CMA - I (Sem-2) Bhalotia

(9883034569/8820696761)
Cost & Management Acct:

[For 2nd Semester: Honours & Pass]
S. No. Chapters Page Number
1. Syllabus 01 - 03
2. Material (10 Marks) 04 – 11
3. Labour (10 Marks) 12 – 17
4. Overhead (15 + 5 = 20 Marks)
Cost Sheet & Job cost sheet 18– 26
Overhead 27– 33
Machine Hour Rate 34– 39
5. Cost Book keeping (10 Marks)
Cost & Profit Reconciliation Statement 40– 43
Cost Ledger: Integrated & Non Integrated 44 – 46
6. Contract & Operating Costing (15 + 5 = 20 Marks)
Contract Costing 47 – 54
Operating costing 55 – 59
Process Costing 60– 65
7. Cost Theory : Introduction [10 Marks] & other chapters 66 - 95
8. Question Paper 2018 Honours 96 - 99
9. Question Paper 2019 Honours 100 - 103
10. Question Paper 2019 Pass 104 - 107
11. Mock Test Paper 108 - 112
12. Cost : Solved of selected Questions 113 - 124
i
2nd Semester:
Class Timing:
Batch 1: [Morning]:
Batch 2 [Day batch]
Batch 3 [Evening]:
Course fees:
Cost ₹ 2500
ECBC/LAW/MM & HRM/ENVS ₹ 1500
 ₹ 1,000 discount will be given if you join for all subjects (onetime
Payment)
 Online/offline/Recorded Classes
 Classes All days.
 Complete syllabus in three months. After those free revisions.
 Free study Materials for all subjects.
Faculty:
Ravi Kant Bhalotia [CA/CMA Finalist]
Abhishek Pandey Sir [CS (F)]
Rakhi Arora Mam [CS, CMA, LLB]
CA Shruti Mam
Amit Singh Sir [MA, B.Ed]
ii
Bhalotia Classes (9883034569): Cost (2nd Semester/2nd year)
2nd Semester: Honours: CC 2.1 Ch
COST AND MANAGEMENT ACCOUNTING – I
(Marks 100)
Internal Assessment: 20 marks
Semester-end Examinations: 80 marks
Total 100 marks
Unit 1: Introduction [10 Marks, 6 Lectures] [5 + 5]
• Definition of Costing, Objectives of Cost Accounting; Management Accounting and difference with Cost
Accounting; Installing a Cost Accounting System, Essentials of a good Cost Accounting System.
• Cost concepts, terms and classification of costs: Cost, Cost object, Cost units and Cost Centres, Types
of costs, classification of costs- Direct-Indirect, Elementwise, Functionwise, Behaviourwise, Sunk Cost,
opportunity Cost. Costing Methods and Techniques (introduction only).
Unit 2: Material Costs [10 Marks, 10 Lectures] [10]

• Purchase of materials: Organisation, purchase procedure, documentation, determination of material
purchase costs.
• Storage of materials: Need for storage, location and types, functions of a storekeeper, requisition, receipt,
issue and transfer of materials, storage record, accounting for materials cost.
• Materials control: Organisation; Tools: Just-in-Time Purchase; various stock levels, Economic Ordering
Quantity and ABC Analysis; Periodic Inventory, Perpetual Inventory, Physical verification; Discrepancies
in stock and their treatment.
• Methods of Pricing Material Issues: FIFO, LIFO, and weighted Average.
• Treatment of Normal and Abnormal Loss of Materials
Unit 3: Employee Cost and Incentive Systems [10 Marks, 12 Lectures] [10]
• Introduction, Recording labour cost: Attendance and payroll procedures (Time-keeping, Time-Booking,
Payroll procedure, Payment of wages-Piece rate, differential piece rate, time rate); Idle time (causes and
treatment in Cost Accounting), Overtime (its effect and treatment in Cost Accounting), Labour turnover
(Causes, impact and methods of calculating labour turnover).
• Main Principles for sound system of wage incentive schemes labour utilisation; System of Wage Payment
and Incentives(Halsey, Halsey-weir, Rowan and Emerson
• System of Incentive Schemes for Indirect Workers; Component of wages cost for costing purpose.
Unit 4: Overhead and Cost Statement [20 Marks, 20 Lectures] [15 + 5]

• Introduction: Definition, Classification of Overhead- Functional and Behavioural.
• Manufacturing Overheads: Allocation and apportionment of Overhead; Absorption of Overhead: various
methods and their application; treatment of under absorption/over absorption of overheads.
• Administration and Selling & Distribution Overheads and their charging: an introduction only
• Preparation of Cost Sheet and estimation
–1 –Admission Going on for Regular/Crash Course for B.com. Contact for details.
Unit 5: Cost Book-keeping [10 Marks, 8 Lectures] [10]
• Non-Integrated System: Meaning & Features; Ledgers Maintained; Accounts prepared; General/Cost
Ledger Adjustment Account; Meaning of Closing Balance in Various Accounts; Disadvantages.
• Reconciliation: Need for reconciliation; Items causing differences between Cost and Financial Profits and
their reconciliation.
Unit 6: Costing Methods [20 Marks, 24 Lectures] [15 + 5]

• Job Costing (Job cost cards and databases, Collecting direct costs of each job, Attributing overhead costs
to jobs, Applications of job costing). Batch Costing
• Contract Costing - Progress payments, Retention money, Escalation clause, Contract accounts, Accounting
for material, Accounting for plant used in a contract, Contract Profit and Balance sheet entries.
• Service Costing and Output Costing- Introduction; Motor Transport Costing only
• Process Costing: Meaning, Features, Process vs Job Costing, Principles of cost ascertainment for
Materials, Labour & Overhead; Normal loss, Abnormal loss and gain and preparation of process accounts.
Inter-process profit (simple cases). Valuation of WIP and Equivalent units (excluding intermediary
process).
2nd Semester:General: CC 2.1 Cg

COST AND MANAGEMENT ACCOUNTING – I
(Marks 100)
Internal Assessment: 20 marks
Semester-end Examinations: 80 marks
Total 100 marks
Unit 1: Introduction [10 Marks, 6 Lectures] [5 + 5]
• Definition of Costing, Objectives of Cost Accounting; Management Accounting and difference with Cost
Accounting; Installing a Cost Accounting System, Essentials of a good Cost Accounting System.
• Cost concepts, terms and classification of costs: Cost, Cost object, Cost units and Cost Centres, Types of
costs, classification of costs- Direct-Indirect, Elementwise, Functionwise, Behaviourwise, Sunk Cost,
opportunity Cost. Costing Methods and Techniques (introduction only).
Unit 2: Material Costs [10 Marks, 10 Lectures] [10]

• Purchase of materials: Organisation, purchase procedure, documentation,
• Storage of materials: Need for storage, location and types, functions of a storekeeper, requisition, receipt,
issue and transfer of materials, storage record, accounting for materials cost.
• Materials control: Organisation; Tools: Just-in-Time Purchase; various stock levels, Economic Ordering
Quantity and ABC Analysis; Periodic Inventory, Perpetual Inventory, Physical verification;
• Methods of Pricing Material Issues: FIFO, LIFO, and weighted Average.
Unit 3: Employee Cost and Incentive Systems [10 Marks, 12 Lectures] [10]
• Introduction, Recording labour cost: Attendance and payroll procedures (Time-keeping, Time-Booking,
Payroll procedure, Payment of wages-Piece rate, differential piece rate, time rate); Idle time (causes and
treatment in Cost Accounting), Overtime (its effect and treatment in Cost Accounting),
• Main Principles for sound system of wage incentive schemes; System of Wage Payment and Incentive
s(Halsey, Halsey-weir & Rowan )
Unit 4: Overhead and Cost Statement [20 Marks, 20 Lectures] [15 + 5]

• Introduction: Definition, Classification of Overhead- Functional and Behavioural.
• Manufacturing Overheads: Allocation and apportionment of Overhead; Absorption of Overhead: various
methods and their application; treatment of under absorption/over absorption of overheads. Basic concepts
of different capacities.
• Preparation of Cost Sheet (Single Product only)
Unit 5: Cost Book-keeping [10 Marks, 8 Lectures] [10]

• Non-Integrated System: Meaning & Features; Ledgers Maintained; Accounts prepared; General/Cost
Ledger Adjustment Account; Meaning of Closing Balance in Various Accounts
• Reconciliation: Need for reconciliation; Items causing differences between Cost and Financial Profits and
their reconciliation.
Unit 6: Costing Methods [20 Marks, 24 Lectures] [15 + 5]

• Job Costing & Batch Costing
• Contract Costing - Progress payments, Retention money, Escalation clause, Contract accounts, Accounting
for material, Accounting for plant used in a contract, Contract Profit
• Service Costing -Introduction; Motor Transport Costing only
• Process Costing: Meaning, Features, Process vs Job Costing, Normal loss, Abnormal loss and gain and
preparation of process accounts.
Materials: [10 Marks]

1. Materials [Stock Levels] [B.com Honours 1994, 2015 Pass] [RKB]*
In a factory component A is used as follows:
Normal usage 50 kg per week
Minimum usage 25 kg per week
Maximum usage 75 kg per week
Re-ordering quantity 300 kg
Re-order period 4-6 week
Calculate for component A: (i) Re-order level (ii) maximum level (iii) minimum level (iv) Average stock level.
[(i) 450 kg (b) 650 Kg (c) 200 kg (d) 425 kg]
2. Materials [Stock Levels] [B.com Honours 2007]****

From the following particulars compute:
(i) Re-order level (ii) Re-order Quantity (iii) Average stock level (iv) Maximum Re-order Period
Normal Usage 100 units per Day
Minimum Usage 60 units per Day
Maximum Usage 130 units per Day
Minimum Level 1,400 units
Maximum level 7,800 units
Re-order period Normal – 25 Days; Minimum 20 Days
[(i) 3,900 units (ii) 5,100 units (iii) 3,950 Units (iv) 30 Days
3. Materials [Stock Levels] [B.com Honours 2009 New]**

KT Ltd. provides you the following information —
(a) Reorder Level — 64,000 units ;
(b) Reorder Quantity — 40,000 units ;
(c) Minimum Stock Level —34.000 units ;
(d) Maximum Stock Level — 94,000 units ;
(e) Average lead time in the past has been 2.5 days.
(f) The difference between maximum and minimum lead time is 3 days.
Determine the maximum and minimum Usage Rates and Lead Times.
[16000kg/day; 10000kg/day; 4 days, 1 day]
4. Materials [EOQ] [B.com Honours 2004] [RKB]**

A company purchases a spare part from its suppliers @ ₹ 60 per unit. Annual requirement are 1,600 units. The
following further information are available: Cost of one procurement - ₹ 100; Tax, insurance, rent etc. per unit
per annum – ₹ 2; Annual Return on Investment – 10 %; Find out (a) Economic order Quantity (b) Time lag
between 2 orders
[EOQ: 200 units & time gap between two orders 1.5 months]
XYZ Ltd. manufactures 2,000 units of a product per month. The purchase price of the raw material is Rs.
10.00 per kg. The consumption of raw material varies from 100 kg to 400 kg per week. The re – order period
is 4 – 8 weeks. The average (normal) consumption per week of the raw material is 250 kg. The cost of
placing an order is ₹ 130.00; carrying cost of inventory is 20% per annum.
You are required to calculate: (i) Re – order Quantity (ii) Re – order level (iii) Maximum level (iv) Minimum
level
[1300 kg, 3200 kg, 4100 kg, 1700 kg]

Annual consumption of a material of a company is 1,00,000 units at ₹ 2.40 per unit. Each order costs ₹ 90 and
carrying cost is 15% of the annual average inventory value. Company operates 250 days per year. The
procurement time is 10 days and safety stock is 1000 units. Calculate Maximum Stock Level.
[8,071 units]

The following Data are available in respect of a material ‘MMI’ for the year 2000.
Cost of the materials per unit ₹ 50
Weekly consumption 300 units
Ordering cost per order ₹ 650
Stock holding cost 2% per month (on cost)
Compute: (i) EOQ (ii) Optimum no. of orders per year and; (iii) time lag between two consecutive orders
[(a) EOQ 1,300 units (b) 12 orders (c) 1 Month]

About 200 units are required per quarter. ₹ 100 per order is incurred for placing an order. The inventory carrying
cost per unit is ₹ 4. The re-order level is 350 units. The minimum usage is 25 units per week and the reorder
period is 4-6 weeks. Compute - (a) Economic order quantity; (b) Maximum level.
[(a) 200 units (b) 450 units]
9. Materials [EOQ] [B.com Honours 2005] [RKB]****

P. Ltd furnished the following regarding the details of its manufacturing operation during 2004:
Average monthly market demand 4,600 units
Ordering Cost ₹ 52 per order
Inventory carrying cost 20% per annum
Cost of material ₹ 630 per unit
Normal usage 245 units per week
Minimum usage 70 units per week
Maximum usage 380 units per week
Lead time to supply 4 - 6 weeks
Compute Maximum Level and Minimum Level of Stock.
[(i) 2103 units (ii) 1055 units]
Pooja Pipes Ltd. uses about 75,000 valves per year and the usage is fairly constant at 6,250 valves per month. The
valve costs ₹ 1.50 per unit when bought in large quantities and the carrying cost is estimated to be 20% of
average inventory investment on an annual basis. The cost to place an order and process the delivery is ₹ 18. It
takes 45 days to receive delivery from the date of an order and a safety stock of 3,250 valves is desired. You are
required to determine – (i) The most economical order quantity and frequency of orders; (ii) the re-order point;
and (iii) the most economical order quantity if the valves cost ₹ 4.50 each instead of ₹ 1.50 each.
[3,000 units; 25 orders; 12625 units; 1732 units]
11. Materials [EOQ] [Compiled by Ravi Bhalotia]***

Compute (a) EOQ and (b) the total variable cost from the information given below:
Annual Demand 2,400 units
Unit Price ₹ 2.40
Cost of placing an order ₹ 4
Storage cost 2 % per annum
Interest rate 10 % per annum
Lead Time ½ Month
[(a) 258 units (b) ₹ 5,837.15]
12. Materials [EOQ] [B.com Honours 1998] [RKB]****

Sachin Ltd. furnishes the following information:
(i) Consumption---300 units per quarter;
(ii) Cost per unit ₹ 40;
(iii) Cost of processing an order ₹ 600;
(iv) Obsolescence 15%;
(v) Insurance on inventory 25%
Compute:
(a) Economic order quantity;
(b) No, of orders per year;
(c) Time between two consecutive orders.
(d) A supplier offers a discount of 2% on a purchase of 600 units. Should it be accepted?
[(a) EOQ 300 units (b) 4 orders (c) 3 Months (d) If we follow Discount policy cost will be increased by
₹ 144 (52,944 – ₹ 52,800). Hence the offer should not be accepted by the company.
13. Materials [EOQ] [Compiled by Ravi Bhalotia] *****

G. Ltd. produces a product which has a monthly demand of 4000 units. The product requires a component X
which is purchased at ₹ 20. For every finished product, two unit of component is required. The ordering cost is
₹ 120 per order and the holding cost is 10% p.a.
You are required to calculate:
(a) Economic order quantity.
(b) If the minimum lot size to be supplied is 4,000 units, what is the extra cost the company has to incur?
[Ans. Extra cost the company has to incur (1926880 - ₹ 1926874) ₹ 6]
14. Materials [EOQ] [Compiled by Ravi Bhalotia]*
About 50 items are required every day for a machine. A fixed cost of ₹ 50 per order is incurred for placing an
order. The inventory carrying cost per item amounts to ₹ 0.02 per day. The lead period is 32 days. Compute: (i)
EOQ (ii) Re-order level.
[(a) 500 units (b) 1,600 units]
15. Materials [EOQ] [B.com Honours 1992] [RKB]*

From the following particulars calculate the best quantity to be ordered:
Ordering quantity (in kg ) Price per kg (in ₹ )
Less then 500 10.00
500 and less than 1,600 9.60
1,600 and less than 4,000 9.40
4,000 and less than 8,000 9.20
8,000 and above 9.00
The annual requirement of the material is 8,000 kg stock holding (carrying) cost is 20 % of material cost per
annum. Ordering (reordering) cost per order is ₹ 10.
[Total cost: ₹ 80600; ₹ 77440; ₹ 76754; ₹ 77320; ₹ 79210; Best quantity to be ordered is 1,600 kg or more
but less than 4,000 kgs as total cost is minimum]
16. Materials [EOQ] [B.com Honours 2015] [RKB]*

The Purchase Manager of X Ltd. buys its annual requirement of materials of 36,000 units in six installments.
Each unit cost is ₹ 1.00 and the ordering cost is ₹ 25.00 per order. The stock holding cost is 20% p.a. of unit
value.
You are required to ascertain –
(a) What is the annual inventory cost under the existing inventory policy of the purchase manager?
(b) How much money would be saved by employing the economic order quantity?
[EOQ: 3,000 units; Money saved: ₹ 36,750 - ₹ 36,600 = ₹ 150]
17. Materials [Valuation of Stock] [B.com 2013 Honours]**

The opening stock of a material in a store on 1.1.2013 is 200 units @ ₹ 16 each. The storekeeper made a
purchase on 15.1.2013 was 300 units @ ₹ 20 each and he made an issue on 30.01.2013 is 250 units. Find out
the value of the closing stock under-
(i) LIFO
(ii) Simple average and
(iii) Weighted average method.
[(i) ₹ 4,200 (ii) ₹ 4,500; (iii) ₹ 4,600]
18. Materials [Store ledger] [Compiled by Ravi Bhalotia]****
The following are the details supplied by AB Ltd. in respect of its raw materials for the month of
November, 1990: Receipts
Date Units Amount (₹ ) Issues Units
1.11.90 (opening) 1000 6000
10.11.90 500 3500
15.11.90 - - 1,200
20.11.90 1000 8000
30.11.90 - - 1,100
th
On 30 November, a shortage of 50 units was found. Find the values of issues resulting stocks on
different dates using (a) LIFO, (b) Simple Average, and (c) Weighted Average Method.
[Closing stock (a) ₹ 900 (150 units); (b) ₹ 1,075 (c) ₹ 1,142]
19. Materials [Store ledger] [2016 Honours]****

SUNITA Ltd. furnishes the following stock records for the month of December, 2015:
December 1 Stock of material : 400 units @ Rs. 5 per unit
December 5 Purchased : 600 units @ Rs. 3 per unit
December 10 Issued : 500 units
December 20 Purchased : 700 units @ Rs. 4.00 per unit
December 31 Issued : 400 units
You are required to calculate:
i) The value of closing stock on 31.12.15
ii) The value of materials consumed during the month of December, 2015.
The accountant of Sunita Ltd. followed LIFO method of pricing issues.
20. Materials [Store ledger] [B.com 2012 Pass]**

From the information for the month of March 2011, prepare stores Ledger Account using appropriate method.
2011 1 opening stock 100 units @ ₹ 10 per unit
March 4 received materials 50 units @ ₹ 12 per unit
6 Issues 80 units
9 Received 30 units @ ₹ 14 per unit
13 Return to suppliers 10 units (out of 4th March purchases)
15 Issues 50 units
30 Issues 60 units
[In case of increasing Prices LIFO is suitable & in Case of Decreasing Prices FIFO is suitable. Here prices
are increasing, hence LIFO is suitable.]
21. Materials [Store Ledger] [B.com 2014 Pass] [RKB]****
From the following particulars write up Stores Ledger using FIFO method:
2014 January 1 Opening Stock 1000 units @ ₹ 10
January 5 Received 500 units @ ₹ 11
January 10 Issued 1200 units
January 12 Received 800 units @ ₹ 11.50
January 20 Returned from
Department 100 units @ ₹ 11
January 28 Shortage 10 units
22. Materials [Store Ledger] [B.com 2015 Honours] [RKB]****

The following transactions in respect of Material A occurred during the month of December’ 2014:
Date Purchase (Units) Price per unit (₹ ) Issue (Units)
2014
December 2 200 25 -
December 10 300 24 -
December 12 - - 250
December 22 - - 300
December 31 - - 550
The chief accountant argues that the value of closing stock on 31.12.2014 remains same in case of FIFO or
LIFO method of pricing of materials issues is used. Do you agree? Give your opinion by showing value of
closing stock of material on 31.12.2014 under FIFO and LIFO method.
23. Materials [Store Ledger] [B.com Honours 1993] [RKB]****

Prepare a Stores Ledger under the Simple average method, using the following information:
Date Particulars Units (kg.) Rate per Kg
1993 Jan 1 Opening balance 1,000 @₹ 9
5 Received 1,500 @₹ 10
8 Issued 390
10 Shortage 10
15 Surplus returned by a production department 200 @₹ 12
20 Issued 1,000
25 Received from Vendor 300 @₹ 14
28 Issued 1,200
31 Issued 100
[Closing Stock 300 units valued at ₹ 770]
24. Materials [Store ledger] [B.com Honours 2008]**
Calculate price of the issues under two different methods from the following information related to raw material
‘X’:
01.01.08 - Balance: 100 units @ Re 1.00 p.u. (Base stock) & 500 units @ ₹ 6.00 p.u.
03.01.08 - Receipt: 1,000 units @ ₹ 5.00 p.u.
04.01 .08 - Issue: 800 units
10.01.08 - Receipt: 1,000 units @ ₹ 7.00 p.u.
11. 01. 08 - Issue: 900 units
25. Materials [Store ledger] [B.com Pass 2016]**

The following informations are available in respect of receipts and issues of materials in a factory during
March, 2016:
March 1 Purchased 2,000 units @ Rs. 10
6 Issued 600 units
10 Purchased 1,000 units @ Rs. 12
15 Issued 1,200 units
18 Issued 300 Units
22 Purchased 1,200 units @ Rs. 11
27 Issued 1,300 units
30 Purchased 800 units @ Rs. 13
Prepare a Stores Ledger Account assuming that a base stock of 300 units @ Rs. 10 per unit is maintained
and the FIFO method is applied.
26. Materials [Computation of COGS, Inventory, Profit ] [Compiled by RKB]***

The Burma Oil company, a well known distributor of fuel oil, closes its accounts at the end of each month. The
following information is available for the month of June, 2006:
₹
Sales 2, 50,000
Administrative Expenses 5,000
Inventory, June 1, 50 tons @ ₹ 1,000 50,000
Purchases (including carriage inward):
June 10, 150 tons @ ₹ 800 1, 20,000
June 20, 150 tons @ ₹ 900 1, 35,000
Inventory, June 30, 100 tons.
Compute the following data by the FIFO method:
(a) Inventory valuation on June 30.
(b) Amount of cost of goods sold for June.
(c) Profit or loss for June.
[(a) ₹ 90,000 (b) ₹ 215000 (c) ₹ 30,000]
27. Materials [Computation of COGS, Inventory, Profit ] [B.com 2012 Honours]***
ABC Ltd. furnishes the following information regarding an item of raw materials for the month of
December, 2011:
Opening Stock: 50,000 units @ ₹ 3,00 per unit
Purchases:
December 1 – 1,00,000 units @ ₹ 2,50
December 30 – 50,000 units @ ₹ 3.00
Issue:
December 20 – 1,40,000 units
ABC Ltd. uses LIFO method of stock valuation for the said period.
Compute:
(a) Value of inventory on 31st December, 2011.
(b) Amount of cost of goods sold for December, 2011.
[Answer: ₹ 1,80,000; ₹ 3,70,000]
28. Materials [Computation of total cost] [B.com Honours 2001] [RKB]*

Modern manufacturing company Kolkata purchased materials of 20 tones from a mining company. The following
data is available for the lot of materials purchased.
(a) Invoice price of materials @ ₹ 2,000 per tonne,
(b) Trade discount @20% of invoice price;
(c) Excise duty @ 10 % of invoice price;
(d) Sales tax @ 10%;
(e) Freight and insurance@ 2%;
(f) Other charges for delivery @ ₹ 100 per ton;
(g) Cost of container @ ₹ 20 per box of 1 quintal;
(h) Cost of loading and uploading @ 1 % of total cost.
Compute total material purchase cost and cost per tonne to Modern Manufacturing company.
[Total cost of Materials = Invoice price Less trade discount + excise duty Add sales tax + freight Add other
charges for delivery Add cost of container add loading & unloading = ₹ 46,861; cost/tonne ₹ 2,343]
29. Materials [Computation of total cost] [B.com Honours 2014] [RKB]*

A jewellery manufacturing company, Kolkata, purchased 200 grams of gold from a supplier. The
following data are available against the said purchase:
(a) Invoice-price of gold @ ₹ 25,000 per 10 grams
(b) Trade-discount @ 10% on invoice price
(c) VAT @ 20%
(d) Excise Duty @ 10%
(e) Freight and insurance @ 5%
(f) Other charges for delivery @ 10% of total cost.
Compute total material purchase cost per 10 grams of jewellery manufacturing company.
[₹ 34,650]
Labour [10 Marks]

1. Labour[Halsey & Rowan] [B.com 2013 Pass] [RKB]*
From the following particulars determine the wages of a worker on the basis of Halsey Premium Bonus System
and Rowan Premium Bonus System:
Standard time to complete a job 12 hours
Actual time taken 8 hours
Rate per hour ₹ 8
2. Labour [Halsey & Rowan] [B.com Honours 1990] [RKB]*

From the following data ascertain the total earning of each worker separately under (i) Halsey (ii) Rowan.
Worker Amal Bimal
Time allowed (hours) 5 5
Actual time taken (hours) 4 6
Basic rate of wages per hour (₹ ) 3.00 3.00
[Amal: Total Earning ₹ 13.50; Rate per hour ₹ 3.38; Bimal: total earning ₹ 18.00; Rate/hour ₹ 3]

Standard time for a project is 120 hours. A worker takes 96 hours to finish the job. Time rate of wages is ₹ 10 per
hour. Calculate the effective hourly wage of the worker under the following methods of payment of wages: (i)
Hasley plan and (ii) Rowan plan.

From the following details calculate the total earnings of a worker and the effective hourly rate of labour wages
where bonus is paid under. (a) The Halsey (50%) scheme; (b) The Rowan scheme.
Basic rate of wages per hour ₹ 10
Time allowed for the job 16 hours
Time actually taken 12 hours
5. Labour[Halsey & Rowan] [B.com 2014 Honours] [RKB]*

In a factory, Sudhir took 26 hours to complete a job. The standard time for this work was 40 hours. He was paid
at ₹ 10 per hour. He worked under Halsey scheme.
Find Out:
(a) Effective hourly rate of wages of sudhir.
(b) Employer’s savings amount from this work.
[(i) ₹ 330; ₹ 12.69/hr; (ii) ₹ 70]
6. Labour[Halsey & Rowan] [B.com Honours 1988] [RKB]*

During a certain week in the month of September 1995, a worker manufactured 240 articles. Working hours
during a week are 48 hours, standard rate is ₹ 5 per hour and standard time to manufacture the article is 15
minutes. Calculate gross wages for the week according to (i) Piecework with guaranteed weekly wages; (ii)
Rowan premium bonus plan; (iii) Halsey premium bonus plan.
[(i) ₹ 300; (ii) ₹ 288; (iii) ₹ 270]
7. Labour [Halsey & Rowan] [B.com Honours 2000, 2009 old] [RKB]***
A worker produced 180 units in a week. The guaranteed weekly wages payment for 44 h₹ is Rs 77. The expected
time to produce one unit is 16 minutes which is further raised by 25% under the incentive scheme. What will be
the earnings per hour of the worker under the Halsey and Rowan schemes?
[Earning per hour under Halsey plan ₹ 2.07 & under Rowan plan ₹ 2.22]
8. Labour [Halsey & Rowan] [B.com Honours 2003] [RKB]**

Time allowed for the production of ‘100 bolt’ is 2 hours and hourly rate of wage payment is ₹ 12. M & N
produced 600 & 500 pieces of bolts respectively in a particular day of 8 hours. Calculate their earning under
Halsey Premium bonus and rowan premium bonus Method.
[Total earning under Halsey Plan: M ₹ 120; N ₹ 108; Under Rowan Plan: M ₹ 128; N ₹ 115.20]
9. Labour [Halsey & Rowan] [B.com Honours 1982] [RKB]*

A worker takes 80 hours to do a job for which the time allowed is 100 hours. His daily rate is ₹ 2.50 per hour.
Calculate the works cost for the job under the following methods of payments of wages:
(i) Time rate, (ii) piece rate (iii) Halsey plan and (iv) Rowan plan.
Additional information: (a) Material cost ₹ 120 (b) Factory overhead 125% of wages.
[ Works cost (i) ₹ 570; (ii) ₹ 682.50; (iii) ₹ 626.25; (iv) ₹ 660]
10. Labour [Halsey & Rowan] [B.com Honours 1998] [RKB]***

From the following data, calculate works cost for jobs performed by Ajay and Sourav:
Ajay Sourav
Time allowed (per 100 units) 40 hours 42 hours
Rate per unit ₹ 3 ₹ 4
Rate per hour ₹ 8 ₹ 12
Actual time taken 48 hours 70 hours
Actual units produced 150 units 200 units
Materials cost for job ₹ 668 ₹ 1020
Bonus plan Halsey Rowan
Factory overhead 150% of wages 100% of wages
[Ajay: Basic wages ₹ 384; Bonus ₹ 48; Work Cost ₹ 1,748; Sourav: ₹ 840; ₹ 140; ₹ 2,980]

From the data given below, calculate the comparative works cost for a job in factory A and factory B:
Factory A Factory B
Method of payment of wages Halsey Plan (50 %) Rowan Plan
Standard time for the job 250 Hours 240 Hours
Actual time taken by a worker to complete the job 200 hours 210 Hours
Hourly rate of wages ₹ 2.50 ₹ 3.00
Material cost for the job ₹ 1,000 ₹ 900
Factory Overhead 150 % of wages 133 1/3 % of wages
[Factory A: Bonus ₹ 62.50; Works cost ₹ 2,406.25; Factory B: Bonus ₹ 78.75; Works cost ₹ 2553.75]
12. Labour [Halsey & Rowan] [B.com Honours 2006] [RKB]***
A manufacturing firm wants to introduce an incentive wage scheme with a view to increasing productivity. For
this purpose, the actual production of the two workers-A & B who produces 1400 units & 1800 units during a
particular week of 40 hours has been taken into consideration. The day wage rate of the workers is guaranteed at ₹
10 per hour and the piece rate is based on a standard hourly output of 40 units.
Calculate the earnings and labour cost per 100 units in case of each of the three workers under:
(i) Piece work with a guaranteed weekly wage (ii) Halsey Premium Plan and (iii) Rowan Premium Plan.
13. Labour [B.com Honours 2001] [Halsey & Rowan] [RKB]***

In a factory a job can be executed either through workman Pradip or Arindam. Pradip takes 32 hours to complete
the job while Arindam finishes it in 30 hours. The standard time to finish the job is 40 hours. The raw material
input cost and hourly wage rate are same for both the workers Pradip is entitled to receive bonus according to
Halsey plan while Arindam is paid bonus as per Rowan plan. Works overheads are recovered on the job at Rs 15
per labour hour worked. The factory cost of the job comes to Rs 5,200 irrespective of the workmen engaged. Find
out hourly wages rate and cost of raw materials input.
[Rate per labour cost is ₹ 20 & Material cost is ₹ 4,000]

In a factory S took 30 hrs to complete a job. The factory cost of the job is ₹ 5,200. Raw material cost of the job is
₹ 4,000. Hourly rate of wages ₹ 20. Works overhead is recovered on the job at ₹ 15 per labour hours worked. S
is entitled to receive bonus according to Rowan plan. Calculate standard time for completion of the job.
[Standard time 40 hours]
15. Labour [Halsey & Rowan] [B.com Honours 2016]

