Department of Management
BBM 201 – Cost Analysis and Control
Question Bank (2017-18): Revised: January 2018
UNIT- 1: INTRODUCTION TO COST ACCOUNTING
1. Define cost accounting. How does it differ from management accounting and financial accounting?
2. “Cost accounting is an unnecessary luxury effort for a business establishment.” Do you agree with
this statement?
3. “Cost accounting system is neither necessary nor expensive rather it is a profitable investment.”
Comment
4. “A cost accounting system that simply records cost for the purpose of fixing sale prices has
accomplished only a small part of its mission.” Comment.
5. “Costs may be classified in a variety of ways according to their nature and the information needs of
management.” Explain.
6. Explain the meaning of- sunk cost, replacement cost, shut-down cost, opportunity cost, and
imputed cost.
7. Explain in detail the meaning, objectives and significance of cost accounting.
8. What do you mean by cost elements? Explain various cost elements and their importance to a
manufacturing organization.
9. What is output costing? Prepare a cost sheet with imaginary figures.
10. The following are derived from the records of a factory:
Materials issued Rs. 64000
Wages Paid Rs. 56000
Factory Overhead 60% of wages
Materials returned to stores 800 Rs
Materials transferred to other jobs Rs. 400
10% of the production has been scraped as bad and a further 20% has been brought up to the
specification by increasing the factory overheads to 80% of wages. If the scrapped production
fetches only 470 Rs., find the cost of production where output is 100 units.
11. Calculate cost of materials consumed:
Total cost of production 10000 Rs, Works Cost is 70% of cost of production, Office Expenses is
75% of factory on cost, wages is 25% of material consumed.
12. Calculate Profit, when cost price Rs. 30, 375 and profit is 10% on sales.
13. Find out in the appropriate cost sheet from the selling rate per ton of special paepr manufactured by
a Paper Mill for the Government in January 2016 under the following divisions of cost: a. Prime
Cost, b. Works Cost, c. Total Cost, d. Selling Price
The cost sheet is to be prepared with reference to data given below:
Direct Materials: Paper Pulp—500 ton @ Rs. 50 per ton
Other miscellaneous materials—100 Ton @ Rs. 30 per ton
Direct Labor: 80 skilled men--@3 per man for 25 days
40 unskilled men ---@ Rs. 2 per man for 25 days
Direct Expenses: Special equipments----Rs. 3000
Special Dyes—Rs. 1000
Works Overhead: Variable @100% above Fixed @ 60% on direct wages
Administration Overhead @ 10%
Selling and Distribution overhead @ 15%
Profit 10% on Cost, Finished Goods- 400 ton, Credit account of sale of manufacture of waste
Rs.800.
Answer- d. 71500.
14. BX manufacturing company produces two types of machines A and B. The production during the
month of December, 2016 was 100 machines each. The cost of production was as follows:
Particulars A (in Rs) B (in Rs)
Direct Materials 18,000 11,000
Direct Labour 12,000 6,000
Direct Expenses 2,000 2,000
Other Overhead Expenses:
i) Factory 6000
ii) Office 5700
Prepare a statement showing the selling price of each type of machine, if a profit of 25% on sales.
15. Menon Ltd. Manufactures readymade garments, i.e. Shirts, Pants, and Coats. The materials and
wages per unit of garments are separated as below:
Particulars Shirts (Rs.) Pants (Rs.) Coats (Rs.)
Materials 50 75 400
Wages 30 45 160
The total factory overheads in the month of January, 2016 were Rs. 39,000. You are asked to determine the
Total Cost per unit of each type of garment after assuming that one coat is equivalent to four shirts and two
pants are equal to one coat for the purpose of factory overheads. The office oncost amounted to Rs. 15,000
to be allocated on the basis of Prime Cost. The total production for the month was Shirts- 500 units, Pants-
200 units, Coats-100 units.
UNIT – 2: COST ACCUMULATION SYSTEM
1. Reconcile the following statement and quote examples to illustrate the validity of the statement:
“Costing is nothing more than a detailed analysis of expenditure.”
