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Uttar Pradesh
India 201303
ASSIGNMENTS
PROGRAM: BFIA
SEMESTER-II
Subject Name:
Study COUNTRY:
Roll Number (Reg. No.):
Student Name:
INSTRUCTIONS
a) Students are required to submit all three assignment sets.
ASSIGNMENT
Assignment A
Assignment B
Assignment C
DETAILS
Five Subjective Questions
Three Subjective Questions + Case Study
Objective or one line Questions
MARKS
10
10
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Assignment B
Assignment C
The ABC system began in 1981, whereas TC methods were designed and
developed between; 1870 1920. In the TC system, the cost objects and
used up resources are required to evaluate the cost whereas in the ABC
system the cost is dependent upon the activities used up by the cost
objects.
Activity Based Costing is accurate and preferred over the Traditional
Costing system. The ABC method is adopted when the overheads of the
company are high and there are large numbers of miscellaneous
products. Inaccuracy or errors are most unwanted and undesirable
because of the competitive rates set by the competitors in the market.
Due to this heavy and stiff competition, a highly reliable and accurate
method is required for the cost management.
Traditional Costing uses a single overhead pool and is not able to
calculate the true cost. The costs of the objects are allocated randomly
based upon the labor or machine hours etc. ABC costing includes
identifiable products parts or labor whereas TC arbitrarily accumulates
expenses, salaries, depreciations etc.
Smaller targeted costs that are built upon activities are calculated with
the help of the ABC system. The ABC system is advantageous since it
helps in simplifying the decision making process and it makes
management concepts become clear and target -oriented. It also helps in
evaluating performances and sets standards which can help the manager
to use this information for comparison purposes.
In the Traditional Costing System, the company determines the cost of
production after the products have been produced whereas in the target
or Activity Based Costing System, the value or cost of the product is
determined on the basis of customer feedback and pocket range. The
ABC system helps the company to determine whether to lower or raise
the activities cost to grab the consumers. The ABC system also helps in
keeping up with the competitors without sacrificing the quality and the
quantity of the products.
1) Traditional Costing is obsolete whereas Activity Based Costing is
used more by various target-oriented companies.
2) ABC methods help the company to identify the needs of keeping or
eliminating certain activities to add value to the products.
3) Traditional Costing methods focus on the structure rather than on
processes while ABC methods focus on the activities or processes
rather than on the structure.
4) ABC provides accurate costs whereas TC accumulates values
arbitrarily.
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Answer:
Cost classification is the process of grouping costs according to their
common characteristics. A suitable classification of costs is of vital
importance in order to identify the cost with cost centres or cost units.
Cost may be classified accounting to their nature, i.e., material, labour
and expenses and a number of other characteristics. The same cost
figures are classified according to different ways of costing depending
upon the purpose to be achieved and requirements of particular concern.
The important ways of classification are:
On the basis of Identity: According to this classification, the costs are
divided into there categories i.e., Materials, Labour and Expenses. There
can be further sub-classification of each element; for example, material
into raw material components, and spare parts, consumable stores,
packing material etc. This classification is important as it helps to find
total cost, how such total cost is constituted and valuation of work-inprogress.
On the basis of Function: Production, Administration, Selling &
Distribution are three important functions of a business concern. Taking
these functions into consideration, costs have been classified by:
a) Production or Manufacturing Cost: Manufacturing costs are
those costs which are incurred in the course of manufacture. It
includes cost of raw material, cost of labour, other direct cost and
factory indirect cost. Example of production or manufacturing
costs may be power, lighting, heating, rent, depreciation etc.
b) Office and Administration Cost: These costs are incurred for the
general administration of the enterprise. It includes office costs as
well as administration cost. For example, salary of office staff, rent
of office building, electricity charges, audit fee, printing and
stationeries etc.
c) Selling and Distribution Cost: It includes both selling cost as well
as distribution cost. Selling costs are those costs which are
incurred in connection with the selling of goods and services
Distribution costs are those costs which are incurred on despatch
of finished goods to the consumers. Example of selling and
distribution costs are: sales men salary, packing charges, carriage,
out ward, advertisement, ware house charges etc.
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a) Historical Cost: These costs are ascertained after they have been
incurred such costs are available only when the production of a
particular thing has already been done.
b) Pre-determined Cost: Pre-determined costs are estimated costs
which are set in advance on a scientific way. It becomes standard
cost and compared with the actual for adopting controlling
measures.
Q: 3).
What do
advantages.
you
mean
by
EOQ
analysis?
