Cost & Management Accounting

December 2023 Examination

Ans 1.
Introduction

The charges a company quickly incurs for the labour and materials used in production are
known as prime costs. It consolidates manufactured product costs that are not entirely settled
to give an association the best advantage. The prime cost determines the direct costs of labour
and raw materials when they are used to make a decent product. Direct charges really put
limitations on indirect charges, such as publicising and administrative expenses.
Formula for prime cost
Prime cost = direct raw materials + direct labour
• Find the direct raw material cost altogether on the company's balance sheet.
• Find the direct labour cost parent on the company's balance sheet.
• aggregate or add the two direct raw materials and labour costs figures together.
A prime cost is the direct cost of a social gathering or something open to be bought, which
can be strong or variable. Affiliations utilise remarkable costs to study the complete cost of
the production inputs expected to convey a given outcome. A company can set expenses and
utilise those return benefits by wrecking its prime costs. A company can help its own benefit
or undermine its rivals' costs by taking out its top-notch costs.
Concepts and applications
In the sales, it is drawn closer to overseeing different costs, utilising the attributes given in the
solicitation.
The chief cost that we should process is the prime cost.
1. Prime cost = direct labour + direct material
Direct material = store of material: opening + supply of material: shutting + material bought
during the year
= 282000+300000+1248000
Direct labour = direct wages + salesman salaries and commission
Before long, we had direct labour costs and direct material costs. We can place the numbers
in the formula and register the prime cost.
= 357600+50400
Prime cost = 408,000
(ii) Factory overhead
Factory overheads are how much settled substances, endeavours, and different costs can't
unequivocally be seen from the articles made or services conveyed.
The advantages emerging from those expenses can't be connected with a particular charge
unit. Considering everything, they might be dissipated fairly across the charging contraptions.
Overheads are a piece of titanic worth. Regardless, they're supporting and can't be directly
given to a particular work.
The formula for figuring factory overhead costs Rent, velocities of factories, fixes to plants
and machinery, depreciation of plants and machinery, depreciation of furniture, and
electricity charges factory
= 18000+ 63600+ 42600+ 3600+ 72000
= 199800
Accordingly, we have determined the factory overhead by adding every one of the costs
connected with the factory overhead.
(iii) Factory cost
Factory charges are the charges accomplished by utilising the business to make goods
expected to be proposed to clients within the standard course of business and combining all
costs connected with production, like direct material, direct undertakings, and different get-
together overheads.
The party unit utility segments, factory volunteers, and production supplies paid are the
expenses connected with the production, which can be safeguarded within the social affair
unit cost. Moreover, sales and development charges are key for selling and scattering
overhead, and studies and headway expenses are fundamental for assessment and
improvement fees, which could ultimately not be covered.
The arrangement for enlisting factory fees, direct surface costs, direct labour costs, and
factory overhead costs
For the absolutes of the three, not overall for all the time spread out above, we can place them
in the formula.
= 357600+ 50400 + 199800
= 607800
(iv) Overhead cost
Overhead works with the consistent costs of running a company not directly connected with
selling or making a service or product.
It incorporates charges like utilities, rent, office supplies, fixes or safeguards, coverage,
charges, and others.
Understanding those charges is important to orchestrate, taking into account the way that they
mirror a business' immaterial income, regardless of the way that they make or sell products.
The formula to discover overhead costs is:
= indirect costs/direct costs * 100
Indirect costs = indirect wages + freight outwards + cash discount allowed + bad debts +
travelling expenses + director fees + fuel charges + general harges + manager's salary
= 24000+ 30000+ 21000+ 28200+ 18600+ 36000+ 96000+ 37200+ 14400
= 209400
Direct costs direct wages, despite factory costs Rent rates and assessments
= 357600+ 607800+ 9600
= 975000
Before long, we will have picked indirect costs and direct costs. When might we, at some
point, place the numbers in the formula?
= 209400/975000*100
= 21.4
(v) Cost of sales
The cost of income or things offered is the overall direct energy of setting up a product or
service that can be bought. The income cost wraps up how much every product unit costs the
business and assists them with picking the edge from income, or the gross income edge you
have made.
Cost of income is one of the significant evaluations for affiliations that offer huge products to
get the upside of their products. The net isn't totally settled by deducting the product value
from the sales income.
(beginning stock + new stock)-completing stock
= (282000+ 1248000) - 300000
= 1230000
Conclusion
We have consolidated all costs into formulas according to the RFP. These costs have a direct
or indirect relationship to social issues and the production of products. It will, in general, be
involved by the peruser as motivation.
Ans 2.
Introduction

