ECO 10 Solved Question Paper June 2016
ECO - 10: ELEMENTS OF COSTING SOLVED QUESTION PAPERS
ELEMENTS OF COSTING
IGNOU BCOM SOLVED QUESTION PAPERS
BACHELOR'S DEGREE PROGRAMME
Term-End Examination: June 2016
ELECTIVE COURSE: COMMERCE
Time: 2 hours; Maximum Marks: 50; (Weightage: 70%)
Term-End Examination: June 2016
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. What are the objectives of cost accounting?
State its major advantages to a manufacturing concern. 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.
Advantages
of Cost Accounting (Aid to Management)
a) Helps in
Decision Making: Cost accounting helps in decision making. It provides
vital information necessary for decision making. For instance, cost accounting
helps in deciding:
1. Whether to
make a product buy a product?
2. Whether to
accept or reject an export order?
3. How to
utilize the scarce materials profitably?
b) Helps in
fixing prices: Cost accounting helps in fixing prices. It provides
detailed cost data of each product (both on the aggregate and unit basis) which
enables fixation of selling price. Cost accounting provides basis information
for the preparation of tenders, estimates and quotations.
c) Formulation
of future plans: Cost accounting is not a post-mortem examination. It is a
system of foresight. On the basis of past experience, it helps in the
formulation of definite future plans in quantitative terms. Budgets are
prepared and they give direction to the enterprise.
d) Avoidance
of wastage: Cost accounting reveals the sources of losses or
inefficiencies such as spoilage, leakage, pilferage, inadequate utilization of
plant etc. By appropriate control measures, these wastages can be avoided or
minimized.
e) Highlights
causes: The exact cause of an increase or decrease in profit or loss can
be found with the aid of cost accounting. For instance, it is possible for the
management to know whether the profits have decreased due to an increase in
labour cost or material cost or both.
f) Reward to
efficiency: Cost accounting introduces bonus plans and incentive wage
systems to suit the needs of the organization. These plans and systems reward
efficient workers and improve productivity as well improve the morale of the
work -force.
2. (a) What are the important requirements of
an efficient system of materials control? 6+4
Essential
of store control: The following at the essentials of good system of material
control.
a) There
should be proper co-operation and co-ordination among the departments dealing
with materials.
b) All
purchases must be centralized and must be made through an expert purchase
manager.
c) All items
in the stores should be classified with codes.
d) Receiving
and inspection procedure should be chalked out.
e) Ideal
storage and preservation facilities will have to be provided.
f) Stores
control measures like ABC analysis, perpetual inventory system, stock
verification should be introduced.
g) There
should be an efficient system of internal audit and internal check.
h) Maximum
level, minimum level and re-order level of stock should be fixed to avoid
over-stocking or shortage of materials.
i)
Appropriate records should be maintained to
control issues and utilization of stores in production.
j)
There should be a system of regular reporting
to management regarding materials purchases, storage and utilization.
Significance/Advantages
of Inventory control
1. Protects from fluctuations in demand: There
are always chances of fluctuations in the demand of a material. These
fluctuations can be adjusted if there are sufficient items in the stock of inventory.
Therefore, proper inventory control protects the company from fluctuations in
demand.
2. Better services to customers: If the
company maintains a proper inventory of raw-materials, then it can complete its
production in time. So, it can deliver the finished goods to the customers in
time. Similarly, if the company has a proper inventory of finished goods, then
it can satisfy the additional demand of the customers.
3. Continuity of production operations: Proper
inventory control helps to maintain continuity of production operations. This
is because it maintains a smooth flow of raw materials. So, there are no
shortages of raw-materials required for production process.
4. Reduces the risk of loss: Proper inventory
control helps to reduce the risk of loss due to obsolescence (outdated) or
deterioration of items. This is because it checks all the items regularly.
5. Minimizes the administrative workload:
Proper inventory control helps to minimize the administrative work load of
purchasing, inspection, warehousing, etc. This will reduce the manpower
requirement and will minimize the labour cost too.
6. Protects fluctuation in output: Inventory
control tries to reduce the gap between planned production and actual
production. There are cases where the production schedule cannot be followed
because of Sudden breakdown of machines, Problems in supply of materials, Sudden
labour strikes, Loss due to failure of power supply, etc.
In such cases, the difference between planned
production and actual production can be bridged by inventories held in stock.
7. Effective use of working capital: Proper
inventory control helps to make effective use of working capital. Inventory
control helps in maintaining the right amount of stocks of materials,
components, etc. Over stocking is avoided. Therefore, the working capital will
not be blocked in excess inventory.
8. Check on loss of materials: Inventory
control helps to maintain a check on the loss of materials due to carelessness
or pilferage. If there is no proper inventory control, then there are more
chances of carelessness and pilferage by the employees, especially in the
store-keeping department.
