AMITY UNIVERSITY ’ “UTTAR PRADESH Amity Campus Uttar Pradesh India 201303 ASSIGNMENTS PROGRAM: MFC SEMESTER-IL Subject Name : COST ACCOUNTING ‘Study COUNTRY : BOTSWANA. Roll Number (Reg.No.) : MFC001112014-20160213 Student Name : PITSO SIYABONGA BOSIGO INSTRUCTIONS a) — Students are required to submit all three assignment sets. ASSIGNMENT __| DETAILS MARKS Assignment A Five Subjective Questions 10 Assignment B Three Subjective Questions + Case Study | 10 Assignment C Objective or one line Questions 10 b) Total weightage given to these assignments is 30%. OR 30 Marks ©) Allassignments are to be completed as typed in word/pdf. d) All questions are required to be attempted. ) All the three assignments are to be completed by due dates and need to be submitted for evaluation by Amity University. f) The students have to attached a scan signature in the form. Signature: _ Date > 10/06/15, (_) Tick mark in front of the assignments submitted ‘Assignment ‘Assignment ‘B’ ‘Assignment ‘C’ ‘A!Cost Accounting SECTION A: '1 What is cost accounting? Wh: Cost Accounting is a system used to record, summarize and report cost information. Cost accounting examines the cost structure of a business by collecting information about the costs incurred by a company's activities, assigning selected costs to products and services and other cost objects, and evaluating the efficiency of cost usage Cost Accounting objectives + Ascertainment of cost * Determination of selling price Cost control and cost reduction * Ascertaining the profit of each activity © Assisting management in decision-making Q2 Briefly explain the different ways of ving cost ‘The classification of costs can be done in the following ways’ 1, By Nature of Element 2, ‘The costs are divided into three categories being > Materials > Labor > Overheads Materials: Materials are the principal substances that go into the production process and are transformed into finished goods. Materials are further classified as direct materials and indirect materials. Direct materials are that materials that can be directly identified with and easily traced to finished goods. They become the integral part of the product and that can be conveniently traced directly to it. In manufacturing organizations, the cost of direct materials constitutes a major proportion of the finished product cost. All the other materials that go into the production of the finished goods are called indirect material costs. Indirect materials generally form a part of the manufacturing overheads. Labor: Labor refers to the human effort to produce goods and services. Direct labour cost that can be easily traced to individual units of product. It is the effort of employees who transforms direct materials into a finished product and it is physically traceable to the finished good or service. Examples will be wages paid to automobiles assembly workers. It involves the physical and mental effort. The labor which cannot be traced to a product is considered to be the indirect labor. The indirect labor forms part of factory overhead. In the above ‘example, the cost of the workers who directly expend their energy on making the furniture with the help of tools, and machines is considered to be the direct labor. The salary paid to a supervisor, who oversees the activities of a team of workers is considered as indirect labor. Overheads: Those elements of costs necessary in the production of an article or the performance of a service which are of such a nature that the amount applicable to the product or service cannot be determined readily. They cannot be traced directly to specific units produced. They relate to those objects of expenditures which do not become an integral part of the finished product or service such as rent, heat, light, supplies, management, and supervision. In other words, overheads consist of indirect materials, indirect labor and other indirect expenses e.g. factory lighting, rent of the factory, rent of administrative building, salary of administrative staff and managers, depreciation of machinery etc. constitute overheads,Q3 What do you mean by ABC analysis? State its advantages. An accounting method that identifies the activities that a firm performs, and then assigns indirect costs to products. An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods ADVANTAGES Better Control of High-Priority Inventory > ABC inventory analysis places tighter and more frequent controls on high-priority inventory More Efficient Cycle Counts > ABC inventory analysis method, you can allocate your resources more efficiently during cycle counts. A cycle count is the process of counting only certain items on scheduled dates. Q4 What is idle time? Idle