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(a) Only (I) above (b) Both (I) and (IV) above
(c) Both (I) and (II) above (d) Only (IV) above
(e) (I), (II) and (III) above.
(1 mark)
17. Baisakhi Ltd. has 3 production departments – P1, P2 and P3 and 2 service departments – S1 and S2. The <
Answer
company has furnished the following overhead costs of production departments as well as service
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departments:
Department Overhead costs(Rs.)
P1 13,600
P2 14,700
P3 12,800
S1 9,000
S2 3,000 The company has provided the following expenses of service
departments which are charged to production as well as service departments on a percentage basis:
Department P1 P2 P3 S1 S2
S1 40% 30% 20% - 10%
S2 30% 30% 20% 20% - The total expense of P2 is
(a) Rs.18,712 (b) Rs.18,833 (c) Rs.15,555 (d) Rs.16,721 (e) Rs.15,833.
(2 marks)
18. Generally, individual departmental rates rather than a plantwide rate for applying overhead would be <
Answer
used, if
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(a) A company wants to adopt a standard costing system
(b) A company wants to adopt a direct costing system
(c) The manufactured products differ in the resources consumed from the individual departments in the
plant
(d) Manufacturing overhead is the largest cost component of its product cost
(e) The manufacturing operations of a company are all highly automated.
(1 mark)
19. Which of the following is not related to selling and distribution overhead cost? <
Answer
(a) Showroom rent and rates >
(b) Depreciation on goods delivery mini-truck
(c) Sample goods and other free gifts
(d) Debt collection expenses
(e) Charitable and political donations.
(1 mark)
20. Air Purifier Ltd. uses process cost system to manufacture Dust Density Sensors for the mining industry. <
Answer
The following pertains to operations for the month of September 2004:
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Particulars Units
Opening work-in-process (September 01, 2004) 450
Introduced in production during September 2004 4,100
Closing work-in-process (September 30, 2004) 520 There is no loss in the manufacturing
process. The opening inventory was 80% complete for materials and 60% complete for conversion costs.
The closing inventory was 75% complete for materials and 65% complete for conversion costs.
Costs pertaining to the month of September 2004 are as follows:
Opening work in process:
Materials Rs. 6,850
Conversion Rs. 4,350
During the month:
Materials Rs.71,050
Conversion Rs.57,372 The total cost of closing work-in-process as on September
30, 2004, using FIFO method, is
(a) Rs.10,708.62 (b) Rs.11,649.63 (c) Rs.12,573 (d) Rs.11,557.00
(e) Rs.12,443.00.
(2 marks)
21. The yield of a certain process is 80%, the by-product is 16% and normal loss is 4% of its main product. <
Answer
5,000 units of materials are put in process and its cost is Rs.24.80 per unit and other expenses amounted
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to Rs.15,150, 40% of which was accounted for by power cost. It is the practice of the company that the
power cost is chargeable to the main-product and the by-product in the ratio of 3:2. The cost of the by-
product is
(a) Rs.24,606 (b) Rs.55,660 (c) Rs.26,727 (d) Rs.22,264 (e) Rs.23,718.
(2 marks)
22. Shivam Chemicals Ltd. runs its boiler on furnace oil obtained from Indian Oil and Bharat Petroleum, <
whose depots are situated at a distance of 10 km and 8 km from the factory site of the company. Answer
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Transportation of furnace oil is made by the company’s own tank lorries of 5 tons capacity each. Onward
trips are made only on full load and the lorries return empty. The filling-in time takes an average of 50
minutes for Indian Oil and 45 minutes for Bharat Petroleum. The emptying time in the factory is only 45
minutes for both. From the records available, it is seen that the average speed of the company’s lorries
work out to 40 km per hour. The variable operating charges per km is Rs.2.20 and fixed charges per hour
of operation is Rs.13.20.
The cost per ton-mile from Bharat Petroleum is
(a) Rs.1.36 (b) Rs.1.43 (c) Rs.1.51 (d) Re.0.72 (e) Re.0.75.
(2 marks)
23. ABC Constructions Ltd. has taken two contracts on April 01, 2003. The position of the contracts as on <
March 31, 2004 is as follows: Answer
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Particulars Contract A (Rs.) Contract B (Rs.)
