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CA I nter C ost - A mendment| 1
Material Costing
Chapter 1
Material Costing
Q 9 (Page^ No. 14)
Arnav Ltd. manufactures a product X which requires two raw materials A and B in a ratio of 1:4. The sales department has estimated a demand of 5,00,000 units for the product for the year. To produce one unit of finished product, 4 units of material A is required. Stock position at the beginning of the year is as below: Product- X 12,000 units Material A 24,000 units Material B 52,000 units To place an order the company has to spend 15,000. The company is financing its working capital using a bank cash credit @13% p.a. Product X is sold at1,040 per unit. Material A and B is purchased at 150 and200 respectively. Required: COMPUTE economic order quantity (EOQ): (i) If purchase order for the both materials is placed separately. (ii) If purchase order for the both materials is not placed separately.
EOQ Effect of Stock
Q 23 (Page^ No. 21)
From the following data for the year ended 31st December, 20X1, calculate the inventory turnover ratio of the two items and put forward your comments on them. Material A( **) Material B (** ) Opening stock 1.1.20X1 10,000 9, Purchase during the year 52,000 27, Closing stock 31.12.20X1 6,000 11, Reference What’s New
2 | CA^ I nter^ C ost -^ A mendment Material Costing
Inventory Turnover Ratio
Q Hw^ 15 (Page^ No. 32)
The following transactions in respect of material Y occurred during the six months ended 30th June, 20X1: Month Purchase (units) (^) Price per unit ( **) Issued units** January 200 25 Nil February 300 24 250 March 425 26 300 April 475 23 550 May 500 25 800 June 600 20 400 **Required:** (a) The Chief Accountant argues that the value of closing stock remains the same no matter which method of pricing of material issues is used. Do you agree? Why or why not? Detailed stores ledg- ers are not required. (b) When and why would you recommend the LIFO method of pricing material issues? **SoLUTIoN:** (a) The Closing Stock at the end of six months’ period i.e., on 30th June, 20X1 will be 200 units, whereas up to the end of May 20X1, total purchases coincide with the total issues i.e., 1,900 units. It means that at the end of May 20X1, there was no closing stock. In the month of June 20X1, 600 units were purchased out of which 400 units were issued. Since there was only one purchase and one issue in the month of June, 20X1 and there was no opening stock on 1st June 20X1, the Clos- ing Stock of 200 units is to be valued at 20 per unit. In view of this, the argument of the Chief Accountant appears to be correct. Where there is only one purchase and one issue in a month with no opening stock, the method of pricing of material issues becomes irrelevant. Therefore, in the given case one should agree with the argument of the Chief Accountant that the value of Closing Stock remains the same no matter which method of pricing the issue is used. It may, however, be noted that the argument of Chief Accountant would not stand if one finds the value of the Closing Stock at the end of each month. Reference What’s New
4 | CA^ I nter^ C ost -^ A mendment
Overhead - Primary and Secondary Distribution
Chapter 2
Overhead - Primary and Secondary
Distribution
Q 4 (Page^ No. 49)
A Ltd., manufactures two products A and B. The manufacturing division consists of two production departments P1 and P2 and two service departments S1 and S2. Budgeted overhead rates are used in the production departments to absorb factory overheads to the products. The rate of Department P1 is based on direct machine hours, while the rate of Department P2 is based on direct labour hours. In applying overheads, the pre-determined rates are multiplied by actual hours. For allocating the service department costs to production departments, the basis adopted is as fol- lows: (i) Cost of Department S1 to Department P1 and P2 equally, and (ii) Cost of Department S2 to Department P1 and P2 in the ratio of 2 : 1 respectively. The following budgeted and actual data are available: Annual profit plan data: Factory overheads budgeted for the year: Departments P1 25,50,000 S1 6,00, P2 21,75,000 S2 4,50, Budgeted output in units: Product A 50,000; B 30,000. Budgeted raw-material cost per unit : Product A 120; Product B 150. Budgeted time required for production per unit: Department P1 Product A 1.5 machine hours Product B 1.0 machine hour Department P2 Product A 2 Direct labour hours Product B 2.5 Direct labour hours Average wage rates budgeted in Department P2 are:
