List of imp Questions for Internal 1

a. What is Cost Centre?

Ans. A cost center is a department or function within an organization that does not directly add to
profit but still costs the organization. Cost centers only contribute to a company's profitability
indirectly. Managers of cost centers, such as human resources and accounting departments are
responsible for keeping their costs in line or below budget.

b. Write four examples of factory overheads.

Ans. a. Factory rent b. Foreman salary, c. Haulage, d. Depreciation on machinery

c. What is Re-order level?

Ans. The reorder stock level is the level of inventory at which a new purchase order should be
placed. The reorder level of stock is generally higher than the minimum level to cover any
emergencies that may arise as a result of abnormal usage of materials or unexpected delay in
obtaining fresh supplies.

d What do you mean by direct material and indirect material?

Direct Raw Materials
A direct material is any commodity that enters into and becomes a constituent element of a
product. Thus, cotton is a direct material for textile goods, leather for shoes, wood (or steel
or plastic) for furniture, and so on.

Indirect Raw Materials

An indirect material is a material that indirectly forms part of the finished product; it cannot
be directly charged to the unit or the order. Glue, nails, rivets, and other such items are
examples of indirect materials.

e. Name any 4 methods of pricing materials issue.

Ans. 1. First in First out method (FIFO)
2. Last in First out method (LIFO)
3. Simple Average price method
4. Weighted Average price method

f. Which are the overheads, classified on the basis of functions?

Ans. On the functions overheads are classified as follows:
Production Overheads,
Administration Overheads and
Selling & Distribution Overheads
.

Section-B
Q1. Write any 4 differences between financial accounting and cost accounting. –
Ans. The following are the differences between financial accounting and cost accounting:
Financial Accounting Cost Accounting

1.objective The main objective of FA is to prepare The main objective of CA is to

profit and loss a/c and B/s to report provide costing information
to owners and outsiders. to management for
decision making.
 2. Financial records are maintained as per Cost accounts are maintained to
legal the provisions of companies fulfil the internal requirement
requirement Act and Income tax Act of the management.

3. Financial accounting classifies, records Cost accounting records and

classification and analyses transactions in subjective analyses expenditure in an
of manner i.e. according to nature objective manner viz. according
transactions of expenses. to purpose for which costs
are incurred.

4.Stock Stocks are valued cost or Stocks are valued cost

valuation realizable value, whichever is lesser.

5.Analysis of In FA, the profit or loss of the entire In CA, reveal the profit or loss
profit and cost enterprise is disclosed in total. of different products,
departments separately.

2. Classify the following into factory overhead, office and administration overhead, selling
and distribution overhead
a. Factory supervisor salary
b. Printing and stationary
c. Haulage
d. Indirect material
e. Managers salary
f. Advertising
g. Delivery van expenses
h. Indirect labour
a. Factory supervisor salary Factory Overhead
b. Printing and stationary Office Overhead
c. Haulage Factory Overhead
d. Indirect material Factory Overhead
e. Managers salary Office Overhead
f. Advertising Sales and distribution overhead
g. Delivery van expenses Sales and distribution overhead
h. Indirect labour Factory Over Head

3. Find out the Economic Ordering Quantity from the following particulars.
Annual usage - 6000 units
Cost of material per unit Rs.20
Cost of placing and receiving one order Rs.60
Annual carrying cost of one unit 10% of inventory value.
Sol: Economic Ordering Quantity (EOQ) = = √2AO
C
Where A - Annual consumption = 6,000 units
O - Ordering cost =60
C - Carrying cost = 20 x 10% =2
EOQ = √2x6000 units x60
2
= √72000 = √36000 = 6,000 units
2
 Section-C
Q1. The accounts of a Company show the following balances for the year 2021.
Rs.
Materials 350,000
Labour 270,000
Factory Overheads 81,000
Administration 56,080
Overheads
What price should the Company quote for a refrigerator? It is estimated that Rs.1000 in
Material and Rs.700 in Labour will be required for one refrigerator. Absorb Factory
Overheads on the basis of Labour and Administration Overheads on the basis of Works cost.
A profit of 20% on selling price is required.
Sol. Statement of cost for the year 2021
Particulars Rs. Amount
Rs.
Materials 350,000
Labour 270,000
Prime Cost 6,20,000
Add. Factory Overheads 81,000
Works cost 7,01,000
Add. Administration Overheads 56,080
Total cost 7,57,080

