AMITY SCHOOL OF DISTANCE LEARNING

Post Box No. 503, Sector-44

Noida 201303
Cost and Managerial Accounting
(BBA)
Assignment A
Marks 10
Answer all questions.
1. Cost accounting is becoming more and more relevant in the emerging economic
scenario in India. Comment.

Ans:
Cost accounting is a process of collecting, analyzing, summarizing and evaluating various
alternative courses of action. Its goal is to advise the management on the most appropriate
course of action based on the cost efficiency and capability. Cost accounting provides the
detailed cost information that management needs to control current operations and plan for
the future.
In emerging countries like india, managers are making decisions only for their own
organization, there is no need for the information to be comparable to similar information from
other organizations. Instead, information must be relevant for a particular environment. Cost
accounting information is commonly used in financial accounting information, but first we are
concentrating on its use by managers to make decisions.

In emerging counties, unlike the accounting systems that help in the preparation of financial
reports periodically, the cost accounting systems and reports are not subject to rules and
standards like the Generally Accepted Accounting Principles. As a result, there is wide variety
in the cost accounting systems of the different companies and sometimes even in different
parts of the same company or organization.

Advantages Of Cost Accounting

Following are the most important advantages of a good cost accounting system:

1) Classification and Subdivision of Costs:

In the contrast to a single profit or loss figure supplied by general accounting, the cost accounting
classifies costs and income by every conceivable subdivision of the business enterprise. In a
good costing system data regarding costs by departments, processes, functions, products,
orders, jobs, contracts and services can easily computed. This detailed cost information for
managerial control is one of the most important contributions of cost accounting.

2) Adequacy or Inadequacy of Selling Prices:

Unit cost of production, administration and safe made possible by cost accounting aids
management in deciding the adequacy or inadequacy of selling prices i.e. neither too high
detracting business, nor too low resulting in losses to the concern.

In period of depressions, slumps, or in case of competition management forced to lower prices

even below cost of production and sale. In such circumstances, cost accounting will help
management in deciding the proper reduction.
3) Disclosure of profitable Products:
Cost Accounting will disclose activities, departments, products and territories, which bring profit
and those that result in losses. Management to determine what products because of profit margin
the sales department because of their greater profit margin should emphasize will use this
information. What products arte unprofitable or less profitable and might be eliminated or lesser
sales pressure be given to them. What activities or territories are not producing sufficient profit
and should be either further improved or eliminated and what methods of production and
distribution are most profitable for the firm. This will increase the overall profit of the concern.

4) Control of Material and Supplies:

In a good costing system materials and supplies must be accounted for in terms of departments,
jobs, units of production or service. This will eliminate altogether or reduce to the minimum
misappropriations, embezzlements, deterioration, obsolescence, and losses from defective,
spoiled, scrap and out of date materials and supplies.

5) Maintenance of Proper Investment in Inventories:

A costing system will help in the maintenance of various inventory items of materials and supplies
in line with production and sale requirements. If these quantities are too small, production may
stop or sales may be lost. On the other hand, if quantities of such materials and supplies are in
excess of the production and sales requirements, too much working capital may unnecessarily tie
up in inventories. The detailed quantity information furnished by the cost accountant at all times
will go a long way in reducing or eliminating this possibility.

6) Correct Valuation of Inventories:

Cost Accounting plays a basic role in the correct valuation of inventories of finished goods, work
in process, materials and supplies. The book inventory method (as opposed to physical inventory
method) made possible by cost accounting system will involve the operation of the various
inventory control accounts in such a manner that the balances of these accounts well be
inventory valuations required for periodic financial statements. This enables the preparation of
monthly financial statements without the trouble and expense of taking monthly physical
inventories.

7) Whether to Manufacture or Purchase from Outsiders:

Cost records furnish information regarding the cost of manufacturing of different finished parts,
which assist management in making a decision whether to purchase these parts from outside
manufacturers or manufacture them in the factory.

8) Control of Labour Cost:

Orders, jobs, contracts, departments, processes, or services record cost of labour. In many
manufacturing enterprises, daily time reports are prepared showing the number of hours and
minutes spent and the wage rate for each worker per job or operation. This enables management
to compare the current cost of labour per job or operation with some previously incurred or
determined cost thus measuring the efficiency or inefficiency of the labour force and assigning the
work to employees best suited for it.

