June 2014 Eco 10 Solved Question Paper | ECO 10 Solved Question Paper June 2014

 ECO 10 Solved Question Paper June 2014

ECO - 10: ELEMENTS OF COSTING SOLVED QUESTION PAPERS

ELEMENTS OF COSTING

IGNOU BCOM SOLVED QUESTION PAPERS 

BACHELOR'S DEGREE PROGRAMME
Term-End Examination: June, 2014
ELECTIVE COURSE: COMMERCE
Time: 2 hours; Maximum Marks: 50; (Weightage: 70%)

Note: Attempt any two questions from Section-A and any two questions from Section-B.

SECTION - A

1. Describe the objectives of cost accounting. In what way does cost accounting differ from financial accounting?       4+6

Objectives/functions of Cost Accounting

According to Blocker and Weltemer, “Cost Accounting is to serve management in the execution of polices and in comparison of actual and estimated results in order that the value of each policy may be appraised and changed to meet the future conditions”. The main objectives/functions of cost accounting are:

1) Ascertain Cost: To ascertain the cost of product or a services reveled and enable measurement of profit by proper valuation of inventory.

2) Analyse Costs: To analysis costs or to classify the expenses under different heads of accounts viz. material, labour, expenses etc.

3) Allocate and Apportion the Costs: To allocate or charge the direct expenses or specific costs such as Raw Material, Labour to particular product, contract or process and to distribute common expenses to each product, contract or process on a suitable basis.

4) Cost Reporting: Cost Reporting or presentation includes:

a) What to report i.e. what is the nature of information to be presented?

b) Whom to Report i.e. to whom the report is to be addressed.

c) When to Report i.e. when the report is to be presented i.e. Daily weekly monthly yearly etc.

d) How to Report i.e. in what format the report is to be presented.

DISTINGUISH BETWEEN FINANCIAL AND COST ACCOUNTING

Basis	Financial Accounting	Cost Accounting
1.    Nature	Financial accounts are maintained on the basis of historical records.	Cost accounts lay emphasis on both historical and predetermined costs.
2.    Use	Financial Accounting is used even by outside entities.	Cost Accounting is used only the management of the concern.
3.    System	Financial Accounting uses the double-entry system for recording financial data.	Cost Accounting does not use the double-entry for collecting cost data.
4.    Scope	Financial Accounting covers all items of income and expenditure whether related to the cost centers or not,	Cost Accounting covers all items related to a cost centre.
5.    Reports	Financial Accounting results are shown P&L A/c and balance sheet.	Cost Accounting results are shown in Cost Sheet/ Coating Profit & Loss A/c/ Reports Contract A/c/ Process A/c.
6.    Period	Financial Accounting is for a specific period.	Cost Accounting concentrates on cost centers and not on period.
7.    Stock Valuation	In financial accounts, stocks are valued at cost or realisable value, whichever is lesser.	In cost accounts stocks are valued at cost.
8.    Analysis of Profit and Cost	In financial accounts, the Profit or Loss of the entire enterprise is disclosed into.	Cost accounts reveal Profit of Loss of different products, departments separately.

 

2. (a) Explain with the help of examples, the classification of costs on the basis of identifiability with the products.      5+5

(b) What do you mean by perpetual inventory system? State any three advantages of this system.

Perpetual Inventory System: Perpetual Inventory system means continuous stock taking. CIMA defines perpetual inventory system as ‘the recording as they occur of receipts, issues and the resulting balances of individual items of stock in either quantity or quantity and value’. Under this system, a continuous record of receipt and issue of materials is maintained by the stores department and the information about the stock of materials is always available. Entries in the Bin Card and the Stores Ledger are made after every receipt and issue and the balance is reconciled on regular basis with the physical stock. The main advantage of this system is that it avoids disruptions in the production caused by periodic stock taking. Similarly it helps in having a detailed and more reliable check on the stocks. The stock records are more reliable and stock discrepancies are investigated and appropriate action is taken immediately.

Advantages of Perpetual Inventory System

a)      Easy detection of errors - Errors and frauds can be easily detected at an early date. It helps in preventing their occurrence.

b)      Better control over stores- The system exercises better control over all receipts and issues in such a manner so as to give a complete picture of both quantities and values of stock in hand at all times.

c)       No interruption of production process- Production process is not interrupted as the physical verification of stock is made on a planned and regular basis.

d)      Acts as internal check- Under the system, records are made simultaneously in the bin cards and stores ledger accounts which acts as a system of internal check for detection of errors as and when they are committed.

e)      Investment in materials kept under control - The investment in materials is kept at a minimum level as the actual stock is continuously compared with the maximum level and minimum level.

f)       Early detection of loss of stock- Loss of stock due to shrinkage, evaporation, accident, fire, theft, etc. can be easily detected.

g)      Accurate and up-to-date accounting records- Due to continuous stock­taking, the store-keeper and stores accountant become more vigilant in their works and they maintain accurate and up-to-date records.

h)      Easy to prepare interim accounts- It is possible to prepare periodical profit and loss account and balance sheet without physical stock-taking being made.

i)        Availability of correct stock data- Correct stock data is readily available for settlement of insurance claims.

