MATERIAL

Q.1 The following information is supplied to you in respect of an item of stores:

Re-order Quantity = 720 Units
Re-order Period 3 to 5 Weeks
Maximum Consumption = 180 Units per week
Normal Consumption 120 Units per week
Minimum Consumption 60 Units per week.
You are required to ascertain
(i) Re-order Level; (ii) Minimum Stock Level; (iii) Maximum Stock Level.
[Answer : (i) Re-order Level 900 Units; (ii) Minimum Stock Level 420 Units; and
(iii) Maximum Stock Level 1440 Units.
Q. 2 A refrigerator manufacturer purchases 800 units of a certain component from B. His annual usage is 800 units. The
order placing cost is Rs. 100 and the cost of carrying one unit for a year is Rs. 4. Calculate the Economic Order Quantity
[Answer: 200 Units.]

Q.3 The annual demand for an item is 3,200 units. The unit cost is 6 and inventory carrying cost is 25% per annum. If the
cost of an order is Rs. 150.
Determine (i) E.O.Q, (ii) Number of orders per year, (ii) Time between two consecutive orders.
[Answer : (i) 800 units; (ii) 4 orders; (ii) 3 months)

Q. 4 You are given the following infomation regarding inventory holding in x Ltd.:
Average usage 3,000 units
Ordering costs Rs. 30 per order
Cost price per unit Rs. 100
Carrying Cost 20% of the value of inventory
Compute the optimum order quantity
Answer: 95 units)

Q.5 A Precision Engineering Factory consumes 50,000 units of a component per year. The ordering, receiving
and handling costs are Rs. 3 per order while the trucking costs are Rs. 12 per order. Further details are as follow:
Interest cost Rs. 0.06 per unit per year
Deterioration and obsolescence cost Rs. 0.004 per unit per year.
Storage cost Rs. 1,000 per year for 50,000 units
Caleulate the economic order quantity
(Answer : 800 4.226 units)

Q.6 A company requires 1,250 units per month of a particular item. Ordering costs Rs. 50 per order. The carrying cost
is 15% per year, while unit cost of the item is Rs. 10.
Determine economic lot size and minimum total variable cost.
Answer : EOQ 1,000 units, Mininaum Total Variable Cost Rs. 1,500)

Q. 7 The following relations to inventory cost have been established for ABC Ltd.
(a) Orders must be placed in multiples of 100 units.
(b) Requirement for the year are 3.00.000 units.
(c) The purchase price per unit is Rs. 3.
(d) Carrying cost is 25% of the purchase price of goods.
(e) Cost per order placed is Rs. 20.
(f) Desired safety stock is 10.000 units, this amount is on hand initially.
(g) Three days are required for delivery.
Calculate the following:
(i) E.O.Q
(ii) How many orders should the company place each year
(iii) At what inventory level should an order be placed ?
Answer: (i) 4,000 units (ii) 75 (iii) 2.500, Assume 360 days in a year )
1
Q.8 A publishing house purchases 2.000 units of a particular item per year at an unit cost of Rs. 20. The ordering cost
per order is Rs. 30 and Carrying Cost is 25%. Find the optimal order quantity and minimum total cost including
purchase cost.
If a 3% discount is offered by the supplier for purchases in lots of 1,000 or more should the publishing house
accept the proposal ?
Answer : EOQ 200 units, Total Cost Rs. 41,000, Net increase in total cost Rs. 325, Not to accept the offer.

Q.9 From the following information, prepare the Stores Ledger Account on the basis of First In First Out Method:
Purchases
August, 2002
12 6,000 units @ Rs. 12 each
13 5,000 units @Rs. 14 each
22 3,000 units@ Rs. 13 each
Issues
August, 2002
14 3,000 units
16 1,250 units
26 2,500 units
Return from Job to Stores:
August 15- 500 units @ Rs. 12 each
Answer: Balance of Stock Rs. 1,04,500.]

Q.10 Solve Question No. 9 as per Last In First Out method.