9) Use of Company-wide Wage Incentive Plans:

When labour cost is accounted for by jobs and operations, it is possible to use effectively wage
incentive plans or bonus schemes for the remuneration of labour force. Carefully planned and
administered incentive schemes are an effective means of enforcing superior performance and
cost reduction. Workers are more co-operative, responsive and productive when some form of
incentive offered to them for surpassing stipulated standards of perfection and performance. Cost
of accounting has developed incentive plans, which are applicable not only to factory workers but
also to clerks, salespersons, and other executives for above standard performance.
2. An efficient system of costing is essential factor for industrial control under modern
conditions of business and as such may be regarded as an important part in the
efforts of any management to secure business stability. Elaborate.

Ans:
An efficient system of accounting is an essential factor for industrial control under consitions of
business due to the following advantages

1. A good Cost Accounting System helps in identifying unprofitable activities, losses or

inefficiencies in any form.

2. The application of cost reduction techniques, operations research techniques and value
analysis technique, helps in achieving the objective of economy in concern's operations.
Continuous efforts are being made by the business organization for finding new and
improved methods for reducing costs.

3. Cost Accounting is useful for identifying the exact causes for decrease or increase in the,
profit/loss of the business. It also helps in identifying unprofitable products or product lines
so that these may be eliminated or alternative measures may be taken.

4. It provides information and data to the management to serve as guides in making

decisions involving financial considerations. Guidance may also be given by the Cost
Accountant on a host of problems such as, whether to purchase or manufacture a given
component, whether to accept orders below cost, which machine to purchase when a number
of choices are available.

5. Cost Accounting is quite useful for price fixation. It serves as a guide to test the adequacy
of selling prices. The price determined may be useful for preparing estimates or filling
tenders.

6. The use of cost accounting technique viz., variance analysis, points out the deviations from
the pre-determined level and thus demands suitable action to eliminate such deviations in
future.

7. Cost comparison helps in cost control. Such a comparison may be made from period to
period by using the figures in respect of the same unit of firms or of several units in an
industry by employing uniform costing and inter-firm comparison methods. Comparison
may be made in respect of costs of jobs, processes or cost centres.

8. A system of costing provides figures for the use of Government, Wage Tribunals and other
bodies for dealing with a variety of problems. Some such problems include price fixation,
price control, tariff protection, wage level fixation, etc.

9. The cost of idle capacity can be easily worked out, when a concern is not working to full
capacity.
 10. The use of Marginal Costing technique, may help the executives in taking short term
decisions. This technique of costing is highly useful during the period of trade depression, as
the orders may have to be accepted during this period at a price less than the total cost.

11. The marginal cost has linear relationship with production volume and hence in
formulating and solving "Linear Programming Problems", marginal cost is useful.

3. From the following transactions extracted from the books of accounts of a manufacturing
concern as on 31 April 2011. Work out a) consumption value of raw material in the month and
b) value of closing stock as on 31 April 2011 under the FIFO method of pricing issues:

Quantity in Units Rate per unit (Rs.)

2010 April 1 Opening Stock 300 9.7
2010 April 3 Purchases 250 9.8
2010 April 11 Issues 400
2010 April 15 Purchases 300 10.5
2010 April 20 Issues 210
2010 April 25 Purchases 150 10.3
2010 April 29 Issues 100

a) consumption value of raw material in the month

Ans 300*9.7 + 250*9.5 + 160*10.5=6965 Ans
b) value of closing stock as on 31 April 2011
Ans 3015

Quantity Rate per Current Current

Id Stock
in Units unit (Rs.) Stock Value
2010 Opening
300 9.7 1
April 1 Stock 300 2910
2010
Purchases 250 9.8 2
April 3 550 5360
2010
Issues 400
April 11 150 1470 1=0,2=150
2010 1=0,2=150,3=30
Purchases 300 10.5 3
April 15 450 4620 0
2010
Issues 210
April 20 240 2520 1=0,2=0,3=240
2010 1=0,2=0.3=240,
Purchases 150 10.3 4
April 25 390 4065 4=150
2010 1=0,2=0,3=140,
Issues 100
April 29 290 3015 4=150

