ECO 10 ELEMENTS OF COSTING | JUNE 2018 | IGNOU SOLVED QUESTION PAPER | IGNOU B.COM SOLVED PAPERS

ECO - 10: ELEMENTS OF COSTING SOLVED QUESTION PAPERS
ELEMENTS OF COSTING
IGNOU SOLVED QUESTION PAPERS 
BACHELOR'S DEGREE PROGRAMME
Term-End Examination: JUNE' 2018
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

JUNE 2014

JUNE 2015

JUNE 2016

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JUNE 2018 (CURRENT PAGE)

JUNE 2019 COMING SOON

DEC 2014

DEC 2015

DEC 2016

DEC 2017

DEC 2018

DEC 2019 COMING SOON

SECTION - A

1. Explain the various steps usually followed by firms in purchase of materials.   10

Ans: Process of purchasing and receiving goods

Purchase procedure differs from business to business, but all of them follow a general pattern or procedure. There should be proper Purchase Procedure to ensure that right type of material is purchased at right time, in right quantity, at right prices and at right place. All these things require a well-defined procedure of purchasing. The steps in Purchase Procedure are explained below.

Purchase Requisition: A form known as ‘Purchase Requisition’ is commonly used as a format requesting the purchase department to purchase the required material. Normally the purchase requisition is issued by the Stores Department when the quantity of the concerned material reaches the minimum level. Only in the cases of materials, which are not kept in the stores on regular basis, the requisition is issued by the concerned department. Purchase requisition has information like the quantity required, the expected date of receipt, the department in which the material is required, description of material etc. Copies of the purchase requisition are sent to the Accounts department and the concerned department who is in need of the material.

Purchase Order: After the receipt of purchase requisition, the purchase department places an order with a supplier, offering to buy certain material at stated price and terms. However before issuing the purchase order, quotations may be invited from various suppliers for arriving at the best deal. The purchase department usually keeps a list of suppliers from whom the quotations are invited. The quotations received are examined on various parameters like price, delivery period, terms and conditions, quality of material etc. After this, purchase order is issued to the selected supplier. It should be remembered that a purchase order is a legal document and it results into a contract between the company and the supplier. Hence the terms and conditions in the purchase order should be drafted clearly without any ambiguity.

Receiving the Materials: The receiving department performs the function of unloading and unpacking materials which are received by an organization. This will need an inspection report which is sometimes incorporated in the receiving report, indicating the items accepted and rejected with reasons. Copies of the receiving report along with the inspection report are sent to various departments like purchase, stores, concerned department, accounts department and costing department.

Approval of invoice: Approval of invoice indicates that goods according to the purchase order have been received and payments can be made for the same. However if the goods are not according to the quality ordered or are in excess of the quantity specified or are damaged or are of inferior quality, payment is withheld.

Making the Payment: After the invoice is approved the payment is made to the supplier. The purchase procedure is completed with the payment released.

2. (a) Distinguish between Cost Accounting and Financial Accounting.                                   5, 5

Ans: 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.

(b) State the main objectives of cost accounting.

Ans: 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.

5) Assist the Management: Cost Accounting assist the management in the following ways

a) Indicate to the management any inefficiencies and extent of various forms of waste of Raw Material, Time, Expenses etc.

b) Help the management in fixing of selling price.

c) Provide information to enable management to take decision of various types.

6) Cost Control: Cost Accounting assist the management in cost control. Cost control includes the following stages.

a) Setting up of targets of cast and production for each period.

b) Measuring the actual figures of performance relating to cost, production etc. for the period concerned.

c) The figures of actual performance are to be compared with the targets to find out the variation. d) Analysing the variance, whether favourable or adverse. e) Immediate action has to be taken in case of adverse variation.

7) Controlling Inventory: Assist the management in controlling Inventory of Raw Material, goods in process, finished goods, spares and consumables etc.

8) Optimum Product Mix: Advise the management in deciding optimum product mix merits and demerits of alterative courses of action viz. make of buy decisions, introduction or Automation mechanization, rationalization, system of production etc.

9) Future Policies: Advise management on future policies regarding Expansion, growth, capital investment, etc.  

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

a) Cost sheet

Ans: Cost Sheets are statements setting out the costs of a product giving details of all the costs. Presentation of costing information depends upon the method of costing. A cost sheet can be prepared weekly, monthly, quarterly or annually. In a cost sheet besides total expenditure incurred, cost per unit of output in case of each element of cost can be shown in a separate column. The cost sheet should give cost per unit in the previous period for the purposes of comparison.

Walter & Bigg define, “The expenditure which has been incurred upon production for a period is extracted from the financial books and the store records, and set out in a memorandum or a statement. If this statement is confined to the disclosure of the cost of the units produced during the period, it is a termed as a cost sheet”. In other words cost sheet is a statement showing the total cost under proper classification in a logical order.

Components of Total Cost

1. Prime Cost: Prime cost consists of costs of direct materials, direct labors and direct expenses. It is also known as basic, first or flat cost.

2. Factory Cost: Factory cost comprises prime cost and, in addition, works or factory overheads that include costs of indirect materials, indirect labors and indirect expenses incurred in a factory. It is also known as works cost, production or manufacturing cost.

3. Office Cost: Office cost is the sum of office and administration overheads and factory cost. This is also termed as administration cost or the total cost of production.

4. Total Cost: Selling and distribution overheads are added to the total cost of production to get total cost or the cost of sales.

b) Economic Order Quantity

Ans: Economics order quantity: Economics order quantity represents the size of the order for which both order, ordering and carrying costs together are minimum. If purchases are made in large quantities, inventory carrying cost will be high. If the order size is small, ordering cost will be high. Hence, it is necessary to determine the order quantity for which ordering and carrying costs are minimum. The formula used for determining economics order quantity is a s follows:

  



Where,

A is the annual consumption of material in units.