3. Write short notes on any two of the following:            5+5

a)         Labour Turnover Rate.

b)         Reordering Level.

c)          Disposal of underabsorption and overabsorption of factory overheads.

d)         Memorandum Reconciliation Account.

PREPARATION ON RECONCILIATION STATEMENT OR MEMORANDUM RECONCILIATION ACCOUNT

A Reconciliation Statement or a Memorandum Reconciliation Account should be drawn: up for reconciling profits shown by the two sets of books. Results shown by any sets of books may be taken as the base and necessary adjustment should be made to arrive at the results shown by the other set of books. The technique of preparing a Reconciliation Statement as well as a Memorandum Reconciliation account is discussed below:

When there is a difference between the profits disclosed by cost accounts and financial accounts, the following steps shall be taken to prepare a Reconciliation Statement

1 Ascertain the various reasons of disagreement (as discussed above) between the profits disclosed by two sets of books of accounts.

2. If profit as per cost accounts (or loss as per financial accounts) are taken as the base:

ADD:

(i) Items of income included in financial accounts but not in cost accounts.

(ii) Items of expenditures (as interest on capital, rent on owned premises, etc.) included in cost accounts but not in financial accounts.

(iii) Amounts by which items of expenditure have been shown in excess in cost accounts as compared to the corresponding entries in financial accounts.

(iv) Amounts by which items of income have been shown in excess in financial accounts as compared to the corresponding entries in cost accounts

(v) Over-absorption of overheads in cost accounts.

(vi) The amount by which closing stock of inventory is under-valued in cost accounts.

(vii) The amount by which the opening stock of inventory is over-valued in cost accounts.

DEDUCT:

(i) Items of income included in cost accounts but not in financial accounts

(ii) Items of expenditure included in financial accounts but not in cost accounts.

(iii) Amounts by which item of income have been shown in excess in cost accounts over the corresponding entries in financial accounts.

(iv) Amounts by which items of expenditure have been shown in excess in financial accounts over the corresponding entries in’ cost accounts.

(v) Under absorption of overheads in cost accounts.

(vi) The amount by which closing stock of inventory is over-valued in cost accounts.

(vii) The amount b which the opening stock of inventory is under -valued in cost accounts.

3. After making all the above additions and deductions, the resulting figure will be profit as per financial accounts.

Note: If, profit as per financial accounts (or loss as per cost accounts) is taken as the base, then items added shall be deducted and items to be deducted shall be added, i.e., the procedure shall be reversed.

SECTION - B

4. With the help of the following information from the cost of records of a manufacturing firm for a product for a year, as certain (a) Total cost of production, (b) Cost of goods sold, (c) Cost of sales and (d) Net profit for the year as well as per ton.

	Rs.
Purchase of raw materials Factory Rent and Insurance Carriage Inwards Other factory overheads Direct wages Stock at the beginning Raw materials Finished Goods (1000 tons) Administrative overheads Sales Stock at the end Raw materials Finished Goods (2000 tons)	12,00,000 80,000 14,400 4,00,000 6,00,000   2,00,000 1,50,000 2,84,000 29,90,000   2,22,400 ?

There was no stock of work in progress either at the beginning or at the end. Advertising and other selling costs were Rs.10 per ton sold. During the year 16,000 tons of the product was produced.

Solution:-

5. (a) From the following information, compute:                                             9+6

1)         Reorder Quantity.

2)         Reorder Level.

3)         Maximum Stock Level and.

4)         Minimum Stock Level.

Annual usage was 30,000 units, cost of materials per unit Rs. 3, cost of placing an order Rs. 20, annual carrying cost of one unit 20% of inventory value and time required for delivery 1 to 2 months. Normal consumption 2,500 units per month. Maximum consumption 3,000 units per month and Minimum consumption 2,000 units per month.

(b) What do you mean by normal and abnormal process losses? How do you account for these losses in cost accounts? Explain briefly.

6. (a) The production department of a factory gives the following information for a month of the current accounting year:                                9+6

Materials used Rs. 1,08,000; Direct wages Rs. 90,000; Factory overheads Rs. 72,000; Labour hours worked 72,000 and Machine hours worked 60,000. For an order executed during the month, the following information was recorded :

Materials used Rs. 12,000; Direct wages Rs. 6,400; Labour hours worked 6,400 and Machine hours worked 4,800. Compute the Overhead Absorption Rates and prepare a statement showing cost of the job under :

1)         Direct Materials Cost Method;

2)         Direct Labour Cost Method;

3)         Labour Hour Rate; and

4)         Machine Hour Rate.

(b) The standard time allowed to complete a job is 100 hours and the hourly rate of wage payment is Rs. 50. The actual time taken by a worker to complete the Job is 80 hours. Compute the total wages of the worker under :

1)         Halsey Plan and

2)         Rowan Plan.

Solution:-

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