Contract price 54,00,000 1,20,00,000
Materials 11,60,000 21,60,000
Wages paid 22,48,000 33,00,000
Other expenses 56,000 1,20,000
Plant at site 3,20,000 6,00,000
Unused materials at site 80,000 1,20,000
Wages accrued 72,000 1,08,000
Other expenses due 8,000 18,000
Work certified 32,00,000 60,00,000
Cash received 24,00,000 45,00,000
Work completed but not yet certified 1,60,000 1,80,000 The plant at
site is to be depreciated at 12% per annum.
The values of work in progress of each contract respectively are
(a) Rs.9,60,000 and Rs.14,19,000 (b) Rs.8,00,000 and Rs.12,33,000
(c) Rs.9,60,000 and Rs.11,58,000 (d) Rs.8,00,000 and Rs.14,19,000
(e) Rs.11,58,000 and Rs.14,19,000.
(2 marks)
24. Consider the following data of a company: <
Answer
Material Purchased - Rs.170,000. There was no beginning inventory. >
Direct labor incurred - 400 hours at the rate of Rs.10 per hour.
Budgeted labour hours - 430
Budgeted overhead cost - Rs.6,450
Units started - 20,000 units
Units completed - 15,000 units
Actual overheads - Rs.6,200
Ending Inventory - 60% complete.
The value of ending inventory is
(a) Rs.50,000 (b) Rs.30,000 (c) Rs.20,000 (d) Rs. 5,000 (e) Rs.25,000.
(2 marks)
25. Retention monies are best defined as <
Answer
(a) Cash returned to contractee, if actual profits on a contract are 20% higher than negotiated amount >
(b) Cash returned to contractee, if actual profits on a contract are 25% higher than negotiated amount
(c) Cash withheld by the contractee, under the terms of contract when payments of the value certified
are being made
(d) Cash withheld by the contractee, in order to improve the cash flow of the contractor
(e) Payments to the contractor, where it is desired to secure his service for a future contract.
(1 mark)
26. Arrow Ltd. manufactures a product and furnishes the following costs structure of the product: <
Answer
Variable manufacturing cost – Rs.16 per unit >
Fixed manufacturing cost – Rs.4,00,000 per annum
The normal production capacity of the company is set at 20,000 units.
The information relating to production and sales for two years is given below:
Year Production Sales
1 22,000 units 19,000 units
2 18,000 units 20,000 units During these period, the sale price was Rs.50 per unit.
The incomes under absorption costing for 1st year and under marginal costing for 2nd year are
(a) Rs.3,06,000 and Rs.2,80,000 respectively
(b) Rs.3,06,000 and Rs.2,46,000 respectively
(c) Rs.2,46,000 and Rs.2,80,000 respectively
(d) Rs.2,46,000 and Rs.2,40,000 respectively
(e) Rs.2,66,000 and Rs.2,80,000 respectively.
(2 marks)
27. Consider the following data pertaining to a process account for the month of September 2004: <
Answer
Opening work-in-process (Material – 70% complete) –– 600 units >
Closing work-in-process (Material – 70% complete) –– 700 units
Materials introduced –– 4,000 units
The equivalent completed units of material in the process, under LIFO method, is
(a) 4,390 (b) 4,320 (c) 4,210 (d) 4,050 (e) 3,970.
(2 marks)
28. Aditya Ltd., using process costing, manufactures a single product, which passes through two processes – <
Answer
process 1 and process 2, the output of process 1 becoming the input to process 2. The company has
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furnished the following information relating to the product for the month of September 2004:
i) Raw material issued to process 1 was 3,000 units at a cost of Rs.5 per unit.
ii) There was no opening or closing work-in-progress but opening and closing stocks of finished goods
were Rs.20,000 and Rs.23,000 respectively.
iii) Normal losses and abnormal losses are defective units having a scrap value and cash is received at
the end of the period for all such units.
Other information:
Particulars Process 1 Process 2
Normal loss as a percentage of input 10% 5%
Output in units 2,800 2,600
Scrap value per unit (Rs.) 2 5
Additional components introduced (Rs.) 1,000 780
Direct wages incurred (Rs.) 4,000 6,000
Direct expenses incurred (Rs.) 10,000 14,000
Production overhead as a % of direct wages 75 125 The cost
of goods sold of the product for the month of September 2004 is
(a) Rs.59,800 (b) Rs.56,800 (c) Rs.62,800 (d) Rs.64,880 (e) Rs.60,880.
