Free of Cost ISBN : 978-93-5034-831-4 Solved Scanner Appendix CS Executive Programme Module - I December - 2013 Paper - 2 : Cost and Management Accounting Chapter - 1: Introduction to Cost and Management Accounting 2013 - Dec [3] (a) Opportunity Cost: This refers to the value of sacrifice made or benefit of opportunity forgone in accepting an alternative course of action. For Example: A firm may finance its expansion plan by withdrawing money from its bank deposits. Then the cost of interest on the bank deposit is the opportunity cost for carrying out the expansion plan. Sunk Cost: It is cost which has already been incurred or sunk in the past. It is not relevent for decision making and is caused by complete abandonment as against temporary shut down. For example: If a firm has obsolete stock of material originally purchased for ` 50,000 which can be sold as scrap now for ` 18,000 or can be utilised in a special Job, the value of stock already available ` 50,000 is a sunk cost and is not relevant for decision making. Differential Cost: It is the change in cost due to change in the level of activity or pattern or method of production. Where the change results in increase in cost is called Incremental Cost, whereas it cost are reduced due to decrease of output, the difference is called Decremental Cost. Conversion cost: The total of Direct wages, Direct expenses, and production overhead, cost of converting raw materials to the finished stage or converting a material from one stage of production to the other. 1
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 2 Chapter - 2: Material Cost 2013 - Dec [1] (a), (b) (a) LIFO Method: (i) It is based on the assumption that the goods which are received last are issued first. This assumption is made for the purposes of assigning costs and not for the purpose of the physical flow of goods. The physical flow of goods therefore need not necessarily coincide with the pattern of cost flow assumption. (ii) It uses the price of the last lot received for all the issues until all units from this lot have been issued other which the price of previously lot received issused for pricing and soon. Implication of LIFO Method in periods of rising prices: Lower income is reported since current costs (which are higher than the old costs) are matched with current revenues. As a results income tax liability is reduced. Advantage of LIFO Method: (i) The cost of issues tend to be nearer current market price because it represent cost of recent purchase. (ii) In period of rising prices, lower income is reported since current-costs (which are higher than the old costs) are matched with current revenue. As a result, income tax liability is reduced. (iii) No unrealised inventory profits/losses are made by using this method because it is based on cost. (b) Perpetual Inventory System According to ICMA Perpetual inventory system is a system of records maintained by the controlling departments, which reflect the physical movement of stock and there current-balances. Thus perpetual inventory system is the maintenance of systematic inventory records on a continuous basis. Function of perpetual inventory: The two main function of the perpetual inventory system are (i) Recording of receipt and issue of materials in such a way that stock in hand can be known at any time without physical counting of stock. (ii) Continuous physical checking of actual stock of materials as a regular practice. Advantage: (i) In minimises the time devoted to stock taking. (ii) It also avoid dislocating in production which arises in the cost of periodic stock taking at the end of each year. (iii) Loss of Stock due to pilferage or obsolence etc is detected at an early stage and suitable step can be taken to prevent its recurrence. (iv) Over stocking and under - stocking can be easily controlled. (v) A system of internal cheek remains in operation all the time.
