UNIVERSITY OF DELHI

B.COM. SEM. IV (LOCF)

COST ACCOUNTING
(MAY, 2023)
Time : 3 Hours Maximum Marks : 75
Instruction to Candidates: Attempt all questions. All questions carry equal marks. Use of simple calculator
is allowed
1. (a) “Limitations of financial accounting have made the management realize the importance of cost
accounting.” Comment.
(b) Distinguish between (any two): (i) Cost centre and cost unit (ii) Direct and indirect costs.(iii) Cost
of production and cost of sales (5,10)
Or
(a) Explain the meaning and relevance of cost accounting standards in the preparation of cost statements.
(b) “Cost classification based on variability, controllability and traceability are used by the enterprises
for different objectives” In the light of this statement explain the different cost classification. (5,10)
2. (a) Write a note on Economic Order Quantity (EOQ).
(b) From the following information, calculate labour turnover rate and flux rate:
No. of workers as on 01.01.2022 7,600
No. of workers as on 31.12.2022 8,400
During the year, 80 workers left while 320 workers were discharged, 1,500 workers were recruited during
the year of whom 300 workers were recruited because of exits and the rest were recruited in accordance
with expansion plans. (5,10)

7,600 + 8, 400
Solution: Average No. of workers =  8, 000 ; No. of workers left = 80 + 320 = 400
2
Calculation of employee turnover rate :
No. of workers left during the period
(i) Separation method =  100 = ....%
Average no. of workers during the period

400
  100 = 5%
8,000

No. of workers replaced during the period

(ii) Replacement method = × 100 = ...%
Average No. of workers during the period

300
  100 = 3.75%
8,000

No. of workers left + No. of workers replaced

(iii) Flux method = × 100 = ....%
Average No. of workers
Q.12 Elements of Cost Accounting

400 + 300
 100 = 8.75% (Expansion scheme workers not considered)
8,000
Or
(a) What do you mean by labour turnover? Also explain the different methods of measuring it.
(b) A company manufactures a special product which requires a component “A”. the following
particulars are available for the year 2022:
Annual Demand : 10,000 units
Cost of placing an order : 250 per order
Cost per unit of “A” : 500
Carrying cost p.a. : 20%
The company has been offered a discount of 5% on purchase of “A” provided the order size is 5.000
components at a time.
You are required to calculate- (i) Economic Order Quantity
(ii) Advise whether discount order can be accepted or not? (5,10)

2AB
Solution: Economic order quantity (EOQ) = Given, A = 10,000 units ; B = 250 per order
C
C = 20% or 0.20× 500 = 100 per unit per annum

2  10, 000  250

Hence, Economic order quantity = = 224 units (Approx.)
100
Comparative Statement of Inventory Costs
Particulars At Economic Order At Discount of 5%
Quantity
(i) No. of units per order 224 5,000
10,000 10,000
(ii) No. of orders per year  A  224 = 44.64 or say 45 5,000 = 2
 q
(iii) Purchase cost 10,000 × 500= 50,00,000 10,000 × 475 = 47,50,000
(iv) Ordering cost 45 × 250= 11,250 2 × 250 = 500
(No. of order × Ordering cost)
224 5,000 × 20%×475 = 2,37,500
(v) Carrying cost ×100 = 11,200
2 2
(Average inventory × Carrying cost
per unit per annum)
(vi) Total inventory cost including
purchase cost (iii+iv+v) 50,22,450 49,88,000
Note: At EOQ both carring cost and ordering cost should be equal, the difference is due to approximation.
Recomendation : The firm should accept discount offer because it will involve overall lessor inventory
cost of 34,450 ( 50,22,450 – 49,88,000) at this offer.
Question Paper Q.13

3. (a) A machine was purchased for 5 lacs. The total cost of all machinery inclusive of the new machine
was 75 lacs . The following further particulars are available:
Expected life of the machine 10 years
Scrap value at the end of ten years 5,000
Repairs and maintenance for the machine during the year 2,000
Expected number of working hours of the machine per year 4,000 hours
Insurance premium annually for all the machines 4,500
Electricity consumption for the machine per hour (@ 75 paise per unit) 25 units
Area occupied by the machine 100 sq. ft
Area occupied by other machines 1,500 sq. ft
Rent per month of the department 800
Lighting charges for 20 points for the whole department, out of which three points are for the
machine 120 per month
Compute the machine hour rate for the new machine on the basis of the data given above. 15
Solution: Statement of Computation of Machine Hour Rate
Per Year Per hour
A. Standing Charges
(i) Insurance Premium ( 4,500 ÷ 75,00,000) × 5,00,000 300
(ii) Rent ( 9,600 ÷ 1,600) × 100 600
(iii) Lighting Charges ( 1,440 ÷ 20 ) × 3, 216
Total Standing Charges 1,116
Standing Charges per hour (1,116/4,000) 0.279
B Machine expenses
(i) Repairs and Maintenance [2,000/4,000] 0.500

