Cost Accounting (Theory) (16CCCCM7) : Is, The Classifying, Recording

S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).
,
C.Suganya, M.Com.,MBA., M.Phil.,
Pavendar Bharathidasan College of Arts and Science.
COST ACCOUNTING(THEORY)
(16CCCCM7)
B.COM – IV SEMESTER
1.Definition of Cost Accounting :
Cost Accounting may be defined as According to Wheldon, costing is, the classifying, recording
and appropriate allocation of expenditure for the determination of the costs of products or services;
the relation of these costs to sales values; and the ascertainment of profitability.‖ In general, it is
understood as process for determining cost.
2.What ate the meaning of Cost Accounting?
Cost Accounting is usually considered as the next step to costing. It involves meticulously
accurate analyzing, standardising, forecasting and comparing relevant costing data so as to interpret
and report various concern areas to management. Its scope includes preparation of budgets,
determination of standard costs based on technical estimates, identifying variances and reasons
thereof, etc.
3.Explain the General Principles of Cost Accounting.
The following may be considered as the General Principles of Cost Accounting:
1.A cost should be related to its causes:
Cost should be related as closely as possible to their causes so that cost will be shared only
among the cost units that pass thorough the department of which the expenses are related.
2.A cost should be charged only after it has been incurred:
While determining the cost of individual units those costs which have actually been incurred
should be considered. For example, a cost unit should not be charged to the selling costs, while it is
still in the factory. Selling costs can be charged with the products which are sold.
3. The convention of prudence should be ignored:
Usually accountants believe in historical costs and while determining cost, they always attach
importance to historical cost. In Cost Accounting this convention must be ignored, otherwise, the
management appraisal of the profitability of the projects may be vitiated. According to W.M. Harper,
“a cost statement should, as far as possible, give facts with no known bias. If a contingency
needs to be taken into consideration it should be shown separately and distinctly”.
4. Abnormal costs should be excluded from cost accounts:
Costs which are of abnormal nature (eg. Accident, negligence etc.) should be ignored while
computing the cost, otherwise, it will distort costs figures and mislead management as to working
results of their undertaking under normal conditions.
Cost Accounting Theory (16CCCCM7) 1

S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).,
5. Past costs not to be charged to future period:

Costs which could not be recovered or charged in full during the concerned period should not
be taken to a future period, for recovery. If past costs are included in the future period, they are likely
to influence the future period and future results are likely to be distorted.
6. Principles of double entry should be applied wherever necessary:
Costing requires a greater use of cost sheets and cost statements for the purpose of cost
ascertainment and cost control, but cost ledger and cost control accounts should be kept on double
entry principle as far as possible.
4.What are the Objectives of Cost Accounting?
Cost accounting aims at systematic recording of expenses and analysis of the same so as to
ascertain the cost of each product manufactured or service rendered by an organization. Information
regarding cost of each product or service would enable the management to know where to economize
on costs, how to fix prices, how to maximize profits and so on. Thus, the main
objectives of cost accounting are the following.
1. To analyse and classify all expenditure with reference to the cost of products and operations.
2. To arrive at the cost of production of every unit, job, operation, process, department or
service and to develop cost standard.
3. To indicate to the management any inefficiencies and the extent of various forms of waste,
whether of materials, time, expenses or in the use of machinery, equipment and tools. Analysis of the
causes of unsatisfactory results may indicate remedial measures.
4. To provide data for periodical profit and loss accounts and balance sheets at such intervals,
e.g. weekly, monthly or quarterly as may be desired by the management during the financial year, not
only for the whole business but also by departments or individual products. Also, to explain in detail
the exact reasons for profit or loss revealed in total in the profit and loss accounts.
5. To reveal sources of economies in production having regard to methods, types of equipment,
design, output and layout. Daily, Weekly, Monthly or Quarterly information may be necessary to
ensure prompt constructive action.
6. To provide actual figures of costs for comparison with estimates and to serve as a guide for
future estimates or quotations and to assist the management in their price fixing policy.

