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cost accounting

Cost Accounting 4th Edition Jawahar Lal, Seema Srivastava - Solutions

A manufacturing company has shown Rs. 32,380 as ''Establishment Expenses'' which include the following expenses:From the above information, find out the total of(i) Selling expenses (ii) Distribution expenses(iii) Administration expenses and(iv) Expenses which will not be considered in
''Product cost is a general term that denotes different costs allocated to products for different purposes.'' Describe three purposes. Explain the composition of 'product cost' for the purpose of external financial reporting along with its rationale.
On June 30, 2008, a flash flood damaged the warehouse and factory of ABC Corporation completely destroying the work-in-progress inventory. There was no damage to either the raw materials or finished goods inventories. A physical verification taken after the flood revealed the following valuations:A
The books of Adarsh Manufacturing Company present the following data for the month of April 2007:Direct labour cost Rs. 17,500 being 175% of works overheadsCost of goods sold excluding administrative expenses Rs. 56,000.Inventory accounts showed the following opening and closing balances:You are
The Vardhman Ltd. manufactures one product. A summary of its activities for the year 2008 is given below:Prepare a cost sheet Sales Material inventory 1-1-08 Material inventory 31-12-08 W.I.P. 1-1-08 W.I.P. 31-12-08 Finished goods 1-1-08 Finished goods 31-12-08 Material Purchases Direct
The following particulars relate to a company for a period of three months:Prepare a statement of cost for the period and compute the price to be quoted for 500 units in order to realise the same % of profit as for the period under review, assuming no alteration in wages and cost of materials. Raw
The particulars obtained from the records of M/s Jain Industries for the year 2007 are given below, from which you are required to prepare a cost sheet and a statement showing estimated cost of 1000 units in future:At the end of the year, the number of units produced including the closing stock and
From the understated particulars, you are required to prepare a monthly cost sheet of Soap Manufacturers Ltd. showing therein:(i) Prime cost;(ii) Works cost;(iii) Cost of production;(iv) Cost of sales; and(v) Profit per unit. Opening Inventory (1-1-2008): Raw materials Work-in-progress Finished
Bring out clearly the significance of the following costs for management:(a) Opportunity cost(b) Sunk cost(c) Imputed costs(d) Out-of-pocket costs
Discuss the various costs used in decision-making and explain their characteristics.
A company is considering a contract which requires among other things, 50 kg of material M. 80 kg of material M are in stock which were purchased for Rs. 2 per kg. The replacement price is Rs. 2.15 per kg. The material is in stock as a result of buying error and the company has no other use for it.
Popeye Company is a metal and wood cutting manufacture, selling products to the home construction market. Consider the following data for the month of October, 2004.Required(i) Prepare an income statement with a separate supporting schedule of cost of goods manufactured.(ii) For all manufacturing
(a) Distinguish between out-of-pocket cost and opportunity cost.(b) Explain and illustrate the distinction between 'direct cost' and 'indirect cost' specially from the point of view of decision making.
A fire occurred in the factory premises on October 31, 2003. The accounting records have been destroyed. Certain accounting records were kept in another building. They reveal the following for the period September 1, 2003 to October 31, 2003.The loss is fully covered by insurance company. The
A manufacturer buys certain equipment from an outside supplier at Rs. 30 per unit. Total annual needs are 800 units. Further the following data are available. Annual return on investment Rent, taxes, insurance per unit per year Re. 1 Cost of placing an order Determine the economic order
Which one of the following items is not included in the annual carrying costs of inventory?(a) Cost of capital(b) Insurance on inventory(c) Annual warehouse depreciation(d) Taxes on inventory(d) Inventory breakage on stored inventory
Explain 'cost management'.
Explain the nature and scope of cost control and 'cost reduction'. Which of the two is superior?
Distinguish between cost reduction and cost control.
Discuss cost classifications based on variability and controllability.