Note 1. Calculation of % of overheads:

a. % of F O H to labour = (FOH ÷ Labour) x 100
= (81,000 ÷ 2,70,000) x 100 = 30%
b. % of A O H to Works cost = (AOH ÷ Works cost) x 100
= (56,080 ÷ 7,01,000) x 100 = 8%

Quotation for a refrigerator -- 5marks

Particulars Rs. Amount Rs.
Materials 1,000
Labour 700
Prime Cost 1,700
Add. Factory Overheads -30% of labour (700 x 30%) 210
Works cost 1,910
Add. Administration Overheads – 8% of works cost
(1910 x 8%) 153
Total cost 2,063
Profit 295
Quotation price 2,358

Note 2. Calculation of profit:

Given that profit is 12.5% of selling price
So, profit on total cost = {total cost/ (100 – 12.5)} x 12.5
{2,358/ (87.5)} x 12.5 = 294.71 or 295

Q2. Apportion the Overheads among the production Deptts A and B and service Deptts. C & D.

Works Manager’s Salary 4,000

Power 21,000
Contribution to P.F. 9,000
 Plant maintenance 4,000
Depreciation 20,000
Canteen expenses 12,000
Rent 6,000

Additional
Information: A B C D
Particulars
No. of employees 16 8 4 4
Area occupied (Sq. ft.) 2000 3000 500 500
Value of Plant 75,000 1,00,00 25,000 -
0
Wages 40,000 20,000 10,000 5,000
Horse Power 3 3 - -

sol.
Primary overhead distribution summary
Particulars Basis of Production Service
distribution Amount
departments departments
A B C D
Works Manager’s Salary No. of employees 4,000 4000(16/32)
(16 : 8: 4 :4 = 32
2000 1,000 500 500
Power Horse Power 21,000 10,500 10,500 ---- -----
( 3: 3)
Contribution to P.F. Wages 9,000 4,800 2,400 1,200 600
(40: 20: 10:5)
Plant maintenance Value of Plant 4,000 1,500 2,000 500 ---
(75:100:25)
Depreciation Value of Plant
(75:100:25) 20,000 7,500 10,000 2,500 ---
Canteen expenses No. of employees 12,000 6,000 3,000 1,500 1,500
(16 : 8: 4 :4 = 32
Rent Area occupied (Sq. ft.) 6,000 2,000 3,000 500 500
(20: 30: 5: 5)
Wages – direct given 15,000 ---- ---- 10,000 5,000
expenses
Total overheads 91,000 34,300 31,900 16,700 8,100

3. From the following particulars of a Company, prepare Stores Ledger A/c. under FIFO
method.
Jan.2 Purchases – 2,000 units at Rs.4 per unit
20 Purchases – 500 units at Rs.5 per unit
Feb.5 Issues – 1,000 units
10 Purchases – 3,000 units at Rs.6
12 Issues – 4000 units
Mar.2 Purchases – 2,000 units at Rs.6.5
5 Issues – 2000 units
15 Purchases – 4500 units at Rs.5.5
20 Issues – 2500 units