2. Write notes on the following methods, indicating the type of organization where the same are
applicable:
(a) Output costing, (b) Job Costing, (c ) Process Costing, and (d) Contract costing
3. Mention with reasons the type of costing you will adopt in the following industries:
a) Cement manufacturing c) bicycle manufacturing
b) Soap manufacturing d) Ship-builders
4. How does a Job-costing system differ from a process-costing system?
5. Why might an advertising agency use a Job costing for an advertising campaign by Pepsi, whereas
a bank might use process costing to determine the cost of checking account deposits?
6. ABC Ltd is a manufacturing refrigerators and following details are furnished in respect of its
factory operations for the year ended 31 Dec 2004
Work-in-progress, 1 Jan 2004 At Prime cost – Rs. 51,000
Manufacturing expenses Rs. 15,000 Work-in-progress,
31 December 2004 At Prime cost – Rs. 45,000 Manufacturing expenses Rs. 9,000
Stock of raw materials, 1 Jan 2004 – Rs. 2,25,000 Purchase of Raw Materials Rs. 4,77,000
Direct Labour – Rs. 171,000 Manufacturing expenses – Rs. 84,000. Stock of Raw
Material on 31 Dec 2004 – Rs. 204,000
On the basis of above data, prepare a statement showing the cost of production. Also,
indicate separately the amount of manufacturing expenses, which enter into the cost of
production.
7. The cost of manufacturing 5,000 units of a commodity
comprises: Materials – Rs. 20,000
Wages – Rs. 25,000, Chargeable Expense – Rs. 400, Fixed Overheads – Rs. 16,000, Variable
Expenses – Rs. 4,000
For manufacturing every 1,000 extra units of the commodity the cost of production
increases as follows:
Raw Materials – Proportionately
Wages – 10% less than proportionately
Chargeable expenses – no extra cost
Fixed overheads – Rs. 200 extra
Variable overheads – 25% less than Proportionately
8. The cost structure of an article, the selling price of which is Rs. 500, is as follows:
Direct Material – 50% of total cost
Direct Labour – 30% of total cost
Overhead – Balance
Due to anticipated increase in existing material price by 20% and in the existing labour rate by
10%, the existing profit will come down by 30% if the selling price remains unchanged. Prepare a
comparative statement showing the cost, profit and sale price under the present conditions and with
the increase expected for the future, assuming the same percentage of profit on cost as under present
conditions has to be earned (Calculations may be made to the nearest rupee)
9. The following information is extracted from the job ledger, in respect of job 222:
Materials: Rs. 2,500
Wages: Dept. A: 75 Hrs at Rs. 2.75 per hour.
Dept. B: 55 Hrs at Rs. 4 per hour.
Variable overheads: Dept. A: Rs. 6,000 for 5,000 direct hours.
Dept. B: Rs. 8,000 for 5,000 direct hours.
Fixed overheads: Rs. 7,500 for 10,000 hours of normal working time of the factory.
Calculate the cost of Job No. 222 and estimates the percentage of profit if the price quoted is Rs. 3,900.
10. A product passes through three processes. During March, 2010, 1000 finished units were produced
with the following expenditure:
Process A Process B Process C
Rs. Rs. Rs.
Direct Material 1,000 2,000 1,000
Direct Labour 5,000 4,000 3,000
Direct Expenses 500 600 1,000
Overhead expenses amounted in all Rs. 6,000. They are to be apportioned on the basis of direct wages.
Main raw materials issued to Process A (besides above) were worth Rs. 6,000. Ignoring the question of
stock prepare the Process Accounts concerned.
11. A product passes through three processes M, N and O. The normal wastage of each process is as
follows: Process M – 3 per cent, Process N – 5 per cent, and Process O – 8 per cent.
Wastage of process M was sold at 20 ps. Per unit, that of process N at 50 ps. Per unit and that of
process O at Rs. 2 per unit. 10,000 units were issued to process M in the beginning of October 2009 at
a cost of Rs. 2 per unit. The other expenses were as follows:
Process M Process N Process O
Materials Rs. 2,000 Rs. 1,500 Rs. 500
Labour Rs. 4,000 Rs. 8,000 Rs. 6,500
Direct Exp. Rs. 1,050 Rs. 1,188 Rs.2,009
Actual output 9,500 units 9,100 units 8,100 units
Prepare the process accounts, assuming that there were no openings or closing stocks. Also give the
abnormal wastage and Abnormal Gain accounts.