5.What are the different between Cost Accounting and Financial Accounting?
Both financial accounting and cost accounting are concerned with systematic recording and
presentation of financial data. Financial accounting reveals profits and losses of the business as a
whole during a particular period, while cost accounting shows, by analysis and localization, the unit
costs and profits and losses of different product lines. The main difference between financial
accounting and cost accounting are summarized below.
1. Financial accounting aims at safeguarding the interests of the business and its proprietors
and others connected with it. This is done by providing suitable information to various parties, such as
shareholders or partners, present or prospective creditors etc. Cost accounting on the other hand,
renders information for the guidance of the management for proper planning, operation, control and
decision making.
2. Financial accounts are kept in such a way as to meet the requirements of the Companies Act,
Income Tax Act and other statues. On the other hand cost accounts are generally kept voluntarily to
meet the requirements of the management. But now the Companies Act has made it obligatory to keep
cost records in some manufacturing industries.
3. Financial accounting emphasizes the measurement of profitability, while cost accounting
aims at ascertainment of costs and accumulates data for this very purpose.
4. Financial accounts disclose the net profit and loss of the business as a whole, whereas cost
accounts disclose profit or loss of each product, job or service. This enables the management to
eliminate less profitable product lines and maximize the profits by concentrating on more profitable
ones.
5. Financial accounting provides operating results and financial position usually gives
information through cost reports to the management as and when desired.
6.What are the Importance of Cost Accounting?
The limitations of financial accounting have made the management to realize the importance of
cost accounting.
1. Cost accounting helps in periods of trade depression and trade competition.
2. Cost accounting aids price fixation.
3. Cost accounting helps in making estimates.
4. Cost accounting helps in channelizing production on right lines.
5. Cost accounting eliminates wastages.
6. Cost accounting makes comparisons possible.
7. Cost accounting provides data for periodical Profit and Loss Account.
7.Define of Cost units:
The Chartered Institute of Management Accountants, London, defines a unit of cost as “A unit
of quantity of product, service or time in relation to which costs may be ascertained or
expressed”.
8.Define of Cost centre:
According to Chartered Institute of Management Accountants, London, cost centre means “A
location, person or item of equipment (or group of these) for which costs may be ascertained
and used for the purpose of cost control”.
9.What you mean by Profit centre?
A profit centre is that segment of activity of a business which is responsible for both revenue
and expenses and discloses the profit of a particular segment of activity. Profit centres are created to
delegate responsibility to individuals and measure their performance.
10.What are the Difference between Profit centre and Cost centre?
The various points of difference between Profit centre and cost centre are as follows. Cost
centre is the smallest unit of activity or area of responsibility for which costs are collected whereas a
profit centre is that segment of activity of a business which is responsible for both revenue and
expenses.
(i) Cost centres are created for accounting conveniences of costs and their control whereas as a
profit centre is created because of decentralization of operations i.e., to delegate responsibility to
individuals who have greater knowledge of local conditions etc.
(ii) Cost centers are not autonomous whereas profit centres are autonomous.
(iii) A cost centre does not have target cost but efforts are made to minimize costs, but each
profit centre has a profit target and enjoys authority to adopt such policies as are necessary to achieve
its targets.
(iv) There may be a number of cost centres in a profit centre in a profit centre as production or
service cost centres or personal or impersonal but a profit centre may be a subsidiary company within
a group or division in a company.
11.State the classification Cost:
Costs can be classified or grouped according to their common characteristics. Proper
classification of costs is very important for identifying the costs with the cost centers or cost units.
The same costs are classified according to different ways of costing depending upon the
purpose to be achieved and requirements of a particular concern. The important ways of classification
are:
1. By Nature or Elements. According to this classification the costs are classified into three
categories i.e., Materials, Labour and Expenses. Materials can further be sub-classified as raw
materials components, spare parts, consumable stores, packing materials etc. This helps in finding the
total cost of production and the percentage of materials (labour or other expenses) constituted in the
total cost. It also helps in valuation of work-in-progress.
2. By Functions: This classification is on the basis of costs incurred in various functions of an
organization ie. Production, administration, selling and distribution. According to this classification,
costs are divided into Manufacturing and Production Costs and Commercial costs.
Manufacturing and Production Costs are costs involved in manufacture, construction and
fabrication of products.
Commercial Costs are
(a) administration costs.
(b) selling and distribution costs.
3. By Degree of Traceability to the Product : According to this, costs are divided indirect
costs and indirect costs.
Direct Costs are those costs which are incurred for a particular product and can be
identified with a particular cost centre or cost unit. Eg:- Materials, Labour.
Indirect Costs are those costs which are incurred for the benefit of a number of cost
centre or cost units and cannot be conveniently identified with a particular cost centre or cost unit.
Eg:- Rent of Building, electricity charges, salary of staff etc.
4. By Changes in Activity or Volume: According to this costs are classified according to their
behavior in relation to changes in the level of activity or volume of production. They are fixed, variable
and semi-variable.
Fixed Costs are those costs which remain fixed in total amount with increase or
decrease in the volume of the output or productive activity for a given period of time. Fixed Costs per
unit decreases as production increases and vice versa. Eg:- rent, insurance
of factory building, factory manager’s salary etc.
Variable Costs are those costs which vary in direct proportion to the volume of output.
These costs fluctuate in total but remain constant per unit as production activity changes. Eg:- direct
material costs, direct labour costs, power, repairs etc.
Semi-variable Costs are those which are partly fixed and partly variable. For example;
Depreciation, for two shifts working the total depreciation may be only 50% more than that for single

shift working. They may change with comparatively small changes in output but not in the same
proportion.
5. Association with the Product: Cost can be classified as product costs and period costs.
Product costs are those which are traceable to the product and included in inventory cost, thus
product cost is full factory cost. Period costs are incurred on the basis of time such as rent, salaries etc.
thus it includes all selling and administration costs. These costs are incurred for a period and are
treated as expenses.
6. By Controllability: The CIMA defines controllable cost as “A cost which can be influenced
by the action of a specified member of an undertaking” and a non-controllable cost as “a cost
which cannot be influenced by the action of a specified member of an undertaking”.
7. By Normality: There are normal costs and abnormal costs. Normal costs are the costs which
are normally incurred at a given level of output under normal conditions. Abnormal costs are costs
incurred under abnormal conditions which are not normally incurred in the normal course of
production.Eg:- damaged goods due to machine break down, extra expenses due to
disruption of electricity, inefficiency of workers etc.
8. By Relationship with Accounting Period: There are capital and revenue expenses
depending on the length of the period for which it is incurred. The cost which is incurred in
purchasing an asset either to earn income or increasing the earning capacity of the business is called
capital cost, for example, the cost of a machine in a factory. Such cost is incurred at one point of time
but the benefits accruing from it are spread over a number of accounting years. The cost which is
incurred for maintaining an asset or running a business is revenue expenditure. Eg:- cost of materials,
salary and wages paid, depreciation, repairs and maintenance, selling and distribution.
9. By Time..Costs can be classified as
1) Historical cost and
2) Predetermined Costs. The costs which are ascertained and recorded after it
has been incurred is called historical costs.
12.Describe the Types, Methods and Techniques of Costing.
The general fundamental principles of ascertaining costs are the same in every system of cost
accounting, but the methods of analysis and presenting the costs vary from industry to industry.
Different methods are used because business enterprises vary in their nature and in the type of
products or services they produce or render. Basically, there are two principal methods of costing,
namely,

(i) Job Costing, and
(ii) Process costing.
1. Job costing: It refers to a system of costing in which costs are ascertained in terms of
specific jobs or orders which are not comparable with each other. Industries where this method of
costing is generally applied are Printing Process, Automobile Garages, Repair Shops, Shipbuilding,
House building, Engine and Machine construction, etc. Job Costing includes the following methods of
costing: (a) Contract Costing:
(b) Bach Costing:
(c) Terminal Costing:
(d) Operation Costing:
2. Process Costing: Where a product passes through distinct stages or processes, the output of
one process being the input of the subsequent process, it is frequently desired to ascertain the cost of
each stage or process of production. This is known as process costing. This method is used where it is
difficult to trace the item of prime cost to a particular order because its identity is lost in volume of
continuous production. Process costing is generally adopted in textile industries, chemical industries,
oil refineries, soap manufacturing, paper manufacturing, tanneries, etc.
3. Unit or single or output or single output costing: This method is used where a single
article is produced or service is rendered by continuous manufacturing activity. The cost of the whole
production cycle is ascertained as a process or series of processes and the cost per unit is arrived at by
dividing the total cost by the number of units produced. The unit of costing is chose according to the
nature of the product.
4. Operating Costing: This method is applicable where services are rendered rather than
goods produced. The procedure is same as in the case of single output costing.
5. Multiple or Complete Costing: Some products are so complex that no single system of
costing is applicable. It is used where there are a variety of components separately produced and
subsequently assembled in a complex production.
6. Uniform Costing: It is not a distinct method of costing by itself. It is the name given to a
common system of costing followed by a number of firms in the same industry. This helps in
comparing performance of one firm with that of another.
7. Departmental Costing: When costs are ascertained department by department, the method
is called “Departmental Costing”. Usually, for ascertaining the cost of various goods or services
produced by the department, the total costs will have to be analysed, say, by the use of job costing or
unit costing.
13.Explain the Elements of Cost:

The management of an organization needs necessary data to analyze and classify costs for
proper control and for taking decisions for future course of action. Hence the total cost is analyzed by
elements of costs ie by the nature of expenses. The elements of costs
are three and they are materials, labour and other expenses. These can be further analyzed as follows.
By grouping the above elements of cost, the following divisions of cost are obtained.
1. Prime cost = Direct Materials + Direct Labour+ Direct Expenses
2. Works or Factory Cost = Prime Cost + Works or Factory Overheads
3. Cost of Production = Works Cost + Administration Overheads
4. Total Cost or Cost of Sales = Cost of Production + Selling and Distribution Overheads.
The difference between the cost of sales and selling price represents profit or loss.
1. Direct Materials are those materials which can be identified in the product and can be
conveniently measured and directly charged to the product.
2. Indirect Materials are those materials which cannot be classified as direct materials.
3. Direct Labour is all labour expended in altering the construction, composition, confirmation
or condition of the product.
4. Direct Expenses are expenses directly identified to a particular cost centre. Hence expenses
incurred for a particular product, job, department etc are direct expenses.
5. Overheads may be defined as the aggregate of the cost of indirect materials, indirect labour
and such other expenses including services as cannot conveniently be charged direct ot specific cost
units. Overheads may be sub-divided into
(a) Manufacturing Overheads;
(b) Administration Overheads;
(c) Selling Overheads;
(d) Distribution Overheads;
(e) Research and Development Overheads.
14.What are the meaning of Cost sheet or Statement of Cost?
When costing information is set out in the form of a statement, it is called “Cost Sheet”. It is
usually adopted when there is only one main product and all costs almost are incurred for that
product only. The information incorporated in a cost sheet would depend upon the requirement of
management for the purpose of control.

15.Briefly Explain the Materials:

The materials are a major part of the total cost of producing a product and are one of the most
important assets in majority of the business enterprises. Hence the total cost of a product can be
controlled and reduced by efficiently using materials. The materials are of two types, namely:
(i) Direct materials: The materials which can be easily identified and attributable to the
individual units being manufactured are known as direct materials. These materials also form part of
finished products. All costs which are incurred to obtain direct materials are known as direct material
costs.
(ii) Indirect materials: Indirect materials, on the other hand, are those materials which are of
small value such as nuts, pins, screws, etc. and do not physically form part of the finished product.
Costs associated with indirect materials are known as indirect material costs. Factory supplies, office
supplies and selling supplies are generally termed as stores.
16.Give the meaning of Purchasing Control.
Purchasing is an art. Wrong purchases increase the cost of materials, store equipments and the
finished goods. Hence it is imperative that purchases should be effectively, efficiently and
economically performed.
17.Definition of Purchasing Control.
Dr. Walters defines scientific purchasing as the “Procurement by purchase of the proper
materials, machinery, equipment and supplies of stores used in the manufacture of a product,
adapted to marketing in the proper quantity and quality at the proper time and the lowest
price consistent with the quality desired”.
18.Bring out the Methods of Purchasing.
Purchasing can be broadly classified as centralized and localized purchasing.
(a) Centralized Purchasing: In a large organization, manufacturing units are many. In such
cases centralized purchasing is beneficial. The advantages of centralized purchasing are:
1. Specialized and expert knowledge is available.
2. Advantages arise due to bulk purchases.
3. The cost of purchasing can be reduced and selling price can be lowered.
(b) Decentralization of Purchases: The advantages of localized purchasing or
decentralization of purchases are:-
1. Each plant may have its own particular need. This can be given special attention.
2. Direct contact can be established with suppliers.
3. The time lag between indenting and receiving materials can be reduced.
4. Technical requirements of each plant can be ascertained.
19.Describe the Purchase Procedure.
The steps usually followed for purchase of materials may be enumerated as follows:-
1. Indenting for materials : The stores department prepares indents for the purchase of
materials for replenishment of stocks (regular indents) or for a special job(special indents) and sends
it to the purchase department.
2. Issue of tenders to suppliers: The purchase department issue tenders to suppliers or
publish them in papers. The suppliers quote their terms of price and delivery/payment.
3. Placing of purchase orders: Normally six copies of purchase order are made. The supplier,
stores, inspection department, store accounting section, purchase department and progress
department are sent one copy each.
4. Inspection: The supplier delivers goods at the place specified. Two delivery challans are
prepared by the supplier one of which is returned. It is a proof of delivery. After receiving the goods,
the inspection department or production department or maintenance department (as the case may
be) is intimated.
5. Receiving Stores: The stores department prepares a Stores Receipt Note for the quantity of
stock accepted in inspection. After issuing of the Stores Receipt, the Storekeeper is responsible for the
stocks.
6. Checking and passing of bills for payment: Bills received by the purchase department are
forwarded to the stores accounting section to check the authenticity regarding quantity and price and
the arithmetical accuracy.
20.Explain the Storekeeping:
Store keeping is a service function. The storekeeper is a custodian of all the items kept in the
store. The stores should be maintained properly and cost minimized.
The main objectives of store keeping are:-
i) To protect stores against losses
ii) To keep goods ready for delivery/issue
iii) To provide maximum service at minimum cost.
The duties and functions of Store-keeper can be summarized as follows:
i) Materials should be received, unloaded, inspected and then moved to stores. The materials
have to be stored in appropriate places and records the receipts in proper books.

