COSTING IPCC PAPER 6: ALL CHAPTERS MARKS : 100 ; TIME : 3 Hours ; Level of Test : Level D out of D. Q1 (a) Solve the following:

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1 COSTING IPCC PAPER 6: ALL CHAPTERS MARKS : 100 ; TIME : 3 Hours ; Level of Test : Level D out of D. Q1 (a) Solve the following: [10 Marks]. Dipu Construction Ltd. commenced a contract on November 01, The total contract was for Rs. 39,37,500. It was decided to estimate the total profit on the contract and to take the credit of P&L a/c that proportion of estimated profit on cash basis, which work completed bore to the Total contract. Actual expenditure for the period November 1, 2003 to October 31,2004 and the estimated expenditure for November 1, 2004 to March 31,2005 are given below. Nov 1,2003 to Oct 1,2004 Nov 1,2004 to Mar 31,2005 [ Actuals ] [ Rs.] [ Estimated ] [Rs.] Materials Issued 675,000 12,37,500 Labour : Paid 450, ,000 Prepaid 25,000 - Outstanding - 2,500 Plant Purchased 375,000 - Expenses: Paid 200, ,000 Outstanding 50,000 25,000 Plant returns to store 75, ,000 [ Historical cost ] [ On Mar 31, 2004 ] [ On Mar 31, 2005 ] Work Certified 20,00,000 Full Work Uncertified 75,000 Cash Received 17,50,000 Materials at Site 75,000 37,500 The Plant is subject to % depreciation [ Written down value method]. The contract is likely to be completed on March 31,2005. Required : Prepare the Contract A/c. Determine the Profit on the contract for the year November 2003 to October 2004 on prudent basis, which has to be credited to Profit & Loss a/c. Q1 (b) Explain the following : (i) What is Cost-Volume-Profit analysis and what are its Objectives? (ii) Calculation of variances in Standard costing is not an end in itself, but a means to an end Discuss. [ 7 Marks]. 1

2 Q2 (a) Solve the following : [12 Marks]. The BKB Division of XYZ Manufacturing Company produces power take-off units for the farm equipment business. The BKB Division headquartered in Guwahati has a newly renovated, automated plant in Guwahati and an older, less-automated plant in Nagaon. Both plants produce the same power take-off units for farm tractors that are sold to most domestic and foreign tractor manufacturers. The BKB Division expects to produce and sell 192,000 power take-off units during the coming year. The division production manager has the following data available regarding the unit costs, unit prices and production capacities for the Two Plants : - All fixed costs are based on a normal year of 240 working days. When the number of working days exceed 240, variable manufacturing costs increase by Rs.3 per unit in Guwahati and by Rs.8 per unit in Nagaon. Capacity for each plant is 300 working days. - XYZ manufacturing charges each of its plants a per unit fee for administrative services such as payroll, general accounting and purchasing, because management considers these services to be a function of work performed at the plants. For each of the plants at Guwahati and Nagaon, the fee is Rs.6.50 and represents the variable portion of general and administrative expenses. Wishing to maximize the higher unit profit at Nagaon, the BKB s production manager has decided to manufacture 96,000 units at each plant. This production plan results in Nagaon s operating capacity and Guwahati s operating at its normal volume. XYZ s Corporate Controller is not happy with this plan, because she does not believe it represents optimal usage of BKB s Plants. Guwahati Nagaon Selling Price Rs Rs Variable Manufacturing Cost Rs Rs Fixed Manufacturing Cost Rs Rs Commission [ 5 % ] Rs.7.50 Rs.7.50 General & Administration Expenses Rs Rs Total Unit Cost Rs Rs Unit Profit Rs Rs Production Rate Per day 400 units 320 units Required : (i) Determine the Annual Breakeven Units for each of the BKB s Plants. (ii) Determine the Operating Income that would result from the Division Production manager s plan to produce 96,000 units at each plant. (iii) Determine the optimal production plan to produce the 192,000 units at BKB s plants in Guwahati and Nagaon and determine the resulting operating income for the BKB Division. Q2 (b) Explain the Following : [ = 8 Marks]. (i) Discuss the Step Method and Reciprocal Service Method of Secondary Distribution of Overheads. (ii) What do you mean by Time and Motion Study? Why is it so important to management?. 2