4. From the following information prepare a cost sheet showing cost profit per unit
Direct materials consumed Rs.4, 00,000
Direct labour 40% of direct material cost
Direct expenses 50% of direct labour cost
Factory overheads 25% of prime cost
Office and admin expenses are @ Rs.150 per 10 units produced
 Selling & distribution overheads are Rs. 500 per 100 units sold
Opening finished stock 800 units @ Rs.85.50
Closing stock 400 units
Finished goods sold 16,400 units
Profit 1/6th of sales

Ans

Areas Cost Cost Per unit

Productions 16000 1
Direct Material 400000 25
Direct Labour 160000 10
Diect Expense 80000 5
Factory Overhead 160000 10
Office & admin
expense 240000 15
Seeling & dist.
Expense 82000 5.125
Units Products 16000

Cost Per unut 71.125

Profit per unit

189333.333
Profit(units) 3 11.83333333

5. Answer any three questions of the following:

a. Explain product cost and period cost with 2 examples of each
Ans:

Product Costs
For financial accounting purposes, product costs include all costs involved in acquiring or
making a product. In the case of manufactured goods, these costs consist of direct materials,
direct labor, and manufacturing overhead. Product costs attach to units of product as the
goods are purchased or manufactured, and they remain attached as the goods go into
inventory awaiting sale. Product costs are initially assigned to an inventory account on the
balance sheet. When the goods are sold, the costs are released from inventory as expenses
(typically called cost of goods sold) and matched against sales revenue. Since product costs
are initially assigned to inventories, they are also known as inventoriable costs.
We want to emphasize that product costs are not necessarily treated as expenses in the
period in which they are incurred. Rather, as explained above, they are treated as expenses in
the period in which the related products are sold. This means that a product cost such as
direct materials or direct labor might be incurred during one period but not recorded as an
expense until a following period when the completed product is sold.
Examples are direct material costs, direct labour costs manufacturing overheads, carriage
inwards and all such costs that contributes and are necessary to bring the inventory to their
present location and condition for example handling costs, amortized development costs,
borrowing costs in specific cases, storage costs where production process requires goods to
be stored i.e. storage is part of the production process for example pickles.

Period Costs
Period costs are all the costs that are not product costs. For example, sales commissions and
the rental costs of administrative offices are period costs. Period costs are not included as
part of the cost of either purchased or manufactured goods; instead, period costs are
expensed on the income statement in the period in which they are incurred using the usual
rules of accrual accounting. Keep in mind that the period in which a cost is incurred is not
necessarily the period in which cash changes hands. For example, as discussed earlier, the
costs of liability insurance are spread across the periods that benefit from the insurance
regardless of the period in which the insurance premium is paid.
As suggested above, all selling and administrative expenses are considered to be period
costs. Advertising, executive salaries, sales commissions, public relations, and other
nonmanufacturing costs discussed earlier are all examples of period costs. They appear on
the income statement as expenses in the period in which they are incurred.
Examples of these costs include administrative costs, selling and marketing costs, finance
costs or borrowing costs (excluding such costs that can be included in the inventory), product
research costs, product development costs that failed to fulfill capitalization criteria,
abnormal losses etc.
.

b. What is meant by direct material cost?

Direct materials cost is the cost of direct materials which can be easily identified with the unit of
production. For example, the cost of glass is a direct materials cost in light bulb manufacturing. [1]

The manufacture of products or goods required material as the prime element. In general, these
materials are divided into two categories. These categories are direct materials and indirect
materials.
Direct materials are also called productive materials, raw materials, raw stock, stores and only
materials without any descriptive title.

c. Find out the cost of raw material purchased from the data given below:

Particular Amount
Prime cost 200000
Closing stock of raw material 20000
Direct labour cost 100000
Expenses on purchases 10000

Ans:
Cost of Production = Prime Costs + Factory Overheads
Factory Overheads= Direct labour cost+ Expenses on purchases- Closing stock of
raw material
Factory Overheads=100000+10000 -20000
Factory Overheads=90000

Cost of Production = Prime Costs + Factory Overheads

Cost of Production =200000 +90000
Cost of Production =290000

d. Distinguish between costing and cost accounting.

e. Define batch costing. Give examples of industries which adopt batch costing.