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 3 2013 - Dec [3A] (Or) (iii) Material Required 75,000 Material Cost 1.5 per unit. Carrying Cost 25 x 1.50 = 0.375 Cost of placing 18/order = 2683.28 unit/order Frequency of order = = 27.9508 or 28 order Time period between two Consequitive order = = 13.03 i.e. 13 days Chapter - 3: Labour Cost 2013 - Dec [3] (c) Bimal produced - 180 unit in a week, Guaranteed time wages per hrs. in a week = = 1.80 A = Annual Consumption B = Ordering Cost per order C = Carrying Cost per order In a 40 hrs. week Halsey: (Hrs. worked x Rate/hrs.) + 50 x of time saved x Rate = 40 x 1.80 +50% x 20 hrs. x 1.80 = 72 +18 = 90 Rowan: (40 x 1.80) + x 20 hrs. x 1.80 = 72 + 24 = 96 Chapter - 4: Direct Expenses and Overheads 2013 - Dec [2] (a) (i) The difference between cost allocation and cost apportionment are: Particulars Allocation Apportionment (1) Meaning Identifying a cost center and charging its expenses in full Allotment of proportions of common cost to various cost centers
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 4 (2) Nature of expenses (3) Number of departments (4) Amount of overhead Specific and Identifiable General and Common one many Charged in full Charged in proportions 2013 - Dec [2] (b) Standard machine hrs. = 3000 hrs. Normal Idle time = 25% of standard hrs. Productive machine hrs. = 3000 - x 3000 = 2250 hrs Computation of machine hrs. rate Rent & Rates 5,550 General electricity (225 x 12) 2,700 Repair & Maintenance (675 x 3) 2,025 Power Charge 5 3,375 Former Salary (1000 x 12) 12,000 Indirect - Labour Cost (2250 x 3 x 4) 27,000 Depreciation 3 47,250 Machine Hrs. Rate = 99,900 = 14.80/hrs. 2013 - Dec [3A] (Or) (iv) Let K and N be the total o/h of the service department x and y respectively Then, K = 2,34,000 + 0.20 M i.e. - 10k -2N = 2,34,000 (I) N = 3,00,000 + 0.10 K By Adding equation (I) 10k - 2 (3,00,000 + 0.10 k) = 23,40,000 9.8 K = 29,40,000 K = 3,00,000 N = 3,00,000 + 0.10 x 3,00,000 = 3,30,000
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 5 Statement showing the distribution of service dept o/h to the production department: Particular Production Department ` 2,34,000 Dep. x (90% of 3,00,000) in 2:4:3 ratio (3,00,000 Dep. x 80% x of 3,30,000) in 4:2:2 ratio P G R Total 60,000 1,20,000 90,000 2,70,000 1,32,000 66,000 66,000 2,64,000 Total 1,92,000 1,86,000 1,56,000 5,34,000 Chapter - 5: Activity Based Costing (ABC) 2013 - Dec [3] (b) ABC analysis is a form of inventory control where in different degree of control are exercised over different item of stores on the basis of the investment (value) involved. Under this system, the item are divided into three categories according to their importance in terms of value and frequency of replacement during a period. These categories are: (a) A Category - Highly Important (b) B Category - Relatively Less Important (c) C Category - Least Important Analysis & Control: The three categories are classified and differential control in established as under: Category % in Total Value % in Total Quantity Extent of control A 70% 10% Constant and strict control through Budgets; B 20% 20% Need based selective control period is review not strict or excessive; C 10% 70% Little control focus on saving associated costs; Advantage: (1) ABC analysis ensures that minimum investment will be made in inventories of stock of materials or stock to be carried, without any danger of interruption of production for want of materials or stores requirements. (2) The cost of placing orders; receiving goods and manufacturing stock is minimized; specially it the system is coupled with the determination of proper economic order quantities. (3) Management time is saved since attention need be paid only to some of the items rather than all the items.
