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Amity Campus

Uttar Pradesh
India 201303

ASSIGNMENTS
PROGRAM: MFC
SEMESTER-II
Subject Name :
Study COUNTRY :
Roll Number (Reg.No.) :
Student Name :

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


c) All assignments are to be completed as typed in word/pdf.
d) All questions are required to be attempted.
e) 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 : _________________________________

( √ ) Tick mark in front of the assignments submitted


Assignment ‘A’ Assignment ‘B’ Assignment ‘C’
Cost Accounting

SECTION A:

Q1 What is cost accounting? What are its objectives?

A cost is the value of the economic resources used as a result of producing or doing the things costed. Note the
word “value”. In a majority of cases the value of the economic resources used is the amount of money spent in
acquiring or producing them, but this is not always so. For instance, if the market price of an article were £ at
the time of purchase and rose to £ è by the time of it was actually used in production, and then one could well
say that the cost is £ 7, since this is the value of the article used.
Some people would probably disagree with this view of cost, and would regard cost as simply what was paid for
an economic resource. Yet clearly in the foregoing example, if the article were sold in its unmanufactured state
for £ 6, then £ 5 as the cost means there would be £1 profit. But this not a valid measure of management’s
manufacturing performance (though it may be a good measure of their speculative performance). This simpler
concept of cost relates really to measuring excess of receipts over payments, that is, we are back to the financial
accounting concept of money as cash. In cost accounting one should, however, always bear in mind the ultimate
need to consider economic values for measuring economic performance rather than cash expenditure

Cost = usage x price


Cost has been defined as the value of economic resources used. Note that for each resource the value is always
made up of two components: the units of the resource used and the resource price per unit. Cost, therefore, can
be mathematically stated as:
Cost = usage x price
This means that costing involves ascertaining both a usage figure and a price figure. Students will find this
double component value arises throughout costing theory, and it is particularly significant in standard costing
and variance analysis.
It should, incidentally, be appreciated that in costing it is the economic resources used that are really important
– multiplying by price to give cost is only the conversion to the common denominator of money. Improvement
by management of economic performance hinges on the more economical use of resources or the substitution of
cheaper resources for more expensive resources.

Cost accounting is really that aspect of management accounting which is concerned with measuring the
economic performance of departments, methods and equipment and of measuring the value of the resources
consumed in producing goods and services. It involves accounting for costs, i.e. explaining how they arose, and
detailing where they went. Costing, on the other hand, involves indicating to managers the economic
consequences of carrying out, or having carried out, any specified activity.
Q2 Briefly explains the different ways of ‘classifying cost’.

Q3 What do you mean by ABC analysis? State its advantages.

The conventional view that overheads should be apportioned on the basis of benefit received has been adopted;
however, an alternative basis is the factor that has caused the cost. The more an activity (function, cost centre or
cost unit) causes an overhead, the more of the overhead cost, the more should be charged to it.
For example if activity x causes 50 % of overhead y then activity x should be charged 50 % of the overhead cost
of y. this approach to overhead apportionment is called ABC (Activity- Based Costing. And the activities that
cause the overheads are called drivers.

The essence of ABC involves:


a) Determining the activities which generate the cost
b) Allocating to these activities all the cost involved in undertaking them
c) Determining the cost driver for each activity
d) Computing cost driver rate per unit of activity
e) Charging each cost unit for its activity costs on the basis of the number of activity units involved in
producing the unity

To summarize, ABC embodies the principle of charging a cost as nearly as is possible to the activity that
generates it. The difficult part, of course, is identifying the cost-driver – a problem that calls for its solution a
sound understanding of the behavior of costs.
Q4 What is idle time? What are the causes for idle time? How should idle time wages be treated in cost
Accounts?

Q5 What is cost volume profit analysis? Explain.

CVP analysis examines the behavior of total revenues, total costs, and operating income as changes occur in the
output level, selling price, variable costs per unit or fixed cost.1

For example, managers need to know how profits will change as units of a product or services change. In this
regard they (managers) ask themselves if they should decide to produce more or less of a particular product or
service, change the mix of product, or change their sales price then what will happen to the cost or profit of their
businesses before taking a decision.