Batch cost is a cost that is incurred when a group of products or services are produced, and
which cannot be identified to specific products or services within each group

Batch costing is employed by companies manufacturing in batches. It is used by readymade

garment factories for ascertaining the cost of each batch of cloths made by them.
Pharmaceutical or drug industries, electronic component manufacturing units, radio
manufacturing units too use this method of costing for ascertaining the cost of their product.
A costing system used by organizations whose products are easily identified by batches.

Cost and Managerial Accounting

(BBA)
Assignment B
xMarks 10
Answer all questions.

1.Mosaic Co. Ltd has three production depts A, B & C and two service depts D & E. Info:
Rent Rs. 5000 Indirect wages Rs. 1500
Power Rs.1500 Depreciation of Machinery Rs.10000
 General lighting Rs. 600 Sundry expenses Rs. 10000

Total A B C D E
Floor space
(sq.ft.) 20000 4000 5000 6000 4000 1000
Light points 120 20 30 40 20 10
Direct wages (Rs.) 10000 3000 2000 3000 1500 500
H.P. of machines 150 60 30 50 10 -
Value of machines (Rs.) 250000 60000 80000 100000 5000 5000
Prepare a statement showing distribution of overheads to various departments.

Ans:

Basis A B C D E Total
Rent Space 1000 1250 1500 1000 250 5000
General Lighting Light Points 100 150 200 100 50 600
Direct Wages Actual 3000 2000 3000 1500 500 10000
H.p of
Power Machine 600 300 500 100 0 1500
Indirect Wages Equal 300 300 300 300 300 1500
Depreciation of
machine Value 2400 3200 4000 200 200 10000
Sundry Expenses Equal 2000 2000 2000 2000 2000 10000

2. The following information is provided to you:

Selling price per unit Rs. 40

Variable cost Rs. 24

Fixed costs Rs. 6

Profit Rs. 10

Present sales volume is 2000 units

 Calculate:

(a) P/V ratio (b) BEP (c) Margin of safety (d) profit at a sales volume of 2500 units (e) sales
required to earn a profit of Rs. 26,000

Ans

a) P/V Ratio

P/V Ratio=(Contribution/Sales)*100

Contribution= Selling Price per unit - Variable Cost per unit

= 40-16

=16

Sales=40

P/V=(16/40)*100

=40%

b) Margin of Safety

MOS=Profit/PV Ratio

=10/40

=0.25

c) BEP

Break-Even Point in Units =Fixed Cost/ Contribution per unit

Contribution per unit = Selling Price per unit - Variable Cost per unit

=40-24

=16

Break Even Point= Fixed Cost/ Contribution per unit

=(6*2000)/16

=750

d) profit at a sales volume of 2500 units

Sales= (Fixed Cost + Desired Profit)/PV Ratio

2500= (12000 + Desired Profit) /40

 2500*40=(12000 + Desired Profit)

Desired Profit=(2500*40)-12000

Desired Profit =88000

e) sales required to earn a profit of Rs. 26,000

Sales= (Fixed Cost + Desired Profit)/PV Ratio

=(12000+26000)/40

=950

3. What are budget and budgetary control? Discuss the advantages and essential for success
of budgetary control.

Ans:

a) Budget:

A formal statement of the financial resources set aside for carrying out specific activities in a
given period of time.

It helps to co-ordinate the activities of the organisation.

An example would be an advertising budget or sales force budget.

b) Budgetary control:

A control technique whereby actual results are compared with budgets.

Any differences (variances) are made the responsibility of key individuals who can either

Advantages of budgeting and budgetary control

There are a number of advantages to budgeting and budgetary control:

Compels management to think about the future, which is probably the most
important feature of a budgetary planning and control system. Forces management
to look ahead, to set out detailed plans for achieving the targets for each department,
operation and (ideally) each manager, to anticipate and give the organisation
purpose and direction.
Promotes coordination and communication.
Clearly defines areas of responsibility. Requires managers of budget centres to be made
responsible for the achievement of budget targets for the operations under their personal
control.

Provides a basis for performance appraisal (variance analysis). A budget is basically a

yardstick against which actual performance is measured and assessed. Control is provided
by comparisons of actual results against budget plan. Departures from budget can then be
investigated and the reasons for the differences can be divided into controllable and non-
controllable factors.

