ECO 10 Solved Question Paper Dec 2014
ECO - 10: ELEMENTS OF COSTING SOLVED QUESTION PAPERS
ELEMENTS OF COSTING
IGNOU BCOM SOLVED QUESTION PAPERS
Term-End Examination: Dec, 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.
Eco 10 Solved Question Papers Elements of Costing | |
SECTION —
A
1. Define 'Cost Accounting'. State the
various limitations of financial accounting that gave rise to the need for cost
accounting. 3, 7
Cost Accounting: It
is the method of accounting for cost. The process of recording and accounting
for all the elements of cost is called cost accounting. I.C.M.A. has defined
cost accounting as follows: “The process of accounting for cost from the point
at which expenditure is incurred or committed to the establishment of its
ultimate relationship with cost centers and cost units. In its widest usage it
embraces the preparation of statistical data, the application of cost control
methods and the ascertainment of the profitability of activities carried out or
planned”.
Limitations of financial
statements
Financial Statements
suffers from various limitations which are given below:
(i) Historical Records: Persons like
shareholders, investors etc., are mainly interested in knowing the likely
position in future. The financial statements are not of much help as the
information given in these statements is historic in nature and does not
reflect the future.
(ii) Ignores Price Level Changes: Price
level change and purchasing power of money are inversely related. Different assets are shown at the
historical cost in financial statements. It, therefore, ignore the price level
change or present value of the assets.
(iii) Qualitative aspect Ignored: Financial
statements considered only those items which can be expressed in terms of
money. Financial Statements ignores the qualitative aspect such as quality of
management, quality of labour force, Public relations.
(iv) Suffers from the Limitations of financial
statements: Since analysis of financial statements is based on the
information given in the financial statements, it suffers from all such
limitations from which the financial statements suffer.
(v) Not free from Bias: Financial
statements are largely affected by the personal judgement of the accountant in
selecting accounting policies. Therefore, financial are not free from bias.
(vi) Variation is accounting practices: Different
firms follow different accounting practices. For example, depreciation can be
provided either on SLM basis or WDV basis. Profits earned or loss suffered will
be different when different practices are followed. Therefore, a meaningful
comparison of their financial statements is not possible.
2. (a) Explain ABC analysis for inventory control with the help of suitable examples. 5, 5
Ans: ABC Analysis: 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.
The numbers given above are just indicative, actual numbers may
vary from situation to situation. The principle to be followed is that the high
value items should be controlled more carefully while items having small value
though large in numbers can be controlled periodically.
Advantages
of ABC analysis
a. Reduction in investment: under ABC analysis, the materials from
group 'A' are purchase in lower quantities as much as possible. With this, the
effort to reduce the delivery period is also made. These in turn help to reduce
the investment in material.
b.
Optimization of Inventory management function: Each
class of the inventory gets management attention as per its value and
accordingly, manpower is allocated and expenses are incurred to manage it. It
ensures that most important items are regularly monitored and closely observed
whereas such efforts are expended with for the less important items.
c. Control on high value material: under ABC analysis, strict control can
be exercised to the materials in group 'A' that have higher value.
d. Reduction in Storage cost: Since Class “A” material is of high
value and are purchase in lower quantities as much as possible, it reduces the
total storage cost.
e. Saving in time and cost: Since a signification effort is made for
management of the material from group 'A', it helps to save time as well as
cost.
f. Opportunity to convert Class B items into Class A: As Class B
items hold potential for growth, the business may tap into this opportunity and
convert it frequent yet low-value customers into regular, high-value customers
to Class A.
Disadvantage of ABC analysis
a) No Proper classification of material: ABC
analysis will not be effective if the material are not classified into the
groups properly.
b) Not suitable if materials are of same value: It
is not suitable for the organization where the costs of materials do not vary
significantly.
c) No scientific base: There is no any scientific
base for the classification of material under ABC analysis.
Not suitable for small organisation: The
classification of the materials into different groups may lead to extra cost.
Hence, it may not be suitable for small organization.
(b) State the advantages or disadvantages of time wage system.
3. Write short notes on any two of the following: 5, 5
a) LIFO method of pricing issue of materials.
According to this method units last entering the process are to be completed first. The completed units will be shown at their current cost and the closing-work in process will continue to appear at the cost of the opening inventory of work-in-progress along with current cost of work in progress if any.
Advantages:
a. Issues are based on actual cost.
b. Issue price reflects current market price.
c. Product cost will be based on current market price and hence will be more realistic.
d. There is no unrealized profit or loss.
e. Simple to operate if purchases are not many and prices are steady or rising.
f. When prices are raising this method is helpful in preparation of quotation or estimates.
Disadvantages:
a. This method involves considerable clerical work.
b. Under felling price, issues are priced at lower prices and stocks are valued at higher rates.
c. Stock of material shown in the balance sheet will not reflect market price.
d. Due to variation in prices, comparison of cost of similar job is difficult.
e. This method is not accepted by the income tax authorities.
b)
Behaviour-wise classification of
overheads.
c)
Economic Order Quantity.
d)
Fringe benefits and their treatment
in cost accounts.
SECTION -
B
4. The following are the particulars
relating to a contract which began on 1st January 2011 at a contract price of
Rs. 50,00,000. The accounting year ended on 31st December 2011. 10, 5
|
Particulars |
Rs. |
|
Machinery
|
3,00,000 |
|
Materials
|
17,06,000 |
|
Wages
paid |
14,80,000 |
|
Direct
Expenses |
63,300 |
|
Outstanding
wages |
53,800 |
|
Uncertified
work |
90,000 |
|
Overheads
|
82,400 |
|
Materials
returned to stores |
16,000 |
|
Materials
in hand (31.12.2011) |
37,000 |
|
Machinery
on hand (31.12.2011) |
2,20,000 |
|
Work
certified |
39,00,000 |
|
Cash
received |
35,10,000 |
Prepare
Contract Account for the period ended 31st December 2011 showing the account of
profit that may be taken to the credit of Profits and Loss Account of the year.
Also show the account of work-in-progress as it would appear in the balance
sheet of the year.
5. In a factory the product passes
through two processes A and B. A loss of 5% is allowed in process A and 2% in
process B, nothing being realised by disposal of the wastage. 15
During
April, 2012, 10,000 units of material costing Rs. 60 per unit were introduced
in process
A.
The other costs were as follows:
|
|
Process
A (Rs.) |
Process
B (Rs.) |
|
Other
materials Labour
Overheads
|
1,00,000 60,000 |
61,400 60,000 46,000 |
The
output was 9,300 units from process A. 9,200 units were produced from process B
which were transferred to the warehouse. 8,000 units of the finished product
were sold at Rs. 150 per unit, the selling and distribution expenses were Rs.
20 per unit. Prepare the Process Accounts and a statement of profit and loss of
the firm for April 2012 assuming there were no opening stocks of any type.
Solution:-
6. (a) From the following invoice
received from a supplier, prepare a statement showing the material cost per
unit : 9,6 1
|
Quantity
|
Materials
|
Rate (Rs.
) |
Amount (Rs.
) |
|
250 kgs |
P |
100 |
25,000 |
|
150 kgs |
Q |
120 |
18,000 |
|
Less:
Trade discount |
|
43,000 – 1,290 |
|
|
|
41,710 |
||
|
Add:
Cost
of containers Cartage
and Freight Octroi
duty |
460 |
||
|
2,000 |
|||
|
430 |
|||
|
44,600 |
|||
(b) Explain the main features of Taylor's Differential Piece Rate
System of wage payment.
*****
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