Cost and Managerial Accounting 1


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Assignment – A

Q1: ZEE is product, manufactured out of three raw materials M,N, & Q. Each unit of ZEE requires 10 kg, 8 kg, & 6 kg of M, N, Q, respectively. The reorder levels of M, & N are 15000 & 10,000 kg respectively., while the minimum level of Q is 2500 kg. The weekly production of ZEE varies from 300 to 500 units, while the weekly average production is 400 units. You are required to compute:-

1. The minimum stock level of M

2. The maximum stock level of N

3. the reorder level of Q Additional Information:-

Re-order quantity (kg) M20000 N 15000 Q20000
Delivery time (in weeks)
Minimum 2 4 3
Average 3 5 4
maximum 4 6 5

Q2 M/s Cotton Mills Ltd. Take a periodic inventory of their stocks on chemical Y at the end of each month, The physical inventory taken on June 30* shows a balance of 1,000 litres of chemical Y in [email protected]

The following purchases were made during July.

July 1 14,000Litres @ Rs.2.30 per litre July 7 10,000Litres @ Rs.2.32 per litre July 9 20,000Litres @ Rs.2.33 per litre July 25 5,000Litres @ Rs.2.3 5 Per Litre


A physical inventory taken on July 31st discloses that there is a stock of 10,000 Litres.
You are required to compute the inventory value on July 31, by each of the following methods:

ii) FIFO

Q3 From the following figures find B.E volume:

S.P. per tonne Rs.69.50

V.C per tonne Rs.35.50

F.C. Rs. 18.02 Lacs

If this volume represents 40% capacity, what is the additional profit for an added production of 40% cpacity, the selling price of which is 10% lower for 20% capacity production and 15% lower than the existing price for the other 20% capacity.

Q4 State whether the following statements are true or false. Give reasons.

a) Direct costs are costs which vary with variation in output.

b) Total fixed cost remains unaffected by changes in the volume of output.

c) In relation to normal sales, a low margin of safety alongwith a high P/V ratio is generally an indication of high fixed cost.

d) Cost unit and cost centre have the same meaning.

Q5: P Ltd. Manufactures two products using one type of material. Shown below is an extract from the company’s papers for the next period budget.

Product A Product B

Budgeted Sales (In units) 3,600 4,800

Budgeted material consumption per products (kg) 5 3

Budgeted material cost Rs. 12 per Kg.

There are 12 five days weeks in a budget period and it is anticipated that sales and production

will occur evenly throughout.

Opening stock : Product A l,020 units, Product B 2,400 units, Raw material 4,300 kgs.

The target closing stock: Product A = 15 days sales, Product B = 20 days sales, Raw material =

10 days consumption.


Prepare material purchase budget showing the quantities and values for the next period.


Assignment – B

Q1: Comment on the relative profitability of the following products when there is a) no key factor, b) Machine Hrs are limited (Key factor)


Alpha Beta
Rs. Rs.
Selling price 100 150
Material 25 30
Wages 5 10
Machine hr rate:
Variable 2 3
Fixed 1 1
Variable overhead 15 20
Fixed Expenses 2 2
Machine hrs.used 10 15
Production 300Units 250Units

Q2: Define the term “Budgetary Control.” Discuss its limitations.

Q3 (a) Discuss various classifications of costs.

Q3 (b) Determine the amount of fixed expenses from the following particulars:

Sales Rs.2,40,000, Direct Material Rs. 80,000, Direct Labour Rs.50,000, variable overheads Rs. 20, 000, Profit Rs. 50,000


Q4: A product passes through two distinct process A & B & thereafter it is transferred to finished stock. From the following information you are required to prepare Process Accounts:

Process A Process B
Rs Rs
Material consumed 24000 12000
Wages 28000 16000
Manufacturing expenses’ 8000 8000
Input in Process A (units) 20,000 —–
Input in process A (value in Rs) 20000 —-
Output (units) 31th Dec 2003 18,800 16,600
Normal wastage percentage of input 5% 10%
Value of normal wastage (per 100 units) 8 10





Assignment – C


Q1: Which of the following statements is/are true?

a) Cost accounting is not a part of management accounting.

b) Cost accounting is a system to record, summarize and report cost information.

c) Cost accounting is a post mortem of past costs.

d) Cost accounting is not necessary if financial accounting provides necessary analysis.


Q2 Which of the following is least likely to be an objective of cost accounting system?