Explain the significance of cost reduction in the present global economy. Mention some important techniques used for cost reduction. Also, mention the important areas in a manufacturing company to be subjected to cost reduction drives.
''The term cost must be qualified according to its context''. Comment.
What do you mean by cost reduction? How is it different from cost control?
Explain the meaning of relevant costs in managerial decisions. Give examples.
Enumerate the basic principles of cost control.
Explain briefly the following concepts:(a) Sunk cost(b) Differential cost(c) Variance analysis(d) Key factor(e) Cost reduction
A company manufactures radios, which are sold at Rs. 1,600 per unit. The total cost is composed of 30% for direct materials, 40% for direct wages and 30% for overheads. An increase in material price by 30% and in wage rates by 10% is expected in the forthcoming year, as a result of which the profit
Name a cost which is reflected in the accounting system but not used in decision making?
Enumerate the various factors to be considered in fixing the reorder level of raw material item.
After inviting tenders, two quotations are received as follows:(a) Rs. 1.20 per unit.(b) Rs. 1.10 per unit plus Rs. 3,000 fixed charges to be added irrespective of units ordered.Advise with your arguments on whom orders should be placed and what quantity is to be ordered.The following additional
Shriram Enterprises manufactures a special product ZED. The following particulars were collected for the year 2002:(a) Monthly demand of ZED 1,000 units.(b) Cost of placing an order Rs. 100.(c) Annual carrying cost per unit Rs. 15.(d) Normal usage 50 units per week.(e) Minimum usage 25 units per
Describe the procedure for the efficient system of physical control of materials till it reaches the stores.
A company uses three raw materials A, B and C for a particular product for which the following data apply:Weekly production varies from 175 to 225 units, averaging 200 units of the said product. What would be the following quantities:(i) Minimum stock of A?(ii) Maximum stock of B?(iii) Re-order
A Ltd. is committed to supply 24,000 bearings per annum to B Ltd. on a steady basis. It is estimated that it costs 10 paise as inventory holding cost per bearing per month and that the set-up cost per run of bearing manufacture is Rs. 324.(i) What should be the optimum run size for bearing
What are the causes of discrepancies in stock records? How would you treat these discrepancies?
Shagoon India Ltd. provides the following information in respect of material XOrdering costs are Rs. 20 per order.Purchase price per unit is Rs. 50.Storage costs are 10% of unit value.Compute:(i) Reorder Level(ii) Minimum Level(iii) Maximum Level Supply period Rate of
The following information is available about a company for the year 2008.The inventory is value @ Rs. 1 per kg or litre.Calculate the material turnover ratio for each of the above materials and express in number of days the average inventory held. What conclusions can be drawn? Material A Material
From the following data, calculate the economic order quantity and the re-order point for Part Z: Working days in a year Safety stock Lead time Order costs Holding cost Annual consumption Cost per unit 200 400 units 10 days Rs. 300 per order 15% of cost 10,000 units Rs. 10
Eats Ltd. supplies a number of products to bakers and confectioners. One of their products consists of packets of cake decorations. The cake decorations are sold in packets of twelve decorations for Rs. 20 per packet. The demand for the cake decorations is very constant and has over a long period
A company's monthly requirement of an inventory item is 1,800 units. The cost of processing an order is Rs. 5 and the carrying cost per unit is 20 paise. The company supplier agrees to offer the following quantity discounts:Lead time is 2 days and the company wishes to keep a safety equal to 50% of
A manufacturer requires 9,600 units of a certain component annually. This is currently purchased from a regular supplier at Rs. 50 per unit. The cost of placing an order is Rs. 60 per order and the annual carrying cost is Rs. 5 per piece. What is the economic order quantity (EOQ) for placing
Under what circumstances is it essential to use continuous stock taking for control over materials? State its advantages.