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 6 Chapter - 7: Cost Records-II (Reconciliation of Cost and Financial Accounts) 2013 - Dec [3] (d) Reconciliation statement as per financial statement: Loss as per Cost Account (50,000) + Undervaluation of closing stock 25,000 Preliminary Exp. (10,000) + Profit on sale of furniture 6,000 Interest on bank loan (6,075) Factory o/h over absorbed 11,075 Loss as per Financial A/c (24,000) 2013 - Dec [3A] (Or) (i) (I) The Non-Integrated system or cost control system seeks to recognise the movements and flows of cost within the firm. (ii) The Non-Integrated system involves the use of Nominal Accounts and 3 Real Accounts (Store Ledger Control A/c, WIP Control A/c, RG Control A/c). Personnel and other Real A/c are not used in this system. (iii) For completing contra-posting involving Personal Accounts and other Real Accounts (Cash, Bank, Assets etc) the General Ledger Adjustment Account is used. Hence, when ever Non-integrated system is in use, regular Financial Accounting should also be done parallely. This creates the need for reconciliation between profits as per cost records and profit as per financial records. Chapter - 8: Costing Systems-I (Unit and Output Costing, Job Costing & Batch Costing) 2013 - Dec [2A] (Or) (i) Statement of cost sheet Material Consumed: Opening Stock of Raw Material 30,000 + Purchase 75,000 - Raw Material Return (3,000) - Closing Stock (2,000) 82,000 Wages paid to productive worker 18,500 Carriage on Raw Material Purchased 600 Direct Changeable exp. 1,200 Prime cost 1,02,300
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 7 Add: Work overhead : Wages paid to non productive worker 2,500 Fuel/Gas/Water etc 3,500 Repair to plant 1,000 Dep. of machinery 1,500 8,500 Work cost 1,10,800 Add: Offices Administration Exp. Salary to office 5,000 Office Exp. 2,600 7,600 Cost of Goods Sale 1,18,400 Add: Advertisement EXP. 1,600 Carriage on goods 2,000 3,600 Cost of Sale 1,22,000 Profit (B/F) 18,000 Sales 1,40,000 Chapter - 9: Costing System-II (Contract and Process Costing) 2013 - Dec [2] (a) (ii) Particulars Joint Products By - Products (1) Meaning Two or more products, separated in the course of the same processing operation, considered as relatively equally important. Products recovered from material discarded in a main process. (2) Nature Intentionally manufactured. Incidentally arises during the process. (3) Importance Comparatively higher sale value. Comparatively lower sale value. 2013 - Dec [2A] (Or) (ii) Contract A/C of Future Construction Ltd. for the year ending 31.03.2012 To Material 2,00,000 By WIP To Wages 2,50,000 Work Certified 9,00,000 To Hire charges 50,000 Work uncertified 30,000 9,30,000 To Electricity 1,00,000 To Administration By Mat of site 20,000 overhead 60,000 By Sale of plant 50,000
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 8 To Profit on sale of plant 10,000 By Plant at site 1,00,000 To Plant Issued 1,00,000 - Sale 40,000 To Notional profit 2,84,000 60,000 To P & L (Working Note: 2) To Reserve A/c 85,520.75 Working Note: 1 Calculation of Estimated profit Cost incurred till date 6,46,000 Additional Cost incurred to complete the contract upto 30/06/12 Material (40,000 + 20,000) 60,000 Wages 30,000 Administration 5,000 Depreciation on plant - Dep. 6,000 54,000 10,54,000 10,54,000 1,98,479.25 By Notional profit b/d 2,84,000 1,350 96,350 Total cost to complete the contract 7,42,350 Add: Contingency @ 5% 37,117.50 Total cost 7,79,467.50 Estimated profit (b/f) 2,20,532.50 Contract 10,00,000 Working Note: 2 Calculation of Profit & Loss A/c = Estimated Profit = 2,20,532.50 2013 - Dec [3A] (Or) (ii) Escalation Clause: (1) In fixed price contracts, the contract price is fixed and pre-determined. If there is an increase in prices of materials, rate of labours etc. during the period of execution of a contract, the total contract cost may rise and the contractors profit may be reduced.