CA I nter C ost - A mendment| 5 Overhead - Primary and Secondary Distribution Product A - 72 per hour and Product B – 75 per hour. All materials are used in Department P1 only. Actual data: (for the month of July, 20X1) Units actually produced : Product A : 4,000 units Product B : 3,000 units Actual direct machine hours worked in Department P1: On product A 6,100 hours, Product B 4,150 hours. Actual direct labour hours worked in Department P2: on product A 8,200 hours, Product B 7,400 hours. Costs actually incurred : Product A ( **) Product B (** ) Raw materials 4,89,000 4,56, Wages 5,91,900 5,52,
Overhead absorption rate Performance report
Reference What’s New
CA I nter C ost - A mendment| 7
Contract Costing
Chapter 4
Contract Costing
Q 2 (Page^ No. 136)
M/s. Bansals Construction Company Ltd. took a contract for 60,00,000 expected to be completed in three years. The following particulars relating to the contract are available : 20X1 () 20X2 () 20X3 () Materials 6,75,000 10,50,000 9,00, Wages 6,20,000 9,00,000 7,50, Transportation cost 30,000 90,000 75, Other expenses 30,000 75,000 24, Cumulative work certified 13,50,000 45,00,000 60,00, Cumulative work uncertified 15,000 75,000 — Plant costing ` 3,00,000 was bought at the commencement of the contract. Depreciation was to be charged at 25% per annum, on the written down value method. The contractee pays 75% of the value of work certified as and when certified, and makes the final payment on completion of the contract. You are required to make a contract account for three years and total estimated profit/loss from the contract.
Contract A/c For 3 years
Reference What’s New
8 | CA^ I nter^ C ost -^ A mendment Contract Costing
Q 4 (Page^ No. 137)
RST Construction Ltd. commenced a contract on April 1, 20X1. The total contract was for 49,21,875. It was decided to estimate the total profit on the contract and to take to the credit of Costing Profit and Loss A/c that proportion of estimated profit on cash basis, which work completed bore to total contract. Actual expenditure for the period April 1, 20X1 to March 31, 20X2 and estimated expenditure for April 1, 20X2 to September 30, 20X2 are given below : **April 1, 20X1 to March 31, 20X (Actual)(** ) April 1, 20X2 to Sept. 30, 20X (Estimated)( ` ) Materials issued 7,76,250 12,99, Wages : Paid 5,17,500 6,18, Prepaid 37,500 - Outstanding 12,500 5, Plant purchased 4,00,000 - Expenses : Paid 2,25,000 3,75, Outstanding 25,000 10, Prepaid 15,000 - Plant returns to store (historical cost) 1,00, (on September 30, 20X1)
(on September 30, 20X2) Work certified 22,50,000 Full Work uncertified 25,000 - Cash received 18,75,000 - Materials at site 82,500 42, The plant is subject to annual depreciation @ 25% on written down value method. The contract is likely to be completed on September 30, 20X2. Required : Prepare the Contract A/c for the year ended 31st March, 20X2 and determine the estimated profit on the contract.
Contract A/c Estimated Profit and
Depreciation
Reference What’s New
10 | CA^ I nter^ C ost -^ A mendment
Operating Costing
Chapter 5
Operating Costing
Q 12 (Page^ No. 155)
A lodging home is being run in a small hill station with 100 single rooms. The home offers concession- al rates during six off- season months in a year. During this period, half of the full room rent is charged. The management’s profit margin is targeted at 20% of the room rent. The following are the cost esti- mates and other details for the year ending on 31st March 20X7. [Assume a month to be of 30 days]. (i) Occupancy during the season is 80% while in the off- season it is 40% only. (ii) Total investment in the home is 200 lakhs of which 80% relate to buildings and balance for fur- niture and equipment. (iii) Expenses: Staff salary [Excluding room attendants] 5,50, 000 Repairs to building 2,61, Laundry charges 80, 000 Interior 1,75, Miscellaneous expenses 1,90, (iv) Annual depreciation is to be provided for buildings @ 5% and on furniture and equipment @ 15% on straight-line basis. (v) Room attendants are paid 10 per room day on the basis of occupancy of the rooms in a month. (vi) Monthly lighting charges are 120 per room, except in four months in winter when it is ` 30 per room and this cost is on the basis of full occupancy for a month. You are required to work out the room rent chargeable per day both during the season and the off- season months on the basis of the foregoing information.