(2 marks)
29. Marphy Company manufactures radios, which are sold at Rs.1,600 per unit. The total cost consists of <
30% for direct materials, 40% for direct wages and 30% for overheads. An increase in material price by Answer
30% and in wage rates by 10% is expected in the forthcoming year, as a result of which, the profit at >
current selling price may decrease by 40% of the present profit per unit. The future selling price to
maintain same profit percentage is
(a) Rs.1,756 (b) Rs.1,365 (c) Rs.1,808 (d) Rs.2,021 (e) Rs.1,703.
(2 marks)
30. Which of the following is/are the best explanation of the relevance of equivalent production units in <
process costing? Answer
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(a) A means of equalizing production charged into stock of each period
(b) A means by which the output achieved may be compared with the equivalent quantity budgeted for
the period under review
(c) The conversion of partly completed units into an equivalent number of completed units in order that
costs may be shared on an equitable basis
(d) The expression of losses in terms of an equivalent units of good production in order that their value
may be calculated
(e) Both (c) and (d) above.
(1 mark)
31. The cost data pertaining to Product “X” of XL Ltd. are as follows: <
Answer
Maximum capacity 30,000 units >
Normal capacity 15,000 units
Increase in inventory 1,880 units
Variable cost per unit Rs.12
Selling price per unit Rs.50
Fixed manufacturing overhead costs Rs.3,60,000 If the profit under Absorption
costing method is Rs.1,01,000, the profit under Marginal costing method would be
(a) Rs.1,46,120 (b) Rs.1,23,560 (c) Rs. 78,440 (d) Rs. 55,880 (e) Rs. 73,340.
(1 mark)
32. If the information related to joint cost is available to use any allocation method, the preferred method for <
allocation is the Answer
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(a) Physical measure (b) Sales value at split off
(c) Net realizable value (d) Constant gross-margin percentage on net realisation value
(e) Sale price per unit at split-off point.
(1 mark)
33. Cost of idle time arising due to non-availibility of raw-materials should be <
Answer
(a) Charged to costing profit & loss account (b) Charged to factory overheads
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(c) Recovered by inflating the wage rates (d) Charged to indirect labor cost
(e) Charged to direct labor cost.
(1 mark)
34. Which of the following is/are true regarding transport costing? <
Answer
I. The costs of a transport company includes publicity costs >
II. Operating costs and running costs are the costs which vary more or less in direct proportion to
the distance traveled
III. Semi-variable costs are incurred in the form of tyre maintenance, paintings etc
IV. Insurance of the vehicle can be considered as running cost
(a) Rs.381.75 (b) Rs.427.53 (c) Rs.347.71 (d) Rs.433.80 (e) Rs.409.53
(2 marks)
38. Which of the following is true regarding contract costing? <
Answer
(a) Both work certified and work uncertified are valued at cost price >
(b) Both work certified and work uncertified are valued at market price
(c) Both work certified and work uncertified are valued at contract price
(d) Work certified is valued at contract price whereas work uncertified is valued at cost price
(e) Work certified is valued at cost price whereas work uncertified is valued at market price.
(1 mark)
39. Cost of material used is equal to <
Answer
(a) Cost of goods manufactured + Closing WIP – Opening WIP – Direct labour – Factory overhead >
(b) Cost of goods manufactured – Closing WIP + Opening WIP + Direct labour – Factory overhead
(c) Cost of goods manufactured – Closing WIP + Opening WIP + Direct labour + Factory overhead
(d) Cost of goods manufactured + Closing WIP – Opening WIP + Direct labour – Factory overhead
(e) Cost of goods manufactured – Closing WIP + Opening WIP – Direct labour + Factory overhead.
(1 mark)
40. Products of relatively small total value that are produced simultaneously from a common manufacturing <
Answer
process along with products of greater value and quantity are
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(a) Scrap (b) By-products (c) Spoilage (d) Waste (e) Defective.
(1 mark)
41. Which of the following methods of costing considers both the variable and fixed costs as part of product <
Answer
costs?
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(a) Direct costing (b) Marginal costing (c) Absorption costing
(d) Standard costing (e) Uniform costing.
(1 mark)
42. ABC Ltd. has furnished the following data pertaining to the process of Chemical C for the month of <
Answer
September 2004:
Input 1,500 kg. >
Output 1,400 kg.