3 Q3 (a) Solve the Following: [15 Marks]. From the following information for the month ending October 2005, prepare Process Cost Accounts for Process III. Use First-In-First-Out [ FIFO ] method to value equivalent production. Direct materials added in Process III [ Opening WIP ] Transfer from Process I Transferred to Process IV Closing Stock of Process III Units Scrapped Direct Materials added in Process III Direct Wages Production Overheads 2000 units at Rs.25, ,000 units at Rs.411,500 48,000 units 5,000 units 2,000 units Rs.197,600 Rs.97,600 Rs.48,800 Degree of Completion: Opening Stock Closing Stock Scrap Materials 80 % 70 % 100 % Labour 60 % 50 % 70 % Overheads 60 % 50 % 70 % The Normal Loss in the Process was 5 % of production and scrap was sold at Rs.3 per unit. Q3 (b) Explain : [ 5 Marks]. (i) What are the Advantages & Limitations of Zero Based Budgeting [ZBB]. Q4. Explain : (a) What is a Blanket Overheads Rate & in which situations, Blanket Rate is to be used & why? (b) Discuss the difference between allocation & apportionment of Overhead. [ 2 Marks]. (c) Explain briefly the conditions when Supplementary Rates are used. (d) In Batch Costing, How is Economic Batch Quantity Determined? [ 2 Marks]. 3

4 Q5. Solve : [10 Marks]. Bagaria Ltd. produces a finished product by using 3 basic raw materials. The following standards have been set up for raw materials : Material Standard-Mix in Percentages Standard Price Per Kg in Rs. A 25 4 B 35 3 C 40 2 The standard loss in process is 20 % of input. During a particular month, the company produced 2,400 kgs of finished product. The details of Stock and purchases for the month are as under : Material Opening Stock Closing Stock Purchases during the month [Kgs] [ Kgs ] Quantity in Kgs. Cost in Rs. A ,600 B ,000 3,500 C ,100 1,980 The Opening stock is valued at Standard Cost. Compute: (i) Material Price & Material Cost Variances, when : (a) Variance is calculated at the point of issue on First-In-First-Out basis. (b) Variance is calculated at the point of issue on Last-In-First-Out basis. (ii) Material Usage Variance. (iii) Material Mix Variance. (iv) Material Yield Variance. Q6. Solve : [12 Marks]. Following is the Sales Budget for the First Six months of the year 2009 in respect of Lucky Ltd. Month : Jan Feb March April May June Sales[ Units] 10,000 12,000 14,000 15,000 15,000 16,000 Finished goods inventory at the end of each month is expected to be 20 % of budgeted sales quantity for the following month. Finished goods inventory was 2,700 units on January 1,2009. There would be no work-in-progress at the end of any month. Each unit of Finished product requires 2 types of Materials as detailed below : Material X : 4 Rs.10 / kg. Material Y : 6 Rs.15 / kg. Material on hand on January 1, 2009 was 19,000 kgs of Material X and 29,000 kgs of Material Y. Monthly closing stock of material is budgeted to be equal to half of the requirements of next month production. Budgeted Direct Labour Hour per unit of Finished Product is 3/4 hour. Budgeted Direct Labour Cost for the 1 st Quarter of the year 2009 is Rs.10,89,000. 4

5 Actual Data for the 1 st Quarter ending on 31 st March,2009 is as under : Actual Production Quantity : 40,000 units. Direct Material costs : [ Purchase cost based on materials actually issued to production ] Material X : 165,000 Rs / kg. Material Y : 238,000 Rs / kg. Actual Direct Labour Hours worked : 32,000 hours. Actual Direct Labour Cost : Rs.13,12,000. Required: (a) Prepare the Following Budgets: (i) Monthly production quantity budget for quarter one. (ii) Monthly Raw Material Consumption budget from Jan 2009 to April (iii) Materials Purchase Quantity Budget for the Quarter one. (b) Compute the Following Variances : (i) Materials : Cost, Price & Usage Variances. (ii)direct Labour : Cost, Rate & Efficiency Variances. Q7. Explain : (a) What is Just-In-Time purchase? What are the advantages of such purchases? [3 Marks]. (b) What is Margin of Safety? How can Margin of Safety be Improved? [5 Marks]. 5

Standard Costing and Budgetary Control

Standard Costing and Budgetary Control CA Past Years Exam Questions Question : 1 (Nov, 2008) UV Limited presents the following information for November. Calculate the cost Variances. Budgeted production