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Master of Commerce - M.Com -Semester 2MCC 202-Advanced Cost Accounting4 credits(BKID: B1472)Assignment (60 Marks)

Answer the following questions. Each question carries 10 marks .

Q.1. What are the different types of cost sheet? Highlight its importance.

Answer:

Types of Cost Sheet: 1. Historical Cost Sheet 2. Estimated Cost Sheet

1. Historical Cost Sheet : This cost sheet is prepared periodically after the cost havebeen incurred. The period may be year, half year, a quarter or a month. Actual costs arecompiled and presented through such a cost statement.

2. Estimated Cost Sheet: This cost sheet is prepared before the actual commencementof production. The estimating process is repeated at regular intervals. Estimated costsheets may be prepared on a yearly, half yearly, quarterly or monthly basis. Theestimated costs are compared with the actual costs every time whenever estimates areprepared so that costs can be controlled effectively. This is because ultimate aim ofadoption of estimated costing technique is effective cost control. Costs arepredetermined taking into consideration the present conditions and the circumstanceslikely to prevail in future, besides the past performances.

Importance of Cost Sheet A cost sheet helps both in ascertainment and control of costs. Italso provides data on the basis of which the selling prices of the products can be fixed. So, costsheet performs following functions:

1. Ascertainment of cost: A cost sheet helps in ascertainment of total cost, cost per unitat different stages of production. The information provided by the cost sheet helps themanagement in taking various decisions, viz., to make or buy a product, to sell or not tosell in a foreign market, to process a product completely in the factory or to purchase ina semi-finished form from outside, and so on.

2. Controlling Costs: A cost sheet presents the cost data for two more periods in acomparative form. Such a presentation helps in identifying the elements whose costshave gone up and where control is required.

3. Fixation of selling price: A cost sheet provides data about the cost of job, product orprocess. The business can fix appropriate selling prices for its products on the basis ofsuch data.

4. Submitting of tenders: Costs have to be ascertained for submitting of tenders, givingprice quotations, etc. Preparation of an estimated cost sheet about the relevant productor job considerably facilitates this work.

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Q.2. What is contract costing? Discuss briefly the method of contract costing.

Answer:

Contract costing is a special form of job costing. The only difference between a job and a

contract is that of size. Where big jobs are involved, requiring considerable length of time tocomplete and comprising activities to be done outside the precincts of the factory, the system ofcontract costing is employed. The system is very much common in firms of constructionalengineers, ship-builders, etc., who undertake definite contracts. The price agreed to be paid bythe contractee is termed as the contract price. The price agreed to be paid by the contractee istermed as the contract price. The system of contract costing is very simple. A separate accountis opened for each contract in the General Ledger, or in the Contract Ledgerwhich may bemaintained in case the number of contracts happen to be quite large. The contract Account isdebited with all direct and indirect expenditure incurred in relation to the contract. It is creditedwith the amount of contract price on completion of the contract. The balance represents profit orloss made on the contract and is transferred to the Profit and Loss Account. In case the contractis not complete at the end of the accounting period, a reasonable amount of profit, as explained

later, out of the total profit made so far on the incomplete contract, may be transferred to theProfit and Loss Account.

Q.3. Discuss the principles to be followed for cost determination under process costing.

Answer:

Principles to be followed for cost determination under process costing.

These principles followed for cost determination under process costing are:

1. The production activities of the factory are classified by processes or departments. Eachprocess or department includes a number of operations, none of which is separatelymeasurable and each of which completes a distinct stage in the manufacture of theproduct. The boundaries of the process are determined by (a) Jurisdiction of supervision,(b) Similarly of work performed, and (c) Physical location of men and machines in theplant.

2. All direct and indirect costs of a particular period are classified by processes. Eachprocess account is debited with the amount of direct material and direct labour and witha proportionate part of overhead expenses.

3. Productions in terms of physical quantities is recorded in respective process accounts.

4. The total cost of each process is divided by the total production of the process andaverage cost per unit for the period is obtained.

5. In case certain products remain in process at the end of a period, their stage ofcompletion is estimated and inventory is computed in terms of completed products. For

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example, if 20 units are in process and it is estimated that they are complete only to theextent of 25 per cent, completed products will be taken as 5 only.

6. When products are processed in more than one department, costs of one departmentare transferred to the next department as initial cost. The total cost and cost per unit isthus determined by accumulating costs of different departments.

7. In case of loss or spoilage of units in a department, the loss is borne by the unitsproduced in that department. Thus, the average cost per unit is increased.

Q.4. What are the problems with the ABC system?

Answer:

Problems with the ABC system: The following problems are associated with ABC System.

1. Cost Factor Cost of change will be high as everything will have to be worked out fromscratch.

2. Difficulty on Establishing Relationship It would be difficult to correlate the marginalincrease in cost with a particular cost driver.

3. Difficulty in Standardization Over a period of time, the ABC will tend to standardizethe cost of activities related to a particular product or process. But in practice, there willbe differences in set-up time, production run, and meeting a delivery order for theproduct or process, as well as for different products.

4. Adaptability FactorThe ABC system will require a change due to changes associatedwith new products and new technology. This will put strain on the costing system andresources due to certain degree of inbuilt standardization. There exists a catch 22situation in the implementation of the ABC. Measure of activity performance will changeagain and again. A trade off will be required between the accuracy and the time spent onreplacing the existing system with the ABC.

5. Preliminary Stage. The ABC is at the stage of evolution. Literature on the ABC conceptat present is primarily restricted to the manufacturing environment.

Q.5. The following information is obtained from the costing records of a factory:

Actual total overheads Rs. 3,75,000 Units Produced 9,800Actual hours worked 2,50,000 Units sold 9,000Budgeted rate of recovery of Units in work-in-progress 200overheads is Re. 1 per hour

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On verification it was found that 25% of the unabsorbed overheads was due to increasein cost of indirect material and indirect labour and 75% was due to inefficiency in thefactory. Show the effects on cost of units produced.

6. From the following particulars, prepare the Cost Sheet for Job No. 75 and find out the valueof the job:

Materials issued for the job Rs. 6,000 Productive Wages Rs.4,600Direct Expenses Rs.500Provide 60% on productive wages for works on cost and 12 % on works cost for office oncost.Profit to be realised on the selling price 15%