State
its
Answer:
Economic Order Quantity (EOQ) is the quantity of inventory to
purchase with each order to minimize inventory costs. It is that size of
the order which gives maximum economy in purchasing any material
and ultimately contributes towards maintaining the materials at the
optimum level and at the minimum cost. In other words, the EOQ is the
amount of inventory to be ordered at one time for purposes of minimizing
annual inventory cost.
The quantity to be ordered at a given time must be determined by
balancing two factors:
1) The cost of possessing or carrying materials.
2) The cost of acquiring or ordering materials.
Purchasing larger quantities may decrease the unit cost of acquisition,
but this saving may not be more than the cost of carrying materials in
stock for a long time and that is one of many inventory management
problems called order quantity problems, and the task is to determine
the optimum or economic order quantity (or economic lot size).
Assumptions of Economic Order Quantity models are:
1) Constant or uniform demand: The EOQ model assumes constant
demand, but it may vary from time to time. If demand is
stochastic, not known in advance the model must be modified with
the inclusion of a safety stock.
2) Constant unit price: The EOQ model is based on the assumption
that the purchase price is constant.
3) Constant carrying costs: Unit carrying costs may vary
substantially as the size of the inventory rises, perhaps decreasing
because of economies of scale or storage efficiency or increasing as
storage space runs out and new warehouses have to be rented.
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Q: 4).
What is idle time? What are the causes for idle time?
How should idle time wages be treated in cost Accounts?
Answer:
Idle time is Non-productive time (during which an employee is still paid)
of employees or machines, or both, due to work stoppage from any cause.
It is also called waiting time, allowed time, or downtime.
Generally idle time means that time for which the employer pays, but
from which he obtains no production. In Other words its the difference
between the time for which workers are paid and the time they actually
worked. So it is a loss to the organization. It can be minimized but,
cannot be controlled during idle time; the workers remain due and
contribute nothing towards production. It is the difference between
actual hour and actual hour worked. There are two types of idle times:
1) Normal idle time: The normal idle time is that idle time which
cannot be fully avoided but effective effort should be made to
reduce it.
2) Abnormal idle time: Abnormal idle time arises due to various
causes which can be avoided. Abnormal idle time can be avoided if
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11
12
SECTION B:
Three subjective questions + case study
Q: 1).
What is Job costing? How is it different from contract
costing? Explain.
Answer:
JOB COSTING: is a type of specific order costing where work is
undertaken as an identifiable unit and manufactured according to
customers specific requirement is known as Job Costing. Under job
costing method cost of an individual job or work order is ascertained
separately. Job costing is ideal where the products are dissimilar and
non-repetitive in nature. It is suitable for ship building, printing, interior
decoration and advertising industries.
The main objectives of job costing are to establish the profit or loss on
each job and to provide a valuation of WIP.
The main advantages of job costing are as follows:
Advantages
a) It provides detailed analysis of costs which enable the management
to determine the operating efficiency of the different factors of
production.
b) Profitability of a job can be known by following this method.
c) It provides a useful basis for making estimates for similar jobs in
the future.
d) It is very useful in cost plus contracts.
e) It facilitates comparison.
f) It helps the management in minimizing the spoilage.
Disadvantages
a) It is expensive as it involves great deal of clerical work.
b) It does not facilitate control of costs unless it is used with standard
costing.
DIFFERENCE BETWEEN JOB COSTING AND CONTRACT COSTING
Job costing and contract costing both are the methods of costing and
used when we receive specific order for performing any work. But after
this, there are many differences between job costing and contract costing
which we are explaining in four points.
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accounting?
Explain
the
Answer:
a) RESPONSIBILITY ACCOUNTING
Responsibility accounting is a management control system based on the
principles of delegating and locating responsibility. The authority is
delegated on responsibility centre and accounting for the responsibility
centre. Responsibility accounting is a system under which managers are
given decisions making authority and responsibility for each activity
occurring within a specific area of the company. Under this system,
managers are made responsible for the activities of segments. These
segments may be called departments, branches or divisions etc. one of
the uses of management accounting is managerial control. Among the
control techniques responsibility accounting has assumed considerable
significance. While the other control devices are applicable to the
organization as a whole, responsibility accounting represents a method of
measuring the performance of various divisions of an organization. The
term division with reference to responsibility accounting is used in
general sense to include any logical segment, component sub-component
of an organization. Defined in this way, it includes a decision, a
department, a branch office, a service centre, a product line, a channel of
distribution, for the operating performance it is separately identifiable
and measurable is somewhat of practical significance to management.