ii) The stores records should be maintained in an efficient and orderly manner so that
materials can be easily located and information can be obtained for various departments.
iii) The stores should provide maximum protection and safety and accessibility and utilize
minimum space. Suitable storage devices should be installed.
21.What are the meaning of Economic Ordering Quantity? (EOQ)
The quantity of material to be ordered at one time is known as economic ordering quantity.
This quantity is fixed in such a manner as to minimize the cost of ordering and carrying the stock. The
total costs of a material usually consist of:
Total acquisition cost + total ordering cost + total carrying cost. The only costs to be taken
care of are the ordering costs and carrying costs which vary with the quantity ordered.
22.Find out the Carrying Cost:
It is the cost of holding the materials in the store and includes:
1. Cost of storage space which could have been utilized for some other purpose.
2. Cost of bins and racks
3. Cost of maintaining the materials to avoid deterioration.
4. Amount of interest payable on the amount of money locked up in the materials.
5. Cost of spoilage in stores and handling.
23.Find the Ordering Cost:
It is the cost of placing orders for the purchase of materials and includes:
1. Cost of staff posted in the purchasing department, inspection section and stores accounts
department.
2. Cost of stationary postage and telephone charges. Thus, this type of costs includes cost of
floating tenders, cost of comparative evaluation of quotations, cost of paper work, and postage
involved in placing the order, cost of inspection and cost of accounting and making payments. In other
words, the cost varies with the number of orders.
24.Define of Inventory System:
The Chartered Institute of Management Accountants, London, defines the perpetual inventory
as “A system of records maintained by the controlling department, which reflects the physical
movements of stocks and their current balance”.
25.What are the Advantages of the Perpetual Inventory System?
The following are the advantages of the perpetual inventory system:
1. It avoids the disruption of production for physical checking of all items of stores at the end of
the year.
2. The preparation of Profit and Loss Account and Balance Sheet is possible without physical
verification of stock.
3. A detailed and more reliable control on the materials in store is obtained.
4. As the work of recording and continuous stocktaking is carried out systematically and
without undue haste, the figures are more reliable.
5. Continuous stocktaking will make the storekeeper and the stores accountant more vigilant in
their work and they will try to keep the records accurate and up-to-date.
6. Planning of production can be done without any fear of shortage as the management is
constantly informed of the stores position.
26.Explain the ABC Analysis:
 Under ABC Analysis, the materials in stock are divided into three categories for the
purpose of control.
 Generally it is seen that the materials which constitute the least percentage of items in
stock may contribute to a large percentage of value and a large percentage of items may
represent a smaller percentage of value of items consumed. Between these two items
are those items, the percentage of which is more or less equal to their value in
consumption.
 Items falling in the first category are treated as ‘A’ items, of the second category as ‘B’
items and items of the third category are taken as ‘C’ items. Such an analysis of material
is known as ABC analysis.
 This technique of stock control is also known as stock control according to value
method or Always Better Control method or Proportional Parts Value Analysis method.
Thus, under this technique of material control, materials are listed in ‘A’, ‘B’ and ‘C’
categories in descending order based on money value of consumption.
 ABC analysis measures the cost significance of each item of material. It concentrates on
important terms, so it is also known as ‘Control by Importance and Exception” (CIE).
27.Enumerate the method of First in First Out (FIFO).
Under this method material is first issued from the earliest consignment on hand and priced at
the cost at which that consignment was placed in the stores. In other words, materials received first
are issued first.
The units in the opening stock of materials are treated as if they are issued first, the units from
the first purchase issued next, and so on until the units left in the closing stock of materials are valued
at the latest cost of purchases.
This method is most suitable in times of falling prices because the issue price of materials to
jobs or work order will be high while the cost of replacement of materials will be low.
But in case of rising prices this method is not suitable because the issue price of materials to
production will be low while the cost of replacement of materials will be high. The following example
will illustrate how issues of materials are valued under this method.
28.Examine the method of Last in First Out Method (LIFO):
It is a method of pricing the issues of materials. This method is based on the assumption that
the items of the last batch (lot) purchased are the first to be issued.
Therefore, under this method the price of the last batch (lot) is used for pricing the issues, until
it is exhausted, and so on. If however, the quantity of issue is more than the quantity of the latest lot
than earlier (lot) and its price will also be taken into consideration.
29.Write a note on Simple Average Method.
In this method, price is calculated by dividing the total of the prices of the materials in the
stock from which the material to be priced could be drawn by the number of the prices used in that
total. This method may lead to over-recovery or under-recovery of cost of materials from production
because quantity purchased in each lot is ignored.
30.Write a note on Weighted Average Methods.
In this method, price is calculated by dividing the total cost of materials in the stock from which
the materials to be priced could be drawn by the total quantity of materials in that stock.
31.What is meaning of Labour?
Labour cost is a second major element of cost. The control of labour cost and its accounting is
very difficult as it deals with human element. Labour is the most perishable commodity and as such
should be effectively utilized immediately.
32.What are the Importance of Labour Cost Control?
Labour is of two types
(a) Direct labour,
(b) Indirect labour.
Direct Labour is that labour which is directly engaged in the production of goods or services
and which can be conveniently allocated to the job, process or commodity or process. For example
labour engaged in spinning department can be conveniently allocated to the spinning process.
Indirect Labour is that labour which is not directly engaged in the production of goods and
services but which indirectly helps the direct labour engaged in production. The examples of indirect

labour are supervisors, sweepers, cleaners, time-keepers, watchmen etc. The cost of indirect labour
cannot be conveniently allocated to a particular job, order, process or article.
33.Explain the Time keeping:
Time-keeping will serve the following purposes:
1. Preparation of Pay Rolls in case of time-paid workers.
2. Meeting the statutory requirements.
3. Ensuring discipline in attendance.
4. Recording of each worker’s time ‘in’ and ‘out’ of the factory making distinction
between normal time, overtime, late attendance, early leaving.
5. For overhead distribution when overheads are absorbed on the basis of labour hours.
34.What are the Methods of Time-keeping?
There are two methods of time-keeping. They are the manual methods and the mechanical
methods. Whichever method is used it should make a correct record of the time and the method
should be cost effective and minimize the risk of fraud.
Manual Methods
(1)Attendance Register Method:
This is the traditional method where an attendance register or muster roll is kept at the time
office near the factory gate or in each department. The timekeeper records the name of the worker,
the worker’s number, the department in which he is working, the rate of wages, the time of arrival and
departure, normal time and overtime.
(2)Metal Disc Method:
Under this method, each worker is allotted a metal disc or a token with a hole bearing his
identification number. A board is kept at the gate with pegs on it and all tokens are hung on this board.
These boards can be maintained separately for each department so that the workers can remove the
token without delay and put it in a tray or box kept near the board. Immediately after the scheduled
time for entering the factory, the box is removed and the latecomers will have to give their tokens to
the timekeeper and their exact time of arrival is recorded. The tokens or disc left on the board will
represent the absentee workers. Later the timekeeper records the attendance in the attendance
register and subsequently it is passed on to the Pay Roll Department.
Mechanical Methods
The mechanical methods that are generally used for the recording of time of workers may be as
follows:

(1)Time Recording Clocks:
The time recording clock is a mechanical device which automatically records the time of the
workers. Under this method, each worker is given a Time Card which is kept in a tray near the factory
gate and as the worker enters the gate, he picks up his card from the tray, puts it in the time recording
clock which prints the exact time of arrival in the proper space against the particular day.
This procedure is repeated for recording time of departure for lunch, return from lunch and time of
leaving the factory in the evening. Late arrivals and overtime are recorded in red to attract the
attention of the management.
(2)Dial Time Records:
Under this method, a dial time recorder machine us used. It has a dial with number of holes
(usually about 150) and each hole bears a number corresponding to the identification number of the
worker concerned. There is one radial arm at the centre of the dial. As a worker enters the factory
gate, he is to press the radial arm after placing it at the hole of his number and his time will
automatically be recorded on roll of a paper inside the dial time recorder against the number. The
sheet on which the time is recorded provides a running account of the worker’s time and it can
calculate the number of hours and prepare the wage sheets. However, the high installation cost of the
dial time recorder and its use for only a limited number of worker are the drawbacks of this method.
35.Describe the Time Booking:
Time booking is the recording of time spent by the worker on different jobs or work orders
carried out by him during his period of attendance in the factory.
The objects of time booking are:
1. To ensure that time spent by a worker in a factory is properly utilized on different jobs or
work orders.
2. To ascertain the labour cost of each individual job or work order.
3. To provide a basis for the apportionment of overhead expenses over various jobs or work
orders when the method for the allocation of overheads depends upon time spent on different jobs.
4. To ascertain unproductive time or idle time so as to make efforts to keep it in limit.
5. To know the time taken to complete a particular job so that bonus can be paid as per the
incentive schemes.
6. To know the efficiency of workers, it is necessary to make the comparison of actual time
taken with time allowed for completing a particular task.
Following documents are generally used for time booking:

 Daily Time Sheets,
 Weekly Time Sheets,
 Job Tickets or Job Cards.
36.Write note on Idle Time:
There is always a difference between the time booked to different jobs or work orders and the
time recorded at the factory gate. This difference is known as idle time. Idle time is of two types.
(a) Normal Idle Time
(b) Abnormal Idle Time
Normal Idle Time: This represents the time, the wastage of which cannot be avoided and,
therefore, the employer must bear the labour cost of this time. But every effort should be made to
reduce it to the lowest possible level.
Abnormal Idle Time: It is that time the wastage of which can be avoided if proper precautions
are taken. Example: time wasted due:- to breakdown of machinery on account of inefficiency of the
works engineer, failure of the power supply, shortage of materials, waiting for instructions, waiting
for tools and raw materials, strikes or lock-outs in the factory. It is a principle of costing that all
abnormal expenses and losses should not be included in costs and as such wages paid for abnormal
idle time should not form part of the cost of production. Hence it is debited to Costing Profit and Loss
Account.
37.Write note on Over Time:
It is the work done beyond the normal working period in a day or week. For overtime done, the
workers are given double the wages for the overtime done. The additional amount paid on account of
overtime is known as overtime premium.
Overtime increases the cost of production and should not be encouraged as it has the following
disadvantages.
1. Overtime is paid at higher rate.
2. Overtime is done at late hours when workers have become tired and efficiency will it
be as much as during the normal working hours.
3. Workers will develop the habit of working slowly during normal hours and complete
the work using overtime to earn more wages.
4. Expenses like lighting, cost of supervision, and wear and tear of machines will
increase disproportionately.

38.Write note on System of Wage Payment.
There is no single method of wage payment which is acceptable both to the employers and the
workers. The system of wages should result into higher production, improved quality of output and a
contented labour force.
There are two principal wage systems:
(i) Payment on the basis of time spent in the factory irrespective of the amount of
work done. This method is known as time wage system.
(ii) (ii) Payment on the basis of the work done irrespective of the time taken by the
worker. This method is called piece rate system.
39.Write note on Time Wage System.
Under this method of wage payment, the worker is paid at an hourly, daily, weekly or monthly
rate. This payment is made according to the time worked irrespective of the work done. This method
is highly suitable for following types of work:
1. Where highly skilled and apprentices are working.
2. Where quality of goods produced is of extreme importance eg., artistic goods
3. Where the speed of work is beyond the control of the workers.
4. Where close supervision of work is possible.
5. Where output cannot be measured.
40.Write note on Straight piece rate system.
Payment is made as per the number of units produced at a fixed rate per unit. Another method
is piece rate with guaranteed time rate in which the worker is given time rate wages if his piece rate
wages is less than the time rate.
41.Write note on Taylor’s Differential Piece Rate system.
This system was introduced by Taylor, the father of scientific management to encourage the
workers to complete the work within or less than the standard time.
42.Write note on Merrick’s Multiple Piece Rate System.
This method seeks to make an improvement in the Taylor’s differential piece rate system.
Under this method, three piece rates are applied for workers with different levels of performance.
43.Write note on Premium and Bonus Plan.
The object of a premium plan is to increase the production by giving an inducement to the
workers in the form of higher wages for less time worked. Under a premium plan, a standard time is
fixed for the completion of a specific job or operation at an hourly rate plus wages for a certain