12. Modern Contractors have undertaken the following two contracts on 1 January 2012
Contract A (Rs) Contract B(Rs)
Materials sent to sites 85,349 73,267
Labour engaged on sites 74,375 68,523
Plants installed at sites at cost 15,000 12,500
Direct Expenditure 3,167 2,859
Establishment Charges 4,126 3,852
Materials returned to store 549 632
Work Certified 1,95,000 1,45,000
Cost of work not certified 4,500 3,000
Materials in hand – 31-12-2012 1,883 1,736
Wages accrued – 31-12-2012 2,400 2,100
Direct expenditure accrued 240 180
Value on plant 31-12-12 11,000 9,500
The contract prices have been agreed at Rs. 2,50,000 for contract A and Rs. 2,00,000 for contract B.
Cash has been received from the contractees as follows: Contact A – Rs. 180,0000 and Contract B –
Rs. 140,0000
Prepare contract accounts and contractees account
13. XY undertook a contract for Rs. 15,00,000 on an arrangement that 80% of the value of work done as
certified by the architects of the contractee, should be paid immediately and remaining 20% be retained
until the contract is completed
In 2010, the amounts expended were: Materials – Rs. 1,80,000; Wages Rs. 1,70,000;Carriage Rs.
6,000; cartage: Rs. 1,000; sundry expenses Rs. 3,000. The work certified was for Rs. 3,75,000 and 80%
if this was paid as agreed.
In 2011, the amounts expended were: Materials – Rs. 2,20,000; Wages Rs. 2,30,000;Carriage Rs.
23,000; cartage: Rs. 2,000; sundry expenses Rs. 4,000. Three fourths of the contract was certified as
done by 31 Dec 2011, and 80% was received accordingly. The value of unused and work in progress
was ascertained at Rs. 20,000.
In 2012, the amounts expended were: Materials – Rs. 1,26,000; Wages Rs. 1,70,000; cartage: Rs.
6,000; sundry expenses Rs. 3,000 and on 30 th June the whole contract was completed.
Show how the contract account and also the contractee account would appear for each of these years in
the books of contractor, assuming that balance due to him was received on completion of the contract
14. From the following data prepare a cost and production statement of Popular Stoves Manufacturing Co.
for the year 2004.
Stock Materials on 1-1-2004 – Rs. 35,000
Stock Materials on 31-12-2004 – Rs. 4,900
Purchase of materials – Rs. 52,500
Factory wages – Rs. 95,000
Factory Expenses – Rs. 17,500
Establishment expenses – Rs. 10,000
Completed Stock in hand on 1-1-2004 – Rs. 35,000
Sales – Rs. 189,000
The number of stoves manufactured during the year 2004 was Rs. 4,000
The company wants to quote for a contract for the supply of 1,000 Electric Stoves during the year
2005. The stoves to be quoted are of uniform quality and make similar to those manufactured in
the previous year, but cost of materials has increased by 15% and cost of factory labour by 10%.
Prepare a statement showing the price to be quoted to give the same percentage of net profit on
turnover as was realized during the year 2004, assuming that the cost per unit of overhead charges will
be the same as previous year.
UNIT – 3: COST VOLUME PROFIT RELATIONSHIP
1. Explain the following terms (i) Key Factor (ii) P/V Ratio (iii) Margin of Safety (iv) Break even point
2. How are CVP analysis and breakeven analysis related? Explain how CVP analysis can be used to make
decisions about increases in advertising costs.
3. The following data relates to a Private Ltd. Co.:
Sales (16,000 units at Rs. 15 each) Rs. 2,40,000
Variable Expenses Rs. 1,92,000
Fixed Expenses Rs. 36,000
Calculate:
1) What sales are needed to achieve the objective of no profit no loss?
2) What sales are necessary to result in a profit of Rs. 20,000
3) What should be the selling price per unit if the B.E.P. should be brought down to 10,000
units?
4. Explain the various assumptions to cost-volume-profit analysis.
5. A company manufactures a single product having a marginal cost of Re. 0.75 a unit. Fixed costs
are Rs. 12,000. The market is such that upto 40,000 units can be sold at Rs. 1.50 a unit, but any
additional sales must be made at Re. 1.00 a unit. There is a planned profit of Rs. 20,000. How
many units must be made and sold?