According to the Institute of Cost and Works Accountants of India
(ICWAI) Responsibility Accounting is a system of management accounting
under which accountability is established according to the responsibility
delegated to various levels of management and management information
and reporting system instituted to give adequate feed back in terms of
the delegated responsibility. Under this system divisions or units of an
organization under a specified authority in person are developed as
responsibility centers are evaluated individually for their performance.
b) RESPONSIBILITY CENTRE:
For control purposes, responsibility centers are generally categorized
into: Cost centers, Profit centers and Investment centers.
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17
CASE STUDY:
A retail dealer in garments is currently selling 24000 shirts annually. He
supplies the following details for the year ended 31 st December, 2007.
Rs
Selling Price per shirt
40
25
Fixed cost:
Staff salaries for the year
120000
80000
40000
As a cost accountant of the firm, you are required to answer the following
each part independently:(i)
(ii)
(iii)
Solution:
(i)
Breakeven point =
=
=
Fixed costs
Price Variable cost
240,000
40 25
16,000 Shirts or
Also
Breakeven point =
Fixed costs
Contribution per unit
240,000
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16,000 Shirts or
Margin of safety
(ii)
Assume that 20000 shirts were sold in a year. Find out the net
profit of the firm.
Net profit when 20,000 shirts are sold
Contributions (20,000 x Rs. 15)
Rs. 300,000
Rs. 240,000
Net Profit
Rs. 60,000
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(iii)
Rs. 2,55,000
Rs. 12
21,250 Shirts.
So, to earn net income of Rs. 15,000 the retail dealer must sell 21,250
shirts.
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Q: 3).
Which of the following best describes a fixed cost? A cost
which:
a)
b)
c)
d)
Q: 4).
A business's telephone bill should be classified into which
one of these categories?
a)
b)
c)
d)
Fixed cost
Stepped fixed cost
Semi-variable cost ().
Variable cost
Q: 5).
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)
b)
c)
d)
0.30
0.68
0.84
0.93 ().
Q: 6).
Which of the following is least likely to be an objective of cost
accounting system?
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a)
b)
c)
d)
Product Costing
Optimum Sale Mix determination
Maximization of profits
Sales Commission determination ().
Q: 7).
The classification of costs as either direct or indirect depends
upon
a)
b)
c)
d)
Q: 8).
Which of the following is false with regard to the
supplementary rate method for accounting of under or over
absorption of overheads?
a)
b)
c)
d)
e)
Q: 9).
Which of the following factors should not be taken into
consideration for determining the basis for applying overheads to
products?
a)
b)
c)
d)
e)
Q: 10).
a)
b)
c)
d)
e)
Adequacy
Convenience
Time factor
Seasonal fluctuation of overhead costs ().
Manual or machine work.
Storekeeping expenses are to be apportioned on the basis of
Floor area of the production departments
Direct labor hours of each product
Number of units manufactured of each product
Number of material requisitions ().
Sales price of each product.
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Rs.160 lakh
Rs.140 lakh
Rs.120 lakh ().
Rs.200 lakh
Rs.180 lakh
e)
Q: 15).
a)
b)
c)
d)
e)
Rs.12.50 lakh
Rs. 4.25 lakh
Rs. 3.00 lakh ().
Rs.24.00 lakh
Rs.20.00 lakh.
Q: 17). Which of the following statements is true for a firm that uses
variable costing?
a)
b)
c)
d)
e)
LIFO method
Replacement cost method
FIFO method ().
Simple average method
Specific order method.
a)
b)
c)
d)
e)
Direct costing
Target costing
Activity based costing ().
Variable costing
Cycle-time costing.
Cost-based pricing
Negotiated pricing ().
Variable-cost pricing
Full-cost pricing
Marginal cost pricing.
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Revenue center
Cost center
Profit center ().
Investment center
Production center.
All of the following statements are correct except that
Activity-based costing has been widely adopted in service
industries.
The objective of installing ABC in service firms is
different than it is in a manufacturing firm ().
A larger proportion of overhead costs are company-wide
costs in service industries.
The general approach to identifying activities and activity
cost pools is the same in a service company as in a
manufacturing company.
Banks.
Hospitals.
Telephone companies.
ABC has been useful in any of these industries ().
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costs
is
Payroll department
Personnel department ().
Canteen service
Store-keeping department
Maintenance department.
Predetermined rate
Blanket rate
Moving average rate
Supplementary overhead rate ().
Multiple overhead rate.
Cost unit
Cost center
Cost object ().
Cost pool
Cost allocation.
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Q: 34).
a)
b)
c)
d)
e)
Q: 36). Which of the following statements is true for a firm that uses
variable costing?
a)
b)
c)
d)
e)
Q: 37).
a)
b)
c)
d)
e)
Q: 38).
I.
II.
III.
a)
b)
c)
d)
e)
Q: 39).
a)
b)
c)
d)
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