In a factory, standard time for a job is 84 hours. The hourly rate of wage is Rs. 50.00. Halsey premium plan
is in operation at the factory. Jayanta, a worker, completed the job at less than standard time and his
effective hourly rate of wage was Rs. 60.00.
What will be his total earnings if he worked under Rowan – premium plan?
[Time Taken = 60 Hours, Total Earning: ₹ 3,857.14]
16. Labour [Halsey & Rowan] [B.com Honours 2008] ****

A factory pays its workers under Rowan Premium Bonus Scheme. Workers also get dearness allowance of ₹ 250
per week of 48 hours.
A worker's basic wages is ₹ 100 per day of 8 hours and his time schedule for a week is summarised below:
Job No. Time allowed Time taken
103 25 hours 20 hours
107 30 hours 20 hours
Idle Time (Waiting) 8 hours
48 Hours
Calculate the gross wages for the week and indicate the accounts to which the wage amounts will be debited.
[Gross earning ₹ 983.34 out of that ₹ 141.67 Charged to Factory overhead and rest to the respective Job.
Job No. 103 ₹ 404.17 and Job No. 107 ₹ 437.50]
17. Labour [Efficiency % & Bonus] [Compiled by Ravi Bhalotia]***
An incentive scheme has been introduced recently in X Ltd. in order to increase productivity of the workers The
relevant details of the scheme are as follows:
Efficiency Incentive
Below 100 % Nil
100 % 10% of Basic Rate
Above 100 % 10 % of Basic Rate plus 1% additional incentive for each additional percentage of
efficiency above 100 %
The standard production of a component is 10 units per hour and the basic wage rate is ₹ 20 per hour. Three
workers-X, Y and Z have produced 360 units, 400 units and 480 units respectively in a particular week of 40
hours. Show the efficiency of the workers in terms of percentages and incentives payable to the workers.
[₹ 800; ₹ 880; ₹ 1040]
18. Labour [Efficiency % & Bonus] [B.com Honours 1981] [RKB]**

From the following data calculate the total monthly remuneration of each of the four workers A, B, C and D
(a) Standard production per month per worker 1,000 units.
(b) Actual production during a month: A—950 units, B—900 units, C-- 960 units; D—850 units.
(c) Piece work rate per unit of actual production 10 paise.
(d) Dearness allowance—100 % of piece wage.
(e) Additional production bonus at the rate of ₹ 5 each % of actual production exceeding 90 % of the standard.
[Total Remuneration for A ₹ 215; B ₹ 180; C ₹ 222; D ₹ 170]
19. Labour [Efficiency % & Bonus] [B.com Honours 2013] [RKB]*

Pradip kar working under a bonus scheme saves 12 hours in a job for which the standard time is 60 hours.
Calculate the rate per hour worked and wages payable to Pradip Kar if incentive bonus of 10% on the hourly
rate is payable when standard time (namely 100% efficiency) is achieved, and a further incentive bonus of 1%
for each additional percentage in excess of that 100% efficiency is payable. Normal rate of wage ₹ 5.00 per
hour.
[₹ 324; ₹ 6.75/Hr]
20. Labour [Efficiency % & Bonus] [B.com Honours 2009] ****

Details of wages payable to the workers' are as follows:
(i) Basic Wages per unit ₹ 2 (subject to a guaranteed minimum wage of ₹ 60 per day)
(ii) Dearness allowance ₹ 40 per day
(iii) Standard output per day per worker — 40 units.
(iv) Incentive bonus:
- upto 80% efficiency : NIL
- Above 80% Efficiency: ₹ 50 for every 1% increase above 80%.
The details of performance of three workers for the month of January '09 are as follows:
Workers No. of days worked Output (units)
A 25 820
B 18 500
C 25 910
Calculate the total earnings of each of three workers.
[Ans. Total earnings of workers: A ₹ 2,740; B ₹ 1,800 and C ₹ 3,370.]
21. Labour [Labour Turnover] [B.com Honours 2013] *
From the following data, calculate the labour-turnover rate by applying:
(a) Separation method
(b) Replacement method
(c) Flux method
(i) Number of workers at the beginning of the year - 900
(ii) Number of workers at the end of the year - 1100
During the year 10 workers left and 40 workers were discharged and 150 workers were recruited. Of these, 25
workers were recruited in the vacancies of those left, while the rest were engaged for an expansion.
[5%; 2.5%, 20%]
22. Labour [Overtime] [B.com Honours 1999] [RKB]*

From the following particulars you are required to calculate average wage rate and the labour cost chargeable to
Job No. P – 301 completed in 1998. Basic Wage Rate is ₹ 15 per hour and overtime rates are as follows:
Before or after working hours 150 % of Basic wage rate
Sundays & Holidays 200 % of Basic wage rate
During the year 1998, the following hours were worked:
Normal time 4,00,000 hours
Overtime Before or after working hours 50,000 hours
Overtime Sundays & Holidays 40,000 hours
Total 4,90,000 hours
For Job No. P – 301 4,000 hours were worked:
Normal Time 3,000 hours
Before or after working hours 700 hours
Sundays & Holidays 300 hours
[Average wage rate ₹ 16.99 per hour; Job labour cost ₹ 67960]]
23. Labour [Overtime] [Compiled by Ravi Bhalotia]****

Calculate the normal and overtime wages payable to a workman on the basis of the following particulars:
Days Hours worked
Monday 9
Tuesday 8
Wednesday 10
Thursday 11
Friday 9
Saturday 5
Normal working hours are 8 hours per day and the normal rate of wages is ₹ 1.25 per hour.
Overtime pay is at the undernoted rate:
(a) Upto 9 hours in a day at single rate and over 9 hours in a day at double rate,
(b) or upto 48 hours in a week at single rate and over 48 hours at double rate, whichever is more beneficial to the
workman.
[Ans. Total wages payable to the worker ₹ 70.00.]
24. Labour [Gross earning & Net Earning] [B.com Honours 2014] [RKB]*
From the following particulars, calculate the Gross Earnings and Net earnings for the month of March’ 2013 of
Sri Netai ghosh:
(a) Basic wages - ₹ 10,000
(b) Dearness allowance - 50%
(c) Own contribution to Provident Fund (on basic wage) - 8%
(d) Own contribution to E.S.I. (on basic wage) - 2%
(e) Overtime - 10 hours
The normal working hours for the month of March’ 13 is 2000 hours. Overtime is paid at double rate of normal
wages and dearness allowance.
[₹ 15,150; ₹ 14,150]
25. Labour[Gross earning & Net Earning] [B.com Honours 2002] [RKB]*
In a factory, 20 workers are employed in the production of a good. From the following particulars, compute the
wage bill for the workers for the month of January, 2004:
Basic wages ₹ 1,000 per month per worker
Dearness Allowance Rs 900 per month per worker
Bonus for the month ₹ 20 % of basic wages plus DA
Other allowances ₹ 200 per month per worker
Own and employers contribution to PF 10 % of basic wages
Own and employers contribution to ESI 2 % of basic wages
Professional tax deducted from salary ₹ 20 per month per worker
[₹ 52,000; ₹ 46800]
26. Labour [Differential Piece-rate ] [B.com 2012 Honours]*

From the particulars given below, calculate earnings of two workers, Satyen and Goutam, under differential piece-
rate system:
Standard Time Allowed : 40 units per hour
Time wage rate : ₹ 4.00 per hour
Differential piece rates to be applied:
75% of piece rate when below standard
125% of piece rate when at and above standard.
The workers have produced in a day of 8 hours as follows:
Satyen : 400 units
Goutam : 240 units
[₹ 50, ₹ 18]
27. Labour [Group Bonus Plan] [B.com Honours 2015] [RKB]*

In an assembly shop of a Motorcycle factory, 4 workmen P, Q, R and S work together as a team. They are
paid on group piece rate and they also work individually on day – rate jobs. In a 46 hours week, the
following hours have been spent by P,Q,R and S group piece work, viz P – 40 hours, Q – 40 hours, R – 30
hours and S – 20 hours. The balance of the time has been booked by each worker on day rate jobs. Their
hourly rates are: P – ₹ 5.00; Q – ₹ 7.50; R – ₹ 10.00; S – ₹ 10.00.
The group piece rate is ₹ 10.00 per unit and the team has produced 180 units. Calculate the gross weekly
earnings of each workman taking into consideration that each worker is entitled to dearness allowance of
25% of time wages.
[₹ 3975, ₹ 596.25; ₹ 740; ₹ 685]
Cost Sheet [15 Marks]
1. Cost Sheet [B.com 2014 Pass] [RKB]****
Prepare a cost sheet from the following particulars:
₹
Opening Stock on 1.1.2013:
Raw materials 1,00,000
Work-in-progress 30,000
Finished goods 2,500
Closing Stock on 31.12.2013:
Raw Materials 90,000
Work-in-progress 25,000
Finished goods 7,500
Purchase of raw materials during the year 2,50,000

Direct wages 75,000
Manufacturing overheads 50,000
Administrative overheads 8,000
Selling and Distribution overheads 2,000
Sales 4,20,000

From the following particulars, prepare a statement of cost for the year ended 31.03.2015:
₹
Stock of materials on 1.4.2014 50,000
Purchase of materials during the year 2014 – 15 1,40,000
Materials returned to suppliers 4,000
Stock of materials as on 31.03.2015 37,600
Wages paid to productive workers 36,000
Wages paid to non – productive workmen 4,000
Salaries paid to office staff 10,000
Carriage on materials purchased 1,000
Carriage on goods sold 3,000
Rent, rates and taxes on the works 5,000
Depreciation on machinery 2,800
Maintenance and Repair to Plant and Machinery 1,200
Office and stationery and other expenses 3,000
Abnormal loss of materials 2,400
Chargeable expenses 1,600
Advertising and Sales promotion 2,400
From the following particulars prepare a Cost Sheet for the month of January, 2013:
₹
Raw Materials (01.01.2013) 6,000
Purchase of Raw Materials 56,000
Raw Materials (31.01.2013) 9,000
Direct Wages 12,600
Materials destroyed by fire 400
Factory Rent 3,600
Depreciation on Machine 4,000
Rent and Rates for Office 9,600
Administrative Expenses 1,200
Selling and Distribution Overhead 3,000
Stock of finished goods (31.01.2013) 1,000 units
Production during the month 8,000 units

From the information below, prepare a statement of cost:
Direct materials used: ₹ 5000
Direct wages: ₹ 3000
Direct Expenses: ₹ 1000
Factory Overhead: 30% of direct wages
Office overhead: 12% of work cost
Profit: 20% of selling price
5. Cost Sheet [B.com Honours 2006] [RKB]****

From the following particulars prepare a statement of (a) cost of production and (b) a statement of profit or loss
assuming (i) LIFO (ii) FIFO is followed by the company:
Stock 1.1.2004 31.12.2004
₹ ₹
Raw materials 50,000 62,500
Work in progress 62,500 87,500
Finished Goods 90,000 (2,000 units) ? (2,500 units)
Purchase of raw materials ₹ 2,00,000
Direct labour ₹ 1,37,500
Chargeable expenses ₹ 50,000
Machine hours worked 5,000 hours
Machine hours rate ₹ 20 per hour
Office and administration overhead @ ₹ 12.00 per unit
Selling and Administration overhead @ ₹ 7.50 per unit
Sale of 12,000 units @ ₹ 65 per unit
[Ans. If LIFO method is adopted : Prime cost ₹ 3,75,000; Works cost ₹ 4,50,000; Cost of production ₹
6,00,000; Cost of goods sold ₹ 5,76,000; Value of closing stock of finished goods ₹ 1,14,000; Cost of sales ₹
6,66,000; Profit ₹ 1,14,000. Under FIFO method: Value of closing stock ₹ 1,20,000; Profit ₹ 1,20,000]
6. Cost Sheet [B.com Honours 2009 New]****
The following figures for the month of April, 2008 were extracted from the records of a factory:
1.4.2008 30.04.2008
₹ ₹
Stock of Raw materials 20,000 25,000
Finished Goods 36,000 (4,000 units) ? (5,000 units)
Purchase of raw materials ₹ 80,000
Direct labour ₹ 55,000
(a) Prepare Cost-Sheet for the month of April, 2008 assuming that sales are made on Weighted Average.
(b) What would be the difference in profit and value of closing stock of unsold goods, if such stock is valued at
'Simple-Average Method'?
[Closing Stock ₹ 47586; Profit ₹ 95586]
7. Cost Sheet [B.com Honours 1997]*

The following data relate to the manufacture of a standard product during the four weeks to July 27, 1996:
₹
Raw Materials Consumed 25,000
Manual and Machine labour wages 15,000
Machine Hour rate ₹ 2.50 per hour
Establishment and general expenses 4,700
Selling and distribution overhead per unit 8 paise
Units produced 10,000 units
Units sold 8,000 units
Selling price per unit ₹ 6 per unit
(a) You are required to prepare a cost sheet in respect of the above showing therein the cost per unit under each
element of cost and the profit for the period. Also show the % that the works overhead cost bears to the wages
and the % that the establishment & general expenses bears to the works cost.
(b) What price should the company quote to produce 1,000 units which will require an expenditure of ₹ 8,000 for
raw materials and ₹ 6,000 per direct wages, so that it will yield a profit of 25% on the cost of sales.
[Cost of production ₹ 51,700; closing stock ₹ 10,340; Profit ₹ 6,000; Sales: ₹ 21,344; Work overhead 16.67
% of wages; Establishment & General Expenses 10 % of work cost]
8. Cost Sheet [Compiled by Ravi Bhalotia]**
The accounts of the steel ways ENGINEERING Co. Ltd. show for 1995.
Material used 1,80,000
Manual and machine labour wages directly chargeable 1,60,000
Works overhead expenditure 40,000
Establishment and general expenses 19,000
(a) Show the works cost and total cost, the percentage that the works overhead bears to the manual and machine
labour wages and the percentage that the establishment and general expenses bear to the works cost.
(b) What price should the company quote to manufacture a machine, which, it is estimated will require an
expenditure of ₹ 8,000 on materials and ₹ 6,000 on wages so that it will yield a profit of 25% on the total cost.
[Work overhead 25 % of wages; General Expenses 5 % of work cost; Price to be quoted ₹ 20,344]

Bright Ltd. Produces televisions. Following figures are extracted from the records of the company for the year
ended 31st Dec’12:
₹
Raw material 700000
Wages 540000
Factory overhead 162000
Administrative overhead 112160
In the next year, it is estimated that raw material and wages will require to produce a T.V set ₹ 2000 and
₹ 1400 respectively. Factory overheads absorb on the basis of wages and administrative overheads on the basis
of the works cost. A profit of 25% on selling price is required. Determine the quoted price of one television for
the year 2013 of Bright Ltd.
[₹ 5,501]
10. Cost Sheet [B.com Pass 2016]**

The following figures for the month of April, 2008 were extracted from the records of a factory:
Opening Stock of Finished goods (5,000 units) ₹ 45,000
Purchase of Raw Materials ₹ 2,57,100
Direct Wages 1,05,000
Factory Overhead 100 % of Direct Wages
Administration O/H Re. 1 per unit
Selling & Distribution Overhead 10 % of sales
Closing stock of Finished Goods (10,000 units) ?
Sales (45,000 units) 6,60,000
Prepare a Cost sheet for the month of April 2008, assuming that sales are made on the basis of FIFO principle.
[Prime Cost ₹ 3,62,100 ; Factory cost ₹ 4,67,100 ; Cost of Production ₹ 5,17,000; Closing stock of finished
goods ₹ 1,03,420 ; Cost of goods sold ₹ 4,58,680 ; Total Cost ₹ 5,24,680 ; Profit ₹ 1,35,320]
11. Cost Sheet [Compiled by Ravi Bhalotia]***
Mr. Gopal furnishes the following data relating to the manufacture of a standard product during the month of
April, 2002 :
Raw Material Consumed - ₹ 15,000
Direct Labour Charges - ₹ 9,000
Machine Hours Worked - 900
Machine Hour Rate - Rs 5
Administration Overhead - 20% of Works Cost,
Selling Overhead - Re. 0.50 per unit
Units Produced- 17,100
Units Sold - 16,000 at ₹ 4 per unit.
Prepare a Cost Sheet showing cost per unit, profit per unit and total profit.
[Prime cost 24,000; Work cost 28,500; Cost of production 34,200; Cost of goods sold ₹ 32,000; Total Cost
₹ 40,000; Total profit ₹ 24,000; Profit per unit ₹ 1.50]
12. Cost Sheet [Compiled by Ravi Bhalotia]**

From the following particulars determine the unit selling price (assuming sales are made under LIFO method).
₹
Opening Stock (1000 units) ₹ 10,000
Closing Stock (1500 units) ?
Cost of Production (10,000 units) ₹ 1,20,000
Selling & Distribution Expenses ₹ 2/- per unit
Profit 25% on Sales
[Selling Price: ₹ 18.67; Closing stock = ₹ 16,000]
13. Cost Sheet [B.com Honours 2007,2000] [RKB]****

From the following information, compute the raw materials purchased:
₹
Opening stock of raw materials: 10,000
Closing stock of raw material: 15,000
Direct wages: 1,05,000
Factory overhead: 60% of direct wages
General overhead: 10% of work cost
Cost of production: 3,44,300
[Purchase of Raw Materials ₹ 1,50,000]
14. Cost Sheet [B.com Honours 2003] [RKB]***

Quotation price of “Job NO 440” was ₹ 50,000 in the year 2004. A profit of 25% on cost was included in the
above quotation. From the following information ascertain the quotation of “Job NO 440” for the year 2005:
(a) Material, Labour and overhead were included in the cost of the above job in 3:3:2.
(b) 20% increase in material cost, 10% increase in labour cost and 5% increase in the overhead cost are expected
in the year 2005.
(c) Same % of profit as charged in 2004 on the quotation price is to be ascertained.
[Total cost for 2003 ₹ 45,000; Quotation price ₹ 56,250]
15. Cost Sheet [B.com Honours 2004] [RKB]**
From the following data prepare a Cost Sheet:
Opening stock of Direct Materials 30,000
Closing stock of Direct Materials 20,000
Purchase of Direct Materials 1,90,000
Sales 6,50,000
Prime Cost 4,10,000
Administrative expenses 90,000
Factory expenses 1,20,000
10% of the output remained unsold
There was no direct expenses
[Direct Wages ₹ 2,10,000; Closing stock ₹ 62,000; Sales ₹ 6,50,000; Cost of Goods sold ₹ 5,58,000]

A manufacturing company provides you with a summary of the production costs at three production levels:
Cost item 1000 units 2000 units 3000 units
₹ ₹ ₹
A 2,000 4,000 6,000
B 5,000 5,000 5,000
C 1,500 2,000 2,500
Total (₹ ) 8,500 11,000 13,500
(i) Indicate the cost behavior of the cost items.
(ii) What would be the total cost if the company produces 4000 units?
[₹ 16,000]
17. Cost Sheet [B.com Honours 2009] [RKB]**

Delta Engineering Ltd. produces a uniform type of product and has a manufacturing capacity of 3000 units per
week of 48 hours. From the cost records of the company, the following data are available relating to output and
cost for three consecutive weeks.
Week Units Manufactured & Sold Direct Materials cost Direct Labour cost Overhead
1 1,200 units ₹ 9,000 ₹ 3,600 ₹ 31,000
2 1,600 units ₹ 12,000 ₹ 4,800 ₹ 33,000
3 1,800 units ₹ 13,500 ₹ 5,400 ₹ 34,000
Assuming that the company charges a profit of 20% on sales, find out the selling price per unit when the weekly
production and sales is 2,000 units.
18. Cost Sheet [B.com Honours 2006] [RKB]*

A firm manufactures its products at ₹ 1000 per piece.
Total cost is composed of as follows:
Direct materials 40%
Direct wages 30%
Overhead 30%
An increase in material price by 15% and wages rate by 10 % is expected in the next year. As a result, the profit at
current selling price will decrease by 45% of the present profit. What is current selling price per unit?
[Current selling price per unit = ₹ 1,200]
19. Cost Sheet [Compiled by Ravi Bhalotia]************
The books and records of Johura Manufacturing Co. present the following data for the month of August, 2002:
Direct labour cost (160% of Factory overhead) ₹ 32,000
Cost of goods sold ₹ 1, 12,000
Inventory accounts showed opening and closing balances as below:
August 1 August 31
₹ ₹
Finished Goods 28,000 36,000
Other data:
Selling expenses 6,800
General and administration expenses 5,200
Sales for the month 1, 50,000
You are required to compute Raw Materials Purchased during August, 2002.
[Ans. Raw Materials Purchased ₹ 72,000]
20. Cost Sheet [B.com 2014 Honours]

The books of X Ltd. present the following data for the month of March’ 2014:
Direct Labour Cost - ₹ 35,000 (175% of works-overhead)
Cost of Sales - ₹ 1, 17,000
Inventory accounts showed the following:
01.03.2014 31.03.2014
₹ ₹
Raw-materials 16,000 21,000
Work-in-progress 21,000 29,000
Finished goods 35,200 38,000
₹
Administrative expenses 5,000
Sales 1,50,000
You are required to
(i) Compute the value of materials purchased and
(ii) Prepare a cost-statement for the month of March’ 2014.
[Ans. ₹ 65,800; ₹ 33,000]
21. Cost Sheet [B.com Honours 1993,1988]*
From the following particulars related to the production and sales of the year ended 31st December, 1992, prepare
a cost statement showing therein (a) Prime Cost, (b) Works cost, (c) Cost of production, (d) Cost of sales and, (e)
profit or loss ₹ ₹
Raw material as on 1.1.92 25,000
Work-in-progress as on 1.1.92
At prime cost 30,000
Add: manufacturing expenses 6,000 36,000
Finished goods at cost as on 1.1.92 1,44,000
Raw material purchased 2,00,000
Freight on raw material purchased 10,000
Machine hour Rate ₹ 3 per hour
Machine Hours worked 48,000 hours
Direct labour 2,70,000
Administrative expenses 1,00,000
Distribution expenses 36,000
Sale of finished goods (30,000 units) 9,00,000
Raw material as on 31.12.1992 45,000
Work-in-progress as on 31.12.1992
At prime cost 45,000
Add: manufacturing expenses 9,000 54,000
Finished Goods at cost (10,000 units) ?
Finished Goods produced 32,000 units
Assume sales are made on LIFO basis
[Raw Materials consumed ₹ 1,90,000; Prime cost ₹ 4,95,000; work cost ₹ 6,36,000; Cost of production ₹
7,36,000; Cost of goods sold ₹ 6,90,000; Cost of sales ₹ 7,80,000; Sales ₹ 9,00,000]
22. Cost Sheet [B.com Honours 2007] [15 Marks]***

ARB Ltd. furnishes the following information for the year 2006-2007:
₹
Stock of Raw Materials on 1.4.2006 1,00,000
Stock of Finished Goods on 1.4.06 (500 tonnes) 8,00,000
Freight Paid 2,00,000
Prime cost 44,50,000
Stock of Raw Materials on 31.3.07 3,00,000
Stock of Finished goods on 31.3.2007 (750 tonnes) ?
Direct Labour:
60 skilled labours @ ₹ 50 per Day for 250 days
200 unskilled labours @ ₹ 30 per Day for 250 days
Indirect Wages 40,000
Factory rent, rates and power 30,000
Salary of Managing Director 50,000
Office rent & taxes 1,00,000
Donations 30,000
Advertisement 4,50,000
Income Tax 60,000
Depreciation on Plant & Machinery 35,000
Selling Overhead 5,00,000
Packing & distribution expenses 85,990
Fuel 65,000
Other Informations:
(a) During the year 2006-07, 2250 units of finished goods were sold.
(b) The company valued the closing stock of finished goods under FIFO basis.
(c) The company maintains profit @ 20 % on sales.
On the basis of above mentioned data, you are required to prepare a detailed Cost Sheet for the year 2006-07.
[Direct Labour cost ₹ 22,50,000, Purchase of Raw materials ₹ 22,00,000, finished stock produced 2,500
tonnes. Work cost ₹ 46,20,000; Cost of production ₹ 47,70,000; Cost of goods sold ₹ 41,39,000, Total Cost
₹ 51,74,990; Profit ₹ 12,93,747; Profit per unit ₹ 575; Selling price per unit ₹ 2,875.]

In a factory, mobile sets are produced, namely ‘A’ and ‘B’. Labour cost of A is two times that of B. In 2014,
1500 of A and 3600 of B were produced; but 60% of product A and 80% of product B were sold during the
year, there being no opening finished stock of work – in – progress.
From the following particulars, ascertain the cost of sales of each type mobile sets:
A (₹ ) B (₹ ) Total (₹ )
Materials 42,000 63,000 1, 05,000
Labour - - 1, 17,000
Works overhead is 50% of labour cost and office overhead is 20% of works cost. Selling and distribution
overhead is ₹ 40 and ₹ 30 per unit of Product A and B respectively.
[₹ 150480; ₹ 203040]

M Ltd furnishes the following information in relation to the production of 2,000 units of ‘N’ for the year 2000:
₹
Direct material 2,00,000
Direct labour 1,50,000
Indirect wages (50 % of fixed) 40,000
Consumable stores (70 % variable) 30,000
Office rent (100 % fixed) 60,000
Selling expenses (40 % variable) 80,000
In the year 2001, it is estimated that the production will be increased by the 50 %. The price of the material and
labour will go up by 10% and 20% respectively. You are required to compute selling price per unit of product ‘N’
for the year 2001 if the company wishes to maintain profit @ 10% on cost.
[For 2001: Prime cost ₹ 6,00,000; work cost ₹ 6,90,500; Cost of production ₹ 7,50,500; Cost of Sales ₹
8,46,500; Profit ₹ 84,650; Sales ₹ 9,31,150; Selling price per unit ₹ 310.38]
Overhead [15 Marks]
1. Overhead [B.com 2013 Pass]*
A factory has three production departments A, B and C. Particulars regarding the three departments are given
below:
Particulars A B C
Floor Area (sq. Meters) 4,000 8,000 12,000
Number of Workers 100 150 200
Cost of Plant (₹ ) 2,00,000 2,00,000 4,00,000
Machine Run (Hours) 3,000 2,000 5,000
Number of Light Points 20 30 50
Factory Wages Paid (₹ ) 9,00,000 12,00,000 2,50,000
Different expenses of the factory for a given years are as follows. You are required to allocate the expenses to the
three departments.
₹
Factory Rent 24,000
Factory Indirect Wages 36,000
Electricity Charges 5,000
Maintenance of Machine 9,600
Employees’ State Insurance 8,400
Depreciation of Machine 50,000
Canteen Expenses 1,800
2. Overhead [B.com 2012 Honours, 2014 Honours; 2012 Pass type]****

MRK Ltd. has three production departments – X1, X2 & X3 and two service departments – S1 & S2. The following
figures are extracted from the records of the company.
Rent & Rates ₹ 5,000 Power ₹ 1,500
Depreciation in Machinery ₹ 10,000 Canteen Expenses ₹ 650
Lighting Expenses ₹ 600 Sundry Expenses ₹ 10,000
Other Information X1 X2 X3 S1 S2
Floor Area (Sq. Ft.) 2,000 2,500 3,000 2,000 500
No. of light points 10 15 20 10 5
No. of employees 25 20 10 5 5
Direct Wages (₹ ) 3,000 2,000 3,000 1,500 500
Indirect Wages (₹ ) 250 500 100 250 150
H.P. of Machines 60 30 50 10 -
Value of Machines (₹ ) 60,000 80,000 1,00,000 5,000 5,000
Production Hours Worked 2,000 2,500 3,000 - -
Expenses of service departments S1 and S2 are apportioned as below:
X1 X2 X3 S1 S2
S1 2 2 1 - -
S2 2 1 2 - -
You are required to:
(i) Compute overhead absorption rate per production hour of each department.
(ii) Determine total cost of product “YZ” which is processed through departments X1, X2 and X3 for 5 hours, 4
hours and 3 hours respectively. The material cost for the product “YZ” is ₹ 5,000, direct labour cost is ₹
20,000, Royalty on production ₹ 2,000 and chargeable expenses ₹ 1,000.
In a factory there are three production departments and one service department. The costs in 2014 were as
follows:
Power ₹ 1,800; Light ₹ 1,000; Repair to Plant ₹ 9,000; Rent ₹ 10,000; Depreciation ₹ 5,400; Supervision
₹ 15,000.
With the above noted expenses and the following further information, determine the total overhead cost of
production departments. Cost of the Service department is apportioned to production departments in 2: 2: 1 ratio.
Production Departments Service Departments
A B C S
Are (Sq. Meter) 1,250 550 450 250
Cost of Plant (₹ ) 1,20,000 90,000 90,000 -
Direct Wages (₹ ) 30,000 24,000 15,000 10,000
H.P. of Machines 6 4 5 -
Light points (Nos.) 8 7 9 4
4. Overhead [B.com 2009 Honours Old]****

Moonlight Engineering Company has three production departments A, B and C and one service department S.
Following are the particulars of a month of 25 working days of 8 hours each.
Particulars Amount (in ₹ )
Indirect wages 9,000
Rent 8,800
Power 8,500
Lighting 2,200
Depreciation @ 12% p. a.
Other information:
Particulars A B C S
Indirect Material (₹ ) 2,000 1,000 2,000 500
Area (sq. ft) 200 200 300 100
Direct Wages (₹ ) 8,000 10,000 12,000 6,000
No. of Electric points 40 30 20 20
No. of workers 20 25 30 15
Value of Assets (₹ ) 50,000 60,000 60,000 30,000
H.P of Machines (H.P) 30 25 15 15
Services rendered by the Department S to departments A, B and C is 40 %, 40 % and 20 % respectively.
(a) Calculate the labour hour rate of each production department.
(b) Determine the total cost of job which is processed in department A, B and C for 4 hours, 5 hours and 3 hours
respectively, given that its direct material cost is ₹ 500 and direct labour cost is ₹ 200.
[(i) O/head as per primary distribution 43,800; 10,900; 9900; 11,400; 11,600 (ii) Labour hour rate: ₹ 3.89;
2.91; 2.29 (iii) 736.98]
5. Overhead [Compiled by Ravi Bhalotia]*
A company has 3 production departments P1, P2 and P3 and one service departments S. The actual costs in 1999
are as follows: The actual costs in 1999 are as follows:
₹
1. Depreciation 7,000
2. Rent, Rates and Taxes 4,500
3. Electricity 6,000
4. Sundries 1,300
5. Canteen Expenses 5,500
6. Insurance on Assets 1,400
7. Power 1,200
P1 P2 P3 S
Value of Assets (₹ ) 25,000 20,000 15,000 10,000

Floor Space (Sq. metres) 300 250 200 150
Light Points (No.) 10 8 8 4
H.P of machines 5 4 3 ---
No. of Employees 40 30 20 10
Direct Wages (₹ ) 3,000 2,000 1,000 500
Cost of the service department is apportioned to production departments in the ratio of 3:2:1. From the above
particulars, determine the total overhead cost of production departments.
[[(i) O/head as per primary distribution 9800; 7700; 6000; 3900 (ii) O/head as per Secondary distribution
11750; 9000; 6650]

