10,000
Profit =
100 Cost incurred during the month 5,00,000 2,00,000 6,00,000 13,00,000
X = ` 2,70,000 + `1,57,600 + ` 72,000 + ` 18,200 + ` 39,400 + ` 48,000 + Total cost: (A) 5,50,000 2,15,000 6,45,000 14,10,000
9X 20X Equivalent units: (B) 49,500 47,500 47,500
` 33,800 +
100 100 Cost per equivalent unit: (C) = (A ÷ B) 11.111 4.526 13.579 29.216
9X 20X
X = ` 6,39,000 + (iii) Statement of Distribution of cost
100 100
Amount Amount
100X – 9X – 20X = 6,39,00,000 (`) (`)
71X = 6,39,00,000 1. Value of units completed and transferred 11,54,032
6,39,00,000 (39,500 units × ` 29.216)
X = = ` 9,00,000
71 2. Value of Abnormal Loss:
(2) - Sugarcane (1,000 units × ` 11.111) 11,111
- Labour (800 units × ` 4.526) 3,621
Total Variable Cost (`)
- Overheads (800 units × ` 13.579) 10,863 25,595
Material 2,70,000
3. Value of Closing W-I-P:
Labour 1,57,600
- Sugarcane (9,000 units × ` 11.111) 99,999
Factory Overheads 72,000
- Labour (7,200 units × ` 4.526) 32,587
Administrative Overheads 18,200 - Overheads (7,200 units × ` 13.579) 97,769 2,30,355
Commission [(60,000 Bottles × ` 14) × 9%] 75,600
(iv) Process-I A/c
5,93,400
Particulars Units (`) Particulars Units (`)
To Opening W.I.P: By Normal Loss 55,000 --
- Sugarcane 4,500 50,000 By Abnormal 1,000 25,613
loss (`25,595 + `18
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(b) Contract price ` 18,70,000
Standard Standard Actual Rate Variation in Rate Escalation Add: Increase in cost ` 24,100
Qty/Hrs. Rate (`) (`) (`) Claim (`) The final price claimed by the company ` 18,94,100
(a) (b) (c) (d) = (c)–(b) (e) =(a) × (d) This claim is not admissible because escalation clause covers only that part of increase in cost,
Materials which has been caused by inflation.
A 6,000 50.00 48.00 (–) 2.00 (–) 12,000 Note: It is fundamental principle that the contractee would compensate the contractor for the
B 3,000 80.00 79.00 (–) 1.00 (–) 3,000 increase in costs which are caused by factors beyond the control of contractor and not for
C 2,500 60.00 66.00 (+) 6.00 15,000 increase in costs which are caused due to inefficiency or wrong estimation.
Materials escalation claim: (A) 0 5. (a) (i) Computation of pre-determined overhead rate for each production department from
budgeted data
X 3,000 70.00 72.00 (+) 2.00 6,000 Production Service Department
Y 2,500 75.00 75.00 Department
Z 3,000 65.00 66.00 (+) 1.00 3,000 P1 P2 S1 S2
Wages escalation claim: (B) 9,000 Budgeted factory overheads for the year 27,51,000 24,50,000 8,00,000 6,00,000
Final claim: (A + B) 9,000 (`)
Statement showing final price payable Allocation of service department S1’s 4,00,000 4,00,000 (8,00,000) --
costs to production departments P1 and
Agreed price ` 18,70,000
P2 equally (`)
Agreed escalation:
Allocation of service department S2’s 4,00,000 2,00,000 – (6,00,000)
Material cost --
costs to production departments P1 and
Labour cost ` 9,000 ` 9,000
P2 in the ratio of 2:1 (`)
Final price payable ` 18,79,000
The claim of ` 18,94,100 is based on the total increase in cost. This can be verified as shown Total 35,51,000 30,50,000 -- --
below:
Budgeted machine hours in department 1,05,000 --