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 9 (2) This increase in prices may induce the contractor to use materials of lower quality and price in order to maintain his profit margin on the contract. (3) To overcome such a situation, the agreement generally contains a stipulation that the contract price will be increased by an agreed amount or percentage, if the prices of materials wages etc rise beyond a particular limit. Such a stipulation/condition is called Escalation clause. (4) The amount of reimbursement due should be determined by reference to the Escalation Clause. The amount due from the contractee should be recorded by the following Journal entry: Contractee s Account Dr. To Contract Account 2013 - Dec [5] (b) Process - A Particular Quantity Amount Particular Quantity Amount To Material 3,000 21,000 By Normal Loss 150 750 To Labour 10,600 To Overhead 3,350 By Abnormal loss (Working Note: 1) @ 12 By T/F to process - B @ 12 50 600 2,800 33,600 3,000 34,950 3,000 34,950 Process - B Particular Quantity Amount Particular Quantity Amount To Transfer from Process A A/c 2,800 33,600 To Material 3,000 By Normal loss 140 700 To Labour 5,500 By Transfer to Finished Goods 2,750 46,750 To Overhead 3,820 To Abnormal gain @ 17 (Working Note: 2) 90 1,530 2,890 47,450 2,890 47,450
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 10 Finished Goods A/c To Transfer from process B A/c 46,750 By T/f to trading A/c 46,750 Working Note: 1 Cost of abnormal loss = =12 Working Note: 2 Cost of abnormal gain = = 17 Chapter - 10: Costing Systems-III (Service Costing/Operating Costing) 2013 - Dec [4] (a) Absolute ton km : A B 100 x 20 = 2,000 B C 130 x 14 = 1,820 C A 230 x 16 = 3,680 7,500 ton Km Chapter - 11: Marginal Costing 2013 - Dec [1] (c) The technique of marginal costing is an effective aid to management in taking correct decisions. These are occasions in which it may be profitable to carry on an activity or produce a product although, on actual cost basis; it is not itself yielding a profit. The following are the some of the important areas where marginal costing is used as an effective tool for managerial decision making. (1) Pricing decision (2) Submission of tender (3) Make or buy decision (4) Offering quotation (5) Cost control
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 11 (6) Closure of a department (7) Export or local sale decision (8) Accepting or rejecting an offer (9) Production decision or channel decision (10) Assessment of capital investment plan. 2013 - Dec [4] (c) Marginal Cost Statement Particular Amount Cost Percent Sale 3,00,000 100 Less: Variable Cost 60% 1,80,000 60 Contribution 1,20,000 40 Fixed Cost (B.F.) 40,000 Profit 80,000 (I) P/V ratio = = = 40% (ii) Contribution = FC + profit 1,20,000 = FC + 80,000 FC = 40,000 (iii) BEP (Sale in rupee) = = (iv) = ` 1,00,000 Existing Proposed Unit (A) 3,000 3,000 SP 100 90 - VC 60 54 (B) 40 36 Contribution (AxB) 1,20,000 1,08,000 - FC 40,000 50,000 Profit 80,000 58,000
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 12 P.V. Ratio = = 40% BEP (sales in rupees) = = = ` 1,25,000 Chapter - 12: Standard Costing and Variance Analysis 2013 - Dec [4] (d) 300 unit 300 unit Standard Actual SH SR Total AH AR Total 300 x 3 = 900 5 4,500 750 6 4,500 (I) LCV = (standard cost - Actual cost) = 4,500-4,500 = 0 (ii) LRV = (SR - AR) Ah = (5-6) 750 = 750 (A) (iii) LEV = (900-750) 5 = 750 (F) 2013 - Dec [5] (a) Revised Actual N 40 30 4,222 30 1,26,660 4,900 35 1,71,500 P 40 20 4,222 20 84,490 2,940 15 44,100 Q 20 40 2,112 40 84,480 1,960 45 88,200 100 10,556 2,95,580 9,800 3,03,800-10% 10 1,056 300 90 9,500 9,500 (1) Material Cost Variance = SC - AL = 2,95,580-3,03,800 = 8,220 (A) (2) Material Price Variance = (SR-AR) AQ N (30-35) 4,900 = 24,500 (A) P (20-15) 2,940 = 14,700 (F) K (40-45) 1,960 = 9,800 (A) = 19,600 (A)
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 13 (3) Material Usage Variance = (SQ-AQ) SR N = (4,222-4,900) 30 = 20,340 A P = (4,222-2,940) 20 = 25,640 F K = (2,112-1,960) 40 = 6,080 F 11,380 (F) (4) Material mix variance: (AQ in SR - AQ in AR) SR N (3,920-4,900) 30 = 29,400 A P (3,920-2,940) 20 = 19,600 F K (1,960-1,960) 40 = Nil = 9,800 (A) (5) Material Yield Variance: (SQ in SR - AQ in SR) SR N (4,222-3,920) 30 = 9,060 F P (4,222-3,920) 20 = 6,040 F K (2,112-1,960) 40 = 6,080 F = 21,180 (F) Chapter - 13: Budget, Budgeting and Budgetary Control 2013 - Dec [1] (d) Cash budget: Cash budget represents the amount of estimated cash inflows, estimated cash outflows (which may be distributed period-wise, item wise) and deficits/ surplus over a given budgeted period. Basic Purpose of Cash Budget: Cash Budget serves as a device for planning and controlling the sources and uses of cash to ensure the availability of cash at a time when it is needed. Utilities or importance of a cash budget: The utilities of preparing a cash budget are summarized as follows: (1) It enables the management to determine the timing when there is likely to be a surplus/shortage of cash. (2) It enables the management to determine the quantum of surplus/storage of cash. (3) It enables the management to determine the period for which the situation of storage/surplus is likely to be continued. (4) It enables the management to prepare the borrowing schedule. (5) It enable the management to prepare the repayment schedule well in advance. (6) It enables the management to plan for dividend payment well in advance. (7) It enables the management to plan for financing a new project. (8) It enables the management to take advantage of cash discount.