PQ Ltd. has two production departments ‘X’ & ‘Y’ and two service departments ‘A’ and ‘B’. ‘A’ renders service
worth ₹ 15,000 to ‘B’ and the balance to ‘X’ & ‘Y’ as 3:2. ‘B’ renders services to ‘X’ & ‘Y’ as 9:1.
X Y A B
Floor space (sq. Ft) 5,000 4,000 1,000 2,000
Assets (₹ In lakh) 10 5 3 1
H.P of Machines 1,000 500 400 100
No. of Workers 100 50 50 25
Light Points 50 30 20 20
The following figures are extracted from the records of the company for a particular period:
₹
Depreciation 1,90,000
Rent, Rates and Taxes 36,000
Insurance 15,200
Power 20,000
Electricity 4,800
From the above information prepare a statement showing the distribution of the service department expenses
to the production departments.
[(i) Overhead as per primary distribution ₹ 276800; 139800; 74,600; 42,600; 19,800 (ii) Overhead as per
Secondary distribution ₹ 276800; 187680; ₹ 89,120]
7. Overhead [Compiled by Ravi Bhalotia]*
From the following particulars, calculate the overheads allocable to Production departments P and Q. There are
also two Service departments S1 and S2. S1 renders service worth ₹ 6,000 to S2 and the balance to P and Q as 3:2.
S2 renders service to P and Q as 9:1.
P Q S1 S2
Floor Space (Sq. ft.) 2,500 2,000 500 500
Assets (₹ in lakhs) 5 2.5 1.5 0.5
H.P of machines 500 250 200 50
Light and Fans points 50 30 20 20
Expenses and charges: Depreciation – ₹ 95,000; Rent, Rates and Taxes – ₹ 18,000; Insurance – ₹ 7,600; Power
– ₹ 10,000; Canteen Expenses – ₹ 5,400; Electricity – ₹ 2,400.
[Overhead as per primary distribution: Total ₹ 138400; Department P: ₹ 70582, Department Q: ₹ 37846;
Department S1: ₹ 21436; Department S2: ₹ 8536; Overhead as per Secondary distribution ₹ 92927; ₹ 45473]
8. Overhead [Compiled by Ravi Bhalotia]**

In a certain factory, there are two production departments X & Y and two service two departments A& B. Total
expenses of the Service Department A are apportioned between X, Y and B in the ratio 3:2:1 and the expenses of
service Department B are allocated between X and Y equally. From the following particulars calculate the
overheads to be allocated to production Departments X and Y:
X Y A B
Floor space (sq. Ft.) 5,000 4,000 1,000 2,000
Assets (₹ In lakh) 10 5 3 1
H.P of Machines 100 50 40 10
No. of workers 100 50 50 25
Light points 25 15 10 10
Direct wages (₹ ) 10,000 8,000 5,000 3,000
Direct Materials (₹ ) 15,000 10,000 4,000 -
Total expenses and charges are:

₹ ₹
Depreciation 38,000 Insurance on Assets 9,500
Rent, Rates & Taxes 18,000 Canteen expenses 5,400
Power 12,500 Electricity 3,600
[Overhead as per primary distribution ₹ 99,000; 42,650; 723,725; 22,300; 10,325; Total Expenses as per
secondary Distribution of X ₹ 60,821 and Y ₹ 38,179.]
9. Overhead [B.com 2007 Honours, 2000 Honours]****
A company has 3 production departments P1, P2 and P3 and two service departments S1 and S2. The following data
are extracted from the records of the company for a particular given period:
₹
Rent and taxes 5,000
General lightning 600
Power 1,500
Sundries 10,000
Canteen Expenses 650
B: Additional data department wise:
P1 P2 P3 S1 S2
Floor space (sq. feet) 2,000 2,500 3,000 2,000 500
No. of light points 10 15 20 10 5
No of employees 25 20 10 5 5
Direct wages(₹ ) 3,000 2,000 3,000 1,500 500
Indirect Wages (₹ ) 250 500 100 250 150
H.P of machines used 60 30 50 10 ----
Cost of machinery (₹ ) 60,000 80,000 1,00,000 5,000 5,000
Production hours worked 1,892 3,244 5,903 --- ----
Expenses of the service departments S1 and S2 are apportioned as below:
P1 P2 P3 S1 S2
S1 20% 30% 40% --- 10%
S2 40% 30% 20% 10% ----
(a) Compute overhead rate per production hour of each production department.
(b) Determine the total cost of product Y which is processed in department P1, P2 and P3 for 4 hours, 6 hours and
11 hours respectively, given that its direct material cost is ₹ 1,000 and direct labour cost is ₹ 600.
[[(i) O/head as per primary distribution 7600; 7600; 9400; 4700; 1,700 (ii) O/head as per Secondary
distribution 9461; 9733; 11806 (iii) Overhead Absorption Rate: P1 ₹ 5; P2 ₹ 3; P3 ₹ 2; Total cost Rs, 1,660]
10. Overhead**
Swanirvar Co. Ltd. has three Production Departments A, B and C and two service departments D and E. From the
following information available from the records of the company. Calculate the overhead rates per labour hour for
the production Departments.
₹
Indirect materials 15,000
Indirect wages 10,000
Depreciation on building 5,000
Rent, rates & taxes 10,000
Electric power for machinery 15,000
Electric power for lighting 500
General Expenses 15,000
95,500
Items Total A B C D E
₹ ₹ ₹ ₹ ₹ ₹
Direct Material (₹ ) 60,000 20,000 10,000 19,000 6,000 5,000
Direct wages (₹ ) 40,000 15,000 15,000 4,000 2,000 4,000
Value of Machinery 2,50,000 60,000 1,00,000 40,000 25,000 25,000
Floor area (sq. ft.) 50,000 15,000 10,000 10,000 5,000 10,000
H.P of Machinery 150 50 60 30 5 5
No. of light points 50 15 10 10 5 10
Labour hours 15,000 5,000 5,000 2,000 1,000 2,000
The expanses of service departments D and E are to be appointed as follows:
Expenses of A B C D E
D 20% 40% 30% - 10%
E 40% 20% 20% 20% -
[[(i) O/head as per primary distribution 30025; 30975; 17350; 15300; 18850 (ii) O/head as per Secondary
distribution 42235; 42918; 27347 (iii) Overhead Absorption Rate: 8,48; 8,58; 13.67]
11. Overhead [B.com 2008; 2005 Honours] [RKB]****

A company has three production dept. and two service dept. Distribution summary of overheads is as follows:
Production Departments
A ₹ 10,000
B ₹ 15,000
C ₹ 12,000
Service Departments
X ₹ 2,500
Y ₹ 1,000
The expenses of service departments are charged on a percentage basis which is as follows:
A B C X Y
X Dept. 40% 30% 20% ---- 10%
Y Dept. 30% 40% 10% 20% -----
Apportion the cost of Service Departments by using the Repeated Distribution method.
[Total Expenses Dept A ₹ 11,485; Dept B ₹ 16,336; Dept C ₹ 12,679]
12. Overhead**
The company is having three production departments A, B and C and two service departments boiler-house and
pump-room. The boiler-house has to depend upon the pump-room for supply of water and pump-room, in its turn,
is dependent on the boiler-house for supply of steam power for driving the pump. The expenses incurred by the
production departments are: A: ₹ 4, 00,000; B: ₹ 3, 50,000; and C: ₹ 2, 50,000
The expenses for boiler-house is ₹ 1, 17,000 and for pump-room is ₹ 1, 50,000.
The expenses of the boiler-house and pump-room are apportioned to the production departments on the following
basis:
A B C Boiler-house Pump-room
Expenses of Boiler-house 20% 40% 30% --- 10%
Expenses of Pump-room 40% 20% 20% 20% ----
Show clearly as to how the expenses of Boiler-house and Pump-room would be apportioned to A, B and C
departments.
[ O/head as per Secondary distribution 496000; 443000; 328000]
13. Overhead [B.com 2004 Honours] [RKB]*
The factory overhead costs of three production departments of a company engaged in executing job orders for the
accounting year 2004-05 are as follows:
A ₹ 19,300,
B ₹ 4,200,
C ₹ 4,800.
Overhead has been applied as under:
Department A- ₹ 1.50 per machine hour for 14,000 hours.
Department B - ₹ 1.30 per direct labour hour for 3,000 hours.
Department C - 80 % of direct labour cost ₹ 6,000.
Find out the amount of department wise under or over absorb overhead.
[Dept A: Over recovery of overhead ₹ 1,700; Dept B: Under recovery of overhead ₹ 300; Dept C: Nil]
14. Overhead [B.com 2014 Pass] [RKB]*

st
During the year ended 31 March, 2014 the factory overhead costs of three production departments of an
organisation are as under:
₹
A 47,950
B 88,800
C 64,500
The basis of an apportionment of overhead is given below:
Department:
A ₹ 5 per machine hour for 10,000 hours.
B 75% of Direct Labour Cost of ₹ 1, 20,000
C ₹ 4 per piece for ₹ 15,000 pieces.
Calculate department wise under or over absorption of overheads and present the data in a tabular form.
15. Overhead [B.com 2005 Honours] [15 Marks] [RKB]*

Unique Fabricators furnishes the following information for the year 2004:
Departments
Machining Assembling Stores & Maintenance
Direct Labour cost ₹ 2,00,000 ₹ 1,00,000 ----
Floor Space Occupies 50% 30% 20%
Factory Overhead traceable ₹ 1,84,000 ₹ 1,06,000 ₹ 40,000
Factory rent, taxes, and insurance not traceable to departments—₹ 25,000 It has been decided that the cost of
stores and Maintenance can be equitably apportioned to other departments on the basis of direct labour cost.
The machining Departments operates 40 hours a week. There are five machines in the department and every
machine remained idle for280 hours during 2004 for holidays, repairs etc.
Calculate Overhead Absorption rate for Machining Department based on machine hours and overhead Absorption
rate for Assembling Departments based on direct labour cost.
[Overhead absorption rate : Machining Dept - ₹ 25.17 per Machine hour; Assembling Dept : 128.5% of
Direct Wages Total Overhead expenses : Machine Dept : ₹ 2,26,500; Assembling Dept. ₹ 1,28,500]
Machine Hour rate [15 Marks]
1. Machine Hour Rate [B.com 2004 Honours] [10 Marks] [RKB]**
Following are the particulars relating to 3 machines for a particular period of 320 hours:
Machine A Machine B Machine C
Cost of machine ₹ 20,000 ₹ 30,000 ₹ 40,000
Power ₹ 90 ₹ 160 ₹ 300
Direct Wages ₹ 600 ₹ 1,600 ₹ 2,400
Area Occupied 200 Sq mts. 500 sq. mts 800 sq. mts
Numbers of workers 4 10 20
Light points 4 8 12
During the period following expenses were incurred:
₹
Rent and Rates 900
Depreciation 2,700
Power 550
Canteen expenses 102
Lighting expenses 96
Indirect wages 920
Repairs 3,600
Sundries 600
Compute comprehensive machine hour rate for each of the above machines,
[(i) Total: 9468; 1836; 3151; 4481 (ii) Comprehensive Machine hour rate of Machines A: ₹ 7.61; Machine B
₹ 14.85; Machine C ₹ 21.50]
2. Machine Hour Rate [B.com 2012 Pass] [RKB]**

A manufacturing department has three machines, calculate the (i) Machine Hour Rate and (ii) Composite Machine
Hour Rate in respect of three machines from the following information:
Machine A Machine B Machine C
Cost of machine (₹ ) 500000 700000 300000
Hours worked (h₹ ) 2000 5000 2000
Direct wages (₹ ) 4000 8000 6000
Power units 40000 20000 60000
Space (sq. Ft.) 400 300 200
Light points 2 3 4
No. Of workers 5 3 3
The following are the expenses incurred by the departments:
₹
Repairs to machinery 4500
Lighting 1800
Power 600
Depreciation on machinery 15000
Insurance of machinery 15000
Indirect wages 9000
other expenses 5400
3. Machine Hour Rate [B.com 1997 Honours, 1994 Hons] [RKB]**
The particulars relating to four machines are as follows:
I II III IV
Cost (₹ ) 50,000 40,000 30,000 20,000
Area occupied (Sq. ft.) 500 450 300 250
Direct wages (₹ ) 1500 1200 1000 500
No of worker 20 15 8 7
Horse powers of machines 25 20 16 14
Consumable stores (₹ ) 100 80 75 50
The expenses incurred were as follows ₹
Rent and taxes 600
Lighting 140
Depreciation 2800
R&M 700
Power 375
Indirect wages 840
Consumable stores 305
General expenses 420
(a) Compute the comprehensive machine hour rate for a month of 25 working days with 8 working hours on an
average.
(b) Calculate the cost of production of one unit of product A, if the material cost is ₹ 10, labour cost ₹ 20 and if
processed for one hour in machine I, two hours in machine II, three hours in machine III and four hours in
machine IV.
[(i) Total : 10480; 3715; 2990; 2371; 1404 (ii) Comprehensive Machine hour rate of Machines I: ₹ 18.575;
II ₹ 14.95; III ₹ 11.855; IV ₹ 7.02; (iii) Cost of production ₹ 97.62]
4. Machine Hour Rate [ 2016 Pass] [RKB]**

A department is having three machines. The figures indicate the departmental expenses. Calculate the
Machine Hour Rate in respect of these machines from the information given below:
₹
Depreciation of Machinery 12,000
Depreciation of Building 2,880
Repair to Machinery 4,000
Insurance of Machinery 800
Power 6,000
Lighting 800
Miscellaneous Expenses 4,200
Machinery
I II III
Direct Wages Rs. 1,200 Rs. 2,400 Rs. 2,400
Power units 30,000 10,000 20,000
No. of workers 4 8 4
Light points 8 24 48
Space (sq. ft) 400 800 800
Cost of machines Rs. 3,00,000 Rs. 1,20,000 Rs. 1,80,000
Hours worked 200 300 300
5. Machine Hour Rate [Compiled by Ravi Bhalotia]*
The following particulars relate to a new machine purchased:
₹
Purchase price of the machine 4,00,000
Installation charges 1,00,000
Rent 15,000 per quarter
General lighting for the total area 1,000 per month
Foreman’s salary 30,000 per annum
Insurance premium for the machine 3,000per annum
Estimated repairs for the machine 5,000 per annum
Estimated consumable stores 4,000 per annum
Power- 2 units per hour at ₹ 50 per 100 units
The estimated life of the machine is 10 years and the estimated value at the end of the 10th year is ₹ 1 lakh.
The machine is expected to run 20,000 hours in its life time. The machine occupies 25% of the total area.
The foreman devotes 1/6 of his time for the machine.
Calculate the machine hour rate of the machine.
[Ans. Machine hour rate ₹ 38.50.]
6. Machine Hour Rate [B.com 1983 Honours] *

From the following particulars calculate machine hour rate:
Cost of machine ₹ 1,05,000
Rent of shop p.m. ₹ 1,000
Lighting of shop p.a. ₹ 1,500
Repairs p.a ₹ 1,700
Supervisors salary p.m. ₹ 1,200
Insurance premium per quarter ₹ 375
Indirect labour cost ₹ 2 per hour for the machine.
The life of the machine is 10 years with a scrap value of ₹ 5,000. It occupies 1/5th of the shop area and consumes 3 unit
of power per hour @ 33 1/3 paise per unit. Supervisor devotes 1/3rd of his time to the machine. The machine has the
capacity of working 5,000 hours p.a., but it actually works 90 % of capacity.
[Overhead rate per machine hour ₹ 7.60]
7. Machine Hour Rate [B.com 1981 Honours] [RKB]*

Compute machine hour rate of a machine in a shop consisting of 3 machines occupying equal floor space. Following
details are supplied for the machines of which estimated working hours per year are fixed at 2500 hours in which normal
idle time is estimated at 20 % of the standard time.
Rent and taxes of the shop per annum ₹ 3,600
General electricity for the shop per month ₹ 200
Repairs expenses for the machine per annum ₹ 600
Rate of power charge for 100 units (The machine consuming 10 units per hour) 3
Foreman's salary for supervising all the machines, per month 750. Indirect labour cost ₹ 2 per hour for the machine.
The machine costs ₹ 130000 and scrap value is estimated at ₹ 10000 and estimated life is 10 years.The foreman
devotes equal attention to each machine in the shop.
[Overhead rate per machine hour ₹ 11.10]
8. Machine Hour Rate [B.com 1985 Honours] **
From the particulars furnished below compute the machine hour rate:
Particulars ₹
Cost of machine 90,000
Cost of installation 10,000
Scrap value at the end of 10 years 5,000
Indirect wages and materials for the machine 500 per year
Supervision cost for four similar machines 16,000 per year
Insurance premium for the machine 200 Per Quarter
Rent of the machine shop 400 Per month
Electricity cost for the machine shop 100 Per month
Power consumption of the machine is 20 units per actual working hour.
Power cost is 50 paise per unit. The total area of the machine shop is 600 sq. meters of which this machine occupies only
150 sq. metres. There are 200 light points in the machine shop of equal wattage of which this machine utilises only 40
points. It is estimated that the machine will normally work for 2,700 hours in a year, but it is apprehended that the
machine will remain idle for 200 hours.
[Machine hour rate ₹ 16.50]
9. Machine Hour Rate [Compiled by Ravi Bhalotia]**

From the following particulars calculate the Machine Hour Rate:
Cost of machine ₹ 2, 00,000
Installation charges ₹ 20,000
Rent of the shop per month ₹ 3,000
Insurance premium for the machine per annum 1% of capital cost
Electricity charges for the shop per month ₹ 300
Repairs and maintenance per month 0.5% of capital cost
Supervisor’s salary per month ₹ 1,800
Rate of power charges for 100 units ₹ 55
(The machine consumes 16 units of power per hour)
The machine occupies 1/3rd of the shop area. Its life is 10 years and anticipated scrap value is ₹ 10,000. The
supervisor devotes 1/4th of his time to the machine.
Estimated idle time: 50 hours in a year
Normal working days during a year:
250 days of 8 hours
50 days of 5 hours
[Ans. Overhead Rate per Machine Hour ₹ 33.80]
10. Machine Hour Rate [B.com 2013 Honours]**

From the following particulars calculate Machine –Hour rate:
Cost of the machine-₹ 200000
Installation charges of machine-₹ 10000
Rent of the shop per month-₹ 6000
Insurance premium for the machine per annum-2% of capital cost
Electricity charges for the shop per month-₹ 600
Repairs per month- 0.5% of capital cost
Supervisor’s salary per month –₹ 3600
Rate of power charges for 100 units-₹ 60.00
The machine occupies 1/4th of the shop area.
The life of the machine is 10 years and anticipated scrap value is ₹ 20000. The supervisor devotes 1/4th of his
time to the machine.
Estimated idle time: 25 hours a year; Normal Working days during the year: 250 days of 8 hours; 25 days of 5
hours.
11. Machine Hour Rate [B.com 2001 Honours] [RKB]***

Three machines P, Q and R, which are of different nature, are used in a department of a factory. From the following
information, compute machine hour rate of machine R:
(a) Total cost of machine P, Q and R is ₹ 50,000, out of which cost of machine R is ₹ 10,000. Its estimated scrap
value and working life are ₹ 1,000 and 18,000 hours respectively.
(b) Rent (Total area 1000 sq. ft and machine R occupies 250 sq. ft) ₹ 780 p.a
(c) Lighting (Total light points 12, out of which 2 points used for machine R) ₹ 288 p.a.
(d) Insurance for all machines ₹ 45 per quarter
(e) Consumable stores for machine ₹ 60 p.m.
(f) Salary of supervisor (supervisor devotes ¼ th of his time for machine R) ₹ 6000 p.a.
(g) Repairs and maintenance for the entire life of the machine R ₹ 1800
(h) Machine R consume 5 units of power per hour at a cost of ₹ 16 per 100 units.
(i) Machine R will work 2000 hours p.a., out of which normal idle time estimated at 8 % of total working hours and
time for routine maintenance estimated at 40 hours p.a.
[Machine Hour rate ₹ 2.789]
12. Machine Hour Rate [10 Marks] [B.com 2015 Honours] [RKB]***
XYZ Ltd. Furnished the following information of its factory:
Normal working hours 40 hours per week
Normal weekly loss of hours
(Due to maintenance) 4 hours per machine
Number of machines worked 15
Estimated annual overhead ₹ 1, 55,520
Estimated direct wage rate ₹ 3.00 per hour
Number of weeks worked per year 48 weeks
Actual results in respect of a 4 – week period are:
Overhead incurred ₹ 15,000
Wages incurred ₹ 7,000
You are required to –
(a) Calculate the overhead rate per machine hour.
(b) Calculate the amount of under / over absorption.
[ (a) ₹ 6, (b) ₹ 2040; ₹ 520]
13. Machine Hour Rate [10 Marks] [B.com 2006, 2016 Honours] [RKB]***
From the following particulars compute a comprehensive machine hour rate:
(i) Cost of the machine ₹ 1, 00,000; Estimated life: 15 years; Residual value: ₹ 10,000.
(ii) Machine running hours : 2,040 hours per machine per annum including idle time of 40 hours due to
routine repairs and maintenance and 20 hours due to break-down of machine.
(iii) Power consumption of the machine per hour: 20 units; Rate of power per 100 units: ₹ 80.
(iv) There are two operators in the shop and wages, workmen’s compensation insurance, etc. of an operator
who is in-charge of two machines: ₹ 12,000 p.a.
(v) Rent, rates and taxes of the shop: ₹ 4,800 p.a.
(vi) Insurance premium for the machine: ₹ 400 per quarter.
(vii) General lighting of the shop per month: ₹ 600.
(viii) Repairs and maintenance expenses per month: ₹ 400 per machine.
(ix) Shop Supervisor’ salary per month: ₹ 1,500.
(x) Other factory overhead allocated to the shop: ₹ 6,000 p.a.
There are four identical machines in the machine shop. The supervisor devotes one-fifth of his time for
supervising the machine.
14. Machine Hour Rate [B.com 2008, 1999 Honours]*

A machine shop has 6 identical machines manned by 5 operators The machine cannot be worked without an
operator wholly engaged on it. The original cost of all these 6 machines works out at ₹ 6 lakhs.
The following estimates are available for the year 1999:
Normal working hours per month 220 hours
Absenteeism (without pay) per month 20 hours
Leave with pay per month 20 hours
Normal idle time (unavoidable) 20 hours
Average rate of wages per day of 8 hours ₹ 40
Production bonus 15 % of wages
Cost of power for the period ₹ 20,700
Supervision and indirect labour cost for the year ₹ 8,100
Lighting and electricity per annum ₹ 3,070
Repairs and maintenance of machines 2 % of the value of machines p.a.
Insurance Charges ₹ 30,000 P.a.
General management expenses as allocated for the year ₹ 84,000
Depreciation under straight line method 15% on original cost of machines
You are required to workout a Comprehensive Machine Hour Rate for the machine shop.
[Wages for operators ₹ 60,000; Wages & Total Overhead ₹ 3,16,870; Comprehensive Machine hour rate ₹
33.00]
Cost & profit reconciliation statement [10 Marks]
1. Cost & profit reconciliation statement [B.com 2005 Honours]*
From the following data prepare a Reconciliation Statement to find profit as per financial Accounts :
₹
Profit as per cost accounts 2,50,000
Works overheads over-absorbed 20,000
Administration overheads under-absorbed 45,000
Under valuation of Opening Stock in Cost Accounts 15,000
Bad debt written off during the year 14,000
Preliminary expenses written off during the year 10,000
[Ans.: Profit as per Financial Accounts ₹ 1,86,000]
2. Cost & profit reconciliation statement [B.com 2015 Pass]*

From the following figures, prepare a reconciliation statement to determine net profit as per financial books:
₹
Net profit as shown the cost books 2, 80,000
Depreciation shown excess in cost books 4,000
Interest on investment received 2,000
Provision for income tax 80,000
Income received from transfer fees 300
Factory overhead under – recovered in cost books 6,000
Office expenses under – recovery in financial books 2,000
[Ans.: Profit as per Financial Accounts ₹ 2,02,300]

From the following particulars prepare a Reconciliation Statement.
i. Profit as per Cost Account was ₹ 75,150.
ii. Works overhead were under-recorded in Cost Accounts ₹ 2,000.
iii. Depreciation charges were over-recorded in Cost Accounts ₹ 500.
iv. Rent received during the year ₹ 1,500.
v. Bad debt written off during the year ₹ 1,000.
vi. Provision for Income Tax made in financial Accounts ₹ 10,000.
vii. Stores adjustment (credited in Financial Books) ₹ 475.
[Ans.: Profit as per Financial Accounts ₹ 64625]

From the following particulars prepare a Reconciliation Statement:
i. Profit as per Cost Accounts were ₹ 1, 50,300.
ii. Works Overhead were under-recorded in Cost Accounts ₹ 4,000
iii. Depreciation charges were over-recorded in Cost Accounts ₹ 1,000
iv. Rent received during the year ₹ 3,000
v. Bad Debt written off during the year ₹ 2,000
vi. Provision for Income Tax made in Financial Accounts ₹ 20,000.
From the following figures, prepare a Reconciliation Statement:
₹
Net Profit as per Cost Accounts 66,760
Net Profit as per Financial Accounts 65,120
Factory overhead under-recovered in costing 5,700
Administration overhead recovered in excess 4,250
Depreciation charged in Financial Accounts 3,660
Depreciation recovered in costing 3,950
Interest received but not included in Cost Accounts 450
Income Tax provided in Financial books 230
Stores Adjustment (credited in Financial books) 420
Dividend apportioned in Financial Accounts 860
Loss due to theft provided only in Financial books 260

Prepare a Reconciliation statement from the following data:
₹
Net loss as per cost Accounts 344800
Works overhead under-recovered in cost accounts 6240
Depreciation over charged in cost accounts 2600
Administration overheads under charged financial accounts 3400
Interest on investment 17500
Goodwill written off in financial accounts 11400
Income tax paid 80600
[Ans.: Profit as per Financial Accounts ₹ (419540)]
7. Cost & profit reconciliation statement [10 Marks] [Compiled by Ravi Bhalotia]*
Prepare a Reconciliation Statement from the following information
₹
Net Loss as per cost Records 3,44,800
Work Overhead Under Recovered 6,240
Office Overhead recovered in excess 3,400
Depreciation: Financial Accounts 22,400
Cost Accounts 25,000
Closing Stock: . Cost Accounts 1,04,000
Financial Accounts 99,200
Opening Stock: Cost Accounts 1,05,200
Financial Accounts 1,08,000
Provision for Bad Debts 300
Preliminary Expenses written off 1,600
Rent of the Factory Premises owned by the Proprietor but not actually paid 12,000
Goodwill written off 8,000
Discount Received 2,000
[Net loss as per financial Accounts ₹ 3,48,540]
From the following information, prepare a reconciliation statement:
As per financial Records As per cost Records
₹ ₹
Closing Stock 8,160 ₹ 8,560
Factory Expenses 24,260 21,000
Office Expenses 10,680 10,000
Selling expenses 14,200 15,000
Depreciation 2,200 1,600
Rent Received 5,200 ------
Net Profit 40,600 39,540

Prepare a reconciliation statement from the following information:
Particulars As per financial records As per cost records
Closing stock 8160 8560
Factory expenses 24260 21000
Office expenses 10680 1000
Selling expenses 14200 15000
Depreciation 2200 1600
Rent received 5200 -
Net profit - 39540
10. Cost & profit reconciliation statement [Compiled by Ravi Bhalotia]*

From the following figures prepare a Reconciliation Statement:
₹
Net Profit as per financial records 1, 28,755
Net profit as per costing records 1, 72,400
Works overhead under-recovered in costing 3,120
Administration overhead recovered in excess 1,700
Depreciation charged in financial records 11,200
Depreciation recovered in costing 12,500
Interest received but not included in costing 8,000
Obsolescence loss charged in financial records 5,700
Income tax provided in financial books 40,300
Bank interest credited in financial books 750
Stores adjustments (credit in financial books) 475
Depreciation of stock charged in financial books 6,750
11. Cost & profit reconciliation statement [Compiled by Ravi Bhalotia]****

In a factory, works overheads are absorbed at 60% of Labour Cost and office overheads at 20% Works Cost.
Prepare (i) Cost Sheet (ii) Profit & Loss Account and (iii) Reconciliation Statement if Total Expenditure consists
of Material ₹ 2, 00,000; Wages ₹ 1, 50,000; Factory Expenses ₹ 1, 00,000 and Office Expenses ₹ 1,00,000.
10% of the Output is Stock at the end and Sales are ₹ 5, 20,000.
[Ans. Profit as per financial accounts: 15,000; as per cost ₹ 44,800]
12. Cost & profit reconciliation statement [B.com 2009 Honours]****
The Trading and Profit & Loss A/c of ABC Ltd. for the year ended 31.12.08 were as follows:
₹ ₹
To Purchases 42,000 By Sales 1,43,000
To Direct Wages 20,000 By Closing Stock 2,000
To Manufacturing Overhead 24,000
To Gross Profit c/d 59,000
1,45,000 1,45,000
To Administrative Expenses 10,000 By Gross profit 59,000
To Selling & Distribution Expenses 16,000
To Depreciation 2,000
To Net Profit 31,000
59,000 59,000
The following information was available for the Cost Accounts:
(i) Closing stock of goods — ₹ 4,000
(ii) Manufacturing overhead was applied @ 150% on Direct Wages,
(iii) Administrative, Selling & Distribution expenses were 10% on sales,
(iv) Depreciation charged ₹ 2,400.
You are required to reconcile the profit of Financial Accounts with that of the Cost Accounts.
[Ans. Profit as per cost records ₹ 24,000.]
13. Cost & profit reconciliation statement [B.com 2015 Honours]****

The following is the Trading and Profit & Loss A/C of PKB Ltd. For the year ended 31.12.2014:
₹ ₹
To Materials 90,000 By Sales (4800 unit) 1,92,000
To Wages 66,000 By Closing Stock (1200 units) 40,800
To Work expenses 48,000
To Administrative exp. 12,000
To Net Profit 16,800
2,32,800 2,32,800
The company’s cost records show that:
(a) Works overhead have been absorbed at ₹ 7 per unit produced and
(b) Administrative overheads have been absorbed at ₹ 3 per unit produced.
Assuming there is nothing by way of work- in – progress either at the beginning or at the end and there is no
opening stock of finished goods, prepare:
i. A statement of cost indicating the net profit; and
ii. A statement reconciling the profit as disclosed by cost accounts and that shown in financial accounts.
[Ans. Profit as per cost records ₹ 19,200]
Cost Ledger [Honours: 10 Marks]
1. Cost ledger [Compiled by Ravi Bhalotia]*
The following transactions took place for the month of March in ABC Co. Ltd. Enter the following transactions in
the cost books:
₹
Materials purchased in credit 3,000
Material purchased in cash 1,000
Credit Purchases for a special job 500
Return to supplier 250
Direct material issued to jobs 2,000
Indirect material issued to jobs 500
Material returned from jobs to store 200
Material transferred from job No. 10 to job no. 20 50
2. Cost ledger [Compiled by Ravi Bhalotia]****

Pass journal entries in the cost Books for the following transaction:
(a) Materials worth ₹ 25,000 returned to stores from the job
(b) Gross total wages paid ₹ 48,000
(c) Employer’s contribution to P.F and State Insurance ₹ 2,000
(d) Wages analysis books detailed showed that ₹ 20,000 towards direct labour, ₹ 12,000 towards indirect factory
labour, ₹ 10,000 towards salaries, etc to office staff and ₹ 8,000 for salaries etc to selling and dist staff.
3. Cost ledger [Compiled by Ravi Bhalotia]****