By taking into account various components, for example, activity dissatisfaction or

professional growth, employees could choose to end their companionship with a corporation.
It is normal to accept that workers will finally need to leave. Regardless, individuals are
allowed to look through the affiliations they need to make after crazy redundancies. Dealing
with the circumstances and safeguarding key faculty might be made more straightforward by
having a reasonable understanding of worker turnover and its perilous results.
Labour turnover, also called worker or staffing turnover, is the recurrence with which
employees of a company leave their positions. It might be the aftereffect of isolating,
decreasing, or submitting. Since it's a sign of blending for the country's business conditions,
the board truly ought to go to lengths to cleave it down.
Labour turnover in an association is the exchanging scale inside the strategy of the labour
force during a particular duration considered as opposed to a certified record. It has a
dependable way of life. The working strain in a company is just the overabundance of parts
that are standard. A couple of existing staff individuals could vanish, and new individuals
might be significant to the association. This startling quality is proposed for labour turnover.
Concepts and applications
We should choose labour costs utilising various methods. Next up are the fundamental
methods of investigating labour turnover.
1. Learning labour turnover with the separation method
2. Learning labour turnover through the replacement method
3. Learning labour turnover with the Flux method
a) Separation method
Under the separation method, the ratio of employees separated or left from the business and
the typical course of action of individuals within the duration is given in rate.
A worker can be separated or given from the endeavour because of surplus employees,
remuneration, enraged working circumstances, and essentially less bet for like and progress.
The accompanying parts are utilised to determine the work turnover through the
= number of separations in a period/standard number of workers in a period * 100
Number of separations: 80+ 50 = 130
The customary number of workers in a period is the quantity of workers before all else,
notwithstanding the quantity of workers in the conclusion.
= 3800+4200/2
= 4000
Long haul, we should place the numbers into the circumstances.
= 130/4000*100
= 3.25%
b) Replacement method
There is no requirement for a substitute in the event that the overabundant workers are pulled
out of the company. Individuals whose administrations are ordinary under the conspiracy will
be eliminated by using new decisions on the off chance that they leave.
Thus, the connection between the parties of staff supplanted and the ordinary kind inside the
alliance is conveyed in the idea under the elective method.
Continually, the company sees the replacement of truly organised work as speculating that
professional workers should leave the company. The accompanying parts are utilised to
Determine the labour turnover using the replacement method.
= number of replacements/standard number of workers * 100
= 60/4000*100
=1.5%
c) Flux method
That is, a mix of the separation method and the replacement method. Every separation and
substitute is considered to handle effort turnover within the Flux method.
As such, the connection between the separation and substitute of the association's labour
force and the standard-wide gathering of workers on a roll finally in that period is conveyed
in percent. The accompanying method is utilised to determine silly work turnover through the
flux method.
There are two splendid methods by which we can decide the labour turnover ratio, using the
flux method.
I) Number of separations + Number of replacements/standard number of employees in a
period * 100
= 130+60/4000*100
= 4.74%
ii) Number of separations + number of replacements/2/number of workers * 100
= 130+60/2/4000*100
= 2.37%
Conclusion
The labour turnover rate checks staff leaving the company within a specific period.
Connections by and large close this measurement as an annual charge, consistently in rate
phrases. HR workplaces, considering everything, should check how consistent an affiliation's
strategies are for safeguarding employees. A high turnover cost shows a hopeless business
approach and isn't permitted to be used to make inductions. In evaluation, a low turnover cost
award picks individuals, clients, and money-related colleagues to show that the company is
acting accurately and taking into account how the staff is getting along and content with their
positions.
There are colossal clarifications behind employee turnover—unequivocal, avoidable, and
clear causes. Next up are a piece of the standard, avoidable, and certain parts that make a
worker leave the association:
Extra work
Right when staff experience being overburdened by their work liabilities, corporations could
see an expanded worker turnover cost.
Insufficient recognition
A disaster in employee notoriety can cause low employee sureness and diminished
reasonableness, which may likewise add to a high turnover rate.
Terrible company culture
Assuming a company has preparation that is basic for growth, it could help its employees.

Ans 3a.
Introduction

Absorption costing, in a similar way suggested as "complete costing," is a managerial

accounting technique for handling all of the tremendous costs connected with conveying a
particular product. Utilising this technique, all direct and decided prices are made due,
including natural supplies, direct work, rent, and insurance.
The direct cost of conveying something wonderful at its price point is known as absorption.
Also, as a component of manufacturing costs, absorption costs unify unsurprising overhead
prices. A piece of the costs related to product development coordinates pay for work that goes
into making the good or service, rough parts utilised in production, and every single indirect
cost (for example, product expenses) caused during the manufacturing system.
Each cost is assigned to send products, whether they are introduced towards the end of the
period, as opposed to the variable costing technique.