Answer : Balance of stock Rs. 96,000.)

Q.11 Solve Question No. 9 as per Simple Average method.

Answer : Balance of Stock Rs. 1,00,287.]

Q.12 Solve Questions No. 9 as per Weighted Average method.

Answer: Balance of Stock Rs. 99,945.]

Q.13 The following is the record of receipts and issues of a certain material in a factory for the month ending
30th September 2002
Receipts
September 2002
1 Opening Balance 100 Tonnes @ Rs. 10.
10 150 Tonnes @ Rs. 12
25 180 Tonnes @ Rs. 15
Issues
September 2002
3 50 Tonnes
18 80 Tonnes
27 250 Tonnes
The Stock verifier reveals a shortage of 10 tonnes on 30th September, 2002. Prepare a Stores Ledger Account adopting
Weighted average as the basis and inflating the price of material in stock on account of shortage.
Answer: Balance of Stock Rs. 680)

2
MACHINE HOUR RATE

Q.1 From the following information, compute machine-hour rate in respect of machine A for the month of January, 2002.
Cost of Machine : Rs. 6,000
Estimated Scrap value : Rs. 1,000
Effective Working Life: 5000 Hours
Hours worked in January, 2002: 100
Estimated cost of repairs and maintenance over the life of machine: Rs. 1,250
Standing charges allocated to this machine for January, 2002 Rs.50. Power used by the machine
10 units per hour at a cost of 10 paise per unit.
Answer : Machine Hour Rate Rs. 2.75

Q.2 From the following information compute Machine-hour rate charging overhead in respect of machine No. 180.
Cost of Machine Rs. 1,00,000
Estimated scrap value Rs. 5,000
Effective working Life 50,000 hours
Repairs estimated at Rs. 10,000 over whole life of machine
Standing charges of Department Rs. 2,400 for four weekly period;
Hours worked in four weekly period; 240
Number of machines in Department each of which bears equal charges : 5
Power used by each machine : 20 units per hour costing 10 paise per unit.
Answer : Machine Hour Rate Rs. 6.10

Q.3 Compute a machine hour rate for Machine No. 120 from the following data:
(i) Cost Rs. 7,500
(ii) Scrap value Rs. 500
(iii) Life 14,000 Hours
(iv) Repairs and Maintenance for whole life Rs. 3,500
(v) Standing charges for shop Rs. 200 for a month of 25 working days.
(vi) Working Hours per day 8
(vii) Number of machines in the shop 10
(viii) Power used per machine per month Rs. 50.
(ix) Machine Insurance 2% of Depreciation.
Answer : Machine Hour Rate 1.11]

Q.4 A machine costing Rs. 28,700 excluding installation cost of Rs. 300, has an anticipated life of 10 ycars with
residual value of Rs. 500. It is depreciated on straight line method. From the following particulars, compute
machine hour rate on the basis of anticipated working hours:
(i) Rent and Rates for the factory is Rs. 6,000 per annum and 10% of the effective area is occupied by
this machine.
(ii) Insurance for this machine is Rs. 450 per annum.
(iii) Repairs and maintenance for the whole factory for the year is Rs. 2,00, 25% of this amount relates to
this machine.
(iv) Consumable stores, etc., attributable to this machine for the whole year is Rs. 110.
(v) Total of production services is Rs. 5,000, 20% of this amount is applicable to this machine.
(vi) Power cost is Re. 0.50 per working hour.
(vii) The year contains 250 working days of 8 hours each but it that the machine will remain idle for 20%
of this time.
Answer : Machine Hour Rate Rs. 3.94.]