6. A company sold in two successive periods 7,000 units and 9,000 units and has incurred a loss of
Rs. 10,000 and earned Rs. 10,000 as profit respectively. The selling price per unit can be assumed
at Rs. 100. You are required to calculate:
(a) The amount of fixed costs
(b) The number of units to break-even
(c ) The number of units to earn a profit of Rs. 40,000
7. The following figures relating to the performance of a company of the years I and II are available.
Assuming that (i) ratio of variable cost to sales, and (ii) the fixed costs are the same for both the
years, ascertain: (i) P/V Ratio (ii) the amount of fixed costs (iii) the Break-even point:
Total Sales (Rs.) Total Costs (Rs.)
Year I 70,00,000 58,00,000
Year II 90,00,000 66,00,000
9. Assuming that the cost structure and selling prices remain same in the periods I and II, find
out: a) Profit volume ratio, b) Fixed cost, c) Break-even point sales
d) Profit when sales are of Rs. 2,00,000, e) Sales required to earn a profit of Rs.
40,000, and f) Margin of safety at a profit of Rs. 30,000, g) Variable cost in period II
Period Sales (Rs.) Profit (Rs.)
I 2,40,000 18,000
II 2,80,000 26,000
10. The variable cost structure of a product manufactured by a company during the current year is as
under: Material Rs. 120 per unit; Labour Rs. 30 per unit; Overheads Rs. 12 per unit.
The selling price per unit is Rs. 270 and the fixed cost and sales during the current year are Rs. 14
lakh and Rs. 40.5 lakh respectively.
During the forthcoming year, the direct workers will be entitled to a wage increase of 10% from
the beginning of the year and the material cost, variable overhead and fixed overhead are expected
to increase by 7.5 per cent, 5 per cent and 3 per cent respectively.
a) New sale price in the forthcoming year if the current P/V ratio is to be maintained.
b) Number of units that would require to be sold during the forthcoming year so as to yield the
same amount of profit as in the current year, assuming that selling price per unit will not be
increased.
11. A scooter compay has presented the cost of a scooter as under:
Material Rs.4000
Labor Rs. 1200
Variable Expenses Rs. 2800
Fixed eXpenses Rs. 1200
Profit 800
No. of Scooters manufactured and sold 500
You are required to calculate BEP, also, if price is reduced by Rs.400 per scooter should be
manufactured and sold to maintain the present profit?
UNIT – 4: MARGINAL COSTING AND ABSORPTION COSTING
1. “Marginal costing is a technique of determining the amount of change in the aggregate cost due to
an increase of one unit over he existing level of production.” Explain the above statement and
describe the advantages and limitations of marginal costing technique.
2. What do you understand by the term ‘Differential Cost Analysis’? Explain the characteristics and
practical application.
3. Explain the meaning of differential cost. How is this technique used for decision making?
4. Define decision-making. What is the nature of decision-making? Explain various steps in the
decision-making process
5. Garden Products Limited manufacture the ‘Rainpour’ garden spray. The accounts of the company
for the year 2012 are expected to reveal a profit of Rs. 14,00,000 from the mnaufacture of
‘Rainpour’ after charging fixed cost of Rs. 10,00,000. The ‘Rainpour’ is sold for Rs. 50 per unit
and has a variable unit cost of Rs. 20.
Market sensitivity suggest following response to price changes:
Alternatives Selling price Quantity sold
reduced by increased by
I 5% 10%
II 7% 20%
III 10% 25%
Evaluate these alternatives and state which, on profitability consideration, should be adopted for
the forthcoming year, assuming cost structure unchaged from 2012.
6. What do you understand by key factor? Give two examples of it.
7. 7. MNP Ltd sold 2,75,000 units of its product at Rs. 37.50 per unit. Variable costs are Rs. 17.50
per unit (manufacturing costs of Rs. 14 and selling costs Rs. 3.50 per unit). Fixed costs are
incurred uniformly throughout the year and amount to Rs. 35,00,000 (including depreciation of
Rs.15,00,000). There are no beginning or ending inventories.
Required: i) Estimate breakven sales level quantity and cash breakeven
ii)Estimate the P/V ratio
iii) Estimate the number of units that must be sold to earn an income of 2,50,000Rs.
iv) Estimate the sales level achive an after tax income of 250000.Assume 40% corporate
Income Tax Rate.
6. A company currently operating at 80% capacity has the following particulars:
Particulars Rs.