fraction of the time saved by way of a bonus. The plan is also known as incentive plan because a
worker has the incentive to earn more wages by completing the work in less time.
44.Write note on Halsey Premium Plan.
Under this method, the worker is given wages for the actual time taken and a bonus equal to
half of wages for time saved. The standard time for doing each job or operation is fixed. In practice the
bonus may vary from 33⅓ % to 66⅔ % of the wages of the time saved.
45.Write note on Rowan Plan.
The difference between Halsey plan and Rowan Plan is the calculation of the bonus. Under this
method also the workers are guaranteed the time wages but the bonus is that proportion of the wages
of the time taken which the time saved bears to the standard time allowed.
46.What is Overheads?
Cost related to a cost center or cost unit may be divided into two ie. Direct and Indirect cost.
The Indirect cost is the overhead cost and is the total of indirect material cost, indirect labour cost,
indirect expenses.
47.Define of Overheads:
CIMA defines indirect cost as “Expenditure on labour, materials or services which cannot
be economically identified with a specific salable cost per unit”.
48.Explain the Classification of Overheads.
Overheads can be classified on the following basis:
i) Function-wise classification:
Overheads can be divided into the following categories on functional basis.
(a) Manufacturing or production overheads eg: indirect materials like lubricants,
cotton wastes, indirect labour like salaries and wages of supervisors, inspectors, storekeepers,
indirect expenses like rent, rates and insurance of factory, power, lighting of factory, welfare expenses
like canteen, medical etc.
(b) Administration overheads : indirect materials like office stationery and printing,
indirect labour salaries of office clerks, secretaries, accountants, indirect expenses rent, rates and
insurance of office, lighting heating and cleaning of office, etc.
(c) Selling and Distribution overheads: indirect materials like catalogues, printing,
stationery, price list, indirect salary of salesmen, agents, travellers, sales managers, indirect expenses
like rent, rates and insurance of showroom, finished goods, godown etc., advertising expenses, after
sales service, discounts, bad debts etc.
ii) Behavior-wise classification:
Overheads can be classified into the following categories as per behavior pattern.
(a) Fixed overheads like managerial remuneration, rent of building, insurance of
building, plant etc.
(b) Variable overheads like direct material and direct labour.
(c) Semi-variable overheads like depreciation, telephone charges, repair and
maintenance of buildings, machines and equipment etc.
iii) Element-wise classification:
Overheads can be classified into the following categories as per element.
(a) Indirect materials
(b) Indirect labour
(c) Indirect expenses
49.Explain Allocation and Apportionment of Overhead to Cost Centres (or)
Departmentalisation of Overhead)
When all the items are collected properly under suitable account headings, the next step is
allocation and apportionment of such expenses to cost centres. This is also known as
departmentalization or primary distribution of overhead. A factory is administratively divided into
different departments like Manufacturing or Producing department, Service department, partly
producing departments.
Allocation of Overhead Expenses
Allocation is the process of identification of overheads with cost centres. An expense which is
directly identifiable with a specific cost centre is allocated to that centre. Thus it is allotment of a
whole item of cost to a cost centre or cost unit. For example the total overtime wages of workers of a
department should be charged to that department. The electricity charges of a department if separate
meters are there should be charged to that particular department only.
Apportionment of Overhead Expenses
Cost apportionment is the allotment of proportions of cost to cost centres or cost units. If a cost
is incurred for two or more divisions or departments then it is to be apportioned to the different
departments on the basis of benefit received by them. Common items of overheads are rent and rates,
depreciation, repairs and maintenance, lighting, works manager’s salary etc.
Basis of Apportionment
Suitable bases have to be found out for apportioning the items of overhead cost to production
and service departments and then for reapportionment of service departments costs to other service
and production departments. The basis selected should be correlated to the expenses and the expense
should be measurable by the basis. This process of distribution of common expenses over the
departments on some equitable basis is known as ‘Primary Distribution’.
50.What are the Direct Allocation?
Under direct allocation, overheads are directly allocated to the department for which it is
incurred. Example overtime premium of workers engaged in a particular department, power, repairs
of a particular department etc.
(i) Direct Labour/Machine Hours.
(ii) Value of materials passing through cost centres.
(iii) Direct wages.
51.What are the Direct re-distribution method?
Under this method, the costs of service departments are directly apportioned to production
departments without taking into consideration any service from one service department to another
service department.
Thus, proper apportionment cannot be done on the assumption that service departments do
not serve each other and as a result the production departments may either be overcharged or
undercharged.
The share of each service department cannot be ascertained accurately for control purposes.
Budget for each department cannot be prepared thoroughly. Therefore, Department Overhead rates
cannot be ascertained correctly.
52.What are the Step Distribution Method?
Under this method, the cost of most serviceable department is first apportioned to other
service departments and production departments. The next service department is taken up and its
cost is apportioned and this process goes on till the cost of the last service department is apportioned.
Thus, the cost of last service department is apportioned only to production departments.
53.What are the Reciprocal Services Method?
In order to avoid the limitation of Step Method, this method is adopted. This method
recognizes the fact that if a given department receives service from another department, the
department receiving such service should be charged. If two departments provide service to each
other, each department should be charged for the cost of services rendered by the other.
54.What are the Simultaneous Equation method?
Under this method, the true cost of the service departments are ascertained first with the help
of simultaneous equations; these are then redistributed to production departments on the basis of
given percentage. The following illustration may be taken to discuss the application of this method.
55.What are the Repeated Distribution Method?

Under this method, the totals are shown in the departmental distribution summary, are put out
in a line, and then the service department totals are exhausted in turn repeatedly according to the
agreed percentages until the figures become too small to matter.
56.What are the Trial and Error Method?
Under this method, the cost of one service department is apportioned to another centre. The
cost of another centre plus the share received from the first centre is again apportioned to the first
cost centre and this process is repeated till the balancing figure becomes negligible.
57.Give the Meaning of Absorption of Overhead.
Absorption means the distribution of the overhead expenses allotted to a particular
department over the units produced in that department. Overhead absorption is accomplished by
overhead rates.
58.State the Methods of Absorption of Manufacturing Overhead.
The following are the main methods of absorption of manufacturing or factory overheads.
(a) Direct Material Cost Method.
Under this method percentage of factory expenses to value of direct materials
consumed in production is calculated to absorb manufacturing overheads. The formula is
Overhead Rate = Production Overhead Expenses (Budgeted) / Anticipated Direct
Material Cost.
(b) Direct Labour Cost (or Direct Wages) Method.
This is a simple and easy method and widely used in most of the concerns. The
overhead rate is calculated as under: Overhead Rate= Production Overhead Expenses /
Direct Labour Cost.
(c) Prime Cost Method.
Under this method the recovery rate is calculated dividing the budgeted overhead
expenses by the aggregate of direct materials and direct labour cost of all the products of a
cost centre. The formula is Overhead Recovery Rate = Production Budgeted Overhead
Expenses/ Anticipated Direct Materials and Direct Labour Cost.
(d) Direct Labour (or Production) Hour Method.
This rate is obtained by dividing the overhead expenses by the aggregate of the
productive hours of direct workers. The formula is Overhead rate = Production Overhead
Expenses / Direct Labour Hours.
(e) Machine Hour Rate.

Machine hour rate is the cost of running a machine per hour. It is one of the
methods of absorbing factory expenses to production. What is needed for computing
the machine hour rate is to divide overhead expenses for a specific machine or group of
machines for a period by the operating hours of the machine or the group of machines
for the period. It is calculated as follows: Machine hour rate = Amount of overheads /
Machine hours during a given period.
(f) Rate Per Unit of Production.
This method is simple, direct and easy. It is suitable for mining and other extractive
industries, foundries and brick laying industries, where the output is measured in convenient
physical units like number, weight, volume etc. the rate is calculated as under: Overhead
Rate= Overhead expenses (budgeted) / Budgeted production.
(g) Sale Price Method:
Under this method, budgeted overhead expenses are divided by the sale price of units of
production in order to calculate the overhead recovery rate. The formula is sale price of units
of production in order to calculate the overhead recovery rate, the formula is Overhead
Recovery Rate= Budgeted overhead expenses / Sale value of units of production.
59.What is mean by Unit Costing?
It is an important method of costing. It is also known as output costing or single costing. It is
used to ascertain the cost of producing a unit of output.. This method is called ‘unit’ costing since
every unit of production is identical in all respects and the cost unit is a standard product.
60.Define of by Unit Costing:
According to J.R Batliboi, “Single or output cost system is used in business where a
standard product is turned out and it is desired to find out the cost of a basic unit of
production.”
61.State the Features of Unit Costing.
1. It is used where output can be measured in convenient physical unit
2. It is followed in concern s engaged in the production of a single product
3. It is followed in industries where manufacturing process is continuous
4. It is followed where all units of production are identical