3
COST SHEET

Q.1 The following details relate to the production of commodity A for the half year ending 30th June, 2002:
Purchases of raw materials Rs. 1,20,000
Direct Wages Rs. 1,00,000
Rent, Rates, Insurance and Works expenses Rs. 40,000
Carriage inwards Rs. 2,000
Stock 1st January, 2002:
Raw Materials Rs. 20,000
Finished Products - 4,000 tonnes
Stock-30th June, 2002:
Raw Materials Rs. 22,000
Finished Products- 8,000 tonnes
Work-in-Progress 1st January, 2002 Rs. 4,800
Work-in-Progress 30th June, 2002 Rs. 16,000
Cost of factory supervision Rs. 8,000
Sales-finished products Rs. 3,00,000
Advertising, Discount allowed and other, selling on cost 50 paise per tonne sold. 64,000 tonnes of the
commodity were produced during the half year.
Ascertain : (a) The cost of output for the half year and the cost per tonne of production ; and
(b) The net profit per tonne of the commodity
Answer : (a) Cost of output Rs. 2,56,800, Cost of production per tonne Rs. 4.0125,
(b) Net Profit per tonne Rs. 0.4875.]

Q.2 From the following particulars, prepare a cost sheet showing:

(a) The value of material consumed; (b) Prime Cost; (c) Works Cost; (d) Cost of Production;
(e) The Production Cost of goods sold; (f) The Profit on goods sold; and (g) The net profit for the month.
Stock in hand on 1st June, 2002
Raw material Rs. 25,000
Work-in-Progress Rs. 8,220
Finished goods Rs. 17,360
Stock in hand on 30th June, 2002
Raw material Rs. 26,250
Work-in-Progress Rs. 9,100
Finished goods Rs. 15,750
Purchase of Raw materials Rs. 21,900
Sales of finished goods Rs. 72,310
Direct Wages Rs. 17,150
Non-productive Wages Rs. 830
Works expenses Rs. 8,340
Office and Administrative expenses Rs. 3,160
Selling and distribution expenses Rs. 4,210
Work-in-Progress may be valued at prime cost.
Answer : (a) Rs. 20,650; (b) Rs. 36,920; (c) Rs. 46,090; (d) Rs. 49,250, (e) Rs. 50,860;
(f) Rs. 21,450; and (g) Rs. 17,240.

Q.3 From the following particulars, you are required to prepare a statement showing :
(a) the cost of materials consumed; (b) Prime Cost; (c) Works Cost; (d) Total Cost; (e) the percentage of Works
on cost to productive wages; and (f) the percentage of general on cost to Works Cost.
Stock of finished goods on 31st December, 2001 Rs. 72,800
Stock of Raw Materials on 31st December, 2001 Rs. 33,280
Purchase of Raw Materials Rs. 7,59,000
Productive Wages Rs. 5,16,880
Sale of finished goods Rs. 15,39,200
Stock of finished goods on 31st, December, 2002 Rs. 78,000
Stock of Raw Materials on 31st December, 2002 Rs. 35,360
Works expenses Rs. 1,29,220
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 Office and general expenses Rs. 70,160
The company is about to send a tender for a large plant. The costing department estimated that the materials
Required would cost Rs. 52,000 and the wages to workers would be Rs 31,200. The tender is to be made at
a net profit of 20% on the cost price. What would be the amount of the tender, if it is based on the above
percentages?
[Answer : (a) Rs. 7,56,920, (b) Rs. 12,73,800; (c) Rs. 14,03,020; (d) Rs. 14,73,180, (e) 25 percent;
(f) 5 percent and amount of Tender Price Rs. 1,14,660.]

Q.4 The Managing Director of a small manufacturing company consults you as to the minimum price at which
he can sell the output of a department of the company which is intended for mass production in future.
The company's records show the following particulars for this department for the past year.
Production and Sales 2,000 Units
Materials Rs. 26,000
Direct Wages Rs. 14,000
Direct Charges Rs. 2,000
Works Overhead Rs. 14,000
Office Overhead Rs. 5,600
Selling Overhead Rs. 6,400
Sales Rs. 78,000
You ascertain that 40% of the works overhead fluctuates directly with production and 70% of the selling
overhead fluctuates with sales. It is anticipated that the department would 5,000 units per annum and that direct
labour charges per unit will be reduced by 20% while fixed works overhead charges will increase by Rs. 3,000.
Office overhead and fixed selling on cost charges are expected to show an increase of 25% but otherwise
no changes are anticipated.
Prepare a statement for submission to the managing director.
Answer: Total Selling Price Rs. 1,65,177; Selling price per unit Rs. 33.04.]