(a) Product costing

(b) Optimum sales mix determination

(c) Maximization of profit

(d) Sales commission determination


Q3 Costing Technique in which all costs, variable as well as fixed, are charged to product, operations or services is

(a) Historical costing

(b) Absorption costing

(c) Marginal costing

(d) Direct costing


Q4 The costing approach wherein actual costs are ascertained after they have been incurred is

(a) Marginal costing

(b) Direct costing

(c) Standard costing

(d) Historical costing


Q5 The cost which reflects the policies of the top management which result in periodic appropriations are called as

(a) Future cost

(b) Discretionary cost

(c) Committed cost

(d) Programmed cost


Q6 In a given situation if a product is not produced the company can save on the salary of workers to the tune of Rs. 1,00,000. In this case the salary of the worker is

(a) Imputed cost

(b) Unavoidable cost

(c) Avoidable cost

(d) None of the above


Q7 Depreciation charged on Plant & Machinery is

(a) Future cost

(b) Discretionary cost

(c) Committed cost

(d) Programmed cost


Q8 Costs that are not relevant for decision-making and are not affected by increase or decrease in volume are

(a) Out of pocket cost

(b) Sunk cost

(c) Differential cost

(d) Imputed cost


Q9 Which of the following statements is not true of pricing of inventories?

a) In FIFO method, the issue of material from the stores will be in the order which it was received.

b) In LIFO method, the material issued will be priced based on the material that has been purchased recently.

c) Under current price method, material is priced at the value that is realizable at the time of issue.

d) Under standard price method, material is priced based on the current market price.


Q10 Which of the following statements is false?

a) In an inflationary period the FIFO method of inventory pricing tends to inflate reported profits.

b) LIFO method of inventory pricing causes reported profits to be low in an inflationary period.

c) The weighted average cost method of inventory pricing tends to smooth out price luctuations.

d) None of the above.


11. A cost centre is:

(a) The part of the business where all costs are paid to suppliers

(b) A production department where all production costs are aggregated

(c) An area of the business accountable for both costs and revenues

(d) An area for which costs are accumulated


12. An investment centre is a responsibility centre where the manager has control of:

(a) Costs, profits and product quality

(b) Costs

(c) Costs and profits

(d) Costs, profits and assets


13. Responsibility accounting aims to:

(a) Ensure that a manager is punished if things go wrong

(b) Reduce the costs that a department incurs

(c) Allocate costs to all areas of a business

(d) Ensure that costs become the responsibility of a specific manager


14. Prime cost can be defined as:

(a) The total costs of operating the production department where the product is made

(b) The total direct costs of manufacturing a product

(c) The total costs of manufacturing a product

(d) The cost of the first stage of the manufacture of a product


15. Which of the following best describes a fixed cost?

(a) Has a direct relationship with output

(b) Increases proportionately with output

(c) Remains constant irrespective of the level of activity

(d) Represents a fixed proportion of total costs


16. A business has the following transactions in a month:

2 Jan Bought 80 units at a total cost of £160

12 Jan Bought 50 units at a total cost of £150

19 Jan Sold 90 units earning total revenue of £540

22 Jan Bought 70 units at a total cost of £280

29 Jan Sold 80 units earning a total revenue of £480

Using the first-in, first-out (FIFO) method of stock valuation the cost of sales is:

(a) £470

(b) £510

(c) £1,020

(d) £120

17. A business has bought and sold identical items of stock during 2006 as follows:

1/6/06 Bought 1,000 units @ £10 each 1/9/06 Bought 1,000 units @ £16 each 5/9/06 Sold 1,200 units @ £20 each

Using the first-in, first-out (FIFO) method what is the value of the 800 units of stock left unsold at 31/12/06?