62.Give the meaning of Cost sheet.
Cost sheet is a device used to determine and present the cost under unit costing. It is a
statement of costs incurred at each level of manufacturing a product or service. In a Cost sheet all the
elements of cost is taken into consideration. It includes Prime cost, Factory/manufacturing cost, cost
of production, cost of sale Profit/loss etc.
63.State the Treatment of Stock.
While preparing a cost sheet we have to consider the opening and closing stocks of the
following three items
1. Stock of Raw materials
2. Stock of finished goods
3. Stock of work in progress
Stock of Raw materials:
In order to get the cost of material consumed, opening stock of material is added to the cost of
raw materials purchased and closing stock of raw materials is deducted from it.
Stock of finished goods:
It is adjusted immediately after ascertaining the cost of production.
Stock of Work – in – progress:
The Cost of work in progress are adjusted at the work cost stage.
64.Give the meaning of Tenders or Quotations.
A tender or quotation is an offer made by a person to supply certain goods at a specified price.
It is an estimated price which is determined in advance of production. A reasonable margin of profit is
added to the estimated cost to get the tender price.
A tender has to be prepared very carefully as the receipts of orders depend upon the
acceptance of quotations or tenders supplied by the manufacturers. It requires information regarding
Prime cost, works cost, administration and selling overhead cost and profit of the preceding period.
65.Define of Job Costing.
It means ascertaining costs of an individual job, work order or project separately. According to
ICMA London, “Job costing is that form of specific order costing which applies where work is
undertaken to customer’s specific requirements and each order is of comparatively of short
duration.”
66.What is Job Costing?
Under this method of costing, each job is considered to be a distinct cost unit. As such, each job
is separately identifiable. In the case of a job, work is usually carried out within the factory or
workshop. Sometimes, a job is accomplished even in the customer’s premises. This method of costing
is applicable to ship , printing, engineering, machine tools, readymade garments, shoes, hats, furniture,
musical instruments, interior decorations etc.
67.State the Features of Job Costing.
1. Each job has its own characteristics, depending up on the special order placed by the
customer.
2. Each job is treated as a cost unit.
3. A separate job cost sheet is made out for each job on the basis of distinguishing
numbers.
4. A separate work in progress ledger is maintained for each job.
5. The duration of the job is normally a short period.
6. Profit or loss is determined for each job independently of others.
68.What are the Requisites of Job costing system?
1. A sound system of production control.
2. An effective time booking system.
3. Clearly defined cost centre.
4. Appropriate overhead absorption rate, and
5. Proper material issue pricing method.
69.State the Procedure for Job order costing system.
The Procedure for job order costing system may be summarized as follows:-
1. Receiving an enquiry from the customer regarding price, quality etc
2. Make an estimation of the price of the job after considering the cost incurred for the
execution of similar job in the previous year
3. Receiving an order, if the customer is satisfied with the quotation price and other terms of
execution.
4. If the job is accepted, a production order is made by the Planning department.
5. The costs are collected and recorded for each job under separate production order Number,
and a Job Cost Sheet is maintained for that purpose.
6. On completion of job, a completion report is sent to costing department.
70.What do you Meaning of Contract Costing?
It is a special form of job costing and it is the most appropriate method to be adopted in such
industries as building and construction work, civil engineering, mechanical fabrication and ship
building. In other words, it is a form of specific order costing which applies where the work is
undertaken to customer’s requirements and each order of long duration as compared to job costing. It
is also known as terminal costing.
71.Define of Contract Costing.
The official CIMA terminology defines contract costing as “ A form of specific order costing in
which costs are attributed to individual contracts.”
72.Bring out the features Contract Costing.
1. Each contract itself a cost unit.
2. Work is executed at customers site.
3. The existence of sub contract.
4. Most of the expenses incurred upon the contracts are direct.
5. Cost control is very difficult in contract costing.
73.What are the Types of contracts?
Generally there are three types of contracts:
1. Fixed price contracts: Under these contracts both parties agree to a fixed contract price.
2. Fixed price contract: with Escalation clause
3. Cost plus contract: Under this contract no fixed price could be settled for a contract.
74.What is Contract Account?
A contract account is a nominal account in nature. It is prepared to find out the cost of contract
and to know profit or loss made on the contract.
A contractor may undertake a number of contracts at a time. For each contract a separate
account is opened. In the contract account all direct cost such as material, labour and other direct
expenses incurred during an accounting period are debited and he indirect expenses are apportioned
on an equitable basis.
The differences between the two sides are known as Notional profit or notional loss.
75.Explain the special terms in Contract Account?
1. Work in Progress: It is the unfinished contract at the end of the accounting period and it
includes amount of work certified and amount of work uncertified. Work in progress is an asset,
shown in the balance sheet by deducting there from any advance received from the contractee.
2. Work certified: The sales value of work completed as certified by the architect is known as
‘work certified’. In the case of contracts of long duration, the amount payable by the customer to the
contractor is based on the sales value of work done as certified by the architect. At the end of the
financial year, the total sales value of work done and certified by the architect is credited to the
contract account.
3. Work Uncertified: It means work which has been carried out by the contractor but has not
been certified by the architect. Sometimes, work which is complete remains uncertified at the end of
the financial year. The reasons for the same may be
a. Work not sufficient enough to be certified.
b. Work has not reached the stipulated stage to qualify for certification It is always
valued at cost and credited to the contract account.
4. Retention money: Regardless of the amount of work certified, the contractor is paid a
specified percentage of the same and the balance is held or retained by the contractee. This is because
of the fact that the contractee has to safe guard himself against any contingency arising from the non
fulfillment of the terms of the contract by the contractor. The unpaid balance of work certified or the
amount held back or retained by the contractee is known as ‘retention money’.
5. Sub contract: Sometimes the contractor enters into contracts with another contractor to
give a portion of work undertaken by him. In such cases the work performed by the subcontractor s
forms a direct charge to the contract concerned. Sub contract cost will be shown on the debit side of
the contract account.
6. Escalation clause: This is clause which is provided in the contract to cover up any increase
in the price of the contract due to increase in the prices of raw material or labour or in the utilization
of any other factors of production. If material and labour utilization exceeds a particular limit, the
customer agrees to bear the additional cost occasioned by excessive utilization. Here, the contractor
has to satisfy the customer that excessive utilization is not the result of decreased efficiency.
76.What are the Treatment of Plant and Machinery?
One of the distinguishing features of a contract is the use of special plant and machinery.
1. At the time of issue of plant to contract the contract account is debited with the full value of
the plant.
2. In the second method, contract account is debited with an hourly rate of depreciation for the
number of hours the plant is used on the contract. A cost centre is set up for each machine.
77.What are the Profit on Incomplete Contract?
In the case of a small contract extending over the financial period, profit or loss on the same
may be ascertained by crediting it with the contract price due by the contractee. This procedure
cannot be adopted in the case of contracts extending beyond the accounting period, and taking a long
time for completion. If there is any profit upon the incomplete contract, it cannot be taken as actual
profit.