Normal loss 10% of input
Sale value of normal loss as scrap Rs.2.80 per kg.
Cost of input to the process Rs.8,520 The cost of abnormal loss /gain shown in the
process account is
(a) Rs.318 (loss) (b) Rs.300 (gain) (c) Rs.270 (loss)(d) Rs.318 (gain)
(e) Rs.300 (loss).
(2 marks)
43. Which of the following costs is not deducted from sales revenue in computation of contribution margin? <
Answer
(a) Direct materials (b) Direct labor (c) Fixed factory overheads >
(d) Variable factory overheads (e) Variable selling overheads.
(1 mark)
44. Cost-volume-profit analysis is most important for the determination of <
Answer
(a) Volume of operations necessary to break-even >
(b) Variable revenues necessary to equal fixed costs
(c) Sales revenue necessary to equal fixed costs
(d) Relationship between revenues and costs at various levels of operations
(e) Sales revenue necessary to equal total costs.
(1 mark)
45. A company has three factories situated in North, East and South with its head office in Hyderabad. The <
Answer
management has received the following summary report on the operations of each factory for a period:
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Region Actual sales Over/(under) budgeted Actual profit Over/(under) budgeted
(Rs.) sales (Rs.) (Rs.) profit (Rs.)
North 1,100 (400) 135 (180)
East 1,450 150 210 90
South 1,200 (200) 330 (110)
If the
variable cost ratio, fixed costs and sales mixes are as per the budget, the break-even sales in rupees of the
company as a whole is
(a) Rs.2,500 (b) Rs.1,500 (c) Rs.1,200 (d) Rs.1,750 (e) Rs.1,600.
(2 marks)
46. Consider the following information pertaining to Hyderabad Power Company for the year 2003-04: <
Answer
Total units generated 50,00,000 >
Operating labor cost Rs.2,40,000
Plant Supervision expenses Rs.1,20,000
Cost of lubricant and supplies Rs.1,60,000
Coal consumed per unit generated 1.5 kg
Cost of coal delivered to power station Rs.400 per ton
The total variable cost per unit of
generation is
(a) Re.1.000 (b) Re.0.704 (c) Re.0.680 (d) Re.0.600 (e) Re.0.500.
(1 mark)
47. Sai Plastics Ltd. manufactures plastic chairs. The company is working at 60% capacity level, which <
Answer
represents 4,800 chairs per month. The cost break-up per chair is as under: >
Materials – Rs.62
Labor – Rs.32
Overheads – Rs.40 (60% fixed)
The selling price is Rs.180 per chair. The company is planning to produce at 80% capacity level. At 80%
capacity level, the selling price falls by 5% accompanied by a similar fall in the price of materials.
The break-even point in units and profit at proposed level for the company are
(a) 1,646 units and Rs.2,95,040 respectively
(b) 1,798 units and Rs.2,56,640 respectively
(c) 1,646 units and Rs.2,56,640 respectively
(d) 1,798 units and Rs.2,95,040 respectively
(e) 1,798 units and Rs.2,20,800 respectively.
(2 marks)
48. Which of the following statements is true with respect to Absorption costing and Variable costing? <
Answer
(a) Overhead costs are treated in the same manner under both the costing methods >
(b) Variable manufacturing costs are lower under variable costing
(c) Fixed manufacturing costs are treated in the same manner under both the costing methods
(d) If finished goods inventory increases, variable costing results in lower income
(e) Gross margins are the same under both the costing methods.
(1 mark)
49. One of the major assumptions limiting the reliability of break-even analysis is that the <
Answer
(a) Efficiency and productivity will continually increase >
(b) Total variable costs will remain unchanged over the relevant range
(c) Cost of production factors varies with changes in technology
(d) Selling price of products will decrease as more units are produced and made available
(e) Total fixed costs will remain unchanged over the relevant range.
(1 mark)
50. JIT Ltd. has a factory where four products are manufactured in a common process. During September <
2004, the costs of the common process were Rs.1,60,000. The data pertaining to four products is as Answer
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follows:
Product Production Sales Sales value per unit
A 600 units – –
B 400 units – –
C 500 units 400 units Rs. 70
D 600 units 450 units Rs.100 Products A and B are further
processed to make finished products X and Y respectively. The data relating to Products X and Y is
given below.