time means that time for which the employer pays, but from which he obtains no production. It is the difference between the time for which workers are paid but the workers do not work. ‘What are the causes for idle time? Due to machine break down Power failures Waiting for instructions Waiting for tools or raw materials to start the production Economic Causes includes: Seasonal, cyclical or industrial nature Administrative decisions are also a big cause of idle time. vvvvvv How should idle time wages be treated in cost Accounts’ > If normal idle time relates to direct labor then; It will form part of direct labor cost. Usually while planning for labor, provision for normal idle time is made in the labor cost budget. > If normal idle time relates to indirect labor then; it will considered as overheads cost and will be absorbed in the cost of units produced or services provided as indirect cost. It is the analysis of how total costs, total revenues and total profits are related to sales volume, and is therefore concerned with predicting the effects of changes in costs and sales volume on profit.What is standard costing? It is the preparation and use of standard costs, their comparison with actual costs, and analysis of variances to their causes and points of incidence and this technique involves: The ascertainment of standard costs The use of standard costs Their comparison with the actual costs and the measurement of variances The analysis of variances for ascertaining the reasons for the same The location of responsibility for the variances and the corrective action to be taken vvvvy How isit different from Historical costing? However it is different from the Historical costing as historical costing provides management with a record of ‘what has happened. Information regarding actual costs classified by elements is known to management accurately, at frequent intervals. The cost data can be verified with the help of documents and evidence regarding various transactions. Q2. What is flexible budget. Explain It is a performance evaluation tool that cannot be prepared before the end of the period. A flexible budget adjusts the static budget for the actual level of output. A flexible budget is budget which by recognizing the difference between fixed, semi-fixed and variable costs. It is designed to change in relation to the level of activity attained. It is also prepared for a range like for more than one level of activity. Q3. What is responsibility Accounting. Responsibility accounting is a management control system based on the principles of delegating and locating responsibility. Explain the responsibility centers. > Cost Center A cost center is an organizational sub-unit such as department or division, whose manager is held accountable for the costs incurred in that division. Manager of a cost center is responsible for controllable costs incurred in the department, but is not responsible for revenue, profit or investment in that center. A cost center is a responsibility center in which inputs, but not outputs are measured in monetary value, > Revenue Center ‘A manager of a revenue center is held accountable for the revenue attributed to the sub-unit, Revenue centers are responsibility centers where managers are accountable only for financial outputs in the form of generating sales revenue, > Profit Center Profits are the excess of revenue over the total expenses. Therefore, the manager of a profit center is held accountable for the revenues, costs, and profits of the center. A profit center is a responsibility center in which inputs are measured in terms of expenses and outputs are measured in terms of revenues. > Investment Center The manger of investment center is held accountable for the division’s profit and the invested capital used by the center to generate its profits. CASE STUDY:A retail dealer in garments is currently selling 24000 shirts annually. He supplies the following details for the year ended 31° December,2007. Rs Selling Price per shirt 40 Variable Cost per shirt 25 Fixed cost: staff salaries for the year 120000 General office cost for the year 80000 Advertising costs for the year 40000 AAs @ cost accountant of the firm, you are required to answer the following each part independently:- Calculate the break-even point and margin of safety in sales revenue and no of shirts sold. Assume that 20000 shirts were sold in a year. Find out the net profit of the firm. iii) If it is decided to introduce selling commission of Rs 3 per shirt, how many shirts would require to be sold in a year to earn a net income of Rs 15000/- Breakeven point of revenue = Fixed Costs + C/S . 