Pass journal entries for the following transactions in a double entry cost accounting system :
(a) Issued material : ₹
Direct 5,50,000
Indirect 1,50,000
(b) Allocation of wages and salaries:
Direct 2,00,000
Indirect 40,000
(c) Overheads absorbed in jobs:
Factory 1,50,000
Administration 50,000
Selling 30,000
(d) Under/over-absorbed overheads:
Factory (over) 20,000
Administration (under) 10,000
4. Cost ledger [B.com 2016 Honours]*

Pass necessary journal entries in cost records for the following:
(a) Materials (direct) amounting to Rs. 42,000 are issued to production
(b) Depreciation of factory equipment Rs. 9,600
(c) Goods completed and transferred to finished stock Rs. 72,000
(d) Factory overhead incurred Rs. 15,000 (of which Rs. 3,000 left unpaid)
(e) Office overhead recovered Rs. 16,000.
5. Cost ledger [B.com 2015 Pass]*
Journalise the following transactions in the cost ledger under Cost Control Accounts:
₹
Raw materials purchased 50,000
Direct materials issued to production 30,000
Wages paid (70% Direct) 40,000
Manufacturing expenses incurred 30,000
Manufacturing expenses charged to production 40,000
Selling and distribution expenses incurred 5,000
Selling and distribution expenses recovered 4,000
Sales 1, 00,000
6. Cost Ledger [B.com 2007 Honours] [10 Marks]***

From the following information prepare necessary accounts in the cost ledger:
Opening Balance Closing Balance
₹ ₹
Work-in-progress 3,800 2,500
Materials 22,000 15,000
Finished Stock 17,000 32,000
Transactions during the period: ₹
Materials Purchased 58,000
Direct Wages 21,000
Electricity Charges 20,000
Factory overhead incurred 27,000
Factory overhead applied 26,000
Selling, distribution and administration expenses incurred 28,000
Selling, distribution and administration expenses charged to finished stock sold 29,000
Sales 1,86,000
[Cost profit ₹ 38,700; Material issued ₹ 65,000 Finished stock produced ₹ 1,33,300; Finished goods sold at
cost ₹ 1,18,300; Under absorption of Factory O/H ₹ 1,000; Over absorption of Selling and Distribution
O/H ₹ 1,000]
7. Cost ledger [Compiled by Ravi Bhalotia]***********

From the following details show the necessary accounts in the Cost Ledger:
Opening balance Closing balance
₹ ₹
Materials 8,000 11,000
Work-in-Progress 5,000 9,000
Transaction during the period: ₹
Wages paid (including 2,000 indirect wages) 10,000
Overhead incurred 8,000
Overhead (recovered 9,000)
Sales 50,000
[Ans. Direct material issued to production ₹ 22,000; Cost of completed work ₹ 35,000; Cost of goods sold
₹ 33,000; Profit ₹ 16,000]
8. Cost ledger [B.com 2014 Honours]
From the following information, prepare the necessary ledger accounts in the cost -ledger:
Opening Balance Closing Balance
₹ ₹
Store-ledger control A/c 20,000 25,000
Work-in-progress control A/c 14,000 18,500
Finished stock control A/c 16,500 17,500
Following transactions took place during the period:
Material purchased - ₹ 47,500
Direct wages paid - ₹ 25,000
Overhead incurred - ₹ 12,500
Overhead recovered - ₹ 17,000
Sales - ₹ 80,000
[Profit ₹ 5,500]
9. Cost Ledger [B.com 2012 Pass] [10 Marks]***

The following are the balances in the cost ledger of a manufacturing company on 1st January, 2011
Dr. (₹ ) Cr. (₹ )
Stores Ledger 9,000
Work-in-progress ledger 8,000
Finished goods ledger 10,000
Financial ledger - 27,000
Summary of the transaction during the year 2011:
₹
Material purchased 15,000
Materials issued to jobs 16,000
Materials issued for repairs in factory 2,000
Direct wages paid 10,000
Indirect wages paid 2,000
Factory expenses paid 8,000
Administration expenses paid 9,000
Selling expenses paid 5,000
Cost of finished goods produced 40,000
Cost of finished goods sold 55,000
Sales 90,000
Prepare control Accounts and Costing Profit and Loss Accounts in the cost Ledger assuming that the overheads
recovered and incurred are the same and that administration overheads are charged to finished goods
[Profit ₹ 30,000; General Ledger control ₹ 16,000]
Contract costing [15 Marks]
1. Contract costing [B.com 2015 Pass] [RKB]*
From the following particulars in respect of Contract No. 111, prepare a contract A/c for the year ended
31.03.2015:
₹
Contract price 40,000
Materials issued 7,200
Wages paid 11,000
General charges 400
Plant installed 2,000
Materials in hand 400
Wages accrued 400
Work certified 20,000
Cash received in respect thereof 15,000
Cost of work not yet certified 600
Plants were installed at the beginning of the year and Depreciation is chargeable @ 10% p.a.
[Total cost of contract till date ₹ 18,800; Notional profit ₹ 1,800; Transfer to P/L ₹ 900]

From the following particulars relating to a contract, prepare Contract Account for the year ended 31.3.2014:
Materials issued ₹ 40,000; wages paid ₹ 15,000; Direct Expenses ₹ 3,000; overhead expenses ₹ 5,000;
Cost of Plant installed ₹ 25,000; Sale of Scrap ₹ 1,000; Work certified ₹ 80,000; Work un-certified
₹ 5,000. Materials at site on 31.3.2014 ₹ 2,000; Contract price ₹ 1,00,000. Depreciation on Plant 20% p.a.
Cash received from Contractee ₹ 60,000.
[Total cost of contract till date ₹ 65,000; Notional profit ₹ 20,000; Transfer to P/L ₹ 10,000]
3. Contract costing [B.com 2016 Honours] [RKB]*

Sinha & Co. undertook a contract to construct a building for which the following information are supplied on
31. 12. 15. Construction started on 1st January ‘ 15.
₹
Contract Price 16,00,000
Materials sent to site 3,00,000
Wages paid 3,60,000
Wages unpaid 2,000
Other Expenses 52,000
Plant sent to site 4,00,000
Cash received 7,20,000
Materials returned to stores 10,000
Materials lying unconsumed 16,000
Materials stolen from site 20,000
Insurance claim admitted for materials stolen 14,000
Work - uncertified 22,000
Plant is subject to depreciation @ 7.5% p.a. and cash has been received for 90% of work – certified.
Prepare Contract A/c and Direct Materials Stolen A/c in the books of Sinha & Co. for the year ended 31st
December 2015.
[Cost till Date ₹ 698000; Notional Profit ₹ 124,000; Transfer to P/L ₹ 74,400]
4. Contract costing [B.com 1987 Honours, 2012 Pass] [RKB]*
From the following information in respect of a contract for the year ended 31-12-02, prepare contract A/c
₹
Material sent to site 1,90,000
Wages paid 1,20,000
Wages outstanding 5,500
Direct expenses 60,000
Establishment charges 52,000
Special plant installed at cost 2,00,000
Cost of work not certified 25,000
Value of special plant as on 31-12-2002 1,70,000
Material at site as on 31-12-02 21,000
Total contract price 12,00,000
Sale of scrap 2,000
Retention---10% of work certified
General plant 1,20,000 was used for 3 months. Depreciation on that is to be provided at 15% per annum.
[Notional profit ₹ 2,46,000; Transfer to P/L ₹ 1,47,600]

A firm of building contractors undertook a contract for ₹ 3,50,000. The following particulars are furnished for the
year ended 31st December, 2011:
₹
Materials:
Direct purchased 30,000
Issued from stores 10,000
Wages for Labour 40,000
General Plant in use:
Written down value 90,000
Depreciation thereon 10,000
Direct Expenses 2,500
Subcontract charges 6,000
Share of general overhead 2,000
Materials in hand on 31.12.2011 2,000
Material lost by fire 500
Salvage value thereof 150
Direct Expenses accrued on 31.12.2011 1,000
Outstanding wages on 31.12.2011 6,000
Cash Received (90% of work certified) 1,62,000
Cost of uncertified work 5,000
Prepare Contract Account.
A firm of building contractors undertook a contract for ₹ 3, 00,000. The following particulars are furnished for
the year ended 31st December, 2013:
Materials: ₹
Direct purchases 40,000
Issued from stores 20,000
Wages for Labour 30,000
General Plant in use:
Written down value 80,000
Depreciation thereon 10,000
Subcontract charges 6,000
Share of general overhead 2,000
Outstanding wages on 31.12.2013 2,000
Direct expenses accrued on 31.12.2013 2,000
Cash received (80% of work certified) 1,60,000
Prepare contract account, value of work-in-progress and show how the various items would appear in the Balance
Sheet.

From the following particulars prepare Contract Account for the year ended 31st March, 2013:
Particulars ₹ Particulars ₹
Materials Issued 85,000 Materials returned to Stores 600
Wages Paid 74,000 Work Certified 1,95,000
Direct Expenses 4,000 Cost of Work not Certified 4,500
Establishment Charges 3,000 Cash Received 1,80,000
Plant Installed 15,000
Wages Unpaid 2,400
Direct Expenses unpaid 1,500
Value of Plant (31.03.2013) 11,000
Material in hand (31.03.2013) 2,000
8. Contract costing [B.com 2008 Honours] [RKB]**

The following particulars are available in respect of a contract as on 31st March 2008.
₹
Contract price 5,00,000
Total Cost of Contract upto date 2,87,500
Retention money @15% Compute the amount of profit that may be credited to Profit and Loss Account and the
value of Work-in-Progress.
[Notional Profit ₹ 37,500; Profit transferred to Profit & Loss A/c ₹ 21,250, Value of work-in-progress ₹
3,08,750]

The following particulars relate to a contract undertaken by a firm of engineers:
₹
Material consumed 65,000
Labour 24,000
Plant at cost 15,000
Establishment charges 4,000
Materials in hand (31st December) 1,800
Wages outstanding 2,500
Value of plant (31st December) 10,000
Materials returned to stores 500
Cash received (in respect of 80% of work certified) 1,00,000
Cost of work uncertified 4,500
The contract price was agreed at ₹ 2,00,000. Prepare Contract Account.
[Notional profit ₹ 26,000; Transfer to P/L ₹ 13,867]

The following information relates to a contract for ₹ 12,00,000. (The paying 90% of the value of work done as
certified by the Architect and ob completion of the contract):
₹
Material issued from stores 2,85,000
Materials purchased for the contact 91,000
Normal loss of materials 1,960
Plant installed at the site 1,76,000
Wages paid to the workers 4,62,000
Direct expenses paid for the contract 53,000
Overhead expenses paid 39,000
Of the plant and materials charged to the contract, plant which cost ₹ 9,600 and materials costing ₹
8,400 were lost. Work certified ₹ 9,70,000. Charge depreciation on plant @ 10% p.a.
Prepare Contract Account.
[Notional Profit ₹ 24,600; Profit transferred to Profit & Loss A/c ₹ 14,760]

On 1.4.06, Bright Ltd. under took, a contract to construct a building for ₹ 25,00,000 and furnishes the following
details for the year ended 31.3.07 :
₹
Direct Purchase of Materials 3,75,000
Issued from Stores 1,25,000
Wages incurred 7,00,000
Apportioned H.O Expenses 40,000
Subcontract Charges 30,000
Other works expenses (10 % of wages) -------
Plant installed at cost 2,00,000
Materials returned to stores 7,000
Cost of Plant transferred to another 50,000
Contract on 1.7.06
Material stolen from site 10,000
Insurance claim received 3,000
Sale of unused Materials (cost ₹ 8,375) 5,000
Cash Received 12,80,000
Retention Money 20 %
Depreciation to be charged on plant @ 15 %
Prepare Contract A/c in the books of Bright limited showing therein the amount of profit/loss transferred to P/L.
[Notional Profit ₹ 2,82,000; Profit transferred to Profit & Loss A/c ₹ 1,50,400]

DS Ltd, started a contract on 1st June, 2003 for construction of a link road for a contract price of ₹ 5,00,000 to be
completed by 31st March, 2005. The budgeted cost of the contract was ₹ 4,50,000. The following particulars are
obtained for the year ended 31st March, 2004:
₹
Materials issued from stores 48,000
Materials bought direct to site 40,000
Materials from other contract 24,500
Material at site (closing) 6,000
Material returned 2,000
Material lost in accident 8,000
Wages paid 74,500
Plant issued to site at WDV 30,000
Hire charges of plant 38,500
Supervision expenses 13,500
Normal loss of materials 2,000
Uncertified work in progress 17,500
Share of other expenses 5,500
Paid to sub contractors 25,000
Outstanding wages on 31-3-2004 1,500
Payment due to sub contractors on 31-3-2004 2,000
Value of work certified . 2,75,000
Advance from contractee (90 % of work certified) ?
Sale of unused material (cost 10,000) 8000
Opening balance of plant lost in accident 6000
Depreciation @ 20% p.a.
Draw the Contract A/c and Contractee’ s A/c. Also compute the value of work in progress.
[Notional profit ₹ 40,500; Transfer to P/L ₹ 24,300; Value of work in progress ₹ 2,76,300; Balance of
contractee’s account ₹ 2,47,500]
13. Contract costing [B.com 2009 Honours, 1989 Honours, 2013 Honours type]****
Ambuja Construction Ltd. entered into a contract to construct a building. The contract value was ₹ 13,00,000 to
be realised in instalment on the basis of value of work-certified by the architect subject to a retention of 10%. The
work commenced on 1.4.08 but it remained incomplete on 31.12.08 when the final accounts are to be prepared.
The facts and figure of the contract are:
₹
Materials issued to contract 3,60,000
Wages paid 1,74,000
Expenses incurred on the contract 77,500
Plant sent to site on 1.4.08 64,000
Wages unpaid 6,300
Total establishment expenses amounted to ₹ 82,000 out of which 25% is attributable to the contract. Out of
materials issued to the contract, materials costing ₹ 8,000 were sold for ₹ 12,000. A part of the plant (cost ₹
4,000) was damaged on 1.10.08 and scrap realised only ₹ 600. Plant costing ₹ 6,000 was transferred to another
contract on 31. 12.08.
Plant is to be depreciated @ 10% p.a. Material in hand on 31.12.08 was ₹ 35,000. Cash received from the
Contractee was ₹ 6,12,000. Cost of work yet to be certified was ₹ 60,000.
Prepare Contract Account and Contractee Account in the books of Ambuja Construction Limited.
[Ans. Notional Profit ₹ 1,40,000; Amount charged to Profit & Loss A/c ₹ 84,000.]
14. Contract costing [B.com 1998 Honours] [RKB]****

Deluxe Limited undertook a contract for ₹ 5,00,000 on 1st January, 1997. The company furnished the following
details for the year ended 31st December, 1997.
₹
Material consumed 1,65,000
Wages 30,000
Material returned to stores 5,000
Material stolen from site 10,000
Insurance claim admitted 6,000
Other works expenses @ 20% on wages
Office expenses @ 10% on work cost
Materials in hand on 31st December, 1997 15,000
Cash received to the extent of 90% of work certified 2,70,000
Cost of work uncertified 11,000
Plant sent to site cost ₹ 60,000 with a scrap value of ₹ 10,000 and a useful life of 5 years.The plant was used for
146 days. Prepare Contract account. Also Show also the value of work-in-progress separately.
[Notional profit ₹ 80,000; Transfer to P/L ₹ 48,000; Office expenses ₹ 21,000; Work cost ₹ 2,10,000]
15. Contract costing [B.com 2016 Pass type] **
United Construction Company got a contract in January, 2001 for construction of a bridge. The contract price
was ₹ 5, 00,000. The company incurred the following expenses upto 31.12.01:
₹
Material issued 1, 10,000
Wages 40,000
Plant purchased on 30.6.01 1, 00,000
Materials in hand 5,000
Depreciation to be charged on plant @ 10% annum.
Other works expenses to be charged @ 20% of wages and office expenses @ 10% work cost.
The amount certified by the engineer upto 31.12.01 was ₹ 3, 00,000, retention money being 20% of the
certified value.
Prepare a Contract Account showing therein the amount of profit or loss to be transferred to profit and loss
account.
[Total cost ₹ 195800; Net profit ₹ 106200; P/L ₹ 56640]
16. Contract costing [B.com 2000 Honours] [RKB]********

P Ltd has supplied the following information in respect of an incomplete contract as on 31-03-2003;
Contract A Contract B
₹ ₹
Contract price 2,40,000 1,50,000
Work certified 2,16,000 1,00,000
Estimated cost of completion of contract 2,10,000 1,20,000
Cash received 1,60,000 80,000
Uncertified work 10,000 7,000
Cost of contract 1,80,000 95,000
(Expenditure incurred upto 31.03.2003)
Calculate the profit to be carried to P/L A/C for the year –ended 31.03.03
[Contract A: Estimated Profit ₹ 30,000; Transfer to P/L ₹ 20,000; Contract B: Notional Profit ₹ 12,000;
Transfer to P/L ₹ 6,400]
17. Contract costing [Compiled by Ravi Bhalotia]****

Compute a conservative estimate of profit on a contract (Which is 80% complete) from the following
particulars. Illustrate at least 4 methods of computing the profit:
₹
Total expenditure to date 85,000
Estimated further expenditure to complete the contract (including contingencies) 17,000
Work certified 1,00,000
Work uncertified 8,500
Cash received 81,600
[Estimated profit ₹ 51,000; Transfer to P/L 27,200; 33,333; 42,500; 34680; 12784]
The following information relates to a road contract for ₹ 10,00,000.
1994 1995
₹ ₹
Material 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 not Certified 8,000 -
Materials at site 5,000 7,000
Plant purchased 14,000 2,000
Cash received from Contractee 6,00,000 4,00,000
The value of plant at the end of 1994 and 1995 were ₹ 7,000 and 5,000 respectively.
Prepare the Contract A/c and Contractee A/c for the year 1994 and 1995 taking into consideration such profit for
transfer to profit and loss A/c, as you think proper.
[For 2004: Notional profit ₹ 1,98,000; Transfer to P/L ₹ 1,05,600; for 2005: Profit ₹ 1,32,000]

M/s. Eastern contractors undertook a contract for construction of a Highway on 1st April, 2014. The
following expenses were incurred during the year ended on 31st March, 2015 :
₹
Stores purchased 8,000
Direct wages 25,000
Plant issued 40,000
Sub – contract cost 20,000
Other information:
a) The contract price as per agreement was ₹ 1, 00,000.
b) Depreciation to be charged on plant @ 20% p.a.
c) 25% of the plants were destroyed in an accident on 30.09.2014.
However, a compensation of ₹ 5,000 was realised from insurance company.
d) Materials transferred to another contract ₹ 8,000, returned to store ₹ 2,000.
e) Balance of materials and stores at site were ₹ 7,000 and ₹ 3,000 respectively besides the plants.
f) Cost of work completed but not certified ₹ 10,000 and cost of work not completed and not certified
₹ 3,000. Surveyors fees due ₹ 4,000.
g) The architect had certified 4/5th of the contract. Cash was received 90% of work certified.
h) Charge for establishment expenses @ 20% of direct wages and office overhead @ 10% works cost.
Prepare Contract A/C and Contractee A/c
[Work Cost ₹ 89,000; Notional Loss ₹ 7,900]
Operating costing [15 Marks]
1. Operating Costing [B.com 2001 Honours] [RKB]**
A truck starts with a load of 10 tonnes of goods from station D. It unloads 3 tonnes at station E and rest of goods
at station F. It reaches back directly to station D after getting reloaded with 8 tonnes of goods at station F. The
distance from D to E, E to F and then from F to D are 80 Kms, 120 Kms and 160 Kms, respectively. Compute
tonne - kms for the truck service.
[Absolute tonne Km = 2,920; Commercial tonne Km = 3,000]
2. Operating Costing [B.com 2002 Honours] [RKB]*

A Truck carried 45 tonnes during a six-day week & travelled a total distance of 135 miles as given below:
Day Tonne Carried Distance Travelled (Miles)
Monday 5 10
Tuesday 10 20
Wednesday 5 30
Thursday 10 40
Friday 10 25
Saturday 5 10
Total 45 135
Calculate Tonne-Miles for the week.
[Absolute tonne miles = 1,100 tonne miles; Commercial tonne miles = 1,012.5 tonne miles]
3. Operating Costing [B.com 2004 Honours] [RKB]*

A truck carries goods covering a distance of 60 km each way. On upward journey, freight is available for its full
capacity, but on downward journey, only 25% of its capacity is filled up. The truck runs on an average 20 days a
month. Compute tonne-km per month for the truck if the capacity of the truck is 10 tons.
[Absolute tonne Km = 15,000 tonne km; Commercial tonne Km = 15,000 tonne km]

X & Company runs a bus between two places covering a distance of 30 kms. Seating capacity of the bus is 30
passengers. The expenses for the month of May 2006 were as follows:
₹
Salary of driver, conductor and other staffs 10,000
Diesel, oil & lubricants 6,000
Repairs & Maintenance 1,600
Depreciation 4,000
The bus ran 25 Days in May, 2006 making two round trips per Day. 60 % of the capacity was utilised.
(a) Find cost per passenger km. (b) What will be the fare per passenger if the company wants to maintain a profit
of 20 % on sales.
[Total passenger km per month = 54,000 kms; Cost per passenger km = 0.40; fare per passenger km Re.
0.50; fare/passenger: ₹ 15]
5. Operating Costing [B.com 2014 pass]***
From the following particulars, calculate the cost per passenger kilometre:
Paribahan Transport Company is running 5 buses for 100 kms. In each trip. Each vehicle makes two round
trips daily. The seating capacity of each bus is 30 and 80% of the capacity is actually utilized. The buses run
for an average period of 25 days in a month. The total operating cost for 5 buses is ₹ 90,00,000 for a month.
[Total passenger km per month = 12,00,000; Cost = ₹ 7.50/Passenger km]
6. Operating Costing [B.com 2009 Honours Old, 2006]**

A transport company runs 5 buses between two places covering a distance of 25 kms. Seating capacity of
each bus is 50 passengers. Generally 80% seating capacity is utilised in each bus. All buses run 25 days a
month each making 4 round trips daily. If total operating cost during a month for all the five buses is ₹ 16
lakhs and profit on taking is assumed to be 20%. Calculate the bus fare to be charged for each
passenger/km.
[Fare per passenger km = ₹ 2; Total passenger km per month = ₹ 10,00,000]

Volvo Company runs 10 buses between Airport and Tollygunge covering a distance of 25 kms. Seating capacity
of each bus is 60 passengers. The expenses for the month of December,2012 were as follows:
₹
Salaries of Drivers and conductors 3,60,000
Salaries of mechanical staff 36,000
Diesel, oil and lubricants 2,40,000
Taxes, insurance etc. 31,200
Repairs and maintenance 48,000
Depreciation of the buses 1,92,000
80% seating capacity was utilized in each cases. All buses run 25 days during the month. Each bus runs 4 round
(up-down) trips daily. Calculate the cost per passenger-kilometer and passenger-fare for one-way journey if
company makes a profit of 25% on cost.
[Total Cost ₹ 907200; ₹ 0.378; ₹ 11.81]
8. Operating Costing [B.com 2016 pass]*

Calculate the Cost per running km. for a Motor Van from the following information of AB Transport Ltd.
Kilometre run (annual) – 30,000
Cost of Motor Van ₹ 12,00,000
₹
Road License (Annual) 24,000
Insurance (Annual) 36,000
Garage Rent (Annual) 10,000
Supervision Expenses (Annual) 96,000
Driver’s Monthly wages 10,000
Cost of Petrol per litre 60
Repairs and Maintenance per km. 6.40
Tyre Cost (Average) per km 4.00
Km. run per litre of Petrol 15
Estimated life of Motor Van 1,20,000 Km
[Cost per running km = ₹ 33.93]
9. Operating Costing [B.com 2015 pass]***
A taxi owner supplies the following information:
Cost of taxi ₹ 5,00,000 with total life of 2,50,000 km. Driver’s salary ₹ 5,000 p.m.; Cleaner’s salary ₹ 500 p.m. ;
Repairs ₹ 12,000 p.a. ; Garage rent ₹ 700 p.m. ; Road tax ₹ 4,800 p.a. Diesel consumption 8 km per litre ; Diesel
cost ₹ 56 per litre ; Oil and sundries ₹ 50 per 125 km. The taxi runs 100 km per day for an average of 25 days a
month. 20% of the distance has been run without any passenger. Calculate the cost of running the taxi per km.
[₹ 15.55]
10. Operating Costing [B.com 2013 Pass] [RKB]**

A lorry owner submits the following information for the month of April, 2012:
Kilometers run for the month 30,000
Wages paid ₹ 10,000
Petrol, oil etc. ₹ 8,000
Repairs ₹ 6,000
Garage rent ₹ 4,000
Road tax, license, insurance etc. for the year 2012-13 ₹ 6,000
Original cost of lorry ₹ 10, 00,000
Depreciation 20% p.a. on original cost
Prepare a statement for April, 2012 showing the cost per running kilometer.
[₹ 45167/30,000 = ₹ 1.51]

Mr. Trideb Saha has started a transport business with a fleet of 10 taxis. The various expenses incurred by him are
given below:
Cost of each Taxi - ₹ 3, 00,000
Salary of office staff - ₹ 6,000 p.m.
Salary of Drivers - ₹ 8,000 p.m. per taxi
Salary of Garage staff - ₹ 1,600 p.m.
Garage Rent - ₹ 4,000 p.m.
Annual Road Tax & Repairs - ₹ 8,640 per taxi
Insurance premium @ 5% of cost of each taxi p.a.
The life of each taxi 3, 00,000 kms and at each of which it is estimated to be sold at ₹ 60,000. A taxi runs on an
average 4,000 km per month, 20% of which it runs empty. Petrol consumption is one litre per 10 km. Cost of
petrol is ₹ 50.00 per litre. Other sundry expenses amounted to ₹ 40.00 per 100 km.
Calculate the effective cost of running a taxi per kilometre.
[Expenses ₹ 35,930 p.m; ₹ 11.23]
12. Operating Costing [Compiled by Ravi Bhalotia]****
A company owns a number of taxis and the following information is available from the records maintained by the
company :
(a) Number of taxis 10
(b) Cost of each taxi ₹ 20,000
(c) Salary of manager ₹ 600 p.m.
(d) Salary of accountant ₹ 500 p.m.
(e) Salary of cleaner ₹ 200 p.m.
(f) Salary of mechanic ₹ 400 p.m.
(g) Garage rent ₹ 600 p.m.
(h) Insurance premium 5% per annum
(i) Annual tax ₹ 600 per taxi
(j) Driver's salary ₹ 200 p.m. per taxi
(k) Annual repair ₹ 1,000 per taxi
Total service-life of a taxi is about 2,00,000 km. A taxi runs in all 3,000 km. in a month of which 30 % it runs
empty. Petrol consumption is one litre for 10 km. @ ₹ 2 per litre. Oil and other sundries are ₹ 5.00 per 100 km.
Calculate the cost of running a taxi per kilometre.
[₹ 0.81]

West Road Co. runs 10 buses between two places covering a distance of 25 kms. Seating capacity of each bus is
30 passengers. The expenses for the month of April, 2004 were as under:
Particulars ₹
Salaries of drivers and conductors 90,000
Salaries of mechanical staff 9,000
Diesel, oil and lubricants etc 60,000
Taxes, Insurance etc 7,800
Repairs and maintenance 12,000
Depreciation 48,000
60% of seating capacity was utilized in each case. All buses ran 25 days a month, each making four round trips
daily. Find out cost per passenger-Kilometer. What would have been the cost per round trip per passenger, if
seating capacity utilization were to go up to 80% ?
[Total operating cost ₹ 226800; Total passenger Km = 900000; Cost per passenger km ₹ 0.252; Cost per
round trip per passenger ₹ 9.45; If seating capacity goes upto 80 %, then passenger kms will be 1,20,000]

From the following information, calculate the bus fare to be charged from each passenger for the journeys:
(a) Delhi to Agra; (b) Delhi to Bhiwani; (c) Delhi to Chandigarh.
(i) Delhi to Agra 200 kms
Delhi to Bhiwani 120 kms
Delhi to Chandigarh 250 kms
(ii) Effective passenger-kms; 3,72,000
(iii) Total operating cost ₹ 1,48,800 (excluding Conductor's commission @ 15% and Passenger Tax @ 5% of
total takings)
Desired Profit—30% on total takings,
[Answer: (a) ₹ 160; (b) ₹ 96; (c) ₹ 200] [Hint: Takings per passenger km = Ke. 0,80 (i.e. ₹
2,97,600/3,72,000)
15. Operating Costing [Compiled by Ravi Bhalotia]***
A minibus with a capacity of 25 seats runs between two towns which are 20 Kms. apart. It makes three round trips
for 25 days a month and on an average 80% of the capacity remains full in all the trips. The bus costs ₹ 5,00,000
with an estimated scrap value of ₹ 50,000 after 10 years which is considered as normal useful life. Other expenses
relating to the bus are given below :
₹
Driver's salary p.m. 1500
Conductor's salary p.m. 1000
Attendant-cum-cleaners salary p.m. 800
Manager's salary p.m. 2000
Garage rent p.m. 700
Repairing and maintenance per annum 18,000
Annual tax & insurance 12,000
Petrol & oil per kilometer ₹ 5.00
The driver and the conductor are given 10 % of taking as commission to be divided equally between the two. Find
out the fare per passenger – kilometer if the required profit is 20 % of the taking.
[Total Cost Excluding commission ₹ 27250; Total fare ₹ 38,929; Total Passenger km 60,000; fare/p.km =
0.65]

Dr. J. Kundu spends ₹ 11.80 per km. He is considering two other alternatives – (i) the purchase of new small
car or (ii) purchase of old big car. The estimated expenses for these two alternatives are as follows:
New small car Old big car
Purchase price 70,000 40,000
Scrap value after 10 years 30,000 20,000
Servicing and other fixed expenses
Per annum 1,500 2,400
Tax and insurance per annum 3,500 1,500
Km. run per litre of petrol 10 7
Petrol price per litre is ₹ 56.00. His estimated annual requirement to travel is 10,000 km. Which of three
options will be most economical for him?
Process costing [15 Marks]
1. Process Costing [B.com 2005 Honours] [RKB]**
Y Ltd. produces a single product which undergoes two processes. From the following information prepare Process
Accounts, Normal Loss Account, Abnormal Loss Account and Abnormal Gain Account.
Process A B
Raw Materials issued (3,000 units) ₹ 15,000 -----
Additional Materials ₹ 1,000 ₹ 780
Direct Wages ₹ 14,000 ₹ 20,000
Production Overhead ₹ 3,000 ₹ 7,500
Normal loss as % of input 10% 5%
Scrap Value per unit ₹ 2 ₹ 5
Output in units 2,800 2,600
[Cost per unit of output produced in process A - ₹ 12 and Process B - ₹ 23; Abnormal Gain in Process A -
100 units valued ₹ 1200 (Profit transferred to costing P/L ₹ 1000); Abnormal loss in Process B - 60 units
valued ₹ 1,380 (Loss transferred to costing P/L ₹ 1,080); Balance of Finished Stock ₹ 59,800.]
2. Process Costing [B.com 1997 Honours] [RKB]***

In a factory, a product passes through two distinct processes - Process A and Process B. On completion, it is
transferred to finished stock. During the month of December 1996, the following information was obtained:
Process A Process B
Units introduced 2,000 --------
Units transferred to next process 1,800 --------
Units transferred to finished stock ------- 1,750
Value of units introduced ₹ 11,000 ------
Materials -------- ₹ 1,000
Labour ₹ 7,300 ₹ 4,500
Overhead ₹ 2,800 ₹ 2,240
The normal loss in each process is 5 % and it was sold @ ₹ 2 per unit There was no stock of raw materials or
work-in-progress at the beginning or at the end of the month. Prepare the Process A/c and Finished Stock A/c.
[Abnormal loss in process A 100 units @ ₹ 11; Transfer to process B 1,800 units @ ₹ 11.00; Abnormal
gain in process B 40 units @ ₹ 16 per unit; Transfer to finished stock 1,750 units @ ₹ 16 per unit.]
3. Process Costing [B.com 2012 Honours] [RKB]***