 5, 00, 000 – 5, 000 

(ii) Depreciation   12.375
 10 × 4, 000 

(iii) Electricity Charges ( 25× 0.75) 18.750

Machine hour rate 31.904
Or
(a) Explain the meaning of classification, allocation, apportionment, reapportionment and absorption
of overheads.
(b) What do you mean by under/over absorption of overheads? What are its causes? How do you
account for them?
Q.14 Elements of Cost Accounting

4. (a) The following information relates to a building contract for 10,00,000 for two years, i.e., 2021and
2022:
2021 ( 2022 (
Materials issued 3,00,000 84,000
Direct wages 2,30,000 1,05,000
Direct expenses 22,000 10,000
Indirect expenses 6,000 1,400
Work certified 7,50,000 10,00,000
Work uncertified 8,000 —
Materials at site 5,000 7,000
Plant issued 14,000 2,000
Cash received from contractee 6,00,000 10,00,000
The value of plant at the end of 2021 and 2022 was 7,000 and 5,000, respectively.
Prepare (i) Contract Account, and (ii) Contractee’s Account for two years 2021 and 2022 taking nto
consideration such profit for transfer to profit and loss accounts as you think proper. 15
Solution: Contract Account for 2021
Particulars Amt.( ) Particulars Amt. ( )
To Materials issued 3,00,000 By Work-in-progress
To Direct wages 2,30,000 Work certified 7,50,000
To Direct expenses 22,000 Work uncertified 8,000 7,58,000
To Indirect expenses 6,000 By Materials at site 5,000
To Plant issued 14,000 By Plant at site 7,000
To Notional Profit c/d 1,98,000
7,70,000 7,70,000
To Profit and Loss A/c 1,05,600 By Notional Profit c/d 1,98,000
To Work-in-progress 92,400
1,98,000 1,98,000
Working Note:  Profit taken to P & L A/c in 2021 : Since more than 50% of the value of work has been
certified, the profit to be taken to profit and loss account can be calculated as follows :
2 Cash received 2 6,00,000
= Notional profit × ×  1,98,000 × × = 1,05,600
3 Work certified 3 7,50,000
Contract Account for 2022
Particulars Amt.( ) Particulars Amt. ( )
To Opening Balances b/d: By Material at site 7,000
Materials at site 5,000 By Plant at site 5,000
Plant at site 7,000 By Contractee’s A/c 10,00,000
Work-in-progress 6,65,600 (Contract Price)
( 7,58,000–92,400)
Question Paper Q.15

To Materials issued 84,000

To Direct wages 1,05,000
To Direct expenses 10,000
To Indirect expenses 1,400
To Plant issued 2,000
To Profit and Loss A/c 1,32,000
10,12,000 10,12,000
Contractee’s Account
Particulars Amt.( ) Particulars Amt. ( )
2021 2021
To Balance c/d 6,00,000 By Bank 6,00,000
6,00,000 6,00,000
2022 2022
To Contract A/c 10,00,000 By Balance b/d 6,00,000
By Bank 4,00,000
10,00,000 10,00,000
Or
4. Or Question asked from the book, Illustration 10, Question & solution given on page 10.43 (15)
5. Avi Electronics Limited furnish the following information for 20,000 TV valves manufactured during the
year ending 31st March 2022-
Particulars
Materials 1,80,000
Direct Wages 1,20,000
Power and Consumable Stores 24,000
Factory Indirect Wages 30,000
Lighting of Factory 11,000
Cost of Rectification of defective work (Normal) 6,000
Clerical Salaries and Management Expenses 67,000
Selling Expenses 11,000
Sales Proceeds of Scrap 4,000
Plan Repairs, Maintenance and Depreciation 23,000
The net selling price was 31.60 per unit sold and all the units were sold. As from 1st April, 2022, the selling
price was reduced to 31 per unit sold. It was estimated that the production could be increased in 2022-23 by
40% due to spare capacity. Rates of material and direct wages will increase by 20%. You are required to
prepare-
Q.16 Elements of Cost Accounting