Q.5 A firm manufactures a standard article in three qualities of which the firm produced as follows during the year 2002:
500 articles of quality A; 1,000 articles of quality B; and 1,200 articles of quality C
The stock of finished goods on 1st January, 2002 were:
60 articles of quality A; 40 articles of quality B, and 76 articles of quality C
Sales during the year 2002 were:
510 articles of quality A at Rs. 60 per article, 960 articles of quality B at Rs. 67.50 per article; and 1,248 articles
of quality C at Rs. 75 per article
The following figures, in respect of the year, were extracted from the books of accounts.
Work-in-Progress on 1-1-2002 (at prime cost) Rs. 15,000
Work-in-Progress on 31-12-2002 (at prime cost) Rs. 18,000
Cost of Raw materials used in manufacture Rs. 43,500
Cost of stores used in manufacture Rs. 6,000
Manufacturing Wages Rs. 78,000
Depreciation (Works) Rs. 9,000
Works expenses Rs. 16,500
From the above particulars, prepare a statement showing the amount of profit. Assume that the rate per cent
of profit is the same for all the three qualities.
[Answer : Amount of profit Rs. 37,800. (20% on sales)]

5
RECONCILIATION OF COST AND FINANCIAL ACCOUNTS

Q.1 The net profit of Arvind Ltd. appeared at Rs. 6,63,200 as per the financial records for the year ended
30th June, 2002.
The cost books, however, revealed a net profit of Rs. 7,00,000 for the same period. A scrutiny of the figures from
both the set of accounts revealed the following facts:
Overheads recovered in cost accounts :
Factory expenses Rs. 15,00,000
Administrative expenses Rs. 10,00,000
Selling and distribution expenses, Rs. 3,50,000
Overheads charged in financial accounts:
Factory expenses Rs. 14,00,000
Administrative expenses Rs. 10,00,000
Selling and distribution expenses Rs. 4,00,000
Depreciation over-recovered in cost accounts Rs. 50,000
Income Tax provided in financial accounts Rs. 1,00,000
Donations Rs. 40,000
Dividends received Rs. 3,000
Transfer fee received Rs. 200
Prepare a statement showing the reconciliation of profi between cost accounts and financial accounts.

Q.2 From the following figures, prepare a Reconciliation Statement

Net Profit as per financial records Rs. 1,28,755
Net Profit as per costing records Rs. 1,72,400
Works overheads under-recovered in costing Rs. 3,120
Administrative overhead recovered in excess in costing Rs. 1,700
Depreciation charged in financial records Rs. 11,200
Depreciation recovered in costing Rs. 12,500
Interest received but not included in costing Rs. 8,000
Obsolescence loss charged in financial records Rs. 5,700
Income tax provided in financial books Rs. 40,300
Bank interest credited in financial books Rs. 750
Store adjustment (credit in financial books) Rs. 475
Depreciation of stock values charged in financial books Rs. 6,750

Q.3 From the following particulars, prepare a statement of reconciliation and find out profit or loss
as per financial books.
Net loss as per cost accounts Rs. 1,72,500
Works overhead over-recovered in cost accounts Rs. 30,000
Office overhead under-recovered in cost accounts Rs. 15,450
Depreciation charged in financial accounts Rs. 50,000
Depreciation recovered in cost accounts Rs. 60,000
Interest on investments Rs. 15,000
Income tax Rs. 20,000
Obsolescence loss charged in financial books Rs. 19,000
Store adjustment credited in financial books Rs. 5,000
Over-valuation of closing stock in financial accounts Rs. 8,000
Bank Interest (Cr.) Rs. 2,000
Notional rent on building charged in cost accounts
but not in financial accounts Rs. 10,000

Answer: Loss as per Financial Accounts - Rs. 1,46,950