Product Production Sales Cost of further processing Sales value per unit
X 600 units 600 units Rs.10,000 Rs.100
Y 400 units 300 units Rs.25,000 Rs.200
There was no opening stock. Company uses sales value at split off point as basis for apportionment
of common costs.
The profits of product Y and product C are
(a) Rs.8,250 and Rs.10,000 respectively (b) Rs.8,250 and Rs.5,600 respectively
(c) Rs.8,250 and Rs.9,000 respectively (d) Rs.9,000 and Rs.5,600 respectively
(e) Rs.10,000 and Rs.5,600 respectively.
(2 marks)
51. Bharti Ltd. has furnished the following data pertaining to manufacturing operations for the month of <
Answer
September 2004:
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Particulars Rs.
Raw materials (September 1,2004) 6,000
Direct labor cost 25,000 (125% of factory overhead )
Work-in-progress (September 1,2004) 7,000
Finished goods (September 1,2004) 12,000
Cost of goods sold 88,000
Selling expenses 8,500
Raw materials (September 30,2004) 6,800
Work-in-progress (September 30,2004) 6,500
Finished goods (September 30,2004) 12,800
Sales for the month 1,12,500 The
materials purchased and profit earned by the company for the month of September 2004 are
(a) Rs.43,500 and Rs.24,500 respectively (b) Rs.42,500 and Rs.16,000 respectively
(c) Rs.43,300 and Rs.16,000 respectively (d) Rs.44,100 and Rs.16,000 respectively
(e) Rs.44,100 and Rs.24,500 respectively.
(2 marks)
52. Two manufacturing companies – AB Ltd and XY Ltd. have decided to merge their business operations. <
Answer
They have furnished the following operation details:
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Particulars AB Ltd XY Ltd
Capacity utilization (%) 90 60
Sales (Rs. in lacs) 540 300
Variable costs (Rs. in lacs) 396 225
Fixed costs (Rs. in lacs) 80 50 The profitability of the merged plant at 80%
capacity level is
(a) 20.25% (b) 18.95% (c) 15.75% (d) 14.45% (e) 11.14%.
(2 marks)
53. XLNT Ltd. has furnished the following information pertaining to the forthcoming year: <
Answer
Budgeted Variable costs – 60% of sales value >
Budgeted Fixed costs – 20% of sales value If the company increases the selling price
by 10% but the fixed costs, variable cost per unit and sales volume remain unchanged, the effect on
contribution would be
(a) An increase of 10% (b) A decrease of 10% (c) An increase of 20%
(d) A decrease of 20% (e) An increase of 25%.
(1 mark)
54. Quadila Ltd. has furnished the following information pertaining to its product for the period ended <
Answer
September 30,2004:
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Selling price per unit Rs.80
Variable cost per unit Rs.35
Fixed cost Rs.5,96,000 The company plans to improve the quality of its sole product by
i. Replacing a component that costs Rs.6.25 with a higher-grade unit that costs Rs.8.00.
ii. Acquiring a packing machine of Rs.80,000.
The company will depreciate the machine over a period of 10 years with no estimated salvage value by
the Straight Line Method of depreciation. The income tax rate is 40%. If the company desires to earn a
post-tax profit of 10% on sales in the next period, the units to be sold by the company in the next period
are
(a) 16,560 (b) 18,104 (c) 16,375 (d) 18,289 (e) 20,190.
(2 marks)
55. Sams Ltd. manufactures and sells two products – M and N. The following data are estimated for the <
Answer
quarter ending September 30, 2004 .
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Product Product
Particulars
M N
Sales (Units) 80,000 1,20,000
Sale price per unit (Rs.) 20 16
Variable cost per unit (Rs.) 12 10 The annual fixed costs are
estimated at Rs.8,16,000. The break-even point in sales value with the current sales mix is
(a) Rs.24,00,000 (b) Rs.21,12,000 (c) Rs.19,20,000 (d) Rs.14,40,000
(e) Rs. 9,60,000.
(2 marks)
56. Consider the following data pertaining to a product of Megha Sai Ltd. for the month of September 2004 <
Answer
Fixed Costs – Rs.2,43,000 >
Net Profit – Rs.81,000
Net profit on sales – 10%. The margin of safety of the product for the month was
(a) Rs.5,00,000 (b) Rs.4,00,000 (c) Rs.3,00,000 (d) Rs.2,60,000
(e) Rs.2,02,500.