40*24,000 - Rs. 640,000 s. 960,000 - Rs, 640,000 Number of Shits associated with Margin of Safety in Sales Revenue = Rs. 320 000 + Rs. 40 000 shirt ‘Therefore: Break-even point revenue = Rs. 640,000 (16 000 shirts) Margin of safety in sales revenue = Rs. 320,000 (8000 shirts) ii) total Sales = 20, 000 x Rs. 4 Variable Cost per unit = Rs.25 Total Variable Cost = 20, 000 x Rs. 25 = Rs. 500, 000 Net Profit= Total Sales- (Fixed variable Costs) Net Profit = Rs. 800, 000- Rs. (240, 000+ 500, 000) Net profit = Rs. (800, 000- 740, 000) Net Profit = Rs. 60, 000 Rs, 800, 000 iii) Net Income Profit = Rs. 15, 000Sales Commission = Rs. 3/unit Total Variable costs = Rs. 28/unit Let the number of shirts be x, then: Profit = Total Sales — (Fixed Costs + Variable Costs) 15, 000 = 40x - (240,000+ 28x) 15,000 = 40x - 240,000 - 28% 15,000 = 12x - 240,000 > 12x= 240, 000+ 15, 000 > 12x= 255, 000 x= 21250 Thus, at a profit of Rs. 15,000 and selling commission of Rs. 3 per shirt, the number of shirts to be sold = 21, 250SECTION C Qi Which of the following best describes a fixed cost? A cost which: a) Represents a fixed proportion of total costs b) Remains at the same level up to a particular level of output c) Has adirect relationship with output d) Remains at the same level when output increases Q2 A business's telephone bill should be classified into which one of these categories? a) Fixed cost b) Stepped fixed cost ) — Semi-vatiable cost d) Variable cost Q3 The total production cost for making 20,000 units was £21,000 & total production cost for making 50,000 ‘was £34,000. When production goes over 25,000 units, more fixed costs of £4,000 occur. So full production cost per unit for making 30,000 units is: a) £0.30 b) £0.68 ©) £0.84 a £0.93 @4 Which of the following is least likely to be an objective of cost accounting system? (a) Product Costing (b) Optimum Sale Mix determination © Maximization of profits @ Sales Commission determination Q5 The classification of costs as either direct or indirect depends upon @) The timing of the cash outlay for the cost (b) The cost object to which the cost is being related (©) The behavior of the cost in response to volume changes (@) Whether the cost is expensed in the period in which it is incurred Q6 Which of the following is false with regard to the supplementary rate method for accounting of under or over absorption of overheads? (@) It facilitates the absorption of actual overhead for production (b) Correction of costs through supplementary rates is necessary for maintaining data for ‘comparison (©) The supplementary rate can be determined only after the end of the accounting period @) It requires a lot of clerical work (©) The value of stock is distorted under this method. Q7 Which of the following factors should not be taken into consideration for determining the basis for applying overheads to products? (a) Adequacy (b) Convenience (©) Time factor @) Seasonal fluctuation of overhead costs (©) Manual or machine work.Q8 Storekeeping expenses are to be apportioned on the basis of (a) Floor area of the production departments (b) Direct labor hours of each product (c) Number of units manufactured of each product (@) Number of material requisitions (©) Sales price of each product. Q9 A company has a margin of safety of Rs.40 lakh and eams an annual profit of Rs.10 lakh. If the fixed costs amount toRs.20 lakh, the annual sales will be @) Rs.160 lakh, ()) Rs.140 lakh (c) Rs.120 lakh (@)Rs.200 lakh (@) Rs.180 lak Q10 Which of the following statements is false with respect to the use of predetermined overhead absorption rates? (@) Product cost can be worked out promptly (b) Use of predetermined overhead rate will provide data available for decision making but not for cost control (©) Product costs are not affected unnecessarily due to the vagaries of the calendar or seasonal fluctuations (@) By using normal capacity as base while determine the overhead rate, losses due to idle capacity is highlighted and real cost of production is reflected (©) Product cost can be estimated prior to commencement of production and can help the ‘management in price quotation and fixing selling price well in advance. QL1 In process costing, equivalent units, using first in first out (FIFO) are a measure of (@) Work done on the beginning as well as ending work-in-process inventory (b) Work done on units started in the production process during the period (©) Work done in the department during the period @) Work required to complete the beginning work-in-process inventory (e) Work performed on the ending work-in-process inventory, Q12 A company’s approach to a make or buy decision (@) Depends on whether the company is operating at or below break-even level (b) Depends on whether the