O is the cost of placing an order (ordering cost per unit)

C is the cost of interest and storing one unit of material for the one year (carrying cost per unit per annum).

c) Time keeping

Ans: TIME-KEEPING: This department is concerned with maintenance of attendance time and job time of workers. Attendance time is recorded for wage calculation and job time or time booking is considered for computing time spent for each department, job, Operation and Process for calculating labour cost department wise, job wise and of each process and operation.

Essentials of a good Time-keeping System

1. Good time keeping system prevents ‘proxy’ for one another among workers

2. Time-keeping has to be done for even piece workers to maintain uniformity, regularity and continuous flow of production.

3. Both the arrival and exit of workers is to be recorded so that total time spent by workers is available for wage calculations.

4. Mechanized methods of time keeping are to be used to avoid disputes.

5. Late arrival time and early departure time are to be recorded to maintain discipline.

6. The time recording should be simple, quick and smooth.

7. Time recording is to be supervised by a responsible officer to eliminate irregularities.

Methods of time keeping

1. Time Recording Clocks or Clock Cards: This is mechanized method of time recording. Each worker punches the card given to him when he comes in and goes out. The time and date is automatically recorded in the card. Each week a new card is prepared and given to the worker so that weekly calculation of wages will be possible.

2. Disc Method: This is one of the older methods of recording time. A disc, which bears the identification number of each worker, is given to each one. When the worker comes in, he picks up his disc from the tray kept near the gate of the factory and drops in the box or hooks it on a board against his number. Same procedure is followed at the time of leaving the factory. The box is removed at starting time, and the time keeper becomes aware of late arrivals by requiring the workers concerned to report him before starting. The time keeper will record in an Attendance Register any late arrivals and workers leaving early. He will also enter about the absentees in the register on daily basis.

3. Attendance Records: This is the simplest and the oldest method of marking attendance of workers. In this method, every worker signs in an attendance register against his name. Leaves taken by workers as well as late reporting is marked on the attendance register itself.

d) Contract costing

Ans: Contract Costing: This method if applied in undertakings erecting buildings or carrying out constructional works, e.g., House buildings, ship building, Civil Engineering contracts. Here the cost unit is one and completed in itself. The cost unit is a contract which may continue for over more than a year. It is also known as the Terminal Costing, since the works are to be completed within a specified period as per terms of contract or agreement executed by the contractor and contractee.

 

SECTION - B

4. (a) Prepare the Process - 'A' and Process - 'B' accounts from the following data :                         10, 5

 

Particulars

Process

A

B

Material (Rs.)

Labour (Rs.)

Overheads (Rs.)

Normal Loss

Sales value of wastage per unit (Rs.)

30,000

10,000

7,000

10%

1

3,000

12,000

8,600

4%

2

There is no opening and closing stock. 20000 units of material were used in Process – A. The output from Process – A was 17,500 units and from Process – B was 17,000 units

Solution:-



(b) State five importance differences between job costing and Process costing.

Ans: Difference between Job costing and Process Costing

Basis of distinction

Job Costing

Process Costing

Basic

Job costing is used when the cost object is an individual (or a lot/batch) unit or a distinct product or service.

Process Costing is generally used for a mass of identical product or service.

Accumulation of Cost

Costs can be accumulated by each individual product or service.

The Costs are accumulated in a period. The total costs in a period are divided over the number of units to get an average unit cost.

Cost Determination

Job costing is done against a specific order being produced.

Costs are compiled for each process over a period of time.

Cost Calculation

Costs are calculated when a job is over.

Costs are calculated at the end of a cost period like an accounting year.

Transfer

There are usually no transfers of costs from one job to another.

Transfer of costs from one process to another is made as the product moves from one process to the other.

Forms and Details

There is more paper work.

It has lesser paper work.

Inventory

There is little or no inventory.

There is regular and significant inventory.

Mechanization

It is less amenable to mechanization & automation.

It is more amenable to mechanization & automation.

5. The following is the record of receipts and issues of a certain material in the factory during a week.                    15

Jan. 1

Jan. 1

Jan. 2

Jan. 3

Jan. 4

Jan. 5

Jan. 6

Jan. 7

Opening Balance

Issued

Received

Issued

Received back

Issued

Received

Issued

50 tonnes @ Rs. 10 per ton

30 tonnes

60 tonnes @ Rs. 10.20 per ton

25 tonnes (Stock verification reveals a loss of 1 tonne.)

10 tonnes (previously issued from orders at Rs. 19.15 per ton)

40 tonnes

22 tonnes @ Rs. 10.30 per ton

36 tonnes

Prepare Stores Ledger Account using LIFO method.

Solution:-



6. (a) From the following figures prepare a reconciliation statement of Cost and Financial Accounts.     10, 5

 

(Rs.)

Profit as per Cost Accounts

1)   Over absorption of administrative overheads in Cost Accounts

2)   Depreciation charged in Cost A/c

3)   Depreciation charged in financial A/c

4)   Income Tax paid not include in Cost A/c

5)   Bank Interest income not included in Cost A/c

6)   Work overheads under – recovered in Cost A/c

17,000

2,000

2,400

1,600

1,000

1,000

4,000

Solution:-



(b) Piece Rate 20 per unit standard output 24 units per day of 8 hours

output of 'A' - 21 units

output of 'B' - 25 units

compute wages of A and B under Merrick Differential Piece Rate System.

Solution:-



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