(1 mark)
57. ACD Ltd. has been approached by a foreign customer who wants to place an order for 1,500 units of <
Answer
Product C at Rs.22.50 a unit although the company currently sells this item for Rs.39 a unit, and the item
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has a cost of Rs.29 per unit. Further analysis reveals that the company will not pay sales commission of
Rs.2.50 a unit on these sales and its packaging requirement will save an additional amount of Rs.1.50 per
unit. However, the additional graphics required on this job will cost Rs.3,000. The fixed costs amounting
to Rs.4,00,000 for the production of 50,000 units of such products by the company will not change.
Accepting this job by the company will
(a) Increase profit by Rs.1,950 (b) Increase profit by Rs.6,750
(c) Increase profit by Rs.5,250 (d) Decrease profit by Rs.5,250
(e) Decrease profit by Rs.1,950.
(1 mark)
58. Ponchu Das Pvt.Ltd. of Kolkata is currently operating at 80% capacity. The following is the income <
Answer
statement furnished by the company:
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Particulars Rs. in lakh Rs. in lakh
Sales 640
Cost of sales:
Direct materials 200
Direct expenses 80
Variable overheads 40
Fixed overheads 260
Total cost 580
Net income 60 The Managing Director has been
discussing an offer from Middle East of a quantity, which will require 50% capacity of the factory. The
price is 10% less than the current price in the local market. Order cannot be split. The capacity of factory
can be augmented by 10% by adding facilities at an increase of Rs.40 lakh in fixed cost. If the proposal is
accepted with the increased facilities, the profit will be increased by
(a) Rs.50 lakh (b) Rs.40 lakh (c) Rs.60 lakh (d) Rs.25 lakh (e) Rs.35 lakh.
(2 marks)
59. PQR Ltd. manufactures three components – P, Q, and R. The company has furnished the following <
Answer
information pertaining to the cost per unit of three products:
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Particulars P (Rs.) Q (Rs.) R (Rs.)
Fixed cost 7.00 5.00 4.50
Variable cost 8.00 6.00 6.00
Total cost 15.00 11.00 10.50 Alwin Company has offered to supply the
components to PQR Ltd at the following prices:
P – Rs. 10.00 per unit
Q – Rs. 5.00 per unit
R – Rs. 7.50 per unit
Which of the following decisions should be considered by PQR Ltd.?
(a) Make all the three components
(b) Buy all the three components
(c) Make component P and buy components Q & R
(d) Make components P & Q and buy component R
(e) Make components P & R and buy component Q.
(1 mark)
60. MNR Ltd. has furnished the following information for two years: <
Answer
Particulars 2002-03 (Rs.) 2003-04 (Rs.) >
Sales 8,00,000 ?
P/V Ratio 50 % 37.5%
Margin of safety as % of Sales 40 21.87 There has
been substantial saving in the fixed cost for the year 2003-04 due to restructuring of process. The
company’s sales quantities of both the years are same. Selling price for the year 2003-04 is reduced.
The fixed cost for the year 2003-04 is
(a) Rs.1,92,000 (b) Rs.1,87,500 (c) Rs.1,60,000 (d) Rs.1,20,000 (e) Rs.1,45,500.
(2 marks)
61. Bhavani Ltd.is operating at 80% capacity has a sales value of Rs.8,00,000 at Rs.25 per unit. The cost data <
Answer
are as under:
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Material cost Rs.7.50 per unit. Labour Rs.6.25 per unit. Semi variable cost (including variable cost of
Rs.3.75 per unit) Rs.1,80,000. Fixed cost Rs1,90,000 up to 80% level of output, beyond this an additional
cost of Rs.20,000 will be incurred. The activity level at break even point is
(a) 82.5% (b) 83% (c) 79% (d) 90% (e) 92%.
(2 marks)
62. The comparative profit statement of two quarters is as below: <
Answer
Particulars 1st quarter 2nd quarter >
Units sold 2,500 3,750
Direct Material (Rs.) 87,500 ?
Direct wages (Rs.) 62,500 ?
Fixed and variable factory overheads (Rs.) 75,000 95,000
Sales (Rs.) 2,75,000 ?