Sales 8,00,000
Direct Materials 2,50,000
Direct Labor 1,00,000
Variable Overheads 50,000
Fixed Overheads 3,25,000
An export order has been received that would utilize the half the capacity of the factory. The order
cannot be split, i.e., it has either to be taken in full and executed at 10% below the normal domestic
prices or rejected totally. The alternatives available to the management are:
1. Reject the order and continue with the domestic sales only (as at present) or,
2. Accept the order, split capacity between overseas and domestic sales and then do away excess
domestic demand or
3. Increase capacity to accept the export order and maintain the present domestic sales by
a) Buying an equipment that will increase capacity by 10%. This will increase the fixed cost by
further Rs. 25,000.
b) Work overtime to meet balance of required capacity. In that case, labor will be paid at one and
a half times the normal wage rate.
Prepare a comparative statement of profitability and suggest the best alternative.
7. The following budget has been prepared at 80% production level for Home Market. The possibilities in
foreign market are to be explored
Units produce40,000
Materials Rs. 2,00,000
Wages Rs. 1,20,000
Overhead: Fixed Rs.70,000
Variable-Rs.20,000
Total Rs. 4,10,000
The selling price in India is Rs. 15 per unit. In the far-East abut 5,000 units may be sold only at Rs. 10
per unit and in addition 25 paise per unit will be spent as freight etc. do you advice the trying for
market in the far-East.
8. The containers and cases private limited produces and markets industrial containers and packing cases.
Due to competition the company proposed to reduce the selling price. If the present level of profit is to
be maintained, indicate the number of units to be sold if the proposed reduction in selling price is:
(a) 5% (b) 10% and (c) 15%
Additional Information
9. What do you understand by Differential Costing? State the major applications of differential costing?
10. Write short notes on:
1) Sunk cost, 2) Incremental cost, 3) Relevant Cost and Irrelevant cost
UNIT – 5: STANDARD COSTING
1. Define the term ‘standard costing’. Explain with reasons why an industrial concern should introduce
standard costing system?
2. Explain the various types of variances. How are these cost variances calculated?
3. Discuss the advantages and limitations of standard costing
4. Explain labour variances with suitable examples
5. What is the difference between standard cost and estimated cost
6. What is variance analysis? Is a favourable variance always an indicator of efficiency in operation?
7. A factory was engaged in producing an article and used two grades of material A and B, mixed in the
ratio of 3:2 the standard price of material A was Rs. 4 per unit and that of B was Rs. 3 per unit. Due to
shortage of material, it was not possible to use standard mix, the actual material used, were as follows:
Material A 280 units @ Rs. 3.80 per unit
Material B 120 units @ RS. 3.60 per unit
Calculate Material cost variance, Material price variance and Material mix variance.
8. The standard cost of a chemical mixture is as follows:
40% material A at Rs. 20 per kg.
60@ material B at RS. 30 per kg.
A standard loss of 10% of input is expected in production. The cost record for a period shows the
following usage.
90 kg. material A at a cost of Rs. 18 per kg.
110 kg material B at a cost of Rs. 34 per kg
The quantity produced was 182 kg. of good product. Calculate all material variances.
9. Calculate Labor variance from the following information:
Standard Actual
Grade A: 90 workers Grade A: 80 workers
@ Rs. 2 per hour @Rs. 2.50 per hour
Grade B: 60 workers Grade B: 70 workers
@Rs. 3 per hour @ Rs. 2 per hour
Budgeted hours per worker 1,000 hours Actual hours per worker 900 hours
Budgeted gross production 5000 units, Standard Loss – 20%, Actual Loss 900 units.
10. A gang of workers usually consist of 10 men, 5 women and 5 boys in a factory. They are paid at
standard hourly rates of Rs. 1.25, Re. .80 and Re. .70 respectively. In a normal working week of 40
hours the gang is expected to produce 1,000 units of output.
In certain week, the gang consisted of 13 men, 4 women and 3 boys. Actual wages were paid at the
rates of Rs. 1.20, Re. .85 and Re. .65 respectively. Two hours were lost due to abnormal idle time ad
960 units of outputs were produced. Calculate labor variances
References:
Maheshwari Mittal: Cost Accounting – Theory and Problems
M.N. Arora: Cost and Management Accounting – Theory, Problems and Solutions
Khan & Jain: Management Accounting
Horngren: Cost Accounting