RST Limited has received an offer of quantity discount on its order of materials as under:The annual requirement for the material is 500 tonnes. The ordering cost per order is Rs. 12,500 and the stock holding cost is estimated at 25% of the material cost per annum.Required:(i) Compute the most
Write short notes on the following:(i) Re-order quantity(ii) Re-order level(iii) Maximum stock level(iv) Minimum stock level
The Complete Gardener is deciding on the economic order quantity for two brands of lawn fertilizer: Super Grow and Nature's Own. The following information is collected.Required:(i) Computer EOQ for Super Grow and Nature's Own.(ii) For the EOQ, what is the sum of the total annual relevant ordering
For the manufacture of a certain product two components A and B are used. The following particulars about these components are available:You are required to calculate for each component:(i) Reordering level;(ii) Minimum level;(iii) Maximum level;(iv) Average stock level. Normal usage (per
Write detailed explanatory notes on the following:(i) JIT manufacturing(ii) Kanban
A company manufactures 5,000 units of a product per month. The cost of placing an order is Rs. 100. The purchase price of the raw material is Rs. 10 per kg. The reorder period is 4 to 8 weeks. The consumption of raw materials varies from 100 kg to 450 kg per week; the average consumption being 275
JP Limited, manufacturers of a special product, follows the policy of EOQ (Economic Order Quantity) for one of its components. The component's details are as follows:Annual cost of carrying one unit in inventory: 10% of purchase price.Total cost of inventory and ordering per annum: Rs. 4,000.The
What do you mean by inventory control? What are its techniques? Discuss briefly ABC system of inventory control.
The Purchase Department of your organisation has received an offer of quantity discounts on its orders of materials as under:The annual requirement for the material is 5,000 tonnes. The ordering cost per order is Rs. 1,200 and the carrying cost is estimated at 20% per annum.You are required to
A large local government authority places orders for various stationery items at quarterly intervals. In respect of an item of stock, data are as follows:Annual usage 5000 boxesMinimum order quantity 500 boxesCost per box Rs. 2Usage of material is on a regular basis and on average, half of the
In a meeting of the department heads of a company, the purchase procedure and materials accounting were strongly criticised and blamed for high cost of materials. The Managing Director of the company authorises you to investigate and suggest improvements. Give your suggestions indicating the
M/s Tubes Ltd. are the manufacturers of picture tubes for T.V. The following are the details of their operation during 2007:Compute from the above:1. Economic Order Quantity. If the supplier is willing to supply quarterly 1,500 units at a discount of 5%, is it worth accepting?2. Maximum level of
Calculate the material turnover ratio for the year 2008 from the following information: Opening Stock Closing Stock Purchases Determine the fast moving material Material X (Rs.) 25,000 15,000 1,90,000 Material Y (Rs.) 87,500 62,500 1,25,000
Distinguish between spoilage and defectives in a manufacturing company. Discuss their treatment in cost accounts and suggest a procedure for their control.
G. Ltd. produces a product which has a monthly demand of 4,000 units. The product requires a component X which is purchased at Rs. 20. For every finished product, one unit of component is required. The ordering cost is Rs. 120 per order and the holding cost is 10% p.a.You are required to
XYZ Company buys in lots of 500 boxes which is a 3 months supply. The cost per box is Rs 125 and the ordering cost is Rs 150. The inventory carrying cost is estimated at 20% of unit value. What is the total annual cost of the existing inventory policy? How much could be saved by employing the
What do you understand by 'inventory control'. State its objects.
ZEE is product manufactured out of three raw materials M, N and Q. Each unit of ZEE requires 10 kg, 8 kg, and 6 kg. of M, N and Q respectively. The re-order levels of M and N are 15,000 kgs and 10,000 kg. respectively while the minimum-level of Q is 2,500 kg. The weekly production of ZEE varies
From the following information relation to a type of raw material, calculate EOQ: Monthly demand Unit price Order cost per order Storage cost Interest rate 200 units Rs. 5 Rs. 12 2% p.a. 10% p.a.
What are the objectives of inventory control? How is inventory control effected through ABC analysis of stores?