Profit (Rs.) 50,000 40,000 In 2nd
quarter, direct material price has increased by 20%. There was a saving of Rs.5,000 in fixed overhead in
the second quarter. The other costs remained same. The quantity that should have been sold in the second
quarter to maintain the profit of 1st quarter is
(a) 5,125 units (b) 4,705 units (c) 4,020 units (d) 5,200 units (e) 4,375 units.
(2 marks)
63. A company has an opening stock of 6,000 units of finished goods. The production planned for the current <
period is 24,000 units and expected sales for the current period is 28,000 units .The selling price per unit Answer
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is Rs.10. The variable cost per unit in this period is Rs.6 per unit but in previous period it was Rs.5 per
unit. If the fixed cost for the current period is Rs.86,000,then the break even point for the current period
using First in first out basis, is
(a) 17,917 units (b) 28,572 units (c) 14,000 units (d) 20,000 units (e) 23,125 units.
(2 marks)
64. Hotel Paradise has annual fixed cost of Rs.15,00,000 for a 300 room hotel with an average daily room <
Answer
rent of Rs.40 and average variable costs of Rs.6 per room rented .The hotel operates 365 days a year. The
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income tax rate is 30%. The occupancy ratio to make a profit of Rs.1,00,000 is
(a) 44.13% (b) 40.29% (c) 30.89% (d) 63.04% (e) 52.17%.
(2 marks)
65. Which of the following is false with respect to job costing? <
Answer
(a) It is very useful in cost plus contracts >
(b) It helps the management in minimizing the spoilage
(c) It facilitates control of costs
(d) It is expensive as it involves great deal of clerical work
(e) It provides a useful basis for making estimates for similar jobs in future.
(1 mark)
66. Which of the following statements is false? <
Answer
(a) In process costing, cost is accumulated according to processes or departments >
(b) In job costing, the basis of cost accumulation is job order or batch size
(c) In process costing, cost is accumulated on time basis
(d) In job costing, cost is computed at the end of the cost period
(e) In process costing, items of prime cost cannot be traced with a particular order due to continuous
production.
(1 mark)
67. If the amount of wastage in a manufacturing process is abnormal, it should be classified as <
Answer
(a) Deferred charge (b) Period cost (c) Product cost
(d) Joint cost (e) Discretionary cost. >
(1 mark)
68. Which of the following statements is true? <
Answer
(a) Escalation clause in a contract provides that contract price is fixed >
(b) In contract costing, credit is taken for the full amount of profit on complete portions of the
incomplete contract
(c) Work-in-progress certified and uncertified in a contract is valued at cost
(d) Salary of supervisor employed in a contract is an indirect cost
(e) Cost plus contract protects the contractor from the risk of market fluctuations in the prices of
material, labor and other elements.
(1 mark)
69. The way in which foreseeable losses estimated for a contract <
Answer
(a) Ignore until they are known to be accurate with reasonable certainty >
(b) Write off immediately that they are estimated
(c) Write off in the same proportion as any estimated profit are recognized
(d) Write off only if the work to which they relate is 50% completed
(e) Write off only if the work to which they relate is 80% completed.
(1 mark)
70. Delta Ltd. manufactures four products – P,Q,R & S, which emerge from a particular process of operation. <
The total cost of input for the year ended March 31, 2004 is Rs.2,80,000. The details of output, additional Answer
>
cost after split-off point and sales value of the products are as follows:
Additional processing cost Sales value after further process
Products Output (Kg.)
after split-off point (Rs.) (Rs.)
P 10,000 20,000 2,20,000
Q 3,000 20,000 1,15,000
R 6,000 17,000 1,05,000
S 4,000 50,000 1,70,000 If the
products are sold at split-off point without further processing, the sales value would have been:
Rs.1,90,000
Rs.1,00,000
Rs. 85,000
Rs.1,05,000 The maximum amount of profit of the company from the four products is
(a) Rs.3,15,000 (b) Rs.2,28,000 (c) Rs.2,23,000 (d) Rs.3,35,000 (e) Rs.2,43,000.
(2 marks)
71. Which of the following would not be used in developing a job order cost sheet? <
Answer
(a) Work ticket (b) Transferred-in cost >
(c) Time card (d) Materials requisition (e) Operation schedule.