company is operating at or below normal volume (c) Depends on whether the company is operating at practical capacity level (@) Involves an analysis of avoidable costs (c) Requires use of absorption costing. Q13 Which of the following statements is false? (@) Historical costs are useful solely for estimating costs that lie ahead (b) Abnormal cost is controllable (©) Conversion cost is the production cost minus direct material cost @ Administrative expenses are mostly fixed (©) Notional costs are not included while ascertaining costs.Q14 Ramesha Ltd. manufactures product DN for last seven years. The company maintains a margin of safety of 37.5%with an overall contribution to sales ratio of 40%. If fixed cost is Rs.5 lakh, the profit of the company is (@) Rs.12.50 lakh (b) Rs. 4.25 lakh (©) Rs. 3.00 lakh (@) Rs.24.00 lakh (©) Rs.20.00 lakh, Q15 Which of the following statements is true for a firm that uses variable costing? (a) Profits fluctuate with sales (b) An idle facility variation is calculated (©) Product costs include variable administrative costs (@) Product costs include variable selling costs (e)The cost of a unit of product changes because of changes in number of units manufactured. Q16 If the price rises, which of the following methods of valuing stock will give the highest profit? (@) LIFO method (b) Replacement cost method (c) FIFO method @ Simple average method (©) Specific order method. QI7 An accounting system that collects financial and operating data on the basis of underlying nature and extent to the costdrivers is @) Direct costing (b) Target costing (c) Activity based costing @) Variable costing (©) Cycle-time costing. QI8 In allocating factory service department costs to producing departments, which of the following items would most likely be used as an activity base? {@) Salary of service department employees (b) Units of electric power consumed (©) Direct materials usage (@) Units of finished goods shipped to customers (€) Units of product sold. Q19 Apportionment of overhead cost may be defined as (@) Charge to a cost center of an overhead cost item with no estimation. (b) Charge to cost center for the use of an overhead cost (©) Charge to cost units for the use of an overhead cost @) Classification of overhead cost as fixed or variable (©) Charge each cost center with a share of an overhead cost using an apportionment basis. to estimate the benefit extracted by each cost center.20 An increase in variable costs where selling price and fixed cost remain constant will result in which of the following? (@) An increase in margin of safety (b) No change in margin of safety (©)A fall in the sales level at which break even point will occur (@) A tise in the sales level at which break even point will occur (©) No change in the sales level at which break even point will occur. Q21 Which of the following is a cause of materials usage variance? (@) Emergency buying in smaller quantities (b) Carriage, freight and other charges absorbed instead of being charged to suppliers (©) Cash discount not taken (@) Rectification required when many components do not pass through inspection (©) Claims not made on suppliers for substandard materials or short receipt of materials. Q22 The following are the causes of labour efficiency variance except (@) Bad working condition (b) Defective tools, equipment and materials (©) Defective supervision (@) Bad workmanship due to dissatisfaction among the workers (©) Employing people of different grades than planned. 23 Which of the following transfer pricing methods will preserve the sub-unit autonomy? (@) Cost-based pricing () Negotiated pricing (©) Vatiable-cost pricing @) Full-cost pricing (©) Marginal cost pricing. Q24 The most fundamental responsibility center affected by the use of market-based transfer prices is, (@) Revenue center (b) Cost center (c) Profit center @) Investment center (€) Production center. Q25 Target pricing (a) Is a pricing strategy used to create competitive advantage (b) Considers the variable costs and excludes fixed costs (©) Is often used when costs are difficult to control (@) Is more appropriate when applied to mature and long-established products (e) Is well suited for complex products that require many sub-assemblies. Q26 A segment of an organization is referred to as a profit center if it has (a) Responsibility for developing markets and selling the output of the organization (b) Responsibility for combining materials, labor and other factors of production into a final output (©) Authority to provide specialized support to other units within the organization (@) Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply (©) Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply and significant control over the amount of invested capital.Q27 Which of the following is false about standard costing system? @) It is based on a cost control concept (b) It assumes stability in the current manufacturing process (©) The goal is to meet cost performance standards (@) It assumes production workers have the best knowledge to reduce costs (©) It motivates employees to try to reach target established. 