18. The weighted average method of stock valuation would be most appropriate for:

(a) A food retailer

(b) A motor components retailer

(c) A building contractor

(d) A chemical manufacturer

19. Direct labour costs will include:

(a) Total direct labour hours at the normal hourly rate of pay

(b) All labour costs attributable to a product

(c) Direct labour costs plus any bonuses

(d) Direct labour costs plus any bonuses and overtime premiums

20. An example of a production overhead would be:

(a) Labour costs

(b) Rent

(c) Supervisory costs

(d) Materials

21. Absorption costing is closely related to which of the following cost elements?

(a) Overheads

(b) Direct labour

(c) Total costs

(d) Prime costs

22. Which of the following would not be classed as a service department?

(a) The assembly department

(b) The finance department

(c) The canteen

(d) The maintenance department

23. Cost apportionment involves:

(a) The sharing out of costs to products

(b) The sharing out of common costs to departments

(c) The allocation of direct costs to departments

(d) The sharing out of overheads to service departments


24. Which of the following would be an inappropriate method of apportioning service department costs?

(a) Apportioning on the basis of service department activity

(b) Apportioning on the basis of floor area

(c) Sharing costs out equally between departments

(d) Apportioning on the basis of number of employees


25. Which of the following is an unsatisfactory method of dealing with reciprocal service costs?

(a) Ignore the service department costs

(b) Use mathematical apportionment techniques

(c) Apportion the service costs over production departments only

(d) Use a specified order of apportioning service department costs


26. The most appropriate method of apportioning the rent of a building would be:

(a) On the basis of value of assets

(b) To share them out equally amongst all departments

(c) On the basis of number of employees

(d) On the basis of area of each department


27. Absorption costing refers to the process of:

(a) Absorbing the direct costs of production and service departments into products

(b) Absorbing direct costs of production into products

(c) Absorbing only production service cost centre costs into product costs

(d) Absorbing both production and non-production service cost centre costs into product costs


28. Which of the following would not normally be a suitable method of absorbing costs into products

(a) Total cost centre overhead / Number of employees

(b) Total cost centre overhead / Number of units processed in department

(c) Total cost centre overhead / Cost centre total machine hours

(d) Total cost centre overhead / Total cost centre direct labour cost


29. The following details relate to a particular company:

i. Machining Assembly

ii. Total cost centre overhead £120,000 £180,000

iii. Machine hours 15,000 9,000

iv. Labour hours 2,000 8,000

The most appropriate overhead rate to use for the machining department would be:

(a) £5 per direct machine hour

(b) £7.06 per hour

(c) £8 per direct machine hour

(d) £60 per direct labour hour


30. The following details were extracted from the cost records of a company:

Machining Assembly Maintenance Administration Area sq/m 5,000 6,000 2,000 1,200 No. of employees 6 13 2 3

If it cost £3,500 to insure the buildings, the amount that would be apportioned to the assembly department would be:





31 . Which of the following is true?

(a) Overhead absorption rates will normally be based on estimates of what costs are expected to be

(b) Once set, overhead absorption rates will not change from one year to the next

(c) Absorption rates will change continuously to reflect changes in output and costs

(d) Overhead absorption rates will only be calculated when all actual costs are known

32.The total cost of a product will include:

(a) Prime cost only

(b) Prime cost plus non production overhead

(c) Prime costs plus direct production overhead plus indirect production overhead plus tax

(d) Prime costs plus direct production overhead plus indirect production overhead

33.Overhead absorption exercises will be most useful where:

(a) The market determines the selling price of a product

(b) The total direct cost of a department is needed

(c) Selling prices can be based on costs

(d) A departmental manager will be held responsible for the costs that are apportioned to them

34.A company has a budgeted level of fixed overheads of £385,000 and the overhead recovery rate is £4.25 per machine hour, What is the number of machine hours we expect to use?

(a) 90,600

(b) 4,250

(c) 385,000

(d) 1,636,25


35.Under-recovery of overheads occurs when:

(a) The overhead charged to production is lower than the actual overhead incurred

(b) The basis of apportioning overheads has changed during the period

(c) Actual overheads have fallen in relation to what they were expected to be

(d) The actual overhead incurred is less than the overhead that has been charged to production


36. A semi variable cost would:

(a) Be more than zero if no products were made and would then increase in direct proportion to output

(b) Be zero if output were zero and would change erratically as output increased

(c) Be zero when output is zero and would increase in direct proportion to output

(d) Be a fixed amount when output was zero and would not increase in direct proportion to output


37. An example of a semi variable cost would be:

(a) The costs of insuring assets

(b) The costs of material to be used for production

(c) The salaries of supervisors in a department

(d) Electricity costs


38. If actual units produced are lower than the budgeted level of production which of the following types of cost would you expect to be lower than the budget?

(a) Variable costs per unit

(b) Fixed costs per unit

(c) Total fixed costs

(d) Total variable costs


39. In the long run a business must:

(a) Charge a price that covers its variable costs only

(b) Charge a price that covers both fixed and variable costs

(c) Charge a price that covers its fixed costs only

(d) Charge a price that leads to a positive contribution


40. The break even point in units is represented by the equation:

(a) (Sales revenue – Fixed costs) / Contribution per unit

(b) Fixed costs / selling price per unit

(c) Fixed costs / Contribution per unit

(d) Fixed costs / Variable costs