Concepts and applications

In the inquiry, it is referenced that fixed manufacturing overhead distribution

Year 1
= actual fixed manufacturing cost/actual production
= 1050/2100
= 0.5%

Income statement
Year 1
Particulars ₹ ₹

Sales revenue 4500

Less Cost of goods 1050

manufactured

Fixed 1050 2100

Gross profit 2400

Variable marketing and 1500

administration

1500

Net profit 900

Manufacturing overhead= Total manufacturing overhead/ Total units produced

Total manufacturing overhead= Variable manufacturing + fixed manufacturing
= 1050+1050
= 2100
 Income statement
Year 2
Particulars ₹ ₹

Sales revenue 5400

Less Cost of goods 750

manufactured(variable)

Fixed 1050 1800

Gross profit 3600

Variable marketing and 1800 1800

administration

Net profit 1800

An income statement with a genuine relationship has been facilitated in advance. It gets
variable and fixed expenses, along with sales revenue decreased by the cost of synthetic
things. The internet income for the fundamental year is Rs. 900, and for the resulting year, it
is Rs. 1800. Here, the gross income is overseen, and variable advancement and affiliation
expenses are deducted.
The transient benefit of making a good is worked into its cost base through absorption
costing. As a component of product costs, absorption costs additionally solidify fixed
overhead expenses. A few expenses related to making a product are:
• pay for experts who handle the product;
• natural materials used in production
• Each overhead cost is utilised in manufacturing, a tonne like each utility cost is.
As opposed to utilising a variable costing process, all costs are spread to the production of
goods, whether they are presented close to the furthest reaches of the period or not.
Advantages of responsiveness and regard
The essential benefit of absorption costing is its capacity to adjust to sound accounting rules
(GAAP), which are typical for the Internal Revenue Service (IRS). Besides, it examines all
product expenses (barring fixed charges), pays little notification to direct costs, and lastly,
screens help generally through a given timeframe.
Conclusion
At the point when an organisation needs to pick the total cost of making a product or offering
a service, absorption costing is a dependable instrument to utilize. This covers the conditions
under which an office should inform outside parties, like monetary partners or managerial
get-togethers, of its cash-related results.
Absorption costing is generally utilised for solid areas for internal purposes, for example,
picking whether to keep making a particular product or finishing the driving charge of a
product. Once in a while, the affiliation could utilise absorption costing to sort out the
aggregate it will cost to deliver the product and, generally speaking, survey whether it
improves and legitimises its clear manufacturing.

Ans 3b.
Introduction

Variable costs are those that change depending on how much goods or services are moved or
consumed.
They indirectly replace one another as the level of production or validation changes. For
example, if you decide to purchase more obligations, your costs of continuing to work, a
variable expense, will undoubtedly increase accordingly.

Concepts and applications

Let's prepare an income statement using variable costing:

Income statement
Year 1
Particulars ₹ ₹

Sales revenue 4500

Less Cost of goods 1050

sold(variable)
Fixed 1050 2100

Gross profit 2400

Variable marketing and 1500

administration

1500

Net profit 900

Income statement
Year 2
Particulars ₹ ₹

Sales revenue 5400

Less Cost of goods 750

sold(variable)

Fixed 1050 1800

Gross profit 3600

Less Variable marketing and 1800 1800

administration

Net profit 1800

Sales amount (in rupees) = Number of goods sold*selling price

= 1800*3
= 5400
We have used the variable-cost technique while working with an income statement. The
client is able to examine it mentally.
By deducting the cost of the goods from income, which incorporates both variable and fixed
expenses, the gross is not entirely settled. The net remaining portions remain unchanged
immediately after deducting variable advertising and association expenses from gross profit.
The plan is $800 for the first year and $900 for the second.
The total expenses incurred through the use of any affiliation include both variable and fixed
costs. Depending on production or sales results, variable costs may vary. The variable
combination cost is constant with each unit delivered. Variable costs will try to increase in
proportion to the volume of output. In any case, the variable costs associated with gathering
will go down if fewer goods are transported.
Direct work expenses, commissions from sales, the price of raw materials used in production,
and software costs are a few examples of variable costs.
Conclusion
A variable fee is an expense that fluctuates based on the party's income or outcome.
• When sales or production fall, variable fees go down; when sales or results improve,
variable expenses go up.
• Variable fees are used in place of fixed costs, which make little sense in the absence of
income levels or results.
• The key component of tying up a thing's liability edge is variable fees, which are evaluated
to determine an association's recovery of the important hypothesis or objective profit stage.
Variable fees are a key component of finishing a thing's gamble edge in order to conclude an
affiliation's support for the fundamental hypothesis or objective profit stage.
Work, supplies, commissions, utilities, and distribution are all combined into variable costs.