Enables remedial action to be taken as variances emerge.

Motivates employees by participating in the setting of budgets.

Improves the allocation of scarce resources.

Economize management time by using the management by exception principle.

4. Read the case below and answer the questions given at the end
Case Study

Coffee Cart Supreme sells hot and iced coffee beverages and small snacks. The following
is last months income statement.

Particulars Amount $ Amount $

Revenue 5000
Cost of Beverage & snacks 2000
Cost of napkins, straws etc 500
Cost of rent cart 500
Employee wages 1000 4000
Pre tax profit 1000
 Taxes 250
After tax profit 750

Questions

A. What is the total cost function for Coffee Cart Supreme?

B. What is the tax rate for Coffee Cart Supreme?

C. Calculate the amount of sales needed to reach a target after-tax profit of $1,500.

D. What was Coffee Cart Supremes degree of operating leverage last month?

E. What was Coffee Cart Supremes margin of safety in revenue last month?

F. What was Coffee Cart Supremes margin of safety percentage last month?

G. Suppose next months actual revenues are $8,000 and pretax profit is $2,000. Would actual
costs be higher or lower than expected?

H. Coffee costs are volatile because worldwide coffee production varies from year to year.
Explain how this volatility affects the quality of the cost function for Coffee Cart Supreme.

Ans

A.
To estimate the cost function, we use judgment to classify costs as fixed, variable, or
mixed. For a typical
retail business, rent and wages are likely to be fixed. We estimate fixed costs as the
sum of these two
costs (Rs 500 + Rs 1,000 = Rs 1,500). It seems reasonable that the costs of
beverages and snacks (Rs 2,000) and napkins, straws, etc. (Rs 500) would vary with
revenues. We use the revenues as the cost driver to estimate variable costs as Rs
2,500 / Rs 5,000 = 0.50, or 50% of revenues.

Thus, the cost function is

TC _ Rs 1,500 + (50% * Revenue)

B. We use income tax expense and pretax profit from last month to estimate the tax
rate:
Tax rate = Taxes / Pretax profit = Rs 250 / Rs 1,000 = 25%

C. We first calculate the amount of pretax profit needed to achieve an after-tax profit
of Rs 1,500.
Targeted pretax profit = Rs 1,500 / (1 = 0.25) = Rs 2,000

The contribution margin ratio is

(5,000 - 2,500) / 5,000 = 0.50 or 50%
We then perform the CVP calculation for revenues.
Revenue = (Rs1,500 + Rs2,000) / 0.50 = Rs3,500 / 0.50 = Rs7,000

D. We use the results of our previous computations to calculate the contribution

margin, and we then calculate the degree of operating leverage:

Contribution margin = Rs5,000 - Rs2,500 = Rs2,500

Degree of operating leverage = Contribution margin / Profit
Degree of operating leverage = Rs2,500 / Rs1,000 = 2.50

E. Before calculating the margin of safety, we need to calculate the breakeven point.
Note that the margin of safety must be calculated in revenue dollars. We do not have
unit or product mix information.

The breakeven point is calculated as

Rs1,500 / 0.50 = Rs3,000 in revenues

Current revenues are Rs5,000, so the margin of safety is calculated as

Margin of safety = Rs5,000 - Rs3,000 = Rs2,000

F. We use the formula to calculate margin of safety percentage:

Margin of safety percentage = Rs2,000 / Rs5,000 = 40%

Note that we can check our previous degree of operating leverage computation as
follows:
Degree of operating leverage = 1 / Margin of safety percentage = 1 / 0.40 = 2.50

G. The expected and actual costs at Rs 8,000 revenue are

Expected Costs = Rs1,500 + (50% * Rs8,000) = Rs5,500
Actual Costs = Rs8,000 - Rs2,000 = Rs6,000
Actual costs are Rs 500 higher than expected.
2
2
H. When any costs are volatile, predicting them is problematic. Worldwide coffee
prices are uncertain for many reasons, such as weather conditions in coffee growing
areas, the ability of farmers to increase crops, and coffee demand patterns. In
addition, broader factors such as changes in economies and political upheaval
influence costs. All of these factors reduce our ability to develop a cost function that
accurately predicts future costs, which means that the quality of the cost function is
diminished.