(1 mark)
72. Which of the following can be said about job-order system, process costing system and hybrid system? <
Answer
(a) The type of product manufactured by a company does not influence the type of accounting system >
used
(b) The manufacturing process does not influence the type of accounting system used by a company
(c) The cost systems require the use of some form of cost averaging
(d) The managers rely upon the cost system to provide information based only upon actual costs
(e) The managers rely upon the cost system to provide information based only upon standard costs.
(1 mark)
Suggested Answers
Management Accounting – I (151) : October 2004
1. Answer : (b) <
TOP
Reason : The primary object of costing is to control cost. Cost reduction is not the primary object of costing. >
Similarly, estimation of sales price and preparation of financial statements are not the primary object of
costing. Therefore,(b) is correct.
2. Answer : (b) <
TO
Reason : The Purchasing Manager of Saibal Manufacturing would be an internal user of information that is P
concerned with production reports and estimates, where as the other individuals are all external to the >
company and would expect Financial Accounting information prepared in accordance with GAAP .
Therefore, (b) is correct.
3. Answer : (c) <
TO
Reason : A discretionary cost is characterized by uncertainty about the relationship of input (the cost) to output. It P
also tends to the subject of a periodic decision regarding the outlay to be made. Research, Advertisement >
and Public Relation are common examples. Thus the annual cost of plant service is discretionary because
of the difficulty of valuing the output. Other options are not correct.
4. Answer : (d) <
TO
Reason : The total of costs incurred in the operation of a business undertaking other than the cost of manufacturing P
and production is commercial cost >
b. Value of work-in-progress:
Contract A Contract
Particulars
(Rs.) B (Rs.)
Work certified 32,00,000 60,00,000
Work not certified 1,60,000 1,80,000
33,60,000 61,80,000
Less: Reserve –– 2,61,000
33,60,000 59,19,000
Less: Cash received 24,00,000 45,00,000
Work-in-Process 9,60,000 14,19,000
24 Answer: (b) <
TO
. Reason: Cost per equivalent unit of ending inventory = Rs.10.00 x 3,000 equivalent units in ending inventory = P
Rs.30,000. >
* Equivalent units 15,000 completed + 3,000 in ending inventory (60% x 5,000) = 18,000 equivalent units.
* Total cost = Material Rs.170,000 + labor 4,000 + applied overhead Rs. 6,000 (400 hours x Rs.15/hour).
= Rs.1,80,000
* Cost per unit = Rs.180,000/18,000 = Rs.10.00 per equivalent unit.
25 Answer : (c) <
TO
. Reason : Under the terms of the contract, if contractee retains cash at the time of payments of the value certified of P
work-in-progress, it is called Retention money. Other options are not correct. >
Workings: -
Rs.4,00,000
20,000 units
i. Fixed cost per unit (under normal capacity)= = Rs.20.
ii. Input-output analysis:
Particulars 1st Year units 2nd Year units
Opening stock – 3,000
Production 22,000 18,000
Total 22,000 21,000
Less closing stock 3,000 1,000
Sale 19,000 20,000
27 Answer : (e) <
TO
. Reason : Equivalent completed units under LIFO: P
Particulars Input (units) Output (units) >
Opening WIP 600 Units completed 3,900
Material introduced 4,000 Closing WIP 700
4,600 4,600
Particulars Output (units) Equivalent units of material
% Units
Units completed 3,900 100 3,900
Closing WIP
a. Opening WIP 600 –– ––
b. New units 100 70 70
4,600 3,970
28 Answer : (b) <
TO
. Reason : Normal loss in process 1 = 10% of 3,000 = 300 P
Output in process 1 = 2,800 units and raw material issued in process 1 = 3,000units >
Fixed cost:
North = Rs.1,100 x 45% - Rs.135 = Rs.360; East = Rs.1,450 x 60% - Rs.210 = Rs.660; South = Rs.1,200 x
55% - Rs.330 = Rs.330;
Total fixed cost = Rs.360 + Rs.660 + Rs.330 = Rs.1,350.
Total sales of 3 region = Rs.3,750; Total profit of 3 region = Rs.675
Therefore, Sales x contribution to sales ratio = fixed cost + profit
Rs.3,750 x contribution to sales ratio = Rs.1,350 + Rs.675
Contribution to sales ratio = Rs.2,025 / Rs.3,750 = 54%
Break-even sales = Rs.1,350 / 54% = Rs.2,500.
46 Answer : (c) <
TO
. Reason : P
Particulars Rs. >