Statement showing total increase in cost P1 (working note-1)
Standard Cost Actual Cost Increase/ Budgeted labour hours in department P2 -- 1,75,000
Qty/hrs Rate (`) Amount (`) Qty/hrs Rate (`) Amount (`) (Decrease) (working note-1)
(a) (b) (c) = (a)×(b) (d) (e) (f) =(d) × (e) g = (f) – (c) Budgeted machine/ labour hour rate (`) 33.82 17.43
I. Materials (ii) Performance report for Jan, 2020
A 6,000 50.00 3,00,000 6,050 48.00 2,90,400
(When 4,000 and 3,000 units of Products A and B respectively were actually produced)
B 3,000 80.00 2,40,000 2,950 79.00 2,33,050
Budgeted Actual (`)
C 2,500 60.00 1,50,000 2,600 66.00 1,71,600 (`)
6,90,000 6,95,050 5,050 Raw materials used in Dept. P1:
II. Wages
A : 4,000 units × ` 120 4,80,000 4,89,000
X 3,000 70.00 2,10,000 3,100 72.00 2,23,200
B : 3,000 units × ` 150 4,50,000 4,56,000
Y 2,500 75.00 1,87,500 2,450 75.00 1,83,750
Direct labour cost
Z 3,000 65.00 1,95,000 3,100 66.00 2,04,600
(on the basis of labour hours worked in department P 2)
5,92,500 6,11,550 19,050
A : 4,000 units × 2 hrs. × ` 72 5,76,000 5,91,900
24,100
B : 3,000 units × 2.5 hrs. × ` 75 5,62,500 5,52,000
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Overhead absorbed on machine hour basis in Dept. P 1: 4. Actual overheads absorbed (based on machine hours)
A : 4,000 units × 1.5 hrs. × ` 33.82 2,02,920 1,96,420* A : 6,100 hrs × ` 32.20 = ` 1,96,420
B : 3,000 units × 1 hr. × ` 33.82 1,01,460 1,33,630* B : 4,150 hrs × ` 32.20 = ` 1,33,630
Overhead absorbed on labour hour basis in Dept. P 2: 5. Actual overheads absorbed (based on labour hours)
A : 8,200 hrs × ` 18.27 = ` 1,49,814
A : 4,000 units × 2 hrs. × ` 17.43 1,39,440 1,49,814**
B : 3,000 units × 2.5 hrs. × ` 17.43 1,30,725 1,35,198** B : 7,400 hrs × ` 18.27 = ` 1,35,198
© The Institute of Chartered Accountants of India © The Institute of Chartered Accountants of India
40.00 40.00 40.00 Production Overheads:
Cocoa Butter 200 20 200 20 200 20 Forklifting cost 6.48 6.36 7.02
(0.06 108) (0.06 106) (0.06 117)
100 100 100
Filtered water 4.50 4.50 4.50 Supervising cost 5.00 6.67 10.00
15 30 15 30 15 30 10 30 10 40 10 60
100 100 100 60 60 60
Chemicals 3.00 6.00 9.00 Utilities 8.50 8.50 10.20
(1.70 5) (1.70 5) (1.70 6)
30 10 50 12 60 15
Total unit costs 192.48 243.70 285.72
100 100 100
Total costs 167.50 215.50 248.50 Number of units 4,000 3,000 2,000
Total costs 7,69,920 7,31,100 5,71,440
(ii) Activity Based Costing
(iii) Comments: The difference in the total costs under the two systems is due to the
BABYSOFT- Gold BABYSOFT- Pearl BABYSOFT- Total differences in the overheads borne by each of the products. The Activity Based Costs
Diamond appear to be more precise.
Quantity (units) 4,000 3,000 2,000 -
6. (a) To exercise control over cost, following steps are followed:
Weight per unit 108 106 117 -
(grams) (i) Determination of pre-determined standard or results: Standard cost or performance targets
{(60×0.8)+20+30+10} {(55×0.8)+20+30+12} {(65×0.8)+20+30+15}
for a cost object or a cost centre is set before initiation of production or service activity.
Total weight 4,32,000 3,18,000 2,34,000 9,84,000 These are desired cost or result that need to be achieved.