Cost and Managerial Accounting

(BBA)
Assignment C
Marks 10
Answer all questions.
Tick mark () the most appropriate answer.
1. Which of the following statement measures the financial position of the entity on
particular time?
a) Income Statement
b) Balance Sheet
c) Cash Flow Statement
d) Statement of Retained Earning

2. The Process of cost apportionment is carried out so that--

a) Cost may be controlled
b) Cost unit gather overheads as they pass through cost centers
c) Whole items of cost can be charged to cost centers
d) Common costs are shared among cost centers

3. Direct materials cost is Rs. 80,000. Direct labor cost is Rs. 60,000. Factory overhead is
Rs. 90,000. Beginning goods in process were Rs. 15,000. The cost of goods
manufactured is Rs. 245,000. What is the cost assigned to the ending goods in process?
a) Rs. 45,000
b) Rs. 15,000 Rs.
c) 30,000
d) There will be no ending Inventory Solution:

4. When prices are rising over time, which of the following inventory costing methods will
result in the lowest gross margin/profits?
a) FIFO
b) LIFO
c) Weighted Average
d) Cannot be determined

5. The main difference between the profit center and investment center is--
a) Decision making
b) Revenue generation
c) Cost in occurrence
d) Investment

6. Which of the following is a characteristic of process cost accounting system?

a) Material, Labor and Overheads are accumulated by orders
b) Companies use this system if they process custom orders
c) Opening and Closing stock of work in process are related in terms of completed
units
d) Only Closing stock of work in process is restated in terms of completed units

7. Which of the following manufacturers is most likely to use a job order cost accounting
system?
a) A soft drink producer
b) A flour mill
c) A textile mill
d) A builder of offshore oil rigs

8. Production volume of 1,200 units cost incurred Rs. 10,000 and production volume of
1,400 units cost incurred Rs.20, 000. The variable cost per unit would be?
a) Rs. 50.00 per unit
b) Rs. 8.33 per unit
c) Rs. 14.20 per unit
d) Rs. 100 per unit
9. Cost accounting concepts include all of the following EXCEPT--
a) Planning
b) Controlling
c) Sharing
d) Delegating.
10. The main purpose of cost accounting is to--
a) Maximize profits
b) Help in inventory valuation
c) Provide information to management for decision making
d) Aid in the fixation of selling price

11. Period costs are --

a) Expensed when the product is sold
b) Included in the cost of goods sold
c) Related to specific Period
d) Not expensed

12. An organization sold units 4000 and have closing finished goods 3500 units and opening
finished goods units were 1000.The quantity of unit produced would be--
a) 7500 units
b) 6500 units
c) 4500 units
d) 5500 units

13. Examples of industries that would use process costing include all of the following
EXCEPT--
a) Beverages
b) Food
c) Hospitality
d) Petroleum

14. The components of the prime cost are--

a) Direct Material + Direct Labor + Other Direct Cost

b) Direct Labor + Other Direct Cost + FOH
c) Direct Labor + FOH
d) None of the given options

15. Opportunity cost is the best example of--

a) Sunk Cost
b) Standard Cost
c) Relevant Cost
d) Irrelevant Cost

16. Fixed cost per unit decreases when--

a) Production volume increases.

b) Production volume decreases.

c) Variable cost per unit decreases.

d) Variable cost per unit increases.

 17. Prime cost + Factory overhead cost is--

a) Conversion cost.

b) Production cost.

c) Total cost.

d) None of given option.

18. Find the value of purchases if Raw material consumed Rs. 90,000; Opening and closing
stock of raw material is Rs. 50,000 and 30,000 respectively.

a) Rs. 10,000

b) Rs. 20,000

c) Rs. 70,000

d) Rs. 1,60,000

19. Annual requirement is 7800 units; consumption per week is 150 units. Unit price Rs 5,
order cost Rs 10 per order. Carrying cost Rs 1 per unit and lead time is 3 week, The
Economic order quantity would be--
a) 365 units.
b) 300 units
c) 250 units
d) 150 units

20. For which one of the following industry would you recommend a Job Order Costing
system?
a) Oil Refining
b) Grain dealing
c) Beverage production
d) Law Cases
21. ______________ method assumes that the goods received most recently in the stores or
produced recently are the first ones to be delivered to the requisitioning department.