Hotel Industry Lighting Charges
Reference What’s New
CA I nter C ost - A mendment| 11 Operating Costing
Q 13 (Page^ No. 156)
ABC Hospital runs a Critical Care Unit (CCU) in a hired building. CCU consists of 35 beds and 5 more beds can be added, if required. Rent per month - 75, Supervisors – 2 persons – 25,000 Per month – each Nurses – 4 persons – 20,000 per month – each Ward Boys – 4 persons – 5,000 per month – each Doctors paid 2, 50,000 per month – paid on the basis of number of patients attended and the time spent by them Other expenses for the year are as follows: Repairs (Fixed) 81, Food to Patients (Variable) 8, 80, Other services to patients (Variable) 3, 00, Laundry charges (Variable) 6,00, Medicines (Variable) 7,50, Other fixed expenses 10, 80, Administration expenses allocated 10,00, It was estimated that for 150 days in a year 35 beds are occupied and for 80 days only 25 beds are oc- cupied. The hospital hired 750 beds at a charge of 100 per bed per day, to accommodate the flow of patients. However, this does not exceed more than 5 extra beds over and above the normal capacity of 35 beds on any day. You are **required** to – (a) Calculate profit per Patient day, if the hospital recovers on an average2,000 per day from each patient (b) Find out Breakeven point for the hospital.
Hospital Industry Patient Days and BEP
Reference What’s New
CA I nter C ost - A mendment| 13 Operating Costing is estimated to be 2 years Prepare Project cost sheet
IT Industry Project Cost
Q 16 (Page^ No. 158)
BHG Toll Plaza Ltd built a 60 km. long highway and now operates a toll plaza to collect tolls from passing vehicles using the same. The company has invested 600 crore to build the road and has estimated that a total of 60 crore vehicles will be using the highway during the 10 years toll collection tenure. Toll Operating and Maintenance cost for the month of April 20X7 are as follows: (i) Salary to – Collection Personnel (3 Shifts and 4 persons per shift) - 150 per day per person Supervisor (2 Shifts and 1 person per shift) -250 per day per person Security Personnel (3 Shifts and 2 persons per shift) - 150 per day per person Toll Booth Manager (2 Shifts and 1 person per shift) - 400 per day per person (ii) Electricity – 80, (iii) Telephone – 40, (iv) Maintenance cost – 30 Lacs (v) The company needs 25% profit over total cost to cover interest and other costs. Required : (i) Calculate cost per kilometer. (ii) Calculate the toll rate per vehicle (assume there is only one type of vehicle).
Toll Roads Toll Rate per vehicle
Reference What’s New Reference What’s New
14 | CA^ I nter^ C ost -^ A mendment Operating Costing
Q 17 (Page^ No. 159)
The loan department of a bank performs several functions in addition to home loan application pro- cessing task. It is estimated that 25% of the overhead costs of loan department are applicable to the processing of home-loan application. The following information is given concerning the processing of a loan application: Direct professional labor: ( **)** Loan processor monthly salary: 80, (4 employees @ 20,000 each) Loan department overhead costs (monthly) Chief loan officer’s salary 5, Telephone expenses 750 Depreciation Building 2, Legal advice 2, Advertising 400 Miscellaneous 650 Total overhead costs 12, You are required to compute the cost of processing home loan application on the assumption that one hundred home loan applications are processed each month.