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 14 2013 - Dec [4] (b) Statement Showing Estimation of Profit 50% 60% (A) Unit 5000 6000 Existing Proposed S P 200 196 V.C - Material 100 102 Labour 18 18 Factory overheads 18 18 Administration o/h 10 10 Fixed: Labour 12 12 Factory o/h 12 12 Administration o/h 10 10 Profit per unit (B) 20 14 Profit (A x B) 1,00,000 84,000 Chapter - 15: Analysis & Interpretation of Financial Statements -I 2013 - Dec [6] (b) (I) Working Capital = Current Assets - Current Liability 2,40,000 = 2.5 Current Liabilities - Current Liabilities Current Liabilities = = 1,60,000 Current Assets = 1,60,000 x 2.5 = 4,00,000 (ii) Quick Assets = = Inventory = 2,40,000 (iii) Opening Stock = 2,40,000-10,000 = 2,30,000 (iv) Average Inventory = = = 2,35,000
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 15 (v) Stock turnover ratio = 5x 2,35,000 = Cost of Good Sold Cost of Goods Sold = 11,75,000 (vi) Cost of Good Sold = opening stock + purchase - closing stock 11,75,000 = 2,30,000 + purchase - 2,40,000 Purchase = 11,85,000 (vii) Sale = = 19,58,333.33 (viii) Gross Profit = 7,83,333.33 (ix) = 0.6 = 0.6 Fixed Assets = 0.6 (Fixed Assets + 2,40,000) Fixed Assets = 3,60,000 Non Working Capital = 2,40,000 Proprietor Fund = 6,00,000 (x) = Net Profit = 60,000 (xi) Trade payable T/O = 30 Times Trade Purchase payable = 30 = 30 = Trade payable = 39,500 Balance Sheet Share Capital 5,00,000 Fixed Assets 3,60,000 Reserve 40,000 Profit & Loss 60,000 Inventory 2,40,000 Short term liabilities 1,20,500 Trade payable 39,500 Other Current Assets 1,60,000 7,60,000 7,60,000
Solved Scanner Appendix CS Executive Programme Module - I Paper - 2 16 Trading and Profit &Loss A/c To Opening stock 2,30,000 By Sale 19,58,333 To Purchase 11,85,000 By Closing Stock 2,40,000 To Gross Profit 7,83,333 To Other Exp. 7,23,333 By Gross Profit 7,83,333 To Net Profit 60,000 Chapter - 16: Analysis & Interpretation of Financial Statements -II (Cash Flow Statement) 2013 - Dec [6] (a) Calculation of cash flow from operating activity: (A) Profit After tax 42.85 + Provision for tax 00.00 (B) Net profit before taxation and extra ordinary item 42.85 ) Add : Depreciation 93.34 Loss of Sale of Assets 33.45 Interest & Finance Charge 82.11 208.90 (D) Less Interest - Earned (58.45) (E) Operating profit before working capital charges 112.40 (F) Decrease in CA & Increases in CL Decrease in Inventories 22.03 Increase in Trade payable 9.55 31.58 (G) Increase MCA & Decrease in CL Increase in trade receivable (16.09) (16.09) Cash generated from 123.09 Operating Activities (E + F - G) Shuchita Prakashan (P) Ltd. 25/19, L.I.C. Colony, Tagore Town, Allahabad - 211002 Visit us : www.shuchita.com