Sol: Stores ledger account – FIFO method

Date Particulars Purchases/Receipts Issue of material Balance of material
Units Rate Amount Units Rate Amount Units Rate Amount
Jan. 2 Purchases 2000 4 8000 -- -- -- 2000 2000 x4 8000
20 Purchases 500 5 2500 2500 2000 x4
500 x 5 10500
Feb.5 Issues -- -- -- 1000 1000x4 4000 1500 1000 x4
 500 x 5 6500
10 Purchases 3000 6 18000 -- -- -- 4500 1000 x4
500 x 5 24500
3000x6
12 Issues -- -- -- 4000 11000 x4 21500 500 500x6 3000
500x 5
2500x6
Mar.2 Purchases 2000 6.5 13000 -- -- -- 2500 500x6 16000
2000x6.5
5 Issues -- -- -- 2000 500x6 12750 500 500x6.5 3250
1500x6.5
15 Purchases 4500 5.5 24750 -- -- -- 5000 500x6.5 28000
4500x5.5
20 Issues -- -- -- 2500 500x6.5 14250 2500 2500x5.5 13750
2000x5.5

Q4. Show the Stores Ledger A/c. by using Simple average price method.
Date Particulars Units Expenditure/Value Rs.
2023
Apr.1 Balance 300 600
2 Purchases 200 440
4 Issues 150 -
6 Purchases 200 460
11 Issues 150 -
19 Issues 200 -
22 Purchases 200 480
27 Issues 250 -
Ans. STORES LEDGER A/C – Simple average price method
Date Particulars Purchases/Receipts Issue of material Balance of material
Unit Rate Amoun Unit Rate Amoun Unit Lots Amou
s t s t s nt
2023 600/30 -- -- --
April Balance 0 300 300 600
1 =2

2 440/20 -- --- --- 300

Purchases 200 0 440 500 200 1,040
=2.2
150 (2.2 + 2)/2 315 350 150
4 Issues -- -- -- =2.1 200 725
460/20 -- -- -- 150
6 Purchases 200 0 460 550 200 1185
=2.3 200
-- -- -- 150 (2.3+2.2+ 400 200 860
11 Issues 2)/3=2.16 325 200
66
-- -- -- 200 (2.3+2.2)/ 450 200 200
19 Issues 2= 2.25 410
200 (480/200) 480 -- -- -- 200
22 Purchases 2.4 400 200 890
250 (2.4+2.3)/
27 Issues -- -- -- 2 588 150 150 302
=2.35
Section-D
5. Identify cost unit for the following industry.
i. Cement
ii. Hospital
iii. Transport
iv. Cinema

Identify cost unit for the following industry.

i. Cement- per ton
ii. Hospital –Patient-day
iii. Transport-ton km or passenger km
iv. Sugar – per quintal or ton
v. Gas – per cubic meter

6. Explain any 4 methods of costing.

Ans. Job Costing
Job costing is a type of accounting that monitors costs and revenues by “work” and allows for
uniform profitability reporting by the job. An accounting system must allow job numbers to be
allocated to specific expenses and revenues to support job costing.
Contract Costing
Contract costing is the tracking of costs associated with a specific contract with a customer. For
example, a company submits a bid for a large construction project with a possible customer. The two
sides also agree in a contract that the company will be reimbursed in a specified method.
Batch Costing
Batch cost is a collection of costs paid when a group of items or services is manufactured that cannot
be traced back to individual products or services within the group. It may be essential to assign the
batch cost to individual units within a batch for cost accounting reasons.
Process Costing
Process costing is an accounting method for tracking and accumulating direct expenses in a
manufacturing process and allocating indirect costs. Costs are given to items in huge batches, which
can span a month’s worth of production.
Unit Costing
A company’s unit cost is the cost of producing, storing, and selling one unit of a given product. All
fixed and variable expenses in production are included in unit costs. A cost unit is a unit of
measurement used to determine the volume of a service or product. Mines, oil drilling units, cement
works, brickwork, or unit production cycles, such as radios and washing machines, all use unit costs.
Operation Costing
Job costing and process costing are combined in operation costing. It may be employed when a
product is made from various raw materials and then finished using a standardised procedure for a
group of items. The main goal of this strategy is to figure out the cost of each procedure.