Financial Institutions Processing Cost per
Application
Q Hw^ 1 (Page^ No. 160)
AXA Passenger Transport Company is running 5 buses between two towns, which are 40 kms apart. Seating capacity of each bus is 40 passengers. Following details are available from their books, for the month of April 20X7: Amount ( ` ) Salary of Drivers, Cleaners and Conductors 24, Salary to Supervisor 10, Diesel and other Oil 40, Repairs and Maintenance 8, Taxation and Insurance 16, Reference What’s New
16 | CA^ I nter^ C ost -^ A mendment Operating Costing
Hotel Industry Room Rent
Reference What’s New
CA I nter C ost - A mendment| 17
Unit, Batch and Job Costing
Chapter 6
Unit, Batch and Job Costing
Q Hw^ 1 (Page^ No. 171)
Rio Limited undertakes to supply 1000 units of a component per month for the months of January, February and March 20X8. Every month a batch order is opened against which materials and labour cost are booked at actual. Overheads are levied at a rate per labour hour. The selling price is con- tracted at 15 per unit. From the following data, **present** the profit per unit of each batch order and the overall position of the order for the 3,000 units. **Month Batch Output (Numbers) Material Cost (** ) Labour Cost ( **)** January 20X8 1,250 6,250 2, February 20X8 1,500 9,000 3, March 20X8 1,000 5,000 2, Labour is paid at the rate of 2 per hour. The other details are: Month (^) Overheads ( ` ) Total Labour Hours January 20X8 12,000 4, February 20X8 9,000 4, March 20X8 15,000 5,
Batch Costing
Reference What’s New
CA I nter C ost - A mendment| 19 Labour Costing
Employee Cost Allocation to jobs with
overtime
Q 9 (Page^ No. 178)
(a) Bonus paid under the Halsey Plan with bonus at 50% for the time saved equals the bonus paid under the Rowan System. When will this statement hold good? (Your answer should contain the proof ). (b) The time allowed for a job is 8 hours. The hourly rate is `8. Prepare a statement showing: i. The bonus earned ii. The total earnings of employee and iii. Hourly earnings. Under the Halsey System with 50% bonus for time saved and Rowan System for each hour saved pro- gressively.
Halsey and Rowan Scheme Halsey vs Rowan
Q 10 (Page^ No. 178)
A factory having the latest sophisticated machines wants to introduce an incentive scheme for its workers, keeping in view the following: (i) The entire gains of improved production should not go to the workers. (ii) In the name of speed, quality should not suffer. (iii) The rate setting department being newly established are liable to commit mistakes. You are required to devise a suitable incentive scheme and demon¬strate by an illustrative numerical example how your scheme answers to all the requirements of the management. Reference What’s New Reference What’s New
20 | CA^ I nter^ C ost -^ A mendment Labour Costing
Rowan Scheme Importance of Rowan Scheme
Q 24 (Page^ No. 186)
Both direct and indirect employees of a department in a factory are entitled to production bonus in accordance with a group incentive scheme, the outline of which is as follows: (a) For any production in excess of the standard rate fixed at 16,800 tons per month (of 28 days) a general incentive of 1,500 per ton is paid in aggregate. The total amount payable to each separate group is determined on the basis of an assumed percentage of such excess production being contributed by it, namely @ 65% by direct employee, @ 15% by inspection staff, @ 12% by maintenance staff and @ 8% by supervisory staff. (b) Moreover, if the excess production is more than 20% above the standard, direct employees also get a special bonus @500 per ton for all production in excess of 120% of standard. (c) Inspection staff are penalized @ 2,000 per ton for rejection by customer in excess of 2% of pro- duction. (d) Maintenance staff are also penalized @2,000 per hour for breakdown. From the following particulars for a month, compute production bonus earned by each group: (a) Actual working days : 25 (b) Production : 21,000 tons (c) Rejection by customer : 500 tons (d) Machine breakdown : 40 hours
Group Bonus Scheme
Reference What’s New Reference What’s New