SECTIONB:

Q1 What is standard costing? How is it different from Historical costing?

Q2 What is flexible budget. Explain

Q3 What is responsibility Accounting. Explain the responsibility centers.

CASE STUDY:

A retail dealer in garments is currently selling 24000 shirts annually. He supplies the following details for the
year ended 31st December,2007.
Rs
Selling Price per shirt 40
Variable Cost per shirt 25

1
Cost accounting, Horngren, Foster Datar, 10 Edition, P 1to 24 of chapter 3.
Fixed cost:
staff salaries for the year 120000
General office cost for the year 80000
Advertising costs for the year 40000

As a cost accountant of the firm, you are required to answer the following each part independently:-
(i) Calculate the break-even point and margin of safety in sales revenue and no of shirts sold.
(ii) 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/-.
SECTION C

Q1 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 a direct 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
(c) Semi-variable 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
(c) £0.84
(d) £0.93

Q4 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
(d) Sales Commission determination

Q5 The classification of costs as either direct or indirect depends upon


(a) The timing of the cash outlay for the cost
(b) The cost object to which the cost is being related
(c) The behavior of the cost in response to volume changes
(d) 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?
(a) It facilitates the absorption of actual overhead for production
(b) Correction of costs through supplementary rates is necessary for maintaining data for
comparison
(c) The supplementary rate can be determined only after the end of the accounting period
(d) It requires a lot of clerical work
(e) 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
applyingoverheads to products?
(a) Adequacy
(b) Convenience
(c) Time factor
(d) Seasonal fluctuation of overhead costs
(e) 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
(d) Number of material requisitions
(e) Sales price of each product.

Q9 A company has a margin of safety of Rs.40 lakh and earns an annual profit of Rs.10 lakh. If the fixed costs
amount toRs.20 lakh, the annual sales will be
(a) Rs.160 lakh
(b) Rs.140 lakh
(c) Rs.120 lakh
(d)Rs.200 lakh
(e) Rs.180 lak

Q10 Which of the following statements is false with respect to the use of predetermined overhead absorption
rates?
(a) 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
(c) Product costs are not affected unnecessarily due to the vagaries of the calendar or
seasonal fluctuations
(d) 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
(e) 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.

Q11 In process costing, equivalent units, using first in first out (FIFO) are a measure of
(a) 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
(c) Work done in the department during the period
(d) 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


(a) 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
(d) Involves an analysis of avoidable costs
(e) Requires use of absorption costing.

Q13 Which of the following statements is false?


(a) Historical costs are useful solely for estimating costs that lie ahead
(b) Abnormal cost is controllable
(c) Conversion cost is the production cost minus direct material cost
(d) Administrative expenses are mostly fixed
(e) 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
(a) Rs.12.50 lakh
(b) Rs. 4.25 lakh
(c) Rs. 3.00 lakh
(d) Rs.24.00 lakh
(e) 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
(c) Product costs include variable administrative costs
(d) 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?
(a) LIFO method
(b) Replacement cost method
(c) FIFO method
(d) Simple average method
(e) Specific order method.

Q17 An accounting system that collects financial and operating data on the basis of underlying nature and
extent to the costdrivers is
(a) Direct costing
(b) Target costing
(c) Activity based costing
(d) Variable costing
(e) Cycle-time costing.

Q18 In allocating factory service department costs to producing departments, which of the following items
would mostlikely be used as an activity base?
(a) Salary of service department employees
(b) Units of electric power consumed
(c) Direct materials usage
(d) Units of finished goods shipped to customers
(e) Units of product sold.

Q19 Apportionment of overhead cost may be defined as


(a) 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
(c) Charge to cost units for the use of an overhead cost
(d) Classification of overhead cost as fixed or variable
(e) Charge each cost center with a share of an overhead cost using an apportionment basis
to estimate the benefit extracted by each cost center.

Q20 An increase in variable costs where selling price and fixed cost remain constant will result in which of the
following?
(a) An increase in margin of safety
(b) No change in margin of safety
(c) A fall in the sales level at which break even point will occur
(d) A rise in the sales level at which break even point will occur
(e) 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?