(a) Cost sheet for the year 2021-22 showing various elements of cost per unit and
(b) Estimated cost and profit for 2022-23 assuming that 30,000 units will be produced and sold during
the year and factory overheads will be recovered as percentage of direct wages and office and
selling expenses as a percentage of works cost. (15)
Solution: Statement of Cost and Profit of Avi Electronics Ltd. for the year end 31st March, 2022
Output & sale : 20,000 units
Total ( Per Unit (
Direct Materials 1,80,000 9.00
Direct Labour 1,20,000 6.00
Direct Expeses: Power and Consumable stores 24,000 1.20
PRIME COST 3,24,000 16.20
Add : Factory Overheads
Factory Indirect Wages 30,000
Lighting of Factory 11,000
Cost of Rectification of defective work (Normal) 6,000
Plan Repairs, Maintenance and Depreciation 23,000
Less : Sales Proceeds of Scrap (-)4,000 66,000 3.30
WORKS COST/ COST OF PRODUCTION 3,90,000 1950
Add : Office & Selling Overheads
Clerical Salaries and Management Expenses 67,000
Selling Expenses 11,000 78,000 3.90
COST OF SALES 4,68,000 23.40
Profit 1,64,000 8.20
SALES/SELLING PRICE 6,32,000 31.60

Estimated Statement of Cost and Profit of Avi Electronics Ltd. for the year end 31st March, 2023
Output & sale : 30,000 units
Total ( Per Unit (
Direct Materials 3,24,000 10.80
Direct Labour 2,16,000 7.20
Direct Expeses: Power and Consumable stores 36,000 1.20
PRIME COST 5,76,000 19.20
Add : Factory Overheads (55% of direct wages) 1,18,800 3.96
COST OF PRODUCTION 6,94,800 23.16
Add : Administration & Selling Overheads (20% of works cost) 1,38,960 4.64
COST OF SALES 8,33,760 27.80
Profit 96,240 3.20
SALES/SELLING PRICE 9,30,000 31.00
Question Paper Q.17

Working: Computation of Overhead Recovery Rates:

66,000
(i) Factory Overheads as a % of Direct Wages =  100 = 55%
1,20,000
78,000
(ii) Office & Selling Overheads as a % Works Cost =  100 = 20%
3,90,000
Or
The following is the Trading and Profit and Loss account of Om Electronics Ltd. for the year ended 31 st March,
2022 -
Particulars Particulars
To Materials Consumed 24,000 By Sale (700 units) 1,40,000
To Direct Wages 8,000 By Finished Stock (100 units) 7,000
To Works Expenses 24,000 By Interest Received 3,000
To Administrative Expenses 24,000
To Goodwill Written Off 8,000
To Discount on Debentures Written Off 6.,000
To Net Profit 56,000
Total 1,50,000 1,50,000
The Company’s cost records show that-
(i) Works overhead has been recovered at 100% on prime cost
(ii) Administrative overhead has been recovered at 30% on factory cost
You are required to prepare-
(a) A Statement of cost indicating net profit, and
(b) A statement reconciling the profit as disclosed by cost accounts and that shown in financial accounts.
(15)
Solution : Statement of Cost and Profit

Material cost 24,000

Direct Wages 8,000
Prime Cost 32,000
Add: Factory Overheads (100 % of Prime cost) 32,000
Factory Cost (800 units @80 per unit) 64,000
Less: Closing Stock (100 units @80 per unit) 8,000
Cost of Goods Sold 56,000
Add::Administrative overhead (30 % of Factory cost) 19,200
Total Cost of Sales 75,200
Profit 64,800
Sales 1,40,000
Q.18 Elements of Cost Accounting

Reconciliation Statement
Particulars
Profit as per Cost Accounts 64,800
Add:
(i) Over-absorption of Factory overheads ( 32,000 – 24,000) 8,000
(ii) Interest received, being financial accounts income only 3,000 11,000
75,800
Less:
(i) Goodwill written off treated as purely financial charge 8,000
(ii) Discount on debentures written off treated as purely financial charge 6,000
(iii) Over valuation of finished goods stock in Cost a/cs ( 8,000 – 7,000) 1,000
(iv) Under-absorption of Administrative overhead ( 24,000 – 19,200) 4,800 (–) 19,800
Profit as per Financial Accounts 56,000

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