9. Facilitates cost accounting activities:
Inventory control facilitates cost accounting activities. This is because,
inventory control provides a means of allocating materials cost of products,
departments or other operating accounts.
10. Avoids duplication in ordering: Inventory
control avoids duplication in ordering of stock. This is done by maintaining a
separate purchase department.
a)
Time booking
Time Booking:
Time
spent by the worker on different jobs and works is called time booking. This is the productive time of
workers. The following are the objectives of time booking:
1. It ensures that the time paid for, as per
time keeping is properly utilized on jobs
and orders.
2. It enables the cost department to ascertain
the labour cost of each job or work order.
3. It helps in allocation and apportionment of
wages among different departments where
labour hour rate method is used as basis.
4. It helps to calculate idle time.
5. It is helpful when incentive schemes are in
operation in the factory by revealing the
time spent by the workers on different jobs.
6. Time booking also helps in measuring the
efficiency of workers by comparing standard
time for the jobs with actual time.
Time Booking Methods: The following methods
are used for time booking.
1) Daily Time
Sheet: In this method, each worker records the time spent by him on the
work during the day, for which a
sheet is provided to each worker. The time is recorded daily and hence accuracy is maintained.
2) Weekly Time
Sheets: The only difference between the daily time sheet and weekly time
sheet is that these time sheets are maintained
on weekly basis. This means that each worker prepares these sheets weekly rather than daily.
3) Job Ticket: Job
tickets are given to all workers where time for commencing the job is recorded as well as the time when the job is
completed. The job tickets are given for each job and the recording of the time as mentioned above helps to ascertain the
time taken for each job.
4) Labor Cost Card:
This
card is meant for a job, which involves several operations or stages of completion. Instead of giving one
card to each worker, only one card is passed on to all workers and time taken on the job is recorded by each one of them.
This card shows the aggregate labor
cost of the job or the product.
5) 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.
b)
Centralised
purchasing
c)
Cost centre
Cost
Centre: A large business is divided into a number of functional
departments (such as production, marketing and finance) for administrative
convenience. These departments are further divided into smaller divisions for
cost ascertainment and control. These smaller divisions are called cost centers.
A cost centre is a location, person or item of equipment (or group of these) in
relation to which cost can be ascertained and controlled. In simple words, it
is a subdivision of the organization to which cost can be charged.
The determination of suitable cost centre is
very important for the purpose of cost ascertainment and control. The manager
of a cost centre is held responsible for control of cost of his cost centre.
The number and size of cost centers vary from organization to organization. The
selection of a suitable cost centre depends on the following factors:
a. Nature and size of the business.
b. Layout and organization of the factory.
c. Availability of various cost data and
information.
d. Management policy regarding cost
ascertainment and control.
d)
Payroll
Accounting
SECTION - B
4. In a manufacturing concern, there are three production
departments A, B and C and two service departments D and E. The following cost
figures are extracted from the records of the company: 15
|
Particulars |
(Rs.) |
|
Rent and Rates Indirect wages Depreciation of machinery General lighting Power Sundries |
5,000 1,500 10,000 600 1,500 10,000 |
The following
further details are available:
|
|
Total |
A |
B |
C
|
D |
E |
|
Floor Space (sq. ft.) Light points (No.) Direct wages (Rs.) H.P. of Machines Value of Machinery (Rs.) |
10,000 60 10,000 150 2,50,000 |
2,000 10 3,000 60 60,000 |
2,500 15 2,000 30 80,000 |
3,000 20 3,000 50 1,00,000 |
2,000 10 1,500 10 5,000 |
500 5 500 - 5,000 |
(a) Apportion the
costs amongst all the Departments; and
(b) Apportion the costs of Department D on the basis of
direct wages and that of department E in the ratio of 5 : 3 : 2 to the
production departments, A, B and C respectively.
5. (a) Work out the Machine Hour Rate (MHR)
from the following particulars : 10+5
|
Details
|
Amounts
(Rs.) |
|
Cost of machine Installation charges Working life Repairs and Maintenance Annual power expenses @ 25 paise per unit |
1,90,000 10,000 Five
years 40%
of depreciation 6,000 |
|
Eight
hourly day charges: |
|
|
Power Lubrication oil Consumable stores Wages No. of Hours per annum 2,000 |
24 20 28 80 |
Solution:-
(b) What are the requisites of a good
method of absorption of factory overheads?
6. Calculate the cost of each process by
preparing the Process Accounts form the data given below; and prepare the
Abnormal Loss A/c: 10+5
|
Particulars |
Process
– A |
Process
– B |
|
Material (Rs.) Direct labour (Rs.) Direct expenses (Rs.) Normal wastage Output (units) Value of normal wastage (per 100 units) (Rs.) |
12,000 14,000 4,000 5% 9,400 8 |
6,000 8,000 4,000 10% 8,300 10 |
10,000 units introduced in process - A
@ 1 per unit.
Solution:-
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