ECO 10 Solved Question Paper June 2017
ECO - 10: ELEMENTS OF COSTING SOLVED QUESTION PAPERS
ELEMENTS OF COSTING
IGNOU BCOM SOLVED QUESTION PAPERS
BACHELOR'S DEGREE PROGRAMME
Term-End Examination: June 2017
ELECTIVE COURSE: COMMERCE
Time: 2 hours; Maximum Marks: 50; (Weightage: 70%)
Term-End Examination: June 2017
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 | |
1. Discuss the possible difficulties and the factors to be considered before installation of a system of costing in a manufacturing concern. 4, 6
Ans: Steps in Installation of a Costing System
The
costing system of an organization should be carefully planned in order to
achieve its objectives. The important steps for the installation of a costing
system are discussed below:
1) Determination
of objectives: The first step is to clearly lay down the objectives of the
costing system. If the objective is only to ascertain the cost, a simple system
will be sufficient. However, if the objective is to get information for
decision making, planning and control, a more elaborate system of costing is
necessary.
2) Study of
the nature of business: The nature of the business and other technical
aspects like nature of the products, methods and stages of production cycle
should be carefully analyzed. Such an analysis is necessary to decide the
method of costing to be adopted. For example, contract costing is suitable for
large construction projects. Operating costing is adopted by service industries
like transport.
3) Study of
the nature of the organization: The costing system should be designed to
meet the requirements of the organization. Hence, it is necessary to study the
nature, size and layout of the organization. The factors to be considered are:
a. Size of
the organization and the size of the departments.
b. The
physical layout of the organization.
c. The
different levels of management.
d. The extent
of decentralization of authority.
e. The nature
of authority relationships.
4) Deciding
the structure of cost accounts: A suitable costing system can be developed
on the basis of the study of the nature of business and organization. The
structure of cost accounts should be simple and in accordance with the natural
production process.
5) Determination
of cost rates: This step involves a thorough study of the following points
for developing an integrated costing system.
a. Classification
of costs into direct and indirect costs.
b. Grouping
of indirect costs (overheads) into production, administration, selling and
distribution etc.
c. Methods of
pricing issues.
d. Treatment
of wastes of all types.
e. Absorption
of overheads.
f.
Calculation of overhead rates.
6) Organization
of the cost office: The cost office is responsible for the efficient
operation of the costing system. The cost office, with adequate staff must be
located a close as possible to the factory. The following are the major
functions of the cots office.
a. Stores
accounts.
b. Labour
accounting
c. Recording
of cost data and
d. Cost
control.
7) Further,
the role and duties and responsibilities of the cost accountant must be clearly
defined. He must have the necessary authority to discharge his duties
effectively.
8) Introducing
the system: After completion of the above steps, the costing system may be
formally introduced. Introduction of the system in an existing organization
should be done gradually. Before introduction, the feature of the systems, its
working and advantages must be explained to the concerned employees to secure
their co-operation.
2. (a) Explain
meaning of fixed, variable and semi-variable costs with examples. 5, 5
(b)
State the main advantages of the perpetual inventory system.
3. Write short notes on any two of the
following: 5, 5
a)
Process costing
Process
Costing
Process costing is a method of operation
costing which is used to ascertain the cost of production at each process,
operation or stage of manufacture, where processes are carried in having one or
more of the following features:
a)
Where the product of one process becomes the
material of another process or operation
b)
Where there is simultaneous production at one
or more process of different products, with or without by product,
c)
Where, during one or more processes or
operations of a series, the products or materials are not distinguishable from
one another, as for instance when finished products differ finally only in
shape or form’.
Process costing is defined by Kohler as: “A method
of accounting whereby costs are charged to processes or operations and averaged
over units produced; it is employed principally where a finished product is the
result of a more or less continuous operation, as in paper mills, refineries,
canneries and chemical plants; distinguished from job costing, where costs are
assigned to specific orders, lots or units.
Features/Characteristics
of Process Costing:
a)
Process Costing Method is applicable where the
output results from a continuous or repetitive operations or processes.
b)
Products are identical and cannot be
segregated.
c)
It enables the ascertainment of cost of the
product at each process or stage of manufacture.
b)
Labour turn over
Labour Turnover – Meaning, Methods causes and cost
Meaning: Labour turnover may be defined as
change in labour force i.e., percentage change in the labour force during a
specific period. High labour turnover indicates that labour is not stabilised
and there are frequent changes by way of workers leaving the organization. High
labour turnover is to be avoided. At the same time very low labour turnover
indicates inefficient workers are being retained in the organization.