(a) Emergency buying in smaller quantities
(b) Carriage, freight and other charges absorbed instead of being charged to suppliers
(c) Cash discount not taken
(d) Rectification required when many components do not pass through inspection
(e) Claims not made on suppliers for substandard materials or short receipt of materials.

Q22 The following are the causes of labour efficiency variance except
(a) Bad working condition
(b) Defective tools, equipment and materials
(c) Defective supervision
(d) Bad workmanship due to dissatisfaction among the workers
(e) Employing people of different grades than planned.

Q23 Which of the following transfer pricing methods will preserve the sub-unit autonomy?
(a) Cost-based pricing
(b) Negotiated pricing
(c) Variable-cost pricing
(d) Full-cost pricing
(e) Marginal cost pricing.

Q24 The most fundamental responsibility center affected by the use of market-based transfer prices is
(a) Revenue center
(b) Cost center
(c) Profit center
(d) Investment center
(e) Production center.

Q25 Target pricing


(a) Is a pricing strategy used to create competitive advantage
(b) Considers the variable costs and excludes fixed costs
(c) Is often used when costs are difficult to control
(d) 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
(c) Authority to provide specialized support to other units within the organization
(d) Authority to make decisions affecting the major determinants of profit, including the power to choose its
markets and sources of supply
(e) 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?


(a) It is based on a cost control concept
(b) It assumes stability in the current manufacturing process
(c) The goal is to meet cost performance standards
(d) It assumes production workers have the best knowledge to reduce costs
(e) It motivates employees to try to reach target established.

Q28 Which of the following service departments’ costs is apportioned on the basis of rate of labor turnover?
(a) Payroll department
(b) Personnel department
(c) Canteen service
(d) Store-keeping department
(e) Maintenance department.

Q29 Which of the following bases is appropriate to apportion the cost incurred on supervision of machine?
(a) Floor area occupied by each machine
(b) Equitable basis
(c) Value of each machine
(d) On the basis of past experience
(e) Estimated time devoted.

Q30 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
(c) Number of workers
(d) Technical estimates
(e) 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
(a) Predetermined rate
(b) Blanket rate
(c) Moving average rate
(d) Supplementary overhead rate
(e) Multiple overhead rate.

Q32 Any activity for which a separate measurement of costs is desired is known as
(a) Cost unit
(b) Cost center
(c) Cost object
(d) Cost pool
(e) Cost allocation.

Q33 Which of the following is true regarding the difference between marginal costing and absorption costing?
(a)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
(c)The net income under absorption costing is always more than the net income under marginal costing
(d)If production is equal to sales, net income under absorption costing is greater than net income under marginal
costing
(e)In 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?


(a) 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 overheads can be apportioned to a cost center in accordance with the principles of benefit and/or
responsibilities
(d) 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?
(a) An increase in margin of safety
(b) A fall in the sales level at which break even point will occur
(c) A rise in the sales level at which break even point will occur
(d) No change in the sales level at which break even point will occur
(e)No change in angle of incidence.

Q36 Which of the following statements is true for a firm that uses variable costing?
(a) Product costs include variable selling costs
(b) An idle facility variation is calculated
(c) The cost of a unit of product changes because of changes in number of units manufactured
(d) Profits fluctuate with sales
(e) Product costs include variable administrative costs.

Q37 Which of the following can improve break-even point?


(a) Increase in variable cost
(b) Increase in fixed cost
(c) Increase in sale price
(d) Increase in sales volume
(e) Increase in production volume.

Q38 Which of the following statements is/are true?


I. A cost unit is a unit of output in the production of which costs are incurred.
II. A cost center is the smallest segment of activity or area of responsibility for which costs are accumulated.
III. Typically departments are cost centers and there may be many departments in a cost center.
(a) Only (I) above
(b) Only (II) above
(c) Both (I) and (III) above
(d) Both (I) and (II) above
(e) Both (II) and (III) 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.
(c) Pays increased bonus at an increasing rate as the efficiency
(d) 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
(c) Material requisition form
(d) Purchase requisition