(grams)
(ii) Measurement of actual performance: Actual cost or result of the cost object or cost centre is
Direct labour 30 40 60 - measured. Performance should be measured in the same manner in which the targets are
(minutes) set i.e. if the targets are set up operation-wise, and then the actual costs should also be
Direct labour 2,000 2,000 2,000 6,000 collected and measured operation-wise to have a common basis for comparison.
hours 4,000 30 3,000 40 2,000 60 (iii) Comparison of actual performance with set standard or target: The actual performance so
60 60 60 measured is compared against the set standard and desired target. Any deviation (variance)
Machine 5 5 6 - between the two is noted and reported to the appropriate person or authority.
operations per (iv) Analysis of variance and action: The variance in results so noted are further analysed to
unit know the reasons for variance and appropriate action is taken to ensure compliance in
Total 20,000 15,000 12,000 47,000 future. If necessary, the standards are further amended to take developments into account.
operations (b)
Forklifting rate per gram = ` 58,000 9,84,000 grams Bill of Materials Material Requisition Note
= ` 0.06 per gram
1. It is the document prepared by the 1. It is prepared by the production or
Supervising rate per direct labour hour = ` 60,000 6,000 hours = ` 10 per engineering or planning department. other consuming department.
labour hour
2. It is a complete schedule of component parts 2. It is a document authorizing Store-
Utilities rate per machine operations = ` 80,000 47,000 machine and raw materials required for a particular keeper to issue materials to the
operations job or work order. consuming department.
= ` 1.70 per machine operations 3. It often serves the purpose of a material 3. It cannot replace a bill of materials.
requisition as it shows the complete schedule
Unit Costs under ABC:
of materials required for a particular job i.e. it
BABYSOFT- Gold BABYSOFT- BABYSOFT- can replace material requisition.
(`) Pearl (`) Diamond (`) 4. It can be used for the purpose of quotations. 4. It is useful in arriving historical cost
Direct Costs: only.
- Direct Labour 5.00 6.67 10.00 5. It helps in keeping a quantitative control on 5. It shows the material actually drawn
- Direct material 167.50 215.50 248.50 materials drawn through material requisition. from stores.
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© The Institute of Chartered Accountants of India © The Institute of Chartered Accountants of India
(c) Financial expenses causing differences in Financial and Cost Accounts: 4. Ensuring the best use of all available resources to maximise profit or production, subject
to the limiting factors. Since budgets cannot be properly drawn up without considering all
(i) Interest on loans or bank mortgages.
aspects usually there is good co-ordination when a system of budgetary control operates.
(ii) Expenses and discounts on issue of shares, debentures etc.
5. Co-ordinating the various activities of the business, and centralising control and yet
(iii) Other capital losses i.e., loss by fire not covered by insurance etc. enabling management to decentralise responsibility and delegate authority in the overall
(iv) Losses on the sales of fixed assets and investments. interest of the business.
(v) Goodwill written off. 6. Engendering a spirit of careful forethought, assessment of what is possible and an
attempt at it. It leads to dynamism without recklessness. Of course, much depends on the
(vi) Preliminary expenses written off. objectives of the firm and the vigour of its management.
(vii) Income tax, donations, subscriptions. 7. Providing a basis for revision of current and future policies.
(viii) Expenses of the company’s share transfer office, if any. 8. Drawing up long range plans with a fair measure of accuracy.
(d) Standing Charges: These are the fixed costs that remain constant irrespective of the distance 9. Providing a yardstick against which actual results can be compared.
travelled. These costs include the following-
Insurance
License fees
Salary to Driver, Conductor, Cleaners, etc. if paid on monthly basis
Garage costs, including garage rent
Depreciation (if related to efflux of time)
Taxes
Administration expenses, etc.
Running Charges: These costs are generally associated with the distance travelled. These costs
include the following-
Petrol and Diesel
Lubricant oils,
Wages to Driver, Conductor, Cleaners, etc. if it is related to operations
Depreciation (if related to activity)
Any other variable costs identified.
(e) Objectives of Budgetary Control System
1. Portraying with precision the overall aims of the business and determining targets of
performance for each section or department of the business.
2. Laying down the responsibilities of each of the executives and other personnel so that
everyone knows what is expected of him and how he will be judged. Budgetary control is
one of the few ways in which an objective assessment of executives or department is
possible.
3. Providing a basis for the comparison of actual performance with the predetermined
targets and investigation of deviation, if any, of actual performance and expenses from the
budgeted figures. This naturally helps in adopting corrective measures.
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© The Institute of Chartered Accountants of India © The Institute of Chartered Accountants of India