Measurement of
Labor Turnover: It is essential for any organisation to
measure the labor turnover. This is necessary for having an idea
about the turnover in the organisation and also to compare the labor
turnover of the previous period with the current one. The following methods are
available for measurement of the labor turnover.
Additions Method: Under this
method, number of employees added during a particular period is taken into
consideration for computing the labor turnover. The method of computing is as
follows:
Labour Turnover = Number of additions/Average
number of workers during the period X 100
Separations Method:
In
this method, instead of taking the number of employees added, number of
employees left during the period is taken into consideration. The method of
computation is as follows:
Labour Turnover = Number of
separations/Average number of workers during the period X 100
Replacement Method:
In
this method neither the additions nor the separations are taken into consideration.
The number of employees replaced is taken into consideration for computing the labour
turnover.
Labour Turnover = Number of
replacements/Average number of workers during the period X 100
Flux Method: Under this
method labor turnover is computed by taking into consideration the additions
as well as separations. The turnover can also be computed by taking
replacements and separations also. Computation is done as per the following methods:
Labor Turnover = ½ [Number of additions +
Number of separations] /Average number of workers during the period X 100
c)
Decentralised
purchasing of materials
d)
Time wage system
Time Rate System: In this system, a worker is paid on the basis of attendance for the day or according to the hours of the day, regardless of the output. This system is also known as time work, day work, day age rate or day rate. The wage rate of the day worker may be fixed on hourly, daily, weekly, fortnightly, or monthly basis depending on the practice followed in the concern. There are two variants of this system, each differing only in so far as the fixation of the time rate is concerned. They are:
1. Measured Day work or Graduated Time Rate
2. Differential Time Rate
Graduated Time Rate: Under this method wages are paid at time rates which vary according to
a. Merit-rating of the workers, or
b. Changes in the cost of living index.
It the cost of living goes up, the wages also go up proportionately, and vice versa. Thus the works get the real wages. Similarly, the workers having higher merit rating get higher wages, and the workers with lower rating get lower wages.
Differential Time Rate: Workers are paid rate accounting to their individual efficiency. They are paid normal rate upto a certain percentage of efficiency and the rate increases in steps for efficiency slabs beyond the standard. As the efficiency is measured in terms of output, this method does not fall strictly under the area of time rate system.
SECTION - B
4. From the following information, prepare a
cost sheet showing: 15
a)
Prime cost
b)
Cost of production
c)
Cost of sales and
d)
Profit
|
|
(Rs.) |
|
Z Purchase of raw material Direct wages Carriage inwards Works on cost Stock on 1-1-2015 : Raw materials Finished Products (1, 600 tons) Selling and distribution expenses Stock on 30-06-2015 : Raw materials Finished products (3, 200 tons) Sale of finished products |
1,32,000
1,10,000
1,584
40,480
22,000
17,600
18,000
24,464
- 3,30,000
|
25,600
Tons were produced during the period from 1-1-2015 to 30-6-2015.
Solution:-
5. From the following figures, prepare a
Reconciliation statement and find out the profit as per financial accounts. 15
|
Particulars |
(Rs.) |
|
Net profit as per the cost accounts Works overheads under recovered in costing
books Administrative overheads over- recovered in
cost accounts Depreciation charged in financial a/c Depreciation charged in cost accounts Interest received but not included in cost
accounts Income tax recorded in financial accounts
only Bank interest credited in financial accounts
only Depreciation of stock charge in financial
accounts only |
1,72,400
3,120
1,700
11,200
12,500
8,000
40,300
750
6,750 |
Solution:-
6. (a) From the following information,
calculate : 10,
5
1)
Reordering level
2)
Minimum stock level and
3)
Maximum stock level
|
Re-order quantity Time required for delivery Maximum consumption Minimum consumption Normal consumption |
30,000 units 2 – 4 weeks 8,000 units per month 3,000 units per month 5,000 units per month |
Solution:-
(b) How would you ascertain the profit of an incomplete contract? Explain with an example.
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