a) FIFO
b) Weighted average method
c) Most recent price method
d) LIFO
22. Cost of production report is a _________________.

a) Financial statement
b) Production Process report
c) Order Sheet
d) None of above

23. Opening work in process inventory can be calculated as under--

 a) FIFO and Average costing

b) LIFO and Average costing

c) FIFO and LIFO costing

d) None of given option

24. Jan 1; finished goods inventory of Manuel Company was Rs.3, 00,000. During the year
Manuels cost of goods sold was Rs. 19, 00,000, sales were Rs. 2, 000,000 with a 20% gross
profit. Calculate cost assigned to the December 31; finished goods inventory.

a) Rs. 4,00,000

b) Rs. 6,00,000

c) Rs. 16,00,000

d) None of given options

25. The cost expended in the past that cannot be retrieved on product or service--

a) Relevant Cost

b) Sunk Cost

c) Product Cost

d) Irrelevant Cost

26. When a manufacturing process requires mostly human labor and there are widely varying
wage rates among workers, what is probably the most appropriate basis of applying factory
costs to work in process?
a) Machine hours
b) Cost of materials used
c) Direct labor hours
d) Direct labor dollars

27. A typical factory overhead cost is--

a) Audit

b) Compensation of plant manager

c) Design distribution

d) Internal

28. Complete the following table--

 a) Constant, Decrease

b) b. Decrease, Decrease

c) c. Increase, Increase
d) Increase, Decrease.

29. The Kennedy Corporation uses Raw Material Z in a manufacturing process.

Information as to balances on hand, purchases and requisitions of Raw Material Z is
given below--

If a perpetual inventory record of Raw Material Z is maintained on a FIFO basis, it will show a
month end inventory of--

a) $240

b) $784

c) $759

d) $767

30. The difference between total revenues and total variable costs is known as--

a) Contribution margin
b) Gross margin
c) Operating income
d) Fixed costs

31. Percentage of Margin of Safety can be calculated in which one of the following ways?
a) Based on budgeted Sales
b) Using budget profit
c) Using profit & Contribution ratio
d) All of the given options

32. Which of the following represents a CVP equation?

a) Sales = Contribution margin (Rs.) + Fixed expenses + Profits
b) Sales = Contribution margin ratio + Fixed expenses + Profits
c) Sales = Variable expenses + Fixed expenses + profits
d) Sales = Variable expenses Fixed expenses + profits
33. For which one of the following industry would you recommend a Process Costing system?

a) Grain dealer
b) Television repair shop
c) Law office
d) Auditor

34. If 120 units produced, 100 units were sold @ Rs. 200 per unit. Variable cost related to
production & selling is Rs. 150 per unit and fixed cost is Rs. 5,000. If the management wants to
decrease sales price by 10%, what will be the effect of decreasing unit sales price on profitability
of company? (Cost & volume profit analysis keep in your mind while solving it)

a) Remains constant
b) Profits will increased
c) Company will have to face losses
d) None of the given options

35. If 120 units produced, 100 units were sold @ Rs. 200 per unit. Variable cost related to
production & selling is Rs. 150 per unit and fixed cost is Rs. 5,000. If the management wants to
increase sales price by 10%, what will be increasing sales profit of company by increasing unit
sales price? (Cost & volume profit analysis keep in mind while solving)
a) Rs.2,000
b) Rs. 5,000
c) Rs. 7,000
d) None of the given options

36. What is the company's contribution margin ratio?

a) 30%
b) 70%
c) 150%
d) None of given options

37. What is the company's break-even in units?

a) 48,000 units
b) 72,000 units
c) 80,000 units
d) None of the given options

38. How many units would the company have to sell to attain target profits of Rs. 600,000?
a) 88,000 units
b) 100,000 units
c) 106,668 units
d) None of given options

39. What is the company's margin of safety in Rs?

a) Rs. 480,000
b) Rs. 1,600,000
c) Rs. 2,400,000
d) None of given options

40. Inventory control aims at--

a) Achieving optimization
b) Ensuring against market fluctuations
c) Acceptable customer service at low capital investment
d) Discounts allowed in bulk purchase