XYZ Ltd. produces a standard product through Process – A and Process – B. Finished product of Process – A is
used as raw materials of Process – B.
From the following details prepare Process – A A/c, Process – B A/c, Abnormal Loss A/c, Abnormal Gain A/c
and Normal Loss A/c:
Process A Process B
Input (Units) 15,000 13,000
Material Cost (₹ ) 30,000 4,000
Labour Cost (₹ ) 18,000 15,275
Factory overhead (₹ ) 9,000 10,950
Normal Loss 10% 5%
Scrap value per unit (₹ ) 2.00 3.00
There was no opening or closing work-in-progress. The final output from Process – B was 12,500 units.
[Rate: ₹ 4/unit; ₹ 6.50/Unit]
4. Process Costing [B.com 2009 Honours New] *
The following information is available in respect of Process—II of a product. Input (1,000 Units) : Cost ₹ 5,000
Further Materials introduced ₹ 6,000
Direct Labour ₹ 4,000
Overhead Charges 75% of Direct Labour
Output of Process—II 900 units
Normal Wastage 15% of Input
Scrap Value of Wastage ₹ 2 per unit
Prepare Process II A/c and Abnormal Gain A/c.
[Ans. Value of output of Process II : ₹ 18,741; Abnormal Gain ₹ 1,041]
5. Process Costing [B.com 2013 Pass] *

A product is produced through two distinct two distinct processes-Process A and Process B. From the following
particulars, prepare Process A Accounts:
Process A
Materials introduced 1000 units
Normal loss 5%
Transfer to next process 940 units
Realizable value of normal loss ₹ 2/unit
Costs incurred:
Direct materials ₹ 10,000
Wage ₹ 2,000
Overheads ₹ 1,200
[₹ 13.79/Unit; Abnormal Loss 10 units @ ₹ 13.79/Unit; Finished Goods ₹ 13.79/Unit]
6. Process Costing [B.com 2014 Pass] *

A factory has two processing departments – Process A and Process B. The following details are available
in respect of Process A:
1000 units introduced @ ₹ 6 per unit
Other materials added ₹ 4000
Direct Wages ₹ 5000
Chargeable expenses ₹ 2000
Factory overhead allocated ₹ 2000
Normal loss 5% of the input
Realisable value of scrap Nil
Actual output of Process A 960 units.
Prepare Process A Account.
[Cost ₹ 20/unit]
7. Process Costing [B.com 2016 Pass] [RKB]**

2,000 kgs. of Material was introduced in Process X @ ₹ 10 per kg. The direct labour cost amounted to ₹ 4,000
and overhead cost was ₹ 2,400. The normal loss is 5% of input. During the period, the actual output was 1,840
Kgs. and 100 Kg. were scrapped @ ₹ 3 per kg. 1,840 Kgs. from Process X is transferred to Process Y at cost.
Prepare Process X A/c and determine the values of normal and abnormal losses.
8. Process Costing [B.com 2015 Pass] [RKB]**
A product is produced through two processes, Process I and Process II. From the following particulars, prepare
Process I Account and Abnormal Loss Account:
Raw materials introduced 1500 units at ₹ 30 each.
Other expenses ₹ 2,000
Normal loss 10%
Scrap value per unit ₹ 15
Output of Process I 1300 units
9. Process Costing [B.com 2004, 2014 Honours type] [RKB]****

XYZ Ltd. manufactures a product which passes through two processes — Process A and Process B and then it is
transferred to Finished Stock A/c. From the following particulars prepare Process Accounts.
Process A Process B
Input (Units) 30,000 26,000
Materials (₹ ) 60.000 8,000
Labour (₹ ) 36,000 30,550
Overhead (₹ ) 18,000 21,900
Normal Loss 10 % ?
Scrap Value per unit (₹ ) 2 3
There was no opening or closing work-in-progress. The final output from Process B transferred to Finished Stock
was 25,000 units. These finished goods are sold at ₹ 7.50 per unit with a profit of Re. 1 per unit. What was
normal loss rate in Process B?
[Normal loss % in process B = 5 %]
10. Process Costing [B.com 2007 Honours] [RKB]*

In Process D, 9,000 units of a product was transferred from Process C at a cost of ₹ 54,000. The additional
expenses incurred for Process D were — Sundry materials ₹ 2,500, Labour ₹ 6,000, direct expenses ₹ 3,350 and
overhead charged @ 200% of labour. Wastage of Process D was sold at ₹ 2/unit. The final product from Process
D was sold at ₹ 10 fetching a profit of 10% on sale. Calculate the % of normal loss of Process D.
[Ans. % of Normal Loss = 5 %]
11. Process Costing [B.com 2003 Honours] [RKB]**

In a manufacturing unit, raw material passes through four processes, I, II, III, and IV and the output of each
process is the input for the subsequent process. The losses in the four processes are respectively 25%, 20%, 20%
and 16 2/3 % respectively for I, II, III and IV processes of the input. If the end product at the end of the IV
process is 40,000 kg, what is the quantity of raw material required to be fed at the beginning of Process I and the
cost of the same at ₹ 5 per kg?
[Input in process A = 1,00,000 kg @ ₹ 5]
12. Process Costing [B.com 2015 Pass] [Inter Process Profit] [RKB]**
The following are the details in respect of Process X and Process Y of a processing factory:
Process X Process Y
₹ ₹
Materials 10,000 -
Labour 10,000 14,000
Overhead 4,000 10,000
The output of Process X is transferred to Process Y at a price calculated to give a profit of 20% on the transfer
price and output of Process Y is charged to finished stock at a profit of 33 % on cost. Show both the process
accounts.
[₹ 30,000; ₹ 72,000]
13. Process Costing [B.com 2016 Honours] [Inter Process Profit]

The following are the details in respect of Process A and Process B of a processing factory:
Process A Process B Process C
(Rs.) (Rs.) (Rs.)
Opening Stock 7,500 9,000 22,500
Materials 15,000 15,750 -
Labour 11,200 11,250 -
Overhead 10,500 4,500 -
Closing Stock 3,.700 4,500 11,250
Inter process profit included in opening
stock - 1,500 8,250
Sales - - 1,40,000
Profit on transfer price 25% 20% -
Prepare Process A, Process B and the Finished Stock Account.
[₹ 54,000; ₹ 110625; ₹ 113625]
14. Process Costing [B.com 2015 Honours] [Inter Process Profit]]****

At the end of process ‘A’ carried on in a factory during the month ending 31st December 2014, the number of
units produced was 1,900 excluding 110 units abnormally damaged during the process. The damaged units
realised ₹ 4.00 per unit of scarp. A normal wastage of 8% occurs during the process, the wastage realised was
₹ 3.00 per unit. A unit of raw – material cost was ₹ 5.00. The other expenses for the month were:
₹
Wages 900.00
Power 300.00
General expenses 800.00
45% of the output is sold so as to show a profit of 162/3 % on selling price. The rest of the output of process ‘A’
transferred to process ‘B’ A/c. Prepare Process ‘A’ A/c and Abnormal Loss A/c.
15. Process Costing [B.com 2008 Honours] **
A chemical product passes through three different processes to convert into a finished product. Data relating to the
product for the month of January 2008 are given below :
Total Process I Process II Process III
₹ ₹ ₹ ₹
Basic Raw materials (20,000 units) 20,000 20,000 ------ --------
Other materials (₹ ) 13,000 4,000 5,000 4,000
Direct wages (₹ ) 30,000 12,000 10,000 8,000
Direct Expenses (Rs) 57,590 14,000 29,140 14,450
Production overhead (Rs) 15,000 ----- ------ ------
(absorbed as a percentage of wages)
Output (in units) -------- 18,200 17,400 16,400
Normal Loss in Process of input -------- 10% 7.5% 5%
Scrap Value per unit ------- Re 1.00 ₹ 2.00 ₹ 3.00
There was no stock at start or at end in any process. All goods are sold at 20% profit on Sales. You are required to
prepare the necessary accounts.
[Ans. Cost per unit of output produced in Process I ₹ 3; Process II ₹ 6 and Process III ₹ 8. Abnormal Gain
in Process I 200 units valued ₹ 600 and in Process II 565 units Valued ₹ 3,390. Abnormal Loss in Process
III 130 units valued ₹ 1,040; Profit on sale of finished stock ₹ 32,800]
16. Process Costing [B.com 2001 Honours]*

Z. Ltd. produced product X through three processes- P I; P II and P III. On January 1, raw materials 1000 units
were introduced in process P I at ₹ 50 per unit. The other direct expenses were ::
Particulars P-I P-II P-III
Sundry other Materials 1,600 3,315 3,220
Labour 2,600 8,000 6,392
Normal Loss (% of input) 5% 10 % 5%
Scrap Value per unit 1 3 6
Actual output (units) 940 846 410
Sales price of output per unit 70 100 200
Entire output of P – I was passed to the next process while ½ of the output of P-II was passed to the next process
and the balance was sold. The entire output of P-III was sold. Management expenses and selling expenses were ₹
6,000 and ₹ 9,000 respectively. These are not Allocable to the processes.
You are required to prepare Process Account.
[Abnormal loss in Process –I: 10 units @ ₹ 57; Transfer to costing P/L 423 units @ ₹ 76.375 & Transfer to
Process III 423 units @ ₹ 76.375; Abnormal gain in process III 8 units @ ₹ 103.96 & transfer to costing
P/L 410 units @ ₹ 103.96; Gross profit ₹ 49,369; Net profit ₹ 34,593]
17. Process Costing [B.com 2013 Honours]: Equivalent Production
Following details are given in respect of manufacturing units for the month of April 2012:
(i) Opening work-in-progress 5000 units
(a) Materials (100% complete) ₹ 18750
(b) Labour (60% complete) ₹ 7500
(c) Overheads (60% complete) ₹ 5,000
(ii) Units introduced into the process 20,000 units
(iii) 17500 units are transferred to the next process
(iv) Process costs for the period are:
Rs.
Materials 2,50,000
Labour 1,95,000
Overheads 97,500
(v) The stage of completion of units in closing W.I.P are estimated to be :
Rs.
Materials 100%
Labour 50%
Overheads 50%
You are required to prepare a statement of Equivalent units of production and statement of cost. Also find
out the value of: (i) Output transferred (ii) Closing W.I.P using average cost method
18. Process Costing [B.com 2013 Honours type]: Equivalent Production

(vi) Opening work-in-progress 10,000 units
(d) Materials (100% complete) ₹ 37,500
(e) Labour (60% complete) ₹ 15,000
(f) Overheads (60% complete) ₹ 10,000
(vii) Units introduced into the process: 40,000
(viii) 35,000 units are transferred to the next process
(ix) Process costs for the period are:
Rs.
Materials 5,00,000
Labour 3,90,000
Overheads 1,95,000
(x) The stage of completion of units in closing W.I.P are estimated to be :
Rs.
Materials 100%
Labour 50%
Overheads 50%
out the value of: (i) Output transferred (ii) Closing W.I.P using FIFO method
Cost Theory:
Introduction [5 + 5 Marks] [Theory]
1) Define Costing, Cost Accounting & Management Accounting.
2) What are the objectives of cost accounting?
3) What are the essentials of a good Cost Accounting System?
4) “There is no need to install a costing system when proper financial accounts are compulsorily maintained” –
Justify the statement.
5) (a) What is Management Accounting? (b) Explain the objectives of Management Accounting.
6) Point out the differences between Management Accounting, Cost Accounting & Financial Accounting.
7) Distinguish between Cost Centre & Cost Unit
8) Discuss the different methods of costing. Mention the industries to which they are applicable.
9) Briefly explain the elements of cost with examples.
10) Briefly explain the different ways of classification of cost.
11) What do you mean by Fixed Cost, Variable Cost & Semi Variable Cost?
Material Cost
12) Is there any necessity of maintaining both 'Bin card' and Stores Ledger? Answer with reasons.
13) Discuss any three methods of pricing issues of materials.
14) What is Perpetual Inventory System? Mention its advantages.
15) How should normal & abnormal spoilage, Wastage, Scrap, Defective be treated in cost Accounts?
16) Short Notes
(a) ABC System:
(b) Just in Time Inventory:
(c) Economic Order Quantity [EOQ]
17) Short Notes (a) Maximum Level (b) Minimum Level (c) Re-order Level (d) Average Level (e) Danger Level
Labour Cost
18) What do you mean by Labour Turnover? What are its causes?
19) Discuss in brief how 'Idle Time' is treated in Cost Accounts.
20) Discuss in brief how ‘Overtime' is treated in Cost Accounts.
21) Distinguish between Halsey & Rowan Scheme for providing incentive bonus to workers
22) Discuss the importance of Time keeping & Time Booking
23) What are the Main Principles for sound system of wage incentive schemes;
Overhead & Activity Based Costing

24) Explain how under-absorption and over-absorption of overheads are treated in Cost Accounts.
25) What do you mean by Machine Hour Rate?
26) What do you mean by Activity Based Costing? What are its objectives?
27) What are the limitations of Activity Based Costing?
28) What are the problems of traditional costing system?
29) How do you treat the following items in cost records?
Cost Book-keeping
30) What do you mean by integrated system? What are its advantages?
31) What are the reasons for disagreement of Profits as per financial accounts and Cost accounts?
32) Why preparation of reconciliation statement is necessary?
Job, operating & contract costing:

33) Define Job Costing. What are its advantages & Limitations?
34) Define Batch Costing? In Which industries it is applied?
35) Distinguish between job costing & batch costing.
36) Short Notes (a) Cost Plus Contract (b) Escalation Clause (c) Retention Money
37) What do you mean by Operating Costing? In Which Industries it is applied?
Process costing
38) What do you mean by Process Costing? In Which Industries it is applied? Discuss its features.
39) Distinguish between job-costing and process costing.
40) Discuss the treatment of normal process loss, abnormal process loss and Abnormal gain in Process Costing.
41) What is Equivalent Production?
Introduction [5 + 5 = 10 Marks]
1. Define Costing, Cost Accounting & Management Accounting.*
Costing: -
Costing may be defined as ‘the technique and process of ascertaining costs’. According to Wheldon, ‘Costing is
classifying, recording, allocation and appropriation of expenses for the determination of cost of products or
services and for the presentation of suitably arranged data for the purpose of control and guidance of management.
It includes the ascertainment of every order, job, contract, process, service units as may be appropriate. It deals
with the cost of production, selling and distribution.
Cost Accounting:-
Cost Accounting primarily deals with collection, analysis of relevant of cost data for interpretation and
presentation for various problems of management. Cost accounting accounts for the cost of products, service or an
operation. It is defined as, ‘the establishment of budgets, standard costs and actual costs of operations, processes,
activities or products and the analysis of variances, profitability or the social use of funds’.
Cost Accountancy:-
Cost Accountancy is a broader term and is defined as, ‘the application of costing and cost accounting principles,
methods and techniques to the science and art and practice of cost control and the ascertainment of profitability as
well as presentation of information for the purpose of managerial decision making.’
2. What are the objectives of cost accounting?*

Objectives of Cost Accounting:-
Objectives of Cost Accounting can be summarized as under
(a) To ascertain the cost of production on per unit basis, for example, cost per kg, cost per meter, cost per liter,
cost per ton etc.
(b) Cost accounting helps in the determination of selling price. Cost accounting enables to determine the cost of
production on a scientific basis and it helps to fix the selling price.
(c) Cost accounting helps in cost control and cost reduction.
(d) Ascertainment of division wise, activity wise and unit wise profitability becomes possible through cost
accounting.
(e) Cost accounting also helps in locating wastages, inefficiencies and other loopholes in the production
processes/services offered.
(f) Cost accounting helps in presentation of relevant data to the management which helps in decision making.
Decision making is one of the important functions of Management and it requires presentation of relevant
data. Cost accounting enables presentation of relevant data in a systematic manner so that decision making
becomes possible.
(g) Cost accounting also helps in estimation of costs for the future.
3. What are the essentials of a good Cost Accounting System?*
Essentials of a good Costing system:-
For availing of maximum benefits, a good costing system should possess the following characteristics.
(a) Costing system adopted in any organization should be suitable to its nature and size of the business and its
information needs.
(b) A costing system should be such that it is economical and the benefits derived from the same should be
more than the cost of operating of the same.
(c) Costing system should be simple to operate and understand. Unnecessary complications should be avoided.
(d) Costing system should ensure proper system of accounting for material, labor and overheads and there
should be proper classification made at the time of recording of the transaction itself.
(e) Before designing a costing system, need and objectives of the system should be identified.
(f) The costing system should ensure that the final aim of ascertaining of cost as accurately possible should be
achieved.
4. “There is no need to install a costing system when proper financial accounts

are compulsorily maintained” – Justify the statement.*
Financial accounting is primarily concerned with record keeping directed towards the preparation of Profit and
Loss Account and Balance Sheet. It provides information regarding the profit and loss that the business enterprise
is making and also its financial position on a particular date.
Cost accounting is a branch of accounting and has been developed due to limitations of financial accounting.
The following limitations of financial accounting have led to the development of cost accounting:
(a) No clear idea of operating efficiency
(b) Weakness not spotted out by collective results.
(c) Not helpful in the price fixation.
(d) No classification of expenses and accounts.
(e) No data for comparison and decision-making.
(f) No control on cost
(g) No standards to assess the performance
(h) Provides only historical information.
(i) No analysis of losses.
(j) Inadequate information for reports.
In fact, the development in the field of cost accounting is so quick and fields covered by it are expanding so much
in magnitude that it becomes difficult for management to lay down management policies, to guide management
decisions or evaluate operating management performance with the information provided by financial accounting.
5. (a) What is Management Accounting? (b) Explain the objectives of
Management Accounting. *
Management Accounting is the presentation of accounting information in such a way as to assist management in
the creation of policy and the day-to-day operation of an undertaking. Thus, it relates to the use of accounting data
collected with the help of financial accounting and cost accounting for the purpose of policy formulation,
planning, control and decision-making by the management. Management accounting links management with
accounting as any accounting information required for taking managerial decisions is the subject matter of
management accounting.
Some leading definitions of Management Accounting are given below:
"Management Accounting is the application of professional knowledge and skill in the preparation of accounting
information in such a way as to assist management-in the formulation of policies and in the planning and control
of the operations of the undertaking." —C.I.M.A. London
Management Accounting is "the application of appropriate techniques and concepts in processing historical and
projected economic data of an entity to assist management in establishing plans for reasonable economic
objectives and in the making of rational decisions with a view towards these objectives". —American Accounting
Association
Objectives of Management Accounting.
The main objectives or purposes of management accounting are summarised as under:
(a) Assistance in planning and formulation of future policies: Management accounting assists management in
planning the activities of the business.
(b) Helps in the interpretation of financial information. Accounting is a technical subject and may not be
easily understandable by every one till the user has a good knowledge of the subject. Management may not
be able to use the accounting, information in its raw form due to lack of knowledge of accounting techniques.
Management accountant presents the information in an intelligible and non-technical manner.
(c) Helps in controlling performance. Management accounting is a useful device of managerial control. The
whole organisation is divided into responsibility centres and each centre is put under the charge of one
responsible person.
(d) Helps in organizing: Thus management accountant recommends the use of budgeting, responsibility
accounting, cost control techniques and internal financial control. This all needs the intensive study of the
organisation structure. In turn, it helps to rationalize the organisation structure.
(e) Helps in the solution of strategic business problems. He provides accounting data to the management with
his recommendation as to which alternative will be the best. For such decisions, the management accountant
may take the help of marginal costing, cost volume profit analysis, standard costing, capital budgeting etc.
6. Point out the differences between Management Accounting, Cost Accounting

& Financial Accounting.**********
Cost Accounting & Management Accounting:
(a) Cost accounting is concerned more with the ascertainment, allocation, distribution and accounting aspects of
costs. Management accounting is concerned more with impact and effect aspect of costs.
(b) Cost accounting data generally serves as a base to which the tools and techniques of management accounting
whereas, the management accounting data is derived both, from the cost accounts and financial accounts.
(c) The management accountant places the data in a wider perspective than the cost accountant. A cost accountant
is definitely helpful in collecting such costing data for the management accountant.
(d) In the organisational set-up, management accountant generally is placed at a higher level of hierarchy than the
cost accountant.
(e) The approach of the cost accountant is much narrower than that of a management accountant
(f) Management accounting includes both financial accounting as well as cost accounting. It also embraces tax
planning and tax accounting. Cost accounting.
Cost Accounting & Financial Accounting:
The distinguishing features of financial accounting and cost accounting are given below.
Financial Accounting Cost Accounting
It aims at finding out results of accounting It aims at computing cost of production/
year in the form of Profit and Loss Account service in a scientific manner and then cost
and Balance Sheet control and cost reduction.
It is more attached with reporting the It is an internal reporting system for an
results and position of business to persons organization’s own management for
and authorities other than management decision making.
like government, creditors, investors,
owners etc.
Financial Accounting data is historical in It not only deals with historical data but is
nature also futuristic in approach.
In financial accounting, the major In cost accounting, classification is basically

emphasis is in cost classification based on on the basis of functions, activities,
type of transactions, e.g. salaries, repairs, products, process and on internal planning
insurance, stores etc. and control and information needs of the
organization.
In financial accounting, only those Cost accounting uses both monetary as
transactions are recorded which can be well as quantitative information.
expressed in monetary terms.
It aims at presenting ‘true and fair’ view It aims at computing ‘true and fair’ view of
of the profit and loss position as well as the cost of production/services offered by
financial position. the firm.
Financial Accounts are subject to statutory Cost accounts are subject to cost audit
audit to verify whether they disclose a which verifies whether the cost accounts
true and fair view of the profit and loss as disclose true and fair view of the cost of
well as financial position production of the company.
Management Accounting & Financial Accounting:
Management Accounting is a modern tool, full of new techniques, methods and systems of accounting, in the
hands of the management accountant, with the help of which, he, together with the best of his ability and
knowledge, helps the management increase profits and social benefits by decreasing costs, losses and wastages.
The useful application of appropriate techniques and concepts and proper utilisation of various' economic data are
considered essential in this case. The management accountant actually helps the management not only in day-do-
day activities, but also in planning, organising and overall control.
7. Distinguish between Cost Centre & Cost Unit*********
(a) Cost centre & cost unit
Cost Centre: A cost center is a location, person or item of equipment for which cost may be ascertained and used
for the purpose of cost control. It is the logical sub-unit of collection of cost. Cost center may be of two types-----
personal and impersonal cost centers. Again in manufacturing concerns cost center may be classified into (1)
production cost center and (2) service cost center.
Cost unit: Cost unit is a device for the purpose of breaking up or separating cost into smaller sub-divisions
attributable to the production or services. It is the unit of product, service or time in relation to which costs may be
ascertained.
Following are the usual cost unit in various industries;
(a) Tonne----in industries like mining, iron &steel, cement, sugar etc.
(b) Meter or kilometer: ---in industries like cable, rope, wire etc.
(c) Litre: --- in chemical industries.
(d) Kilowatt: -- in power industries.
(e) Tonne kms. or passenger kms:-- in transport industries.
8. Discuss the different methods of costing. Mention the industries to which

they are applicable.**
Costing methods are those which help a firm to compute the cost of production or services offered by it. The
following are the methods of costing.
Job Costing:-
This method of costing is used in Job Order Industries where the production is as per the requirements of the
customer. In Job Order industries, the production is not on continuous basis, rather it is only when order from
customers is received and that too as per the specifications of the customers.
A job may be a product, unit, batch, sales order, project, contract, service, specific program or any other cost
objective that is distinguishable clearly and unique in terms of materials and other services used.
Batch Costing:-
Batch costing is used where units of a product are manufactured in batches and used in the assembly of the final
product. Thus components of products like television, radio sets, air conditioners and other consumer goods are
manufactured in batches to maintain uniformity in all respects.
Process Costing:-
Process Costing is also a method of costing which is used in those industries where the production is in
continuous process, i.e. the output of one process becomes the input of the subsequent process and so on.
Examples of such industries are, paint works, chemical plants, food manufacturing, oil refining, paper mill, textile
mills, sugar factories, fruit canning, dairy and so on.
Operating Costing:-
This type of costing method is used in service sector to work out the cost of services offered to the consume₹
Operating costing are applied in service industries like banks, insurance companies, transportation organizations,
electricity generating companies, hospitals, passenger transport and railways, hotels, road maintenance,
educational institutions, road lighting, canteens, port trusts and several other service organizations.
Contract Costing:-
This method of costing is used in construction industry to work out the cost of contract undertaken. For example,
cost of constructing a bridge, commercial complex, residential complex, highways etc is worked out by use of this
method of costing.
9. Briefly explain the elements of cost with examples.*****
Direct Material + Direct Labour + Direct Expenses = Prime Cost

Indirect Material+ Indirect Labour + Indirect Expenses = Overheads
These terms can be explained as follows
1. Direct Materials are those materials which can be identified in the product and can be conveniently measured
and directly charged to the product. For example, bricks in houses, wood in furniture etc. Hence all raw materials,
materials purchased specifically for a job or process like glue for book making, parts or components purchased or
produced like batteries for radios and tyres for cycles, and primary packing materials are direct materials.
2. Indirect Materials are those materials which cannot be classified as direct materials. Examples are
consumables like cotton waste, lubricants, brooms, rags, cleaning materials, materials for repairs and maintenance
of fixed assets, high speed diesel used in power generators etc.
3. Direct Labour is all labour expended in altering the construction, composition, confirmation or condition of
the product. Thus direct wages means the wages of labour which can be conveniently identified or attributed
wholly to a particular job, product or process or expended in converting raw materials into finished goods. Thus
payment made to groups of labourers engaged in actual production, or carrying out of an operation or process, or
supervision, maintenance, tools setting, transportation of materials, inspection, analysis etc is direct labour.
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. Example royalty, excise duty, hire charges of a specific
plant and equipment, cost of any experimental work carried out especially for a particular job, travelling expenses
incurred in connection with a particular contract or job etc.
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 to specific cost units. Overheads may be
sub-divided into (i) Manufacturing Overheads; (ii) Administration Overheads; (iii) Selling Overheads; (iv)
Distribution Overheads; (v) Research and Development Overheads.
10. Briefly explain the different ways of classification of cost.*
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:
(a) 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.
(b) By Functions: This classification is on the basis of costs incurred in various functions of an organization
i.e. Production, administration, selling and distribution. According to this classification, costs are divided
into Manufacturing and Production Costs and Commercial costs.
(c) 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.
(d) 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.
(e) 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”.
(f) 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.
(g) By Relationship with Accounting Period: There are capital and revenue expenses depending on the
length of the period for which it is incurred.
(h) By Time. Costs can be classified as 1) Historical cost and 2) Predetermined Costs.
11. What do you mean by Fixed Cost, Variable Cost & Semi Variable Cost?*
Fixed Costs:-
Out of the total costs, some costs remain fixed irrespective of changes in the production volume. These costs are
called as fixed costs. The feature of these costs is that the total costs remain same while per unit fixed cost is
always variable. Examples of these costs are salaries, insurance, rent, etc.
Variable Costs:-
These costs are variable in nature, i.e. they change according to the volume of production. Their variability is in
the same proportion to the production. For example, if the production units are 2,000 and the variable cost is ₹ 5
per unit, the total variable cost will be ₹ 10,000, if the production units are increased to 5,000 units, the total
variable costs will be ₹ 25,000, i.e. the increase is exactly in the same proportion of the production. Another
feature of the variable cost is that per unit variable cost remains same while the total variable costs will vary. In
the example given above, the per unit variable cost remains ₹ 2 per unit while total variable costs change.
Examples of variable costs are direct materials, direct labor etc.
Semi-variable Costs:-
Certain costs are partly fixed and partly variable. In other words, they contain the features of both types of costs.
These costs are neither totally fixed nor totally variable. Maintenance costs, supervisory costs etc are examples of
semi-variable costs. These costs are also called as ‘stepped costs’.
Table showing cost unit & method****

Table Showing Cost Units and Methods of Costing for Different Industries/Enterprises
Industry/ Enterprise Cost unit Method of costing
Steel /cement Tonne Process costing
Sugar Tonne, quintal Process costing
Textiles Metres , yards Process costing
Bicycle manufacturing Number Multiple costing
Aircraft number Job costing
Hospital/ nursing home Per bed occupied per day/out patient visit Service or operating costing
Timber Cubic foot Process costing
Transport Tonne kilometer, passenger kilometer Operating costing
Chemical Tone, kilogram Process costing
Readymade garments Numbers Batch costing
Building House or area or square feet Job costing or contract costing
Soft drinks Cases of 24 bottles each or per bottle of Process costing
different weights
Confectionery Per kg. Process costing
Automobiles Number Process costing
Brick making Per 1,000 bricks Output costing
Case making Per case Job costing
Coal Per tonne Single or one operation costing
Or Output Costing
Interior decoration Per job Job costing
Pharmaceutical Per 1,000 tablets, ampulses Batch costing
Furniture Per unit Multiple costing
Advertisement Per job Job costing
Oil refining Per tonne/Quintal Process costing
Material Cost
12. Is there any necessity of maintaining both 'Bin card' and Stores Ledger?
Answer with reasons.****
Bin Card:
A bin card makes a record of the receipt and issue of material and is kept for each item of stores carried. Quantity
of stores received is entered in the receipt column and the quantity of stores issued is recorded in the issue column
of the bin card and a balance of the quantity of stores are taken after every receipt or issue, so that the balance at
any time can be readily seen. These cards are maintained by the storekeeper.
Stores Ledger:
This ledger is kept in the costing department and is identical with the bin card except that receipts, issues and
balances are shown alongwith their money values. This contains an account for every item of stores and makes a
record of the receipts, issues and the balances, both in quantity and value. Thus, this ledger provides the
information for the pricing of materials issued and the money value at any time of each item of stores.
Some persons argue that where a store ledger is maintained, the bin card is a duplicate record and as such should
not be maintained. This is wrong and is against the basic principles of stores accounting on account of the
following reasons:
(a) The storekeeper is responsible for the maintenance of stores and as such he should have a stock record
under him.
(b) The storekeeper is held responsible for the difference in the physical stock and the stock record. The
responsibility for difference in stock will get divided if the stock records are not kept by the storekeeper.
(c) The store ledger is not kept up-to-date because posting of transactions is done periodically and as such the
maintenance of bin cards is desired to have up-to-date balance of stock. In bin cards, posting is done before
the transaction takes place.
(d) Keeping in view the above reasons it is said that storekeeper should himself keep the stores ledger. This is
also wrong because a stores ledger is a record of both quantity and value and figures for calculation of the
cost of production are taken from this record. Further, it is not fair to burden the storekeeper with the
responsibility of the valuation of the receipts, issues and balances; his recording should be restricted to
quantity alone. It is, therefore, necessary that both stock records should be kept.
(e) Bin cards and stores ledger act as a cross check on each other because balance of stock disclosed by bin
cards should agree with the balance shown by the stores ledger. Thus, the accuracy of both records is
established.
13. Discuss any three methods of pricing issues of materials.****

