Questions and Answers of Cost Accounting

Overhead costs are source of product cost distortion. Do you agree, Explain.
Explain the concept of Activity-Based Costing and Cost Drivers.
Explain briefly each of the following categories in Activity-Based Costing (ABC) by giving at least two examples:(i). Unit level activities (ii). Batch level activities (iii). Product level
Define Activity-Based management (ABM). What is its importance?
Describe the prime cost method of absorption of factory overheads. Explain fully and illustrate the basic conditions necessary for its application.
In a factory, overheads of a particular department are recovered on the basis of Rs. 5 per machine hour. The total expenses incurred and the actual machine hours for the department for the month of
The level of production activity fluctuates widely in your company from month to month. Because of this the incidence of depreciation on unit cost varies considerably. The management decides that you
The Moden Company has four departments. A, B and C are the production departments and D is a servicing department. The actual cost for a period are as follows:The following data are also available in
In a manufacturing company where costing is done with a view to fix prices, state whether and, if so, to what extent the following items are included in cost.(i). Interest on borrowings. (ii).
A manufacturing company has 2 production departments X and Y and 3 service departments Time keeping, Stores and Maintenance. The departmental summary showed the following expenses for October
Deccan Manufacturing Ltd. have three departments which are regarded as production departments. Service departments, costs are distributed to these production departments using the Step Ladder Method
Factory overhead includes (a). All manufacturing costs (b). All manufacturing costs except direct materials and direct labour (c). Indirect materials but not indirect labour (d).
The overhead of a manufacturing company has been analysed to the point of primary distribution as given below.The canteen is to be apportioned on the basis of employees: The powerhouse is to be
In order to identify costs that relate to a specific product, an allocation base should be chosen that (a). Does not have a cause and effect relationship (b). Has a cause and effect
Explain the general principles to be kept in mind while considering whether item of expenditure is to be treated as overhead.
Modern Manufacturers Ltd. has three Production Departments P1, P2, P3 and two Service Departments S1 and S2 the details pertaining to which are as under:The following figures extracted from
Differentiate between apportionment and absorption of overhead.
A company has three production departments, A, B and C and two service departments, P and Q. The following figures are available as per departmental distribution summary: Production
What is the importance of machine hour as a basis for the absorption of factory overheads?
You are supplied with the following information and required to work out the production hour rate of recovery of overheads in Departments A, B and C. Expenses of Service Department P and Q are
Explain briefly various methods of absorption of factory overheads.
Added cost of a new product will be (a). Materials and labour (b). Materials, labour and factory overhead (c). Materials, labour, factory and administrative overhead (d).
Modern Machines Ltd. have three Production Departments (A, B and C) and two Service Departments (D and E). From the following figures extracted from the records of the company, calculate the overhead
What do you mean by over-absorption and under-absorption of overheads? How would you treat such over and under absorbed factory-overheads in cost accounts?
The rent of business premises should be shared out between cost centres according to: (a). Floor area or cubic capacity. (b). The number of employees. (c). The replacement value of
The budgeted fixed overheads amounted to Rs. 84,000. The budgeted and actual production amounted to 20,000 units and 24,000 units respectively. This means that there will be: (a). An
Distinguish between allocation, apportionment and absorption of overheads.
A factory has three production departments (P1, P2 and P3) and two service departments (S1 and S2). Budgeted overheads for the next year have been allocated/apportioned by the cost department among
The production department of a factory furnishes the following information for the month of October: For an order executed by the department during the period, the relevant information was as
What are the requisites of a good method of absorption of factory overhead?
The insurance of buildings is best apportioned to cost centres using: (a). Floor area or cubic capacity (b). The number of employees (c). The replacement value of machinery and
A factory has three production departments A, B and C and also two service departments X and Y. The primary distribution of the estimated overheads in the factory has just been completed. These
Explain how would you treat under/overabsorption of overheads in cost accounts.
Discuss the secondary distribution of overheads.
The canteen expenses should be apportioned to cost centres by: (a). Floor area or cubic capacity (b). The number of employees (c). The replacement value of machinery and
Describe the different bases on which factory expenses can be apportioned. Describe the merits and suitability of each of them.
Write a detailed critical note on the direct labour cost method of absorption of factory overheads.
MM Ltd. has three production departments X, Y, Z and two service departments S and C. The following details are extracted from the books of accounts in respect of indirect expenses incurred during
A company has three production centres, A, B and C and two service cost centres, X and Y. Costs allocated to service centres are required to be apportioned to the production centres to find our cost
Which of the following bases of apportionment is most suited to sharing up the lighting costs between departments and cost centres? (a). Floor area or cubic capacity (b). The number of
What information is necessary to calculate a machine hour rate for overhead absorption? State the conditions in which the method is most effective.
Indirect costs can also be described as: (a). Overhead costs (b). Prime costs (c). Variable costs (d). Total costs.
Following particulars have been extracted from the books of Reliable Co.: Further information regarding the operations is given below: You are required to prepare an overhead analysis sheet for the
Explain the concept of absorption of factory overheads.
Indirect costs which cannot be identified with a particular cost centre are shared out between cost centres using: (a). A recovery rate (b). An absorption rate (c). A method of
What do you understand by classification, allocation and apportionment in relation to overhead expenses? Explain fully.
Which of the following is not an indirect cost? (a). Wages of production department machine operator. (b). Wages of a production department cleaner. (c). Materials used for machine
Briefly describe two ways of dealing with apportioning service department costs among departments which, in addition to doing work for the main operation departments, also serve one another.
Compute the machine hour rate from the following data: (i) Total machine cost to be depreciated (ii) Life 10 years. (iii) Depreciation on straight line (iv) Departmental overheads (annual) Rent Heat
In a light engineering factory, the machine shop consists of three cost centres (A, B and C) each having three distinct sets of machines. The following are the details of estimates for the year
Discuss the statement that the impact of overheads under varying conditions of production and sales is of greater interest to the management than its method of apportionment and allocation.