78.What is Process Costing?
Process costing is the method of costing applied in the industries engaged in continuous or
mass production. Process costing is a method of costing used to ascertain the cost of a product at each
process or stage of manufacturing.
79.Define of Process Costing:
According to ICMA terminology, “Process Costing is that form of operation costing which
applies where standardized goods are produced”.
80.State the Characteristics of Process Costing.
1. Production is continuous.
2. Products pass through two or more distinct processes of completion.
3. Products are standardized and homogeneous.
4. Products are not distinguishable in processing stage.
5. The finished product of one process becomes the raw material of the subsequent
process.
6. Cost of material, labour and overheads are collected for each process and charged
accordingly.
81.State the Difference between Process Costing and Job Costing.
Process Costing Job Costing
1. Production is continuous 1. Production is according to

customers’ orders
2. Production is for stock 2. Production is not for stock
3. All units produced are identical or 3. Each job is different from the other
homogeneous
4. There is regular transfer of cost of 4. There is no regular transfer of cost
one process to subsequent processes from one job to another
5. Work in progress always exists 5. Work in progress may or may not
exist
82.Describe Procedure for Process Costing.

1. Each process is separately identified. Separate process account is opened for each process.
2. Along with ‘Particulars Column’, two columns are provided on both sides of the process
account – units (quantity) and amount (Rupees).
3. All the expenses are debited in the respective process account.
4. Wastage, sale of scrap, by-products etc are reordered on the credit side 0f the process
account.
5. The difference between debit and credit side shows the cost of production and output of that
particular process which is transferred to the next process.
6. The cost per unit in every process is calculated by dividing the net cost by the output.
7. The output of last process is transferred to the Finished Stock Account.
8. Incomplete units at the end of the each period ion every process s converted in terms of
completed units.
83.List out the Preparation of Process Accounts.
The preparation of Process Account depends upon the following situations,
1. Simple Process Account.
2. Process costing with normal process loss.
3. Process costing with abnormal process loss.
4. Process costing with abnormal process gains.
5. Inter – process profits.
84.What is Simple Process Account?
Under this case it is very easy to prepare process account. A separate account is opened for
each process. All costs are debited to the process account. The total cost of the process is transferred
to the next process. At the end of each process the cost per unit is obtained by dividing the total cost
by the number of units.
85.What is Normal Process Loss?
This is the loss which is unavoidable on account of inherent nature of production process. It
arises under normal conditions. It is usually calculated as a certain percentage of input. Normal
process los includes either waste or scrap r both. Waste is unsalable and has no value. Loss in weight
is an example of waste. Loss in weight should be credited to the concerned process account.
86.What is Abnormal Gain? or ( Abnormal Effective)
Sometimes actual loss or wastage in a process is less than expected normal loss. In this case the
difference between actual loss and expected loss is known as abnormal gain or abnormal effective. It
is the excess of actual production over normal output. Abnormal gain is valued in the same manner as
abnormal loss.

87.What are the Work-in-Progress?
In most of the firms manufacturing is on a continuous basis and the problem of work-in progress is
quite common. The work-in-progress consists of direct materials, direct wages and production
overhead.
88.What is Operating Costing? or (Service Costing)
It is the costing procedure used for determining the cost of per unit of service rendered. It is a
method of costing applied to undertaking which provides service rather than production of
commodities. The services may be in the form of transport, supply service, welfare service, etc.
89.What is Transport costing?
Transport industries include Air, Water, Rail and Road. They render services to the community
at large. We have to give utmost care while selecting the cost unit. The cost unit of other forms
operation costing is quite different from that of a service undertaking. The cost unit of a service
organization is a composite unit. The important factors to be considered includes the number of
passengers, tonnage carried, distance covered etc.
90.State the Classification of Costs.
Operating costs of a transport undertaking comprising different items, which are classified
under the following three groups.
1. Standing or fixed charges: These charges are incurred in spite of the kilometers run. It is
fixed in nature. Eg. Insurance, Motor vehicle tax, license fee, rent, salary of operating manager etc.
2. Maintenance charges: It includes semi variable expenses Eg. Tyres and tubes, repairs and
paintings etc.
3. Operating and running charges: These charges vary more or less in direct proportion to
kilometers. All the variable charges of running vehicles are included in this group.
Generally it includes, petrol, oil,, grease etc., wages of driver, attendant if payment is related to
time or distance of trip etc. In the place of the above classification, all expenses can be divided into two
fixed cost and variable costs. Here, both maintenance charges and running charges are considered as
variable charges.
91.What is Selection of Unit?
In transport costing, a composite unit such as passenger mile or passenger kilometer or tone
kilometer is often selected. Such unit takes into account both the number of passengers or weight of
goods carried and distance run.

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S.Prakash, M.Com., MBA., M.Phil.,PGDCA.,(Ph.D).

Cost Accounting Theory (16CCCCM7) 1

5. Past costs not to be charged to future period:

Cost Accounting Theory (16CCCCM7) 2

Cost Accounting Theory (16CCCCM7) 5

Cost Accounting Theory (16CCCCM7) 6

13.Explain the Elements of Cost:

Cost Accounting Theory (16CCCCM7) 8

15.Briefly Explain the Materials:

Cost Accounting Theory (16CCCCM7) 10

Cost Accounting Theory (16CCCCM7) 13

Cost Accounting Theory (16CCCCM7) 14

Cost Accounting Theory (16CCCCM7) 15

Cost Accounting Theory (16CCCCM7) 16

Cost Accounting Theory (16CCCCM7) 17

55.What are the Repeated Distribution Method?

(e) Machine Hour Rate.

Cost Accounting Theory (16CCCCM7) 22

Cost Accounting Theory (16CCCCM7) 26

1. Production is continuous 1. Production is according to

82.Describe Procedure for Process Costing.

Cost Accounting Theory (16CCCCM7) 28

Cost Accounting Theory (16CCCCM7) 29

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