First In First Out (Commonly Called 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. It follows that
unit costs are apportioned to cost of production according to their chronological order of receipts in the store.
This method is most suitable in times of falling prices because the issue price of materials to jobs or works orders
will be high (materials issued from the earliest consignments which were purchased at a higher rate) 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.
Last In First Out (Commonly Called LIFO) Method
As against the First In First Out method the issues under this method are priced in the reverse order of purchase
i.e., the price of the latest available consignment is taken. This method is sometimes known as the replacement
cost method because materials are issued at the current cost to jobs or work orders except when purchases were
made long ago. This method is suitable in times of rising prices because material will be issued from the latest
consignment at a price which is closely related to the current price levels. Valuing material issues at the price of
the latest available consignment will help the management in fixing the competitive selling prices of the products.
This method was first introduced in the U.S.A. during the Second World War to get the advantages of rising
prices.
Average Cost Method
The principle on which the average cost method is based is that all of the materials in store are so mixed up that an
issue cannot be made from any particular lot of purchases and, therefore it is proper if the materials are issued at
the average cost of materials in store.
Average may be of types: (a) Simple Arithmetic Average and (b) Weighted Arithmetic Average.
(a) Simple Average Price. "A price which 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 the prices used in that total.
(b) Weighted Average Price. "A price which 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."
14. What is Perpetual Inventory System? Mention its advantages.*

Perpetual inventory represents a system of records maintained by the stores department. It in fact comprises: (i)
Bin Cards, and (ii) Stores Ledger.
A perpetual inventory is usually checked by a programme of continuous stock taking. Continuous stock taking
means the physical checking of those records (which are maintained under perpetual inventory) with actual stock.
Perpetual inventory is essential for material control. It incidentally helps continuous stock taking.
Advantages –
The main advantages of perpetual inventory are as follows:
(a) Physical stocks can be counted and book balances adjusted as and when desired without waiting for the entire
stock-taking to be done.
(b) Quick compilation of Profit and Loss Account (for interim period) due to prompt availability of stock figures.
(c) Discrepancies are easily located and thus corrective action can be promptly taken to avoid their recurrence.
(d) A systematic review of the perpetual inventory reveals the existence of surplus, dormant, obsolete and show-
moving materials, so that remedial measures may be taken in time.
(e) Fixation of the various stock levels and checking of actual balances in hand with these levels assist the Store
keeper in maintaining stocks within limits and in initiating purchase requisitions for correct quantity at the
proper time.
15. How should normal & abnormal spoilage, Wastage, Scrap, Defective be
treated in cost Accounts?**
Waste:-
Waste is a loss of material either in stores or in production due to reasons like evaporation, chemical reaction,
shrinkage, unrecoverable residue etc. Wastages may be visible or invisible. It is necessary to take steps to control
the material wastage. In cost accounting, the wastage is divided into the following categories.
Normal Wastage:-
This wastage is such that it cannot be avoided. It is inherent in any production process. The normal wastage is
normally estimated in advance and included in the material cost. In other words, the good units should bear the
cost of normal wastage.
Abnormal Wastage:-
Any wastage over and above the normal wastage is the abnormal wastage. In other words it is more than the
standard wastage. The cost of the abnormal wastage is not charged to the production, but it is written off to the
Costing Profit and Loss Account.
Scrap:-
Scrap is a residual material resulting from a manufacturing process. It has a recovery value and is measurable. The
treatment of scrap in cost accounts is normally as per the following details.
(a) If the value of scrap is negligible, the good units should bear the cost of scrap and any income collected will
be treated as other income.
(b) If the value of scrap is considerable and identifiable with the process or job, the cost of job will be transferred
to scrap account and any realization from sale of such scrap will be credited to the job or process account and
any unrecovered balance in the scrap account will be transferred to the Costing Profit and Loss Account.
(c) If scrap value is quite substantial and it is not identifiable with a particular job or process, the amount will be
transferred to factory overhead account after deducting the selling cost. This will reduce the cost of production
to the extent of the scrap value.
Spoilage:-
Spoilage is the production that fails to meet quality or dimensional requirements and so much damaged in
manufacturing operations that they are not capable of rectification and hence has to withdraw and sold off without
further processing. Rectification can be done at a cost which may not be economic. If the spoilage is within limits,
it is called as ‘normal’ spoilage and anything exceeding this limit is called as ‘abnormal’ spoilage. The accounting
treatment of spoilage is as follows.
• The cost of normal spoilage is spread over to the good production by charging either to the specific production
order or to the product overheads.
• The cost of abnormal spoilage is charged to the Costing Profit and Loss Account.
Defectives :-
The defectives are part of production units which do not confirm to the standards of quality but can be rectified
with additional application of materials, labor and/or processing and made it into saleable condition either as firsts
or seconds depending upon the characteristics of the product. The accounting treatment of defectives is the same
like that of spoilage. The cost of normal defectives is spread over the good units and the cost of additional
processing is charged to a particular department/process if it is identifiable with the same. If it cannot be
identified, it is charged to factory overheads. Cost of abnormal defectives is charged to the Costing Profit and
Loss Account.
16. Short Notes**
ABC System:
In this technique, the items of inventory are classified according to the value of usage. Materials are classified as
A, B and C according to their value.
Items in class ‘A’ constitute the most important class of inventories so far as the proportion in the total value of
inventory is concerned. The ‘A’ items constitute roughly about 5-10% of the total items while its value may be
about 80% of the total value of the inventory.
Items in class ‘B’ constitute intermediate position. These items may be about 20-25% of the total items while the
usage value may be about 15% of the total value.
Items in class ‘C’ are the most negligible in value, about 65-75% of the total quantity but the value may be about
5% of the total usage value of the inventory.
‘A’ category of items can be controlled effectively by using a regular system which ensures neither over-stocking
nor shortage of materials for production.
In the case of ‘B’ category of items, as the sum involved is moderate, the same degree of control as applied in ‘A’
category of items is not warranted. The orders for the items, belonging to this category may be placed after
reviewing their situation periodically.
For ‘C’ category of items, there is no need of exercising constant control. Orders for items in this group may be
placed either after six months or once in a year, after ascertaining consumption requirements.
Just in Time Inventory:
This is the latest trend in inventory management. This principle envisages that there should not be any
intermediate stage like storekeeping. Material purchased from supplier should directly go the assembly line, i.e. to
the production department. There should not be any need of storing the material. The storing cost can be saved to
a great extent by using this technique. However the practicality of this technique in Indian conditions should be
verified before practicing the same. The benefits of Just in time system are as follows,
(a) Right quantities are purchased or produced at right time.
(b) Cost effective production or operation of correct services is possible.
(c) Inventory carrying costs are eliminated totally.
(d) The stores function is eliminated and hence there is a considerable saving in the stores cost.
(e) Losses due to breakage, wastage, pilferage etc are avoided.
Economic Order Quantity [EOQ]
Purchase department in manufacturing concerns is usually faced with the problem of deciding the ‘quantity of
various items’ which they should purchase. If purchases of material are made in bulk then inventory carrying cost
will be high. On the other hand if order size is small each time, then the ordering cost will be high. In order to
minimise ordering and carrying costs it is necessary to determine the order quantity which minimises these two
costs. The size of the order for which both ordering and carrying cost are minimum is known as economic order
quantity.
Assumptions underlying E.O.Q.:
The calculation of economic order of material to be purchased is subject to the following assumptions:
(a) Ordering cost per order and carrying cost per unit per annum are known and they are fixed.
(b) Anticipated usage of material in units is known.
(c) Cost per unit of the material is constant and is known as well.
(d) The quantity of material ordered is received immediately i.e. the lead time is zero.
17. Short Notes**
Maximum Level :
This is the highest level of material beyond which the inventory of material is not allowed to rise. Obviously this
level is fixed with the objective of avoiding overstocking. This level is fixed after taking into consideration the
consumption of material and the re-order period.
The quantity is fixed so as to avoid overstocking as it leads to the following disadvantages.
1. Overstocking leads to increase in working capital requirement which could be profitable used somewhere
else.
2. Overstocking will need more godown space, so more rent will have to be paid.
3. It may also lead to obsolescence on account of overstocking.
4. There are chances that the quality of materials will deteriorate because large stock will require more time
before they are consumed.
5. There may be fear of depreciation in market values of the overstocked materials. Mathematically the level is
fixed as under.
Maximum Level = Re-order Level + Re-order Quantity – [Minimum Consumption x Minimum Reorder period
Minimum Level :
This level is fixed with the objective of avoiding shortage of material. If production is held up due to shortage of
material, there will be huge loss to the company. In order to avoid this, the minimum level is fixed. Care is taken
that the stock do not fall below this level. The minimum level is fixed in the following manner.
Minimum Level = Ordering Level – [Average rate of consumption x Re-order period]
Re-order Level :
This level is fixed for deciding the time of placing an order. If the stock of materials reaches this level, fresh order
is placed so that by the time the material is procured, the level of material may fall up to minimum level but not
below that. This level is fixed in the following manner.
Re-order Level = Maximum Usage per Period x Maximum Re-order Period
Average Level :
This level is the average of the maximum and minimum level and computed in the following manner.
Average Level = (Maximum Level + Minimum Level)/ 2
Danger Level :
Generally the danger level of stock is indicated below the safety or minimum stock level. Sometimes, depending
on the practices of the firm and circumstances prevailing, the danger level is determined between the re-order
level and minimum level.
Labour Cost
18. What do you mean by Labour Turnover? What are its causes?****
Labour turnover, which is also called as ‘attrition’ is a major problem in the modern times. Labor turnover can be
defined as, a change in the labor force as compared to the total labor force. Labour turnover is prevalent in every
industry, however, the proportion of the same changes from industry to industry. For example, turnover in
information technology sector is the highest today due to ample job opportunities due to the rapid growth of this
sector. Labor turnover should not be very high as it will result into double loss to the organisation, the first one is
that an experienced employee will be lost and secondly new person who is replacing the old one, may not have
same qualifications and experience and till he is accustomed to the new job, his productivity is bound to be low.
Similarly suitable training will have to be given to him in order to acquaint him with the environment, which will
also result in additional expenditure. Due to these reasons, every organisation tries to minimise the labour
turnover. However, some proportion of labor turnover is actually necessary, as it will bring in fresh ideas in the
organisation. If labour turnover is reduced to zero, it will indicate that the employees do not have any opportunity
outside and hence they are surviving. Therefore some degree of labour turnover is always desirable.
Avoidable Causes:
These causes include the following.
• Dissatisfaction with the job
• Dissatisfaction with the working hours
• Dissatisfaction with the working environment
• Relationship with colleagues
• Relationship with the superiors like supervisors
• Dissatisfaction with monetary and non monetary incentives
• Other reasons such as lack of facilities like insurance, absence of promotion chances, lack of proper training etc.
Unavoidable Causes:
These causes include the following.
• Personal betterment
• Retirement
• Death
• Illness or accident
• Change in locality
• Termination
• Marriage
• National service
• Other reasons like lack of residential facilities, family commitments, attitude etc.
Measurement of Labor Turnover:
It is essential for any organisation to measure the labor turnover. This is necessary for having an idea about the
turnover in the organisation and also to compare the labor turnover of the previous period with the current one.
The following methods are available for measurement of the labor turnover.
Replacement method = (No of Employees replaced/Average No. of employees on the payroll) x 100
Separation method= (No of Employees Left & Discharged/Average No. of employees on the payroll) x 100
Flux method = (No of Employees Left & Discharged + No of employees Joined /Average No. of employees on
the payroll) x 100
19. Discuss in brief how 'Idle Time' is treated in Cost Accounts.**
It is a time during which no production is carried out because the worker remains idle even though they are paid.
Idle time can be normal idle or abnormal idle time.
Normal idle time : It is inherent in any work situation and cannot be eliminated.
Abnormal idle time : Apart from normal idle time, there may be factors which give rise to abnormal idle time.
Causes of Idle Time:
The major causes which account for idle time may be grouped under the following two heads :
(i) Normal causes : Some idle time is inherent in every situation. The time lost between factory gate and the place
of work, the interval between one job and another, the setting up time for the machine, normal fatigue etc. result
in normal idle time.
(ii) Abnormal causes : Idle time may also arise due to abnormal factors like lack of coordination, power failure,
breakdown of machines, non-availability of raw materials, strikes, lockouts, poor supervision, fire, flood etc.
Idle time represents the time for which wages are paid but no production is resulted. Idle time can be classified as
controllable & uncontrollable, and/or normal and abnormal.
Treatment of idle time in Cost Accounting :
(a) Normal idle time is treated as a part of the cost of production. Thus, in the case of direct workers an
allowance for normal idle time is built into the labour cost rates. In the case of indirect workers, normal idle
time is spread over all the products or jobs through the process of absorption of factory overheads.
(b) Abnormal idle time cost is not included as a part of production cost and is shown as a separate item in the
Costing Profit and Loss Account so that normal costs are not disturbed
20. Discuss in brief how ‘Overtime' is treated in Cost Accounts.**

Work done beyond normal working hours is known as ‘overtime work’.
Occasional overtime is a healthy sign since it indicates that the firm has the optimum capacity and that the
capacity is being fully utilised. But persistent overtime is rather a bad sign because it may indicate either : (a) that
the firm needs larger capacity in men and machines, or (b) that men have got into the habit of postponing their
ordinary work towards the evening so that they can earn extra money in the form of overtime wages.
Causes of overtime:
(a) The customer may agree to bear the entire charge of overtime because of urgency of work.
(b) Overtime may be called for to make up any shortfall in production due to some unexpected development.
(c) Overtime work may be necessary to make up a shortfall in production due to some fault of management.
(d) Overtime work may be resorted to, to secure an out-turn in excess of the normal output to take advantage of
an expanding market or of rising demand.
Treatment of Overtime in Cost Accounting :
Overtime premium is treated as follows :
(a) If overtime is resorted to at the desire of the customer, then overtime premium may be charged to the job
directly.
(b) If overtime is required to cope with general production programmes or for meeting urgent orders, the
overtime premium should be treated as overhead cost of the particular department or cost centre which works
overtime.
(c) If overtime is worked in a department due to the fault of another department, the overtime premium should
be charged to the latter department.
(d) Overtime worked on account of abnormal conditions such as flood, earthquake etc., should not be charged to
cost, but to Costing Profit and Loss Account.
21. Distinguish between Halsey & Rowan Scheme for providing incentive bonus
to workers ****
The Rowan Plan is better than the Halsey Plan because of the following reasons :
(a) Under the Halsey Plan, premium rate varies between 33 1/3 % and 66 2/3% of the wages of the time saved
whereas in the Rowan Plan, it is fixed and is calculated by applying the following formula (TT/TA) x TS x
Rate/hr Thus, the Rowan Plan protects employer and workers against loose premium rate setting.
(b) In the Halsey Plan, bonus is usually set at 50% of the time saved. It does not serve as a strong incentive. On
the other hand under the Rowan Plan, bonus is that proportion of the wages of the time taken which the time
saved bears to the standard time. It serves as a strong incentive for increasing the efficiency.
(c) In the Rowan Plan, the quality of work does not suffer much. The worker is not induced to rush through the
work because bonus increases at a decreasing rate at higher levels of efficiency In the Halsey Plan, a worker
is induced to rush through the work because he gets extra wages for every 50% of the time saved.
(d) The effective labour rate per hour in the Rowan Plan is higher upto 50% of the time saved and falls
thereafter whereas in the Halsey Plan, the effective labour rate per hour is lower upto 50% of the time saved
and can be doubled thereafter. Usually, workers are not able to save more than 50% of the time allowed, so
workers prefer the Rowan Plan for earning more wages.
22. Discuss the importance of Time keeping & Time Booking.***

Time Keeping:
Like Personnel Department, this department also plays an important role in labour cost control through
maintaining record of each worker’s time in and time out during regular working period and reporting the time of
each worker for each department, operation or production order.
Time-keeping will serve the following purposes:
(a) Preparation of Pay Rolls in case of time-paid workers
(b) Meeting the statutory requirements.
(c) Ensuring discipline in attendance.
(d) Recording of each worker’s time ‘in’ and ‘out’ of the factory making distinction between normal time,
overtime, late attendance, early leaving.
(e) For overhead distribution when overheads are absorbed on the basis of labour hours.
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.
The manual methods of time keeping are as follows:
a) Attendance Register Method, and
b) Metal Disc Method
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:
(a) To ensure that time spent by a worker in a factory is properly utilized on different jobs or work orders.
(b) To ascertain the labour cost of each individual job or work order.
(c) 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.
(d) To ascertain unproductive time or idle time so as to make efforts to keep it in limit.
(e) To know the time taken to complete a particular job so that bonus can be paid as per the incentive schemes.
(f) 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:
1. Daily Time Sheets
2. Weekly Time Sheets
3. Job Tickets or Job Cards.
Time and Job Card:
This card is a combined record, which shows both, the time taken for completion of the job as well as the
attendance time. Therefore there is no need to keep separate record of both, time taken and attendance time.
Thus we may distinguish time keeping and time booking, that the time keeping is simply maintaining attendance
of the workers i.e the time of arrival and the time of departure and there by the time spent by the worker in the
organization is measured, where as time booking is not only maintaining the time spent by the workers in the
organization, but also the time spent on each & every job including the idle time with reasons are recorded.
23. What are the Main Principles for sound system of wage incentive
schemes;*
Main principles for a sound system of wage incentive :
(a) The reward for a job should be linked with the effort involved in that job and the scheme should be just
and fair to both employees and employe₹
(b) The scheme should be clearly defined and be capable of being understood by the employees easily. The
standards set should be such that they can be achieved even by average employees. While standards are
being set, the workers concerned should be consulted.
(c) As far as possible, no limit should be placed on the amount of additional earnings, otherwise it will
dampen the initiative of the workers In this regard, what is important is not what actually prevails but
what the workers think—if they think, even wrongly, that the employer will stop wages from rising
beyond a certain limit, the incentive scheme may not be really effective.
(d) The scheme should be reasonable and stable, and should not be changed or modified too often without
consulting the employees.
(e) The scheme should take care that the employees are not penalised for reasons beyond their control.
(f) The scheme should provide for inspection of output so that only good pieces qualify for incentives. It
would even be better not to introduce any incentive scheme if workmanship is of vital importance in sales.
(g) The management should ensure that there is no cause for complaint by the workers that they are sitting
idle, say for want of tools or materials. Management has to see that there is, as far as practicable, no
interruption of production.
(h) Last, but not least, the effect of incentive scheme on those who cannot be covered should be gauged and
taken note of. Sometimes, highly skilled workers have perforce to be paid on time basis whereas
semiskilled or unskilled workers may be put on incentive scheme. If the latter earn more than former, the
incentive schemes on the whole prove harmful.
Overhead
24. Explain how under-absorption and over-absorption of overheads are treated
in Cost Accounts.****
Production overheads are generally recovered or charged on the goods on some predetermined basis. Irrespective
of the method used for the recovery of overheads, It has been observed that a difference arise between the amount
of overheads absorbed and the amount of overheads actually incurred. If the absorbed amount is more than the
overheads actually incurred then such a difference is termed as an under absorption of overheads. If the recovery
is less than the actual overheads incurred then the difference is termed as under absorption of overheads. The
over-absorbed and under-absorbed amount of overhead can be treated in Cost Accounts by following any one of
the methods explained below:
Cost Accounts treatment of under-absorption and over-absorption of overheads:
The under-absorption and over-absorption of overheads can be disposed off in cost accounting by using any one
of the following methods.
(a) Use of supplementary Rate: - The under/over absorption can be rectified by using the supplementary rate.
This rate is calculated by dividing the under/over absorbed amount of overheads by the units of the base. The
rate so arrived is known to be supplementary rate.
(b) Carrying forward to future period: - If the amount of under/over absorption of overheads is small, it may
be carried forward to the future period hoping that it will be rectified in the future.
(c) Writing off to Profit and Loss A/c :- Amount of under/over absorption can be written off to Costing Profit
and Loss Account and thus not reflected in the total costs
25. What do you mean by Machine Hour Rate?****

By the machine hour rate method, manufacturing overhead expenses are charged to production on the basis of
number of hours machines are used on jobs or work orders.
Usually, the computation is made on the basis of the estimated expenses or the normal expenses for the coming
period. Thus the machine hour rate usually is a predetermined rate. It is desirable to work out a rate for each
individual machine; where a number of similar machines are working in a group, there may be single rate for the
whole group.
There are two methods of computing the machine hour rate. According to the first method, only the expenses
directly or immediately connected with the operation of the machine are taken into account e.g., power,
depreciation, repairs and maintenance, insurance, etc. The rate is calculated by dividing the estimated total of
these expenses for a period by the estimated number of operational hours of the machines during the period.
Alternatively, the overheads not directly related to machines may be absorbed on the basis of Productive Labour
Hour Rate Method or any other suitable method.
Activity Based Costing
26. What do you mean by Activity Based Costing? What are its objectives?***
CIMA defi nes Activity Based Costing as, ‘cost attribution to cost units on the basis of benefit received from
indirect activities e.g. ordering, setting up, assuring quality.’
One more defi nition of Activity Based Costing is, ‘the collection of financial and operational performance
information tracing the signifi cant activities of the fi rm to product costs.’
The following are the objectives of Activity Based Costing.
Objectives of Activity Based Costing
The objectives of Activity Based Costing are discussed below.
• To remove the distortions in computation of total costs as seen in the traditional costing system and bring
more accuracy in the computation of costs of products and services.
• To help in decision making by accurately computing the costs of products and services.
• To identify various activities in the production process and further identify the value adding activities.
• To distribute overheads on the basis of activities.
• To focus on high cost activities.
• To identify the opportunities for improvement and reduction of costs.
• To eliminate non value adding activities.
27. What are the limitations of Activity Based Costing?****

Though this system is quite effective, it suffers from some limitations. These limitations are given below.
• Activity Based Costing is a complex system and requires lot of records and tedious calculations.
• For small organizations, traditional cost accounting system may be more beneficial than Activity Based
Costing due to the simplicity of operation of the former.
• Sometimes it is difficult to attribute costs to single activities as some costs support several activities.
• There is a need of trained professionals who are limited in number.
• This system will be successful if there is a total support from the top management.
• Substantial investment of time and money is required for the implementation of this system.
28. What are the problems of traditional costing system?**

The following are the limitations of traditional costing system.
(a) In a traditional costing system, overheads i.e. indirect costs are allocated, apportioned and finally absorbed in
the cost units. There can be distortion in computing costs due to the basis selected for absorption. The
following example will clarify the situation.
(b) Another limitation of traditional costing system is the division between fixed and variable may not be realistic
as there are many complications due to the complexity of the modern business.
(c) There should be linkage between the activities and the costs. Similarly the information should be available
simultaneously which means that information should be made available while the activities are going on.
Information available after the activity is over will not be of much use.
29. How do you treat the following items in cost records?*
Bad Debts:
Bad Debt is a selling overhead and included in the same. However abnormal bad debts are excluded from cost
accounts.
Advertising Cost:
Advertising expenditure incurred for a specific product is charged to that product. Cost of general advertisement is
apportioned to different products on the basis of sales value. If the amount is heavy, the expenses may be treated
as deferred revenue expenditure and can be charged in three or four yea₹
Market Research:
Market Research is an item of selling overhead as it is incurred for conducting study of market conditions and
ascertainment of market potentiality. Cost of market research is apportioned to all the products produced by the
firm if it is conducted for the entire organization. On the other hand, if it is incurred for a particular product, it
may be treated as a direct charge for that product.
Royalties and Patent Fees:
When royalties are paid for the right of use of patent process or component in the course of manufacturing, it is
treated as production cost. On the other hand, if it is paid for use of right to sell, it is treated as selling overheads.
When it is partially for production and partially for sale, the amount is apportioned between production and
selling costs.
Cost of Small Tools:
One of the methods of treatment of the cost of small tools is to capitalize the cost and write off depreciation on the
same. Depreciation is treated as an item of overheads. If there are any difficulties in treating this cost as a capital
cost due to difficulty in ascertaining the life of small tools, the method followed is to charge the purchase price of
small tools to a separate standing order number and distribute to other departments on some suitable basis and .
finally absorbed by products.
Carriage on Materials:
Normally the carriage paid on incoming materials is treated as purchase cost. However if the carriage charges
cover a large number of individual materials, it may be treated as an item of production overheads and spread over
the different materials. Similarly material handling and storage expenses may be apportioned on the basis of
value, weight, volume of materials or number of material requisitions.
Treatment of interest and financial charges:

There is controversy whether financial charges, specially interest, should be included in the costs or not. The
following arguments are generally advanced in favour of interest to be included in overhead expenses.
(a) Computation of total cost is impossible unless interest is taken into account. Interest is an element of cost and
therefore, should be included in cost. This is specially true in business where raw materials in different stages
can be used. Thus a timber merchant, if he buys standing trees and seasons the timber himself, would incur a
large amount of costs as interest. Another merchant who buys his timber already seasoned would
automatically have to pay a higher price; obviously, this price includes interest.
(b) Interest is the cost to be paid for the use of capital; capital is also a factor of production just as labour. Thus,
if wages are included in cost of production, why not interest?
(c) If interest is not included in cost calculation, a number of managerial decisions may be taken wrongly.
(d) In inventory control, interest is an important item to be considered. Where large stocks are kept, the
advantage of one time purchase is offset by increase in interest charges.
(e) While submitting tenders for cost plus contracts, etc., interest must be taken into account.
However, many cost accountants argue that interest should not be included in cost accounts since it is not an item
of cost and would vary with different methods of financing. Some of the arguments are listed below:
(a) Payment of interest depends entirely on the financing policies and financing pattern. A firm working with
proprietor’s capital only will have no interest to pay whereas a firm working with borrowed capital will have
to pay a large amount of interest.
(b) Another practical difficulty arises in the calculation of the amount of capital on which interest should be
worked out. While the fixed capital is readily ascertainable, working capital keeps on changing.
(c) By including interest on the proprietor’s capital and by taking that figure in the cost of production, we would
obviously be including profit since the closing stock will be valued at a higher figure.
Conclusion:
It appears that there are practical difficulties in including interest as part of the normal cost. However, excluding it
altogether may lead to wrong managerial decisions which is not desirable. It is therefore, suggested that while
interest may be excluded from the regular cost sheet, cost calculations for other purposes for decision making
should include a proper amount of notional interest where the interest will be material.
Depreciation on plant & Machinery
In Cost Accounting depreciation is charged to the cost of production. The various reasons for including the
depreciation charge in Cost Accounting are as follows:
(a) To show a true and fair picture of Balance Sheet.
(b) To ascertain the true cost of production.
(c) To keep the asset intact by distributing losses in its value over a number of yea₹
(d) To keep the capital intact and to make a provision of the resources for the replacement of asset in future.
(e) To provide for depreciation before distribution of profit as required under the Companies Act.
Packing expenses:
Cost of primary packing necessary for protecting the product or for convenient handling, should become a part of
the prime cost. The cost of packing to facilitate the transportation of the product from the factory to the customer
should become a part of the distribution cost. If the cost of special packing is at the request of the customer, the
same should be charged to the specific work order or the job. The cost of fancy packing necessary to attract
customers is an advertising expenditure. Hence, it is to be treated as a selling overhead.
Expenses on removal and re-erection of machines:
Expenses are sometime incurred on removal and re-erection of machinery in factories. Such expenses may be
incurred due to factors like change in the method of production; an addition or alteration in the factory building,
change in the flow of production, etc. All such expenses are treated as production overheads. When amount of
such expenses is large, it may be spread over a period of time.
If such expenses are incurred due to faulty planning or some other abnormal factor, then they may be charged to
costing Profit and Loss Account.
Cost Book-keeping
30. What do you mean by integrated system? What are its advantages?****
Integrated Accounts is the name given to a system of accounting, whereby cost and financial accounts are kept in
the same set of books. Obviously, then there will be no separate sets of books for Costing and Financial records.
Integrated accounts provide or meet out fully the information requirement for Costing as well as for Financial
Accounts. For Costing it provides information useful for ascertaining the Cost of each product, job, process ,
operation of any other identifiable activity and for carrying necessary analysis. Integrated accounts provide
relevant information which is necessary for preparing profit and loss account and the balance sheets as per the
requirement of law and also helps in exercising effective control over the liabilities and assets of its business.
Advantages:
The main advantages of Integrated Accounts are as follows:
(a) As only one set of accounting records is kept, the need for reconciliation between the profits shown by the
two records is eliminated.
(b) The duplication of work is eliminated, thus the cost of operating this system is reduced.
(c) This method is simple to understand and easy to operate. Unnecessary complications are eliminated.
(d) Cost data can be available promptly and regularly.
(e) There is a cross checking of various figures in cost as well as financial accounts. This ensures accuracy of
figures of cost and financial data.
(f) Use of mechanized accounting methods can be made.
31. What are the reasons for disagreement of Profits as per financial accounts
and Cost accounts?****
Reasons for disagreement of "Profits as per Financial accounts and Cost accounts are as below.
Items included in the financial accounts but not in cost accounts:
(a) Interest received on bank deposits.
(b) Interest, dividends, etc. received on investments.
(c) Rents receivable.
(d) Losses on the sales of investments, building etc.
(e) Profits made on the sale of fixed assets.
(f) Remuneration paid to the proprietor in excess of a fair reward for services rendered.
(g) Penalties payable at law.
(h) Corporate taxes
(i) Appropriations out of profits, such as transfer of profits to reserves
(j) Certain payments like dividend
(k) Additional provisions of depreciation
(l) Certain amounts written off such as goodwill, patents, preliminary expenses, underwriting commission etc.
Item included in the cost accounts only (notional expenses):
(a) Charges in lieu of rent where premises are owned.
(b) Interest on capital employed in production, but upon which no interest is actually paid if the firm decided to
treat interest as part of cost.
(c) Salary for the proprietor where he works but does not charge a salary.
Overheads:
In cost accounts, overheads are finally absorbed in the products by computing the predetermined rate of
absorption. In such cases, there may be under/over absorption of overheads. This means that the overheads
actually incurred will not tally with the overheads charged to the product. In financial accounts overheads are
always taken at actual basis irrespective of under/over absorption of the same. In such cases the profits shown by
both the systems will differ. However, if the under/over absorbed overheads are charged to the costing profit and
loss account, the profits shown by financial accounts and cost accounts will not differ.
Valuation of Closing Stock and Work-in-Progress:
The principle of valuation of closing stock in financial statements is cost price or market price whichever is less.
However, in cost accounts, valuation of closing stock may be made on the basis of marginal costing where only
the variable costs are taken into consideration while valuing the closing stock. Thus the closing stock valuation
may differ. Work-in-Progress in cost accounts is often valued on the basis of prime cost and sometimes variable
manufacturing overheads are added in the same. On the other hand, in financial accounting, work-in-progress may
be valued after taking into consideration administrative expenses also. Due to this difference in valuation, profits
shown by cost accounts and financial accounts differ.
Abnormal Losses and Gains:
In cost accounts, abnormal losses and gains are computed and transferred to the Costing Pro. t and Loss A/c. No
such computation is made in the financial accounts. This results in difference between the profits shown by cost
accounts and financial accounts.
32. Why preparation of reconciliation statement is necessary? ****