Sankalp Industries absorbs factory overhead costs at Rs. 2.50 per direct labour hour. Both opening and closing balance of work-in progress and finished goods inventories are zero.The following data
Overhead costs are usually classified according to variability. What are the necessities for such classification and what purpose do such classifications serve.
State in short the reasons for the use of predetermined rates for factory overhead absorption.
The factory overhead costs of four production departments of a company engaged in executing job orders, for an accounting year, are as follows:Find out the amount of department-wise under or
Explain why predetermined overhead absorption rates are preferred to overhead absorption rates calculated from factual information after the end of a financial period.
The actual total expenditure of a light engineering factory was Rs. 6,75,912. Overheads were recorded at the rate of Rs. 2 per hour at normal capacity of the factory. Out of 10,000 units produced,
What are the causes of under/over absorption of factory overheads? How will you deal with them in cost accounts?
A company absorbs production overheads on the basis of predetermined machine hour rate. For the month of March 2004 the budgeted machine hours were 8,500. During the month the actual machine hours
Jones Ltd. has a budgeted activity level of 50,000 direct labour hours and budgeted production overheads of Rs. 100,000. You are required to calculate the underabsorbed and overabsorbed overheads,
Following data is available relating to a company for a certain month: The company adopts sales basis and quantity basis for application of selling and distribution costs, respectively.
A company is producing three types of products, A, B, C. The sales territory of the company is divided into three areas, X, Y and Z. The estimated sales for the year are as under: Budgeted
Explain the nature of administrative overheads. How are they apportioned to products?
XYZ Ltd. a manufacturing company, having an extensive marketing network throughout the country, sells its products throughout four zonal sales offices, viz. A, B, C, and D. The budgeted expenditure
Discuss the methods of absorption of selling and distribution overheads.
What problems are faced in applying administrative costs partly to the manufacturing and partly to the selling departments of a concern? How will you control administrative overhead of a concern?
A match factory sells its goods in four district zones South, North, East and West. You have been given the particulars for January 2008 in respect of each zone mentioned as follows:
Set out the main arguments for and against inclusion of interest on capital in cost accounts.
A company is supplying its products to the ultimate consumers through the wholesalers to retailers. The Managing Director thinks that if they sell through the retailers or to the consumers direct,
Interest is a factor which cannot be disregarded by management. Comment on this statement.
Cost accounting has come to be an essential tool of the management.'' Comment.
A firm has the following transactions for the month of January 2008.There are no opening inventory of raw materials, WIP and finished goods. The standard cost per unit is Rs. 310 (Rs. 170 for
List A gives you different methods of costing which can be used in one or more industries or organisations given in List B. Mention the correct costing method of the industries in List B. List A
''Financial accounting procedures are generally designed to ascertain the periodic profit or loss, but there are important limitations and deficiencies in the system.'' Discuss.
Examine critically the drawbacks of conventional financial accounting. Do you think that these limitations have been overcome by the introduction of cost accounting in business?
Indicate whether the following statements are True or False:(i) The rental of a car which includes a fixed daily rate plus an extra fee for each kilometre driven is an example of a step cost.(ii)
What is cost accounting? What are its objectives? How do cost accounting records help in the planning and control of operations of a business enterprise?
What is meant by cost accounting? In what essential respects does cost accounting differ from financial accounting?
Explain fully the concept of cost. How does cost accounting contribute to the effective and efficient management of an industrial establishment?
What is the function of a costing department in a manufacturing concern? How is the costing department useful to other departments in a manufacturing concern?
SV Ltd. is a manufacturing company which has a sound system of financial accounting. The management of the company, therefore, feels that there is no need for the installation of a cost accounting
''A cost keeping system that simply records costs for the purpose of fixing sale prices has accomplished only a small part of its mission.'' What are the other functions of costing?
''Cost accounting is an unnecessary luxury for business establishments.'' Do you agree with the statement? Discuss.
Explain the important objectives of cost accounting.
''Cost accounting is a system of foresight and not a postmortem examination, it turns losses into profits, speedsup activities and eliminates waste.'' Discuss.
State the primary objectives of installation of a costing system. Apart from technical costing problems, what practical difficulties would you meet and how would you overcome them?
How far is cost information helpful for the following purposes:(a) Fixation of selling prices(b) Control of costs(c) Management decisions
''Limitations of financial accounting have made the management to realise the importance of cost accounting''. Comment.
What are the advantages of introduction of costing system in an industrial organisation?
Mention the factors which should be considered in installing a costing system in an organisation.
What is meant by cost accounting? Explain the difference between financial accounting and cost accounting.
What purposes do cost centres serve? Are cost centres and cost units related to each other?
''Cost accounting is becoming more and more relevant in the emerging economic scenario in India''. Comment.
Discuss the essentials of good cost accounting system.
Match the items in Column 1 with the best choice in Column 2 Column 1 1. Total fixed costs 2. Incurred costs 3. Cost of goods manufactured 4. Total manufacturing costs 5. Unit variable cost 6. Prime
You have been asked to install a costing system in a manufacturing company. What practical difficulties will you expect and how will you propose to overcome the same?
The following data are related to the manufacture of a standard product during the month of December 2001.You are required to prepare a cost sheet from the above showing:(a) The cost per unit.(b) The
What is meant by management accounting? Discuss its objectives.
Lists two costs which are used in decision making but not entered in the accounting system under that designation.
In a company weekly minimum and maximum consumption of material A are 25 and 75 units respectively. The reorder quantity as fixed by the company is 300 units. The material is received within 4 to 6

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