28 Which of the following service departments’ costs is apportioned on the basis of rate of labor turnover? (@) Payroll department (b) Personnel department (c) Canteen service (@) Store-keeping department (e) Maintenance department. 29 Which of the following bases is appropriate to apportion the cost incurred on supervision of machine? (@) Floor area occupied by each machine (b) Equitable basis (©) Value of each machine (@) On the basis of past experience (©) Estimated time devoted. 30 Which of the following bases is used for apportionment of overtime premium of workers engaged in a particular department? (a) Direct allocation (b) Direct labor hours (©) Number of workers @) Technical estimates (©) Relative areas of departments. Q31 The rate used in addition to the original rates for ascertaining the true profit for adjusting the under or over absorption of overheads is known as (@) Predetermined rate (b) Blanket rate (c) Moving average rate (@) Supplementary overhead rate (©) Multiple overhead rate. Q32 Any activity for which a separate measurement of costs is desired is known as (@) Cost unit (b) Cost center (©) Cost object @) Cost pool (©) Cost allocation. Q33 Which of the following is true regarding the difference between marginal costing and absorption costing? (@Under marginal costing, fixed costs are treated as product costs while it is excluded under absorption costing (b)Under absorption costing, under absorption or over absorption of overhead occurs but it does not occur under marginal costing (©\The net income under absorption costing is always more than the net income under marginal costing, (@If production is equal to sales, net income under absorption costing is greater than net income under marginal costing(©n case of decreased inventory, the net income under marginal costing is less than the net income under absorption costing, Q34 Which of the following statements is false? (@) The aggregate of indirect material, indirect wages and indirect expenses is overhead costs (b)Direct costs are never treated as overhead costs even in cases where efforts involved in identifying and accounting are disproportionately large (c)The ovetheads can be apportioned to a cost center in accordance with the principles of benefit and/or responsibilities @) Capital expenditure should be excluded from costs and should not be treated as overhead, (e) Expenditure that does not relate to production shall not be treated as overhead. Q35 An increase in variable costs where selling price and fixed cost remain constant will result in which of the following? (@) An increase in margin of safety (b) A fall in the sales level at which break even point will occur (©) A tise in the sales level at which break even point will occur (@) No change in the sales level at which break even point will occur (No change in angle of incidence. Q36 Which of the following statements is true for a firm that uses variable costing? (@) Product costs include variable selling costs (b) An idle facility variation is calculated (©) The cost of a unit of product changes because of changes in number of units manufactured @) Profits fluctuate with sales (©) Product costs include variable administrative costs. Q37 Which of the following can improve break-even point? ) Increase in variable cost () Increase in fixed cost (c) Increase in sale price @) Increase in sales volume (e) Increase in production volume. 38 Which of the following statements is/are true? 1. A cost unit is a unit of output in the production of which costs are incurred. IL A cost center is the smallest segment of activity or area of responsibility for which costs are accumulated. IIL. Typically departments are cost centers and there may be many departments in a cost center. (@) Only (1) above (b) Only (11) above (c) Both (1) and (ID) above (@) Both (1) and (I) above (©) Both (II) and (II) above. Q39 The Rowan Plan a) Is the best for efficient workers b) Pays lower bonus that that of Halsey beyond 50% saving in time. ©) Pays increased bonus at an increasing rate as the efficiency 4) None of the aboveQ40 A written request to a supplier for specified goods at an agreed upon price is called a a) Receiving Report b) Purchase order ¢) Material requisition form d) Purchase requisition a