A reconciliation statement is prepared in cost accounts for reconciling the profits shown by the cost accounts and
financial accounts. Obviously this is required when the profits shown by both the methods differ. Profit shown by
the cost accounts and financial accounts differ when accounts are kept on non-integrated system, which means
that cost accounts and financial accounts are prepared separately and independently of each other.
In such a case, profit disclosed by one accounting system will differ from the profit shown by the other and need
for reconciliation will arise.
Job, operating & contract costing:
33. Define Job Costing. What are its advantages & Limitations?*
This method of costing is used in Job Order Industries where the production is as per the requirements of the
customer. In Job Order industries, the production is not on continuous basis, rather it is only when order from
customers is received and that too as per the specifications of the customers. Consequently, each job can be
different from the other one. Method used in such type of business organizations is the Job Costing or Job Order
Costing. The objective of this method of costing is to work out the cost of each job by preparing the Job Cost
Sheet. A job may be a product, unit, batch, sales order, project, contract, service, specific program or any other
cost objective that is distinguishable clearly and unique in terms of materials and other services used.
Job Costing may be employed in the following cases:
- When jobs are executed for different customers according to their specifications.
- When no two orders are alike and each order/job needs special treatment.
- Where the work-in-progress differs from period to period on the basis of the number of jobs in hand.
Advantages of Job Costing
The following are the advantages of job costing.
(a) Accurate information is available regarding the cost of the job completed and the profits generated from the
same.
(b) Proper records are maintained regarding the material, labor and overheads so that a costing system is built up
(c) Useful cost data is generated from the point of view of management for proper control and analysis.
(d) Performance analysis with other jobs is possible by comparing the data of various jobs. However it should be
remembered that each job completed may be different from the other.
(e) If standard costing system is in use, the actual cost of job can be compared with the standard to find out any
deviation between the two.
(f) Some jobs are priced on the basis of cost plus basis. In such cases,
Limitations of Job Costing
Job costing suffers from certain limitations. These are as follows.
(a) It is said that it is too time consuming and requires detailed record keeping. This makes the method more
expensive.
(b) Record keeping for different jobs may prove complicated.
(c) Inefficiencies of the organization may be charged to a job though it may not be responsible for the same.
(d) In spite of the above limitations, it can be said that job costing is an extremely useful method for computation
of the cost of a job. The limitation of time consuming can be removed by computerization and this can also
reduce the complexity of the record keeping.
34. Define Batch Costing? In Which industries it is applied?*

This is a form of job costing. Under job costing, executed job is used as a cost unit, whereas under batch costing, a
lot of similar units which comprises the batch may be used as a cost unit for ascertaining cost. In the case of batch
costing separate cost sheets are maintained for each batch of products by assigning a batch number. Cost per unit
in a batch is ascertained by dividing the total cost of a batch by number of items produced in that batch. Such a
method of Costing is used in the case of pharmaceutical or drug industries, ready-made garments, industries
manufacturing electronic parts of T.V., radio sets etc.
35. Distinguish between job costing & batch costing.*
Job costing is that form of specific order costing which applies where the work is undertaken as an identifiable
unit such as:
(a) Manufacture of products to customers' specific requirements.
(b) Fabrication of certain materials where raw materials are supplied by the customers.
(c) Repairs are done within a factory or at customers' premises.
(d) Manufacturing goods are not for stock purposes but for immediate delivery once these are completed in all
respects.
(e) Internal capital expenditure jobs etc.
Batch Costing is a form of job costing. In the case of batch costing separate cost sheets are maintained for each
batch of products by assigning a batch number.
Difference between Job Costing and Batch Costing
In case of job costing, work is undertaken as an identifiable unit and cost of each job is ascertained separately.
Such a method of costing is suitable in case of motor workshop, printing press and where manufacture of products
is according to customers' specific requirements.
Batch costing is extension of job costing. Job costing refers to costing of jobs that are executed against specific
orders whereas in batch costing items are manufactured for stock. In batch costing a batch may represent a
number of small orders passed through the factory in batches. Each batch is treated as a unit of cost and is
separately costed. Cost per unit is ascertained by dividing the total cost of the batch by number of items produced
in that batch.
36. Short Notes (a) Cost Plus Contract (b) Escalation Clause (c) Retention
Money****
Profit on incomplete contract
Large contracts take a number of years to complete so their cost can be ascertained only when they are completed.
Even after the contract is completed, a proportion of contract price (the retention money) may be still outstanding
from the contractee. The retention money is payable in full only when there is no faulty work and the contract is
executed in time. So it is not possible to ascertain the profit or loss till the contract is completed and the period
fixed for the payment of retention money has expired. Theoretically, therefore, profit or loss on contracts should
be brought into account only when the contracts are completed. However, this procedure leads to considerable
fluctuations in annual profits of the contractor. The year in which the contract is completed may show unusually
large profits and other years may even show losses. Such serious fluctuations in profits may affect the
remuneration if dividend payable to owne₹ Therefore, it is felt desirable to take into account a reasonable
proportion of the notional profit on uncompleted contracts depending upon the completion stage subject to the
following principles:
For contracts which have just started: No profit should be taken in respect of contracts which have just
commenced, as it is impossible to foresee clearly the future position.
For contracts which have sufficiently advanced and covered by architect's certificate: In this case, notional
profit is ascertained by deducting the cost of the contract covered by surveyor's certificate from the value of
contract certified by the surveyor. A portion of notional profit is taken to profit and loss account and the balance is
carried forward in the same contract as a provision against future losses, increase in costs and other contingencies.
Escalation Clause:
Escalation Clause - If during the period of execution of a contract, the prices of materials, or labour etc., rise
beyond a certain limit, the contract price will be increased by an agreed amount. Inclusion of such a clause in a
contract deed is called an “Escalation Clause”.
Retention money:
A contractor does not receive full payment of the work certified by the surveyor. Contractee retains some amount
(say 10% to 20%) to be paid, after sometime, when it is ensured that there is no fault in the work carried out by
contractor. If any deficiency or defect is noticed in the work, it is to be rectified by the contractor before the
release of the retention money. Retention money provides a safeguard against the risk of loss due to faulty
workmanship.
37. What do you mean by Operating Costing? In Which Industries it is

applied?*
It is a method of ascertaining costs of providing or operating a service. This method of costing is applied by those
undertakings which provide services rather than production of commodities. The emphasis under operating
costing is on the ascertainment of cost of services rather than on the cost of manufacturing a product. This costing
method is usually made use of by transport companies, gas and water works departments, electricity supply
companies, canteens, hospitals, theatres, schools etc.
For computing the operating cost, it is necessary to decide first, about the unit for which the cost is to be
computed, this may often require the study of some technical and operating data, for finding out the factors which
have a bearing on cost. The cost units usually used in the following service undertakings are as below:
Transport service - Passenger km., quintal km., or tonne km.
Hospital - Patient per day, room per day or per bed, per operation etc.
Canteen - Per item, per meal etc.
Cinema - Per ticket.
Composite units i.e. tonnes kms., quintal kms. etc. may be computed in two ways.
(i) Absolute (weighted average) tonnes-kms., quintal kms. etc.
(ii) Commercial (simple average) tonnes-kms., quintal kms. etc.
(i) Absolute (weighted average) tonnes-kms.
Absolute tonnes-kms., are the sum total of tonnes-kms., arrived at by multiplying various distances by respective
load quantities carried.
(ii) Commercial (simple average) tonnes-kms.
Commercial tonnes-kms., are arrived at by multiplying total distance kms., by average load quantity.
Process costing
38. What do you mean by Process Costing? In Which Industries it is applied?
Discuss its features. **
Process Costing is a method of Costing used in industries where the material has to pass through two or more
processes for being converted into a final product. It is defined as “a method of Cost Accounting whereby costs
are charged to processes or operations and averaged over units produced”. Such type of costing method is useful
in the manufacturing of products like steel, soap, chemicals, rubber, vegetable oil, paints, varnish etc. where the
production process is continuous and the output of one process becomes the input of the following process till
completion.
Basic features :
Industries, where process costing can be applied, have normally one or more of the following features :
(b) Each plant or factory is divided into a number of processes, cost centres or departments, and each such
division is a stage of production or a process.
(c) Manufacturing activity is carried on continuously by means of one or more process run sequentially,
selectively or parallely.
(d) The output of one process becomes the input of another process.
(e) The end product usually is of like units not distinguishable from one another.
(f) It is not possible to trace the identity of any particular lot of output to any lot of input materials. For example,
in the sugar industry, it is impossible to trace any lot of sugar bags to a particular lot of sugarcane fed or vice
versa.
(g) Production of a product may give rise to Joint and/or By-Products.
39. Distinguish between job-costing and process costing.*

The main points of comparison between job costing and process costing are as follows:
(a) Job costing is applicable to goods produced/manufactured to customers specifications. However, process
costing is applicable to production consisting of succession of continuous operations or processes.
(b) Costs are accumulated by a job or work order irrespective of its time of completion under job costing. When a
job is finished all costs associated with it are charged to it in full. Whereas under process costing costs are
accumulated by processes for a particular period regardless of the number of units produced.
(c) Each job will be different from the other under job costing whereas in the case of process costing units of
product are homogenous and indistinguishable, because goods are produced an a mass scale.
(d) Job is normally a single unit, the whole unit is taken as one for costing purposes.
(e) Job costing does not involve transfer of costs from one job to another. Where as in the case of process costing
transfer of output from one process to another involves the transfer of its costs as well.
(f) Job costs are ascertained only after the completion of job and not at the end of a particular period. Whereas in
the case of process costing costs are ascertained at the end of the accounting period and not when the process
is complete, since production is a continuous flow constituting itself into cycle.
(g) Since each job may be different from other therefore they win not involved the use of identical material and
labour, costs of jobs cannot be ascertained by averaging. In the case of process costing since units f
production are uniform and are at the same stage of production therefore, costs are computed by averaging the
total cost of each stage of production.
40. Discuss the treatment of normal process loss, abnormal process loss and
abnormal gain in Process Costing.*
Normal process loss :
It is defined as the loss of material which is inherent in the nature of work. Such a loss can be reasonably
anticipated from the nature of the material, nature of operation, the experience and technical data. The cost of
normal process loss in practice is absorbed by good units produced under the process. The amount realised by the
sale of normal process loss units should be credited to the process account.
Abnormal process loss :
It is defined as the loss in excess of the pre-determined loss. This type of loss may occur due to the carelessness of
workers, a bad plant design or operation etc. Such a loss cannot obviously be estimated in advance. But it can be
kept under control by taking suitable measures. The cost of an abnormal process loss unit is equal to the cost of a
good unit. The total cost of abnormal process loss is credited to the process account from which it arise. Cost of
abnormal process loss is not treated as a part of the cost of the product. In fact, the total cost of abnormal process
loss is debited to costing profit and loss account.
Abnormal gain :
Sometimes, loss under a process is less than the anticipated normal figure. In other words, the actual production
exceeds the expected figures. Under such a situation the difference between actual and expected loss or actual and
expected production is known as abnormal gain. So abnormal gain may be defined as unexpected gain in
production under normal conditions. The process account under which abnormal gain arises is debited with the
abnormal gain. The cost of abnormal gain is computed on the basis of normal production.
41. What is Equivalent Production

Meaning of Equivalent Production:
This represents the production of a process in terms of completed units. In other words, it means converting the
uncompleted production into its equivalent of completed units. The term equivalent unit means a notional quantity
of completed units substituted for an actual quantity of incomplete physical units in progress, when the aggregate
work content of the incomplete units is deemed to be equivalent to that of the substituted quantity, (e.g. 100 units
of 60% completed = 60 completed units).
The principle applies when operation costs are being apportioned between work- in-progress and completed
output. Thus in each process an estimate is made of the percentage completion of any work-in-progress. A
production schedule and a cost schedule will then be prepared.
The work-in- progress is inspected and an estimate is made of the degree of completion, usually on a percentage
basis. It is most important that this estimate is as accurate as possible because a mistake at this stage would affect
the stock valuation used in the preparation of final accounts. The formula of equivalent production is :
Equivalent units of work-in-progress = Actual no. of units in progress of manufacture x Percentage of work
completed
For example, if 70% work has been done on the average on 200 units still in process, then 200 such units will be
equal to 140 completed units. The cost of work-in-progress will be equal to 140 completed units.
Cost & Management Acct: 2nd Semester

2018 Question Paper: Honours
Group A: [20 Marks]: [4 Question x 5 Marks = 20 Marks]
[2 Questions With Alternatives]
Question 1 [Introduction]:
Define Costing. State three objectives of Cost Accounting.
OR
(a) Distinguish between direct cost and indirect cost.
(b) Classify the cost of following items as direct cost or indirect cost.
(i) Ingots used in a foundry for casting;
(ii) Nails used to make furniture;
(iii) Wages of the machine operator;
(iv) Cost of designing the product;
(v) Wages of the shop supervisor;
(vi) Factory rent.
State with reasons the behavior of following costs and calculate cost for 2,800 units.
Production 1,500 units 2,000 units
Cost – A (Rs.) 12,000 16,000
Cost – B (Rs.) 9,000 9,000
Cost – C (Rs.) 7,000 8,000
OR
A company estimated its cost as below.
Material – Rs. 14,000, Wages – Rs. 10,000, Factory overhead – 60% of Wages Administrative & Selling
overhead (excluding commission) – 20% of Works Cost.
If Sales Commission is 5% on sales and rate of profit is 25% on cost, find the selling price.
Question 3 [Overhead]:
What is Factory Overhead? State the steps to be followed to charge factory overhead to products.
Question 4 [Operating Costing]:

(a) What do you mean by composite cost unit? Give to example.
(b) A Transport company maintains a fleet of 10 trucks for transporting goods from Kolkata to Asansol via
Durgapur. The distance from Kolkata to Durgapur is 250 kms. and that from Durgapur to Asansol is 30
kms. Each truck which operates 26 days in a month on an average, starts everyday from Kolkata with a
load of 10 tons. It unloads 6 tons at Durgapur and rest of the goods at Asansol. It comes back to Kolkata
after getting reloaded with goods weighing 8 tons at Asansol.\
You are required to calculate cost per ton-km. when the total monthly operating expenses for a truck are
Rs. 1,89,540.
Group B: [30 Marks]:
[3 Question x 10 Marks = 30 Marks] [2 Questions with Options]
Question 5 [Material]:
The particulars of receipt and issues of materials in a factory in March, 2018 are as under:
March 1 opening balances 100 Kgs. @ ₹ 5 per kg.
3 Purchases 200 Kgs. @ ₹ 6 per kg.
8 Issued 140 Kgs.
9 Purchased 100 Kgs. @ ₹ 7 per kg.
14 Issued 200 Kgs.
21 Purchased 250 Kgs. @ ₹ 8 per kg.
25 Issued 180 Kgs.
30 Shortage 20 Kgs.
Prepare Stores Ledger using a suitable method of pricing the issues when the company keeps its stock at
current market price.
OR
(a) State the difference between Bin Cars and Stores Ledger.
(b) Following information are available from the books of a company –
Annual requirement of Material A: 12,000 units @ ₹ 60 per unit.
Every order costs ₹ 2,000 and inventory carrying charges are 20 % on averages inventory.
Safety Stock is 20 days consumption and time required to get a new supply is 15 days.
Find
(i) EOQ
(ii) Ordering level
(iii) Minimum level &
(iv) Maximum level
[Assume 1 year = 300 effective days and consumption per day is uniform]
Question 6 [Labour]:
From the following particulars you are required to calculate the amount of wages payable to four workers
A, B, C and D.
i. Time rate: Rs. 30 per hour.
ii. Standard output (per week of 40 hours): 400 units.
iii. Step bonus rate
Efficiency (% of Std.) Bonus (% of time wages)
60-75 2
75-85 5
86-95 10
96-100 15
Above 100 additional 2 % for every 5 %
Increase over 100% efficiency
iv. Production during the said week: A=280 units; B=368 units; C= 390 units and D=440 units.
v. Dearness allowance @ 25% on time wage plus bonus is allowed.
OR
(a) In a factory, it is noted that there has been a wide variation between the records of time keeping and
that of time booking. What may be the possible reasons for such variation? How will you treat the cost
of such variation in cost accounting?
(b) In a factory, a worker as taken 48 hours to complete a job. The works cost of the job is Rs. 8,592. The
raw-material cost of the job is Rs. 6,000. Hourly rate of wages is Rs. 30. Production is recovered on
the job @ 50% of direct wages. The worker is to get bonus according to Rowan incentive scheme.
Calculate the standard time allowed for the job.
Question 7 [Cost Book Keeping]

(a) What are the reasons for disagreement of profits as per cost accounts and financial accounts?
(b) Assuming non-integrated accounting system, pass journal entries in the cost books for the following
transactions:
i. Purchase of materials 80,000
ii. Issue of material for production 50,000
iii. Issue of material for repairs and maintenance 5,000
iv. Direct wages charged to production 15,000
v. Stock destroyed by fire 4,000
Group C: [30 Marks]:

[2 Question x 15 Marks = 30 Marks] [1 Question with Option]
Question 8 [Contract OR Process]
On 01.04.17, B. Ltd. Undertook a contract a building for Rs20,00,000 and furnishes the following details for
the year ended on 31.3.18.
Rs. Rs.
Materials issued to the contract 4,00,000 Materials stolen from site (treated as 8,000
normal)
Wages incurred 5,60,000 Insurance claim received against above 2,400
Apportioned head office expenses 32,000 Sale of unused materials costing Rs. 4,000
6,700
Subcontract charges 24,000 Materials at site on 31.3.18 16,800
Other works expenses (10% of wages) Direct expense accrued on 31.3.18 1,600
Plant installed at cost 1,60,000 Cash received 10,24,000
Material returned to store 5,600 Retention money 20 %
Direct Expenses 8,000 Cost of uncertified work 9,600
Cost of plant transferred to another contract on 01.07.17 ₹ 10,000
Depreciation to be charged on Plant @ 15% p.a.
Prepare Contract A/c in the books of B Ltd. And also show the value of WIP.
OR
The product of a manufacturing concern passes through two processes, viz, A and B and then to finished
goods. From the following information prepare Process A Account, Process B Account, Normal Loss
Account, Abnormal Loss/Gain Account/s:
Process A Process B
Materials introduced (in tons) 2,000 140
Cost of materials per ton (Rs.) 250 400
Output (tons) 1,660 1,560
Normal weight loss (%) 5 5
Scrap (% of total output) 10 10
Scrap value per ton (Rs.) 160 400
Direct wages (Rs.) 1,12,000 40,000
Manufacturing expenses (Rs.) 32,000 21,000
Question 9 [Overhead]
(a) What do you mean by allocation and apportionment of production overhead? In this connection which
of the following items of production overhead are to be allocated and which are to be apportioned?
i. Wages of machine shop supervisor,
ii. Repairs and maintenance of assembly department,
iii. Salary of factory security staff,
iv. Power bill of the factory.
(b) A company has three production departments A, B, C and two service departments – X and Y. the
following figures are available for one month of 25 working days of 6 effective hours each.

2019 Question Paper: Honours
What do you mean by the term ‘Cost’? State how cost is classified behavior-wise and element-wise.
Or
State the essentials of a good cost accounting system.
(a) What do you mean by sunk cost?
(b) Mention the cost unit to be applicable against each of the following industries:
i. Road transport
ii. Nursing home
iii. Sugar industry
iv. Electricity generation
v. Cable industry
vi. Gas
Question 3 [Overhead OR MHR]:

From the following particulars calculate the machine hour rate for Machine No. 707:
Total standing charges for the year Rs. 5,400
Cost of power per unit Rs. 1.20
The machine consumes 4 units of power per hour.
The machine No. 707 is expected to work 2,000 hours p.a. out of which normal idle time is estimated at 8% of
total working hours and time for routine maintenance is estimated at 40 hours p.a.
Or
What do you mean by under and over absorption of factory overhead? State any two methods of treatment of such
under and over absorption in cost accounts.
Question 4 [Contract Costing]:

The following particulars are available in respect of a contract as on 31.3.2019:
Rs.
Total cost of contract till 31.03.2019 5,50,000
Cash received (retention money being 15%) 5,31,250
Compute the amount of profit that may be transferred to Profit & Loss Account and the value of Work-in-
Progress.
(a) Discuss the concept of Economic Ordering Quantity.
(b) The following data are available in respect of a component used in a factory:
Annual Usage 2,000 units
Cost per unit Rs. 100
Carrying cost per unit per annum 10%
i. Calculate EOQ and frequency of order per annum.
ii. Evaluate the proposal of buying 1,000 units in a lot if discount @ 2% is available.
Or
The particulars of receipts and issues of material in a factory in March, 2019 are as under:
March 1 opening balance 1000 kgs @ Rs. 5 per kg.
8 Purchased 200 kgs @ Rs. 6 per kg
17 Issued 1400 kgs
21 Purchased 1000 kgs @ Rs. 7 per kg
30 Issued 2000 kgs
Calculate the value of stock as on 31.03.2019 and the value of materials issued using LIFO method and
Weighted Average method. (Preparation of stores Ledger Account is not mandatory).
In respect of the production department of a factory, following information are available:
i. Total number of direct workers Rs. 10
ii. Hourly rate of wages (guaranteed) Rs. 2
iii. Number of working days in the month 25
iv. Number of working hours per day for each worker 8
v. Actual production during the month 1,000 units
In view of the increased demand for the product, the management purposes to introduce either Halsey
(20% bonus) or Rowan Incentive Scheme of wage payment, whichever will yield maximum increase in
earning, if the worker can increase productivity by at least 25%.
The workmen accepted the proposal and achieved the production of 1,300 units in the following month.
a) Calculate the effective rate of earnings per hour under Halsey Scheme and Rowan Scheme
considering the time taken previously for producing 1 unit as time allowed.
b) Calculate the savings to the management in terms of direct labour cost per unit under the schemes.
c) Advise the management about the selection of the scheme to fulfill its assurance.
Or
What is overtime premium? How can it be treated in cost account? Suggest two steps that can be taken to
control overtime.
Question 7 [PRS]
The cost book of R. Ltd. showed a net profit of Rs. 86,200 for the period 2008-19. A scrutiny of the
figures from financial books and cost books revealed the following facts:
Rs.
Works overhead under-recovered 1,560
Administration overhead over-recovered 850
Depreciation charged in : in financial accounts 5,600
In cost accounts 6,250
Interest on investment not recorded in cost book 4,000
Income tax provided in financial accounts 20,150
Bank interest and transfer fees recorded only in financial books 375
Value of opening stock in : Cost accounts 24,800
: Financial account 26,300
Goodwill written off 5,000
Loss on sale of furniture 600
Prepare a statement showing the reconciliation between the profits as revealed by the two sets of books.

Question 8 [Operating or Process]
Ultra Ltd. supplies the following details in respect of a truck of 5 tonne capacity:
Cost of truck – Rs.18,00,000; Estimated life – 10 years; Lubricants – Rs. 150 per trip each way; Repairs
and maintenance – Rs. 10,000 p.m.; Driver’s wage – Rs. 15,000 p.m.; Cleaner’s wage – Rs. 5,000 p.m.;
Insurance, tax and others – Rs. 1,20,000 p.a.
The truck gives an average of 10 kms per litre of diesel and cost of diesel is Rs. 65 per litre.
The truck carries goods to and from the city covering a distance of 50 kms each each way.
On outward trip, freight is available to the extent of 80% capacity and on return 20% of capacity.
The truck was on an average 25 days a month.
Calculate the operating cost per tonne-km and the rate per-tonne-km that the company should charge if a
profit of 50% on freightage is to be earned.
Or
Product Z passes through two processes before it is transferred to finished stock. The following
information is available:
Process A (Rs.) Process B (Rs.) Finished Stock (Rs.)
Materials 80,000 -- --
Labour 1,04,000 1,80,000 --
Overhead closing stock 40,000 60,000 --
at cost 32,000 80,000 60,000
Profit on transfer price 20% 20% --
There is no stock at the beginning. Sales were Rs. 8,20,000.
Prepare Process accounts and the Finished Stock account.
Question 9 [Cost Sheet]:
From the following particulars relating to production and sales for the year ended 31.03.2019, prepare a
statement cost and profit:
Rs.
Raw Materials Direct Labour 1,35,000
(01.04.2018) Office Expenses Rs. 2 p.u. --
W.I.P. (01.04.18) Selling Expenses Rs. 1 --
At prime cost 15,000 p.u. 15,000
Factory Expenses 3,000 Distribution Expenses 4,00,000
18,000 Sales (28,000 units) 20,000
Material purchased 1,10,000 Raw Materials (31.3.2019)
Freight on material 5,000 W.I.P. (31.03.2019) 10,000
Loss of material by 5,000 At Prime Cost 8,000
fire 70,000 Factory Expenses 18,000
Factory expenses 25,000
Chargeable expenses
Stock of finished goods:
Date Units Value (Rs.)
01.04.2018 8,000 60,000
31.03.2019 10,000 ?
Assumes sales are made on FIFO basis.

2019 Question Paper: Pass
What do you mean by cost? What is costing? Mention any two differences between Costing and Cost Accounting.
Or
State the advantages of Cost Accounting System.
Question 2 [Cost Sheet]:

From the following figures you are required to calculate:
a) Prime cost
b) Works cost
c) Cost of production
d) Cost of sales
e) Profit per unit
Rs.
Direct Materials 15,000
Direct Wages 13,000
Chargeable Expenses 2,000
Works on cost at 30% of Direct Wages; Office overhead at 20% of works cost, Profit – 20% of selling price. Units
Produced and Sold – 25,000.
(a) What should be the appropriate costing method for the following industries?
i. Oil Refinery
ii. Coal mine
iii. Rail transport
(b) Name the appropriate cost unit suitable for the following industries:
i. Hospital
ii. Advertising agency
From the following information calculate:
a) Economic Ordering Quantity (E.O.Q)
b) Number of orders per annum
c) Time gap between two consecutive orders:
Consumption per month - 100 units
Cost per unit - Rs. 40
Cost of processing an order - Rs. 600
Cost of carrying inventory - 20% p.a.
Or
What do you mean by Perpetual Inventory System? Mention any two differences between Perpetual Inventory
System and Continuous Stock Taking.
A worker takes 80 hours to do a job for which standard time allowed is 100 hours. His daily wage rate is
Rs. 10 per hour. Calculate the works cost of the job under the following methods of payment of wages:
a) Piece Rate
b) Halsey Plan and
c) Rowan Plan
Additional information:
i. Material cost – Rs. 1,800
ii. Factory overhead – 50% of wages
Or
(a) What do you mean by overtime wages? How will you treat overtime wages in cost accounting?
(b) In a factory two workers Ashok and Kishor produce 30 units and 50 units respectively in a day of 8
hours. Standard production per hour is 4 units and normal rate of wage is Rs. 2 per unit.
But a worker is paid at 80% of normal piece rate if actual production is below the standard and at
120% of normal piece rate if actual; production is above the standard.
Calculate the wages of the two workers based on above differential piece rate system.
Question 6 [Cost Book Keeping]:

The following details have been available from the Financial Account and cost Account of an independent
enterprise. If profit disclosed in Financial Account is Rs. 2,50,000, prepare a Reconciliation Statement
find out the profit as per Cost Account.
Cost Accounts Financial Accounts
(Rs.) (Rs.)
(a) Opening Stock:
Materials 10,000 13,500
Finished goods 35,000 30,000
(b) Closing Stock:
Materials 45,000 50,000
(c) Interest charged in Cost Accountant but not actually paid and not debited in financial profit and Loss
A/c – Rs. 16,000.
(d) Preliminary expenses written off in Financial Accounts – Rs. 1,800.
(e) Goodwill written off in Financial Accounts – Rs. 3,000.
(f) Dividend received – Rs. 4,000
(g) Overhead paid Rs. 89,000 but recovered Rs. 85,000.
Or
The following transactions took place for the month of March, 2019 of XYZ Co. Ltd. you are required to
enter the transactions in cost books (under cost control accounting system):
(Rs.)
a) Material Purchased
Direct Materials 40,000
Indirect Materials 5,000
b) Wages paid
Direct Wages 40,000
c) Overhead Incurred Overhead Absorbed
(Rs.) (Rs.)
Factory overhead 50,000 60,000
Administration overhead 25,000 20,000
Question 7 [Material & Operating]

(a) From the following particulars prepare a stores Ledger Account of P. Roy Traders for the month of
December, 2018 under FIFO basis:
2018
December 1 Opening Stock 300 units @ Rs. 10 per unit
December 15 Purchased 500 units @ 12 per unit
December 16 Issued 200 units
December 25 Purchased 600 units@ Rs. 15 per unit
December 31 Issued 1,000 units
(b) A truck travelled following distances during the month of April, 2019:
Place of Destination Distance (k.m.) Weight (tonne)
From Station A to Station B 80 10
From Station B to Station C 120 8
From Station C to Station A 200 5
Calculate Absolute tonne-km for the month on the basis of above information.