Materials X and Y are used as follows:Calculate for each material :(a) Minimum level;(b) Maximum level; and(c) Order level. Minimum usage - 50 units each per week Maximum usage - 150 units each per week Normal usage - 100 units each per week X = 600 units Y = 1000 units X= 4 to 6 weeks Y = 2 to 4
Define waste, scrap, defectives and spoilage with examples. Discuss the respective treatment in cost accounts and set out a procedure for their control.
If the minimum stock level and average stock level of raw-material A are 4,000 and 9,000 units respectively, find out its ''Re-order quantity''.
From the details given below, calculate:(i) Re-ordering Level(ii) Maximum Level(iii) Minimum Level(iv) Danger LevelCost of placing a purchase order is Rs. 20Number of units to be purchased during the year is 5,000.Purchase price per unit inclusive of transportation cost is Rs. 50.Annual cost of
The following information in an inventory problem is available:Calculate EOQ, Re-order level and total annual inventory cost. How much does the total inventory cost vary if the unit price is changed to Rs. 5? Annual demand Unit price (Rs.) Ordering cost (Rs.) Storage cost (Rs.) Interest rate Lead
In ABC Company Ltd. waste, scrap, spoilage and defectives are very high. Suggest and explain various methods for accounting of wastage and scrap and also treatment of costs incurred on spoilage and defective work.
The quartely production of a company's product which has a steady market is 20,000 units. Each unit of a product requires 0.5 kg of raw material. The cost of placing one order for raw material is Rs. 100 and the inventory carrying cost is Rs. 2 per annum. The lead time for procurement of raw
A factory uses 4,000 varieties of inventory. In terms of inventory holding and inventory usage, the following information is compiled:Classify the items of inventory as per ABC analysis with reasons. No. of varieties of inventory 3875 110 15 96.875 2.75 0.375 100.00 % value
Compute the materials turnover ratio for materials A and B and comment upon the results. Opening stock Purchase during the year Closing stock Materials A (Rs.) 10,000 76,000 6,000 Materials B (Rs.) 35,000 50,000 25,000
A company's basic wage rate is Rs. 3.00 per hour and its overtime rates are:During the previous year the following hours were worked:The following times have been worked on these jobs:You are required to calculate the labour cost chargeable to each job where overtime is worked regularly throughout
In a factory Ram and Sham produce the same product using the same input of same material and at the same normal wage rate.Bonus is paid to both of them in the form of normal time wage rate adjusted by the proportion which time saved bears to the standard time for the completion of the product. The
A skilled worker in XYZ Ltd. is paid a guaranteed wage rate of Rs. 30 per hour. The standard time per unit for a particular product is 4 hours. P, a machineman, has been paid wages under the Rowan Incentive Plan and he had earned an effective hourly rate of Rs. 37.50 on the manufacture of that
The Directors of Quality Machineries Ltd. requests you to ascertain the amount at which the inventory should be included in the financial statement for the year 2006-07. The value of inventory as shown in the books is Rs. 12,50,000.To determine the net realisable value of the inventory (on test
The management of Sunshine Ltd. wants to have an idea of the profit lost/foregone as a result of labour turnover last year.Last year sales amounted to Rs. 66,00,000 and the P/V Ratio was 20%. The total number of actual hours worked by the direct labour force was 3.45 lakhs. As a result of the
From the following information calculate Labour turnover rate:No. of workers as on 01.01.2000 = 7,600No. of workers as on 31.12.2000 = 8,400During the year, 80 workers left while 320 workers were discharged. 1,500 workers were recruited during the year of these, 300 workers were recruited because
The profitabililty position of TARGET LTD. for the year ending 31.03.2006 is as under.The profit for the year did not mach with company's expectation and works management attributed it to labour turnover.Analysis of the data revealed the following:The effectiveness of direct labour hours put in by
The capacity usage ratio and the capacity utilisation ratio in respect of a machine for a particular month is 80% and 90% respectively. The available working hours in a month is 200 hours.The break-up of idle-time is as follows:Calculate the idle-time cost and present the same in a tabular form
How is payroll accounting function organised in a manufacturing establishment?