Question 8 [Overhead]
A factory has three Production Department P1, P2, and P3 and two service departments S1 and S2. From
the following information calculate Machine Hour Rate.
Expenses Rs. Rs.
Rent and Rates 40,000 Electricity 40,000
Indirect Wages 12,000 Power 6,000
Depreciation 80,000 Canteen Expenses 10,000
Additional Information:
P1 P2 P3 S1 S2
Floor Space (sq. m.) 3,000 3,750 4,500 3,000 750
Light Points (Nos.) 10 15 20 10 5
Direct Wages (Rs.) 12,000 8,000 12,000 6,000 2,000
Horse Power of Machines(kWh) 120 60 100 20 --
Cost of Machinery (Rs.) 36,000 48,000 60,000 3,000 3,000
Machine Hours 8,000 6,000 6,000 -- --
Service rendered to other departments:
S1 20% 30% 40% -- 10%
S2 50% 30% 20% -- --
Question 9 [Process OR Contract]:
A product is produced after passing through two processes two processes – Process I and Process II. You
are required to prepare Process I A/c, Process II A/c, Abnormal Loss A/c and Abnormal Gain A/c from
the following information:
Process – I Process – II
Basic Raw Materials (1,000 units) Rs. 15,000 ----
Process Materials added -- Rs. 8,160
Direct Wages Rs. 34,100 Rs. 31,680
Manufacturing Expenses Rs. 23,900 Rs. 18,660
Output 900 units 800 units
Normal Loss 15% 10%
Scrap Value per unit Rs. 20 Rs. 30
There was no opening or closing work-in-progress.
Or
A building construction company undertook a contract to construct a house for a contract price of Rs.
13,00,000 and started work on 01.04.2018. But the work remained incomplete on 31.12.2018, the end of
the accounting year. Prepare contract Account from the following detail for the period ended on
31.12.2018 and calculate the portion of profit to be shown in Profit and Loss A/c.
Rs.
Materials issued to the contract 3,60,000
Plant purchased for the contract 64,000
Wage paid 1,74,000
Depreciate plant @ 10%p.a.
Cost of work not yet certified on 31.12.18 60,000
Materials costing Rs. 8,000 were sold at 10,000
Wages paid in advance 500
Retention Money – 20% of value of work certified.
Total Establishment Expenses – Rs. 82,000 (of which 25% is to be charged to this contract).
Mock Test paper: Set 1

Cost & Management Acct: [Honours & Pass]
Question 1:
What do you mean by techniques of costing? Mention the name of four techniques of costing followed in cost
accounting for cost ascertainment and cost control.
Question 2:
Point out the differences between Management Accounting, Cost Accounting & Financial Accounting. [Qn 6]
Question 3 [Cost Sheet Qn 13 OR Overhead Question 11]:

Mr. Gopal furnishes the following data relating to the manufacture of a standard product during the month of
April, 2002 :
Raw Material Consumed - ₹ 15,000
Direct Labour Charges - ₹ 9,000
Machine Hours Worked - 900
Machine Hour Rate - Rs 5
Administration Overhead - 20% of Works Cost,
Selling Overhead - Re. 0.50 per unit
Units Produced- 17,100
Units Sold - 16,000 at ₹ 4 per unit.
Prepare a Cost Sheet showing cost per unit, profit per unit and total profit.
Or
A company has three production dept. and two service dept. Distribution summary of overheads is as follows:
Production Departments
A ₹ 10,000
B ₹ 15,000
C ₹ 12,000
Service Departments
X ₹ 2,500
Y ₹ 1,000
The expenses of service departments are charged on a percentage basis which is as follows:
A B C X Y
X Dept. 40% 30% 20% ---- 10%
Y Dept. 30% 40% 10% 20% -----
Apportion the cost of Service Departments by using the Repeated Distribution method.
Question 4 [Operating Costing 6 OR Contract Costing Qn 17]:
Calculate the Cost per running km. for a Motor Van from the following information of AB Transport Ltd.
Kilometre run (annual) – 30,000
Cost of Motor Van ₹ 12,00,000
₹
Road License (Annual) 24,000
Insurance (Annual) 36,000
Garage Rent (Annual) 10,000
Supervision Expenses (Annual) 96,000
Driver’s Monthly wages 10,000
Cost of Petrol per litre 60
Repairs and Maintenance per km. 6.40
Tyre Cost (Average) per km 4.00
Km. run per litre of Petrol 15
Estimated life of Motor Van 1,20,000 Km
Or
Compute a conservative estimate of profit on a contract (Which is 80% complete) from the following
particulars. Illustrate at least 4 methods of computing the profit:
₹
Total expenditure to date 85,000
Estimated further expenditure to complete the contract (including contingencies) 17,000
Work uncertified 8,500
Cash received 81,600
Question 5 [Material Question 12 OR Material Question 20 type]:
(a) From the following particulars calculate the best quantity to be ordered:
Ordering quantity (in kg ) Price per kg (in ₹ )
Less than 500 10.00
500 and less than 1,600 9.60
1,600 and less than 4,000 9.40
4,000 and less than 8,000 9.20
8,000 and above 9.00
The annual requirement of the material is 8,000 kg stock holding (carrying) cost is 20 % of material cost per
annum. Ordering (reordering) cost per order is ₹ 10.
(b) Write Short Notes on
(i) ABC System:
(ii) Just in Time Inventory:
OR
From the information for the month of March 2011, prepare stores Ledger Account using appropriate method.
2011 1 opening stock 100 units @ ₹ 10 per unit
March 4 received materials 50 units @ ₹ 12 per unit
6 Issues 80 units
13 Return to suppliers 10 units (out of 4th March purchases)
15 Issues 50 units
30 Issues 60 units
Question 6 [Labour Question 12 OR Labour Question 23]:

A manufacturing firm wants to introduce an incentive wage scheme with a view to increasing productivity. For
this purpose, the actual production of the two workers-A & B who produces 1400 units & 1800 units during a
particular week of 40 hours has been taken into consideration. The day wage rate of the workers is guaranteed at ₹
10 per hour and the piece rate is based on a standard hourly output of 40 units.
Calculate the earnings and labour cost per 100 units in case of each of the three workers under:
(i) Piece work with a guaranteed weekly wage (ii) Halsey Premium Plan and (iii) Rowan Premium Plan.
OR
(a) What do you mean by Labour Turnover? What are its causes?
(b) Calculate the normal and overtime wages payable to a workman on the basis of the following particulars:
Days Hours worked
Monday 9
Tuesday 8
Wednesday 10
Thursday 11
Friday 9
Saturday 5
Normal working hours are 8 hours per day and the normal rate of wages is ₹ 1.25 per hour.
Overtime pay is at the undernoted rate:
(i) Upto 9 hours in a day at single rate and over 9 hours in a day at double rate,
(ii) or upto 48 hours in a week at single rate and over 48 hours at double rate, whichever is more beneficial
to the workman.
Question 7 [Cost Book Keeping Question 7]

From the following details show the necessary accounts in the Cost Ledger:
Opening balance Closing balance
₹ ₹
Materials 8,000 11,000
Work-in-Progress 5,000 9,000
Transaction during the period: ₹
Wages paid (including 2,000 indirect wages) 10,000
Overhead incurred 8,000
Overhead (recovered 9,000)
Sales 50,000
Question 8 [Machine hour rate Question 9]
a. What do you mean by Machine Hour Rate & Comprehensive Machine Hour Rate? [Question 25]
b. From the following particulars calculate the Machine Hour Rate:
Cost of machine ₹ 2, 00,000
Installation charges ₹ 20,000
Rent of the shop per month ₹ 3,000
Insurance premium for the machine per annum 1% of capital cost
Electricity charges for the shop per month ₹ 300
Repairs and maintenance per month 0.5% of capital cost
Supervisor’s salary per month ₹ 1,800
Rate of power charges for 100 units ₹ 55
The machine occupies 1/3rd of the shop area. Its life is 10 years and anticipated scrap value is ₹ 10,000. The
supervisor devotes 1/4th of his time to the machine.
Estimated idle time: 50 hours in a year
Normal working days during a year:
250 days of 8 hours
50 days of 5 hours
Question 9 [Contract costing Question 19 or Process costing Question 17]:

M/s. Eastern contractors undertook a contract for construction of a Highway on 1st April, 2014. The
following expenses were incurred during the year ended on 31st March, 2015 :
₹
Stores purchased 8,000
Direct wages 25,000
Plant issued 40,000
Sub – contract cost 20,000
Other information:
a) The contract price as per agreement was ₹ 1, 00,000.
b) Depreciation to be charged on plant @ 20% p.a.
c) 25% of the plants were destroyed in an accident on 30.09.2014.
However, a compensation of ₹ 5,000 was realised from insurance company.
d) Materials transferred to another contract ₹ 8,000, returned to store ₹ 2,000.
e) Balance of materials and stores at site were ₹ 7,000 and ₹ 3,000 respectively besides the plants.
f) Cost of work completed but not certified ₹ 10,000 and cost of work not completed and not certified
₹ 3,000. Surveyors fees due ₹ 4,000.
g) The architect had certified 4/5th of the contract. Cash was received 90% of work certified.
h) Charge for establishment expenses @ 20% of direct wages and office overhead @ 10% works cost.
Prepare Contract A/C and Contractee A/c
OR
(i) Opening work-in-progress 5000 units
(a) Materials (100% complete) ₹ 18750
(b) Labour (60% complete) ₹ 7500
(c) Overheads (60% complete) ₹ 5,000
(ii) Units introduced into the process 20,000 units
(iii) 17500 units are transferred to the next process
(iv) Process costs for the period are:
Rs.
Materials 2,50,000
Labour 1,95,000
Overheads 97,500
(v) The stage of completion of units in closing W.I.P are estimated to be :
Rs.
Materials 100%
Labour 50%
Overheads 50%
out the value of: (i) Output transferred (ii) Closing W.I.P (iii) Process A/c using weighted average method
Additional Question for Practice:

Question 10 [Machine Hour Rate Qn 3]:
The particulars relating to four machines are as follows:
I II III IV
Cost (₹ ) 50,000 40,000 30,000 20,000
Area occupied (Sq. ft.) 500 450 300 250
Direct wages (₹ ) 1500 1200 1000 500
No of worker 20 15 8 7
Horse powers of machines 25 20 16 14
Consumable stores (₹ ) 100 80 75 50
The expenses incurred were as follows ₹
Rent and taxes 600
Lighting 140
Depreciation 2800
R&M 700
Power 375
Indirect wages 840
Consumable stores 305
General expenses 420
(a) Compute the comprehensive machine hour rate for a month of 25 working days with 8 working hours on an
average.
(b) Calculate the cost of production of one unit of product A, if the material cost is ₹ 10, labour cost ₹ 20 and if
processed for one hour in machine I, two hours in machine II, three hours in machine III and four hours in
machine IV.
Bhalotia Classes (9883034569/8820696761): 2nd Semester Cost
Solution of selected questions

1. Cost Sheet [10 Marks]****
From the following particulars prepare a statement of (a) cost of production and (b) a statement of profit or loss
assuming weighted average method is followed by the company:
Stock 1.1.2004 31.12.2004
₹ ₹
Finished Goods 72,000 ?
(5,000 units) (4,000 units)
Purchase of raw materials ₹ 1,60,000
Direct labour ₹ 1,10,000
Solution:
Total Per Unit
₹ ₹
Raw Materials Consumed :
Opening Stock 40,000
Add : Purchase 1,60,000
2,00,000
Less : Closing Stock 50,000
1,50,000 6.00
Direct Labour 1,10,000 4.40
Chargeable Expenses 40,000 1.60
PRIME COST 12.00
Factory Overhead 3,00,000 2.40
(Machine hour rate x Machine hour worked 60,000
= ₹ 16 x 5000 hours)
3,60,000
Add : Opening Stock of Work-in-progress 50,000
4,10,000
Less : Closing Stock of Work-in -progress 70,000
FACTORY COST 3,40,000 13.60
Office & Administration overhead (25,000 x ₹ 4.80) 1,20,000 4.80
COST OF PRODUCTION 4,60,000 18.40
113
STATEMENT OF PROFIT OR LOSS
Units Sold : 24,000 units Period : Quarter ended 31.12.01
Total Per Unit
₹ ₹
COST OF PRODUCTION 4,60,000 18.40
Add : Opening Stock of Finished goods 72,000
5,32,000
Less : Closing Stock of Finished goods 91,700
COST OF GOODS SOLD 4,40,300 18.35
Selling & Distribution overhead ( 24,000 x ₹ 3) 72,000 3.00
COST OF SALES 5,12,300 21.35
PROFIT (Bal. fig.) 1,11,700 4.65
SELLING PRICE (24,000 UNITS X ₹ 26) 6,24,000 26.00
Working Notes:
1. Production during the quarter ended 31.12.01 Sales during the quarter ended 31.12.10 + Closing
stock of finished goods – Opening stock of finished goods.
Here, Production during the quarter ended 31.12.01 = 24,000 units + 5,000 units – 4,000 units
= 25,000 units
2. Valuation of closing stock of Finished Goods under Weighted Average Method
Weighted average cost per unit:
= (4,000 units x ₹ 18) + (25,000 units x ₹ 18.40)/(4,000 units + 25,000 units) = ₹ 18.34
Therefore, Value of 5,000 units Closing stock of Finished goods = 5,000 units x ₹ 18.34 = ₹ 91, 700.
3. Value of Closing 5,000 units of Finished Stock under FIFO basis
= 500 units x ₹ 18.40 = ₹ 92,000.
2. Material [6 Marks]**
Sachin Ltd. furnishes the following information:
(i) Consumption---300 units per quarter;
(ii) Cost per unit ₹ 40;
(iii) Cost of processing an order ₹ 600;
(iv) Obsolescence 15%; Storage = 5 % & Interest on Capital = 10 %
Compute:
(a) Economic order quantity;
(b) No, of orders per year;
(c) Time between two consecutive orders.
Solution:
2𝐴𝐴𝐴𝐴
(a) EOQ = �
𝐶𝐶𝐶𝐶
Where,
A = Annual usage (consumption) = 300 units x 4 = 1200 units.
O = Ordering cost per order = ₹ 60
Cc = Stock holding cost per unit of material cost p. a.
114
= Obsolescence cost + Storage cost + Interest on capital = (10% + 5% + 10%) of ₹ 40
= 25% of ₹ 40 = ₹ 10.
2𝑋𝑋 1200𝑋𝑋 60
EOQ = �
10
= 120 Units
(b) No. of Orders = Annual Consumption/EOQ = 1200/120 = 10 orders in a year
(c) Time Lag between two orders
= 12 month/No. of orders p.a
= 12/10
= 1.2 Month
3. Material [6 Marks]***
The following are the details supplied by AB Ltd. In respect of its raw materials for the month of
November, 1990:
Date Receipts Issues
Units Amount Units
₹
1.11.90 (opening)1000 6000
10.11.90 500 3500
15.11.90 - - 1200
20.11.90 1000 8000
30.11.90 - - 1100
On 30 November, a shortage of 50 units was found. Find the values of issues and resulting
th
stocks on different dates using (a) LIFO, (b) Simple average, and (c) Weighted Average Method.
Solution:
(a) STORES LEDGER (UNDER LIFO)
Date Receipts Issues Balance Remarks
G.R. Qn Rate Amt. S.R. Qn. Rate Amt. Qn. Rate Amt.
N. (units) ₹ ₹ No (units) (units) ₹ ₹
NO. ₹ ₹
1.11.90 1000 6.00 6000 Opening
Balance
10.11.90 500 7.00 3500 1000 6.00 6000
500 7.00 3500
15.11.90 500 7.00 3500
700 6.00 4200 300 6.00 1800
20.11.90 1,000 8.00 8000 300 6.00 1800
1000 6.00 8000
30.11.90 1000 8.00 8000 200 6.00 1200
100 6.00 600
30.11.90 50 6.00 300 150 6.00 900 Shortage
115
(b) STORES LEDGER (UNDER SIMPLE AVERAGE)

Date Receipts Issues Balance Remarks
G.R. Qn. Rate Amt. S.R. Qn Rate Amt. Qn. Rate Amt.
N. (units) ₹ ₹ No. (units) ₹ ₹ (units) ₹ ₹
No.
1.11.90 1000 6.00 6000 Opening
Balance
10.11.90 500 7 3500 1500 9500
15.11.90 1200 6.50 7800 300 1,700
20.11.90 1000 8 8000 1300 9700
30.11.90 1100 7.50 8,250 200 1,450
30.11.90 50 7.50 375 150 1075 Shortage
Working Notes: Rate for issue on 15.11.90 = ₹ 6 + ₹ 7/2 = ₹ 6.50

Rate for issue on 30.11.90 = ₹ 7 + ₹ 8/2 = ₹ 7.50
(c) STORES LEDGER (UNDER WEIGHTED AVERAGE)

Date Receipts Issues Balance Rem.
G. Qn. Rate Amt. S. Qn Rate Amt. Qn. Rate Amt.
R. (units) ₹ ₹ R. (units) ₹ ₹ (units) ₹ ₹
1.11.90 1000 6.00 6000 Op.
10.11.90 500 7.00 3500 1500 6.33 9500

15.11.90 1200 6.33 7600 300 6.33 1900
20.11.90 1000 8.00 8000 1300 7.615 9900
30.11.90 1100 7.615 8,377 200 7.615 1,523
30.11.90 50 7.615 381 150 7.615 1142 Short
age
Working Notes:
Balance on 10.11.90 = (1000 units x ₹ 6) + (500 units x ₹ 7) / (1000 units + 500 units)
= ₹ 6.333
Balance on 20.11.90 = (300 units x ₹ 6.33) + (1000 units x ₹ 8) / (300 units + 1000 units)
= ₹ 7.615
116
4. Labour [6 Marks]**
A worker produced 180 units in a week. The guaranteed weekly wage payment for 44 h₹ is ₹ 77.
The expected time to produce one unit is 16 minutes which is further raised by 25% under the
incentive scheme. What will be the earnings per hour of the worker under the Halsey and Rowan
schemes.
Solution:
STATEMENT SHOWING EARNINGS PER HOUR OF THE WORKER
Under Under
Halsey scheme Rowan scheme
₹ ₹
Normal wages for 44 hours 77 77
Bonus: 14 20.53
Under Halsey scheme
= 50% of (time saved x time rate)
= 50% of (16 hours x ₹ 1.75)
Under Rowan scheme
= Time saved/Time allowed x Time taken x Time rate
= 16 hours/60 hours x 44 hours x ₹ 1.75
Total Earnings for the week 91 97.53
Therefore, Earnings per hour [Total earnings/ Total hours worked] ₹ 91/44 hrs 97.53/44 h₹
= ₹ 2.07 = ₹ 2.22
Working Notes:
1. Expected time to produce one unit = 16 minutes
Add: 25% increase under incentive scheme = 4 minutes
(25% of 16 minutes)
Expected time to produce 1 unit under incentive scheme =20 minutes
Time allowed to produce 180 units = 60 hours
( 180 units x 20 minutes x 1/60 minutes)
Time taken to produce 180 units = 44 hours
Time saved = 16 hours
2. Normal rate of wage per hour = Guaranteed wages for the week/Total hours worked in
the week
= ₹ 77/ 44 hours = ₹ 1.75
117
5. Overhead [10 Marks]**
From the following particulars, calculate the overheads allocable to Production departments P and
Q. There are also two service departments S1 and S2. S1 renders service worth ₹ 6000 to S2 and
the balance to P and Q as 3:2. S2 renders service to P and Q as 9:1.
P Q S1 S2
Floor space (Sq. ft.) 2500 2000 500 500
Assets(₹ In lakhs) 5 2.5 1.5 0.5
H.P. of Machines 500 250 200 50
Light and Fans points 50 30 20 20
Expenses and charges: Depreciation – ₹ 95000; Rent, Rates and Taxes – ₹ 18000; Insurance – ₹
7600; Power – ₹ 10000; Canteen Expenses – ₹ 5400;
Electricity – ₹ 2400.
Solution:
OVERHEAD DISTRIBUTION SHEET
Basis of Production Dept. Service Dept.
Overheads Apportionment Total P Q S1 S2
₹ ₹ ₹ ₹ ₹
Depreciation Assets 95000 50000 25000 15000 5000
(5:2.5:1.5:0.5)
Rent, Rates & Taxes Floor space 18000 8182 6546 1636 1636
(5:4:1:1)
Insurance Assets 7600 4000 2000 1200 400
(5:2.5:1.5:0.5)
Power H.P. of Machines 10000 5000 2500 2000 500
(10:5:4:1)
Canteen Expenses No. Of Workers 5400 2400 1200 1200 600
(4:2:2:1)
Electricity Light & Fan points 2400 1000 600 400 400
(5:3:2:2)
Overheads as per
Primary Dist. Service 138400 70582 37846 21436 8536
Dept. S1 (21436 – 6000) 9262 6174 (-) 21436 6000
79844 44020 Nil 14536
Service Dept. S2 9:1 13082 1454 - (-)14536
Overheads as per 138400 92926 45474 Nil Nil

Secondary Dist.
118
6. Overhead [10 Marks]**
The company is having three departments A,B and C and two service departments boiler-house and pump-
room. The boiler-house has to depend upon the pump-room for supply of water and pump-room, in its
turn, is dependent on the boiler-house for supply of steam power for driving the pump. The expenses
incurred by the production departments are:
A : ₹ 400000 : B : ₹ 350000 : and C : ₹ 250000
The expenses for boiler – house is ₹ 117000 and for pump-room is ₹ 150000.
The expenses of the boiler-house and pump-room are appointed to the production departments on the
following basis:
A B C Boiler-house Pump-room
Expenses of Boiler-house 20% 40% 30% - 10%
Expenses of Pump-room 40% 20% 20% 20% -
Show clearly as to how the expenses of Boiler-house and Pump-room would be apportioned to A,B and C
departments.
Solution:
Statement showing Re-Distribution of Overheads
(Under Repeated Distribution Method)
Particulars Basis of Total Production Depts. Service Dept.
Apportion ₹ A B C Boiler Pump
ment ₹ ₹ ₹ House Room
₹ ₹
O/H as per
Primary Dist. 1267000 400000 350000 250000 117000 150000
Boiler-House (2:4:3:1) 23400 46800 35100 (-)117000 11700

423400 396800 285100 32340 161700
Pump-Room (4:2:2:1) 64680 32340 32340 (-)161700
488080 429140 317440 32340 Nil
Boiler-House (2:4:3:1) 6468 12936 9702 (-)32340 3234
494548 442076 327142 Nil 3234
Pump-Room (4:2:2:2) 1293 647 647 647 (-)3234
495841 442723 327789 647 Nil
Boiler-house (2:4:3:1) 129 259 194 (-)647 65
495970 442982 327983 Nil 65
Pump-room (4:2:2:2) 26 13 13 13 (-)65
495996 442995 327996 13 Nil
Boiler-house (2:4:3:1) 4 5 4 (-)13 Nil
‘ 12,67,000 4,96,000 4,43,000 3,28,000 Nil Nil
Note:
In the last step of the solution, decimal number has been ignored.
119
7. Contract Costing [10 Marks]*
Compute a conservative estimate of profit on a contract (which has been 80% complete) from the
following particulars. Illustrate four methods of computing the profit:
₹
Total expenditure to date 1,70,000
Estimated further expenditure to complete the contract 34,000
(including contingencies)
Work not certified 17,000
Solution:
Calculation of Accounting Profit as present stage of completion
₹
Less: Cost of work uncertified 17,000
Cost of work certified 1,53,000
Value of work certified 2,00,000
Accounting profit at present stage 47,000
Calculation of Estimated Total Profit on completion of the contract
₹
Add: Estimated further expenditure to complete the contract 34,000
Estimated total cost of the contract 2,04,000
Total contract price receivable on completion of the contract 3,06,000
Estimated total profit on completion 1,02,000
Computation of profit transferrable to Profit & Loss Account at present stage of the contract
(i) Under 1st method:
% of completion of the contract = Value of work certified/Total contract price x 100
= ₹ 2, 00,000/₹ 3, 06,000 x 100 = 65.36%
Here, the % of completion is more than 50%. Hence, 2/3rd of the realized profit to be
transferred to Profit & Loss A/c.
Therefore, Profit transferrable to Profit & Loss Account
= 2/3rd x Notional Profit x Cash Received /Work Certified = ₹ 25,568.
(ii) Under 2nd Method:
Profit transferrable to Profit & Loss Account
=Estimated total profit x (Value of work certified/Total contract price)
= ₹ 1,02,000 x ₹ 2,00,000/₹ 3,06,000
= ₹ 66,667
(iii) Under 3 Method:
rd

= Estimated profit x (work certified/ Contract price) x (Cash received/Work Certified)
= ₹ 1,02,000 x ₹ 2,00,000/₹ 3,06,000 x ₹ 1,63,200/₹ 2,00,000
= ₹ 54,400
120
(iv) Under 4th method:
= Accounting profit x Value of work certified/Total contract price
= ₹ 47,000 x ₹ 2,00,000/₹ 3,06,000 = ₹ 30,719.
8. Reconciliation Statement [10 Marks]*

From the following data prepare a reconciliation statement:
₹
Profit as per cost account 1,45,500
Works overheads under – recovered 9,500
Administrative overheads under – recovered 22,750
Selling overheads over – recovered 19,500
Overvaluation of opening stock in cost accounts 15,000
Overvaluation of closing stock in cost accounts 7,500
Interest earned during the year 3,750
Rent received during the year 27,000
Bad debts written off during the year 9,000
Preliminary expenses written of during the year 18,000
Solution:
RECONCILIATION STATEMENT
₹ ₹
Profit as per cost account 1,45,500
Add: Selling overheads over-recovered in cost account 19,500
Overvaluation of opening stock in cost account 15,000
Interest earned not considered in cost account 3,750
Rent received not considered in cost account 27,000 65,250
2,10,750
Less: Works overheads under-recovered in cost account 9,500
Administrarive overheads under-recovered in cost account 22,750
Overvaluation of closing stock in cost accounts 7,500
Bad debts written off not considered in cost account 9,000
Preliminary expenses written off not considered in cost A/c 18,000 66,750
Profit as per Financial Account 1,44,000
121
9. Cost Ledger [10 Marks]*
From the following figures ascertained from costing records and financial books of a company, you are asked
to pass necessary entries in the cost journal of the company:
₹ ₹
Purchase of materials 2,60,000
Carriage paid on Purchase of Materials 15,000
Materials issued to production:
Direct Materials 1,90,000
Indirect materials 40,000
Productive Labour 1,60,000
Non-productive labour 65,000
Factory Overhead 80,000
(other than indirect materials & labour)
Materials used in repairs 10,000
Recovery of Factory Overhead in the job 1,75000
Administrative overhead 40,000
Recovery of Administrative Overhead in the job 50,000
Over-absorption of administration O/Head 10,000
Selling & Distribution Overhead 60,000
Cost of Completed Jobs 5,25,000
Solution:
BOOKS OF A COMPANY
Entries in the Cost Journal
Date Particulars L. Dr. Cr.
F. ₹ ₹
Stores Ledger Control A/c ………….Dr. 2,60,000
To Cost Ledger Control A/c 2,60,000
(Being the total amount of purchase of materials for the
Period as ascertained from financial books)
Stores Ledger Control A/c…………..Dr. 15,000
To Cost Ledger control A/c 15,000
(Being the carriage paid on purchase of materials as per
Financial books.)
Work-in-progress Control A/c………Dr. 1,90,000
To Stores Ledger Control A/c 1,90,000
(Being the amount of direct materials issued to production)
Factory Overhead Control A/c……..Dr. 40,000
To Stores Ledger Control A/c 40,000
(Being the amount of indirect materials issued to production)
Wages Control A/c …………….Dr. 2,25,000
TO Cost Ledger Control A/c 2,25,000
(Being the amount of productive & non-productive labour
Expended)
Work-in-progress Control A/c ………Dr. 1,60,000
TO Wages Control A/c 1,60,000
(Being the amount of direct labour allocated to the job)
122
Factory Overhead Control A/c……….Dr. 65,000
To wages Control A/c 65,000
(Being the amount of indirect labour allocated to the job)
Factory Overhead Control A/c………..Dr. 80,000
To Cost Ledger Control A/c 80,000
(Being the amount of factory expenses other than indirect
Materials and indirect labour as per financial books)
Factory Overhead Control A/c………..Dr. 10,000
To Stores Ledger Control A/c 10,000
(Being the cost of materials used in repairs)
Work-in-progress Control A/c ………..Dr. 1,75,000
To Factory Overhead Control A/c 1,75,000
(Being the amount of factory overhead recovered for the job)
Administration Overhead Control A/c..Dr. 40,000
To cost Ledger Control A/c 40,000
(Being the amount of administrative expenses incurred as per
Financial books)
Finished Goods Control A/c …………….Dr. 50,000
To Administrative Overhead Control A/c 50,000
(Being the amount of administration overhead recovered for
the job)
Administration Overhead Control A/c …Dr. 10,000
TO Overhead Adjustment A/c 10,000
(Being the amount of over-recovered administration
overhead Transferred)
Selling & Distribution Overhead Control A/c…Dr. 60,000
To Cost Ledger Control A/c 60,000
(Being the amount of selling & distribution overhead incurred
as per Financial book)
Cost of Sales A/c ………..……….Dr. 60,000
To Selling & Distribution Overhead Control A/c 60,000
(Being the amount of selling& distribution O/H for the jobs.)
Finished Goods Control A/c …………..Dr. 5,25,000
To Work-in-progress Control A/c 5,25,000
(Being the cost of completed jobs transferred from WIP A/c)
123
10.Operating Costing [10 Marks]*
A transport service is running five buses between two towns which are 50 kms. Apart. Seating capacity of
each bus is 50 passengers. The following particulars were obtained from their books for April, 1998:
₹
Wages of drivers, conductors and cleaners 24,000
Salaries of office staff 10,000
Diesel oil and other oil 35,000
Taxation, insurance etc. 16,000
Depreciation 26,000
Interest and other expenses 20,000
1,39,000
Actually, passengers carried were 75% of seating capacity. All buses ran on all days of the month. Each
bus made one round trip per day. Find out the cost per passenger-km.
Solution:
Statement showing operating cost for the month of April, 1998
Per Month Per-Passenger-Km.
₹ ₹
Standing Charges:
Wages of drivers, conductors and cleaners 24,000
Salaries to office staff 10,000
Taxation, insurance etc. 16,000
Interest and other expenses 20,000
For 5, 62,500 passenger-kms. 70,000 0.1244
(see working note)
Running Expenses: 8,000

Diesel oil and other oil 26,000
Depreciation 69,000
For 5, 62,500 passenger-kms. 0.1266
(see working note)
Operating cost per passenger-km. 0.2470
Working Note:
Calculation of passenger-kms. Run by the bus during April,1998
Total passenger-kms. For April,1998
= (50 kms. X 2) x 5 buses x 30 days x (75% of 50 passengers)
= 5,62,500 passenger-kms.
124

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(9883034569/8820696761)

Cost & Management Acct:

2. Material (10 Marks) 04 – 11

3. Labour (10 Marks) 12 – 17

4. Overhead (15 + 5 = 20 Marks)

Cost Sheet & Job cost sheet 18– 26

Machine Hour Rate 34– 39

5. Cost Book keeping (10 Marks)

Cost & Profit Reconciliation Statement 40– 43

Cost Ledger: Integrated & Non Integrated 44 – 46

6. Contract & Operating Costing (15 + 5 = 20 Marks)

Process Costing 60– 65

7. Cost Theory : Introduction [10 Marks] & other chapters 66 - 95

8. Question Paper 2018 Honours 96 - 99

9. Question Paper 2019 Honours 100 - 103

10. Question Paper 2019 Pass 104 - 107

11. Mock Test Paper 108 - 112

12. Cost : Solved of selected Questions 113 - 124

Batch 2 [Day batch]

Unit 2: Material Costs [10 Marks, 10 Lectures] [10]

Unit 4: Overhead and Cost Statement [20 Marks, 20 Lectures] [15 + 5]

Unit 6: Costing Methods [20 Marks, 24 Lectures] [15 + 5]

2nd Semester:General: CC 2.1 Cg

Unit 2: Material Costs [10 Marks, 10 Lectures] [10]

Unit 4: Overhead and Cost Statement [20 Marks, 20 Lectures] [15 + 5]

Unit 5: Cost Book-keeping [10 Marks, 8 Lectures] [10]

Unit 6: Costing Methods [20 Marks, 24 Lectures] [15 + 5]

Materials: [10 Marks]

2. Materials [Stock Levels] [B.com Honours 2007]****

3. Materials [Stock Levels] [B.com Honours 2009 New]**

4. Materials [EOQ] [B.com Honours 2004] [RKB]**

6. Materials [EOQ] [B.com Honours 2003] [RKB]**

7. Materials [EOQ] [B.com Honours 2002] [RKB]**

8. Materials [EOQ] [B.com Honours 2000] [RKB]**

9. Materials [EOQ] [B.com Honours 2005] [RKB]****

11. Materials [EOQ] [Compiled by Ravi Bhalotia]***

12. Materials [EOQ] [B.com Honours 1998] [RKB]****

13. Materials [EOQ] [Compiled by Ravi Bhalotia] *****

15. Materials [EOQ] [B.com Honours 1992] [RKB]*

16. Materials [EOQ] [B.com Honours 2015] [RKB]*

17. Materials [Valuation of Stock] [B.com 2013 Honours]**

19. Materials [Store ledger] [2016 Honours]****

20. Materials [Store ledger] [B.com 2012 Pass]**

22. Materials [Store Ledger] [B.com 2015 Honours] [RKB]****

23. Materials [Store Ledger] [B.com Honours 1993] [RKB]****

25. Materials [Store ledger] [B.com Pass 2016]**

26. Materials [Computation of COGS, Inventory, Profit ] [Compiled by RKB]***

28. Materials [Computation of total cost] [B.com Honours 2001] [RKB]*

29. Materials [Computation of total cost] [B.com Honours 2014] [RKB]*

Labour [10 Marks]

2. Labour [Halsey & Rowan] [B.com Honours 1990] [RKB]*

3. Labour[Halsey & Rowan] [B.com 2012 Pass] [RKB]*

4. Labour[Halsey & Rowan] [B.com 2014 Pass] [RKB]*

5. Labour[Halsey & Rowan] [B.com 2014 Honours] [RKB]*

6. Labour[Halsey & Rowan] [B.com Honours 1988] [RKB]*

8. Labour [Halsey & Rowan] [B.com Honours 2003] [RKB]**

9. Labour [Halsey & Rowan] [B.com Honours 1982] [RKB]*

10. Labour [Halsey & Rowan] [B.com Honours 1998] [RKB]***

11. Labour [Halsey & Rowan] [B.com Honours 1986] [RKB]**