Sona Corporation has filed the following income statement for the year ending 31st March, 2003.The actual number of hours direct labour worked, in the year under review is 2,06,000. As a consequence of delays in filling vacancies of employees who quit, 6,000 potential direct hours were not worked,
Explain what is meant by group bonus and state the objectives of introducing a group bonus schemes.
What do you understand by overtime premium? What is the effect of overtime payment on productivity and cost? Discuss the treatment of overtime premium in cost accounts and suggest a procedure for control of overtime.
What do you understand by time and motion study? Explain how standard time is set under time study. State how time and motion study is useful to management.
Define job evaluation and distinguish it from merit rating. Explain the method and objectives of job evaluation.
What do you understand by 'idle time'? Distinguish between 'Normal' and 'Abnormal idle time'. How would you deal with each one of them in cost accounts? Give a suitable example to clarify your answer.
How will you treat the following in cost accounts:(i) Interest on capital(ii) Leave wages(iii) Research and development cost(iv) Audit fees
Discuss briefly how will you deal with casual workers and workers employed on outdoor work in cost accounts.
The following quotation is received from a supplier in respect of a material:One container is required for every 100 units and if containers are returned within two months, credit would be received at Re. 0.20 each.Calculate the material cost for 3,000 units assuming that purchaser decided to
What are the methods of pricing materials issues? When do you advocate pricing the issues at cost price based on last-in, first-out?
At what price per unit would Part No. A 32 be entered in the store's ledger, if the following invoice was received from a supplier?Notes:(i) A 2% discount will be given for payment within 30 days.(ii) Documents substantiating payment of excise duty is enclosed for claiming MODVAT credit.
Which method of materials pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations?(a) Average cost(b) FIFO(c) LIFO(d) Base stock
A manufacturer in Surat purchased three chemicals A, B and C from Mumbai. The invoice gave the following information:A shortage of 200 kg in Chemical A, of 280 kg in Chemical B and of 100 kg in Chemical C was noticed due to breakages. At Surat, the manufacturer paid octroi duty @ 0.10 per kg. He
State the various methods of pricing the issue of materials or stores. State the method to be adopted for the issue of materials for an industry where their cost is fluctuating constantly.
Alpha company was using FIFO (and not LIFO) for materials pricing and its value of inventory was found lower.Assuming no opening inventory, what direction did the purchase prices move during the period?(a) Up(b) Down(c) Steady(d) Cannot be determined
The particulars relating to the import of sealing ring invoiced by AB and Co., during December 2002 are given below:(a) Sealing ring 1,000 pieces @ $2.00 CIF Bombay Port.(b) Customs duty was paid @ 100% on invoice value (which was converted to Indian currency by adopting an exchange rate of Rs.
Explain the following two methods of pricing issue of materials and also the circumstance under which these methods are used.(i) FIFO(ii) LIFO
A materials pricing method in which the oldest cost incurred rarely have an effect on the closing inventory valuation is(a) FIFO(b) LIFO(c) Simple average (d) Weighted average
Calculate the raw material cost of 100 yards of hessian cloth made in a jute mill. The cloth contains 45% warp yarn and weighs 10 oz per yard. Wastage of yarn is 2% warp and 5% weft. Both the yarns are spun from jute fibre at Rs. 1.25 for warp and Rs. 108 for weft per quintal after treating the
From the following details of stores receipts and issues of material ''EXA'' in a manufacturing unit, prepare the Stock Ledger using ''Weighted Average'' method of valuing the issues: Nov. 1 Opening stock 2,000 units @ Rs. 5 each. Issued 1,500 units to Production. Nov. 3 Nov. 4 Received 4,500 units

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